Consolidation could come calling for biotechnology in 2022

Eexpectations are in place for a sustained pace of consolidation in the biotech space this year, and this could benefit an assortment of exchange-traded funds, such as the ETF ALPS Medical Breakthroughs (SBIO).

Like other ETFs targeting smaller biotech stocks, SBIO has just had a tough 2021, but if healthcare mergers and acquisitions come to life again this year, the ALPS fund could be a potential beneficiary.

Fortunately, the SBIO has something to build on as 2022 unfolds as some analysts are bullish on biotech stocks across different market cap segments.

“We are seeing a macro setup that is broadly positive across the industry’s entire market capitalization spectrum,” analysts at Raymond James said in a recent note to clients.

Some of the headwinds from last year are easing, and this is relevant to SBIO investors as ETF constituents could benefit from good news on the approval and regulatory fronts. Given the size of the SBIO member companies (they are capped at $ 5 billion market value upon inclusion) and the testing requirement imposed by the fund index (components must have at least treatment in Phase II or III trials), it is critical that FDA approvals run efficiently and regulators do not stand in the way of takeovers.

“Some of the big concerns that have scared investors, including political efforts to revise drug prices and questions about the Biden-era Food and Drug Administration’s regulatory approach, appear to be easing,” a- he added. reports Josh Nathan-Kazis for Barron’s.

As for mergers and acquisitions – a catalyst that has often lifted SBIO over its more than seven years in the market – Raymond James says the pieces of this puzzle come together, indicating that investors could get the biotech consolidation activity that ‘they had been waiting for a long time. . In addition, there might be rare value to be obtained with smaller shares in the group.

“With large caps trading at 12.4X consensus 2022 EPS, we see significant value ahead of what we postulated in November could be a 2022 generalist rotation back into biopharma,” notes Raymond James. “For small caps, we also see a value opportunity. “

The SBIO of $ 188.43 million tracks the S-Network Medical Breakthroughs Index.

Other biotech ETFs to consider include the VanEck Vectors Biotech FNB (BBH), the IShares Biotechnology ETFs (IBB), and the Virtus LifeSci Biotech Clinical Trials ETFs (BBC).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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