The biotech sector, no doubt, continued its stellar performance and is leading the broad market this year too. Favorable industry trends, a merger mania, as well as successful drug trials are giving a huge boost to stocks amid valuation concerns.
Among the latest catalysts is Dyax Corp , which was a star performer in Wednesday trading session, skyrocketing over 55%. The massive gain for this small biotech firm came from promising results from the Phase 1b clinical trial of a rare inflammatory treatment (read: Healthcare ETFs Rally on Monday Merger Mania).
The results showed that its drug DX-2930 is safe and efficient to treat hereditary angioedema (HAE) and is successful in reducing extreme swelling attacks. HAE is a rare and fatal condition that leads to swelling of body parts, which is fatal when it attacks organs like lungs, gastrointestinal tract, genitalia and larynx. The disorder generally affects approximately one in 10,000–50,000 people.
The drug will result in 100% reduction in attack when taken in doses of 300 milligrams and an 88% reduction for the 400 milligrams dose group. If the treatment is successful in all trials, then it could compete strongly with Shire’s Firazyr and Cinryze HAE treatment.
Given the promising result for DX-2930, the U.S. Food and Drug Administration (FDA) granted a fast track designation to Dyax that will allow the company to get speedy approval for this drug (see: all the Healthcare ETFs here).
Driven by this positive development, many analysts raised their target price on the stock with some doubling it. This has injected huge optimism into the company’s future growth story. Further, DYAX currently has a favorable Zacks Rank #3 (Hold) and a solid Industry Rank in the top 21%.
The extremely positive trial results were well received by investors. The stock reached its highest level in 15 years to $2.611 on the day but closed a little lower at $25.75 on elevated volume of 16 times more than the average daily volume.
The news also led to a surge in a few biotech ETFs that have a decent exposure to Dyax. In particular, PowerShares Dynamic Biotechnology & Genome Portfolio (PBE - Free Report) , ALPS Medical Breakthroughs ETF (SBIO - Free Report) and BioShares Biotechnology Products Fund (BBP - Free Report) were up close to 1% on the day (read: Biotech ETFs in Focus after a Choppy Week).
PBE in Focus
This fund provides exposure to 30 firms by tracking the Dynamic Biotech & Genome Intellidex Index. Dyax occupies the eleventh position with 3% allocation. The ETF is spread across various market caps – 45% in large caps, 44% in small caps and the rest in mid caps. The product has amassed $534.4 million in its asset base while trades in modest volume of 70,000 shares per day. Expense ratio came in at 0.59%
SBIO in Focus
This fund targets companies with one or more drugs in Phase II or Phase III FDA clinical trials by tracking the Poliwogg Medical Breakthroughs Index. In total, it holds 74 stocks with Dyax taking the sixth spot at 3.31%. It is a small cap centric fund, having amassed $51.2 million since its debut late December. The product charges 50 bps in fees per year from investors and trades in average daily volume of more than 63,000 shares (read: SBIO Vs. BBC: 2 Innovative Biotech ETFs Head-To-Head).
BBP in Focus
This newly debuted ETF with novel approach follows the LifeSci Biotechnology Products Index, which measures the performance of biotechnology companies with a primary product offering that has received the U.S. Food and Drug Administration approval. Holding 36 stocks, Dyax is among the top 20 firms in the basket with 2.9% allocation. Small caps dominate with 63%, followed by 28% in large caps and the rest in mid caps. The product has accumulated about $9.5 million and charges 85 bps in fees per year. Volume is light trading under 13,000 shares a day.
Investors should note that these three products have clearly gained in the last trading session compared to the losses for other products in the biotech space. This is especially true as the three popular funds, namely iShares Nasdaq Biotechnology ETF (IBB - Free Report) , First Trust NYSE Arca Biotechnology Index Fund (FBT - Free Report) and SPDR S&P Biotech ETF (XBI - Free Report) dropped 1%, 0.9% and 2%, respectively. These products have little or no exposure to Dyax and are victims of lofty valuation.
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