The stock market's biotechnology sector includes companies whose primary activity is research and development of new treatments for medical conditions and diseases, explains Investopedia. The sector has over 1,000 companies, including a few large firms and a large number of small startups that do not make a profit due to the long development process for new drugs. These companies are difficult to value because their primary asset is intellectual property that is not yet marketable.Continue Reading
Though most firms in the biotech sector are small, much of the industry's profits are attributed to four firms dubbed the "Big Four," notes Adam Feuerstein for TheStreet. Amgen, Celgene, Biogen and Gilead Sciences are all profitable companies with a market cap of over $60 billion as of October 2015, according to MSN Stock Screener. Amgen and Gilead, the two largest biotech companies, even pay dividends to their shareholders, a luxury the small startups cannot afford.
Startup biotech companies are often considered "lottery tickets," reports Kevin Cook for Zacks Investment Research, because any given company might strike it rich with a highly profitable drug but also has a high chance of going out of business. After biotech companies spend large amounts of money on research and development, their new drugs must go through a three to six year approval process with the U.S. Food and Drug Administration, states Investopedia. The FDA approves one or two of every 20 drugs, and companies whose drugs are not approved often fail as a result.Learn more about Investing