Watson Pharmaceuticals Inc.'s (WPI) second quarter 2011 earnings (excluding special items) of $1.01 per share surpassed the Zacks Consensus Estimate by a penny and the year-ago earnings by 18 cents. Higher revenues helped boost earnings.
The second quarter result is inclusive of the results of Specifar Pharmaceuticals, which was acquired in May 2011.
Quarterly Details
Revenues jumped 24% to $1.08 billion, beating the Zacks Consensus Estimate of $992 million. Revenues increased mainly due to higher generic and branded drug sales during the quarter.
Watson Pharma reports revenues under three segments – Global Generics, Global Brands and Distribution segment.
Global Generics
The company’s Global Generics segment posted sales of $792.4 million, up 39%. The upside was driven by increased sales of extended-release products and the launch of methylphenidate ER. Methylphenidate ER is the generic version of Johnson & Johnson’s (JNJ) attention deficit hyperactivity disorder (ADHD) treatment, Concerta.
International product sales for the division in the reported quarter came in at $119.2 million, up 8%, driven by the acquisition of Specifar Pharmaceuticals.
Gross margin (on an adjusted basis) for the segment declined 340 basis points (bps) to 45.2% from the year-ago quarter. Results were negatively impacted by the launch of methylphenidate ER. Research & development (R&D) expenses rose 31% to $58.3 million, attributable to increased clinical study costs and higher investment in international R&D.
Global Brands
Watson Pharma’s Global Brands revenue came in at $112.9 million, up 9%. Increased contributions from products like Rapaflo and the addition of Crinone, Generess Fe and Nulecit aided the performance of the segment.
The segment’s gross margin (on an adjusted basis) was 77.8% up from 77.2% in the comparable period of 2010. R&D expenses for the segment shot up 29% to $22.2 million. The increase was primarily attributable to higher clinical study costs and increased investment in biosimilar R&D.
Distribution segment
Net revenue for the Distribution segment declined 12% during the quarter to $176.4 million, due to a lower number of third-party product launches. Segment’s gross margin (on an adjusted basis) was 15.4%, down from 16.1% in the year-ago quarter.
Looking Forward: Higher Guidance
Following the second quarter financial results, Watson Pharma increased its guidance for 2011.
For 2011, the company now expects earnings (on an adjusted basis) in the range of $4.25 to $4.50 per share (old guidance: $3.95 – $4.20) on revenues of approximately $4.5 billion (revised from earlier expectation of $4.2 billion). The current Zacks Consensus Estimate of $4.32 per share lies within the company’s guidance range.
Watson Pharma expects Global Generic segment to post revenue of $3.1 billion to $3.3 billion (old guidance: $2.9-$3.1 billion) in 2011. Revenue for the Brands segment is expected to lie in the range of $445 million – $465 million. Distribution segment revenue is expected in the range from $770 million – $800 million.
Our View
We currently have an Outperform recommendation on Watson Pharma. The stock carries Zacks #1 Rank (Strong Buy rating) in the short-run.
We expect the new generic product launches over regular intervals to help drive the company’s Global Generic segment’s sales. Additionally, Specifar Pharmaceuticals will contribute to the company’s earnings through its commercial presence in key European markets
In the Global Brands segment, Rapaflo and Crinone are expected to experience continued growth. Further, we expect investor focus to remain on the approvability of Prochieve. The US Food and Drug Administration’s (FDA) decision on the drug is expected in February 2012.
JOHNSON & JOHNS (JNJ): Free Stock Analysis Report
WATSON PHARMA (WPI): Free Stock Analysis Report
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment