To The Moon

The biotechnology industry is experiencing a revival, breaking free from a period of stagnation.

Since reaching its peak in early 2021, the S&P Biotechnology Select Industry Index has lost over 50% of its value. The downturn can be attributed to rising interest rates and a slowdown in the success of the pandemic period, leading to a widespread pessimism among investors.

Looking ahead to 2024, analysts anticipate a more favorable interest rate environment, increased deal activity, and innovations in critical areas such as cancer and immunology, brightening the prospects for biotechnology companies. The biotech industry's index has seen a 29% increase since the end of October.

Merger and acquisition activities in the biotech industry are gaining momentum. According to PwC's latest analysis, 2023 has been a relatively robust year for the pharmaceutical and life sciences sectors, with the value and quantity of mergers and acquisitions approaching pre-pandemic levels.

Some notable transactions during this period include：

• $Pfizer(PFE)$'s $43 billion acquisition of cancer drug manufacturer $Seagen(SGEN)$,

• $Merck(MRK)$'s $10.8 billion acquisition of immunotherapy company Prometheus Biosciences,

• $AbbVie(ABBV)$'s nearly $8.7 billion acquisition of neurology drug developer Cerevel Therapeutics,

• Bristol $Myers(MYE)$ Squibb's announcement of a $1.4 billion acquisition of $Karuna Therapeutics(KRTX)$, the company developing a crucial treatment for schizophrenia,

• AstraZeneca's proposed $1.2 billion acquisition of cell and gene therapy company Grls Bio.

One of the latest trends in the biotech industry, in addition to the longstanding focus on rare and debilitating diseases, is the resurgence of therapies targeting obesity.

• In August of this year, Novo Nordisk released the results of the SELECT trial, demonstrating that its GLP-1 weight loss drug Wegovy reduces the risk of major adverse cardiovascular events in adults who are overweight or obese, with diagnosed cardiovascular disease but no history of diabetes. This has increased the likelihood of widespread adoption of GLP-1 drugs in the $United(UBCP)$ States.

• On December 5th, $Eli Lilly(LLY)$ announced the market availability of Zepbound™ (tirzepatide) injection for the treatment of obesity in adults. The drug, approved by the FDA on November 8th, can be purchased through prescription at retail and mail-order pharmacies.

In a recent report, PwC stated that with industry participants gaining a better understanding of regulatory agencies' perspectives, there may be a larger resurgence in deals, with sustained transactions in the common 15 billion to 230 billion USD range over the next five years. Analysts suggest potential targets could include companies focusing on precision oncology, cell and gene therapy, mRNA, and immunology.

Top Biotech ETFs for 2023

Biotech-focused Exchange-Traded Funds (ETFs) provide investors with opportunities to diversify their portfolios and often have larger assets under management and relatively low expense ratios. Here are five notable biotech ETFs:

$iShares Biotechnology ETF(IBB)$

• $Total(TSS)$ Assets: $7.4 billion

• Expense Ratio: 0.45%

Aims to track an index comprising all biotech stocks listed in the $United(UBCP)$ States, currently holding around 275 biotech stocks.

Top holdings include major biotech stocks like $Amgen(AMGN)$, $Gilead Sciences(GILD)$, Moderna (MRNA), and $Regeneron Pharmaceuticals(REGN)$ (REGN).

Since its inception in 2001, the ETF has an average annualized total return of 6.6%, with a recent five-year annualized return of approximately 8.82%.

SPDR S&P Biotech ETF

• $Total(TSS)$ Assets: $7.1 billion

• Expense Ratio: 0.35%

Aims to track the S&P Biotechnology $Select(SLCT)$ Industry Index, utilizing a modified equal-weighting approach.

Holds around 150 stocks, providing exposure to large, mid, and small-cap biotech stocks.

Top holdings include companies like $Madrigal Pharmaceuticals(MDGL)$ (MDGL), $Exact Sciences(EXAS)$ (EXAS), $TG Therapeutics(TGTX)$ (TGTX), and $Acadia(AKR)$ Pharmaceuticals (ACAD).

Since its establishment in 2006, the ETF has an annualized total return of approximately 10%, but its recent five-year average annual return is 6.51%.

Ark Genomic Revolution ETF

• Total Assets: $2.1 billion

• Expense Ratio: 0.75%

Managed by Cathie Wood's Ark Invest, this ETF focuses on companies incorporating genomics into their businesses.

Concentrates on gene editing stocks, molecular diagnostic stocks, virtual care stocks, and companies developing targeted therapies.

Typically holds 40 to 60 stocks, with top positions currently including $Exact Sciences(EXAS)$, $Pacific Biosciences of California(PACB)$, $Ionis Pharmaceuticals(IONS)$, Teladoc Health (TDOC), and $CareDx(CDNA)$.

Since trading began in 2014, the ETF has delivered an average annual return of over 5%, with a recent five-year annualized return close to 10.37%.

$First Trust NYSE Arca Biotechnology Index Fund(FBT)$

• Total Assets: $1.28 billion

• Expense Ratio: 0.56%

Aims to track the performance of the NYSE Arca Biotechnology Index, with equal-weighted positions in various biotech companies, including those focused on genomics and monoclonal antibody technologies.

Currently holds approximately 30 positions, with major holdings such as $Agios Pharmaceuticals(AGIO)$ (AGIO), $Seagen(SGEN)$ (SGEN), BioMarin Pharmaceutical (BMRN), $Exelixis(EXEL)$, and $FibroGen(FGEN)$.

Since its establishment in 2006, the ETF has an annualized total return of about 13%, with a recent five-year annual return exceeding 4.8%.

$VanEck Biotech ETF(BBH)$

• Total Assets: $470 million

• Expense Ratio: 0.35%

Aims to hold the most liquid biotech companies based on market capitalization and trading volume, often favoring the largest companies in the biotech sector.

The ETF's portfolio may include U.S. and foreign companies listed on U.S. stock exchanges.

Currently holds 25 biotech stocks, with major positions in companies like $Amgen(AMGN)$, $Gilead Sciences(GILD)$, $Vertex Pharmaceuticals(VRTX)$, Moderna, and Iqvia Holdings.

Launched on December 20, 2011, the ETF has delivered an annualized total return of approximately 15%, with a recent five-year average annual return close to 10%.

$(XHB)$ $(ITB)$ $(SPY)$ $(QQQ)$ $(FBT)$ $(BBH)$ $(SPYB)$ $(PFE)$ $(SGEN)$ $(MRK)$ $(RXDX)$ $(ABBV)$ $(CERE)$ $(BMY)$ $(KRTX)$ $(AZN)$ $(GRCL)$ $(NVO)$ $(AMGN)$ $(LLY)$