Pharmaceuticals exchange traded funds are once again at the epicenter of the healthcare mergers and acquisitions as generic drugmaker Mylan (NYSE: MYL) has offered to acquire Israeli rival Perrigo (NYSE: PRGO) for $205 per share, or $28.86 billion.
Mylan’s cash-and-stock offer comes at a premium of 24 percent to the latest closing price for Perrigo shares, according to the Associated Press. The combined company will be a juggernaut in generic and specialty drugs as well as over-the-counter treatments.
As has been seen during the recent raft of healthcare mergers and acquisitions activity, some exchange traded funds are responding positively to the news, though only four ETFs feature Mylan as a top 10 holding at the start of trading Wednesday, according to S&P Capital IQ data. Just two ETFs features Perrigo as a top 10 holding, according to the research firm.
Shares of Mylan are up nearly 15% on volume that is already more than five times the daily average at this writing. That is lifting the iShares Nasdaq Biotechnology ETF (NasdaqGS: IBB), the largest biotech ETF, to a gain of almost 3%. IBB came into Wednesday with a 3.3% weight to Mylan, making the stock the ETF’s ninth-largest holding.
The $1.1 billion iShares U.S. Pharmaceuticals ETF (NYSEArca: IHE) is higher by 2.4% thanks to its status as one of the ETFs that has both Perrigo and Mylan among its top 10 holdings. Those stocks, which combine for 7.3% of the ETF’s weight, are IHE’s seventh- and ninth-largest holdings, respectively.
Like many rival pharmaceuticals ETFs, IHE has previously been boosted takeover activity and rumors. Assuming Mylan is successful in its bid to acquire Perrigo, at least four of IHE’s 37 other holdings have been previously mentioned as credible takeover targets. [ETFs for a Takeover of Salix]
The $321.8 million Market Vectors Pharmaceutical ETF (NYSEArca: PPH), another ETF that has benefited from pharmaceuticals mergers and acquisitions activity, is up 1.4% today thanks to a combined weight of nearly 4% to Mylan and Perrigo.
The PowerShares Dynamic Pharmaceuticals Portfolio (NYSEArca: PJP), a smart beta pharmaceuticals ETF, is higher by 2.6% on the back of a combined weight of nearly 7% to Mylan and Perrigo. PJP tracks the Dynamic Pharmaceutical Intellidex Index which evaluates companies for inclusion based on “price momentum, earnings momentum, quality, management action, and value,” according to PowerShares.
The ETF recently got a lift from its weight to Salix Pharmaceuticals (NasdaqGS: SLXP), for which a short bidding war occurred. [Healthcare ETFs see big Asset Growth]
At least one international ETF is enjoying news of a Perrigo takeover. The Market Vectors Israel ETF (NYSEArca: ISRA) is higher by 3.8% today on volume that is nearly double the daily average thanks to a 12.1% weight to Perrigo. No ETF has a larger weight to Perrigo than ISRA and the stock is the ETF’s second-largest holding behind a 13% weight to generic drug giant Teva Pharmaceuticals (NasdaqGS: TEVA).
ISRA’s price action on the heels of the Mylan/Perrigo news underscores the importance of investors studying the holdings of two similar ETFs before deciding which one to buy. The iShares MSCI Israel Capped ETF (NYSEArca: EIS) is up just half a percent today. That rival to ISRA does not hold shares of Perrigo. [Healthcare Exposure Lifts Some International ETFs]
iShares U.S. Pharmaceuticals ETF
