Drug Stocks and the Health Insurance Bill

The health insurance bill signed into law this week should be a net positive for drug stocks and health care ETFs.

While the bill does levy about $80 billion in various fees on the major pharmaceutical players over the next several years, it should also stoke sales by expanding drug insurance coverage as an additional 32 million Americans add health insurance.

Other drug industry benefits in the bill include an extension of the period of market exclusivity for makers of biologic therapies, which are far more expensive to manufacture than traditional medications, to 12 years.

What wasn’t in the bill also helps drug stocks.  For example, the bill does not call for drug price controls or the importation of cheaper drugs from other countries, two possible scenarios that had clouded the future of the industry.

Stock prices for several large drug makers jumped after the bill’s signing, benefiting exchange traded funds with large allocations to pharmaceutical companies.

The Health Care Select Sector SPDR Fund (XLV) has several large positions in drug stocks including Pfizer(10.7%), Merck (9.2%) and Bristol Meyers Squibb (3.5%).

The iShares Dow Jones U.S. Sector Healthcare Index fund (IYH) also has large exposure to pharmaceutical stocks including Pfizer, Merck, Bristol Meyers Squibb and Gilead Sciences.

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