ETFs For Biotech M&A Mania

Lost in the whirlwind of economic data and bailout news last week was a noticeable uptick in mergers and acquisitions activity in the biotech sector, a group that is seemingly always home to a good trade-worthy rumor or two. According to Minyanville, in a two-day span last week, roughly $3.1 billion in biotech-related deals were announced and there's probably more to come as the biotech sector remains an investment banker's dream. Stodgy big pharma companies such as Pfizer PFE and Merck MRK are facing patent cliffs, shallow pipelines bereft of blockbuster drugs and desperately need access to the emerging markets. Enter biotech. Big pharma is on the hunt "for treatments for cancer, nervous system disorders, heart conditions, metabolic and immune system conditions as well as other diseases," Minyanville reported. With that, identifying the best ETF plays for biotech M&A is quite easy. 1) PowerShares Dynamic Biotech & Genome ETF PBE: Companies that are working on treatments for genetic disorders are hot commodities these days and that explains Sanofi-Aventis's SNE $18.5 billion hostile takeover bid for Genzyme GENZ. While Genzyme isn't found among PBE's top-10 holdings according to the most recent data, there are some compelling targets in PBE's fray. Alexion Pharmaceuticals ALXN is a cancer treatment play with a reasonable market cap of just under $7 billion and Neurocrine Biosciences NBIX is a small-cap play on emotional disorders, among other health issues. With a market cap of less than $800 million, Neurocrine could be another target for big pharma. 2) iShares Nasdaq Biotechnology ETF IBB: IBB is perhaps the most popular, and therefore one of the more liquid biotech ETFs. Home to 131 stocks, IBB exposures investors and traders to both buyers and potential targets in the biotech M&A game. Amgen AMGN, a potential buyer, accounts for 8% of IBB, but targets such as Alexion and Genzyme can also be found among the ETF's top-10 holdings. IBB very well could be the most sound option for the patient biotech investor due to its good mix of stocks and emphasis on less speculative fare. 3) SPDR S&P Biotech ETF XBI: Home to about 30 stocks, XBI offers to exposure to biotech big boys like Amgen and Gilead Sciences GILD, but the ETF can be viewed as an interesting way of getting exposure to increased biotech M&A activity because small- and mid-cap names dominate the top -10 holdings. Alexion is the fourth-largest holding and Myriad Genetics MYGN, another genetics play obviously, accounts for almost 4.4% of the ETF. Theravance THRX, which is working on treatments for respiratory disease, bacterial infections, and gastrointestinal motility dysfunction, is XBI's top holding.