5 Questions You Should Ask Yourself Before Investing in a Biotech Company
Do I understand the science? If you don’t understand the science behind the drugs, you can’t possibly figure out whether the drugs are any good.Â Don’t have a science background? Find a friend; perhaps your friend Brian will help?
How is the company going to increase sales of existing drugs? OK, so here at BabyBiotechs, we don’t get to ask this question all that often. But if the company you are investing in has products on the market, then it needs to have a plan for increasing sales.Â Increasing sales (hopefully) results in increased profits, which should result in increased stock price.
How many drugs are in the pipeline?Â Not every drug in the pipeline is going to get FDA approval.Â Heck, most of the drugs won’t get FDA approval.Â For the most part, the more potential drugs the better. Although if the company doesn’t have an income stream, a large pipeline will result in a high burn rate, so the pipeline really needs to be inline with cash in the bank.
What’s the market for the drugs in its pipeline? In order to figure out how much money the company could make in the future, you need to know how much the drug is worth if it’s approved by the FDA.Â It’s essentially an educated guess, based on the current drugs on the market and how much market share the newly approved drug(s) could take.
How many people work at the company?Â I know what your thinking, “That’s number 5? I can think of 101 questions that are far more important than knowing how many people work there.”Â And that’s exactly the point.Â You should study a company until you understand every minute detail of the company.Â Then and only then you should be turning over your hard earned money.
This post is part of the top 5 group writing project. If you have a blog, feel free to participate.Â If you’d like to read more top 5’s, here’s yesterdays submissions. Hsien has a good one about 5 cool things you can do with your DNA.
Filed under: Investment Strategy