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Biotech Stocks Outperform the S&P 500

A Brief History of Biotechnology

Written by Brian Hicks
Posted April 8, 2013

"We have the means right now to live long enough to live forever. Existing knowledge can be aggressively applied to dramatically slow down aging processes so we can still be in vital health when the more radical life extending therapies from biotechnology and nanotechnology become available."

— Ray Kurzweil 


The 19th century French chemist Louis Pasteur is widely regarded as the father of the modern-day biotechnology industry.

If you remember your grade school lesson, Pasteur was a microbiologist worshiped for his breakthroughs in the causes and preventions of diseases.

Pasteur's discoveries reduced mortality from puerperal fever, and he created the first vaccines for rabies and anthrax. But perhaps he's best known for inventing a method to treat milk and wine in order to prevent it from causing sickness, a process called pasteurization.

It may surprise you to learn Pasteur wasn't the first to use biotechnology. In fact, humans have been experimenting with "biotech" processes for thousands of years.

Before I go any further, here's a quick definition: Biotechnology is the use of living systems and organisms to develop or make useful products.

Yeast is probably the best-know unicellular organism in this regard. And of course, you know it's used to make bread and beer. Well, that's biotechnology.

Sounds rather scientific and simple at the same time, doesn't it?

That's because it is...

Nearly 10,000 years ago, humans were producing wine, beer, and bread by using fermentation, a natural process in which the biological activity of one-celled organisms plays a critical role.

It wasn't until the 20th century that the life-changing impact of biotechnology was fully realized, marked by the discovery of antibiotics through biotechnology...

Alexander Fleming discovered the mold Penicillium in 1928. His work led to the purification of the antibiotic penicillin by Howard Florey, Ernst Boris Chain, and Norman Heatley.

In 1940 penicillin became available for medicinal use to treat bacterial infections in humans, and for the next 40 to 50 years, penicillin was the drug of choice to treat a whole host of infections.

The next big milestone for biotechnology came in September 7, 1984, when Amgen went public. On that day, the biotechnology industry changed forever as it ushered in a massive inflow of capital investment for R&D to target the world's deadliest diseases.

Amgen has now returned investors who purchased its stock on that day over 100,000%!

And ever since, investors have tried to find the next Amgen. Because no other sector in the market offers the breathtaking returns biotechnology does.

Think about it like this: What's the cure for cancer worth? Or heart disease, diabetes, obesity?

It goes further than that...

As you read this, biotechs all across America are researching ways to make you live longer with a superior quality of life. They're growing limbs and organs in labs. And they're researching drugs to eradicate some of the most terrifying diseases known to man, like Alzheimer's.

Each of these drugs — if successful — could be worth tens of billions of dollars.

That's the promise of biotechnology.

And that's why many pundits have dubbed the 21st century "the Biotech Century."

If you remember my old investment advisory, The Cutting Edge, then you know I was heavily invested in biotechnology stocks in the late 1990s. Yesterday I was going through my Cutting Edge archives when I came across my old 1999 portfolio of biotech recommendations...

Here it is (click to enlarge):

chart1_brian0408

Take a look at two microcap biotechs I recommended in January 1999: Regeneron and Alexion. At the time, both were trading at market caps under $250 million...

Today Regeneron (NASDAQ: REGN) sports a market cap of over $17 billion.

Since my very first recommendation in January 1999, it's up 2,557%.

regenchart1

And Alexion (NASDAQ: ALXN) is now worth over $19 billion.

It’s up 3,166% since January 1999.

alxnchart

Both of these stocks are responsible for the blockbuster gains we've seen in biotechnology over the past few years. They're why biotech stocks are on fire right now.

In my Wealth Daily article from December 17, 2012, I listed biotechnology as one of the Top Ten Investments for 2013.

And it hasn't disappointed...

ibbchart1

Year to date, biotechnology stocks — as represented by the iShares NASDAQ Biotechnology ETF (IBB) — have creamed the S&P 500.

In fact, IBB has outperformed the broader index by astounding 100%!

And it’s even better when you go back a full year:

ibbchart

IBB has outperformed the S&P by 200% in the last twelve months!

Last November, I recommended IBB to members of my Wealth Advisory.

In the coming months, we'll be recommending more biotechnology stocks that kick off dividends. Stay tuned.

Forever wealth,

Brian Hicks Signature

Brian Hicks

Brian is a founding member and President of Angel Publishing and investment director for the income and dividend newsletter The Wealth Advisory. He writes about general investment strategies for Wealth Daily and Energy & Capital. Known as the "original bull on America," Brian is also the author of the 2008 book, Profit from the Peak: The End of Oil and the Greatest Investment Event of the Century. In addition to writing about the economy, investments and politics, Brian is also a frequent guest on CNBC, Bloomberg, Fox and countless radio shows. For more on Brian, take a look at his editor's page.

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