Biotech Leading In Q4: Best ETFs & Stocks

The biotech space of the broader healthcare sector outperformed others in the final quarter of 2019, thanks to increased mergers & acquisitions, positive regulatory backdrop and solid trial results. Better-than-expected corporate earnings added to this strength.

M&A Wave

The latest to jump on the M&A bandwagon is Sarepta Therapeutics (NASDAQ:SRPT) , which entered into a licensing agreement with Roche (OTC:RHHBY) for its lead gene therapy candidate, SRP-9001, to treat Duchenne muscular dystrophy (DMD) outside the United States for $1.15 billion. Meanwhile, Merck & Co. (NYSE:MRK) and Sanofi (NASDAQ:SNY) agreed to buy smaller cancer-drug makers ArQule ARQL and Synthorx (NASDAQ:THOR) , respectively (read: Biotech ETFs Hit New Highs on Deal Activities).

Lat month, Swiss drugmaker Novartis (NYSE:NVS) agreed to merge with The Medicines Company in a $9.7-billion deal.

Regulatory & Trial Result

In the latest rounds of news, Sarepta Therapeutics rallied after the Food and Drug Administration approved Vyondys 53 for muscular dystrophy treatment. Solid Biosciences SLDB spiked following the study of two patients who received doses of its experimental DMD treatment, which showed that the therapy "has the potential" to benefit them.

Aurinia Pharmaceuticals AUPH surged after the company announced positive results from a trial involving its lupus-related drug. CRISPR Therapeutics CRSP and Vertex Pharmaceuticals (NASDAQ:VRTX) announced encouraging preliminary safety and efficacy data from the first two patients treated with investigational CRISPR/Cas9 gene-editing therapy CTX001 for severe hemoglobinopathies. The FDA recently approved Global Blood Therapeutics’s (NASDAQ:GBT) drug for treating sickle cell disease.

Further, the sector is clearly benefiting from impressive trends including approvals for new drugs, an accelerated pace of innovation, promising drug launches, growing importance of biosimilars, cost-cutting efforts, an aging population, expanding insurance coverage, a rising middleclass, continuous demand for new drugs and ever-increasing spending on healthcare (read: Will Biotech ETFs Excel in Election Year Post a Surge in 2019?).

Against this backdrop, we highlight five biotech ETFs and stocks that are leading the market in Q4.

Virtus LifeSci Biotech Clinical Trials ETF (ASX:BBC) — Up 64.3%

This fund has a novel approach to biotechnology investing with exposure to companies that are in the clinical trial stage. This can easily be done by tracking the LifeSci Biotechnology Clinical Trials Index. BBC has amassed $37.7 million in its asset base and charges 79 bps in fees per year from investors. It trades in a light average daily volume of around 9,000 shares and holds 96 securities in its basket. The product carries a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: 5 Market-Beating Sector ETFs of 2019).

ALPS Medical Breakthroughs ETF (SI:SBIO) – Up 36.9%

This fund provides exposure to companies with one or more drugs in Phase II or Phase III FDA clinical trials by tracking S-Network Medical Breakthroughs Index. It holds 78 securities in its basket. The product charges 50 basis points in fees per year from investors and trades in a moderate average daily volume of about 34,000 shares. It has AUM of $226.3 million in its asset base and has a Zacks ETF Rank #3 with a High risk outlook.

The Cancer Immunotherapy ETF CNCR — Up 29.8%

This ETF offers exposure to a basket of companies that develop therapies to treat cancer by harnessing the body's own immune system. Holding 26 stocks in its basket, it has AUM of $42 million and trades in average daily volume of 11,000 shares. The product charges 79 bps in annual fees and has a Zacks ETF Rank #3 with a High risk outlook.

Global X Genomics & Biotechnology ETF GNOM — Up 29.5%

This is a new entrant in the space, having accumulated $20 million since its inception on Apr 5. It seeks to invest in companies that potentially stand to benefit from further advances in the field of genomic science, such as companies involved in gene editing, genomic sequencing, genetic medicine/therapy, computational genomics and biotechnology. The product follows the Solactive Genomics Index, charging 68 bps in annual fees. It holds 40 stocks in its basket and trades in average daily volume of 5,000 shares (read: Beyond Biotech, 5 ETFs Up At Least 10% in Q4).

SPDR S&P Biotech (NYSE:XBI) ETF XBI – Up 28.1%

With AUM of $4.9 billion, XBI provides equal-weight exposure of around 2% across 126 biotechnology stocks by tracking the S&P Biotechnology Select Industry Index. It has 0.35% in expense ratio and trades in average daily volume of 4.6 million shares. The fund has a Zacks ETF Rank #2 (Buy) with a High risk outlook.

Constellation Pharmaceuticals Inc. CNST — Up 606.2%

This bio-pharmaceutical company discovers and develops molecule therapeutics for the treatment of cancer, inflammatory and immunologic disorders. The stock has a Zacks Rank #3 and a VGM Score of F. It has a market cap of $1.8 billion (read: Why Biotech ETFs are Surging to New Highs).

Axsome Therapeutics Inc. (NASDAQ:AXSM) — Up 387.8%

This biopharmaceutical company focuses on developing novel therapies for the management of pain and other central nervous system disorders. With a market cap of $3.47 billion, the stock has a Zacks Rank #3 and a VGM Score of F.

Karuna Therapeutics Inc. KRTX — Up 375.4%

This clinical-stage biopharmaceutical company is primarily focused on developing novel therapies to address disabling neuropsychiatric conditions characterized by significant unmet medical needs. The stock has a Zacks Rank #2 (Buy) and a VGM Score of D. It has a market cap of $1.91 billion. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Kodiak Sciences Inc. KOD — Up 359.7%

This clinical stage biopharmaceutical company specializes in novel therapeutics to treat chronic and retinal diseases. With a market cap of $2.48 billion, it has a Zacks Rank #2 and a VGM Score of C.

Clearside Biomedical Inc. (NASDAQ:CLSD) — Up 327.8%

This biopharmaceutical company is engaged in developing first-in-class drug therapies to treat blinding diseases of the eye using Clearside proprietary suprachoroidal space(TM) microinjector. It has a Zacks Rank #3 and a VGM Score of F. The stock has a market cap of $103.29 million.

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