It can be truly exciting to invest in biotech stocks. Just one positive announcement could double your initial investment. But if you’ve done your homework, your returns could even triple in the long run. Quick explosive returns are one reason why a lot of investors like biotech and small-cap stocks. They find it too boring to wait for years on end to enjoy their returns.
But investing in biotech stocks can also be extremely risky. I guess it’s why they call it the risk return trade off. To make huge potential returns you need to take on more risk. So while an announcement can send shares skyrocketing, they can send shares plummeting.
Bear in mind nothing has changed to the financials of the firm. Not immediately anyway. And investors either aggressively buy or sell based on their future beliefs about the company.
This morning, cell-based medicines firm Mesoblast Ltd [ASX:MSB] was dropped by investors. Shares opened down 27.1%, having resumed trade following a trading halt that’s been in effect since 1 June.
Source: Google Finance
What happened to the Mesoblast share price?
MSB stated this morning that Teva had withdrawn their investment. Teva is in the pharmaceutical industry. They’ve been committed to providing high quality healthcare since 1901.
Their global product portfolio is made up of over 1,000 molecules. And they produce around 64 billion tablets a year. Initially, Teva had made financial contributions to MSB’s heart failure trials. However, MSB has now been left needing to find another financial partner to carry out their trials.
Even though Teva have pulled out of MSB’s late stage trials, they still retain a 14% stake in MSB.
Recruitment for the heart failure trials is around 40% complete. The scheduled completion time is within 18 months. And MSB stated that they had received ‘equity finance facilities’ to help pay for the trials.
Yet MSB will still be lost when it comes to selling their treatment. They will now be in search of a new partner. There are rumours that they’ve already been talking to potential partners. However, just like with LNG Ltd [ASX:LNG] recently, sometimes these rumours never materialise.
Junior Analyst, Money Morning
PS: You don’t just have to limit yourself to biotech stocks to achieve enormous potential returns. You can also widen your scope to small-cap stocks. A lot of biotech firms are small-caps, but not all small-caps are biotech firms.
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