King Tumbles for Second Day - TheStreet

King Tumbles for Second Day

Analysts are worried about the patent protection for Altace.
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Shares of

King Pharmaceuticals

(KG)

dropped in heavy trading Tuesday for the second straight day as analysts continued worrying about patent protection for Altace, its best-selling drug.

On Monday, shares fell 7.4% on volume that was nearly five times the average for the past three months. By late afternoon Tuesday, the stock was down $1.28, or 6.6%, to $18.24 on trading that was nearly four times normal.

The latest decline was spurred by Citigroup analyst Andrew Swanson's cutting his rating from hold to sell. "We believe King is facing a broken business model," he tells clients in a research report. He doesn't own shares, but his firm has had a recent investment-banking relationship.

His main cause of concern is a patent challenge in which the Indian drugmaker

Lupin

is trying to invalidate the patent for Altace, a blood-pressure medication that contributed $653 million, or one-third of corporate revenue, last year.

King won the first trial 12 months ago, but Swanson says Lupin "effectively outlined" how a recent Supreme Court ruling could help its case against King. Legal experts say

the recent ruling will make its tougher for drugmakers to defend certain patents.

Appeals court judges "posed tough questions to King that we believe indicate that the patent is still at risk of being invalidated," Swanson says, referring to oral arguments held last week. "We are underwhelmed by King's Altace line extensions, and continue to forecast the company retaining only a portion of peak sales after generic competition enters."

Swanson isn't the only analyst fretting about Altace. "There is a good likelihood that Lupin can win this case," says Marc Goodman of Credit Suisse in a Monday report to customers.

Predicting an appeals court ruling by year-end, Goodman says generic Altace could hit the market by the fourth quarter or first quarter of 2008 if Lupin wins. If King wins, he says, Altace would be safe until April 2009. Goodman, who doesn't own shares, has an underperform rating. His firm has had a recent investment-banking relationship.

Like Swanson and several other analysts, Goodman also says there's uncertainty about the patent protection for the muscle pain drug Skelaxin, which contributed $415 million in sales last year. Skelaxin could go generic "in mid-2008, which may be extended out to 2009," says Goodman.

And although King claims Skelaxin patent protection into 2021, Swanson adds that generic competition will affect the drug "long before" the patent expiration date. "It is not clear to us that the Skelaxin patents would stand if ever subject to a trial," Swanson says.