Watson Second Quarter 2011 Net Revenue Exceeds $1 Billion; Non-GAAP EPS of $1.01

24% Increase in Net Revenue and Non-GAAP Net Income -
- 17% Increase in Adjusted EBITDA -
- Company Increases Full Year 2011 Revenue and Earnings Forecast -

PARSIPPANY, N.J., July 26, 2011 /PRNewswire/ -- Watson Pharmaceuticals, Inc. (NYSE: WPI) today reported net revenue of $1.1 billion for the second quarter ended June 30, 2011, an increase of 24 percent when compared to $875.3 million in the second quarter 2010. On a non-GAAP basis, net income for the second quarter 2011 increased 24 percent to $127.9 million or $1.01 per share, compared to $102.8 million or $0.83 per share in the second quarter 2010.  GAAP diluted earnings per share for the second quarter 2011 were $0.42, compared to $0.57 in the prior year period. Watson's results for the second quarter include the results of Specifar Pharmaceuticals since its acquisition on May 25, 2011. Refer to the attached reconciliation tables for adjustments to GAAP earnings.

For the second quarter 2011, adjusted EBITDA increased 17 percent to $243.3 million, compared to $207.4 million for the second quarter 2010.  Cash and marketable securities were $234.0 million as of June 30, 2011.

"Our record $1 billion in net revenues in the second quarter demonstrates the strength of our combined Global Generics and Global Brands strategies.  Our May 2nd launch of methylphenidate ER added significant additional earnings power to our strong, sustained release base business and, combined with the expansion of our international generics business, delivered 39 percent growth in Global Generics net revenues.   Net revenue growth of 9 percent in our Global Brands business, powered by the addition of new products including Crinone® and Generess™ Fe and increased sales of RAPAFLO®, demonstrated that this segment of our business continues to execute on its 2011 plan," said Paul Bisaro, President and CEO. 

"We continued to invest in the growth of our Global Generics business, increasing our R&D investment by 31 percent in the quarter, as well as in our Global Brands business, with R&D spending up 29 percent.  We also announced our acquisition of Specifar Pharmaceuticals, which brings not only additional earnings contribution, but also an expanded international platform for generic growth opportunities. In our Brand business, we announced an anticipated FDA action date for PROCHIEVE®, and shortly after the end of the quarter, entered into an exclusive licensing agreement with Antares Pharma, Inc. for a product that, if approved, will expand our position in the over-active bladder (OAB) market segment."

"We concluded the quarter with $245.0 million in borrowing capacity available on our revolving credit facility and our debt to adjusted EBITDA ratio remains favorable at 1.4x, affording us the ability to continue to pursue opportunities to expand Watson's businesses," concluded Bisaro. 

Business Segment Results

Global Generics Segment Information

 

 
 

 

Three Months Ended

June 30,


 

Six Months Ended

June 30,

 

(Unaudited; $ in millions)

2011


 

2010


 

2011


 

2010

 

 

 

 

 

 

 

 

 
 

Product sales

$                      781.5


 

$                 560.8


 

$               1,366.5


 

$              1,094.9

 

Other revenue

10.9


 

10.2


 

26.0


 

19.9

 

 

Net revenue

792.4


 

571.0


 

1,392.5


 

1,114.8

 

Operating expenses:


 

 

 

 

 

 

 
 

 

Cost of sales

439.1


 

305.9


 

728.2


 

593.4

 

 

Research and development

58.3


 

44.6


 

112.7


 

86.8

 

 

Selling and marketing

37.7


 

27.5


 

68.3


 

54.4

 

Segment contribution

$                      257.3


 

$                 193.0


 

$                  483.3


 

$                 380.2

 

Segment margin

32.5%


 

33.8%


 

34.7%


 

34.1%

 

 

 

 

 

 

 

 

 

 

 
 

Adjusted gross profit (1)

$                      357.9


 

$                 277.3


 

$                  664.9


 

$                 550.4

 

Adjusted gross margin

45.2%


 

48.6%


 

48.0%


 

49.4%

 

 

 

 

 

 

 

 

 

 

 
 

 

 

 

 

 

 

 

 

 

 
 

 
 

(1) Adjusted gross profit represents adjusted net revenue less adjusted cost of sales and excludes amortization of acquired intangibles. Pro forma adjustments for the respective periods include the following:


 

 

 

 

 

 

 
 

 

 

 

 

 

 

 

 

 

 
 

 

 

Settlement of contingent asset acquired as part of a business combination

$                           -


 

$                       -


 

$                    (7.4)


 

$                       -

 

 

 

Operational Excellence Initiative

1.9


 

12.2


 

5.3


 

17.2

 

 

 

Purchase accounting adjustments

2.7


 

-


 

2.7


 

11.8

 
                     


 

Global Generics net revenue for the second quarter 2011 increased 39 percent to $792.4 million due to increased sales of extended-release products, primarily as a result of the launch of methylphenidate ER during the quarter.  Extended release product sales were $380.1 million, up 138 percent from the second quarter 2010 as a result of the launch of methylphenidate ER and higher sales of metoprolol succinate ER.  Second quarter international net revenue was $119.2 million, up eight percent from the second quarter 2010, as a result of the addition of Specifar Pharmaceuticals in May.

Global Generics adjusted gross margin decreased 3.4 percentage points to 45.2 percent in the second quarter 2011.  Adjusted Global Generics gross margin was negatively impacted by the launch of methylphenidate ER.

Global Generics R&D investment for second quarter 2011 increased 31 percent to $58.3 million, primarily due to increased clinical study costs and increased investment in international R&D.  Six new products were launched in the U.S. and we had seven new patent challenges during the quarter.

Global Brands Segment Information

 

 
 

 

Three Months Ended

June 30,


 

Six Months Ended

June 30,

 

(Unaudited; $ in millions)

2011


 

2010


 

2011


 

2010

 

 

 

 

 

 

 

 

 

 
 

Product sales

$                        92.0


 

$                   76.9


 

$                  172.3


 

$                 149.3

 

Other revenue

20.9


 

26.6


 

37.5


 

45.5

 

 

Net revenue

112.9


 

103.5


 

209.8


 

194.8

 

Operating expenses:


 

 

 

 

 

 

 
 

 

Cost of sales

25.1


 

23.6


 

42.9


 

48.3

 

 

Research and development

22.2


 

17.2


 

42.1


 

34.5

 

 

Selling and marketing

44.8


 

35.4


 

81.3


 

67.9

 

Segment contribution

$                        20.8


 

$                   27.3


 

$                    43.5


 

$                   44.1

 

Segment margin

18.4%


 

26.4%


 

20.7%


 

22.6%

 

 

 

 

 

 

 

 

 

 
 

 

 

 

 

 

 

 

 

 
 

Gross profit

$                        87.8


 

$                   79.9


 

$                  166.9


 

$                 146.5

 

Gross margin

77.8%


 

77.2%


 

79.6%


 

75.2%

 
                   


 

Global Brands net revenue increased nine percent to $112.9 million in the second quarter 2011 as a result of the addition of new products including Crinone®, Generess™ Fe and Nulecit™ and increased sales of RAPAFLO®. Global Brands other revenue decreased $5.7 million to $20.9 million. Other revenue in the second quarter of 2010 was favorably impacted by the out-licensing of two legacy brand products.

Gross margin for the Global Brands segment increased 0.6 percentage points to 77.8 percent.

Global Brands R&D investment increased 29 percent to $22.2 million in the second quarter 2011 as a result of increased biosimilar R&D investment, clinical study and other costs.  Global Brands announced the submission of a New Drug Application (NDA) for PROCHIEVE® with expected FDA action in February of 2012, launched a new oral contraceptive Generess™ Fe and announced new research for RAPAFLO®, highlighting its ability to reduce symptoms of moderate to severe chronic prostatitis/chronic pelvic pain syndrome (CP/CPPS), potentially expanding the reach for this important product. Following the close of the quarter, the group also announced an exclusive licensing agreement with Antares Pharma, Inc. to commercialize its topical oxybutynin gel product in the U.S. and Canada.

Distribution Segment Inf ormation

 

 

 

 

 

 

 

 

 
 

 

Three Months Ended

June 30,


 

Six Months Ended

June 30,

 

(Unaudited; $ in millions)

Posted: July 2011


View comments

Hide
(web2)