Advertiser Disclosure

How to Invest in Biotech Stocks

Want to Earn Some Extra Money?

  • SurveyJunkie: Earn up to $50 per survey with one of the highest-paying survey sites on the web. Join SurveyJunkie Now
  • Mistplay: Earning money by playing games on your phone sounds like a dream. But this app really pays you for playing new games with cash rewards. Download Mistplay for Free (Android only).
  • Robinhood: This investing app lets you trade stocks and do everything for free and takes no fees — ever. Better yet, if you join through this link you can get a free stock like Apple, Ford, or Sprint when you join (must complete signup).

Investing in biotech companies might not be for the faint of heart, but it isn’t an impossible industry for the average investor to profit in. Smart investing in biotech can actually be rather lucrative. The problem is that there’s lots of bad advice out there, from a neighbor that offers you “hot stock tips” about companies trading on the Pink Sheets to well-known financial media outlets that promise to help you time the market, which is never a great idea.

Here you will find some legitimate tips for helping you avoid some of the usual pitfalls and earn a tidy sum investing in the biotech industry.

1. Follow in the Steps of the True Experts in the Industry

It is safe to bet that unless you have a Ph.D. in biochemistry the sharp minds that run the leading pharmaceutical companies have a better idea of what to look at in the biotech industry’s pipeline than you do. To take advantage of their expertise is to check where they are placing their money.

For example, Celgene shares a very strong bond with Juno Therapeutics at this juncture. CAR-T immunotherapy developers out there are in plenty, but it was Juno that Celgene settled on for a partnership deal worth $1billion involving an equity investment and access to Juno’s pipeline. It is a vote of confidence in the ability of Juno to be the CAR-T developer to watch, and you should think long and hard before investing in its competitors as it’s one of the top biotech stocks.


2. Watch Out for Cash Burn

Want free money?

  • Aspiration: Want to get spotted a $100 for free? Simply sign up for Aspiration, and the free banking app will give you cash for free, you just relax while it gives you $100 just for opening a new debit card. There’s no catch, just use your card to make at least $1,000 in cumulative transactions within 60 days of opening an account. This bank account is legit and only takes two minutes to sign up for an account.

It’s important that you check out the companies financials. Small biotech companies are actually losing money. If you invest in a clinical-stage company, you are essentially investing with the hope of receiving a share of the potential future revenues, and you should be aware that profitability is still not there yet. That is not necessarily a negative. However, if the biotech’s cash reserve is quickly getting depleted, you should be ready for your future slice of pie to reduce too.

One of the greatest reasons why the share prices of biotech companies fall is shareholder dilution. If you wish to protect yourself, you need to calculate the cash runaway by dividing the amount of cash available to the company with its annual expenditure. If you find the result to be less than a year, it is a strong sign that dilution will soon come up.

A good example is MannKind Corporation, which is a company that has had multiple rounds of share offerings each increasingly diluting its shareholders as it continues struggling to market the only drug it has, which is an inhaled insulin known as Afrezza. The shares recently dropped a whopping 27 percent in one day upon the announcement of yet another round of shareholder dilution. The move would have been hardly surprising to those keeping an eye on its cash level. Even the management made it quite clear that its cash reserves were only enough to keep the lights on until the end of 2016.

3. Don’t Invest Emotionally

The biotech industry is full of emotion and it is not hard to see why: It is all about companies with the potential to ease human suffering and save lives. It is also an industry that attracts an incredible number of investors that are sometimes greedy. Whether the emotions are genuine or not, the industry is still volatile.

Investment advisors usually keep tabs on all the publicly traded and reasonably sized companies and if one moves 10 percent in either direction (up or down), they usually write an article to explain the reasons why. If you check such articles you will find remarks such as “The biotech industry is too volatile and that there’s no new news on the company”. The articles serve as an important reminder that you should not worry about the daily share price fluctuations that have no bearing on the investing thesis.

Never take your eyes off the prize and never buy high and sell low simply because the market has had a rough couple of days. Being levelheaded is critical to long-term investing and that’s how you can make real money from an investment portfolio.

4. Determine Your Risk Tolerance

If you’re looking to invest in biotech stocks, one of the most important steps to take is determining your risk tolerance. Are you willing to invest more aggressively or are you risk-averse? Knowing where you fall on the spectrum can be critical because it’ll help you when picking out different biotech stocks. Some stocks are really risky can “tank” in a day due to clinical failures or not getting regulatory approval from the Food and Drug Administration (FDA) or the European Medicines Agency in Europe. So if you wanted to avoid the risk — you are risk-averse and can pick good biotech stocks for you.

Here is an example of different biotech stocks/ETFs and the risk tolerance they bring:

Biotech Stock/ETF Risk Tolerance Level of Investors Who Might Like the Stock/ETF
Alexion Pharmaceuticals (NASDAQ:ALXN) Moderate
Amgen (NASDAQ:AMGN) Moderate
Editas Medicine (NASDAQ:EDIT) Very high
Vertex Pharmaceuticals (NASDAQ:VRTX) High
SPDR S&P Biotech ETF (NYSEMKT:XBI) Moderate

5. Know What to Look For in a Biotech Stock

When you’re looking at different biotech stocks make sure you find one with a great spectrum of already approved rugs on the market. That means that these drugs are already selling and making billions of dollars of sales each year. Not only that, but you want to see that the company has drugs in the pipeline that they are testing (preferably phase 3 testing). It may be difficult to find a perfect candidate, as many smaller biotechs don’t have any approved drugs yet. However, a biotech company that several drugs in late-stage testing is one that you should be keeping an eye on and investing in.

The Bottom Line

Investing in biotech stocks is pretty scary. However, if you keep these five tips in mind then you’re odds of choosing lucrative biotech stocks rises.

Next, you can read about the best micro-investing apps for 2020.

The Best Investment Apps For Everyday Investors

App Rating CommissionsLearn More
robinhood logo



On Robinhood's website

M1 finance



On M1 Finance's website


Games that pay you to play. Yes, we're serious.

These 3 apps will pay you to play games on your mobile device:

  1. Mistplay (Android) - If you have an android device, you can download this app and start getting cash rewards for playing new games.
  2. Solitaire Cube (iOS) - Earning money by playing games on your phone sounds like a dream. But this app really pays you for playing solitaire with cash rewards.
  3. Lucktastic (Android) - This free app offers the same daily scratch-off cards that you find at your local convenience store — but here you can play for free and win real money.



On Fundrise's website




On Public's website

webull logo



On Webull's website

Want free money?

  • Robinhood is a free investing app for your phone. I really mean free all around – free to join and they don’t charge any fees to buy or sell the stock. You can get a share of stock like Apple, Ford, or Sprint for free when you join through this link. The value of the free share may be anywhere between $2.50 and $200 and fluctuates based on market movements. You’ve got nothing to lose.
Brian Meiggs
Brian Meiggs
Brian is the founder of My Millennial Guide and is an entrepreneur who has spent the last few years creating websites and building brands. He has been quoted in several online publications, including Yahoo! Finance, NASDAQ, MSN Money, AOL, Discover Bank, GOBankingRates, Student Loan Hero, Fit Small Business, Cheapism, SmartAsset, Bankrate, RISE Credit, AllBusiness, Cheddar, Commonbond, Niche, Rewire, Credit Donkey,, and more. He believes that the true path towards financial independence is through increasing your earning potential (even if you have a 9-5 job).

Related Posts

Do NOT follow this link or you will be banned from the site!