MORRISTOWN, N.J., May 10 Watson Pharmaceuticals, Inc. (NYSE: WPI) today reported a 28 percent increase in net revenue for the first quarter ended March 31, 2010 to $856.5 million, compared to $667.4 million in the first quarter 2009. On an adjusted cash basis, net income increased 25 percent to $100.3 million or $0.81 per share, compared to $80.2 million or $0.69 per share in the first quarter 2009. GAAP earnings for the first quarter 2010 were $0.57 per share, compared to $0.43 per share in the prior year period.
For the first quarter 2010, adjusted EBITDA increased 26 percent to $198.9 million, versus $158.0 million for the first quarter 2009. Cash and marketable securities were $182.3 million as of March 31, 2010. Please refer to the attached reconciliation tables for adjustments to GAAP earnings. Watson's results include a full quarter of Arrow Group results.
"Watson completed its first quarter with strong earnings and significant momentum for the remainder of the year," said Paul Bisaro, President and CEO. "Our generics business benefitted from the first full quarter of sales from our newly acquired international business, the launch of Diltiazem LA, as well as growth of our Metoprolol business. We have entered into ten new patent challenges so far this year. In our global brands business, we received approval for a six month formulation of TRELSTAR® and completed several key product development deals, expanding our women's health portfolio and furthering our biologics efforts."
"Our overall performance in the quarter, combined with the proceeds from the sale of our interest in Scinopharm, permitted us to substantially reduce our debt, while continuing to support a strong investment in R&D. We also continued our focus on driving further efficiencies within our global supply chain, " Bisaro added. "Given the strong start to the year and the positive trends we see for the remainder of the year, we are increasing our forecast for 2010 and now expect our adjusted cash earnings to be between $3.25 and $3.45 per share."
Global Generics net revenue for the first quarter 2010 increased 35 percent to $543.8 million, reflecting the addition of product sales from our new international markets and higher sales of extended release products, including Metoprolol. International product sales were $106 million.
Adjusted Global Generics gross margin increased eight percent to 50.2 percent in the first quarter 2010, due to the launch of new products and increased efficiencies resulting from our Global Supply Chain Initiative.
Global Generics research and development expense increased $12.1 million to $42.2 million in the first quarter 2010, due to higher international R&D expense. Watson currently has more than 100 ANDAs pending in the U.S., including tentative approvals, and more than 900 applications pending outside of the U.S.
Global Brands net revenue decreased 18 percent to $91.3 million in the first quarter 2010. Global Brands product sales for the first quarter 2010 decreased $25.8 million to $72.4 million, due to the loss of Ferrlecit® in December 2009, partially offset by increased sales of our new products RAPAFLO® and Gelnique®, as well as higher sales of INFeD®. Global Brands Other revenue increased $5.1 million to $18.9 million, due to higher revenue from our co-promoted brand products Androgel® and Femring®.
Adjusted gross margin for the Global Brands segment decreased 5.5 percent to 72.9 percent, in the first quarter 2010 as a result of the loss of Ferrlecit® in December 2009.
Global Brands R&D investment increased $5.1 million to $17.3 million, due primarily to a licensing payment for a new women's health product.
Distribution segment net revenue for the first quarter 2010 increased 44 percent or $67.7 million to $221.4 million. The increase was primarily due to sales of generic versions of Aldara® and Flomax® launched in the first quarter 2010, as well as sales of new products launched late in 2009. Distribution revenue consists of sales of third-party products and excludes sales of Watson's brand and generic products.
Distribution segment adjusted gross margin decreased to 13.1 percent in the first quarter 2010, compared to 18.0 percent in the first quarter 2009 and 14.6 percent in the fourth quarter 2009. The decrease is the result of product mix including higher third-party brand product sales compared to the prior year period.
Other Operating Expenses
Consolidated general and administrative expense increased eight percent from $68.9 million to $74.4 million primarily as a result of our newly acquired international business, and includes a $3.0 million legal settlement in the current year. The prior year period included $18.8 million in legal settlements.
Amortization expense for the first quarter 2010 was $39.0 million, which includes $18.6 million in amortization related to the Arrow Group acquisition. Amortization expense was $21.8 million in 2009.
2010 Financial Outlook
Watson's estimates are based on actual results for the first quarter 2010 and management's current belief about prescription trends, pricing levels, inventory levels and the anticipated timing of future product launches and events.
Webcast and Conference Call Details
Watson will host a conference call and webcast today at 8:30 a.m. Eastern Time to discuss first quarter results, the outlook for 2010 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 66758855. 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 Time, May 14, 2010. 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. is a leading global specialty pharmaceutical company. The Company is engaged in the development and distribution of generic pharmaceuticals and specialized branded pharmaceutical products focused on Urology and Women's Health. Watson has operations in many of the world's established and growing international markets.
For press release and other company information, visit Watson Pharmaceuticals' Web site at http://www.watson.com.
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; timely and successful consummation of strategic transactions, including the pending transaction with Columbia Laboratories, Inc. to acquire rights to Crinone® and Prochieve®; the difficulty of predicting the timing or outcome of litigation; successful integration of strategic transactions including the acquisition of the Arrow Group; the ability to recognize the anticipated synergies and benefits of strategic transactions, including the acquisition of the Arrow Group; variability of revenue mix between the Company's Brand, Generic and Distribution 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; 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; 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; changes in the laws and regulations, including Medicare and Medicaid, affecting among other things, pricing and reimbursement of pharmaceutical products and the settlement of patent litigation; 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 period ended December 31, 2009. Except as expressly required by law, Watson disclaims any intent or obligation to update these forward-looking statements.
All trademarks used are the property of their respective owners.
The following table presents Watson's results of operations for the three months ended March 31, 2010 and 2009:
The following table presents Watson's Condensed Consolidated Balance Sheets as of March 31, 2010 and December 31, 2009.
The following table presents Watson's Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2010 and 2009.
The following table presents a reconciliation of reported net income and diluted earnings per share to pro forma cash net income for the three months ended March 31, 2010 and 2009:
The following table presents a reconciliation of reported net income for the three months ended March 31, 2010 and 2009 to adjusted EBITDA:
The following table presents a reconciliation of forecasted net income for the twelve months ending December 31, 2010 to adjusted net income and adjusted earnings per diluted share:
The reconciliation table is based in part on management's estimate of adjusted cash net income for the year ending December 31, 2010. Watson expects certain known GAAP charges for 2010, as presented in the schedule above. Other GAAP charges that may be excluded from adjusted cash 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 forecasted net income for the twelve months ending December 31, 2010 to adjusted EBITDA:
The reconciliation table is based in part on management's estimate of adjusted EBITDA for the year ending December 31, 2010. Watson expects certain known GAAP charges for 2010, 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.
(Logo: http://www.newscom.com/cgi-bin/prnh/20100121/LA41294LOGO )
First Quarter 2010 Business Segment Results Global Generics Segment Information
SOURCE Watson Pharmaceuticals, Inc.