Watson Pharmaceuticals Inc.WPI

Morningstar Rating

Stock Research and Analysis

by Brian Laegeler, CPA

It's better late than never for Watson Pharmaceuticals. The company has been slow to defend its generic and branded margins from inevitable price erosion. However, it's catching up fast through a combination of overseas acquisitions, vertical integration, Read more

Bulls Say

The addition of Andrx decreases the risk of Watson's overall business; a stable distribution segment now accounts for about 20% of sales.

Watson's share repurchases and decision to stay domestic show that it is focused on returns on capital rather than expanding the top line.

Watson's branded segment enhances operating margins. Any contribution from new patent-protected products should boost earnings. Read more

Bears Say

Watson's profit centers, including specialty branded drugs and generic oral contraceptives, are vulnerable to competition. Price declines in these areas will partially offset growth from new products.

Watson's late entry in Europe and generic biologics means it will be one of the last to participate in generic biologics when the products inevitably migrate to the United States.

Watson may find it difficult to in-license specialty drugs at reasonable prices because the market for these assets is competitive. Read more

Strategy

Watson targets expired and weak patents for generic drugs, focusing on less competitive markets where possible. Watson seeks to in-license new, smaller products to build its patented portfolio. The company Read more

Management

We give Watson Pharmaceuticals a solid B for corporate stewardship. The company recruited highly qualified top executives from its best-managed competitors, Barr and Teva, in 2007. Paul Is replaced retiring CEO and founder Allen Choice. Is previously Read more

Profile

Watson develops, manufactures, distributes, and markets generic and branded drugs. Generics account for the majority of sales but are about half as profitable as branded Read more

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