ETFs offering biotech exposure are rallying on Monday, lifted by a significant M&A announcement in the industry.
The ALPS Medical Breakthroughs ETF (SBIO) increased by 1.8% in mid-day trading on Monday. During the same period, the SPDR S&P Biotech ETF (XBI) gained 2.4%, and the iShares Biotechnology ETF (IBB) is up 0.2%, according to YCharts.
The healthcare sector is up today following news that Amgen agreed to acquire Horizon Therapeutics for $27.8 billion, which is the largest healthcare merger this year. Amgen will pay $116.50 for each Horizon share, a premium of 19.7% over the stock’s closing price Friday at $97.29 and nearly 50% over where it traded when the company said last month that it might be sold, according to The Wall Street Journal.
Neither Amgen nor Horizon are current holdings in SBIO, but the significant M&A has excited the entire biotech sector.
SBIO screens for small- to mid-cap biotech companies with at least one drug or therapy in Phase II or Phase III (late-stage) clinical trials. According to ALPS, late-stage drug trials can potentially capture greater odds of success as they are further along the Food & Drug Administration’s drug trial process.
Constituents in SBIO must have at least 24 months of cash burn on hand, which helps protect against the equity dilution that comes with raising capital to support drug trials, according to ALPS. SBIO’s underlying index, the S-Network Medical Breakthroughs Index (PMBI), has a weighted average cash burn of 38 months that continues to exceed peer biotechnology indexes and is a distinguishing defensive characteristic for the fund.
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