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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For quarterly period ended September 30, 2000 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-9860
BARR LABORATORIES, INC.
(Exact name of Registrant as specified in its charter)
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<CAPTION>
NEW YORK 22-1927534
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<S> <C>
(State or Other Jurisdiction of (I.R.S. - Employer
Incorporation or Organization) Identification No.)
</TABLE>
TWO QUAKER ROAD, P. O. BOX 2900, POMONA, NEW YORK 10970-0519
-------------------------------------------------------------
(Address of principal executive offices)
845-362-1100
(Registrant's telephone number)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Number of shares of common stock, par value $.01, outstanding as of September
30, 2000: 35,266,231
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BARR LABORATORIES, INC.
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<CAPTION>
INDEX PAGE
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 2000 and June 30, 2000 3
Consolidated Statements of Earnings
for the three months ended
September 30, 2000 and 1999 4
Consolidated Statements of Cash Flows
for the three months ended
September 30, 2000 and 1999 5
Notes to Consolidated Financial
Statements 6-10
Item 2. Management's Discussion and
Analysis of Financial Condition and
Results of Operations 11-14
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 16
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BARR LABORATORIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
2000 2000
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ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 168,388 $ 155,922
Marketable securities -- 96
Accounts receivable, less allowances of $4,844
and $4,140, respectively 57,664 54,669
Other receivables 20,218 23,811
Inventories 94,078 79,482
Prepaid expenses 5,220 1,428
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Total current assets 345,568 315,408
Property, plant and equipment, net of accumulated
depreciation of and $51,196 and $50,826 respectively 95,084 95,296
Other assets 15,609 13,149
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Total assets $ 456,261 $ 423,853
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 96,109 $ 94,529
Accrued liabilities 14,450 11,079
Deferred income taxes 1,036 1,036
Current portion of long-term debt 1,924 1,924
Income taxes payable 10,168 3,948
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Total current liabilities 123,687 112,516
Long-term debt 27,961 28,084
Other liabilities 1,071 519
Deferred income taxes 1,490 566
Commitments & Contingencies
Shareholders' equity:
Preferred stock $1 par value per share;
authorized 2,000,000; none issued
Common stock $.01 par value per share;
authorized 100,000,000; issued 35,443,163
and 35,004,869, respectively 354 350
Additional paid-in capital 105,924 99,881
Retained earnings 192,259 180,034
Accumulated other comprehensive income 3,528 1,916
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302,065 282,181
Treasury stock at cost: 176,932 shares (13) (13)
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Total shareholders' equity 302,052 282,168
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Total liabilities and shareholders' equity $ 456,261 $ 423,853
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
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BARR LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
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<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
2000 1999
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<S> <C> <C>
Revenues:
Product sales $ 99,680 $ 92,103
Development and other revenue 5,162 --
Proceeds from supply agreement 7,000 6,750
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Total revenues 111,842 98,853
Costs and expenses:
Cost of sales 67,672 61,973
Selling, general and administrative 12,695 10,410
Research and development 11,126 9,067
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Earnings from operations 20,349 17,403
Interest income 2,248 1,180
Interest expense 521 634
Other (expense) income (2,526) 466
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Earnings before income taxes 19,550 18,415
Income tax expense 7,325 6,922
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Net earnings $ 12,225 $ 11,493
========= =========
Earnings per common share $ 0.35 $ 0.34
========= =========
Earnings per common share - assuming dilution $ 0.33 $ 0.32
========= =========
Weighted average shares 35,059 34,234
========= =========
Weighted average shares - assuming dilution 37,613 35,475
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
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BARR LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net earnings $ 12,225 $ 11,493
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,639 2,590
Loss (gain) on sale of assets 92 (493)
(Gain) loss on sale of marketable securities (12) 21
Write-off of investment 2,450 -
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable and other receivables, net 598 (13,759)
Inventories (14,596) (38,264)
Prepaid expenses (3,792) (18)
Other assets (376) (36)
Increase (decrease) in:
Accounts payable, accrued liabilities and
other liabilities 5,231 20,231
Income taxes payable 6,220 6,856
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Net cash provided by (used in) operating activities 10,679 (11,379)
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CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Purchases of property, plant and equipment (2,232) (3,852)
Proceeds from sale of property, plant and equipment 25 150
Purchases of marketable securities, net (1,922) (249)
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Net cash used in investing activities (4,129) (3,951)
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CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Principal payments on long-term debt and capital leases (131) (134)
Proceeds from exercise of stock options and employee
stock purchases 6,047 881
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Net cash provided by financing activities 5,916 747
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Increase (decrease) in cash and cash equivalents 12,466 (14,583)
Cash and cash equivalents at beginning of period 155,922 94,867
---------- ---------
Cash and cash equivalents at end of period $ 168,388 $80,284
========== =========
SUPPLEMENTAL CASH FLOW DATA:
Cash paid during the period
Interest, net of portion capitalized $ 55 $ 112
========== =========
Income taxes $ 1,605 $ -
========== =========
Non-cash transactions
Write-off of equipment & leasehold improvements
related to closed facility $ - $ 115
========== =========
Equipment under capital lease $ 280 $ -
========== =========
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
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BARR LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Barr
Laboratories, Inc. and its wholly-owned subsidiaries (the "Company" or
"Barr").
In the opinion of the Management of the Company, the interim consolidated
financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
position, results of operations and cash flows for the interim periods.
Interim results are not necessarily indicative of the results that may be
expected for a full year. These financial statements should be read in
conjunction with the Company's Annual Report on Form 10-K for the year
ended June 30, 2000.
2. CASH AND CASH EQUIVALENTS
Cash equivalents consist of short-term, highly liquid investments,
including market auction securities with interest rates that are re-set in
intervals of 7 to 49 days, which are readily convertible into cash at par
value, which approximates cost.
As of September 30, 2000 and June 30, 2000, approximately $85,551 and
$74,011, 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 AstraZeneca Pharmaceuticals LP ("AstraZeneca"), which
the Company has decided to secure in connection with its cash management
policy. The Company pays AstraZeneca a monthly fee based on a rate
multiplied by the average unsecured monthly Tamoxifen payable balance.
3. OTHER RECEIVABLES
Other receivables consist primarily of supply agreement receivables and
receivables related to development and other revenue (See Note 5).
4. INVENTORIES
Inventories consisted of the following:
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<CAPTION>
September 30, June 30,
2000 2000
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<S> <C> <C>
Raw materials and supplies $18,010 $16,884
Work-in-process 5,503 5,102
Finished goods 70,565 57,496
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$94,078 $79,482
======= =======
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Tamoxifen citrate, purchased as a finished product, accounted for
approximately $54,498 and $42,730 of finished goods as of September 30,
2000 and June 30, 2000, respectively.
5. DEVELOPMENT AND OTHER REVENUE
In March 2000, the Company entered into two drug development agreements
with DuPont Pharmaceuticals Company ("DuPont"). Under the development
agreements, DuPont pays the Company for development work performed on
several proprietary products. The amounts received from DuPont are not
dependent upon the research being successful.
Development and other revenue for the three months ended September 30, 2000
included $4,600 related to these development agreements.
6. OTHER (EXPENSE) INCOME
The Company wrote-off its investment in Gynetics, Inc. in the quarter ended
September 30, 2000. Other (expense) income in the consolidated financial
statements includes approximately $2.5 million related to that write-off.
The prior year included a $343 gain resulting from the receipt of 500,000
warrants from Halsey Drug Co., Inc. in exchange for rights to several
pharmaceutical products.
7. EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators used
to calculate earnings per common share ("EPS") on the Consolidated
Statements of Earnings:
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<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
2000 1999
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<S> <C> <C>
EARNINGS PER COMMON SHARE:
Net earnings (numerator) $12,225 $11,493
Weighted average shares (denominator) 35,059 34,234
Net earnings $ 0.35 $ 0.34
======= =======
EARNINGS PER COMMON SHARE - ASSUMING DILUTION:
Net earnings (numerator) $12,225 $11,493
Weighted average shares 35,059 34,234
Effect of dilutive options 2,554 1,241
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Weighted average shares - assuming
dilution (denominator) 37,613 35,475
Net earnings $ 0.33 $ 0.32
======= =======
</TABLE>
Share amounts in thousands
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During the three months ended September 30, 2000 and 1999, there were 1,500
and 919,000, respectively, of outstanding options and warrants that were
not included in the computation of diluted EPS, because the securities'
exercise prices were greater than the average market price of the common
stock for the period.
8. COMPREHENSIVE INCOME
Comprehensive income is defined as the total change in shareholders' equity
during the period other than from transactions with shareholders. For the
Company, comprehensive income is comprised of net income and the net
changes in unrealized gains and losses on securities classified for
Statement of Financial Accounting Standards ("SFAS") No. 115 purposes as
"available for sale". Total comprehensive income for the three months ended
September 30, 2000 and 1999 was $13,837 and $11,692, respectively.
9. NEW ACCOUNTING PRONOUNCEMENTS
Derivative Instruments
On June 15, 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133, as amended by SFAS No. 138 (collectively, SFAS
No. 133), provides accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. SFAS No. 133 is effective for all
fiscal quarters for all fiscal years beginning after June 15, 2000. The
Company implemented SFAS No. 133 on July 1, 2000 and its adoption did not
have a material impact on the Company's consolidated financial statements.
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 the Company's
fourth fiscal quarter ending June 30, 2001. The Company is currently
evaluating this bulletin and its impact on its existing accounting policies
and consolidated financial statements.
10. STRATEGIC COLLABORATIONS
The Company, from time to time, enters into development or supply
collaborations or makes investments in third parties to support the
Company's business strategies. These collaborations include, but are not
limited to, agreements with suppliers for raw materials, licensing
technologies for generic or proprietary products and making equity or debt
investments in third parties. Financial terms may include cash payments
upon execution of an agreement or upon achieving certain milestones or upon
successful launch and commercialization of the developed product. Such
payments are either capitalized as other assets and amortized or expensed
as research and development, depending upon the nature of the payment. Many
of these arrangements include termination provisions that allow the Company
to withdraw from a project if it is deemed no longer appropriate by the
Company.
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11. FACILITY OPTIMIZATION CHARGES
During the quarter ended September 30, 2000, the Company recorded a $740
charge related to the ongoing rationalization of its New York and New
Jersey manufacturing operations as well as a reduction of several salaried
positions. The Company recorded a similar charge of $540 in the prior year.
These charges are included in selling, general and administrative expenses
in the Consolidated Statements of Earnings. The rationalization plan was
completed by September 30, 2000.
12. COMMITMENTS AND CONTINGENCIES
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
(Cipro(R)) pursuant to an agreement between the Company and the other
defendants involving a prior patent infringement lawsuit. The plaintiff
claims that this agreement violated antitrust laws. The plaintiff purports
to bring claims on behalf of all direct purchasers of Cipro from 1997 to
present.
Currently there are approximately 20 similar putative class actions that
have been filed in Federal District Courts in New York, Michigan, Arizona,
Pennsylvania and Illinois and in five state courts. Pending consolidation
of these lawsuits in a single district, the Company has not yet filed
responses in any of these actions.
In October and November 2000, private antitrust class action complaints
were filed against Zeneca, Inc., AstraZeneca Pharmaceuticals LP and the
Company. The complaints allege that the 1993 settlement of patent
litigation between Zeneca, Inc. and the Company insulates Zeneca, Inc. and
the Company from generic competition and enables Zeneca, Inc. and Barr to
charge artificially inflated prices for Tamoxifen citrate.
The Company believes that each of its agreements with Bayer Corporation and
Zeneca, Inc., respectively, 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 consolidated 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 two actions have been
consolidated. 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
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an adverse judgement could have a material impact on the Company's
consolidated financial statements.
Other Litigation
As of September 30, 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.
Administrative Matters
In 1998 and 1999, the Company was contacted by the Department of Justice
("DOJ") regarding the March 1993 resolution of the Tamoxifen patent
litigation. Barr continues to cooperate with the DOJ in this examination,
and believes that the DOJ will ultimately determine that the settlement was
appropriate and a benefit to consumers. The DOJ has not contacted the
Company about this matter in over a year.
On June 30, 1999, Barr received a civil investigative demand and a subpoena
from the Federal Trade Commission ("FTC"), that, although not alleging any
wrongdoing, sought documents and data relating to the January 1997
agreements resolving patent litigation involving 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
Company, through settlement and supply agreements, has engaged or are
engaging in activities in violation of the antitrust laws. Barr continues
to cooperate with the FTC in this investigation.
The Company believes 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. Barr believes 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
considerable time, and while unlikely, any adverse judgement in either
matter could have a material adverse effect on the Company's consolidated
financial statements.
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations:
Comparison of the Three Months Ended September 30, 2000 to the Three Months
Ended September 30, 1999 - (thousands of dollars)
Total revenues increased approximately 13% as a result of increased product
sales and development and other revenue.
Tamoxifen sales increased 13% from $55,270 to $62,494. The increase was due to
higher prices and an expansion in the use of Tamoxifen. In October 1998,
Tamoxifen was approved to reduce the incidence in breast cancer in women at high
risk of developing the disease. Tamoxifen is a patent protected product
manufactured for the Company by AstraZeneca. Currently, Tamoxifen only competes
against AstraZeneca's product, which is sold under the brand name Nolvadex(R).
Other product sales increased 1% from $36,833 to $37,186. The increase was
primarily due to sales of ViaSpan(R), which Barr began distributing on August
1, 2000.
Development and other revenue consists of amounts received from DuPont
Pharmaceuticals Company ("DuPont") for various development and co-marketing
agreements entered into in March 2000 (See Note 5 to the Consolidated Financial
Statements).
Cost of sales increased to $67,672 or 68% of product sales from $61,973 or 67%
of product sales. The increase in both dollars and percent of product sales was
due mainly to increased sales of Tamoxifen and an increased percentage of
Tamoxifen sales to total product sales. Tamoxifen is distributed by the Company
and has lower margins than most of Barr's other products.
Selling, general and administrative expenses increased from $10,410 to $12,695.
The increase was primarily due to an increase in sales and marketing expenses
and legal spending. Sales and marketing expenses increased primarily due to
royalty payments related to ViaSpan sales. The increase in legal spending was
primarily related to an increase in spending related to on-going patent
challenges, legal research and preparation related to several additional patent
challenges and the Invamed, Inc./Apothecon, Inc. litigation. Selling, general
and administrative expenses for the three months ended September 30, 2000 also
includes a $740 charge related to the Company's on-going rationalization of its
New York and New Jersey manufacturing operations, as well as a reduction of
several salary positions. The Company recorded a similar charge of $540 in the
prior year (See Note 11 to the Consolidated Financial Statements).
Research and development expenses increased from $9,067 to $11,126.
Approximately 66% of this increase is the result of increased wage and related
costs, primarily associated with increased headcount. In addition, the Company
made increased payments to clinical research organizations for clinical and
bio-study services associated with the Company's proprietary development
activities and payments for strategic collaborations and raw material
development agreements.
Interest income increased by $1,068 primarily due to an increase in the average
cash and cash equivalents balance, as well as an increase in the market rates on
the Company's short-term investments.
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Interest expense decreased $113 primarily due to lower fees paid on the average
unsecured Tamoxifen payable balance (See Note 2 to the Consolidated Financial
Statements).
Other expense increased by $2,992 primarily due to the charge related to the
write-off of the Company's investment in Gynetics, Inc. The prior year amount
reflects the gain recognized on the warrants received from Halsey Drug Co., Inc.
(See Note 6 to the Consolidated Financial Statements).
Liquidity and Capital Resources
The Company's cash and cash equivalents increased from $155,922 at June 30, 2000
to $168,388 at September 30, 2000. During the three months ended September 30,
2000, the Company increased the cash held in its interest-bearing escrow account
from $74,011 at June 30, 2000 to $85,551.
Cash provided by operating activities totaled $10,679 for the three months ended
September 30, 2000 as net earnings and non-cash charges such as depreciation and
an investment write-off, more than offset working capital increases. The working
capital increase was led by an increase in inventories, which was partially
offset by increases in accounts payable and income taxes payable. The increase
in inventory and accounts payable was almost entirely related to an increase in
Tamoxifen inventory. The Tamoxifen increases were based on management's decision
to increase its Tamoxifen purchases and was consistent with past trends. Income
taxes payable increased as a result of increased taxable earnings and the timing
of estimated tax payments.
During the first three months of fiscal 2001, the Company invested approximately
$2.2 million in capital assets primarily related to upgrades and new equipment
for its facilities. The Company believes it may invest an additional $14 to $16
million in capital assets in fiscal 2001.
Debt balances declined slightly during the quarter due to scheduled repayments
on the Company's debt. Scheduled principal repayments on the Company's existing
debt will be $1,552 during the quarter ending December 31, 2000. The Company did
not use any funds available to it under its $20 million Revolving Credit
Facility during the current quarter.
The Company is expecting to increase its research and development spending to
$58 to $62 million in fiscal 2001 as well as initiate three additional patent
challenges. Patent challenges can take three to six years to complete and can
require an investment of $8 to $10 million.
To expand its growth opportunities, the Company has and will continue to
evaluate and enter into various strategic collaborations (See Note 10 to the
Consolidated Financial Statements). 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 the Company's control. However,
the Company believes, that based on arrangements in place at September 30, 2000,
it could spend between $2 and $4 million over the next twelve months for these
collaborations. The $2 to $4 million excludes any cash needed to fund strategic
acquisitions the Company may consider in the future.
In September 2000, the Company filed a registration statement on Form S-3 to
register for sale 3,500,000 shares of Barr's common stock. The registration
statement is not yet effective and no offering of the common stock has
commenced. Of the 3,500,000 shares being registered, 3,000,000 are being offered
by Dr. Bernard Sherman, who beneficially owns approximately 42% of Barr's common
shares, and 500,000 are being offered by Barr. Though the Company has registered
to sell 500,000 shares, the decision to sell will be dependent upon the market
price at the time the offering is to be commenced.
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The Company believes that its current cash balances, cash flows from operations
and borrowing capacity, including unused amounts under its existing $20 million
Revolving Credit Facility, will be adequate to meet the operations described
above 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.
Outlook
The following section contains a number of forward-looking statements, all of
which are based on current expectations. Actual results may differ materially.
The generic pharmaceutical industry is characterized by relatively short product
lives and declining prices and margins as competitors launch competing products.
The Company's strategy has been to develop generic products with some barrier to
entry to limit competition and extend product lives and margins. The Company's
expanded efforts in developing and launching proprietary products is also driven
by the desire to market products that will have limited competition and longer
product lives. The Company's future operating results are dependent upon several
factors that impact its stated strategies. These factors include the ability to
introduce new products, patient acceptance of new products and new indications
of existing products, customer purchasing practices, pricing practices of new
competitors and spending levels including research and development. In addition,
the ability to receive sufficient quantities of raw materials to maintain its
production is critical. While the Company has not experienced any interruption
in sales due to lack of raw materials, the Company is continually identifying
alternate raw material suppliers for many of its key products in the event that
raw material shortages were to occur. The Company's operating results are
expected to be significantly impacted by a favorable final decision regarding
its challenge of the Prozac(R) patent. The timing and impact of the launch of
Prozac in fiscal 2001 is dependent on several factors. The Company has not
provided guidance on the impact of Prozac on its consolidated financial
statements and therefore it has been excluded from the following outlook
section.
Total revenues are expected to increase in the quarter ending December 31, 2000
and the balance of fiscal 2001 compared to fiscal 2000 driven by increasing
development revenue and higher product sales. Higher product sales are expected
to be driven by higher Tamoxifen sales and new product launches, including
ViaSpan, which should more than offset declining prices on certain existing
products. Tamoxifen revenues for the quarter ending December 31, 2000 are
expected to increase in a range similar to the year over year increase seen in
the quarter ended September 30, 2000. Non-tamoxifen sales in the quarter ending
December 31, 2000 are expected to be consistent with the prior year period as
declining prices on certain existing products should be offset primarily by
ViaSpan revenues. Development revenues are anticipated to be between $4 and $6
million per quarter over the balance of the fiscal year.
Selling, general and administrative spending is impacted by several factors such
as the timing and number of legal matters, including patent challenges being
pursued by the Company, the level of government affairs spending and promotional
and advertising activities. Barr expects that selling, general and
administrative expenses will approximate $11 to $12 million in the quarter
ending December 31, 2000, driven by legal costs and sales and marketing costs
associated with new product launches, including ViaSpan.
Research and development costs are expected to approximate $58 to $62 million in
fiscal 2001 compared to $40.5 million in fiscal 2000. The increase is due to
substantial increases in both generic and proprietary product development
activities. In its generic development area, the Company expects to file between
18 and 22 ANDAs in fiscal 2001 compared to 11 filed in fiscal 2000. While the
number of applications filed is not the only measure of research and development
activity, a higher
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number of filings generally requires higher raw material and clinical study
costs. Research and development spending is expected to be approximately $15 to
$17 million for the quarter ending December 31, 2000.
Barr expects its effective tax rate to be approximately 37.5%, which is in-line
with the quarter ended September 30, 2000 and December 31, 1999.
Diluted shares outstanding are based on shares outstanding and the dilutive
effect of warrants and options that are outstanding. The dilutive effect of
outstanding warrants and options is based on the strike price of such warrants
and options and Barr's average stock price during the quarter. Shares
outstanding during the quarter could be impacted by shares issued in connection
with option exercises and the additional shares contemplated in the stock
offering discussed earlier. Barr expects diluted shares outstanding to be
approximately 38 million for the quarter ending December 31, 2000 and the
balance of the fiscal year.
Forward-Looking Statements
Except for the historical information contained herein, this Form 10-Q 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 of 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 the Company's
filings with the Securities and Exchange Commission. Forward-looking statements
can be identified by their use of words such as "expects," "plans," "will,"
"believes," "may," "estimates," "intends" and other words of similar meaning.
Should known or unknown risks or uncertainties materialize, or should our
assumptions prove inaccurate, actual results could vary materially from those
anticipated.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As discussed in the 2000 Annual Report on Form 10-K, the Company's exposure to
market risk from changes in interest rates, in general, is not material.
14
<PAGE> 15
BARR LABORATORIES, INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Fluoxetine Hydrochloride Patent Challenge
As disclosed in the Company's Annual Report on Form 10-K, on August
9, 2000, the U.S. Court of Appeals, Federal Circuit in Washington
D.C., ruled in favor of Barr's challenge to Eli Lilly Company's
("Lilly") patent protecting Prozac. The court unanimously upheld the
Company's "double-patenting" claims, finding that the invention
claimed in Lilly's patent already had been the subject of a previous
patent, and thus could not be patent-protected for a second time. In
so ruling, the court struck down a patent that would have protected
Prozac from generic competition until after December 2003. On
October 6, 2000, Lilly filed a petition asking the full panel of the
Court of Appeals to rehear the case. The Court of Appeals has not
yet ruled on Lilly's petition, and Lilly is expected to seek review
of the U.S. Supreme Court if the Court of Appeals does not reverse
the present ruling.
Flecainide Acetate Patent Challenge
In May 2000, Barr filed an ANDA seeking approval from the FDA to
market Flecainide Acetate tablets. The Company notified Minnesota
Mining and Manufacturing Company ("Minnesota Mining") pursuant to
the provisions of the Hatch-Waxman Act and on August 25, 2000,
Minnesota Mining filed a patent infringement action in the United
States District Court for the District of Minnesota, seeking to
prevent Barr from marketing this product until certain U.S. patents
expire. This case involves an alleged infringement by Barr of raw
material patents and not a challenge to the validity of patents
protecting the product. This case is currently in the discovery
stage.
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 (Cipro(R)) pursuant to an agreement
between the Company and the other defendants involving a prior
patent infringement lawsuit. The plaintiff claims that this
agreement violated antitrust laws. The plaintiff purports to bring
claims on behalf of all direct purchasers of Cipro from 1997 to
present.
During the quarter ended September 30, 2000 approximately 9 similar
putative class actions have been filed in Federal District Courts in
New York, Michigan, Arizona, Pennsylvania and Illinois and in five
state courts. Pending consolidation of these lawsuits in a single
district, the Company has not yet filed responses in any of these
actions.
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<PAGE> 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Exhibit Number Exhibit
-------------- -------
<S> <C>
27.0 Financial data schedule
</TABLE>
(b) The following report was filed by the Company on Form 8-K in
the quarter ended September 30, 2000:
<TABLE>
<CAPTION>
Report Date Item Reported
----------- -------------
<S> <C>
August 14, 2000 Press release announcing that the
U.S. Court of Appeals, Federal
Circuit in Washington D.C., ruled in
favor of the Company's "double
patenting" claim against the patents
protecting Eli Lilly's Prozac
anti-depressant.
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BARR LABORATORIES, INC.
Dated: November 10, 2000 /s/ William T. McKee
--------------------
William T. McKee
Chief Financial Officer
16
