So far in 2013 biotech ETFs have garnered some of the best returns of all U.S. ETFs, fueled by increasing mergers and acquisitions, promising new drugs coming to market, and more accommodative regulators willing to push all of those drugs out with greater efficiency.
Moreover, with equities markets higher on the year, it’s hardly a surprise that a high-growth and high-beta sector like biotech would be outperforming broad U.S. benchmarks like the S&P 500 Index, which is up by more than 20 percent.
Funds such as the Market Vectors Biotech ETF (BBH | A-56), the iShares Nasdaq Biotechnology ETF (IBB | A-55) and the SPDR S&P Biotech ETF (XBI | A-33) are up 47.78 percent, 42.24 percent and 38.82 percent, respectively, year-to-date as of Sept. 6, according to data compiled by IndexUniverse.
IBB, the behemoth in the space, is now a nearly $4 billion fund, and it has pulled in more than $500 million in fresh money this year, according to IndexUniverse’s “ETF Fund Flows tool.” BBH, a $400 million ETF, has had inflows of $148.6 million, while the $1 billion XBI has gathered $116.4 million in new assets this year.
Acquisitions in the industry—specifically cancer drugmaker Amgen Inc.’s (AMGN) $10.4 billion buyout of competitor Onyx Pharmaceuticals (ONXX) and the rumored buyout of rare-disease drugmaker Alexion Pharmaceuticals (ALXN) by Swiss drugmaker Roche Holdings AG have certainly propped up prices of individual shares and ETFs.
“There has been a lull in M&A over the past year, but everything picked up over the summer with the recently agreed upon deal between Amgen and Onyx,” said Steve Silver, a biotech equity analyst at S&P IQ.
“The two areas where I would expect to be more heavily involved in M&A are cancer and rare diseases because they’re hot areas within drug development these days,” he added.
Top 10 YTD Performers
|Ticker||Name||YTD Performance||Weekly Performance||AUM ($, mm)|
|QCLN||First Trust NASDAQ Clean Edge Green Energy||60.24||-1.07||69.15|
|KWT||Market Vectors Solar Energy||48.83||1.50||17.07|
|BBH||Market Vectors Biotech||47.78||-0.13||387.89|
|PBE||PowerShares Dynamic Biotech & Genome||45.81||-0.38||206.70|
|GEX||Market Vectors Global Alternative Energy||45.68||-1.58||82.87|
|IBB||iShares Nasdaq Biotechnology||44.24||0.29||3,706.70|
|FAN||First Trust ISE Global Wind Energy||39.48||-2.32||53.28|
|QQQC||Global X NASDAQ China Technology||39.19||1.66||3.90|
|XBI||SPDR S&P Biotech||38.82||-0.21||1,027.80|
New Drugs Fuel Growth
Also, news of drugmakers such as Biogen Idec’s (BIIB) approval for its filing of a new first-line oral treatment for people with relapsing forms of multiple sclerosis in March is also promising and emblematic of a friendlier Food and Drug Administration, according to Silver.
“Besides approving new drugs in 2012 at a rate that’s at a 15-year high, the FDA also introduced a new program earlier this year called “Breakthrough Therapy Designation” with the intention of moving promising programs along an accelerated clinical path,” Silver said. “The fact that they’re really taking an accommodative stance is really raising investors’ sentiments in the industry.”
Also, the Nasdaq Biotechnology Index hit a record high on Sept. 4, and has now risen more than 46 percent in 2013.
The Faster They Rise, The Harder They Fall
In fact, biotech has been in the spotlight as a top performer for some time.
A fast-growing industry in a market that’s steadily rebounding after the crash of 2008-2009 made biotech among last year’s top performers.
But that same outperformance characteristic of a high-beta pocket of the market like biotech can mean any broad market downdrafts hit biotechs harder.
In that vein, Silver warned biotech investors to read broad market reports cautiously.
“All it takes is a negative news story for a company to get hit really hard and undo all of that rally. “Neurocrine Biosciences (NBIX) had been up 100 percent year-to-date, but was down about 30 percent yesterday after announcing some questionable Phase 2 study data late Monday night,” said Silver.
“The industry certainly has positive long-term growth prospects on the basis of reported positive data for some drugs that are nearing the market. I think that should carry the market for quite some time,” he noted.
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- Health Care Industry
- Steve Silver