Exchange traded funds (ETFs) targeting the pharmaceutical sector can’t seem to win: some companies are getting dinged by a consumer rush to generics, while others are getting hit because some people don’t want to shell out the money for any drugs, period.

For the first time in a decade, consumers are trying to get by on fewer drugs as they try to make tough choices between food, gas and medication. Often, medication loses out, reports Stephanie Saul for the New York Times. Through August, the number of drugs dispensed has been lower than the number dispensed in the first eight months of 2007.

Not only does this hurt the pharmaceutical industry, but what are now controllable conditions could wind up becoming major, expensive medical problems if people forgo their medications. It’s not an ideal situation when the cost of health care in this country is already sky high.

When people are sticking with their drugs, increasingly, they appear to be going generic. Over the past year, the ETFI Global Generic Drug Index has outpaced the Healthcare Select Sector SPDR (XLV), the PowerShares Dynamic Pharmaceuticals (PJP) and the iShares Dow Jones U.S. Pharmaceuticals (IHE).

The five top-rated generic drug companies are actually outside the United States, so a global generic drug ETF will provide the necessary exposure, reports Mike Havrilla for Seeking Alpha.

Trends that support the generic drug industry include:

  • $70 billion-plus in brand-name drug sales with the threat of generic competition through 2012
  • A general push to increase generic substitution rates to 65% of all prescriptions dispensed to more than 70%, saving money for the consumer and the government
  • Next year has potential legislation for generic versions of high-cost biological agents

XLV is down 22.3% year-to-date.

Pharmaceutical Exchange Traded Funds (ETFs)

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.