Health Care Reform And Biotech ETFs: Will There Be Opportunities?

In an attempt to reduce costs in the health care industry, the government will be legislating for cheaper drugs, but drug makers, along with related exchange traded funds (ETFs), may see profits slip away.

The Obama administration claims that biologic drugs should be subject to generic competition after seven years, citing the potential for reducing health care costs, Catherine Larkin for Bloomberg. Currently, biologics can’t be copied even if patents have expired because biologics makers say the medicines can’t be replicated like conventional pills can.

U.S. citizens spend more than $60 billion a year on biologic drugs to treat serious illnesses at on average $200,000 for each medicine. Drug makers maintain that the high costs are what allow for cycles in innovative research and development, whereas the Office of Health Reform thinks drug exclusivity will diminish innovation and reduce affordability.

According to the Federal Trade Commission, generic biologics could be sold at 10% to 30% discounts without taking market share away from brand-name companies.

Investing in the biotech sector requires more due diligence than any other sector because of its unpredictable nature and the potential fallout of overly hyped products, remarks Marc Lichtenfeld for Jutia Group. If you are looking into this sector, you may want to be sure that the potential for profits is worth the risks.

• PowerShares Dynamic Biotech & Genome (PBE): up 1% year-to-date

• iShares Nasdaq Biotechnology (IBB): up 1.6% year-to-date

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