- Last month, the ALPS Medical Breakthroughs ETF (SBIO, the “Fund”) soared 25.15%, outpacing large-cap biotech indices and broader US small-cap indices by nearly 1,300 basis points (bps). SBIO’s Cancer treatment segment led gains in the Fund on the heels of positive immunotherapy trial results and a continuation of mergers & acquisitions (M&A) with three of SBIO’s small to mid-cap (SMid-cap) holdings announcing they would be acquired at significant premiums.
- SBIO’s strong December performance was led by all four of its treatment segments (Cancer, Cardiology & Hematology, Rare & Orphan Diseases and DREEN^) returning more than 20% during the month. Rayzebio Inc. (RYZB, 2.55% weight*) was the top gainer within SBIO’s Cancer segment in December, jumping more than 135% after Bristol Myers Squibb (BMY, not in SBIO) agreed to purchase the cancer therapy developer at a whopping 144% premium over the prior day’s closing share price. Arvinas Inc. (ARVN, 1.44% weight*) added to the positive news for SBIO’s Cancer segment in December, gaining over 87% on the back of positive results from its breast cancer therapy trial. Meanwhile, ALX Oncology Holdings Inc. (ALXO, 0.39% weight* as of December reconstitution) rallied nearly 73% in December after an upgrade by Jefferies, citing three potential drug trial readouts in 2024 on its immuno-oncology therapies.
- SBIO’s DREEN segment also saw positive updates as the obesity treatment space was hot in 2023. Altimmune Inc. (ALT, 0.26% weight* as of December reconstitution) rocketed 142.72% in December after announcing positive results for its obesity therapy for non-diabetics. Cerevel Therapeutics Holdings Inc. (CERE, 4.09% weight*), another SBIO DREEN name, surged over 63% last month following news that AbbVie (ABBV, not in SBIO) plans to acquire the neurology company in a ~$8 billion deal at a 73% premium.
- Other high-flying names within SBIO in December were Edgewise Therapeutics Inc. (EWTX, 0.47% weight*), which rallied 79.93% in the Fund’s Rare & Orphan Disease segment after a competitor reported strong late-stage study results around its similar heart-disease therapy. Additionally, Liquidia Corp (LQDA, 0.53% weight*) rose over 62% last month after the molecular therapeutics company won the federal courts’ favor in its patent lawsuit against United Therapeutics (UTHR, not in SBIO), which will allow Liquidia’s late-stage Cardiology therapy to receive FDA approval and launch earlier in 2024.
“After another difficult year, there are signs that biotech is recovering into 2024. A pause or even reversal in interest rate hikes is constructive for biotech financing while M&A in the space remains active.”
– Piper Sandler Analyst, December 28th, 2023
SMid-Cap Biotech Sees Plenty of Catalysts Heading into 2024
- As falling interest rates propelled SMid-cap stocks to end 2023, SMid-cap biotech stocks have registered notable outperformance over their market cap-weighted peers. Certainly, SMid-cap biotech outperformance has been fueled by expectations of three Federal Reserve (Fed) rate cuts in 2024, but this space is broadly driven over the long term by positive drug trial results and M&A by large-cap biopharma companies looking to replenish their drug pipelines as looming patent cliffs threaten their revenues.
- Per Statista, an estimated $350 billion in drug revenues (including key blockbuster drugs) are at risk from patent expirations through 2028, representing a significant portion of revenues for large-cap biopharma companies. This is a key reason why SBIO saw 13 of its 100 holdings announce they were being acquired in 2023 at an average announced premium of 80%, with biotech analysts expecting that M&A trend to continue into 2024 on further patent expirations along with borrowing costs potentially becoming cheaper.
- As bond yields began to fall in late October 2023, kick-starting the SMid-cap outperformance over large-cap, SBIO quietly rallied 40.24% into the year-end and outperformed the Russell 2000 Index by nearly 1,600bps.
- The ALPS Medical Breakthroughs ETF (SBIO) invests in SMid-cap biotech companies that have over 24-months of cash burn on-hand with their primary drugs in late-stage drug trials, mostly focused on promising immunotherapies for unmet diseases.
Performance Summary
| Cumulative | Annualized |
|||||||
| 1 M | YTD | 1 Y | 3 Y | 1 Y | 3 Y | 5 Y | SI | |
| SBIO - NAV (Net Asset Value) | 25.15% | 8.18% | 8.18% | -35.65% | 8.21% | -13.69% | 3.17% | 3.62% |
| SBIO - Market Price | 25.39% | 8.68% | 8.68% | -35.55% | 8.70% | -13.64% | 3.26% | 3.75% |
| S-Network Medical Breakthroughs Index - TR | 25.20% | 8.39% | 8.39% | -34.69% | 8.42% | -13.26% | 3.59% | 4.15% |
| NASDAQ Biotechnology Index - TR | 12.91% | 4.59% | 4.59% | -5.97% | 4.61% | -2.04% | 8.27% | 4.21% |
Source: Bloomberg L.P. and SS&C ALPS Advisors, as of 12/31/2023
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.
Market Price is based on the midpoint of the bid/ask spread at 4 p.m. ET and does not represent the returns an investor would receive if shares were traded at other times.
Fund inception date: 12/30/2014
Total Operating Expenses: 0.50%
^ DREEN: Dermatology, Respiratory, Eye, Ear, Neurology
* Weight in SBIO as of 12/31/2023
Top 10 Holdings
| Cerevel Therapeutics Holdings Inc | 4.09% | Axsome Therapeutics Inc | 2.55% | |
| Vaxcyte Inc | 4.05% | RayzeBio Inc | 2.55% | |
| ACADIA Pharmaceuticals Inc | 3.46% | Corcept Therapeutics Inc | 2.32% | |
| Alkermes PLC | 3.20% | MoonLake Immunotherapeutics | 2.32% | |
| REVOLUTION Medicines Inc | 3.15% | Xenon Pharmaceuticals Inc | 2.31% |
As of 12/31/2023, 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 of ETFs are bought and sold at market price (not NAV) and are not individually redeemable.
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.
Basis Point (bps): a unit that is equal to 1/100th of 1% and is used to denote the change in a financial instrument.
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.
Russell 2000 Index: measures the performance of the small-cap segment of the US equity universe.
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., registered investment adviser with the SEC, is the investment adviser to the Fund. 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
SMB000458 04/30/2024
