CORONA, Calif., Feb. 5 /PRNewswire-FirstCall/ -- Watson Pharmaceuticals, Inc. , a leading specialty pharmaceutical company, today reported revenue and earnings for its fourth quarter and full year ended December 31, 2003. Net revenue increased 23 percent to a record $406.2 million, compared to $329.6 million for the fourth quarter ended December 31, 2002. Net income for the fourth quarter increased 23 percent to $52.9 million, compared to net income of $43.1 million for the same period of 2002. Earnings per diluted share increased 20 percent to $0.48, compared to $0.40 per diluted share for the prior year period.
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Net income for the fourth quarter 2003 includes a $10.3 million charge related to the expiration dating of a portion of inventory on hand of bupropion hydrochloride sustained-release tablets and approximately $20 million of impairment charges, primarily related to the Company’s interest in Halsey Drug Company, Inc., which includes a note receivable and warrants. Net income also includes approximately $20 million of gains realized from sales of securities during the period.
Fourth Quarter 2003 Highlights
Revenue from the Generic division increased 34 percent to $200.6 million for the fourth quarter of 2003, compared to $150.1 million in the prior year period, primarily as a result of the launches of our oxycodone acetaminophen and glipizide extended-release products, as well as growth in nicotine gum revenue.
Revenue from branded products increased 15 percent to $194.9 million for the fourth quarter of 2003, compared to $169.6 million in the prior year period, due to an increase in net revenues from our General Products and Women’s Health product lines, as a result of the May 2003 launch of our Oxytrol(R) product (oxybutynin transdermal system) and the December 2003 launch of TriNessatm respectively.
Other net revenue was $10.7 million in the fourth quarter of 2003, compared to $9.9 million in the fourth quarter of 2002.
Gross profit increased 30 percent to $227.8 million in the fourth quarter of 2003, compared to $175.4 million in the prior year period, primarily due to the launch of new Generic products and margin improvements in the Generic division.
Research and development investment increased 28 percent to $27.5 million in the fourth quarter of 2003, compared to $21.5 million in the same period of 2002.
Selling, general and administrative expenses for the fourth quarter of 2003 increased 54 percent to $92.8 million, compared to $60.4 million in the prior year period. The increase was primarily due to increased sales and marketing expenses associated with the launch of Oxytrol(R).
As of December 31, 2003, cash and marketable securities were $573.7 million.
Full Year Results
For the year ended December 31, 2003, net revenues increased 19 percent to a record $1.46 billion, compared to $1.22 billion for the year ended December 31, 2002. Net income for 2003 increased 15 percent to $202.9 million, or $1.86 per diluted share, compared to $175.8 million, or $1.64 per diluted share for 2002. Cash flow from operations was $259.3 million for the twelve months ending December 31, 2003.
“2003 was a tremendous year for Watson. We successfully launched over 25 products, achieved record revenues and solid 15 percent earnings growth,” began Allen Chao, Ph.D., Watson’s Chairman and Chief Executive Officer. “In addition, we continued building our infrastructure and foundation for future growth, increasing our annual investment in research and development by 24 percent and significantly strengthening our sales and marketing presence. Late in the year, we launched three important products: glipizide extended-release and oxycodone acetaminophen and our newest oral contraceptive, TriNessatm. These products, combined with more than 12 anticipated product launches, including bupropion 150 mg. sustained-release tablets, are expected to provide solid growth for Watson in 2004.”
2004 Financial Outlook
Watson is providing financial forecasts for the first quarter and full year 2004 on a GAAP basis. These forecasts are based on the Company’s actual results for the fourth quarter 2003, current prescription trends and future product launch forecasts. For the full year 2004, the Company estimates that total net revenue will increase to approximately $1.7 billion.
Net Revenue Estimates By Product Line For the Twelve Months Ended December 31, 2004 Generic Division $860 million Brand Division Women’s Health $410 million General Products $235 million Nephrology $165 million Other $30 million Total estimated net revenues $1,700
Research and development investment is expected to increase to approximately $130 million, or 8 percent of revenues in 2004, primarily due to an increase in clinical study costs associated with Watson’s product pipeline. Selling, general and administrative expenses for 2004 are expected to be approximately 20 percent of revenues. Interest and other expense is expected to decline slightly in 2004 due to a reduction in interest expense associated with Watson’s 7 1/8 senior notes. Separately today, Watson is announcing that it is launching a tender offer to purchase up to $150 million of its 7 1/8 percent senior notes. The expected interest expense savings associated with the senior note repurchase will be used to help fund Watson’s increased investment in research and development.
Earnings per diluted share is expected to increase to between $2.10 and $2.20. Excluded from the earnings per share forecast is the dilutive effect of approximately 14.4 million shares, related to the potential conversion of Watson’s $575 million contingent convertible debentures.
First Quarter 2004 Outlook
For the first quarter 2004, Watson estimates total net revenue will be approximately $410 million and earnings per diluted share will be between $0.49 and $0.51. This forecast does not include potential revenues from bupropion hydrochloride 150 mg. sustained-release tablets, should Watson be able to launch the product during the first quarter.
Research and Development Outlook
Watson currently has 22 Abbreviated New Drug Applications (ANDAs) on file with the Food and Drug Administration (FDA), representing brand sales of over $10 billion.
In Watson’s brand product pipeline, the Company expects to initiate a number of Phase 3 programs in 2004. Pivotal studies are anticipated on the Company’s transdermal contraceptive patch, its Ferrlecit(R) intravenous iron product for chemotherapy patients and a new sustained-release pain product. With regard to Watson’s topical anti-fungal nail patch, the Company previously announced that in one clinical trial, the product failed to demonstrate a statistically significant greater number of complete cures, as compared to placebo. After careful review and analysis of the study findings, the Company has decided to discontinue development of this product.
“During 2003, we made tremendous progress on our product pipeline,” continued Dr. Chao. “We have over 70 generic products in development, representing over $40 billion in brand sales, and expect to submit over 20 new ANDAs with the FDA in 2004. In addition, we have several exciting opportunities in our brand pipeline moving into late-stage development. These products will form the foundation from which we will grow for the long term.”
Webcast and Conference Call Details
Watson is hosting a meeting with Wall Street investors and analysts today at 5:00 p.m. Eastern Standard Time to discuss fourth quarter and full year 2003 results and the Company’s outlook for 2004. The meeting will be webcast live, and can be accessed by logging onto http://www.talkpoint.com/viewer/starthere.asp?pres=104941 and selecting the investors meeting icon link displayed on the home page, as well as in the Investors section. A live audio broadcast of the meeting can also accessed by dialing (877) 251-7980, or from international locations, dial (706) 643-1573. A replay of the webcast will also be available on Watson’s web site until February 19, 2004.
About Watson Pharmaceuticals, Inc.
Watson Pharmaceuticals, Inc., headquartered in Corona, California, is a leading specialty pharmaceutical company that develops, manufactures, markets, sells and distributes branded and generic pharmaceutical products. Watson pursues a growth strategy combining internal product development, strategic alliances and collaborations and synergistic acquisitions of products and businesses.
For press releases and other company information, visit Watson Pharmaceuticals’ Web site at http://www.watsonpharm.com/.
Forward-Looking Statement
Statements contained in this press release that refer to future events or other non-historical facts about Watson are forward-looking statements that reflect Watson’s current perspective of existing trends and information as of the date of this release. Except as expressly required by law, Watson disclaims any intent or obligation to update these forward-looking statements. Actual results may differ materially from Watson’s current expectations depending upon a number of factors affecting Watson’s business. These factors include, among others, market acceptance of and continued demand for Watson’s products, including the impact of competitive products and pricing; patents and other intellectual property rights held by competitors and other third parties; the inherent uncertainty associated with financial projections; the timing and success of the tender offer for the Company’s 7 1/8 percent senior notes, the inherent uncertainty of predicting the timing or outcome of product development efforts and regulatory agency approvals and actions; successful compliance with governmental regulations; and other risks and uncertainties detailed in Watson’s periodic public filings with the Securities and Exchange Commission, including but not limited to Watson’s Annual Report on Form 10-K for the year ended December 31, 2002 and its Quarterly Report on Form 10-Q for the quarters ended March 31, June 30, and September 30, 2003.
Watson reclassified its assets held for disposition for its Steris Laboratories, Inc. and Marsam Pharmaceuticals, Inc. facilities to assets held and used as of January 1, 2003. The company reclassified assets in its Condensed Consolidated Balance Sheets and operating expenses in its Condensed Consolidated Statements of Income for the 2002 periods to conform to current period presentation, which had no affect on net income, total assets or retained earnings.
The following table presents Watson’s results of operations for the three and twelve months ended December 31, 2003 and 2002:
Watson Pharmaceuticals, Inc. Consolidated Statements of Income (Unaudited; in thousands, except per share amounts) Three Months Ended Twelve Months Ended December 31, December 31, 2003 2002 2003 2002 Net revenues $406,164 $329,574 $1,457,722 $1,223,198 Cost of sales 178,343 154,184 624,651 571,882 Gross profit 227,821 175,390 833,071 651,316 Operating expenses: Research and development 27,470 21,503 102,083 82,178 Selling, general and administrative 92,781 60,412 320,201 238,458 Amortization 17,834 17,304 71,874 61,316 Total operating expenses 138,085 99,219 494,158 381,952 Operating income 89,736 76,171 338,913 269,364 Other income (expense): Equity in earnings (losses) of joint ventures (1,411) 9 (1,274) (3,750) Gain (loss) on investments 20,366 (2,335) 25,876 (2,335) Gain on sale of subsidiary -- -- 15,676 -- Loss on early extinguishment of debt -- -- (2,807) -- Loss on asset impairment (20,040) -- (35,905) -- Gain on legal settlement -- -- -- 32,000 Interest income 1,219 1,378 5,506 6,524 Interest expense (6,907) (5,391) (25,808) (22,081) Other income (expense) (334) (1,423) (2,065) (632) Total other income (expense), net (7,107) (7,762) (20,801) 9,726 Income before income tax provision 82,629 68,409 318,112 279,090 Provision for income taxes 29,768 25,311 115,248 103,294 Net income $52,861 $43,098 $202,864 $175,796 Per share amounts: Diluted earnings per share $0.48 $0.40 $1.86 $1.64 Diluted weighted average shares outstanding 110,200 107,559 108,927 107,367
The following table presents Watson’s Condensed Consolidated Balance Sheets as of December 31, 2003 and 2002:
Watson Pharmaceuticals, Inc. Condensed Consolidated Balance Sheets (Unaudited; in thousands) December 31, December 31, 2003 2002 Assets Cash and cash equivalents $553,353 $230,155 Marketable securities 20,368 42,649 Accounts receivable, net 211,174 178,563 Inventories 393,393 348,773 Other current assets 145,201 113,311 Property and equipment, net 424,995 304,667 Investments and other assets 77,226 110,031 Product rights, net 1,001,295 889,027 Goodwill 455,595 446,288 Total assets $3,282,600 $2,663,464 Liabilities & Stockholders’ Equity Current liabilities $338,685 $375,465 Long-term debt 722,535 331,877 Deferred income taxes and other liabilities 164,034 157,838 Stockholders’ equity 2,057,346 1,798,284 Total liabilities & stockholders’ equity $3,282,600 $2,663,464
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CONTACT: Investors, Patty Eisenhaur, +1-909-493-5611, or Media, ChrisEso, +1-909-493-4013, both of Watson Pharmaceuticals, Inc.
