Biotechnology and pharmaceutical ETFs have rallied in recent weeks as drug pricing concerns wane and investors look to the opportunity of this market segment.
The iShares Nasdaq Biotechnology ETF (NASDAQGM: IBB), the largest biotechnology exchange traded fund by assets, rose 14.2% over the past month while the PowerShares Dynamic Pharmaceuticals Portfolio (NYSEArca: PJP), the largest pharma-related ETF, gained 6.9%.
ETF traders who are betting big on the biotechnology sector rebound have also utilized leveraged long options including the Direxion Daily S&P Biotech Bull Shares (NYSEArca: LABU), which takes the 3x or 300% daily performance of the S&P Biotechnology Select Industry Index.
Other options include the ProShares UltraPro Nasdaq Biotechnology (NasdaqGM: UBIO), which takes the 3x daily performance of the Nasdaq Biotechnology Index, and the ProShares Ultra Nasdaq Biotechnology (NasdaqGM: BIB), which takes the 2x performance of the same benchmark.
Fueling the recent momentum, the return of large acquisitions has helped the rally, with Gilead Sciences acquiring cancer specialist Kite Pharma late August, reports Charley Grant for the Wall Street Journal.
Promising clinical data has also helped spur the biotech trade, with AbbVie shares up 25% in the past month after the company unveiled strong result from experimental medicines. Johnson & Johnson and Bayer also revealed new data late last month for their blockbuster drug Xarelto.
Meanwhile, the dearth of news over the high drug prices. There has been nothing out of Washington D.C. after President Donald Trump repeatedly vowed to crack down on high drug prices. The silence may be a shift in priorities as Trump has been busy with a number of political flareups and his promise to push through key initiatives like tax cuts.
Leading Democrats in the Senate have also turned their focus away from bills that would allow Medicare to negotiate drug prices with companies and toward a single-payer health-insurance system. While a single-payer system would be bad for the drug industry, investors are currently safe knowing that this is Congress and it will take years before anything definite is implemented.
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