Biotech stocks and related exchange traded funds (ETFs) tend to take a downward slide once excessive risk enters into the market. Biotech ETFs, have held there own over the past few months, as iShares Nasdaq Biotechnology Index Fund (IBB) is up 3.2% for the past 6 months. Meanwhile the S&P 500 is down 2.3% for the same period.

Don Dion for Seeking Alpha reports that the typically volatile IBB got a boost from mergers and acquisitions. In fact, these newly formed companies could even take the place of the big pharmaceutical companies. Big pharma is struggling and many key drugs are losing patent protection in the coming years, so many firms are looking to fill their pipes through acquisitions. Large-cap biotechs have entered the picture and have helped push up deal premiums.

IBB holds 171 stocks, making it more diversified. There are 35 small or micro-cap stocks and it holds 26.7% of mid-caps stocks, giving it a good position if mergers continue. Established biotechs are becoming more like blue-chip pharma companies since they are taking over the marketing, distribution and sales of their products. Generics are not a threat to biotech like they can be for pharmaceutical firms.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.