The biotechnology sector is a unique one because many of the companies that compose it are not yet profitable. Here’s what drives the sector and exchange traded funds (ETFs) that let you play it.

Kashif Javed for Forex Trading Analysis reports that the biotech sector is driven by and dependent on several key things:

  • Mergers and acquisitions: Often, the stronger firms will gobble up the smaller ones.
  • Upcoming products: Biotech companies sink a ton of money into new product research and development, and their profitability depends on their ability to get them to the market.
  • Regulations: The biotech industry is awash with patents, rights and regulations. Any shifts in the rules will have an impact on the companies making up the sector. [Biotech: 5 Ways To Play Innovation.]
  • Financing: One thing the biotech industry needs is money for its research. Nearly every biotech company in existence started were started by risk venture capital, according to FDA Regs.
  • Success: If a company becomes successful, they can become really valuable. For example, 12 years after Amgen (NASDAQ: AMGN) was founded, it had a market cap of $8 billion.

ETFs are an especially beneficial way to get exposure to this industry. The difference between success and failure in the biotech sector often rests on one thing: drug approval, a clinical trial and so on. It can be nearly impossible to predict such successes, which makes ETFs an ideal way to get biotech exposure. [Biotech ETFs: The Better Way To Play.]

There are several biotech ETFs in the ETF Analyzer`. Click on the ticker for any of these funds to find top holdings, performance information and more.

  • iShares Nasdaq Biotechnology ETF (NASDAQ: IBB)
  • SPDR S&P Biotech ETF (NYSEArca: XBI)
  • First Trust NYSE Arca Biotech ETF (NYSEArca: FBT)
  • PowerShares Dynamic Biotech & Genome (NYSEArca: PBE)
  • ProShares Ultra Nasdaq Biotechnology (NASDAQ: BIB)

Tisha Guerrero contributed to this article.

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.