Vertex News Lifts Biotech ETFs

Shares of biotechnology firm Vertex Pharmaceuticals VRTX are soaring by more than 55 percent early Friday and have touched a new all-time high after the company announced late Thursday that its cystic fibrosis drug Kalydeco and an experimental treatment, VX-661, showed promising results in a mid-stage clinical trial.

Massachusetts-based Vertex said the Kalydeco/VX-661 combination greatly improved lung function of cystic fibrosis patients participating in the trial. Peak sales could reach $5 billion to $6 billion as 70,000 people worldwide suffer from cystic fibrosis, according to The Street.

While the news is obviously good for Vertex shareholders, the surge in that stock and the avalanche of newly higher analyst price targets on the shares are providing a boost to biotech ETFs as well. Already one of this year's top-performing groups of ETFs, the major biotech funds are all racing to new highs Friday on the Vertex news.

In an indication regarding just how enthused investors are about Vertex's progress on its cystic fibrosis treatment, the SPDR S&P Biotech ETF XBI is up about 3.1 percent and earlier touched an all-time high. Vertex is merely that ETF's twentieth-largest holding with a weight of just 2.3 percent, according to State Street data.

The iShares Nasdaq Biotechnology Index Fund IBB, the largest biotech ETF by assets, is up 3.5 percent. That indicates IBB is getting nearly one percent in upside for each one percent it allocates to Vertex. Vertex is that ETF's seventh-largest holding at a weight of 3.57 percent.

Of the four major biotech ETFs, only the First Trust NYSE Arca Biotechnology Index Fund FBT had an allocation to Vertex of more than five percent heading into the start of trading Friday. Vertex is FBT's ninth-largest out of just 20 holdings, but the stock accounts for almost 5.3 percent of the fund's weight.

That is enough to have FBT up nearly 4.6 percent and trading near a new all-time high. FBT has $323.1 million in assets under management.

By a narrow margin over FBT, the best-performing biotech ETF today is also the smallest of the four, that being the Market Vectors Biotech ETF BBH. BBH is up 4.7 percent. Vertex is BBH's fiftth-largest holding, the most prominent ranking for the stock in any of the big biotech ETFs, but the stock accounts for about 4.8 percent of BBH's weight. That is less than what FBT devotes to the stock.

In fact, BBH devotes almost 29 percent of its weight to just two stocks – Amgen AMGN and Gilead Sciences GILD. Still, the Vertex news is proving to be enough to help BBH extend its run as the top-performing biotech ETF year-to-date and over the past year. Year-to-date BBH is up nearly 25 percent. The next-best performance is IBB at just over 20 percent heading into Friday.

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