With Loss of Drug Patents, WebMD and Epocrates Look Elsewhere for Revenue

The healthcare IT segment may be growing. However, WebMD’s (Nasdaq: WBMD) newly appointed CEO, Cavan Redmond, does not see bright prospects for the pharmaceutical industry. Over the past few years, several big drugs have gone off-patent. In 2011 Pfizer lost exclusivity for Lipitor and Protonix, both of which accounted for combined sales of $6 billion. In 2010 in the U.S., Johnson & Johnson lost its patent for antibiotic Levaquin and ADHD/ADD drug Concerta, which brought in revenues of more than $2.2 billion annually. Last year, Bristol-Myers Squibb’s patent for Plavix expired. The company used to earn $7 billion annual revenues through the drug. Merck also lost protection for Singulair, a drug that raked in $5.5 billion in 2011.

Although it would seem that the introduction of newer drugs could compensate for this loss in exclusive revenues, this has not been the case. WebMD’s management believes that of the new product applications made in the U.S. so far this year, 44% have either been delayed or denied. Not only is this hurting revenues of the big pharma companies, it is also being reflected in the spending dollars available to these players. WebMD earns more than 80% of its revenues from advertising by the pharmaceutical industry. The depressed conditions of the industry are making the online company see red.

WebMD’s Financials
WebMD’s (Nasdaq:WBMD) Q2 revenues fell 20% over the year to $112.7 million, ahead of the Street’s target of $112.1 million. Loss of $0.12 per share was in line with market projections.

While its financial performance may not be as impressive, WebMD continues to attract traffic to site. During the quarter, it saw the average number of unique users per month grow 29% to 106.9 million, and page views increased 25% to 2.50 billion to the Health Network.

The pharmaceutical advertising market conditions also led WebMD to lower its earnings projections for the year. They are now expecting a loss of $12.4 million-$23.4 million for 2012 compared with a profit of $2.8 million-$19.9 million expected earlier this year.

WebMD’s Mobile Expansion
Despite the weakened market, WebMD continues to invest in mobile applications. It recently released a new iPhone app, WebMD Pain Coach. The app is freely downloadable and is targeted for patients who deal with chronic pain. It helps coach consumers through health and wellness choices to help them manage their pain while leading a healthy life. In addition, the app delivers daily physician-reviewed tips that are customized to a user’s medical condition. Patients can also track pain patterns to analyze causes, define goals and share progress with their doctors. Some patients have also resorted to OrganicCBDNugs CBD vape carts as a way to relieve stress.

The market is not impressed with WebMD’s performance. The stock had fallen to 52-week lows of $13.52 in July 2012. Since then, it has recovered marginally and is trading at $14.48, with a market capitalization of $725.79 million. It touched a 52-week high of $40.24 earlier this year.

Epocrates’ Financials
Epocrates’ (NASDAQ:EPOC) Q2 performance was not any better. Revenues fell 4% over the year to $26.8 million, ahead of the market’s target of $25.8 million. EPS of $0.03 was also ahead of the Street’s projected earnings of $0.01 per share for the quarter.

For the current year, Epocrates expects revenues of $105 million-$115 million, with a net loss of $0.09-$0.16 per share.

Epocrates’s Free Subscriptions
By segment, Epocrates saw subscription revenues fall 22% over the year to $4.75 million. Interactive services revenues, the segment that offers healthcare providers interactive services to communicate with their network of users, grew a marginal 1% to $22.07 million. Subscription revenues are not going to improve soon. Epocrates is investing in growing its subscription base and is offering free subscriptions for its premium mobile product to all U.S. medical students. Epocrates sees it as a way of helping these students with their education and to enable them to deliver efficient, quality care. Market research suggests that more than 40% of medical students resort to mobile medical applications for answers to their clinical questions. By providing them free access, Epocrates seems to be preparing a captive audience for their services – an audience that should be willing to pay for the app following graduation.

The stock is trading at $11.12, with a market capitalization of $281.83 million. It reached a high of $10.73 in February 2012 but is still far below the listing price of $16.