How Can Investors Engage with Biopharmas and Biotechs Going into Q1 2021?

Pfizer (PFE), Moderna (MRNA), AstraZeneca (AZN) and other key pharma players now have the COVID vaccine factored into their price. As stocks, they do seem to have some degree of upside potential. Pfizer, of course, has been around for 171 years and they are a successful growth company with many well-known products under their belt. So, the coronavirus vaccine isn’t the only thing it brings to the table. Pfizer is strong; it pays dividends, with its dividend yield currently standing at 2.8%, and has future growth prospects.

So why did Pfizer shares drop like rocks in the last 48 hours?

That’s because now the market is looking beyond a coronavirus vaccine, for right or for wrong. UK’s largest drug maker, AstraZeneca, a 21-year old company, with a portfolio of products for cancer, gastro issues and inflammation among others, recently announced that they are buying Alexion, a US biotech company that specializes in finding cures for rare diseases, in a $39 billion deal.

This represented the largest takeover in the pharma sector this year, and was especially big news given the fact that over six years ago, the UK Company was fighting off an unwanted bid from Pfizer. This takeover, as you would expect, caused AstraZeneca shares to drop on the news (-7%), showing that investors are not happy with this deal. They believe Alexion is not the right partner.

More surprisingly though, the takeover caused Pfizer shares to drop over 7%, implying that the market is taking factors other than a COVID-19 vaccine into account.

Turning to the analyst community, Pfizer boasts a Moderate Buy analyst consensus, based on 4 Buys and 9 Holds. With its average price target clocking in at $41.77, shares could surge 8% in the year ahead. (See Pfizer stock analysis on TipRanks)

BioTech is busy and worth looking at for 2021

So, what’s the best way to engage with Biopharma or Biotech companies? The fact is, it’s hard to know which of the many companies will come up with the next big thing, and new products in the pipeline can take years before they hit the market. They have to go through development, and three phases of trials first. What’s more, these stocks are riskier plays, given how reactive they are to any developments related to clinical activity or regulatory approvals.

Perhaps the best way to gain exposure to this area is through a Biopharma ETF like the iShares Nasdaq Biotechnology ETF (IBB), which trades on the Nasdaq. This ETF has performed extremely well in 2020 and has gained over 27% year-to-date, outperforming both the S&P 500, which is up almost 14% year-to-date, and the Russell 1000, which is up 15.93% year-to-date.

What is the IBB ETF?

The iShares Nasdaq Biotechnology ETF tracks the investment results of an index, which is built of biotechnology and pharmaceutical stocks that are listed on the Nasdaq. The index gives you exposure to equities in the US alone. Investing in this ETF will allow you to express a view across the entire industry, giving you the ability to diversify.

The image below shows the top 10 components of this ETF. Most of these names you will have come across in the last few months.

Disclaimer: The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.