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Why the biotech sector is booming and how you can profit from it

by , 18 August 2015

The biotech (or biotechnology) sector has been in a strong bull market for the past five years. But just because this sector has run strongly, it doesn't mean it's going to stop now.

In fact, it looks set for further gains.

So why is the biotech sector doing so well? And how can you profit from its move higher?

Read on to find out…

The world’s biggest biotech sector

If you want to look at the world’s largest biotech sector, you need to look to the US. The NASDAQ has its own Biotechnology Index, composed of 145 different biotech stocks.

Along with many of the world’s stock markets, the US markets have done really well over the last five years. The Dow Jones Index is up over 65% higher over this time.

The NASDAQ Biotechnology Index is up over 361%, quite impressive. This reflects the bull market in the sector. The trend is clearly upwards.

You can see the performance of the NASDAQ Biotechnology Index below…

Chart of the NASDAQ Biotechnology Index

Of course, the trend won’t always continue higher, but there will be warning signs when a change is brewing.

Why the biotech sector is doing so well

There are a number of reasons why this sector is booming, Frank Hemsley in Profit Watch explains…

Firstly, the world’s ageing population. This is driving a need for new medical developments and treatments for illnesses like cancer and Alzheimer’s.

Biotech is leading the search for new technologies that will help treat these diseases.

Secondly, the older, traditional pharma companies are facing a problem. They have made billions from their drugs, but these drugs are coming to the end of their patent lives. This means competitors can launch generic versions and this will eat into their profits.

So these companies are desperate to find new drugs that can replace these expiring patents and the profits that go with them.

Large pharma companies can use the innovative technologies of biotech companies to help them achieve this. They can commercialise their breakthroughs.

How to profit from the raging biotech sector

You have two options.

You can invest in an ETF like the iShares NASDAQ Biotech exchange traded fund to gain exposure to the overall index. You’ll need to invest in these using an international investment account.

Or you can focus on individual stocks. The SA biotech sector is practically non-existent, so look to the US stock markets for opportunities.

So there you have it. Why the biotech sector is booming and how you can profit from it.

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Why the biotech sector is booming and how you can profit from it
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