Via Facsimile and U.S. Mail
Mail Stop 03-09
January 7, 2005
Mr. William T. McKee
Vice President, Chief Financial Officer, and Treasurer
Barr Pharmaceuticals, Inc.
400 Chestnut Ridge Road
Woodcliff Lake, New Jersey 07677-7668
Re: Barr Pharmaceuticals, Inc.
Form 10-K for the fiscal year ended June 30, 2004
File No. 001-09860
Dear Mr. McKee:
We have reviewed your filing and have the following
comments.
We have limited our review of the above referenced filing to only
those issues addressed. We think you should revise your document
in
response to these comments in future filings beginning with your
Form
10-Q for the period ended December 31, 2004. In a supplemental
letter, please either confirm that you will comply with these
comments in future filings or, if you disagree, we will consider
your
explanation as to why our comments are inapplicable or a revision
is
unnecessary. Please provide us this letter with detailed
explanations keyed to our comments within 10 business days of the
date of this letter or tell us when you will provide the letter
prior
to the expiration of the 10-day period. Please file your letter
on
EDGAR under the form type label CORRESP. Please understand that
we
may have additional comments after reviewing your letter.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form 10-K for the fiscal year ended 2004
Item 1. Business, page 3
1. Please provide a brief description of the overall FDA approval
process. The description should meaningfully relate to the
registrant`s accounting policy for pre-launch inventory.
Management`s Discussion and Analysis of Financial Condition and
Results of Operations
Comparison of the fiscal years ended June 30, 2004 and June 30,
2003,
page 32
2. When more than one reason is responsible for a fluctuation, you
should quantify each of the factors causing the change. In this
regard, you note several reasons for your increase in selling,
general and administrative expenses from 2003 to 2004, such as
increases in marketing costs for SEASONALE, higher cost associated
with increasing women`s healthcare sales force, higher legal
costs,
and increased information technology costs. In future filings,
please quantify the effects of each factor on the increases and
decreases in a line item being discussed.
Critical Accounting Policies
Revenue Recognition and Sales Reserves and Allowances, page 45
3. We acknowledge your revenue recognition policy within your
Summary
of Significant Accounting Policies within your Notes to the
Consolidated Financial Statements. We believe that your
disclosure
related to estimates of items that reduce gross revenue such as
product returns, chargebacks, customer rebates, shelf stock
adjustments, and other discounts and allowances could be improved
as
follows:
a) Disclose the nature and amount of each accrual at the balance
sheet date and the effect that could result from using other
reasonably likely assumptions than what you used to arrive at each
accrual such as a range of reasonably likely amounts or other type
of
sensitivity analysis.
b) Disclose the factors that you consider in estimating each
accrual
such as historical return of products, levels of inventory in the
distribution channel, estimated remaining shelf life, price
changes
from competitors and introductions of generics and/or new
products.
c) To the extent that information you consider in b) is
quantifiable, disclose both quantitative and qualitative
information
and discuss to what extent information is from external sources,
such
as end-customer prescription demand, third-party market research
data
comparing wholesaler inventory levels to end-customer demand. For
example, in discussing your estimate of product that may be
returned,
consider disclosing and discussing, preferably by product and in
tabular format, the total amount of product in sales dollars that
could be potentially be returned as of the balance sheet date and
disaggregated by expiration period.
d) If applicable, discuss any shipments made as a result of
incentives and/or in excess of your customer`s ordinary course of
business inventory level. Discuss your revenue recognition policy
for such shipments.
e) You should consider disclosing a roll forward of the accrual
for
each estimate for each period presented showing the following:
* Beginning balance,
* Current provision related to sales made in current period,
* Current provision related to sales made in prior periods,
* Actual returns or credits in current period related to sales
made
in current period,
* Actual returns or credits in current period related to sales
made
in prior periods, and
* Ending balance.
f) In your discussion of results of operations for the period to
period revenue comparisons, discuss the amount of and reason for
fluctuations for each type of reduction of gross revenue, for
example, product returns, chargebacks, customer rebates and other
discounts and allowances, including the effect that changes in
your
estimates of these items had on your revenues and operations.
Inventory Reserves, page 46
4. For each product which management has capitalized a significant
amount of costs without regulatory approval or before satisfactory
resolution of patent infringement litigation, please disclose the
following:
? The current status of the approval process, including any
contingencies needed to be resolved prior to obtaining FDA
approval,
the risks affecting the probability of obtaining FDA approval, and
the estimated timing of obtaining approval.
? The specific nature of any safety and efficacy,
manufacturing,
and marketing or labeling issues outstanding and why the Company
does
not believe those issues affect its probable future benefit
conclusion.
? The remaining shelf life of each product, as of each balance
sheet date presented, and why the Company believes it will be able
to
realize the inventory prior to the expiration of the shelf life.
? The risks and uncertainties surrounding market acceptance of
the
product once approved and how this will effect the realization of
the
asset.
? The current status of product related litigation such as
patent
infringement lawsuits and the nature of all contractual
restrictions
that must be satisfied prior to the sale of the product, if any.
Include within your disclosure a robust analysis of the effect any
lawsuit and/or contractual restrictions had or will have on their
initial assessment that an asset existed as well as their ongoing
assessment of the realizability of the capitalized inventory.
? The effect of build-up of pre-launch inventory balances on
liquidity.
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
e. Inventories, page F-9
5. We note in certain circumstances you may commence the
manufacture
and inventory of commercial quantities of products that have not
received final regulatory approval or satisfactory resolution of
related outstanding litigation. Please expand your accounting
policy
regarding capitalization of unapproved products or a product in
litigation, to address the following:
* Specifically state the point during the FDA approval process
that
management determines a probable future benefit exists.
* Disclose the status of the FDA`s consideration of the safety and
efficacy of the drug and evaluation of the manufacturing process
at
that point.
* For products that outstanding litigation has not been the
satisfactorily resolved, state the point during the litigation
process that management determines a probable future benefit
exists.
* Disclose how the lower of cost or market principle is applied to
pre-launch inventory. We do not believe it is appropriate to
aggregate pre-launch inventory with inventory for commercial sale
when applying the lower of cost or market principle.
* Please revise Note 6 to separate pre-launch inventory from
commercial inventory and separately quantify the total amount of
inventory by category, for example, raw materials, work in process
and finished goods, and in total for each.
* * * *
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require.
Since the company and its management are in possession of all
facts
relating to a company`s disclosure, they are responsible for the
accuracy and adequacy of the disclosures they have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that
* the company is responsible for the adequacy and accuracy of the
disclosure in the filing;
* staff comments or changes to disclosure in response to staff
comments in the filing reviewed by the staff do not foreclose the
Commission from taking any action with respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
You may contact Dana Hartz, Staff Accountant, at (202)942-
2976
or Mary Mast, Senior Staff Accountant, at (202) 942-1858 if you
have
questions regarding the comments. In this regard, do not hesitate
to
contact me, at (202) 942-1803.
Sincerely,
Jim B. Rosenberg
Senior Assistant Chief
Accountant
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Mr. William T. McKee
Barr Pharmaceuticals, Inc.
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