Updated from 11 a.m. EST

Shares of

Ivax

(IVX)

plunged Monday, as third-quarter results fell below analysts' predictions. The company's full-year earnings prediction also was well below the Wall Street consensus, prompting two investment banking firms to cut their ratings on the stock.

Shares of the Miami-based generic drug company fell $3.85, or 21.3%, to $14.25.

For the three months ended Sept. 30, Ivax earned $44.4 million, or 17 cents a share, on revenue of $439.1 million. These third-quarter results take into account a 5-for-4 stock split that took effect Aug. 24.

However, the analysts polled by Thomson First Call were expecting earnings of $53.6 million, or 21 cents a share, on revenue of $467.3 million.

For the same period last year, the company earned $21.6 million, or 9 cents a share, on a split-adjusted basis, on revenue of $360.6 million -- well below this year's third quarter. Ivax took note of the big difference between the quarters, but analysts weren't impressed.

Merrill Lynch analyst Gregory B. Gilbert cut his rating to neutral from buy, telling clients on Monday that the company experienced lower-than-expected sales, gross margins and earnings per share during the third quarter.

"We were surprised by the magnitude of this miss for each of these important line items," Gilbert said. "While we have not solidified our estimates for future periods, it is unlikely that our new estimates will be robust to justify a buy rating," Gilbert added. (He doesn't own shares; his firm says its does and seeks to do business with company's mentioned in research reports.)

Corey Davis, of J.P. Morgan, cut his rating to neutral from overweight, following what he called a "poor third-quarter performance."

Davis said Ivax's earnings were aided by a $3.4 million tax benefit, "which lowers the quality even further." (He doesn't own shares; his firm has an investment banking relationship with Ivax). Davis added that he didn't drop his rating to underweight because the stock's sharp decline on Monday took care of "most of the downside."

Earlier Monday, Ivax focused on the fact that this was the seventh consecutive quarter that it had achieved year-over-year gains in revenue and gross profit.

"We are pleased at the continued growth of our business," said Neil Flanzraich, the vice chairman and president. "All our major business regions have generated continued revenue growth."

Flanzraich said Ivax "expects a good fourth quarter and 2005." He said the company expects to meet or exceed its 2004 prediction of 71 cents a share, but the consensus estimate was for 81 cents. Flanzraich did not provide a prediction for next year; the consensus view is for EPS of 97 cents.

However, he noted that Ivax faces several competitive challenges. For example, Ivax began selling in mid-August a generic version of Neurontin, an epilepsy drug made by

Pfizer

(PFE) - Get Report

. Since then, three other companies have entered the market with their generic versions, including a generic firm that is owned by Pfizer. A patent suit by Pfizer against Ivax is pending.

Flanzraich added that "aggressive competitive pricing" for two other Ivax generic products plus "generic pricing pressures and cyclical, weak summer sales" in European markets affected Ivax's results.

He said the company expects by year-end a decision on its patent challenge against Zyprexa, the popular antipsychotic drug made by

Eli Lilly

(LLY) - Get Report

, which produced annual U.S. sales of $3 billion. In May, Ivax expects to start a patent challenge against Lexapro, an antidepressant from

Forest Laboratories

(FRX)

, which has annual U.S. sales of $1.4 billion.

The Zyprexa case has been a real nail-biter for Lilly, Ivax and all the investment bankers who follow both companies. Davis of J.P. Morgan said Monday that an Ivax victory would a big boost for the Miami company. "The decision should come soon, but we do not think Ivax will win," he said.

Ivax also said on Monday that it had received FDA approval for an asthma drug. Although the drug, albuterol, is generic, Ivax is administering it through a proprietary inhaling device that doesn't use chlorofluorocarbons, or CFCs, as a propellant. CFCs are harmful to the ozone layer, and in June the FDA issued a proposed regulation seeking the removal of CFC-albuterol products from the U.S. marketplace. Ivax's asthma inhaler uses a propellant called hydrofluoroalkanes, or HFAs. Ivax said CFC-albuterol inhalers probably will be removed from the U.S. market in 2006.