Generic Makers Post Mixed Results

Three mixed earnings reports by generic drug makers on Wednesday show that the generics industry is becoming just as vulnerable to competition and price-cutting as the big brand-name pharmaceutical companies.

Manufacturers of generics have just six months to reap big profits on their generic versions after the patent expires on a brand-name drug. After that, they face competition from other generics.

That is happening to Corona-based Watson Pharmaceuticals Inc., which reported declining revenue and earnings after being battered by other generic competitors. Watson had enjoyed a six-month exclusivity period, which it shared with Mylan Laboratories, for generic forms of the anti-anxiety drug BuSpar, but that has been opened to other generic competitors

Watson’s shift to produce more brand name drugs of its own, to give it a more stable profit run, hasn’t taken wing yet. Its most promising new drug, Oxytrol for overactive bladder control, still needs approval from the Food and Drug Administration.

The wait for FDA approval of Oxytrol “has clouded their outlook,” said Salomon Smith Barney analyst Angela Larson, who follows all three companies.

Barr Laboratories Inc. and Mylan Laboratories are at the top of the cycle. Both companies reported strong earnings gains, benefiting from their six-month exclusivity rights to market certain drugs. But that, analysts point out, is a temporary advantage.

Both companies also had new products in the pipeline to take up the slack when their exclusive rights expired.

“Barr has expert manufacturing in hormones, and they are leveraging that by developing both brand and generics. They have a clearer strategy and fewer moving pieces at the moment,” Larson said. “Mylan is slowly growing its brand name drug development, but its not as tightly focused as Barr.”

Barr Laboratories, of Pomona, N.Y., said net earnings more than doubled to $53.1 million, or $1.17 a share, for the third quarter of fiscal 2002. Total revenue climbed to $261.4 million during the same period, an increase of 64% over total revenue of $159.8million. Barr’s stock climbed to $66.61, up $3.53, on the New York Stock Exchange.

Mylan Laboratories, based in Pittsburgh, Pa., reported net earnings increased 60% to $67.3 million, or 53 cents a share, for the quarter. Net revenue increased 14% to $282.6 million. Mylan’s stock rose $2.12 to $27.27 on the NYSE.

Watson earned $32.1 million, or 30 cents a share, in the first quarter. A year earlier, it earned $62.5million, or 58 cents a share, after a gain of 18 cents a share on the sale of stock in Andrx Corp. Excluding one-time items, the firm earned 34 cents a share in the 2002 quarter compared with 40 cents a year ago, in line with Wall Street estimates.

Net revenue was $285.7 million, compared with $296.8 million reported in the first quarter of 2001. The stock rose $1.05, or 4.4%, to $25.20 on the NYSE.