In the world of biotechnology stocks and ETFs, investors are pumping up those names with exposure to coronavirus treatments and vaccines. However, the ALPS Medical Breakthroughs ETF (SBIO) shouldn’t be forgotten in all that commotion.
SBIO focuses on small- and mid-cap companies that have one or more drugs in either Phase II or Phase III trials. The component holdings have one or more drugs in either Phase II or Phase III U.S. Food and Drug Administration clinical trials. In a Phase II trial, the drug is administered to a group of 100-300 people to see if it is effective and to evaluate its safety. In a Phase III trial, the drug is given to a larger group, between 500-3,000 people, to confirm its effectiveness, monitor side effects, compare it to commonly used treatments and collect information that will allow the drug or treatment to be used safely.
Between the Phase II or III requirement and SBIO’s mandate that member firms have market values of $200 million to $5 billion when added to the fund’s underlying index, the ETF isn’t excessively exposed to the coronavirus vaccine theme because many of the companies engaged in that fight either exceed SBIO’s market cap mandate or because the treatments are still in Phase I trials.
Up 8.55% over the past month and higher by 65% off its March lows, it’s clear investors are appreciating SBIO, regardless of COVID-19 leverage.
SBIO Stands Tall
With the COVID-19 pandemic raging, biotechs that are consistently profitable and that offer drugs that patients absolutely must have could be seen as relatively safe compared to many other stocks on the market. For investors looking to stay in the market and diversify portfolios, here are two biotech ETFs that could be worth diversifying into during the coronavirus crisis.
Adding to the case for SBIO is that bigger, older pharmaceutical companies are flush with cash and facing patent cliffs, making acquisitions of smaller rivals attractive avenues for bolstering pipelines.
Many big pharmaceutical and biotechnology companies are no longer relying on blockbuster drug sales as many of their intellectual property rights expire. Instead, many are now relying on targeted or specialized therapies or treatment methods, which has increased the demand for mergers and acquisitions for smaller developers and research companies.
SBIO components can come out with breakout innovative medicines that can generate huge growth. These smaller companies are also potential acquisition targets for larger companies seeking to diversify their product lines.
Investors looking for other biotech ETF plays, look to the VanEck Vectors Biotech ETF (BBH), iShares Nasdaq Biotechnology ETF (IBB) and the Virtus LifeSci Biotech Clinical Trials ETF (BBC).
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
