Big Pharma faces a $300 billion problem, and mid-size biotech companies with promising drugs are becoming the fix. Major drugmakers are spending at a pace not seen since 2019 to replace medicines that will soon lose patent protection. According to PwC’s midyear deals outlook, more than that amount in branded pharmaceutical revenue will lose patent protection by the end of the decade. That loss of exclusivity is pushing large drugmakers to buy new drug pipelines rather than build them in-house.
Patent cliff drives a dealmaking shift
PwC’s report also found that large pharmaceutical companies are avoiding blockbuster mergers that draw heavy regulatory scrutiny. Instead, midcap biotech bolt-on deals have become the sweet spot for dealmaking this year. Total biopharma deal value is on pace to top $250 billion in 2026, according to PitchBook data cited by ALPS Advisors. That would mark the industry’s strongest year since 2019.
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The strategy makes sense from a business perspective. Rather than betting on internal R&D that can take a decade and often fails, drugmakers are buying assets that have already passed early-stage hurdles. The smaller companies they acquire typically have drugs in mid- to late-stage trials — the point where risk starts to drop and value becomes clearer. For the sellers, it is often the fastest route to capital and scale.
SBIO tracks the companies getting bought
The ALPS Medical Breakthroughs ETF (SBIO) holds exactly that kind of mid-size biotech developer, according to ALPS Advisors’ July spotlight. The fund’s index limits itself to U.S. biotech companies worth between $200 million and $5 billion. Each company must have a drug in Phase II or Phase III FDA trials and hold enough cash to fund about two years of operations.
That focus put SBIO in the middle of June’s biggest headline. AbbVie Inc. (ABBV) agreed to pay $10.9 billion in cash for Apogee Therapeutics, Inc. (APGE), then SBIO’s largest holding. Broader benchmarks such as the NASDAQ Biotechnology Index lean toward the large-cap companies writing acquisition checks, according to ALPS Advisors. SBIO’s index sits on the other side of those deals, holding the smaller companies that are usually the ones getting bought.
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Regulatory news added another tailwind. On June 17, the FDA signaled a more flexible approval path for serious and rare diseases, according to ALPS Advisors. Days later, Definium Therapeutics Inc. (DFTX) raised an upsized $700 million in stock to fund its own drug submission. It chose capital over a buyout.
Twice a year, the fund’s index rebalances to keep pace. Its June 18 update added 37 companies and dropped 15, according to ALPS Advisors. That turnover brought Definium into the fund just four days before its trial results sent shares up more than 90%.
