CORONA, Calif., Nov. 6 /PRNewswire-FirstCall/ -- Watson Pharmaceuticals, Inc. , a leading specialty pharmaceutical company, today reported revenue and earnings for its third quarter ended September 30, 2007.
Net revenue for the third quarter 2007 was $594.7 million and net income was $34.6 million, or $0.31 per diluted share. Excluding special items as detailed in the reconciliation table below, adjusted net income for the third quarter was $37.2 million, or $0.33 per diluted share.
Excluding special items as detailed in the EBITDA reconciliation table below, adjusted EBITDA for the third quarter 2007 was $134.6 million.
Cash flow from operations was $56.5 million for the third quarter and $255.7 million for the first nine months of 2007, respectively. Cash and marketable securities were $145.1 million as of September 30, 2007.
"I am pleased to report a strong quarter overall for Watson," said Paul Bisaro, Watson's President and Chief Executive Officer. "While we had strong contributions from our Brand and Generic businesses, Distribution revenue was weaker, reflecting an industry-wide reduction of new product launches in the quarter as well as changes in market dynamics on key distributed products."
"In my first few months as Watson's CEO, I've been able to assess the unique opportunities and assets that are available to the Company. We have a great base to build upon, including a strong generic business, a promising brand pipeline and a solid distribution business. Maximizing the value of these assets will be my top priority. I am confident that we are poised for continued success," Bisaro concluded.
For the nine months ended September 30, 2007, net revenue increased 38 percent to $1,869.3 million, as compared to $1,358.1 million for the first nine months of 2006. Net income for the first nine months of 2007 was $102.6 million, or $0.93 per diluted share, as compared to net income of $44.0 million, or $0.43 per diluted share, for the same period of 2006. On an adjusted basis, as detailed in the attached reconciliation table, net income for the first nine months of 2007 was $112.4 million, or $1.01 per diluted share, as compared to adjusted net income of $83.7 million, or $0.77 per diluted share, for the same period of 2006.
Generic segment net revenue for the third quarter of 2007 increased one percent or $4.6 million to $357.7 million, compared to $353.1 million in the prior year period.
Generic product sales for the third quarter of 2007 decreased $21.4 million to $326.2 million, primarily related to the loss of revenue from oxycodone HCl controlled-release tablets, following the termination of a distribution agreement, and lower sales of pravastatin sodium tablets. This was offset in part by the addition of product revenue from the Company's recently acquired Florida operations and revenue from the launch of bupropion hydrochloride extended-release tablets 300 mg. In addition, sales of the Company's generic oral contraceptives portfolio increased $8.6 million to $92.5 million.
Other revenue increased $26.1 million to $31.5 million as compared to the prior year period, due primarily to the addition of royalties from Sandoz's sales of metoprolol succinate extended-release tablets 50 mg and GlaxoSmithKline's sales of Wellbutrin XLP(R)P 150 mg.
Gross margin for the Generic segment increased from 33.4 percent in the third quarter 2006 to 41.0 percent in the third quarter 2007 due to the increase in other revenue and lower sales of authorized generics.
Watson currently has approximately 70 ANDAs on file, including tentative approvals.
Brand segment net revenue for the third quarter of 2007 increased 23 percent, or $19.7 million to $107.1 million, compared to $87.4 million in the prior year period due to increases in both Brand product sales and other revenue.
Brand product sales for the third quarter of 2007 increased nine percent or $8.0 million to $93.5 million, primarily due to increased sales of Trelstar(R) and Androderm(R). Other revenue increased $11.7 million to $13.6 million, due to the addition of revenue related to the co-promotion of AndroGel(R) and other revenue resulting from the Andrx acquisition.
Gross margin for the Brand segment increased from 73.8 percent in the third quarter 2006 to 79.4 percent in the third quarter 2007, due to the increase in other revenue and improved manufacturing costs.
In Watson's Brand product pipeline, the Company remains on track for submitting a New Drug Application (NDA) in the first quarter 2008 for silodosin, an investigational product for the treatment of benign prostatic hyperplasia. The Company also recently completed the Phase 3 program on its topical gel formulation of oxybutynin for overactive bladder. An NDA is expected to be submitted to FDA in the second quarter of 2008. Finally, Debiopharm, Watson's partner on Trelstar(R), completed the Phase 3 program for its 6-month formulation of Trelstar(R), an investigational product for the treatment of advanced prostate cancer. Preliminary results indicate the trial was successful. Pending a final analysis of the data, Debiopharm plans to submit an NDA for the Trelstar(R) 6-month formulation in the second quarter 2008.
Distribution segment net revenue for the third quarter of 2007 was $129.9 million, down 11 percent from $146.6 million reported in the second quarter 2007, primarily due to fewer new products reaching the market and lower sales of products that became multi-source in the third quarter.
Gross margin for the Distribution segment fell from 15.9 percent in the second quarter 2007 to 12.7 percent in the third quarter 2007 due primarily to lower pricing on key generic products and a shift in product mix.
Other Operating Expenses
Consolidated general and administrative expenses for the third quarter of 2007 increased $33.8 million to $59.1 million, compared to $25.4 million in the prior year period, primarily due to the Andrx acquisition. Consolidated general and administrative expense for the third quarter 2007 includes an $8.5 million litigation charge.
2007 Financial Outlook
Watson's forecasts are based on the Company's actual results for the first nine months of 2007, and management's current belief about prescription trends, pricing levels, inventory levels and the anticipated timing of future product launches. The current 2007 forecast excludes approximately $19 million ($12 million net of tax, or $0.10 per diluted share) of acquisition, litigation and impairment charges and certain other gains and losses as detailed in Table 6 below.
Watson estimates total net revenue for the full year of 2007 at approximately $2.5 billion.
Research and development investment for 2007 is expected to be approximately six percent of total revenue. Selling, general and administrative expenses for 2007 are expected to be approximately 17 percent of total revenue.
Adjusted earnings per diluted share for 2007 is expected to be between $1.30 and $1.33. Excluding special items as detailed in the EBITDA reconciliation table below, adjusted EBITDA is expected to be between $536 and $541 million.
Webcast and Conference Call Details
Watson will host a conference call and webcast today at 8:30 a.m. Eastern Standard Time to discuss 2007 third quarter results, projections for the remainder of 2007 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 19494140. 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, Friday, November 16, 2007. To access the live webcast, go to Watson's Investor Relations Web site at http://ir.watson.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.watson.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, product introductions 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; the impact of competitive products and pricing; successful integration of strategic transactions, including the Company's March 16, 2006 acquisition of Sekhsaria Chemicals, Ltd. and its November 3, 2006 acquisition of Andrx Corporation; the ability to timely resolve with FDA the pending Official Action Indicated status of the Davie, Florida manufacturing facility; the ability to timely and cost effectively integrate Watson and Andrx's operations; the ability to recognize the anticipated synergies and benefits of strategic transactions, including the Andrx Acquisition; variability of revenue mix between the Company's Brand and Generic business units; periodic dependence on a small number of products for a material source of net revenue or income; variability of trade buying patterns; changes in generally accepted accounting principles; risks that the carrying values of assets may be negatively impacted by future events and circumstances; timely and successful consummation and implementation of strategic initiatives; the timing and success of product launches; 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 and successful consummation of external business development transactions; market acceptance of and continued demand for Watson's products; costs and efforts to defend or enforce intellectual property rights; 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 and its third party manufacturers' facilities, products and/or businesses; uncertainties related to the timing and outcome of litigation and other claims; changes in the laws and regulations, including Medicare and Medicaid, affecting among other things, pricing and reimbursement of pharmaceutical products; 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, 2006. Except as expressly required by law, Watson disclaims any intent or obligation to update these forward-looking statements.
Wellbutrin XLP(R)P is a registered trademark of GlaxoSmithKline.
AndroGel(R) is a registered trademark of Unimed Pharmaceuticals, Inc., a wholly-owned subsidiary of Solvay Pharmaceuticals, Inc.
The following table presents Watson's results of operations for the three and nine months ended September 30, 2007 and 2006:
The following table presents Watson's Condensed Consolidated Balance Sheets as of September 30, 2007 and December 31, 2006:
The following table presents Watson's Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2007 and 2006:
The following table presents a reconciliation of reported net income and earnings per diluted share to adjusted net income and diluted earnings per share for the three and nine months ended September 30, 2007 and 2006:
The following table presents a reconciliation of reported net income for the nine months ended September 30, 2007 and forecasted net income for the 12 months ended December 31, 2007:
The reconciliation table is based in part on management's estimate of net income for the year ended December 31, 2007. Watson expects certain known GAAP charges for 2007, as presented in the schedule above. Other GAAP charges that may be excluded from adjusted net income are possible, but their amounts are dependent on numerous factors that we currently cannot ascertain with sufficient certainty or are presently unknown. These GAAP charges, such as potential asset impairment charges, are dependent upon future events and valuations that have not yet been performed.
The following table presents a reconciliation of reported net income for the nine months ended September 30, 2007 and forecasted net income for the 12 months ended December 31, 2007 to adjusted EBITDA:
The reconciliation table is based in part on management's estimate of adjusted EBITDA for the year ended December 31, 2007. Watson expects certain known GAAP charges for 2007, as presented in the schedule above. Other GAAP charges that may be excluded from estimated EBITDA are possible, but their amounts are dependent on numerous factors that we currently cannot ascertain with sufficient certainty or are presently unknown. These GAAP charges, such as potential asset impairment charges, are dependent upon future events and valuations that have not yet been performed.
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CONTACT: Patty Eisenhaur of Watson Pharmaceuticals, Inc., +1-951-493-5611
Web site: http://www.watson.com/
http://ir.watson.com/
