By ALPS Funds
- Last week, the ALPS Medical Breakthroughs ETF (SBIO) posted gains of around 1% and outperformed broader equity markets as well as large-cap biotech indices. Valuations for SBIO’s small-to-mid cap biotech holdings were buoyed by positive M&A (merger & acquisition) sentiment last week and positive drug trial data.
- On 8/17, SBIO constituent Principia Biopharma (PRNB, 2.38% weight*) announced it would be acquired by French pharmaceutical giant, Sanofi (SAN FP, not held in SBIO*), for $3.7 billion, which represented a 10.20% premium (PRNB is +40% since rumors of the acquisition surfaced in mid-July). The acquisition gives Sanofi full ownership of PRNB’s checkpoint inhibitor (immunotherapy) drug used to treat multiple-sclerosis.
- The deal represents the 17th SBIO constituent to be acquired since its December 30, 2014 inception and the average premium paid by the acquirer for SBIO constituents sits at 51.33%.
- Also announced last week was Johnson & Johnson’s (JNJ, not held in SBIO*) acquisition of mid-cap immunotherapy company, Momenta Pharmaceuticals (MNTA, not held in SBIO*), for $6.5 billion, which represented a 70% premium. This provided further valuation support for the biotech & immunotherapy space.
Source: Bloomberg, L.P., as of August 21, 2020; Data represents Publicly-Traded Companies
- The MNTA/JNJ acquisition represents the first biotech deal with a total value over $5 billion in 2020, however, the total number of small-to-mid (SMid) cap deals remains fairly consistent with levels seen in 2019 at this time, despite the pandemic.
- Per Bloomberg, large cap biotech companies currently hold 13% of their market caps in cash on average, and with their shares nearing all-time highs to also be used as currency to do deals, M&A across the SMid cap biotech space should continue to benefit SBIO.
POSITIVE DRUG DATA ALSO DRIVING SBIO RETURNS
- Puma Biotech (PBYI, 0.31% weight*) climbed 11% on the week after announcing positive Phase 2 study results to control diarrhea for patients using its breast cancer therapy. Krystal Biotech (KRYS, 0.59% weight*) jumped over 10% last week after the FDA designated its gene therapy for treating cystic fibrosis as an orphan drug designation, which allows the company exclusivity for seven years along with certain tax credits.
- Following positive early data on its COVID-19 vaccine, Arcturus Therapeutics (ARCT, 0.92% weight*) shot up nearly 30% last week after announcing a supply deal with Israel that is potentially worth $275 million. The company has also signed an agreement with Singapore and a number of other countries are interested as well.
Source: Bloomberg, L.P., as of August 21, 2020
Performance data quoted represent past performance. Past performance is no guarantee of future results so that shares, when redeemed may be worth more or less than their original cost. The investment return and principal value will fluctuate. Current performance may be higher or lower than the performance quoted. For the most current month end performance data please call 844.234.5852. Performance includes reinvested distributions and capital gains.
Past performance is not indicative of future results. For standardized performance of the fund please click here.
* Weights in IDOG as of 8/21/2020
TOP 10 FUND HOLDINGS^
Source: ALPS as of August 21, 2020 (subject to change)
Important Disclosure & Definitions
An investor should consider the investment objectives, risks, charges and expenses carefully before investing. To obtain a prospectus which contain this and other information call 866.675.2639 or visit www.alpsfunds.com. Read the prospectus carefully before investing.
Shares are not individually redeemable. Investors buy and sell shares on a secondary market. Only market makers or “authorized participants” may trade directly with the Fund, typically in blocks of 50,000 shares.
There are risks involved with investing in ETFs including the loss of money. Additional information regarding the risks of this investment is available in the prospectus. The Fund is subject to the additional risks associated with concentrating its investments in companies in the market sector. Diversification does not eliminate the risk of experiencing investment losses. An investor cannot invest directly in an index.
Poliwogg Medical Breakthroughs Total Return Index is designed to capture research and development opportunities in the pharmaceutical industry.
PMBI consists of small-cap and mid-cap pharmaceutical and biotechnology stocks listed on U.S. stock exchanges that have one or more drugs in either Phase II or Phase III U.S. FDA clinical trials.
NASDAQ Biotechnology Total Return Index is a modified market capitalization-weighted index designed to measure the performance of the all NASDAQ stocks in the biotechnology sector.
NYSE Arca Biotechnology Index is an equal-dollar weighted index designed to measure the performance of a cross section of companies in the biotechnology industry that are primarily involved in the use of biological processes to develop products or provide services.
S&P Biotechnology Select Industry Index represents the biotechnology sub-industry portion of the S&P Total Markets Index (S&P TMI).The Biotech Index is a modified equal weight index and typically consists of approximately 70 companies.
The indexes are reported on a total return basis, which assumes reinvestment of any dividends and distributions realized during a given time period.
The indexes are not actively managed and do not reflect any deductions for fees, expenses or taxes. One cannot invest directly in an index. Index performance does not reflect fund performance. 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.
The Fund employs a “passive management”- or indexing- investment approached and seeks to track the investment results of an index composed of global companies that enter traditional markets with new digital forms of production and distribution, and are likely to disrupt an existing market or value network. Unlike many investment companies, the Fund is not “actively” managed. Therefore, it would not necessarily sell a security because the security’s issuer was in financial trouble unless that security is removed from the Poliwogg Medical Breakthroughs Index. Similarly, the Fund does not buy a security because the security is deemed attractive unless that security is added to the Medical Breakthroughs Index.
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 persistentlosses during a new product’s transition from development to production. In order to fund operations, biotechnology companies may require financingfrom the capital markets, which may not always be available on satisfactory terms or at all.
ALPS Portfolio Solutions Distributor, Inc. is the distributor for the ALPS Medical Breakthroughs ETF.