Watson Pharmaceuticals, Inc. (WPI) reported third quarter earnings of 66 cents per share, a cent above the Zacks Consensus Estimate. Margin improvements resulting from operating efficiencies achieved through the company’s Global Supply Chain Initiative and contributions from new products helped increase earnings by 40% from the year-ago period. Revenues increased 3% to $662.1 million.

The Generic product division posted sales of $392.3 million, up 11%. The increase was driven by contributions from new products like the generic version of AstraZeneca’s (AZN) Toprol XL (potassium-chloride extended-release capsules) and Next Choice, which was partially offset by lower sales from omeprazole 40mg.

Approval of additional strengths of Toprol XL could drive sales further. The company raised the lower end of its previously issued 2009 revenue guidance for the generic segment by $5 million. Watson now expects generic segment sales in the range of $1.60 – $1.65 billion.

Brand product sales for the third quarter increased 1.9% to $96.1 million. Contributions from new products, Rapaflo and Gelnique, and increased sales of Androderm were partially offset by lower sales of Ferrlecit. Other revenues in the brand segment increased 41.9% to $16.6 million, thanks to increased revenue from the company’s promotion of AndroGel and Femring. Watson revised its 2009 branded segment revenue guidance to $450 – $465 million (old guidance: $445 – $470 million).

Distribution segment net revenue declined 11% to $151.4 million, mainly due to fewer third-party generic new product launches which were partially offset by an increase in brand product sales. Distribution segment revenues are expected to come in at $620 million and $640 million (old guidance: $630 million and $660 million).

Watson continued to increase its investment in R&D and currently has 60 abbreviated new drug applications (ANDAs) filed with the U.S. Food and Drug Administration (FDA). The company reaffirmed its earnings guidance for 2009 and expects to deliver earnings in the range of $2.50 – $2.58.

Meanwhile, Watson remains on track to complete its acquisition of Arrow Group by year end. The Arrow acquisition will not only help the company expand its footprint in ex-U.S. territories, it will also boost Watson’s product offerings and pipeline significantly.

Importantly, Arrow has exclusive U.S. rights to launch the authorized generic version of Pfizer’s (PFE) Lipitor in November 2011, which should be a major contributor to the top-line. The acquisition will also provide Watson with operational expertise and manufacturing capability needed to support its long-term investments in generic biologics.
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