Answers To A Potential Investor: Pros and Cons of Investing in Biotechnology

Biotech is an exciting place to be right now. Currently, the global biotechnology market is valued at just over $752.88 billion, and it’s on track to expand by 15.83 percent from now until 2028.

Experts believe we’re in the midst of a biotech renaissance. However, scandals like the Theranos fiasco are permanently burned into investors’ minds, and rightfully so. The numbers may look impressive, but potential investors are still asking if investing in biotech is worthwhile.

So then, what lessons have VCs learned? Is biotech a good investment? I believe so, and here’s why.


Pros: What’s Attractive About Biotech


1. Market trends point to tremendous growth.


There is a massive amount of potential in the biotech sector. Healthcare AI alone is projected to be a $200 billion industry by 2025! Additionally, McKinsey showed that biotech is one of the few industries that bounced back better than ever in the wake of COVID-19. The same report also showed that VC investors are more confident in biotech as an industry, so they’re jumping to invest.

In 2020, VC investments skyrocketed 45 percent! When asked, most VC investors say that they think biotech has “matured” as an industry, so they feel like it’s less risky. This is a positive sign overall.


2. Successful investments will turn unprecedented profit numbers.


Biotech startups can put up some pretty impressive numbers. For example, DNA sequencing holds the second-largest share of the global biotech market. This comes from the steady rise in advanced DNA sequencing as a healthcare tool. A market report also projects a revenue forecast of over $2.4 billion by 2028, which is great news for potential investors.

In general, I think this also points to biotech becoming steadily more profitable because of its many uses in everyday healthcare. As it becomes more accessible to the public, I believe its popularity will explode even further.


3. Socially responsible investing is excellent for investment portfolios.


Biotech has matured, and there’s a big push to invest in long-term solutions to global problems. More than $100 trillion of investor funds are managed according to ESG principles, so this is not a passing trend. Additionally, higher ESG performance correlates to better financial performance overall.

I think it also looks good for investors to have socially responsible additions to their portfolios. It shows a commitment to more than just the bottom line, which is attractive to brands with strong social agendas.



Cons: The Possible Risks and Challenges of Biotech Investment


1. It’s a high-risk, high-reward market.


VCs know there’s always a risk for spectacular failure or, worse, fraud. Theranos still serves as a cautionary tale to investors. Failure can mean huge losses and major setbacks. Unfortunately, it’s also nearly impossible to accurately predict how biotech startups will perform over the long term.

I understand why this can affect investment prospects, but I don’t think that this is an insurmountable challenge for most VCs.


2. Market exclusivity is limited.


Biotech firms have a narrow window of market exclusivity before competitors swoop in with generics and alternatives. This is an ongoing challenge for the entire biotech industry and absolutely something to think about before investing in a product that makes sweeping claims.


3. The approval process is lengthy.


The National Center For Biotechnology Information estimates that it takes an average of 12 years for experimental drugs to go from lab to market. Biotech firms are also subject to extensive regulations, so biotech investment is not for the faint of heart.

Investors with enough capital and an eye toward the future can overcome this drawback, but it is something that requires careful consideration and wise investment.


What’s the Verdict?


Despite the potential challenges, I still believe it’s a great time to invest in biotech. Because of COVID-19, investors of all stripes are interested in the explosive growth of the sector. The industry is primed to take off, and I’m thrilled to see where it takes us.

Investment is risky, but there are a few things to look for to minimize risk:


  • A team with entrepreneurial and scientific success

  • Companies with a thorough understanding of regulations

  • Who the stakeholders are (Always know who’s paying!)


Ultimately, biotech is ripe with unexplored potential. I believe that investors who are willing to research which startups have a solid foundation and a promising product will be most likely to reap the rewards.


Written by Valeria Kogan, Co-Founder of Smartomica.

Valeria Kogan