December 22, 2008
Research Analyst: Kinjel Shah, C.A.
Sr. Editor: Ian Madsen, CFA: imadsen@zacks.com: 1-800-767-3771; x9417 www.zackspro.com 111 N. Canal Street, Suite 1101  Chicago, IL 60606
(BRL – NYSE) $66.99*
Note: All changes since the last report date have been highlighted.
Reason for Report: Teva acquisition of Barr cleared in US, Europe
Prev. Ed.: November 12, 2008; 3Q08 Earnings Update
Broke rs’ Recommendations: Neutral: 85.7% (6 firms); Positive: 14.3% (1); Negative: 0.0% (0) Prev Ed.: 6; 2; 0
Brokers’ Target Price: $67.67 ( ↑ $0.38 from the last edition; 6 firms) Brokers’ Avg. Expected Return: 1.02%
*Note: Though dated December 22, share price and broker material are as of December 19.
Barr Pharmaceuticals, Inc. (BRL) is a global specialty pharmaceutical company engaged in the development, manufacture, and marketing of prescription generic and proprietary pharmaceuticals, biopharmaceuticals, and active pharmaceutical ingredients. BRL is expected to be acquired by TEVA, with the transaction scheduled to be closed by 4Q08.
Of the 7 firms providing ratings on BRL, 1 (14.3%) gave positive ratings and 5 (85.7%) gave neutral ratings.
Neutral or equivalent outlook (6/7 firms): Target price range – $66-$68. The analysts believe that
Barr’s focus on drugs with high barriers to entry and the Pliva acquisition gave Barr a foothold in fastgrowth Central/Eastern Europe markets. However, the analysts view the Pliva acquisition as somewhat disappointing with unclear synergies and a higher-than-expected tax rate, obfuscating the real earnings or cash flow benefit. Further, the analysts believe that Yasmin sales (recently approved) is currently discounted in the shares and that generic Adderall XR (ADHD) will be a key 2009 EPS driver. Given the back-weighted nature of 2008 EPS and the recent guidance cut, the analysts prefer to remain at the sidelines.
Positive or equivalent outlook (1/7 firms): The firm provided a target price of $70. The analysts believe BRL should be v iewed as a lucrative Buy as the company’s operating performance and pipeline visibility is expected to improve in future. Barr is positioned to benefit from the growth of its existing domestic generic pharmaceutical business and the analysts expect the co mpany’s capital redeployment into international operations and branded franchises to bolster its profitability and topline growth. The analysts believe that Barr’s near-term financial performance will be the most important catalyst for the stock, although any patent litigation win may also aid the stock’s performance. The analysts view these as meaningful drivers that would position BRL to resume growth in 2009 and believe that Barr offers excellent visibility for 2009 with the exclusive launch of Adderal l XR and the possibility that Yasmin’s exclusivity period will be extended beyond 2008. Moreover, the analysts consider the recent Yasmin settlement agreement with Bayer as a positive because the growth opportunities from this product are substantial and sustainable and provide some visibility on 2011 oral contraceptives (OC) sales for BRL.
© Copyright 2008, Zacks Investment Research. All Rights Reserved.

Long-Term Outlook
Longer term, Barr is positioning to be a future leader in the biogeneric market. Barr has six generics that could launch within the next twelve months, including Allegra-D, Yasmin, TriCyclin Lo, Nasocort, Adderall
XR, and Mirapex. The prospect of 2009 appears bright. The Digest long-term growth rate is 12.5%.
Three-year (2007 –2010) CAGRs for revenue and net income are 5.1% and 11.3%, respectively, as per the Zacks Digest model.
The analysts in general view the takeover of BRL by TEVA as a sensible deal. According to them, BRL provides TEVA access to the leading generic oral contraceptive line in the US, a larger geographic footprint (esp. Eastern and Central Europe), and complementary skill sets in Paragraph IV filings and biologics capabilities.
December 22, 2008
On December 19, 2008 , Teva announced that the Federal trade Commission (FTC) as well as the
European Commission approved its acquisition of Barr. Earlier on November 21, 2008 , Barr announced that its shareholders overwhelmingly approved the proposals submitted to them relating to the acquisition of Barr by Teva. BRL and Teva signed a definitive agreement in July 2008 , under which Teva will acquire Barr. Under the terms of the deal, Barr shareholders will receive $39.90 in cash and $0.63 of a
Teva ADR for each share they own. Teva will also incur $1.5 billion in debt. The deal is expected to close on December 23, 2008.
Key investment considerations as identified by brokerage firms are as follows:
Key Positive Arguments
Solid cash flow, reasonable valuation, and growth in the generic/specialty pharma group, all led to the growth of the company.
Key Negative Arguments
Active patent challenges require litigation, thereby leading to higher general and administration expenses.
BRL has intensified focus on its branded business to expand its margins in the longer term.
Entry of multiple competitors to the generic business as well as rapid deterioration of Barr’s oral contraceptive revenue from the entry of additional competitors poses significant challenge for BRL.
Barr’s record of successfully resolving patent challenges has contributed to its growth and challenging patents continue to be an important part of the company’s generic product development strategy.
Barr Pharmaceuticals, Inc. is a global specialty pharmaceutical company that operates in more than 30 countries worldwide and is engaged in the development, manufacture and marketing of generic and proprietary pharmaceuticals, biopharmaceuticals and active pharmaceutical ingredients. A holding company, Barr operates through its principal subsidiaries: Barr Laboratories, Inc., Duramed
Pharmaceuticals, Inc. and PLIVA d.d. and its subsidiaries. The Barr Group of companies markets more than 120 generic and 27 proprietary products in the US and approximately 1,025 products globally outside of the US.
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The company’s website is http://www.barrlabs.com.
Note: The company’s fiscal year coincides with the calendar year.
November 17, 2008
The company reported total revenue of $737 million in 3Q08 versus $602 million in 3Q07. The Zacks
Digest average total revenue was $732.7 million.
Provided below is a summary of total revenue as compiled by Zacks Digest:
Revenue
($ in million) 3Q07A 2007A 1Q08A 2Q08A 3Q08A 4Q08E
Total
Revenue $601.3 $2,506.0 $604.1 $725.3
2008E 2009E 2010E
$732.8 $742.7
↓ $2,808.3
↓ $3,065.9
↑ $3,143.2
↑
Digest
High
Digest
Low
$601.4 $2,506.4 $608.0
$601.0 $2,500.6 $602.9
$778.6
$719.9
$737.0
$732.0
$781.3
$723.0
$2,858.3
$2,778.1
$3,158.0
$2,993.7
$3,219.8
$3,019.8
Barr reports revenue through three segments – Generics, Branded, and Alliance and Development
Revenue. The Generics segment is the major contributor to the topline.
Generic Product Sales
BRL is one of the world’s leading generic drug companies. More than 75% of its total revenue come from the company’s Generic drugs segment. It currently manufactures and markets 25 OC products in the
US, with Watson Pharma being its closest competitor.
Barr’s generic business offers solid growth opportunities. As of September 30, 2008, the Company had submitted approximately 70 Abbreviated New Drug Applications (ANDAs), including tentatively approved applications, pending at the FDA targeting branded pharmaceutical products with an estimated $29 billion in sales. The Company also had approximately 350 product registrations, representing 87 molecules, pending with regulatory bodies in Europe and ROW.
During 3Q08, the Company received four generic product approvals in the US from the FDA, and approximately 30 approvals, representing 27 molecules, from regulatory bodies in Europe and ROW.
The Company's generic product sales were $562 million in 3Q08 versus $434 million in 3Q07.
Sales of US generic products totaled $350 million in 3Q08 versus $276 million in 3Q07. The increase in sales was primarily driven by the higher sales of generic oral contraceptives.
Sales of generic oral contraceptives were $159 million in 3Q08 versus $112 million in 3Q07. The increase was primarily driven by the sales of Ocella ($50 million), the company's generic Yasmin oral contraceptive product that was launched at the end of 2Q08, which more than offset the lower sales of other oral contraceptive products.
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Sales of generic products in Europe and the rest of the world (ROW) were $212 million in 3Q08 versus
$158 million in 3Q07. The $54 million y/y revenue growth was primarily driven by the higher sales in most of BRL’s ROW markets including increases in Poland, Russia and Germany as well as the positive impact of foreign currency fluctuations, which accounted for $22 million of the increase.
$ in millions
Generic OC Sales
Proprietary Product Sales
2007A
$458.8
2008E
$ 561.7↓
2009E
$ 572.7↓
2010E
$ 476.6↓
CAGR(07-10)
2.0%
The company's proprietary product sales were $133 million in 3Q08 versus $125 million in 3Q07. The increase in proprietary sales was primarily attributed to the increased sales of Seasonique extended cycle oral contraceptive, Plan B contraceptive, and the ParaGard IUC. The company expects sales from this segment to grow 10% y/y, down from its previously-expected growth rate of 20%.
The company currently has an extensive proprietary clinical development program that includes four products in Phase III studies and three New Drug Applications (NDAs) pending at the FDA.
Alliance and Development Revenue
The company reported alliance and development revenue of $33.1 million in 3Q08 versus $32.5 million in
3Q07. The slight increase was attributed to the higher reimbursements from the company's development agreement with Shire plc, which more than offset decreased the royalties earned from the company's agreement with Teva Pharmaceuticals for Fexofenadine hydrochloride tablets, the generic version of
Allegra tablets, and lower reimbursements under its Adenovirus agreement with the Department of
Defense.
Other Revenue
Other revenue primarily includes revenue from non-core operations acquired as part of the Pliva acquisition, including the diagnostic, disinfectant, dialysis, and infusion (DD&I) businesses. Other revenue totaled $9 million in 3Q08 versus $10 million in 3Q07.
Outlook
The company changed its total revenue expectation for 2008 to $2.8 billion (from $2.7 billion-$2.8 billion), including total product sales of approximately $2.6 billion (prior expectation of $2.5 billion-$2.6 billion).
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A graphical representation of revenue from Generic, Branded, and Alliance and Development is given below:
FY 2007A Key Drugs FY 2008E Key Drugs
6%
17%
7%
Generic Drugs
BRL Total Branded
Development
Revenue
17%
Generic Drugs
BRL Total
Branded
Development
Revenue
76% 77%
17%
5%
FY 2009E Key Drugs
Generic Drugs
BRL Total Branded
Development
Revenue
17%
5%
FY 2010E Key Drugs
Generic Drugs
BRL Total Branded
Development
Revenue
78%
78%
The main focus of the company ’s Branded segment is on the development of women’s healthcare products. The leading products in the company ’s branded segment include Seasonique, Plan B,
Mircette, ParaGard IUD, and Enjuvia. Barr sells its branded products under the Duramed label in the US and Canada. These include both internally-developed as well as acquired products. Barr is a leader in the extended-cycle oral contraceptive category, which was established with the launch of Seasonale in
2003. The company has also expertise in the development of hormone replacement therapies. Barr is planning to expand into a second therapeutic category.
Specific Products
Note: The recent changes have been highlighted in bold.
Seasonale
Indication: Prevention of pregnancy. Seasonale offers excellent potential as the drug provides women with more hormonal exposure on a quarterly basis than other monthly oral contraceptive pills. Seasonale patients will experience contraception protection with only four periods a year instead of the normal twelve.
Product Life Cycle: Mature, widely sold, and distributed.
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Sales: According to Zacks Digest, Seasonale sales were $22.1 million, up 49.0% y/y. Prior to the onset of generic competition, Seasonale sales totaled approximately $100 million annually. However, its sales have now come down to approximately $45-$60 million annually.
Partners: Seasonale was developed under a research and license agreement with Eastern Virginia
Medical School (EVMS). Barr has a marketing partnership with Paladin in Canada.
Patents: The US Patent and Trademark Office has been re-issued the patent for Seasonale, which will now extend until June 23, 2017.
Seasonique
Indication: Prevention of pregnancy in women who choose hormone products for contraception.
Seasonique has identical active ingredients as Seasonale, with an additional low-dose estrogen component taken during the placebo period.
Importance: Seasonique is the company ’s flagship extended-cycle oral contraceptive product, which was launched in July 2006.
Product Life Cycle: Marketed. Expected to face generics in May 2009.
Patents: The US Patent and Trademark Office (PTO) issued a patent for the Seasonique extendedcycle oral contraceptive in January 2008. The patent will expire on January 30, 2024. The company also announced it submitted the patent to the FDA for issuance in the Orange Book.
Watson Pharma is seeking to bring a generic version of Seasonique to the market. Barr filed a patent infringement lawsuit against Watson, and plans to seek an injunction prior to the expiration of its exclusivity in 2009. However, Seasonique could face threats from generics from as early as late May
2009 if Barr fails in its patent infringement case.
$ in million
Seasonale
2007A
$55.3
2008E
$85.8↑
2009E
$91.3
2010E
$87.0
CAGR(07-10)
16.3%
Plan B
Indication: Plan B is an emergency contraceptive that can prevent pregnancy after contraceptive failure or unprotected sex.
Product Life Cycle: Plan B is currently available as an over-the-counter (OTC) product for consumers of 18 years of age and older. Plan B was previously available only on prescription and the OTC indication has helped to boost its sales.
Partner: BRL has a distribution and marketing partnership in Canada with Paladin for Plan B.
Patents: Plan B does not have any patent protection and its exclusivity status expires in August 2009.
Enjuvia
Indication: A synthetic conjugated estrogen HRT product that relieves vasomotor symptoms in menopausal women; treats moderate-to-severe vaginal dryness and pain during intercourse; and symptoms of vulvar and vaginal atrophy associated with menopause.
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Product Life Cycle: The drug is patent protected until 2020, and is available in pharmacies nationwide.
Importance: Enjuvia is also the first and only oral estrogen that has been approved by the FDA to treat moderate-to-severe vaginal dryness and pain during intercourse, and symptoms of vulvar and vaginal atrophy associated with menopause.
Competitors: Enjuvia is competing for a share in the $1.8 billion hormone therapy market with large players like Wyeth’s Premarin.
Other
On December 11, 2008 , Barr announced that the FDA has accepted for review Duramed’s Adenovirus
Types 4 and 7 Live Oral Vaccines Biologics License Application (BLA). These oral vaccines represent
Barr's first in-house biologics development initiative and demonstrate the company's ability to develop, manufacture and conduct clinical trials for biologic products. The Prescription Drug User Fee Action
(PDUFA) date for the Adenovirus BLA is July 31, 2009
On December 1, 2008 , BRL announced that the FDA approved a NDA filed by Duramed for a cream designed to treat moderate or severe vaginal dryness and pain from intercourse. The company said the vaginal cream will be available for sale in 1Q09.
Pipeline (Branded)
The company is working on expanding its branded product portfolio. Barr currently has three products under development, which are based on its vaginal ring technology for the treatment of endometriosis, infertility, and urinary incontinence. Barr currently has three NDAs pending at the FDA the company refrained from providing details on the products due to competitive reasons.
On October 27, 2008, Barr announced that the FDA has approved its NDA for LoSeasonique
(levonorgestrel and ethinyl estradiol tablets) extended-cycle oral contraceptive. LoSeasonique is the first lower-dose, extended-cycle oral contraceptive indicated for the prevention of pregnancy. The product will be shipped to trade customers and available through prescription to women in 1Q09. The company will start promoting the product to healthcare providers in early 2009 using its sales force and other marketing initiatives.
Specific Products
Note: The recent changes have been highlighted in bold .
Ortho Tri-Cyclen (generic version of Johnson & Johnson’s branded drug)
Indication: Ortho Cyclen and Ortho Tri-Cyclen tablets are indicated for the prevention of pregnancy in women who elect to use oral contraceptives as a method of contraception.
Product Life Cycle: Launched, mature, and widely sold.
Patents: The settlement of the patent litigation involving Ortho Tri-Cyclen with Ortho Women's
Health & Urology,, a division of Johnson & Johnson is pending.
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Warfarin (generic of BMY ’s Coumadin)
Indication: An anticoagulant for the prevention of stroke and heart disease
Product Life Cycle: Mature, widely sold, and distributed.
Importance: Warfarin continues to be a meaningful earnings contributor.
Competition: Competition is likely from As traZeneca’s Exanta. Genpharm has also received an approval for Warfarin sodium.
Ondansetron ( generic of GSK’s Zofran)
Indication: An orally disintegrating tablet (ODT) used for the prevention of nausea and vomiting associated with chemotherapy and certain radiotherapies.
Product Life Cycle: Marketed
Niaspan
Indication: Although the niacin incorporated in Niaspan is a B-complex vitamin, this drug is not taken to treat deficiencies. In large doses, niacin lowers cholesterol, and Niaspan extended-release tablets are designed specifically for this purpose. Niaspan is also used to reduce very high levels of blood fat known as triglycerides, which can cause painful inflammation of the pancreas.
Partnership: Barr receives a royalty on total product sales from Abbott Labs.
Yasmin (generic version of Bayer’s branded drug)
Indication: Pregnancy prevention
Importance: Yasmin (drospirenone and ethinyl estradiol) differs from other birth control pills as it contains a progestin hormone called Drospirenone.
Product Life Cycle: Paragraph IV ANDA approved by the FDA. Launch expected in April 2009.
Litigation: The US District Court of New Jersey ruled in BRL’s favor in its challenge of the patent listed by Bayer in connection with Yasmin in March 2008. In the ruling, the patent at issue was found to be invalid. Bayer has appealed against the ruling.
Partners: On June 24, 2008 , Barr Laboratories, Inc. entered into supply and licensing agreements with
Bayer Pharmaceuticals for generic versions of Bayer's Yasmin (drospirenone and ethinyl estradiol) and
Yaz (drospirenone and ethinyl estradiol) oral contraceptive products. Under the terms of these agreements, Bayer will supply Barr with the generic products for launch prior to the expiration of the patents protecting these products and Barr will have sole responsibility to market, sell, and distribute the products in the US under the Barr Laboratories label. As per the agreement, BRL plans to launch generic Yasmin in April 2009 and generic Yaz on or before July 1, 2011.
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Provigil ( generic version of Cephalon’s branded drug)
Indication: Used to improve wakefulness in patients with excessive daytime sleepiness associated with narcolepsy.
Partners: BRL has partnered with Cephalon (CEPH). Cephalon granted Barr a non-exclusive, royaltybearing right to market and sell a generic version of Provigil in the US from October 2011 onward.
However, five more companies have filed Paragraph IV challenges, which can likely result in shared exclusivity.
Neupogen (generic version of Amgen‘s drug)
Indication: Neupogen is used to increase white blood cells and decrease the risk of infection in conditions such as cancer, bone marrow transplant, pre-chemotherapy blood cell collection, and severe chronic neutropenia including congenital neutropenia, cyclic neutropenia, and idiopathic neutropenia.
Barr’s biopharmaceuticals development portfolio includes G-CSF, a protein that stimulates the growth of certain white blood cells. CSF is the generic version of Amge n’s Neupogen.
DDAVP (desmopressin acetate)
Indication: A diuretic used for the prevention of bed wetting
Product Life Cycle: Mature and widely sold
Allegra-D (generic version of Sanofi-Aventis
’s (SNY) Allegra)
Indication: Relief of symptoms associated with seasonal allergic rhinitis in adults and children of six years of age and older. The symptoms treated effectively are sneezing, rhinorrhea, itchy nose/palate/throat, and itchy/watery/red eyes.
Product Life Cycle: Barr has final approval on all of the drug’s strengths and forms.
Partners: Barr launched generic versions of Aventis’s Allegra at 30 mg, 60 mg, and 180 mg dose tablets at risk in partnership with Teva. Under the agreement, Barr transferred its first to file (FTF) status to
Teva.
Competition: A number of companies, including Dr. Reddy’s, Ranbaxy, and Mylan, have entered the
Allegra market. Dr. Reddy’s received the FDA approval for its allergy drug Fexofenadine. Mylan
Laboratories Inc. also received a tentative approval to sell its generic version of Allegra.
Litigation Issues: On November 19, 2008, Barr announced it has entered into separate settlement agreements related to ongoing patent challenges for Allegra D-12 Hour extended-release tablets, and
Allegra (fexofenadine) 30mg, 60mg and 180mg tablets. As part of the settlements, the parties have agreed to dismiss the underlying US litigation related to these patent challenge cases.
The terms of the Allegra D-12 agreement allow Barr to launch a generic version of Allegra D-12 extended-release tablets on November 1, 2009. Barr has the right to acquire the product from Sanofi-
Aventis for commercial launch. Upon product launch, Barr would pay Sanofi-Aventis a royalty. Under the terms of the Allegra agreement, Barr and Teva will each pay Aventis approximately $30 million to
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settle the patent litigation with Aventis regarding Teva's fexofenadine 30mg, 60mg and 180mg tablets product. In addition, Barr and Teva will pay Aventis a royalty on future US sales.
Adderall XR
Indication: Adderall XR (dextroamphetamine) is Shire’s proprietary treatment for attention deficit hyperactivity disorder (ADHD).
Patent Litigation Settlement: The settlement agreement with Shire allows Barr to launch a generic version of Adderall XR nine years before the patents expire, and Barr will enjoy 180 days of exclusivity once it launches the drug. Teva and Watson have also settled with Shire, and are eligible to launch generics after Barr’s exclusivity ends. Shire has sued Teva, but the case is pending settlement.
Loestrin (generic version of WCRX’s branded drug)
Indication: A low-dose birth control pill created specifically for women in their forties. It decreases and even eliminates symptoms like hot flushes, sleeping troubles, mood swings, and irritability of pre menopause, to name a few. It also helps to keep the vaginal area moist and receptive, thereby preventing loss of sexual drive and pleasure.
Videx EC (generic version of BMY’s branded drug)
Indication: Used in combination with other medicines to treat adults infected with HIV.
Product Life Cycle: Marketed
Competition: Although there are two remaining patents covering the brand, additional competition cannot be ruled out.
Actiq ( generic version of Cephalon’s branded drug)
Indication: For the management of pain in cancer patients who are receiving and are tolerant to opioid therapy for their persistent cancer pain.
Product Life Cycle: Marketed
Bijuvia
Indication: A vaginal cream for treating symptoms associated with menopause.
Regulatory Issues: Barr received a non-approvable letter for Bijuvia. However, Barr believes the product is approvable, and will move forward with the additional clinical programs required by the FDA to get the product approved.
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Oxybutynin Transvaginal Ring
Considerable research is being undertaken by BRL in urology. An Oxybutynin transvaginal ring is being developed in the field of female urinary incontinence (rectification of uncontrolled urinary functions), in partnership with Schering AG.
TMG
BRL also develops a novel progestin-only, 28-day oral contraceptive TMG OC (trimegestone). The drug is currently marketed outside the US. BRL licensed this product from Wyeth. Further, BRL is also developing a whole line of products using trimegestone, but has not disclosed these products yet. This is currently in Phase II of development, and is expected to enter Phase III soon.
Nasacort AQ ( generic version of SNY’s branded drug)
Indication: A nasal spray indicated for the treatment of nasal symptoms of seasonal and perennial allergic rhinitis in adults and children of 6 years of age and older.
Product Life Cycle: Barr filed an ANDA for generic Nasacort AQ in May 2006, and has first-to-file status. There are two patents for Nasacort AQ, both of which will expire in July 2016, and there is no market exclusivity listed.
Partners: BRL developed its generic Nasacort AQ (triamcinolone acetonide) nasal spray product with
Perrigo. Under the terms of the agreement, the two companies will share the costs and benefits related to the nasal spray.
Litigation: On November 19, 2008, Barr announced it has entered into a settlement agreement with
Sanofi related to ongoing patent challenges for Nasacort AQ nasal spray. As part of the settlements, the parties have agreed to dismiss the underlying US litigation related to the three patent challenge cases.
Under the Nasacort AQ agreement, Barr will have a license to launch a generic version of Nasacort AQ as early as June 15, 2011, if Barr's ANDA is approved on that date, or earlier in certain circumstances.
Even if Barr's ANDA is not approved, the company will have a license to launch a generic version of
Nasacort AQ, supplied by Sanofi on December 1, 2013, or earlier, in certain circumstances. Upon product launch, Barr would pay Sanofi a royalty.
Isotretinoin (Claravis)
Indication: Claravis is indicated for the treatment of severe recalcitrant nodular acne.
Product Life Cycle: Marketed
Fosamax (alendrote, generic version of Merck’s branded drug)
Indication: Fosamax is used to treat or prevent postmenopausal osteoporosis and steroid-induced osteoporosis. Fosamax is also used to treat Paget ’s disease of bone.
Importance: The company enjoys shared exclusivity with Teva for the 70 mg dose, which represents branded sales of approximately $1.7 billion.
Regulatory Issues: Barr Laboratories, Inc. launched a generic version of Merck & Co., Inc.'s Fosamax tablets in 70 mg after receiving the final approval from the FDA in February 2008. One analyst (Zacks
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Investment Research) expects limited revenue from this product as MRK has launched its own authorized generic of Fosamax.
Camptosar
On November 3, 2008, Barr announced that it has received the final approval from the FDA for its generic version of Pfizer's Camptosar (irinotecan hydrochloride) Injection. Camptosar is used to treat cancers of the colon and rectum. It is usually given with other cancer medicines in a combination chemotherapy.
The company plans to launch its product in 4Q08.
Mirapex
Barr's Abbreviated New Drug Application (ANDA) for a generic Mirapex product received final approval from the FDA in February 2008. Barr believes that it is the first company to file an ANDA with a
Paragraph IV certification for Mirapex tablets. On August 12, 2008, BRL signed a Settlement and
License Agreement with Boehringer Ingelheim (BI) to resolve the patent litigation involving Mirapex.
Under the agreement, Barr is permitted to launch a generic version of Mirapex no later than January 1,
2010, approximately 10 months before the expiration of the BI patent at issue in the patent challenge litigation. Upon launch, Barr will pay BI an undisclosed royalty.
Aggrenox
On August 12, 2008, BRL signed a Settlement and Supply Agreement with Boehringer Ingelheim (BI) to resolve the patent litigation regarding Aggrenox. Additionally, Duramed Pharmaceuticals entered into a co-promotion agreement with BI for Aggrenox. Barr is permitted to launch an authorized generic version of Aggrenox commencing no later than July 1, 2015, approximately 18 months earlier than the BI patent listed in the US FDA's Orange Book. Upon launch, Barr will pay BI an undisclosed royalty amount.
Finally, Duramed will co-promote Aggrenox to obstetricians, gynecologists, and other practitioners with a focus on women's healthcare in the US using its specialty sales force. Under the terms of the agreement, BI will tra in Duramed’s 93-person sales force, which will begin promoting Aggrenox in March
2009. BI will pay Duramed undisclosed royalties based on the net sales of Aggrenox.
Other
On December 22, 2008 , Barr and Warner Chilcott announced that they have entered into a Settlement and License Agreement to resolve the pending patent litigation involving Warner Chilcott's oral contraceptive product, Femcon Fe . Under the terms of the agreement, Barr will have a license to launch a generic version of Femcon Fe as early as July 1, 2012, approximately 7 years earlier than the expiration of the Warner Chilcott patent at issue in the litigation, or earlier in certain circumstances. Barr will pay Warner Chilcott a royalty on net sales of Barr's generic product.
On November 26, 2008, Eurand, Inc., Cephalon, Inc., and Anesta AG filed suit in the US District Court for the District of Delaware to prevent Barr from proceeding with the commercialization of its Amrix
(cyclobenzaprine hydrochloride) extended-release capsules, 15mg and 30mg. Barr has initiated a challenge of the patent listed by Anesta.
On October 24, 2008, Barr confirmed the initiation of a challenge of the patents listed by Watson
Laboratories, Inc. in connection with its Oxytrol (oxybutynin transdermal system). The company believes it is the first to file an ANDA with the FDA for the product.
On October 21, 2008, Barr confirmed the initiation of a challenge of the patents listed by Endo
Pharmaceuticals Inc. in connection with its Opana ER (oxymorphone hydrochloride) extended-release tablets.
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On October 16, 2008, Barr announced that the US Court of Appeals for the Federal Circuit has upheld the 2005 decision of the US District Court for the Eastern District of New York, which rejected a challenge to the lawfulness of a 1997 patent litigation settlement between its wholly-owned subsidiary, Barr
Laboratories, Inc., and Bayer Corporation related to the antibiotic Cipro.
On September 16, 2008 , Barr announced that its subsidiary, Barr Laboratories, Inc., received final approval from the FDA to manufacture and market a generic version of JNJ's Razadyne ER (galantamine hydrobromide) extended release capsules. Barr also announced that it is the first company to file an
Abbreviated New Drug Application (ANDA) with the FDA containing a Paragraph IV certification for a generic version of Razadyne ER capsules, and, therefore, is entitled to 180-days of marketing exclusivity, as provided for under the Hatch Waxman Act. The Company intends to launch its product soon.
On August 20, 2008 , BRL announced that its subsidiary, PLIVA - Lachema a.s., received the final approval from the FDA for its generic version of Pfizer Inc.'s Aredia (pamindronate disodium) injection in the 30mg/mL, 60mg/mL, and 90mg/mL strengths. The Company plans to launch its product in the end of
CY08.
On July 31, 2008 , BRL initiated a challenge to the patent listed by UCB Inc. in connection with its Xyzal tablets .
On July 29, 2008 , BRL confirmed that it has initiated a challenge of the patents listed by Amgen Inc. in connection with its Sensipar tablets .
On July 24, 2008 , BRL confirmed that it has initiated a challenge of the patents listed by Cephalon, Inc. in connection with its Fentora tablets .
On June 10, 2008 , Barr said it is being sued by Japan-based Takeda Pharmaceutical Co. and TAP
Pharmaceuticals Inc. for its alleged patent infringement of a patent covering the antacid Prevacid .
A graphical representation of the revenue of key drugs is given below:
FY 2007A Key Drugs FY 2008E Key Drugs
Seasonale Seasonale
4% 0% 6%
0%
3% 2%
Ciprofloxacin Ciprofloxacin
57%
36%
Cenestin
Generic Oral
Contraceptives
Pliva
55%
37%
Cenestin
Generic Oral
Contraceptives
Pliva
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FY 2009E Key Drugs
6%
0%
1%
Seasonale
Ciprofloxacin
FY 2010E Key Drugs
5%
0%
1%
Seasonale
Ciprofloxacin
30%
Cenestin
58%
35%
Cenestin
Generic Oral
Contraceptives
Pliva
64%
Generic Oral
Contraceptives
Pliva
Please refer to the Zacks Digest spreadsheet of BRL for further details on revenue estimates.
Gross margin in the Generic segment in 3Q08 was 46% versus 47% in 3Q07, while in the Proprietary segment, gross margin in 3Q08 was 76%, flat y/y.
R&D expense totaled $69 million in 3Q08 versus $62 million in 3Q07. The increase was driven by BRL’s greater investment in generic and bio-generic development activities, both in the US and Europe, as well as in proprietary development activities in the United States and the impact of foreign currency exchange fluctuations, which accounted for $2.9 million of the increase in 3Q08.
The company's SG&A expense totaled $234 million in 3Q08 versus $190 million in 3Q07. The increase was primarily attributed to changes in foreign currency rates, transaction costs related to the proposed acquisition of Barr by Teva, and the higher IT and legal costs that were partially offset by the reduced sales and marketing costs.
The company recorded interest expense of $24 million in 3Q08, partially offset by interest income of $3 million. Other expense totaled $11 million in 3Q08 due to net foreign exchange transaction losses realized by the company's Pliva subsidiary. The company's tax rate in 3Q08 was 43.6%, compared to
24.4% in 3Q07.
Earnings before interest, taxes, depreciation, and amortization (EBITDA) in 3Q08 totaled $170 million versus $155 million in 3Q07.
The Zacks Digest 3Q08 gross, operating, and net margins were 59.6%, 24.4%, and 12.6%, respectively.
Margins 3Q07A 2007A 1Q08A 2Q08A 3Q08A 4Q08E 2008E 2009E 2010E
Gross 62.4% 60.5% 62.7% 59.4% 59.6% 60.2% ↓ 59.9% ↓ 60.5% ↓ 58.8% ↑
Operating 23.4% 22.8% 21.3% 18.4% 24.4% 22.2% ↓ 21.3% ↓ 22.5% ↑ 21.8% ↑
Pre-tax 19.4% 18.9% 15.5% 15.6% 20.0% 18.7% ↓ 17.3% ↓ 19.9% ↑ 20.1% ↑
13.0% 13.1% 10.3% 9.6% 12.6% 13.1% ↑
11.4% 13.2% ↑ 14.3% ↑ Net
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Note: As per the Zacks Digest model, cost of goods sold would increase by 13.5% y/y in FY08 and 7.6% y/y in FY09; SG&A expense would increase by 10.7% y/y in FY08 and 8.0% y/y in FY09; and R&D expense would increase by 7.8% y/y in FY08 and 2.0% y/y in FY09. In comparison, revenue would increase by 9.2% y/y in FY08 and 2.5% in FY09.
Please refer to the Zacks Digest spreadsheet of BRL for further details on margins.
The company reported pro forma EPS of $0.83 in 3Q08 versus $0.71 in 3Q07. GAAP EPS was $0.28 in
3Q08 versus $0.36 in 2Q07. The Digest pro forma EPS was in line with the company ’s report.
EPS
Digest High
3Q07A 2007A 1Q08A 2Q08A 3Q08A 4Q08E 2008E
$3.16 $0.57 $0.64 $0.83 $0.94 $2.97 $3.90
2009E 2010E
$4.18 $3.16
Digest Low $2.91 $0.57 $0.63 $0.83 $0.85 $2.89 $3.44 $3.85 $2.91
Digest Avg. $2.99 $0.57 $0.64 $0.83 $0.88 $2.92 $3.64 $4.04 $2.99
Outlook
The company changed its FY08 adjusted EPS guidance range from $2.75-$3.05 to $2.85-$2.95.
The company's adjusted earnings guidance for 2008 excludes the impact of amortization costs associated with acquired products; contributions and/or losses from the DDD&I operations that the company plans to divest; incremental depreciation related to purchase accounting; the impact of any unscheduled launches due to patent challenges; other business development activities; refinancing activities; and expenses incurred for the pending acquisition of Barr by Teva.
Please refer to the Zacks Digest spreadsheet of BRL for further details on EPS.
The Digest average target price is $67.67 ( ↑ $0.30 from previous average target price; up 1.02% from the current price). Target prices range from $66 (Goldman) (down 1.5% from the current price) to $70 (FTN
Midwest Res.) (up 4.5% from the current price). Of the seven firms currently covering the company, one gave positive ratings and six gave neutral ratings. It is to be noted that none of the firms gave a negative rating.
Rating Distribution
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Positive
Neutral
Negative
Avg. Target Price
Digest High
Digest Low
No. of firms with target price / Total
14.3% ↓
85.7%↑
0.0%
$67.67
↑
$70.00
$66.00 ↑
6/7
Cash Flow
The company's cash, cash equivalents and marketable securities totaled approximately $602 million as of September 30, 2008.
November 17, 2008
There are none other than those discussed in other sections of this report.
November 17, 2008
The average long-term EPS growth rate, according to Zacks Digest, is 12.5% (
↓ from the previous report) ranging from 4% (Zacks Investment Research) to 20% (Wachovia). The company is focusing on branded sales to drive up its margins and earnings going forward. Most of the brokerage firms believe this shift in BRL’s focus from generics to the branded portfolio is favorable for the company’s long-term growth. In addition, the combined Barr-Pliva entity now offers a global portfolio and has transformed Barr from a predominantly oral solid dosage company to a company that is capable of developing injectable
November products and cream or ointment products.
Date
FY08
April 2009
Event
Generic launches of Allegra-D and Ortho Tri-Cyclen Lo.
Generic launch of Adderall XR
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POSITIVE RATINGS
FTN Midwest Res. – Buy ($70): November 19, 2008: The firm maintained its rating and target price.
NEUTRAL RATINGS
Zacks Investment Research – Hold ($68): November 25, 2008. The firm maintained its rating and target price. INVESTMENT SUMMARY: The firm is positive on the stock due to its takeover by Teva.
Buckingham − Neutral: November 6, 2008:
The firm maintained its rating.
Goldman
– Neutral ($66): November 7, 2008:
The firm maintained its rating and target price.
MorganStanley
– Equal Weight ($67): November 12, 2008.
The firm maintained its rating and target price.
UnionBankSwitz. – Neutral ($68): November 6, 2008: The firm maintained its rating and target price.
INVESTMENT SUMMARY: The firm does not see any hurdles in Barr’s pending acquisition by Teva.
Wachovia
– Market Perform ($67): November 19, 2008.
The firm maintained its rating and target price. INVESTMENT SUMMARY: The firm believes the current share price substantially factors in the synergies from Teva's proposed acquisition of Barr.
NEGATIVE RATINGS
None
NOT RATED
Barclays Capital – November 7, 2008: The firm is acting as financial advisor to Teva in its potential acquisition of Barr and as a result temporarily suspended its rating and target price.
CEASED COVERAGE
B. of America − December 11, 2008: The firm ceased coverage on the stock due to departure of analyst.
Citigroup – May 9, 2008: The firm ceased coverage on the stock.
Research Analyst
Copy Editor
Content Editor
Kinjel Shah
Oindrila Banerjee
Naseem Aslam
No of brokers reported/total brokers
4/7
Reason for Update Daily
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