Investments in biotechnology by the average investor tend to deliver hit or miss returns over time. Since inception, the SPDR S&P Biotech ETF has delivered double-digit returns. This ETF holds 53 stocks and is focused on this industry. Created on Jan. 31, 2006, the one-year return is 33.76%, the three-year return is 23.57%, and the five-year return is 13.27%. Only the one-month and three-month figures are not in the double-digit range. This is a strategy that works and takes a lot of the guesswork out of the investor’s hands. Biotechnology stocks tend to be valued on the promise of future discoveries. When such promises fall, so does the share price. See the chart below–I like what I see in this passive strategy.
The top weighted stock, as May 2, 1013, is NPS Pharmaceuticals, Inc. (NASDAQ:NPSP). This stock posted an impressive one-year return of 91.42%. Looking at the price chart below, this appears to have taken place with the last 60 days. NPS Pharmaceuticals, Inc. (NASDAQ:NPSP) seeks to develop treatment options for rare gastrointestinal and endocrine disorders. Serious unmet medical needs are included in the business strategy.
NPS Pharmaceuticals, Inc. (NASDAQ:NPSP)’ first quarter 2013 earnings will be released on Thursday May 9, 2013. The last quarter of 2012 reports diluted earnings of $0.14 per share. The same quarter in 2011 was $0.10 per share. The one eye-catching note is that NPS Pharmaceuticals, Inc. (NASDAQ:NPSP) secured FDA approval on its first proprietary product, Gattex. This drug was released as the first and only long-term treatment for adult bowel syndrome. Based on this, this stock follows the pattern of this sector. The success of this company, as well as any investment success, is hinged on the release and expected market acceptance of one drug. In my opinion, this is speculation based on all known facts. Staying within the SPDR Biotech ETF instead of this specific company may prove to be prudent should this fall on its face.
The second largest position, with a weighting of 3.2%, is Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX). This stock has returned $32.85 in the past year. Take a look at the price chart below and take notice of the huge gap to the upside that took place in mid-April of this year. What I see is that on April 18, 2013 a press release regarding “Treatment with VX-661 and Ivacraftor…” in a Phase 2 study showed significant improvements in lung function of patients with cystic fibrosis. The first quarter earnings of 2013 were reported to be a diluted $0.03 per share, with net losses due to impairment of intangible assets charges, compared to the $0.43 per share in the first quarter of 2012. This is a good example of how hopes fuel price performance on biotech stocks. I consider this is to be another speculative play.