HoldingsBiomarin Pharmaceuticals, Bluebird Bio, Biogen, and more
Managed byState Street Global Advisors
Fun fact: the average life expectancy of an American citizen was 79 years in 2011. That’s not too shabby! And it is even more impressive when you realize that’s a 30 year increase from only 49 years in 1900. If they had twitter back then, #carpediem would be trending 24/7.
That amazing increase in average life expectancy begs the question, “Why?”
The answer is not so simple. Researchers link the increase to a smorgasbord of causes, including improvements in nutrition and sanitation and a general increase in wealth. However, one factor stands out amongst them all: advancements in medical treatment.
This is where the biotechnology investment available on Stash called Modern Meds comes into play.
Ancient Art Turned Modern Medicine
Modern Meds is about biotechnology. Biotechnology might seem like a complex, scientific concept, but you are probably already familiar with one of its chief inventions: bread. Yes, bread! That, in a nutshell, is what biotechnology is — using the natural (biological) processes of microorganisms (like yeast) to create foods, genetically enhanced crops, or — in the case of Modern Meds — life-saving medicine.
Biotechnology, pharmaceuticals …🥔 po-tay-to, po-tah-to, right?
Well, sort of. Historically the difference between biotech and pharma has been in the materials used to create the drugs. Biotech companies use organic material (microorganisms), while pharmaceutical companies use chemicals. However, this distinction has blurred as pharmaceutical companies expand the scope of their research and investment.
Historically the difference between biotech and pharma has been in the materials used to create the drugs.
These days, the difference is more related to the size of the firms. Just take a look at the top companies by market cap from both industries and you’ll find that biotechnology firms are smaller than their pharmaceutical counterparts, on average. One reason for this is simple — staying small and scrappy allows biotechnology firms to circumvent chains of corporate bureaucracy and pursue innovative breakthroughs. In fact, 64% of FDA approved drugs in 2015 came from smaller biopharma firms. The proof is in the biological pudding.
The Not So Usual Suspects
When you invest in Modern Meds, you invest in companies like Ariad Pharmaceuticals, Clovis Ocology, Arcadia Pharmaceuticals, and Vertex Pharmaceuticals. Haven’t heard of them? Well, consider yourself lucky, because these companies deal with the worst of the worst when it comes to disease. Their drugs, some FDA approved, others in clinical trials, are for patients afflicted by diseases like leukemia, bone sarcoma, lung cancer, ovarian cancer, breast cancer, hepatitis C, and Parkinson’s Disease.
Fight the Good Fight with this Biotech ETF
That’s where you come in. If you want to work toward eradicating lethal illnesses from the face of the planet, this ETF (Exchange-Traded Fund) might be for you. However, attaining that vision doesn’t come without risks.
The clinical trial process required to get FDA approval is both costly and unpredictable. For every hundred drugs that start the clinical trial process, only eight will ever see the light of day. Even for the drugs that get approved, there is still the risk of liability lawsuits, technological change, and patent defensibility.
However, these risks can come with rewards. Despite the volatility of the biotechnology industry, if all goes well, these companies have a product that only they can sell and that consumers desperately need — which is often a recipe for high profits. If prospective investors can stomach the highs and lows that biotechnology brings, then it could be a good addition to a diversified portfolio.
Want a more microscopic look?
We recommend that you do your own research about the underlying ETF, SPDR S&P Biotech, on the fund’s website. As always, it’s important to keep an eye on the expense ratio, dividend yield, and the risk-return profile of the investment.
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