Almost every generic-drug maker, from big Teva Pharmaceutical (Nasdaq: TEVA) to little Par Pharmaceutical (NYSE: PRX), sells some branded drugs alongside its generic arsenal. In 2007, the growth of its branded sales made Watson Pharmaceuticals (NYSE: WPI) a more-balanced company.
Revenues for 2007 increased 26%, thanks mostly to a full year of revenues from the generic-drug distribution business that it acquired in the latter part of 2006. But the 16% increase in revenues from branded drugs helped a lot.
In 2007 generic-drug sales actually dropped 6% year over year because of lower sales of oxycodone and its generic version of Bristol-Myers Squibb's (NYSE: BMY) Pravachol. Meanwhile, "other revenue" for the generic-drug division increased for the year as the company received royalties from Novartis (NYSE: NVS) and GlaxoSmithKline (NYSE: GSK), but the royalties likely won't last forever.
The 26% increase in revenues translated to a 34% jump in adjusted earnings per share thanks to $30 million in cost savings from two plant closures.
The company is planning on getting more efficient next year as well. It's moving more manufacturing to India, which should help turn flat revenue growth in 2008 into a roughly 40% increase in adjusted earnings per share. That's a serious boost in margins!
Of course, the company can cut expenses only so much, and it'll eventually have to increase revenues to bring up the bottom line. Fortunately, it has a marketing application for a branded product pending with the FDA and hopes to file two more this year. If the drugs are approved, the increased branded sales -- and their high margins -- should help Watson become a little less generic in the years to come.
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