When you talk 5 minutes about something, is almost like writing a post. I was saying the other day that if I had money I wouldn’t invest it in Facebook. I will instead choose to invest my savings in industrial biotech.
The answer to that Why? send me monologuing for more than 5 minutes. I don’t mean to criticise Facebook, or the gold fever that its IPO seem to have created, but a well thought biotech company looks like a better investment to me. There is probably also something of a bubble going on with industrial biotech, but it is not blown out of proportion by a worldwide brand like Google, Facebook or Twitter. Yet industrial biotech is in a growth phase, which is what investors are looking after. Some of its strengths as a market are:
- The technology in which it is based comes in many cases from universities and industrial projects and R&D live happily together right now. There will be more disruptive innovations that will push for growth for a long time.
- It feeds on oil price – each time there is a hike in the price, the market grows, as its products become competitive.
- Technology is ready, market is ready – it is time to grow until it becomes a mature market.
Of course I wouldn’t put my money in just any company, as not all of them will do well. It has already happened with biofuels, that were the first star project in biotech industry. Right now, without government help and with the oil price back to normal levels, some USA bioethanol producers are no longer competitive. Instead of a subsidised product, this is what I would look for if I were to invest:
- Pilot phase, at least, and even better if it already has a commercial product.
- Well connected: Collaboration is also essential in industry. Biotech companies that have reached distribution, sales or product development agreements will do better. Extra points for those that have partnered with the chemical industry or strong consumer brands (which also shows that someone else has done a viability analysis).
- Anything can go in, a lot can come out: This is a market in full expansion, growing at good rates and it is difficult to know now which products will be the more successful in the long term. Having a technology that can “eat up” any kind of feedstock (in particular cellulosics or urban/industrial wastes) and come out with different chemistries at the end is a key advantage.
- Be parasitic: Industrial biotech is not yet in the same league as the chemical giants. The step towards industrial scale is delicate and to me the best strategies take advantage of existing infrastructures. Some companies hire fermentation capacity, instead of building it. Others develop their technologies to change a process that is not longer profitable. For example, Butamax and Gevo work on modifying bioethanol manufacturing sites to produce bio-isobutanol (apparently a much better fuel than ethanol).
- Compete in price: All of the above means little if, when reaching industrial scale, your product is still 30% more expensive than its petrochemical alternative, without improving performance. It is not enough that it comes from a renewable feedstock. If your price is too high, your market will always be reduced and you’ll only do well when oil price shoots up.
There is one last reason why I would invest in biotech, and is that I think it is more important than Facebook, despite its lack of celebrity. Although the solutions may not be perfect right now, it can help us reduce oil dependency, reuse waste and discover new medicines… Just like smartphones and the social networks, is science fiction trying to become reality.
Disclaimer: I have never invested money, I’m not a stock market expert and I even have the impression that as of lately markets don’t follow any logic, so don’t trust only my criteria to invest!