So you’ve invested, or are considering investing, in a biotech company that has what it believes is a hot new drug or treatment that it can bring to market.

What is their pathway to commercialisation, a rising, sustainable share price and, hopefully, returns for you, the shareholder?

Be warned, investing in biotech companies is a long-term and expensive play. The average length of time it takes for a drug to complete the journey from discovery to market is at least 10 years, with the average cost of that process $2.6 billion.

Drug development goes through a range of phases. Initial discovery is often made by researchers, who then palm it off to business-savvy individuals who have the wherewithal to begin the lengthy process of development and commercialisation.

Once out of the lab, drugs head into what is know as pre-clinical trials, in which the drug is tested in animals, usually rodents. These are the trials that you will most often hear about in the media, as they occur regularly and often showcase blockbuster potential, such as treating cancer.

The problem, however, is what happens in mice nearly always fails to be replicated in humans.

That is why, once pre-clinical trials are ticked off, Phase I trials in humans see the drug being tested in healthy subjects, to evaluate the safety and tolerance of the drug in humans.

If a drug is shown to be safe and tolerable, it will progress to crucial Phase II trials, which tests the drug for efficacy in patients with the specific indication the drug is trying to target.

If those trials are successfully completed, Phase III trials test the efficacy of the drug in much larger patient groups and compares the results with current approved treatments to see if it makes a big enough case for adoption.

Phase III trials are very expensive and take a long time, and so it is at this stage that many biotech companies will look to find a partner company, usually a bigger pharmaceutical company, to take on the expense and risk.

If Phase III trials are completed and shown to be successful, the drug can then be taken to regulatory bodies for approval, another long process which in more than 40 per cent of cases requires the company to undertake further studies to prove the drug’s worth.

Overall, more than 90 per cent of drugs fail to make it from Phase I clinical trials to market. Just 9.6 per cent of drugs developed between 2006 and 2015 were successfully approved.

But if you get in early – and have done your homework – riding a biotech’s fortunes as it closes in on commercialisation can be an exhilarating, and extremely lucrative, journey.

This content does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.