Over the past few weeks the biotechnology sector has witnessed a significant uptick in mergers and acquisitions as large cash-heavy biotech companies are looking to diversify and broaden their horizons.
To put this activity in perspective, in a two-day span, nearly $3.1 billion in biotech-related deals were announced and some suggest more activity is to come. Big Pharma front runners such as Pfizer (PFE), Sanofi-Aventis (SNE), Amgen (AMGN) and Merck (MRK) are expected to find themselves in somewhat of a rut as expiring patents and lackluster pipelines are imminent. In order to overcome this, Big Pharma is likely to look at smaller, more nimble companies which are focusing on specific treatments and specialties in the medical sector.
Another force that is likely to increase M&A activity in the sector includes the ability to remain globally competitive and gain access to the ever-growing emerging market consumer, enabled through the acquisition of the aforementioned group of acquisition-worthy companies who are focusing on specifics like cancer treatment, gastrointestinal dysfunction and emotional disorders.
Some ETFs that are likely to be influenced by this increased activity include:
- SPDR S&P Biotech ETF (XBI), which allocates nearly 51.5% of its assets to small-cap companies and 30.75% to medium-cap companies, which are the most susceptible to M&A activity.
- iShares Nasdaq Biotechnology ETF (IBB), which boasts big players like Amgen (AMGN) as well as small and mid-cap stocks that are prime targets for M&A.
- Biotech HOLDRs (BBH), which predominantly allocates its holdings to large-cap companies such as Amgen, Gilead Sciences (GILD) and Biogen Idec Inc (BIIB) who are likely to be the ones buying up smaller companies.
- iShares Dow Jones US Pharmaceuticals (IHE), which boasts big boys Pfizer (PFE) and Merck in its top holdings.
Disclosure: No Positions