Biotechnology offers the active trader the opportunity for huge gains in the realm of pharmaceutical stocks. However, there may be more than meets the eye in biotech stocks. Which company invents the drug? Which old line pharmaceutical company or biotech giant does the drug marketing? Which stock can you actively trade?

When trading biotech and pharmaceutical stocks it pays to do your homework. In order to make the most profit in trading biotech you may need to find out which pharmaceutical company owns which biotech stock or, more commonly, which biotech giant or old line pharmaceutical company does the drug marketing for the startup stocks that invent the new drugs.

A case in point is a biotech company that has the patent on a new anticancer drug, Tarceva. Tarceva is produced by OSI, an American based company and sells a billion dollars of its new anti-cancer drug a year. However, OSI does not have a drug marketing network and has contracted with Genentech in the USA and Roche overseas to “co-market” Tarceva.

In this sort of deal the larger, established, company uses its established drug marketing network to promote a new drug and takes a cut, a big cut. In the case of OSI and Tarceva, Genentech gets fifty percent of US sales on Tarceva and Roche gets 79% of international sales.

Another aspect of this arrangement is that Roche, the Swiss pharmaceutical and biotech giant owns Genentech. In the 1980’s when the American biotech all-star ran short of cash the venerable Swiss pharmaceutical company, Roche, bought large blocks of stock and eventually owned a controlling interest in Genentech. Today Genentech is an independently managed unit of Roche.

So, when you hear about a new miracle drug such as Tarceva and want to know how to trade it, you need to know the actors. Many other pharmaceutical companies beside Roche buy shares in, enter into drug marketing arrangements with, or purchase outright small, promising companies.

Knowing the status of these arrangements will help you decide which stock to watch and trade.

As we have mentioned before on this site, in trading biotech there are stages in drug development that are important. A drug needs to go through a number of clinical trials to make sure that it’s not dangerous and that it works. At each stage its stock will go up, or down, in multiples based upon the announced results of drug trials at that stage.

Knowing who the other actors are in this drama, such as who will do the marketing for the new medication, will allow you to trade more than one stock on the same news.

There is also the issue of trading buyouts. Roche has a history of buying promising biotech companies, leaving successful management in place, and profiting from what seems to the public to be an independent company.

Roche, Genentech, and OSI are not the only companies with biotech drug and drug marketing arrangements. Doing a little homework to find out “who’s who” and “who owns what” will allow you to make more of a profit when trading biotech.

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