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SBIO’s Valuation Trough Catalyzes More Biotech M&A

  • Last month, the ALPS Medical Breakthroughs ETF (SBIO) soared 9.95%, outpacing broader US small-to-mid-cap (SMid) indices by nearly 900 bps. While the large-cap US biotech space saw muted gains in April, SBIO’s diversified SMid-cap holdings stole the show with three of SBIO’s names announcing in April they were being acquired at significant premiums, in addition to a number of SBIO holdings reporting positive earnings and drug trial data for life-saving treatments. 

  • All three M&A recipients were held in SBIO’s DREEN (Dermatology, Respiratory, Eye, Ear, & Neurology) segment, which led the fund’s performance in April as many DREEN companies utilize immunotherapy where M&A has been red hot over the past few years. The month of April kick-started that trend again with UK drug-maker, GSK Plc (GSK, not in SBIO), agreeing to purchase Bellus Health Inc. (BLU, 1.13% weight*) at a whopping 103% premium over the prior day’s closing share price, adding to its portfolio of respiratory immunotherapies as BLU’s primary therapy helps to inhibit neurons that cause chronic coughs. 

  • Another biopharma giant, Merck (MRK, not in SBIO), agreed to purchase Prometheus Biosciences Inc. (RXDX, 5.71% weight*) at a 75% premium with Merck’s eyes set on Prometheus’s immunotherapy to treat inflammatory bowel disease. Lastly, IVERIC bio, Inc. (ISEE, 2.79% weight*) rallied 35.18% in April, following headlines that its marketing partner, Astellas Pharma Inc (not in SBIO), will purchase the eye-drug maker for $5.9 billion to fully own its immunotherapy inhibitor to treat blindness.   

  • While M&A news took the spotlight in April across SBIO’s immunotherapy-focused holdings, breakthrough drug trials and better-than-expected company earnings also boosted SBIO’s gains in April. SBIO DREEN name, Arrowhead Pharmaceuticals, Inc. (ARWR, 2.37% weight*), jumped nearly 40% last month after releasing exceptional interim trial data for its gene therapy to treat inflammatory lung disease (asthma). Additionally, CymaBay Therapeutics Inc. (CBAY, 0.63% weight*) also benefitted from late-stage trial results, rising 23.39% in April after releasing positive Phase III trial data for its immunotherapy to treat chronic liver disease. 

  • Within SBIO’s Cancer segment, Immunogen, Inc. (IMGN, 0.75% weight*) gained over 40% in April, following the company’s impressive sales of its ovarian cancer immunotherapy. Finally, fatty liver disease and fibrosis drug-maker, Viking Therapeutics, Inc. (VKTX, 1.04% weight*), moved nearly 28% higher in April after reporting inline Q1 revenues and receiving positive analyst commentary on its trial progress for its nonalcoholic steatohepatitis (NASH) immunotherapy.

“Adding external deals to supplement internal innovation is definitely the strategy that we intend to pursue, so you can expect that we will continue to do more deals.”

– Luke Miels, Chief Commercial Officer, GSK Plc, April 18, 2023

Rising Biotech M&A Tide Typically Creates Lasting Price Momentum
  • US SMid-cap biotech M&A has surged in 2023 as valuations hit multi-year technical lows. Large-cap biopharma continues to be flush with acquisition cash as patent cliffs potentially threaten their existing branded drug franchises – prompting a need for more M&A. While recent regional bank failures have led to financing concerns for SMid-cap biotech stocks, it has also forced SMid-cap biotech companies to be more open to deals even as SBIO’s holdings have increased their cash-on-hand by over 30% in the first four months of 2023. Impressively, the number of biotech M&A deals and the volume of deals ($B) through April of 2023 are on pace to surpass highs for both full-year metrics tracked over the past decade. 

  • Despite higher interest rates disproportionately impacting growth and small-cap stocks that don’t yet have earnings, SBIO’s names can, at times, buck that negative sentiment as M&A heats up or positive drug trials are announced in the space. Over 85% of SBIO’s holdings are focused on coveted immunotherapy treatments across various biotech segments (DREEN, Rare & Orphan Diseases, Cancer, Cardiology & Hematology), where most of the large-cap biopharma M&A has been focused over the past few years.  
  • Year-to-date in 2023, US biotech M&A has registered ~$61B in deal volume with an average premium of 88.42%, nearly already surpassing full-year 2022’s deal volume of ~$70B.

  • Seven SBIO companies have been acquired in 2023 at an average premium of 74.43%.

Performance Summary
  1 Month YTD 1 Y 3 Y
ALPS Medical Breakthroughs ETF (SBIO) 9.95% -1.74% 5.06% -21.47%
S-Network Medical Breakthroughs Index - TR (PMBI) 9.94% -1.73% 5.94% -20.26%
NASDAQ Biotechnology Index - TR (XNBI) 1.50% -0.40% 12.27% 9.68%

Source: Bloomberg L.P., as of 04/28/2023

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.

For standardized performance please click here.

* Weight in SBIO as of 04/28/2023


Top 10 Holdings

Prometheus Biosciences Inc 5.71%   Arrowhead Pharmaceuticals Inc 2.37%
Roivant Sciences Ltd 4.02%   Zai Lab Ltd     2.25%
Alkermes PLC 2.91%   Cytokinetics Inc 2.20%
Cerevel Therapeutics Holdings Inc 2.82%   ACADIA Pharmaceuticals Inc 2.14%
IVERIC bio Inc 2.79%   Vaxcyte Inc 2.12%

As of 04/28/2023, subject to change

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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.

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SMB000449  8/31/2023

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