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Barr Pharmaceuticals


issues its third-quarter earnings report Thursday, offering executives a chance to focus more on finances than politics.

The politics involve Plan B, the so-called morning-after pill that Barr wants to sell without a prescription. The drug now accounts for about 2% of corporate sales and a much larger percentage of corporate headlines.

Even though a Food and Drug Administration advisory panel endorsed Plan B as an over-the-counter drug, the FDA rejected the committee's advice, telling Barr to provide more safety data. Although Barr submitted the information, the agency still hasn't acted.

The Plan B delay has ensnared the nomination of Dr. Lester Crawford, now acting FDA commissioner, to become the full-time administrator. Last month, a Senate committee postponed a vote on his nomination. Several legislators have called for an investigation of the FDA's handling of Plan B.

Setting aside the political matters for now, let's first look at the prospects of a company often praised on Wall Street for its ability to mix the selling of generic drugs with the development of brand-name products.

Strong Support

Barr's management "has positioned the company for future growth by methodically transitioning from a pure-play generic into a balanced proprietary/generic hybrid," said Michael Tong, a Wachovia Capital Markets analyst, in a recent report to clients. "The ongoing transition should result in lower earnings volatility, which could drive multiple expansion ... in the near to medium term." (He doesn't own shares, and his firm doesn't have an investment-banking relationship with Barr.)

Tong has an outperform rating on the stock, and he's one of 12 analysts with buy recommendations, according to Thomson First Call. Seven analysts are neutral. Tong expects Barr to earn 60 cents a share for the third quarter, which ended March 31, on sales of $270 million. That's 2 cents below the Thomson First Call EPS prediction and $2 million lower than the consensus revenue estimate.

Barr isn't bulletproof. Analysts with neutral ratings worry that growth might slow for some proprietary products, that these brand-name drugs could themselves be attacked by generic competitors, and that Barr's aggressive patent challenges vs. big brand-name drugs could produce more losses than wins.

One risk is lower-than-expected performance of Seasonale, the birth control pill that enables women to reduce their menstrual periods from 13 to four a year, says Corey Davis of J.P. Morgan. Another risk is a generic challenge to Seasonale by

Watson Pharmaceuticals


, which has filed an application with the FDA. "Barr did not sue, so investors need to be aware that this is a product with a finite life span," Davis says in a recent research report.

Because a strong component of Barr's revenue comes from oral contraceptives, "competitive changes" may have a significant effect on its operating results and may limit the company's ability to meet financial projections, he adds. Davis says Barr has a "premium valuation" that causes him to stay neutral. He doesn't own shares; Barr has been a client of his firm within the last 12 months.

Future Questions

Barr suffered a setback recently when the FDA rejected its application for Bijuvia, a vaginal cream for treating symptoms associated with menopause. The rejection won't affect near-term earnings calculations at Prudential Equity Group, because analyst David Woodburn didn't have the drug in his economic model for the fiscal year ending June 30.

"However, for a company trying to position themselves as a leading player in the women's health arena, a nonapproval letter isn't necessarily a nonevent," said Woodburn in a recent research report. The company plans to talk to the FDA about what it must do to obtain approval.

Woodburn is keeping his neutral rating. He doesn't own shares, and his firm doesn't have an investment-banking relationship.

Barr reduced some uncertainty earlier this month when it settled a patent dispute with

Kos Pharmaceuticals


over Niaspan, a Kos cholesterol drug. They had been fighting each other since 2002.

The deal removes any legal risk, because if Barr had introduced a generic and then lost in court, it could have faced triple damages, says Ken Cacciatore, in a recent report to SG Cowen & Co. clients. The agreement, which awaits approval from the Federal Trade Commission, means it is unlikely another generic competitor could enter the Niaspan market "for at least the next few years," Cacciatore explains. Cacciatore's firm doesn't provide stock ratings, and he doesn't own shares. His firm says it does and seeks to do business with companies covered in research reports.

Next Move for Plan B

Cacciatore says the Plan B oral contraceptive could provide a "solid niche-market opportunity" for Barr. As a prescription-only product, he predicts Plan B will provide sales of $25 million for the current fiscal year, or 2% of corporate sales.

Using a best-case scenario, in which the FDA grants liberal marketing of an over-the-counter product, Cacciatore predicts Plan B could produce $40 million sales for fiscal 2006. In the worst case, the drug's sales would be only $23 million for the year ending June 30, 2006, he says.

Supporters of Plan B fear a worst-case scenario, arguing that the Bush administration is putting pandering to religious conservatives ahead of science showing that the pill is safe. If taken within 72 hours of unprotected sex, Plan B can reduce the risk of pregnancy by 89%. When taken within 24 hours of intercourse, Plan B is 95% effective.

Opponents contend that permitting over-the-counter sales would cause more sexual promiscuity and sexually transmitted diseases, but that was

disputed by a study published in January in the

Journal of the American Medical Association

. The study said easier access to emergency contraception didn't lead to more unprotected sex, more sexually transmitted disease or fewer pregnancies.

The debate over Plan B has taken far longer than pregnancy. Two FDA advisory committees, meeting jointly in December 2003, recommended by a 23-4 vote that Plan B was safe enough to be sold without a prescription. In mid-February 2004, the FDA postponed a decision on the product for 90 days.

In May 2004, the FDA rejected Plan B as a non-prescription product, saying Barr failed to prove that Plan B was safe for adolescents without consulting a physician. The FDA agency gave Barr two choices: provide more data showing the drug can be used safely without a prescription by women younger than 16 years old, or supply more information that would convince the FDA to let Plan B be sold over the counter to women 16 years and older and sold by prescription to women under 16.

Barr chose the latter strategy. The company submitted additional data, and the FDA was supposed to act in January. But it delayed a decision, saying it would rule "in the near future."