Under the Radar says: Be Wary of Biotechs in the Small Cap World23.11.2012

In today's Fairfax column I cover Alchemia's de-merger, which is due to happen in a couple of week's time.

In another life I worked for the Financial Times, covering pharmaceutical companies and biotechs. It was a good experience.

The science of medical research can be very sexy for investors, because they talk of reaching markets literally in the billions, and they also talk about "a new standard of care" and throw words like "efficacy" around with abandon.

The fact is, however, many biotechs fail. This is because the investment markets are too impatient, and the amount of money needed to bring a drug to market are hundreds of millions of dollars.

Added to this is the litigious nature of the biggest market in the world for drugs - the United States. The Food and Drug Administration is not approving much at all. It approved only 20 or so new molecules last year. It would have reviewed thousands. Its overriding concern is of side-effects, and every drug has them.

The biotechs we have covered in Under the Radar have been successful because we have invested in them only after they have successfully been through the approval process - two of our picks are in our top ten, in each case having delivered about an 80 per cent return.

We do have one biotech that's not performing so well, but it does have an approved product, and it does have sales. it's time will come, we hope.

Best wishes

Richard Heming

About the Author

Richard Hemming

Investment analyst and Editor of Under the Radar Report

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