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Biotech: One of the Last Growth Frontiers for Retail Investors

Biotech: One of the Last Great Growth Frontiers for Retail Investors In 1986, Microsoft (NASDAQ: MSFT) went public at a valuation of about $500 million. If you were fortunate enough to invest $10,000 in Microsoft on the first day of trading at $28/share (Microsoft’s stock price closed at $27.75 that day), your shares would be worth nearly $7 million today after accounting for stock splits and the reinvestment of dividends.[1] Some 18 years later, Google (NASDAQ: GOOG) went public at a valuation of about $23 billion. While investors in the Google IPO have done very well, the valuation of Google would need to grow to more than $16 trillion (about the size of the current U.S. gross domestic product) for them to earn a return comparable to what investors in the Microsoft IPO earned. Times have changed, and not necessarily for the better if you’re a retail investor. With cloud-based computing services pushing down start-up costs for internet-based services and a regulatory environment that has driven up the costs and hassles associated with going public, an increasing number of high-growth technology companies are shunning the public markets in favor of remaining private (or being gobbled up by larger companies) during their periods of fastest growth. As venture capitalist Mark Andreessen has noted, these trends are depriving middle class investors of the opportunity to invest in some of country’s fastest growing companies. But at least one fast-growing sector of the economy remains heavily dependent upon the public markets to finance its development. Owing in part to the enormous costs of developing new pharmaceutical compounds and in part to the need for permanent capital to survive the lengthy FDA drug approval process, biotechnology firms continue to tap the public markets to finance their high-risk, high-reward drug development plans. And retail investors have been some of the biggest beneficiaries of these ambitious plans. During the 10-year period ended December 31, 2014, the largest biotechnology ETF in the world, the iShares Nasdaq Biotechnology ETF (NASDAQ: IBB), provided investors an annual total return of 15.1%. The S&P 500 Index returned 7.7% per year over the same period. Read the entire article from Forbes.com. [1] Source: http://www.microsoft.com/investor/Stock/StockSplit/stockcalc.aspx


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