Vertex Pharma Pushes Biotech ETFs Higher


Vertex Pharmaceuticals (VRTX) was a star performer in Tuesday’s trading session, as the stock skyrocketed over 48%, representing the biggest gain since April 2003. The massive gain for this biotech firm came from promising results from two crucial Phase III trials of a cystic fibrosis treatment.

The results showed that a combination regimen of lumacaftor and ivacaftor (Kalydeco), could successfully treat certain symptoms of cystic fibrosis. The drug combination, when compared with a placebo, improves lung function of the patient by 2.6–4% and reduces pulmonary flare-ups, which can lead to hospitalization (read: A Comprehensive Guide to Biotech ETFs).

Close to 30,000 Americans and 75,000 people globally above the age of 12 suffer from genetic cystic fibrosis, according to various sources. This is a rare and deadly lung disease that hampers the flow of salt and water into and out of the cell in a number of organs, including lungs. The disease builds mucus in the lungs, which causes infections and lung damage.

The approval for the treatment in the U.S. and the European Union is expected in the fourth quarter based on the final trials. The treatment, if successful, could make Vertex a leader in treating cystic fibrosis.

Market Impact

With the potential to dominate this market, the extremely positive trial results were well received by investors. The stock reached its highest level in 14 years to $98.80 on the day but closed a little lower at $93.53 on elevated volume of 11 times more than the average daily volume.  

The news also led to a surge in biotech ETFs – Market Vectors Biotech ETF (BBH), iShares Nasdaq Biotechnology ETF (IBB) and First Trust NYSE Arca Biotechnology Index Fund (FBT) which gained 1.22%, 1.02% and 0.99%, respectively, on Tuesday trading session (read: Any Survivors from the Biotech ETF Meltdown?).

BBH in Focus

This fund tracks the Market Vectors US Listed Biotech 25 Index, holding 26 securities with a tilt toward large cap and growth stocks. Vertex Pharma takes the ninth position in the basket with a 5.53% share. The product has so far amassed $501.6 million in its asset base while charging 35 bps in annual fees.

IBB in Focus

This fund provides exposure to 123 firms by tracking the Nasdaq Biotechnology Index with Vertex taking up the eight position at 3.49%. Growth stocks are once again a big part of the portfolio with 86% of assets while large caps account for 58% share. IBB is the most popular fund is the biotech space with AUM of $5.2 billion and average daily volume of over 1.8 million shares. Expense ratio came in at 0.48% (read: How Will Biotechnology ETFs Finish Out the Year?).

FBT in Focus

This fund follows the NYSE Arca Biotechnology Index and holds about 20 securities in its basket. Of these firms, VRTX occupies the second position with 6.47% allocation. The ETF is spread across various market caps – 42% in mid caps, 40% in large caps and rest in small caps with a tilt toward growth stocks at 73%. The fund manages a $1.3 billion in its asset base and charges 60 bps in annual fees. Volume is moderate as it exchanges 192,000 shares a day on average.

Bottom Line

The upward trend in these products are likely to continue the coming months given their Zacks ETF Rank of 1 or ‘Strong Buy’ rating with High risk outlook (see: all the Healthcare ETFs here).

In fact, the three ETFs have clearly outpaced the other products in the biotech space in the last trading session. PowerShares Dynamic Biotechnology & Genome Portfolio (PBE) and SPDR S&P Biotech ETF (XBI) lost 0.8% and 0.3%, respectively, on the day. This is because these products have little or no exposure to Vertex Pharma.

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