Biotechnology Market on a Tear: 5 ETFs in Spotlight
By Sweta Jaiswal
April 11, 2019
The biotech industry has kept its promise for solid returns so far. The rally in some major biotechnology indexes reflects the same. In this context, the NASDAQ Biotechnology Index has returned 17.6% year to date. Following the trend, S&P Biotechnology Select Industry Index has returned around 29%.
With time, biotechnology is emerging as a favored sector for investors with some risk appetite and looking for attractive returns. Let’s delve deeper into the trends favoring the biotechnology market space in 2019.
Mergers & Acquisitions
Mergers and acquisitions (M&As) are dominating the sector as sluggishness in mature products has forced companies to explore acquisitions to bolster their pipeline. The biggest deal of the year was Bristol-Myers’ acquisition offer of $74 billion to buy Celgene. Also, Eli Lilly and Company (LLY – Free Report) has announced that it will take over Loxo Oncology for $8 billion to broaden its oncology suite to precision medicines or targeted therapies. (read: What’s Behind the Biotech ETF Rally to Start 2019?)
Several other large-cap pharma as well as bigger biotech companies are entering collaboration deals with smaller ones to boost their pipeline. Notably, Swiss pharma giant Roche Holdings (RHHBY – Free Report) has bet big on U.S.-based gene therapy company Spark Therapeutics (ONCE – Free Report) in an effort to strengthen its presence in gene therapy. Similarly, in order to develop gene therapies targeting rare indications, Biogen has offered to buy Nightstar Therapeutics.
Furthermore, in-licensing deals are consistently rising with bigwigs partnering with smaller and mid-sized players that own promising mid-to-late stage pipeline candidates or interesting technology.
The companies within the biotech sector gain majorly from positive pipeline-related advancements. Of late, the space has seen a series of developments. To begin with, Amgen and partner UCB recently received FDA approval for osteoporosis drug, Evenity, for the treatment of osteoporosis in postmenopausal women at high risk for fracture. Gilead Sciences recently submitted a supplemental New Drug Application to the FDA for Descovy.
Moreover, Celgene submitted a Biologics License Application for the pipeline candidate, luspatercept, a first-in-class erythroid maturation agent that regulates late-stage red blood cell maturation.
Moreover, biotech bigwigs are increasingly focusing on a few drug categories like biosimilars, neurological disorders, autoimmune diseases and gene therapies. In fact, per an article on InvestingNews.com, the FDA is increasingly encouraging companies to adopt means to develop gene therapy-related products.
AI Ushers in a New Era
The implications of AI, cloud-based technologies and increased R&D focus have lent a competitive edge to companies within the biotech space. The use of AI has gradually begun to revolutionize research activities in the industry as it can drastically reduce time and costs involved in developing life-saving drugs.
Let’s take a look at some instances on how AI is being used to advance in biotech. AiCure has developed an application that uses AI to govern if and at what time the patient takes a pill. Moreover, it is now being used regularly in many clinical trials. SOPHiA Genetics’ AI system is used for genomics analysis of next-generation sequencing data from hospitals and research institutions globally.
Moreover, Illumina (ILMN – Free Report) released an open source artificial intelligence software for discovering previously overlooked noncoding mutations in patients with rare genetic diseases in the beginning of 2019.
In fact, J&J (JNJ – Free Report) , Pfizer (PFE – Free Report) and Novartis (NVS – Free Report) have tie-ups with IBM’s Watson Health. Per the deals, the companies can use Watson Health’s AI solutions and applications for drug discovery and to accelerate cancer research efforts.
ETFs in Focus
The favorable trends have been benefitting biotech ETFs as well. ARK Genomic Revolution Multi-Sector ETF (ARKG – Free Report) stole the show, climbing 44.1% year to date. This was followed by gains of 30.8% for ALPS Medical Breakthroughs ETF (SBIO – Free Report) , 30.4% for Virtus LifeSci Biotech Products ETF (BBP – Free Report) , 29.3% for SPDR S&P Biotech ETF (XBI – Free Report) and 28% for Principal Healthcare Innovators Index ETF (BTEC – Free Report) (see all Health Care ETFs here).
This is an actively managed ETF focusing on companies that are expected to benefit from extension and enhancement of the quality of human by incorporating technological and scientific developments, improvements and advancements in genomics. The fund holds 35 stocks in its basket and has 0.75% in expense ratio. It has accumulated $394 million in its asset base and trades in average daily volume of 144,614 shares. (read: Best Performing ETFs of the First Quarter).
The fund’s top three holdings are Invitae Corp, Illumina and Intellia Therapeutics.
This is a small-cap centric fund targeting biotech sector. It provides exposure to around 70 companies with one or more drugs in Phase II or Phase III FDA clinical trials by tracking the Poliwogg Medical Breakthroughs Index. The product charges 50 basis points in fees per year from investors and trades in a moderate average daily volume of about 62,754 shares. It has AUM of $202.5 million in its asset base and has a Zacks ETF Rank #3 with a High risk outlook (read: Biotech ETFs Jump on Roche-Spark Deal).
The fund’s top three holdings are Galapagos, Array BioPharma and Immunomedics.
The ETF follows the LifeSci Biotechnology Products Index, which measures the performance of biotechnology companies with at least one drug therapy approved by the FDA. Holding around 41 stocks, the product has moderate concentration across components. The product has accumulated AUM of about $38.8 million and charges 79 bps in fees per year. BBP has a Zacks ETF Rank #2 with a High risk outlook. The fund trades in a moderate average daily volume of about 5,725 shares (read: A Spread of Top-Ranked ETFs That Crushed the Market in Q1).
The fund’s top three holdings are Portola Pharmaceuticals, Ionis Pharmaceuticals and Array BioPharma.
With AUM of $4.48 billion, XBI provides equal-weight exposure across 120 stocks by tracking the S&P Biotechnology Select Industry Index. XBI has 0.35% in expense ratio and trades in an average daily volume of 5.8 million shares. It has a Zacks ETF Rank #2 with a High risk outlook (read: Health Day Checkup of Medical ETFs: 5 Top Picks).
The fund’s top three holdings are Ionis Pharmaceuticals, Ligand Pharmaceuticals and Intercept Pharmaceuticals.
This fund offers access to early-phase companies developing treatments for conditions like migraines, Crohn’s disease, multiple Sclerosis, diabetes, and other illnesses by tracking the Nasdaq Healthcare Innovators Index. It holds 194 stocks in its basket with around 61% concentration in biotech industry. BTEC charges 42 bps in annual fees and trades in an average daily volume of 2,409 shares. The product has accumulated $57.8 million in its asset base. It has a Zacks ETF Rank #2.
The fund’s top three holdings are Incyte Corp, Teleflex and Seattle Genetics.