The American Biotech Revolution: How to Invest in The Biotechnology Sector

Marc Lichtenfeld
by Marc Lichtenfeld, Chief Income Strategist, The Oxford Club

The American Biotech Revolution: How to Invest in The Biotechnology Sector

by Marc Lichtenfeld, Healthcare and Biotech Expert

Friday, May 14, 2010: Issue #1256

At the beginning of the twentieth century, nearly one in three working Americans produced goods (manufacturing, mining, construction, etc).

And thanks to those types of jobs, the standard of living in the United States improved greatly. An autoworker in Michigan, a steel worker in Pennsylvania, or a coal miner in West Virginia could buy a house, feed his family and even send his kids to college on his wages.

Flash-forward to today, however, and many of those jobs have dried up. By the end of the twentieth century, the figure had dropped to less than one in five.

It's left America looking for another industry to call its own and provide for its workers.

The technology sector is certainly playing a key role. Some of the gadgets today are incredible and while we've got stiff competition from the likes of Japan and South Korea, American technology is still very strong.

Even stronger, however, is the American biotechnology sector...

Downturn? What Downturn?

You say you want a revolution

Well, you know...

We all want to change the world

So said The Beatles.

And that's exactly what's happening in the biotech sector.

Despite the worst recession in a generation, it grew by 1.4% in 2008 and employed 1.42 million Americans. In fact, it was one of the only areas to add jobs during that period.

What's more, the average biotech worker earns over $77,000 per year - nearly two-and-a-half times the average private sector salary. Additionally, each new biotech position results in six other new jobs in the area.

It's no wonder that U.S. states, counties and municipalities are offering all kinds of incentives to bring biotech companies to their areas.

  • Take San Francisco, for example. Last week, the city extended the payroll tax exemption to biotech companies in an effort to attract and retain these high-paying jobs.
  • The states of Maryland, Minnesota and Wisconsin are trying to help create new biotech businesses by offering tax breaks to companies or individuals who invest in biotech companies in those states.
  • And New York City offers a $3 million tax credit per year to help bring small biotech firms to Gotham.

2010: The "Decade of Biotech" - And America Knows It

I've stated before that the 2010s will be the "Decade of Biotech." It's one area where the United States still dominates. Yes, Israel and India are both making significant progress in developing their own biotech hubs and industries. And there are some biotech companies sprinkled throughout Europe. But for the most part, biotech is as American as baseball and apple pie.

With its high-paying jobs, expansion of the tax base and the prestige that comes from discovering new drugs that help people live longer and better, biotech will continue to be an attractive industry for years to come.

Even usually sluggish public officials agree that it makes sense to provide incentives for biotech companies. From the President down to local town planners, they all seem to understand the importance of the sector and how it can reframe their communities and the country.

As a result of these types of programs, along with the enormous leaps in knowledge and technology, biotech should continue to thrive and be an excellent place to invest in the next decade.

And here are the best companies in which to invest your money...

Four Biotech Stocks to Stash in Your Portfolio

Let's deal with the big boys first - the companies with a little less volatility. The leaders here are firms like...

  • Biogen Idec (Nasdaq: BIIB).
  • Celgene (Nasdaq: CELG).
  • Genzyme (Nasdaq: GENZ). (If you like a good turnaround story, Genzyme is one you can get your teeth into.)

If you can tolerate a bit more risk and want to swing for the fences, there are lots of small-cap biotech companies available.

I'm particularly excited about Celldex Therapeutics (Nasdaq: CLDX).

An event for your calendar here is the annual meeting of the American Society of Clinical Oncology (ASCO) from June 4-8. ASCO is the Super Bowl of cancer conferences and Celldex will release important clinical data on a drug for brain cancer.

Keep an eye out for this conference, as shares in many of the companies presenting data at it will move up or down sharply, depending on how safe and effective their drugs prove to be.

How to Play the Biotech Sector Before ASCO

For more information on how to play the biotech sector in advance of ASCO, be sure to check out my free podcast. Just scroll to the bottom of the page and click on the podcast labeled "What You Need to Know About Biotech Stocks..."

I've taped 10 episodes up to this point, so feel free to check out the others while you're there. And if you have a minute, I'd love to know what you think about it. Just drop me a line here. Even better, let the masses know by posting a review on iTunes.

And as always, don't hesitate to leave your feedback, using the comment section below. If you follow the biotech sector, let us know which stocks you're bullish/bearish on, or which ones you're most optimistic about with regard to ASCO.

Hoping your longs go up and your shorts go down,

Marc Lichtenfeld

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