April 25, 2005
BY EDGAR
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U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0303
Attention: Jim B. Rosenberg, Senior Assistant Chief Accountant
Re: BARR PHARMACEUTICALS, INC.
FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 2004 FILE NO.
001-09860
Dear Mr. Rosenberg:
We are in receipt of your letter to Barr Pharmaceuticals, Inc. (the
"Company") of April 6, 2005 (the "Commission Letter"), responding to the
Company's letter to the Commission dated February 1, 2005. The Company's
responses to the Commission Letter are set forth below. For ease of reference,
the numbered paragraphs below correspond to the numbered comments in the
Commission Letter.
FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 2004
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
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OPERATIONS
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CRITICAL ACCOUNTING POLICIES
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REVENUE RECOGNITION AND SALES RESERVES AND ALLOWANCES, PAGE 45
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COMMENT 1. We note your statement in your 2004 Form 10-K and your Form 10-Q for
the period ended December 31, 2004 that rebates, Medicaid rebates and prompt
payment discounts require a lower degree of subjectivity. It appears that these
are significant dilution items that should be discussed more thoroughly in the
Critical Accounting Policies. Please provide the disclosures requested in our
prior comment 3.
RESPONSE: We have noted the Staff's comments and will in future
filings, starting with our Form 10-K for the fiscal year ending June 30, 2005,
expand our discussion in the critical accounting policies section of the MD&A to
more thoroughly discuss how we determine accruals for rebates, Medicaid rebates
and prompt payment discounts.
COMMENT 2. We note your response to comment 3c and 3d and the additional
disclosure in your Form 10-Q for the three months ended December 31, 2004, but
it is unclear to us how you determine what inventory is in the wholesaler
channel and whether that inventory is in excess of normal inventory level.
Clarify to us, and in the filing, how you would ascertain whether or not there
is excess inventory in the channel and how it affects your ability to make
reasonable estimates. Refer to question 9 of Staff Accounting Bulletin 101.
RESPONSE: We have noted the Staff's comments and will in future
filings, starting with our Form 10-K for the fiscal year ending June 30, 2005,
expand our discussion to clarify how we evaluate inventory levels and how
inventory levels impact our ability to make reasonable estimates.
Regarding the Staff's question on assessing inventory in the channel,
we evaluate inventory levels at wholesalers by reviewing, among other things,
the volume of wholesaler purchases, wholesaler contract sales and available
prescription volume information. Unusual buying patterns of our customers often
can be the result of speculative buying in anticipation of price increases,
changes in our customers' business operations, such as adding or losing
customers, or product supply issues.
Mr. Jim B. Rosenberg
U.S. Securities and Exchange Commission
April __, 2005
Page 2
As you requested, we have referred to question 9 of SAB 101, and
believe our ability to make reasonable estimates of our reserves would not be
impacted if a customer held "excess of normal inventory" levels for a given
product because, in our experience, any "excess of normal inventory" held at
certain times is relatively small and our products typically are sold with
sufficient dating to permit more than enough time for our wholesalers to sell
our products in their inventory through to the end customers.
COMMENT 3. We note your response to comment 3e. Please confirm that you will
include in your next Form 10-K the rollforward of the accrual for each estimate
for each period presented showing the following:
o Beginning balance,
o Current provision related to sales made in the current period
o Current provision related to sales made in prior periods
o Actual returns or credits in current period related to sales made in the
current period
o Actual returns or credits in current period related to sales
made in prior periods, and
o Ending balance
RESPONSE: We have noted the Staff's comments and will provide in future
filings, starting with our Form 10-K for the fiscal year ending June 30, 2005,
rollforward information for our accruals showing the opening balance, current
provision, actual returns or credits, and ending balance.
INVENTORY RESERVES, PAGE 46
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COMMENT 4. We note your response to comments 4 and 5. To the extent that the
amount of inventory capitalized prior to FDA approval is material to net income
in the future, please provide the disclosure requested.
RESPONSE: We have noted the Staff's response and will enhance our
existing disclosure regarding our process for capitalizing unapproved product
inventory and will provide the requested disclosure beginning with our Form 10-K
for the fiscal year ending June 30, 2005, for our proprietary products to the
extent that these costs are material to net income.
We respectfully submit, for reasons described below, that any
disclosure identifying the inventory build-up of unapproved generic products
creates a substantial likelihood that our results of operations for a particular
period could be materially and adversely impacted.
Barr faces intense competition from both other generic pharmaceutical
companies and from the brand pharmaceutical companies whose brand products are
the targets of our development efforts and our patent challenges. The identity
of the generic products in our pipeline, including those that we have
capitalized into inventory before approval, is very closely guarded. If we were
to disclose a generic product, or as a result of the proposed disclosure permit
a competitor to determine the identity of a generic product in our pipeline, we
would provide our competitors with information that could enable (i) generic
competitors to bring a competing version to the market sooner and (ii) brand
competitors to implement strategies designed to delay the launch of our generic
product. In either case, such disclosure would diminish substantially the value
of our product for our stockholders.
While for competitive reasons and for reasons of stockholder value we
would strongly prefer not to provide the requested disclosure with respect to
our generic products, we are willing to disclose generally that we may from
Mr. Jim B. Rosenberg
U.S. Securities and Exchange Commission
April __, 2005
Page 3
time-to-time have significant inventory of unapproved generic products
manufactured in anticipation of FDA approval and launch. We also wish to note
for the Staff's consideration that we do disclose patent challenge products in
our pipeline once the litigation becomes public information. For these products,
we provide, in the business section of our Form 10-K under the heading "pending
patent challenges," a summary of the status of the related litigation. We will
continue to provide this disclosure in our Form 10-Ks.
SUPPLEMENTAL DISCLOSURE
In addition, the Company hereby acknowledges the following:
o the Company is responsible for the adequacy and accuracy of the
disclosures in its filings with the Commission;
o Staff comments or changes to disclosures 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
o 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.
* * * *
Please direct any further comments or questions you may have to the
undersigned at (201) 930-3730 (phone), (201) 930-3330 (fax) or
bmckee@barrlabs.com.
Thank you.
Very truly yours,
William T. McKee
cc: Bruce L. Downey (Chief Executive Officer, Barr Pharmaceuticals, Inc.)
Frederick J. Killion (General Counsel, Barr Pharmaceuticals, Inc.)
George Stephan (Chairman of the Audit Committee, Barr Pharmaceuticals,
Inc.)
Paul Krieger (Deloitte & Touche)
William M. Rustum (Gibson, Dunn & Crutcher LLP)