t’s been a lull by industry standards, but signs indicate biotechnology mergers and acquisitions activity is finally picking up.
That’s not surprising when considering large, blue-chip pharmaceutical companies are armed with substantial stockpiles of cash and face the need to replenish product pipelines amid patent cliffs arriving over the next several years. Acquisitions represent an efficient avenue for larger companies to enhance product portfolios, and in some cases, may be more cost-effective than new drug research and development.
For investors looking to capitalize on the resurgence in biotech consolidation activity, it pays to remember that many of the most frequently targeted companies reside in the small- or mid-cap arenas. Add to that, many targets may have just one drug or therapy on the market. If that. Plenty of others are in clinical trials.
Combine those factors and it’s easy to see that stock picking to the effect of biotech M&A is no easy task. Fortunately, some of the following exchange traded funds can ease that burden.
ALPS Medical Breakthroughs ETF (SBIO)
The ALPS Medical Breakthroughs ETF (SBIO) debuted in December 2014 and over that time, investors in this fund have seen dozens of its components acquired. SBIO’s “secret” is methodology.
For starters, SBIO’s underlying index caps member firms at market values of $5 billion upon inclusion, assuming they meet the minimum market cap requirement of $200 million. That range is a sweet spot for acquirers. Second, all SBIO member firms must have at least one drug or therapy in Phase II or Phase III FDA clinical trials. That removes some of the risk for potential buyers.
