The Motley Fool

Want to buy the hottest of hot biotechs?

It doesn’t take much to lure some investors into buying shares in would be biotechnology companies. A cure for cancer, vaccines against common diseases, stem cell therapy and all kinds of weird and wonderful new treatments are grinding their way through the purgatory of Australian biotechs.

Investors love the ‘stories’, and biotech companies like Prima BioMed Limited (ASX: PRR), Prana Biotechnology Limited (ASX: PBT) and Cynata Therapeutics Ltd (ASX: CYP) have experienced massive rises – up to 700%! – in the past. Indeed, one week after I bought Admedus Ltd (ASX: AHZ), I was up 80%.

However, many of these research projects end in failure, either because their treatment/product isn’t successful, or is successful but not significantly better than existing therapies. Even companies that successfully develop a product, like Admedus, can have problems turning their research into cash.

Stop right there

It seems reasonable to say that there is at least a partial correlation between expenditure on research & development (R&D), and achieving outcomes from research. Logically we might say that as more money is spent, the likelihood of achieving an outcome increases.

Investors looking to own the next generation of medical treatments need to forget about loss-making researchers of the type mentioned above. CSL Limited (ASX: CSL) spends enough on R&D every six months to keep a dozen (if not more!) would-be biotech businesses going for a year. The figure was US$283 million at the latest half yearly report – even the successful Sirtex Medical Limited (ASX: SRX) spent just $5 million during the same period.

If you want to own the next generation of life-changing/saving treatments, in terms of R&D expenditure and business expertise, CSL would be one of the best choices on the ASX. Certainly I wish I’d put my $500 into it two years ago, rather than Admedus.

How 1 Man Turned $10K Into Over $8 Million - and it wasn't by buying speculative biotechs!

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Motley Fool contributor Sean O'Neill owns shares of Admedus Ltd. and Sirtex Medical Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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