President Barack Obama’s proposal for health care reform has the biotechnology industry and related exchange traded funds (ETFs) quaking in their boots. Why?
This was the industry that seemed relatively immune to the stock market’s demise. However, many believe that the President’s new proposal will be the kryptonite of the industry. Why? Among their worries:

• The reform will lower prices of drugs through Medicare and Medicaid which will eat away at profits.
• It will allow the re-importation of prescription drugs from outside the United States
• It will accelerate the approval of generic drugs and alter the tax code to limit the ability of U.S. companies to prevent overseas profits from taxation.

This is all really just hand-wringing, though, because the industry is gripped with uncertainty and fear, states Adam Fuerestein of the Street.

Of all the big money makers in the biotech industry, Amgen (AMGN) could potentially be affected by this reform by the tax implications. Currently, the biotech giant pays roughly 20% in taxes based on its heavily concentrated overseas business. Celgene (CELG), on the other hand, relies heavily on sales derived from Medicare patients, so the reform can take a bite out of their bottom line.

Genentech (DNA) could possibly suffer from the lower prices of Medicare drugs as well; after all 45% of the company’s revenue is derived from Medicare patients. The aforementioned are just a few of the many biotech companies that could potentially be affected by this reform.

On the other hand, some of Obama’s policies could wind up benefiting the biotechnology industry, including:

• The support of research and development and the idea of tax credits for research
• He supports embryonic stem cell research

From an index perspective, an ETF that could be influenced is Biotech HOLDRs (BBH), which was down 9% over the last week and 6.8% year-to-date; DNA is 45.7%.

A second ETF that may be influenced is the SPDR S&P Biotech (XBI), which was down 11.43% over the last week and 15.2% year to date; DNA is 4.7%, AMGN is 4.6%

Tags: BBH, Biotechnology, Health Care, Obama, Sector ETFs, Technology, XBI