While the biotechnology space is one of the most innovative corners of the investment landscape, some potentially lucrative drugs and therapies are under-represented in traditional biotech investment vehicles.
It is common for large-cap biotech investments, including funds, to feature exposure to companies working on treatments for well-known diseases, such as cancer, diabetes or hepatitis. Conversely, the growing unmet medical needs universe is going, well, mostly unmet by traditional biotech investments.
An example of an unmet medical need with a potentially compelling investment opportunity is Non-alcoholic steatohepatitis (NASH). By some estimates, more than 16 million Americans are currently affected by NASH, which is a critical form of fatty liver disease.
“Perhaps as many as 20% of American adults have some degree of fatty liver disease, a condition that used to occur almost exclusively in people who drink excessively,” according to Harvard Medical School. “The epidemics of obesity and diabetes are to blame. Fatty liver affects between 70% and 90% of people with those conditions, so as obesity and diabetes have become more common, so has fatty liver disease.”1
Fatty liver disease can lead to NASH, which if untreated, can lead to cirrhosis in some patients and even become fatal. Data suggest more NASH cases are being reported, leading to an exponential compound annual growth rate (CAGR) for the NASH treatment market.
The global NASH “biomarkers market size was valued at USD 200.04 million in 2016 and is expected to witness a CAGR of 30.1% during the forecast period. Growing prevalence of chronic liver conditions is expected to upsurge demand for noninvasive diagnostic tools, fueling the demand for these products in the coming years,” notes Grand View Research.2
Data indicate that at least 20% of NASH patients are vulnerable to cirrhosis and 10% of those cases could become fatal.
Source: Grand View Research as of July 2017
The following two points underscore the massive NASH market opportunity. First, there currently is not an approved NASH drug therapy in the U.S. Second, the NASH market is currently valued at $600 million, but is expected to surge to $20 billion by 2025.3
Working Toward Treatment
An example of a company with a NASH footprint is CymaBay Therapeutics Inc. (CBAY). CymaBay, which is a member of the Poliwogg Medical Breakthroughs Index, earlier this said it commenced screening of patients for a phase 2b proof of concept study of seladelpar for NASH patients.
“There has been significant progress in the past couple of years to better characterize the progression of NASH, which has been driven by innovation in methods to measure the effect of treatments with new agents,” said Dr. Pol Boudes, CymaBay’s chief medical officer. “We are in an ideal position to leverage advances in technology in evaluating the potential impact of seladelpar in NASH patients.”4
Sell-side analysts are encouraged by the potential of CymaBay’s NASH treatment.
“Efficacy as a treatment for non-alcoholic steatohepatitis (NASH) would significantly increase the drug’s commercial potential and broaden interest in the company from other biopharma industry participants, in our view,” said Cantor Fitzgerald
NASH Investment Access
The ALPS Medical Breakthroughs ETF (SBIO), which tracks the aforementioned Poliwogg Medical Breakthroughs Index, holds 111 mid- and small-cap biotech stocks, several of which are working on NASH treatments.
1 Source: Harvard Health Publishing May 9, 2018 https://www.health.harvard.edu/diseases-and-conditions/when-the-liver-gets-fatty?utm_content=bufferf3b29&utm_medium=social&utm_source=twitter&utm_campaign=buffer
2 Source: Grand View Research https://www.grandviewresearch.com/industry-analysis/non-alcoholic-steatohepatitis-nash-biomarkers-market
3 Source: Market Research January, 2017 https://www.marketresearchengine.com/reportdetails/non-alcoholic-steatohepatitis-nash-market
4 Source: CymaBay Investor Relations May 8, 2018 https://ir.cymabay.com/press-releases/detail/431/cymabay-therapeutics-announces-the-initiation-of-a-phase-2b-study-of-seladelpar-in-patients-with-non-alcoholic-steatohepatitis
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.
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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.
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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