Barr Pharmaceuticals

Shares in Barr Pharmaceuticals (BRL, 52.44 +2.55) are rising materially in early trading despite the drug maker posting a lower first quarter profit, hurt by its acquisition of Croatian drug maker, Pliva. The quarterly performance for what is now the third largest generic company behind Teva Pharmaceutical (TEVA) and Novartis AG's (NVS) Sandoz unit, was clouded by its October 2006 acquisition of Pliva. However, a significant upside beat and reaffirmation of full year guidance pushed shares higher.

The company lowered guidance back in February, and the stock has faded over the past few months to lows in the mid forty dollar range in April. In recent weeks, shares have regained some momentum, and today's results accentuated this momentum after the company reiterated earnings and upped the ante for full year revenues.

Earnings, excluding non-recurring, of $0.78 per share bested expectations by 18 cents. Revenues rose 83.2% to $599 million. Looking ahead, Barr reaffirmed full year guidance of $3.00 to $3.30 in earnings excluding items, but raised the bar on revenues to  $2.4-$2.5 billion from its prior guidance of $2.3-$2.4 billion. The current consensus estimate stands at $3.00 and $2.56 billion, respectively.

In the quarter, the inclusion of Pliva's product line sent generic product sales up by 52% to $304 million. Additionally, Barr experienced strong sales of Fentanyl Citrate, a generic version of ACTIQ launched in September, along with higher generic oral contraceptive sales. The latter is the company's single largest category of generics, which grew at a 12% clip in the quarter to $113 million. Other recently launched drugs, Kariva and Jolessa, also contributed to topline growth.

Proprietary product sales were $89 million, compared to $93 million in the prior year. The decline was the result of the expected generic competition of its Seasonale extended-cycle oral contraceptive. The drug lost patent protection in September of 2006 after three years of market exclusivity. Plan B and Adderall IR, both launched in December, helped offset the declines. 

There was a lot going on this quarter for Barr with the acquisition. The company plans to exit its operations in Spain as well as the animal health business. Margins took a hit due to the amortization costs and a charge related to a step-up in inventory from the acquisition. It's had notable success from its pipeline, recently receiving three generic product approvals from the FDA in the first quarter and approximately 30 approvals, representing 24 molecules from regulatory bodies in Europe and the rest of the world.

The acquisition has been a major distraction surrounding shares. But now with the deal done, the company can move forward to leverage its generic portfolio and execute on its proprietary product pipeline that has yielded recent successes. We continue to take a favorable view of Barr's dual portfolio strategy of generic and proprietary drugs given the heightened competitive environment for drug prices globally.

It's been a rocky road over the past few months, but we think the sell-off presents an attractive opportunity for long-term investors. Valuations have become increasingly attractive on a relative basis. The stock trades at less than 2x its growth rate of 21% next year, trading at 14.5x forward earnings - a discount to the S&P 500 Pharmaceutical Index at 16.6x and its historical average.

--Kimberly DuBord, Briefing.com