Pharma & Biotech ETFs Soar On Trump's Drug Plan

The pharma sector has so far seen rough trading this year, underperforming the S&P 500. The broader pharma fund SPDR S&P Pharmaceuticals (NYSE:XPH) ETF (HN:XPH) has lost 6.3% in the year-to-date frame (as of May 11, 2018) while SPDR S&P ETF (AX:SPY) is up 1.5%.

It is against this backdrop that the sector waited with bated breath for President Donald Trump’s drug plan on Friday. The companies dreaded some harshest presidential policies to curb high drug prices as he had once criticized drugmakers of “getting away with murder” by charging too much for their products (read: Trump Attacks Biotech & Pharma: ETFs Bleed).

However, as opposed to the prevailing apprehensions, President Donald Trump revealed his "American Patients First” plan on Friday to lessen drug prices in a way that doesn’t appear as a threat to drugmakers. Rather, the plan gave shares of pharma companies a shot in the arm.

Inside the Blueprint

Trump seeks to push competition for medicines, lower list prices and patients’ out-of-pocket costs. Still the administration keeps in place — and in some cases extends — the role of pharmacy middlemen who were held responsible for many problems with drug costs. The government is also cutting down “regulatory burdens so drugs can be gotten to the market quicker and cheaper.”

Furthermore, the Trump administration wants the drug companies to display prices in ads and restrict “gag clauses” for pharmacists. The proposal comes in connection with some contracts between pharmacies and pharmacy benefit managers (PBM) that don’t allow pharmacists to let patients know if a drug would be cheaper on the cash counter than on their insurance.

Moreover, sometimes drug companies offer rebates off the list price to insurers and employers that are not passed on to consumers in reality. The Trump administration now intends to examine if “it should consider rebates to be a form of illegal kickback.”

Trump’s plan also intends to put pressure on U.S. trading partners and pay more for medicines. Trump believes American consumers pay for the major share of drugmakers’ research and development costs, which makes drug prices so high in the United States. Drug prices in the United States are sometimes three times as much as in the U.K. and the E.U. and the President thinks these countries should now bear the burden of their share of the R&D costs.

In a nutshell, the absence of ideas like letting the government’s Medicare plan for older Americans negotiate prices directly with drugmakers and permitting U.S. consumers to import lower-cost medicines from abroad actually pushed drug and biotech stocks higher (read: New Pharma ETF PILL : What Investors Need to Know).

Below we highlight the pharma and biotech ETFs that gained substantially on May 11.

Direxion Daily Pharmaceutical & Medical Bull 3X (SNX:PILL) – Up 8.50%

Alps Medical Breakthroughs ETF (SI:SBIO) – Up 3.02%

PowerShares Dynamic Biotech & Genome Portfolio PBE – Up 3.00%

PowerShares Dynamic Pharmaceuticals Portfolio (WA:PJP) – Up 2.86%

SPDR S&P Pharmaceuticals ETF (HN:XPH) – Up 2.66%

iShares U.S. Pharmaceuticals ETF IHE – Up 2.53%

First Trust Nasdaq Pharmaceuticals ETF FTXH – Up 2.50%

DWA Healthcare Momentum Portfolio (HN:PTH) – Up 2.30%

VanEck Vectors Generic Drugs ETF GNRX – Up 2.19%

VanEck Vectors Pharmaceutical ETF (AX:PPH) – Up 1.60%

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