Barr Labs' Revenue Jumps, but Charge Takes Toll on Earnings

A charge against loans to another company weighs on earnings.
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Updated from Nov. 6

Strong sales offset by worries over a potentially troubled loan to a partner added up to a slight negative for

Barr Laboratories

(BRL)

on Friday -- in recent trading the generic drug maker was off 47 cents, less than 1%, to $77.78.

On Thursday, Barr said it earned $38.5 million, or 55 cents per diluted share, in the September quarter, compared with net earnings of $41.9 million, or 61 cents a diluted share, in the fiscal first quarter of last year. The results in the recent quarter included a 14-cent per share charge related to the establishment of a $15.7 million reserve against loans and interest owed to Barr by privately held Natural Biologics.

Natural Biologics was supposed to deliver the active ingredient of Barr's generic version of the controversial Premarin, a hormone replacement. But in September, a federal court ruled that Natural Biologics misappropriated trade secrets from

Wyeth

(WYE)

, the company that makes Premarin, and enjoined the company from making it. Natural Biologics is appealing the decision.

"There's a realistic potential they

Natural Biologics may not be able to repay the loan," said Barr spokeswoman Carol Cox. If Natural Biologics is permanently barred from producing the ingredient, it will likely result in a delay for Barr's drug, she said.

Excluding the charge, earnings would have been 69 cents a share, 2 cents better than expected by analysts polled by Thomson First Call.

Total revenue for the quarter increased by 41% to $310.7 million on the year, but still lagged Wall Street's expectations of $313.4 million. Margins on product sales for the quarter were 48%, down from 49% a year ago, reflecting a shift in product mix.

Looking forward, the company expects profits in the December quarter to range from 70 cents to 76 cents a diluted share. Analysts are expecting a profit of 75 cents. Barr followed its usual practice of not giving quarterly revenue guidance, but reiterated its earlier estimate that revenue for the year would range from $1.3 billion to $1.4 billion.