While some biotechnology companies are busy developing tomorrow’s blockbuster medications biotech stocks can be volatile. The Fidelity Select Biotechnology mutual fund, for example, lost 41 percent in 2002 and then gained 33 percent in 2003. It gained only 4 percent in 2006, vs. nearly 16 percent for the S&P 500. Therefore, while the promise of a new seemingly magical drug is exciting, one must realize that it can take 10 years or longer to get from development to market. 

Before it can even hope to get market, it must jump Food and Drug Administration hurdles that require a three-phase trial on humans. That can take five years or longer and an additional year to apply and receive FDA approval for the drug’s release to the public.  

Don’t despair, though because you can still invest in pharmaceutical giants such as Johnson & Johnson, Pfizer, and Eli Lilly and although the idea for a new drug might start with a scientist working for a small company, the new drug is most likely going to end up being marketed and sold by one of these companies.   

Remember though the old logic that says that you should invest in what you understand so if  you’re not a scientist, think twice before investing and pinning your hopes in a small firm that thinks that it may have discovered a miracle drug. So my advice to those of you who are new to the market is to invest in the tried and proven pharmaceutical giants with broad and deep product pipelines.

Tags: stocks, investment opportunities, pharmaceuticals, fidelity select biotechnology mutual fund, pfizer, johnson & johnson, biotech stocks, eli lilly