Arena Approval Boosts Biotech ETFs (ARNA, IBB, XBI)
News that the Food & Drug Administration has approved Arena Pharmaceuticals' (NASDAQ: ARNA) weight-loss pill Lorcaserin is proving to be a boon for some biotech ETFs. Lorcaserin becomes the first anti-obesity treatment approved for sale in the U.S. in 13 years. Wednesday's drug approval headlines have lit a fire under the biotech sector.
With a market capitalization of around $1.6 billion preceding Wednesday's news, Arena entered the day as a small-cap company by definition. That means its weight in an ETF that focuses primarily on large-cap biotech names such as the iShares Nasdaq Biotechnology Index Fund (NASDAQ: IBB) is small.
However, despite the fact that Arena accounts for less than 0.6 percent of IBB's weight, the ETF has printed a new 52-week high and looks poised to easily eclipse its three-month average daily volume of roughly 560,000 shares.
IBB is also getting a lift because it features a 0.91 percent allocation to Vivus (NASDAQ: VVUS), which is making a competing product to Locraserin. The FDA is scheduled to rule on Vivus' Qnexa on July 17. California-based Orexigen Therapeutics (NASDAQ: OREX), in conjunction with Japan-based Takeda Pharmaceutical, is also working on a weight-loss treatment. Orex previously agreed to a two-year study on Contrave's heart risks Bloomberg reported.
Orex accounts for around 0.11 percent of IBB's weight. The SPDR S&P Biotech ETF (NYSE: XBI) is benefiting even more than IBB on the back of the Arena news. Arena is XBI's second-largest holding. XBI, which is up 3 percent on heavy volume, allocates 3.44 percent of its weight to the company. XBI is up around 33 percent year-to-date compared to an approximate 24.2 percent gain for IBB.
Vivus and Orex were up around 6 percent and 13 percent, respectively, for Wednesday's trading session.
Other biotech ETFs include the Market Vectors Biotech ETF (NYSE: BBH), the First Trust NYSE Arca Biotech Index Fund (NYSE: FBT), the PowerShares Dynamic Pharmaceuticals Portfolio (NYSE: PJP) and the PowerShares Dynamic Biotech & Genome Portfolio (NYSE: PBE).
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