Direct answer: The Nasdaq Biotechnology Index (NBI) includes all Nasdaq-listed companies classified as Biotechnology or Pharmaceuticals under the ICB with at least $200 million market cap and 100,000 shares of average daily volume. The index uses modified market-cap weighting capped at 8% per security, reconstitutes annually in December, and rebalances quarterly. There is no fixed constituent count.
Nasdaq Biotechnology Index Methodology: Eligibility, Weighting and Reconstitution
What the NBI measures and why the methodology matters
The Nasdaq Biotechnology Index measures the performance of Nasdaq-listed companies engaged in biotechnology or pharmaceuticals. Unlike indexes designed around a fixed constituent count, the NBI is a rules-based universe index: every security that passes the eligibility screen is included. The count varies as new companies list and existing ones are removed.
Understanding the methodology matters because the rules determine which companies appear in NBI-tracking products. A company near the eligibility thresholds for market capitalization or liquidity may enter or leave the index at reconstitution, which can move prices on announcement. Investors holding NBI-indexed ETFs are exposed to the full set of eligible securities regardless of size, which makes the index structurally different from cap-weighted indexes that concentrate in the largest names.
For the current official methodology document, see the Nasdaq NBI Methodology PDF and the Nasdaq NBI overview page.
Listing requirement
A security's primary U.S. listing must be exclusively on either the Nasdaq Global Select Market or the Nasdaq Global Market. The Nasdaq Capital Market, NYSE, NYSE American, and OTC markets do not satisfy this requirement.
There is no geographic headquarters restriction. A foreign private issuer listed on Nasdaq Global Select Market or Global Market can qualify as long as it meets all other criteria. This is why NBI includes companies domiciled in Israel, Ireland, Switzerland, and other countries with substantial biotech sectors.
If a company transfers its primary listing to a non-qualifying exchange or moves to the Nasdaq Capital Market, it is removed at the next eligible event, not necessarily at reconstitution. Transfers onto an eligible Nasdaq market by an already-qualifying company do not automatically trigger addition; the company must still meet the full screen at the reconstitution reference date.
ICB sector classification
The NBI uses the Industry Classification Benchmark (ICB) and requires a security to be classified as either:
- Biotechnology (ICB subsector 4573), or
- Pharmaceuticals (ICB subsector 4577).
Healthcare equipment, managed care, life science tools, diagnostics, and medical devices companies do not qualify under these two designations even if they have substantial biotech operations. The classification decision belongs to the ICB data provider, not the index sponsor. If a company shifts its primary business and ICB reclassifies it out of Biotechnology or Pharmaceuticals, it becomes ineligible at the next reconstitution reference date.
Platform and tools companies with dual exposure (for example, a company providing both research tools and therapeutic programs) are classified under whichever subsector reflects their primary revenue. A tools company classified under ICB 4572 (Life Sciences Tools and Services) would not qualify even if it derives a minority of revenue from therapeutic products.
Market capitalization and liquidity thresholds
As of the current methodology, a security must have a market capitalization of at least $200 million at the reconstitution reference date. The threshold is evaluated against the company's market cap at that specific measurement point, not an average over time.
The liquidity requirement is 100,000 shares of average daily trading volume (ADTV) over the methodology's measurement period. This is a minimum baseline; many constituents trade far above this level. Clinical-stage companies with limited float can approach this floor and may be removed if their trading volume drops, regardless of market cap.
Newly listed securities must have traded for at least three full calendar months before the reconstitution reference date. This seasoning period prevents immediately-post-IPO inclusion during the most volatile phase of a listing. The methodology includes a provision for spin-offs, which can enter without the full three-month history when meeting certain conditions.
Modified market-capitalization weighting
NBI uses modified market-cap weighting, which means each constituent's starting weight is proportional to its market capitalization, but two caps prevent any single security from dominating the index:
- No individual security may exceed 8% of the index at the rebalance effective date.
- Of all constituents, only the five largest by weight may hold a position above 4%. All others are capped at 4%.
When a security's weight exceeds its applicable cap, the excess is redistributed proportionally to uncapped constituents. This redistribution process may in turn bring other securities to their caps, triggering further iterations until all weights are within limits.
In practice, this means the largest positions in NBI are meaningfully smaller than in a pure market-cap-weighted index. A company with a very large market cap relative to the rest of the index may hold 8% of NBI while holding a much larger fraction of pure market-cap weight in the biotech universe. Investors comparing NBI to biotech ETFs with different weighting schemes should account for this difference in concentration.
Rebalancing applies the same two-cap constraint at each quarterly rebalance. Between rebalances, market movements cause weights to drift from their starting levels.
Annual reconstitution and quarterly rebalances
The NBI follows a two-layer maintenance schedule:
Annual reconstitution in December: Once a year, the full eligibility screen is applied. Securities meeting all criteria are added; securities that no longer qualify are removed. The reconstitution is effective after the close on the third Friday of December. The reference date for measuring eligibility (market cap, ADTV) falls before the effective date.
Quarterly rebalances in March, June, September, and December: At each quarterly rebalance, the weight caps are applied to reflect market movements since the last rebalance. The December rebalance coincides with the annual reconstitution.
Mid-year deletions: The methodology allows Nasdaq to remove a security between scheduled events if it becomes ineligible due to a delistig, acquisition, bankruptcy, or exchange transfer. Removed securities are not replaced until the next annual reconstitution. This means the constituent count can fall during the year and rise only in December.
No fixed constituent count
The NBI is not designed around a target number of constituents. It includes every security that passes the eligibility screen at reconstitution. This is structurally different from the S&P 500 (which uses a selection committee to maintain exactly 500 constituents) or the Nasdaq-100 (which ranks and selects the top 100 non-financial Nasdaq companies).
The count varies across reconstitution cycles depending on how many companies meet the listing, classification, size, and liquidity thresholds at the reference date. When Nasdaq reported 247 components as of September 4, 2026, that count reflected companies passing all screens at that measurement point. The count will differ at the next December reconstitution based on IPOs, delistings, and companies crossing or falling below the thresholds.
Investors tracking NBI should not assume a fixed number of positions. An ETF tracking NBI will hold a variable number of securities, and its holdings will change meaningfully at each December reconstitution.
FAQs
What exchange listing does a company need to qualify for the NBI?
The security must have its primary U.S. listing exclusively on the Nasdaq Global Select Market or Nasdaq Global Market. Other U.S. exchanges and OTC markets are excluded.
Which industry classifications make a company eligible?
The issuer must be classified as Biotechnology or Pharmaceuticals under the Industry Classification Benchmark (ICB). Companies in other healthcare subsectors do not qualify unless they carry one of these two ICB designations.
What are the minimum size and liquidity requirements?
The current methodology requires a market capitalization of at least $200 million and average daily trading volume of at least 100,000 shares over the methodology's measurement period. New listings must also have traded for at least three full calendar months before the reconstitution reference date.
How does the modified market-cap weighting work?
Each constituent's weight is proportional to its market capitalization, subject to two caps: no individual security may exceed 8% of the index at rebalance, and only the five largest securities may hold a weight above 4%. When a security exceeds its cap, the excess weight is redistributed proportionally among uncapped constituents.
When is the NBI reconstituted?
The NBI reconstitutes annually in December, effective after the close on the third Friday of the month. Quarterly rebalances for the weighting occur in March, June, September, and December. Mid-year deletions happen when a security becomes ineligible; replacements are not added until the next reconstitution.
Does the NBI have a fixed number of companies?
No. NBI includes every security that passes the eligibility screen at reconstitution. The count is variable and changes each December based on IPOs, delistings, and companies crossing the market cap and liquidity thresholds.