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| WPI > SEC Filings for WPI > Form 10-Q on 1-May-2009 | All Recent SEC Filings |
1-May-2009
Quarterly Report
Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008
Three Months Ended March 31, 2009 Three Months Ended March 31, 2008
($ in millions): Generic Brand Distribution Total Generic Brand Distribution Total
Product sales $ 395.2 $ 98.2 $ 153.7 $ 647.1 $ 342.4 $ 99.0 $ 144.9 $ 586.3
Other 6.5 13.8 - 20.3 24.3 16.3 - 40.6
Net revenues 401.7 112.0 153.7 667.4 366.7 115.3 144.9 626.9
Cost of sales(1) 238.5 24.2 126.0 388.7 229.7 27.5 122.9 380.1
Gross profit(1) 163.2 87.8 27.7 278.7 137.0 87.8 22.0 246.8
Gross margin(1) 40.6 % 78.4 % 18.0 % 41.8 % 37.4 % 76.1 % 15.2 % 39.4 %
Research and
development 30.1 12.2 - 42.3 22.6 15.4 - 38.0
Selling and
marketing 12.7 36.9 16.1 65.7 14.1 28.0 14.0 56.1
Contribution $ 120.4 $ 38.7 $ 11.6 170.7 $ 100.3 $ 44.4 $ 8.0 152.7
Contibution margin 30.0 % 34.6 % 7.5 % 25.6 % 27.4 % 38.5 % 5.5 % 24.4 %
General and
administrative 68.9 50.5
Amortization 21.8 20.2
Gain on asset sales (1.5 ) -
Operating income $ 81.5 $ 82.0
Operating margin 12.2 % 13.1 %
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(1) Excludes amortization of acquired intangibles including product rights.
Generic Segment
Net Revenues
Our Generic segment develops, manufactures, markets, sells and distributes
generic products that are the therapeutic equivalent to their brand name
counterparts and are generally sold at prices significantly less than the brand
product. As such, generic products provide an effective and cost-efficient
alternative to brand products. When patents or other regulatory exclusivity no
longer protect a brand product, opportunities exist to introduce off-patent or
generic counterparts to the brand product. Additionally, we distribute generic
versions of third parties' brand products (sometimes known as "Authorized
Generics") to the extent such arrangements are complementary to our core
business. Our portfolio of generic products includes products we have internally
developed, products we have licensed from third parties, and products we
distribute for third parties.
Net revenues in our Generic segment include product sales and other revenue.
Our Generic segment product line includes a variety of products and dosage
forms. Indications for this line include pregnancy prevention, pain management,
depression, hypertension and smoking cessation. Dosage forms include oral
solids, transdermals, injectables and transmucosals.
Other revenues consist primarily of royalties and commission revenue.
Net revenues from our Generic segment for the three months ended March 31,
2009 increased 9.5% or $35.0 million to $401.7 million compared to net revenues
of $366.7 million from the prior year period. This increase in sales was mainly
attributable to new product launches and products acquired subsequent to the
first quarter of 2008 ($57.2 million) offset in part by a decrease in other
revenue ($17.8 million).
The decrease in other revenues in the three months ended March 31, 2009 for
the Generic segment was primarily related to reduced royalties on sales by
Sandoz, Inc. of metoprolol succinate 50 mg extended release tablets and reduced
royalties on sales by GlaxoSmithKline of Wellbutrin XL® 150 mg. Sales of
metoprolol
succinate 50 mg declined as Sandoz, Inc. ceased shipping the product in the
fourth quarter of 2008 and it is uncertain when sales will resume. Sales of
Wellbutrin XL® 150 mg declined due to increased competition. Both items combined
resulted in a reduction in royalties in the quarter totaling $15.8 million.
Gross Profit (Gross Margin)
Gross profit represents net revenues less cost of sales. Cost of sales
includes production and packaging costs for the products we manufacture, third
party acquisition costs for products manufactured by others, profit-sharing or
royalty payments for products sold pursuant to licensing agreements, inventory
reserve charges and excess capacity utilization charges, where applicable. Cost
of sales does not include amortization costs for acquired product rights or
other acquired intangibles.
Gross profit for our Generic segment increased $26.2 million to
$163.2 million in the three months ended March 31, 2009 compared to
$137.0 million in the prior year period. The increase in gross profit was
primarily due to new product launches and recent product acquisitions
($29.5 million), a reduction in costs associated with our Global Supply Chain
Initiative over the prior year period ($5.6 million), an increase in sales of
oral contraceptives and an increase in gross profit due to a favorable product
mix. These increases were partially offset by a decrease in other revenue
($17.8 million).
Gross margins for our Generic segment increased 3.2 percentage points to
40.6% for the three months ended March 31, 2009 from 37.4% in the prior year
period. This increase in gross margin was primarily related to higher overall
margins on new product launches and recent product acquisitions.
Research and Development Expenses
Generic segment R&D expenses consist predominantly of personnel-related
costs, active pharmaceutical ingredient ("API") costs, contract research,
biostudy and facilities costs associated with the development of our products.
Generic segment R&D expenses increased 33.0% or $7.5 million to $30.1 million
in the three months ended March 31, 2008 compared to $22.6 million in the prior
year period due to higher biostudy and test chemical costs ($5.4 million) and
Global Supply Chain Initiative severance costs in the current year period
($1.5 million).
Selling and Marketing Expenses
Selling and marketing expenses consist mainly of personnel costs, facilities
costs, insurance and professional services costs.
Generic segment selling and marketing expenses decreased 9.5% or $1.4 million
to $12.7 million in the three months ended March 31, 2009 compared to
$14.1 million in the prior year period.
Brand Segment
Net Revenues
Our brand pharmaceutical business develops, manufactures, markets, sells and
distributes products within two sales and marketing groups: Specialty Products
and Nephrology/Medical.
Our Specialty Products product line includes urology products such as
Trelstar® and Oxytrol® and a number of non-promoted products.
Our Nephrology/Medical product line consists of products for the treatment of
iron deficiency anemia and is generally marketed to nephrologists and dialysis
centers. The major products of the Nephrology/Medical group are Ferrlecit® and
INFeD®, which are used to treat low iron levels in patients undergoing
hemodialysis in conjunction with erythropoietin therapy.
Other revenues in the Brand segment consist primarily of co-promotion
revenue, royalties and the recognition of deferred revenue relating to our
obligation to manufacture and supply brand products to third parties. Other
revenues also include revenue recognized from R&D and licensing agreements.
Net revenues from our Brand segment for the three months ended March 31, 2009
decreased 2.8% or $3.3 million to $112.0 million compared to net revenues of
$115.3 million in the prior year period. The decrease was primarily attributable
to lower other revenues ($2.4 million) and lower sales of INFeD® within the
Nephrology/Medical group due to a supply interruption of INFeD®'s API which is
available from only one source. The INFeD® API supply interruption may continue
for the remainder of 2009.
Gross Profit (Gross Margin)
Gross profit represents net revenues less cost of sales. Cost of sales
includes production and packaging costs for the products we manufacture, third
party acquisition costs for products manufactured by others, profit-sharing or
royalty payments for products sold pursuant to licensing agreements, inventory
reserve charges and excess capacity utilization charges, where applicable. Cost
of sales does not include amortization costs for acquired product rights or
other acquired intangibles.
Gross profit for our Brand segment was $87.8 million or the same as the prior
year period. A decrease in other revenues ($2.4 million) was offset by improved
gross profit within the Specialty Product group in the current year period.
Gross margins for our Brand segment increased to 78.4% during the three
months ended March 31, 2009 from 76.1% in the prior year period primarily due to
improved product mix.
Research and Development Expenses
Brand segment R&D expenses consist predominantly of personnel-related costs,
contract research, clinical costs and facilities costs associated with the
development of our products.
Brand segment R&D expenses decreased 20.5% or $3.2 million to $12.2 million
in the three months ended March 31, 2008 compared to $15.4 million in the prior
year period primarily due to a $5.0 million milestone payment in the prior year
period related to the filing of an NDA for RapafloTM with the FDA. This decrease
in R&D expenses was partially offset by increased clinical spending on recently
approved new products.
Selling and Marketing Expenses
Brand segment selling and marketing expenses consist mainly of
personnel-related costs, product promotion costs, distribution costs,
professional services costs, insurance and depreciation.
Brand segment selling and marketing expenses increased 31.7% or $8.9 million
to $36.9 million in the three months ended March 31, 2009 as compared to
$28.0 million in the prior year period primarily related to increased product
promotion, field force and marketing costs to support pre-launch activities
related to RapafloTM and GelniqueTM.
Distribution Segment
Net Revenues
Our Distribution segment mainly distributes generic pharmaceutical products
manufactured by third parties, as well as by Watson, primarily to independent
pharmacies, pharmacy chains, pharmacy buying groups and physicians' offices.
Sales are principally generated through an in-house telemarketing staff and
through internally developed ordering systems. The Distribution segment
operating results exclude Watson generic and brand products, which are included
in their respective segment results.
Net revenues from our Distribution segment for the three months ended
March 31, 2009 increased 6.1% or $8.8 million to $153.7 million compared to net
revenues of $144.9 million in the prior year period primarily due to an increase
in net revenues from new products launched since the first quarter of 2008
($33.0 million) which was partially offset by lower levels of sales in the
current period from price erosion and volume decreases ($24.8 million).
Gross Profit (Gross Margin)
Gross profit for our Distribution segment increased $5.7 million to
$27.7 million in the three months ended March 31, 2009 compared to $22.0 million
in the prior year period. Gross margins also improved for our Distribution
segment increasing to 18.0% during the three months ended March 31, 2009 from
15.2% in the prior year period. Distribution segment gross profit improved in
the current quarter due to increased sales levels and higher gross margins.
Distribution segment gross margin improved in the current quarter due to lower
product acquisition costs and higher pricing on certain products.
Selling and Marketing Expenses
Selling and marketing expenses consist mainly of personnel costs, facilities
costs, insurance and freight costs, which support the Distribution segment sales
and marketing functions.
Distribution segment selling and marketing expenses increased 14.6% or
$2.1 million to $16.1 million in the three months ended March 31, 2009 as
compared to $14.0 million in the prior year period primarily related to higher
freight costs ($1.0 million) and higher payroll costs ($1.0 million).
Segment Contribution
Three Months Ended March 31, Change
($ in millions): 2009 2008 Dollars %
Segment contribution
Generic $ 120.4 $ 100.3 $ 20.1 20.0 %
Brand 38.7 44.4 (5.7 ) (12.8 )%
Distribution 11.6 8.0 3.6 45.0 %
$ 170.7 $ 152.7 $ 18.0 11.8 %
as % of net revenues 25.6 % 24.4 %
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For more information on segment contribution, refer to above Management's Discussion and Analysis of Financial Condition and Results of Operations and "NOTE 3 - OPERATING SEGMENTS" in the accompanying "Notes to Condensed Consolidated Financial Statements" in this Quarterly Report.
Corporate General and Administrative Expenses
Three Months Ended March 31, Change
($ in millions): 2009 2008 Dollars %
Corporate general and administrative expenses $ 68.9 $ 50.5 $ 18.4 36.4 %
as a % of net revenues 10.3 % 8.1 %
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Corporate general and administrative expenses consists mainly of the cost of
personnel, facilities, insurance, professional services and litigation, which is
general in nature and not directly related to specific segment operations.
Corporate general and administrative expenses increased during the three
months ended March 31, 2009 primarily due to an $18.0 million legal settlement
of a patent dispute with Elan Corporation, Plc during the current year period.
Amortization
Three Months Ended March 31, Change
($ in millions): 2009 2008 Dollars %
Amortization $ 21.8 $ 20.2 $ 1.6 7.9 %
as a % of net revenues 3.3 % 3.2 %
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The Company's amortizable assets consist primarily of acquired product rights. For the three months ended March 31, 2009 amortization expense increased $1.6 million primarily as a result of the amortization of product rights the Company acquired in the fourth quarter of 2008 as a result of the merger between Teva Pharmaceutical Industries, Ltd. and Barr Pharmaceuticals, Inc.
Gain on Asset Sales
Three Months Ended March 31, Change
($ in millions): 2009 2008 Dollars %
Gain on asset sales $ (1.5 ) $ - $ (1.5 ) 100.0 %
as a % of net revenues (0.2 )% 0.0 %
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In January 2009, we recognized a $1.5 million gain on the sale of certain property and equipment in Dombivli, India for cash consideration of $3.0 million.
Loss on Early Extinguishment of Debt
Three Months Ended March 31, Change
($ in millions): 2009 2008 Dollars %
Loss on early extinguishment of debt $ - $ 1.1 $ (1.1 ) (100.0 )%
as a % of net revenues 0.0 % 0.2 %
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In November 2006, we entered into a Senior Credit Facility with Canadian
Imperial Bank of Commerce, acting through its New York agency, as Administrative
Agent, Wachovia Capital Markets, LLC, as Syndication Agent, and a syndicate of
banks (the "2006 Credit Facility") in connection with the acquisition of the
Andrx Corporation.
During the quarter ended March 31, 2008, the Company prepaid $75.0 million of
outstanding debt on the 2006 Credit Facility. As a result of this prepayment,
our results for the quarter ended March 31, 2008 reflect debt repurchase charges
of $1.1 million which consist of unamortized debt issue costs associated with
the repurchased amount.
Interest Income
Three Months Ended March 31, Change
($ in millions): 2009 2008 Dollars %
Interest income $ 2.0 $ 2.3 $ (0.3 ) (13.0 )%
as a % of net revenues 0.3 % 0.4 %
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Interest income decreased for the three months ended March 31, 2009 due to a decrease in interest rates over the prior year period.
Interest Expense
Three Months Ended March 31, Change
($ in millions): 2009 2008 Dollars %
Interest expense - 2006 Credit Facility $ 1.5 $ 3.9 $ (2.4 )
Interest expense - convertible
contingent senior debentures due 2023
("CODES") 3.2 3.2 -
Interest expense - other - (0.3 ) 0.3
Interest expense $ 4.7 $ 6.8 $ (2.1 ) (30.9 )%
as a % of net revenues 0.7 % 1.1 %
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Interest expense decreased for the three months ended March 31, 2009 due to reduced LIBOR rates of interest on the 2006 Credit Facility during the current year period.
Other Income
Three Months Ended March 31, Change
($ in millions): 2009 2008 Dollars %
Earnings on equity method investments $ 2.2 $ 4.0 $ (1.8 )
(Loss) gain on securities (1.1 ) 1.4 (2.5 )
Other income 0.1 - 0.1
$ 1.2 $ 5.4 $ (4.2 ) (77.8 )%
as a % of net revenues 0.2 % 0.9 %
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Earnings on Equity Method Investments
The Company's equity investments are accounted for under the equity-method
when the Company's ownership does not exceed 50% and when the Company can exert
significant influence over the management of the investee. Earnings on equity
method investments primarily represent our share of equity earnings in
Scinopharm Taiwan Ltd. ("Scinopharm").
Scinopharm results for the three months ended March 31, 2008 were higher than
the current year period due to product launches during that period.
(Loss) Gain on Securities
For the quarters ended March 31, 2009 and 2008, the Company received
contingent proceeds related to the sale of our investment in Adheris, Inc. in
2006.
In the quarter ended March 31, 2009 the Company received cash proceeds of
$1.1 million as additional consideration on our sale of our investment in
Adheris, Inc. which was recorded as a gain on securities in the quarter. This
gain was offset by an other-than-temporary impairment charge of $2.2 million
related to our investment in common shares of inVentiv Health, Inc. ("inVentiv")
as the fair value of our investment fell below our carrying value for a
six-month period.
In the quarter ended March 31, 2008 the Company received common shares of
inVentiv and cash as additional proceeds on our sale of our investment in
Adheris, Inc. which was recorded as a gain on securities in the quarter.
Provision for Income Taxes
Three Months Ended March 31, Change
($ in millions): 2009 2008 Dollars %
Provision for income taxes $ 30.9 $ 31.2 $ (0.3 ) (1.0 )%
Effective tax rate 38.6 % 38.1 %
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The provision for income taxes differs from the amount computed by applying
the statutory U.S. federal income tax rate primarily due to state taxes and
other factors which, combined, increases the effective tax rate.
The higher effective tax rate for the three months ended March 31, 2009, as
compared to the same period of the prior year, primarily reflects the impact of
a California state legislative change in the current quarter which was partially
offset by a reduction in the effective tax rate for the R&D tax credit and
certain permanent differences.
Liquidity and Capital Resources
Working Capital Position
Working capital at March 31, 2009 and December 31, 2008 is summarized as
follows:
March 31, December 31, Increase
($ in millions): 2009 2008 (Decrease)
Current Assets:
Cash and cash equivalents $ 559.0 $ 507.6 $ 51.4
Marketable securities 11.8 13.2 (1.4 )
. . .
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