An Overview of Biotech Stocks
The biotechnology industry in the United States is a risky one, especially now that the coronavirus pandemic has increased investor uncertainty. However, if you’re willing to take the risk, investing in biotechnology stocks can yield quite the return on investment.
In biotech, you have to diversify because you’re taking a high risk any time you invest in anything outside of big pharma that has established products that are already on the market.
Why is it so risky?
Biotechnology itself refers to the exploration of biological processes for industrial and commercial purposes. Things like the genetic manipulation of microorganisms for the production of hormones and antibiotics, for instance, are a major part of biotechnology.
In this article, we will cover how to find healthcare and biotech stocks, and some of the best options on the market today for under $10/share.
Some of the best stocks may even qualify as biotech penny stocks or those that trade for less than $5/share. We’ve even found one that’s outside the NYSE. Let’s get started.
How Do You Find Biotech Stocks to Buy?
When trying to decide what kind of biotech stocks you want to invest in, first consider popular areas of research. Companies that are researching major diseases such as cancer, diabetes, heart disease, AIDS, and viral infections are generally considered safe bets because there is a high degree of incidence and prevalence among the general population.
Success in these areas ensures the company gets a faster return on its research and development investment. Alternatively, consider investing in a niche company that has an orphan drug that, if successful, is protected from competition for a number of years.
After you’ve found your hot area of research, you also want to keep an eye out for:
Long Term Funds
According to some financial advisors, you should only invest in companies that have at least 2 years of cash reserves. Because it takes several years to license a product, and it can take even longer to recoup the cost of developing it, there’s always the possibility that a company will run out of money before it begins to generate profit. There are a number of ways to finance a start-up so it’s crucial to investigate any new companies carefully.
Consider where your more established companies are getting their funding and whether there is potential for more. When it comes to publicly-owned companies, you have to judge whether they have diluted their shares excessively.
Companies that rely on private financing, milestone payments, and the sale of debt securities are potentially more stable than those without these sources. Pay close attention to the earnings per share (EPS), market cap, and what the company plans to do in the next year.
Conduct research to determine the liquidity of any company you may wish to invest in. How much of their assets are in cash? How easily could they liquidate to keep things moving if they ran into a financing crunch?
Obviously, you want to find companies that have enough funding to support their future research efforts and the necessary research and development required to get a product to market. But, it’s also crucial to watch for companies that won’t be spending all of the funding paying off their debt. Investing in companies that have taken out excessive loans from private investors or banks to get started could be a major risk.
Lots of Products in Clinical Trials and Market-Ready Products
Companies that are near the end of their research and development or FDA approval process can be realistically expected to market sooner. That said, at this stage, success isn’t guaranteed but the bulk of stringent testing is done so there is a greater chance you will soon see a return on investment. Watch, too, for new drugs that have reached the clinical testing stage on human subjects because animal models are not always a reliable indicator of safety and efficacy. In-vivo testing reveals even less information about a candidate drug. The track record a company has matters.
Strong Management and Company Collaboration
Companies that have strong management and collaborative support indicate that they are both financially and logistically stable. Small companies, despite having good ideas, may find it hard to work alone. However, they can benefit from larger companies backing them. Finding companies with several sponsors provides added security because the withdrawal of support from one collaborator could result in the loss of a project.
What are Some of the Best Biotech Stocks Under $10?
If you’re not sure where to start on your journey for the best biotech stocks under $10, take a look at this list we’ve compiled for you. Bear in mind, however, that we’ve not ranked them. We’re just presenting the list and the relevant information to help you in your decision.
- Atara Biotherapeutics (NASDAQ: ATRA)
- Amarin Corporation (NASDAQ: AMRN)
- CytRx Corporation (OTCMKTS: CYTR)
- Kamada Ltd. (NASDAQ: KMDA)
As a disclaimer, though, Wall Street changes quite frequently, and the stock price can change rapidly throughout any given day, as they change in real-time during open market hours. If you decide to invest in any of the biotechnology companies here, do your due diligence before you get started.
Atara Biotherapeutics (NASDAQ: ATRA)
Atara Biotherapeutics is an allogenic t-cell immunotherapy company. Headquartered in South San Francisco, California, the company was founded in 2012. They focus on developing transformative therapies used to treat patients with a variety of rare diseases, autoimmune diseases, solid tumors, and hematologic (blood) cancers. As of the end of Q1 2021, the company’s net worth is $1.19 billion. The 52-week low is $7.14, and the 52-week high is $28.20, with the 52-week average at $15.01.
Amarin Corporation (NASDAQ: AMRN)
Amarin Corporation is an Irish-American biopharmaceutical company, founded in 1993. It has headquarters in Dublin, Ireland, as well as Bridgewater, New Jersey. The company focuses on developing medications for heart disease. It is known for the drug, Vascepa, a prescription-grade omega-3 fatty acid. In 2020, the company reported $614.1 million in revenue. The 52-week low is $3.36, and the 52-week high is $9.25.
CytRx Corporation (OTCMKTS: CYTR)
The CytRx Corporation, headquartered in Los Angeles, California, was founded in 1985. They are a biopharmaceutical research and development company that focuses on oncology. They’re currently focused on their lead drug, aldoxorubicin. It is a tumor-targeted drug that’s currently in development, designed to kill cancerous tumors. The 52-week high was $5.00, and the 52-week low was $0.36.
Kamada Ltd. (NASDAQ: KMDA)
Kamada Ltd is a biopharmaceutical company that specializes in developing, manufacturing, and marketing proteins as pharmaceuticals. Founded in 1990, and headquartered in Rehovot Isreal, the company has about 10 injectable and marketed drugs available in more than 15 countries. A Dun & Bradstreet report in 2020 annualized its revenue as $133.25 million. The 52-week high was $13.33, and the 52-week low was $5.36.
What are the Risks of Investing in the Biotech Industry?
Investing in the stock market is always a risky business, but it’s especially true for the biotech industry. Here’s a look at some of the most common risks you’ll run into, especially in the short term.
Companies Run Out of Funding for Clinical Studies
Lots of research in rounds of clinical studies have to happen before biotechnology products can be sent through the FDA approval process and be sold to the public. If companies run out of money to complete the necessary research and regulatory compliance and approvals, then the product never comes to fruition, and no profit is up for grabs.
Biotech Companies Face Many Regulations
For new products in the biotechnology sector to make it to market, they have to receive FDA approval. Before and during that process, the companies and their products are subject to many regulations. One mistake can result in costly issues and possibly prevent the product from ever making it to market.
Many Products Never Make it to the Market
Products in the biotechnology sector take years worth of testing and clinical trials. Just because something is promising in the early stages of development doesn’t mean that it will yield the same promising results by the time it reaches human clinical trials and FDA approval. Because of this, products that never make it to market don’t yield a return on investment.
Biotech Stocks: Wrap-up
If you’re willing to accept the risks with biotech stocks, you may find yourself making money and having fun doing it.
Another stock to consider adding to your portfolio is XBiotech. It is a biopharmaceutical company that focuses on developing antibody therapies for cancer treatments, infectious diseases, and inflammatory diseases. They have grown significantly due to the pandemic, and are currently working on more therapies to harness antibodies to treat viruses like COVID-19 and the flu.
If that’s too risky for your taste, consider Aptose Biosciences, Inc. (APTO). It’s a clinical-stage biotech company working as a contributor in a variety of cancer treatments.
You can use a trading platform like Robinhood to help you invest small amounts of money at a time on strong buy small-cap biotech stocks.
If you decide to purchase over-the-counter (OTC) stocks, remember those are much riskier than others since it is not as regulated as the NYSE and other major exchanges.
If you’re not quite ready to break into biotech, consider other areas like mining or tech. You may also wish to consider investing in exchange-traded funds (ETFs) and hedge funds through a brokerage. And in the meantime, stick with us at WALLSTNOW to learn more about stocks and investing.