This article was originally published on ETFTrends.com.
The rising prices of drug treatments, more dependence on immuno-oncology and mergers focused on mid-sized biotech company acquisitions are just a few factors spurning the growth in the biotechnology and pharmaceuticals industry, giving ETFs like Daily Pharmaceutical & Medical Bull 3X Shares (PILL) and Direxion Daily S&P Biotech Bull 3X ETF (LABU) exceptional returns.
PILL seeks investment results equal to 300% of the daily performance of the Dynamic Pharmaceutical Intellidex Index and concentrates its allocations towards securities of the index and other financial instruments that provide daily leveraged exposure to the index. As such, PILL focuses on equity holdings engaged in research, development, manufacture, sale or distribution of pharmaceuticals and drugs of all types.
Related: Biotech, M&A, and IPOs. Oh My!
The index itself just matched a previous high and PILL itself is posting year-to-date returns of 6.36% according to performance figures from Yahoo! Finance.
LABU seeks daily investment results that are equal to 300% of the daily performance of the S&P Biotechnology Select Industry Index with the majority of its allocations going towards securities of the index and other financial instruments that provide daily leveraged exposure to the index or ETFs that track the index. Furthermore, the index is designed to measure the performance of the biotechnology sub-industry based on the Global Industry Classification Standards.
Year-to-date performance figures show that the index is outperforming the S&P 500 by almost 13%. LABU has been a beneficiary of that, producing gains of 21.97% year-to-date and 50.88% the past year per performance figures on Yahoo! Finance.
Related: Biotech ETFs Climb on Biogen’s Promising Clinical Trial
Tax Breaks and IPOs Fueling Industry
Per a blog post from Direxion Investments, one of the main drivers for the strong performance in the biotech and pharmaceutical industry is a lower corporate tax rate. As mentioned, these corporate tax breaks are helping to fuel the number of mergers and acquisitions taking place within the sector.
According to Direxion Investments, "the primary catalyst behind this spending spree is the windfall many of these companies gained from the new U.S. tax structure that lowered corporate tax rate from 35 to 21 percent while also permitting companies to repatriate revenue stockpiled offshore at the lower rate. This is enormously beneficial to pharmaceutical companies, who tend to hoard offshore profits. The last time companies experienced such a tax holiday in 2004, Pfizer Inc. repatriated $37 billion for dividend and stock buyback programs."
In addition, there have been 32 initial public offerings (IPOs) in the sector, which is already 12 IPOs shy of matching the number of IPOs in 2017 with the second half of 2018 still left. Per Direxion's blog post, "These companies seemingly can’t appear fast enough, as investors have pounced on the new listings, driving their share price up by as much as 60 percent in the case of recent IPO AvroBio."
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