Big pharma will soon lose patents on blockbuster drugs, boosting the market for cheap generic drug producers. Too bad there isn’t an exchange traded fund that tracks global generic drug makers.
The cheap generic drug market could account for $29 billion in total revenue as about 120 drugs lose patent protection in 2013, and EvaulatePharma projects this number will grow ten-fold between now and 2018, reports Seth Robey for The Motley Fool.
Large drug companies have witnessed as much as 70% in lost revenue to increased competition from generic drug companies after patents on their best selling drugs expired.
Moreover, generic drug sales overseas, notably in the emerging markets, could also prove lucrative. For instance, India’s Supreme Court recently set a precedent for generics to be sold in third party emerging markets after denying Novartis (NYSE: NVS) patent protection on its cancer drug Gleevec.
Investors can try to rummage through single pharmaceutical and biotech companies that offer generics, but the majority are small with high degrees of volatility, low profit margins, and stiff competition from established companies. Given the risks of individual picks, a broadly diversified ETF would help lower risk of investing in this sub-sector. [Take A Defensive Approach with a Health Care ETF]
While there are no global generic drug ETFs currently on the market, investors can still track biotech stocks with broad ETFs like the iShares Nasdaq Biotech (NasdaqGM: IBB), Market Vectors Biotech ETF (NYSEArca: BBH), and SPDR S&P Biotech (NYSEArca: XBI), which have experienced returns of over 50% in the past two years. These funds will offer exposure to big biotech and big pharmas that continue to engineer new specialized drug products. [ETF Chart of the Day: Healthcare Sector]
For more information on the healthcare sector, visit our healthcare category.
Max Chen 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.