The biotech industry has been on a roll lately. Innovations from biotech stocks, like Oxford Biomedica, continue to generate headlines around the progress of Covid-19 vaccines. But what about developments unrelated to the pandemic?
Two unique biotech companies have caught my attention, both of which seem to have incredible potential for growth. Would I buy them now?
A biotech stock breeding success
Fishermen have been struggling to keep up with the rapidly rising demand for fish through traditional fishing methods. To keep up, many businesses are turning towards aquaculture. That’s an industry where the fish are bred, raised and eventually harvested for consumption, rather than catching them wild.
Between 1990 and 2018, aquaculture’s total fish production increased over 520%. And this created a very favourable environment for Benchmark Holdings (LSE:BMK).
The biotech stock has three operations. Its genetics department uses genomics to breed fish and improve their resistances towards most diseases. The second manufactures specialised food that improves health and reduces mortality. The final segment focuses on developing specialised medicine to treat infected salmon.
For example, sea lice are a plague that costs salmon breeders nearly $1bn worldwide each year. However, Benchmark successfully created an award-winning solution that eliminates sea lice without harming the fish.
Combined, the company enables farmers to maximise their efficiency and yield. The stock has a strong balance sheet and clearly operates in a market growing at exceptional rates.
However, there are some considerable risks. The business is still young and has yet to generate any profits. What’s more, its portfolio of products, while impressive, remains quite limited. As such, it looks overly dependent on certain key products in my eyes.
Providing a path through clinical trials
The pharmaceutical industry is one of the most highly regulated sectors in the market today. And while the regulations protect patients’ health, they also introduce complications for pharmaceutical companies.
Fortunately, Ergomed (LSE:ERGO) has a solution. The biotech stock is a global provider of specialised clinical trial services for the drug development industry.
Its pharmacovigilance (PV) segment performs drug safety monitoring throughout all stages of development, as well as after a product enters the market. The firm also provides research management services through its clinical research outsourcing (CRO) department. These services include planning, monitoring, and reporting of clinical trial data.
The PV and CRO industries are expected to grow by 11.6%, and 7.5%, respectively, over the next five years. Needless to say, I think this presents a considerable investment opportunity.
But there is one significant problem I’ve spotted for this biotech stock — Brexit. As the UK is no longer part of the EU, the regulatory environment for drug development has already begun to change. And this continues to create complications and delays throughout the drug development process.
Consequently, any delays in clinical trials will impact Ergomed’s revenue, at least temporarily. However, the degree of impact should be limited as the firm generates most of its revenue outside the UK.
The bottom line
Both of these biotech stocks have performed exceptionally well over the last 12 months. Combined, their share prices have increased by over 100%!
And while I see enormous potential in both businesses, there remain several unknown factors that make me slightly cautious. Therefore, I’m not adding either stock to my portfolio just yet. But I’m definitely going to keep an eye on them.
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Zaven Boyrazian owns shares in Oxford Biomedica. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.