The Biotechnology ETF world has been on a roller coaster ride this year. After peaking at the beginning of March, the space saw a huge sell-off until the middle of April, after which it has seen some recovery in the past two months.
Lofty valuations and regulatory concerns over drug pricing led the high flying Biotech stocks to give up to the forces of gravity to which these stocks had defied during their past five years of bull run.
The most popular product in the space – iShares Nasdaq Biotechnology Index Fund (IBB) – had shed roughly 20% since the beginning of March through the succeeding 6 weeks.
Apart from other Biotech stocks, which also started appearing quite-overvalued to investors, one of the most popular Biotech stocks, Gilead Sciences (NASDAQ:GILD), suffered its worst setback during the period, also plunging by roughly 20%. The stock took a beating as U.S. lawmakers questioned the high price of its new hepatitis C drug, Sovaldi.
Not only did Gilead see its stock price bleed, other popular names in the space such as Celgene Corp (NASDAQ:CELG), Biogen Idec Inc. (NASDAQ:BIIB) and Amgen Inc. (NASDAQ:AMGN) also plunged between 9% and 20%, over pricing concerns and biotech bubble fears (read: 3 ETFs Tumble Most on Biotech Sell-off).
However, after this carnage, the over-sold Biotech stocks saw some relief and started bouncing back. The sell-off had indeed attracted a lot of investors to biotech firms, who viewed the recent price correction as a buying opportunity.
However, the major boost came after the second largest U.S. drug maker Merck (NYSE:MRK) agreed to buy Idenix Pharmaceuticals (IDIX), a maker of hepatitis C drugs, for $3.85 billion. The news gave investors some relief and a conviction that the biotech sector has finally seen its worst. More importantly, investors were happy to see that the mergers-and-acquisitions theme was back in the space (read: Two Biotech ETFs Surge on Idenix-Merck Deal).
The major beneficiaries from the news turned out to be the SPDR S&P Biotech ETF (NYSEARCA:XBI) and PowerShares Dynamic Biotechnology & Genome Portfolio (NYSEARCA:PBE), which saw huge gains after the Merck deal. In fact, XBI has been the top gainer in its space in the past four weeks, adding more than 20%, while PBE gained 15.4% in the past month and also is the top gainer in the year-to-date frame.