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Demystifying Biologics

By Michael Shulman

The Component/Consumable Marketplace

Perhaps this title doesn't do justice to the complexity of the products that are manufactured, provided, sold and used in this marketplace.

These enabling companies provide things like proteins to enable the purchaser to perform lab research, manufacture drugs and provide diagnostics tests themselves. The range of products and services includes reagent kits and applications for gene acquisition, gene cloning, gene expression and gene analysis, enzymes, nucleic acids, and various other bio-chemicals and reagents. There are many more products and services, but you get the point.

This diversity of products reflects the development of their own technology and the thrust of that technology into an ever-widening array of products and services.

Such proprietary technology creates a competitive advantage and, in turn, generates higher profit margins and the means to new product development. And that's what is at the core of growth and a successful investment.

Suppliers are often chosen because of a complete suite of products and services, and the direction the component supplier is taking -- not just one particular item in the company's catalog.

Within the enabler marketplace, companies seek to create competitive advantage by using proprietary technology and by hooking customers into long-term dependence on an expensive hardware platform and core proprietary technology that becomes central to the drug company's development and manufacturing program.

It is also worth considering companies with hybrid business models, even though hybrid implies uncertain and hard-to-predict ambitions.

While I'm not wild about hybrid outfits due to their split focus, they appeal to many investors because of their cash-generating components business and the upside potential of a new drug.

How to Invest

To make wise investments in the biologics arena you need to identify companies offering products and services that are:

• Based on proprietary technology;

• The "better widget" in their chosen marketplace;

• Showing high profit margins to fuel future growth;

• Platforms for manufacturing royalties; and

• Able to lock in customers.

If all of this makes your head hurt or simply bores you to death, but you still want to invest in the biotech sector, then I can help.

In my ChangeWave Biotech Investor service, I do the research for you and select the best companies with attractive risk/reward scenarios so that you feel confident investing in this exciting market. Click here to get started today.

Michael Shulman is Editor of ChangeWave Biotech Investor.