Hey y'all,
I wanted to get some insight from some real investors. Unfortunately, as I went to post in another subreddit, I was unsure whether I should be posting there or here. I've been researching pharmaceutical stocks and searching for patterns. Given a lot of these stocks are pretty insanely volatile and tend to be on the cheaper side, like penny stocks, I figured why not post here?
**So what has my research actually included?**
Basically, I've come to learn about the four phases of a pharmaceutical drug:
*Phase 1 - Safety*
Essentially, is this a safe drug to administer? Testing typically occurs on groups of less than 100 people.
*Phase 2 - Effectiveness*
Does this drug work? This phase typically tests groups of less than 300 people.
*Phase 3 - The Big One*
This is where investors get real anxious. This phase typically tests on groups of around 3,000 people. This is the part that can really make or break a company, as it truly tests drugs on patients using a placebo. The best way I can really describe it is a double check on the effectiveness of a drug (is this better than what is currently offered?). Think, "This is the stage where news headlines are typically written about some godsend drug like Ozempic and actually shows promise!"
*Phase 4 - Approval*
This phase is mostly just for legal reasons, as a company has gotten FDA approval and needs to track all those longterm side effects that land on those HUGE pieces of paper that no one really reads when they take a medication.
**So what's the point of all this?**
Typically, pharma stocks developing a few drugs that are in phases 1-2 are most likely going to fail. Sure, you might drunkenly execute a trade on a random penny stock that happens to make you a multimillionaire, but odds are 99% of people never will and just hemorrhage money. But we might be able to set some parameters to increase our chances. Obvious disclaimer: This is not financial advice, nor am I a registered broker, advisor, or anything like that. For myself, I would seek two things in a pharma company.
First, market cap. All the great bets are done on companies that are small caps (less than 5 billion in market cap). My one caviat is a minimum of $300m in market cap, but that's also not a 100% guarantee the stock won't fail.
Second, phase. Any company that is in phase 1 or 2 is too risky for my money. Phase 3, however, does show some real promise in my opinion. In addition to my research on the different phases, I also looked at what the MEDIAN, not average, length of time a stock spends in phase 3 is. I concluded that anything beyond 2-2.5 years is once again too risky for me.
**Now, with all these factors in place, what can we do?**
Well, I don't know. This is why I'm coming to you guys. I want to create a discussion around this, my research, other people's insights, and other people's experiences. I guess what I'm really trying to say is, what do you guys think?