ETFs for the Latest Biotech M&A Mania

Includes: IBB, PBE, XBI
by: Benzinga

By Jason Raznick

Lost in the whirlwind of economic data and bailout news last week was a noticeable uptick in mergers and acquisitions activity in the biotech sector, a group that is seemingly always home to a good trade-worthy rumor or two.

According to Minyanville, in a two-day span last week, roughly $3.1 billion in biotech-related deals were announced and there are probably more to come as the biotech sector remains an investment banker's dream.

Stodgy big pharma companies such as Pfizer (NYSE:PFE) and Merck (NYSE:MRK) are facing patent cliffs, shallow pipelines bereft of blockbuster drugs and desperately needed access to the emerging markets.

Enter biotech. Big pharma is on the hunt "for treatments for cancer, nervous system disorders, heart conditions, metabolic and immune system conditions as well as other diseases," Minyanville reported.

With that, identifying the best ETF plays for biotech M&A is quite easy.

1) PowerShares Dynamic Biotech & Genome ETF (NYSEARCA:PBE): Companies that are working on treatments for genetic disorders are hot commodities these days and that explains Sanofi-Aventis' (NYSE:SNY) $18.5 billion hostile takeover bid for Genzyme (GENZ).

While Genzyme isn't found among PBE's top-10 holdings according to the most recent data, there are some compelling targets in PBE's fray.

Alexion Pharmaceuticals (NASDAQ:ALXN) is a cancer treatment play with a reasonable market cap of just under $7 billion and Neurocrine Biosciences (NASDAQ:NBIX) is a small-cap play on emotional disorders, among other health issues. With a market cap of less than $800 million, Neurocrine could be another target for big pharma.

2) iShares Nasdaq Biotechnology ETF (NASDAQ:IBB): IBB is perhaps the most popular, and therefore one of the more liquid biotech ETFs. Home to 131 stocks, IBB exposes investors and traders to both buyers and potential targets in the biotech M&A game.

Amgen (NASDAQ:AMGN), a potential buyer, accounts for 8% of IBB, but targets such as Alexion and Genzyme can also be found among the ETF's top-10 holdings.

IBB very well could be the most sound option for the patient biotech investor due to its good mix of stocks and emphasis on less speculative fare.

3) SPDR S&P Biotech ETF (NYSEARCA:XBI): Home to about 30 stocks, XBI offers exposure to biotech big boys like Amgen and Gilead Sciences (NASDAQ:GILD), but the ETF can be viewed as an interesting way of getting exposure to increased biotech M&A activity because small- and mid-cap names dominate the top 10 holdings.

Alexion is the fourth-largest holding and Myriad Genetics (NASDAQ:MYGN), another genetics play, accounts for almost 4.4% of the ETF.

Theravance (THRX), which is working on treatments for respiratory disease, bacterial infections and gastrointestinal motility dysfunction, is XBI's top holding.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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