Barr Labs Can Wait Out Pill Controversy

The FDA's failure to again rule on the OTC status of Plan B won't derail the company.
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Barr Pharmaceuticals'

(BRL)

emergency contraceptive pill Plan B may be a big political controversy, but it doesn't seem to be a big financial issue among investors and analysts.

Maybe it's because

they've seen this before: the Food and Drug Administration delays action, antiabortion groups praise the FDA's stance as a Pro-Life triumph and family-planning groups decry the agency's decision as politics trumping science.

Last Friday after the markets had closed, the FDA

once again delayed ruling on whether Plan B, now sold by prescription, could be offered to some women without a prescription. If taken within 72 hours of unprotected sex, Plan B, nicknamed "the morning-after pill," can reduce the risk of pregnancy by 89%. Plan B is 95% effective when taken in the first 24 hours after intercourse.

Barr had proposed Plan B as an over-the-counter product for women 16 and older. Barr's application was in response to the FDA's rejection of the drug last year as an over-the-counter product for all women.

The agency disagreed with the recommendation by two FDA advisory committees, which voted 23-4 in December 2003, that Plan B be sold over-the-counter for all women. The agency had already delayed an expected ruling in January 2005, and it was supposed to act by Sept. 1.

By Monday, analysts were again saying that Plan B and the FDA's delay would have a limited effect on Barr. Monday's stock price reflected their lack of concern -- by early afternoon, the stock was up one penny to $45.23.

"Financial impact from the delay will likely be modest," says Richard B. Silver of Lehman Brothers in a research report. For the fiscal year ending June 30, 2006, Silver predicts Plan B would produce $27 million in sales, or 2% of Barr's estimated revenue.

Calm at Street Level

Silver says the FDA's inaction doesn't affect his investment thesis, price target or earnings prediction for Barr's fourth quarter, which ended June 30. Barr will present its fourth-quarter report on Sept. 8. The Wall Street consensus calls for fourth-quarter earnings of 72 cents a share and a fiscal-year EPS of $2.38.

Although converting Plan B to over-the-counter status for some women "could provide some modest upside" to the emergency contraceptive's sales over time, Barr's "robust generic pipeline" is a "far more important driver of growth," says Silver, who has an equal-weight rating on the stock. He doesn't own shares, and his firm doesn't have an investment banking relationship with the company.

Credit Suisse First Boston had been predicting FDA approval for some women, so analyst Ken Kulju told clients he's "modestly fine-tuning downward" his Plan B sales estimates -- down by $3 million to $20 million during the current fiscal year and down by $8 million to $27 million for the next fiscal year. He doesn't own shares, but his firm has an investment banking relationship.

The adjustment won't change his neutral rating or his fiscal-year 2006 EPS estimate of $2.81, but he did trim 2 cents from his fiscal 2007 estimate to $3.28. On average, analysts expects fiscal 2006 earnings of $2.86 and a fiscal 2007 profit of $3.38.

Kulju says his neutral rating is based on concerns that prescription growth is slowing for Barr's generic oral contraceptives as well as for the "moderating uptake" for the Seasonale product line.

Seasonale is a brand-name oral contraceptive that reduces women's menstrual cycles to four periods from 13 a year. Barr recently received conditional approval by the FDA for Seasonique, a next-generation product that also reduces the number of periods.

Barr plans to meet with the FDA soon to determine what additional Seasonique data it must provide to the agency.

Barr gave no indication what the FDA wants or how long it would take to provide the information.

Another Next Step

Barr also plans to discuss with the agency the company's next plan for Plan B. "We are disappointed that the FDA did not approve our application," Bruce L. Downey, Barr's chairman and CEO, said Friday. "We provided a detailed legal analysis supporting approval of a dual-label product, and continue to believe that a dual-label status can and should be approved for Plan B."

Arguing that "a delay is not justified," Downey said Barr will "continue to press" for agency approval of Plan B as a prescription and nonprescription product.

On Friday, Lester Crawford, the FDA commissioner, said there's enough scientific evidence to show that Plan B is safe as an over-the-counter product for women who are 17 years of age and older. The problem, Crawford said, is that the agency lacks the regulatory criteria to use age as a guideline to distinguish prescription vs. nonprescription status for the same drug.

Another issue is how to distinguish the packaging of prescription Plan B vs. over-the-counter Plan B. "The answers to these questions can establish very broad and far-reaching policies that could have a significant effect on the way FDA regulates many different drugs," Crawford said. "The agency is unable at this time to reach a decision ... because of these unresolved regulatory and policy issues that relate to the application we were asked to evaluate."

The agency will seek public comment for 60 days, but Crawford offered no timetable for the agency to make a decision.