Top Ways to Trade the Biotech M&A Boom

May 1, 2023

Investors may want to keep an eye on the biotech boom.

For one, the sector is still one of the safest, most recession-proof investments around. Two, an aging population is demanding better treatment in an effort to live longer lives. Three, there’s incredible new innovation in gene therapies, immuno-oncology, precision medicine, machine-learning drug discovery, and treatments for unmet medical needs.

And, it looks like biotech M&A is catching fire again.

Pfizer recently acquired Seagen in a $43 billion deal. Merck acquired Prometheus and its bowel disease drug in a $10.8 billion deal. GSK offered $2 billion to Bellus Health. Amgen bought Horizon Therapeutics in a $27.8 billion deal. Astellas Pharma just agreed to acquire Iveric Bio for about $5.9 billion.

Better, as noted by FiercePharma, “Moody’s Investor Services thinks these are just the start, with M&A activity expected to remain high over the next year to 18 months. Pharmas are trying to restock their pipelines due to approaching patent cliffs and long-term pricing pressure.”

Even Roche may be looking to acquire targets, judging by CEO Thomas Schinecker’s, Ph.D., comments, as quoted by FierceBiotech. “We are always open to M&A, and we always check all the opportunities that are on the market. When it comes to companies in early-stage development, there may be more opportunities now, simply because of the funding issues in the biotech sector.”

If we do see more deals, some of the best ways to potentially profit is with biotech ETFs. Not only do they allow you to diversify among top biotech names, they do so at a lower cost.

SPDR S&P Biotech ETF (XBI)

One of the best ways to diversify at less cost is with a biotech ETF, such as the SPDR S&P Biotech ETF (XBI). With an expense ratio of 0.35%, the ETF offers exposure to the S&P Biotechnology Select Industry Index. Some of its top holdings include Biogen, Veracyte, Moderna, Gilead Sciences, Amgen, and VIr Biotechnology to name a few. The ETF seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the S&P Biotechnology Select Industry Index.

ProShares Ultra NASDAQ Biotechnology (BIB)

With an expense ratio of 0.95%, the BIB ETF seeks daily investment results, before fees and expenses, that correspond to two times (2x) the daily performance of the Nasdaq Biotechnology Index. Some of its top holdings include Compass Pathways, Cara Therapeutics, Inovio Pharmaceuticals, C4 Therapeutics, Achillion Pharmaceuticals, and dozens more.

iShares Biotechnology ETF (IBB)

With an expense ratio of 0.44%, the IBB ETF tracks the investment results of an index composed of U.S.-listed equities in the biotechnology sector. Some of its top holdings include Gilead, Amgen, Moderna, Biogen, Seagen, Illumina, and dozens more.

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