Big Pharma may not be smiling, but 2005 has been a pretty respectable year thus far for many manufacturers of generic drugs. One of the largest, Barr Pharmaceuticals (NYSE:BRL), seems to have stayed on track.

For the company's fiscal fourth quarter, revenue declined nearly 8%. Declines were led by the absence of ciprofloxacin sales (which accounted for about $40 million last year) and an 11% decline in oral contraceptives, offset by a near-doubling of the company's proprietary product sales.

In at least this one case, the decline in revenue was actually not that bad for the company. Ciprofloxacin sales were very low-margin. The improved product mix for this quarter boosted gross margin from 61% to 71%, while gross profit increased by about 9%. In other words, the company actually made more money on fewer sales.

Looking down the income statement, matters get a bit more confusing. There was a charge in this quarter (due to a product acquisition/legal settlement) and last year's quarter (also due to some litigation-related events). Netting out both charges, net income grew about 29% year over year.

Barr produced not only strong operating profits, but also good cash flow. Even if you include acquisitions in the free cash flow calculation (which I feel is reasonable, since it's an ongoing part of the business), the company produced about $263 million in free cash flow for the fiscal year -- more than double the year-ago level and about 25% of revenue. This paid for ongoing share repurchases while still leaving the company with more than $6 per share in cash on the balance sheet.

Generics is a tough business, and Barr is not immune to that basic fact. Rivals like Teva (NASDAQ:TEVA) and Watson (NYSE:WPI) certainly want a piece of Barr's lucrative oral contraceptives franchise, and women's health in general (where Barr specializes) is an attractive niche. What's more, you have all of the usual headaches, including patent fights with large pharmaceutical companies and the need to deal with the FDA.

That said, Barr seems to be in decent shape. The company has a top-notch return on assets and a valuation that, while not cheap, isn't ridiculous either. Further, should the company be successful in patent litigation against the likes of Sanofi-Aventis (NYSE:SNY), ShirePharmaceuticals (NASDAQ:SHPGY), and/or Eli Lilly (NYSE:LLY), it will only help results.

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Fool contributor Stephen Simpson owns shares of Sanofi-Aventis. The Fool has a disclosure policy.