How to evaluate biotech companies?
Investing in biotech business is could be reward as well as philosophically satisfying. Biotech business is quite complex and highly risky for its intrinsic nature and complex variables of product approval. Unlike other industry, biotech product has to be 100% safe (so is the goal) or at least risk to reward for the users’ benefit. One of the most striking aspects of biotech business is its success rate in bringing final product out – it less than 0.1% (1/10th of a percent). And even to achieve that success takes over 10-12 years. Furthermore, most of the biotech businesses do not have any measurable revenue for a long period of time. As a result, valuing biotech companies is a wobbly undertaking at its best. Investing in biotech stock market is somewhat precarious because we can not use traditional discounted cash-flow methods. Also it is difficult to predict success of a drug candidate even at its final stage (phase-III) of clinical trial. Moreover, company’s financial health and str
