The healthcare sector got a boost on the Aug 23 trading session boosted by the wave of positive news. The vaccine boost news as well as an acquisition triggered momentum in the markets, thereby pushing the S&P 500 Index to a new peak.
Vaccine Boost
The FDA granted full approval of a COVID-19 vaccine made by Pfizer PFE and BioNTech that could accelerate inoculations in the United States. The full approval of the vaccine, which had been under an emergency use authorization since December, will help quash the ongoing surge in the COVID-19 Delta variant and push up the vaccination rates (read: Biotech ETFs to Benefit From Latest Booster Update).
M&A Deal
Pfizer agreed to buy Canadian drug developer Trillium Therapeutics (NASDAQ:TRIL) TRIL for a $2.26 billion deal to strengthen its arsenal of blood cancer therapies. Under the terms of the agreement, Pfizer will acquire all outstanding shares of Trillium not already owned by Pfizer for an implied equity value of $2.26 billion, or $18.50 per share, in cash. This represents a 118% premium to the 60-day weighted average price for Trillium.
ETF Impact
The dual news also led to smooth trading in the healthcare ETFs. In particular, Loncar Cancer Immunotherapy ETF CNCR was the biggest winner, jumping 8.7% on the day. Virtus LifeSci Biotech Clinical Trials ETF BBC, Alps Medical Breakthroughs ETF SBIO, S&P Biotech SPDR XBI and Defiance Nasdaq Junior Biotechnology ETF IBBJ gained nearly 4.4-5.4%. Below we profile these ETFs in detail:
CNCR
This ETF offers exposure to a basket of companies that develop therapies to treat cancer by harnessing the body's own immune system. Holding 30 stocks in its basket, it has AUM of $39.5 million and trades in an average daily volume of 4,000 shares. The product charges 79 bps in annual fees and has a Zacks ETF Rank #3 (Hold) with High risk outlook.
BBC
This fund offers exposure to companies that are in the clinical trial stage by tracking the LifeSci Biotechnology Clinical Trials Index. BBC has amassed $36.1 million in its asset base and charges 79 bps in fees per year from its investors. It trades in a lower average daily volume of around 3,000 shares and holds 197 securities in its basket. The product carries a Zacks ETF Rank #3 with a High risk outlook.
SBIO
This fund provides exposure to companies with one or more drugs in Phase II or Phase III FDA clinical trials by tracking the S-Network Medical Breakthroughs Index. It holds 128 securities in its basket and charges 50 basis points in fees per year from investors. The fund trades in a moderate average daily volume of about 18,000 shares. It has AUM of $191.5 million in its asset base and has a Zacks ETF Rank #3 with High risk outlook.
XBI
With AUM of $6.6 billion, XBI provides equal-weight exposure of around 1% across 196 biotechnology stocks by tracking the S&P Biotechnology Select Industry Index. It has 0.35% in expense ratio and trades in an average daily volume of 5 million shares. The fund has a Zacks ETF Rank #3 with a High risk outlook (read: How Are Biotech ETFs Reacting to These Q2 Earnings Releases?).
IBBJ
This ETF follows the Nasdaq Junior Biotechnology Index and targets junior companies engaged in research and development, the sale or licensing of biological substances for the purposes of drug discovery and diagnostic development; and pharmaceutical manufacturers of prescription or over-the counter drugs, including vaccines and development and manufacturing companies. The fund holds 234 securities in its basket and charges 45 bps in annual fees. It has accumulated $7 million in its asset base and trades in an average daily volume of 2,000 shares.
What Lies Ahead?
The uptrend in the sector is likely to continue given that more COVID-19 vaccines or treatments are in the making and Q2 earnings have come in better than expected. The Q2 earnings picture for the healthcare sector has emerged solid with results from the companies reported so far up 30.2% on 21.1% revenue growth. Earnings and revenue beat ratios are 88.5% and 96.2%, respectively.
Combining the actual results with the estimates for the still-to-report companies, total earnings for the sector are expected to grow 31.5% on revenue growth of 21.1%. This would follow Q1 earnings growth of 28.1% and revenue growth of 10.6% (see: all the Healthcare ETFs here).
Further, several encouraging trends will continue to fuel growth in the healthcare space. These include new drug nods, an accelerated pace of innovation, promising drug launches, the growing importance of biosimilars, cost-cutting efforts, an aging population, expanding insurance coverage, the rising middleclass, insatiable demand for new drugs and ever-increasing spending on healthcare.
Moreover, the sector’s non-cyclical nature provides a cushion to the portfolio amid volatile market conditions.
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Pfizer Inc. (NYSE:PFE): Free Stock Analysis Report
Loncar Cancer Immunotherapy ETF (CNCR): ETF Research Reports
Trillium Therapeutics Inc. (TRIL): Free Stock Analysis Report
Virtus LifeSci Biotech Clinical Trials ETF (BBC): ETF Research Reports
SPDR S&P Biotech ETF (XBI): ETF Research Reports
ALPS Medical Breakthroughs ETF (SBIO): ETF Research Reports
Defiance Nasdaq Junior Biotechnology ETF (IBBJ): ETF Research Reports
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