Pharma ETFs in Focus: Obama’s Reform and Swine Flu’s Sting

by on June 23, 2009 | ETFs Mentioned:

With swine flu news coming and going from the headlines in recent months, many investors have kept a close eye on pharmaceutical ETFs, anticipating that a global health scare could have a significant impact on the performance of funds holding various domestic and international health companies. This week president Obama, who has dedicated the first five months of his term to addressing the economic crisis, turned his attention to healthcare reform, further intensifying Wall Street’s focus on this sector.

Pharma’s $80 Billion ‘Gamble’

On Monday, Obama announced that major drug manufacturers will contribute $80 billion over the next ten years in an effort to narrow the gap in Medicare prescription drug coverage, a critical early step in the administration’s bid to overhaul the country’s healthcare system. The so-called “gap” refers to the fact that under benefit plans approved in 2006, many senior citizens are forced to cover the cost of their own prescriptions once they have received about $2,700 worth of drugs. Once the total spend reaches $6,100 per patient, “catastrophic” coverage kicks in and covers nearly all prescription drug expenses.

After weeks of deliberations, the Pharmaceutical Research and Manufacturers of America (PhRMA) voted to dedicate $80 billion to lowering prices of drugs sold to senior citizens and the government, part of their effort to convince legislators that their support for widespread healthcare reforms is sincere. While this voluntary contribution seems highly unusual, particularly in such difficult economic times, it doesn’t necessarily equate to just throwing cash down the tubes. Larry Rothman analyzes the development from an interesting perspective, noting that big pharma companies would stand to reap tremendous benefits if the country’s huge uninsured population becomes covered by a plan encompassing prescription drug costs.

On Tuesday, in his fourth press conference since taking office, Obama is expected to throw his support behind health care reform bills currently making their way through Congress. Despite the solid democratic majorities in both the House and Senate, many pundits have been speculating that the costs of proposed reform, which early estimates have put near $1 trillion, may make passage of the bills difficult. While Obama’s tone towards Iran may be the most thoroughly analyzed segment of Tuesday’s briefing, his attempts to bolster support for healthcare reform will be carefully watched as well.

Swine Flu: Still Hanging Around

Elsewhere in the pharmaceutical sector, swine flu continues to be a critical area of development despite a relative lack of media coverage in the weeks following the WHO’s declaration of a pandemic. Douglas Cress reports that firms are continuing to work away on an effective vaccine in the event the disease returns with flu season later this fall, as many analysts fear it might. Cress notes that two pharmaceutical firms, China’s Sinovac Biotechnology and Baxter International (based in Illinois) have emerged as the frontrunners in a race to find a cure, with Sinovac expected to complete a clinical trial by the end of July and Baxter indicating it will be able to begin filling orders as early as next month. Baxter has a significant presence in a number of pharmaceutical ETFs (including PowerShares Dynamic Pharmaceutical Portfolio – PJP), while Sinovac is a constituent of many China ETFs (including PGJ).

PJP Investors Are Keeping A Close Eye On Healthcare Reform Developments

Disclosure: No positions.