Whose Stock Is Fractured By Bone Drug Loss

by: Dana Blankenhorn

News that the FDA wants warning labels and sales limits on bone loss drugs sent all the makers of such drugs gapping down about 2-4% in Friday's trade.

But one of those companies is not like the others.

Warner Chilcott (WCRX) brought in nearly half its total revenue from Actonel last year, according to Bloomberg. The sales of $1.3 billion represented over one-quarter of the market for bisphosphonates.

Roche Holdings (RHHBF.PK ) had $975 million in Boniva sales, but it's a $42 billion/year outfit. Similarly Merck's (MRK) Fosamax was $926 million on a $50 billion company, and Novartis' (NVS) Reclast was $579 million in sales out of nearly $60 billion.

Fosamax sales had already been declining as generic versions became available – it had been out since 1995 – but Actonel still has five years of patent protection coming. Warner Chilcott bought Actonel as part of Proctor & Gamble's (NYSE:PG) drug business in 2009.

The FDA warning won't kill these drugs right away. The concerns are over long-term use, the general recommendation being that the drugs be taken by post-menopausal women for just five years to prevent bone fractures, or that those at greatest risk at least get a “drug holiday” where they don't take it.

But the P&G transaction was heavily backed by loans, and Actonel represents a very large percentage of the company's total sales, making it the most vulnerable of the patented producers to a change in doctors' prescribing behavior.

Although the company is already trading near its 52-week low, Actonel sales were already headed down, and FDA officials are divided on the increased cancer risk from taking bisphosphonates, it's likely the stock will come under intense selling pressure this week as its vulnerability becomes evident.

Warner Chilcott's hottest new product, Enablex, a urology product whose U.S. rights were acquired from Novartis, are only running at $160 million per year as of the most recent earnings statement.

While most analysts are neutral on the stock, it might be a good one to sell, even short in the near term, as the full risks in Actonel become clearer in a down market.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.