How to Invest in the Golden Age of Biotech

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"Propelled by new drug debuts, research advances and a full pipeline, a long stretch of rewarding breakthrough products should continue to flow in the years ahead."

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Some of the most lucrative opportunities you can find now are in the biotechnology industry—which is why we've been working to uncover the best ways for how to invest in this sector.

The best biotech companies overflow with innovation. They can offer a steady stream of game-changing products—which often translates to record-breaking revenue.

The biotech industry is also known for its stiff competition. The race to be a consumer favorite causes companies to take big risks.

Sometimes, these lead to embarrassing flops, but when they get it right, the payoffs are huge.

That's a big reason why funding, often difficult to secure, is getting easier.

Greg Simon, CEO of Poliwogg, a firm that hunts for investable innovative drug makers, says "crowd funding" by private ventures, legalized by Congress last year, is spreading the risk among cautious yet interested investors.

"There is not a riskier business than health," Simon said at the Milken Institutes Global Conference in Los Angeles in late April. "This is going to democratize the flow of capital into companies."

Other experts in the field remain bullish—even as the industry has already logged huge gains.

Indeed, biotech stocks are up about 62% over the last two years. Propelled by new drug debuts, research advances and a full pipeline, a long stretch of rewarding breakthrough products should continue to flow in the years ahead.

Rajiv Kaul, manager of the $5.3 billion Fidelity Select Biotechnology Fund said at the Los Angeles event, "Despite the challenges, this is the best time for biotech ever."

Jodi Black, program director at the National Institutes of Health shared that sentiment, "The scientific potential has never been greater. Now is not the time to retrench."

The sector has enjoyed vigorous merger and acquisition activity over the last couple years, a trend that's expected to continue. Also expected is a significant pick-up in licensing activities and collaborations.

Higher demand for medicines, government initiatives for healthcare, new patient population and increasing use of generics will also drive the industry.

Another reason why now's the time to know how to invest in biotech: We are heading into what Kaul calls a golden age for the industry.

According to the IMS Institute, the branded medicine market is expected to rise from $596 billion in 2011 to some $645 billion by 2016. The introduction of medicines and procedures targeting unmet needs and soaring patient access from Obamacare will also boost industry growth.

"Investors who take a long-term view get rewarded because great things could still be ahead of us," Kaul shared in a recent Barron'sinterview.

However, the recent surge has created a conundrum for investors thanks to skyrocketing stock prices and high multiples in the diverse sector.

Moreover, there is the high rate of failure. The majority of experimental drugs in clinic stages never make it to market. Plus, drugs already approved face pricing pressure and must remain innovative.

So, investors need to tread carefully.

How to Invest in Biotech Now

Money Morning's Tech Specialist Michael A. Robinson has found the Holy Grail in this profitable and promising industry.

"It has actual double your money potential. In fact, you'll be stunned at just how quickly every $1 you invest will turn into $2 in holdings," Robinson explained.

The ETF is the iShares NASDAQ Biotechnology Index (Nasdaq: IBB).

Roughly 58% of its funds are invested in biotech behemoths like Gilead Sciences Inc. (Nasdaq; GILD), Regeneron Pharmaceuticals Inc (Nasdaq: REGN), Amgen Inc. (Nasdaq: AMGN), Celgene Corp. (Nasdaq: CELG) and Alexion Pharmaceuticals Inc. (Nasdaq: ALXN).

It also invests in a number of "stealth small caps."

Some 70–80 new companies are created every year with opportunistic new treatments. This steady channel of invention underscores a cache of investment opportunity for the future.

"The IBB is exactly the type of strategic play every tech investor should make. It's both the easiest and lowest risk way I know of to put a broad swath of market leaders and perennial winners in your hands. . .immediately," Robinson says.

Diane Alter
Money Morning

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