Margin Maintenance Boosts Barr's Profit

The drugmaker cites a better mix of product sales.
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Barr Pharmaceuticals'

(BRL)

fourth-quarter earnings were sharply higher than a year ago as the drugmaker essentially no longer had to worry with sales of the antibiotic Ciprofloxacin, which had held back margins in the past.

Barr earned $42.1 million, or 40 cents a share, on $280.5 million in revenue for its fiscal fourth quarter. A year earlier, the company earned $14.4 million, or 13 cents a share, on revenue of $303.2 million.

Excluding charges, earnings came in at $81.4 million, or 77 cents a share, beating analysts' estimates of 72 cents a share.

The company said the profit improvement can be traced to a better mix of product sales, largely thanks to a substantial reduction in sales of Ciprofloxacin, which carried a much lower margin than Barr's manufactured products, and an increasing percentage of sales from higher-margin proprietary drugs.

Sales of Ciprofloxacin were less than $1 million in fiscal 2005, down from $385 million the previous fiscal year.

For the year-ago fourth quarter, Barr recorded $40 million of sales from distributing Ciprofloxacin under a nonexclusive supply agreement. The company had been expecting lower sales of the product because generic versions have become available.

Shares of Barr rose $3.50, or 7%, to $53.92.

During the most recent fourth quarter, proprietary product sales were $80 million, compared with $44 million in the prior-year period. Seasonale sales reached $26 million, up from $7 million last year, thanks to higher prescription demand, the company said in a conference call Thursday. For the year, Seasonale sales totaled $87 million vs. $25 million in fiscal 2004.

In June, Barr signed a nonbinding letter of intent with Organon and

Savient Pharmaceuticals

(SVNTE)

to acquire the new drug application for Mircette, obtain a royalty-free patent license to promote the drug in the U.S. and dismiss all pending litigation between the sides, in exchange for a payment of up to roughly $155 million from Barr.

Based on the current terms of the transaction, Barr has recorded a pretax charge of $63 million.

For the fiscal year 2006, Barr expects to earn $2.95 to $3.10 a share, including a charge for stock option grants of 19 cents. Had the same charge been recorded in fiscal 2005, the company's estimates represent a 30% to 40% earnings increase.

However, the company says none of its estimates accounts for possible costs related to patent disputes, including those surrounding Barr's generic versions of

Sanofi-Aventis'

(SNY) - Get Report

Allegra-D and

Shire Pharmaceuticals'

(SHPGY)

Adderall XR.

Barr says it has about 35 abbreviated new drug applications currently pending at the Food and Drug Administration targeting branded pharmaceuticals with an estimated $10.3 billion in sales. During its fiscal fourth quarter, Barr received seven product approvals, four of which were related to patent challenges.

For the fiscal year ended June 30, the company reported earnings of $215 million, or $2.03 a share, on revenue of $1.05 billion. In fiscal 2004, Barr earned $123.1 million, or $1.15 a share, with revenue of $1.31 billion.

Excluding items, Barr earned $2.40 for the full year.

Barr's proprietary product sales were up 91% to $279 million for the fiscal year, compared with $146 million for the prior year. Generic product sales were $751 million, down from $1.15 billion a year ago, due to new competition and lower pricing. Barr sees a continued decline into 2006, CFO William McKee said during the company's conference call Thursday.