Investing in Biotech

An increase of almost 2900 percent? It happened this year with the shares of Novacyt, a British-French biotech company. On January 30, the share was still trading at around €0.20, but the day after it started a strong advance. By February 17, it had already reached €2.675; on April 9, the share was trading at €5.98. The reason? The launch of a molecular test for the novel coronavirus. For a long time, there were doubts about the survival of the biotech company, but today it has a positive reputation and the stock enjoys the full attention of investors. It is an example of the sometimes sudden advance of biotech players.

What is Biotech?
Biotech – short for biotechnology – is a sector concerned with the technological application of biological knowledge. Or in a broader sense: technology used to make products with the help of biological processes.

We don’t think about it every day, but it has been around for a long time. Consider, for example, making cheese (brie and camembert) or special beers in which yeasts and moulds are used to impart flavour. The breeding of plants and the development of new (raw) materials are also biotech.

Considering the number of companies that are ‘on the hunt’ for a corona vaccine, many biotech investors are also aware of another relevant contribution from the sector: conducting scientific research into, and the development and production of, medicines. And medicines will always be in demand, not least because of the growth in the number of elderly worldwide and a subsequent increase in expected healthcare expenditure.

Expansion of biotech sector
The expected increase in healthcare expenditure is similar to the development of the biotech sector. Grand View Research – an American and Indian research firm headquartered in San Francisco – has calculated in their ‘Market Analysis Report’ that the size of the market in 2016 was US$369.62 billion and, by 2025, it is expected to reach US$727.1 billion. In short, a clear expansion in this market with an expected annual increase of about 7.4%. And that offers opportunities for investors.

How can I invest in biotech companies?
You can, of course, buy shares from the British-French Novacyt (listing in Paris), the Danish Genmab or the American Biogen. However, investing in individual shares is generally riskier than diversified investing through, for example, an investment fund. Especially in the knowledge that promising drug candidates are sometimes delayed or even ultimately not approved by authorities. And, therefore, not put on the market. It is often the case that stock prices of biotech companies fall sharply or – worse – companies fail to reach the finish line. In short, price risk is a point of attention and diversification is therefore essential.

At Binck, portfolio managers are available for private consultations via telephone or Skype. You can also connect with Kaspar Huijsman, Director of Binck Spain and Portugal, via linkedIN or by email at [email protected]

Trading in financial products always involves a risk. The value of your investment may go down as well as up. As a general rule, you should therefore only trade in financial products if you understand the products and the risks associated with them.