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Botanical Extraction - A Safe Investment Or Speculative Bet?

It has been a good start to the year for many micro and small cap biotech stocks with a few FDA approvals lifting the sector in general. With the prospect of an economic recovery, and investors looking for greater returns, many under-funded (and historically cheap) small biotech company's could see an infusion of much needed capital this year.

I want to focus on one biotech sector in particular which seems to be capturing investor's imagination... botanical extraction.

In a nutshell, botanical extraction is the process of extracting key ingredients from live plant material. These key ingredients are then used to manufacture an array food and beverage, cosmeceutical, nutraceutical and pharmaceutical products.

There are many companies with the ability to extract live plant material; however the great challenge for them all is bioavailability.

The FDA defines bioavailability as "the rate and extent to which the active ingredient or active moiety is absorbed from a drug product and becomes available at the site of action".

Currently the market standard for bioavailability is between 1-10%, and has been for some time. Traditionally, technology in this area has lagged other biotechnology industries, despite the multi-billion dollar (and growing) nutraceutical, cosmeceutical and wellness industries.

However one publicly listed biotech company, Plandai Biotechnologies, Inc (OTC:PLPL) has invented a process by which extracts have shown in published USDA studies to have bioavailability of between 60-80%, far exceeding anything currently available.

Such significant advancements in extraction processes are surely welcome to both manufacturers and end consumers alike. Given an aging population and the rapid rise in diseases such as Diabetes type 1 and 2, products with a significantly higher bioavailability, at an affordable price, will be forever increasing in demand.

According to Plandai Biotechnologies management, they predict their income, arising from new extraction technology, to increase 9 fold over the next five years.

Given the substantial growth of this industry (Global Industry Analysts project the nutraceuticals market alone will exceed US$243 billion by 2015), and new advancements in technology which will ultimately lead to significant increases in profitability, I believe investing in this industry could potentially bring significant returns to those who identify those publicly listed companies that are at the forefront of finding new and improved extraction techniques.

And while there are very few botanical extraction companies listed on the major US exchanges to invest in, companies like Plandai Biotechnology Inc may be worth a look at.

About the Author
Tom Donnell has been investing in startup biotech companies for 23 years. Prior to investing and advising several small biotech startups, he was the founder of the Individual Investor Alliance, a non-profit organization which helps provide individual investors with the relevant skills and knowledge required to make prudent investment decisions. For more information, please visit wallstreetequitiesresearch.com

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.