The SPDR S&P Biotech ETF is the IBD Stock Of The Day. XBI stock has shucked off near-term resistance on enthusiasm for biotech stocks.
Biotech stocks are red-hot right now. After hitting a five-year bottom in May, shares within the biotech exchange traded fund have soared roughly 37% as of Wednesday's close. XBI stock has mostly trended sideways in July but, on Wednesday, it popped definitively higher.
RBC Capital Markets analysts noted the recent strength in a report Tuesday.
"Commercial-stage large and midcap names seemed to bounce back earliest on, as investors perhaps recognized the therapeutics sectors' defensiveness vs. inflation/recession fears and biotech's relative value vs. big pharma, which had held up better," they said. Even smaller names have participated in the "mini-rally," fueled by positive clinical and regulatory news, they added.
On today's stock market, XBI stock jumped 1.4% to 84.52.
XBI Stock: The Roller Coaster Tracks Higher
It's been a roller-coaster ride for biotech stocks the past two years, Baird analyst Mike Perrone said in a report last month. The early days of the pandemic sparked names like Moderna and BioNTech, both makers of Covid vaccines.
Most Trusted Financial Companies — Take A Survey And Win A $50 Amazon Gift Card
But as Covid news slid into the background of daily life, so too did enthusiasm for biotech stocks.
Now, it seems the cards are lining up for XBI stock. Last month, Perrone identified two possible catalysts for biotech stocks: mergers and positive clinical news.
Deal volume remains in line with 2021 levels, but far below previous years, RBC analysts said. That could soon change.
"We believe the space is ripe for a pickup in acquisitions, with large biopharmas flush with cash near record levels and revenue/pipeline needed to replace looming patent cliffs," they said.
There have been several key announcements recently. Pfizer is buying Biohaven Pharmaceuticals' migraine assets for $11.6 billion. Bristol Myers Squibb is spending $4.1 billion to buy Turning Point Therapeutics.
Merck could be in the market for Seagen at a rumored $40 billion. That potential deal — the largest since AstraZeneca bought Alexion Pharmaceuticals for $39 billion — "would still likely generate substantial enthusiasm," they said.
Will Alzheimer's Data Bring In Investors?
XBI stock also could benefit from clinical data.
RBC analysts called out Karuna Therapeutics' efforts in schizophrenia and a study from Alnylam Pharmaceuticals in patients with an inherited heart condition. Prometheus Biosciences has midstage efforts in irritable bowel diseases. Meanwhile, Amgen and Seagen are testing notable cancer regimens.
The biggest catalyst for biotech stocks, though, could be Biogen's next potential treatment for Alzheimer's disease, lecanemab. Roche has a similar treatment in the works called gantenerumab.
Both companies theorize removing built-up plaque in the brain could benefit patients cognitively. The Food and Drug Administration granted Biogen's treatment, dubbed Aduhelm, an accelerated approval based on its ability to remove that plaque. But the Centers for Medicare and Medicaid Services refused to pay for the drug. Biotech stock Biogen was hammered on the news.
Success for lecanemab and gantenerumab "could open up a mostly untapped $15 billion-plus market for biopharma for the first time since the Covid vaccines and hepatitis C drugs," the analysts said. "We believe (it) could potentially bring new money back into the space with the enthusiasm a favorable result would generate."
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
