Turn to angel investing and crowdfunding

If you’re really up for a risk, angel investing and equity crowdfunding can let you buy chunks of biotech companies before they’re available to the masses. These will be very early-stage investments, and though they could result in massive gains, the risks are – all together now – correspondingly huge. If you’re still keen, check out our Angel Investing and Equity Crowdfunding guides for more info.

Wait until firms are publicly traded

A steadier approach is to wait until firms are listed on the stock market. You’ll be able to buy and sell the shares easily, and using the tools from the previous sessions you can go some way towards sensible stock-picking. Make sure to not put all your eggs in one test tube, though: it’s worth diversifying across different diseases to spread your risk.

Pay an expert to manage your investments

Because biotech is so complicated, you might be better off deferring to an expert. Biotech funds are managed by specialist professional investors, who may do a better job than you can of picking the hits. You’ll have to pay for their expertise, though – if you’d rather go for something low cost, you could just invest in an index fund like the iShares NASDAQ Biotechnology ETF, which puts money in all the biotech firms listed on the NASDAQ exchange, in order to align your fortunes with the wider industry.

Invest in land

Some investors advocate a “picks and shovels” approach, which takes its name from the California Gold Rush. Back then, the gold mining industry was a bubble – and it was the people that sold the tools to prospectors that benefited more than the prospectors themselves.

If you think biotech might be overhyped but want to benefit from the brouhaha, you could invest in the land that biotech firms use. Alexandria Real Estate Equities, for example, is a real estate firm that owns a lot of expensive lab space in innovation hotspots like California and Massachusetts.

Invest in CDMOs

Another option is to invest in Contract Development and Manufacturing Organizations (CDMOs). These firms actually manufacture the drugs once the research is done; large-scale production is generally too expensive and difficult for biotech firms to do themselves. While Lonza and Catalent are the biggest players, the CDMO game is currently a fragmented market – and increased acquisition activity could mean big paydays for investors in the near future.

In this Pack you learned:

🔹Biotech is a fast-growing but risky industry with loads of investment opportunities.

🔹Drug development can take over a decade, and there’s no guarantee of a drug passing clinical trials.

🔹Investing towards the end of clinical trials is less risky – but means smaller rewards.

🔹Analyzing biotech financials (like how much they’re spending on research) can help you spot winners.

🔹Exchange-traded funds and real estate trusts are two alternative ways to invest in biotech.