Watson Has Fourth-Quarter Loss on Research Writedown
Watson Pharmaceuticals (WPI:US) Inc., the biggest U.S. maker of generic drugs, reported a fourth-quarter loss on the writedown of in-process research and development after its $1.9 billion acquisition of Andrx Corp.
The net loss was $489 million, or $4.80 a share, compared with net income of $20.1 million, or 19 cents, a year earlier, Corona, California-based Watson said today in a statement. Revenue rose 48 percent to $621.2 million, including about two months of Andrx sales.
Watson bought Andrx in November to gain a drug-distribution business and technology used in making copies of controlled- release medicines. Watson has struggled to introduce new products and faces questions about how it will integrate Andrx, which hasn't been able to get any drugs approved since regulators found problems at a plant in 2005.
Watson's earnings include $498 million in non-cash expenses related to the writedown of research acquired with Andrx. Excluding acquisition, litigation and impairment charges, Watson said it would have earned 25 cents a share. That missed the 29- cent average estimate of 14 analysts surveyed by Bloomberg. The average revenue forecast was $592 million.
Watson shares were unchanged at $28.07 at 5:57 p.m. in trading after the close of the New York Stock Exchange. The stock has declined 7.5 percent in 12 months, compared with a 2.1 percent gain in the 56-member Standard & Poor's 500 Health-Care Index.
Investors are still waiting for Watson to introduce copies of Johnson & Johnson's pain patch Duragesic and GlaxoSmithKline Plc's nasal spray Flonase. Watson Chief Executive Officer Allen Chao had said in November that he was confident that the two generics would win regulatory approval before the end of 2006.
Chao said Watson is now taking a ``conservative'' approach to forecasting 2007 earnings by including sales from only one of these two drugs. Earnings, before interest, depreciation, amortization, taxes and one-time charges, will be $1.20 to $1.30 a share, on revenue of $2.5 billion to $2.6 billion, Watson said.
The company's sales of generic drugs rose 31 percent in the fourth quarter to $421.2 million, helped by the introduction of copies of Barr Pharmaceuticals Inc.'s birth-control pill Seasonale and increased sales of generic versions of Purdue Pharma Inc.'s painkiller OxyContin. Watson makes 275 generic and 37 branded medicines, according to its Web site.
Watson, including Andrx, is the largest U.S. maker of generic drugs on the basis of 2005 revenue, according to data compiled by Bloomberg. Barr, based in Woodcliff Lake, New Jersey, ranks second and is set to report its 2006 figures tomorrow.
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