Citi Sets Barr Higher, Mylan Lower

Citigroup upgrades Barr and downgrades Mylan, sending shares in disparate directions.
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Shares of generic-drug makers

Barr Pharmaceuticals

(BRL)

and

Mylan Laboratories

(MYL) - Get Report

went their separate ways Tuesday following changes in the stocks' ratings at Citigroup.

Barr's shares were up 6.2% to $53.13 on an upgrade, while Mylan's share fell 1.9% to $20.44 on a downgrade.

"We continue to believe that these

generic-pharmaceuticals companies' actions speak louder than their words, with all three major U.S. players set to integrate a merger in an attempt to either expand their capabilities or address their cost base," wrote Citigroup analyst Andrew Swanson in a research note.

The analyst says Barr Labs' acquisition of Eastern European pharma company

Pliva

is a "potentially transformative transaction" that will instantly broaden the company's product portfolio and expand its technologies as well its geographic reach.

Swanson raised his 2007 earnings estimates by a penny to $3.27 a share, mostly due to sales of pain drug Actiq and upside for the combined company, but he noted a 14% decline in the company's share price in the last two months also led him to upgrade the stock to a buy from hold.

While Swanson acknowledges that his Mylan downgrade comes before the expected approval of its generic version of the overactive-bladder treatment Ditropan XL and the potential submission of an application to the Food and Drug Administration for a generic version of the topical pain medication Lidoderm, "we are losing confidence in Mylan's earnings profile," he wrote.

The analyst lowered his earnings guidance for the company to $1.23 a share, down 5 cents, in 2007 and $1.24 a share, down 18 cents, in 2008. Swanson downgraded the shares to a hold from buy and lowered his price target on the stock to $22 from $25.

While the analyst says Mylan's plan to buy India-based company

Matrix

makes strategic sense, "we do not believe it can rescue Mylan from earnings risk as pipeline opportunities drift."

Swanson says he finds

Watson Pharmaceuticals'

(WPI)

pending acquisition of

Andrx

(ADRX)

the least compelling of the three stocks he wrote about in the report and does not see the deal substantially strengthening Watson's generic-drug business.

Citigroup expects to seek or receive investment banking compensation from Barr, has a noninvestment banking relationship with Mylan and makes a market in shares of all three companies.