Any concerns that Barr Pharmaceuticals (NYSE:BRL) would get indigestion from swallowing Croatian drug maker Pliva have dissipated. With two full quarters to assess results, it looks like the cost savings and revenue contributions Barr predicted will come to fruition.
The generics industry plays a high-stakes game, trying to be first to market with low-cost substitutes for high-cost, high-profit patented drugs. Motley Fool Stock Advisor recommendation Barr saw revenue grow to $599 million this quarter as a result of the Pliva acquisition. The company is the third-largest generics manufacturer after Teva (NASDAQ:TEVA) and Novartis (NYSE:NVS).
Now that Mylan Labs (NYSE:MYL) has grabbed the generics business of German pharmaceutical Merck KGaA (OTCBB: MKGAF.PK) for $6.6 billion in cash, Barr has another fairly formidable opponent. The combined company would have around $4.2 billion in revenues, vaulting Mylan into the No. 3 spot.
Barr and the rest of the generics industry got a big boost from the Supreme Court earlier this month, when it ruled that combining two existing patented technologies to make a new "invention" wouldn't pass muster if it was so obvious. While that ruling was not related to pharmaceuticals, the thinking is that the generics industry battles reformulated drug patents all the time, so it doesn't take much of a leap to transfer the ruling to the pharmaceutical industry. An extended-release formula of a drug about to go off-patent might be "obvious" enough not to warrant further patent protection.
Such a ruling would make it easier to introduce generic drugs. For example, Barr has challenged the patent of Sanofi-Aventis' (NYSE:SNY) $2.6-billion-selling Ambien CR as well as Janssen's extended-release version of its dementia drug, Razadyne. It only just received tentative FDA approval for its generic version of the original Razadyne formulation, a process begun in 2005. While tentative approval doesn't give Barr the right to market the generic version yet, it is an important step in the process of accessing the $140 million in sales the drug generated last year. Barr has more than $6 billion worth of patent challenges in the works.
Sales of generics at Barr rose to $475 million in the quarter from $200 million last year, primarily thanks to the integration of Pliva. It's the second straight quarter where Pliva pumped more profits into the generics maker. Without any hiccups, the expansion of Barr's operations into previously untapped markets is a prescription for fueling further growth of its generics sales.
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Fool contributor Rich Duprey owns shares of Barr but does not have a financial position in any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.
