Omnicare

(OCR)

investors might want to break out the painkillers.

They could suffer a fresh blow when the geriatric pharmaceutical services outfit delivers its third-quarter update on Tuesday. Recent developments seem to threaten the company's current and future performance alike.

For starters, one of Omnicare's big repackaging facilities remains shut due to quality-control issues that have triggered drug recalls. Costs continue to climb as a result.

For another, Omnicare's future profits could take a hit due to proposed changes in the "average wholesale pricing" system for brand-name drugs.

Express Scripts

(ESRX)

got hammered last week on this very concern.

Omnicare faces plenty of challenges -- including multiple government investigations -- already.

The company actually identified problems involving mislabeled drugs at its Heartland Repack Services center several months ago. The government's list of the drugs involved stretches on for nearly 120 pages. The company was still sending out urgent letters to its clients -- seeking return of the drugs -- in late October.

By now, even bullish analysts sound worried about the shut-down facility and the setbacks it has caused.

"In our view, one of the main risks to the quarter is the impact of incremental costs incurred as a result of the Heartland repackaging facility being offline," JPMorgan analyst Lisa Gill wrote last week. Meanwhile, "we are conservatively lowering our Street-high estimates, as we have admittedly maintained overly aggressive assumptions."

Despite repeated disappointments from the company, Gill said she still feels "cautiously optimistic" that Omnicare could hit third-quarter targets -- and even recommended buying the company's stock ahead of earnings. Her firm has investment banking ties to the company.

Still, Gill -- and, in fact, many analysts -- could be overlooking another big threat altogether.

Notably, Omnicare relies on an AWP system that faces major changes. Under a proposed legal settlement, First DataBank -- the largest publisher of AWP numbers -- has agreed to cut AWP prices on most brand-name drugs by 5% going forward. It will then abandon the AWP system, which has been blamed for artificially inflating drug prices, down the road.

Omnicare continues to rely on that system in the meantime.

"While there is no way this is positive for OCR, the question is: 'How negative is it?'" Bear Stearns analyst Jason Gurda wrote early this month. "Our viewpoint may change as more information becomes available, but right now we believe it is a minor negative for OCR. Pricing pressure will probably increase slightly, but we do not expect a cliff or sudden decline in reimbursement rates."

Gurda has a peer-perform rating on Omnicare's stock. His firm seeks to do business with the companies it covers.

Just weeks after Gurda published his report, Express Scripts rattled the market with news that the AWP changes could in fact prove material in nature. The company said that it could seek contract changes but seemed worried about how customers would respond.

Some clients are suspicious of companies like Express Scripts already. They blame the companies, known as pharmacy benefit managers, for their growing drug bills.

Omnicare supplies drugs to nursing homes rather than to pharmacies or actual patients. But the company operates as a drug middleman as well -- and has attracted its share of controversy in the process.

Joel Gemunder, Omnicare's media-shy CEO, admitted as much when reviewing the company's recent setbacks at a Bear Stearns conference last month.

"When I grew up in the Bronx in the '50s, the common wisdom was that proper people appeared in the newspapers twice in their lives -- their wedding announcement and their obituaries," Gemunder stated. "Now, we've been in the press a bit more than twice. And by that measure, I suppose, you could say that we've had several lifetimes' worth of coverage over the last few months" alone.

Omnicare's stock has suffered dearly in the process. The shares, which peaked at $62.50 in December, slipped 34 cents to $42.50 on Monday.