Amgen
AMGN
has agreed to buy Horizon Therapeutics PLC
HZNP
for $27.8 billion. This will be the biggest deal this year by a major pharmaceutical company seeking new revenue sources to offset patent expiries. The agreement comes at a time when Horizon is facing the loss of patent protection on several blockbuster drugs.
Following the news, shares of HZNP jumped 15.5%. The stock crushed its average volume as 44.4 million shares moved hands compared with just 3 million, on average. Meanwhile, shares of AMGN shed 0.7%. This put the spotlight on pharma ETFs, which could be the best way for investors to tap the opportunity arising from the proposed deal (read:
Pharma ETFs in Focus Post Q3 Earnings
).
Investors should keep a close eye on the movement of these ETFs –
VanEck Vectors Pharmaceutical ETF
PPH
,
iShares U.S. Pharmaceuticals ETF
IHE
,
Invesco Dynamic Pharmaceuticals ETF
PJP
,
SPDR S&P Pharmaceuticals ETF
XPH
and
First Trust Nasdaq Pharmaceuticals ETF
FTXH
– over the coming weeks.
Deal in Focus
Per the terms of the deal, Amgen will pay $116.50 in cash for each Horizon share, representing a premium of about 20% to the stock’s closing price on Dec 9. The deal offers Amgen another chance to build its portfolio of rare-disease treatments after it closed the nearly $3.7 billion acquisition of ChemoCentryx, which focuses on autoimmune disease drugs, in October.
The acquisition of Horizon brings new rare-disease drugs to Amgen’s pipeline with billions of dollars in sales that could offset revenue decline from patent expiries on its big-selling osteoporosis drugs Prolia and Xgeva later this decade. The pair of drugs accounted for nearly $5.3 billion of Amgen’s $26 billion revenues last year.
With the deal, Amgen will gain two fast-growing drugs, the thyroid eye disease treatment Tepezza and the gout treatment Krystexxa. The new rare-disease drugs are projected to generate $3.6 billion in sales this year and $5.8 billion in 2027, according to analysts polled by FactSet.
Amgen expects the regulatory approvals under the Irish business code to be achieved by the first half of 2023. Once completed, the deal will drive growth in Amgen’s revenue and non-GAAP EPS and is expected to be accretive from 2024. Analyst at Jefferies & Co expects acquiring Horizon could add about $4 billion in revenues for Amgen by 2024.
ETFs in Focus
Let’s delve into each ETF below:
VanEck Vectors Pharmaceutical ETF (PPH)
VanEck Vectors Pharmaceutical ETF follows the MVIS US Listed Pharmaceutical 25 Index and holds 25 stocks in its basket, with each accounting for less than 9% share each. The product has amassed $585.3 million in its asset base and trades in a good volume of about 128,000 shares a day. The expense ratio is 0.35%.
VanEck Vectors Pharmaceutical ETF carries a Zacks ETF Rank #2 (Buy) with a Medium-risk outlook.
iShares U.S. Pharmaceuticals ETF (IHE)
iShares U.S. Pharmaceuticals ETF provides exposure to 40 U.S. companies that manufacture prescription or over-the-counter drugs or vaccines by tracking the Dow Jones U.S. Select Pharmaceuticals Index. The fund is concentrated on the top two firms with nearly 44% share, while others hold no more than 5.5% of assets (read:
5 ETF Picks for December
).
iShares U.S. Pharmaceuticals ETF has $421.8 million in AUM and charges 39 bps in fees and expense. Volume is light as it exchanges about 7,000 shares a day. The fund carries a Zacks ETF Rank #3 (Hold) and has a High-risk outlook.
Invesco Dynamic Pharmaceuticals ETF (PJP)
Invesco Dynamic Pharmaceuticals ETF offers exposure to companies that are principally engaged in the research, development, manufacture, sale, or distribution of pharmaceuticals and drugs of all types. It follows the Dynamic Pharmaceuticals Intellidex Index and holds 24 stocks in its basket with a moderate concentration of less than 7% share each.
Invesco Dynamic Pharmaceuticals ETF has AUM of about $333.8 million and sees a lower volume of around 13,000 shares a day. The fund charges 56 bps in fees and expenses. The ETF has a Zacks ETF Rank #3 with a High-risk outlook.
SPDR S&P Pharmaceuticals ETF (XPH)
SPDR S&P Pharmaceuticals ETF provides exposure to pharma companies by tracking the S&P Pharmaceuticals Select Industry Index. With AUM of $210.6 million, it trades in a moderate volume of around 46,000 shares a day and charges 35 bps in fees a year.
SPDR S&P Pharmaceuticals ETF holds 44 securities, with each accounting for less than 4.5% share. It has a Zacks ETF Rank #3 with a High-risk outlook.
First Trust Nasdaq Pharmaceuticals ETF (FTXH)
First Trust Nasdaq Pharmaceuticals ETF tracks the Nasdaq US Smart Pharmaceuticals Index, holding 29 securities in its basket, with each making up for single-digit allocation. FTXH has a lower level of $43.6 million in AUM and an average daily volume of 15,000 shares (read:
2 Sector ETFs Hovering Around a 52-Week High
).
First Trust Nasdaq Pharmaceuticals ETF charges 60 bps in annual fees and has a Zacks ETF Rank #3.
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