Biotech: the buzz, the business (page 4 of 4)

Early valuations were frequently based on promise rather than product, and the bubble burst. Biotech companies are now leaner and must demonstrate clear routes to the marketplace to survive.

The extraordinary advances in biotech are stirring heated ethics and public health debates. This has further raised industry volatility. Genetically modified (GM) food in particular has been met with a severe consumer backlash in some parts of the world, especially in Europe.

At stake are billions of investment dollars behind the development of products including corn, potatoes and soybeans that are engineered to resist pests or produce higher yields.
Companies such as Monsanto and DuPont have spent millions fighting the "Frankenfood" reaction against biotech, and their respective reputations.

In response DuPont mounted a public relations campaign, releasing a series of television commercials about the future, featuring its "to-do list," which included research to "find food that helps prevent breast cancer."

Investing in biotechnology stocks is suited to the patient investor, seeking above-average capital gains for long-term investing. Biotech investing is challenging because of the market's volatility and the number of unknowns with the advanced sciences involved.

In the pipeline. There are some basic guidelines that can be set for biotech investing. The first one is look at a company's product pipeline. Look for at least two products in trials, so if one happens to fail the company is less likely to go under. Another approach is to look for a company with a specific technology that is necessary for other companies or products to function. But be wary of so-called "platform technologies" that are all promise, no product.

Niche breakthrough technology can also be a strong investment. For example, companies that focus on antiviral drugs for the treatment of HIV are hot prospects.

Alternatively, take the portfolio approach with a top-five selection, or invest in a fund. Consideration of the company's managerial expertise is naturally important. Look for senior management with proven experience of taking similar products to the marketplace. Also, in evaluating a company, take into consideration its intellectual property portfolio, which can be a crucial component of biotech competitive advantage.

Further, look at the company's collaborative spirit - its ability to nurture a strategic network of alliances. This can include ties to the academic community for research, and agreements with well-established companies for research and marketing, especially blue-chip drug manufacturers. These companies are getting in on the biotech act and are investing billions in carefully chosen targets. They will not do so on a whim, providing investors with an indication of a sound investment.

Taking a lesson from Microsoft's enduring success - despite marketplace criticism of inferior software - look for companies with the ability to master the market. Also, given the length of development times for biotech products, particularly passing through the various regulatory screens and clinical trials, a company needs to have the financial backbone to survive until the moneymaking years.

Biotechnology undoubtedly has a bright future. There are a whole range of diseases that need to be conquered. According to the World Health Organization, there are an estimated 10 million new cases of cancer annually. That is a powerful driver of innovation and market demand, which will help power the continued expansion of biotech and, hopefully, improve the quality of life in the process