Seeking Alpha

Barr Pharmaceuticals Inc.

4/19/2014, 2:52 AM ET
Quote & Analysis StockTalk Description
Country: United States

We are a global specialty pharmaceutical company that operates in more than 30 countries. Our operations are based primarily in North America and Europe, with our key markets being the United States, Croatia, Germany, Poland and Russia. We are primarily engaged in the development, manufacture and marketing of generic and proprietary pharmaceuticals. We are one of the world’s leading generic drug companies. For 2007, which includes PLIVA’s results of operations for the entire period, we recorded $2.3 billion of product sales and $2.5 billion of total revenues worldwide. In addition, we are actively involved in the development of generic biologic products, an area that we believe provides significant prospects for long-term earnings and profitability.


We market and sell generic pharmaceutical products in the U.S., Europe and certain other countries in the rest of the world (which we refer to as “ROW”). During 2007, we recorded $1.9 billion of sales of generic pharmaceutical products. We conduct our generics business in North America principally through our Barr Laboratories subsidiary and in Europe and the ROW through PLIVA and its subsidiaries.

Our generic product portfolio includes solid oral dosage forms, injectables, liquids and cream/ointment products. At December 31, 2007, we marketed for sale (a) in the U.S., approximately 245 different dosage forms and strengths of approximately 120 different generic pharmaceutical products, including 25 oral contraceptive products, and (b) in Europe and the ROW, approximately 255 different molecules, representing 1,025 generic pharmaceutical products in approximately 2,790 different presentations (where one molecule in one market represents a product, and each combination of a formulation and strength represents one presentation).

Our generic product development efforts are focused primarily on high barrier-to-entry products for all our markets, utilizing our various drug delivery platforms. To more effectively compete in some European and ROW markets, we also develop and in-license certain commodity products where we can obtain market share based on the efforts of our sales forces in those markets.

Proprietary Products

We market and sell proprietary pharmaceutical products primarily in the United States. During 2007, we recorded $438.3 million of sales of proprietary pharmaceutical products. Our proprietary business is conducted through our Duramed Pharmaceuticals subsidiary.

Our proprietary product portfolio and pipeline is largely concentrated in the area of female healthcare. At December 31, 2007, we marketed 26 proprietary pharmaceutical products. These products include, among others: SEASONIQUE® (levonorgestrel/ethinyl estradiol tablets 0.15 mg/0.03 mg and ethinyl estradiol tablets 0.01 mg), our newest generation extended-cycle oral contraceptive product; PLAN BTM (levonorgestrel), our dual-label, over-the-counter (OTC)/Rx emergency contraceptive; PARAGARD® T 380A (intrauterine copper contraceptive), our IUC contraceptive product; MIRCETTE® (Desogestrel and Ethinyl Estradiol), a traditional 28-day oral contraceptive; and our ENJUVIA™ (synthetic conjugated estrogens, B) line of hormone therapy products.


Biologic products represent a significant subset of pharmaceutical products and are manufactured with the use of live organisms as opposed to chemical (non-biological) compounds. At December 31, 2007, we had several generic biologics products in various stages of development for the U.S. and European markets, including granulocyte colony stimulating factor (“G-CSF”), a protein that stimulates the growth of certain white blood cells. We are optimistic about our prospects of becoming a leader in the generic biologics market worldwide, and are actively working with the Congress and the Food and Drug Administration (the “FDA”) to create a regulatory pathway for generic biologics in the United States.

General Information

To supplement our internal efforts in support of our business strategies, we continually evaluate business development opportunities that we believe will strengthen our product portfolio and help grow our generic, proprietary, and generic biologic businesses. A primary example of this activity is our acquisition of PLIVA, as discussed in greater detail below.

We operate manufacturing, research and development and administrative facilities in five primary locations within the U.S. and three primary locations in Europe. Through our PLIVA acquisition, we also develop and manufacture active pharmaceutical ingredients to support our internal product development efforts. Our organizational structure reflects the global nature of our business and the sharing of resources between our generic and proprietary businesses. For example, our operating and corporate functions are managed on a global basis, supporting both generic and proprietary activities.

Barr Pharmaceuticals, Inc. is a Delaware holding company that was formed through a reincorporation merger on December 31, 2003. Our predecessor entity, a New York corporation, was formed in 1970 and commenced active operations in 1972. Our corporate headquarters are located at 225 Summit Avenue, Montvale, New Jersey 07645, and our main telephone number is 201-930-3300.

Our Internet address is We do not intend for this website address to be an active link or to otherwise incorporate by reference the contents of the website into this report. We post the following filings in the Investors section of our website as soon as reasonably practicable after they are electronically filed with or furnished to the SEC: our annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. All such filings on our Investors section of the website are available free of charge. The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room or electronically through the SEC website ( We also provide information concerning corporate governance, including our Corporate Governance Guidelines, Board committee charters and committee composition, Code of Conduct and other governance information within the Investors section of our website.
PLIVA Acquisition

On October 24, 2006, we completed the acquisition of PLIVA, a generic pharmaceutical company headquartered in Zagreb, Croatia. Under the terms of the cash tender offer, we paid approximately $2.4 billion based on an offer price of HRK 820 per share (in the Croatian currency) for all shares tendered during the offer period. Subsequent to the close of the offer period, we purchased an additional 390,809 shares on the Croatian stock market for $58.3 million, and own 98.1% of all shares of PLIVA as of December 31, 2007.

Under Croatian law, our ownership of more than 95% of the voting shares in PLIVA permits us to undertake the necessary actions to acquire the remainder of PLIVA’s outstanding share capital though we are not obligated to do so. We are currently evaluating this option and, in the meantime, we may continue to purchase shares on the open market as deemed necessary.

The PLIVA acquisition has been a transforming event for the Company. Prior to the acquisition, we marketed generic and proprietary pharmaceutical products almost exclusively in the United States. With our acquisition of PLIVA, we have significantly increased our global reach and now have access to additional internally developed drug delivery and development capabilities. We now operate in more than 30 countries worldwide. We have supplemented our historical solid oral dosage form product portfolio with PLIVA’s portfolio and capabilities for developing injectable products and cream/ointment products.

We also have combined two companies that are at the forefront of the development of generic biologics, with Barr traditionally focusing on the U.S. market and PLIVA principally focusing on the European markets (where a regulatory pathway for generic biologics already exists).

In addition, the PLIVA acquisition has increased our research and development capabilities. It also has given us access to low cost manufacturing capabilities in Croatia, Poland and the Czech Republic, and the opportunity to conduct product research and development in jurisdictions that offer favorable tax treatment for such activities.

During 2007, we worked diligently on the integration of Barr and PLIVA. As a result, the integration is largely complete. Some of the milestones we have accomplished are highlighted below:

all U.S. commercial operations have been consolidated under Barr Laboratories, Inc. or Duramed Pharmaceuticals, Inc.;

we have moved all PLIVA proprietary products sold previously under the Odyssey label to our Duramed label;

we have moved all U.S. PLIVA generic products sold previously under the PLIVA label to our Barr label;

all U.S. sales and marketing and related administrative activities have been consolidated;

we have transferred products between our European and U.S. manufacturing sites to optimize manufacturing efficiency and capacity utilization;

we are on schedule to substantially shut down PLIVA’s U.S. manufacturing facilities by the end of 2008;

we have successfully completed the divestiture of PLIVA’s Veterina animal health business and PLIVA’s operations in Italy and Spain;

senior personnel from Barr and PLIVA have been transferred and relocated outside their home countries to work in functions including commercial operations, finance, quality control and human resources;

we have established global product selection, product development and business development processes;

we have established global operational departments and their integration has been substantially completed;

our Forest, Virginia facility became the single point of distribution for all generic products in the United States; and

we completed the FTC-ordered divestitures of four products.


We are a global leader in the generic pharmaceutical industry. Generic drugs are the chemical and therapeutic equivalents of brand-name drugs, typically sold at prices below those of their brand-name equivalents. In the U.S., our largest market, our generic products are marketed under the Barr label.

Outside the U.S., our operations are primarily in Central and Eastern Europe, including Croatia, Germany, Poland and Russia (the “Key Non-U.S. Markets”), where the markets vary considerably from the U.S. market in that in many cases there is a market for branded generic products (i.e., generic products sold under a company name) for which there are only limited opportunities for generic substitution by the pharmacist. As a result, physician and pharmacist loyalty to a particular company’s generic product can be a significant driver in obtaining market share. In the recently expanded European Union (“EU”), as regulated by the European Medicine Agency (“EMEA”), the EU’s equivalent of the FDA, the generic pharmaceutical industry is becoming an increasingly important supplier of pharmaceuticals.

We have the capability to develop, manufacture and market generic pharmaceuticals in various dosage forms, including tablets and capsules, creams and topicals, and liquids and injectables. Our relationships with third parties provide access to other drug delivery systems, such as nasal sprays, patches and sterile ophthalmics.

In general, we focus our development activities on generic products that have one or more characteristics that we believe will make it difficult for others to develop competing generic products. The characteristics of the selected generic products we pursue may include one or more of the following:

those with complex formulation or development characteristics;

those requiring specialized manufacturing capabilities;

those where sourcing the raw material may be difficult; and

those that must overcome unusual regulatory or legal challenges, including patent challenges.

We believe generic products with some or all of these characteristics may produce higher returns for a longer period of time than products without these characteristics. Examples of such products in our portfolio include generic oral contraceptives and injectables. We currently manufacture 25 generic oral contraceptive products and six generic injectable products. We expect our portfolio of injectable products to grow to over a dozen products within the next two years.

We also develop and manufacture active pharmaceutical ingredients (“API”), primarily for use internally and, to a lesser extent, for sale to third parties. We manufacture 23 different APIs for use in pharmaceuticals through our facilities located in Croatia and the Czech Republic. We believe that our ability to produce API for internal use may provide us with a strategic advantage over competitors that lack this ability, particularly as to the timeliness of obtaining API for our products.

For a description of the regulatory process that applies to developing generic pharmaceuticals, see “Government Regulation” below.

Filings and Approvals

We file each of our regulatory submissions for generic products with the expectation that: (1) the applicable regulator will approve the marketing of the applicable product; (2) we will validate our process for manufacturing that product within the specifications that have been or will be approved by the applicable regulator; and (3) the cost of producing the inventory relating to the applicable product will be recovered from the commercialization of the product.

United States

During 2007, in the U.S. market, we:

filed 30 abbreviated new drug applications (“ANDAs”) with the FDA;

received FDA approvals for 19 generic products, including tentative approvals; and

launched 14 new generic products.

At December 31, 2007, we had approximately 70 ANDAs, including tentatively approved applications, pending at the FDA, targeting branded pharmaceutical products with an estimated $29 billion in annual sales, based on industry source data.

Europe and ROW

During 2007, we submitted for registration 224 products in 584 different presentations (where one molecule in one market represents a product and each combination of a formulation and strength represents one presentation), representing 65 individual molecules. During this period, we also received approvals for 143 products in 310 different presentations, representing 54 different molecules. As of December 31, 2007, with regulatory bodies in Europe and ROW, we had a total of 287 product registrations pending, representing 90 molecules in 735 different presentations.
Operations in our Key Non-US Markets

Germany. The German market is the largest pharmaceutical market in Europe and is our largest European market in terms of revenues. In Germany, we market our products through our subsidiary, AWD.pharma, and our largest selling product is Katadolon (flupirtine). Like the markets of Central and Eastern Europe, the German market is predominantly a branded generics one with doctors prescribing international nonproprietary name (“INN”) products and corporate brands. Substitution is possible at the pharmacy level, but only with one of the three lowest priced generic alternatives available. All prescription drugs are reimbursed up to the respective reference price. In March 2007, Germany’s largest health insurance company, Allgemeinen Ortskrankenkassen (AOK), representing more than 25 million of the approximately 79 million publicly-insured people in Germany, announced that for 2007 it had selected 43 products from 11 pharmaceutical companies — including several from our German subsidiary — as a result of a competitive bidding process. Our selection in this tender process significantly increased our sales as compared to a year earlier. AOK also conducted a competitive bidding (or “tender”) process for an increased number of products for 2008-2009, in which we also participated. This tender process was completed in September 2007, but the results have not been publicly announced or implemented because the legality of this tender process is currently being litigated.

In 2006, the government introduced a number of new measures that have had a significant impact on the generic pharmaceutical market. First, it has introduced a price moratorium which eliminates the possibility of increasing prices through March 2008. Second, it has imposed a mandatory producer rebate of 10% and banned any further discounts or rebates in kind to pharmacists. Third, it has allowed health insurers to waive the patient co-pay in cases where the generic is priced at least 30% below the reference level. At this time, prices for products have been somewhat reduced, but higher volumes have mostly offset the lower pricing.

In September 2007, we acquired O.R.C.A.pharm GmbH, a specialty pharmaceutical company focused on the oncology market in Germany, for an initial payment of EUR 21 million in September, a EUR 2.2 million payment in the quarter ended December 31, 2007 for working capital assumed in the transaction, and additional payments of up to EUR 12.1 million based on the achievement of profitability milestones. This acquisition strengthens our position in the oncology market in Germany and will also allow us to add existing Barr and PLIVA products to the O.R.C.A.pharm portfolio.

Croatia. Croatia is the site of our European headquarters, where we have manufacturing, R&D, biologic and API facilities. Croatia is our second largest European market in terms of revenues. As of the end of 2007, we were the leader in the Croatian generic market with approximately 37% market share. Currently, we market some of the top products for the Croatian pharmaceutical market including Sumamed (azithromycin), Klavocin (amoxicillin clavulanic acid), Voltaren (diclofenac) and Peptoran (ranitidine). The Croatian market is a strong branded generic market where substitution at the pharmacy level is generally not allowed. Physicians represent the key decision makers in this market, making product detailing of great importance. Croatia currently has a reimbursement system based on two independent product lists, one where essential drugs are fully reimbursed, and a second where other select drugs are partially reimbursed.

Poland. We have both manufacturing and R&D facilities in Poland. The Polish pharmaceuticals market is the second largest in Central and Eastern Europe and relies heavily on generic drugs, though it remains a branded market with emphasis on product promotion. Sumamed is our largest selling product in Poland, where we also have a strong portfolio of over-the-counter drugs. We currently rank fourth in this generic market. As a result of high patient co-payments, competition among pharmacies and general economic growth, the market is highly competitive and is expected to grow.

Russia. The Russian market is the largest in Central and Eastern Europe and is also one of the fastest growing. The market is fragmented and no one company dominates. State involvement in the market is limited and most expenditures on drugs are made directly by individuals to pharmacists. Our largest selling product in Russia is Sumamed, which retains its leading position despite over 15 generic competitors. In 2005, the government created the first federal healthcare program, known as the “DLO”, providing reimbursement for drugs that are on the DLO list. In November 2006, the government published a revised DLO list with significant changes that have affected participating companies to differing degrees. In addition, the budget for the DLO was significantly overspent in 2006, which has created large delays in payment to producers. As a result, we have decreased our participation in the DLO market and in 2007 nearly 95% of our sales in Russia were in the commercial market. We believe that the Russian market offers significant growth potential because of the overall robust economy and the relatively untapped market. We continue to seek to expand our operations in this market.