Here’s Why Biotech is Bucking the Recent Market Sell-Off

From Zacks Research: One sector that has been immune to the recent equities purge is Biotech, which has instead been driven higher by a slew of M&A deals and a possible bump from Trump.

The biotech space gained the much-needed strength on September 12 with every ETF being in the green. Positive news ushered into the sector on Monday, giving several stocks and funds a solid lift. Notably, biotech stocks are caught in a web of issues this year including overvaluation concerns and the likely negative impact of the presidential election in the U.S.

Investors should note that with the presidential candidate, policymakers, the media and the general public raising questions over high drug pricing lately, biotech stocks and the related ETFs haven fallen out of investor favor (read:Biotech ETFs in Focus After Mylan’s EpiPen Controversy).

Hillary Clinton – the Democratic presidential candidate – is among those who have been vocal about the steep pricing on life-saving drugs for long (read: How Hillary Clinton Crushed Biotech ETFs with One Tweet).

However, braving such issues, biotech stocks and ETFs registered solid gains on September 12. Below we highlight the drivers in detail:

Surge in Deals

The sector has always been at the epicenter of mergers and acquisitions. Horizon Pharma PLC (HZNPAnalyst Report) ) announced that it will acquire Raptor Pharmaceutical Corp (RPTPSnapshot Report) for about $800 million. Following the announcement, Horizon Pharma added over 9.4% and Raptor Pharmaceutical surged over 20.5% on September 12.

Shares of Perrigo Company Plc (PRGOAnalyst Report) spiked about 7.4% on September 12 as activist investor Starboard Value LP revealed a 4.6% stake in the drug company. Starboard also added that it sees “significant discount to fair value” for Perrigo shares at the current level and “substantial opportunities” in it.

If this was not enough, Gilead Sciences Inc. (GILDAnalyst Report) disclosed that it intends to pursue a host of smaller deals rather than a huge one. All these news acted as a cornerstone for the entire biotech space.

Successful Clinical Trial

Shares of Foamix Pharmaceuticals Ltd. (FOMXSnapshot Report) shot up over 15.7% on September 12 after the company announced “that a drug designed to treat papulopustular rosacea had shown strong results in a Phase 2 clinical trial.”

Dovish Fed Comments

Though the broader market went into a tailspin on September 9, dovish comments by Fed Governor Lael Brainard on the policy tightening issue on September 12, triggered a relief rally to start this week. With chances of a September hike slumping to 11% from 19%, as per changes in Fed funds futures, high-growth, high-beta sectors like biotech had reasons to rejoice.

Trump’s Chances of Winning Growing?

Lately, chances of Republican candidate Donald Trump’s winning the presidential election are rising. The UPI/CVoter daily presidential tracking poll results indicated on Monday that Donald Trump (48.7%) is leading Hillary Clinton (45.8%) by close to 3 percentage points in the seven-day polling period ending September 11.

However, another source Real Clear Politics’ poll results showed that Clinton (45.9%) beat Trump (42.9%) by 3 percentage points on September 12, 2016. Whatever the case, Donald Trump’s steadfastness in the presidential election race may be good news for biotech stocks, given Clinton’s constant move against the price gouging issue in the pharmaceutical space (read: Will a Clinton Presidency Spell Doom for Pharma ETFs?).

Surging ETFs in Focus

Below we highlight five ETFs that scooped up strong gains on September 12.

ALPS Medical Breakthroughs ETF (SBIOETF report) – Up 3.94%

PowerShares Dynamic Biotechnology & Genome Portfolio ETF (PBEETF report) – Up 3.81%

SPDR S&P Biotech ETF (XBIETF report) – Up 3.61%

iShares Nasdaq Biotechnology ETF (IBBETF report) – Up 3.04%

First Trust NYSE Arca Biotechnology Index Fund (FBTETF report) – Up 2.92%

This article is brought to you courtesy of Zacks Research.

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