How to pick Biotech Small Cap stocks for your portfolio13.07.2017

Biotech stocks are notoriously difficult to pick.

Between us Tim Boreham and I have over 20 years of researching biotechnology stocks. We also have a strong track record of picking winners in this sector. In fact we have returned subscribers an average of 130% return in this small cap biotech sector. (Our average across all sectors is 30%).

I first looked in detail at the biotech sector when I covered them in the UK for the Investors Chronicle and the Financial Times, while Tim has been close to the sector while writing his long-running Criterion column for The Australian.

We both came from different spheres, but we’ve come up with the same conclusion: the best bang for your buck on a risk/reward basis in the sector is in the medical technology realm.

While drugs metabolise in a human’s system, medical devices don’t. Consequently the hurdle for a device being approved is much lower than it is for drugs.

Ever since it became evident in the 1950s that the morning sickness treatment Thalidomide resulted in phocomelia, or malformation of the limbs, regulatory agencies such as the US Food and Drugs Administration have become increasingly strict on what passes muster. In any one year only about 20 new drugs gain approval in the US. In contrast medical devices are approved every day.

New Buy Recommendation: ASX Listed Small Cap - Biotech Stock


Simply put, the regulatory risk is that much lower and this is the basis for much of our investment success. When we first looked at Sirtex Medical (SRX) whose shares were below $6 and ImpediMed (IPD) were sub 20c they both had approved devices. These companies were still early stage, but a critical hurdle had been over come. We have found a new ASX listed small cap biotech stock this week that has similar potential that we have recommended our subscribers buy.

 

The biggest challenge for these med tech companies isn’t necessarily approval from regulators, but in maintaining their proprietary edge. We put a great deal of effort into staying on top of this sector.

We hope our subscribers enjoy and profit from our hard work.

 

Richard Hemming.
Editor, Under the Radar Report: Small Caps

About the Author

Richard Hemming

Investment analyst and Editor of Under the Radar Report

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