Biotech in the Age of Coronavirus
- By Mark Marex, Product Development Specialist
The Nasdaq Biotechnology Index (NBI) was launched on November 1, 1993, when the industry was still in the midst of the original “biotech revolution” ushered in by the discovery of recombinant DNA technology and Genentech’s IPO in 1980. The index zoomed almost 700% up to its peak in March of 2000, only to experience a dramatic fall along with the rest of the Internet-led equity bubble and a lost decade of subzero returns. NBI bounced back strongly during the 2010s, increasing 370% on a total return basis, trailing the Nasdaq-100 Index (426% TR) by only a few percentage points per year on average. Its constituent basket has swelled to over 200 components, with the following constraints: minimum market capitalization of $200MM; average daily trading volume of at least 100,000 shares; classified as Biotechnology & Pharmaceuticals by ICB (Industry Classification Benchmark); and Nasdaq-listed. The index is modified market capitalization-weighted such that constituents are capped at 8% (for the top 5) and at 4% (for the remaining) at each quarterly index rebalance; the entire index is reviewed and reconstituted annually in December. Let’s examine how NBI has performed in the recent past and what its components look like today, followed by a consideration of the drivers of future performance – all in the context of the Coronavirus pandemic.
Current Composition
(As of May 29, 2020)
Of the 209 constituents in NBI, the top 15 represented 59% of the index weight as of the end of May 2020. The top 30 names represented approximately 71%, while the top 5 represented 36%. The latest of these was Vertex Pharmaceutical (VRTX), with a market cap of $75bn, followed closely by Amgen (AMGN/$135bn), Gilead Sciences (GILD/$98bn), and Regeneron Pharmaceuticals (REGN/$69bn). Most in the top 15 have seen positive YTD returns in the context of the Coronavirus pandemic, with an average YTD return of nearly 32%. Only Amgen (AMGN) and Sanofi (SNY) have registered negative YTD returns thus far, while the clear standout has been Moderna (MRNA, up over 200%) thanks to its leading efforts in developing a novel type of vaccine for COVID-19. Meanwhile, Gilead has made numerous headlines as its previously developed antiviral therapeutic – Remdesivir – has been repurposed to fight Covid-19 with modestly encouraging success; Regeneron, on the other hand, is developing an antibody-based therapeutic that will see clinical trials throughout the summer and hopefully approved for use sometime in the fall.
(As of May 29, 2020)
In terms of market capitalization for the overall group, the average was $5.8bn, while the weighted average was $40.9bn. The median was only $1.4bn, however. This is reflective of the substantial representation of smaller stocks in the index, with 171 components under $5bn of market cap comprising 26% of the index weight. 87 of these constituents measured at less than $1bn.1
1. This market cap dynamic is what led Nasdaq to launch the Nasdaq Junior Biotechnology Index (NBIJR) on April 30, 2020. NBIJR utilizes the same rules and process as the Nasdaq Biotechnology Index, but with a max market capitalization of $5bn as of the reference date.
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