Missed out on Vaccine Stocks? Consider the Nasdaq Biotechnology Index (NBI)

Article by The New Savvy

There are few events in the entire human history that will be universally remembered, and the COVID-19 pandemic is one such example. This pandemic has brought about unprecedented seismic schisms, including social distancing and prohibition of mass gatherings, disruptions in the global supply and demand chains and surges in demand for healthcare services, pharmaceuticals and devices.

COVID-19 and the rise of Vaccines Stocks

The COVID-19 pandemic worries continue to plague the world, as we learn to cope living in and with it. There are a lot of efforts to treat and prevent the COVID-19 virus, and hopefully, eradicate it in years to come. However, there are also growing concerns about how the virus, the vaccines would affect us in the longer term. In addition, we do not have visibility to see how the COVID-19 would impact us economically, socially and politically.

To ensure global coverage and treatment of the COVID-19 virus, we have a variety of vaccines from BioTech companies that are helping to combat it. Some of the most common and recognisable COVID-19 vaccines are Pfizer, Moderna, AstraZeneca and Novavax.

Moderna’s mRNA vaccines have proved to be one of the strongest forms of immunity, especially with the rise of the recent Delta and Omicron variants. Pharmaceutical giant Pfizer partners with BioNTech to produce the other mRNA vaccination.

AstraZeneca continues to deliver its less powerful but still generally effective vaccine to hundreds of millions in the developing world and Europe alike. Its advantages in terms of lower cost to produce, ease of transport, and longer shelf life, have made it one of the most important vaccinations in the quest to ensure global coverage.

Novavax, after a long and difficult journey developing its Covid-19 vaccine candidate, is on the cusp of becoming the 4th FDA-approved option for Americans. It is also a choice vaccine for many developing countries.

What do these companies have in common?

They are all constituents of the Nasdaq Biotechnology Index.

Moderna’s success with the COVID-19 vaccine technology catapulted it into one of the top biotech companies. It is the third-largest constituent of the NBI.

In addition to vaccines production, AstraZeneca acquired US biotech giant Alexion Pharmaceuticals for $39 Billion, it is cementing its reputation as a leading biopharmaceutical company. It is now the seventh-largest constituent of the NBI.

BioNTech’s success in developing its own version of mRNA for Covid-19 has propelled it into the 11th largest holding of NBI while Novavax is in the top 20 constituents.

What is the Nasdaq Biotechnology Index?

Starting in 1993, the Nasdaq Biotechnology Index contains securities of Nasdaq-listed companies classified according to the Industry Classification Benchmark as either Biotechnology or Pharmaceuticals which also meet other eligibility criteria. The companies listed have to be of a minimum market capitalisation of $200MM, the average daily trading volume of at least 100,000 shares and listed exclusively on the Nasdaq exchange.

In the age of Covid-19, NBI’s constituent companies have increased to 373 as of the end of 2021. There is also a record of new companies that qualified to inclusion in the index, as the biotechnology sector has experienced tremendous growth in the past 2 years. 2021 was a pivotal year for new treatments, proof-of-concept for mRNA vaccines, and IPOs.

What is Biotechnology and why look at the Biotechnology sector?

Biotechnology is a complex, hybrid industry comprised mainly of 2 types of companies:

R&D-intensive, often clinical trial-stage companies focused on intellectual property/patents
More mature companies with approved products already on the market, participating in all phases of Discovery / Development / Manufacture of treatments

The biotechnology sector is a diverse one and has traditionally been regarded as less accessible to the average investor. Why is this so? Many young healthcare companies are based on the discovery of a single device, single drug (or a single class of drugs) and such investments may either boom or bust depending on the efficacy, safety and approval status of the product(s) by the government authorities. Knowledge of such novel devices and drugs also needs in-depth technical knowledge in the field that is not common even amongst the general healthcare professionals.

However, the person-in-the-street often finds it difficult to make investment decisions in this industry – would one be willing to risk their investment funds on a promising product that may or may not work, of which they may only have a cursory knowledge of?

Why invest in the Nasdaq Biotechnology Index?

If you have missed the astronomical rise of the vaccines stocks and are looking to invest in the sector, it is worthwhile looking at the NBI instead. Why?

  • Diversification of portfolio in different healthcare services, devices and pharmaceutical companies mitigates boom and bust risks

The Fed’s rate hikes in the face of elevated inflation may affect biotech companies in the early stage. Hence, it is prudent to not focus on the smaller companies, which tend to be more speculative in nature. Investing in the NBI gives investors exposure to the whole biotechnology industry, and more weightage towards the larger, more established players.

  • Offers investors a transparent, effective benchmark for tracking new entrants into the public markets

Again, it is important to maintain appropriate weightings among the more volatile, younger small-cap segment of the industry and its more stable, older large-cap members.

  • Participate in groundbreaking innovation and R&D

The biotechnology sector is a harbinger of the future of tech-driven R&D. Even with the occasional underperformance and uncertainty, it is good to stay allocated to this crucially important sector.

  • A unique lens through which to view human society’s scientific and technological advancements in fighting the virus.
  • Portfolio diversification from other sectors of the economy

What are the stocks in the Nasdaq Biotechnology Index?

The top ten constituents currently add to around 46.67% and include:

Amgen (AMGN)

Gilead Sciences (GILD)

Moderna (MRNA)

Regeneron Pharmaceuticals (REGN)

Illumina (ILMN)

Vertex Pharmaceuticals (VRTX)

Biogen (B IIB)

AstraZeneca (AZN)

Seagen (SGEN)

BioNTech (BNTX)

What are the risks of investing in the Biotechnology Index?

Let’s be upfront – Biotechnology is a sector with great uncertainty and hence, higher volatility.

First, the commercial risks are incredibly high. The length of time to research, develop, and commercialise a new product is incredibly long and above other sectors. On top of that, the requirements to get approvals from regulatory authorities adds another layer of complexity. Even if a drug is approved, there is ongoing uncertainty about its effectiveness and the adoption rate from the markets.

Medical professionals may be reluctant to prescribe any new treatments or drugs. Costs tend to be prohibitive which may impede adoption. Without government subsidies or insurers agreeing to bear the medical costs, some of the biotechnological innovations may never reach their intended audience.

What is undisputed, however, is the limitless potential for new kinds of advancements and the ongoing push for innovations. Investing in the biotechnology industry is believing in the brighter future ahead.

Looking Past Covid-19: What’s next for the Biotechnology sector?

In 2021, we witnessed several breakthroughs in both traditional drug development and cutting-edge therapeutics like gene editing. Biogen received the FDA approval for its highly anticipated Alzheimer’s drug, Aduhelm, a monoclonal antibody that seeks to address the underlying causes of Alzheimer’s disease, as opposed to simply treating its symptoms.

Amgen scored an FDA approval for its new oncology drug, Lumakras – the first therapy for non-small cell lung cancer that targets a specific protein mutation long thought “undruggable.”

Intellia Therapeutics (24th largest NBI constituent) released promising data from a Phase 1 trial of a gene-editing CRISPR therapy, a first-of-its-kind outcome. Intellia said it was successful in genetically editing mutated cells inside the livers of several patients suffering from a rare disease stemming from a protein misfolding disorder. In October, the FDA granted Intellia’s product an official Orphan Drug Designation, meant for drugs targeting a population of fewer than 200,000 in the US.

How to Invest in the Nasdaq Biotechnology Index?

Investors can check with their local ETF providers if they offer relevant products that track the NASDAQ Biotechnology Index.

Otherwise, here are some ETFs that currently tracks the NBI:

  • Invesco Nasdaq Biotechnology Index (IBBQ)
  • ProShares Ultra Nasdaq Biotechnology ETF (BIB)

Click https://indexes.Nasdaq.com/Index/Overview/NBI to understand more about NASDAQ Biotechnology Index and https://www.Nasdaq.com/global-indexes for more Nasdaq indexes.

This post was written in collaboration with Nasdaq. The New Savvy is financially compensated for this article. Nonetheless, we strive to maintain our editorial integrity and review all investments and products in an objective and unbiased manner. We are committed to ensuring that the information collected and imparted is accurate and timely.

This is not financial advice and should not be considered as one. Past performance is not indicative of future results.


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Disclaimer: Nasdaq may, from time to time, exercise reasonable discretion as it deems appropriate in order to ensure Index integrity including but not limited to quantitative inclusion criteria. Nasdaq may also, due to special circumstances, if deemed essential, apply discretionary adjustments to ensure and maintain the high quality of the index construction and calculation. Nasdaq does not guarantee that any Index accurately reflects future market performance. Neither Nasdaq, Inc. nor any of its affiliates (collectively “Nasdaq”) makes any recommendation to buy or sell any security or any representation about the financial condition of any company. Investors should undertake their own due diligence and carefully evaluate companies before investing. The information contained herein is provided for informational and educational purposes only, and nothing contained herein should be construed as investment advice, either on behalf of a particular security or an overall investment strategy. ADVICE FROM A SECURITIES PROFESSIONAL IS STRONGLY ADVISED.

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