The pharmaceutical industry and exchange traded funds are poised for some big changes as President Barack Obama closes loopholes and drug companies change drug development tactics.

This weekend, Obama closed the “doughnut hole” in Medicare Part D coverage, which will cut the costs of drugs for seniors. The Pharmaceutical Research and Manufacturers of America agreed to reduce its draw of revenues by $80 billion over 10 years and cut the cost of medicine in the program by up to 50%, reports Stephanie Condon for CBS News. Perhaps it could spur more drug spending if many people were holding off on buying certain prescription drugs because of cost issues.

Meanwhile, the industry is changing its approach to drug development, which could lead to more profitability if it proves successful. The Food and Drug Administration is pushing to take a new angle and focus on genetic triggers that cause disease. A decade ago, the aim was for drug companies to develop pills that could be marketed to millions of patients, explains Jeanne Whalen for The Wall Street Journal.

But if drug companies can find and fix the genetic switches that make people sick, companies such as Novartis believes it will find truly effective drugs that patients need — and that insurers are willing to pay for. This will act as a segue, identifying rare diseases and using them as an entrance to identify and treat more common ones.

The major advances in genetics and biology research have made this approach to pharma care possible, thanks to technology that gives scientists the ability to pick apart the causes of many illnesses.

  • PowerShares Dynamic Pharmaceuticals (PJP): down 5.9% year-to-date

  • iShares Dow Jones US Pharmaceuticals (IHE): down 0.8% year-to-date

  • SPDR S&P Pharmaceuticals (XPH): down 3.5% year-to-date

For more stories on health care, visit our pharmaceutical category.

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.