Pharmaceutical research is a fertile field for short term trading. In the last two decades the number of new technologies being applied to the treatment of diseases has grown exponentially. Because of the potential for huge profits, stock prices of companies with a single drug in the early stage of development can soar. Short term trading preceded by ample research can be very profitable. Learning a bit about the various technologies and the hurdles a drug needs to jump before final approval is a good place to start.
Pharmaceutical Companies
Traditionally, pharmaceutical research was the province of big pharmaceutical companies, but with the stampede of new technologies and potential applications many ideas are financed by investment groups outside of the pharmaceutical main stream. Potentially profitable short term trading action occurs when these companies go public and they approach the completion of the various drug trials.
The stakes are huge for some of these treatments. A stem cell cure for diabetes would not only improve or save the lives a millions but also make many investors rich. Unique cancer therapies now cure some of these dreaded killers. The income stream from any one of these drugs can be substantial. Thus there is huge interest in small startups which have the potential to change the world.
Pharmaceutical Startups and Technology
This is a high tech world. The short term trader is well advised to follow only a few stocks dealing in only one or two new technologies. You don’t need to be an expert researcher but you need to have a sense of how many people will use a drug in question. There are excellent drugs to treat rare diseases. These drugs are miracles for those they help but may not be profitable for the companies that produce them. Often more than one company is working on a cure for the same set of diseases. Reading about and knowing the competition is part of your homework.
Some of the risk for the short term trader in new pharmaceutical technology can be removed if one only trades in the old “big pharma” stocks. However, the possibility of large profits decreases as a new drug’s value is diluted across the product line of a large company.
One does not need to be a biotechnology expert, however. The stock moves of biotech companies are driven by the “real” news of the medical literature and the “opinion” news of investment advisors. A short term trader who does his or her homework will be knowledgeable when it comes to the basics of a drug under study. The knowledgeable short term trader will be totally current with any published reports on the drug in question. Knowledgeable short term traders will be able to take advantage of the “herd mentality” engendered by the popular press or even well known investment advisors.
When a successful drug comes to the end of its patent, generic drug makers can produce the same chemical and sell it at a substantially lower price than what the original maker charges. Thus short term trading in the stocks of successful generic drug makers can be lucrative as these companies race to gain a share of developed drug markets. In this case the short term trader is more interested in the track record of the generic drug maker than in the details of the already developed drug. Do they keep their production costs down and do they produce a product of sufficiently high quality to compete in the market?
Once a short term trader finds his or her niche in this active market, the same trading system is applicable for each new startup company and drug.
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