CORONA, Calif., Oct. 27 /PRNewswire-FirstCall/ -- Watson Pharmaceuticals, Inc. , a leading specialty pharmaceutical company, reported today its financial results for the three and nine months ended September 30, 2004.
Total net revenue for the third quarter of 2004 increased 14 percent to $408.0 million, as compared to $358.8 million for the third quarter of 2003. Third quarter total net revenue growth was driven by strong performance in the Company’s Generic division as a result of new products launched since the third quarter of 2003. This was partially offset by lower revenue in the Company’s Other net revenue.
Net income for the third quarter of 2004 was $14.6 million, as compared to net income of $51.5 million for the same period of 2003. Net income for the third quarter of 2004 included a $46.1 million asset impairment charge ($29.5 million, net of tax, or $0.27 per diluted share) related to Tri-Norinyl(R) product rights, as disclosed in the Company’s Form 8-K dated October 20, 2004, and a $8.5 million charge ($5.4 million, net of tax, or $0.05 per diluted share) associated with organizational changes the Company announced on June 28, 2004. Including these charges, earnings per diluted share was $0.13, as compared to $0.47 per diluted share for the prior year period. Excluding these special items as detailed in the reconciliation table below, adjusted net income and adjusted earnings per diluted share for the third quarter of 2004 were $49.6 million and $0.45, respectively.
“The fundamentals of our business remain solid, as illustrated by our strong revenue growth and impressive cash flow from operations of $110 million for the quarter,” said Allen Chao, Ph.D., Watson’s Chairman and Chief Executive Officer. “We remain on track to achieve our revenue target of $1.6 billion and expect to exceed $280 million in cash flow for 2004. In addition, we have made great strides in the third quarter to position our business for the future, investing significantly in research and development.”
For the nine months ended September 30, 2004, total net revenue increased 16 percent to $1,217.0 million, as compared to $1,051.6 million for the first nine months of 2003. Net income for the first nine months of 2004 was $96.2 million, or $0.87 per diluted share, as compared to net income of $150.0 million, or $1.38 per diluted share, for the same period of 2003. Excluding the special items detailed in the reconciliation table below, adjusted net income and adjusted earnings per diluted share for the nine months ended September 30, 2004 were $149.0 million and $1.35, respectively.
Third Quarter 2004 Highlights
As a result of Watson’s previously announced organizational changes, beginning in the third quarter of 2004, Watson began reporting revenue for the bulk of its oral contraceptives from its Women’s Health group and certain other products from its General Products group in its Generic division. Details on this change in reporting, including a reclassification of prior periods, were disclosed in the Company’s Form 8-K dated October 20, 2004.
Generic division revenue for the third quarter of 2004 increased 28 percent to $303.3 million, as compared to $236.8 million in the third quarter of 2003, primarily due to new products launched since the third quarter of 2003.
Brand division revenue for the third quarter of 2004 decreased four percent to $97.6 million, as compared to $102.1 million in the third quarter of 2003, primarily due to slightly lower Specialty Products revenue.
Other net revenue decreased 64 percent to $7.1 million in the third quarter of 2004, as compared to $19.9 million in the third quarter of 2003, primarily because the Company received no royalties on ciprofloxacin in the third quarter of 2004 and because Other net revenue in the third quarter of 2003 included the final payment due under a legal settlement with Aventis Pharmaceuticals.
Net Revenue Results By Division and Product Line Three Months Nine Months Ended Ended September 30, September 30, 2004 2004 Generic Division* $303.3 million $914.9 million Brand Division Specialty Products** $54.1 million $141.6 million Nephrology $43.5 million $128.9 million Other $7.1 million $31.6 million Total net revenues $408.0 million $1,217.0 million * Includes generic oral contraceptive sales of $75.9 million and $214.4 million for the three and nine months ended September 30, 2004, respectively. ** Includes Oxytrol(R) sales of $9.8 million and $24.3 million for the three and nine months ended September 30, 2004, respectively.
Overall gross margin was 50.4 percent in the third quarter of 2004, as compared to 60.3 percent in the third quarter of 2003, due to a higher mix of generic product sales, including distributed products, and lower Other net revenue.
Research and development investment increased 30 percent to $34.3 million in the third quarter of 2004, inclusive of a $2.2 million charge associated with organizational changes the Company announced on June 28, 2004, as compared to $26.4 million in the same period of 2003, due to an increased investment in Watson’s generic product pipeline. Watson currently has more than 100 products under development, including 32 Abbreviated New Drug Applications on file with the Food and Drug Administration.
Selling, general and administrative expenses for the third quarter of 2004 decreased eight percent to $80.6 million, inclusive of a $6.3 million charge associated with organizational changes the Company announced on June 28, 2004, as compared to $87.5 million in the third quarter of 2003. This reduction was primarily due to the termination of our contract sales agreement with Ventiv Health, Inc.
As of September 30, 2004, cash and marketable securities were $608.8 million. For the three months ended September 30, 2004, cash flow from operations was $110.1 million.
Full Year 2004 Outlook
Watson’s full year of 2004 forecasts are based on the Company’s actual results for the first nine months of 2004, current prescription trends, inventory levels and the anticipated timing of future product launches.
Watson estimates total net revenue and earnings per diluted share for the full year of 2004 at approximately $1.6 billion and $1.34 to $1.37 per diluted share. Excluding the special items detailed in the reconciliation table below, adjusted earnings per diluted share for the full year of 2004 are estimated to be between $1.82 and $1.85 per share. Cash flow from operations for the fourth quarter of 2004 is expected to remain strong and for the full year of 2004 is expected to exceed $280 million.
Webcast and Conference Call Details
Watson will host a conference call and webcast today at 5:00 p.m. Eastern Daylight Time to discuss the third quarter results, fourth quarter and full year 2004 estimates, and recent corporate developments. The dial-in number to access the call is (877) 251-7980, or from international locations, (706) 643-1573. A taped replay of the call will be available by calling (800) 642-1687 with access pass code 1503966. The replay may be accessed from international locations by dialing (706) 645-9291 and using the same pass code. This replay will remain in effect until midnight Eastern Standard Time on November 3, 2004. To access the live webcast, go to Watson’s Investor Relations Web site at http://ir.watsonpharm.com/.
About Watson Pharmaceuticals, Inc.
Watson Pharmaceuticals, Inc., headquartered in Corona, California, is a leading specialty pharmaceutical company that develops, manufactures, markets, sells and distributes brand 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 release 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 Watson’s estimated or anticipated future results or other non-historical facts are forward-looking statements that reflect Watson’s current perspective of existing trends and information as of the date of this release. For instance, any statements in this press release concerning prospects related to Watson’s strategic initiatives and anticipated financial performance are forward-looking statements. It is important to note that Watson’s goals and expectations are not predictions of actual performance. Watson’s performance, at times, will differ from its goals and expectations. 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, the inherent uncertainty associated with financial projections; changes in generally accepted accounting principles; timely and successful implementation of strategic initiatives, including but not limited to the initiatives announced on June 28, 2004 and October 25, 2004; the difficulty of predicting the timing or outcome of product development efforts and FDA or other regulatory agency approvals or actions; the uncertainty associated with the identification of and successful consummation of external business development transactions; market acceptance of and continued demand for Watson’s products; the impact of competitive products and pricing; variability of revenue mix between the Company’s Brand and Generic divisions; variability of trade buying patterns; patents and other intellectual property rights held by competitors and other third parties; difficulties or delays in manufacturing; the availability and pricing of third party sourced products and materials; successful compliance with FDA and other governmental regulations applicable to Watson’s facilities, products and/or business; uncertainties related to the timing and outcome of litigation and other claims; changes in the laws and regulations affecting, among other things, pricing and reimbursement of pharmaceutical products, including Medicare and Medicaid; and such 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, 2003 and its Quarterly Reports on Form 10-Q for the quarters ended March 31 and June 30, 2004. Except as expressly required by law, Watson disclaims any intent or obligation to update these forward-looking statements.
The following table presents Watson’s Condensed Consolidated Statement of Income for the three and nine months ended September 30, 2004 and 2003:
Watson Pharmaceuticals, Inc. Condensed Consolidated Statements of Income (Unaudited; in thousands, except per share amounts) Three Months Ended Nine Months Ended September 30, September 30, 2004 2003 2004 2003 Net revenues $408,018 $358,756 $1,217,044 $1,051,558 Cost of sales 202,508 142,331 597,843 446,308 Gross profit 205,510 216,425 619,201 605,250 Operating expenses: Research and development 34,261 26,428 106,471 74,613 Selling, general and administrative 80,578 87,547 237,158 227,420 Amortization 18,040 17,820 53,955 54,040 Total operating expenses 132,879 131,795 397,584 356,073 Operating income 72,631 84,630 221,617 249,177 Other income (expense): Equity in earnings (losses) of joint ventures (810) (68) (4,089) 137 Gain on sales of securities 1,799 2,496 5,737 5,510 Gain on sale of subsidiary -- -- -- 15,676 Loss on early extinguishment of debt -- -- (17,752) (2,807) Loss on impairment of assets (50,894) (1,605) (51,785) (15,865) Interest income 1,504 1,603 3,726 4,287 Interest expense (3,681) (5,980) (9,071) (18,901) Other income (expense) 2,327 (293) 1,987 (1,731) Total other income (expense), net (49,755) (3,847) (71,247) (13,694) Income before income tax provision 22,876 80,783 150,370 235,483 Provision for income taxes 8,235 29,324 54,143 85,480 Net income $14,641 $51,459 $96,227 $150,003 Per share amounts: Diluted earnings per share $0.13 $0.47 $0.87 $1.38 Diluted weighted average shares outstanding 109,739 109,658 110,262 108,459
The following table presents Watson’s Condensed Consolidated Balance Sheets as of September 30, 2004 and December 31, 2003:
Watson Pharmaceuticals, Inc. Condensed Consolidated Balance Sheets (Unaudited; in thousands) September 30, December 31, 2004 2003 Assets Cash and cash equivalents $595,219 $553,353 Marketable securities 13,578 20,368 Accounts receivable, net 230,102 211,174 Inventories 340,147 393,393 Other current assets 126,031 145,201 Property and equipment, net 433,031 424,995 Investments and other assets 68,395 77,226 Product rights, net 908,589 1,001,295 Goodwill 455,595 455,595 Total assets $3,170,687 $3,282,600 Liabilities & Stockholders’ Equity Current liabilities $249,224 $338,685 Long-term debt 587,583 722,535 Deferred income taxes and other liabilities 151,640 164,034 Stockholders’ equity 2,182,240 2,057,346 Total liabilities & stockholders’ equity $3,170,687 $3,282,600
The following table presents a reconciliation of net income and earnings per diluted share for special items recorded for the three and nine months ended September 30, 2004:
Reconciliation of Special Items (Unaudited; in thousands except per share amounts) Three Months Ended Nine Months Ended September 30, 2004 September 30, 2004 Pre-Tax After-Tax EPS Pre-Tax After-Tax EPS Income, as reported $22,876 $14,641 $0.13 $150,370 $96,227 $0.87 Adjustments for special items: Loss on early extinguishment of debt(1) -- -- -- 17,752 11,361 0.10 Development related payment(2) -- -- -- 10,000 6,400 0.06 Restructuring related charge(3) 8,538 5,464 0.05 8,538 5,464 0.05 Loss on asset impairment(4) 46,100 29,504 0.27 46,100 29,504 0.27 Adjusted income for special items $77,514 $49,609 $0.45 $232,760 $148,956 $1.35 1) $17.7 million in charges ($14.0 million in the first quarter and $3.7 million in the second quarter of 2004) related to the repurchases of a portion of the Company’s 7 1/8 percent Senior Notes due 2008. 2) $10.0 million milestone payment in the second quarter of 2004 related to the transaction with Kissei Pharmaceutical Co., Ltd., included in Research and Development expense. 3) $8.5 million charge in the third quarter of 2004 ($6.3 million in Selling, General and Administration and $2.2 million in Research and Development) associated with organizational changes the Company announced on June 28, 2004. 4) $46.1 million asset impairment charge in the third quarter of 2004 related to Tri-Norinyl(R) product rights. (Logo: http://www.newscom.com/cgi-bin/prnh/20020214/WATSONLOGO)
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CONTACT: Investors, Patty Eisenhaur, +1-951-493-5611, or media, ChrisEso, +1-951-493-4013, both of Watson Pharmaceuticals, Inc.
Web site: http://ir.watsonpharm.com/
Web site: http://www.watsonpharm.com/
