Will the VanEck Biotech ETF Boom in 2024?

The biotech theme struggled mid- and post-pandemic, but now analysts forecast a period of growth. Top holdings in the VanEck Biotech ETF, including Amgen and Vertex, are experiencing share price growth amid positive drug trials.

• VanEck Biotech ETF rose 1.6% in the first week of the year.
• Second-biggest holding Vertex stock soared following positive drug trial for potential opioid rival.
• Jefferies analyst forecasts 2024 boom for biotech theme, with M&A key; an impending ‘patent cliff’ could also play a part.

The VanEck Biotech ETF [BBH] rose 1.6% in the first week of 2024, and has climbed 3.7% over the past 12 months.

The fund’s growth comes as investment experts predict a comeback for the biotech theme in 2024, following a tricky couple of years.

The ETF’s performance may be partly driven by the share price of top holding, Amgen [AMGN], which increased 5.2% in the week to 5 January and 13.9% over the previous 12 months.

Second-largest holding Vertex Pharmaceuticals [VRTX] climbed 2.4% across the week to 5 January, and is up 43.5% in the past 12 months. In December, Vertex announced positive news for its trial of drugs that might eventually rival opioids for pain treatment.

BHH tracks the MVIS US Listed Biotech 25 Index, offering exposure to companies focused on biotech and genetic analysis, including the sales and manufacture of specialist drugs and equipment.

The fund was founded in 2011 and as of 5 January holds assets worth $481.75m.

Amgen’s Horizon Acquisition Fuels Expansion

Amgen is the largest holding in the BBH fund by some margin, with an 18.2% share of the portfolio as of 4 January.

The biotech leader posted positive third-quarter (Q3) 2023 results on 31 October, announcing revenues of $6.9bn, an increase of 4% year-over-year, which it attributed to a 5% rise in product sales over the period.

However, Amgen’s Q3 GAAP earnings per share dropped 19% from $3.98 to $3.22. This was attributed to a net impairment charge of some $650m during the quarter, following the termination of its AMG 340 trial for cancer treatment.

At the earnings, Chairman and CEO Robert Bradway directed focus onto the company’s recent acquisition of Horizon Therapeutics. “Amgen has added rare disease medicines that fit well with our broad innovative portfolio,” said Bradway at the time. The company paid $116.50 per share in cash for Horizon in early October, for a total transaction equity value of approximately $27.8bn.

The second-largest holding in the fund is Vertex Pharmaceuticals, with a 10 8% share of the portfolio. The company also develops medicines for serious diseases.

At Q3 earnings call in November, Vertex posted product revenue of $2.5bn, a 6% hike year-over-year, while it increased its 2023 product revenue guidance to approximately $9.9bn.

Vertex stock hit a record high following positive news regarding its VX-548 drug trial in December.

Analysts Forecast 2024 Boom for Biotech

The biotech sector enjoyed a boost in the early pandemic as companies raced to develop Covid vaccines, but has struggled in its wake, slumping in 2022 and beyond.

However, the Nasdaq Biotech Index [NBI] had a strong December, rising 12.8% over the month.

According to a December report by MarketsandMarkets, the sector expanded 10–15% in 2023, with factors including the approval of technologies like CRISPR-Cas9 driving the theme.

Micheel Yee, Senior Equity Research Analyst at Jefferies, said in a 6 January post on X that “positive tailwinds” should drive returns for the biotech sector this year. On CNBC TV, he predicted a possible biotech boom driven by factors including increased mergers and acquisitions.

In addition, according to a Linnk Group report, certain widespread medications are heading towards a so-called ‘patent cliff’, opening the door to broader competition in the field. Advances in technologies like gene editing could also expand the biotech theme.

At CNN Business, Amgen is rated a ‘buy’ by a consensus of 27 analysts. However, a consensus of seven analysts deem Vertex stock a ‘hold’.