Barr Pharma a Hold on Teva Buyout

Barr Pharmaceuticals, Inc.’s (BRL) first quarter results missed ours and the Street’s expectations by a huge margin with all the business segments performing poorly. Given the lack of significant catalysts, barring a favorable ruling in the Miraprex case, and the ongoing issues related to pricing pressure and intense competition in the generics market, we had advised investors to avoid the name for the time-being.

We had issued a Sell rating on the stock after the company posted disappointing first-quarter results and slashed its full-year outlook. However, we moved back to a Hold rating following the recent announcement regarding the takeover of the company by Teva Pharmaceuticals (TEVA - Snapshot Report). Teva and Barr entered into a definitive agreement under which Teva will acquire Barr for $7.46 billion plus the assumption of net debt of approximately $1.5 billion. This offer has come at the right time for Barr - the deal is expected to close later this year.

Meanwhile, we were pleased to see a significant improvement in generic product sales in the second quarter of 2008. Sales benefited significantly from the launch of generic Yasmin in the second quarter of 2008. Going forward, the generic product franchise should benefit from the launch of Adderall XR in April 2009 (six months exclusivity) and the settlement of the Ortho Tri-Cyclen Lo case.

Branded business sales came in at $118 million in the second quarter of 2008, an improvement over first quarter sales. The company seems to have worked through the Plan B inventory issues that had affected first quarter sales. Going forward, Barr expects sales to grow in response to increasing demand for Para B. We set our six-month target price at $72.

Arpita Dutt, CA contributed to the report.

Read the full analyst report on BRL