Watson Pharmaceuticals (WPI) started the year with EUR4.25bn acquisition of Actavis thereby strengthening the business in South East Asia, Australia and Central and Eastern Europe. The company expects to consolidate the acquired business by Q4CY12. Its Q2CY12 numbers show a 25% growth in sales and 42% in earnings. Watson management is positive on the long term growth outlook of business and sees strong levers for growth over 2013-16 from Actavis, generic opportunities in the US including Concerta, Lidoderm, US branded franchise and biosimilars. It expects to launch the first biosimilar FSH in certain markets out of Amgen collaboration by 2015-16.
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Growth momentum continues from new launches, acquisitions
Watson’s Q2CY12 numbers were broadly in-line with the Street. Revenue growth of 25% at USD1.35bn was led by global generics (25%YoY), ANDA distribution (55%YoY) and global brands (6%YoY). Reported loss of USD62mn was due to acquisition related charges for Actavis (expected to close by end 2012). Adjusted EBITDA was USD333mn (up 37%YoY) owing to higher margins in global generics and the branded business.
Higher margins in generics drive operating profitability
Global generics grew 25%YoY with incremental sales of USD148.5mn from Lipitor and Lovenox. International generics also grew robustly on the back of acquisitions. Improved share of royalty on Concerta contributed to better gross margins (up 47.6% from 45% in Q1CY12). The management sees exclusivity sales on Lidoderm and Concerta as key product opportunities to drive US generics growth in 2013.
Pricing in OC portfolio better than expected
A lower than anticipated price decline in OCs was a positive surprise despite the intensifying competition from generic players such as Lupin, Glenmark, Qualitest and Sandoz among others. Watson’s OC portfolio reported 1.8% decline as the price erosion in base business was offset by sales of Seasonique. The management believes that the segment may see higher competition going forward albeit at a scattered pace.
EU to be a key growth driver during 2013-16
Actavis acquisition places Watson as a strong player in eastern EU markets. Despite the economic turmoil and strikes by doctors and pharmacies, Greece appears to be a strong market for generics due to an increase in penetration while France is seeing higher pricing pressure on existing products. Watson sees 8%-10% price erosion in EU in the base business.
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