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Healthcare ETFs Pop on Bristol Myers-MyoKardia Deal

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Merger and acquisition activities have heated up in recent months. In the healthcare space, the U.S. drugmaker Bristol Myers Squibb (BMY - Free Report) has agreed to acquire heart drugs developer MyoKardia for $13.1 billion or $225 per share in cash. The deal price represents 61.2% premium to MyoKardia's closing price on Oct 1.

The deal follows Bristol Myers' $74 billion acquisition of Celgene Corp. last year that combined two of the world's largest cancer drug businesses in the biggest pharmaceutical deal ever.

Potential Benefits for Bristol Myers

The proposed acquisition will expand Bristol Myers’ heart drugs business and reduce its dependence on cancer treatments. In particular, it will get access to mavacamten, a potential first-in-class cardiovascular medicine for the treatment of obstructive hypertrophic cardiomyopathy (HCM).

HCM is a chronic heart disease with high morbidity and patient impact. Myokardia is expected to submit a new drug application for mavacamten to the U.S. health regulator in the first quarter of 2021. Bristol Myers expects to explore the full potential of mavacamten in additional indications, including non-obstructive HCM, as well as develop MyoKardia’s promising pipeline of novel compounds, including two clinical-stage therapeutics: danicamtiv (formerly MYK-491) and MYK-224 (read: Top-Performing Biotech ETFs Amid the Coronavirus Crisis).

The deal offers a meaningful medium- and long-term growth driver and will likely add to earnings beginning in 2023, a year after BMY’s top-selling cancer drug Revlimid is expected to lose some of its patent exclusivity in the United States. However, the transaction will be minimally dilutive to Bristol Myers Squibb’s non-GAAP earnings per share in 2021 and 2022.

The deal, which has been approved by the boards of both Bristol Myers Squibb and MyoKardia, is expected to close in the fourth quarter of 2020 subject to regulatory approval.

Market Impact

Following the announcement of the deal, shares of MyoKardia climbed 57.8% to close the day and crushed its average volume as nearly 16.9 million shares moved hands compared with 638,000 million on average. Meanwhile, shares of Bristol-Myers added 0.8% (see: all the Healthcare ETFs here).

The solid trading in these stocks has pushed biotech ETFs higher. Virtus LifeSci Biotech Clinical Trials ETF (BBC - Free Report) has been the biggest winner having gained 6.6%. ALPS Medical Breakthroughs ETF (SBIO - Free Report) , ARK Genomic Revolution Multi-Sector ETF (ARKG - Free Report) , SPDR S&P Biotech ETF (XBI - Free Report) and SPDR S&P Pharmaceuticals ETF (XPH - Free Report) have gained at least 5% each.

These funds could be the best ways for investors to tap the opportunity arising from the Bristol Myers-MyoKardia deal and will likely see smooth trading in the months to come:

BBC

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 $39.1 million in its asset base and charges 79 bps in fees per year from its investors. It trades in a lower average daily volume of around 20,000 shares and holds 131 securities in its basket. The product carries a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: Why Small-Cap Biotech ETFs Are Good Long-Term Bets).

SBIO

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 91 securities in its basket. The product charges 50 basis points in fees per year from its investors and trades in a moderate average daily volume of about 21,000 shares. It has AUM of $177.4 million in its asset base and carries a Zacks ETF Rank #3 with a High risk outlook.

ARKG

This is an actively managed ETF, focusing on companies likely to benefit from extending and enhancing the quality of human and other life by incorporating technological and scientific developments along with improvements and advancements in genomics into their business. With AUM of $2.3 billion, the fund holds 44 stocks in its basket and has 0.75% in expense ratio. It trades in average daily volume of 799,000 shares (read: Top & Flop ETF Zones of First Nine Months of 2020).

XBI

With AUM of $5.2 billion, XBI follows the S&P Biotechnology Select Industry Index and provides equal-weight exposure across 142 stocks. It has 0.35% in expense ratio and trades in an average daily volume of 4.6 million shares. The fund has a Zacks ETF Rank #2 (Buy) with a High risk outlook.

XPH

This fund provides exposure to 42 pharma companies by tracking the S&P Pharmaceuticals Select Industry Index. With AUM of $219.3 million, it trades in good volume of around 65,000 shares a day and charges 35 bps in fees a year. The product has a Zacks ETF Rank #3 with a High risk outlook (read: Pharma ETFs to Benefit from Lilly's Coronavirus Antibody Progress).

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