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(Catalyst Health, health care losers story updated for analyst comment)



) -- The freefall in the share value of

Catalyst Health Solutions


shows no sign of slowing down on Wednesday morning, with shares of the pharmacy benefit manager down close to 15%.

It's been all negative news for Catalyst Health Solutions of late, and last night


carried a report that client MCS Advantage might terminate its existing contract by the end of the year -- two years ahead of schedule. Catalyst made the disclosure in a regulatory filing on Tuesday.

Catalyst Health Shares were already taking a beating on the suspicion that it was going to lose clients earlier in the week, with shares down 23% over the past 5 trading days. The big drop on Wednesday morning, though, doubled the level of the sudden loss in share value.

Last Thursday and Friday, Catalyst Health Solutions slid after analysts voiced concern about earnings estimates that didn't take into account acquisition charges, and potential loss of clients.

Last week was also when Catalyst Health completed an acquisition that the bulls said would drive future growth. Some analysts said that after last week's selloff to the end the week, Catalyst Health shares were at an attractive buy-in point. However, that's not the sentiment on Wednesday.

The rumors last week were about Wellmark Blue Cross and Blue Shield of Iowa and South Dakota, and the state of Maryland -- all considered vulnerable accounts. According to a report last week in the

Wall Street Journal

, Wellmark accounted for 18% of Catalyst Health revenue and Maryland 12%.

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One analyst who covers the stock, though could not be quoted directly on the latest drop in the Catalyst Health shares, remained convinced that the sudden decline is a buying opportunity for investors.

The analyst referred to the classic case of Wall Street's trading mentality tending to overreact to bad news leading to the selloff in Catalyst Health shares. At the same time, the analyst presented the classic case of a selloff being an opportune entry point for investors. "We are defending buying now. Even if you lost all the contracts, you don't get to this kind of damage," the analyst said.

MCS is nowhere near as big an account, or even the significant type of account, represented by Wellmark and Blue Cross or the state of Maryland. The analyst said when one does the math on MCS, it doesn't justify a doubling of the existing selloff in Catalyst Health shares.

Yet given last week's negative news take on the health of Catalyst Health's client relationships, the MCS development is being viewed as "the canary in coal mine."

The analyst also noted that the 8-K filed by Catalyst Health stating that MCS planned to terminate the contract wasn't a done deal. It could simply be the pre-cursor to a lawsuit -- in which Catalyst Health could recoup any financial losses resulting from early contract termination -- or it could be part of an ongoing negotiation between the two companies that won't in the end result in the loss of MCS' business.

Nevertheless, while there may have been some short-term profit-taking in last week's Catalyst Health selloff -- shares had been rising from a July low through the beginning of September -- that opportunity was played out before Wednesday's action, which looked to be a straight bearish call on the stock.

--Written by Eric Rosenbaum in New York.

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