When you are looking for successful biotech stocks, focus on the following 5 specific criteria:
1. Game-changing technology
Look for new approaches to treating disease, something never seen before.
2. Safety
Drugs are unlikely to get approval if they are unsafe, no matter how effective they are. Pay particularly close attention to Phase 2 trial results because they’re usually the first real indication of whether a drug is safe enough to try in a larger population.
3. Upcoming catalysts
Biotech stocks move quickly on news. Don’t sit with a stock for years waiting for clinical trial results. Look for stocks that expect to release important trial data within the next 6 months.
4. Cash and capital reserves
Most small cap biotech companies are unprofitable and burn cash. If the company has a lot of cash, it reduces the chance of more stock offering. Companies that sell shares to raise capital dilute your investment.
5. Smart money
Follow the smart money. If respected investors own large holdings in the stock then some knowledgeable people with huge brainpower resources have already reviewed the company’s science and investment opportunity and has decided to move forward. Also a good indication is when insiders own a lot of shares.
Thereafter, dig into the clinical trials, investigate management to see whether there are any red flags and conduct other due diligence.
Sven Franssen