The SPDR Biotech ETF (XBI) stock has surged hard in the past few weeks as investors cheer the recent FDA approvals and M&A activity in the industry. It has soared in the past four straight weeks and is sitting at its highest point since January 2022. It is up by over 61% from its lowest point in December.

The SPDR Biotech ETF is an important fund that tracks the biggest companies in the industry. Some of its biggest constituents are companies like Cytokinetics, Iovance Biotherapeutics, Karuna, and Ardelyx, and Viking Therapeutics.

The biotech industry is doing well as some of the biggest pharmaceutical companies boost their acquisitions. For example, Pfizer acquired Seagen in a $43 billion deal while Novo Nordisk bought Catalent for $16 billion. Bristol-Myers acquired Karuna in a $14 billion deal.

These acquisitions have led to higher valuations for other companies in the industry as investors assess the next potential buyout. 

The main reason why the XBI ETF jumped sharply this week is that Viking Therapeutics, the third-biggest constituent surged by more than 121% on Tuesday, giving it a market cap of over $8.5 billion.

As we wrote here, VKTX will likely be acquired because of its success in obesity drug development. On Tuesday, the company said that its drug helps people lose about 15% of their weight on average. This means that other big companies that want a slice in the industry may move and buy it.

The other reason is that Cytokinetics shares have jumped by over 86% in the past 12 months as it became a buyout candidate. In January, Novartis, the Swiss pharma giant, dropped its pursuit of the company. Amgen has now emerged as a potential buyer.

The other top XBI stock performer is Iovance Biotherapeutics, which received approval of its T-cell therapy (TIL) treatment. Ardelyx (ARDX) stock price has jumped by over 59% this year and by 235% in the past 12 months, helped by the strong IBSRELA and XPHOZAH financial results.

Therefore, there is a likelihood that more early and late-stage biotech companies will get acquired this year. Most mature pharma companies are nearing their patent expiry for their key drugs and need to buy promising biotech firms.

XBI chart by TradingView

Turning to the weekly chart, we see that the SPDR Biotech ETF formed a double-bottom pattern around $62.73. In price action analysis, this is one of the most popular bullish signs. The stock has now crossed the neckline of this pattern at $95.17, its highest swing in August 2022.

The XBI ETF stock has already crossed the 100-week and 50-week moving averages and is now nearing the 38.2% retracement point. Further, the Average Directional Index (ADX) has soared to over 30.

Therefore, the outlook for the fund is bullish, with the next point to watch being the 50% retracement point at $118.39. This means that it has the potential to rise by 15% from the current level.

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