Since the start of the year, FBT has benefited from positive news from Vertex’s Phase III trials for its cystic fibrosis treatment, Puma confirming its experimental breast cancer treatment, neratinib, proved successful in a Phase III trial, Roche’s acquisition of InterMune and, most recently, Dow component Merck (NYSE: MRK) announcing it will acquire Cubist Pharmaceuticals (NasdaqGS: CBST) for $9.5 billion. [Cubist Deal Lifts a Biotech ETF]
At the time the Merck/Cubist deal was announced, FBT was the only biotech ETF with decent exposure to Cubist and the stock is now the ETF’s largest holding at 4.5%.
This will be the second time in the past three years that FBT has ranked among the top 10 sector ETFs on an annual basis. Combine that with the ETF’s P/E ratio of 28.2 and price-to-book ratio of 7.45 and it is not unreasonable to expect FBT and rival biotech ETFs will face more valuation criticism heading into 2015.
That criticism drove biotech ETFs down late in the first quarter and into the second quarter this year, but the end was result was the funds eventually moving to all-time highs. However, with biotech entering its seasonally strong period and expectations in place that 2015 will be another strong year on the M&A front, late comers may still be able to reap solid profits on FBT.
First Trust NYSE Arca Biotechnology Index Fund
