Tags: Watson | Pharmaceuticals | generic | WPI

Watson Pharmaceuticals Builds On Both Generic, Brand Demand

By    |   Wednesday, 25 July 2012 02:49 PM

Watson Pharmaceuticals (WPI) rides atop two very different demands for drugs, often seen in competition: generics vs. branded medicines. While many drug makers pick a side in the battle, WPI management believes it can market to both and build a global business on the basis of that demand.

Watson Pharmaceuticals is an integrated global pharmaceutical company engaged in the development, manufacturing, marketing, sale and distribution of generic and brand pharmaceutical products.

It operates in international markets, including Western Europe, Canada, Australasia, Asia, South America and South Africa, while its primary commercial market is the United States. As of Dec. 31, 2011, WPI marketed approximately 160 generic pharmaceutical product families and approximately 30 brand pharmaceutical product families in the United States and a significant number of product families internationally.

In 2011 and early 2012, Watson Pharmaceuticals completed acquisitions and engaged in collaborations intended to expand its global generics and biosimilars development and commercial capabilities, including the purchase of Ascent Pharmahealth, the Australia and Southeast Asia generic pharmaceutical business of Strides Arcolab.

“We apply three key strategies to achieve growth for our Global Generics and Global Brands pharmaceutical businesses: internal development of differentiated and high-demand products, including, in certain circumstances, challenging patents associated with these products, establishment of strategic alliances and collaborations; and acquisition of products and companies that complement our current business,” WPI management wrote in a recent filing.

“We believe our three-pronged strategy will allow us to expand both our brand and generic product offerings globally.”

Watson Pharmaceuticals has a market cap of $9.52 billion in a sector, pharmaceuticals, where the average company size is $22.48 billion. Its trailing 12-month P/E ratio is 34.9 and its five-year projected price-to-earnings-growth (PEG) ratio is 2.6, compared to 3.45 for the sector.

Its projected earnings per share growth for the coming year is 40.45 percent, compared to a sector average of 6.58 percent.

Raised target

Analysts are generally positive on WPI, with buy or outperform calls from Merrill Lynch, Citigroup Investment Research, Morgan Stanley, Goldman Sachs, UBS, Standard & Poor’s Equity Research, RBC Capital Markets, and B.P. Bernstein.

“We are raising our target price on WPI by $4 to $90, based on our high conviction that WPI will be able to complete its planned acquisition of Actavis, which should be significantly accretive to EPS growth over the coming years. We expect Actavis to provide important operating and cost synergies in terms of scale, expansion in higher margin specialty drugs and growth in emerging markets,” S&P analysts wrote on July 23.

“We also see EPS accretion from the recent Lidoderm settlement with Endo Pharmaceuticals.”

Watson Pharmaceuticals next reports on July 26.

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