King Pharmaceuticals (KG)

Although King Pharmaceuticals' (KG - Analyst Report) second-quarter results exceeded expectations with revenues increasing 12% from the year-ago period, we remain concerned about the declining prescription trends for key products over the past few quarters.

In the second quarter of 2009, Altace prescriptions declined 82.7%, Skelaxin 18.2%, Avinza 7.9% and Levoxyl 12%. We believe Levoxyl and Altace prescriptions will continue declining in the face of generic competition. Meanwhile, we expect Sonata sales to decline significantly now that generics have hit the market. Thrombin-JMI is also facing intense pricing pressure with the entry of new competitors in the market. We also expect Skelaxin prescriptions to decline significantly in 2009 as King has reduced its promotional efforts for the product.

Given that most of King s products are either facing generic competition or will be facing generics in the next few years, we believe the company s pipeline needs to deliver in order to drive future growth. In addition to generic competition, products like Altace and Sonata are also facing tough competition from branded products.