While these early reports only offer a suggestion of what other biotech and healthcare names might have in store as far as revenue surprises, the sector might also have some added immunity to the interest rate sickness that is plaguing the broader markets.
For one, the biotech sector spent most of the past year expanding in a big way, In the first 3 quarters of 2018, 48 new biotech companies went public. This surge comes after 2017’s string of M&A deals that saw some massive consolidation, like Bristol-Myers Squibb’s $2.3 billion acquisition of IFM Therapeutics or Gilead Sciences, Inc’s $12 billion acquisition of Kite Pharmaceuticals.
If this weren’t indication enough that the industry is flush with cash (thanks in large part to profit repatriation that came with last year’s tax cuts) domestic biotechs are also receiving a huge surge in private funding from international investors. The biotech industry has already surpassed the $8.19 billion in private funding it received in 2017 and is closing in on $10 billion for 2018, much of which is coming from Chinese investors hoping to lure research to China.
While the ongoing U.S.-China trade war might threaten that cash stream if investments in biotech are put under review, the current setup works well for small, research-based companies looking to emerge into the equity market and the pharma giants eager to acquire them.
Of course, these medium-term catalysts are reliant on strong outlook and good borrowing conditions. Rising rates might put some debt pressure on the industry should inflation really ramp up over the coming months. But, if these companies continue the trend of posting strong earnings, and the crop of new firms remains thick on the ground, it’s likely that you can expect the cycle of IPO and M&A to continue driving valuations higher.
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PILL Risks – An investment in the Fund involves risk, including the possible loss of principal. The Fund is non-diversified and includes risks associated with the Fund concentrating its investments in a particular industry, sector, or geographic region which can result in increased volatility. The use of derivatives such as futures contracts and swaps are subject to market risks that may cause their price to fluctuate over time. The Fund does not attempt to, and should not be expected to, provide returns which are three times the performance of its underlying index for periods other than a single day. Risks of the Fund include Effects of Compounding and Market Volatility Risk, Leverage Risk, Counterparty Risk, Intra-Day Investment Risk, Daily Index Correlation/Tracking Risk, Other Investment Companies (including ETFs) Risk, and risks specific to investment in the securities of the Biotechnology Industry, Healthcare Sector and Pharmaceutical Industry. Please see the summary and full prospectuses for a more complete description of these and other risks of the Fund.
Dynamic Pharmaceutical Intellidex Index (DZRTR) – Consists of common shares of companies that are principally engaged in research, development, manufacture, sale or distribution of pharmaceuticals and drugs of all types. The Index may include pharmaceutical companies and other companies that facilitate the testing or regulatory approval of drugs. The NYSE Arca, Inc. (the “Index Provider”) includes larger and smaller companies from the 2,000 largest companies listed on both the NYSE MKT and NASDAQ exchanges. One cannot directly invest in an index.
CURE Risks – An investment in the Fund involves risk, including the possible loss of principal. The Fund is non-diversified and includes risks associated with the Fund’s concentrating its investments in a particular industry, sector, or geographic region which can result in increased volatility. The use of derivatives such as futures contracts and swaps are subject to market risks that may cause its price to fluctuate over time. The Fund does not attempt to, and should not be expected to, provide returns which are three times the performance of its underlying index for periods other than a single day. Risks of the Fund include Effects of Compounding and Market Volatility Risk, Leverage Risk, Counterparty Risk, Intra-Day Investment Risk, Daily Index Correlation/Tracking Risk, Other Investment Companies (including ETFs) Risk, and risks specific to investment in the securities of the Health Care Sector. Please see the summary and full prospectuses for a more complete description of these and other risks of the Fund.
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