Are you investing in biotech or pharmaceutical stocks? Pay attention to these 3 things and you will earn more

Investing in biopharma stocks isn’t for everyone. Between the need to understand subtle medical or scientific factors in the often byzantine world of clinical and regulatory catalysts, there are plenty of opportunities for informed investors to reap big rewards — and for misinformed or underinformed investors to lose their shirts.

The good news is that if you’re willing to put in a little effort, it’s very possible to improve your process to achieve better results with this stock category. In particular, there are three things to look out for that will give you a lot of juice to squeeze, so let’s dive in and learn.

1. Board of Directors

As stuffy as it may seem, taking a look at a company’s board of directors is at least as important when evaluating biopharma stocks as it is for other investments.

Take AbbViehis (ABBV 0.10%) board, for example. There, you’ll find the current CEO, the most recent former CEO (who is also the chairman), 10 people who are either current or former captains of industry in major businesses both inside and outside of the medical sector, and a pair of medical professors from top educational institutions. You will also find the committee assignments for each of them.

It is true that assessing the quality of a company’s board of directors is a somewhat subjective process. But it doesn’t take much work to figure out whether board members could credibly be useful advisors to the CEO and other top executives.

In AbbVie’s case, having a former CEO as chairman of the board is a big plus because it means all of his experience and knowledge is preserved and available for use as needed. Similarly, having a pair of prestigious professors at the CEO’s disposal is a smart way to try to maintain ties to the academic medical and scientific communities, both of which AbbVie needs to flow successfully to succeed in the long term.

2. Scientific advisory council or scientific committee

Another governance factor worth understanding is the composition of a company’s scientific advisory board (SAB) or its scientific board committee.

Although there are some differences between these two concepts — scientific advisory boards have no real control over business functions and usually do not participate in the day-to-day work, unlike members of a science and technology board committee. — the principle used to analyze them is the same.

As with the board assessment, the idea is to think about the members of these groups and what they bring to the table relative to what is needed. For example, ModernThe Science and Technology Committee is tasked with advising the rest of the board on the capabilities of its platform technologies. He has three doctors who have each held leadership positions in major organizations you know.

In other words, they are undoubtedly well equipped to provide insightful commentary on Moderna’s science and technology as it relates to the competitive landscape in which it operates. A smaller board would probably include less qualified people or people with fewer directly relevant qualifications.

For a pre-product biotech, the best SABs are staffed with leading researchers in the science that is the company’s focus for research and development (R&D). It can be hard for a layman to determine who is considered a leader, but the next point will help clarify the matter a bit.

3. The volume and prestige of the staff’s scientific publications (or lack thereof)

Especially for early-stage biopharmaceutical companies, building a science-based case for why the company’s approach could lead to successful commercialization of a drug is absolutely essential. Publishing clinical trial results in reputable, peer-reviewed journals is one of the main ways biopharmas push their side of the argument.

Like most biotechnologies, Zealand Pharma (ZLDP.F 4.55%) has a section on its website dedicated to the collection of its scientific publications and key presentations for the scientific community. What you want to see is mostly what Zeeland displays: a new publication or a new formal presentation of data at a medical conference every two months or so.

You should not read this material if you do not have the experience to appreciate it, although it is often interesting. Note who is listed as the author; a quick internet search will reveal their institutional affiliations and with little effort it is possible to discern their level of credibility at a basic level.

Look at where the data was presented or in which journal the paper was published. You probably already recognize the names of the most reputable magazines, such as Nature, The Lancet, or the Journal of the American Medical Association (JAMA). If you’re not sure how reputable a particular publication is, try looking up its impact score; bigger is better.

The point here is that if a biotech repeatedly publishes its results in My friend Jerry’s (fake) medical journal for imaginary medicine or The Journal of Weird and Probably Fake Scienceor presenting his results at a conference dedicated to practitioners of medical quackery, he is probably not producing data that the most reputable segments of the scientific community would find valid or convincing.

These examples, although fantastic, are not very far from reality; be especially alert for any sign of a financial relationship between a business and where it publishes or presents its data, as this is a major red flag.