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Starpharma still reaching for the sky

As a biotechnology (biotech) company, Starpharma’s (ASX: SPL) products are incredibly exciting not just from the potential benefits to society but also from the profits that could flow to shareholders if commercial success is achieved.

Starpharma is currently developing drugs aimed at treating an array of medical issues, particularly relating to women’s health. The company has also cleverly adapted the technology and applied it to agricultural crop protection.

The recent full year results announcement did not provide investors with any new updates in what was a big 2012 for Starpharma as it progressed towards commercialising its products.

For an investor who is not a specialist in a particular medical or scientific field, investing in biotech companies can sometimes be overwhelming. However, given the often large profits that are realised from a blockbuster drug, it is a sector with obvious appeal.

Some of the greatest businesses in the world are ‘drug’ companies and many of the world’s top investors such as Seth Klarman are regular investors in the sector. For Fools who feel they need a crystal ball to invest in early stage biotech companies such as Starpharma, Pharmaxis (ASX:PXS) or Acrux (ASX: ACR), then perhaps consider some established firms who already have high quality, approved products with significant sales.

For example, bio-plasma company CSL Ltd (ASX: CSL) sells blood plasma, antivenin and vaccines and with revenues of over $4 billion and profits of approximately $1 billion it is certainly an established and profitable business.

Likewise, but on a smaller scale, vitamin manufacturer Blackmores (ASX: BKL) continued to grow in the last financial year. Sales were up 11% to $261 million and the company reported record profits of $28 million.

Foolish takeaway

A key factor in investing, as Warren Buffett says, is limiting yourself to your circle of competence. If that includes complex scientific research and an understanding of biotech then investing in early-stage biotech such as Starpharma can be a successful endeavour.

If this isn’t your strength, then companies such as CSL with established earnings streams may be more appropriate.

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Motley Fool contributor Tim McArthur doesn’t own shares in any company mentioned. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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