Tuesday, June 29, 2004

WATSON LOWERS FINANCIAL GUIDANCE, ANNOUNCES BUSINESS REFOCUS

Watson Pharmaceuticals Inc. revised its financial guidance for the second quarter and full year 2004 and said it will refocus its business.

The firm anticipates approximately $400 million in net revenue for the second quarter, "due to lower than anticipated Women's Health and general products revenues, partially offset by stronger than estimated Generic division revenue."

The specialty pharmaceutical company expects revenue from its Women's Health division to be affected by lower-than-anticipated wholesaler purchases, reduced product pricing for its oral contraceptive products, a delay in the launch of a new oral contraceptive product and lower-than-expected product sales for Oxytrol (oxybutynin transdermal system), a patch for overactive bladder.

Excluding a $3 million charge related to the repurchase of a portion of Senior Notes and a $10 million milestone payment linked to an agreement with Kissei Pharmaceutical Co. Ltd., earnings for the second quarter are expected to be in the range of $0.39 to $0.41 per diluted share. Analysts polled by Thomson First Call had estimated an average $0.51 per share on revenue of $414.4 million, according to CBS MarketWatch.

For the full year, Watson revised its estimate for total net revenue to approximately $1.6 billion. Earnings are expected to range between $1.85 and $1.90 per diluted share, excluding non-recurring, special items.

Separately, Watson announced that it will be refocusing its business strategy to concentrate on three areas: urology, nephrology and generics.

"Our generic [pharmaceutical drug] business is strong," said Allen Chao, chief executive officer. "We are refining our brand strategy and refocusing our resources on developing and promoting brand products in Urology and Nephrology. These two areas will remain the core focus for Watson's specialty Brand division going forward."

He added that Watson has had "good success with [proprietary brand name] products like Oxytrol and Androderm [testosterone transdermal system] in the specialty markets where we can compete effectively."

Oxytrol has been successful in the urology and obstetrics/gynecology markets, but has faced challenges in the primary care market, Chao explained. Therefore, the firm intends to terminate its contract sales force agreement with Ventiv Health Inc. in the primary care area, effective near Sept. 1.

Additionally, Watson plans to streamline operations in order to reduce costs. It anticipates savings of between $80 million and $90 million pre-tax each year, beginning in the third quarter of 2004, due primarily to the termination of the agreement with Ventiv. The company will retain its injectable manufacturing facility, Steris Laboratories, in Phoenix, Ariz., but plans to close its Miami manufacturing facility by the end of the year.

Shares of Watson closed at $27.49, down $4.80, or 14.9 percent, in heavy trading on the New York Stock Exchange.