CONSIDER THE FOLLOWING WHEN CHOOSING WHICH BIOTECH STOCKS TO INVEST IN
TOP THERAPEUTIC CATEGORY
Be on the look out for companies developing drugs or biologics in research areas as cardiovascular disease, diseases of the central nervous system, autoimmune diseases, cancer, AIDS, diabetes, immunological diseases, infectious diseases, respiratory diseases, and so on where there is a high degree of incidence in the population. Success in these areas will ensure the company a faster return on their investment in R&D and licensing efforts. You should also look out for drugs with orphan drug designation, which if approved gets seven years of marketing exclusivity.
COLLABORATIVE SUPPORT
Biotechnology companies have become the major drivers of research in collaboration with pharmaceutical companies. A strong network of collaborative support is a strong indication that a company is financially and logically stable. Pharmaceutical companies can partner with a small biotech company and provide up-front dollars, followed by further investments as scientific milestones are achieved (e.g a regulatory submission, a successful completion of a key phase 2 study or an approval of a product). The small company usually gives up one of their lead products to the partner or has a co-marketing agreement.
Apart from full incorporation of one company into another, alliances between separate companies are a necessity for successful R&D (Research and Development). One company cannot have all the expertise and resources to cover all the basic science areas germaine to their therapeutic areas of interest. Such that one company will have access to a particular added technology or product, which is shared through alliances and licensing deals. In 2003, over 800 such collaborations were signed for the pharma to biotech and the biotech to biotech agreements.
SOURCES OF FUNDS
The financing of the industry involves a variety of sources of money needed to pay for the expensive and lengthy R&D , wherein the promise of a return (a new product) is far down the road, 5-10 years, from the first investment. The biotech segment of the pharmaceutical industry includes more than 4000 small companies worldwide with about 1500 of them in the USA and needs to employ a full range of financing to maintain their viability. It is estimated that usually 25% or more of biotech companies only have 2 years of financial capital left before they replenish their capital or go out of business. SO INVESTIGATE NEW COMPANIES CAREFULLY. It is important to consider where these companies get their funding and it can come from one of the sources listed:
- Partners- As mentioned above, big pharmaceutical companies can partner with a small biotech company and provide funding and further investment as scientific milestones are met.
- Debt- A company can certainly go to banks and investment companies, creating debt by offering corporate bonds or taking on a loan of money, both of which pay interest to the lender, a bank or investor. The lender expects near term good news in product advancement and approval as their collateral for the loan.
- PIPE (Private Investment in Public Equity)- this is a special funding by outside investors outside of the typical stock purchase.
- Venture Capital (VC)- This is often the first area of financing for a new company. The VC is a wealthy individual also known as "an angel" or a VC company. Venture Capital is provided usually in stages (up to seven) as the company advances its science and product development.
- IPOs (initial public offering)- After a new company has progressed in their research with unique targets for disease mitigation or especially has products in a pipeline, they can go public and offer stock. Becoming a public company is a large source of income operations and it gives the company freedom to operate without the control or oversight of a partner.
- follow-on- this is a later stock offering following an IPO.
For any one company to move from a new start up company to marketing a product over the 10 years, they usually will need to employ a variety of these funding sources at different times. For publicly owned companies, you must judge whether they have excessively diluted their shares. Companies with private financing, milestone payments and sale of debt securities (secured and/or convertible) have more potential for stability than those without any of these sources.
ROBUST PIPELINES
Make sure you look for pipelines consisting of more than one product. Several criteria are important in establishing a successful and robust pipeline. Look out for product candidates in all four stages of development, a reasonable number of product candidates in all four stages of development, a reasonable, especially given that most will ultimately fail and not be carried forward, and a reasonable number of candidates across important therapeutic areas such as cancer.
POTENTIAL FOR REBOUND
Companies that are highly valued but has gone through some tough times might be found at a lower price. The stock market is rough on companies that have hit a temporary bad news e.g a CRL, causing the price to over react. Prices might drop temporarily as a result of a slightly bad news, for example if the FDA gives a CRL due to a labeling issue that can easily be fixed in a few months. On the other hand, Prices could also drop permanently for a long time for example FDA gives a CRL requesting that additional clinical studies be conducted to show safety or efficacy. Small biotech companies also react to any slight good news as well, from new patent approval, to FDA "accept to file" decision on a marketing application and so on.
MANAGEMENT
A biotech company should be run by very knowledgeable entrepreneurs, and companies whose managers have a scientific background or a strong research experience. These CEOs, COOs, CFOs, CSO,CMOs are all very much involved in the development of the company's products.
NDA-REVIEW PRODUCTS
Look for products that are at the end of the FDA approval process, the bulk of testing has been completed on these products and the only thing the sponsor is waiting for is an approval decision to allow marketing of the product. Although by this stage, success is still not guaranteed because the FDA can deny approval for any reason even if the clinical results are perfect; They may sometimes have questions on manufacturing, labeling, and so on which could delay approval of the product.
Example of a Time line on FDA approval stocks
Remember to always watch fda's and bio tech stocks very close, Keep track of the RSI...when it starts dropping...sell sell sell
Time lines on FDA approval stocks generally has a very slim window of opportunity for making you profits. I have gathered a time breakdown of data to show you how quickly they come into play and without delay go downward just as fast. This particular stock opened the day at 9:30 am ET at .70 with only 300 in volume. She sat idle all trading day and as illustrated when the news hit at 2:59 pm ET, she took off like a house on fire.
By 3:06 pm ET, word got around that she was approved and by 3:08 pm ET she peaked and by 3:09 pm ET, she started her downward slope. Generally once BioTech stock with FDA approval starts her descent, you don't want to contemplate of whether to hold her, GET GREEN and GET GONE! Lesson learned or you might be waiting a long time for a companies pipeline to come around again.
TIME and Sales to the end:
| 4:00 PM 1.07 220,854 | 3:31 PM 1.04 170,480 | 3:12 PM 1.30 137,912 |
| 3:59 PM 1.07 215,854 | 3:29 PM 1.00 170,362 | 3:11 PM 1.30 137,412 |
| 3:56 PM 1.07 214,854 | 3:24 PM 1.02 165,362 | 3:09 PM 1.425 135,712 |
| 3:54 PM 1.07 210,854 | 3:21 PM 1.04 154,412 | |
| 3:51 PM 1.02 210,654 | 3:19 PM 1.10 148,412 | 3:08 PM 1.50 129,022 |
| 3:49 PM 1.02 204,980 | 3:17 PM 1.02 143,292 | 3:07 PM 1.32 122,772 |
| 3:46 PM 1.02 199,980 | 3:16 PM 1.10 140,692 | Resisted |
| 3:44 PM 1.02 187,480 | 3:14 PM 1.15 138,662 | 3:06 PM 1.25 120,372 |
| 3:42 PM 1.03 182,980 | 3:13 PM 1.25 138,412 | 3:04 PM 1.00 114,872 |
| 3:41 PM 1.03 181,480 | Started back down | 3:03 PM 1.08 97,572 |
| 3:40 PM 1.03 179,980 | | 3:02 PM 1.01 591,522 |
| 3:35 PM 0.99 178,980 | | 3:01 PM 0.74 54,060 |
| 3:32 PM 0.88 176,480 | | 3:00 PM 0.70 29,526 |
NEWS that made it run fast & furious Ophthalmic Imaging Systems Receives FDA Clearance to Market Revolutionary New Portable Digital Imaging Device
November 30, 2009:
02:59 PM ET (THIS IS WHERE THE APPROVAL NEWS STARTED)
9:30 AM 0.70 300 (BEGINING OF TRADE DAY)
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