Bloomberg News

Watson First-Quarter Net Jumps 26% on Drug Sales

May 01, 2007

Watson Pharmaceuticals Inc. (WPI:US), the second-biggest U.S. seller of generic drugs, said quarterly profit rose 26 percent on demand for low-cost copies of medicines.

First-quarter net income climbed to $31.6 million, or 29 cents a share, from $25.2 million, or 23 cents, a year earlier, the company said today in a statement on PR Newswire. Earnings beat analysts' estimates.

Results include the first full quarter of sales from Andrx Corp., the drug distributor and maker of controlled-release medicines that Watson, based in Corona, California, bought in November. Watson said it has started seeing benefits from its efforts to reduce operating costs and boost products margins.

``What they indicated they would do in terms of improved gross margins, we're starting to see it now in the numbers,'' said Mark Taylor, an analyst with Roth Capital Partners in Newport Beach, California. Taylor doesn't own any shares, and his firm hasn't done banking with Watson. ``The numbers look really good.''

Revenue jumped 65 percent to $671.6 million. Fourteen analysts surveyed by Bloomberg had projected sales of $631.4 million, on average. Profit excluding some items was 34 cents a share. On that basis 16 analysts expected 24 cents on average.

Shares of Watson rose $2.22, or 8.1 percent, to $29.52 in New York Stock Exchange composite trading today before earnings were announced. The stock has gained 13 percent this year.

Higher Margins

Gross margins for the company's generic drugs were 35.8 percent in the quarter, up from 32.5 percent a year earlier, the company said.

Investors have been waiting for Watson to introduce copies of Johnson & Johnson's pain patch Duragesic and GlaxoSmithKline Plc's nasal spray Flonase since last year. Watson Chief Executive Officer Allen Chao said in February the company is taking a more ``conservative'' approach this year and assuming U.S. regulators will approve only one of the two products.

Watson's current products include generic versions of brand- name birth-control pills, blood pressure medicines and painkillers that have lost patent protection. The company also makes its own urology and kidney treatments, which account for about a quarter of revenue.

Watson, including Andrx, had $1.83 billion in sales of generic drugs last year, second among U.S. companies to Mylan Laboratories Inc., according to data compiled by IMS Health Inc.

The company reiterated its full-year forecast of $1.20 to $1.30 a share, excluding certain items.

To contact the reporter on this story: Catherine Larkin in Washington at clarkin4@bloomberg.net.

To contact the editor responsible for this story: Robert Simison at rsimison@bloomberg.net.


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