A Comprehensive Guide to Pharma ETFs - ETF News And Commentary

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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 ETFs )

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 Industrial ETFs )

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.

Emerging Markets

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 wide margin.

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 Here )


Powershares Dynamic Pharmaceuticals ETF ( PJP )

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 )

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 )

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 )

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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , ETFs

Referenced Stocks: IHE , PJP , PPH , XPH

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