Biotech stocks are the talk of the town when it comes to investing. Even though the biotechnology industry is growing rapidly, it is also considered one of the risky sectors in the current era.
Firms in this domain are responsible for producing life-saving drugs by utilizing living organisms to create commercial products. In retrospect, biotechnology has been around for centuries now. All developments loosely fall under this umbrella, from the agricultural revolution to cheese fermentation and from vaccines to antibiotics.
But when we compare it to the pharmaceutical industry, biotech poses significant risks. This article will list some of the top risks involved in this sector.
FDA Approval
Every produced drug needs to be approved by the US Food and Drug Administration. However, FDA has gained a reputation for being one of the strictest institutions and carries out a rigorous testing process to endorse any drug.
The review process is carried out in three stages – preliminary, intermediate, and final, and eliminates a considerable portion of the compounds. As a result, biotech companies face many challenges with the Research and Development process, only to be followed by the FDA compliance guidelines.
Undesired Outcomes
Biotechnology does not leave any space for errors. Any anomaly can result in a potentially disastrous situation that can affect people on a large scale. There have been several similar instances in the past.
For example, Australian farmers in 1930 were facing issues dealing with cane beetles. They decided to import the cane toad to overcome this issue, hoping for the eventual pest control action to continue. However, the solution backfired as cane toads drastically multiplied and left the entire continent in a vulnerable state.
Cybersecurity
The biotechnology industry is constantly evolving as we observe more technical advancements globally. But on the other hand, there’s an imminent risk of a security breach when the entire patent data is stored online.
Currently, the global expense owing to data security challenges has crossed $4 million, thus sending all biotech organizations in a frenzy. On the other hand, clinical trials are constantly vying for more people to join the testing pool, thus increasing the size of the database. But doing so can also mean that now more patient records are at the risk of getting compromised.
Raising Capital
Biotech companies require solid financial support to carry out the research process or move ahead with mass manufacturing. But to an innovator’s displeasure, financial backers are currently looking to invest in selected projects. In short, venture capitalists are more inclined to invest their money in organizations where it is easy to predict the final results.
Such projects allow them to accurately predict the amount of capital needed and possible Return on Investment (RoI). Similarly, private equity funds are not an option in this sector as they prefer to work in a high liquidity market. This funding gap will ultimately affect the overall drug development scenario.
Ethical Dilemma
There are two sides to a coin. Similarly, we can say that biotechnology also has its pros and cons. While it facilitates the development and production of essential drugs, it also presents a range of disadvantages like ecological harm.
Practices like gene mutation and crop cloning are considered unorthodox and sidelined. Side by side, the usage of privileged information and the idea of tinkering with nature does not sit well with all people.
Weaponizing Biology
The world has experienced multiple disease outbreaks that required the health authorities to take the appropriate steps. Some of them were Zika, Ebola, and the latest one being COVID-19. Although these viruses are considered of natural origin, it would not be hard to create others as a source for a terror attack.
The release of such a bioweapon can bring on a silent attack on humanity. There have been multiple cases of possible biological warfare like the anthrax scare post 9/11. Countries like North Korea are also said to have a biotech arsenal at their disposal.
Lengthy Pipeline
The complete stage 1 to the completion for any drug lasts about 14 years. After dividing the whole timeline into 4 parts, the scientists research the components. Now, each phase needs to be individually approved by the FDA before moving ahead.
It also complicates the procedure of securing funding further. Investors shy away from organizations still in the early stage of their research process.
Price Controls
The US is one of the leading global hubs for biotech and pharma industries. Till now, there were no price control measures applied, and it allowed a free run of the market. But with the implementation of such guidelines, capital and innovation in the field are sure to take a big hit.
It has also been said that most of the successful research projects were carried out due to the absence of price controls. Had there been any such strict regulations, the world might not have some of the drugs currently in use today.
Bottomline
Biotechnology is all about manipulating living organisms with the aim to form commercial products or solutions. Basically, the researchers try to modify DNA and protein cell structures to achieve the desired results.
This field is constantly evolving and presents plenty of benefits and challenges. Some of the risks are attributed to factors like safety concerns, low FDA approval rate, security threats, etc.
Additionally, the world has also witnessed some cases of bioterrorism. As a result, not all investors actively show interest in biotech stocks. But in selected cases, such stocks offer incredible returns.
Also Read: Drug Discovery Future Trends
