LifeSci Index Partners has launched the BioShares Biotechnology Clinical Trials Fund (BBC) and the BioShares Biotechnology Products Fund (BBP), both passively managed exchange traded funds (ETFs).
The Funds, which have listed on Nasdaq, are designed by a team of biotechnology investment specialists and allow investors, for the first time, to choose from two distinct groups of stocks that are typically grouped together in other funds – advanced products stage companies with FDA approved drugs and earlier clinical trials stage companies.
Both funds are designed to track their respective indexes, the LifeSci Biotechnology Clinical Trials Index and the LifeSci Biotechnology Products Index. The indexes are calculated and disseminated by an independent third party, Indxx, LLC.
Biotechnology is one of the most dynamic, high-growth sectors in the global economy today and has been one of the best performing sectors in the last two years. Everything ranging from antivirals, antibiotics and cancer-fighting medicines to gene therapies, cell-based therapies and enzyme replacement therapies are developed in the biotechnology space. The sector is also incredibly diverse, ranging from nimble, entrepreneurial start-ups to more-established global giants.
“The landscape of the biotechnology sector has experienced dramatic shifts since the IPOs of Cetus and Genentech in the early 1980s,” says LifeSci Index Partners co-founder, Paul Yook. “Our BioShares funds are designed with the current biotechnology market in mind and offer investors unique and diversified portfolios of entrepreneurial biotechnology stocks by applying our rules-based index methodology.”
Both indexes have been designed from the ground up by a seasoned team of experts to provide previously unavailable, targeted exposure to clinical trials stage and products stage biotechnology companies. Headed by scientists with PhDs in organic chemistry, molecular biology and neurobiology, as well as investment professionals with decades of experience in the health care sectors, LifeSci Index Partners’ insight into the biotechnology investment space is unique.
Andrew McDonald, PhD, LifeSci Index Partners’ Chief Executive Officer and former medicinal chemist, explains the critical differences between the funds: “Clinical Trials stocks can often have dramatic volatility especially around clinical trial data releases, but these binary events can also offer significant rewards to risk-tolerant investors. Products companies, on the other hand, have much of their clinical data risk behind them and offer investors a window on sales ramps of new drug launches.”
Biotechnology Clinical Trials companies, such as those found in BBC, conduct clinical human trials with the goal of eventually gaining FDA approval. They work at the cutting edge of experimental biotechnology: taking risks, testing out innovative approaches and novel compounds that, if approved, could one day become blockbuster drugs.
Biotechnology Product companies, such as those found in BBP, have developed at least one drug that has been approved by the Food and Drug Administration (FDA) and has gone into commercial production. These companies devote their energies toward sales and marketing, attempting to raise awareness of their new product launches.
Potential index constituents are first screened for market capitalisation; a minimum of $250 million in market capitalisation is required for inclusion and demonstrates institutional backing. Potential constituents are further screened for liquidity and must have a minimum average daily volume of $1 million to ensure that the security can be easily bought and sold on the open market.
Both indexes employ an equal weighting approach that allows each security’s performance to affect its ETF equally, regardless of the size of the company. In this way, a relatively small firm enjoying a major breakthrough can have a meaningful impact on an index. An equal weighting also serves to minimise the outsize impact that a handful of mega-cap biotechnology companies can have on more traditional, market cap weighted indexes.