Watson first quarter net income increases 87% to $208.8 million

Apr 30 2012

Watson Pharmaceuticals, Inc. (NYSE: WPI) today reported net income for the first quarter 2012 increased 87 percent to $208.8 million or $1.64 per diluted share on a non-GAAP basis, compared to $111.9 million or $0.89 per diluted share in the first quarter 2011.  On a GAAP basis, net revenue increased 74 percent to $1.5 billion, compared to $876.5 million in the first quarter 2011. GAAP earnings per diluted share for the first quarter 2012 were $0.43, compared to $0.36 in the prior year period.

For the first quarter 2012, adjusted EBITDA increased 70 percent to $367.2 million, compared to $215.9 million for the first quarter 2011.   Cash and marketable securities were $182.2 million as of March 31, 2012. Refer to the attached reconciliation tables for adjustments to GAAP earnings.

"Substantial double-digit revenue growth across our three businesses – Global Generics, Global Brands and Anda distribution – drove an 84 percent increase in non-GAAP earnings per share, and a $151 million increase in Adjusted EBITDA" said Paul Bisaro, President and CEO. 

"In our Global Generics business, we launched more than 60 new products and filed 28 applications globally. We also expanded our presence in Australia and Southeast Asia with the acquisition of Ascent Pharmahealth Limited. In our Global Brands business, we initiated the phase III study in the U.S. for Esmya, launched a brand product portfolio in Canada and continued our biologics development efforts on rFSH and the Amgen portfolio of products," Bisaro continued.

"Watson maintained its record of solid performance in 2012, performance that enables us to execute on our business strategies including increasing our Global Generics business presence with the acquisition of Actavis Group. We will continue to look for strategic opportunities to propel Global Brands and biologics growth and will remain focused on the expansion of our Anda business into specialty distribution," concluded Bisaro. 

Business Segment Results

Global Generics net revenue for the first quarter 2012 increased 86 percent to $1.1 billion as a result of new product launches and higher international net revenue.  New products include the generic versions of Concerta® and Lipitor® launched in May 2011 and November 2011, respectively and the launch in the first quarter of a generic version of Lovenox®. First quarter 2012 international net revenue was $171.7 million, up 58 percent from the first quarter 2011 as a result of the acquisition of Specifar Pharmaceuticals in May 2011 and Ascent Pharmahealth Limited in January 2012 and new launches in key markets.

Global Generics R&D investment for the first quarter 2012 increased 3 percent to $56.1 million and Global Generics selling and marketing expenses for the first quarter 2012 increased $16.9 million, primarily due to the addition of Specifar and Ascent.

Adjusted Global Generics gross margin decreased from 51.8 percent in the first quarter 2011 to 45.1 percent in the first quarter 2012, due to sales of the authorized generic versions of Lipitor^® and Concerta^® at lower margins.  

Global Brands net revenue increased 13 percent to $109.6 million in the first quarter 2012. The increase in revenue was primarily the result of increased sales of Rapaflo^® and Crinone^® and the addition of new products including Generess^® Fe and Androderm^® 2mg and 4mg in the U.S. and Rapaflo^® and Gelnique^® in Canada.

Global Brands R&D investment increased 63 percent to $32.4 million in the first quarter 2012 compared to the first quarter 2011. The increase was a result of higher contractual milestones for the initiation of the Phase III U.S. study for Esmya and for rFSH and investments related to biologics development.   Global Brands selling and marketing expenses increased 31 percent to $47.7 million in the first quarter 2012 as a result of higher field force support costs related to expansions in the U.S. and Canada that occurred in the second half of 2011.

Global Brands segment gross margin for the first quarter 2012 was 76.5 percent, compared to 81.6 percent for first quarter 2011 as a result of a favorable product mix in the prior year period.

Distribution segment net revenue for the first quarter 2012 increased 66 percent to $298.6 million compared to $179.5 million in the first quarter 2011. The increase was related to higher third-party product launches, higher base business sales and logistical services provided to certain chain customers in the current year period. Distribution revenue consists only of sales of third-party products and excludes sales of Watson's brand and generic products.

Selling and marketing expenses increased $4.5 million to $22.9 million, primarily due to higher freight costs expenses associated with relocating our Groveport, Ohio distribution operations to our Olive Branch, Mississippi facility. Distribution segment adjusted gross margin decreased to 11.5 percent in the first quarter 2012 due to logistic services provided to certain chain customers.

Other Operating ExpensesConsolidated general and administrative expenses were $164.4 million in the first quarter 2012, an increase of 107 percent from the first quarter 2011. The increase was primarily as a result of charges related to certain litigation matters and the additions of Specifar and Ascent.  Amortization expense for the first quarter 2012 was $131.9 million, compared to $56.6 million in first quarter 2011. The increase was primarily the result of the amortization of atorvastatin product rights acquired in the Arrow acquisition and product rights acquired in the Specifar and Ascent acquisitions.

2012 Financial Outlook Watson's estimates are based on actual results for the first quarter 2012 and management's current belief about prescription trends, pricing levels, inventory levels and the anticipated timing of future product launches and events. Watson's forecast for 2012 excludes any effect from the pending acquisition of Actavis Group which is expected to close in the fourth quarter of 2012.

-- Watson estimates total net revenue for 2012 will be approximately $5.5 billion.

• Total Global Generics segment revenue of between $3.9 and $4.1 billion.
• Total Global Brands segment revenue of between $500 and $525 million.
• Total Anda Distribution segment revenue of between $950 million and $1 billion.
• Adjusted non-GAAP earnings for 2012 is expected to be between $5.55 and $5.80 per diluted share.
• Adjusted EBITDA for 2012 is expected to be between $1.310 and $1.375 billion.

SOURCE Watson Pharmaceuticals, Inc.