October was a brutal month for global equities as the S&P 500 tallied its ninth-worst October performance ever. Biotechnology stocks participated in that slump. The large-cap Nasdaq Biotechnology Index tumbled 14.99 percent in October, erasing its year-to-date gains in the process.
That weakness is seeping into November. As of Tuesday, Nov. 20, the Nasdaq Biotechnology Index is off nearly 7.40 percent on a month-to-date basis. Recent price action notwithstanding, some biotech fundamental factors remain stout. Those include enhanced drug development, robust capital raising capabilities and opportunities for increased consolidation.
“There have been many proposed and implemented changes in US Food & Drug Administration (FDA) and Chinese FDA policies with regard to drug approvals that are favorable. Time will tell if the actual results match the intent,” reports PharmaExec.com.1
Pockets Of Strength
Amid the recent biotech carnage, individual names bucking that trend become even more notable. For example, Amarin Corp. Plc (AMRN) fought off sector weakness in October and to start November after receiving favorable results on their pure EPA Omega-3 drug Vascepa that proved to lower very high triglycerides in adults by 33 percent.
For the week ended Tuesday, Nov. 20, Amarin was up 12.68 percent in what was a rough period for broader benchmarks. Shares of Amarin are up more than fourfold year-to-date as investors and market observers are displaying enthusiasm regarding Vascepa. An editorial in the New England Journal of Medicine said the results were met with “surprise, speculation, and hope.”2
“In conclusion, after a parade of failed cardiovascular outcome trials of fish oils, REDUCE-IT has shown a substantial benefit with respect to major adverse cardiovascular events,” according to the Journal.
Another example of strength amid headwinds for the broader sector is Akcea Therapeutics Inc. (AKCA). As of Tuesday, Nov. 20, just 15 US-listed mid-cap biotech stocks (market values of $2 billion to $10 billion) were up on a month-to-date basis. Akcea Therapeutics was one of those names.
Akcea and Ionis Pharmaceuticals, Inc. said earlier in November that their treatment for patients with established cardiovascular disease (CVD) and elevated levels of lipoprotein(a) displayed favorable results in a Phase 2 clinical trial and that the results merit pushing the treatment along to a Phase 3 trial.
“These data show that AKCEA-APO(a)-LRx significantly reduces Lp(a) in patients with pre-existing cardiovascular disease due to elevated Lp(a) levels. AKCEA-APO(a)-LRx is the first and only drug to show a clinically significant reduction of Lp(a) levels and a favorable safety and tolerability profile in patients with this genetic condition,” said Dr. Louis O’Dea, chief medical officer at Akcea Therapeutics, in a statement.3
Related: A Passport To International Value
Another potential benefit of select biotech investment strategies is the rush to meet medical needs that have long been under-served or unmet. That includes non-alcoholic steatohepatitis (NASH), a market that is expected to experience exponential growth over the next several years.
What was just a $138.40 million market two years ago is expected to balloon to $18.30 billion in 2026, good for a compound annual growth rate (CAGR) of 63 percent, according to research firm GlobalData.4 Currently, NASH therapies are limited, but that is expected to change over the next decade.
“This leaves significant unmet need for the disease and, coupled with high disease prevalence in developed countries, results in enticing opportunities for drug developers,” said GlobalData. “As such, there is a very active pipeline for NASH, and many new products are expected to launch over the next 10 years.”
The ALPS Medical Breakthroughs ETF (SBIO) targets the Poliwogg Medical Breakthroughs Index, which includes biotech companies with market values of $200 million to $5 billion and enough cash to survive 24 months at current burn rates. Components in the Poliwogg Medical Breakthroughs Index include Akcea Therapeutics, Amarin and several names with exposure to the NASH market.
1 Source: PharmaExec.com Nov. 14, 2018 http://www.pharmexec.com/biopharma-business-check?pageID=1
2 Source: New England Journal of Medicine Nov. 16, 2018 https://www.nejm.org/doi/full/10.1056/NEJMe1814004
3 Source: Akcea corporate statement Nov. 12, 2018 https://finance.yahoo.com/news/phase-2-results-akcea-apo-115500359.html
4 Source: GlobalData Nov. 2, 2018 https://www.globaldata.com/store/report/gdhc005fs–non-alcoholic-steatohepatitis-nash-dynamic-market-forecast-to-2026/
Important Disclosure & Definitions
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Standardized performance for the ALPS Medical Breakthroughs ETF (SBIO) can be found here. Current holdings for SBIO can be found here.
Shares are not individually redeemable and the owners of shares may purchase or redeem shares from a fund in creation units (blocks of 50,000 shares) only.
ALPS Advisors, Inc. (AAI) has engaged IRIS Werks, LLC (IRIS) to produce analysis and commentary on ALPS-advised ETFs. IRIS currently has a compensated business relationship with AAI. AAI is not affiliated with IRIS.
The content and opinions expressed in this article are that of the author and not the views and opinions of ALPS Advisors, Inc. In addition, ALPS Advisors, Inc. assumes no responsibility to ensure the accuracy of the content written by the author.
The author is not an investment professional and this article should not be considered investment advice. While the information and statistical data contained herein are based on sources believed to be reliable, the author takes no responsibility to ensure the accuracy of the content. Additionally, this article should not be relied on or be the basis for an investment decision. Information that is historical is not indicative of future results, and subject to change.
This fund may not be suitable for all investors. There are risks involved with investing in ETFs including the loss of money. The Fund is considered non-diversified and as a result may experience great volatility than a diversified fund. The Fund’s investments are concentrated in the pharmaceuticals and biotechnology industries, and underperformance in these areas will result in underperformance in the Fund. Investments in small and micro capitalization companies are more volatile than companies with larger market capitalizations.
Companies in the pharmaceuticals and biotechnology industry may be subject to extensive litigation based on product liability and similar claims. Legislation introduced or considered by certain governments on such industries or on the healthcare sector cannot be predicted.
Companies in the pharmaceuticals industry are subject to competitive forces that may make it difficult to raise prices and, in fact, may result in price discounting. The profitability of some companies in the pharmaceuticals industry may be dependent on a relatively limited number of products. In addition, their products can become obsolete due to industry innovation, changes in technologies or other market developments. Many new products in the pharmaceuticals industry are subject to government approvals, regulation and reimbursement rates. The process of obtaining government approvals may be long and costly. Many companies in the pharmaceuticals industry are heavily dependent on patents and intellectual property rights. The loss or impairment of these rights may adversely affect the profitability of these companies.
The development of new drugs generally has a high failure rate, and such failures may negatively impact the stock price of the company developing the failed drug. Biotechnology companies may have persistent losses during a new product’s transition from development to production. In order to fund operations, biotechnology companies may require financing from the capital markets, which may not always be available on satisfactory terms or at all.
Poliwogg Medical Breakthroughs Index – The Poliwogg Medical Breakthroughs Index is designed to capture research and development opportunities in the pharmaceutical industry. PMBI consists of small and mid-cap pharmaceutical and biotechnology stocks listed on US exchanges.
Nasdaq Biotechnology Index – The NASDAQ Biotechnology Index is a modified market capitalization-weighted index designed to measure the performance of all NASDAQ stocks in the biotechnology sector. The index was developed with a base value of 200 as of November 1, 1993.
One may not invest directly in an index.
ALPS Portfolio Solutions Distributor, Inc. is the distributor for the ALPS Medical Breakthroughs ETF.
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