With the year coming to an end, the worst of the patent cliff
faced by the pharmaceutical sector in recent times is over.
Although genericization will continue, the major patent expiries
are over and done with. (Read:
Obamacare will be Amazing for these stocks and
Many companies which had faced generic headwinds in the last
couple of years should continue to see a sustained improvement in
results as they move into 2014. Cost-cutting, downsizing,
streamlining of the pipeline, growth in emerging markets and new
product launches should support growth. Meanwhile, increased
pipeline visibility and appropriate utilization of cash should
increase confidence in the sector.
Acquisitions & Divestments
Acquisitions as well as divestments will continue in the pharma
sector with several companies pursuing bolt-on acquisitions,
in-licensing deals and collaborations for the development of
pipeline candidates. The in-licensing of promising mid-stage
candidates by big pharma companies has gone up significantly -
this makes sense as it helps the companies cut down on the time
and cost involved in developing a product from scratch.
A major part of the in-licensing activity is focused on
therapeutic areas like oncology, central nervous system
disorders, diabetes and immunology/inflammation. The hepatitis C
virus (HCV) market is also attracting a lot of attention.
Another recent trend is the divestment/monetization of non-core
assets so that the companies may focus on their core areas of
expertise. Biosimilars are also a focus area. (Read: P
lay Surging US Manufacturing with these
Restructuring activities are also gaining momentum as large
pharma companies are looking to cut costs and streamline their
operations. Most of these companies are re-evaluating their
pipelines and discontinuing programs which do not have a
favorable risk-benefit profile.
The pharma industry has also been looking towards emerging
markets for growth. However, bribery investigations on some
pharma companies in China, one of the most promising emerging
markets, could put a lid on near-term growth.
New Drugs to Drive Growth
Several important products have gained approval so far this year
including oral multiple sclerosis drug Tecfidera, type II
diabetes drug Invokana, Liptruzet (cholesterol), Fetzima (major
depressive disorder), Imbruvica (mantle cell lymphoma), Gazyva
(chronic lymphocytic leukemia) and Sovaldi (HCV). Tecfidera is
off to a strong start with its sales surpassing expectations by a
Pharma ETFs in Focus
Highlighted below are some pharma ETFs - ETFs present a low-cost
and convenient way to get a diversified exposure to the sector.
(See all Healthcare ETFs
Powershares Dynamic Pharmaceuticals ETF (
PJP, launched in Jun 2005 by Invesco PowerShares, tracks the
Dynamic Pharmaceuticals Intellidex Index. The fund covers only
health care stocks. The top 3 holdings are large-cap biotech
companies, Celgene (5.21%), Gilead Sciences, Inc. (4.99%) and
Amgen (4.96%). The total assets of the fund as of Dec 10, 2013
were $901.1 million representing 30 holdings. The fund's expense
ratio is 0.63% while dividend yield is 1.03%. The trading volume
is roughly 203,608 shares per day.
SPDR S&P Pharmaceuticals ETF (
XPH, launched in Jun 2006, tracks the S&P Pharmaceuticals
Select Industry Index. This ETF is totally dedicated to the
pharma sector with the top 3 holdings being Endo Health Solutions
Inc. (4.83%), Santarus, Inc. (4.66%) and Jazz Pharmaceuticals
Public Limited Company (4.30%).
Total assets as of Dec 6, 2013 were $702.6 million representing
32 holdings. The fund's expense ratio is 0.35% and dividend yield
is 0.71%. The trading volume is roughly 55,295 shares per day.
iShares U.S. Pharmaceuticals (
IHE, launched in May 2006, seeks investment results that
correspond generally to the price and yield performance, before
fees and expenses, of the Dow Jones U.S. Select Pharmaceuticals
Index. The fund mainly consists of pharma companies (99.72%).
Short term securities and other/unidentified investments account
for 0.15% and 0.12% of the fund, respectively.
The top 3 holdings of this fund are large-cap pharma companies
are Johnson & Johnson (10.41%), Pfizer (9.53%) and Merck
(7.77%). The total assets of the fund as of Dec 9, 2013 were
$550.9 million representing 39 holdings. The fund's expense ratio
is 0.45% with the dividend yield being 1.12%. The trading volume
is roughly 13,464 shares per day.
Market Vectors Pharmaceutical (
PPH was launched in Dec 2011 and tracks the Market Vectors U.S.
Listed Pharmaceutical 25 Index. The top 3 holdings of this fund
are large-cap pharma companies - Johnson & Johnson (9.04%),
Novartis (7.23%) and Pfizer (7.09%). The total assets as of Nov
30, 2013 were $257.0 million representing 25 holdings. While the
expense ratio is 0.35%, dividend yield is 4.24%. The trading
volume is roughly 21,930 shares per day.
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ISHARS-US PHARM (IHE): ETF Research Reports
PWRSH-DYN PHARM (PJP): ETF Research Reports
MKT VEC-PHARMA (PPH): ETF Research Reports
SPDR-SP PHARMA (XPH): ETF Research Reports
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