Why Biotech, ETFs Want Piece of Bailout | ETF Trends

The ailing economy and credit crisis has taken its toll on the biotechnology industry hurting its stocks and exchange traded funds (ETFs). In an attempt to grab a piece of the pie, the sector is seeking aid from the federal government. 

On Wednesday, biotech executives plans to visit Washington to plea for a change in tax laws enabling losing companies to borrow from the government now in exchange for forfeiting potential research and development tax credits once they become profitable, states Andrew Pollack of the New York Times.

The problem with this is that the vast majority of biotech companies never become profitable, so, in essence, they are asking for a loan that will most likely default. In fact, the chief executive officer of Genentech (DNA) suggests that the industry as a whole has lost about $100 billion since its inception in the 1970s.

The predicament at hand is that of the 370 publicly traded American biotech companies, an astonishing 125 only have enough cash on hand to last them about six months – without help, this will be devastating to the nation’s unemployment rate.

So what makes them different from the automotive or financial industries?  They state that it is their drive for innovation, American competitiveness, and the desire to keep the United States ahead of the “game.”  If this keeps up, pretty soon, the federal government will have a little bit of every sector on its balance sheet.

Biotech ETFs that could get a spark if the government decides to change the tax laws are:

iShares Nasdaq Biotechnology (IBB): down 18% year-to-date

SPDR S&P Biotech (XBI): down 14.7% year-to-date.

Biotech HOLDRs (BBH): up 1.4% year-to-date.

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.