Are You Prepared for the Biotech Revolution? Here’s How to Set Yourself up for Profits.
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A mature adult can transform back into a polyp, effectively starting its life cycle again.
We can’t turn back into a baby and start our lives over — at least, not yet. But we take for granted just how far medicine has advanced in the last century and a half.
Take a look at how significantly human life expectancy has increased over the last couple of centuries:
You can see from the chart above that in 1770, the average human life expectancy was less than 30 years. By 2019, humans were living to be well over 70 years old, and that’s the global average.
What’s incredible about this graphic isn’t just the historical rate of increase in life expectancy; it’s that we show no signs of slowing down.
And it’s all thanks to revolutionary advancements in modern medicine and biotechnology that continue to push the boundaries of what’s possible for human beings.
Welcome to the Biotech RevolutionGrand View Research estimates the global biotechnology market size at $1.02 trillion in 2021, with an expected compound annual growth of 13.9% from 2022 through 2030.
And unless you lived under a rock in 2020, you know exactly why this already trillion-dollar market is growing at such a fast clip.
COVID-19 was the first modern pandemic to touch nearly every person around the world.
Governments threw billions of dollars at pharmaceutical companies, urging them to quickly develop a cure or vaccine.
And less than a year from the time the SARS-CoV-2 virus was discovered, Pfizer Inc. (PFE) got its vaccine to market, with fellow biotechnology leaders like Moderna Inc. (MRNA) and Johnson & Johnson (JNJ) right behind it. These companies were able to make vaccines widely available faster than at any other time in history.
Considering the average time it takes to develop a vaccine and get it to market — between clinical trials, regulatory approvals, manufacturing, and distribution — is five to 10 years, this was a seriously impressive feat of modern ingenuity and science.
And because no one wants to experience a global shutdown again, the door is wide open for incredible investment opportunities in the biotechnology sector.
In fact, over the next decade, I expect biotechnology companies to experience a boom similar to what technology and software companies saw from 2010 to 2021.
But don’t rush out to grab any biotechnology stock that produces interesting headlines just yet — because the history of this sector is littered with the bodies of failed startups.
First, let me walk you through how I see the sector playing out and offer up some creative ways to exploit opportunities.
Biotech’s OutperformanceFrom the start of 2022 through the end of May, the S&P Biotech Index, as measured by the SPDR S&P Biotech ETF (XBI), was down almost 40%.
Meanwhile, the S&P Technology Index, as measured by the Technology Select Sector SPDR Fund (XLK), was down just shy of 20%.
However, since the start of June, biotechnology has started to outperform, with the XBI gaining over 20% and the XLK falling another 8.5%.
This, of course, has been happening as the Federal Reserve has been pushing up interest rates for several months now.
Higher rates make future growth less valuable than current earnings. For high-growth technology companies, this is a disaster.
But for biotechnology, where research and development (R&D) do the heavy lifting and carry the largest cost, that isn’t the case.
It can take years for these companies to go through trials and gain approval, and that makes their growth more like an on/off switch.
The company will either succeed in getting its product approved, or it will fail and go under.
Compare that to a software company, which may start out with $50 million in sales its first year, then take 10 years to hit $5 billion.
biotechnology companies may not produce anything for four to five years. But once their product hits the market, sales could go from zero to $5 billion in a year.
It’s a win-or-lose industry, but it’s also one where the winners win big. And the longer-term outlook is incredibly promising for investors…
The Longer-Term Outlook for BiotechI expect biotechnology stocks to do well in the coming years for a number of reasons.
For starters, COVID-19 still exists, and companies continue to develop and produce new treatments and vaccines.
At this point, it’s become endemic — a disease we’ll be dealing with for years to come.
And that’s brought about a greater discussion about biological threat preparation.
As we discovered during COVID-19 lockdowns, the federal and state stores of medical equipment and medicine are woefully inadequate. This opened our eyes to the fact that we need to be better prepared for future threats.
COVID-19 also unlocked opportunities with new mRNA technology, for which a whole host of potential applications is being discovered.
And since biotechnology isn’t limited by borders, products can be delivered at scale relatively quickly once they’ve been established.
Creative Ways to Invest in BiotechRetail investors struggle to invest in biotechnology companies because so many of them fail.
Only one in 10 drug development projects make it from Phase I to approval.
That means 90% never see the light of day.
So rather than taking a flier on some no-name startup and doing weeks of research, I have two better options for you.
First, stick with large biotechnology companies with a track record of development.
This includes companies such as Pfizer, Amgen Inc. (AMGN), Regeneron Pharmaceuticals Inc. (REGN), and AbbVie Inc. (ABBV).
These businesses have a rich history of success, with balance sheets that can weather failures while still paying out healthy dividends.
The second way to actively invest in the category is through exchange-traded funds (ETFs) that give you broad exposure to the biotechnology sector, like Cathie Wood’s Ark Invest biotechnology ETF, Ark Genomic Revolution ETF (ARKG), and the iShares Biotechnology ETF (IBB). Both of these ETFs are currently looking Bullish, according to TradeSmith’s Stock Rating system, which analyzes stocks based on key metrics like the relative strength index (RSI), timing, and how they’re trending.
But if you’re anything like me, you’re looking to gain as many advantages as you can.
So, you should know that because biotechnology stocks are so volatile, they offer rich option premiums.
This means that you can use simple strategies like cash-secured puts to lower your effective entry price or take in a healthy stream of income. You can learn more about cash-secured puts and how to use them here.
Just keep in mind that this strategy only works on highly liquid stocks or ETFs and should not be used on small biotechs for speculation.
What trends do you see in biotechnology stocks right now? Is oncology the area to focus on, or perhaps heart disease?
Email me your thoughts. While I can’t reply to every email, I promise to read all of them.