Watson Pharmaceuticals' CEO Discusses Q4 2010 Results - Earnings Call Transcript

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Watson Pharmaceuticals (WPI)

Q4 2010 Earnings Call

February 15, 2011 8:30 am ET

Executives

R. Joyce - Chief Financial Officer, Principal Accounting Officer, Senior Vice President, Corporate Controller and Treasurer

David Buchen - Senior Vice President, Secretary and General Counsel

Siggi Olafsson -

Patricia Eisenhaur - Vice President of Investor Relations & Corporate Communications

Paul Bisaro - Chief Executive Officer, President and Director

George Wilkinson - Executive Vice President of Global Brands

Analysts

Ken Cacciatore - Cowen and Company, LLC

Corey Davis - Jefferies & Company, Inc.

David Risinger

James Dawson - Buckingham Research Group

Ronny Gal - Bernstein Research

Richard Silver - Barclays Capital

Michael Faerm - Crédit Suisse AG

Timothy Chiang - CRT Capital Group LLC

Gregory Gilbert - BofA Merrill Lynch

David Amsellem - Piper Jaffray Companies

Presentation

Operator

Good morning. My name is Cassandra, and I will be your conference operator today. At this time, I would like to welcome everyone to the Watson Pharmaceuticals' Fourth Quarter 2010 Earnings Call. [Operator Instructions] And now, I would like to turn the call over to Ms. Patty Eisenhaur. You may begin.

Patricia Eisenhaur

Thank you, Cassandra, and good morning, everyone. I'd like to welcome you to Watson's Fourth Quarter and Full Year 2010 Earnings Conference Call.

Earlier this morning, Watson issued a press release reporting its earnings for the fourth quarter and full year period ended December 31, 2010. The press release, together with additional materials reconciling our GAAP and adjusted financial results and forecasts, are available on our website at www.watson.com. Additionally, we are conducting a live webcast of this call, which will also be available on our website after the call's conclusion.

With us on today's call are Paul Bisaro, our President and CEO, who will provide an overview of the fourth quarter within our Global Generics, Global Brands and Distribution business segments; Todd Joyce, our Chief Financial Officer, will then provide additional details on the performance of our business segments, as well as our consolidated financial results for the quarter. Paul will conclude our presentation with our updated outlook for 2011. We'll then open the call up for questions and answers.

Also on the call and available during the Q&A are Siggi Olafsson, Executive Vice President of our Global Generics division; Fred Wilkinson, Executive Vice President of Global Brands; Al Paonessa, Executive Vice President and Chief Operating Officer of our ANDA Distribution division; Bob Stewart, Executive Vice President of Global Operations; and David Buchen, our General Counsel.

Please note that today’s call is copyrighted material of Watson Pharmaceuticals, Inc. and cannot be rebroadcast without the company’s expressed written consent. I’d also like to remind you that during the course of this call, management will make projections or other forward-looking remarks regarding future events or the future financial performance of the company. It's important to note that such statements about estimated or anticipated Watson results, prospects or other non-historical facts are forward-looking statements and reflect our current perspective of existing trends and information as of today’s date. Watson disclaims any intent or obligation to update these forward-looking statements, except as expressly required by law.

Actual results may differ materially from current expectations and projections, depending on a number of factors affecting the Watson business. These factors are detailed in our periodic public filings with the Securities and Exchange Commission including, but not limited to, the Watson Form 10-K for the period ended December 31, 2009, and the Form 10-Q for the period ending September 30, 2010.

With that, I'll turn the call over to Paul.

Paul Bisaro

Thanks, Patty, and good morning, everyone, and thank you for joining us today. Our focus on making Watson one of the most profitable pharmaceutical companies in the industry translated into a very strong year, financially. I'll highlight the fourth quarter and then give you a short overview of our overall 2010 accomplishments.

I am pleased to report that we concluded 2010 with strong results in the fourth quarter. Net revenue for the fourth quarter increased 21% to $953 million. Non-GAAP net income for the fourth quarter increased 23% to $117 million, or $0.93 per share. And adjusted EBITDA for the fourth quarter increased 17% to $221 million. These results reflect strong profitability with our adjusted generic and brand gross margins at about 50% and 80%, respectively. And we accomplished these results while continuing to significantly increase investment in both our generic and brand R&D over the fourth quarter of last year. Tom will provide you with more details shortly about that.

Turning to some of the highlights for the full year, in our Global Generics business, we filed 34 ANDAs in the U.S. and over 145 applications around the world. In the U.S., we launched seven products and disclosed 17 new patent challenges. We also announced an agreement to market generic Concerta in May, which will provide solid earnings and cash flow foundation for 2011.

In our Global Brands business, we launched three new products in 2010, a six-month formulation of TRELSTAR, Crinone and ella. We received approval for a new oral contraceptive in December, which we plan to launch during the second quarter of 2011. That product is a chewable 25-microgram Ethinyl Estradiol product with a unique 24/4 dosing regimen. Women using this product can expect to experience lighter, shorter periods.

We announced the initiation of our first Biologic development candidate, recombinant FSH, for infertility, which we licensed in from Itero Pharmaceuticals.

During the year, we completed the majority of the tech transfer to our Liverpool facility and have established our clinical program, which will result in registrations for this product around the world.

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