* Citigroup thinks a couple dollars can come out of the PBM stocks - especially CMX, MHS - on Friday, because a federal judge, after market close Thursday, has blocked sales of a generic version of the blood thinner Plavix while he considers the merits of a claim that Canadian drugmaker Apotex Inc. improperly entered the market, according to the Associated Press. PBMs earn more money on generics than on brands, and both MHS and CMX moved higher on the news Apotex would launch Plavix at risk. Firm does not expect earnings estimates to be cut on this news. However, both CMX and MHS are close to firm's price targets and have near-term downside potential of a couple dollars probably on sentiment. An inefficient market on the Friday before Labor Day may cause a worse drop than warranted, however. ESRX on the other hand didn't run up as much on the news and therefore may not sell off as much now.
* UBS notes they assume there is at minimum 3-6 months of inv in channel, which means PBMs will still benefit in 3Q06-4Q06 from dispensing generic Plavix. While firm's models don't assume any benefit in 07, if BMY decides to continue its recent initiative of paying rebates for Plavix or if Apotex wins in appeal or patent infringement case (trial begins 1/22/07), PBMs could see benefit in 07 & beyond as well.
With the PBM group up 4-8% since the prospect of Plavix going generic was first disseminated to the market (8/4) , they expect the group to give back some of these gains. Distributors, though less impacted by this, are likely to trade down as well. While the ruling is disappointing to the group, the firm continues to highlight the introduction of generic Zocor, Zoloft, Mobic, and Pravachol as key growth drivers for group in next 12 months.
Notablecalls: No further comments. The notes say it all.