The Golden Years of Biotech - The Average Joe

The Golden Years of Biotech

October 10, 2020

If you look very carefully and far into the horizon, you might find one a silver lining: a thriving biotech industry ahead of us. As a result of COVID, the biotech industry condensed years of innovation and drug development progress into months.

Biotech what? The biotech industry is in charge of developing drugs, performing clinical research and looking for the fountain of youth… in one form or another.

Quick catch up: A decade of biotech

2010-2015 were the golden years of biotechnology development. The industry saw breakthrough advancements in technology, a record number of drug approvals and stock prices at their all-time highs. The party came to a stop in July 2015…

  • In 2015, Trump threatened to lower drug prices and increase imports from outside the US – biotech indexes crashed over 30% with 2 months. 
  • In 2016, the FDA approved 22 new molecular entities and biologics license applications, the least since 2010. Over the next 4 years, biotech indexes slowly gained in value but struggled to reach their 2015 highs. 

COVID kickstarting the biotech industry

And then COVID came along and kickstarted the entire biotech industry. The industry will benefit from all the innovations developed as a result of COVID. New tools are being created to support modern drug discovery, the speed at which drugs are tested and developed will be shortened and supply chains will become more efficient. After we’ve dealt with the problem at hand, COVID, global governments may even re-evaluate and improve their health care system.

Election risks may trigger short term price swings. Biotech companies are highly sensitive to election results and a Biden or Trump win will have varying impacts on stock prices. If you’re a biotech investor, you wouldn’t want Biden or Trump in office. But if you had to choose, you’d prefer a Biden victory. Although Biden has vowed to implement policies that could lower pharmaceutical profits, Trump takes a stronger stance in reducing drug prices.

Vaccine development is a risky business

The biotech space is highly event-driven. These companies are dependent on the development of a single drug and any new progression or setbacks on the process can make or break an investment. Developing a COVID vaccine is no different. Disappointing news from Inovio ($INO), a vaccine developer, sent their shares down over 35% in a single day.

For investors… With several vaccine developer stocks at record highs, it might be time to consider taking profits ahead of a successful vaccine. Here are some of the dangers with investing in vaccine developers:

  • Profit issues… It’s uncertain whether vaccine developers can even profit from a vaccine… Catchup: Why vaccine developers may have trouble profiting from a vaccine.
  • Risky business… Investors may be taking too much risk given all the uncertainties and competition around vaccine development. Negative testing results or the successful development of a vaccine by another competitor could send shares tanking.

The safer approach to investing in a vaccine… Invest in the companies that will benefit regardless of which vaccine is successful i.e. syringes and vials manufacturers. While these companies may not earn as much as a company developing the vaccine, they are a safer alternative to investing in a vaccine play.

  • 3 of the largest suppliers in the pharmaceutical industry: Becton Dickinson ($BDX), Danaher ($DHR), West Pharmaceutical Services ($WST)

 

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