- Modern Meds provides exposure to the biotech and pharmaceutical industry
- The biotech and pharmaceutical industries are volatile, but have massive potential
- Product development is costly, however, and changing regulation make for volatile stocks
Within a span of 117 years, something has clearly changed.
But what happened? It’s easy to believe that some sort of black magic, conjured up by the world’s scientists, gave everyday Americans access to the fountain of youth. While magic isn’t to blame, the results of modern medicine have indeed been magical.
The answer is, indeed, science. Our increases in life expectancy are rooted in a myriad of scientific discoveries and advancements, all propelling the medical field forward an inch at a time.
Just think — at one time, a touch of diarrhea may have been a death sentence. Today, a trip to the doctor for some antibiotics will have you back to your old self in no time.
For longer, healthier lives, we can thank fields like biotech. And you can invest in biotech companies on Stash with the Modern Meds exchange-traded fund.
What’s in the fund?
Modern Meds is Stash’s name for the SPDR S&P Biotech ETF (ticker: XBI). The fund is centered around biotech, which may seem complex, but touches your daily life more than you probably ever imagined.
Modern Meds’ holdings include companies such as Ariad Pharmaceuticals, Clovis Oncology, Arcadia Pharmaceuticals, and Vertex Pharmaceuticals — not big names, but companies that are working on vitally important treatments for deadly diseases. Drugs developed by these companies target ills such as cancer, hepatitis C, and Parkinson’s Disease.
The fund is composed of U.S.-based equities, and around 82% of them are from biotech companies working on medical solutions. A further 10.7% are from the pharmaceuticals industry, and around 5% are in biotherapeutic drugs.
The fund, managed by State Street Global Advisors, launched in 2006.
Modern Meds has ridden the market waves over the past ten years, with the last few years, in particular, exemplifying how volatile the biotech and pharmaceutical industries can be.
Last year, for example, the fund returned a remarkable 43.77%, according to Morningstar. The year before, however, in 2016, it returned -15.45%–a swing of almost 60 percentage points in just two years. Modern Meds’ best year was 2013, when it had a return of 48.39%.
Year-to-date, the fund’s return is 3.44% as of April 23, 2018.
PPH comprises 25 large pharmaceutical and biotech companies, including GlaxoSmithKline, Merck, Pfizer, and Johnson & Johnson. More than two-thirds of its holdings are U.S-based stocks, with the majority of concentrated in pharmaceuticals and drug sales.
As for the fund’s performance, PPH is a step behind of Modern Meds year-to-date, with a return of -4.18% as of April 23, 2018, according to Morningstar.
In 2017, it had a return of 15.22%–well below Modern Meds. And in 2016, it returned -17.79%, much more in line with XBI.
Modern Meds’ disproportionately larger number of big pharmaceutical company holdings could account for its lower performance. Small biotech companies, whose stocks are notoriously volatile, can have outsized gains as well as losses.
Risks and considerations
While all investment carries risk, Modern Meds has some risks related to funds that invest in a specific category.
Regulation and shifting healthcare laws, for example, can slow industry development. For pharmaceutical and biotech companies, in particular, the clinical trial process demanded by the FDA is costly and can be unpredictable. Studies show that the total cost of developing and bringing a drug to market is around $2.7 billion.
For example, for every hundred drugs that start the clinical trial process, only eight make it to the market. Even for the drugs that get approved, there is still the risk of liability lawsuits, technological change, and patent defensibility.
As they say, though, big risks can come with big rewards.
Despite the volatility of the biotech and pharma industries, if a company’s drug or medical breakthrough does clear the hurdles and hit the market, the profits can be astronomical. Sales of new drugs can soar into the billions within only a few months.