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More Reading from MarketBeat Media
2 Ways to Play the Big Pharma Patent CliffAuthored by Nathan Reiff. Date Posted: 5/15/2026. 
Key Points
- Big pharma faces uncertainty for nearly $200 billion in drug sales that will lose their exclusivity in the coming years.
- The ensuing M&A flurry as firms try to shore up their drug portfolios may present opportunities for investors.
- Two broad industry-focused ETFs, XBI and IBB, can be a place to start.
- Special Report: Elon Musk: This Could Turn $100 into $100,000
Major pharmaceutical firms like Pfizer Inc. (NYSE: PFE) and Novo Nordisk A/S (NYSE: NVO) have been spending heavily on smaller companies in recent months (the former completed its acquisition of weight loss drug maker Metsera in November 2025). While M&A activity is often a sign of aggressive expansion, in this case it may also reflect a response to a looming threat: a patent cliff that could result in the loss of exclusivity for many of the world’s top-selling drugs in the years ahead. Drugs with collective annual sales of nearly $175 billion are expected to face this fate over the next six years, and the figure gets much higher when smaller names are included. Although this is a serious challenge for many of the largest pharmaceutical companies, it may also create opportunity for investors. The coming years are likely to bring an increasingly urgent wave of M&A activity, which could produce some new winners in the space. While it may be difficult to predict which firms will ultimately come out ahead, a pair of exchange-traded funds (ETFs) can help investors position for volatility in the industry. Broad Access to the U.S. Biotech Space, With a Focus on Smaller Firms
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The SPDR S&P Biotech ETF (NYSEARCA: XBI) tracks the S&P Biotechnology Select Industry Index, a collection of biotech names from the S&P Total Market Index. The index uses a modified equal-weighted approach and offers exposure to biotech names across the market-capitalization spectrum. This matters for investors in the space, as smaller companies can sometimes produce major breakthroughs and strong performance if a drug candidate wins approval or a blockbuster new medicine emerges. Investors may also want to note that mid-cap names make up about half of the portfolio, while small-caps account for nearly another 30%. XBI is more focused than a broader sector fund and is unique in that it is one of only a relatively small number of ETFs specifically targeting the biotech industry. Its nearly 150 positions cover a broad swath of the U.S. biotechnology space and, as a result, can capture many domestic drugmaker gains. The largest holding in the fund still represents less than 2% of total invested assets, so diversification helps reduce the impact of underperformance by any single company. On the other hand, a single company’s big gains may also be diluted within XBI’s performance. Still, XBI has performed well in 2026, outperforming the broader market year to date (YTD) with returns of about 11% compared to roughly 9% for the S&P 500. The fund also provides a modest dividend. Given how specialized this industry fund is, investors may also find its 0.35% expense ratio reasonable. A Somewhat Different Approach for Broader Exposure but Higher ConcentrationThe iShares Biotechnology ETF (NASDAQ: IBB), a direct rival to XBI, takes a somewhat different approach. While it is generally focused on U.S. biotech names like XBI, it also includes some international stocks such as Dutch biopharma firm argenx (NASDAQ: ARGX). It also holds a broader basket than XBI, with close to 250 positions overall. On the other hand, IBB is more concentrated in a small number of names than its SPDR peer. The four largest holdings in its portfolio represent about 28% of invested assets. It also leans more heavily toward large-cap names, with 61% of the portfolio allocated to larger firms. Like XBI, IBB pays a modest dividend, which investors may see as an attractive buffer against some of the biotech industry’s volatility. In terms of performance, IBB has lagged behind XBI so far this year, returning only about 2% YTD. Over the past 12 months, however, its return of more than 40% is still impressive, significantly outpacing the S&P 500. One other consideration for IBB is that its expense ratio is higher than XBI’s, at 0.44%. Investors seeking the broadest possible access to the biotech space may be willing to accept that trade-off and pay a bit more for the fund. Even so, its recent performance has not been as compelling as that of some other funds in the sector. Still, while IBB is more expensive than XBI, it remains less costly than several other funds in the relatively narrow biotech category. |
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