In football, as in investing, a good defense is often a good offense. Or maybe it's the other way around. In any case, there's no question that, in today's market, many defensive drug stocks are behaving offensively to their investors.

Big drug stocks "have been a dog," said Trip Jones, managing director of SunGard Institutional Brokerage. "And the bottom line is that there's no signal that anything's changing."

One company,

Wyeth

(WYE)

, hit a 52-week stock price low earlier this week. Two others,

Bristol-Myers Squibb

(BMY) - Get Report

and

Schering-Plough

(SGP)

, have come uncomfortably close.

For the 12 months ended May 25, the Amex Pharmaceutical Index managed a 5.8% total return -- price appreciation plus reinvestment of dividends. (Despite a small rebound in recent days, the index stands about midway between its 52-week high and low.)

During the same period, the 17-member Amex Biotechnology Index was up 11.2% while the

S&P 500

index had a total return of 19.1%. Among Big Pharma companies, only

Eli Lilly

(LLY) - Get Report

, with a return of 26.5%, topped the S&P 500.

Two biotechnology companies, with market capitalizations worthy of Big Pharma, also beat the S&P 500:

Genentech

(DNA)

(up 95.2%) and

Biogen Idec

(BIIB) - Get Report

(up 68.3%).

Unconventional Wisdom?

All of this may come as quite a shock to those who preach the defensive value of pharmaceutical stocks. Interest rates rising? Buy drugs. Cyclical stocks heading toward a down cycle? Buy drugs. More economic uncertainty? Buy drugs.

Big Pharma's current malaise is partly a side effect of long-term trends and special events. But investors also should beware of writing off an entire sector because some, or even many, of the players are in distress.

A significant blow has been the rising power of generic-drug makers, some of which have become so prominent that they are included in the Amex Pharmaceutical Index and/or are developing proprietary products.

"Generic drug companies have been really aggressive, especially in recent years," said Albert Rauch, a drug industry analyst for A.G. Edwards in St. Louis. "They have been challenging many more patents."

Rauch noted that half of the drugs dispensed in the U.S. now come from generic-drug makers, even though generic drugs account for only 20% of U.S. drug revenue.

Pfizer

(PFE) - Get Report

is the top manufacturer; but the next three biggest producers -- in terms of units made -- are generic companies, Rauch said. They are

Teva Pharmaceutical Industries

(TEVA) - Get Report

,

Mylan Laboratories

(MYL) - Get Report

and

Watson Pharmaceuticals

(WPI)

.

If that wasn't enough of a drag on the bottom line, Rauch said two political issues will continue to affect drug stocks this year -- proposed legislation to allow the reimportation of drugs and the presidential election, both of which are creating uncertainty among investors.

"Drug importation has been brought up by politicians so much that

drug stock prices will stay depressed until it's clear what the impact will be," he said.

Data from SunGard Institutional Brokerage illustrates how such issues can hang over a sector. Looking at broad categories -- such as utilities and telecommunications -- among the S&P 500 over the last 12 months, SunGard said the health care sector ranked 11th -- and last -- for every week except two, between the week ending Feb. 20 and the week ending May 21. The sector includes drugs, biotechnology, medical equipment and health care providers.

And when SunGard examined 60 subgroups among the broad sectors, the drug group never advanced past 50th place between the week ended Feb. 20 and the week ended May 21.

Still, Jones, the firm's managing director, isn't disavowing drug stocks, even as he doubts there will be much positive news until the drug reimportation issue is resolved and the presidential election is over.

"We like health care in general on a long-term secular basis," he said. Drug companies, he added, still have some pricing power, and they certainly will benefit from an aging population. "The defensive story just hasn't caught on," Jones said.

Picking and Choosing

This looks like "another transition year" for the industry, says a recent report by Standard & Poor's credit analyst Arthur Wong, who focuses more on a company's financial foundation than on industry trends. So it isn't surprising, then, those three Big Pharma companies recently achieving or approaching 52-week-low stock prices earned negative ratings from S&P.

Bristol-Myers Squibb gets a negative outlook because of its heavy exposure to generic competition and S&P's belief that new drugs from the company won't reach the market fast enough to offset lost revenue as patents on top-selling products expire. The company earns a still-healthy AA-minus rating for its credit rating. (S&P's top credit rating is AAA and its top outlook rating is 'positive.')

Schering-Plough, with an A-minus credit rating, gets a negative outlook because its turnaround "will be a long-term process," Wong's report says. Competition for some top brand-name products is thwarting the speed of the recovery.

Wyeth, with an A credit rating, earns a negative outlook despite a solid first quarter. S&P cites the uncertainty of continuing litigation against the diet drugs Pondimin and Redux. Wong's report was released before the recent ruling by a federal appeal court enabling some fen-phen plaintiffs to provide more evidence in their lawsuits against Wyeth.

S&P didn't change its rating, but it said Wednesday that the ruling is a "negative development." Wong also warned that diet-drug litigation will limit "upside potential on the credit ratings" for several years.

Eli Lilly, whose stock trades much closer to its 52-week high than its 52-week low, gets a credit rating of AA and an outlook rating of stable. Wong praised its first-quarter performance, but he worried about the company's heavy reliance on its antipsychotic drug, Zyprexa, due to increasing competition and patent litigation. "Nevertheless, the continued flow of new products is comforting," he wrote. Lilly is widely believed to have one of the strongest pipelines of new drugs.

Pfizer, whose stock trades at about the midpoint of its 52-week high and low, has a stable outlook forecast and a top credit rating of AAA. Pfizer "remains unrivaled in the depth and breadth of its pharmaceutical portfolio," Wong said. S&P "does not have any current concerns" about Pfizer.

Merck

(MRK) - Get Report

has an AAA credit rating and stable outlook despite canceling research last year on four promising products. Recently, Merck's stock has been closer to its 52-week high than its 52-week low. Despite competition for some drugs and "mixed sales growth performance" among major products, S&P has "no major concerns" about Merck due to its "still superior business profile" and "very high level of financial flexibility."

Ratings may not provide much consolation for frustrated investors right now, but they do offer reassurance that companies with strong financials and fundamentals can weather future setbacks as well as hope that they could fare well when the industry headwinds subside.