Watson Pharmaceuticals, Inc. (NYSE: WPI) today reported net income of $63.0 million, or $0.55 per diluted share for the third quarter ended September 30, 2009. Excluding special items as detailed in the reconciliation table below, adjusted net income for the third quarter was $76.1 million, or $0.66 per diluted share, an increase of $22.1 million or 41 percent over the adjusted net income for the third quarter ended September 30, 2008. As detailed in the attached reconciliation table, adjusted EBITDA for the third quarter was $178.4 million.
Net revenue for the third quarter 2009 was $662.1 million, an increase of $21.4 million or three percent from the third quarter 2008. Cash flow from operations was $74.4 million and cash and marketable securities were $826.0 million as of September 30, 2009.
"Adjusted net income for the quarter increased over 40 percent, driven by sustainable margin improvements resulting from operating efficiencies delivered by our Global Supply Chain Initiative as well as the contribution of new products," said Paul Bisaro, Watson's President and Chief Executive Officer. "Key generic products such as metroprolol extended-release, potassium chloride and Next Choice(TM) contributed to a nine percent increase in generic revenue, while brand revenue for the quarter exceeded $112 million, the result of contributions from new products such as Rapaflo® and Gelnique®, and promoted products such as AndroGel® and Femring®.
"While achieving strong earnings growth, we also increased our investment in product development by 15% to approximately $52 million, and continued to invest in sales and marketing to support our brand portfolio," continued Mr. Bisaro. "In preparation for completing the acquisition of Arrow Group, we completed our bond offering during the quarter at very favorable rates and stand to close as soon as Federal Trade Commission (FTC) clearance is received. Management continues to refine the strategies that will ensure the smooth and efficient integration of this business to maximize its contribution going forward. We remain confident that the addition of Arrow will efficiently expand our global marketing presence and help create a strong platform for future growth," Mr. Bisaro concluded.
Third Quarter 2009 Business Segment Results September 30, September 30, ------------- -------------- (Unaudited; $ in millions) 2009 2008 2009 2008 ---- ---- ---- ---- Generic Segment Contribution Product sales $392.3 $352.2 $1,181.3 $1,038.9 Other revenue 5.7 11.6 19.6 68.3 --- ---- ---- ---- Net revenue 398.0 363.8 1,200.9 1,107.2 Operating expenses: Cost of sales 204.1 212.4 676.7 669.7 Research and development 37.0 31.7 97.0 83.4 Selling and marketing 11.7 14.0 35.8 41.9 ---- ---- ---- ---- Segment contribution $145.2 $105.7 $391.4 $312.2>Generic product sales for the third quarter of 2009 increased $40.1 million or 11 percent to $392.3 million, reflecting the addition of new products, including metoprolol extended-release, potassium-chloride extended-release capsules, and Next Choice(TM). The increase was partially offset by lower sales from omeprazole 40mg. Generic other revenue decreased $5.9 million to $5.7 million, primarily due to a decline in royalties from Sandoz's sales of metoprolol extended-release tablets 50mg.
Adjusted Generic gross profit increased $44.9 million or 29 percent to $200.6 million in the third quarter of 2009, compared to $155.7 million in the third quarter of 2008 and $175.2 million in the second quarter of 2009. The year over year quarterly increase was positively influenced by lower costs resulting from Watson's Global Supply Chain Initiative, as well as the launch of new products. Adjusted Generic gross profit for the third quarter excludes approximately $6.7 million in costs related to the Global Supply Chain Initiative.
Generic research and development expense increased $5.3 million or 17 percent to $37.0 million. Watson currently has approximately 60 ANDAs on file with the Food and Drug Administration (FDA).
Brand Segment Information Three Months Nine Months Ended Ended September 30, September 30, ------------- ------------- (Unaudited; $ in millions) 2009 2008 2009 2008 ---- ---- ---- ---- Brand Segment Contribution Product sales $96.1 $94.3 $291.9 $294.8 Other revenue 16.6 11.7 48.1 44.5 ---- ---- ---- ---- Net revenue 112.7 106.0 340.0 339.3 Operating expenses: Cost of sales 20.7 30.2 66.9 82.1 Research and development 14.9 13.6 39.8 39.1 Selling and marketing 32.5 29.0 108.5 86.6 ---- ---- ----- ---- Segment contribution $44.6 $33.2 $124.8 $131.5>Brand product sales for the third quarter of 2009 increased slightly to $96.1 million, due primarily to sales of new products, including Rapaflo® and Gelnique®, and increased sales of
Androderm®. This increase was offset in part by lower sales of Ferrlecit®. Brand other revenue increased $4.9 million to $16.6 million, due primarily to increased revenue from the Company's promotion of AndroGel® and Femring®.
Brand selling and marketing expense for the third quarter of 2009 increased 12 percent to $32.5 million, due to higher spending related to the launches of Rapaflo® and Gelnique®.