The healthcare space is witnessing an M&A wave lately and has reached a record $342 billion in deal activity so far this year. This represents the best year by total deal value since tracking began in the 1990s, according to data provided by Dealogic. The strong rally was driven by AbbVie’s ABBV proposed $63 billion buyout of Allergan and Amgen’s AMGN $13.4 billion purchase of psoriasis and psoriatic arthritis drug Otezla from Celgene CELG, which is in the process of being acquired by Bristol-Myers Squibb’s BMY.
The latest to jump on the M&A bandwagon are Merck & Co. MRK and Sanofi SNY that agreed to buy smaller cancer-drug makers ArQule ARQL and Synthorx THOR, respectively (read: A Guide to Biotech ETF Investing).
The U.S. drug giant will acquire a cancer-treating biopharmaceutical company ArQule for $2.7 billion in order to tap into the drug developer's experimental blood cancer therapy that targets genetic mutations. Under the terms of the deal, Merck will pay $20 per share to ArQule stockholders. The offer represents more than a 100% premium to ArQule’s closing price on Dec 6.
The transaction, pending regulatory and shareholder approval, is expected to close early in the first quarter of 2020. It will strengthen Merck's oncology business before its blockbuster cancer drug Keytruda loses its market exclusivity in 2028.
The news has pushed ArQule’s stock more than 100% (read: Why Biotech ETFs Surged in Monday's Trading Session).
The French drug giant will acquire Synthorx, which focuses on cancer and autoimmune disorder treatments, for $2.5 billion to boost its immuno-oncology portfolio. Per the deal terms, Sanofi has offered to acquire all the outstanding shares of Synthorx for $68 per share in cash, a premium of about 172% to the latter’s closing price on Dec 6.
The deal, approved by the board of directors of both the companies but awaiting antitrust approval, is expected to close in the first quarter of 2020.
THOR shares skyrocketed more than 170% on the deal news.
ETFs in Focus
Following the new deals in the healthcare space, a few biotech ETFs hit new highs on the day. Below, we have highlighted them in detail below (see: all the Healthcare ETFs here):
Virtus LifeSci Biotech Clinical Trials ETF BBC
This fund invests solely in firms with promising drugs in clinical human trials that have not yet been approved by the FDA or gone into production. This can easily be done by tracking the LifeSci Biotechnology Clinical Trials Index. BBC has amassed $29.9 million in its asset base and charges 79 bps in fees per year from investors. It trades in a light average daily volume of around 5,000 shares and holds 96 securities in its basket with equal-weight exposure each. The product carries a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: Biotech Tops in November: Best ETFs & Stocks).
ALPS Medical Breakthroughs ETF SBIO
This product invests in stocks of mid-cap and small-cap companies in the biotech sector with a market capitalization of no less than $200 million and no more than $5 billion. It follows the S-Network Medical Breakthroughs Index. The product charges 50 basis points in fees per year from investors and trades in a moderate average daily volume of about 34,000 shares. It has AUM of $206.7 million in its asset base and has a Zacks ETF Rank #3 with a High risk outlook.
Global X Genomics & Biotechnology ETF GNOM
This is a new entrant in the space having accumulated $19.4 million since its inception on Apr 5. It seeks to invest in companies that potentially stand to benefit from further advances in the field of genomic science. These are companies involved in gene editing, genomic sequencing, genetic medicine/therapy, computational genomics and biotechnology. The product follows the Solactive Genomics Index, charging 68 bps in annual fees. It holds 41 stocks in its basket and trades in average daily volume of 4,000 shares (read: Genomics ETFs Surge on CRISPR's Gene Editing Progress).
The Cancer Immunotherapy ETF CNCR
This ETF offers exposure to a basket of companies that develop therapies to treat cancer by harnessing the body's own immune system. Holding 26 stocks in its basket, it has AUM of $38.9 million and trades in average daily volume of 10,000 shares. The product charges 79 bps in annual fees and has a Zacks ETF Rank #3 with a High risk outlook.
iShares Nasdaq Biotechnology ETF IBB
This fund provides exposure to 215 U.S. biotechnology and pharmaceutical companies by tracking the Nasdaq Biotechnology Index. IBB is the most-popular fund is the biotech space with AUM of $7.7 billion and average daily volume of 2.4 million shares. Expense ratio comes in at 0.47%. The product has a Zacks ETF Rank #2 (Buy) with a High risk outlook (read: Biotechnology ETF Hits New 52-Week High).
SPDR S&P Biotech ETF XBI
With AUM of $4.4 billion, XBI provides equal-weight exposure of around 2% across 115 biotechnology stocks by tracking the S&P Biotechnology Select Industry Index. It has 0.35% in expense ratio and trades in an average daily volume of 4.5 million shares. The fund has a Zacks ETF Rank #2 with a High risk outlook.
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