Summary
- Big pharma stocks have underperformed and are likely to continue buying biotech companies for growth.
- The charts also show large cap biotech companies are underperforming their mid/small cap counterparts.
- The potential for big pharma and large cap biotech companies looking for needle moving companies points to mid-cap biotech companies being attractive targets for both.
- Not surprisingly, the biotech ETF with the largest exposure to mid-cap biotech companies has the best performance over the past 1-, 2-, 3- and 5-year periods.
The recently announced deal of Bristol-Myers Squibb (BMY) acquiring Celgene (CELG) got me thinking about biotech & big pharma stocks. The following chart perfectly sums up why I believe big pharma will continue to be acquirers of large-cap biotech companies and small/mid cap companies. Slowing growth due to generic competition and increased scrutiny of drug prices has caused shares of big pharma companies to underperform biotechs and the overall healthcare sector. As you can see below, big pharma as represented by the SPDR S&P Pharmaceuticals ETF (XPH), has gone nowhere since the beginning of 2016, while biotech as represented by the SPDR Biotech ETF (XBI) is up substantially, as is the Health Care Select Sector SPDR ETF (XLV). Simply put, given this vast underperformance, I expect big pharma to go on a spending spree to buy future growth and I will be detailing the current ETF options available in the biotech sector.
Continue reading at Seeking Alpha right here: https://seekingalpha.com/article/4238204-best-etf-play-biotech
