Biotechnology is certainly on the list, if not at the top, of high-growth industries in dire need of a rebound.
Following enthusiasm for COVID-19 vaccines in late 2020 and part of 2021, biotechnology stocks and ETFs have disappointed investors. The group’s slump is now prolonged, but it won’t be permanent. Investors considering preparation for biotech equity resurgence may be well-served by focusing on innovation. Among ETFs, the ALPS Medical Breakthroughs ETF (SBIO) answers that bell.
SBIO follows the S-Network Medical Breakthroughs Index (PMBI). The ETF could benefit from the FDA’s renewed emphasis on approving new, noncoronavirus drugs and therapies.
Potential Biotechnology Rebound
Enhancing SBIO’s relevance as a potential biotech rebound play is the R&D–intensive nature of many of the fund’s member firms. R&D is the heartbeat of the biotech industry, particularly among smaller firms, such as SBIO components.
“Overall, we find optimism in greater adoption of FDA’s accelerated approval pathway, robust 2024 R&D outlook, and increased uptake of innovative life science tools and services,” according to TD Cowen, which recently surveyed biotech R&D executives.
All of SBIO’s holdings must have at least one drug or therapy in Phase II or Phase III trials with the FDA. Biotech stocks with drugs in Phase I trials or those with products in the pretrial stage are historically volatile.
That requirement can mitigate some of the volatility associated with the FDA’s often fragmented and lumpy approval process. That process has a history of frustrating investors.
“FDA approval of a drug is not solely dependent on clinical data generated and how it stacks up against FDA guidance, but also the organizational psychology of the division in which it undergoes review,” added TD Cowen. “Understanding review leadership and key players, their training and background, their public opinions and demonstrated discretion for or against the written statute on effectiveness, can reveal striking insights on the fate of drug review and allow investors to make better informed stock calls.”
SBIO eliminates the need for investors to select individual stocks in a market segment that’s notoriously prone to boom-or-bust securities selection.
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