Sector Snap: Wachovia cuts generic drugmakers

Investment bank Wachovia downgraded four of the largest generic drug companies Monday, indicating it expects them to perform about as well as the overall market.

Wachovia lowered its rating on Teva Pharmaceuticals, Barr Pharmaceuticals, Mylan Inc. and Watson Pharmaceuticals Inc. to "market perform" from "outperform."

Overall, trends will favor generic drugmakers as baby boomers age and policymakers attempt to use cheaper medications to control health care costs. But several recent developments could slow growth in the near-term, Wachovia analyst Michael Tong said in a note to investors.

Tong cautioned investors that Israel-based Teva could have problems integrating its operations with Barr, which it agreed to acquire last week for $7.5 billion. The deal will boost Teva's dominance as the world's largest generic drugmaker. Rival Mylan could be forced to make its own large acquisition to compete, Tong said. He added that Watson has performed well in recent quarters but its "growth prospects remain uncertain."

Shares of Watson fell 73 cents, or 2.4 percent, to $29.17 in afternoon trading. Shares of Mylan Inc. rose 4 cents to $12.87. Shares of Teva Pharmaceuticals Industries Ltd. rose 70 cents to $43.57, while Barr Pharmaceuticals Inc. rose $1.06, or 1.7 percent, to $64.52.