- Last month, the ALPS Medical Breakthroughs ETF (SBIO, the “Fund”) outpaced the NASDAQ Biotechnology Index by 281 basis points (bps) as the Fund’s small- to mid-cap (SMid-cap) portfolio charged higher on the heels of continued mergers and acquisitions (M&A) and positive trial data around its late-stage (Phase II & Phase III clinical trials) immunotherapy companies. Looking ahead, we believe SMid-cap immunotherapy companies are well-positioned to benefit from a seasonal rise in M&A activity as large pharmaceutical companies deploy cash to replenish expiring patents on their branded drugs in 2025.
- SBIO’s Cancer treatment segment led Fund returns in October, with its immunotherapy companies continuing to demonstrate breakthrough trial data that substantially improves patient outcomes. Zai Lab Ltd. (ZLAB, 1.96% weight*) surged over 25% last month after the company released positive data for its small-cell lung cancer therapy, which is hoped to rival Amgen’s similar small-cell lung cancer therapy if the drug can be shown to limit longer-term side effects. Also moving higher last month on a promising cancer therapy, Aura Biosciences, Inc. (AURA, 0.32% weight*), gained 17.17% after its bladder-cancer therapy displayed rapid tumor shrinkage in a matter of days within the small cohort of patients. Lastly, ArriVent Biopharma, Inc. (AVBP, 0.67% weight*) rose 24.85% in October after analysts were bullish on its non-small-cell lung cancer therapy, which was shown to be a well-tolerated oral treatment for the disease.
- SBIO’s other disease treatment segments (Cardiology & Hematology, Rare & Orphan Diseases and DREEN**) also provided notable news in October as markets saw a broad biotech rally. SBIO DREEN name, Longboard Pharmaceuticals Inc. (LBPH, 1.38% weight*), soared 79.18% last month after announcing it would be acquired by Danish pharmaceutical producer, H. Lundbeck A/S (not in SBIO), at an ~80% premium to its prior day closing price, affirming the value of its therapies to treat rare neurological disorders. Another SBIO DREEN name, Tarsus Pharmaceuticals (TARS, 1.13% weight*), moved 35.27% higher last month after several analysts said it was a takeover candidate with the potential for its chronic eye disease treatment to be a blockbuster. Finally, in SBIO’s Cardiology & Hematology segment, Pharvaris B.V. (PHVS, 0.92% weight*), rose over 34% last month after data on its treatment for hereditary angioedema was shown to materially improve severe attacks of swelling caused by the disease.
“Investors' romance towards the rookies (small-cap biotech) continues to heat up as most expect the group to outperform the broader market and view valuations as attractive. Old timers (large-cap biotech) lack appeal and now investors are turning the shoulder on mid-caps too compared to Q3.”
– TD Cowen Biotechnology Team, November 1, 2024
SMid-Cap Biotech Could Be a Bright Spot In 2025
- Lower expected interest rates and the first 50bps rate cut from the Federal Reserve in October have led to the beginning of what could be a long-awaited risk-on rally for SMid-cap equities, including SMid-cap biotechnology stocks held in SBIO. While the outlook for SBIO’s holdings will always depend on positive drug trials, lower interest rates will help drive increased present values of these mostly unprofitable companies. SBIO’s holdings are also well-positioned for M&A going forward as a massive $183 billion patent cliff through 2030 on the branded drugs at large biopharma companies will likely drive continued M&A for SMid-cap biotech stocks, forcing a slew of acquisitions in SBIO’s immunotherapy-focused portfolio.
- As fundamentals continue to improve broadly for biotech stocks, security selection and a defined exposure to pure-play biotech stocks remain important. The ALPS Medical Breakthroughs ETF (SBIO) distinguishes itself from the pack by providing investors with a pure-play portfolio across sought-after immunotherapy segments (DREEN, Rare & Orphan Diseases, Cancer and Cardiology & Hematology), with an emphasis on later-stage clinical trials. Importantly, SBIO only invests in smaller biotech companies with breakthrough drug trial potential while broad-based biotech indices and competitors reach for overpriced large-cap health care and pharmaceutical names, leading SBIO to outperform year-to-date (YTD) in 2024.
- As of October-end, the ALPS Medical Breakthroughs ETF (SBIO) exhibits a notably smaller weighted average market cap ($11.8B) compared to both the S&P Biotechnology Select Industry Index ($29.9B) and the NYSE Biotechnology Index ($50.2B), which could be favorable for SBIO heading into 2025 as SMid-cap biotech names see relief from lower-expected interest rates.
- Seven of SBIO’s immunotherapy-focused companies have been acquired year-to-date in 2024 at an average announced premium of +55.39%.
Performance Summary
| Cumulative | Annualized |
|||||||
| 1 M | YTD | 1 Y | 3 Y | 1 Y | 3 Y | 5 Y | SI | |
| SBIO - NAV (Net Asset Value) | 0.34% | 14.49% | 54.07% | -18.04% | 37.99% | -6.18% | 3.56% | 4.93% |
| SBIO - Market Price | 1.13% | 14.60% | 54.12% | -17.87% | 38.08% | -6.17% | 3.57% | 4.93% |
| S-Network Medical Breakthroughs Index - TR | 0.38% | 14.74% | 54.51% | -16.93% | 38.40% | -5.76% | 3.97% | 5.31% |
| NASDAQ Biotechnology Index - TR | -2.47% | 7.08% | 26.91% | -4.43% | 21.59% | -1.30% | 9.61% | 4.85% |
Source: Bloomberg L.P. and SS&C ALPS Advisors, cumulative performance as of 10/31/2024 and annualized performance as of 09/30/2024
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%
* Weight in SBIO as of 10/31/2024
** DREEN: Dermatology, Respiratory, Eye, Ear, Neurology
Top 10 Holdings
| Corcept Therapeutics Inc | 3.40% | Immunovant Inc | 2.87% | |
| Krystal Biotech Inc | 3.36% | Alkermes PLC | 2.82% | |
| Avidity Biosciences Inc | 3.24% | Denali Therapeutics Inc | 2.40% | |
| Arcellx Inc | 3.01% | Merus NV | 2.32% | |
| Crinetics Pharmaceuticals Inc | 2.96% | Amicus Therapeutics Inc | 2.26% |
As of 10/31/2024, 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.
NYSE Biotechnology Index: a rules-based, modified float-adjusted market capitalization-weighted equity index that has the objective of measuring the performance of US-listed companies in the biotechnology sector.
Pure-Play: refers to a publicly traded company that is focused on only one industry or product.
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.
S&P Biotechnology Select Industry Index: comprises stocks in the S&P Total Market Index that are classified in the GICS biotechnology sub-industry.
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
SMB000470 02/28/2025
