Valuation Multiples for Biotechnology ETFs in Week Ended July 24



Biotechnology leads price-to-book multiple

The price-to-book (or P/B) ratio is a good valuation multiple for the biotechnology industry. The average P/B ratio across ETFs varies depending on the holdings of the portfolio. Let’s take a look at the P/B values of the ETFs with the highest sector weights for the week ended July 24, 2015. Within the iShares Nasdaq Biotechnology ETF (IBB), the biotechnology sector has a P/B ratio of 11.54x. The P/B ratio for the pharmaceuticals sector is 11.32x.

Within the subgroup of the SPDR S&P Biotech ETF (XBI), the biotechnology sector’s P/B ratio stood at 12.04x. The pharmaceuticals sector was at 14.54x, and the healthcare products sector stood at 10.53x.

Within the subgroup of the Health Care Select Sector SPDR ETF (XLV), the biotechnology sector’s P/B ratio stood at 13.91x. The pharmaceuticals sector was 9.93x, the healthcare products sector was 4.43x, and the healthcare service sector was 3.39x.

The above graph reflects the P/B ratios of the three ETFs we’ve discussed.

Article continues below advertisement

IBB’s subgroup valuations

Within the subgroup of the iShares Nasdaq Biotechnology ETF (IBB), 25% of the biotechnology sector has P/B ratios above the group average of 11.54x. Vertex Pharmaceuticals (VRTX), Seattle Genetics (SGEN), and Isis Pharmaceuticals (ISIS) have P/B ratios of 31.31x, 28.88x, and 23.04x, respectively. Some view the confluence of these conditions as overvalued on a relative basis.

In the pharmaceuticals subgroup, 26% of the stocks have P/B ratios above the subgroup’s average. Anacor Pharmaceuticals’ (ANAC) P/B ratio stood at 83.64x, as the company announced positive results from the two Phase III clinical trials of Crisaborole Topical Ointment.


More From Market Realist