The Invesco Nasdaq Biotechnology ETF (IBBQ) is just a few weeks old, but even with that rookie status, it could be a stellar second half idea.
On the back of the Food and Drug Administration (FDA) conditionally approving Biogen’s (NASDAQ: BIIB) Alzheimer’s drug, Aduhelm, the Nasdaq Biotechnology Index (NBI) – IBBQ’s underlying index – surged nearly 9% last month. Now, analysts are getting enthusiastic about the previously lethargic biotechnology space.
“FDA’s controversial Aduhelm approval lowered the regulatory bar for future treatments,” said Bank of America analysts in a recent note.
While the Aduhelm approval was indeed controversial, leading to the resignations of several FDA commissioners, some within the investment community believe the FDA is signaling it’s willing to liberalize its approval process, if only modestly, and that could be a boon for IBBQ components, many of which have fates hinging on getting a drug or therapy to market.
“Besides Alzheimer’s news, catalysts for the biopharma sector are an increasingly favorable regulatory environment, the apparent relaxation of approval standards from the FDA, merger and acquisition (M&A) activity sparked by clinical setbacks, and pandemic-centered opportunities, including the possibility of new vaccines for COVID-19 variants and seasonal booster shots,” Business Insider reports, citing Bank of America.
IBBQ: Plenty of Potent Ideas
IBBQ’s links to the Nasdaq Biotechnology Index are important for investors to consider. Not only is NBI one of the most seasoned biotech benchmarks, it’s also one of the deepest, as reflected by IBBQ’s roster of 273 holdings.
That’s confirmation IBBQ offers investors a diverse mix of biotech exposure, and one not entirely dependent on large cap stocks. Those are relevant points because it’s a broad mix of biotech stocks that could propel IBBQ forward in the back half of the year.
Citing potentially “transformative developments,” Bank of America is bullish on Biomarin (NASDAQ: BMRN) and Seagen (NASDAQ: SGEN). That pair combine for about 3.50% of the ETF’s lineup, according to issuer data.
Among small- and mid-cap biopharma names, Bank of America likes Crispr Therapeutics (NASDAQ: CRSP), Kiniksa (NASDAQ: KNSA), Omeros (NASDAQ: OMER), and PMV Pharmaceuticals (NASDAQ: PMVP). The first three members of that group are all IBBQ holdings.
“Biopharma is still trading at a low multiple (15.5x 2021 P/E, 14.0x 2022 P/E); we think the entire group could benefit from an improving political/regulatory backdrop and a resurgence of M&A in 2H21/2022,” adds Bank of America.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.