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M&A Waves Pushing Biotech ETFs Higher

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The biotech corner of the broad healthcare sector is in the spotlight to start the New Year, as the new tax legislation has enticed U.S. companies to bring offshore cash back home, sparking waves of mergers and acquisitions. Additionally, the slower growth in mature drugs has compelled prominent biotechs to acquire smaller ones with promising pipelines.

Deals on “Wheels”

Celgene Corp has been at the forefront to join the M&A craze. The company announced a deal to acquire blood-disease biotechnology company Impact Biomedicines for as much as $7 billion. The deal, expected to close in the first quarter of 2018, will add a new drug fedratinib, which is a highly selective JAK2 kinase inhibitor being evaluated across 18 clinical trials, including a Phase III trial, for myelofibrosis and polycythemia vera to Celegne’s pipeline (read: Value Biotech ETFs to Buy Now).

Now, CELG is rumored to be in talks to acquire smaller rival Juno Therapeutics Inc. in a quest to bolster its blood-cancer drug portfolio before its best-selling drug, Revlimid, loses patent protection. The acquisition could strengthen Celgene's drug pipeline for blood cancer, and potentially broaden its treatments to include lung, breast and ovarian cancers. Since both CELG and JUNO have long partnered on cancer treatments including the promising CAR-T drugs that teach the immune system to identify and fight cancer, the talks could lead to a deal in the coming weeks.

Among other deals, Japan’s Takeda Pharmaceutical has agreed to acquire Belgian biotech group TiGenix for 520 million euros ($628 million) aimed at strengthening the late-stage gastroenterology pipeline and presence in the U.S. specialty care market. Danish drugmaker Novo Nordisk NOVO has also made a bid of €2.6 billion ($3.1 billion) to buy Belgian biotech Ablynx to beef up its waning performance in its haematology and hormone treatments division but the latter rejected the offer.

Given the flurry of deals so far, M&A activity in the biotech sector is expected to be robust this year. EY expects the deal value to exceed $200 billion, given companies’ increased financial firepower and balance sheet strength (see: all the Healthcare ETFs here).

ETFs in Focus

This trend has led to smooth trading in the biotech sector with Loncar Cancer Immunotherapy ETF (CNCR - Free Report) stealing the show thanks to its 9.2% gains. This was followed by Virtus LifeSci Biotech Clinical Trials ETF (BBC - Free Report) , First Trust NYSE Arca Biotechnology Index Fund (FBT - Free Report) and PowerShares Dynamic Biotechnology & Genome Portfolio (PBE - Free Report) that have risen 7.6%, 6.3% and 6%, respectively.

Below we profile these ETFs in details and discuss some of the specifics behind their recent rally:

CNCR

This product tracks the Loncar Cancer Immunotherapy Index and provides exposure to the basket of 30 companies that develop therapies to treat cancer by harnessing the body’s own immune system. With AUM of $41.2 million, the ETF charges 79 bps in annual fees and trades in average daily volume of around 19,000 shares. It has a Zacks ETF Rank #2 (Buy) with a High risk outlook (read: Top-Ranked ETFs Crushing the S&P 500 to Start 2018).

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 $32.8 million in its asset base and charges 79 bps in fees per year from its investors. It holds 74 securities in its basket and trades in a light average daily volume of around 14,000 shares. The product has a Zacks ETF Rank #2 with a High risk outlook.

FBT

This fund follows the NYSE Arca Biotechnology Index and holds about 30 securities in its basket. It has accumulated $1.3 billion in its asset base and trades in a good volume of around 55,000 shares a day. The ETF charges investors 56 bps in fees per year and has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: Sector ETF & Stock Winners 10-Years Since Great Recession).

PBE

This fund provides exposure to 31 firms by tracking the Dynamic Biotech & Genome Intellidex Index. It has managed $224.5 million in its asset base while trades in modest volume of 19,000 shares per day. Expense ratio comes in at 0.58%. The product has a Zacks ETF Rank #3 with a High risk outlook.

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