Should You Still Invest in Biotech Mutual Funds
Biotech stocks have been a favorite for investors for some years with big gains regularly reported. Whilst some news in the biotech sector has created recent and significant losses in stock, there is reason to believe that over the long term, the outlook for biotech stock remains strong.
Biotech mutual funds have profited from several mergers and acquisitions, product approvals and positive pipeline updates. However, biotech drug stocks are heavily hit when companies fail their phase test studies. Celladon Corp shares dropped eighty percent after announcing that its lead candidate, Mydicar, had failed to meet endpoints in the phase IIb CUPID2 study.
Investments also drop dramatically when it is reported in briefings that a particular drug is unlikely to be recommended at national drug agency advisory panel meetings.
Biotech remains a bullish area for mutual funds, with merger and acquisition deals and product approvals that remain attractive. There are many reasons to support growth in the biotech sector, including innovative treatments, impressive results, growing demand for drugs especially for rare-to-treat diseases, an ageing population and increased health care spending.
Healthcare mutual funds that invest substantially in biotech companies rank at many levels. Some mutual funds are expected to outperform their peers in the future, investing in companies dealing with some of the biggest health threats. Cancer is the major target, but Alzheimer's disease, diabetes, arthritis and hospital-transferred infections and other widespread conditions and diseases affect the most people and represent the biggest return on investment.
Specific biotech mutual funds invest most of their assets in companies primarily involved in research, development, manufacture, and distribution of various biotechnological products. Factors such as financial strength and economic condition are also considered for investment.
However, the market can be hit hard by political interference and consumer distrust in the pricing of pharmaceuticals. In 2015 the price hike from $13.50 to $750 for an HIV-treating drug called Daraprim created big losses in the biotech industry as a whole, falling further as the industry faltered along with the broader markets in the early months of 2016. It is important to note the distinction between companies that are raising the prices of old drugs and companies that are developing new, innovative drugs. The product development cycle and regulatory requirements for biotech companies requires sometimes hundreds of millions of investor dollars, creating the reputation for biotech investment to be boom or bust.
Specialty biotech mutual funds are the usual point of entry for investors. The most impressive funds have proven performance with returns from fifteen to forty-nine percent annually. However, early stage companies are wildly volatile, trading up and down fifty percent to sixty percent. By applying a funds ranking system to mutual funds, investors can pick the best funds that not only outpaced the market in the past but are also expected to outperform going forward. While being right on the stock picking side of biotech can be lucrative, selecting winners in a very sophisticated market is not easy.
Success usually involves large pharmaceutical companies licensing or somehow accessing emerging technologies from new companies.