Natixis Bleichroeder is out with a pretty nasty downgrade on Medicis (NYSE:MRX) taking their rating to Hold from Buy noting the entire market seems to be against Medicis and it’s fairly easy to see why -- if they lose Solodyn to generics, they would likely start losing money.

And yesterday’s news that the FDA had approved Impax’s generic the day before sent the stock into a nosedive. There is almost a universal view that the next wave of generics will be right behind and it will render Impax’s inability to launch because of the settlement with Medicis moot. And with this headwind it is hard to see the stock outperforming from here. But a large unanswered question is why only Impax? They were the only generic not sued and therefore there is no ambiguity that there would be no 30-month stay on them. With the Impax approval, Medicis’ old Citizen's Petition (CP) on dose proportionality was denied. The question is will the others like Sandoz, Barr and Mylan get approval within days. Also, it appears that Medicis could lose the race to get its Solodyn “2.0” approved.

Despite their desire to always go against what the rest of the market believes, despite the fact that they loathe changing ratings on stocks after the news, and despite the fact that they still think (although probably the only ones) there is some chance greater than zero that the FDA will resolve the Warner Chilcott CP and Medicis’ own in their favor, the firm is downgrading the stock from a BUY to a HOLD (and lowering target to $12.00 from $16.00) since they feel this last point has a low probability – perhaps 25%.

Firm notes their previous $16.00 target assumed a Solodyn 2.0 switch, but if the axe drops first, they could imagine MRX trading as low as $7.00. Hence, the $12.00 target is a tossup between scenarios. They note that a Reloxin approval would still be a big catalyst, yet few on the Street believe it will see a final approval in April. Firm thinks that Ipsen may have already submitted its response to the letter it received in December, but this too is shrouded in the unknown.

Notablecalls: This one could see some serious downside from the $12 level despite the other firms staying with their ratings on hopes of a favourable outcome in the generics case.

There is still considerable revenue (50% of it) risk..not sure any meaningful buyers are willing to step into a situation like this one leaving the stock out in the open.

If you read the body language in the MRX note you can see how the analyst is alot more negative than the $12 target makes it seem. Corey Davis, the senior analyst covering the stock does note he would slap a SELL on the stock if there wasn't still for the chance of things going MRX's way.

So, one to watch. Could make a nice short.