The Bulls May Prevail: Pharmaceutical ETFs

May 13th at 2:00pm by Tom Lydon

Wouldn’t it be nice to know exactly how the health care bill will affect pharmaceutical companies? Since we don’t, let’s take a look at the state of the biomedical sector and how related exchange traded funds (ETFs) may perform.

Industry executives are sending mixed signals, reports Carol Kopp of Minyanville. On the one hand, they are making a ruckus about how the newly minted health care bill will take a huge chunk out of future earnings. Bristol-Myers Squibb said that 2010 earnings will be cut by $0.12 a share, or $300 to $400 million in revenue. [Biotech ETFs to Watch.]

On the other hand, according to The New York Times, the industry spent $100 million lobbying for health reform. Complaints aside, the expansion of health care will bring in 32 million uninsured people. That’s potentially 32 million more prescriptions that the pharmaceuticals can sell. The question is, which side will win the tug-of-war on earnings growth? [What to Look for in Health Care ETFs.]

Kopp thinks that global growth will be the engine that drives the biomedical sector to continued growth. Pharma products to emerging markets are forecast to grow at 14 to 17 percent over the next five years, with China becoming the third largest market behind the United States and Japan.

In summary, Kopp thinks that the expansion of health care in addition to global growth will be more than enough to offset the costs incurred by biomedical companies.

For more stories on the health care bill, visit our health care category.

  • iShares Dow Jones U.S. Pharmaceuticals (IHE)


  • PowerShares Dynamic Pharmaceuticals (PJP)


  • SPDR S&P Pharmaceuticals (XPH)

Sumin Kim contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.