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Biotech ETFs Surge on Biogen's Alzheimer Drug Approval

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Biogen Inc. (BIIB - Free Report) was a star performer in Monday’s trading session, as the stock rallied as much as 64% to a record high triggering a brief halt. The stock was up 38% at the close to its highest level in over six years, adding more than $16 billion in its market value. The massive gain for the biotech firm came following the approval of the much-awaited drug to treat Alzheimer's disease in nearly 20 years by the FDA.

Alzheimer’s is the most common form of dementia that affects memory, thinking and behavior. About 44 million people worldwide are suffering from Alzheimer’s disease or a related form of dementia. In the United States, an estimated 5.5 million people of all ages have Alzheimer’s disease. Of these, around 5.3 million are 65 and older and 200,000 are younger and have early-onset Alzheimer’s disease. According to the Alzheimer's Association, an estimated 6.2 million Americans are currently living with Alzheimer's and the number could hit 13 million by 2050 (see: all the Healthcare ETFs here).

Currently, there is no treatment for the disease or way to stop its progression. As such, the approval marks an important milestone in the treatment of the disease. Biogen will market the drug under the brand name Aduhelm, which acts in the brain to remove amyloid protein fragments before they can form sticky plaques associated with Alzheimer's disease. Aduhelm is the first disease treatment intended to stop patients with Alzheimer's disease from losing more memories.

Alzheimer's treatment could generate billions in sales and open the door for other biotech stocks to come up with new treatments to fight the disease.

Market Impact

The approval for Biogen’s Alzheimer’s disease treatment has spread strong optimism, with many investors pulling in capital to this high growth and high beta sector. The Nasdaq Biotech Index rallied 3.6% — the biggest jump since Nov 4. Shares of Eli Lilly & Co. (LLY - Free Report) jumped 10% and Biogen’s partner in Japan, Eisai Co., surged 56%, marking the biggest gain ever. Small-cap biotech firms working on treatments for the disease also climbed. Cassava Sciences Inc. rose 5.4%, while Annovis Bio Inc. gained 7.4% (read: 4 ETFs & Stocks to Buy This Summer From Top Sectors).

The smooth trading in the stock world also sent the biotech ETFs space into green on the day. In particular, Invesco Dynamic Biotechnology & Genome ETF (PBE - Free Report) stole the show climbing 4.9%, followed by gains of 4.6% for SPDR S&P Biotech ETF (XBI - Free Report) , ALPS Medical Breakthroughs ETF (SBIO - Free Report) , Virtus LifeSci Biotech Clinical Trials ETF (BBC - Free Report) and Global X Genomics & Biotechnology ETF (GNOM - Free Report) .

PBE

This fund provides exposure to 31 firms by tracking the Dynamic Biotech & Genome Intellidex Index. The ETF has managed $271.2 million in its asset base while charging 0.58% in annual fees. It has a Zacks ETF Rank #3 (Hold) with a High risk outlook.

XBI

With AUM of $6.7 billion, XBI follows the S&P Biotechnology Select Industry Index and provides equal-weight exposure across 190 stocks. It has 0.35% in expense ratio and trades in an average daily volume of 6.5 million shares. The fund has a Zacks ETF Rank #3 with a High risk outlook (read: 5 All-Star ETFs & Stocks to Buy on the Dip).

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 102 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 26,000 shares. It has AUM of $223.7 million in its asset base and carries a Zacks ETF Rank #3 with a High risk outlook.

BBC

This fund offers exposure to companies with a lead drug in the clinical trial stage of development, typically a phase 1, phase 2 or phase 3 trial, but prior to receiving marketing approval. This can easily be done by tracking the LifeSci Biotechnology Clinical Trials Index. BBC has amassed $40.7 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 8,000 shares and holds 163 securities in its basket. The product carries a Zacks ETF Rank #3 with a High risk outlook.

GNOM

This product seeks to invest in companies that potentially stand to benefit from further advances in the field of genomic science, such as companies involved in gene editing, genomic sequencing, genetic medicine/therapy, computational genomics and biotechnology. It follows the Solactive Genomics Index, holding 40 stocks in its basket. This ETF has accumulated $197.4 million in its asset base and charges 50 bps in annual fees. It trades in an average daily volume of 100,000 shares.

What Lies Ahead?

The uptrend in the sector is likely to continue given the impressive industry trends including new drug nods, an accelerated pace of innovation, promising drug launches, growing importance of biosimilars, cost-cutting efforts, an aging population, expanding insurance coverage, the rising middleclass, insatiable demand for new drugs and ever-increasing spending on healthcare.

Additionally, the sector’s non-cyclical nature is an advantage in the current environment, where concerns over rising inflation and the prospect of Fed’s tightening its policy are rife.

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