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~ by Snehasish Chaudhuri, MBA (Finance).
Invesco Dynamic Prescription drugs ETF (NYSEARCA:PJP) is an exchange-traded fund (“ETF”) that invests in a restricted variety of U.S.-based pharmaceutical and biotechnology shares. The fund is extremely focused on completely different sectors, however consists of shares from all market capitalization. Virtually one-third of the portfolio consists of small-cap and micro-cap shares. PJP has an asset underneath administration (“AUM”) of $306 million and has a excessive turnover ratio of 40 p.c. Regardless of that, the fund didn’t generate progress each over the short-term in addition to within the long-term. The fund additionally has a median P/E of 20.46 and is buying and selling nearly at par worth.
Invesco Dynamic Prescription drugs ETF was launched and is managed by Invesco Capital Administration LLC. It seeks to trace the efficiency of the Dynamic Pharmaceutical Intellidex Index, through the use of full replication strategies. This fund has a excessive expense ratio of 0.56 p.c, primarily resulting from its excessive portfolio turnover. This ETF was fashioned on June 23, 2005 and has been paying quarterly dividends since then. Nonetheless, the yield has been extraordinarily low. Annual common yield since 2017 has been 0.88 p.c. Whole return has additionally been very poor. In 2023, PJP’s whole return stood at damaging 4.24 p.c. Between 2016 and 2022, annual common whole return stood at 3.25 p.c.
PJP’s High 10 Funding Delivered Disappointing Returns Over The Previous 5 Years
A lot of these disappointing returns are an outline of how these two sectors carried out through the years. 55 p.c of the whole portfolio is invested in 10 shares belonging to large-cap pharmaceutical and biotechnology firms. Besides Bristol-Myers Squibb Firm (BMY), PJP invested in all different U.S.-based prescription drugs giants similar to Abbott Laboratories (ABT), Merck & Co., Inc. (MRK), Johnson & Johnson (JNJ), Eli Lilly and Firm (LLY), and Pfizer Inc. (PFE). Investments in large-cap biotechnology shares included Amgen Inc. (AMGN), AbbVie Inc. (ABBV), Gilead Sciences, Inc. (GILD), Biogen Inc. (BIIB), and Regeneron Prescription drugs, Inc. (REGN). Solely LLY was capable of submit optimistic progress over the previous six months. Over the previous 5 years, although efficiency was not that poor, solely 5 shares (LLY, REGN, MRK, ABT, ABBV) had been capable of register a compounded common worth progress above 5 p.c. Not surprisingly, PJP had a worth CAGR of just one.2 p.c over this era.
Future Worth progress of those shares are unsure, too, resulting from anticipated lack of income ensuing from patent expiration of their a number of blockbuster medicine all through this decade. ABBV’s Humira and MRK’s Keytruda generate annual gross sales of $20 billion and $15 billion respectively. Each medicine will turn out to be off-patent inside the subsequent 5 years. Another blockbuster medicine that may turn out to be off-patent inside this decade are MRK’s Januvia/Janumet, REGN’s Eylea and Dupixent, PFE’s Eliquis and Ibrance, AMGN’s Kyprolis and Prolia/Xgeva, JNJ’s Stelara and Bedaquiline, GILD’s Complera and Viread, ABT’s Dronabinol, BIIB’s Tysabri and Tecfidera, LLY’s Trulicity and Reyvow. Throughout 2020, estimated gross sales of those 16 medicine was a minimum of $100 billion.
PJP’s 17.6% Investments In Micro-Caps Delivered Disappointing Returns, Too
Pacira BioSciences Inc (PCRX), Supernus Prescription drugs Inc (SUPN), Geron Corp (GERN), Ligand Prescription drugs Inc (LGND) and Travere Therapeutics Inc (TVTX) are the 5 micro-cap shares that consists 17.6 p.c of PJP’s complete portfolio. All these micro-caps have been persistently producing poor returns. Over the previous 5 years, not a single inventory recorded optimistic worth progress. These shares additionally registered extraordinarily poor (principally damaging) worth progress over the previous six months. Investing such a big portion of funds on such non-performing micro-cap pharmaceutical shares doesn’t make sense.
The mid-caps and small-caps, nonetheless, carried out significantly better. United Therapeutics Corp (UTHR), Jazz Prescription drugs PLC (JAZZ), Perrigo Co PLC (PRGO), Bausch Well being Cos Inc (BHC), Status Client Healthcare Inc (PBH), Amphastar Prescription drugs Inc (AMPH) and Corcept Therapeutics Inc (CORT) represent nearly 27 p.c of PJP’s complete portfolio. Barring BHC, JAZZ and PRGO, all different shares generated sturdy returns all through. General, PJP’s portfolio recorded a complete worth progress of 13.37 p.c over the previous 5 years, i.e., a compounded annual progress charge of virtually 2.5 p.c.
Funding Thesis
Invesco Dynamic Prescription drugs ETF invests in only a mere 22 U.S. based mostly biopharmaceutical shares. 55 p.c of that funding is in 10 giant-cap and large-cap firms. Sadly, they delivered poor returns over the previous six months. Whole returns over the previous 5 years once more are disheartening. The identical has been the case with the returns of PJP – constant low yields and equally poor returns. All these 10 firms are dealing with the warmth of patent expiration of their blockbuster medicine inside this decade. 18 such medicine have an annual income of a minimum of $100 billion. This offers a sign what diploma of lack of revenues are awaiting them. It’s true that these firms will provide you with varied medicine as a income substitute measure, however we don’t have a transparent estimate of anticipated revenues from their pipeline medicine.
Furthermore, many of the biopharmaceutical firms are more and more specializing in orphan medicine, which goal solely uncommon ailments. Such medicine have much less competitors and, as soon as profitable, can generate regular income streams. Nonetheless, it reduces the standard of revenues, as uncommon ailments usually have a comparatively smaller and restricted addressable market. Probabilities of profitable commercialization are additionally a lot decrease than the normal medicine.
PJP additionally had vital investments in micro-cap shares, which often are believed to be alpha-generating shares. Nonetheless, these shares, too, didn’t generate any progress each over the short-run in addition to over the long-run. Solely the mid-caps and small-caps in PJP’s portfolio had been capable of generate respectable returns over the previous 5 years. Nonetheless, the proportion of funding in these shares is kind of low, and returns are extremely unsure. In my view, buyers ought to higher avoid investing in Invesco Dynamic Prescription drugs ETF.
