Stocks quoted in this article:
Generic drug manufacturer, Barr Labs (BRL - 65.75) is reeling from harsh, negative brokerage comments this morning. Investment firm Arnhold and S. Bleichroeder Inc. has initiated coverage on BRL with a sell rating. (You don't see that often!)
In a research note Wednesday, analysts at the firm wrote that the price of BRL's stock is "hyperinflated" by "rampant misperception" in the market. The investment firm went a step further to touch the entire generic pharmaceutical sector. The analysts wrote that stocks of companies like BRL that make generic drugs are "grossly overvalued" as a group. These companies' stock prices have been driven higher by investor perception that the expiration of patents on certain name-brand drugs will create large opportunities for these companies, the analysts wrote.
Options on BRL are not widely traded, as current total open interest in options with up to three months' of life on them stands at just 4,065 contracts (1,662 open put positions versus 2,404 open call positions). The news has sparked activity in the options pit as 1,856 put contracts have traded versus 612 call contracts. The February 70 calls are receiving the most attention with volume of 267 on open positions of 740, which will most likely lead to closing of positions. The February 60 and 75 put options are active, trading 431 and 215 in volume on current open interest of 245 and 234, respectively.