A Biotech Investor’s Worst Nightmare Just Came True

biotechToday’s 75% drop in Seres Therapeutics (MCRB) stock is every biotech investor’s worst nightmare — and highlights the risks associated with dabbling in single stocks in the space.

From $35 to $8 in Minutes

MCRB shares were beaten to a pulp this morning after the company’s phase 2 study on a new microbiome treatment for preventing a bacterial infection failed. The product, called SER-109, was supposed to reduce risks associated with infection. Instead, according to clinical results, they did next to nothing.

The fallout is a company that was worth nearly $1.5 billion yesterday is now worth $372 million this morning.

Seres Therapeutics stock closed on Thursday at $35.77.

Friday, they opened at $8.52.


Unfortunately, this result isn’t all that uncommon in the biotech space, which offers all the thrills and terror of an amusement park ride — with much more risk.

Biotech stocks can offer incredible returns, but the losses are just as pronounced, if not more so. Companies can all but disappear overnight based on a single drug trial failure. Seres is holding on for dear life right now, hoping that it can modify SER-109 and make it more effective. But that could takes months or years to develop, assuming it ever does.

Thankfully, there’s a much less risky way to gain exposure to high-flying biotech stocks.

ETFs a Safer Bet

Enter ETFs. Exchange Traded Funds have been around for decades, but their real growth started around ten years ago. Nowadays, there’s an ETF for every country, every sector, every currency, commodity or asset class — you name it, there’s an ETF for that.

If you want exposure to the biotech space, the IBB is your safest bet. With over $7.5 billion in assets, it’s the #1 fund in the biotech arena.

That doesn’t mean it doesn’t carry risks of its own, though. IBB hit an all-time high near $400 just over a year ago. At the time, the biotech space was hotter than a pistol, attracting investor assets at a record pace. Predictably, the bubble burst — as bubbles are wont to do — and IBB fell 40% over the next six months.

Biotech is coming back in vogue again, however. With interest rates and overall market volatility at all-time lows, investors’ risk appetite is high. IBB and similar biotech ETFs seem to have put in a solid floor. Investors want another taste of what the sector has to offer, and there’s nothing wrong with that.

But If you want a taste of cutting edge biotechnology, but still want to sleep at night, do it using ETFs. Otherwise you might just see your greatest investment nightmare come true.

The iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB) rose $0.72 (+0.25%) to $288.40 in Friday morning trading. The IBB, which is the largest biotech ETF in the world, has fallen 15% year-to-date.


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