ETFs Allowing Investors to Tap into and Profit from Biotech M&A

Apr 11, 2019 | Drug Development, Funding, Investors

Many big pharmaceutical and biotechnology companies are no longer relying on blockbuster drug sales as many of their intellectual property rights expire. Instead, many are now relying on targeted or specialized therapies or treatment methods, increasing the demand for mergers and acquisitions for smaller developers and research companies.

A profound shift in the drug development industry now unfolds right in front of investors eyes. The big pharma blockbuster models give way and transforms into the precision medicine, specialized and targeted approach to R&D and drug commercialization. TrialSite News aggregation engine tracks clinical trials worldwide and we can see a clear trend as evidenced in actual clinical studies. As big pharma continuously moves away from antiquated vertically integrated models—associated with the big blockbuster–to targeted and specialized models they increasingly depend on purchases of specialized drug development ventures. Investors that are plugged into this trend may have opportunity for greater returns—in some cases.

It is with certainty now that big pharma will continuously acquire niche biotech ventures to fill their pipelines. These pipelines must be filled with dynamic, robust specialized programs that will yield appropriate return on investment (ROI). ETF investors seek to capitalize on growing M&A activity via targeted investment vehicles.  ETF investors can now gain exposure to small biotech ventures that in many cases, will become big pharma M&A targets.  For example, the ALPS Medical Breakthroughs ETF (SBIO) focuses on small-and mid-cap companies that have one or more in drugs in either Phase II or Phase III trials according to newsletter ETFdb.  The newsletter reports that biotech ETFs that focus on smaller companies have been experiencing good returns as large pharma seek acquisitions and pay premiums.  They provide an example of SBIO mentioned above. They may invest in small-cap to mid-cap drug developer stocks with market caps of “no less than $200 million and no more than $5 billion.”  The model follows the Poliwogg Medical Breakthrough Index.