On the heels of last week’s news that AbbVie (NYSE: ABBV) will acquire cancer treatments maker Pharmacyclics (NasdaqGS: PCYC) for $21 billion, speculation is abound regarding the next potential takeover targets in the biotechnology industry.
The biotech industry and the relevant exchange traded funds are not lacking for acquisition targets. That is a known fact, but AbbVie’s Pharmacyclics buy reminds investors that acquirers are willing to pay arguably rich premiums for biotech firms, particularly those with oncology exposure.
SunTrust Robinson Humphrey analyst Salveen Richter has identified several biotech firms that could be the next to be acquired, reports Lee Jackson for 24/7 Wall Street. Richter’s includes a pair of names that are found in some well-known biotech ETFs.
One of those names is BioMarin Pharmaceutical (NasdaqGS: BMRN), which “is expected to post around $700 million in revenue this year and possibly around $810 million next year, following the approval of Vimizim, an enzyme replacement therapy for Morquio syndrome,” according to 24/7 Wall Street.
Another is Incyte (NasdaqGS: INCY), which has significant oncology exposure, making the company an alluring target for a larger, cash-rich company on the prowl. [M&A Puts Biotech ETFs in Focus]
Among the ETF’s with solid exposure to BioMarin and Incyte are several funds that also held shares of Pharmacyclics at the time AbbVie announced its offer for that company. That group of ETFs includes the Market Vectors Biotech ETF (NYSEArca: BBH).
BBH allocates a combined 9.5% of its weight to BioMarin and Incyte. The ETF makes for an ideal avenue for gaining exposure to biotech mergers and acquisitions because over a quarter of its 26 holdings have been rumored to be takeover. Additionally, BBH has significant oncology exposure. [The Right Time for Biotech ETFs]
The PowerSharesDynamic Biotechnology & Genome Portfolio (NYSEArca: PBE) features BioMarin as its second-largest holding at a weight of 5.2% and a 2.8% weight to Incyte. Pharmacyclics is PBE’s largest holding at 5.8%.
PBE, which was 2014’s third-best sector ETF trailing two other biotech funds and is up another 10.3% this year, tracks an index that evaluates companies for inclusion based on “price momentum, earnings momentum, quality, management action, and value,” according to PowerShares.
The First Trust NYSE Arca Biotechnology Index Fund (NYSEArca: FBT), an ETF that frequently finds itself in the middle of the biotech takeover chatter, allocates just over 7% of its combined weight to Incyte and Biomarin. The ETF also features a now 5.3% weight to Phamacyclics after holding one of the larger allocations to that stock when the company announced it was mulling a sale of itself. [A Familiar ETF Will Like Pharmacyclics Sale]
Close a third of FBT’s 30 holdings have been mentioned as possible takeover targets and nearly 20% of the ETF’s members could be acquirers of those targets.
PowerShares Dynamic Biotechnology & Genome Portfolio