I'm trying to learn more about biotech/drug companies and how to trade them...
What books or web sites would you recommend? It seems like a very profitable sector to be in but also very difficult to invest in properly. Thoughts?
Answers
4085 points
EthanR answered one year ago …
Dave, I don't know the books or sites to recommend, but I will give you some thoughts of my own.
1)Because these are highly volatile, use money you can afford to lose only.
2) Do not chase prices, and certainly do not buy these stocks when they are near or in overbought territory, even if just on the daily charts. The stock you buy at 6.00 that is overbought can go to 5.00 very quickly, even within an uptrend.
3) Wait for pullbacks which are due to general market weakness, rather than a problem with the biotech company itself.
4) It was previously noted on tickerhound that winter time seems to be a profitable seasonal tendancy for these stocks, so you might want to wait for late fall to purchase them.
5) Set your stop losses 5-6% below your entry point, OR don't buy your whole position at once, but put in some money, then wait to see if the stock re-traces before completing the position.
Biotechs that are in Stage III development for FDA approval often do well, but these stocks will kill you when the FDA says no for whatever reason. Sometimes you can buy after the stock gets crushed on an FDA turn down that is not totally unfavorable for the long term, but wait until the stock stops going down.
Just my two cents.
2775 points
Oldman answered one year ago …
Ther's a fairly expensive newletter/advisory service by a Fannon:"Phase One Investor" and another by a George Huang (which claims to get inside info on FDA rulings). Both claim excellent results, but all of ETHANR's comments are valid. I did research as an investigator for many psychopharm companies btween 1959 and 1980, and I can tell you that the Phase 2 & 3 trials are extremly expensive and often disappoint everyone. The companies were major U.S., British, French, and German Rx developers, and nearly all were, at best, only partially successful.
You're better off to buy the securities of "Contract Research" companies that do the early stage (in vitro and animal studies for big pharma) and the companies that collect the clinical data and do the statisical analysis of the clinical trials. They have a steady source of income and very low risk, because they service the research needs of big pharma.
312 points
MoresbyChief answered one year ago …
There is a Biotech ETF which may help to reduce risk in this sector by keeping your diversified. I've been watching it but don't know enough about the sector to make any investments yet.
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