The Top 3 Ways to Trade the Red-Hot Biotech Boom

Aug 05, 2022
Molecule inside Liquid Bubble, 3d illustration.

Investors may want to pay close attention to biotech.

For one, the sector is still one of the safest, most recession-proof investments around.   

Two, an aging population is demanding more treatments in an effort to live longer lives.  As this number continues to grow, we’ll see a need for more medical treatment options. 

There’s also incredible new innovation in genetics and technology.  In fact, over the next several years, genetic testing and gene editing will help to identify and potentially cure diseases.  There’s still a need for COVID treatments, and even for monkeypox.

Even better, the biotech M&A boom has been explosive.

“Asset sales, cash distributions, reverse mergers, M&A and several positive datasets have helped lift Biotech off of once unfathomably low levels and back towards respectability despite still being off close to 30% YTD,” Oppenheimer says, as quoted by Barron’s.

Amgen, for example, just bought ChemoCentryx (CCXI) for $4 billion.  

According to a press release: The acquisition of ChemoCentryx represents a compelling opportunity for Amgen to add to our decades-long leadership in inflammation and nephrology with TAVNEOS, a transformative, first-in-class treatment for ANCA-associated vasculitis,” said Robert A. Bradway, chairman and chief executive officer at Amgen. “We are excited to join in the TAVNEOS launch and help many more patients with this serious and sometimes life-threatening disease for which there remains significant unmet medical need.

Vertex is buying ViaCyte for $320 million.  “VX-880 has successfully demonstrated clinical proof of concept in T1D, and the acquisition of ViaCyte will accelerate our goal of transforming, if not curing T1D by expanding our capabilities and bringing additional tools, technologies and assets to our current stem cell-based programs,” said Reshma Kewalramani, M.D., Chief Executive Officer and President of Vertex.

The list goes on… and it’s only likely to get hotter.

So, how can investors potentially profit from the boom?  

One way is to hunt for potential M&A targets.  Another, often safer way is to consider a biotech ETF such as the SPDR S&P Biotech ETF (XBI), which last traded at $92 a share.  Some of the ETF’s top holdings include Global Blood Therapeutics, ChemoCentryx, Beam Therapeutics, Editas Medicine, and Fate Therapeutics.

Another hot ETF to consider is the IBB ETF, which holds dozens of stocks, including Amgen, Vertex, Gilead Sciences, Illumina, Regeneron, and Biogen to name a few.  The IBB, which has an expense ratio of 0.44%, last trade around $131.

A third way to trade the biotech boom is with the Ultra NASDAQ Biotechnology ETF (BIB).  With an expense ratio of 0.95%, this ETF holds stocks such as Codiak Biosciences, Tonix Pharmaceuticals, Molecular Templates, and Applied Therapeutics.