What to watch for when buying biotech

By Dr. Mike Tubbs Apr 08, 2011

Mike Tubbs

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Starting with countries, in a recent listing the US had around twice as many serious biotechs as all other countries put together. Britain was a rather distant second. Indeed, the first modern biotech was Genentech, which was formed in California in 1976. It is now part of Roche.

Turning to risk and type of company, there are three main categories of firm. The first are the large, established biotechs with many products on the market and extensive pipelines. These are relatively low risk.

At the other extreme, those that fall into the second category of company include the smaller biotechs with few, if any, products on the market. Their pipelines are small. As a result, if a company’s most promising pipeline drug fails, the impact on the share price can be devastating.

The third category consists of ‘picks and shovels’ companies, which supply researchers or other biotech/pharma companies with key items. These are low risk as long as they have global reach and a wide product range.

I regularly look at companies in the biotech sector for my Research Investments (RI) newsletter, which focuses on companies that invest in research & development. Among the more established biotechs, investors might want to look at Celgene (Nasdaq: CELG), which is a profitable, growing company and one of the world’s top five R&D-led biotechs (all of which are in the US, incidentally).

And in the ‘picks and shovels’ category, Abcam (LSE: ABC), the leading supplier of antibodies to researchers globally, is worth a look.

• Dr Mike Tubbs writes the Research Investments newsletter , which focuses on research & development-driven firms.

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