Biotech Tweet of the Week: Do Your Due Diligence

Our tweet of the week comes from Mandy Jackson quoting Steve Burrill at a Southern California biotech industry conference, where the venture-capital guru said that his fund looked at 150 companies last year for every one they funded.

While investors in public biotechs can't be that picky, senior biotech specialist Brian Orelli and health-care analyst David Williamson make a simple point in the following video: Don't buy first one you see.

There are a couple of strategies that investors can take to help separate the cream, such as looking at all the companies in the same therapeutic area -- for obesity-drug makers that would be Orexigen , Arena Pharmaceuticals , and VIVUS -- and pick the best one or split your investment into multiple biotechs treating a disease if it isn't clear which one will come out on top.

You can also look at companies of the same size, choosing the best large-cap biotech for instance. Or you might look at companies with upcoming binary events and pick the one that provides the best risk-reward ratio.

In the tweet, Burrill also says that bigger Series A rounds are going to fewer start-ups. On one hand, that might be a good thing for investors in public companies: If the more successful companies are getting funded well, we could see higher-quality IPOs on average. On the other hand, these private companies compete with public companies that investors may own. For instance, Juno Therapeutics snagged a whopping $176 million in its Series A round to develop its immunotherapy drugs designed to make the patient's killer T cells attack the cancer. The funding will make it a formidable competitor to Novartis , which is working on a similar platform.

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Brian OrelliDavid Williamson, and The Motley Fool have no position in any stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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