CORONA, Calif., Feb. 19 /PRNewswire-FirstCall/ -- Watson Pharmaceuticals, Inc. (NYSE: WPI), a leader in generic and specialty branded pharmaceuticals, today reported financial results for its fourth quarter and fiscal year ended December 31, 2008.
Fourth Quarter 2008 Results
Net revenue for the fourth quarter 2008 increased $17.9 million or 3 percent from the fourth quarter 2007 to $645.2 million. Excluding special items as detailed in the reconciliation table below, adjusted net income for the fourth quarter was $60.6 million, or $0.53 per diluted share. GAAP net income was $56.4 million, or $0.50 per diluted share. Adjusted EBITDA for the fourth quarter 2008 was $143.2 million and cash flow from operations was $176.3 million. Cash and marketable securities were $520.8 million as of December 31, 2008.
"This was a very positive quarter for Watson, capping off what proved to be a watershed year for the Company," said Paul Bisaro, President and Chief Executive Officer of Watson. "We demonstrated strong performance in all our divisions, delivered on the aggressive goals and strategic initiatives we set at the outset of 2008, and continued to provide shareholder value while building our pipelines, efficiencies and momentum for 2009 and beyond."
"While we made significant progress on each of our initiatives and in each of our divisions, the biggest news of 2008 came from the Brand division where we received first cycle approvals on two new products and had one new NDA accepted by the FDA, putting us in the unique position to potentially introduce three new brand products in 2009 to treat the top three conditions in urology -- a specialty focus for Watson. This accomplishment speaks volumes about the high quality and efficiency of our R&D and regulatory groups, and signals our ability and commitment to growing and expanding our business across divisions and around the globe," concluded Mr. Bisaro.
Full Year 2008 Results
For the full year ended December 31, 2008, net revenue was a record $2.54 billion, as compared to $2.50 billion for fiscal year 2007. On an adjusted basis, as detailed in the attached reconciliation table, net income for 2008 was $231.2 million, or $2.03 per diluted share, as compared to adjusted net income of $152.0 million, or $1.37 per diluted share, for the same period of 2007. GAAP net income for 2008 was $238.4 million, or $2.09 per diluted share, as compared to GAAP net income of $141.0 million, or $1.27 per diluted share, for 2007.
Fourth Quarter and Full Year 2008 Business Segment Results Generic Segment Information Three Months Ended Twelve Months Ended December 31, December 31, (Unaudited; $ in thousands) 2008 2007 2008 2007 Generic Segment Contribution Product sales $365,037 $343,733 $1,403,975 $1,408,885 Other revenue 2,109 30,157 70,358 92,991 Net revenue 367,146 373,890 1,474,333 1,501,876 Cost of sales 214,156 223,967 883,832 917,863 Gross profit 152,990 149,923 590,501 584,013 Gross margin 41.7% 40.1% 40.1% 38.9% Research and development 35,760 25,390 119,218 102,426 Selling and marketing 13,362 13,586 55,230 55,350 Segment contribution $103,868 $110,947 $416,053 $426,237 Segment margin 28.3% 29.7% 28.2% 28.4%
Generic product sales for the fourth quarter of 2008 increased $21.3 million to $365.0 million, reflecting the launch of new products. Generic other revenue decreased $28.0 million to $2.1 million, due primarily to a decline in royalties related to Sandoz's sales of metoprolol succinate extended-release tablets 50mg.
Generic gross profit was $153.0 million, or 41.7 percent of revenue, in the fourth quarter of 2008, compared to $149.9 million in the fourth quarter of 2007 and $151.4 million in the third quarter of 2008. Generic gross profit was positively influenced by certain new products, including omeprazole delayed-release capsules 40mg and transdermal fentanyl, which was offset by lower other revenue. Generic gross profit for the fourth quarter 2008 reflects approximately $6.0 million in costs related to Watson's Global Supply Chain Initiative. Excluding this item, Generic gross profit was $159.0 million, or 43.3 percent of revenue in the fourth quarter 2008.
Generic research and development expense increased $10.4 million to $35.8 million, reflecting an acceleration in activities following rationalization of the development portfolio. Watson currently has approximately 60 ANDAs on file, including tentative approvals.
For the full year 2008, Generic product sales were essentially unchanged at $1.40 billion. An increase of new product launches, including the launch of omeprazole delayed-release capsules 40mg and increased sales of transdermal fentanyl was offset by a loss in revenue from oxycodone HCl extended-release tablets. Generic other revenue decreased $22.6 million to $70.4 million due primarily to a decline in royalties related to Sandoz's sales of metoprolol succinate extended-release tablets 50mg.
Generic gross margin increased from 38.9 percent in 2007 to 40.1 percent in 2008, due to enhanced operational efficiencies and an improved product mix. Generic gross profit for 2008 reflects approximately $27.8 million in costs related to Watson's Global Supply Chain Initiative. Excluding this item, Generic gross profit was $618.3 million, or 41.9 percent of revenue in 2008.
Brand Segment Information Three Months Ended Twelve Months Ended December 31, December 31, (Unaudited; $ in thousands) 2008 2007 2008 2007 Brand Segment Contribution Product sales $102,269 $94,106 $397,025 $375,202 Other revenue 13,442 15,232 57,953 53,520 Net revenue 115,711 109,338 454,978 428,722 Cost of sales 24,912 25,814 107,079 99,913 Gross profit 90,799 83,524 347,899 328,809 Gross margin 78.5% 76.4% 76.5% 76.7% Research and development 11,809 10,435 50,904 42,367 Selling and marketing 31,605 28,664 118,198 108,061 Segment contribution $47,385 $44,425 $178,797 $178,381 Segment margin 41.0% 40.6% 39.3% 41.6%
Brand product sales for the fourth quarter of 2008 increased $8.2 million or 9 percent to $102.3 million, primarily due to increased sales of Specialty products. Brand other revenue decreased $1.8 million to $13.4 million.
Gross margin for the Brand segment increased from 76.4 percent in the fourth quarter 2007 to 78.5 percent in the fourth quarter 2008, reflecting a more favorable product mix.
For the full year 2008, Brand segment product sales increased 6 percent or $21.8 million to $397.0 million, compared to $375.2 million for 2007, due primarily to increased sales of Trelstar(R). Brand other revenue increased $4.4 million to $58.0 million.
Brand segment gross margin for 2008 was 76.5%, consistent with 2007 levels.
Brand research and development increased 20 percent or $8.5 million to $50.9 million, due primarily to milestone payments made following the Rapaflo(TM) and Trelstar(R) New Drug Application (NDA) filings. The Company recently received FDA approval for Rapaflo(TM) (silodosin), its alpha blocker for the treatment of the signs and symptoms of benign prostatic hyperplasia. The Company plans to launch Rapaflo(TM) in late March. Additionally, the Company recently received FDA approval for Gelnique(TM) (oxybutynin chloride) Gel 10%, its topical gel for the treatment of overactive bladder. Watson plans to launch Gelnique(TM) in late April. Also, during the fourth quarter 2008, Watson filed an NDA with FDA for its six month formulation of Trelstar(R) (triptorelin pamoate for injection suspension). The Company anticipates that FDA will take action on the Trelstar(R) application in the third quarter of 2009.
Distribution Segment Information Three Months Ended Twelve Months Ended December 31, December 31, (Unaudited; $ in thousands) 2008 2007 2008 2007 Distribution Segment Contribution Net revenue $162,368 $144,107 $606,190 $566,053 Cost of sales 137,099 123,397 511,911 486,980 Gross profit 25,269 20,710 94,279 79,073 Gross margin 15.6% 14.4% 15.6% 14.0% Selling and marketing 15,819 12,777 59,514 52,023 Segment contribution $9,450 $7,933 $34,765 $27,050 Segment margin 5.8% 5.5% 5.7% 4.8%
Distribution segment net revenue for the fourth quarter of 2008 increased 13 percent or $18.3 million to $162.4 million. The increase was primarily due to new product launches. Distribution revenue excludes sales of Watson products.
Distribution segment gross margin increased to 15.6 percent in the fourth quarter 2008, compared to 14.4 percent in the fourth quarter 2007, due primarily to recent cost savings initiatives.
For the full year 2008, Distribution segment net revenues increased seven percent or $40.1 million to $606.2 million, compared to $566.1 million in 2007. This increase was largely driven by new product launches.
Other Operating Expenses
Amortization expense declined $24.0 million to $20.1 million for the fourth quarter 2008 and declined $95.7 million to $80.7 million for the full year 2008, reflecting the full amortization of Ferrlecit(R) product rights as of December 31, 2007.
2009 Financial Outlook
Watson's estimates are based on actual results for 2008 and management's current belief about prescription trends, pricing levels, inventory levels and the anticipated timing of future product launches and events.
Watson estimates total net revenue for the full year of 2009 at approximately $2.65 billion. Estimates for segment revenue are:
-- Total Generic segment revenue between $1.45 billion and $1.55 billion.
-- Total Brand segment revenue between $445 million and $470 million.
-- Total Distribution segment revenue between $660 and $710 million.
Research and development investment for 2009 is expected to be $180 to $190 million. Selling, general and administrative expenses for 2009 are expected to be $450 to $470 million. Amortization expense for 2009 is expected to be approximately $88 million.
In 2009, the Company expects to incur pre-tax costs associated with the planned closure of its Carmel, NY manufacturing facilities of approximately $23 million which includes accelerated depreciation, severance, retention and other related plant closure costs. These charges and other items are excluded from Watson's 2009 adjusted EBITDA and earnings per diluted share forecasts as detailed in Table 6 and 7 below.
For 2009, the Company expects adjusted diluted earnings per share to be between $2.18 and $2.28 and GAAP earnings per diluted share between $2.03 and $2.13. Adjusted EBITDA is expected to be between $600 million and $620 million.
This forecast includes only a modest contribution from Watson's sales of generic Micro-K(R) and generic Toprol XL(R). Due to production issues experienced by certain competitors, there is currently a supply disruption for these products. If the current competitive landscape for these two products does not change significantly and we are able to obtain timely approval for our generic Toprol XL(R) product, it is likely that the Company will significantly exceed its current earnings per share forecast.
Webcast and Conference Call Details
Watson will host a conference call and webcast today at 8:30 a.m. Eastern Standard Time to discuss fourth quarter 2008 results, the outlook for 2009 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 82174623. 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, February 27, 2009. To access the live webcast, go to Watson Investor Relations Web site at http://ir.watson.com.
About Watson Pharmaceuticals, Inc.
Watson Pharmaceuticals, Inc. is a global leader in the development and distribution of pharmaceuticals with a broad portfolio of generic products and a specialized portfolio of branded pharmaceuticals focused on Urology, Gynecology and Nephrology/Medical. 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 the 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; the difficulty of predicting the timing or outcome of litigation; successful integration of strategic transactions; the ability to recognize the anticipated synergies and benefits of strategic transactions; 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; 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. Except as expressly required by law, Watson disclaims any intent or obligation to update these forward-looking statements.
Toprol XL(R) and Micro-K(R) trademarks are the property of their registered owners.
The following table presents Watson's results of operations for the three and twelve months ended December 31, 2008 and 2007:
Table 1 Watson Pharmaceuticals, Inc. Condensed Consolidated Statements of Operations (Unaudited; in thousands, except per share amounts) Three Months Ended Twelve Months Ended December 31, December 31, 2008 2007 2008 2007 Net revenues $645,225 $627,335 $2,535,501 $2,496,651 Cost of sales (excludes amortization, presented below) 376,167 373,178 1,502,822 1,504,756 Gross profit 269,058 254,157 1,032,679 991,895 Operating expenses: Research and development 47,569 35,825 170,122 144,793 Selling, general and administrative 111,231 108,284 423,428 421,151 Amortization 20,121 44,158 80,690 176,409 Loss (gain) on asset sales/impairments 8 - 311 (6,118) Total operating expenses 178,929 188,267 674,551 736,235 Operating income 90,129 65,890 358,128 255,660 Non-operating (expense) income, net: Loss on early extinguishment of debt - (1,143) (1,095) (5,553) Interest income 2,904 2,190 9,055 8,886 Interest expense (7,452) (8,997) (28,184) (44,473) Other income 1,034 1,878 20,409 9,764 Total non-operating (expense) income, net (3,514) (6,072) 185 (31,376) Income before income taxes 86,615 59,818 358,313 224,284 Provision for income taxes 30,229 21,415 119,934 83,254 Net income $56,386 $38,403 $238,379 $141,030 Diluted earnings per share $0.50 $0.34 $2.09 $1.27 Diluted weighted average shares outstanding 117,997 117,374 117,723 117,039
The following table presents Watson's Condensed Consolidated Balance Sheets as of December 31, 2008 and 2007.
Table 2 Watson Pharmaceuticals, Inc. Condensed Consolidated Balance Sheets (Unaudited; in thousands) December 31, December 31, 2008 2007 Assets Cash and cash equivalents $507,578 $204,554 Marketable securities 13,202 11,799 Accounts receivable, net 305,009 267,117 Inventories 473,127 490,601 Other current assets 159,501 199,705 Property and equipment, net 658,465 688,185 Investments and other assets 132,897 129,920 Product rights and other intangibles, net 560,023 603,697 Goodwill 868,085 876,449 Total assets $3,677,887 $3,472,027 Liabilities & Stockholders' Equity Current liabilities $481,995 $444,927 Long-term debt 824,678 899,408 Deferred income taxes and other liabilities 262,629 278,227 Stockholders' equity 2,108,585 1,849,465 Total liabilities and stockholders' equity $3,677,887 $3,472,027
The following table presents Watson's Condensed Consolidated Statements of Cash Flows for the twelve months ended December 31, 2008 and 2007.
Table 3 Watson Pharmaceuticals, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited; in thousands) Twelve Months Ended December 31, 2008 2007 Cash Flows from Operating Activities: Net income $238,379 $141,030 Reconciliation to net cash provided by operating activities: Depreciation and amortization 170,737 253,559 Deferred income tax provision (benefit) 3,513 (6,250) Provision for inventory reserve 45,693 46,853 Restricted stock and stock option compensation 18,537 14,244 Other adjustments (22,987) (4,511) Changes in assets and liabilities: Accounts receivable, net (37,892) 120,575 Inventories (28,219) (25,093) Accounts payable and accrued expenses (17,658) (117,751) Income taxes payable 24,393 7,703 Other assets and liabilities 22,058 (3,181) Total adjustments 178,175 286,148 Net cash provided by operating activities 416,554 427,178 Cash Flows from Investing Activities: Additions to property, equipment and product rights (100,488) (75,870) Additions to marketable securities and long-term investments (8,202) (8,451) Proceeds from sale of marketable securities and investments 14,933 4,113 Other investing activities, net 400 15,916 Net cash used in investing activities (93,357) (64,292) Cash Flows from Financing Activities: Payments on term loan, current debt and other long-term liabilities (95,635) (329,532) Proceeds from issuance of short-term debt 67,909 2,645 Proceeds from stock plans 8,438 16,160 Repurchase of common stock (885) (1,776) Net cash used in financing activities (20,173) (312,503) Net increase in cash and cash equivalents 303,024 50,383 Cash and cash equivalents at beginning of period 204,554 154,171 Cash and cash equivalents at end of period $507,578 $204,554
The following table presents a reconciliation of reported net income and diluted earnings per share to adjusted net income and diluted earnings per share for the three and nine months ended December 31, 2008 and 2007:
Table 4 Watson Pharmaceuticals, Inc. Reconciliation Table (Unaudited; in thousands except per share amounts) Three Months Ended Twelve Months Ended December 31, December 31, 2008 2007 2008 2007 GAAP to adjusted net income calculation Reported GAAP net income $56,386 $38,403 $238,379 $141,030 Adjusted for: Global supply chain initiative(1) 6,532 - 30,436 - Acquisition and licensing charges - 1,494 6,500 12,782 Gain on sale of assets - - (9,605) (13,089) Loss on asset sales and impairments 8 132 311 4,631 Favorable settlement of tax related liability - - (5,928) - Loss on debt repurchases - 1,143 1,095 5,553 Legal settlements - (800) (15,000) 7,858 Income taxes (2,282) (704) (14,955) (6,716) Adjusted net income 60,644 39,668 231,233 152,049 Add: Interest expense on CODES, net of tax 2,029 1,873 7,939 7,779 Adjusted net income, adjusted for interest on CODES $62,673 $41,541 $239,172 $159,828 Diluted earnings per share Diluted earnings per share - GAAP $0.50 $0.34 $2.09 $1.27 Diluted earnings per share - Adjusted $0.53 $0.35 $2.03 $1.37 Basic weighted average common shares outstanding 103,035 102,608 102,821 102,273 Effect of dilutive securities: Conversion of CODES 14,357 14,357 14,357 14,357 Dilutive share-based compensation arrangements 605 409 545 409 Diluted weighted average common shares outstanding 117,997 117,374 117,723 117,039 (1) For the three months ended December 31, 2008, global supply chain initiative charges of $6,532 were represented within cost of sales ($6,045), research and development ($406) and selling, general and administrative ($81). For the twelve months ended December 31, 2008, global supply chain initiative charges of $30,436 were represented within cost of sales ($28,049), research and development ($1,444) and selling, general and administrative ($943). For the three and twelve months ended 2008, cost of sales included accelerated depreciation charges of $1,807 and $7,407, respectively. The following table presents a reconciliation of reported net income for the three and twelve months ended December 31, 2008 and 2007 to adjusted EBITDA: Table 5 Watson Pharmaceuticals, Inc. Adjusted EBITDA Reconciliation Table (Unaudited; in millions) Three Months Ended Twelve Months Ended December 31, December 31, 2008 2007 2008 2007 GAAP net income $56.4 $38.4 $238.4 $141.0 Plus: Interest expense 7.4 9.0 28.2 44.5 Interest income (2.9) (2.2) (9.0) (8.9) Provision for income taxes 30.2 21.4 119.9 83.2 Depreciation (2008 includes accelerated depreciation) 22.7 20.2 90.0 77.2 Amortization 20.1 44.2 80.7 176.4 EBITDA 133.9 131.0 548.2 513.4 Adjusted for: Global supply chain initiative 4.7 - 23.0 - Acquisition and licensing charges - 1.5 6.5 12.8 Gain on sale of assets - - (9.6) (13.1) Loss on asset sales and impairments - 0.1 0.3 4.6 Favorable settlement of tax related liability - - (5.9) - Loss on early extinguishment of debt - 1.2 1.1 5.6 Legal settlements - (0.8) (15.0) 7.9 Share-based compensation 4.5 3.9 18.5 14.2 Adjusted EBITDA $143.1 $136.9 $567.1 $545.4
The following table presents a reconciliation of forecasted net income for the 12 months ending December 31, 2009 to adjusted net income and adjusted earnings per diluted share:
Table 6 Watson Pharmaceuticals, Inc. Reconciliation Table - Forecasted Adjusted Earnings per Diluted Share (Unaudited; in millions except per share amounts) Forecast for Twelve Months Ending December 31, 2009 Low High GAAP to adjusted net income calculation GAAP net income $233.2 $245.3 Adjusted for: Licensing charges 4.3 4.3 Global supply chain initiative 22.7 22.7 Income taxes (10.0) (10.0) Adjusted net income 250.2 262.3 Add: Interest expense on CODES, net of tax 7.9 7.9 Adjusted net income, adjusted for interest on CODES $258.1 $270.2 Diluted earnings per share Diluted earnings per share - GAAP $2.03 $2.14 Diluted earnings per share - Adjusted $2.18 $2.28 Diluted weighted average common shares outstanding 118.6 118.6
The reconciliation table is based in part on management's estimate of net income for the year ending December 31, 2009. Watson expects certain known GAAP charges for 2009, 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 forecasted net income for the 12 months ending December 31, 2009 to adjusted EBITDA:
Table 7 Watson Pharmaceuticals, Inc. Reconciliation Table - Forecasted Adjusted EBITDA (Unaudited; in millions) Forecast for Twelve Months Ending December 31, 2009 Low High GAAP net income $233.2 $245.3 Plus: Interest expense 21.1 21.1 Interest income (13.3) (12.5) Provision for income taxes 137.0 144.1 Depreciation (includes accelerated depreciation) 97.5 97.5 Amortization 87.8 87.8 EBITDA 563.3 583.3 Adjusted for: Share-based compensation 16.9 16.9 Global supply chain initiative 15.5 15.5 Licensing charges 4.3 4.3 Adjusted EBITDA $600.0 $620.0
The reconciliation table is based in part on management's estimate of adjusted EBITDA for the year ending December 31, 2009. Watson expects certain known GAAP charges for 2009, 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.
|SOURCE Watson Pharmaceuticals, Inc.|
Copyright©2009 PR Newswire.
All rights reserved