Watson Beats, Raises Outlook – Analyst Blog

Watson Pharmaceuticals Inc. (WPI) reported first quarter earnings of 81 cents per share, well above the Zacks Consensus Estimate of 74 cents and the year-ago earnings of 69 cents. Revenues increased 28% to $856.5 million, mainly due to the strong performance of the generics business.

 

 

Watson’s Generic Product segment posted sales of $543.8 million, up 35%. The increase in sales was driven by contribution from new international markets, the launch of Diltiazem LA and higher sales of extended release products including Metoprolol. International product sales came in at $106 million.

 

Watson currently has 100 abbreviated new drug applications (ANDAs) pending approval with the US Food and Drug Administration (FDA). The company has initiated 10 new patent challenges this year. New product launches over regular intervals should help drive the generics business. Watson expects the Generic segment sales in the range of $2.25−$2.4 billion in 2010. International product sales are expected in the range of $500−$550 million.

 

Global Brands segment revenues for the quarter fell 18% to $91.3 million with product sales declining to $72.4 million mainly due to the loss of Ferrlecit in December 2009. This was partially offset by contributions from new products such as Rapaflo and Gelnique, and higher sales of INFeD.

 

Meanwhile, higher sales of co-promoted products such as Androgel and Femring helped boost other revenues to $18.9 million.

 

Watson expects the Brand segment to contribute sales in the range of $440−$480 million in 2010. The launch of the six-month formulation of Trelstar, which was approved recently, should help boost Brand segment revenues.

 

Distribution segment net revenue increased 44% to $221.4 million in the quarter, mainly due to sales of generic versions of Aldara and Flomax and contributions from new products. Distribution segment revenues are expected to increase to $730−$780 million in 2010.

 

 

Watson raised its previously issued revenue and earnings guidance. The company now expects to generate cash EPS of $3.25−$3.45 on revenues of approximately $3.55 billion (earlier guidance: cash EPS of $3.05−$3.30 on revenues of approximately $3.5 billion).

 

 

We currently have a Neutral recommendation on Watson. We believe that the company’s cost saving initiative and new product launches − both brand and generic − will help drive growth. We also view the company’s acquisition of Arrow as a smart strategic move. This acquisition should help boost Watson’s product portfolio and expand its footprint in ex-US territories.

 

However, integration risks remain and competition in both the branded and generic markets remains fierce.