Are you looking for a way to always own biotech stocks on the verge of a breakthrough, but don’t want the hassle of constantly finding the next big drug-development leap forward? Well, good news: Now you can enjoy the short-term gratification of drug-pipeline progress with a biotech ETF.A pair of them, in fact.
LifeSci Index Partners LLC has launched two new funds allowing investors to further pinpoint how they capitalize on widening stream of new biopharmaceutical trials. Today, we look to see whether these funds are a useful way for investors to get into the lucrative class of biotech stocks.
Goodbye Biotech Stocks, Hello Biotech ETF
The numbers vary from one year to the next, and from one source to the next. All of them broadly conclude the same thing , though — in any given year, there are thousands of drug trials being performed in the U.S. alone. Globally, the figure can reach into the tens of thousands. Some of them are overlapping studies, but even so, no investor could keep tabs on all of them, or effectively trade them all. Traders looking to capture a decent piece of the upside even a small fraction of successful drug trials may offer could be soon be overwhelmed.
LifeSci Index Partners has a solution.
LifeSci Index Partners created and maintains the Biotechnology Clinical Trials Index and the LifeSci Biotechnology Products Index, and it has launched a pair of biotech ETF designed to mirror the performance of each of the two indices.
The Biotechnology Clinical Trials Index is the basis for the BioShares Biotechnology Clinical Trials Fund (BBC). As the name suggests, this biotech ETF invests in companies that are conducting clinical human trials with the goal of eventually gaining FDA approval of those developmental drugs.
And to be clear, BBC only holds a very narrow sliver of biotech stocks found within the sector — just those names with “promising drugs that are in clinical human trials but have not yet been approved by the FDA or gone into production.” This means LifeSci Index Partners makes a point of excluding biotech stocks from the generic pharmaceuticals space and biotech devices from the index and the ETF.
The equal-weighted fund owns 68 different developmental stocks … biotech stocks like Ziopharm Oncology Inc. (ZIOP) and Versartis Inc. (VSAR). Ziopharm is the developer of a cancer drug currently called Ad-RTS-IL-12, in phase 2 trials as a therapy for breast cancer and melanoma. The flagship drug in the Versartis pipeline is VRS-317, presently in phase 3 testing as a therapy for pediatric GHD (growth hormone deficiency).
The BioShares Biotechnology Products Fund (BBP) tracks the performance of the LifeSci Biotechnology Products Index. This index solely includes companies with drugs that have already won the FDA’s approved and are now in production. As was the case with the BioShares Biotechnology Clinical Trials Fund, LifeSci Index Partners explicitly excludes companies that make generic drugs and medical devices.
Some of the more familiar biotech stocks that make up the BioShares Biotechnology Products Fund at this time are MannKind Corporation (MNKD) and Celgene Corporation (CELG). MannKind finally won approval for its inhalable insulin Afrazza in the middle of this year, and Celgene is the maker of myeloma and blood cancer treatments Thalomid and Revlimid.
Both ETFs only hold biotech stocks of companies with a market cap of $250 million or more, and with daily trade volume of at least $1 million.
The Last Word
The two new funds from BioShares are a unique offer for fans of biotech stocks, to be sure. But, in an environment that’s been inundated with the same basic biotech ETF over and over again, these two twists on an old theme are a welcome addition to the ETF world.
As one would expect with any new fund (they were only issued five trading days ago), trading in BBP and BBC is still fairly thin, and the funds are relatively small. The BioShares Biotechnology Clinical Trials Fund has $2.8 million in net assets, while the BioShares Biotechnology Products Fund is holding $2.6 million worth of biotech stocks.
Those numbers and each ETFs could grow quickly, though, once word of this fresh take on trading biotech stocks spreads.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.