The pharmaceutical sector has been slowly but steadily
recovering from the impact of the patent cliff that had affected
the performance of several companies over the past few years. The
worst of the patent cliff is over and the NYSE ARCA Pharmaceutical
Index is up almost 21% over the last year. So far in 2014, the
index is up 8.8%.
Several companies which had been struggling to post growth in the
face of genericization over the past few years are now on the
recovery path and should see a sustained improvement in results
this year. New products should start contributing significantly to
results, and increased pipeline visibility and appropriate
utilization of cash should increase confidence in the sector.
ETFs to watch as Obamacare hits deadline
Collaborations, Acquisitions and Restructuring
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.
Therapeutic areas attracting a lot of interest include oncology,
central nervous system disorders, diabetes and
immunology/inflammation. The hepatitis C virus (HCV) market is also
attracting a lot of attention. Generic companies are also looking
towards pharma companies to boost their branded product segments.
ny survivors from the Biotech meltdown?
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.
Restructuring activities are also gaining momentum as large pharma
companies are looking to cut costs and streamline operations. Most
of these companies are re-evaluating their pipelines and
discontinuing programs which do not have a favorable risk-benefit
Of late, several companies have been looking towards Ireland for
acquisitions. Tax benefits are a major attraction for such deals.
The pharma industry is also targeting 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. (Read:
ETF sector rotation: Industrials out, Healthcare
New Drugs to Drive Growth
Several important products gained approval last year including type
II diabetes drug Invokana, Liptruzet (cholesterol), Fetzima (major
depressive disorder), Imbruvica (mantle cell lymphoma), Gazyva
(chronic lymphocytic leukemia), and Olysio (HCV). Drugs like
Imbruvica represent strong commercial potential.
April should be an active month with the FDA expected to deliver a
response on the approvability of experimental drugs like Eperzan
(type II diabetes) and Arzerra (CLL).
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 Pharma 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 include Johnson &
Johnson (5.54%), Amgen (5.30%) and Pfizer (5.19%). The total assets
of the fund as of Apr 1, 2014 were $1,157.9 million representing 29
holdings. The fund's expense ratio is 0.63% while dividend yield is
0.41%. The trading volume is roughly 162,395 shares per day.
SPDR S&P Pharmaceuticals ETF (
XPH, launched in Jun 2006, tracks the S&P Pharmaceuticals
Select Industry Index. This ETF has a mix of pharma and biotech
stocks with the top 3 holdings being Horizon Pharma Inc. (3.80%),
Questcor Pharmaceuticals, Inc. (3.79%) and Johnson & Johnson
Total assets as of Apr 1, 2014 were $868.66 million representing 36
holdings. The fund's expense ratio is 0.35% and dividend yield is
0.66%. The trading volume is roughly 78,086 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 (99.87%). Short term
securities and other/unidentified investments account for 0.09% and
0.04% of the fund, respectively.
The top 3 holdings of this fund are large-cap pharma companies are
Johnson & Johnson (12.82%), Pfizer (10.79%) and Merck (9.46%).
The total assets of the fund as of Apr 1, 2014 were $669.7 million
representing 38 holdings. The fund's expense ratio is 0.45% with
the dividend yield being 0.77%. The trading volume is roughly
28,260 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 (9.44%),
Novartis (8.98%) and Pfizer (7.40%). The total assets as of Apr 2,
2014 were $311.5 million representing 26 holdings. While the
expense ratio is 0.35%, dividend yield is 1.80%. The trading volume
is roughly 39,089 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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