- Company Reports Total Net Revenue of $595 Million -
- GAAP EPS of $0.31 and Adjusted EPS of $0.33 -
CORONA, Calif., Nov. 6 /PRNewswire-FirstCall/ -- Watson Pharmaceuticals,
Inc. (NYSE: WPI), 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.
Third Quarter and Nine Month Business Segment Results
Generic Segment Information
Three Months Ended Nine Months Ended
(Unaudited; $ in September 30, September 30,
thousands) 2007 2006 2007 2006
Generic Segment
Contribution
Product sales $326,231 $347,635 $1,065,152 $1,088,491
Other revenue 31,489 5,436 62,834 7,101
Net revenue 357,720 353,071 1,127,986 1,095,592
Cost of sales 210,931 234,973 693,896 758,921
Gross profit 146,789 118,098 434,090 336,671
Gross margin 41.0% 33.4% 38.5% 30.7%
Research and
development 26,555 18,339 77,036 56,958
Selling and marketing 14,018 12,656 41,764 39,120
Segment
contribution $106,216 $87,103 $315,290 $240,593
Segment margin 29.7% 24.7% 28.0% 22.0%
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 Information
Three Months Ended Nine Months Ended
(Unaudited; $ in September 30, September 30,
thousands) 2007 2006 2007 2006
Brand Segment
Contribution
Product sales $93,534 $85,543 $281,096 $256,831
Other revenue 13,577 1,879 38,288 5,659
Net revenue 107,111 87,422 319,384 262,490
Cost of sales 22,089 22,923 74,099 64,589
Gross profit 85,022 64,499 245,285 197,901
Gross margin 79.4% 73.8% 76.8% 75.4%
Research and
development 9,102 11,108 31,932 33,451
Selling and marketing 26,613 26,447 79,397 85,187
Segment
contribution $49,307 $26,944 $133,956 $79,263
Segment margin 46.0% 30.8% 41.9% 30.2%
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 Information
Three Nine
Months Ended Months Ended
(Unaudited; $ in thousands) September 30, 2007 September 30, 2007
Distribution segment contribution
Product sales $129,875 $421,946
Other revenue -- --
Net revenue 129,875 421,946
Cost of sales 113,400 363,583
Gross profit 16,475 58,363
Gross margin 12.7% 13.8%
Research and development -- --
Selling and marketing 12,716 39,246
Segment contribution $3,759 $19,117
Segment margin 2.9% 4.5%
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.
Net Revenue Estimates by Segment
For the Twelve Months Ended December 31, 2007
Generic Segment Approximately $1.5 Billion
Brand Segment $420 - $430 Million
Distribution $550 - $565 Million
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:
Table 1
Watson Pharmaceuticals, Inc.
Condensed Consolidated Statements of Operations
(Unaudited; in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
2007 2006 2007 2006
Restated* Restated*
Net revenues $594,706 $440,493 $1,869,316 $1,358,082
Cost of sales (excludes
amortization, presented
below) 346,420 257,896 1,131,578 823,510
Gross profit 248,286 182,597 737,738 534,572
Operating expenses:
Research and development 35,657 29,447 108,968 90,409
Selling, general and
administrative 112,491 64,467 312,867 201,991
Amortization 44,159 39,392 132,251 121,593
Net (gain) loss on asset
sales and impairments (6,118) -- (6,118) 66,981
Total operating expenses 186,189 133,306 547,968 480,974
Operating income 62,097 49,291 189,770 53,598
Non-operating (expense)
income, net:
Loss on early extinguishment
of debt -- -- (4,410) (525)
Interest income 1,964 9,601 6,696 22,766
Interest expense (10,125) (3,814) (35,476) (10,437)
Other income (expense) 1,449 (225) 7,886 4,851
Total non-operating
(expense) income, net (6,712) 5,562 (25,304) 16,655
Income before income taxes 55,385 54,853 164,466 70,253
Provision for income taxes 20,779 20,460 61,839 26,297
Net income $34,606 $34,393 $102,627 $43,956
Diluted earnings per share $0.31 $0.31 $0.93 $0.43
Diluted weighted average
shares outstanding 117,421 116,353 117,042 116,356
* Net income for 2006 has been restated for earnings on equity method
investments to account for our investment in common shares of Andrx
prior to the Andrx Acquisition using the equity method of accounting in
accordance with Accounting Principles Board ("APB") Opinion No. 18, "The
Equity Method of Accounting for Investments in Common Stock" ("APB 18").
The following table presents Watson's Condensed Consolidated Balance
Sheets as of September 30, 2007 and December 31, 2006:
Table 2
Watson Pharmaceuticals, Inc.
Condensed Consolidated Balance Sheets
(Unaudited; in thousands)
September 30, December 31,
2007 2006
Assets
Cash and cash equivalents $133,348 $154,171
Marketable securities 11,721 6,649
Accounts receivable, net 275,840 384,692
Inventories 524,107 517,236
Other current assets 178,985 198,928
Property and equipment, net 683,441 697,415
Investments and other assets 124,864 131,725
Product rights and other intangibles, net 647,526 779,284
Goodwill 875,443 890,477
Total Assets $3,455,275 $3,760,577
Liabilities & Stockholders' Equity
Current liabilities $394,943 $689,929
Long-term debt 974,342 1,124,145
Deferred income taxes and other
liabilities 278,994 266,115
Stockholders' equity 1,806,996 1,680,388
Total liabilities and stockholders'
equity $3,455,275 $3,760,577
The following table presents Watson's Condensed Consolidated Statements of
Cash Flows for the nine months ended September 30, 2007 and 2006:
Table 3
Watson Pharmaceuticals, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited; in thousands)
Nine Months Ended
September 30,
2007 2006
Restated*
Cash Flows from Operating Activities:
Net income $102,627 $43,956
Reconciliation to net cash provided by
operating activities:
Depreciation and amortization 189,185 158,620
Non-cash impairment charges 4,499 66,981
Deferred income tax benefit (15,509) (54,134)
Provision for inventory reserve 36,908 18,126
Restricted stock and stock option
compensation 10,337 9,731
Other adjustments to reconcile net
income to net cash provided (8,810) (7,315)
Changes in assets and liabilities:
Accounts receivable, net 111,852 69,931
Inventories (48,654) (53,712)
Accounts payable and accrued expense (142,957) 40,445
Income taxes payable 2,967 48,183
Prepaids and other changes to assets
and liabilities 13,280 (3,045)
Total adjustments 153,098 293,811
Net cash provided by
operating activities 255,725 337,767
Cash Flows from Investing Activities:
Additions to property, equipment and
product rights (50,304) (25,908)
Acquisition of business, net of cash
acquired -- (29,574)
Proceeds from sale of property and
equipment 14,385 --
Other (2,838) (3,516)
Net cash used in investing
activities (38,757) (58,998)
Cash Flows from Financing Activities:
Payments on term loan and other long-
term liabilities (252,910) (18,926)
Proceeds from stock plans 15,195 7,928
Other (76) --
Net cash used in financing
activities (237,791) (10,998)
Net (decrease) increase in
cash and cash equivalents (20,823) 267,771
Cash and cash equivalents at
beginning of period 154,171 467,451
Cash and cash equivalents at end of
period $133,348 $735,222
* Net income for 2006 has been restated for earnings on equity method
investments to account for our investment in common shares of Andrx
prior to the Andrx Acquisition using the equity method of accounting in
accordance with APB 18.
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:
Table 4
Watson Pharmaceuticals, Inc.
Reconciliation Table
(Unaudited; in thousands except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
2007 2006 2007 2006
Restated* Restated*
GAAP to adjusted net income
calculation
Reported GAAP net income $34,606 $34,393 $102,627 $43,956
Adjusted for:
Acquisition charges 1,710 108 11,288 189
Gain on sale of assets (10,617) -- (13,089) (3,695)
Non-cash impairment charges 4,499 -- 4,499 66,981
Loss on early extinguishment
of debt -- -- 4,410 525
Legal settlements 8,500 -- 8,658 --
Income taxes (1,534) (40) (6,012) (24,269)
Adjusted net income 37,164 34,461 112,381 83,687
Add: Interest expense on CODES,
net of tax 1,905 2,026 5,906 5,485
Adjusted net income, adjusted for
interest on CODES $39,069 $36,487 $118,287 $89,172
Diluted earnings per share
Diluted earnings per share - GAAP $0.31 $0.31 $0.93 $0.43
Diluted earnings per share -
Adjusted $0.33 $0.31 $1.01 $0.77
Basic weighted average common
shares outstanding 102,453 101,865 102,266 101,760
Effect of dilutive securities:
Conversion of CODES 14,357 14,357 14,357 14,357
Dilutive stock options 611 131 419 239
Diluted weighted average common
shares outstanding 117,421 116,353 117,042 116,356
* Net income for 2006 has been restated for earnings on equity method
investments to account for our investment in common shares of Andrx
prior to the Andrx Acquisition using the equity method of accounting in
accordance with APB 18.
The following table presents a reconciliation of reported net income for
the three and nine months ended September 30, 2007 and 2006 to adjusted
EBITDA:
Table 5
Watson Pharmaceuticals, Inc.
Adjusted EBITDA Reconciliation Table
(Unaudited; in millions)
Three Months Ended Nine Months Ended
September 30, September 30,
2007 2006 2007 2006
Restated* Restated*
GAAP net income $34.6 $34.4 $102.6 $44.0
Plus:
Interest expense 10.1 3.8 35.5 10.5
Interest income (2.0) (9.6) (6.7) (22.8)
Provision for income taxes 20.8 20.4 61.8 26.3
Depreciation 19.4 12.5 56.9 37.0
Amortization 44.2 39.4 132.3 121.6
EBITDA 127.1 100.9 382.4 216.6
Adjusted for:
Non-cash impairment charges 4.5 -- 4.5 67.0
Share-based compensation 3.4 3.1 10.3 9.7
Acquisition related charges 1.7 0.1 11.3 0.2
Litigation charge 8.5 -- 8.7 --
Loss on early extinguishment of
debt -- -- 4.4 0.5
Gain on sales of assets (10.6) -- (13.1) (3.7)
Adjusted EBITDA $134.6 $104.1 $408.5 $290.3
* Net income for 2006 has been restated for earnings on equity method
investments to account for our investment in common shares of Andrx
prior to the Andrx Acquisition using the equity method of accounting in
accordance with APB 18.
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:
Table 6
Watson Pharmaceuticals, Inc.
Reconciliation Table - Forecasted Adjusted Earnings per Diluted Share
(Unaudited; in millions except per share amounts)
Forecast for Forecast for
Nine Months Three Months Twelve Months
Ended Ended December Ended December
September 30, 31, 2007 31, 2007
2007 Low High Low High
GAAP to adjusted net income
calculation
GAAP net income $102.6 $30.5 $34.0 $133.1 $136.6
Adjusted for:
Acquisition charges 11.3 2.2 2.2 13.5 13.5
Gain on sale of assets (13.1) -- -- (13.1) (13.1)
Non-cash impairment
charges 4.5 -- -- 4.5 4.5
Loss on early
extinguishment of debt 4.4 1.1 1.1 5.5 5.5
Legal settlements 8.7 -- -- 8.7 8.7
Income taxes (6.0) (1.2) (1.2) (7.2) (7.2)
Adjusted net income 112.4 32.6 36.1 145.0 148.5
Add: Interest expense on
CODES, net of tax 5.9 2.0 2.0 7.9 7.9
Adjusted net income,
adjusted for interest on
CODES $118.3 $34.6 $38.1 $152.9 $156.4
Diluted earnings per share
Diluted earnings per share -
GAAP $0.93 $0.28 $0.31 $1.20 $1.23
Diluted earnings per share -
Adjusted $1.01 $0.29 $0.32 $1.30 $1.33
Diluted weighted average
common shares outstanding 117.0 117.7 117.7 117.2 117.2
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:
Table 7
Watson Pharmaceuticals, Inc.
Forecasted Adjusted EBITDA Reconciliation Table
(Unaudited; in millions)
Forecast for Forecast for
Nine Months Three Months Twelve Months
Ended Ended December Ended December
September 30, 31, 2007 31, 2007
2007 Low High Low High
GAAP net income $102.6 $30.5 $34.0 $133.1 $136.6
Plus:
Interest expense 35.5 9.0 9.0 44.5 44.5
Interest income (6.7) (1.6) (1.6) (8.3) (8.3)
Provision for income
taxes 61.8 18.4 20.5 80.2 82.3
Depreciation 56.9 19.8 19.8 76.7 76.7
Amortization 132.3 44.2 44.2 176.5 176.5
EBITDA 382.4 120.3 125.9 502.7 508.3
Adjusted for:
Non-cash impairment
charges 4.5 -- -- 4.5 4.5
Share-based compensation 10.3 3.7 3.7 14.0 14.0
Acquisition related charges 11.3 2.2 2.2 13.5 13.5
Litigation charge 8.7 -- -- 8.7 8.7
Loss on early
extinguishment of debt 4.4 1.1 1.1 5.5 5.5
Gain on sales of assets (13.1) -- -- (13.1) (13.1)
Adjusted EBITDA $408.5 $127.3 $132.9 $535.8 $541.4
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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SOURCE Watson Pharmaceuticals, Inc.
CONTACT: Patty Eisenhaur of Watson Pharmaceuticals, Inc.,
+1-951-493-5611
Web site: http://www.watson.com
http://ir.watson.com
