Investing in Biotech: The Pros & Cons
By Thomas Leighton ’23 Director of External Relations
Biotechnology is a dynamic and promising field that can offer great opportunities for investors who are willing to take calculated risks. Biotechnology, or “biotech” for short, is the use of living organisms or their products to create or modify products, processes, or services. Applications of biotech exist in many fields including medicine, agriculture, energy, and environment. The potential for success with these investments can make them a highly attractive option for fund partners, hence why we’ve seen $35+ billion poured into potentially industry-transformative biotech companies from 2019 to 2022. These investments, specifically in early stages, can offer significant rewards but also entail very high risks. In this article, we will explore some of the factors that private parties should consider before investing in biotechnology.
One of the main advantages of biotech is its potential to address some of the major challenges facing humanity like disease, hunger, climate change and pollution. Biotech companies can facilitate the development of new drugs, vaccines, diagnostics, therapies and devices that can improve human health and quality of life. It can also enhance agricultural productivity and sustainability, reduce dependence on fossil fuels and create new sources of renewable energy and materials. Furthermore, it can generate social and economic benefits such as creating jobs, stimulating innovation and enhancing competitiveness.
However, investing in biotechnology also involves significant challenges and uncertainties, with one of the main challenges being the high cost and complexity of research and development (R&D). Research-stage companies require specialized equipment, facilities, personnel and expertise, as well as long-term investment and patience. There are also regulatory hurdles, ethical issues and public acceptance problems that can be encountered in a biotech venture. Products and processes may have unintended or adverse effects on human health and the environment, which may raise legal and social concerns. Biotech also faces intense competition from other sectors and technologies, as well as geopolitical and market risks.
To fully understand the risks and potential rewards of a biotech investment, interested parties should conduct thorough due diligence and analysis before making any decisions or commitments. Investors should assess the scientific validity, feasibility and novelty of the biotech projects or companies they are considering. In addition, they should evaluate the market potential, competitive advantage, and profitability of the biotech products or services they are targeting. They should also consider the regulatory environment, intellectual property rights, and ethical implications of the biotech activities they are supporting. Investors should also diversify their portfolio and balance their risk-reward profile according to their goals and preferences.
Thomas is a senior from Beverly, Massachusetts pursuing a degree in Business Administration with an option in Information Systems and Business Analytics. In addition to classes and the Rines Fund, Thomas is currently working for STRM.BIO, a pre-clinical stage biotechnology startup focused on democratizing gene therapies for patients.