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Biotech ETFs Surge on a Flurry of Positive News

Sweta Killa

The biotech sector got a boost over the past week from a flurry of positive news including trial results and deal activities. This is especially true as the ultra-popular SPDR S&P Biotech ETF XBI jumped 4.1% over the past week compared to a gain of just 0.04% for the broad market fund SPY.

Inside the News

The latest is Biogen BIIB, which skyrocketed 26% on Oct 22, on the news that its treatment for Alzheimer’s disease, aducanumab, shows promise in reducing signs of the disease in a sample of patients. Biogen plans to seek approval for aducanumab in early 2020 and it would continue talks with regulatory authorities in international markets, including Europe and Japan. If approved, Biogen’s drug would be the first to slow cognitive decline in Alzheimer’s patients, a milestone in long-running efforts to find a medicine that can treat the memory-robbing disease.

Aducanumab belongs to a class of drugs that removes plaque in the brain called amyloid. Amyloid is a hallmark of Alzheimer's disease. New analysis from the Emerge and Engage studies show that aducanumab is pharmacologically and clinically active. It not only removed amyloid plaque in the brain, but also slowed clinical decline in patients with early Alzheimer's disease. A solid Q3 earnings report also added to Biogen’s strength (see: all the Healthcare ETFs here).

Hepion Pharmaceuticals HEPA soared last week following data that showed potential for its CRV431 as a drug candidate for liver disease treatment. A pan-cyclophilin inhibition, CRV431, is well suited to address multiple therapeutic needs that are currently either underserved, or completely absent. It reduces fibrosis and tumor development in chronic liver disease models.

The last but not the least, Alexion Pharmaceuticals ALXN, which joined the ongoing M&A wave in the pharma/biotech sector, added to the strength in the space. The company agreed to acquire a clinical-stage biopharmaceutical company Achillion Pharmaceuticals ACHN for $930 million in a move to expand its pipeline of rare disease treatments. Under the terms of the deal, Alexion will pay $6.30 for each Achillion share outstanding, which is 73% higher than the Oct 15 closing price. The deal also includes potential for an additional payment for Achillion shares in the form of contingent value rights (CVRs) to be paid if certain clinical and regulatory milestones are achieved. The transaction is expected to close in the first half of 2020, subject to approvals, including Achillion shareholders.

ETF Impact

All these developments are fueling growth in the biotech companies, leading to a rally in their share prices and impressive levels of momentum in biotech ETFs. This suggests that a tilt toward biotech is definitely a good idea. Below, we highlight five biotech ETFs that have been leading the way higher over the past week.

Virtus LifeSci Biotech Clinical Trials ETF BBC – Up 8.2%

This fund has a novel approach to biotechnology investing with exposure to companies that are in the clinical trial stage. This can easily be done by tracking the LifeSci Biotechnology Clinical Trials Index. BBC has amassed $23.1 million in its asset base and charges 79 bps in fees per year from its investors. It trades in a light average daily volume of around 4,000 shares and holds 97 securities in its basket with each accounting for less than 2.7% share. The product has gained 20.6% and carries a Zacks ETF Rank #3 (Hold) with a High risk outlook.

ALPS Medical Breakthroughs ETF SBIO – Up 5.6%

This fund provides exposure to companies with one or more drugs in Phase II or Phase III FDA clinical trials by tracking S-Network Medical Breakthroughs Index. It holds 78 securities in its basket with none accounting for more than 4.8% share. The product charges 50 basis points in fees per year from investors and trades in a moderate average daily volume of about 34,000 shares. It has AUM of $166.3 million in its asset base and has a Zacks ETF Rank #3 with a High risk outlook (read: Top-Performing Biotech ETFs YTD).

Principal Healthcare Innovators Index ETF BTEC – Up 4.8%

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 190 stocks in its basket with none making up for more than 4.7% of assets. BTEC charges 42 bps in annual fees. The product has accumulated $51.4 million in its asset base. It has a Zacks ETF Rank #3.

iShares Genomics Immunology and Healthcare ETF IDNA – Up 4.3%

This ETF has newly debuted in the space and follows the NYSE FactSet Global Genomics and Immuno Biopharma Index, which offers exposure to developed and emerging market companies that could benefit from long-term growth and innovation in genomics, immunology, and bioengineering. Holding 44 stocks in its basket, it is widely spread across components with none accounting for more than 6.24% of assets. The fund has gathered $22.5 million in AUM since its inception on Jun 11 but trades in paltry average daily volume of 2,000 shares. It charges 47 bps in annual fees (read: ETFs Poised to Benefit from Gene Editing Revolution).

Virtus LifeSci Biotech Products ETF BBP – Up 4.2%

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 41 stocks, the product has moderate concentration across components with each holding less than 4.6% share. The product has accumulated AUM of about $25.9 million and charges 79 bps in fees per year. BBP trades in volume of 3,000 shares a day on average and has a Zacks ETF Rank #3 with a High risk outlook.

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