How a New SCOTUS Ruling Could Affect Pharma ETFs

The VanEck Vectors Generic Drugs ETF (NasdaqGM: GNRX) traded slightly higher Tuesday after the U.S. Supreme Court issued what some industry observers are calling a mixed ruling on expediting the availability of lower-cost equivalents to high-priced biotechnology drugs.

“The justices said patent holders can’t use federal law to enforce a requirement that companies seeking to sell ‘biosimilars’ provide information about their product. The unanimous court, however, said patent holders might be able to use state law to accomplish the same goal,” reports Greg Stohr for Bloomberg.

GNRX tries to reflect the performance of the Indxx Global Generics & New Pharma Index, which tracks a number of global drug makers that generate significant revenue stream from generic drug sales.

When a pharmaceutical company develops a drug, a patent is filed on the new drug, which typically expires 20 years from the date of filing. As patents expire, generic drug providers can step in to the market at a significant discount.

Looking ahead, the biologics patent cliff over the next decade could add to a new group of affordable generics or so-called biosimilars. Biologics are drugs derived from animal or other biological sources to treat diseases, as opposed to chemically based pharmaceuticals.