We have seen very strong M&A activity in the biotech space this year and the trend is expected to continue as big pharmaceutical companies are trying to gain an edge in the increasingly competitive cancer treatment market.
Last week, Pfizer (PFE - Free Report) announced that it would buy cancer drug maker Array BioPharma (ARRY - Free Report) for about $11 billion. Pharmaceutical giant Bristol-Myers (BMY - Free Report) is acquiring rival Celgene (CELG - Free Report) for $74 billion, which however may be delayed due to FTC’s anticompetitive concerns about the merger.
Merck (MRK - Free Report) is acquiring cancer drug developer Peloton Therapeutics for $1.05 billion. The announcement came as Peloton was preparing for its IPO. Earlier this year, Eli Lilly (LLY - Free Report) bought Loxo Oncology for $8 billion.
ETFs that focus on smaller biotech companies are outperforming the broader, market-cap weighted biotech ETFs this year.
Investors should however remember that small biotech companies can be quite volatile. Further, many companies have products in clinical trials where chances of failure are high so these should be seen as high-risk, high-growth potential investments.
The ARK Genomic Revolution Multi-Sector ETF (ARKG - Free Report) is an actively managed ETF that focuses on companies involved in the genomics industry. The product is up more than 36% this year. Its top holdings include Illumina (ILMN - Free Report) and Invitae (NVTA - Free Report) .
The ALPS Medical Breakthroughs ETF (SBIO - Free Report) holds mid cap and small cap biotech companies with one or more drugs in Phase II or III of FDA clinical trials. FibroGen (FGEN) and ACADIA Pharmaceuticals (ACAD) are its top holdings. The fund has gained about 28% in 2019.
The Principal Healthcare Innovators Index ETF (BTEC - Free Report) invests in mid cap and small cap healthcare companies developing innovative medicines, therapies, equipment, and facilities. It is up more than 22% year-to-date.
To learn more about these ETFs, please watch the short video above,
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>