Marcial: Generic Lipitor Prospects Spur Watson Pharma

Watson Pharmaceutical shares get a boost after it acquires a company with rights to the generic version of Pfizer's cholesterol blockbuster, Lipitor

Watson Pharmaceuticals—52-week price

By Gene Marcial

BW's Gene Marcial

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There is nothing like a blockbuster drug—or the prospect of coming up with such a winner—to catapult a pharmaceutical company's stock to lofty levels. That's been the experience in the past few days of Watson Pharmaceuticals (WPI), whose stock jumped to a 52-week high of 33.97 a share on June 30 from 28 just two weeks earlier. The stock traded as low as 20 in mid-October.

The catalyst for Watson's rise: The company will become an authorized seller of a generic version of Lipitor, Pfizer's cholesterol-lowering product. Lipitor is the world's largest-selling drug in dollar terms.

On June 16, Watson agreed to pay $1.7 billion for the privately owned Arrow Group, a maker of specialty and generic drugs which owns the U.S. rights to sell the authorized generic version of Lipitor after Pfizer (PFE) loses patent protection in November 2011. Lipitor generated global sales of $13.6 billion last year, according to drug research group IMS Health (RX). The combined Watson/Arrow companies (the purchase will close in the second half of 2009) will produce about $3.5 billion in annual revenues, with operations in more than 20 countries, according to Watson CEO Paul M. Bisaro. He says an Indian unit of Japan's Daiichi Sankyo (4568.T) shares the U.S. rights to the generic Lipitor.

Estimated 10% Annual Growth

Here is how the marketing of the generic will work: Pfizer will supply Watson with Lipitor, which Watson will then place in its own bottle with its own generic label. Pfizer will get a yet-undisclosed amount in royalty fees.

The U.S. market for Lipitor is about half the total worldwide sales, so presumably the generic version could produce revenues of upwards of $6 billion a year for its makers. Bisaro notes that the generic versions usually fetch about 40% to 50% of the brand product's price. Exclusive of the generic Lipitor sales, Watson expects sales for the combined Watson-Arrow to grow by some 10% a year.

Bisaro declines to estimate how much the generic version of Lipitor will produce in revenues when launched in 2011. But he figures profits for the combined companies could grow by more than 10% annually. Without a doubt, he says, Arrow and the Lipitor generic "will be very, very important to Watson's sales in the U.S."

Outside the U.S., Bisaro says, Watson will sell its own generic Lipitor without depending on Pfizer's manufacturing capability. So far Watson's other generic products have been selling well, he says.

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