Aren't pharma companies a gamble given that you have to entirely depend on their research results that will cause huge swings in share price? As a non-scientist, how can you justify buying this share? - Seedly
 

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Asked by Anonymous

Asked on 18 Apr 2019

Aren't pharma companies a gamble given that you have to entirely depend on their research results that will cause huge swings in share price? As a non-scientist, how can you justify buying this share?

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Leonard Tan
Leonard Tan
Level 6. Master
Answered on 19 Apr 2019

I think this question is better answered from the context of US pharmacutical industry in the overall market cap of US equities. Notice how Health Care is the 4th largest sector in S&P500 behind IT, Financials and Consumer Discretionary.

This is the invidual breakdown on industries under the Health Care Sector itself.

Plus an added benefit of pharma is that the need for a given medicine is pretty much a necessity for patients. Therefore despite the economic situation/cycle, there existing demand/potential of every drug can be more accurately evaluted.

With the nature of many healthcare & pharma research companies being capital intensive and needing to raise money through private investors and IPOs, there exists alot of potential investment opportunities in the market given the existence many small caps listed. Therefore being a lucrative sector, there are plenty of traders who choose to stay up to date to latest news concering drug developments and patents especially those with technical knowledge in the domain.

Day & Swing traders are particularly attracted to the huge volatility swings and if they are able to follow and get access to news quickly, they can leverage off that to potentially make many lucrative trades. Many of these individuals are not scientists or have foundations in technical science backgrounds. Therefore I believe it is possible you do not exactly need firm background knowledge in the field to justify trading on healthcare sector in general.

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