Wyeth: More Heartburn From Copycats?

Shares of drugmaker Wyeth could remain under pressure this day after Christmas.

The stock fell nearly a buck-and-a-half on Christmas Eve, when the company took a one-two punch: The Food and Drug Administration once again delayed potential approval of Wyeth's new osteoporosis drug; and Israel's Teva Pharmaceuticals, which is the biggest generic drug company in the world, announced that it was launching a plain-wrap version of Wyeth's heartburn drug, Protonix.

Wyeth, which sold nearly $1.5 billion worth of Protonix in the first nine months of this year -- up 5 percent over the same period last year -- is suing Teva over an alleged patent violation. In the meantime, the two sides have declared a cease fire for 30 days.

But this morning, at least two analysts are suggesting that Wyeth could be under assault by another generic drug company.

In research notes to clients, Leerink Swann's Seamus Fernandez and Goldman Sachs' Randall Stanicky say that Sun Pharmaceuticals (which trades on the Mumbai Stock Exchange), and/or -- according to Leerink's Fernandez -- Sun's U.S. subsidiary Caraco Pharmaceutical Labs, (which trades on the Amex and is headquartered in my old stomping grounds of Detroit) could also come out with generic Protonix.

Fernandez says his sources claim they were approached by Caraco regarding a potential launch of the drug as soon as today.

From a stock trading perspective he believes "the launch of a second generic would further pressure Wyeth's shares and we would not be buyers abover $43/share given significant near-term uncertainty."

Goldman's Stanicky writes, "We continue to believe we will see an ongoing trend towards 'at risk' launches, which should have positive implications across the supply chain (wholesalers and PBMs)."

Stanicky is referring to drug wholesalers and pharmacy benefit managers. "At risk" is industry parlance for a company like Teva going out on a legal limb and taking its chances with a generic drug launch.

Leerink says it may trade in Wyeth; Goldman makes a market in Teva and wants to do banking for the company.

To try to limit the financial damage from generic competition, the brand-name drug companies have taken to, at least at the outset, permitting what's called an "authorized generic" to come to market. That means they essentially give the recipe for the drug and their good graces to a generic drug company in exchange for a kickback of some kind.

But it's a short-term deal and eventually -- depending on the blockbuster status of the name-brand drug -- there's a generic drug company free-for-all, as a whole bunch of them rush in to make copycats of the same drug. Then, prices and profit plummet. Good for patients and insurers; not so good for investors.

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