CORONA, Calif., May 1 /PRNewswire-FirstCall/ -- Watson Pharmaceuticals, Inc. (NYSE:WPI), a leading specialty pharmaceutical company, today reported revenue and earnings for its first quarter ended March 31, 2007.
Net revenue for the first quarter 2007 was $671.6 million and net income was $31.6 million, or $0.29 per diluted share. Net income for the first quarter 2007 included charges related to the acquisition of Andrx Corporation (the "Andrx Acquisition"), debt repurchase costs, charges related to a legal settlement and a gain on the sale of securities. Excluding special items as detailed in the reconciliation table below, adjusted net income for the first quarter was $37.3 million, or $0.34 per diluted share.
Excluding special items as detailed in the EBITDA reconciliation table below, adjusted EBITDA for the first quarter 2007 was $137.2 million.
Cash flow from operations for the first quarter of 2007 was $88.3 million; cash and marketable securities were $82.5 million as of March 31, 2007. During the first quarter, the Company made $150 million in debt payments, satisfying its debt repayment obligation for 2007.
"Over the past several years we have been actively working on several strategic initiatives to strengthen our business and provide future growth," began Allen Chao, Ph.D., Watson's Chairman and Chief Executive Officer. "These initiatives include expanding our pipeline in both Generic and Proprietary product areas, reducing operating costs, and strengthening our relationships with our alliance partners. We are already beginning to see the benefits of these strategies and believe that our continued focus on them will further enhance our product revenues, operating margins and net income in the future."
First Quarter 2007 Business Segment Results
Generic Segment Information
Three Months Ended
March 31,
(Unaudited; $ in thousands) 2007 2006
Generic segment contribution
Product sales $411,475 $321,415
Other revenue 13,150 675
Net revenue 424,625 322,090
Cost of sales 272,623 217,384
Gross profit 152,002 104,706
Gross margin 35.8% 32.5%
Research and development 26,513 20,495
Selling and marketing 14,549 12,938
Segment contribution $110,940 $71,273
Segment margin 26.1% 22.1%
Generic segment net revenue for the first quarter of 2007 increased 32 percent or $102.5 million to $424.6 million, compared to $322.1 million in the prior year period.
Generic product sales increased $90.1 million to $411.5 million, primarily due to increased sales of oxycodone HCl controlled-release tablets and the addition of Andrx product revenue. In late February, the Generic division discontinued the distribution of oxycodone HCl controlled-release tablets. Sales of generic oral contraceptives increased $9.6 million to $85.6 million.
Other revenue increased $12.5 million to $13.2 million, due to the addition of commission revenue related to fentanyl citrate.
Gross margin for the Generic segment increased from 32.5 percent in the
first quarter 2006 to 35.8 percent in the first quarter 2007 due primarily to
an increase in other revenue.
Brand Segment Information
Three Months Ended
March 31,
(Unaudited; $ in thousands) 2007 2006
Brand Segment Contribution
Product sales $90,638 $83,237
Other revenue 10,902 1,906
Net revenue 101,540 85,143
Cost of sales 25,216 17,370
Gross profit 76,324 67,773
Gross margin 75.2% 79.6%
Research and development 11,295 9,342
Selling and marketing 26,411 28,975
Segment contribution $38,618 $29,456
Segment margin 38.0% 34.6%
Brand segment net revenue for the first quarter of 2007 increased 19 percent, or $16.4 million to $101.5 million, compared to $85.1 million in the prior year period due to an increase in Specialty Product sales and revenue from the promotion of AndroGel(R).
Distribution Segment Information
Three
Months Ended
(Unaudited; $ in thousands) March 31, 2007
Distribution segment contribution
Product sales $145,440
Other revenue --
Net revenue 145,440
Cost of sales 126,882
Gross profit 18,558
Gross margin 12.8%
Research and development --
Selling and marketing 14,203
Total operating expenses 14,203
Segment contribution $4,355
Segment margin 3.0%
Cost of sales for the three months ended March 31, 2007 include $2.5 million in Andrx Acquisition-related inventory charges.
Other Operating Expenses
Consolidated general and administrative expenses for the first quarter of 2007 increased $23.3 million to $48.1 million, compared to $24.8 million in the prior year period, primarily due to the Andrx Acquisition.
2007 Financial Outlook
Watson's forecasts are based on the Company's actual results for the first quarter 2007, and management's current belief about prescription trends, pricing levels, inventory levels and the anticipated timing of future product launches. The current forecast excludes approximately $11 million ($6.8 million net of tax, or $0.06 per diluted share) of anticipated costs associated with the Andrx Acquisition and other non-operating gains and losses.
Watson estimates total net revenue for the full year of 2007 at between $2.50 billion and $2.60 billion.
Net Revenue Estimates by Segment
For the Twelve Months Ended December 31, 2007
(in millions)
Generic Segment $1,500 - $1,625
Brand Segment $380 - $405
Distribution $575 - $615
Research and development investment for 2007 is expected to be between 6 and 6.5 percent of total revenue, due primarily to an increase in clinical study costs associated with Watson's product pipeline.
Selling, general and administrative expenses for 2007 are expected to be between 16.5 and 17 percent of total revenue.
Adjusted earnings per diluted share for 2007 is expected to be between $1.20 and $1.30. Excluding special items as detailed in the EBITDA reconciliation table below, adjusted EBITDA is expected to be between $527 and $547 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 2007 first 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 6647992. 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 Pacific Daylight Time, Friday, May 11, 2007. 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, 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.
The following table presents Watson's results of operations for the three months ended March 31, 2007 and 2006:
Table 1
Watson Pharmaceuticals, Inc.
Condensed Consolidated Statements of Income
(Unaudited; in thousands, except per share amounts)
Three Months Ended
March 31,
2007 2006
Restated*
Net revenues $671,605 $407,233
Cost of sales 424,720 234,754
Gross profit 246,885 172,479
Operating expenses:
Research and development 37,808 29,837
Selling, general and administrative 103,218 66,750
Amortization 43,933 41,100
Total operating expenses 184,959 137,687
Operating income 61,926 34,792
Other (expense) income:
Earnings (losses) on equity method investments 1,439 (285)
Gain on sale of securities 1,789 3,695
Loss on early extinguishment of debt (2,729) (720)
Interest income 2,929 6,252
Interest expense (13,876) (3,301)
Other income 175 105
Total other (expense) income, net (10,273) 5,746
Income before income tax provision 51,653 40,538
Provision for income taxes 20,041 15,364
Net income $31,612 $25,174
Diluted earnings per share $0.29 $0.23
Diluted weighted average shares outstanding 116,612 116,541
*Earnings (loss) on equity method investments has been restated for all
periods presented 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 March 31, 2007 and December 31, 2006:
Table 2
Watson Pharmaceuticals, Inc.
Condensed Consolidated Balance Sheets
(Unaudited; in thousands)
March 31, December 31,
2007 2006
Assets
Cash and cash equivalents $73,550 $154,171
Marketable securities 8,981 6,649
Accounts receivable, net 375,608 384,692
Inventories 492,345 517,236
Other current assets 151,185 198,928
Property and equipment, net 696,119 697,415
Investments and other assets 136,848 131,725
Product rights and other intangibles, net 735,503 779,284
Goodwill 875,443 890,477
Total Assets $3,545,582 $3,760,577
Liabilities & Stockholders' Equity
Current liabilities $451,639 $689,929
Long-term debt 1,074,210 1,124,145
Deferred income taxes and other liabilities 305,857 266,115
Stockholders' equity 1,713,876 1,680,388
Total liabilities and
stockholders' equity $3,545,582 $3,760,577
The following table presents Watson's Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2007 and 2006:
Table 3
Watson Pharmaceuticals, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited; in thousands)
Three Months Ended
March 31,
2007 2006
Restated*
Cash Flows from Operating Activities:
Net income $31,612 $25,174
Reconciliation to net cash provided by
operating activities:
Depreciation and amortization 61,962 53,174
Deferred income tax provision (benefit) 52,775 (18,101)
Provision for inventory reserve 11,427 5,484
Restricted stock and stock option compensation 3,402 2,850
Other adjustments to reconcile net income to
net cash provided (41) (3,837)
Changes in assets and liabilities:
Accounts receivable, net 12,083 64,440
Inventories 9,063 (23,698)
Accounts payable and accrued expense (83,596) (4,524)
Income taxes payable (42,206) 34,129
Other changes to assets and liabilities 31,758 619
Total adjustments 56,627 110,536
Net cash provided by operating activities 88,239 135,710
Cash Flows from Investing Activities:
Additions to property, equipment and
product rights (16,897) (9,765)
Acquisition of business, net of cash acquired 0 (29,578)
Other (1,429) (7,826)
Net cash used in investing activities (18,326) (47,169)
Cash Flows from Financing Activities:
Payments on term loan and long-term debt (151,661) --
Proceeds from stock plans and other 1,127 3,745
Other -- (3)
Net cash (used in) provided by
financing activities (150,534) 3,742
Net (decrease) increase in cash and
cash equivalents (80,621) 92,283
Cash and cash equivalents at beginning of period 154,171 467,451
Cash and cash equivalents at end of period $73,550 $559,734
*Earnings (loss) on equity method investments has been restated for all
periods presented 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 a reconciliation of reported net income and earnings per diluted share to adjusted net income and earnings per share for the three months ended March 31, 2007 and 2006:
Table 4
Watson Pharmaceuticals, Inc.
Reconciliation Table
(Unaudited; in thousands except per share amounts)
Three Months Ended March 31,
2007 2006
Restated*
Diluted earnings per share calculation
Reported GAAP net income $31,612 $25,174
Adjusted for:
Acquisition charges 7,361 93
Gain on sale of securities (1,789) (3,695)
Loss on debt repurchase 2,729 720
Legal settlement 1,000 --
Income taxes (3,609) 1,078
Adjusted net income 37,304 23,370
Add: Interest expense on CODES, net of tax 1,943 1,675
Adjusted net income, adjusted for interest
on CODES $39,247 $25,045
Basic weighted average common shares
outstanding 101,927 101,615
Effect of dilutive securities:
Conversion of CODES 14,357 14,357
Dilutive stock options 328 569
Diluted weighted average common shares
outstanding 116,612 116,541
Diluted earnings per share - GAAP $0.29 $0.23
Diluted earnings per share - adjusted $0.34 $0.21
*Earnings (loss) on equity method investments has been restated for all
periods presented 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 a reconciliation of reported net income for the three months ended March 31, 2007 and 2006 to adjusted EBITDA:
Table 5
Watson Pharmaceuticals, Inc.
Adjusted EBITDA Reconciliation Table
(Unaudited; in millions)
Three Months Ended March 31,
2007 2006
Restated*
GAAP net income $31.6 $25.2
Plus:
Interest expense 13.9 3.3
Interest income (2.9) (6.3)
Provision for income taxes 20.0 15.4
Depreciation 18.0 12.1
Amortization 43.9 41.1
EBITDA 124.5 90.8
Adjusted for:
Share-based compensation 3.4 2.8
Acquisition related charges 7.4 0.1
Litigation charge 1.0 --
Loss on debt repurchase 2.7 0.7
Gain on sales of securities (1.8) (3.7)
Adjusted EBITDA $137.2 $90.7
*Earnings (loss) on equity method investments has been restated for all
periods presented 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").
(Logo: http://www.newscom.com/cgi-bin/prnh/20020214/WATSONLOGO)
Source: Watson Pharmaceuticals, Inc.
Nasdaq quotes delayed at least 15 minutes, all others at least 20 minutes.
Markets are closed on certain holidays. Stock Market Holiday List
By accessing this page, you agree to the following
Privacy Policy and Terms and Conditions.
Press Release Service provided by PRConnect.
Stock quotes supplied by Telekurs USA
Postage Rates Bots go here