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Biotech Companies Offer New Investment Opportunities in Hong Kong

Biotech Companies Offer New Investment Opportunities in Hong Kong

Hong kong:New listing rules for the Hong Kong Exchange is opening the door to a wave of global biotech companies bringing new investment opportunities to the region. While investing in these early stage companies with little to no revenue and possibly years from launching products may seem intimidating, for aggressive investors, biotech companies with promising pipelines offer a potential for extraordinary returns as drug development is a big-money business. With a growing global population and no shortage of diseases to be treated, global drug sales are expected to grow from $1.1 trillion in 2016 to $1.5 trillion by 2021.

Learning to become a successful biotech investor is about knowing how to manage risk while finding companies that generate skyrocketing returns. Investing in biotech companies is not like investing in other markets that often use standard financial metrics such and P/E, P/S or P/B to determine valuation. A biotech’s pipeline is the source of the company’s value which generally increases as the company hits its milestones. Furthermore, biotech stocks typically trade on news making them more volatile than the broader market.

Drug discovery and development at its core is risky. Before a drug is allowed on the market, it must go through a process of clinical trials, the outcome of which determines a company’s success and the stock’s overall performance. A drug becomes increasingly viable as it completes each clinical testing phase. However, the process is extremely unpredictable. If the drug data misses its expected endpoint, a biotech’s stock can lose significant value in one day. Conversely, if a drug meets its expected endpoint, a stock can soar by double or triple digits that day.  It’s these sizable returns successful biotech companies deliver that attract capital to the industry as investors look for the next blockbuster drug. Since it can take years for a therapeutic to become commercially viable, biotech companies often license or collaborate with pharmaceutical companies to reduce risk and increase valuation. Correspondingly, innovative small biotech companies often attract larger biotechs or pharma incumbents looking to buy growth.