Investing in biotech stocks

An investment in biotech stocks is typically a waiting game — and a gamble.

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The groundbreaking research being done in the biotech industry has the potential to change the world. But strict government regulations may put a damper on company profits and impact Australian investors' returns on biotech stocks.

What is biotech?

Biotechnology is the research and application of biomolecular processes. These processes are used to create products and technologies designed to help improve our quality of life and support the planet. How? By helping us combat disease, improve the environment, harness clean energy, enhance food production and devise more efficient manufacturing processes.

Each time you take an antibiotic, drink a glass of wine or admire the newest designer dog breed on social media, you’re encountering biotechnology at work.

Biotechnology stocks are stocks from companies that research and produce biotech products, like pharmaceutical drugs, vaccines, biofuels, genetically modified plants, biocatalysts and more.

Why invest in biotech stocks?

Many biotech products — like pharmaceuticals — are a necessity. And staples like these have proven their capacity to weather down markets.

For example, in the first three months of 2020, the S&P 500 dropped by a sizable 26.7%, while the iShares Nasdaq Biotechnology Index ETF — a fund that tracks US biotech and pharmaceutical companies — only lost 15.6%. And in the past year, the same fund has outperformed the S&P 500’s 10.5% return with a 31.6% return of its own.

The COVID-19 pandemic caused many markets to tank. But stocks in companies looking for effective COVID-19 treatments and vaccines have received increased interest — at least for now. This is just one example of the down-market resilience of the biotech industry.

Biotech stocks can help balance your portfolio during an economic downturn while providing the opportunity for Australian investors to back groundbreaking technology — technology with the potential to alter and improve our way of life drastically. Biotechnology can and has changed the world — and investors in Australia can lend a hand in the process.

Risks of investing in biotech stocks

The primary risk factor for biotech investors is the long, arduous and costly process of bringing a concept through research and development to a consumer-ready product.

Many companies in this industry rely on approval from the US Food and Drug Administration (FDA) and the process can take years. There’s no guarantee that a drug in development will reach pharmacy shelves or that a new industrial pesticide will be cleared for public use. Some biotech companies funnel funds into projects that span years with nothing to show for it.

The recent scramble for a COVID-19 cure demonstrates the potential instability of biotech investment. As dozens of companies rushed to develop a viable vaccine, stocks in this sector saw a volatility surge as investors queued to back the right racehorse. But few players won — and once vaccines got approved, the other companies fighting to be first saw a drop in share prices.

Investors must be willing to wait months or years for biotech stock investments to pan out. And even then, there’s no guarantee of return.

Biotech market projections

By 2025, the global biotech market is expected to reach $US 775 billion, according to Global Market Insights — an impressive figure considering the market was worth just $US 399 billion in 2017. Biopharmacy is by far the largest segment of the market, but bioinformatics, bioagriculture and bioservices are also on the rise.

Key market drivers include regenerative medical therapy, genetics in diagnostics and the advancement of artificial intelligence. Analysts forecast that the biotech industry is projected to attain a compound annual growth rate of 7.4% to 8.3% through 2025.

Biotech stocks

From startups with high hopes to well-established international corporations, there are numerous options for investors in Australia interested in purchasing biotech stocks.

What ETFs track the biotech category?

For a less targeted and more diverse approach to biotech investing, you can try your hand at this exchange-traded fund.

  • ETFS S&P Biotech ETF (CURE)

How to buy biotech stocks

Ready to invest in biotechnology? Here's what to expect from the investment process.

1. Research stocks

There are plenty of pure-play biotech companies, some with US roots and others headquartered abroad. The right stock for your portfolio is a matter of cost, risk and strategy.

Take a close look at the company's repertoire of pharmaceuticals and technology. Is it a well-established business with numerous products on the market? Or is the company still waiting to clear its first product for public use?

Do some research to identify which biotech stocks might be a practical fit for your portfolio.

2. Open a brokerage account

The next step in the investment process is to open a brokerage account. There are several online platforms to choose from in Australia, and each platform offers a unique blend of features and services for different types of traders.

If you're new to investing, consider a beginner-friendly platform like eToro. If you've got some experience under your belt and plan on performing your own research, explore a platform with comprehensive research tools, like Interactive Brokers.

3. Purchase stocks

Once you've opened and funded your brokerage account, you can begin the process of selecting and purchasing stocks.

Search for your chosen stock by company name or ticker symbol. Once you've pinpointed the stock, enter the number of shares you'd like to purchase, select your order type and submit the order.

You can monitor the performance of your stocks by logging into your brokerage account.

Compare trading platforms

To invest in biotech stocks in Australia, you need a brokerage account. Compare features and fees of top accounts to find the best fit for your goals and budget.

Name Product Standard brokerage fee Inactivity fee Markets International
eToro Share Trading (US stocks)
US$0
US$10 per month if there’s been no login for 12 months
US shares, ETFs
Yes
Zero brokerage share trading on US stocks with trades as low as $50.
Join the world’s biggest social trading network when you trade stocks, commodities and currencies from the one account.
Superhero share trading
$5
No
ASX shares, ETFs
No
Pay zero brokerage on all Australian ETFs.
Trade ASX stocks with a flat $5 commission fee and a low minimum investment of just $100.
ThinkMarkets Share Trading
$8
No
ASX shares, ETFs
No
Limited offer: Get 5 free ASX trades when you open a new account with ThinkMarkets before June 30, 2021 (T&Cs apply).
Buy and sell CHESS sponsored ASX shares with $0 brokerage on your first 5 trades. Only $8 flat fee brokerage thereafter, plus enjoy free live stock price data on an easy to use mobile app.
Bell Direct Share Trading
$15
No
ASX shares, mFunds, ETFs
No
⭐ Finder Exclusive: Get 5 free stock trades and unlimited ETF trades until July 31, 2021 when you join Bell Direct.
Bell Direct offers a one-second placement guarantee on market-to-limit ASX orders or your trade is free, plus enjoy extensive free research reports from top financial experts.
IG Share Trading
Finder Award
IG Share Trading
$8
$50 per quarter if you make fewer than three trades in that period
ASX shares, Global shares
Yes
$0 brokerage for US and global shares plus get an active trader discount of $5 commission on Australian shares.
Enjoy some of the lowest brokerage fees on the market when trading Australian shares, international shares, plus get access to 24-hour customer support.
Saxo Capital Markets (Classic account)
$6.99
No
ASX shares, Global shares, Forex, CFDs, Margin trading, Options trading, ETFs
Yes
Acess 19,000+ stocks on 37 exchanges worldwide
Low fees for Australian and global share trading, no inactivity fees, low currency conversion fee and optimised for mobile.
CMC Markets Stockbroking
$11
No
ASX shares, Global shares, mFunds, ETFs
Yes
$0 brokerage on global shares including US, UK and Japan markets.
Trade up to 9,000 products, including shares, ETFs and managed funds, plus access up to 15 major global and Australian stock exchanges.
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Compare up to 4 providers

Important: Share trading can be financially risky and the value of your investment can go down as well as up. “Standard brokerage” fee is the cost to trade $1,000 or less of ASX-listed shares and ETFs without any qualifications or special eligibility. If ASX shares aren’t available, the fee shown is for US shares. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.

Bottom line

Biotechnology is rife with potential but is often subject to strict regulations. Investor funds may be tied up for years, and there’s no guarantee of a return.

To invest in biotech stocks, explore your brokerage account options across multiple platforms for the account best suited for your investment goals.

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