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Fourth Quarter Results
The Corona, California-based specialty pharmaceutical company reported net income for the fourth quarter of $38.40 million, or $0.34 per share compared to net loss of $488.96 million, or $4.80 per share in the same quarter last year.
Results for the latest quarter included acquisition charges of $1.49 million and non-cash impairment charges of $0.13 million and a loss on early extinguishment of debt of $1.14 million. The year-ago quarter's results included in-process research and development charges of $497.80 million, acquisition charges of $12.29 million and non-cash impairment charges of $3.28 million.
Excluding special items, net income for the latest quarter increased to $39.67 million, or $0.35 per share from $27.30 million, or $0.25 per share in the prior-year period. On average, nineteen analysts polled by First Call/Thomson Financial expected the company to report earnings of $0.31 per share for the quarter.
Revenues for the most recent quarter increased to $627.34 million from $621.16 million in the previous-year quarter. Wall Street analysts had a consensus revenue estimate of $611.32 million for the quarter.
Cost of sales, excluding amortization, declined to $373.18 million from $409.97 million in the year-ago quarter, resulting in a gross profit of $254.16 million, up from $211.19 million in the corresponding period last year.
Research and development expenses for the quarter declined to $35.83 million from $40.61 million in the year-ago quarter. In-process research and development expenses in the prior-year quarter were $497.80 million. Net loss on asset sales and impairments were $3.28 million in the previous-year quarter. Total operating expenses declined to $188.27 million from $686.88 million a year ago.
Total operating income for the quarter was $65.89 million compared to operating loss of $475.69 million a year ago. Total non-operating expenses for the quarter increased to $6.07 million from $5.51 million in the prior-year period.
Segmental Results
Generic Segment
Watson's Generic segment contributed net revenues of $373.89 million, down from $421.38 million in the year-ago quarter. Of the total net revenues, product sales declined to $343.73 million from $412.76 million in the previous-year period, primarily related to the loss of revenue from oxycodone HCI controlled-release tablets. This was offset by new product launches in 2007 of bupropion hydrochloride extended-release 300 mg fentanyl transdermal patch and Tilia Fe. Other revenues for the quarter rose to $30.16 million from $8.62 million in the prior-year quarter, primarily due to the addition of royalties from Sandoz's sale of metoprolol succinate extended-release tablets 50 mg and GlaxoSmithKline's sales of Wellbutrin XLP 150 mg. Gross margin for the segment climbed to 40.1% from 28.7% in the same quarter last year, primarily due to the increase in other revenue, an improvement in product mix and enhanced operational efficiencies.
Brand Segment
The segment's net revenue grew to $109.34 million from $106.98 million in the year-ago quarter. Product sales declined 3% to $94.11 million from $97.24 million in the prior-year quarter on lower sales of INFeD and Ferrlecit. Other revenue increased to $15.23 million from $9.74 million a year ago due to higher revenue from the co-promotion of AndroGel and other promoted products. Improved manufacturing costs and higher other revenues helped the segment's gross margin to increase to 76.4% from 74.2%.
Distribution Segment
The segment's net revenue climbed 11% to $144.11 million from $92.80 million a year ago, primarily due to the distribution of new products launched by generic companies, including the generic version of Wyeth's Protonix. Gross margin for the segment increased to 14.4% from 11.6% in the prior-year quarter, reflecting an improved product mix.
Fiscal Year 2007 Results
The company's net income for the year was $141.03 million, or $1.27 per share compared to net loss of $445.01 million, or $4.37 per share in the previous year.
Adjusted net income for the year rose to $152.05 million, or $1.37 per share from $110.98 million or $1.02 per share a year ago. Analysts expected earnings of $1.32 per share for the year.
Net revenue for the year rose to $2.50 billion from $1.98 billion last year. Wall Street analysts had a consensus revenue estimate of $2.48 billion for the year.
Commenting on the results, Paul Bisaro, President and Chief Executive Officer of Watson said, "We are pleased with the solid 2007 performance across all of Watson's divisions, particularly the progress made in expanding both our brand and generic product pipelines. We filed 21 ANDAs with the FDA and completed pivotal studies on two exciting new brand products: silodosin for BPH and oxybutynin topical gel for overactive bladder. In addition, in early 2008, FDA accepted our NDA filing for silodosin."
Outlook
For fiscal year 2008, the company forecasts GAAP earnings per share in a range of $1.68-$1.78 and adjusted earnings per share in a range of $1.90-$2.00. The company also forecast net revenue for the full year of approximately $2.5 billion.
Analysts expect the company to report earnings of $1.94 per share on revenue of $2.59 billion for the year.
On a segmental basis, the company forecast revenue for the Generic segment in a range of $1.45-$1.55 billion, revenue for the Brand segment in a range of $420-$440 million and revenue for the Distribution segment in a range of $580-$610 million.
Stock Movements
WPI closed Tuesday's regular trading session at $28.32, up $0.38 on a volume of 1.78 million shares. In the 52-week period, the stock has been trading in a range of $23.90-$33.91.
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