Generic Drugs: Life In The Fast Lane

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Includes: ARBQY, GNRX, MYL, TEVA
by: VanEck

With the 2016 U.S. presidential election in full swing, the candidates will surely continue to debate how best to rein in healthcare costs. Recent headlines, like those covering the huge price increases proposed by Turing Pharmaceuticals, have only ratcheted up the temperature in an already heated campaign season.

But what may be getting lost amid the election noise is the actions regulators, particularly the Food and Drug Administration (FDA), are already taking to help create cost savings through competition. The FDA's focus has been on the approval process of Abbreviated New Drug Applications (ANDA), which may allow generic drug companies to benefit from expedited drug approvals.

On Friday (3/11/16) the FDA's Office of Generic Drugs (OGD) announced a prioritization of the review of ANDA submissions. At the top of the list of priorities are potential first generic products, whose reference listed drugs do not have any blocking patents or exclusivities.1 Many view this as the FDA's response to Turing Pharmaceuticals, which proposed raising the current price of its drug Daraprim from $13.50 per pill to $750 per pill. Other companies may consequently think twice before pursuing price hikes of their own.

First Generics Seen as Public Health Priority

The FDA's action also comes less than two months after Dr. Janet Woodcock, Director at the FDA's Center for Drug Evaluation and Research, gave testimony to the Senate Committee on Health, Education, Labor and Pensions on the implementation of the Generic Drug User Fee Amendments of 2012. During her testimony, Dr. Woodcock cited the importance of "first generics," stating that "We consider 'first generics' to be public health priorities as they can lead to increased patient access." The announcement by the FDA officially transformed into an agency policy, the process of expediting first generic applications, which Dr. Woodcock compared to "an express lane at the supermarket."

Dr. Woodcock also cited some of the significant first generic approvals of 2015, including some drugs that are manufactured by companies held by Market Vectors® Generic Drugs ETF (NASDAQ:GNRX).

Brand Name Generic Name Indication Generic Company % of GNRX
As of 3/16/16
Abilify Aripiprazole Bipolar Disorder Teva 8.15%
Zyvox Linezolid Pneumonia Mylan 4.88%
Integrilin Eptifibatide Heart Attack Aurobindo 1.33%
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IMPORTANT DISCLOSURE

1 Office of Generic Drugs MAPP 5240.3 Rev. 2

An investment in Market Vectors® Generic Drugs ETF (GNRX) may be subject to risks which include, among others, the development, protection and exploitation of intellectual property rights, expiration of patents and inability to enforce intellectual property rights, significant costs associated with research and development and speculation that those investments will result in profitable products, arduous regulatory approval processes, rapid and significant technological change, uncertainty of reimbursement status by third-party payers such as Medicare, Medicaid and private health insurance plans. Foreign and emerging markets investments are subject to risks, which include changes in economic and political conditions, foreign currency fluctuations, changes in foreign regulations, changes in currency exchange rates, unstable governments, and limited trading capacity which may make these investments volatile in price or difficult to trade. Medium-capitalization companies may be subject to elevated risks. The Fund's assets may be concentrated in a particular sector and may be subject to more risk than investments in a diverse group of sectors.

Fund shares are not individually redeemable and will be issued and redeemed at their Net Asset Value (NAV) only through certain authorized broker-dealers in large, specified blocks of shares called "creation units" and otherwise can be bought and sold only through exchange trading. Creation units are issued and redeemed principally in kind. Shares may trade at a premium or discount to their NAV in the secondary market.

Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contains this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.