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Pharma ETFs Soar on Acquisition Spree

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Like 2014, mergers and acquisitions in the health care space have been witnessing a wining momentum in 2015 as well. After the signing of major pharma deals like the Cubist takeover by Merck and Allergan takeover by generic and specialty drug maker Actavis in Q4, the sector went on seeing the same trend to start 2015.

Last month, Abbvie entered into an agreement to acquire Pharmacyclics for $21 billion. There was yet another deal talk between Canadian drug maker Valeant Pharmaceuticals International and leading U.S. gastrointestinal drug maker Salix Pharmaceuticals. And now talks of yet another pharma deal between Mylan N.V. (MYL) and Perrigo Company plc (PRGO) are doing rounds (read: Pharma ETFs to Soar No Matter Who Wins Salix).

Investors should note that the biotech space has been under pressure since this March. So, reports of the latest acquisition proposal by Mylan on April 8, gave the much-needed boost to this sector.

Mylan has proposed to acquire drug maker Perrigo in a cash-and-stock deal valued at $205 per share. In total, the deal is worth around $29 billion. Mylan expects to derive significant synergies out of this deal. Based on 2014 numbers, pro forma sales of the combined entity were approximately $15.3 billion.

The stock market welcomed the reports with much enthusiasm, pushing not only shares of MYL and PRGO higher but also spreading bullishness into the entire health care sector. Shares of Mylan and Perrigo surged 14.8% and 18.4%, respectively, after the news of the likely deal (read: Biotech ETFs in Focus after a Choppy Week).

The day after, shares of both companies were up about 2.54% and 1.90% on elevated volumes. Investors should note that MYL is presently trading at more than four times the regular volume while Perrigo has made it seven times higher.

ETFs in Focus

The news led to a surge in the broader health care ETFs. Top-notch pharma ETF SPDR S&P Pharmaceuticals ETF (XPH) added over 3.3% following the news while was up over 0.3% the day next. Overall, iShares Nasdaq Biotechnology ETF (IBB) gained almost 3% (see: all the Healthcare ETFs here).

We have detailed the performance of the funds in which MYL and PRGO have decent weight and expect these to be in focus over the coming days given the M&A talks.
MYL has over 3% weights in IBB and iShares U.S. Pharmaceuticals ETF (IHE). IHE was up over 2.5% on the day of announcement. On the other hand, PRGO takes the top holding in Market Vectors Israel ETF (ISRA - Free Report) wtih 
 over 14% and has over 3.5% share in IHE. ISRA was up 2.75% in the key trading session while it advanced about 0.9% the next day (read:  Israel ETFs in Focus on Surprise Rate Cut).

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