The ALPS Medical Breakthroughs ETF (SBIO) rallied 11.53% last week on positive trial data and merger and acquisition news that revived the biotech sector.
The small- and mid-cap biotech companies among SBIO’s holdings outperformed large-cap biotech indexes by nearly 200 bps last week on positive drug trial data for companies focused on immunotherapy, with their primary drugs in the later stages of the FDA clinical trial process, ALPS wrote in a recent insight.
The weakness that the biotech sector observed this year reversed on June 17 when rumors surfaced that Merck & Co. Inc. (MRK) — a top holding in the Apex Healthcare ETF (APXH) — was looking to buy one of the oldest immunotherapy companies in the sector, Seagen Inc. (SGEN), which is a top holding in the Principal Healthcare Innovators ETF (BTEC). More than 80% of SBIO holdings are focused on immunotherapy, causing the shares of the ETF to increase as investors bid up the space on the rumored news, according to ALPS.
SBIO’s cancer treatment (25.03% of SBIO) and rare and orphan diseases treatment (25.92% of SBIO) segments saw the largest gains last week, rising 14.01% and 13.14%, respectively, according to ALPS.
Major drivers of returns for SMID-cap biotech companies include M&A and announced trial data, where a positive catalyst at one company can substantially drive returns for the entire space. Looking at SBIO holdings, upcoming anticipated drug catalysts in the second half of 2022 include drugs aimed at treating sickle cell disease (CRSP, 3.11% weight as of June 24), hypertension (IONS, 3.33% weight as of June 24), psychiatric disease (KRTX, 2.09% weight as of June 24), and lung cancer (MRTX, 2.27% weight as of June 24).
Lower-than-expected M&A volumes in the first half of 2022 have caused uncertainty for biotech investors year-to-date, but recent positive trial data, declining SMID-cap biotech valuations, and improved free cash flows for pharmaceutical giants may act as positive tailwinds for further SMID-cap biotech acquisitions in 2022, according to ALPS.
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