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For the best investments to add a little high-potential punch to your portfolio, nothing's better than biotech.
The iShares Nasdaq Biotechnology Exchange Traded Fund (ETF) (Nasdaq: IBB) rose 30.2% in the last 12 months and is already up a healthy 16.5% year to date.
In fact, the biotech sector has been a consistent performer for investors. The Nasdaq Biotechnology Index has notched 16.1% annualized returns for the last five years.
Big gains from just three stocks — Amgen Inc. (Nasdaq: AMGN), BiogenIdec Inc. (Nasdaq: BIIB) and Gilead Sciences Inc. (Nasdaq: GILD) — created a whopping $60 billion in combined shareholder gains in 2012.
And analysts expect the trend to continue.
Rock-bottom interest rates will likely boost biotechnology stocks, Les Funtleyder, president of the investment advisory arm of Poliwogg, told CNBC.
"As a group, biotech is probably the place to be this year because low interest rates are supportive of capital consuming sectors like biotech," Funtleyder said.
Low rates also make it far more cost-effective for big companies to acquire small firms with proven technologies.
Fact is, for every 1,000 "compounds" (drug candidates) that enter laboratory testing, only one will ever make it to human testing.
So buying a small biotech with a potential blockbuster is a far safer strategy than sinking years' worth of R&D into projects that may or may not turn into profitable ventures.
Big Pharma has been especially aggressive in the past few years as they faced the "patent cliff" — the loss of roughly $170 billion in annual sales from a massive wave of patent expirations.
Best Investments in Biotech: Creating Giants From Small Fry
Since the discovery of DNA as the genetic material in all life in 1953, there have been tremendous advances in biotechnology.
Biotech has a wide range of uses including agriculture, genetic research and cloning, human health care, and most prominently – pharmaceuticals.
Cutting-edge biotech drug discoveries have the potential to making life-saving changes in patients' lives.
And while the health care industry has been dominated by a small handful of "Big Pharma" companies like Merck & Co (NYSE: MRK) and Johnson & Johnson (NYSE: JNJ), biotech has the unique ability to transform small-fry into industry giants.
Just take a look at Regeneron Pharmaceuticals Inc. (Nasdaq: REGN) and Celgene Inc. (Nasdaq: CELG), two of yesterday's fledgling biotechs that have emerged as today's powerhouses, boasting substantial pipelines and strong sales.
"Biologics" Spur Cancer Research
But if the biotech sector is hot, nothing is hotter than companies focused on the battle against cancer.
The statistics tell a dark story: The global odds of getting stricken with cancer are 44% for men and 38% for women.
An urgent need exists for better treatments to combat the scourge.
And the most powerful weapons now available in the war on cancer are "biologic" drug therapies.
Whereas conventional cancer treatments rely on chemical synthesis, biologics are synthesized from the cells of a living organism, including humans, animals and plants.
One company on the leading edge of this $138 billion market is Teva Pharmaceutical Industries Ltd. (NYSE ADR: TEVA), an Israel-based drug firm that is the largest manufacturer and seller of generic drugs in the world.
But TEVA also produces patented biologic brands and it's now aggressively targeting the market for "biosimilars," which are simply generic, less expensive versions of biologics.
The booming biosimilars market could reach $2.6 billion in annual sales by 2015, up from only $379 million in 2011, according to IMS Health.
But Teva is unlikely to be a stock that will supercharge your portfolio. With a market cap of over $33 billion, it's simply too large for one or two drug discoveries to move the needle on its stock.
This Best Biotech Investment Has Home Run Potential
You see, when you buy a single biotech stock, you want one that has a huge risk/reward ratio.
While you might be happy with double digit gains in less risky stocks, a biotech stock needs to have huge potential – one that comes with a shot at triple digit gains.
During his business journalism career Bill Patalon spent three years studying the biotech market and recently recommended one such stock to readers of his Private Briefing investing service.
On April 2, 2012, his column "The Biotech Buyout Binge" identified a company with the most exciting biologic drug in cancer development.
Over the past two years, the drug has exhibited extremely positive clinical trial results in B-cell lymphomas, which caused a huge stir in both the medical and investment communities.
Patalon continues to believe it has blockbuster, multibillion-dollar commercial potential and the company has frequently been cited as a possible takeover target.
Meanwhile the stock has soared roughly 167% since he made the call.
And he's confident there's much more to go.
"This is…one of the biggest profit opportunities we've seen in years," Patalon said.
Watch this interview with Bill to learn more.
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Biotech a Buy, Be Wary of HMOs
Biologic medical product
- IMS Health:
Shaping the Biosimilars Opportunity