Several Drug Stocks Miss the Rally

After rallying over the past few sessions, several biotech names hit a wall Monday as an earnings downgrade and a patent dispute prompted investors to take some money off the table.

IDEC PharmaceuticalsIDPH came under pressure after Bear Stearns cut its earnings estimate on the stock and AventisAVE fell sharply after U.S. drug authorities said an unnamed company is attempting to challenge the firm's patent on its blood-thinning drug Lovenox. IDEC shed 4% to $35.35 while Aventis was down amost 5% to $44.

Bear Stearns cut its first-quarter earnings estimate on IDEC Monday, saying that "wholesaler inventory issues" could reduce sales of its anticancer drug Rituxan. Analyst Ronald Renaud said wholesalers probably built up their inventories in February in anticipation of a price hike in March.

"We believe that wholesalers may then have used March to draw those inventory levels back down to standard levels," he said. "We would also point out that difficulty with reimbursement of both Rituxan and Zevalin in the hospital outpatient setting may also be playing a role in our first-quarter estimates."

Renaud cut his Rituxan sales estimate to $315 million from $323 million and sliced his sales forecast for IDEC's other key cancer drug Zevalin to just $6.5 million from $9 million. The reduction in Zevalin sales stems from conversations with physicians "who have indicated that Zevalin uptake continues to be quite slow." IDEC is now expected to report a profit of 23 cents a share down from 25 cents, according to Renaud. Analysts surveyed by Thomson Financial/First Call are looking for a 24-cent profit.

The news was confusing to investors given that Banc of America made positive comments about IDEC and its marketing partner GenentechDNA just last week. Analyst Michael King told clients on Thursday that earnings would benefit from "strong" first-quarter sales of Rituxan, sending shares up 6%.