Biotech stocks have outpaced markets so far this year and soared higher than the major benchmarks. Billions of dollars in mergers and acquisitions are boosting the biotech space, while advances in gene therapy and RNA interference are providing an upward thrust to its stocks.

The major biotech ETFs and indexes have exhibited a strong performance year to date as the SPDR S&P Biotech ETF (XBI) has gained 30.9% compared with the S&P 500 Index’s rally of 26.3%. The ProShares Ultra Nasdaq Biotechnology (BIB) has gained 43.8%, higher than the Nasdaq Composite’s growth of 29.6% so far this year.

More Than 25 Biotech Mergers in 2019

The biotech sector has seen more than 25 acquisitions so far this year, of which 14 are billion-dollar deals. Per a report in November from Informa Pharma Intelligence’s analyst Daniel Chancellor, pharmaceutical companies spent $195 billion on buyouts in the first nine months of this year.

Bristol-Myers Squibb’s acquisition of Celgene in January was this year’s most expensive one. The deal was signed for $74 billion and gave a massive top-line boost to Bristol-Myers.

A pending takeover in the spotlight is that of AbbVie and Allergan. AbbVie's plans to acquire Allergan that produces medical aesthetic products like Botox for $63 billion. The merger, once completed, will help AbbVie to compete with the biosimilar rivals of its Humira.

This year also saw three billion-dollar deals in oncology. In February, Eli Lilly acquired Loxo Oncology for $8 billion. In May, Merck signed a definitive agreement to acquire Peloton Therapeutics for $1.05 billion in cash up front, while Peloton shareholders were also made eligible to receive up to $1.15 billion in future regulatory and sales milestones. In July, Pfizer acquired Array BioPharma, which develops small molecule medicines to treat cancer and other diseases of high unmet need, for $11.4 billion.

The most highlighted feature of these M&A deals in 2019 is that most targets were those involved in developing cancer drugs or gene therapies.

RNAi and Gene Therapy to Help Stocks Climb North

RNA interference and gene therapy are in their developing stage and several private and public companies are doing research in these fields to fight life-threating diseases.

The “RNA-interference (RNAi) Market” report 2019-2024, states that the RNAi market is expected to witness a CAGR of 20.2% in the next five years. In fact, several factors driving growth include RNAi’s increasing applications in molecular diagnostics, specifically in the areas of oncology and improving synthetic delivery carriers and chemical modifications to RNA.

Last month, Novartis reached an agreement to buy The Medicines Company for $9.7 billion. The Medicines Company focuses on developing the RNA drug Inclisiran for the treatment of cardiovascular disease and renal impairment.

Coming to gene therapy, it is a medical procedure that can replace defective genes or introduce new genes to prevent or cure genetic disorders. From cancer to cardiac diseases, AIDS, cystic fibrosis, age-related disorders, sickle cell anemia, gene therapy has brought possible solutions in treating life-threatening diseases. The Global Gene Therapy Market is projected to witness a CAGR of 30% over the period of 2019-2027.

In March, the director of the National Health Institute announced that recent clinical trials for the treatment of sickle cell anemia with the help of gene therapy showed promising results. In May, Avexis (a Novartis company) got the FDA approval for Zolgensma, which helps in the treatment of spinal muscular atrophy for children less than 2 years of age.

5 Stocks to Buy

With the advance in RNA interference and gene therapy and given the positive developments throughout 2019, the space has high scope of growth in 2020. We have therefore shortlisted five biotech stocks that flaunt Zacks Rank #1 (Strong Buy) or 2 (Buy).

Coherus BioSciences, Inc. (CHRS - Free Report) is a commercial-stage bio-therapeutics company, which focuses on delivering high-quality biosimilar therapeutics, designed to expand the access of important medicines to patients. This Zacks Rank #1 company’s expected earnings growth rate for next year is 22.8% compared with the Zacks Medical - Biomedical and Genetics industry’s projected earnings growth of 7.4%.

The Zacks Consensus Estimate for the company’s current-year earnings advanced 52.8% over the past 60 days.

XOMA Corporation (XOMA - Free Report) is a biotech company, which develops allosteric modulating monoclonal antibodies with the potential to treat a wide range of human diseases. This Zacks Rank #1 company’s expected earnings growth rate for the next year is more than 100% compared with the Zacks Medical - Biomedical and Geneticsindustry’s projected earnings growth of 7.4%. The Zacks Consensus Estimate for the company’s current-year earnings advanced 81.7% over the past 60 days.

Moderna, Inc. (MRNA - Free Report) is a developer of messenger RNA drugs, designed to instruct a patient’s own cells to produce proteins that could prevent, treat, or cure a disease. This Zacks Rank #2 company’s expected earnings growth rate for the next year is 3.1%. The Zacks Consensus Estimate for the company’s current-year earnings increased 2.5% over the past 60 days.

uniQure N.V. (QURE - Free Report) is a gene therapy company that engages in the discovery, development, and commercialization of gene therapies. The company’s current pipeline holds treatment of hemophilia B.  This Zacks Rank #2 company’s expected earnings growth rate for the next year is 15.6% compared with the Zacks Medical - Biomedical and Geneticsindustry’s projected earnings growth of 7.4%. The Zacks Consensus Estimate for the company’s current-year earnings increased 9.7% over the past 60 days.

MeiraGTx Holdings plc (MGTX - Free Report) a clinical-stage gene therapy company that develops various therapies for ocular diseases, including rare inherited blindness. This Zacks Rank #2 company’s expected earnings growth rate for the next year is 8.6% compared with the Zacks Medical - Biomedical and Geneticsindustry’s projected earnings growth of 7.4%. The Zacks Consensus Estimate for the company’s current-year earnings advanced 10.1% over the past 60 days.