If there are any sector risks to prioritize, some industry experts point to larger biotechnology companies, who particularly face more regulatory scrutiny.

“Investors face the potentially negative impact of regulatory measures, such as the Affordable Care Act, on the health care sector, along with heightened pricing scrutiny on drugs and health care products in general,” says Kevin Mahn, chief investment officer at Hennion & Walsh. “I believe that these risks are primarily borne by large pharmaceutical companies.”

Mahn says that large pharmaceutical companies also face the risk of falling off a “patent cliff” in the upcoming years as several of their larger revenue producing drugs are scheduled to come off patent and face generic competition. “To this end, in 2016 alone, drugs with pre-expiration values totaling a combined $56.4 billion are subject to this aforementioned patent cliff, according to S-Network Global Indexes, Inc.,” he notes.

From Mahn’s perspective, that scenario presents investment opportunities not only for manufacturers of generic drugs but also for biotechnology companies focused on innovation, as big pharmaceutical companies look to acquire these companies to help replace revenue lost to the patent cliff. “As opposed to the multi-pronged focus of large pharmaceutical companies, the primary focus of biotech companies is to develop new and innovative healthcare solutions,” he says.

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