Barr Gains Despite FDA Move

Shares of the drugmaker rise even though the FDA delays a ruling on 'morning after' pill.
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It appears that the so-called morning-after pill known as Plan B generates considerably more political headlines than it does financial ones.

When the Food and Drug Administration announced late Friday that it would delay for 90 days a decision about converting the pill to over-the-counter from prescription status, supporters of a nonprescription pill called the action a triumph of politics over science that would lead to more unwanted pregnancies. Opponents have argued that an over-the-counter drug represents an invitation to promiscuity, more sexually transmitted diseases and greater medical risks due to unsupervised overuse of the pills.

But on Wall Street, investors hardly took notice. On Tuesday, the first time investors could vote with their wallets after the FDA's decision, shares of

Barr Pharmaceuticals

(BRL)

rose, adding $1.05, or 1.3%, to $80.07. Barr is in the final stages of buying Plan B from the privately held Women's Capital Corp., and the deal could close this week.

Barr executives have said they would be comfortable with any decision by the FDA, noting that converting the drug to over-the-counter status would clearly make the drug available to more consumers. And on Friday, the Woodcliff Lake, N.J.-based company said the FDA wanted the extra time so the agency could review additional data on adolescent use of the contraceptive that Barr and Women's Capital Corp. had submitted with their application.

Bruce L. Downey, Barr's chairman and chief executive, reiterated that selling Plan B over the counter would address "a significant unmet medical need," giving women more timely access to emergency contraception. The faster Plan B can be taken, the more effective it is in preventing pregnancy. Currently, five states allow pharmacists to provide emergency contraception without an advance prescription from a doctor.

Many Wall Street analysts say Plan B, now sold without any marketing support, could fetch about $25 million to $35 million in yearly revenue under Barr's stewardship rather than the approximately $10 million in sales under current ownership.

But those extra sales wouldn't have a dramatic impact on Barr, which earned $167.6 million on sales of $902.9 million for the fiscal year ended June 30, 2003. And that's why Wall Street took the development in stride.

"While we do not believe that a successful Plan B over-the-counter launch is critical to our investment thesis, it does represent an important near-term milestone and long-term growth opportunity," said Elliot Wilbur, of CIBC World Markets, in a recent research note to clients. Wilbur predicts Plan B could add 20 cents in earnings per share to a company, whose 2003 EPS was $2.62 and whose 2004 EPS, he predicts, will be $3.27.

Wilbur maintained his overweight rating on the stock. (He doesn't own shares, but his firm expects to seek or receive compensation for investment banking services from Barr in the next three months.

The FDA's delay does not appear to jeopardize final approval of a nonprescription Plan B -- just the timing, Wilbur wrote on Friday. Although the FDA's delay "may not be viewed as a positive for stock sentiment," he said a 2004 launch is still likely.

Plan B was endorsed as suitable for over-the-counter use by two FDA advisory committees meeting jointly in mid-December. The vote was 23-4. Although the FDA isn't required to follow recommendations of its advisory committees, it usually does.

Merrill Lynch analyst Gregory B. Gilbert said Tuesday that he was keeping his buy recommendation on Barr despite the FDA's decision to delay action on Plan B until mid-May. "At this point, we do not view this extension as a significant event," Gilbert told clients on Tuesday in a research report. (He doesn't own shares, but his firm is a market maker in Barr's stock and says it plans to receive or seek compensation in the next three months from the company for investment banking services.

It will take more than the FDA delay -- or even a rejection of Plan B as an over-the-counter product -- to rattle investor confidence in Barr, which has steadily built a reputation as a powerhouse in women's health care as well as in generic drugs. According to Thomson First Call, eleven analysts have buy recommendations on the stock and five have hold recommendations.

As an indication of Barr's diversified portfolio, no analyst tracked by Thomson First Call changed his or her opinion on Barr's stock after the FDA announced its delay. There were no changes in analysts' ratings immediately after the FDA advisory committees supported Plan B as a non-prescription product; and there were no changes right after Barr said it would buy Plan B from Women's Capital Corp. in early October. There was no dramatic activity in stock price or share volume linked to these events.

Despite its small revenue, Plan B broadens Barr's offerings in women's health care. According to a recent report by Credit Suisse First Boston, the company now has about 22% of the U.S. prescription market for oral contraceptives. Analysts say Plan B won't damage sales of Barr's other oral contraceptives.

Generating more political and religious controversy than sales, Plan B is only one of two emergency contraceptives available in the United States. The other is called Preven, made by Gynetics, a private company.

Plan B is "less toxic" and "has superior dosing, efficacy and side-effect profile," according to a recent research report by CIBC analyst Wilbur. He said Plan B, which contains a single hormone progestin, is more effective and offers less risk of vomiting and nausea than does Preven, which contains the hormones estrogen and progestin.

Wilbur said the average wholesale price for a Preven treatment is $19.94, in which two pills are taken within 72 hours of unprotected sex and two more pills are taken 12 hours later. The average wholesale price for Plan B is $21.95, in which one pill is taken within 72 hours of unprotected sex and another pill is taken 12 hours later.

Going over the counter might cut profit margins per dose; but sufficiently higher sales could make the product more profitable, especially, analysts say, if Barr develops an effective direct-to-consumer marketing campaign.

Taken 72 hours after a single act of unprotected sex, Plan B can reduce the risk of pregnancy by 89%, Barr says. The rate improves to 95% if the drug is taken 24 hours after unprotected sex.

Given that Plan B's effectiveness is directly correlated to speed of use, converting the product to over-the-counter status is backed by many major medical organizations such as the American Medical Association and the American College of Obstetricians and Gynecologists.

Supporters say there is potentially strong demand for an over-the-counter product. Planned Parenthood, for example, argues that research shows emergency contraception could prevent 1.7 million unintended pregnancies and 800,000 abortions in the United States each year.

The organization, whose president Gloria Feldt assailed the FDA's decision last Friday as "a politically transparent roadblock," has provided emergency contraception to an increasing number of women -- from approximately 17,000 in 1995 to 634,000 in 2002.

Planned Parenthood notes on its web site that many common oral contraceptive can be used as emergency contraceptives even though their manufacturers' don't market them as 'morning-after' pills. That's because federal law says that once the FDA approves a drug for one use, physicians can prescribe the drug for off-label uses. However, using regular contraceptives as morning-after pills can require women to take far more pills than the standard doses.

Opponents of Plan B becoming an over-the-counter product include the U.S. Conference of Catholic Bishops, the Catholic Medical Association and antiabortion groups. Many opponents maintain that Plan B acts as an abortion agent, an allegation that Barr and its medical supporters say is false.