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 In fact, low prices that define generic drugs may be the ETF's
biggest stumbling block, analysts said this week.
The Market Vectors Generic Drugs ETF, which fund manager Van Eck
Associates Corp launched with $2.5 million in assets on Jan. 12, has
fallen 5 percent through Wednesday and has failed to attract even $1
in new money, according to Lipper.
The iShares Global Healthcare ETF, with three-quarters of its
portfolio in pharmaceutical and biotech stocks, fell only 0.9
percent.
The Market Vectors fund, which tracks the Indxx LLC-built generic
index, is the only U.S. ETF built on shares of generic drugmakers,
which have been languishing.
Attacks on soaring drug prices by Democratic presidential
frontrunner Hillary Clinton and other politicians have failed to
boost profits on cheaper alternatives to patented branded drugs.
Distributors like Walgreens Boots Alliance Inc are squeezing prices
of generics.
"Generic drugs are essentially commodity products chosen on cost and
as the purchasers consolidate and exert their leverage we would
expect downward pressure," said Michael Levesque, analyst for
Moody's Corp.
"There is a lot of discussion around drug-pricing reform and
different initiatives such as letting Medicare negotiate drug
pricing, but none of those become a reality unless Congress
implements them through the passage of a law, and that has not
happened despite the statements in campaigns."
Mylan NV, the Market Vectors ETF's fifth-largest holding, is off 16
percent this year after posting weak results and as investors panned
the company's deal to acquire Swedish rival Meda AB. Another top
holding, Endo International PLC, is off 29 percent this year in part
after February earnings were dented by pricing pressure on its
generic drugs.
Two of the Market Vectors fund's top three holdings, Allergan Plc
and Teva Pharmaceutical Industries Ltd, have lost value this year,
while the third, Sun Pharmaceutical Industries Ltd, has risen 6
percent.
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Enthusiasm has faded for biosimilars, drugs designed to have
properties similar to those licensed previously, during the long
wait for U.S. regulatory approval.
Only one biosimilar, by Novartis AG, has come on the U.S. market.
The treatment for chemotherapy side effects, designed to rival Amgen
Inc's Neupogen, has been less successful than investors such as Andy
Acker, manager of the Janus Global Life Sciences Fund, had expected.
Amgen is Acker's top holding.
Celltrion Inc, a top-10 holding of the Market Vectors generic ETF,
backs a biosimilar drug expected to win approval. The stock has
rallied 30 percent this year, but that has not been enough to make
up for losses in the ETF's other stocks.
Indxx LLC, whose index the Market Vectors generic ETF tracks, said
15 percent of the fund's returns come from companies that stand to
profit from biosimilars, and that just half of its return comes from
U.S. companies.
"You tend to see a lot of companies get caught up in" market
selloffs, said James Duffy, ETF product manager for Van Eck. "This
is an area that we feel may have the potential to drive a lot of
growth in the near future."
(Reporting by Trevor Hunnicutt, additional reporting by Lewis
Krauskopf; Editing by Richard Chang)
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