The industry is rife with takeover bids as larger companies build their products through mergers and acquisitions. [ETFs for the Next Biotech Takeover Targets]

Kaul also suggests focusing on good companies with solid drugs that have the highest probability of success. Moreover, investors should keep a more long-term view.

IBB tracks a market-cap-weighted Nasdaq Biotechnology Index, which includes significant positions in big industry names, such as a 8.3% position in Amgen (NasdaqGS: AMGN), 8.1% in Gilead Sciences (NasdaqGS: GILD), 7.6% in Celgene (NasdaqGS: CELG) and 7.4% in Biogen (NasdaqGS: BIIB). FBT and XBI, on the other hand, take a more equal-weight approach to the sector, which give the two ETFs a greater mid- and small-cap tilt.

iShares Nasdaq Biotechnology ETF

For more information on the biotech sector, visit our biotechnology category.

Max Chen contributed to this article.