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Inside the Recent Surge in Biotech ETFs

Sanghamitra Saha
Updated

The biotech space gained the much-needed strength on September 12 with every ETF being in the green. Positive news ushered into the sector on Monday, giving several stocks and funds a solid lift. Notably, biotech stocks are caught in a web of issues this year including overvaluation concerns and the likely negative impact of the presidential election in the U.S. 

Investors should note that with the presidential candidate, policymakers, the media and the general public raising questions over high drug pricing lately, biotech stocks and the related ETFs haven fallen out of investor favor (read: Biotech ETFs in Focus After Mylan's EpiPen Controversy).

Hillary Clinton – the Democratic presidential candidate – is among those who have been vocal about the steep pricing on life-saving drugs for long (read: How Hillary Clinton Crushed Biotech ETFs with One Tweet).

However, braving such issues, biotech stocks and ETFs registered solid gains on September 12. Below we highlight the drivers in detail:

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Surge in Deals

The sector has always been at the epicenter of mergers and acquisitions. Horizon Pharma PLC HZNP) announced that it will acquire Raptor Pharmaceutical Corp RPTP for about $800 million. Following the announcement, Horizon Pharma added over 9.4% and Raptor Pharmaceutical surged over 20.5% on September 12.

Shares of Perrigo Company Plc PRGO spiked about 7.4% on September 12 as activist investor Starboard Value LP revealed a 4.6% stake in the drug company. Starboard also added that it sees "significant discount to fair value” for Perrigo shares at the current level and "substantial opportunities” in it.

If this was not enough, Gilead Sciences Inc. GILD disclosed that it intends to pursue a host of smaller deals rather than a huge one. All these news acted as a cornerstone for the entire biotech space.

Successful Clinical Trial

Shares of Foamix Pharmaceuticals Ltd. FOMX shot up over 15.7% on September 12 after the company announced “that a drug designed to treat papulopustular rosacea had shown strong results in a Phase 2 clinical trial.”

Dovish Fed Comments

Though the broader market went into a tailspin on September 9, dovish comments by Fed Governor Lael Brainard on the policy tightening issue on September 12, triggered a relief rally to start this week. With chances of a September hike slumping to 11% from 19%, as per changes in Fed funds futures, high-growth, high-beta sectors like biotech had reasons to rejoice.

Trump’s Chances of Winning Growing?

Lately, chances of Republican candidate Donald Trump’s winning the presidential election are rising. The UPI/CVoter daily presidential tracking poll results indicated on Monday that Donald Trump (48.7%) is leading Hillary Clinton (45.8%) by close to 3 percentage points in the seven-day polling period ending September 11.

However, another source Real Clear Politics’ poll results showed that Clinton (45.9%) beat Trump (42.9%) by 3 percentage points on September 12, 2016. Whatever the case, Donald Trump’s steadfastness in the presidential election race may be good news for biotech stocks, given Clinton’s constant move against the price gouging issue in the pharmaceutical space (read: Will a Clinton Presidency Spell Doom for Pharma ETFs?).

Surging ETFs in Focus

Below we highlight five ETFs that scooped up strong gains on September 12.

ALPS Medical Breakthroughs ETF SBIO– Up 3.94%

PowerShares Dynamic Biotechnology & Genome Portfolio ETF PBE – Up 3.81%

SPDR S&P Biotech ETF XBI – Up 3.61%

iShares Nasdaq Biotechnology ETF IBB – Up 3.04%

First Trust NYSE Arca Biotechnology Index Fund FBT – Up 2.92%

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ISHARES NDQ BIO (IBB): ETF Research Reports
 
PERRIGO CO PLC (PRGO): Free Stock Analysis Report
 
GILEAD SCIENCES (GILD): Free Stock Analysis Report
 
RAPTOR PHARMACT (RPTP): Free Stock Analysis Report
 
HORIZON PHARMA (HZNP): Free Stock Analysis Report
 
FOAMIX PHARMA (FOMX): Free Stock Analysis Report
 
FT-AMEX BIOTEC (FBT): ETF Research Reports
 
SPDR-SP BIOTECH (XBI): ETF Research Reports
 
PWRSH-DYN BIO (PBE): ETF Research Reports
 
ALPS-MED BRKTH (SBIO): ETF Research Reports
 
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Zacks Investment Research
 
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