Seeking relief in the biotech boom.

Investors looking for evidence of how hot biotech stocks are these days don’t need to look beyond Valeant Pharmaceuticals Int e r nati o nal Inc., which has quickly become Canada’s most valuable company with a market cap of $115 billion.

But if they do, they will find a seemingly endless run of megamergers frequently valued in the tens of billions of dollars, as well as an undeniably strong performance by the Nasdaq Biotechnology Index, which is up more than 55 per cent this year and 400 per cent in the past five. The S&P/TSX composite health care sector index, meanwhile, has risen 88 per cent so far in 2015, outpacing the broader equity benchmark, which is down a few percentage points, and a similar performance gap is playing out in the U.S. on the S&P 500.

The sector’s strength in Canada is due in large part to Valeant’s success, as the index includes just five other members. Investors should also be familiar with names such as Concordia Healthcare Corp., whose roll-up strategy focused on

legacy pharmaceutical products and orphan drugs is very similar to an early stage Valeant.

Concordia is up 120 per cent in 2015, while Merus Labs International Inc., a much smaller speciality pharma player also in acquisition mode, has risen 65 per cent.

But investors should remember the sector is rife with risks, as global pharma giant Biogen Inc.’ s sharp share price plunge on Friday demonstrates. The company slashed its outlook due to disappointing sales growth for Tecfidera, its key multiple sclerosis drug.

Aside from company-specific risks such as weak demand, investors must keep a close eye on key product approvals, drug trial results and even some macro factors, including rising interest rates, which will put a dent in the easy money backing some of the sector’s mega-mergers.

Nevertheless, investors are rotating away from interest-rate sensitive areas such as utilities and pipelines ahead of higher rates, so cyclical sectors like health care are natural beneficiaries.

In 2014, 67 biotech companies capitalized on investors’ interest and raised a total of US$5 billion in IPOs, in line with the previous peak in 2000. RBC Capital Markets estimates US$2.9 billion from 29 IPOs had already been raised by mid-June this year, significantly higher than the US$2 billion raised at this time last year.

“Coming into 2015 there was great debate whether this enthusiasm could continue, but based on our data, there seems to be no signs of slowing down,” said analyst Michael Yee.

M&A activity was considered a big knock against Valeant, and something Allergan PLC frequently cited as it parried the former’s takeover offer last year.

Valeant continues to make acquisitions, but it has shown in the past two quarters that it’s able to generate very strong organic growth — 18 per cent in the most recent period, along with guidance above 10 per cent.

Since organic growth for most U.S. pharma companies is below five per cent, it’s clear why more and more investors are jumping on board the Valeant story.

“People are searching for growth and biotech has had that growth,” said Greg Taylor, a portfolio manager at Aurion Capital Management. “The lack of growth globally is going to keep the M&A cycle going.”

Some of the more notable recent deals include Teva Phar- maceutical Industries Ltd.’ s US$40-billion bid for Mylan NV in an effort to create a powerhouse in the generic drug space, and AbbVie Inc.’s acquisition of Pharmacyclics Inc. for more than US$20 billion.

Deals like that have brought the value of U.S. biotech M&A above US$250 billion so far this year.

Investors have also been piling into biotech as a safe haven, trying to avoid the volatility of sectors such as energy and mining.

“You can get away from economic sensitivity a bit through buying biotech companies,” Taylor said. “They are supposed to be the counter-cyclical defence trade with a bit of growth, so there are a lot of aspects keeping it going.”

But for those investors who are negative on the equity market, biotech is an obvious place to take short positions if they feel it is now expensive and investors have been hiding out there for too long.

That’s fuelled speculation that the sector is seeing the same kind of speculative behaviour that contributed to the popping of both the biotech and dot-com bubbles in 2000.

The good news is that investors now seem to have a better understanding about the differences between discoveries and marketable products. The U.S. Food and Drug Administration is also helping out by approving more therapies at a much faster pace than they have in the past and Obamacare is proving to be a bit of a tailwind for the biotech and pharma industry

“We may not be curing cancer,” said Paul Taylor, chief investment officer, asset allocation, at BMO Global Asset Management. “But we are seeing some fairly meaningful developments in terms of extending lives and dealing with the big issues that ail the aging population.”

There seems to be no signs of slowing down