Investing in Biotechnology Stocks

2008-02-21 12:39:08

( Financial )



Basics of the Biotechnology Industry

Biotechnology refers to developing technologies aimed at improving the quality of human life, based on theories and concepts from biology, agriculture, medicine and food science.

Biotechnology research and development has recently become the world's fastest growing industry. Many leading companies in food and drug manufacturing, furniture, cars, and other consumer products owe their marketing success to biotechnological discoveries. Recent undertakings in genetic engineering and cloning has produced new and improved vegetables and other food products, as well as new advances in medicine.

However, biotechnology research and development projects need funding, due to the number of people involved in doing the work and the high cost of biotech software and procedures used. It comes as no surprise that many biotech companies opened their doors to the stock market to attract investors.

Investing in biotechnology stock may be viewed as both an opportunity as well as a risk.

Opportunities and Benefits of Investing in Biotechnology Stock

The biotech industry is always a growing one, and consumer demand for better products have driven the industry to keep up its efforts in research and development.

Many of the biotech projects have successfully conceptualized new products which are to be marketed to the consumer. Once the product is successful and profitable, investors may be even more encouraged to buy biotech mutual funds or stocks, thus allowing more growth in the industry.

The industry may be considered a monopolistic competition type, since biotech companies generally differ from each other with regard to the concepts they are trying to formulate.

Risks Involved in Investing in Biotech Stocks

Just like other financial investments, biotechnology stocks and mutual funds are also subject to certain levels of risk.

Most of the research and development projects of biotech companies have chances of both success and failure. And once a project is a failure, it also incurs a financial loss.

Projects of a biotechnology company are also highly volatile and subject to numerous revisions during implementation. These modifications do cost money and time.

Tips for Investors of Biotechnology Stocks

While investing in biotech stock is quite promising, you should do so in small amounts at first. Make sure to do your own research about the profiles of the biotech companies you are interested in, most especially about their recent developments.

Just as with regular companies that belong to other industries, you should study the financial statements of biotech companies. Keep track of trends in revenues, expenses and profits. Consult a stock broker or financial adviser since these people may know more about the companies.

If you want to be safe, stick to companies which already have proven track records of successful projects.

You also need a lot of patience when you invest in biotech stocks. More often than not, returns on your investment may come very slowly. It may be worthwhile to treat your investment with a future-driven outlook, given the long-term nature of most biotechnology projects.


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