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Bonus Content from MarketBeat Media
2 Ways to Play the Big Pharma Patent CliffBy Nathan Reiff. Published: 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 already made me a “wealthy man”
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 an 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 threat: a patent cliff that could lead to the loss of exclusivity for many of the world’s top-selling drugs in the years ahead. Drugs with combined annual sales of nearly $175 billion are set to face this challenge over the next six years, and the figure rises sharply when smaller names are included as well. For many of the biggest pharma companies, this is a serious obstacle. But for investors, it also creates an opportunity. 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 on top, 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, which includes biotech names from the S&P Total Market Index. The index uses a modified equal-weighted approach and provides exposure across the biotech market-cap spectrum. That matters for investors in the space, since smaller companies can sometimes deliver major breakthroughs and strong performance when a drug candidate wins approval or a blockbuster new treatment emerges. Investors may want to note that mid-cap names account for about half of the portfolio, while small-caps make up nearly another 30%. XBI is more focused than a broader sector fund and is notable as one of the relatively small number of ETFs dedicated specifically to the biotech industry. Its nearly 150 positions represent a wide slice of the U.S. biotechnology space and can capture many domestic drugmaker wins. The fund’s largest holding still accounts for less than 2% of total invested assets, so diversification helps reduce the impact of underperformance from any single company. On the other hand, that same diversification can also dilute the effect of one company’s big gains. Still, XBI has performed well in 2026, outperforming the broader market year-to-date (YTD) with returns of about 11%, compared with about 9% for the S&P 500. The fund also provides a modest dividend. And because this niche industry fund is relatively unique, investors may 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 the portfolio account for about 28% of invested assets. It also has more of a focus on large-cap names, with 61% of the portfolio allocated to larger firms. Like XBI, IBB pays out a modest dividend, which investors may find to be 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, though, its return of more than 40% has been quite compelling and has noticeably outpaced the S&P 500. One other consideration for IBB is that its expense ratio is higher than XBI’s, at 0.44%. Investors looking for the broadest possible access to the biotech space may be willing to accept that trade-off and pay a bit more for this fund. However, its recent performance record is not as compelling as that of some other funds in the sector. Still, while IBB is more expensive than XBI, it remains cheaper than several other funds in the fairly narrow biotech category. |
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