As investors consider the regulatory, scientific, and demographic factors driving today’s growth in biotechnology industry, they can look to the Nasdaq Biotechnology Index’s methodology and one related exchange traded fund, which could lead to the best representation of the sector.
In the recent webcast, The Biotech Trek: A Short History from 1993 to 2021, Mark Marex, Research & Development Specialist, Nasdaq Global Indexes, explained that the Nasdaq Biotechnology Index, or NBI, provides exposure to some of the top leading and innovative biotech names in the world, including prominent names like Amgen, Gilead Sciences, Moderna, Vertex Pharmaceuticals, and Illumina, among others.
The index is made up of 54 companies with over $5 billion in market capitalization and 220 with less than $5 billion in market cap. NBI also includes 230 biotechnology names and 44 pharmaceutical companies. About 13% of the index is domiciled outside the U.S.
Marex explained that the the Nasdaq Biotechnology Index was launched on November 1, 1993, when the industry was still in the midst of the original biotech revolution ushered in by the discovery of recombinant DNA technology and Genentech’s IPO in 1980.
The biotechnology segment is a complex, hybrid industry comprised mainly of 2 types of companies based on R&D-intensive – often clinical trial-stage companies focused on intellectual property/patents, and more mature companies with approved products already on the market, participating in all phases of discovery, development, and manufacture of treatments. While 41 companies representing 13% of NBI weight are classified as biotechnology by ICB Subsector, they also contain the word “pharma” or “pharmaceutical” in their company name. Additionally, 140 companies classified as biotechnology by ICB, or 38.5% of NBI’s weight, contain “pharma” or “pharmaceutical” in their company description, according to FactSet.
On the other hand, Nasdaq-listed pharmaceutical companies tend to be much younger than NYSE-listed ones – they have an average time of 15 years since IPO versus 37 years, respectively.
The Nasdaq Biotechnology Index includes exposure to R&D-intensive subsegments across key areas of innovation, including orphan diseases, regenerative medicine, precision medicine, next generation sequencing, human augmentation, gene therapy, geriatrics, bioformatics, and biochips,
NBI covers a diverse group of biotech and pharma names that are engaged in gene therapies, oncology, neuro/retinal, therapeutics, central nervous system, autoimmune diseases, rare diseases, infectious diseases, cardiovascular and metabolic systems, among others.
Rene Reyna, Head of Thematic and Specialty Product Strategy ETFs and Indexed Strategies, Invesco, pointed out that the Nasdaq Biotechnology Index (NBI) is now the underlying index for the newly minted Invesco Nasdaq Biotechnology ETF (IBBQ).
Reyna argued that the strategy casts a wide net on the biotechnology theme, capturing a large opportunity set. Companies classified under biotechnology and pharmaceuticals can include many different types of innovations, ranging from genomics to cancer treatment and more. Additionally, the COVID crisis has brought more attention to biotechnology and its critical role in society.
Financial advisors who are interested in learning more about the biotech sector can watch the webcast here on demand.