The biotech industry is on a mission to make, patent, and sell a cure for all that ails you. It’s an arena where breakthroughs in drug discovery, genetic research, and medical technology converge.
While the biotech boom of 2021 was not matched in 2022 or 2023, with initial public offerings (IPOs) and valuations dropping off a cliff, some experts believe the biotech space is headed for a golden era. They say artificial intelligence (AI) and machine learning will help us unlock the secrets of disease processes and make new medicines faster than ever.
Finding the best biotech stocks requires navigating a complex and rapidly evolving industry, characterised by intense competition and difficult-to-pronounce drug names. To give you some starting inspiration, these are the top stocks in the S&P Biotechnology Select Industry Index.
| Biotech stock | Icon | 1 year performance (to Feb. ’24) | 5 year performance (to Feb. ’24) | Link to invest |
|---|---|---|---|---|
| ImmunoGen (IMGN) |  | 521.23% | 416.05% | Invest with XTBCapital at risk |
| Biohaven (BHVN) |  | 147.73% | 4.36% | Invest with XTBCapital at risk |
| Immunovant (IMVT) |  | 89.73% | 251.06% | Invest with XTBCapital at risk |
| Blueprint Medicines (BPMC) |  | 74.25% | 8.81% | Invest with XTBCapital at risk |
| Mirati Therapeutics (MRTX) |  | 29.73% | -33.13% | Invest with XTBCapital at risk |
| Ionis Pharmaceuticals (IONS) |  | 22.84% | -15.29% | Invest with XTBCapital at risk |
| CRISPR Therapeutics (CRSP) |  | 16.65% | 113.06% | Invest with XTBCapital at risk |
| Apellis Pharmaceuticals (APLS) |  | 13.31% | 351.70% | Invest with XTBCapital at risk |
| TG Therapeutics (TGTX) |  | -10.93% | 290.05% | Invest with XTBCapital at risk |
| Beam Therapeutics (BEAM) |  | -45.90% | 25.70% | Invest with XTBCapital at risk |
Biotech stocks companies that develop and bring to market medical treatments and healthcare technologies. Biotechnology creates products by manipulating living biological matter, like cells and messenger RNA, and its end products include gene therapies, monoclonal antibodies, and vaccines.
Pharmaceuticals are slightly different, with the pharma sector using non-biological chemicals as its starting point. In the financial world, however, biotech and pharma firms are treated as one and the same. The key difference for investors is between small-cap and large-cap firms.
Compare share dealing accounts to find the right platform for you. Make sure to use a platform with access to international markets or a large exchange-traded fund (ETF) selection if you want to invest in top biotech stocks from around the world.
Large-cap biotech stocks, like Amgen or Regeneron Pharmaceuticals, are normally rock-solid companies with multiple products on the market. These stocks usually benefit from diversified product portfolios, making them strong and steady on their feet. Amgen, for example, has a range of FDA-approved drugs treating conditions from migraines to anaemia. It has a market cap of $150 billion (£190 billion).
On the other hand, small-cap biotech stocks represent younger companies, often focusing on niche areas or single products and with market caps below £10 billion.
A single news report is all it takes sometimes to catapult a small-cap stock to stratospheric heights or drag it down into the abyss. These stocks’ fortunes are tied to clinical trial outcomes and FDA approvals. Moderna, for example, was a small company specialising in messenger RNA products before its Covid-19 vaccine achieved FDA approval. Moderna’s stock ran up from $20 on the eve of the pandemic to a peak of $450.
Here are some of the major benefits drawing investors to this sub-sector:
But not everything is hunky-dory in the biotech sector. Investors often think they’re buying shares in a life-saving elixir, only to end up with snake oil. Keep reading to find out more about what can go wrong when you buy biotech stocks.
57% of people we surveyed said they already invest in biotechnology stocks or would consider investing in biotechnology stocks.
| Response | |
|---|---|
| I would consider it | 50.92% |
| Not sure | 22.88% |
| I wouldn't consider it | 19.93% |
| I already invest in this | 6.27% |
Here are some of the main drawbacks to think about if you’re considering investing in biotech stocks:
"If you don’t want to opt for the passive ETF approach that will likely invest in both some of the best and worst biotech stocks, an active investing approach targeting this sub-sector could be useful. An excellent way to do this is by using an investment trust.
For example, there’s the International Biotechnology Trust from Schroders or the Biotech Growth Trust from Fidelity. There are also other options like the Polar Capital Global Healthcare Trust that contain some biotech stocks, but also some healthcare investments from other sub-sectors. The structure of investment trusts is really useful and means you can get an expertly managed biotech portfolio for a reasonably low fee in some cases."
If ”gene sequencing” sounds more like a new dance craze than cutting-edge science, it might be wise to leave stock-picking to the experts. Fortunately, you can still gain exposure to the sector through diversified ETFs and mutual funds that hold a diversified portfolio of biotech stocks.
For example, the iShares Nasdaq US Biotechnology UCITS ETF (BTEC) aims to replicate the performance of the NASDAQ Biotechnology Index, which comprises US-listed biotechnology companies.
On the other hand, you might feel confident enough to pick your own biotech stocks. In that case, you probably have your finger on the pulse and know your messenger RNAs from your monoclonal antibodies.
Just bear in mind that even if you are a science whizz, that won’t necessarily translate into stock-picking prowess. After all, even scientists on the cutting edge are frequently wrong in their predictions, and success in the lab doesn’t necessarily mean big profits in the marketplace.
All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.
Biotech firms experiment with living cells and their derivatives to make cutting-edge healthcare products. Investing in biotech firms, especially in the early stages, requires a lot of conviction and nerves of steel. Some stocks, like Moderna (MRNA), have catapulted by over 2,000% – but for every Moderna there are thousands of biotech failures that fall by the wayside.
AI and machine learning are all the rage in the biotech sector right now. Some experts believe these technologies will massively speed up the drug-discovery process. If you’re excited about the space but are left confused by all the terminology, you might consider leaving the stock-picking to experts and investing in a well-diversified ETF or an actively managed investment trust.
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