Watson Pharmaceuticals, Inc. (NYSE: WPI) today reported a 28 percent increase in net revenue for the first quarter ended March 31, 2010 to $856.5 million, compared to $667.4 million in the first quarter 2009. On an adjusted cash basis, net income increased 25 percent to $100.3 million or $0.81 per share, compared to $80.2 million or $0.69 per share in the first quarter 2009. GAAP earnings for the first quarter 2010 were $0.57 per share, compared to $0.43 per share in the prior year period.
For the first quarter 2010, adjusted EBITDA increased 26 percent to $198.9 million, versus $158.0 million for the first quarter 2009. Cash and marketable securities were $182.3 million as of March 31, 2010. Please refer to the attached reconciliation tables for adjustments to GAAP earnings. Watson's results include a full quarter of Arrow Group results.
"Watson completed its first quarter with strong earnings and significant momentum for the remainder of the year," said Paul Bisaro, President and CEO. "Our generics business benefitted from the first full quarter of sales from our newly acquired international business, the launch of Diltiazem LA, as well as growth of our Metoprolol business. We have entered into ten new patent challenges so far this year. In our global brands business, we received approval for a six month formulation of TRELSTAR® and completed several key product development deals, expanding our women's health portfolio and furthering our biologics efforts."
"Our overall performance in the quarter, combined with the proceeds from the sale of our interest in Scinopharm, permitted us to substantially reduce our debt, while continuing to support a strong investment in R&D. We also continued our focus on driving further efficiencies within our global supply chain, " Bisaro added. "Given the strong start to the year and the positive trends we see for the remainder of the year, we are increasing our forecast for 2010 and now expect our adjusted cash earnings to be between $3.25 and $3.45 per share."
Global Generics net revenue for the first quarter 2010 increased 35 percent to $543.8 million, reflecting the addition of product sales from our new international markets and higher sales of extended release products, including Metoprolol. International product sales were $106 million.
Adjusted Global Generics gross margin increased eight percent to 50.2 percent in the first quarter 2010, due to the launch of new products and increased efficiencies resulting from our Global Supply Chain Initiative.
Global Generics research and development expense increased $12.1 million to $42.2 million in the first quarter 2010, due to higher international R&D expense. Watson currently has more than 100 ANDAs pending in the U.S., including tentative approvals, and more than 900 applications pending outside of the U.S.
Global Brands net revenue decreased 18 percent to $91.3 million in the first quarter 2010. Global Brands product sales for the first quarter 2010 decreased $25.8 million to $72.4 million, due to the loss of Ferrlecit® in December 2009, partially offset by increased sales of our new products RAPAFLO® and Gelnique®, as well as higher sales of INFeD®. Global Brands Other revenue increased $5.1 million to $18.9 million, due to higher revenue from our co-promoted brand products Androgel® and Femring®.
Adjusted gross margin for the Global Brands segment decreased 5.5 percent to 72.9 percent, in the first quarter 2010 as a result of the loss of Ferrlecit® in December 2009.
Global Brands R&D investment increased $5.1 million to $17.3 million, due primarily to a licensing payment for a new women's health product.
Distribution segment net revenue for the first quarter 2010 increased 44 percent or $67.7 million to $221.4 million. The increase was primarily due to sales of generic versions of Aldara® and Flomax® launched in the first quarter 2010, as well as sales of new products launched late in 2009. Distribution revenue consists of sales of third-party products and excludes sales of Watson's brand and generic products.
Distribution segment adjusted gross margin decreased to 13.1 percent in the first quarter 2010, compared to 18.0 percent in the first quarter 2009 and 14.6 percent in the fourth quarter 2009. The decrease is the result of product mix including higher third-party brand product sales compared to the prior year period.
Other Operating Expenses
Consolidated general and administrative expense increased eight percent from $68.9 million to $74.4 million primarily as a result of our newly acquired international business, and includes a $3.0 million legal settlement in the current year. The prior year period included $18.8 million in legal settlements.
Amortization expense for the first quarter 2010 was $39.0 million, which includes $18.6 million in amortization related to the Arrow Group acquisition. Amortization expense was $21.8 million in 2009.
2010 Financial Outlook
Watson's estimates are based on actual results for the first quarter 2010 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 ended December 31, 2010 at approximately $3.55 billion.
- Total Global Generics segment revenue between $2.25 and $2.40 billion, with international product sales between $500 and $550 million
- Total Global Brands segment revenue between $440 and $480 million
- Total Distribution segment revenue between $730 and $780 million
- Adjusted EBITDA between $800 million and $850 million
- Cash earnings per share between $3.25 and $3.45
SOURCE Watson Pharmaceuticals, Inc.