Money Matters Investment & Finance Medical, not investment degree
Medical, not investment degree
Sunday, 01 October 2006
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money_TN.jpgWhen was the last time a non-medical colleague consulted a stockbroker about a persistent abdominal pain? Likely, never is the answer! So what's the point? The issue is that an illusory field surrounds the world of therapeutic product development. The illusion is that the only question that matters is whether a drug or device will 'work', and if it 'works', then it will inevitably sell and reap millions in sales and profits. Tied in with this illusion is that medical specialists and general practitioners, simply because they are at the service end of the product development path, somehow have a high level of ability to assess the investment merits of a biotech company and its products.

Nothing could be further from the truth. A medical professional may be able to assess the validity of a medical hypothesis, interpret clinical trial data, and usefully consider the acceptability of a new treatment in terms of patient and physician convenience. However, for any investor, not just those with a medical background, these are merely a few of a very large list of elements, or risks, used to assess a biotech investment.

One good example is the concept of intellectual property. Some investors in biotech stocks in Australia have become familiar enough with the need for biotech companies to have, or be securing, a solid patent base. But many do not realise that more important, but less well known, is a concept called ‘freedom to operate'. This is the extent to which a company has accessed all the rights necessary to develop and sell a product without infringing on another company's right of exclusive practise of an invention - otherwise known as a patent. A company may have its own patents, but sometimes it is necessary to use another company's IP. Such a 'block' can be completely limiting.

There are many other factors investors need to consider when making an investment in a biotech company - regarding funding capability, board strength, depth in management, and extent of market and marketing research. The number and knowledge base of co-investors can be crucial. Continued disagreement between investors over asset development strategy can quickly spell the end of a company.

Sometimes the literal size of a company can be a concern. Not having enough hands on deck can result in a small but genuine management team running itself into the ground, paving the way for exhaustion-induced mistakes.

Manufacturing is one of the most overlooked areas of biotech investment. It may sound boring and tedious but the capacity and capability of a company or its partner to safely and economically manufacture a drug or device commands significant attention from regulators, and funds from investors.

No one can keep on top of all the risks attendant to biotech stock. However, what biotech investment analysts do is to work to a superior and constantly updated map of the biotech investment universe. As navigators amongst a plethora of biotech investment opportunities, their worth becomes apparent. Broking firms that that employ biotech analysts who cover many of the smaller biotech stocks include Wilson HTM, Patersons, Taylor Collison, ABN Amro Morgans, Intersuisse, eG Capital, and Bell Potter.