StashLearn
Get the app
Get the app

Join millions of investors on Stash

Investing, simplified

Start today with as little as $5
Get the app
Stash
Investment Profile

Modern Medicine: The Basics of Biotech and How You Can Invest

  • 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
3 min read

The average American life expectancy is almost 79 years, as of 2017. Now, consider that in 1900, it was around 47 years.

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.

Some biotech companies are developing treatments and drugs to fight relatively common diseases, like hepatitis B and C, and HIV. Others are figuring out ways to more effectively treat cancer.

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.

Performance

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.

Similar funds

A fund similar to Modern Meds is the VanEck Vectors Pharmaceutical ETF (ticker: PPH), which launched in 2011, and tracks the MVIS US Listed Pharmaceutical 25 Index.

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.

Explore all the funds we offer on Stash here or all the individual stocks we offer on Stash here.

Investing, simplified.

Start investing in funds like this on Stash.

Get the App

By Sam Becker

Next for you
Why Is Biotech So Hot Right Now?
Explore more articlesChoose a topic to learn more about
love and money social media Retirement Careers market news

Start investing

Start now with as little as $5.
Get the App
Disclaimers

This material has been distributed for informational and educational purposes only, represents an assessment of the market environment as of the date of publication, is subject to change without notice, and is not intended as investment, legal, accounting, or tax advice or opinion. Stash assumes no obligation to provide notifications of changes in any factors that could affect the information provided. This information should not be relied upon by the reader as research or investment advice regarding any issuer or security in particular. The strategies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security. There is no guarantee that any strategies discussed will be effective.

Furthermore, the information presented does not take into consideration commissions, tax implications, or other transactional costs, which may significantly affect the economic consequences of a given strategy or investment decision. This information is not intended as a recommendation to invest in any particular asset class or strategy or as a promise of future performance. There is no guarantee that any investment strategy will work under all market conditions or is suitable for all investors. Each investor should evaluate their ability to invest long term, especially during periods of downturn in the market. Investors should not substitute these materials for professional services, and should seek advice from an independent advisor before acting on any information presented. Before investing, please carefully consider your willingness to take on risk and your financial ability to afford investment losses when deciding how much individual security exposure to have in your investment portfolio.

Past performance does not guarantee future results. There is a potential for loss as well as gain in investing. Stash does not represent in any manner that the circumstances described herein will result in any particular outcome. While the data and analysis Stash uses from third party sources is believed to be reliable, Stash does not guarantee the accuracy of such information. Nothing in this article should be considered as a solicitation or offer, or recommendation, to buy or sell any particular security or investment product or to engage in any investment strategy. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. Stash does not provide personalized financial planning to investors, such as estate, tax, or retirement planning. Investment advisory services are only provided to investors who become Stash Clients pursuant to a written Advisory Agreement. For more information please visit www.stashinvest.com/disclosures.

The SPDR S&P Biotech ETF (symbol: XBI) seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the S&P Biotechnology Select Industry Index. The S&P Biotechnology Select Industry Index, a modified equal weight index, represents the biotechnology sub-industry portion of the S&P Total Markets Index, which tracks all the U.S. common stocks listed on the NYSE, AMEX, NASDAQ National Market and NASDAQ Small Cap exchanges. XBI invests by sampling the Index, holding a range of securities that, in the aggregate, approximates the full Index in terms of key risk factors and other characteristics. This may cause the fund to experience tracking errors relative to performance of the Index. However, in general, ETFs can be expected to move up or down in value with the value of the applicable index. Moreover, because of their narrow focus, sector funds tend to be more volatile than funds that diversify across many sectors and companies. Before investing in any fund, consider its investment objectives, risks, charges and expenses.