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What Are Biotech Stocks?
Biotech stocks, also known as biotechnology stocks are stocks that represent biotechnology companies. These companies are involved in the development of medicines and therapies.
Biotech stocks can also refer to companies that use technology in the production of chemicals used in agriculture or the development of new species of disease, climate and pest resistent crops.
What Should You Look For In Biotech Stocks?
- Stage – Medical Biotech stocks are either commercial stage (selling products), clinical stage (testing products in humans), and research stage (early product development). Biotech stocks in clinical or research stages are consider to be speculative as they do not have products on the market and do not generate revenue through sales. Commercial stage biotech stocks are considered to have less risk as they have products on the market and are likely generating revenue from sales.
- Data – Clinical and research stage biotechnology stocks are driven by data. Data from research and discovery, clinical studies, and case studies will often move the values of the stocks. Obviously, poor data will lead to poor movement while positive data will lead to positive movement.
- Balance Sheet – Many early stage biotech companies are not sound financially. When making an investment decision in the space, it’s a good idea to look at the company’s balance sheet to see if it has the money to survive through an extended period of time.
- Management Team – Management teams make the decisions that will make a company successful or a failure. Therefore, it’s a good idea to look into the history of the management team that governs the company before making a decision to buy its stock.
- Analyst Ratings – No matter if it’s biotech or another space, analysts are paid to analyze opportunities in the market. While it’s not a good idea to blindly follow analysts, it’s a good idea to look to them for back up in order to validate your decision.
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Common Terms Used In The Biotech Space
There are several terms that are specific to the biotechnology space that you should know before making an investment decision in the space. These terms include:
- Food and Drug Administration (FDA) – The FDA is the regulatory authority on medicine and therapy in the United States. Before a biotech company is able to sell their products in the United States market, the FDA must approve that product and the labeling that will be used on packaging.
- European Medicines Agency (EMA) and European Commission (EC) – The EMA and EC are the regulatory authorities on medicine in Europe. Like with the FDA, if a biotech company wants to sell its medical or therapeutic products in Europe, it must receive approval from the regulatory authorities.
- National Medical Products Administration (NMPA) – The NMPA is the regulatory authority on medicine in China, following along the same lines as the FDA, EMA and EC.
- Investigational New Drug Application (INDA) – This is an application that must be submitted to and approved by the FDA before beginning any clinical trials.
- New Drug Application (NDA) – An NDA is an application that is submited by biotechnology companies to the FDA with the hopes of being approved to market products in the United States. The same terminology is used in China.
- PDUFA Date – The PDUFA date is the date that the FDA is likely to either approve or reject an application. The FDA has until the PDUFA date to make their decision.
- Marketing Authorization Application (MAA) – An MAA is much like like an NDA. This is the application that is required to be approved before marketing medical products in Europe.
- Complete Response Letter – A CRL is a negative response to an NDA. The letter explains that the FDA cannot approve the treatment at the time and may outline steps to take in order to work toward approval.
- Drug Approval – A drug approval is an approval by a regulatory authority that allows a biotechnology company to market and sell a drug in a specified market.
- 501(k) Clearance – In the United States, 501(k) Clearance means that a medical device has been cleared for sale in the United States by the FDA.
- Safety – This is a term that is used to describe whether or not a drug is safe to use. Good safety profiles are profiles that include few adverse events.
- Tolerability – Tolerability refers to the level at which patients can generally tolerate overt adverse events associated with a drug.
- Adverse Events – Adverse events are any negative reaction that the body has when ingesting a drug or using a medical device.
- Pharmacokinetics – Pharmacokinetics refers to how a drug moves through the human body.
- Pharmacodynamics – Pharmacodynamics refers to the effectiveness of a drug and its method of action, or simply how it works.
- Primary Endpoint – Primary endpoints are the ultimate goal of a clinical trial. If the primary endpoint is met, it is a sign of trial success.
- Secondary Endpoints – Secondary endpoints are goals, but are not as important as primary endpoints. However, when primary endpoints are not met and secondary endpoints are, some companies may work to build a new clinical trial around the successful meeting of secondary endpoints.
- Phase 1 Clinical Trial – This is the earliest phase of a clinical trial, generally the phase used for the first human trials of a drug or medical device. In general, Phase 1 clinical trials focus on safety and tolerability. This is also the phase at which biotech companies work to find a maximum tolerable treatment dose.
- Phase 2 Clinical Trial – Phase 2 clinical trials are mid-stage trials. The goals of Phase 2 clinical trials generally include the validation of safety and tolerability from Phase 1, as well as provide proof of efficacy in a small group of participants.
- Phase 3 Clinical Trial – Phase 3 clinical trials are late stage trials. These trials are generally large population trials in which biotech companies attempt to validate the safety, tolerability, and efficacy data generated from earlier trials. Meeting primary endpoints that will support the submission of an NDA or MAA are the ultimate goal of late-stage trials.