Biotech stocks could sway toward the upside with the appointment of a new director at the Federal Drug Administration’s Center for Drug Evaluation and Research. Dr. Richard Pazdur will take the reigns, bringing 26 years of related industry experience.
The move was cheered by Wall Street analysts who view the appointment as a positive given Dr. Pazdur’s experience in the industry as opposed to bringing in an outsider. The latter would typically bring uncertainty to a sector that President Trump was looking to shake up to improve efficiency. As seen in the YTD performances of the MSCI and S&P 500 biotech indexes, the move could add an additional catalyst to their current rallies.
^MSACWIBIO data by YCharts
Rising M&A Activity
Another positive for the sector is the number of rising mergers and acquisitions (M&A) deals this year. This creates a chance for traders to get value-oriented biotech stocks before they continue moving higher. More rate cuts could pave the way for additional M&A deals to take place following the Fed’s second rate cut of the year.
The accelerated push for higher M&A deal flow comes after a relatively sluggish 2024. After the Federal Reserve just instituted the first rate cut of the year, the prospect of additional cuts could be more conducive for deals in the rest of 2025. Additional cuts open the door for cheaper financing and thus, potentially more M&A in the biotech/pharma industry.
According to data from Biopharma Dive, there’s been close to 40 acquisition deals thus far with the rest of Q4 still left to go. This compares to 39 deals for the whole of 2024. So it’s a wait-and-see situation to determine if the number of total deals in 2025 will surpass the previous year.
Trade the Biotech Titans
To capture the potential upside in the biotech industry, traders can eye the biggest companies occupying that sector. Rather than build a portfolio of individual shares in the five biggest companies, there’s an easier way with the new Direxion Daily Biotech Top 5 Bull 2X ETF (TXBU).
TXBU is part of the latest addition to Direxion’s leveraged/inverse ETF product suite: the Titans Leveraged & Inverse ETFs. The Titans funds strike a balance between single-stock ETF exposure and the sector. It’s the Goldilocks solution that allows traders to focus specifically on industry movers and shakers that comprise the sector.
In the case of TXBU, the fund provides 200% exposure to the NYSE Biotechnology Top 5 Equal Weight Index that includes U.S.-listed companies in the biotechnology subindustry as classified by the GICS. Each of the five get 20% exposure: Alnylam Pharmaceuticals Inc, Exelixis Inc, Gilead Sciences Inc, Insmed Inc, and United Therapeutics Corp.
For those who want to trade the whole biotech industry, consider the Direxion Daily S&P Biotech Bull 3x Shares (LABU). It tracks the S&P Biotechnology Select Industry Index (SPSIBITR), which is an equal-weighted index.
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