Tag: Penny Stocks
Biotech Investment Pros and Cones
by admin on Jul.08, 2009, under Biotech Stock, Investing, Penny Stock
What are the viability of Biotech firms. Why some biotech firms remains as microcaps for extended period, while some of them acquired by large pharma companies?
The truth is, it’s hard to find a successful large-cap biotechnology company because most get acquired before they reach large-cap status. Companies in biotech industry are always in need of cash, whereas big pharmaceutical firms are cash-rich and are in desperate need of pipeline drugs. These small-cap biotech start up firms are there easy catch.
Most biotechnology companies are started by a brilliant scientist with an idea, sadly a brilliant scientist is not always a brilliant businessman. These companies dream of becoming the next Genentech, Amgen, or Genzyme. But building a successful biotechnology company takes a lot more than just a brilliant scientist with a great idea.
Most of the biotech companies trade at sub-$1 levels, because biotech drug development is both extremely expensive and very high-risk. As a result, most biotechnology companies either fail in the clinical program or run out of money while trying. Most pharmaceutical names are sitting on billions of dollars in cash, while their late-stage research pipelines are drying up.
Most Biotech company management are overconfident, under experienced, and fail to truly understand the competitive landscape for their drug. This results in biotech companies reluctant to partner with pharmaceutical companies too early in the development process, because they think they can either do it alone or they will command a far greater price the further along they develop the asset.
In theory, this is true. The difficulties of commercializing a successful biotech drug, however, only increase as development pushes further along. And successfully completing a Phase III trial is not the finish line, it is just the start of a whole new marathon that now includes preparing an NDA/BLA, getting that application passed by the FDA, manufacturing the drug, and then, managing a sales force, as well as Wall Street expectations. As a result, an asset that was partnerable after encouraging Phase II data becomes unpartnerable after the Phase III trial fails or the FDA requests additional data prior to approval.
