WebMD Problems Reflect Those Of Drug Sector

by: Dana Blankenhorn

The fact that WebMD (NASDAQ:WBMD) is looking weak is not news. But the perfect storm of bad news enveloping the company says more about the industry sector they cover than their own failure to execute.

You lose your CEO, you stop talking about a sale, and you issue weak guidance. Ouch. But take comfort in the fact that you weren't the only person blindsided. So, reportedly, were George Soros and Carl Icahn.

But look at who is getting the blame for this, from the company's own press release:

The loss of patent exclusivity is not only impacting the marketing expenditures related to the products facing the loss of patent protection, but it is also having a greater than previously anticipated impact on marketing expenditures across entire product portfolios of some pharmaceutical companies.

It's not just branded drugs like Lipitor going generic. It's also research showing a lot of popular preventives just don't work. Like nicotine patches and gum, made by Glaxo SmithKline (NYSE:GSK). Like niacin to reduce cholesterol , hurting Abbott Labs' (NYSE:ABT) Niaspan.

Blame health reform. Insurers and government want proof supplements work before spending money on them. Ordinary dietary supplements, used routinely for years, are now being openly questioned.

And this attitude extends to all kinds of prophylactic or preventive medicines, which have been big money-makers for companies like Pfizer (NYSE:PFE) for years. These studies are causing sales to fall despite extensive industry push-back, both formal and informal.

Fact is, drug companies have a lot more to worry about than trying to goose sales. From the contamination problems faced by Novartis (NYSE:NVS) to the continuing succession of recalls faced by Johnson & Johnson (NYSE:JNJ) , hits to the industry just keep on coming.

So don't look at WBMD's problems as being isolated. See them as an opportunity to look more critically at all these companies, as well as ETFs like IHE, PJP and XPH that cover the space.

Fasten your seat belts in the pharma business. It's going to be a bumpy night.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I notice when stories come back that the links I put into stock pages at SA disappear. Should I be putting them in, or just putting in the stock symbols?

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