XBI, Biotech ETFs Sail With Viking’s VKTX

Viking Therapeutics stock, a top biotech ETF holding, is up 350% this year.

kent
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Research Lead
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Reviewed by: etf.com Staff
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Edited by: James Rubin

Step aside AI hype and crypto mania, the Viking siege is here. 

While the market is buzzing about Nvidia and spot bitcoin ETFs, the eye-popping performance of a small-cap biotech, Viking Therapeutics, Inc. (VKTX), is making the price runs of a Mag 7 darling and popular cryptocurrency look almost humble. 

VKTX jumped 121% on Tuesday and has rocketed up nearly 700% over the past year. The largest biotech exchange-traded fund with VKTX as a top holding, the SPDR S&P Biotech ETF (XBI), jumped nearly 6% on the same day. 

What’s behind the small-cap biotech’s giant gains, and how has its run impacted biotech ETFs

Who Is Viking Therapeutics and Why Is VKTX Up?

Viking Therapeutics is a publicly traded biotechnology company developing novel therapeutics for patients with metabolic and endocrine disorders. Investors cheered Viking’s statement Tuesday about positive results from Phase 2 trials that its experimental drug, currently named VK2735, helped patients with obesity lose nearly 15% of their body weight.  

Viking also announced Tuesday a public offering of $350 million shares of its common stock, VKTX, which trades on the Nasdaq exchange. 

Although it’s too soon to tell, VKTX may have awakened the giant biotech sector that has lagged the broader market the past three calendar years.  

XBI vs Mag 7: Growth at a Reasonable Price

Investors wanting to retreat from the Mag 7-driven S&P 500 index and consider a previously unloved sector with growth potential can take a close look at biotechnology. The sector is due for a recovery as an increase in novel drug approvals by the FDA signals a potential shift toward more streamlined regulations and faster approvals. 

For investors who prefer reasonably priced growth stocks, a good comparison could begin with a broad comparison of price-to-earnings ratios. The average P/E of the Magnificent 7 stocks, as measured by the Roundhill Magnificent Seven ETF (MAGS), weighs in at a lofty 29.7 compared to a more attractive 19.9 for biotechs, as measured by XBI’s average P/E. 

Biotech ETFs like XBI also offer a mid-cap alternative to the mega-cap dominated S&P 500. For example, XBI’s average market cap is 3.7 billion while the S&P 500 average market cap is 257 billion, as measured by the SPDR S&P 500 ETF Trust (SPY)

Outlook for Biotechnology in 2024

In addition to the novel drug approvals, a boost in mergers and acquisitions within the biotech sector could lead to consolidation, resource sharing and increased innovation, which are all bullish for the healthcare subsector, say observers of the sector,

The gene therapy field also holds immense promise for treating various diseases by modifying defective genes. Advancements in gene editing tools like CRISPR are expected to further accelerate progress in this area. 

Overall, the biotechnology industry in 2024 is expected to be a dynamic and evolving landscape. While challenges exist, ongoing advancements, potential regulatory improvements, and continued investor interest paint a cautiously optimistic picture for the future, say analysts. 

Kent Thune is Research Lead for etf.com, focusing on educational content, thought leadership, content management and search engine optimization. Before joining etf.com, he wrote for numerous investment websites, including Seeking Alpha and Kiplinger. 

 

Kent holds a Master of Business Administration (MBA) degree and is a practicing Certified Financial Planner (CFP®) with 25 years of experience managing investments, guiding clients through some of the worst economic and market environments in U.S. history. He has also served as an adjunct professor, teaching classes for The College of Charleston and Trident Technical College on the topics of retirement planning, business finance, and entrepreneurship. 

 

Kent founded a registered investment advisory firm in 2006 and is based in Hilton Head Island, SC, where he lives with his wife and two sons. Outside of work, Kent enjoys spending time with his family, playing guitar, and working on his philosophy book, which he plans to publish in the coming year.