Keep an eye on biotech M&A.
Over the last few days, Merck said it would pay $680 million for Harpoon Therapeutics. Johnson & Johnson even said it would buy Ambrx Biopharma for $2 billion. Both come just weeks after Bristol Myers bought Karuna Therapeutics for $14 billion, and RayzeBio for $4.1 billion. Even AbbVie just bought ImmunoGen for $10.1 billion, and Cerevel Therapeutics for $8.7 billion.
However, this may just be the start of a bigger M&A trend.
In fact, “2024 will likely see a series of new, and significant, merger and acquisition (M&A) deals for biopharma, building on a flurry of buyout announcements seen in the closing weeks of 2023, according to a report released to coincide with the 42nd Annual J.P. Morgan Healthcare Conference,” as reported by Genetic Engineering & Biotechnology News.
“Behind all the deal making in 2023, and M&A activity anticipated for 2024, are several factors: Drug developers, especially pharma giants, need to replenish revenue due to be lost as several longtime blockbusters lose patent exclusivity, and find it quicker and ultimately cheaper to do so through M&A rather than spending years developing candidates, in-house or via partnerships,” they added. “The top 25 biopharmas are sitting on heaps of capital set aside for the purpose of deal making—$1.37 trillion.”
That being said, investors may want to keep an eye on gene-editing stocks, immuno-therapies, mRNA technology, companies using artificial intelligence to create new drug treatments, and even obesity stocks. Roche, for example, just acquired obesity drug maker Carmot Therapeutics in a $3.1 billion deal. Reportedly, “Carmot Therapeutics’ CT-388 demonstrated substantial weight loss in Phase 1b.”
For broader exposure to potential biotech M&A, investors can also pick up ETFs, such as:
SPDR S&P Biotech ETF (XBI)
One of the best ways to diversify at less cost is with a biotech ETF, such as the SPDR S&P Biotech ETF (XBI). With an expense ratio of 0.35%, the ETF offers exposure to the S&P Biotechnology Select Industry Index. Some of its top holdings include Biogen, Veracyte, Moderna, Gilead Sciences, Amgen, and VIr Biotechnology to name a few. The ETF seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the S&P Biotechnology Select Industry Index.
ProShares Ultra NASDAQ Biotechnology (BIB)
With an expense ratio of 0.95%, the BIB ETF seeks daily investment results, before fees and expenses, that correspond to two times (2x) the daily performance of the Nasdaq Biotechnology Index. Some of its top holdings include Compass Pathways, Cara Therapeutics, Inovio Pharmaceuticals, C4 Therapeutics, Achillion Pharmaceuticals, and dozens more.
iShares Biotechnology ETF (IBB)
With an expense ratio of 0.44%, the IBB ETF tracks the investment results of an index composed of U.S.-listed equities in the biotechnology sector. Some of its top holdings include Gilead, Amgen, Moderna, Biogen, Seagen, Illumina, and dozens more.