ETF Strategist Eric Dutram highlights: Intercept Pharma (ICPT) Pushes SPDR Biotech ETF Ahead of Rivals

Jan 13, 2014, 09:30 ET from Zacks Investment Research, Inc.

CHICAGO, Jan. 13, 2014 /PRNewswire/ -- Securities in this article include: Intercept Pharmaceuticals (Nasdaq: ICPT - Free Report), SPDR S&P Biotech ETF (AMEX: XBI-Free Report), iShares Nasdaq Biotechnology Index Fund (AMEX: IBB - Free Report), First Trust AMEX Biotechnology Index Fund (AMEX: FBT - Free Report) and Market Vectors Biotech ETF (AMEX: BBH - Free Report). Eric Dutram looks at How XBI surged past other Biotech ETFs thanks to Intercept Pharma's incredible surge.


Intercept Pharma (ICPT) Pushes SPDR Biotech ETF Ahead of Rivals written by Eric Dutram of Zacks Investment Research:

Intercept Pharmaceuticals (Nasdaq: ICPT - Free Report) was a star performer in Thursday's trading session, as the stock skyrocketed close to 300% on the day. This massive gain for this biotech firm was thanks to some very positive news regarding a trial for the company's key liver disease drug.

A data monitoring board recommended than the company stop the trial of its drug, obeticholic acid, because patients were doing far better on the drug than those who just had the placebo. The drug looks to be used to fight a type of chronic liver disease (nonalcoholic steatohepatitis) which can result in massive complications for those afflicted, and it is actually a leading cause of liver transplants in the U.S. (see all the Health Care ETFs here)

Close to eight million people suffer from the advanced stages of the disease, while 22 million have the disease in some form, according to Janney Capital Markets analyst Jim Molloy. And, there are currently no approved drugs for the illness, so this new Intercept drug could really make a huge difference in this market.

Stock Impact

With the potential to dominate this massive market, it is easy to see why ICPT performed so well in Thursday's trading session. The stock added more than $200/share on the day to finish above the $275/share mark, while its crushed its average volume figures, as more than 6.3 million shares moved hands compared to just 210,000 on average.

The news also had a modest impact on the biotech ETF market, though the results were not evenly spread across the space. In particular, the fund that focuses on an equal weight strategy, the SPDR S&P Biotech ETF (AMEX: XBI-Free Report), was the biggest winner from the news.

This is because XBI allocates about 1.6% of its total to the small cap company, enough to put it just outside the top 20 in terms of holdings. However, not a single company makes up more than 2.8% of assets, so it is very well spread out among its components (read Obamacare Will Be Amazing for These Stocks & ETFs).

This small allocation, coupled with strength in other biotech names on the day, helped to propel XBI to a 7.5% return on the day. And this is especially impressive when you compare it to others in the space, which do not have the same weighting strategy.

Other Biotech ETFs

Consider the iShares Nasdaq Biotechnology Index Fund (AMEX: IBB - Free Report), the First Trust AMEX Biotechnology Index Fund (AMEX: FBT - Free Report), or the Market Vectors Biotech ETF (AMEX: BBH - Free Report). All three of these added about 1.3% on the day, and thanks to XBI's performance today, are all significantly lagging the SPDR product to start the year.

The reason for this is largely due to the fact the ICPT is only included in XBI's portfolio, thanks to that fund's focus on small and micro cap securities. In fact, just 10% of XBI's portfolio goes to large caps, compared to nearly 30% in small caps and 40% in micro cap stocks.

Contrast this with some of the other names in the biotech ETF space, and you begin to see why XBI, thanks to its smaller cap focus, was the only one that even held ICPT.

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Eric Dutram

ETF Product Manager

Zacks Investment Research


SOURCE Zacks Investment Research, Inc.