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Raising the Barr Again
Shares in Barr Pharmaceuticals (BRL, 55.27) are soaring in early trading. For the second quarter in a row, the third largest generic company behind Teva Pharmaceutical (TEVA) and Novartis AG's (NVS) Sandoz unit, crushed expectations. Second quarter earnings of $0.84 per share, excluding non-recurring items, trumped expectations by a whopping 12 cents.
Revenues in the quarter rose 81.1% year over year to $637 million vs. the $614.3 million consensus projection. The addition of PLIVA was felt across the entire business. Generic product sales rose to $487 million from $222 million in the prior year. US generic sales grew to $296 million, up 33% on the inclusion of PLIVA and strong sales of Fentanyl Citrate, a generic version of ACTIQ launched in September, and higher generic oral contraceptive sales.
Generic contraceptive sales, the largest contributor to generic products, were $116 million, up 8% over the prior year. Growth was driven by sales of Balziva and Jolessa, both launched last fall, and higher sales of Kariva. PLIVA gave Barr an entry into the European market where it had no prior exposure, with international sales contributing $191 million in the second quarter.
Proprietary product sales rose 5% to $102 million driven by higher sales of Plan B and Adderall, both of which were launched in the December quarter, in addition to sales of Seasonique. Generic margins were negatively impacted by acquisition-related amortization, while proprietary margins widened to 79%, up from 69% in the prior year, due to a better product mix.
Despite the earnings upside, Barr reiterated FY07 guidance, retaining a level of conservatism. It anticipates earnings of $3.00-$3.10 per share on revenues of $2.4-$2.5 billion for the year. Consensus estimates currently stand at $2.99 per share and $2.49 billion, respectively.
Overall, Barr produced a solid quarter and maintained the PLIVA integration is on schedule. We remain buyers of the stock, albeit we would suggest waiting for shares to fade a bit after today's run-up. It's been a rocky road over the past few months with shares trading in a wide range. We think this reflects the risks associated with the acquisition in addition to heightened generic competition.
We continue to think BRL remains an attractive investment for long-term investors. Barr continues 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. Valuations remain attractive, trading at 18.0x forward earnings for 21% earnings growth. Historically, BRL has traded at 23.9x earnings over the past five years.
Feeds!