Generic-Drug Stocks Still Under the Weather

So, why is Mylan(MYL Quote) down 37.5% over the last 12 months? Why hasBarr Pharmaceuticals(BRL Quote) fallen by 21%?

What's wrong with Par Pharmaceutical(PRX Quote), whose stock is off 36%? And why has Watson Pharmaceuticals(WPI Quote) tumbled by 8.5%?

Many of these 12-month results aren't aberrations. Over the last 24 months, shares of Barr, Mylan and Par fared worse than the S&P 500 and the Amex pharmaceutical index. Watson is is slightly ahead of the S&P 500 and better than the Big Pharma index. Teva surpasses all of them.

Reasons for a Slump

There's no common theme for these sagging stocks, says Brian Laegeler of the independent research firm Morningstar. For Mylan, whose market cap is $3.8 billion, and Barr, whose market cap is $4.6 billion, the stock weakness is tied in part to integrating big acquisitions made in 2006.

"Both were playing catch-up with Teva in size and in establishing a presence in Europe," he says. "Overall, they were taking positive actions."

Shaking off the dilutive effects of their acquisitions and reducing deal-related debt will take some time. "I look for good years for Barr and Mylan in 2009 and 2010," he says.

The biggest drag on Watson's stock was recently removed when the Food and Drug Administration said problems at a manufacturing plant had been fixed. The Florida plant belonged to Andrx, a rival acquired by Watson in 2006. Watson, which now has a market cap of around $3 billion, knew about the problems. Until the FDA gave its approval, the agency had refused to approve new drugs that would be made there.