Nasdaq picks brain for new health care index

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BOSTON, Sep 19 (Reuters) Research and investment into brain-related illnesses is growing at an unprecedented rate as scientific advances coincide with the demands of an aging baby-boom population determined to beat the odds.

Now, investors looking to place bets on this fast-growing but highly specialized sector can.

Nasdaq Stock Market Inc is poised to launch an index made up of companies whose primary focus is the development of drugs, devices and diagnostics to treat neurological disorders, including Alzheimer's disease, Parkinson's disease and schizophrenia.

It is one of the first indexes ever to focus on a specific disease category, and Nasdaq expects it to interest several types of investors, from individuals touched by a particular disorder to those seeking to minimize the risk of stock-picking in a complicated industry.

''This index will be the defining metric for performance of companies in this very important segment of the health field,'' said Steven Bloom, senior vice president, Nasdaq Financial Products.

The index, to be called the Nasdaq NeuroInsights Neurotech Index, will launch on September 25 and has been created in conjunction with NeuroInsights, a research firm that monitors and analyzes trends in the neurotechnology field.

Companies in the 32-member index include drug makers such as Biogen Idec Inc, which makes the multiple sclerosis drugs Avonex and Tysabri; device makers such as Northstar Neuroscience Inc, which makes brain stimulation devices to help treat stroke and depression; and diagnostic companies such as Natus Medical Inc.

Together, they have a combined market value of more than 71 billion dollar. (For a complete list of the companies in the index.

Dozens of indexes based on narrow or esoteric slices of the market have popped up over the last few years, often forming the basis for exchange-traded funds -- index-linked collections of assets that trade like stocks -- and critics say many are meaningless as measures of the market.

''INVESTMENT STRATEGIES'' ''Most of these things are not market indexes, they're investment strategies,'' said Richard Ferri, chief executive of Portfolio Solutions, which manages portfolios of index funds and is about to publish a book called ''The ETF Book.'' While Ferri has not examined the NeuroInsights index specifically, he said that the question facing any creator of an index such as this, even if it is a meaningful measure of the market, is whether it will attract interest from investors.

Bloom believes it will. He said it has already generated wide interest from financial institutions seeking to license it as a basis for instruments such as ETFs, index futures, index options and structured products.

''There's competition among the folks that we speak to for this index,'' he said. ''There are many prospective licensees and we can't offer it to everyone.'' That's because it represents such a narrow section of the market that if 10 different participants offered competing products, it would fragment the market, he said.

Bloom, who said that the index would have value even if Nasdaq did not license it to anyone, said he nonetheless expects an agreement to be signed with one or two major financial institutions within the next two months.

To qualify for inclusion in the index, a company must be a ''pure play'' neurology company, deriving some 50 per cent or more of its revenue from treatments for central nervous system disorders, or devoting 50 per cent or more of its research and development dollars to the field.

According to a report by NeuroInsights, global sales of pharmaceuticals for neurological disorders grew 8.5 per cent to 101 billion dollars in 2006, compared to a 7 per cent growth rate for the overall pharmaceuticals market.

And Zack Lynch, co-author of the report, said venture capitalists are plowing money into the field, with investment rising 7.5 per cent in 2006 to 1.67 billion dollars.

''The aging of the baby-boom generation is creating a substantial market opportunity,'' he said.


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