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Biotech ETFs Surge on Biogen's Positive Drug Trial Result

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Biogen Inc. (BIIB - Free Report) was a star performer in Friday’s trading session, as the stock rallied as much as 23.1% but closed a little lower, rising 19.6% in the day’s trade. The massive gain for the biotech firm came from encouraging Phase 2 clinical study data for Alzheimer’s treatment.

The final analysis at 18 months of the 856-patient Phase 2 clinical study of BAN2401 in early Alzheimer’s disease demonstrated statistically significant slowing in cognitive decline and reduction of amyloid beta accumulated in the brain, per the company press release. Amyloid beta or protein fragments are found in the brains of patients suffering from the disease and that some believe cause it.

Alzheimer’s is the most common form of dementia and affects about 50 million people worldwide, according to the Alzheimer’s Association. Currently, there is no treatment for the disease or way to stop its progression. However, the U.S. Food and Drug Administration has approved some medications to treat symptoms related to memory loss, language and other thought processes (see: all the Healthcare ETFs here).

As such, the result marks an important milestone in the companies' quest to tackle Alzheimer's disease. In fact, analysts welcomed the news as the first trial study for the drug was disappointing. This resulted in a risk-on environment, with many investors pulling in capital to this high growth and high beta sector.

Other large-cap biotech stocks also gained with Gilead (GILD - Free Report) up 3.3%, Celgene (CELG - Free Report) up 2.5% and Amgen (AMGN - Free Report) up 1.9%. This suggests that investors are pinning their hopes on these fast growing companies, which could see smooth trading in the coming days.

ETF Impact

The smooth trading in the stock world also sent biotech ETFs space into green on the day. In particular, iShares Nasdaq Biotechnology ETF (IBB - Free Report) stole the show climbing 3.8% o, followed by more than 3% gains each for First Trust Amex Biotechnology Index (FBT - Free Report) , Invesco Dynamic Biotechnology & Genome ETF (PBE - Free Report) and VanEck Vectors Biotech ETF (BBH - Free Report) .

IBB

This fund provides exposure to 192 firms by tracking the Nasdaq Biotechnology Index, with Biogen taking the top spot at 9.1%. IBB is the most popular fund is the biotech space with AUM of $9.3 billion. Expense ratio comes in at 0.47%. IBB has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: Why These Small Cap Biotech ETFs are Soaring).

FBT

This fund follows the NYSE Arca Biotechnology Index, which measures the performance of companies in the biotechnology industry that are primarily involved in the use of biological processes to develop products or provide services. It holds about 30 securities in its basket with Biogen occupying the fifth position at 4.1% share and charges 56 bps in annual fees. It has accumulated $1.7 billion in its asset base and has a Zacks ETF Rank #2 (Buy) with a High risk outlook (read: 4 Sector ETFs That Crushed S&P 500 in 9-Year Bull Run).

PBE

This fund provides exposure to 31 firms by tracking the Dynamic Biotech & Genome Intellidex Index. Biogen takes the top spot at 5.4% of assets. The ETF has managed $273 million in its asset base while charging 0.58% in expense ratio. It has a Zacks ETF Rank #3 with a High risk outlook (read: Pharma & Biotech ETFs Soar on Trump's Drug Plan).

BBH

This fund offers exposure to 26 large biotechnology corporations by tracking the MVIS US Listed Biotech 25 Index. Here, Biogen is the fifth firm accounting for 5.8% share. BBH has amassed $427.6 million in its asset base and charges 35 bps in fees per year. It has a Zacks ETF Rank #1 (Strong Buy) with a High risk outlook.

What Lies Ahead?

The uptrend in the sector is likely to continue this year on tax reform, rising M&A and positive regulatory backdrop (read: Top-Ranked Sector ETFs to Buy for Q3).

The new tax legislation has enticed large pharmaceutical companies to bring offshore cash back home at reduced tax rates of 8-15.5% instead of the prior 35%. The repatriated money led to an increase in mergers and acquisitions activity, share buybacks and dividends. Additionally, the slower growth in mature drugs has also compelled prominent biotechs to acquire smaller ones, even at hefty premiums, with promising pipelines.

Further, Trump’s most-awaited plan to lower drug prices has added to the strength. If these were not enough, the sector’s non-cyclical nature is an advantage in the current market, which is ruffled by trade war fears between China and United States as well as geopolitical tension.

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