Biotechnology: One of the Last Great Growth Frontiers for Retail Investors
With the possibility to collect huge percent gains attracting the attention of more and more investors, the definition of biotechnology, entails the use of biological systems or living organisms to develop profitable products. Biotech companies direct their main focus to innovative pharmaceutical compounds that characterize them from the larger pharmaceutical companies that manage already established drug portfolios, generate revenue flow and pay large dividends to investors.
Biotechnology companies’ work diligently to develop the next big compound and this offers the potential for enormous rewards. Although analysts still view this sector as undependable mainly because of the FDA approval process, the majority of the time these are two outcomes for biotech companies; If the drug gets FDA approval the large amounts of cash flow that comes with the approval or the company is classified as inadequate or a flop.
FDA approval does not guarantee financial prosperity. There are hundreds of companies trying to find cures for cancers and other diseases, which makes the biotech sector very competitive. Statistics show us that approximately 1 out of every 250 drugs that enter preclinical trials will have the chance to be approved by the FDA. Now for the firms that actually make it to clinical trials, there is a 20% approval rate.
An investor that is willing to invest in the high risk there is no better index than the Nasdaq Biotechnology Index which features over 100 different biotech stocks to do your DD on. The biotech index grants investors a larger picture of the industry rather than focusing on individual biotech stocks. This is a high volatile sector that will scare off some investors who like to “play it safe” but it will also attract more retail investors who are willing to invest in a “High Risk High Reward” industry.