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Help From the Hill Could Add to Pharma ETFs’ Gains


Congress is working on reform legislation in the pharmaceutical industry to stomp out copycat drug makers, lifting large pharmaceutical stocks and related exchange traded funds.

The SPDR S&P Pharmaceuticals ETF (XPH) was the best performing non-leveraged ETF over the past week, gaining 9.2%. XPH is up 55.1% year-to-date.

On Tuesday, the Senate voted 97 to 1 to advance the Drug Quality and Security Act (H.R. 3204), according to TheStreet.

The bill places compounding pharmacies under Food and Drug Administration review, which will offer greater drug oversight and potential enhance the safety and quality of medicines in the U.S.

Compounding pharmacies alter ingredients to create customized medications for specific patients. Under the proposed regulations, these pharmacies would not be able to copy widely available, FDA-approved drugs.

If the bill is signed into law, large pharmaceutical companies could see sales rise as compounding pharmacies are prohibited to copy approved drugs.

Firms that meet quality standards will not be able to routinely produce drugs that are “essentially a copy of a marketed drug,” language important to drug manufacturers, writes Jill Wechsler for Pharmaceutical Technology.

Kapitall points to three biotech and drug manufacturers with FDA-approved drugs that stand to benefit from the new legislation: Forest Laboratories (FRX), which develops, manufactures, and sells branded and generic ethical drug products; Allergen (AGN), which operates as a speciality healthcare company; and Bristol-Myers Squibb (BMY), which develops and delivers medicines that help fight serious diseases.

Looking at XPH’s holdings, FRX is 3.8%, AGN is 3.5% and BMY is 4.0%.

Other pharmaceutical ETFs include:

  • PowerShares Dynamic Pharmaceuticals Portfolio (PJP) : up 48.3% year-to-date; FRX is 3.2%; AGN is 2.8%; BMY is 5.8%
  • iShares U.S. Pharmaceuticals ETF (IHE) : up 37.0% year-to-date; FRX is 2.9%; AGN is 4.2%; BMY is 7.1%
  • Market Vectors Pharmaceutical ETF (PPH) : up 31.8% year-to-date; FRX is 2.3%; AGN is 4.4%; BMY is 5.5%
  • RBS Global Big Pharma ETN (DRGS) : up 27.4% year-to-date; FRX is 3.2%

For more information on the pharma sector, visit our pharmaceuticals category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.