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What is the biotechnology sector all about?

Despite the hot topic of biotechnology and its repercussions in our life, it is not a new science. Over 2,000 years ago, Egyptians used early-stage biotechnology to produce pest- resistant and weather-hardy crops. More recently, life-enhancing insulin was discovered through biotechnology.

Today the frontier of biotechnology has been accelerated by the era of computer technology. But biotechnology is not about computers and dot.com industries, it’s about intellectual property, research, discovery, and applications. How biotech discoveries are applied has opened up a can of worms of controversy in the areas of stem cell research and gene manipulation, but there are many everyday, practical applications to the science.

Common applications of biotechnology:

Agriculture and livestock: Biotechnology is used in crops and livestock to yield more food and to resist diseases.

Disease application: Biotechnology research is making substantial advancements in the areas of diabetes, kidney disease, and cancer treatments, to name just a few.

Wine and beer making: The fermenting process used in wine and beer making is a rudimentary form of biotechnology.

Environmental: Biotechnology is used in treating toxic waste and environmental disasters.

DNA and forensic science: Biotechnology is used to track down criminals, and identify victims of crime.

Drug industry: Biotechnology is making substantial gains in producing less toxic, more life-enhancing pharmaceutical products.

What’s in a name?

Genes: Genes are what make up a human organism and its traits. Genes give you your hair and eye colour, for example.

Genomics: Genomes are a collection, or sequence, of genes or traits.

“Almost every disease is caused by a screw-up in a protein.”

-- Aled Edwards, University of Toronto Magazine, The Medical Issue, Autumn 2001

Proteomics: The buzz word for the study of protein structure and function on the human organism. Proteins are considered the building blocks of our cell structure. Because we are primarily made up of proteins, research in this area is considered vital in disease intervention.

Investing in biotechnology
When you invest in biotechnology, you are investing in scientific research.

Financial professionals feel that biotechnology today differs from a decade ago because of more funding, computer-enhanced research, and more demand. Government and institutional investors have significantly boosted the revenue behind research and development in biotechnology.

A rapidly-ageing population looking for less-toxic drugs, coupled with the desire for enhanced health in later years, is expected to create greater demand for research and life-enhancing products.

Despite the strides being made in the biotechnology field, professionals still emphasize that this is a volatile, risk-oriented sector. The biotechnology of today is still in its infancy stage. The number of solid biotechnology companies in the market is still very small; only about 15 companies dominate the industry. Tread carefully.

Safeguards to investing in biotechnology:

Safety in numbers. Many financial professionals feel that investing in biotechnology mutual funds reduces risk in the sector by holding a basket of companies, managed by a professional. Trying to pick one winning company would be difficult for even the most experienced investor.

Know your risk tolerance. Biotechnology investments are not for the feint of heart. The sector is extremely volatile and risk oriented. Yes, it can reward investors handsomely when a new product is successful, but it can just as easily erode investments if a product has side effects, is delayed, or the company lacks funding.

Do your homework. There are so many fledgling companies in the biotechnology industry that careful research is needed to determine the quality of the company.

Seek professional advice. Objective professional advice is prudent in any area of investing, but in a volatile, risk-oriented sector, it is even more critical.

Long-term philosophy. The biotechnology sector is very volatile so long-term investing is even more important to help ride out inevitable market swings. As well, many companies in biotechnology require years to realize profits. Many biotechnology investments, such as mutual funds, are sold as labour-sponsored, venture-capital funds, that require a seven-year holding period.