Pharmaceutical Industry Expected To Collect Billions From Obamacare

Despite the technical difficulties and the government shutdown, the Affordable Care Act has launched in most states with others soon to follow.

Primary beneficiaries of the Affordable Care Act are the previously uninsured, who will now enjoy more affordable access to healthcare.

The Affordable Care Act is expected to add 30 million new individuals to insurance rolls. The Congressional Budget Office reported that healthcare spending will rise to 22 percent of GDP by 2038, from 16.4 percent at 2011.

With the healthcare spending on the rise, the pharmaceutical industry is expected to have $10 billion to $35 billion of additional profit over the next decade, according to Forbes.

Listed below are some prospective gainers from the Affordable Care Act.

1. Giants: Abbvie (NYSE:ABBV), Lilly (NYSE:LLY), Merck (NYSE:MRK), Pfizer (NYSE:PFE)

These companies mostly produce product under patents and are generally considered to be reliable. The companies also tend to buy smaller companies during the development and approval cycles allowing them to have a constant supply of new patents.

2. Generics: Actavis (NYSE:ACT), Abbott (NYSE:ABT), Perrigo (NYSE:PRGO), Teva (NYSE:TEVA)

These companies profit from products after patent expiration. Shares tend to lose value when a newly patented medicine replaces a generic brand. These companies may have the most to gain from the Affordable Care Act.

3. Startups: Celldex (NASDAQ:CLDX), Alynylam (NASDAQ:ALNY), ISIS (NASDAQ:ISIS), Array (NASDAQ:ARRY)

Most startups and small companies are research shops that develop few specialized drugs. These companies can take wild swings in value from FDA approvals or rejections.

4. ETFs: iShares Dow Jones US Pharm Index (NYSE:IHE), PowerShares Dynamic Pharmaceuticals (NYSE:PJP), SPDR S&P Pharmaceuticals (NYSE:XPH)

IHE and PJP are primarily comprised of the big names such as Pfizer (NYSE:PFE) and Merck (NYSE:MRK), while XPH leans more towards the small- and medium-sized companies.

Pharmaceutical companies are tough to invest in due to high rates of mergers and acquisitions, licensing/patents and FDA approvals. Since the development process of the new products is not completely clear, many investors see most pharmaceutical companies as a gamble.

All ETFs have year to date returns in the double digits. XPH, with its small-cap focused strategy, is up more than 40 percent this year.