Featured Image

Market Volatility Masks Improving Biotechnology Fundamentals

  • In a volatile last week for markets, The ALPS Medical Breakthroughs ETF (SBIO) outpaced its competitors (XBI, IBB) and broader market indices. Despite the down week, positive sentiment throughout SBIO and biotech continued to intensify, catalyzed by policy support embedded in The Biden Administration’s National Biotechnology and Biomanufacturing Initiative and encouraging trial data.

  • SBIO’s string of positive trial data last week was highlighted by Akero Therapeutics Inc. (AKRO, 0.52% weight*), gaining over 122% after releasing watershed trial data for its drug aimed at treating non-alcoholic steatohepatitis (NASH), a serious liver disease which currently has no approved treatment therapies. The much-anticipated trial data received overwhelmingly positive comments from analysts, with numerous reports citing the data as a needed win for the space. Rallybio Corp. (RLYB, 0.24% weight*) and Xencor Inc. (XNCR, 0.89% weight*) both rallied over 9% on the NASH trial data and the Biden Administration’s announcement for biotech fiscal support.

  • Also showing progress in drug approvals, Contessa Pharmaceuticals Plc (CNTA, 0.21% weight*) rose 6.68% after receiving orphan drug status from the Food and Drug Administration (FDA) (a designation which gives tax incentives for the sponsor as well as seven years of market exclusivity after approval) for the company’s Hemophilia B treatment and additionally releasing non-clinical data for its immunotherapy which treats solid tumors. Moreover, Ascendis Pharma A/S (ASND, 3.15% weight*) gained nearly 6% following the release of long-term data for its drug aimed at treating hypoparathyroidism, which causes an imbalance of calcium and phosphorus in the body.

* Weight in SBIO as of 09/16/2022

“We believe the data is very compelling and show (The NASH immunotherapy) potential to meet the critical, global unmet need for patients by intervening across stages of disease progression, potentially addressing both early-stage metabolic drivers and later-stage inflammation and fibrosis.”

– Andrew Cheng, CEO of Akero Therapeutics, August 13, 2022

Biotechnology Initiative Raises the Bar for Breakthrough Biotech and SBIO
  • SBIO’s breakthrough small to mid-cap (SMID-cap) names continue to build on positive fundamentals, fueled by research and development growth and merger and acquisition (M&A) activity despite depressed valuations year-to-date. Competing biotech funds differ from SBIO materially in market cap with allocations to large-cap biopharma companies, where SBIO’s SMID-cap breakthrough biotech holdings offer a higher level of trial data and M&A potential. Impressively, last week SBIO outperformed XBI and IBB’s allocation of smaller biotech and defensive large-cap biotech names like Amgen and Moderna (neither AMGN nor MRNA are holdings in SBIO), despite the lower volatility these larger names should offer in a portfolio.

  • Sweeping across news headlines last week, The Biden Administration’s National Biotechnology and Biomanufacturing Initiative provides more than $2 billion to strengthen US biotech supply chains, increase domestic biomanufacturing and bolster the US’s promise of creating life-saving medicines and breakthrough treatments of diseases. SBIO’s US-based allocation of biotech companies that have one or more drugs in either Phase II or Phase III of the US Food and Drug Administration clinical trials are likely beneficiaries of the Biotechnology Initiative, with the policy support spread across SBIO’s treatment segments (DREEN, Rare & Orphan Diseases, Cancer, Cardiology & Hematology) sparking additional M&A opportunity and strengthening the drug pipeline for names in SBIO.

20220919-chart

  • US Domestic Manufacturing is the largest portion of the Initiative, with $1 billion in total investment outlaid over the next five years between the Department of Defense, and Department of Health and Human Services.

  • As a future catalyst for SBIO and biotech, the Department of Energy (DOE) plans to announce an additional ~$178 million to advance innovative research efforts for US biotechnology (not included in the Initiative total spending).

Performance Summary
  1 Week YTD 1 Y 3 Y
ALPS Medical Breakthroughs ETF (SBIO) -4.01% -25.18% -32.22% -13.09%
S-Network Medical Breakthroughs Index - TR -4.00% -24.72% -31.80% -11.97%
NASDAQ Biotechnology Index - TR -3.78% -16.41% -26.14% 21.38%


Source: Bloomberg L.P., as of 09/16/2022

Performance data quoted represents 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 current month-end performance call 1-866-759-5679 or visit www.alpsfunds.com. Performance includes reinvested distributions and capital gains.

For standardized performance please click here.

Top 10 Holdings
Karuna Therapeutics Inc 4.22%   Intellia Therapeutics Inc 2.63%
Ionis Pharmaceuticals Inc 3.46%   Zai Lab Ltd 2.58%
Ascendis Pharma A/S 3.15%   Global Blood Therapeutics Inc 2.40%
CRISPR Therapeutics AG 2.90%   Mirati Therapeutics Inc 2.33%
Cytokinetics Inc 2.65%   Cerevel Therapeutics Holdings Inc 2.33%


As of 09/16/2022, subject to change

Important Disclosures & Definitions

An investor should consider the investment objectives, risks, charges and expenses carefully before investing. To obtain a prospectus containing this and other information, call 1-866-759-5679 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 5,000, 25,000 or 50,000 shares.

Performance data quoted represents past performance. Past performance is no guarantee of future results; current performance may be higher or lower than performance quoted.

All investments are subject to risks, including the loss of money and the possible loss of the entire principal amount invested. Additional information regarding the risks of this investment is available in the prospectus.

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. 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 persistent losses during a new product’s transition from development to production. In order to fund operations, biotechnology companies may require financing from the capital markets, which may not always be available on satisfactory terms or at all.

The Fund is considered nondiversified and as a result may experience greater volatility than a diversified fund.

The Fund employs a “passive management” - or indexing - investment approach and seeks investment results that correspond (before fees and expenses) generally to the performance of its underlying index. Unlike many investment companies, the Fund is not “actively” managed. Therefore, it would not necessarily sell or buy a security unless that security is removed from or added to the underlying index, respectively.

NASDAQ Biotechnology Index: designed to track the performance of a set of securities listed on The NASDAQ Stock Market (NASDAQ) that are classified as either biotechnology or pharmaceutical companies, and is a modified market capitalization weighted index.

S-Network Medical Breakthroughs Index: comprised of small and mid-cap stocks of biotechnology companies that have one or more drugs in either Phase II or Phase III of the US Food and Drug Administration (“FDA”) clinical trials.

One may not invest directly in an index.

ALPS Advisors, Inc. is affiliated with ALPS Portfolio Solutions Distributor, Inc.

ALPS Portfolio Solutions Distributor, Inc. is the distributor for the Fund.

Not FDIC Insured • No Bank Guarantee • May Lose Value

SMB000436 12/19/2022

Recent ETF Spotlights