A long-awaited biotechnology equity rebound could be materializing and some analysts believe it could have the momentum to carry into the end of 2022.
Among the related exchange traded funds, the VanEck Vectors Biotech ETF (BBH), which is one of the bellwethers in this category, is higher by almost 14% since the start of the current quarter. That run is powered by contributions from some of the fund’s marquee components.
For example, recent earnings reports suggest strength abounds among larger biotech names. Amgen (NASDAQ: AMGN) beat analysts’ earnings and sales estimates while Gilead Sciences (NASDAQ: GILD) beat forecasts and boosted its 2022 guidance. Moderna (NASDAQ: MRNA) beat estimates and unveiled a $3 billion share buyback plan. Those are three of BBH’s top four holdings and the trio combines for over 26% of the ETF’s roster.
Coronavirus vaccines and boosters remain credible catalysts for biotech and BBH is levered to that time by holding shares of Moderna, BioNTech (NASDAQ: BNTX), and Novavax (NASDAQ: NVAX). Those names combine for over 12% of BBH’s weight, according to issuer data.
Potentially adding to the case for BBH could be the return, in earnest, of biotech consolidation. In the first half of this year, deal-making in the space totaled a modest $62 billion and the largest transaction was just $12.2 billion. However, some experts believe that figure could accelerate into year-end as cash-rich buyers look to replenish product pipelines and prepare for patent cliffs.
“Increased scrutiny from the [FTC] around larger deals could mean that 2022 will be a year of bolt-on transactions in the $5 to $15 billion range as pharma companies take multiple shots on goal in order to make up for revenues lost to generic competition in the remainder of the decade,” according to a recent PwC report.
Some of BBH’s larger holdings could well be suitors and some of the ETF’s smaller member firms could be targets if a new wave of consolidation sweeps over the biotech industry.
“Expect to see big pharma picking up earlier stage companies to try and fill the pipeline gaps that are likely to start in 2024. While market conditions suggest bargain prices for biotech are possible, recent transactions indicate that pharma companies are still paying significantly above current trading prices (ranging from approximately 50 to 100% of current trading), but below the peak valuations of recent memory,” added PwC.
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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.