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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(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.
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(Exact name of Registrant as specified in its charter)
NEW YORK 22-1927534
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(State or Other Jurisdiction of (I.R.S. - Employer
Incorporation or Organization) Identification No.)
TWO QUAKER ROAD, P. O. BOX 2900, POMONA, NEW YORK 10970-0519
------------------------------------------------------------
(Address of principal executive offices)
845-362-1100
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(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
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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.
INDEX PAGE
The company hereby amends its quarterly report on form 10-Q for the period ended
September 30, 2000 to reflect the restatement of its financial statements as
reflected in Note 1 to the Consolidated Financial Statements.
PART I. FINANCIAL INFORMATION
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 6-11
Item 2. Management's Discussion and
Analysis of Financial Condition and
Results of Operations 12-15
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17-18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 18
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BARR LABORATORIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
RESTATED
SEPTEMBER 30, JUNE 30,
2000 2000
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ASSETS
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 $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 89,506 83,463
Additional paid-in capital - warrants 16,418 16,418
Warrant subscription receivable -- (1,835)
Retained earnings 192,259 181,869
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
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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)
THREE MONTHS ENDED
SEPTEMBER 30,
RESTATED RESTATED
2000 1999
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Revenues:
Product sales $ 99,680 $92,103
Development and other revenue 3,327 --
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Total revenues 103,007 92,103
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 11,514 10,653
Proceeds from patent challenge settlement (Note 3) 7,000 6,750
Interest income 2,248 1,180
Interest expense 521 634
Other (expense) income (2,526) 466
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Earnings before income taxes 17,715 18,415
Income tax expense 7,325 6,922
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Net earnings $ 10,390 $11,493
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Earnings per common share $ 0.30 $ 0.34
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Earnings per common share - assuming dilution $ 0.28 $ 0.32
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Weighted average shares 35,059 34,234
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Weighted average shares - assuming dilution 37,613 35,475
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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)
RESTATED
2000 1999
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CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net earnings $ 10,390 $ 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 8,844 (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)
Earnings from DuPont agreements applied to warrant receivable 1,835 --
Proceeds from exercise of stock options and employee stock purchases 6,047 881
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Net cash provided by financing activities 7,751 747
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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
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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 $ --
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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").
As disclosed in the Company's Annual Report on Form 10-K/A for the year
ended June 30, 2000, the Company has restated its consolidated financial
statements as of September 30, 2000 and for the three months then ended.
This restatement results from a revision in the Company's method of
accounting for the warrants issued to DuPont Pharmaceuticals Company in
connection with the strategic alliance executed in March 2000 (see Note
5). The total effect of the restatement was to decrease previously
reported net income and earnings per share in the three months ended
September 30, 2000 by $1,835 or $0.05 per share assuming dilution. In
addition, the Company reclassified proceeds from supply agreements from
revenues to proceeds from patent challenge settlement. The
reclassification had no effect on the previously reported net earnings. A
summary of the effects of the restatement and reclassification is as
follows:
Three Months Ended Three Months Ended
September 30, 2000 September 30, 1999
As Previously As Previously
Reported As Revised Reported As Revised
-------- ---------- -------- ----------
Total revenues $111,842 $103,007 $98,853 $92,103
Earnings from operations 20,349 11,514 17,403 10,653
Net earnings 12,225 10,390 11,493 11,493
Earnings per common share -
assuming dilution $ 0.33 $ 0.28 $ 0.32 $ 0.32
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/A 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.
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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 patent challenge settlement
receivables and receivables related to development and other revenue (See
Note 5).
4. INVENTORIES
Inventories consisted of the following:
September 30, June 30,
2000 2000
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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/WARRANT SUBSCRIPTION RECEIVABLE
As discussed in the Company's Annual Report on Form 10-K/A, in March
2000, the Company entered into various agreements with DuPont
Pharmaceuticals Company ("DuPont"). For the three months ended September
30, 2000, the Company earned approximately $5.2 million related to these
agreements of which $1,835 was recorded as an offset to warrant
subscription receivable, with the balance recorded as development and
other revenue.
6. OTHER (EXPENSE) INCOME
In September 1998, the Company made an investment in Gynetics, Inc.
("Gynetics"), a privately owned company. The Company's investment
represented approximately 7% of Gynetics' outstanding voting shares. Barr
does not have the ability to exercise significant influence on Gynetics'
operations and therefore, the Company accounted for this investment using
the cost method of accounting.
In the quarter ended September 30, 2000, the Company reviewed the
valuation of its investment in Gynetics in light of numerous negative
events that occurred in the quarter including product
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development delays and threatened litigation. Due to these events as well
as continued operating difficulties at Gynetics that included extensive
losses and negative operating cash flow, Barr concluded that its
investment in Gynetics was other than temporarily impaired and that as of
September 30, 2000, its investment in Gynetics should be written down to
$0, the current realizable value. Other (expense) income in the
consolidated financial statements includes approximately $2.5 million
related to this 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:
THREE MONTHS ENDED
SEPTEMBER 30,
AS REVISED
2000 1999
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Earnings per common share:
Net earnings (numerator) $10,390 $11,493
Weighted average shares (denominator) 35,059 34,234
Net earnings $ 0.30 $ 0.34
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EARNINGS PER COMMON SHARE - ASSUMING DILUTION:
Net earnings (numerator) $10,390 $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 $ 0.28 $ 0.32
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Share amounts in thousands
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 $12,002 and $11,692, respectively.
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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. Based on its
current accounting policies, the Company does not expect any material
changes to its consolidated financial statements as a result of adopting
SAB 101.
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.
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.
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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 subsidiary of Novartis AG
("Invamed"), and Apothecon, Inc., a subsidiary 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 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.
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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 since June 1999.
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 satisfactorily 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)
As discussed in Note 1 in the Consolidated Financial Statements, the financial
statements have been restated. This restatement results from a revision in the
Company's method of accounting for the warrants issued to DuPont Pharmaceuticals
Company entered into in connection with the strategic alliance executed in March
2000. In addition, the Company reclassified proceeds from supply agreements from
revenue to proceeds from patent challenge settlement. The accompanying
information has been amended to reflect the restatement and reclassification.
Total revenues increased approximately 12% 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 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. As the Company incurs research and other
development activity costs, the Company records such expenses as research and
development and invoices and records the related revenue from DuPont as
development and other revenue. Development and other revenue included $3,327
related to these development agreements (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).
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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.
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 $8,844 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.
Approximately $7 million of the Company's quarterly cash flow from operations
relates to payments from its contingent supply agreement with Bayer Corporation
("Bayer") related to its 1997 Cipro(R) patent challenge. Under that agreement,
Bayer has, at its option, the right to allow Barr and its partner (collectively
Barr) to purchase Cipro at a predetermined discount or to provide Barr quarterly
cash payments. This contingent supply agreement expires in December 2003. If
Bayer does not elect to supply Barr with product, Barr would receive
approximately $28 to $31 million per year. However, there is no guarantee that
Bayer will continue to make such payments. If Bayer elected to supply product to
Barr for resale, the earnings and related cash flows, if any, Barr could earn
from the sale of Cipro would be entirely dependent upon market conditions. The
supply agreement also provides that, six months prior to patent expiry, if Barr
is not already distributing the product, Barr will have the right to begin
distributing Ciprofloxacin product manufactured by Bayer.
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.
In the three months ended September 30, 2000, the Company earned approximately
$5.2 million related to the DuPont agreements (see Note 5) of which
approximately $1.8 million was applied to the remaining warrant subscription
receivable and is included in cash flows from financing activities. All
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future earnings under the DuPont agreements will be considered development and
other revenue and included in cash flows from operations.
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.
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 development
revenue and higher product sales. Higher product sales are expected to be driven
by higher Tamoxifen sales and new product launches,
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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 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.
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.
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ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As discussed in the 2000 Annual Report on Form 10-K/A, the Company's exposure to
market risk from changes in interest rates, in general, is not material.
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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/A, 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
Ciprofloxacin (Cipro) Class Action Suits
The Company has been named as a defendant in several actions related to
its settlement of the Cipro patent challenge. The following complaints
represent indirect purchaser class-action complaints alleging violation
of federal antitrust laws and/or state antitrust and consumer protection
laws on the grounds that the 1997 Bayer-Barr settlement agreement was
allegedly anti-competitive. Plaintiffs seek to recover overcharges paid
as a result of the allegedly anti-competitive activities and, where
appropriate, treble damages. The following plaintiffs have filed, on the
dated indicated, class-action complaints against Bayer and Barr in state
court: Karyn McGaughey et al filed in California Superior Court, San
Diego County (8/2/00). The following actions have been removed to or
have been filed in U.S. District Courts: Maria Locurto (E.D.N.Y.
8/1/00); Arkansas Carpenters Health and Welfare Fund (E.D.N.Y. 8/23/00);
Ann Stuart (D. NJ 8/24/00); Elaine Ozarow (S.D. Fla. 8/29/00); United
Food & Commercial Workers and Participating Food Industry Employers
Tri-State Health & Welfare Fund (E.D.N.Y. 8/30/00); Marcy Altman
(S.D.N.Y. 9/6/00); Linda K. McIntyre ( E.D. Mich. 9/11/00); Theresa
Meyers (S.D.N.Y. 9/15/00);
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The following complaints represent direct purchaser class action
complaints alleging violation of federal antitrust laws on the grounds
that the 1997 Bayer-Barr settlement agreement was allegedly
anti-competitive. Plaintiffs seek to recover overcharges paid as a
result of the allegedly anti-competitive activities and, where
appropriate, treble damages. The following plaintiffs have filed
class-action complaints against Bayer and Barr, which have been removed
to or filed in U.S. District Court: Louisiana Wholesale Drug Co.
(S.D.N.Y. 7/14/00).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Number Exhibit
27.0 Financial data schedule
(b) The following report was filed by the Company on Form 8-K in the quarter
ended September 30, 2000:
Report Date Item Reported
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.
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: May 14, 2001 /s/ William T. McKee
--------------------
William T. McKee
Chief Financial Officer
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