September 16, 2005

Barr Pharmaceuticals has entered into a preliminary agreement with Organon and Savient Pharmaceuticals to buy rights to contraceptive Mircette. The agreement, pending FTC approval, effectively ends a drawn-out patent suit over Barr's generic version of the drug.

During its fiscal 2005 fourth-quarter earnings call, the generics maker said the U.S. District Court in New Jersey has agreed to suspend proceedings for the nearly four-year-old patent case launched by Organon and Savient, contingent on the three companies negotiating definitive settlements.

The case has bounced from district court to appeals court and back again since 2001. Savient and Organon first sued Duramed Pharmaceuticals, which originally applied to market generic Mircette (desogestrel/ethinyl estradiol), but Barr became the target of the suit after acquiring Duramed. The district court originally ruled in favor of Barr in 2001, but the U.S. Court of Appeals for the Federal Circuit sent the case back to the lower court for further review in 2003.

As a result of the deal, Barr expects to take a charge of $62.3 million in the second quarter -- as well as paying Organon $142 million and Savient $13.75 million -- but said that it expects promotions of Mircette will boost sales of Barr's generic alternative Kariva. Mircette sales are in decline partly due to lack of promotion, Barr said recently.

"One of the reasons for this transaction is the strategic value of acquiring a 28-day product that we could promote," said Barr Chairman and CEO Bruce Downey. "That promotion would probably not affect Mircette sales as patients continue to switch from Mircette to our generic Kariva, but we think the promotional efforts behind Mircette could increase our Kariva sales."

The deal with Organon is the latest in a string of patent settlements by Barr, spurring one analyst to ask whether Barr had anything to fear from the FTC's recent appeal to the U.S. Supreme Court to hear its antitrust case against Schering-Plough. The FTC has accused Schering-Plough and a generic competitor of collaborating to keep the generic drug off the market. Downey dismissed such concerns.