<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 14, 2000
REGISTRATION NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
BARR LABORATORIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
NEW YORK 22-1927534
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
------------------------
2 QUAKER ROAD, PO BOX D 2900
POMONA, NEW YORK 10970-0519
(914) 362-1100
(ADDRESS AND TELEPHONE NUMBER
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
MARTIN ZEIGER
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
BARR LABORATORIES, INC.
2 QUAKER ROAD, PO BOX D 2900
POMONA, NY 10970-0519
(914) 362-1100
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
M. FINLEY MAXSON JONATHAN I. MARK
WINSTON & STRAWN CAHILL GORDON & REINDEL
35 WEST WACKER DRIVE 80 PINE STREET
CHICAGO, ILLINOIS 60601 NEW YORK, NEW YORK 10005
(312) 558-5600 (212) 701-3000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] _______________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _______________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) PRICE(2) REGISTRATION FEE
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock ($.0l
par-value).................. 4,025,000 shares $74.78 $300,989,500 $79,461.23
------------------------------------------------------------------------------------------------------------------------------
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</TABLE>
(1) Includes 525,000 shares to be issued solely to cover an over-allotment
option granted to the underwriters. See "Underwriting."
(2) Estimated pursuant to paragraph (c) of Rule 457 under the Securities Act of
1933 solely for the purposes of calculating the amount of the registration
fee on the basis of the average of the high and low sales prices for a share
of Common Stock on the New York Stock Exchange on September 8, 2000.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS
EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH
SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME
EFFECTIVE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 8(a) OF THE SECURITIES
ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH
DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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--------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
September 14, 2000
Subject to Completion
3,500,000 SHARES
[BARR LOGO]
COMMON STOCK
------------------------------
Barr Laboratories, Inc. is offering 500,000 shares of common stock and a
selling shareholder is offering 3,000,000 shares of our common stock in a firmly
underwritten offering. We will not receive any proceeds from the sale of shares
of common stock by the selling shareholder.
------------------------------
Our common stock is listed on the New York Stock Exchange under the symbol
"BRL." The last reported sale price of our common stock on the New York Stock
Exchange on September 13, 2000, was $73.69 per share.
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 8.
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Offering Price..............................................
Discounts and Commissions to Underwriters...................
Offering Proceeds to Barr Laboratories......................
Offering Proceeds to Selling Shareholder....................
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The selling shareholder has granted the underwriters the right to purchase
up to 525,000 additional shares of common stock to cover any over-allotments.
The underwriters can exercise this right at any time within 30 days after the
offering. The underwriters expect to deliver the shares of common stock to
investors on , 2000.
BANC OF AMERICA SECURITIES LLC
, 2000
<PAGE> 3
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY
SHARES OF BARR LABORATORIES, INC. COMMON STOCK ONLY IN JURISDICTIONS WHERE
OFFERS AND SALES ARE PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS
ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF
DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF THE BARR LABORATORIES, INC. COMMON
STOCK. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS
DIFFERENT. THIS DOCUMENT MAY BE USED ONLY WHERE IT IS LEGAL TO SELL THESE
SECURITIES.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary.......................................... 3
Risk Factors................................................ 9
Use of Proceeds............................................. 16
Price Range of Our Common Stock............................. 16
Dividend Policy............................................. 16
Capitalization.............................................. 17
Selected Consolidated Financial Data........................ 18
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 20
Business.................................................... 24
Management.................................................. 39
Selling Shareholder......................................... 40
Description of Capital Stock................................ 41
Underwriting................................................ 42
Legal Matters............................................... 43
Experts..................................................... 43
Where You Can Find More Information......................... 44
Index to Financial Statements............................... F-1
</TABLE>
------------------------
The underwriters are offering the shares subject to various conditions and
may reject all or part of any order.
The Barr "b," "SEASONALE" and "CyPat" are our registered trademarks. All
other trademarks and registered trademarks used in this prospectus are the
property of their respective owners.
We incorporated in 1970 as a New York corporation. Our executive offices
are located at 2 Quaker Road, PO Box D 2900, Pomona, NY, 10970-0519, and our
telephone number at that address is (914) 362-1100. We maintain a website on the
Internet at www.barrlabs.com. Our website, and the information contained
therein, is not part of this prospectus.
------------------------
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Except for the historical information contained herein, this prospectus
contains forward-looking statements, all of which are subject to risks and
uncertainties. Such risks and uncertainties include: the timing and outcome of
legal proceedings; the difficulty in predicting the timing of FDA approvals; the
difficulty in predicting the timing and outcome of FDA decisions on patent
challenges; market and customer acceptance and demand for new pharmaceutical
products; ability to market proprietary products; the impact of competitive
products and pricing; timing and success of product development and launch;
availability of raw materials; the regulatory environment; fluctuations in
operating results; and, other risks detailed from time-to-time in our filings
with the SEC. Forward-looking statements can be identified by their use of words
such as "expects," "plans," "will," "believes," "may," "could", "estimates,"
"intends" and other words of similar meaning. These Statements are made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Should known or unknown risks or uncertainties materialize, or should our
assumptions prove inaccurate, actual results could vary materially from those
anticipated. We undertake no obligation to publicly update any forward-looking
statements.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this prospectus or incorporated by reference herein including information under
"Risk Factors." Unless otherwise indicated, all references in this prospectus to
"we," "us," "our," "the Company" or "Barr" refer to Barr Laboratories, Inc. and
its consolidated subsidiaries. Unless otherwise indicated, all information in
this prospectus assumes no exercise of the underwriters' over-allotment option.
References in this prospectus to our fiscal year refer to the twelve-month
period ending on June 30th of each year.
BARR LABORATORIES, INC.
OVERVIEW
We are a specialty pharmaceutical company engaged in the development,
manufacture and marketing of generic and proprietary prescription
pharmaceuticals. We currently market approximately 76 pharmaceutical products,
representing various dosage strengths and product forms of approximately 33
chemical entities. Our product line is principally focused on the development
and marketing of generic and proprietary products in the oncology and female
healthcare categories, including hormone replacement and oral contraceptives,
and other products that have one or more barriers to entry. During our fiscal
year ended June 30, 2000, our total revenues were $482.3 million and our net
income was $54.1 million excluding the effect of approximately $12.0 million in
non-recurring after-tax charges. We also spent a record $40.5 million on
research and development to support both our generic and proprietary
development.
Currently, we are developing more than 40 generic pharmaceutical products.
In addition, we have 18 generic product Abbreviated New Drug Applications, or
ANDAs, filed at the FDA which had total U.S. brand and generic sales of
approximately $2.8 billion for the twelve months ended June 30, 2000. We also
have four generic product ANDAs for which we have tentative approval. These
products are the subjects of patent challenges and had total U.S. brand and
generic sales of approximately $3.8 billion for the twelve months ended June 30,
2000. We expect to file another 13-16 generic ANDAs in fiscal 2001. These
products had total U.S. brand and generic sales of approximately $2.4 billion
for the twelve months ended June 30, 2000. In addition, we are in various stages
of development on a number of proprietary pharmaceuticals. Six of the
proprietary products in development will compete in target markets that had
total U.S. brand and generic sales of over $2.5 billion for the twelve months
ended June 30, 2000.
Our business strategy is to develop pharmaceutical products which present
barriers to entry that may limit competition and, therefore, offer longer
product life-cycles and/or higher potential profitability. The characteristics
of the products that we pursue may include: (i) the need for specialized
manufacturing capabilities; (ii) difficulty in raw material sourcing; (iii)
complex formulation or development characteristics; (iv) regulatory or legal
challenges; or (v) sales and marketing challenges. Our business strategy has
three core components: (i) developing and marketing selected generic
pharmaceuticals that have one or more barriers to entry; (ii) developing and
introducing proprietary pharmaceuticals that will have some market exclusivity;
and (iii) developing the generic version and then challenging patents protecting
certain brand pharmaceuticals that we believe are either invalid, unenforceable
or not infringed by our product.
SELECTED GENERIC PHARMACEUTICALS
Tamoxifen citrate. Our largest selling product is Tamoxifen citrate, or
Tamoxifen, the generic version of Nolvadex(R), which is used to treat advanced
breast cancer, impede the recurrence of tumors following surgery, and reduce the
incidence of breast cancer in women at high risk for developing the disease.
Tamoxifen accounted for $297.4 million, or 68% of our net product sales for our
fiscal year ended June 30, 2000. Approximately 80% of the total prescriptions
written for Tamoxifen in the United States were filled with the Barr-label
product during the twelve months ended June 30, 2000. In 1993, as a result of a
settlement of a patent challenge against the innovator of Tamoxifen, we entered
into a non-exclusive supply and distribution
3
<PAGE> 5
agreement. Under the terms of the Tamoxifen agreement, we purchase Tamoxifen
directly from the innovator at a discount. We are the only distributor of
Tamoxifen in the United States other than the innovator.
Although we are a non-exclusive distributor, the Tamoxifen agreement
provides that should an additional distributor or distributors be selected by
the innovator, we will be granted terms no less favorable than those granted to
any subsequent distributor. Furthermore, we have a tentatively approved ANDA to
manufacture Tamoxifen. Therefore, at the time of patent expiration in August
2002 (or upon another company's successful patent challenge) we plan to
manufacture Tamoxifen. Manufacturing Tamoxifen should lower significantly our
cost of goods for this product and we believe our profit margins on Tamoxifen
would improve.
Warfarin Sodium. Our second largest selling product is Warfarin Sodium,
which was launched by us in July 1997. Warfarin Sodium is the generic equivalent
of DuPont Pharmaceutical's Coumadin(R), an anti-coagulant which is given to
patients with heart disease and/or high risk of stroke. Total U.S. generic and
brand sales of Warfarin Sodium were approximately $500 million for the twelve
months ended June 30, 2000. In August 2000 Barr's generic product captured
approximately 26% of all prescriptions written. Warfarin Sodium accounted for
approximately 14%, 15% and 11% of our product sales during fiscal 2000, 1999 and
1998, respectively.
PROPRIETARY PRODUCTS
In 1997, we implemented a strategy to develop proprietary pharmaceuticals
that have some period of market exclusivity. We expect these products to
generate higher gross margins and maintain profitability longer than most
generic products. At this time and for the foreseeable future, our proprietary
product development activities are not focused on discovering new molecules.
Instead, our strategy is to focus on products which should take less time and
cost less to gain approval. We pursue candidates in three primary categories:
(i) existing chemical compounds where the development of new forms (e.g. liquid
vs. tablets or different dosages) offer therapeutic or marketing advantages;
(ii) new chemical entities in selected therapeutic categories, including some
that are marketed in other countries but not currently sold in the United
States; and (iii) patent protected proprietary products in late stages of
development.
We have a number of proprietary products under development. Six of the
products would compete in the oncology, oral contraception and anti-viral
categories.
SELECTED PATENT CHALLENGES
Ciprofloxacin. In January 1995, we received a tentative approval of an
ANDA for Ciprofloxacin tablets. In January 1997, we and the innovator of
Ciprofloxacin resolved pending patent litigation regarding Ciprofloxacin.
Ciprofloxacin is the generic equivalent of Bayer AG's Cipro(R) and is used to
treat lower respiratory, skin, bone and joint, and urinary tract infections.
Total U.S. brand and generic sales were approximately $920 million in the twelve
months ended June 30, 2000. As part of the resolution, we entered into a
contingent, non-exclusive supply agreement, or the Ciprofloxacin agreement,
which ends with the expiration of the patent in December 2003. Under the
Ciprofloxacin agreement, the innovator has the option of allowing us and our
partner to purchase Ciprofloxacin at a discount or make payments to us. If the
innovator chooses not to provide the product to us, we expect to recognize
approximately $28-$31 million per year through our fiscal year ending June 30,
2003. Under terms of the Ciprofloxacin agreement, we and our partner will begin
to distribute the product six months prior to patent expiry. Our agreement will
allow us and our partner the opportunity to offer consumers a more affordable
version of Cipro before patent expires.
Fluoxetine. Fluoxetine is the generic equivalent of Eli Lilly Company's
antidepressant, Prozac(R) which had annual sales of $2.5 billion for the twelve
months ended June 30, 2000. We filed our ANDA for Fluoxetine in February 1996,
and were sued for patent infringement by Lilly, initiating the patent challenge
process.
4
<PAGE> 6
On August 9, 2000, the U.S. Court of Appeals, Federal Circuit in
Washington, D.C. ruled in favor of our challenge of a patent protecting Prozac.
The Court unanimously upheld our "double-patenting" claims and struck down the
patent that would have protected Prozac from generic competition until after
December 2003. Lilly is expected to seek a rehearing in the Court of Appeals and
a review by the Supreme Court. If the present ruling is not reversed, we and our
partners expect to introduce a more affordable generic Prozac product in
February 2001 (or August 2001, if the FDA grants a six months pediatric
exclusivity extension).
5
<PAGE> 7
THE OFFERING
Common stock offered by us.......... 500,000 shares
Common stock offered by the selling
shareholder......................... 3,000,000 shares
Total common stock
offered............................. 3,500,000 shares
Common stock to be outstanding after
the offering........................ 35,694,475 shares(1)
Use of proceeds to us............... Expansion of working capital, potential
acquisitions and general corporate
purposes
New York Stock Exchange symbol...... BRL
---------------
(1) As of September 6, 2000, excludes 2,791,472 shares of common stock reserved
for issuance upon the exercise of outstanding options granted pursuant to
our 1993 Stock Incentive Plan, the 1986 Stock Option Plan and the 1993 Stock
Option Plan for Non-Employee Directors at a weighted average exercise price
of $14.60 per share.
6
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------
1996 1997 1998 1999 2000
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS:
REVENUES:
Product sales.................. 232,224 257,436 346,638 415,950 440,110
Development and other
revenue..................... -- -- -- -- 14,584
Proceeds from supply
agreements.................. -- 27,050 30,666 28,083 27,584
------- ------- ------- ------- -------
Total revenues................... 232,224 284,486 377,304 444,033 482,278
COSTS AND EXPENSES:
Cost of Sales.................. 189,394 217,196 266,002 301,393 315,652
Selling, general and
administrative.............. 21,695 23,391 38,990 40,439 42,479
Research and development....... 11,274 13,536 18,955 22,593 40,451
Agreement expenses............. -- -- -- -- 18,940(10)
------- ------- ------- ------- -------
Earnings from operations......... 9,861 30,363 53,357 79,608 64,756
Interest income, net............. 1,011 1,459 1,318 483 2,687
Other income (expense)........... 637 228 (17) 36 347
------- ------- ------- ------- -------
Earnings before income taxes and
extraordinary loss............. 11,509 32,050 54,658 80,127 67,790(1)
Income tax expense............... 4,368 12,603 21,148 30,877 25,448
------- ------- ------- ------- -------
Earnings before extraordinary
loss........................... 7,141 19,447 33,510 49,250 42,342(1)
Extraordinary loss on early
extinguishment of debt, net of
taxes.......................... (125) -- (790) -- --
------- ------- ------- ------- -------
Net earnings..................... 7,016(4) 19,447 32,720(3) 49,250 42,342(1)
======= ======= ======= ======= =======
EARNINGS PER COMMON SHARE:
Earnings before extraordinary
loss........................... 0.23(2)(5) 0.61(2) 1.02(2) 1.45(2) 1.23(1)
Net earnings..................... 0.22(2)(4)(5) 0.61(2) 1.00(2)(3) 1.45(2) 1.23(1)
EARNINGS PER COMMON SHARE --
ASSUMING DILUTION:
Earnings before extraordinary
loss........................... 0.22(2)(5) 0.58(2) 0.96(2) 1.39(2) 1.19(1)
Net earnings(6).................. 0.21(2)(4)(5) 0.58(2) 0.94(2)(3) 1.39(2) 1.19(1)
Weighted average shares.......... 31,452(2)(5) 31,700(2) 32,716(2) 33,877(2) 34,406
Weighted average
shares -- assuming dilution.... 32,636(2)(5) 33,645(2) 34,785(2) 35,373(2) 35,715
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 2000
--------------------------
ACTUAL AS ADJUSTED(9)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $155,922 $191,531
Working capital............................................. 202,892 238,501
Total assets................................................ 423,853 459,462
Long-term debt(7)........................................... 28,084 28,084
Shareholders' equity(8)..................................... 282,168 317,777
</TABLE>
---------------
(1) Includes a non-recurring charge of $18,940 for agreement expenses ($11,800
after tax or $0.33 diluted per share).
(2) Amounts have been adjusted for the June 2000 3-for-2 stock split effected
in the form of a 50% stock dividend.
(3) Fiscal 1998 includes the effect of a $790 ($0.02 per share) extraordinary
loss (net of tax of $492) on early extinguishment of debt.
7
<PAGE> 9
(4) Fiscal 1996 includes the effect of a $125 ($0.01 per share) extraordinary
loss (net of tax of $76) on early extinguishment of debt.
(5) Amounts have been adjusted for the May 1997 3-for-2 stock split effected in
the form of a 50% stock dividend.
(6) Fiscal 1997 and 1996 earnings per share amounts have been restated to
conform with the provisions of Statement of Financial Accounting Standards
No. 128 "Earnings per Share."
(7) Excludes current installments.
(8) The Company has not paid a cash dividend in any of the above years.
(9) Adjusted to reflect the sale of 500 shares of Common Stock offered by us
hereby and the receipt of estimated net proceeds therefrom.
(10) Agreement expenses consist of a one-time non-cash charge representing the
fair value of the 1,500 warrants issued to DuPont as well as approximately
$2,500 in one-time legal charges associated with finalizing our definitive
agreements with DuPont.
8
<PAGE> 10
RISK FACTORS
You should carefully consider the following risks and the other information
we have included or incorporated by reference in this prospectus before deciding
to purchase any of our stock. Certain statements and information contained in
this prospectus or incorporated by reference herein constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause our actual results, performance,
or achievements to be materially different from any future results, performance,
or achievements expressed or implied by such forward-looking statements.
OUR RESULTS DEPEND UPON THE INTRODUCTION OF NEW PRODUCTS
Our future operating results will depend to a significant extent upon our
ability to develop and market new pharmaceutical products. Our operating results
may vary significantly on an annual or quarterly basis depending on the timing
of, and our ability to obtain Food and Drug Administration, or FDA, approvals
for new products. Generic pharmaceuticals that are launched when there is
limited or no other generic competition are typically sold at higher selling
prices than when there are several generic pharmaceutical alternatives
available. As a result, such products often produce higher gross profit margins.
As competition from other manufacturers intensifies, selling prices and gross
profit margins typically decline. Our future operating results may also be
affected by a variety of additional factors, including the results of future
successful patent challenges, customer purchasing practices, changes in the
degree of competition affecting our products and the timing of FDA approvals
for, and the market acceptance of, our proprietary drug products.
In addition, a significant portion of our revenues and gross profit are the
result of successful patent challenges we have undertaken under the Drug Price
Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act.
There can be no assurance that we will successfully complete the development of
any additional products involving patent challenges, succeed in any pending or
future patent challenges or, if successful, receive significant revenues or
profit from the products covered by successfully challenged patents. Moreover,
the Hatch-Waxman Act, the Federal Food, Drug and Cosmetic Act, or other
applicable laws or regulations could be amended in a way that may adversely
affect our business.
While we believe our pipeline of generic drugs and proprietary drugs will
allow us to compete effectively, no assurance can be given that any of the
products in our pipeline will be successfully developed or approved by the FDA,
or that any of them will achieve significant revenues and profitability.
WE ARE SUBJECT TO ADMINISTRATIVE PROCEEDINGS RELATING TO PATENT LITIGATION
SETTLEMENTS WHICH, IF ADVERSELY CONCLUDED, WOULD HARM OUR BUSINESS AND FINANCIAL
RESULTS
On June 30, 1999, we received a civil investigative demand from the Federal
Trade Commission, or FTC, for interrogatories and a subpoena for documents
relating to the January 1997 agreement resolving the Hatch-Waxman Act patent
litigation relating to Ciprofloxacin hydrochloride, which had been pending in
the U.S. District Court for the Southern District of New York. The FTC is
investigating whether the parties (Bayer Corporation, Barr and its partner) have
engaged or are engaging in unfair methods of competition or affecting commerce
in violation of Section 5 of the Federal Trade Commission Act. We continue to
cooperate with the FTC in this investigation and believe that the FTC will
ultimately determine that the agreement was appropriate and a benefit to
consumers.
In 1998 and 1999, we were contacted by the Department of Justice, or DOJ,
regarding the March 1993 resolution of the Tamoxifen patent litigation. We
continue to cooperate with the DOJ in this examination, and believe that the DOJ
will ultimately determine that the settlement was appropriate and a benefit to
consumers. The DOJ has not contacted us about this matter in over a year.
We believe that the patent challenge process under the Hatch-Waxman Act
offers a pro-consumer and pro-competitive means of bringing generic products to
market more rapidly than might otherwise be possible. We believe that once all
the facts are considered, and the benefits to consumers are assessed, that the
DOJ
9
<PAGE> 11
and FTC investigations described above will be resolved. However, consideration
of these matters could take considerable time, and while unlikely, any adverse
result in either matter could have a material adverse impact on our business,
results of operations and financial condition.
WE RELY ON ONE PRODUCT FOR A SUBSTANTIAL PORTION OF OUR SALES AND DEPEND ON ONE
MANUFACTURER FOR THIS PRODUCT
We distribute Tamoxifen (which is sold under our label), the generic
version of Nolvadex, under a non-exclusive supply and distribution agreement
with the innovator holding the product's patent. In December 1993, we resolved a
patent challenge against the innovator of Tamoxifen and we entered into the
Tamoxifen agreement under which we purchase Tamoxifen directly from the
innovator at a discount. Tamoxifen accounted for approximately 68%, 66% and 68%
of our product sales during fiscal 2000, 1999 and 1998, respectively. Because we
distribute Tamoxifen and are not the manufacturer, we earn lower margins from
selling it than we do from most of our other products.
We have a tentatively approved Abbreviated New Drug Application, or ANDA,
to manufacture Tamoxifen. Therefore, at the time of patent expiry in August 2002
(or upon another company's successful patent challenge), we plan to manufacture
Tamoxifen. We believe that the margins we will earn as the manufacturer should
exceed those we currently earn as a distributor. Should this occur, our gross
margin on sales of Tamoxifen would likely increase. We are aware of other
challenges pending against the patents covering Tamoxifen. While we believe that
these challenges will not be successful, we cannot predict their outcome. We
expect that upon patent expiry, additional competitors will enter the market and
our revenues and market share may be negatively affected. However, there can be
no assurances that potential increases in our gross margin will offset pricing
pressures brought about by additional competitors.
Tamoxifen is currently one of the leading therapies in the treatment of
breast cancer. However, if new therapies are introduced that are perceived or
demonstrated to be better therapies, use of Tamoxifen could be reduced. If such
reduction were significant, it could have a material adverse impact on our
business, results of operations and financial condition.
The Tamoxifen agreement requires the innovator to supply us with sufficient
quantities of Tamoxifen to meet our requirements. However, if for any reason the
innovator's production is disrupted, there is no assurance that we would be able
to obtain the required quantities on a timely basis to meet demand. This could
have a material adverse impact on our business, results of operations and
financial condition. We maintain insurance designed to mitigate losses if supply
were interrupted; however, there is no assurance that such insurance would cover
the cause of the delay or that the coverage would adequately cover the losses we
might sustain.
THE BRANDED PHARMACEUTICAL INDUSTRY HAS USED LEGISLATIVE AND REGULATORY EFFORTS
IN AN ATTEMPT TO LIMIT THE USE OF GENERICS
Many branded pharmaceutical companies have increasingly used state and
federal legislative and regulatory means to delay generic competition. These
efforts have included pursuing new patents for existing products, using the
Citizen Petition process to request amendments to FDA standards, seeking changes
to the United States Pharmacopeia (an organization which publishes industry
recognized compendia of drug standards), and attaching patent extension
amendments to non-related federal legislation. In addition, some branded
pharmaceutical companies have engaged in state-by-state initiatives to enact
legislation that restricts the substitution of some generic drugs. We have and
will continue to spend time and money on government affairs activities. However,
there can be no assurance that our efforts to promote competition will be
successful and that legislative and regulatory initiatives proposed by the brand
industry will not limit acceptance of our products. Such limits could adversely
affect our business, results of operations and financial condition.
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<PAGE> 12
WE FACE A NUMBER OF UNCERTAINTIES RELATED TO MARKET ACCEPTANCE OF OUR PRODUCTS
Our ability to commercialize any generic or proprietary drug product
following the receipt of regulatory approval will depend in part on the
acceptance of the product by physicians and patients. Unanticipated side effects
or unfavorable publicity concerning any of our developed or acquired products
could have an adverse effect on our ability to: (1) obtain regulatory approvals;
(2) achieve acceptance by prescribing physicians, managed care providers,
customers or patients; or (3) commercialize such products, any of which could
have a material adverse effect on our business, results of operations and
financial condition.
WE OPERATE IN A HIGHLY REGULATED INDUSTRY
In addition to being subject to oversight by the usual government agencies,
all pharmaceutical manufacturers, including Barr, are subject to extensive
regulation by the federal government, principally the FDA, and, to a lesser
extent, the U.S. Drug Enforcement Administration, or DEA, and state governments.
The Federal Food, Drug and Cosmetic Act, the Controlled Substances Act and other
federal statutes and regulations govern or influence the testing, manufacturing,
safety, labeling, storage, record keeping, approval, pricing, advertising and
promotion of our products. If we did not comply with applicable requirements we
could be fined and our products could be recalled or seized. The FDA also has
the authority to revoke drug approvals previously granted.
Food and Drug Administration (FDA)
FDA approval is required before any new drug or a generic equivalent can be
marketed. We generally receive approval for generic products by submitting an
ANDA to the FDA. When processing an ANDA, the FDA waives the requirement of
conducting complete clinical studies, although it may require bioavailability
and/or bioequivalence studies. "Bioavailability" indicates the rate and extent
of absorption and levels of concentration of a drug product in the blood stream
needed to produce a therapeutic effect. "Bioequivalence" compares the
bioavailability of one drug product with another, and when established,
indicates that the rate of absorption and levels of concentration of a generic
drug in the body are the same as the previously approved drug. An ANDA may be
submitted for a drug on the basis that it is the equivalent to a previously
approved drug. There can be no assurance that approval for new ANDAs can be
obtained in a timely manner, or at all.
Products resulting from our proprietary drug program may require us to
submit a New Drug Application, or NDA, to the FDA. When processing an NDA, the
FDA requires pre-clinical and clinical safety and efficacy data. Full, or
partial, clinical trials, conducted in sequential phases, may be required by the
FDA to demonstrate that the product is safe and effective. Generating the data
required by the FDA can be time-consuming and expensive without assurance that
the results will be adequate to gain approval by the FDA. There can be no
assurance that approval for new NDAs can be obtained in a timely manner, if at
all.
Before approving a product, the FDA also requires that our manufacturing
procedures and operations conform to current Good Manufacturing Practice
regulations, or cGMP, as defined in the U.S. Code of Federal Regulations. We
must follow the cGMP regulations at all times during the manufacture of our
products. To help ensure compliance with cGMP regulations, we continue to spend
time, money and effort in the areas of production and quality control.
If the FDA believes a company is not in compliance with cGMP, sanctions may
be imposed upon that company including: (i) withholding new drug approvals as
well as approvals for supplemental changes to existing applications; (ii)
preventing the receipt of the necessary export licenses to export products; and
(iii) classifying the company as an "unacceptable supplier" and thereby
disqualifying it from selling products to federal agencies. We believe we are
currently in compliance with cGMP.
In May 1992, the Generic Drug Enforcement Act of 1992, or the Generic Act,
was enacted. The Generic Act, allows the FDA to impose debarment and other
penalties on individuals and companies that commit certain illegal acts relating
to the generic drug approval process. In some situations, the Generic Act
requires the FDA to debar (i.e., not accept or review ANDAs for a period of
time) a company or an individual that has committed certain violations. It also
provides for temporary denial of approval for applications during the
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<PAGE> 13
investigation of certain violations that could lead to debarment and also, in
more limited circumstances, provides for the suspension of the marketing of
approved drugs by the affected company. Lastly, the Generic Act allows for civil
penalties and withdrawal of previously approved applications. Neither Barr nor
any of our employees have ever been subject to debarment.
Drug Enforcement Agency (DEA)
Because we sell and develop products that contain controlled substances, we
must meet the requirements and regulations of the Controlled Substances Act
which are administered by the DEA. These regulations include stringent
requirements for manufacturing controls and security to prevent diversion of or
unauthorized access to the drugs in each stage of the production and
distribution process. The DEA also regulates allocation of raw materials used in
the production of controlled substances based on historical sales data.
If we were not in compliance, or if there were changes affecting our
operations or the approval or shipment of our products, these matters could have
a material adverse effect upon our business, results of operations and financial
condition.
THE PHARMACEUTICAL INDUSTRY IS HIGHLY COMPETITIVE
The number of generic competitors and the intensity of competitive pricing
and other marketing activities is unpredictable and therefore the profitability
of a generic product may be short-lived. Revenue and gross profit derived from
the sale of generic products tend to follow a pattern based upon regulatory and
competitive factors unique to the generic pharmaceutical industry. Competition
from both branded and generic pharmaceutical companies will be based on, among
other things, product efficacy, safety, reliability, availability and price. As
patents for brand-name products and any related market exclusivity expire,
prices and revenues typically decline as additional generic competitors enter
the marketplace.
The selling prices of our generic products may decline as competition
increases. Currently, many of our generic products compete with other approved
generic products. In addition, some third party payers, wholesalers and chain
drug stores have instituted programs that may cause us to lower our prices to
remain competitive. These factors may lower the selling price of our products
which could have a material adverse effect on our business, results of
operations and financial condition.
Our proprietary products could face competition from other new therapies or
products launched by our competitors. In that event, market acceptance for our
proprietary products could be lower than anticipated or nonexistent.
Relatively large research and development expenditures enable a company to
support many FDA applications simultaneously, thereby improving the likelihood
of being among the first to obtain approval of at least some generic drugs.
Actions taken by brand companies designed to delay or inhibit generic
competition could be successful. Other products now in use or under development
by others may be more effective or have fewer side effects than our current or
future products. In addition, competitors may develop their products more
rapidly than we do. Competitors may also be able to complete the regulatory
process sooner, and therefore may begin to market their products before we
market ours. There can be no assurance that developments by others will not
render any product we produce or may produce obsolete or otherwise
non-competitive.
PROPOSED FDA REGULATIONS AND RECENT FDA GUIDELINES MAY IMPAIR OUR ABILITY TO
FULLY UTILIZE THE 180-DAY MARKETING EXCLUSIVITY PERIOD FOR OUR SUCCESSFUL PATENT
CHALLENGES
Under the Hatch-Waxman Act, the developer of a bioequivalent drug which is
the first to have its ANDA accepted for filing by the FDA, and whose filing
includes a certification that the patent is invalid, unenforceable or not
infringed, a so-called Paragraph IV Certification, is awarded a 180-day period
of marketing exclusivity. That is, the FDA may not approve another generic
version of the product for any company during the first 180 days. This period of
marketing exclusivity provides the successful patent challenger with the
opportunity to build its market share to a significant position. While enabling
the
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<PAGE> 14
company to recoup the expenses of the lawsuit and realize stronger profit
margins, this also may provide an impediment to or limit the entrance of
subsequent competitors. Once significant market share is achieved, the first
successful challenger can more effectively defend its position against future
competitors.
In August 1999, the FDA published a proposed 180-Day Generic Drug
Exclusivity rule. This proposed rule is designed to clarify the FDA's
interpretation of the 180-day generic drug exclusivity provision of the
Hatch-Waxman Act, in response to numerous court challenges and Citizens
Petitions. We, as well as other members of the generic industry, have submitted
comments on the proposed rule. While still reviewing the comments related to the
proposed rule, the FDA issued industry Guidance in March 2000. The FDA's
implementation of the final regulations and the Guidance may be delayed for a
significant period and will likely be the subject of additional court challenges
and citizens petitions. As such, it is impossible for us to provide a general
conclusion as to the effect the proposed rule and the Guidance would have on the
exclusivity status of our patent cases, including the August 9, 2000 court
ruling in favor of our challenge of a patent protecting Eli Lilly's Prozac(R)
discussed later in this prospectus. If we lose some or all of the 180 days
exclusivity we expect, the value of the favorable ruling could be substantially
diminished.
WE FACE THE RISK OF PRODUCT LIABILITY CLAIMS, WHICH MAY BE INADEQUATELY INSURED
Manufacturing, marketing, selling and testing pharmaceutical products
involve a risk of product liability. Even unsuccessful product liability claims
could require us to spend money on litigation, divert management's time, damage
our reputation and impair the marketability of our products. We maintain product
liability insurance and have indemnification provisions in our contracts with
the companies that supply us with finished goods for sale. However, there can be
no assurance that a successful claim could not be made against us, that the
amount of indemnification payments or insurance would be adequate to cover the
costs of defending against or paying such a claim or that damages payable by us
would not have a material adverse effect on our business, results of operations
and financial condition. Furthermore, if we receive the required regulatory
approvals for any of our products under development, there can be no assurance
that additional liability insurance coverage for a commercialized product will
be available in the future on acceptable terms, if at all.
WE DEPEND ON A SINGLE SOURCE OF RAW MATERIALS FOR MANY OF OUR PRODUCTS
The principal raw materials we use to make our products are active and
inactive pharmaceutical ingredients and certain packaging materials. Currently,
we purchase many of these, including the ingredients used in certain key
products from single qualified suppliers, both foreign and domestic. Although we
have not experienced difficulty to date in acquiring active raw materials, or
other materials for production or development, no assurance can be given that
supply interruptions will not occur in the future or that we will not have to
obtain substitute materials, which would require additional product validations
and regulatory submissions. Any such interruption of supply could have an
adverse effect on our ability to manufacture our products, to obtain or maintain
regulatory approval of such products, and could have a material adverse effect
on our business, results of operations and financial condition.
WE WILL NEED A SALES ORGANIZATION TO SELL OUR FUTURE PROPRIETARY PRODUCTS
Nearly all of our proprietary products will require a sales force that
promotes those products directly to physicians. At this time, we do not employ
such sales representatives. There can be no assurance that when our products are
available for commercial launch, we will be able to license our products to
pharmaceutical companies with sales organizations, enter into favorable
co-promotion or contract sales arrangements, and/or recruit or acquire an
effective sales organization. Our inability to provide for satisfactory sales
and marketing arrangements in the future could have a material adverse effect on
our business, results of operations and financial condition.
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<PAGE> 15
WE ARE SUBJECT TO THIRD PARTY REIMBURSEMENT PRICING PRESSURES AND GOVERNMENT
REBATE PROGRAMS
Our ability to maintain profitability depends in part on the extent to
which reimbursement for the cost of pharmaceuticals will be available from
government health administration agencies, private health insurers and other
organizations. In addition, third party payors are attempting to control costs
by limiting the level of reimbursement for medical products, including
pharmaceuticals, which may adversely affect the pricing of our products.
Moreover, healthcare reform has been, and may continue to be, an area of
national and state focus that could result in the adoption of measures that
could adversely affect the pricing of pharmaceuticals or the amount of
reimbursement available from third party payors. There can be no assurances that
healthcare providers, patients or third party payors will accept and pay for our
pharmaceuticals. In addition, there is no assurance that healthcare
reimbursement laws or policies will not be changed in a way that may have a
material adverse effect on our business, results of operations and financial
condition.
Over the last year, the extension of prescription drug coverage to all
Medicare recipients has gained support in Congress. We believe that federal
and/or state governments may continue to enact measures, such as rebate
programs, aimed at reducing the costs of drugs to the public. We cannot predict
the nature of such measures or their impact on our profitability, although if
such measures included an increase in the amount of mandated rebates from the
sales of products, our business, results of operations and financial condition
could be adversely affected.
WE DEPEND ON SCIENTIFIC AND MANAGEMENT PERSONNEL
Our success depends on our ability to hire and retain highly qualified
scientific and management personnel. We face intense competition for personnel
from other companies, academic institutions, government entities and other
organizations. There can be no assurances that we will be able to hire and
retain such personnel. The loss of such personnel, or the inability to hire and
retain the additional, highly skilled employees required for the expansion of
our activities, could have a material adverse effect on our business, results of
operations and financial condition.
OUR ACTIONS MAY BE INFLUENCED BY AN EXISTING SHAREHOLDER
Upon the completion of the offering, Dr. Bernard Sherman, a Barr director,
will beneficially own approximately 33.1% of the outstanding common stock
(without giving effect to the exercise of the underwriters' over-allotment
option). Dr. Sherman does not participate in the daily management of our
Company. He may be able to influence the outcome of certain shareholder votes,
including votes concerning the elections of directors, the adoption or amendment
of provisions in our Certificate of Incorporation, and the approval of mergers
and other significant corporate transactions.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of shares by existing shareholders could adversely affect the
prevailing market price of our common stock. As of September 6, 2000,
substantially all of our 35,194,475 shares of outstanding common stock were
freely tradable in the public market. Of these shares, 15,337,329 shares were
held by our executive officers and directors and were eligible for immediate
sale in the public market subject to volume and other restrictions of Rule 144
under the Securities Act of 1933. The selling shareholder has agreed to sell
3,000,000 of such shares in the offering (excluding any over-allotment). In
addition, on September 6, 2000, options to purchase approximately 1,535,643
shares (of which 1,106,849 are held by executive officers and directors and are
subject to volume and other restrictions of Rule 144) were exercisable and
eligible for immediate sale in the public market. However, all of our executive
officers and directors and the selling shareholder have agreed that they will
not, except under this prospectus or without prior written consent of Banc of
America Securities LLC, sell shares of common stock beneficially owned by them
(including shares issuable upon exercise of options held by them) until 90 days
after the date of this prospectus.
In addition, warrants to purchase 1,500,000 shares of our common stock
(750,000 shares at $31.33 per share and 750,000 shares at $38.00 per share) were
issued to DuPont Pharmaceuticals in connection with the development and
marketing agreement we entered into in March, 2000, and are outstanding. These
warrants
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<PAGE> 16
are exercisable at any time and terminate in March, 2004. The common stock
issuable upon exercise will be restricted, but is subject to registration
rights. DuPont currently owns 1,500,000 of these outstanding warrants.
OUR STOCK PRICE MAY BE VOLATILE
The stock market has from time to time experienced significant price and
volume fluctuations that may be unrelated to the operating performance of
particular companies. In addition, the market price of our common stock, like
the stock prices of many publicly traded pharmaceutical and specialty
pharmaceutical companies, has been and may continue to be highly volatile. The
sale of common stock by our principal shareholder or members of our management,
announcements of technological innovations or new commercial products by us or
our competitors, developments or disputes concerning patent or proprietary
rights, timing and outcome of legal proceedings, including decisions regarding
the timing and outcome of FDA and court decisions relating to the exclusivity
period related to patent challenges, publicity regarding actual or potential
medical results relating to marketed products, or to products under development
by us or our competitors, regulatory developments in either the United States or
foreign countries, public concern as to the safety of pharmaceutical and
specialty pharmaceutical products and economic and other external factors, as
well as period-to-period fluctuations in financial results, among other factors,
may have a significant impact on the market price of our common stock.
WE HAVE NOT PAID CASH DIVIDENDS
We have never paid any cash dividends. In addition, we are limited by
existing debt covenants as to the amount of dividends we can pay. Our current
policy is to retain our earnings, if any, to finance expansion and product
development. Payment of dividends in the future will depend on our earnings and
financial condition and other factors our Board of Directors may consider or
deem appropriate at the time.
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USE OF PROCEEDS
Of the 3,500,000 shares of common stock being offered hereby, we are
selling 500,000 shares. The net proceeds to us from this offering are estimated
to be $35.6 million based on a public offering price of $74.78 per share, after
deducting our share of the estimated offering expenses and underwriting
discounts. We will not receive any proceeds from the sale of the common stock by
the selling shareholder.
We intend to use the net proceeds we receive from the offering for general
corporate purposes, including expansion of working capital and potential
acquisitions of companies and/or selected products that are complementary to our
existing business. Although we currently have no commitments with respect to
additional acquisitions, we regularly evaluate such opportunities. Pending such
uses, the net proceeds will be invested in short-term investment-grade,
interest-bearing securities.
PRICE RANGE OF COMMON STOCK
Since February 10, 1998, our common stock has been listed and traded on the
New York Stock Exchange. Prior to February 10, 1998, our common stock was listed
and traded on the American Stock Exchange. The following table sets forth, for
the quarterly periods indicated, high and low prices of the common stock.
Amounts reflect adjustments for June 2000 3-for-2 stock split.
<TABLE>
<CAPTION>
LOW HIGH
------ ------
<S> <C> <C>
FISCAL YEAR ENDED JUNE 30, 1998:
First Quarter............................................. $24.67 $32.67
Second Quarter............................................ 21.67 26.75
Third Quarter............................................. 22.17 27.83
Fourth Quarter............................................ 25.21 31.29
FISCAL YEAR ENDED JUNE 30, 1999:
First Quarter............................................. $16.46 $26.50
Second Quarter............................................ 16.59 33.17
Third Quarter............................................. 18.92 32.37
Fourth Quarter............................................ 19.00 27.00
FISCAL YEAR ENDED JUNE 30, 2000:
First Quarter............................................. $18.88 $26.75
Second Quarter............................................ 19.00 23.50
Third Quarter............................................. 20.00 33.92
Fourth Quarter............................................ 25.38 45.88
FISCAL YEAR ENDING JUNE 30, 2001:
First Quarter (through September 13, 2000)................ $43.63 $79.81
</TABLE>
The last reported sales price for our common stock on the New York Stock
Exchange on September 13, 2000 was $73.69 per share.
DIVIDEND POLICY
We have never declared or paid a cash dividend on our common stock and we
do not intend to do so in the foreseeable future. In addition, we are limited by
existing debt covenants as to the amount of dividends we can pay. Our current
policy is to retain our earnings, if any, to finance expansion and product
development. Payment of dividends in the future will depend on our earnings and
financial condition and such other factors as our Board of Directors may
consider or deem appropriate at the time.
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CAPITALIZATION
The following table sets forth our cash and capitalization as of June 30,
2000: (i) on an actual basis; and (ii) as adjusted to reflect the receipt and
application of the estimated net proceeds, after deducting our share of the
underwriting discounts and commissions and expenses from the sale of 500,000
shares of common stock by us pursuant to this offering.
<TABLE>
<CAPTION>
JUNE 30, 2000
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $155,922 $191,531
======== ========
Total debt.................................................. $ 30,008 $ 30,008
Shareholders' equity:
Preferred stock, par value $1 per share; 2,000,000 shares
authorized; none issued................................ -- --
Common Stock, par value $.01 per share; 100,000,000 shares
authorized; 35,004,869 shares issued; 35,504,869 shares
issued as adjusted(1).................................. 350 355
Additional paid in capital................................ 99,881 135,485
Retained earnings......................................... 180,034 180,034
Other Comprehensive Income................................ 1,916 1,916
Treasury stock (176,932 shares at cost)................... (13) (13)
-------- --------
Total shareholders' equity............................. 282,168 317,777
-------- --------
Total capitalization.............................. $312,176 $347,785
======== ========
</TABLE>
---------------
(1) Excludes 2,791,472 shares of common stock reserved for issuance upon the
exercise of outstanding options granted pursuant to our 1993 Stock Incentive
Plan, our 1986 Stock Option Plan and our 1993 Stock Option Plan for the
Non-Employee Directors at a weighted average exercise price of approximately
$14.60 per share.
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SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and related
notes included elsewhere in the prospectus. The statements of operations data
for the three years ended June 30, 2000 and the balance sheet data at June 30,
1999 and 2000 are derived from our audited financial statements. The statements
of operations for the two years ended June 30, 1996 and the balance sheet data
as of June 30, 1996, 1997 and 1998 are derived from audited financial statements
which are not included in the prospectus.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
REVENUES:
Product sales............................ 232,224 257,436 346,638 415,950 440,110
Development and other revenue............ -- -- -- -- 14,584
Proceeds from supply agreements.......... -- 27,050 30,666 28,083 27,584
-------- -------- -------- -------- --------
Total revenues............................. 232,224 284,486 377,304 444,033 482,278
COSTS AND EXPENSES:
Cost of Sales............................ 189,394 217,196 266,002 301,393 315,652
Selling, general and administrative...... 21,695 23,391 38,990 40,439 42,479
Research and development................. 11,274 13,536 18,955 22,593 40,451
Agreement expenses....................... -- -- -- -- 18,940(9)
-------- -------- -------- -------- --------
Earnings from operations................... 9,861 30,363 53,357 79,608 64,756
Interest income, net....................... 1,011 1,459 1,318 483 2,687
Other income (expense)..................... 637 228 (17) 36 347
-------- -------- -------- -------- --------
Earnings before income taxes and
extraordinary loss....................... 11,509 32,050 54,658 80,127 67,790(1)
Income tax expense......................... 4,368 12,603 21,148 30,877 25,448
-------- -------- -------- -------- --------
Earnings before extraordinary loss......... 7,141 19,447 33,510 49,250 42,342(1)
Extraordinary loss on early extinguishment
of debt, net of taxes.................... (125) -- (790) -- --
-------- -------- -------- -------- --------
Net earnings............................... 7,016(4) 19,447 32,720(3) 49,250 42,342(1)
======== ======== ======== ======== ========
EARNINGS PER COMMON SHARE:
Earnings before extraordinary loss......... 0.23(2)(5) 0.61(2) 1.02(2) 1.45(2) 1.23(1)
Net earnings............................... 0.22(2)(4)(5) 0.61(2) 1.00(2)(3) 1.45(2) 1.23(1)
Earnings per common share -- assuming
dilution:
Earnings before extraordinary loss......... 0.22(2)(5) 0.58(2) 0.96(2) 1.39(2) 1.19(1)
Net earnings(6)............................ 0.21(2)(4)(5) 0.58(2) 0.94(2)(3) 1.39(2) 1.19(1)
Weighted average shares.................... 31,452(2)(5) 31,700(2) 32,716(2) 33,877(2) 34,406
Weighted average shares -- assuming
dilution................................. 32,636(2)(5) 33,645(2) 34,785(2) 35,373(2) 35,715
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................. $ 44,893 $ 31,923 $ 72,956 $ 94,867 $155,922
Working capital............................ 52,985 41,807 95,281 146,863 202,892
Total assets............................... 169,220 202,845 310,851 347,890 423,853
Long-term debt(7).......................... 17,709 14,941 32,174 30,008 28,084
Shareholders' equity(8).................... 80,161 102,138 155,929 213,707 282,168
</TABLE>
---------------
(1) Includes a non-recurring charge of $18,940 for agreement expenses ($11,800
after tax or $0.33 per diluted share).
(2) Amounts have been adjusted for the June 2000 3-for-2 stock split effected in
the form of a 50% stock diluted dividend.
(3) Fiscal 1998 includes the effect of a $790 ($0.02 per share) extraordinary
loss (net of tax of $492) on early extinguishment of debt.
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<PAGE> 20
(4) Fiscal 1996 includes the effect of a $125 ($0.01 per share) extraordinary
loss (net of tax of $76) on early extinguishment of debt.
(5) Amounts have been adjusted for the May 1997 3-for-2 stock split effected in
the form of a 50% stock dividend.
(6) Fiscal 1997 and 1996 earnings per share amounts have been restated to
conform with the provisions of Statement of Financial Accounting Standards
No. 128 "Earnings per Share."
(7) Excludes current installments.
(8) The Company has not paid a cash dividend in any of the above years.
(9) Agreement expenses consist of a one-time non-cash charge representing the
fair value of the 1,500 warrants issued to DuPont as well as approximately
$2,500 in one-time legal charges associated with finalizing our definitive
agreements with DuPont.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
We have been engaged in the manufacture of generic drugs since we commenced
operations in 1970. Since 1994, we have pursued a business strategy of
developing and marketing selected generic pharmaceuticals, and challenging
patents of certain branded products. In 1997 we added a third strategy
developing and introducing proprietary pharmaceuticals that will have some
market exclusivity.
We market approximately 76 pharmaceutical products, representing various
dosage strengths and product forms of approximately 33 chemical entities. Our
product line is principally focused on the development and marketing of generic
and proprietary products in the oncology and female healthcare categories,
including hormone replacement and oral contraceptives, and other products that
have one or more barriers to entry.
RESULTS OF OPERATIONS
(thousands of dollars)
Fiscal year ended June 30, 2000 as compared to fiscal year ended June 30, 1999
Total revenues increased approximately 9% from $444,033 to $482,278. This
increase was attributable to increases in product sales and development and
other revenue offset by a slight decrease in proceeds from supply agreements.
Tamoxifen sales increased 8% from $275,127 to $297,395. The increase was
attributable to higher prices and an expansion in the use of Tamoxifen. In
October 1998, Tamoxifen was approved to reduce the incidence of breast cancer in
women at high risk of developing the disease. Tamoxifen is a patent protected
product manufactured for us by the innovator. Currently, we are the only
distributor of Tamoxifen in the U.S. other than the innovator whose product is
sold under a brand name. In fiscal 2000, Tamoxifen accounted for 68% of our
product sales versus 66% in fiscal 1999.
The prior year's sales included $6,373 of Minocycline sales which we
discontinued selling in late 1999 due to deteriorating market conditions.
Other product sales increased 6% from $134,450 to $142,583. The increase
was attributable to sales of Warfarin Sodium, Medroxyprogesterone Acetate,
Methotrexate, Naltrexone, Trazadone and Hydroxyurea. Warfarin Sodium sales
accounted for approximately 14% of total product sales, which was a slight
decline from 15% in the prior year. We ended the fiscal year with approximately
27% of all brand and generic Warfarin Sodium unit sales.
Development and other revenue consists of amounts received from DuPont
Pharmaceuticals Company, or DuPont, for various development and co-marketing
agreements.
Proceeds from supply agreements decreased $499, as expected, since proceeds
earned in the prior year under a separate contingent supply agreement related to
the Ciprofloxacin litigation ceased.
Cost of sales increased from $301,393 to $315,652 primarily related to an
increase in our product sales. As a percentage of product sales, cost of sales
declined from 72.5% to 71.7%. Our product margins are dependent on several
factors including product sales mix, manufacturing efficiencies and competition.
The decrease in cost of sales as a percentage of product sales was due to a more
favorable mix among non-Tamoxifen product sales, which was slightly offset by a
higher percentage of Tamoxifen sales to total product sales. Since we distribute
Tamoxifen, we earn lower margins on it than the margins we earn from most of the
products we sell.
Selling, general and administrative expenses increased from $40,439 to
$42,479. The increase was primarily due to legal costs related to litigation
with DuPont that was resolved in March 2000 and to ongoing patent challenges.
Also, the prior year included approximately $1,700 related to our share of the
$4,000
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payment received from Eli Lilly & Company for reimbursement of legal costs
incurred as part of the agreement to take the Prozac case directly to the court
of appeals.
Research and development expenses increased from $22,593 to $40,451. This
increase resulted from increased bio-study and clinical trial costs, higher
personnel costs to support an increased number of products in development and
higher costs associated with our proprietary drug development efforts. Also, the
prior year included $646 related to a proprietary product collaboration with
Eastern Virginia Medical School. The increased level of spending during the
fiscal year ended June 30, 2000, enabled us to file fifteen applications with
the U.S. Food and Drug Administration and initiate Phase III clinical studies
for two of our proprietary products.
Agreement expenses consist of a one-time non-cash charge representing the
fair value of the 1.5 million warrants issued to DuPont as well as approximately
$2,500 in one-time legal charges associated with finalizing our definitive
agreements with DuPont.
Interest income increased $1,912 primarily due to an increase in the
average cash and cash equivalents balance.
Interest expense decreased $292 due to a decrease in our debt balances and
lower fees paid on the average unsecured Tamoxifen payable balance.
Other income increased $311 primarily due to the gain we recognized on the
warrants received from Halsey Drug Co., Inc.
Fiscal year ended June 30, 1999 as compared to fiscal year ended June 30, 1998
Total revenues increased approximately 18% from $377,304 to $444,033. The
increase was attributable to increases in product sales offset by a slight
decrease in proceeds from supply agreements.
Product sales increased 20% from $346,638 to $415,950. The increase was the
result of increased sales of Tamoxifen, Warfarin Sodium, Naltrexone, Hydroxyurea
and various hormonal products that we launched throughout fiscal 1998 and 1999.
Tamoxifen sales increased 16% from $236,587 to $275,127 due to increased
volume and, to a lesser extent, higher prices. Increased volumes appear to be
related to investment buying and increased usage in the product from the
expansion of Tamoxifen's indication for the reduction in the incidence of breast
cancer in women at high risk for developing the disease. Higher prices are the
result of 4% price increases in April 1998 and May 1999. Tamoxifen is a patent
protected product manufactured for us by the innovator. Currently, we are the
only distributor of Tamoxifen in the U.S. other than the innovator whose product
is sold under a brand name. In fiscal 1999, Tamoxifen accounted for 66% of our
product sales versus 68% in fiscal 1998.
The remaining increase in product sales from $110,051 to $140,823 was the
result of increased sales of Warfarin Sodium as well as products such as
Naltrexone, Hydroxyurea and various hormonal products, which we launched in
fiscal 1998 and 1999. During fiscal 1999, we implemented additional marketing
and market share incentive programs designed to maintain and increase our market
share of the total Coumadin/Warfarin market. In fiscal 1999, Warfarin Sodium
accounted for approximately 15% of product sales versus 11% in fiscal 1998.
Revenue from products launched in fiscal 1999 more than offset lower sales on
products being phased out of our product line and price declines and higher
discounts on certain existing products.
Proceeds from supply agreements declined $2,583, as expected, since
proceeds earned in the prior year under a separate contingent supply agreement
related to the Ciprofloxacin litigation were not repeated.
Cost of sales increased from $266,002 to $301,393, due to increased product
sales, but decreased as a percentage of product sales from 76.7% to 72.5%. Our
product margins are dependent upon several factors including product sales mix,
manufacturing efficiencies and competition. The decrease in cost of sales as a
percentage of product sales in fiscal 1999 was the result of a more favorable
mix of products including a
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<PAGE> 23
lower percentage of Tamoxifen sales to total product sales. Since we distribute
Tamoxifen, we earn lower margins on it than the margins we earn from most of the
products we sell.
Selling, general and administrative expenses increased 4% from $38,990 to
$40,439. This increase was primarily due to increased legal and headcount costs,
partially offset by lower advertising and promotions costs and a decrease in
charges incurred related to the shut-down of facilities we used to lease. Higher
legal expenses, due to our federal anti-trust suit against DuPont, more than
offset our share of a $4,000 payment received from Eli Lilly & Company in
January, for legal costs incurred as part of the agreement to take the Prozac
case directly to the U.S. Court of Appeals. Higher headcount costs were due to
our significant growth during fiscal 1998 and 1999. Advertising and promotion
costs were lower than the prior year when we spent heavily on the launch of
Warfarin Sodium. The fiscal year ended June 30, 1999 also includes a $360
restructuring charge compared to the $1,200 restructuring charge incurred in the
prior fiscal year, both of which were primarily related to closing leased
facilities.
Research and development expenses increased 19% from $18,955 to $22,593.
The increase was primarily due to work on more clinical studies, an increase in
personnel costs to support the number of products in development and higher
costs associated with our proprietary drug development efforts. Fiscal 1999
included $646 in expenses related to the proprietary product collaboration with
Eastern Virginia Medical School, whereas fiscal 1998 included $645 for the
acquisition of six ANDAs and related technologies to expand our line of female
healthcare products.
Interest income increased by $1,004 or 46% due to higher average cash and
cash equivalents balances, partially offset by a slight decrease in the market
rates on our short-term investments.
Interest expense increased $1,839 due to a reduction in the amount of
interest we capitalized. The amount of interest capitalized declined, as
expected, due to the reduction in capital spending on the Virginia facility,
which was substantially completed by the spring of 1998.
In fiscal 1998, we incurred an extraordinary loss of $790 related to the
early retirement of debt.
LIQUIDITY AND CAPITAL RESOURCES
Fiscal year ended June 30, 2000 as compared to fiscal year ended June 30, 1999
Our cash and cash equivalents balance increased $61,055 or 64% to $155,922
at June 30, 2000 from $94,867 at June 30, 1999. In connection with an
Alternative Collateral Agreement between us and the innovator of Tamoxifen, we
increased the cash held in our interest bearing escrow account from $28,283 at
June 30, 1999 to $74,011 at June 30, 2000.
Cash provided by operating activities was $60,527 for the year ended June
30, 2000, as earnings before non-cash charges such as fair value of warrants
issued, depreciation and deferred income tax benefit more than offset working
capital increases. The working capital increase was led by increases in accounts
receivable and other receivables, which were partially offset by increases in
accounts payable and income taxes payable. Accounts receivable at June 30, 2000
were $54,669 or $4,785 higher than those at June 30, 1999 primarily because our
sales were higher this year than last year. Other receivables increased because
fiscal 2000 was the first year we recorded development and other revenue.
Accounts payable increased because we had higher payables from increased
purchases of Tamoxifen. Income taxes payable increased as a result of increased
taxable earnings and the timing of estimated tax payments.
Working capital levels varied during the year due to the timing of
Tamoxifen inventory purchases, sales levels and the timing of Tamoxifen
payables. During fiscal 2000, inventory levels increased during the first half
of the year and declined during the second half. We expect that a similar trend
will occur in fiscal 2001.
During fiscal 2000, we invested $12,086 in capital assets, primarily on the
construction of our new 48,000 square foot warehouse and 13,500 square foot
laboratory facility at our Pomona, New York campus. In fiscal 2001, we expect to
invest an additional $15,000 to $18,000 in capital assets.
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To expand our growth opportunities, we have and will continue to evaluate
and enter into various strategic collaborations. The timing and amount of cash
required to enter into these collaborations is difficult to predict because it
is dependent on several factors, many of which are outside of our control.
However, we believe that based on arrangements in place at June 30, 2000, we may
spend between $2,000 and $4,000 over the next twelve months for these
collaborations. The $2,000 to $4,000 excludes any cash needed to fund strategic
acquisitions we may consider in the future.
We believe that our current cash balances, cash flows from operations and
borrowing capacity, including unused amounts under our existing $20,000
revolving credit facility, will be adequate to meet our needs and to take
advantage of strategic opportunities as they occur. To the extent that
additional capital resources are required, such capital may be raised by
additional bank borrowings, equity offerings or other means.
RECENT ACCOUNTING PRONOUNCEMENTS
Derivative Instruments
On June 15, 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards, or SFAS, No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which requires that companies
recognize all derivatives as either assets or liabilities on the balance sheet
and measure those instruments at fair value. In June 1999, the FASB issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133," which
defers the effective date of SFAS No. 133 until the Company's fiscal year 2001.
In addition, the FASB issued SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of FASB Statement No.
133, in June 2000 which amends certain provisions of SFAS No. 133. We have
evaluated this statement and determined that implementation will not have a
material impact on the Company's existing accounting policies and financial
reporting disclosures.
Revenue Recognition
In December 1999, the Securities and Exchange Commission, or SEC, staff
issued Staff Accounting Bulletin, or SAB, 101, "Revenue Recognition in Financial
Statements" which summarizes certain of the SEC staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. The effective date of this bulletin is no later than the fourth
fiscal quarter of fiscal years beginning after December 15, 1999. We are
currently evaluating this bulletin and its impact on the our existing accounting
policies and financial reporting disclosures.
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BUSINESS
OVERVIEW
We are a specialty pharmaceutical company engaged in the development,
manufacture and marketing of generic and proprietary prescription
pharmaceuticals. We currently market approximately 76 pharmaceutical products,
representing various dosage strengths and product forms of approximately 33
chemical entities. Our product line is principally focused on the development
and marketing of generic and proprietary products in the oncology and female
healthcare categories, including hormone replacement and oral contraceptives,
and other products that have one or more barriers to entry. During our fiscal
year ended June 30, 2000, our total revenues were $482.3 million and our net
income was $54.1 million excluding the effect of approximately $12.0 million in
non-recurring after-tax charges. We also spent a record $40.5 million on
research and development to support both our generic and proprietary
development.
Currently, we are developing more than 40 generic pharmaceutical products.
In addition, we have 18 generic product ANDAs pending approval filed at the FDA
which had total U.S. brand and generic sales of approximately $2.8 billion for
the twelve months ended June 30, 2000. We also have four generic product ANDAs
filed at the FDA for which we have tentative approval. These products are the
subject of patent challenges and had total U.S. brand and generic sales of
approximately $3.8 billion for the twelve months ended June 30, 2000. We expect
to file another 13-16 generic ANDAs in fiscal 2001. These products had total
U.S. brand and generic sales of approximately $2.4 billion for the twelve months
ended June 30, 2000. In addition, we are in various stages of development on a
number of proprietary pharmaceuticals. Six of the proprietary products in
development will compete in target markets that had total U.S. brand and generic
sales of over $3.0 billion for the twelve months ended June 30, 2000.
BUSINESS STRATEGY
We focus our resources on three core strategies:
Developing and Marketing Selected Generic Pharmaceuticals. We develop and
market the generic equivalent of brand pharmaceuticals that are off-patent but
that have one or more barriers to entry. The characteristics of the products
that we pursue may include: (i) the need for specialized manufacturing
capabilities; (ii) difficulty in raw material sourcing; (iii) complex
formulation or development characteristics; (iv) regulatory or legal challenges;
or (v) sales and marketing challenges. We believe products with such barriers
will face limited competition and therefore should produce higher profits for a
longer period of time than products that have no barriers, which many companies
can develop.
Developing and Introducing Proprietary Pharmaceuticals. We are also
developing proprietary pharmaceuticals that may have some period of exclusivity.
Although the time and cost to develop proprietary pharmaceuticals is usually
much higher than generic products, we believe that such products will produce
higher and more consistent profitability than the typical generic product. To
share the costs of these proprietary products and therefore increase the number
we work on, we often seek strategic partners to assist in the funding,
development and marketing of these products.
Challenging Patents Protecting Certain Brand Pharmaceuticals. We also
develop generic equivalents of branded pharmaceuticals protected by patents that
we believe are either invalid, unenforceable or not infringed by our products.
This strategy is an extension of our first strategy because the patents we are
challenging present barriers to entry to companies that do not have the
capabilities (e.g., legal and financial) to assess and challenge such patents.
We believe that the successful development of pharmaceuticals that were
perceived by competitors to be patent protected may allow our products, if
approved, to earn higher profits for a longer period of time.
GENERIC PHARMACEUTICALS
Our generic product line includes approximately 74 pharmaceutical products
representing various dosage strengths and product forms of 31 chemical entities.
Our products are manufactured in tablet, capsule and
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powder form. Our product line is concentrated primarily on six therapeutic
categories: oncology, female healthcare, cardiovascular, anti-infective, pain
management and psychotherapeutic.
Key Generic Products
The following are descriptions of the products that contribute
significantly to our sales and gross profit. All sales and product data is
derived from industry sources. It is noted that market share information below
concerning the number of units of a product dispensed does not correlate to a
like percentage of industry sales due to the lower selling prices for generic
products as compared to branded products.
Tamoxifen. Tamoxifen is the generic version of Nolvadex, which is used to
treat advanced breast cancer, impede the recurrence of tumors following surgery,
and reduce the incidence of breast cancer in women at high risk for developing
the disease. Total U.S. brand and generic sales were approximately $354 million
for the twelve months ended June 30, 2000. Statistics indicate that one in eight
women will get breast cancer during her lifetime, and each year, more than
180,000 new cases of breast cancer are diagnosed.
Tamoxifen accounted for approximately 68%, 66% and 68% of our product sales
during fiscal 2000, 1999 and 1998, respectively. Approximately 80% of the total
prescriptions written for Tamoxifen in the United States were filled with the
Barr-label product during the twelve months ended June 30, 2000. Currently, we
are the only distributor of Tamoxifen in the U.S. other than the innovator whose
product is sold under a brand name. We distribute Tamoxifen under an agreement
with the innovator and therefore our gross margins for Tamoxifen are
substantially lower than our gross margins for our manufactured products. For
the twelve months ended June 30, 2000, Tamoxifen was prescribed approximately
4.3 million times, representing a 9% increase from the prior twelve-month
period.
In 1993, as a result of a settlement of a patent challenge against the
innovator of Tamoxifen, we entered into a non-exclusive supply and distribution
agreement. Under the terms of the Tamoxifen agreement, we purchase Tamoxifen
directly from the innovator. We are the only distributor of Tamoxifen in the
United States other than the innovator. Although we are the only non-exclusive
distributor, the Tamoxifen agreement provides that should an additional
distributor or distributors be selected by the innovator, we will be granted
terms no less favorable than those granted to any subsequent distributor.
We have a tentatively approved ANDA to manufacture Tamoxifen. Therefore, at
the time of patent expiry in August 2002 (or upon another company's successful
patent challenge), we plan to manufacture Tamoxifen. Manufacturing Tamoxifen
would lower our costs of goods for this product and would likely improve our
profit margins on Tamoxifen sales. We expect that upon patent expiry, additional
competitors will enter the market. When this occurs, we believe that while our
revenues and market share will be negatively affected, our gross margins on the
sales of Tamoxifen will exceed those we currently earn as a distributor.
Warfarin Sodium. Warfarin Sodium is the generic equivalent of DuPont
Pharmaceutical's Coumadin, an anticoagulant that is given to patients with heart
disease and/or high risk of stroke. We launched Warfarin Sodium in July 1997 and
are one of three generic suppliers of the product. Total U.S. generic and brand
sales of Warfarin Sodium were approximately $500 million for the twelve months
ended June 30, 2000. Since launch in July 1997, nearly 11.5 million
prescriptions for Barr's generic product have been dispensed. Currently, Barr's
generic product has captured approximately 26% of all prescriptions written for
the product. Warfarin Sodium accounted for approximately 14%, 15% and 11% of our
product sales during fiscal 2000, 1999 and 1998, respectively. For the twelve
months ended June 30, 2000, Warfarin Sodium was prescribed over 23 million
times, representing 6.7% increase from the prior twelve-month period.
Generic Product Research and Development
We develop and market generic pharmaceuticals that have barriers to entry.
The characteristics of the products that we pursue may include: (i) the need for
specialized manufacturing capabilities; (ii) difficulty in raw material
sourcing; (iii) complex formulation or development characteristics; or (iv)
sales and marketing challenges. We believe products with such barriers will face
limited competition and therefore offer longer
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product life-cycles and/or higher profitability than products that have no
barriers, and thus can be developed by many companies.
Generic Products Under Development
We are developing more than 40 pharmaceutical products. We also have 18
generic product ANDAs pending approval at the FDA for products which had total
U.S. brand and generic sales of approximately $2.8 billion for the twelve months
ended June 30, 2000. 13 of the 18 generic product ANDAs pending are for products
where there are currently no generic equivalents approved for sale. These 13
products represent approximately $2.5 billion of the $2.8 billion. Four of the
18 generic product ANDAs pending approval are Paragraph IV Certifications. These
4 products represent total U.S. brand and generic sales of approximately $680
million for the year ended June 30, 2000.
During the fiscal year ending June 30, 2001, we anticipate filing another
13-16 generic product ANDAs for products which had total U.S. brand and generic
sales of approximately $2.4 billion for the twelve months ended June 30, 2000.
Thirteen of these products currently have no generic equivalents approved for
sale. These 13 products represent total U.S. brand and generic sales of $2.2
billion. In addition, three of these 13 products will be filed with a Paragraph
IV Certification. As discussed elsewhere in this prospectus, we believe this
status may entitle us to as much as 180 days of marketing exclusivity on each of
these products. These three products had total U.S. brand and generic sales of
approximately $900 million for the twelve months ended June 30, 2000.
Generic Product Sales And Marketing
We market our generic products to customers in the United States and Puerto
Rico through an integrated sales and marketing force that includes a five person
national sales force. The activities of the sales force are supplemented by two
customer service representatives who inform our customers of new products,
process orders and advise on order status and current pricing. All marketing
activities are developed, implemented and coordinated by a product marketing
group consisting of four employees.
Our generic product customer base includes drug store chains, food chains,
mass merchandisers, wholesalers, distributors, managed care organizations, mail
order accounts, government/military and repackagers. Our products are primarily
sold under the Barr label.
We sell our generic products primarily to approximately 140 direct
purchasing customers and approximately 105 indirect customers that purchase our
products from wholesalers. In fiscal 2000, 1999 and 1998, McKesson Drug Company,
the nation's largest pharmaceutical wholesaler, accounted for approximately 16%,
14% and 12%, respectively, of product sales. No other customer accounted for
greater than 10% of product sales in any of the last three fiscal years.
During the past three years the number of companies we sell to has declined
due to industry consolidation. In addition, a number of customers have
instituted buying programs that limit the number of generic suppliers they buy
from. Having fewer customers and changes in customer buying patterns have
increased competition among generic drug marketers. Adding to these market
pressures, managed care organizations have in some cases limited the number of
authorized vendors. In addition, mail-order prescription services, which
typically purchase product from a limited number of suppliers, have continued to
grow. While we believe that we have excellent relationships with our key
customers, there can be no assurance that a continuation or expansion of the
changes described above will not have a material adverse impact on our business,
results of operations and financial condition.
PROPRIETARY PHARMACEUTICALS
In 1997, we implemented a strategy to develop proprietary pharmaceuticals
that have some period of market exclusivity. We expect these products to
generate higher gross margins and maintain profitability longer than most
generic products. At this time and for the foreseeable future, our proprietary
product development activities are not focused on discovering new molecules.
Instead, our strategy is to focus on
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products which should take less time and cost less to gain approval. We pursue
candidates in three primary categories: (i) existing chemical compounds where
the development of new forms (liquid vs. tablets or different dosages) offer
therapeutic or marketing advantages; (ii) new chemical entities in selected
therapeutic categories, including some that are marketed in other countries but
not currently sold in the United States; and (iii) patent protected proprietary
products in late stages of development.
Currently Marketed Product
ViaSpan(R). In August 2000, we began to market ViaSpan. ViaSpan is a
solution used for hypothermic flushing and storage of organs including kidney,
liver and pancreas at the time of their removal from the donor in preparation
for storage, transportation and eventual transplantation into a recipient. We
acquired the marketing rights to ViaSpan in the U.S. and Canada from DuPont
Pharmaceuticals Company as part of a co-development and marketing alliance.
Under that agreement, we purchase finished product, sell it under a Barr label,
and pay a royalty to DuPont. We now exclusively market the product in both the
U.S. and Canada. Total sales of ViaSpan in the U.S. and Canada for the year
ended June 30, 2000 were approximately $14 million. ViaSpan is patent protected
through December, 2007.
Proprietary Products under Development
We have a number of proprietary pharmaceutical products under development
including the six listed in the following chart. These six products are expected
to compete in therapeutic categories (e.g. oncology, oral contraception) which
have total U.S. annual sales of over $2.5 billion.
STATUS OF PROPRIETARY PIPELINE
<TABLE>
<CAPTION>
ESTIMATED LAUNCH
PRODUCT CATEGORY DOSAGES STATUS (QUARTER ENDING)
------- ---------- ------- ------------- ----------------
<S> <C> <C> <C> <C>
BRL1 Oncology 2 Filed Q3 CY99 March 2001
2 Filed Q1 CY00 March 2001
Hydroxyurea Oncology 1 Approved December 2000
1 Filed Q4 CY99 December 2000
BRL3 Oncology 1 File Q2 CY01 March 2003
CyPat(TM) Oncology 1 Phase III September 2003
------------------------------------------------------------------
SEASONALE(TM) OC 2 Phase III September 2003
------------------------------------------------------------------
Japanese Anti-Viral 1 Phase II TBD
Encephalitis
Vaccine
</TABLE>
Selected Proprietary Products
Hydroxyurea. Hydroxyurea is a antineoplasmic agent used in the treatment
of melanoma, resistant chronic myelocytic leukemia, and recurrent, metastatic,
or inoperable carcinoma of the ovary, as well as certain head and neck cancers.
Total U.S. brand and generic sales for Hydroxyurea and its generic equivalents
were $19.0 million for the year ended June 30, 2000.
In August 2000, we received FDA approval to market a new dosage strength of
Hydroxyurea, a 1000 mg tablet. Our high dose product is designed to simplify
drug therapy and enhance patient compliance by eliminating the larger number of
doses that patients are currently required to ingest. In addition, our tablet is
scored to allow patients to more accurately adjust their dosage levels.
We intend to market our product under a new brand name and expect to
complete a marketing agreement with a third party to begin marketing it in the
quarter ending December 2000. A patent application for the product is currently
pending.
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CyPat(TM). Cyproterone Acetate, which we intend to market in the U.S.
under the name CyPat, is a steroidal antiandrogen. Cyproterone Acetate is not
currently marketed in the United States. Internationally, Cyproterone Acetate is
mainly used in the management of prostate cancer, both as a single agent and in
combination with other products. In addition, it is used as a component of oral
contraceptives and in the treatment of acne, seborrhea, hirsutism in women,
precocious puberty in children, and hypersexuality/deviant behavior in men.
Currently, Cyproterone Acetate is approved for use in over 80 countries
throughout Europe, Asia, South America, Australia, Japan and Canada.
In July 1999, we submitted an Investigational New Drug (IND) application
with the FDA for CyPat for the treatment of vasomotor symptoms associated with
prostate cancer therapies and its effects on the patients' quality of life. We
are developing CyPat to relieve the distressing hot flashes that typically
accompany surgical or chemical castration that is often used in the treatment of
prostate cancer. Of the more than 2.4 million patients in the United States who
have been diagnosed with prostate cancer, CyPat may prove suitable for treating
approximately 100,000 patients.
Among the most common symptoms associated with prostate cancer treatments
such as surgical or chemical castration are hot flashes and night sweats.
Approximately 3 out of 4 patients experience hot flashes and night sweats.
Patients report that hot flashes begin 1 to 12 months after treatment and can
last for up to 3 years and in some cases, the rest of their lives. Patients
describe hot flashes as a sensation of warmth that spreads from the face, chest
and back and then to the rest of the body. Sweating, a higher pulse rate, and
feelings of anxiety, irritability, and queasiness usually go together with hot
flashes and night sweats. Hot flashes and night sweats affect the patients'
psychological equilibrium and adversely affect their quality of life.
We have initiated a Phase III, randomized, multicenter, placebo-controlled,
double blind clinical trial to study the efficacy and safety of CyPat for the
treatment of hot flashes following surgical or chemical castration in prostate
cancer patients. The clinical studies are expected to include several hundred
patients at approximately 50 sites across the country. We have enrolled
approximately 150 patients to date. We expect to complete enrollment of our
Phase III clinical trial by December 2001. Pending FDA approval, CyPat could
reach consumers as early as the second half of calendar 2003.
We believe a five-year new chemical entity exclusivity will be granted to
CyPat upon FDA approval. A notice of allowance for issuance of a US patent was
received from the Patent and Trademark Office for CyPat. Upon issuance, this
patent will protect CyPat for its use in prostate cancer patients. We also have
additional patents pending and in development for CyPat.
SEASONALE(TM). SEASONALE is a patent protected oral contraceptive regimen
which we are developing through an agreement with the Medical College of Hampton
Roads, Eastern Virginia Medical School. Under the proposed SEASONALE regimen,
women would take the product for up to 84 consecutive days, and then would have
a seven-day pill-free interval. By contrast, the majority of oral contraceptive
products currently available in the United States are based on a regimen of 21
treatment days and then seven pill-free days. The proposed SEASONALE regimen is
expected to result in only 4 menstrual cycles per year, or one per "season".
This type of oral contraceptive regimen is preferable to many women whose
lifestyle dictates the convenience of fewer menstrual cycles per year. In
addition, SEASONALE is expected to reduce anemias and iron deficiencies that are
exacerbated by menstrual blood loss. Like all oral contraceptives, we will seek
SEASONALE approval for the indication of prevention of pregnancy.
Oral contraceptives are the most common method of reversible birth control,
used by up to 65% of women in the U.S. at some time during their reproductive
years. The oral contraceptives have a very long history with widespread use
attributed to many factors including efficacy in preventing pregnancy, safety
and simplicity in initiation and discontinuation, medical benefits and
relatively low incidence of side effects.
One Phase III clinical trial is underway. The Phase III study is a
prospective, parallel, multicenter, open-label, randomized study evaluating the
use of two dose levels of SEASONALE in a 91-day cycle administered for
approximately 12 months and two dose levels of conventional oral contraceptive
therapy administered for approximately 12 months. We expect to complete our
Phase III clinical trial by
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December 2001. Pending FDA approval, SEASONALE could reach consumers as early as
the second half of calendar 2003. The SEASONALE regimen is patent protected
through 2017.
Barr/DuPont Pharmaceuticals Co-Development and Marketing Alliance
In March 2000, we announced four agreements with the DuPont Pharmaceuticals
Company that resolved a legal dispute between our two companies. The first
agreement with DuPont provides up to $45 million to support the ongoing
development of three proprietary products: the CyPat prostate cancer therapy;
the SEASONALE oral contraceptive; and a third product which we have yet to
disclose. We will be responsible for marketing these three products, although
DuPont may elect to play a role in product co-promotion, and DuPont may receive
royalties based on product sales. Under terms of the second agreement DuPont
assumes sales and marketing responsibility for a proprietary product that we
developed internally. This product is expected to be launched during the second
half of fiscal 2001. The third agreement under this alliance transfers the
responsibility of marketing DuPont's ViaSpan organ transplant preservation agent
to us. Under the fourth agreement, we granted DuPont warrants to purchase 1.5
million shares of our common stock: 750,000 shares at $31.33 per share and
750,000 shares at $38.00 per share. The warrants expire in March 2004 and are
exercisable at any time by DuPont.
Proprietary Product Sales And Marketing
We are evaluating various strategies for selling and marketing our
proprietary pharmaceuticals. These strategies include any combination of the
following: (i) licensing our proprietary products to other pharmaceutical
companies with sales organizations sufficient to support our products, (ii)
entering into co-promotion or contract sales arrangements with respect to the
products, and (iii) establishing our own sales organization and related
infrastructure. If we license our products or enter into co-promotional or
contract sales arrangements, we would not incur the significant upfront expenses
associated with building a sales organization. However, without our own sales
force, we would retain a lower portion of the profits from the sales of the
products.
PATENT CHALLENGES
We also actively challenge the patents protecting certain branded
pharmaceutical products where we believe such patents are either invalid,
unenforceable or not infringed by our products. To date, we have brought seven
patent challenges. Two have been successfully resolved, four are currently
pending and the seventh was unsuccessful.
Patent challenges are complex, costly and can take 3 - 6 years to complete.
They generally require an investment of $8 - $10 million per challenge. As a
result, we have in the past and may elect in the future to have partners on
select patent challenges. These arrangements typically provide for a sharing of
the costs and risks, and generally provide for a sharing of the benefits of a
successful outcome.
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<PAGE> 31
PATENT CHALLENGE HISTORY
<TABLE>
<CAPTION>
PRODUCT (BRAND NAME) OUTCOME STATUS
-------------------- ------------------------------ ------------------------------
<S> <C> <C>
Tamoxifen (Nolvadex) - Resolved - Tentatively approved ANDA
- Non-exclusive distribution
agreement until August 2002
- Launch manufactured version
upon patent expiry
Ciprofloxacin (Cipro) - Resolved - Tentatively approved ANDA
- Contingent supply agreement
until December 2003
- Right to distribute with
partner six months before
patent expiry
Fluoxetine (Prozac) - 2003 Patent Invalidated - Tentatively approved ANDA
- Appeals Pending - Anticipated launch with
partner CY 2001
Norethindrone/ethinyl - Pending - ANDA filed
estradiol (Ortho-Novum
7/7/7)
Norgestimate/ethinyl estradiol - Pending - ANDA filed
(Ortho Tri-Cyclen)
Flecainide Acetate (Tambocor) - Pending - ANDA filed
Zidovudine (Retrovir) - Unsuccessful - Tentatively approved ANDA
- Anticipated launch upon
patent expiry in 2005
</TABLE>
Tamoxifen. Tamoxifen is the generic version of Nolvadex, which is used to
treat advanced breast cancer, impede the recurrence of tumors following surgery,
and reduce the incidence of breast cancer in women at high risk for developing
the disease. Total U.S. brand and generic sales were approximately $354 million
for the twelve months ended June 30, 2000. Statistics indicate that one in eight
women will get breast cancer during her lifetime, and each year, more than
180,000 new cases of breast cancer are diagnosed.
Tamoxifen accounted for approximately 68%, 66% and 68% of our product sales
during fiscal 2000, 1999 and 1998, respectively. Approximately 80% of the total
prescriptions written for Tamoxifen in the United States were filled with the
Barr-label product during the twelve months ended June 30, 2000. Currently, we
are the only distributor of Tamoxifen in the U.S. other than the innovator whose
product is sold under a brand name. We distribute Tamoxifen under an agreement
with the innovator and therefore our gross margins for Tamoxifen are
substantially lower than our gross margins for our manufactured products. For
the twelve months ended June 30, 2000, Tamoxifen was prescribed approximately
4.3 million times, representing a 9% increase from the prior twelve-month
period.
In 1993, as a result of a settlement of a patent challenge against the
innovator of Tamoxifen, we entered into a non-exclusive supply and distribution
agreement. Under the terms of the Tamoxifen agreement, we purchase Tamoxifen
directly from the innovator. We are the only distributor of Tamoxifen in the
United States other than the innovator. Although we are the only non-exclusive
distributor, the Tamoxifen agreement provides that should an additional
distributor or distributors be selected by the innovator, we will be granted
terms no less favorable than those granted to any subsequent distributor.
We currently have a tentatively approved ANDA for the manufacture of
Tamoxifen. Therefore, at the time of patent expiry in August 2002 (or upon
another company's successful patent challenge), we plan to manufacture
Tamoxifen. Manufacturing Tamoxifen would lower our costs of goods for this
product and would likely improve our profit margins on Tamoxifen sales. We
expect that upon patent expiry, additional competitors will enter the market.
When this occurs, we believe that while our revenues and market share will be
negatively affected, our gross margins on the sales of Tamoxifen will exceed
those we currently earn as a distributor.
Ciprofloxacin. Ciprofloxacin is the generic equivalent of Bayer's Cipro
and is used to treat lower respiratory, skin, bone and joint, and urinary tract
infections. Total U.S. brand and generic sales were
30
<PAGE> 32
approximately $920 million in the twelve months ended June 30, 2000. In January
1995, we received a tentative approval of an ANDA for Ciprofloxacin tablets.
In January 1997, we and the innovator of Ciprofloxacin resolved pending
patent litigation regarding Ciprofloxacin. As part of the resolution of the
patent challenge we entered into the Ciprofloxacin agreement, which ends with
the expiration of the patent in December 2003. Under the Ciprofloxacin
agreement, the innovator has the option to make payments to us or must allow us
and our partner to purchase Ciprofloxacin from the innovator at a discount. If
the innovator chooses not to provide the product to us, we expect to recognize
revenues ranging from approximately $28-$31 million per year through our fiscal
year ending June 30, 2003.
Under terms of the Ciprofloxacin agreement, we and our partner will begin
to distribute the product six months prior to patent expiry. Our agreement will
allow us and our partner the opportunity to offer consumers a more affordable
version of Cipro before the patents expire.
Fluoxetine. Fluoxetine is the generic equivalent of Eli Lilly Company's
antidepressant, Prozac(R), which had annual sales of approximately $2.5 billion
for the twelve months ended June 30, 2000. We filed our ANDA for Fluoxetine in
February 1996, and were sued for patent infringement by Lilly, initiating the
patent challenge process.
On August 9, 2000, the U.S. Court of Appeals, Federal Circuit in
Washington, D.C. ruled in favor of our challenge of a patent protecting Prozac.
The Court unanimously upheld our "double-patenting" claims and struck down the
patent that would have protected Prozac from generic competition until after
December 2003. Lilly is expected to seek a rehearing in the Court of Appeals and
a review by the Supreme Court. If the present ruling is not reversed, our
partners and we expect to introduce a more affordable generic Prozac product in
February 2001 (or August 2001, if the FDA grants a six months pediatric
exclusivity extension).
As the first to file a Paragraph IV Certification that successfully
challenged a listed patent, we believe we are entitled to the 180-day
exclusivity granted under the Hatch-Waxman Act and intend, if necessary, to
vigorously defend our rights. However, there can be no assurances that our
position on the implementation of the FDA's exclusivity rules will prevail. If
we lose some or all of the 180 day exclusivity we expect, the value of the
favorable ruling could be substantially diminished.
We have two partners on our challenge of Lilly's patents for Prozac.
Accordingly, we will share the benefits of the launch of Fluoxetine with our
partners.
Norethindrone/ethinyl estradiol. In October 1998, we filed an ANDA seeking
approval from the FDA to market the three different tablet combinations of
norethindrone and ethinyl estradiol, the generic equivalent of Ortho-McNeil
Pharmaceutical Inc.'s Ortho-Novum 7/7/7(R) oral contraceptive regimen. We
notified Ortho pursuant to the provisions of the Hatch-Waxman Act and on January
15, 1999, Ortho filed a patent infringement action in the United States District
Court for the District of New Jersey -- Trenton Division, seeking to prevent us
from marketing the three different tablet combinations of norethindrone and
ethinyl estradiol until U.S. patents expire in 2003. The case is currently in
the discovery stage. For the twelve months ended June 30, 2000, Ortho-Novum
7/7/7 had total U.S. brand and generic sales of approximately $151 million.
Norgestimate/ethinyl estradiol. In February 2000, we filed an ANDA seeking
approval from the FDA to market three different tablet combinations of
norgestimate and ethinyl estradiol, the generic equivalent of Ortho's
Tri-Cyclen(R). We notified Ortho pursuant to the provisions of the Hatch-Waxman
Act and on June 9, 2000, Ortho filed a patent infringement action in the United
States District Court for the District of New Jersey -- Trenton Division,
seeking to prevent us from marketing the three different tablet combinations of
norgestimate and ethinyl estradiol until U.S. patents expire in 2003. The case
is currently in the discovery stage. For the twelve months ended June 30, 2000,
Ortho's Tri-Cyclen had total U.S. brand and generic sales of approximately $409
million.
Flecainide Acetate. In May 2000, we filed an ANDA with the FDA for
Flecainide Acetate tablets (the brand is Tambocor(R)). Following the required
notice to 3M Pharmaceuticals, the innovator of the brand, they
31
<PAGE> 33
sued us in the U.S. District Court in Minnesota to prevent us from proceeding
with the commercialization of the product. This case involves an alleged
infringement by us of raw material patents and not a challenge to the validity
of patents protecting the product. For the twelve months ended June 30, 2000,
Tambocor had total U.S. brand and generic sales of approximately $60 million.
Zidovudine. Zidovudine is the generic equivalent of Glaxo Wellcome's
Retrovir(R), also known as AZT, a treatment for AIDS. The patent challenge that
followed our filing was resolved unsuccessfully during 1996. However, we
received tentative approval of our ANDA for this product in February 1995, and
anticipate launching our generic equivalent when the patents expire in 2005. For
the twelve months ended June 30, 2000, AZT had total U.S. brand and generic
sales of approximately $40 million.
Three of the generic product ANDAs we expect to file during the fiscal year
ended June 30, 2001, are patent challenges. These three products represent total
U.S. generic and branded sales of approximately $900 million. In addition, we
are actively evaluating several potential additional challenges both on our own
and as part of collaborations with other companies.
Patent Challenge Process
The Hatch-Waxman Act provides incentives for generic pharmaceutical
companies to challenge suspect patents on branded pharmaceutical products. The
legislation recognizes that there is a potential for the improper issuance of
patents by the United States Patent and Trade Office, or PTO, resulting from a
variety of technical, legal or scientific factors. The Hatch-Waxman legislation
places significant burdens on the challenger to ensure that such suits are not
frivolous, but also offers the opportunity for significant financial reward if
successful.
All of the steps involved in the filing of an ANDA with the FDA, including
research and development, are identical with those steps taken in development of
any generic drug. At the time of filing with the FDA for approval of its version
of the branded product, the generic company files with its ANDA a certification
asserting that the patent is invalid, unenforceable or not infringed. After
receiving notice from the FDA that its application is acceptable for filing, the
generic company sends the patent holder a notice explaining why it believes that
the patents in question are invalid, unenforceable or not infringed. Upon
receipt of the notice from the generic company, the patent holder has 45 days in
which to bring legal action against the generic company. The patent holder,
within certain parameters, has the right to bring suit in any federal district
court. The discovery, trial and appeals process can take two to four years.
If the generic company prevails, and that company was the first to file an
ANDA and a certification of invalidity or noninfringement with the FDA for the
product, that company receives 180 days of generic marketing exclusivity. That
is, the FDA may not approve another generic version of the product for any
company during the first 180 days. This period of marketing exclusivity provides
the successful patent challenger with the opportunity to build its market share
to a significant position. While enabling the company to recoup the expenses of
the lawsuit and realize stronger profit margins, this also may provide an
impediment to or limit the entrance of subsequent competitors. Once significant
market share is achieved, the first successful challenger can more effectively
defend its position against future competitors.
In August 1999, the FDA published a proposed 180-Day Generic Drug
Exclusivity rule. This proposed rule is designed to clarify the FDA's
interpretation of the 180-day generic drug exclusivity provision of the
Hatch-Waxman Act, in response to numerous court challenges and Citizen
Petitions. We, as well as other members of the generic industry, have submitted
comments on the proposed rule. While still reviewing the comments related to the
proposed rule, the FDA issued industry Guidance in March 2000. The FDA's
implementation of the final regulations and the Guidance may be delayed for a
significant period and will likely be the subject of additional court challenges
and Citizens Petitions. As such, it is impossible for us to provide a general
conclusion as to the effect the proposed rule and the Guidance would have on the
exclusivity status of our patent cases, including the August 9, 2000 court
ruling in favor of our challenge of a the patent protecting Eli Lilly's Prozac
discussed earlier in this prospectus. If we do not enjoy the full exclusivity
period we expect, the value of the favorable ruling we obtained with respect to
the Prozac patent and other patent challenges could be substantially diminished.
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<PAGE> 34
Each patent challenge typically takes three to six years, and can cost
approximately $8-$10 million in legal and product development costs. The process
for initiating a patent challenge begins with the identification of a drug
candidate and evaluation by qualified legal counsel of the patents protecting
that product. We have reviewed a number of challenges and have pursued only
those that we believe offer a high probability of success. Generally, once we
receive a favorable opinion from our patent counsel, we begin the formulation
and development process. Patent challenge product candidates typically must have
several years of remaining patent protection to ensure that the legal process
can be completed prior to patent expiry.
GOVERNMENT REGULATION
We are subject to extensive regulation by the federal government,
principally by the FDA, and, to a lesser extent, by the DEA and state
governments. The Federal Food, Drug and Cosmetic Act, the Controlled Substances
Act and other federal statutes and regulations govern or influence the testing,
manufacturing, safety, labeling, storage, record keeping, approval, pricing,
advertising and promotion of our products. Non-compliance with applicable
requirements can result in fines, recalls and seizure of products. The FDA has
the authority to revoke drug approvals previously granted.
ANDA Process
FDA approval is required before a generic equivalent or a new dosage form
of an existing drug can be marketed. We usually receive approval for such
products by submitting an ANDA to the FDA. When processing an ANDA, the FDA
waives the requirement of conducting complete clinical studies, although it
normally requires bioavailability and/or bioequivalence studies.
"Bioavailability" indicates the rate and extent of absorption and levels of
concentration of a drug product in the blood stream needed to produce a
therapeutic effect. "Bioequivalence" compares the bioavailability of one drug
product with another, and when established, indicates that the rate of
absorption and levels of concentration of a generic drug in the body are the
same as the previously approved drug. An ANDA may be submitted for a drug on the
basis that it is the equivalent to a previously approved drug or, in the case of
a new dosage form, is suitable for use for the indications specified.
Before approving a product, the FDA also requires that our procedures and
operations conform to cGMP regulations, as defined in the U.S. Code of Federal
Regulations. We must follow the cGMP regulations at all times during the
manufacture of our products. To help insure compliance with the cGMP
regulations, we must continue to spend time, money and effort in the areas of
production and quality control to ensure full technical compliance.
If the FDA believes a company is not in compliance with cGMP, sanctions may
be imposed upon that company including (i) withholding from the company new drug
approvals as well as approvals for supplemental changes to existing
applications; (ii) preventing the company from receiving the necessary export
licenses to export its products; and (iii) classifying the company as an
"unacceptable supplier" and thereby disqualifying the company from selling
products to federal agencies. We believe we are currently in compliance with
cGMP.
In May of 1992, the Generic Act was enacted. The Generic Act, a result of
the legislative hearings and investigations into the generic drug approval
process, allows the FDA to impose debarment and other penalties on individuals
and companies that commit certain illegal acts relating to the generic drug
approval process. In some situations, the Generic Act requires the FDA to debar
(i.e., not accept or review ANDAs for a period of time) a company or an
individual that has committed certain violations. It also provides for temporary
denial of approval of applications during the investigation of certain
violations that could lead to debarment and also, in more limited circumstances,
provides for the suspension of the marketing of approved drugs by the affected
company. Lastly, the Generic Act allows for civil penalties and withdrawal of
previously approved applications. Neither we nor any of our employees have ever
been subject to debarment.
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<PAGE> 35
NDA Process
FDA approval is required before any new drug can be marketed. An NDA is a
filing submitted to the FDA to obtain approval of a drug not eligible for an
ANDA and must contain complete pre-clinical and clinical safety and efficacy
data or a right of reference to such data. Before dosing a new drug in healthy
human subjects or patients may begin, stringent government requirements for
preclinical data must be satisfied. The pre-clinical data, typically obtained
from studies in animal species, as well as from laboratory studies, are
submitted in an Investigational New Drug, or IND, application, or its equivalent
in countries outside the United States, where clinical trials are to be
conducted. The preclinical data must provide an adequate basis for evaluating
both the safety and the scientific rationale for the initiation of clinical
trials.
Clinical trials are typically conducted in three sequential phases,
although the phases may overlap. In Phase I, which frequently begins with the
initial introduction of the compound into healthy human subjects prior to
introduction into patients, the product is tested for safety, adverse effects,
dosage, tolerance absorption, metabolism, excretion and other elements of
clinical pharmacology. Phase II typically involves studies in a small sample of
the intended patient population to assess the efficacy of the compound for a
specific indication, to determine dose tolerance and the optimal dose range as
well as to gather additional information relating to safety and potential
adverse effects. Phase III trials are undertaken to further evaluate clinical
safety and efficacy in an expanded patient population at typically dispersed
study sites, in order to determine the overall risk-benefit ratio of the
compound and to provide an adequate basis for product labeling. Each trial is
conducted in accordance with certain standards under protocols that detail the
objectives of the study, the parameters to be used to monitor safety and
efficacy criteria to be evaluated. Each protocol must be submitted to the FDA as
part of the IND. In some cases, the FDA allows a company to rely on data
developed in foreign countries, or previously published data, which eliminates
the need to independently repeat some or all of the studies.
Data from preclinical testing and clinical trials are submitted to the FDA
as an NDA for marketing approval and to other health authorities as a marketing
authorization application. The process of completing clinical trials for a new
drug may take several years and require the expenditure of substantial
resources. Preparing an NDA or marketing authorization application involves
considerable data collection, verification, analysis and expense, and there can
be no assurance that approval from the FDA or any other health authority will be
granted on a timely basis, if at all. The approval process is affected by a
number of factors, primarily the risks and benefits demonstrated in clinical
trials as well as the severity of the disease and the availability of
alternative treatments. The FDA or other health authorities may deny an NDA or
marketing authorization application if the regulatory criteria are not
satisfied, or such authorities may require additional testing or information.
Even after initial FDA or other health authority approval has been
obtained, further studies, including Phase IV post-marketing studies, may be
required to provide additional data on safety. The post marketing studies could
be used to gain approval for the use of a product as a treatment for clinical
indications other than those for which the product was initially tested. Also,
the FDA or other regulatory authorities require post-marketing reporting to
monitor the adverse effects of the drug. Results of post-marketing programs may
limit or expand the further marketing of the products.
Further, if there are any modifications to the drug, including changes in
indication, manufacturing process or labeling or a change in the manufacturing
facility, an application seeking approval of such changes must be submitted to
the FDA or other regulatory authority. Additionally, the FDA regulates
post-approval promotional labeling and advertising activities to assure that
such activities are being conducted in conformity with statutory and regulatory
requirements. Failure to adhere to such requirements can result in regulatory
actions that could have a material adverse effect on our business, results of
operations and financial condition.
DEA
Because we sell and develop products containing controlled substances, we
must meet the requirements and regulations of the Controlled Substances Act
which are administered by the DEA. These regulations include stringent
requirements for manufacturing controls and security to prevent diversion of or
unauthorized
34
<PAGE> 36
access to the drugs in each stage of the production and distribution process.
The DEA regulates allocation to us of raw materials used in the production of
controlled substances based on historical sales data. We believe we are
currently in compliance with all applicable DEA requirements.
Government Relations Activities
Many branded pharmaceutical companies have increasingly used state and
federal legislative and regulatory means to delay generic competition. These
efforts have included pursuing new patents for existing products using the
Citizen Petition process to request amendments to FDA standards, seeking changes
to United States Pharmacopeia (an organization which publishes industry
recognized compendia of drug standards), and attaching patent extension
amendments to non-related federal legislation. In addition, some companies have
engaged in state-by-state initiatives to enact legislation that restricts the
substitution of some generic drugs. We have and will continue to spend time and
money on government affairs activities.
Medicaid/Medicare
In November 1990, a law regarding reimbursement for prescribed Medicaid
drugs was passed as part of the Congressional Omnibus Budget Reconciliation Act
of 1990. The law required drug manufacturers to enter into a rebate contract
with the Federal Government. All generic pharmaceutical manufacturers, whose
products are covered by the Medicaid program, are required to rebate to each
state a percentage (currently 11% in the case of products manufactured by us and
15% for Tamoxifen sold by us) of their average net sales price for the products
in question. We accrue for future estimated rebates in our consolidated
financial statements.
Over the last year, the extension of prescription drug coverage to all
Medicare recipients has gained support in Congress. The generic pharmaceutical
industry trade associations are actively involved in discussions regarding the
structure and scope of any proposed Medicare prescription drug benefit plans.
We, as an active member in the Generic Pharmaceutical Association, or the GPhA,
the leading trade association representing the generic pharmaceutical industry,
support the development of an industry-wide position on Medicare.
We believe that federal and/or state governments may continue to enact
measures in the future aimed at reducing the costs of drugs to the public. We
cannot predict the nature of such measures or their impact on our profitability.
Other
We are also governed by federal, state and local laws of general
applicability, such as laws regulating intellectual property, including patents
and trademarks; working conditions; equal employment opportunity; and
environmental protection.
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<PAGE> 37
MANUFACTURING AND FACILITIES
We have facilities and operations in Pomona and Blauvelt, New York;
Northvale, New Jersey; Forest, Virginia; and Washington, D.C. The following
table presents the facilities owned or leased by us and indicates the location
and type of each of these facilities.
<TABLE>
<CAPTION>
SQUARE
LOCATION FOOTAGE STATUS DESCRIPTION
-------- ------- ------ ----------------------------------------------------
<S> <C> <C> <C>
NEW JERSEY
Northvale...... 27,500 Owned Manufacturing
NEW YORK
Blauvelt....... 48,000 Leased Corporate Administration
Pomona 1....... 34,000 Owned R&D, Laboratories, Manufacturing
Pomona 2....... 90,000 Owned Laboratories, Administrative Offices, Manufacturing,
Warehouse
VIRGINIA
Forest......... 165,500 Owned Administrative Offices, Manufacturing, Warehouse,
Packaging, Distribution
WASHINGTON
D.C. ........ 1,800 Leased Corporate Administration
</TABLE>
Over the past three fiscal years, we have spent approximately $45 million
in capital expenditures primarily to expand manufacturing capacity, extend
research and development activities and strengthen certain competitive
advantages.
LEGAL PROCEEDINGS
Patent Challenges
In February 1996, we filed an ANDA seeking approval from the FDA to market
fluoxetine hydrochloride, or Fluoxetine, the generic equivalent of Eli Lilly
Company's Prozac. We notified Lilly pursuant to the provisions of the
Hatch-Waxman Act, and on April 19, 1996, Lilly filed a patent infringement
action in the United States District Court for the Southern District of
Indiana -- Indianapolis Division seeking to prevent us from marketing Fluoxetine
until a U.S. patent expires in 2003.
In rulings on pre-trial motions on January 12, 1999, the U.S. District
Court, Southern District of Indiana, dismissed several of the claims that we
presented at the trial. Prior to the trial beginning, we and our two co-
defendants and Lilly reached an agreement pursuant to which we and Lilly agreed
to drop all the remaining claims in the litigation. In addition to dropping
their remaining claims, Lilly made a one-time payment of $4 million to be shared
between us and our co-defendants.
On August 9, 2000, the U.S. Court of Appeals, Federal Circuit in Washington
D.C. affirmed the decision of the lower court rejecting our arguments with
respect to "best mode" claims against the patent expiring February 2001.
However, the court struck down the Lilly patent which was to have run until
December 2003 upon our claim of "double patenting". Lilly is expected to seek a
rehearing in the Court of Appeals and a review by the Supreme Court.
In October 1998, we filed an ANDA seeking approval from the FDA to market
the three different tablet combinations of norethindrone and ethinyl estradiol,
the generic equivalent of Ortho Pharmaceutical Corporation's Ortho-Novum 7/7/7
oral contraceptive regimen. We notified Ortho pursuant to the provisions of the
Hatch-Waxman Act and on January 15, 1999, Ortho filed a patent infringement
action in the United States District Court for the District of New Jersey
-Trenton Division, seeking to prevent us from marketing the three different
tablet combinations of norethindrone and ethinyl estradiol until U.S. patents
expire in 2003. The case is currently in the discovery stage.
In February 2000, we filed an ANDA seeking approval from the FDA to market
three different tablet combinations of norgestimate and ethinyl estradiol, the
generic equivalent of Ortho-McNeil Pharmaceutical, Inc.'s Tri-Cyclen(R). We
notified Ortho pursuant to the provisions of the Hatch-Waxman Act and on June 9,
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<PAGE> 38
2000, Ortho filed a patent infringement action in the United States District
Court for the District of New Jersey -- Trenton Division, seeking to prevent us
from marketing the three different tablet combinations of norgestimate and
ethinyl estradiol until U.S. patents expire in 2003. The case is currently in
the discovery stage.
In May 2000, we filed an ANDA with the FDA for Flecainide Acetate tablets
(the brand is Tambocor). Following the required notice to 3M Pharmaceuticals,
the innovator of the brand, they sued us in the U.S. District Court in Minnesota
to prevent us from proceeding with the commercialization of the product. This
case involves an alleged infringement by us of raw material patents and not a
challenge to the validity of patents protecting the product.
Class Action Lawsuits
On July 14, 2000, Louisiana Wholesale Drug Co. filed a class action
complaint in the United States District Court for the Southern District of New
York against Bayer Corporation, the Rugby Group and us. The complaint alleges
that we and the Rugby Group agreed with Bayer Corporation not to compete with a
generic version of Cipro, or Ciprofloxacin, pursuant to an agreement between the
defendants. The plaintiff purports to bring claims on behalf of all direct
purchasers of Cipro from 1997 to present.
Several similar putative class actions have been filed in Federal District
Courts in New York and in various State courts including California, New Jersey
and Florida.
We believe that our agreement with Bayer Corporation is a valid settlement
to a patent dispute and cannot form the basis of an antitrust claim. Although it
is not possible to forecast the outcome of these matters, we intend to
vigorously defend ourselves. It is anticipated that these matters may take
several years to be resolved but an adverse judgment could have a material
adverse effect on our business, results of operations and financial condition.
Other Legal Matters
In February 1998, Invamed, Inc., which has since been acquired by Geneva
Pharmaceuticals, Inc., a division of Novartis AG, named us and several others as
defendants in a lawsuit filed in the United States District Court for the
Southern District of New York, charging that we unlawfully blocked access to the
raw material source for Warfarin Sodium. In May 1999, Apothecon, Inc., a
division of Bristol-Meyers Squibb, Inc., filed a similar lawsuit. The two
actions have been consolidated.
We believe that the suits filed against us by Invamed and Apothecon are
without merit and we intend to defend our position vigorously. These actions are
currently in the discovery stage. It is anticipated that this matter may take
several years to be resolved but an adverse judgment could have a material
adverse effect on our business, results of operations and financial condition.
In 1998 and 1999, we were contacted by the Department of Justice, or DOJ,
regarding the March 1993 resolution of the Tamoxifen patent litigation. We
continue to cooperate with the DOJ in this examination, and believe that the DOJ
will ultimately determine that the settlement was appropriate and a benefit to
consumers. The DOJ has not contacted us about this matter in over a year.
On June 30, 1999, we received a civil investigative demand from the Federal
Trade Commission, or FTC, for interrogatories and a subpoena for documents
relating to the January 1997 settlement of the Hatch-Waxman Act patent
litigation relating to Ciprofloxacin which had been pending in the U.S. District
Court for the Southern District of New York. The FTC is investigating whether
the parties have engaged or are engaging in unfair methods of competition or
affecting commerce in violation of Section 5 of the Federal Trade Commission
Act.
We believe that the patent challenge process under the Hatch-Waxman Act
represents a pro-consumer and pro-competitive alternative to bringing generic
products to market more rapidly than might otherwise be possible. We believe
that once all the facts are considered, and the benefits to consumers are
assessed, that these DOJ and FTC investigations will be resolved. However,
consideration of these matters could take
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<PAGE> 39
considerable time, and while unlikely, any adverse judgment in either matter
could have a material adverse effect on our business, results of operations and
financial condition.
As of June 30, 2000, we were involved, as plaintiff and defendant, in other
lawsuits incidental to its business. Our management, based on the advice of
legal counsel, believes that the disposition of such litigation will not have
any significant adverse effect on our business, results of operations and
financial condition.
EMPLOYEES
As of August 31, 2000 we had approximately 605 full-time employees
including 131 in research and development and 386 in production and quality
assurance/control. Approximately 76 are represented by a union that has a
collective bargaining agreement with us. Our current collective bargaining
agreement with our employees, who are represented by Local 2-149 of the Paper,
Allied, Chemical and Energy (PACE) Union International, expires on April 1,
2001. We believe that our relations with our employees are good and we have no
history of work stoppages. Our employees are organized as follows:
<TABLE>
<CAPTION>
NUMBER OF
DEPARTMENT EMPLOYEES
---------- ---------
<S> <C>
Research and Development.................................... 131
Administration.............................................. 76
Manufacturing Union......................................... 76
Non-Union................................................... 154
Quality..................................................... 151
Sales & Marketing........................................... 17
---
Total............................................. 605
===
</TABLE>
38
<PAGE> 40
MANAGEMENT
Our executive officers and directors are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Bruce L. Downey.......................... 52 Chairman of the Board and Chief Executive
Officer
Paul M. Bisaro........................... 39 President, Chief Operating Officer and
Secretary
Timothy P. Catlett....................... 45 Senior Vice President, Sales and
Marketing
William T. McKee......................... 39 Senior Vice President, Chief Financial
Officer and Treasurer
Mary E. Petit............................ 51 Senior Vice President, Proprietary
Product Development
Martin Zeiger............................ 63 Senior Vice President, Strategic Business
Development and General Counsel
Salah U. Ahmed........................... 46 Vice President, Product Development
Edwin A. Cohen........................... 68 Vice Chairman of the Board
Robert J. Bolger......................... 78 Director
Michael F. Florence...................... 63 Director
Jacob ("Jack") M. Kay.................... 60 Director
Bernard C. Sherman....................... 58 Director
George P. Stephan........................ 67 Director
</TABLE>
BRUCE L. DOWNEY became a member of the Board of Directors in January 1993
and was elected Chairman of the Board and Chief Executive Officer in February of
1994. From January 1993 to December 1999 he served as our President and Chief
Operating Officer. Prior to assuming these positions, from 1981 to 1993, Mr.
Downey was a partner in the law firm of Winston & Strawn and a predecessor firm
of Bishop, Cook, Purcell and Reynolds. Mr. Downey is also a director of Warner
Chilcott, plc.
PAUL M. BISARO was elected a Director in June 1998 and in December 1999 was
appointed to the position of President and Chief Operating Officer. Previously,
he served as Senior Vice President -- Strategic Business Development and General
Counsel. Mr. Bisaro also serves as Secretary. Prior to joining us in 1992 as
General Counsel, Mr. Bisaro was associated with the law firm of Winston & Strawn
and a predecessor firm, Bishop, Cook, Purcell and Reynolds.
TIMOTHY P. CATLETT was employed by us in February 1995 as Vice President,
Sales and Marketing. In September 1997, Mr. Catlett was elected to Senior Vice
President, Sales and Marketing. From 1978 through 1993, Mr. Catlett held a
number of positions with the Lederle Laboratories division of American Cyanamid
including Vice President, Cardiovascular Marketing.
WILLIAM T. MCKEE was employed by us in January 1995 as Director of Finance
and was appointed Treasurer in March 1995. In September 1996, Mr. McKee was
elected to the position of Chief Financial Officer, in December 1997 Mr. McKee
was elected Vice President and in December 1998 was elected Senior Vice
President. Prior to joining us, Mr. McKee served as Vice President, Finance for
a software development company and from September 1983 through June 1993, Mr.
McKee held management positions in the accounting firms of Deloitte & Touche LLP
and Gramkow & Carnevale, CPAs. Mr. McKee is a CPA.
MARY E. PETIT was elected to the position of Senior Vice President,
Proprietary Product Development in December 1999. From September 1996 to
November 1999, Dr. Petit held the position of Senior Vice President, Operations.
Prior to this Dr. Petit held the position of Vice President, Quality. From June
1992 to January 1995, Dr. Petit was Vice President, Quality Management with the
Lederle Laboratories division of American Cyanamid. Dr. Petit held positions of
increasing responsibility during her 12 year tenure with Lederle.
39
<PAGE> 41
MARTIN ZEIGER was employed by us in December 1999 as Senior Vice President,
Strategic Business Development and General Counsel. Mr. Zeiger joined Barr from
Hoechst Marion Roussel, where he served as a Vice President since the 1995
acquisition by Hoechst of Marion Merrill Dow.
SALAH U. AHMED was employed by us as Director of Research and Development
in 1993. Dr. Ahmed was named Vice President, Product Development in September
1996. Before joining Barr, Dr. Ahmed was a Senior Scientist with Forest
Laboratories, Inc. from 1989 to 1993.
EDWIN A. COHEN founded Barr in 1970. Mr. Cohen served as President,
Chairman of the Board, and Chief Executive Officer until 1994. In February of
1994, he was elected to the position of Vice Chairman of the Board and became a
consultant to us.
ROBERT J. BOLGER was elected a Director in February 1988. Mr. Bolger has
been President of Robert J. Bolger Associates, a marketing consulting company
since January 1988. From 1962 through 1987, he served as President of the
National Association of Chain Drug Stores, a major trade association.
MICHAEL F. FLORENCE was elected a Director in February 1988. Mr. Florence
is President of Sherfam, Inc. and has been since 1989. He is also Vice President
of Shermfin Corp., Vice President of Apotex, Inc. and Vice President of Sherman
Delaware, Inc. From January 1964 through April 1989, Mr. Florence was a partner
in Wm. Eisenberg & Co., Canadian Chartered Accountants. He is President and a
Director of Citadel Gold Mines, Inc., and a Director of Nutrition for Life
International, Inc. Mr. Florence and Dr. Sherman are brothers-in-law.
JACOB ("JACK") M. KAY was elected a Director in December 1994. Mr. Kay is
President of Apotex, Inc., and also serves as Chair of the Canadian Drug
Manufacturers Association. He is also a Director of Humber River Regional
Hospital (Toronto), Chair of the Canadian Schizophrenia Foundation and a
Director of Cangene Corporation.
BERNARD C. SHERMAN was Chairman of the Board from July 1981 to January
1993. He remains a Director. Dr. Sherman is Chief Executive Officer and Chairman
of the Board of Apotex, Inc., a Canadian manufacturer of generic drugs. He is
also Chairman of the Board of Cangene Corp., President of Sherman Delaware,
Inc., President of Shermfin Corp.
GEORGE P. STEPHAN was elected a Director in February 1988. In April 1990,
Mr. Stephan retired as Vice Chairman of Kollmorgan Corporation (NYSE), a
diversified, international technology company in which he served in several
executive capacities for over 20 years. Mr. Stephan was also a director of
Kollmorgan since 1982 and served as Chairman of the Board from 1991 to 1996. He
continued as a director of Kollmorgan until June, 2000, when it was acquired by
Danaher Corporation. From 1994 to April 1999 Mr. Stephan also was a Managing
Director at Stonington Group LLC, financial intermediaries and consultants. He
is currently a business consultant and a director of Sartorius Sports Limited, a
privately held specialty sports retailer.
Our directors and executive officers are elected annually to serve until
the next annual meeting or until their successors have been elected and
qualified.
SELLING SHAREHOLDER
The following table sets forth the beneficial ownership of the shares of
our common stock by the selling shareholder as of September 6, 2000 and as
adjusted to reflect the sale of the common stock being offered hereby (assuming
no exercise of the underwriters' over-allotment option).
<TABLE>
<CAPTION>
PRIOR TO OFFERING AFTER OFFERING
--------------------- ---------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
------------------------ ---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Bernard C. Sherman, Ph.D.(1)..................... 14,832,038 42.1% 11,832,038 33.1%
</TABLE>
---------------
(1) Consists of 14,832,038 shares held of record by Sherman Delaware, Inc., or
SDI, which are beneficially owned by Dr. Sherman. A total of 14,496,638 of
the shares held by SDI are pledged to banks to secure a guaranty made by
SDI. All of the 3,000,000 shares being sold by the selling shareholder are
held of
40
<PAGE> 42
record by SDI. Dr. Sherman is one of our directors. The address for SDI and
Dr. Sherman is 150 Signet Drive, Weston, Ontario, Canada M9LIT9.
DESCRIPTION OF CAPITAL STOCK
Our Certificate of Incorporation authorizes the issuance of 100,000,000
shares of Common Stock, par value $.01 per share, of which 35,194,475 shares
were outstanding on September 6, 2000, and 2,000,000 shares of preferred stock,
par value $1.00 per share, of which none is outstanding as of the date of this
prospectus.
Holders of the common stock are entitled to one vote for each share held of
record, in person or by proxy, at all meetings of the shareholders and on all
propositions before such meetings. The common stock does not have cumulative
voting rights in the election of directors. Holders of the common stock have no
preemptive, subscription, redemption or conversion rights. All outstanding
shares of common stock are fully paid and nonassessable. Holders of common stock
are entitled to such dividends as may be declared by our Board of Directors out
of funds legally available therefor. In the event of our liquidation,
dissolution or winding up, the assets remaining after provision for payment of
creditors and after distribution in full of the preferential amount to be
distributed to the holders of shares of any preferred stock are distributable
pro rata among holders of common stock. The transfer agent and registrar of the
common stock is Continental Stock Transfer & Trust Company, 2 Broadway, New
York, New York 10004.
41
<PAGE> 43
UNDERWRITING
We and the selling shareholder are offering the shares of common stock
described in this prospectus through a number of underwriters. Banc of America
Securities LLC is the representative of the underwriters. We and the selling
shareholder have entered into an underwriting agreement with the representative.
Subject to the terms and conditions of the underwriting agreement, we and the
selling shareholder have agreed to sell to the underwriters, and each
underwriter has separately agreed to purchase, the number of shares of common
stock listed next to its name below at the public offering price, less the
underwriting discounts and commissions described on the cover page of this
prospectus:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
Banc of America Securities LLC..............................
Total............................................. 3,500,000
=========
</TABLE>
The underwriting agreement is subject to a number of terms and conditions
and provides that the underwriters must buy all of the shares if they buy any of
them. The underwriters will sell the shares to the public when and if the
underwriters buy the shares from us and the selling shareholder.
The underwriters initially will offer the shares to the public at the price
specified on the cover page of this prospectus. The underwriters may allow
selected dealers a concession of not more than $ per share. The underwriters
may also allow, and any other dealers may allow, a concession of not more than
$ per share to some other dealers. If all the shares are not sold at the
public offering price, the underwriters may change the public offering price and
the other selling terms. No change in the public offering price will vary the
proceeds to be received by us as specified on the cover page of this prospectus.
The common stock is offered subject to a number of conditions, including:
- the receipt and acceptance of the common stock by the underwriters; and
- the right on the part of the underwriters to reject orders in whole or in
part.
The selling shareholder has granted the underwriters an option to buy up to
525,000 additional shares of common stock. These additional shares would cover
sales of shares by the underwriters that exceed the number of shares specified
in the table above. The underwriters may exercise this option at any time within
30 days after the date of this prospectus. If the underwriters exercise this
option, they will each purchase, subject to a number of terms and conditions,
additional shares approximately in proportion to the amounts specified above. If
purchased, the underwriters will offer such additional shares on the same terms
as those on which the 3,500,000 shares are being offered.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters. These amounts are shown assuming
no exercise and full exercise of the underwriters' option to purchase additional
shares:
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per share underwriting discounts and commissions............
Total underwriting discounts and commissions to be paid by
us........................................................
Total underwriting discounts and commissions to be paid by
the selling shareholder...................................
</TABLE>
The expenses of this offering, not including the underwriting discounts and
commissions, are estimated to be approximately $500,000 and will be paid by us
and the selling shareholder on a pro rata basis determined by the number of
shares sold by each, except that the selling shareholder will pay all legal fees
and expenses incurred by it. Expenses of this offering, exclusive of the
underwriting discounts and commissions, include the SEC filing fee, the NASD
filing fee, New York Stock Exchange listing fees, legal and accounting fees,
printing expenses, transfer agent and registrar fees and other miscellaneous
fees.
We, our executive officers and directors, certain of our shareholders and
the selling shareholder have entered into lock-up agreements with the
underwriters. Under these agreements, subject to exceptions, we
42
<PAGE> 44
may not issue any new shares of common stock, and our executive officers and
directors, certain shareholders, and the selling shareholder may not offer,
sell, contract to sell or otherwise dispose of or hedge any common stock or
securities convertible into or exchangeable for shares of common stock. These
restrictions will be in effect for a period of 90 days after the date of this
prospectus. At any time and without notice, Banc of America Securities LLC may,
in its sole discretion, release all or some of the securities from these lock-up
agreements.
We and the selling shareholder will indemnify the underwriters against some
liabilities, including some liabilities under the Securities Act of 1933. If we
or the selling shareholder are unable to provide this indemnification, we and
the selling shareholder will contribute to payments the underwriters may be
required to make in respect of those liabilities on a pro-rata basis determined
by the number of shares sold by each.
One or more of the underwriters may facilitate the marketing of this
offering online, either directly or through one or more of their affiliates. In
those cases, prospective investors may view offering terms and a prospectus
online and, depending upon the particular underwriter, place orders online or
through their financial advisors.
Banc of America Securities LLC and its affiliates have engaged in, and may
engage in, transactions with, services for, or have owned, currently own or may
own, equity or equity-like securities of Barr or our subsidiaries in the
ordinary course of their businesses. Banc of America Securities LLC and its
affiliates have received, and may receive, customary fees for its services.
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may sell more shares
than they are obligated to purchase under the underwriting agreement, creating a
short position. A short sale is "covered" if the short position is no greater
than the number of shares available for purchase by the underwriters under the
over-allotment option. The underwriters can close out a covered short sale by
exercising the over-allotment option or purchasing shares in the open market. In
determining the source of shares to close out a covered short sale, the
underwriters will consider, among other things, the open market price of shares
compared to the price available under the over-allotment option. The
underwriters may also sell shares in excess of the over-allotment option,
creating a "naked" short position. The underwriters must close out any naked
short position by purchasing shares in the open market. A naked short position
is more likely to be created if the underwriters are concerned that there may be
a downward pressure on the price of the common stock in the open market after
pricing that could adversely affect investors who purchase in the offering. In
addition, to stabilize the price of the common stock, the underwriters may bid
for, and purchase, shares of common stock in the open market. Finally, the
underwriting syndicate may reclaim selling concessions allowed to an underwriter
or a dealer for distributing the common stock in the offering, if the syndicate
repurchases previously distributed common stock to cover syndicate short
positions or to stabilize the price of the common stock. Any of these activities
may stabilize or maintain the market price of the common stock above independent
market levels. The underwriters are not required to engage in these activities,
and may end any of these activities at any time.
LEGAL MATTERS
The validity of the shares of Common Stock offered by us hereby and certain
legal matters will be passed upon for us by Winston & Strawn, Chicago, Illinois.
Certain legal matters will be passed upon for the underwriters by Cahill Gordon
& Reindel, New York, New York.
EXPERTS
The financial statements for each of the three years ended June 30, 1998,
1999 and 2000 included and incorporated by reference in this prospectus have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports which are included and incorporated by reference herein and have been so
included in reliance upon the reports of such firm given upon their authority as
experts in accounting and auditing.
43
<PAGE> 45
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Our filings are available to the public over the
internet at the SEC's web site at http://www.sec.gov. You may also read and copy
any document we file at the SEC's Public Reference Rooms in Washington, D.C.,
New York, New York and Chicago, Illinois. The Public Reference Room in
Washington D.C. is located at 450 Fifth Street, N.W. Please call the SEC at
1-800-SEC-0330 for further information on the Public Reference Rooms.
Information concerning us is also available for inspection at the offices of the
New York Stock Exchange, Inc. Reports Section, 20 Broad Street, New York, New
York 10005.
The SEC allows us to "incorporate by reference" the information we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the documents listed below and any future filings made with the SEC
under Section 13(a), 13(c), l4, or 15(d) of the Securities Exchange Act of 1934
after the date of this prospectus until the termination of the offering:
- Annual Report on Form 10-K for the fiscal year ended June 30, 2000
This prospectus is part of a registration statement on Form S-3 filed with
the SEC under the Securities Act of 1933. This prospectus does not contain all
of the information set forth in the registration statement. You should read the
registration statement for further information about us and our common stock.
You may request a copy of these filings at no cost. Please direct your request
to:
Barr Laboratories, Inc.
2 Quaker Road, PO Box D 2900
Pomona, New York 10970-0519
(914) 362-1100
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not authorized
anyone else to provide you with different information. You should not assume
that the information in this prospectus or any prospectus supplement is accurate
as of any date other than the date on the front page of those documents.
44
<PAGE> 46
BARR LABORATORIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of June 30, 1999 and 2000.... F-3
Consolidated Statements of Operations for the years ended
June 30, 1998, 1999 and 2000.............................. F-4
Consolidated Statements of Shareholders' Equity for the
years ended June 30, 1998, 1999 and 2000.................. F-5
Consolidated Statements of Cash Flows for the years ended
June 30, 1998, 1999 and 2000.............................. F-6
Notes to the Consolidated Financial Statements.............. F-7
</TABLE>
F-1
<PAGE> 47
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders of
Barr Laboratories, Inc.:
We have audited the accompanying consolidated balance sheets of Barr
Laboratories, Inc. and subsidiaries (the "Company") as of June 30, 2000 and
1999, and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended June 30,
2000. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Barr Laboratories, Inc. and
subsidiaries at June 30, 2000 and 1999, and the results of their operations and
their cash flows for each of the three years in the period ended June 30, 2000
in conformity with accounting principles generally accepted in the United States
of America.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
August 7, 2000
F-2
<PAGE> 48
BARR LABORATORIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
2000 1999
----------- -----------
(IN THOUSANDS OF DOLLARS,
EXCEPT SHARE AMOUNTS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $155,922 $ 94,867
Marketable securities..................................... 96 8,127
Accounts receivable (including receivables from related
parties of $865 in 2000 and $1,051 in 1999) less
allowances of $4,140 and $2,670 in 2000 and 1999,
respectively........................................... 54,669 49,884
Other receivables......................................... 23,811 16,093
Inventories............................................... 79,482 77,613
Prepaid expenses.......................................... 1,428 1,556
-------- --------
Total current assets................................... 315,408 248,140
Property, plant and equipment, net.......................... 95,296 93,764
Other assets................................................ 13,149 5,986
-------- --------
Total assets........................................... $423,853 $347,890
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable (including payables to a related party of
$497 and $632 in 2000
and 1999, respectively)................................ $ 94,529 $ 88,982
Accrued liabilities....................................... 11,079 9,118
Deferred income taxes..................................... 1,036 833
Current portion of long-term debt......................... 1,924 2,165
Income taxes payable...................................... 3,948 179
-------- --------
Total current liabilities.............................. 112,516 101,277
Long-term debt.............................................. 28,084 30,008
Other liabilities........................................... 519 127
Deferred income taxes....................................... 566 2,771
Commitments & Contingencies
Shareholders' equity
Preferred stock, $1 par value per share; authorized
2,000,000 shares; none issued Common stock, $.01 par
value per share; authorized 100,000,000; issued
35,004,869 and 22,923,583 in 2000 and 1999,
respectively........................................... 350 229
Additional paid-in capital................................ 99,881 76,903
Retained earnings......................................... 180,034 137,846
Accumulated other comprehensive income (loss)............. 1,916 (1,258)
-------- --------
282,181 213,720
Treasury stock at cost: 176,932 and 117,955 shares in 2000
and 1999, respectively................................. (13) (13)
-------- --------
Total shareholders' equity............................. 282,168 213,707
-------- --------
Total liabilities and shareholders' equity............. $423,853 $347,890
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-3
<PAGE> 49
BARR LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
2000 1999 1998
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues:
Product sales (including sales to related parties of
$7,479, $6,852 and $7,537 in 2000, 1999 and 1998,
respectively)......................................... $440,110 $415,950 $346,638
Development and other revenue............................ 14,584 -- --
Proceeds from supply agreements.......................... 27,584 28,083 30,666
-------- -------- --------
Total revenues........................................ 482,278 444,033 377,304
Costs and expenses:
Cost of sales............................................ 315,652 301,393 266,002
Selling, general and administrative...................... 42,479 40,439 38,990
Research and development................................. 40,451 22,593 18,955
Agreement expenses....................................... 18,940 -- --
-------- -------- --------
Earnings from operations................................... 64,756 79,608 53,357
Interest income............................................ 5,092 3,180 2,176
Interest expense........................................... 2,405 2,697 858
Other income (expense)..................................... 347 36 (17)
-------- -------- --------
Earnings before income taxes and extraordinary loss........ 67,790 80,127 54,658
Income tax expense......................................... 25,448 30,877 21,148
-------- -------- --------
Earnings before extraordinary loss......................... 42,342 49,250 33,510
Extraordinary loss on early extinguishment of debt, net of
taxes.................................................... -- -- (790)
-------- -------- --------
Net earnings............................................... $ 42,342 $ 49,250 $ 32,720
======== ======== ========
Earnings per common share:
Earnings before extraordinary loss....................... $ 1.23 $ 1.45 $ 1.02
Net earnings............................................. $ 1.23 $ 1.45 $ 1.00
======== ======== ========
Earnings per common share-assuming dilution:
Earnings before extraordinary loss....................... $ 1.19 $ 1.39 $ 0.96
Net earnings............................................. $ 1.19 $ 1.39 $ 0.94
======== ======== ========
Weighted average shares.................................... 34,406 33,877 32,716
======== ======== ========
Weighted average shares-assuming dilution.................. 35,715 35,373 34,785
======== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-4
<PAGE> 50
BARR LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
COMMON ADDITIONAL ACCUMULATED TREASURY TOTAL
STOCK PAID-IN RETAINED OTHER COMPREHENSIVE STOCK SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS (LOSS) INCOME SHARES AMOUNT EQUITY
---------- ------ ---------- -------- ------------------- ------- ------ -------------
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30,
1997................ 21,446,053 $214 $46,061 $ 55,876 $ -- 117,955 $(13) $102,138
Comprehensive income:
Net earnings........ 32,720 32,720
Unrealized loss on
marketable
securities, net of
tax of $604....... (942) (942)
Total comprehensive
income.............. 31,778
Issuance of common
stock for stock
offering............ 430,000 4 14,517 14,521
Stock issuance
costs............... (353) (353)
Issuance of common
stock for exercised
stock options and
employees' stock
purchase plans...... 548,592 6 7,839 7,845
---------- ---- ------- -------- ------- ------- ---- --------
BALANCE, JUNE 30,
1998................ 22,424,645 224 68,064 88,596 (942) 117,955 (13) 155,929
Comprehensive income:
Net earnings........ 49,250 49,250
Unrealized loss on
marketable
securities, net of
tax of $238....... (316) (316)
Total comprehensive
income.............. 48,934
Issuance of common
stock for exercised
stock options and
employees' stock
purchase plans...... 498,938 5 8,839 8,844
---------- ---- ------- -------- ------- ------- ---- --------
BALANCE, JUNE 30,
1999................ 22,923,583 229 76,903 137,846 (1,258) 117,955 (13) 213,707
Comprehensive income:
Net earnings........ 42,342 42,342
Unrealized gain on
marketable
securities, net of
tax of $2,126..... 3,174 3,174
Total comprehensive
income.............. 45,516
Issuance of common
stock for exercised
stock options and
employees' stock
purchase plans...... 426,947 5 6,587 6,592
Issuance of
warrants............ 16,418 16,418
Stock split
(3-for-2)........... 11,654,339 116 (27) (154) -- 58,977 -- (65)
---------- ---- ------- -------- ------- ------- ---- --------
BALANCE, JUNE 30,
2000................ 35,004,869 $350 $99,881 $180,034 $ 1,916 176,932 $(13) $282,168
========== ==== ======= ======== ======= ======= ==== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE> 51
BARR LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net earnings................................................ $ 42,342 $ 49,250 $ 32,720
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization............................. 10,420 9,306 5,521
Deferred income tax (benefit) expense..................... (4,127) 1,834 3,585
Write-off of deferred financing fees associated with early
extinguishment of debt................................. -- -- 195
(Gain) loss on sale of assets............................. (470) 11 63
Loss (gain) on sale of marketable securities.............. 122 6 (2)
Fair value of warrants granted............................ 16,418 -- --
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable and other receivables, net......... (12,503) (4,550) (26,195)
Inventories............................................ (1,869) (3,236) (18,161)
Prepaid expenses....................................... 128 (750) (238)
Other assets........................................... (1,718) (492) (389)
Increase (decrease) in:
Accounts payable, accrued liabilities and other........ 8,015 (14,633) 34,940
Income taxes payable................................... 3,769 (3,178) 963
-------- -------- --------
Net cash provided by operating activities................. 60,527 33,568 33,002
-------- -------- --------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Purchases of property, plant and equipment.................. (12,086) (12,333) (20,431)
Proceeds from sale of property, plant and equipment......... 287 1 248
Purchases of strategic investments.......................... -- (2,800) (4,069)
Sales (purchases) of marketable securities, net............. 7,965 (901) (7,291)
-------- -------- --------
Net cash used in investing activities.................. (3,834) (16,033) (31,543)
-------- -------- --------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Principal payments on long-term debt........................ (2,165) (1,968) (14,939)
Proceeds from loans......................................... -- -- 30,000
Net borrowings under line of credit......................... -- (2,500) 2,500
Stock issuance costs........................................ -- -- (353)
Proceeds from stock offering................................ -- -- 14,521
Fees associated with stock split............................ (65) -- --
Proceeds from exercise of stock options and employee stock
purchases................................................. 6,592 8,844 7,845
-------- -------- --------
Net cash provided by financing activities................. 4,362 4,376 39,574
-------- -------- --------
Increase in cash and cash equivalents..................... 61,055 21,911 41,033
Cash and cash equivalents, beginning of year................ 94,867 72,956 31,923
-------- -------- --------
Cash and cash equivalents, end of year...................... $155,922 $ 94,867 $ 72,956
======== ======== ========
SUPPLEMENTAL CASH FLOW DATA:
Cash paid during the year
Interest, net of portion capitalized...................... $ 2,438 $ 2,727 $ 855
Income taxes.............................................. 24,946 27,869 13,254
Non-cash transactions
Write-off of equipment & leasehold improvements related to
closed facility........................................ $ 115 $ 83 $ --
</TABLE>
See accompanying notes to the consolidated financial statements.
F-6
<PAGE> 52
BARR LABORATORIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of dollars, except per share amounts)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation and Other Matters
The consolidated financial statements include the accounts of Barr
Laboratories, Inc. (the "Company") and its wholly-owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Sherman Delaware, Inc. owned 42.6% of the outstanding common stock of the
Company at June 30, 2000. Dr. Bernard C. Sherman is a principal shareholder of
Sherman Delaware, Inc. and a Director of Barr Laboratories, Inc.
Certain amounts in the prior year's financial statements have been
reclassified to conform with the current year presentation.
(b) Credit and Market Risk
Financial instruments that potentially subject the Company to credit risk
consist principally of interest-bearing investments and trade receivables. The
Company performs ongoing credit evaluations of its customers' financial
condition and generally requires no collateral from its customers.
(c) Cash and Cash Equivalents
Cash equivalents consist of short-term, highly liquid investments
(primarily market auction securities with interest rates that are re-set in
intervals of 28 to 49 days) which are readily convertible into cash at par value
(cost). As of June 30, 2000 and 1999, $74,011 and $28,283, respectively, of the
Company's cash was held in an interest-bearing escrow account. Such amounts
represent the portion of the Company's payable balance with the Innovator of
Tamoxifen, which the Company has decided to secure in connection with its cash
management policy.
In December 1995, the Company and the Innovator of Tamoxifen entered into
an Alternative Collateral Agreement ("Collateral Agreement") which suspends
certain sections of the Supply and Distribution Agreement ("Distribution
Agreement") entered into by both parties in March 1993. Under the Collateral
Agreement, extensions of credit to the Company are no longer required to be
secured by a letter of credit or cash collateral. However, the Company may at
its discretion maintain a balance in the escrow account based on its short-term
cash requirements. All remaining terms of the Distribution Agreement remain in
place. In return for the elimination of the cash collateral requirement and in
lieu of issuing letters of credit, the Company has agreed to pay the Innovator
monthly interest based on the average unsecured monthly Tamoxifen payable
balance, as defined in the Collateral Agreement, and maintain compliance with
certain financial covenants. The Company was in compliance with such covenants
at June 30, 2000.
(d) Inventories
Inventories are stated at the lower of cost, determined on a first-in,
first-out (FIFO) basis, or market.
(e) Property, Plant and Equipment
Property, plant and equipment is recorded at cost. Depreciation is recorded
on a straight-line basis over the estimated useful lives of the related assets.
Leasehold improvements are amortized on a straight-line basis over the shorter
of their useful lives or the terms of the respective leases.
F-7
<PAGE> 53
BARR LABORATORIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The estimated useful lives of the major classification of depreciable
assets are:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings................................................... 45
Building improvements....................................... 10
Machinery and equipment..................................... 3-10
Leasehold improvements...................................... 3-10
</TABLE>
Maintenance and repairs are charged to operations as incurred; renewals and
betterments are capitalized.
(f) Research and Development
Research and development costs, which consist principally of product
development costs, are charged to operations as incurred.
(g) Earnings Per Share
On May 31, 2000, the Company's Board of Directors declared a 3-for-2 stock
split effected in the form of a 50% stock dividend. Approximately 11.6 million
additional shares of common stock were distributed on June 29, 2000 to
shareholders of record as of June 12, 2000. All applicable prior year share and
per share amounts have been adjusted for the stock split.
The following is a reconciliation of the numerators and denominators used
to calculate Earnings per common share ("EPS") before extraordinary loss in the
Consolidated Statements of Operations:
<TABLE>
<CAPTION>
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
EARNINGS PER COMMON SHARE:
Earnings before extraordinary loss (numerator).............. $42,342 $49,250 $33,510
Weighted average shares (denominator)....................... 34,406 33,877 32,716
Earnings before extraordinary loss.......................... $ 1.23 $ 1.45 $ 1.02
======= ======= =======
EARNINGS PER COMMON SHARE -- ASSUMING DILUTION:
Earnings before extraordinary loss (numerator).............. $42,342 $49,250 $33,510
Weighted average shares..................................... 34,406 33,877 32,716
Effect of dilutive options.................................. 1,309 1,496 2,069
------- ------- -------
Weighted averages shares -- assuming dilution
(denominator)............................................. 35,715 35,373 34,785
Earnings before extraordinary loss.......................... $ 1.19 $ 1.39 $ 0.96
======= ======= =======
Share amounts in thousands..................................
</TABLE>
During the years ended June 30, 2000, 1999 and 1998, there were 1,560, 819
and 289 respectively, of outstanding options and warrants that were not included
in the computation of diluted EPS, because their respective exercise prices were
greater than the average market price of the common stock for the period.
(h) Deferred Financing Fees
All debt issuance costs are being amortized on a straight-line basis over
the life of the related debt, which matures in 2002, 2004 and 2007. The
unamortized amounts of $238 and $305 at June 30, 2000 and 1999, respectively,
are included in other assets in the Consolidated Balance Sheets.
In connection with the November 1997 early extinguishment of the then
remaining $14,400 10.15% Senior Secured Notes, the Company wrote off $195 in
deferred financing fees in the year ended June 30, 1998 (See Note 8 to the
Consolidated Financial Statements).
F-8
<PAGE> 54
BARR LABORATORIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(i) Fair Value of Financial Instruments
Cash, Accounts Receivable, Other Receivables and Accounts Payable -- The
carrying amounts of these items are a reasonable estimate of their fair value.
Marketable Securities -- Marketable securities are recorded at their fair
value (See Note 7 to the Consolidated Financial Statements).
Other Assets -- Investments in strategic collaborations that do not have a
readily determinable market value are recorded at cost as it is a reasonable
estimate of fair value (See Note 7 to the Consolidated Financial Statements).
Long-Term Debt -- The fair value at June 30, 2000 and 1999 is estimated at
$30 million and $32 million, respectively. Estimates were determined by
discounting the future cash flows using rates currently available to the
Company.
The fair value estimates presented herein are based on pertinent
information available to management as of June 30, 2000. Although management is
not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since that date, and current estimates of fair
value may differ significantly from the amounts presented herein.
(j) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and use
assumptions that affect certain reported amounts and disclosures; actual results
may differ substantially.
(k) Revenue Recognition
The Company recognizes product sales revenue when goods are shipped.
Development and other revenue and supply agreement revenue is recognized when
earned.
(l) Segment Reporting
The Company operates in one reportable segment -- the development,
manufacture and marketing of generic and proprietary pharmaceuticals.
The Company's manufacturing plants are located in New Jersey, New York and
Virginia and its products are sold throughout the United States and Puerto Rico,
primarily to wholesale and retail distributors. In fiscal 2000, 1999 and 1998, a
customer accounted for approximately 16%, 14% and 12% of product sales,
respectively. No other customer accounted for greater than 10% of product sales
in any of the last three fiscal years.
(m) New Accounting Pronouncements
Derivative Instruments
On June 15, 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which requires that companies
recognize all derivatives as either assets or liabilities on the balance sheet
and measure those instruments at fair value. In June 1999, the FASB issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133," which
defers the effective date of SFAS No. 133 until the Company's fiscal year 2001.
The Company has
F-9
<PAGE> 55
BARR LABORATORIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
evaluated this statement and determined that implementation will not have a
material impact on the Company's existing accounting policies and financial
reporting disclosures.
Revenue Recognition
In December 1999, the Securities and Exchange Commission ("SEC") staff
issued Staff Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial
Statements" which summarizes certain of the SEC staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. The effective date of this bulletin is no later than the fourth
fiscal quarter of fiscal years beginning after December 15, 1999. The Company is
currently evaluating this bulletin and its impact on the Company's existing
accounting policies and financial reporting disclosures.
(2) DUPONT PHARMACEUTICALS COMPANY STRATEGIC ALLIANCE
On March 20, 2000, the Company signed definitive agreements to establish a
strategic relationship with DuPont Pharmaceuticals Company ("DuPont") to
develop, market and promote several proprietary products and to terminate all
litigation between the two companies.
Development and Other Revenue
In connection with a proprietary product development funding agreement
("Product Development Agreement"), DuPont may invest up to $45 million over
three years to support the development of three of the Company's proprietary
products. All amounts earned under the Product Development Agreement will be
recorded as development and other revenue. Upon approval of the products, Barr
will be responsible for marketing the products and DuPont may receive royalties
based on product sales. In connection with the Product Development Agreement,
the Company recorded $8 million as development and other revenue for the year
ended June 30, 2000.
In a second agreement, DuPont will assume responsibility for sales and
marketing support of an undisclosed proprietary product that Barr expects to
launch in the first calendar quarter of 2001 ("Development and Marketing
Agreement"). In connection with this Development and Marketing Agreement, DuPont
will make milestone payments of up to $9 million over five quarters. For the
year ended June 30, 2000, the Company recorded $4 million as development and
other revenue related to this agreement.
Under the terms of a third agreement, Barr will become the sole distributor
in the United States and Canada of DuPont's ViaSpan(R) organ transplant
preservation agent ("ViaSpan Agreement"). During a transition period, that ended
July 31, 2000, DuPont remained the distributor of ViaSpan and will pay a fee to
Barr based on a defined formula ("Transition Revenue"). Such Transition Revenue
is included in development and other revenue. For the year ended June 30, 2000,
the Company recorded approximately $2.6 million as development and other revenue
related to the ViaSpan Agreement. Beginning August 1, 2000, Barr assumed
responsibility for distributing the product and will record product sales and
related costs in its Consolidated Statements of Operations.
Warrants
In connection with the strategic alliance, the Company issued two warrants
granting DuPont the right to purchase 750,000 shares of Barr's common stock at
$31.33 per share and 750,000 shares at $38.00 per share, respectively. Each
warrant is immediately exercisable and has a four-year term. In connection with
the issuance of such warrants, the Company recorded a one-time, non-cash charge
of approximately $16.4 million. This non-recurring amount is recorded as part of
the agreement expenses in the Consolidated Statements of Operations for the year
ended June 30, 2000. The charge was calculated using a Black-Scholes option
pricing model.
F-10
<PAGE> 56
BARR LABORATORIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) PROCEEDS FROM SUPPLY AGREEMENTS
In January 1997, Bayer AG and Bayer Corporation ("Bayer") and the Company
reached an agreement to settle the then pending litigation regarding Bayer's
patent protecting Ciprofloxacin hydrochloride ("Settlement Agreement"). The
Company and its partner signed a contingent, non-exclusive Supply Agreement
("Supply Agreement") which ends at patent expiry in December 2003. In accordance
with the Supply Agreement, the Company recognizes income and a related
receivable on a monthly basis, as certain contingencies are met. Collection of
these receivables occurs quarterly. Further, the Supply Agreement provides that
six months prior to patent expiry, the Company and its partner can begin
distributing Ciprofloxacin.
Also included in proceeds from supply agreements for the years ended June
30, 1999 and 1998 is $1,500 and $4,500, respectively, received under a separate
contingent supply agreement with an unrelated party relating to the
Ciprofloxacin patent challenge.
(4) AGREEMENT EXPENSES
Agreement expenses of $18,940 ($0.33 per share after tax) consist of a
one-time non-cash charge of $16.4 million associated with the issuance of 1.5
million warrants (See Note 2 to the Consolidated Financial Statements) and
approximately $2,500 in one-time legal charges, primarily related to a special
fee paid to the Company's outside legal counsel, associated with finalizing the
Company's definitive agreements with DuPont.
(5) INVENTORIES
A summary of inventories is as follows:
<TABLE>
<CAPTION>
JUNE 30,
------------------
2000 1999
------- -------
<S> <C> <C>
Raw materials and supplies.................................. $16,884 $15,790
Work-in-process............................................. 5,102 7,957
Finished goods.............................................. 57,496 53,866
------- -------
$79,482 $77,613
======= =======
</TABLE>
Tamoxifen Citrate, purchased as a finished product, accounted for $42,730
and $43,040 of finished goods inventory at June 30, 2000 and 1999, respectively.
F-11
<PAGE> 57
BARR LABORATORIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment is as follows:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
2000 1999
-------- --------
<S> <C> <C>
Land........................................................ $ 3,408 $ 3,256
Buildings and improvements.................................. 64,649 57,669
Machinery and equipment..................................... 72,886 69,789
Leasehold improvements...................................... 1,288 1,665
Automobiles and trucks...................................... 68 68
Construction in progress.................................... 3,823 7,041
-------- --------
146,122 139,488
Less: Accumulated depreciation & amortization............... 50,826 45,724
-------- --------
$ 95,296 $ 93,764
======== ========
</TABLE>
For the years ended June 30, 2000, 1999 and 1998, $136, $205 and $2,047 of
interest was capitalized, respectively.
(7) MARKETABLE SECURITIES & OTHER ASSETS
The Company's investments in marketable securities and certain other assets
are classified as "available for sale" and, accordingly, are recorded at current
market value with offsetting adjustments to shareholders' equity, net of income
taxes.
Marketable securities include investments in a short duration portfolio of
corporate and government debt. The debt securities will be held for less than
one year and are therefore, recorded as a current asset in the Consolidated
Balance Sheets.
Other assets include equity securities that represent the Company's
investments in Warner Chilcott plc. ("Warner Chilcott") and Halsey Drug Co.,
Inc. ("Halsey").
Warner Chilcott plc.
On August 13, 1997, Barr made a strategic investment in Warner Chilcott, a
developer, marketer, and distributor of specialty pharmaceutical products. In
connection with Warner Chilcott's Initial Public Offering ("Offering"), the
Company acquired 250,000 Ordinary Shares represented by 250,000 American
Depository Shares ("ADSs") at a price equal to the initial public offering price
less underwriting discounts and commissions. The initial investment totaled
$4,069. In addition, the Company was granted warrants to purchase an additional
250,000 shares in the form of ADSs. Beginning on the first anniversary of the
Offering and annually thereafter for the next three years, one-fourth of the
warrants will be exercisable by Barr. If Barr does not exercise in full the
portion of the warrant exercisable during any one year, such portion of the
warrant will terminate. The Company elected not to exercise the first portion of
the warrants because the warrants' exercise price exceeded the then market
price, and as a result, such portion of the warrants terminated. The Company
exercised the second portion on August 7, 2000.
Halsey Drug Co., Inc.
In April 1999, the Company sold its rights to several pharmaceutical
products to Halsey in exchange for 500,000 warrants exercisable for 500,000
shares of Halsey's common stock at $1.06 per share. The warrants expire in April
2004. In connection with this sale, the Company recorded an investment in
warrants and
F-12
<PAGE> 58
BARR LABORATORIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
realized a gain of $343. The Company has valued the warrants at their fair value
using the Black-Scholes option-pricing model.
Other Investments
Also included in other assets is the Company's investment of $2,250 in
Gynetics, Inc., a private company that develops and markets pharmaceutical
products and medical devices to advance the healthcare of women and an
investment of $550 in another private company with whom the Company will work in
connection with another one of its proprietary products. These investments are
recorded at cost in the Consolidated Balance Sheets.
The amortized cost and estimated market values of the securities at June
30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
JUNE 30, 2000 COST GAINS LOSSES VALUE
------------- --------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Debt securities:
U.S. Government securities.............. $ 101 $ -- $ 5 $ 96
Equity securities......................... 4,412 3,206 -- 7,618
------- ------ ------ -------
Total securities.......................... $ 4,513 $3,206 $ 5 $ 7,714
======= ====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
JUNE 30, 1999 COST GAINS LOSSES VALUE
------------- --------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Debt securities:
U.S. Government securities.............. $ 5,954 $ -- $ 55 $ 5,899
Corporate bonds......................... 2,235 1 8 2,228
------- ------ ------ -------
Total debt securities..................... 8,189 1 63 8,127
Equity securities......................... 4,069 -- 2,038 2,031
------- ------ ------ -------
Total securities.......................... $12,258 $ 1 $2,101 $10,158
======= ====== ====== =======
</TABLE>
Proceeds of $52,916 and $9,446, which include a loss of $122 and $6,
respectively, were received on the sales of marketable securities in the years
ended June 30, 2000 and 1999, respectively. The cost of investments sold is
determined by the specific identification method.
F-13
<PAGE> 59
BARR LABORATORIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) LONG-TERM DEBT
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
JUNE 30,
------------------
2000 1999
------- -------
<S> <C> <C>
New Jersey Economic Development Authority Bond(a)........... $ -- $ 241
Senior unsecured notes(b)................................... 27,143 28,571
Equipment financing(c)...................................... 2,865 3,361
Unsecured revolving credit facility(d)...................... -- --
------- -------
30,008 32,173
Less: Current installments of long-term debt................ 1,924 2,165
------- -------
Total long-term debt........................................ $28,084 $30,008
======= =======
</TABLE>
---------------
(a) The New Jersey Economic Development Authority Bond was payable to a bank.
Such loan was secured by a first mortgage on land, building and improvements
on the facility located at 265 Livingston Street. Interest was charged at
75% of the bank's prime rate. The final installment of $220 was paid in
January 2000.
(b) In November 1997, the Company refinanced $14,400 of outstanding Senior
Secured Notes with $30,000 of Senior Unsecured Notes with an average
interest rate of 6.88% per year. The cash payment of $16,055 included the
outstanding principal of $14,400, a prepayment penalty of $1,087 and accrued
interest through November 18, 1997 of $568. The prepayment penalty of $1,087
and the related write-off of approximately $195 in previously deferred
financing costs resulted in an extraordinary loss. This extraordinary loss
from early extinguishment of debt, net of taxes of $492, was $790 or $0.02
per share. The Senior Unsecured Notes of $30,000 include a $20,000, 7.01%
Note due November 18, 2007 and $10,000, 6.61% Notes due November 18, 2004.
Annual principal payments under the Notes total $1,429 through November
2002, $5,429 in 2003 and 2004, and $4,000 in 2005 through 2007.
The Senior Unsecured Notes contain certain financial covenants including
restrictions on dividend payments not to exceed $10 million plus 75% of
consolidated net earnings subsequent to June 30, 1997. The Company was in
compliance with all such covenants as of June 30, 2000.
(c) In April 1996, the Company signed a Loan and Security Agreement with
BankAmerica Leasing and Capital Group that provided the Company up to
$18,750 in financing for equipment to be purchased through October 1997.
Notes entered into under this agreement require no principal payment for the
first two quarters; bear interest quarterly at a rate equal to the London
Interbank Offer Rate (LIBOR) plus 125 basis points; and have a term of 72
months. LIBOR was 6.769% and 5.368% at June 30, 2000 and June 30, 1999,
respectively.
(d) The Company currently has no outstanding borrowings under its $20,000
Unsecured Revolving Credit Facility ("Revolver") with Bank of America,
National Association. Borrowings under this facility bear interest at either
prime or LIBOR plus 0.75%. In addition, the Company is required to pay a
commitment fee equal to .25% of the difference between the outstanding
borrowings and $20,000. In December 1999, the term of the Revolver was
extended to December 31, 2001.
F-14
<PAGE> 60
BARR LABORATORIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Principal maturities of existing long-term debt for the next five years and
thereafter are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30,
-----------
<S> <C>
2001........................................................ $ 1,924
2002........................................................ 3,184
2003........................................................ 2,042
2004........................................................ 5,429
2005........................................................ 5,429
Thereafter.................................................. 12,000
</TABLE>
(9) RELATED-PARTY TRANSACTIONS
The Company's related-party transactions were with affiliated companies of
Dr. Bernard C. Sherman. During the years ended June 30, 2000, 1999 and 1998, the
Company purchased $2,716, $1,134 and $1,799, respectively, of bulk
pharmaceutical material from such companies. In addition, the Company sold
certain of its pharmaceutical products and bulk pharmaceutical materials to two
other companies owned by Dr. Sherman. During fiscal 1996, the Company also
entered into a multi-year agreement with a Company owned by Dr. Sherman to share
litigation and development costs in connection with one of its patent
challenges. For the years ended June 30, 2000, 1999 and 1998, the Company
recorded $668, $1,438 and $1,170, respectively, in connection with such
agreement as a reduction to selling, general and administrative expenses and
research and development expenses.
During the years ended June 30, 2000, 1999 and 1998, the Company's founder
and Vice Chairman, Edwin A. Cohen, earned $200, $200 and $250, respectively,
under a consulting agreement, which expires on June 30, 2002.
(10) INCOME TAXES
A summary of the components of income tax expense is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Current:
Federal............................................. $25,475 $25,173 $15,504
State............................................... 4,100 3,870 1,567
------- ------- -------
29,575 29,043 17,071
------- ------- -------
Deferred:
Federal............................................. (3,577) 1,588 3,103
State............................................... (550) 246 482
------- ------- -------
(4,127) 1,834 3,585
------- ------- -------
Total................................................. $25,448 $30,877 $20,656
======= ======= =======
</TABLE>
F-15
<PAGE> 61
BARR LABORATORIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income tax expense for the years ended June 30, 2000, 1999 and 1998 is
included in the financial statements as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Continuing operations................................. $25,448 $30,877 $21,148
Extraordinary loss on early extinguishment of debt.... -- -- (492)
------- ------- -------
$25,448 $30,877 $20,656
======= ======= =======
</TABLE>
The provision for income taxes differs from amounts computed by applying
the statutory federal income tax rate to earnings before income taxes due to the
following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Federal income taxes at statutory rate................ $23,726 $28,044 $18,681
State income taxes, net of federal income tax
effect.............................................. 2,307 2,675 1,332
Other, net............................................ (585) 158 643
------- ------- -------
$25,448 $30,877 $20,656
======= ======= =======
</TABLE>
The temporary differences that give rise to deferred tax assets and
liabilities as of June 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Deferred tax assets:
Receivable reserves....................................... $ 2,313 $ 900
Inventory reserves........................................ 620 2,290
Inventory capitalization.................................. 895 385
Investments*.............................................. -- 842
Other operating reserves.................................. 2,443 2,471
Warrants issued........................................... 6,610 --
-------- --------
Total deferred tax assets................................... 12,881 6,888
Deferred tax liabilities:
Plant and equipment....................................... (6,384) (4,173)
Proceeds from supply agreement............................ (6,576) (6,319)
Other operating reserves.................................. (240) --
Investments*.............................................. (1,283) --
-------- --------
Total deferred tax liabilities.............................. (14,483) (10,492)
-------- --------
Net deferred tax liability.................................. $ (1,602) $ (3,604)
======== ========
</TABLE>
---------------
* Tax effects are reflected directly in equity
As of June 30, 2000, the Company has capital loss carryforwards of $151,
expiring in 2004 and 2005.
(11) SHAREHOLDERS' EQUITY
Employee Stock Option Plans
The Company has two stock option plans, the 1993 Stock Incentive Plan (the
"1993 Option Plan") and the 1986 Option Plan, which were approved by the
shareholders and which authorize the granting of options
F-16
<PAGE> 62
BARR LABORATORIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to officers and certain key employees to purchase the Company's common stock at
a price equal to the market price on the date of grant. Effective June 30, 1996,
options are no longer granted under the 1986 Option Plan. For fiscal 2000, 1999
and 1998, there were no options that expired under this plan.
All options granted prior to June 30, 1996, under the 1993 Option Plan and
1986 Option Plan, are exercisable between one and two years from the date of
grant and expire ten years after the date of grant except in cases of death or
termination of employment as defined in each Plan. Options issued after June 30,
1996 are exercisable between one and three years from the date of grant. To
date, no option has been granted under either the 1993 Option Plan or the 1986
Option Plan at a price below the current market price of the Company's common
stock on the date of grant.
A summary of the activity resulting from all plans, adjusted for the June
2000 3-for-2 stock split, is as follows:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
NO. OF SHARES OPTION PRICE
------------- ----------------
<S> <C> <C>
Outstanding at 6/30/97.................................. 2,978,086 $ 8.55
Granted............................................... 293,250 26.39
Canceled.............................................. (58,488) 15.07
Exercised............................................. (701,117) 4.82
---------
Outstanding at 6/30/98.................................. 2,511,731 9.05
Granted............................................... 417,000 22.75
Canceled.............................................. (48,864) 21.69
Exercised............................................. (644,566) 4.67
---------
Outstanding at 6/30/99.................................. 2,235,301 12.59
Granted............................................... 617,516 24.07
Canceled.............................................. (5,947) 26.20
Exercised............................................. (515,575) 7.76
---------
Outstanding at 6/30/00.................................. 2,331,295 $16.67
=========
Available for grant (6,243,750 authorized).............. 658,173
Exercisable at 6/30/00.................................. 1,366,460 $11.56
</TABLE>
Non-Employee Directors' Stock Option Plan
During fiscal year 1994, the shareholders ratified the adoption by the
Board of Directors of the 1993 Stock Option Plan for Non-Employee Directors (the
"Directors' Plan"). This formula plan, among other things, enhances the
Company's ability to attract and retain experienced directors. In December 1998,
the number of shares which each non-employee director is optioned was decreased
from 11,250 to 7,500 shares on the grant date. In October 1999, the number of
shares which each non-employee director is optioned was decreased from 7,500 to
5,000 shares on the grant date. Effective October 2000, the number of shares
which each non-employee director is optioned is 7,500 shares on the grant date.
All options granted under the Directors' Plan have ten-year terms and are
exercisable at an option exercise price equal to the market price of the common
stock on the date of grant. Each option is exercisable on the date of the first
annual shareholders' meeting immediately following the date of grant of the
option, provided there has been no interruption of the optionee's service on the
Board before that date. The following
F-17
<PAGE> 63
BARR LABORATORIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
is a summary of activity adjusted for the June 2000 3-for-2 stock split, for the
three fiscal years ended June 30, 2000:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
NO. OF SHARES OPTION PRICE
------------- ----------------
<S> <C> <C>
Outstanding at 6/30/97.................................. 365,250 $ 8.07
Granted............................................... 101,250 24.00
Canceled.............................................. (16,875) 24.00
Exercised............................................. (57,000) 6.60
-------
Outstanding at 6/30/98.................................. 392,625 11.70
Granted............................................... 56,250 32.42
Exercised............................................. (43,875) 7.88
-------
Outstanding at 6/30/99.................................. 405,000 14.99
Granted............................................... 37,500 19.96
Exercised............................................. (52,500) 8.30
-------
Outstanding at 6/30/00.................................. 390,000 $16.37
=======
Available for grant (843,750 authorized)................ 240,375
Exercisable at 6/30/00.................................. 352,500 $15.99
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
During fiscal 1994, the shareholders ratified the adoption by the Board of
Directors of the 1993 Employee Stock Purchase Plan (the "Purchase Plan") to
offer employees an inducement to acquire an ownership interest in the Company.
The Purchase Plan permits eligible employees to purchase, through regular
payroll deductions, an aggregate of 675,000 shares of common stock at
approximately 85% of the fair market value of such shares. Under the Plan,
purchases were 60,874, 59,965 and 64,771 shares for the years ended June 30,
2000, 1999 and 1998, respectively.
Accounting for Stock-Based Compensation Plans
The Company applies APB No. 25 and related Interpretations in accounting
for its stock-based compensation plans. Accordingly, no compensation cost has
been recognized for its stock option plans and its stock purchase plan. Had
compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method
F-18
<PAGE> 64
BARR LABORATORIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of SFAS No. 123, the Company's net earnings and earnings per share would have
been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Net earnings
As reported......................................... $42,342 $49,250 $32,720
Pro forma........................................... $39,398 $46,940 $30,752
Net earnings per share
As reported......................................... $ 1.23 $ 1.45 $ 1.00
Pro forma........................................... $ 1.15 $ 1.39 $ 0.94
Net earnings per share -- assuming dilution
As reported......................................... $ 1.19 $ 1.39 $ 0.94
Pro forma........................................... $ 1.10 $ 1.33 $ 0.89
</TABLE>
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions for
2000, 1999 and 1998, respectively: dividend yield of 0%; expected volatility of
50.6%, 48.9% and 42.1%; weighted-average risk-free interest rates of 5.8%, 4.7%
and 5.9%; and expected option life of 3 years for the 1993 Option Plan and 4
years for the Directors' Plan.
The following table summarizes information about stock options outstanding
at June 30, 2000:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ----------------------------
RANGE OF NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
EXERCISE OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
PRICES AT 6/30/00 CONTRACTUAL LIFE EXERCISE PRICE AT 6/30/00 EXERCISE PRICE
-------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 3.03 - 7.58 925,184 4.43 $ 6.44 925,184 $ 6.44
11.50 - 14.74 373,285 6.27 12.51 373,285 12.51
19.60 - 24.89 1,118,218 8.72 23.44 203,325 23.21
26.02 - 32.41 304,608 7.43 27.57 217,166 28.00
--------- ---------
2,721,295 1,718,960
========= =========
</TABLE>
(12) SAVINGS AND RETIREMENT PLAN
The Company has a savings and retirement plan (the "401(k) Plan") which is
intended to qualify under Section 401(k) of the Internal Revenue Code. Employees
are eligible to participate in the 401(k) Plan in the first month following the
month of hire. Participating employees may contribute up to a maximum of 12% of
their earnings before or after taxes. The Company is required, pursuant to the
terms of its union contract, to contribute to each union employee's account an
amount equal to the 2% minimum contribution made by such employee. The Company
may, at its discretion, contribute a percentage of the amount contributed by an
employee to the 401(k) Plan up to a maximum of 10% of such employee's
compensation. Participants are always fully vested with respect to their own
contributions and any profits arising therefrom. Participants become fully
vested in the Company's contributions and related earnings after five full years
of employment.
The Company's contributions to the 401(k) Plan were $2,608, $2,292 and
$2,194 for the years ended June 30, 2000, 1999 and 1998, respectively.
In Fiscal 2000, the Board of Directors approved a non-qualified plan
("Excess Plan") that enables certain executives to defer up to 10% of their
compensation in excess of the qualified plan. The Company may, at its
discretion, contribute a percentage of the amount contributed by the individuals
covered under this Excess Plan to a maximum of 10% of such individual's
compensation. In fiscal 2000, the Company chose to
F-19
<PAGE> 65
BARR LABORATORIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
make contributions at the 10% rate to this plan. As of June 30, 2000, the
Company had recorded an asset and liability for the Excess Plan of $422.
(13) OTHER INCOME (EXPENSE)
A summary of other income (expense) is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------
2000 1999 1998
----- ---- ----
<S> <C> <C> <C>
Net gain (loss) on sale of assets........................... $ 470 $(11) $(63)
Net (loss) gain on sale of securities....................... (141) (11) 2
Other....................................................... 18 58 44
----- ---- ----
Other income (expense)...................................... $ 347 $ 36 $(17)
===== ==== ====
</TABLE>
(14) COMMITMENTS AND CONTINGENCIES
The Company is party to various operating leases which relate to the rental
of office facilities and equipment. The Company believes it will be able to
extend such leases, if necessary. Rent expense charged to operations was $1,069,
$1,099 and $1,493 in fiscal 2000, 1999 and 1998, respectively. Future minimum
rental payments, exclusive of taxes, insurance and other costs under
noncancellable long-term operating lease commitments, are as follows:
<TABLE>
<CAPTION>
MINIMUM
YEAR ENDING RENTAL
JUNE 30, PAYMENTS
----------- --------
<S> <C>
2001...................................................... $614
2002...................................................... 185
2003...................................................... 159
2004...................................................... 148
2005...................................................... 110
</TABLE>
Product Liability
The Company maintains product liability insurance coverage in the amount of
$20,000. No significant product liability suit has ever been filed against the
Company. However, if one were filed and such a case were successful against the
Company, it could have a material adverse effect upon the business and financial
condition of the Company to the extent such judgment was not covered by
insurance or exceeded the policy limits.
CLASS ACTION LAWSUITS
On July 14, 2000, Louisiana Wholesale Drug Co. filed a class action
complaint in the United States District Court for the Southern District of New
York against Bayer Corporation, the Rugby Group and the Company. The complaint
alleges that the Company and the Rugby Group agreed with Bayer Corporation not
to compete with a generic version of Ciprofloxacin pursuant to an
anti-competitive agreement between the defendants. The plaintiff purports to
bring claims on behalf of all direct purchasers of Cipro from 1997 to present.
On August 1, 2000, Maria Locurto filed a similar class action complaint in the
United States District Court for the Eastern Division of New York. On August 4,
2000, Ann Stuart, et al filed a class action complaint in the Superior Court of
New Jersey, Law Division, Camden County. This complaint alleges violations of
New Jersey statutes relating to the Cipro agreement.
F-20
<PAGE> 66
BARR LABORATORIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company believes that its agreement with Bayer Corporation is a valid
settlement to a patent suit and cannot form the basis of an antitrust claim.
Although it is not possible to forecast the outcome of these matters, the
Company intends to vigorously defend itself. It is anticipated that these
matters may take several years to be resolved but an adverse judgment could have
a material adverse impact on the Company's financial statements.
INVAMED, INC./APOTHECON, INC. LAWSUIT
In February 1998 and May 1999, Invamed, Inc., which has since been acquired
by Geneva Pharmaceuticals, Inc., a division of Novartis AG ("Invamed"), and
Apothecon, Inc., a division of Bristol-Meyers Squibb, Inc. ("Apothecon"),
respectively, named the Company and several others as defendants in lawsuits
filed in the United States District Court for the Southern District of New York,
charging that the Company unlawfully blocked access to the raw material source
for Warfarin Sodium. The Company believes that these suits are without merit and
intends to defend its position vigorously. These actions are currently in the
discovery stage. It is anticipated that this matter may take several years to be
resolved but an adverse judgment could have a material adverse impact on the
Company's consolidated financial statements.
ADMINISTRATIVE MATTERS
Federal antitrust authorities have undertaken a review of certain trade
practices within the pharmaceutical industry, specifically patent challenge
settlements, unfair trade practices by brand drug companies and exclusive supply
arrangements. The Company has voluntarily discussed with the Federal Trade
Commission ("FTC") its arrangements with the supplier of the raw material for
its Warfarin Sodium. The Company has voluntarily responded to requests from the
Department of Justice by providing documents relating to the settlement of its
Tamoxifen patent challenge. On June 30, 1999, the Company received a subpoena
and civil investigative demand from the FTC relating to its March 1997 patent
litigation settlement regarding Ciprofloxacin hydrochloride. The Company
believes that it has complied with all applicable laws and regulations governing
trade and competition in the marketplace in connection with its arrangements
with its raw material suppliers and its two patent challenge settlements.
Other Litigation
As of June 2000, the Company was involved with other lawsuits incidental to
its business, including patent infringement actions. Management of the Company,
based on the advice of legal counsel, believes that the ultimate disposition of
such other lawsuits will not have any significant adverse effect on the
Company's consolidated financial statements.
(15) FOURTH QUARTER CHARGE FOR FISCAL 1998
During the quarter ended June 1998, the Company recorded a $1.2 million
restructuring charge which is included in selling, general and administrative
expenses in the Consolidated Statements of Operations. Approximately half of
this charge related to the write-off of equipment and leasehold improvements in
connection with the closing of a leased New Jersey packaging facility, for which
the operations have been relocated to other company facilities. The remainder
related to severance related expenses for certain operations employees,
primarily those affiliated with the closed facility. As of June 30, 1999, the
1998 fourth quarter restructuring plan was completed and all payments were made.
F-21
<PAGE> 67
BARR LABORATORIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(16) QUARTERLY DATA (UNAUDITED)
A summary of the quarterly results of operations is as follows:
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED
--------------------------------------------
SEPT. 30 DEC. 31 MAR. 31 JUNE 30
-------- -------- -------- --------
<S> <C> <C> <C> <C>
FISCAL YEAR 2000:
Total revenues................................... $98,853 $120,820 $135,760 $126,845
Cost of sales.................................... 61,973 81,326 92,889 79,464
Net earnings..................................... 11,493 12,394 2,667 15,788
EARNINGS PER COMMON SHARE -- ASSUMING DILUTION
Net earnings(1)(3)............................... $ 0.32 $ 0.35 $ 0.07 $ 0.44
======= ======== ======== ========
PRICE RANGE OF COMMON STOCK(2)
High............................................. $ 26.75 $ 23.50 $ 33.92 $ 45.88
Low.............................................. 18.88 19.00 20.00 25.38
FISCAL YEAR 1999:
Total revenues................................... $97,149 $109,220 $122,572 $115,092
Cost of sales.................................... 63,908 73,920 87,968 75,597
Net earnings..................................... 11,204 12,281 12,662 13,103
EARNINGS PER COMMON SHARE -- ASSUMING DILUTION
Net earnings(1).................................. $ 0.32 $ 0.35 $ 0.36 $ 0.37
======= ======== ======== ========
PRICE RANGE OF COMMON STOCK(2)
High............................................. $ 26.50 $ 33.17 $ 32.37 $ 27.00
Low.............................................. 16.46 16.59 18.92 19.00
</TABLE>
---------------
(1) The sum of the individual quarters may not equal the full year amounts due
to the effects of the market prices in the application of the treasury stock
method. During its two most recent fiscal years, the Company paid no cash
dividend.
(2) The Company's common stock is listed and traded on the New York Stock
Exchange (BRL). At June 30, 2000, there were approximately 669 shareholders
of record of common stock. The Company believes that a significant number of
beneficial owners hold their shares in street names.
(3) The quarter ended March 31, 2000 includes a non-recurring charge of $18,940
for agreement expenses ($11.8 million after tax or $0.33 per share) (See
Note 2 to the Consolidated Financial Statements).
F-22
<PAGE> 68
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
3,500,000 SHARES
[BARR LABORATORIES, INC. LOGO]
------------------------------
PROSPECTUS
, 2000
------------------------------
BANC OF AMERICA SECURITIES LLC
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 69
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses in connection with the issuance and distribution of the
securities being registered, other than underwriting discounts and commissions,
are estimated to be:
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee........................................ $79,461.23
NASD Filing Fee............................................. 30,500.00
Stock Exchange Listing Fee..................................
Printing and Engraving Costs................................
Transfer Agent and Registrar Fees...........................
Accounting Fees.............................................
Legal Fees and Expenses.....................................
Blue Sky Fees and Expenses..................................
Miscellaneous...............................................
----------
Total............................................. $
==========
</TABLE>
All expenses will be borne by us and the selling shareholder on a pro rata
basis determined by the number of shares sold by each, except that the selling
shareholder will pay all legal fees and expenses incurred by it.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 721 through 726 of the New York Business Corporation Law contain
detailed provision for indemnification of directors and officers of New York
corporations against judgments, penalties, fines, Settlements and reasonable
expenses in connection with litigation. Such statutory provisions are not
Exclusive of any rights to indemnification granted under our Certificate of
Incorporation, as amended (the "Certificate"), our By-laws, as amended (the
"By-laws"), indemnification agreements or otherwise.
Article Eighth of the Certificate and Article X of the By-laws permit, but
do not require, us to indemnify our directors and officers to the fullest extent
permitted by law.
We have purchased insurance which insures (subject to certain terms and
conditions, exclusions and deductibles) us against certain costs which we might
be required to pay by way of indemnification to our directors or officers under
the Certificate or By-laws, indemnification agreements or otherwise and protects
individual directors and officers from certain losses for which they might not
be indemnified by us. In addition, we have purchased insurance which provides
liability coverage (subject to certain terms and conditions, exclusions and
deductibles) for amounts which we, or the fiduciaries under our employee benefit
plans, which may include our directors, officers and employees, might be
required to pay as a result of a breach of fiduciary duty.
Pursuant to the Underwriting Agreement relating to the offering, the
underwriters have agreed to indemnify our directors, officers and controlling
persons, in their capacity as such, against some liabilities, including some
liabilities under the Securities Act, arising out of information furnished to us
by the underwriters for use in the prospectus.
II-1
<PAGE> 70
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
1.1 Form of Underwriting Agreement
5.1 Opinion of Winston & Strawn
23.1 Consent of Winston & Strawn (See Exhibit 5.1)
23.2 Consent of Deloitte & Touche LLP
24.1 Powers of Attorney (Included on the signature page of this
Registration Statement)
</TABLE>
ITEM 17. UNDERTAKINGS.
The Company hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, (1) each filing of the Company's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in this registration statement shall be
deemed to be a new registration statement, relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof, (2) the information omitted from the
form of prospectus filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the registrant pursuant
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was declared effective,
and (3) each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the provisions described under Item 15 above or otherwise,
the Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, Unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted against
the Company by such director, officer or controlling person in connection with
the securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-2
<PAGE> 71
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Pomona, State of New York on this 14th day of
September, 2000.
BARR LABORATORIES, INC.
By /s/ WILLIAM T. MCKEE
------------------------------------
William T. McKee
Senior Vice President, Chief
Financial Officer and Treasurer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Bruce L. Downey and William T.
McKee and each of them (with full power to each of them to act alone), his true
and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all said attorneys-in-fact and agents, or any of them, or their
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ BRUCE L. DOWNEY Chairman of the Board September 14, 2000
--------------------------------------------------- (Principal Executive
Bruce L. Downey Officer)
/s/ WILLIAM T. MCKEE Senior Vice President, Chief September 14, 2000
--------------------------------------------------- Financial Officer and
William T. McKee Treasurer (Principal
Financial Officer and
Principal Accounting
Officer)
/s/ EDWIN A. COHEN Vice Chairman of the Board September 14, 2000
---------------------------------------------------
Edwin A. Cohen
/s/ PAUL M. BISARO Director September 14, 2000
---------------------------------------------------
Paul M. Bisaro
/s/ ROBERT J. BOLGER Director September 14, 2000
---------------------------------------------------
Robert J. Bolger
</TABLE>
II-3
<PAGE> 72
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ MICHAEL F. FLORENCE Director September 14, 2000
---------------------------------------------------
Michael F. Florence
/s/ JACOB M. KAY Director September 14, 2000
---------------------------------------------------
Jacob M. Kay
/s/ BERNARD C. SHERMAN Director September 14, 2000
---------------------------------------------------
Bernard C. Sherman
/s/ GEORGE P. STEPHAN Director September 14, 2000
---------------------------------------------------
George P. Stephan
</TABLE>
II-4
