Full Description

Watson Pharmaceuticals, Inc. (Watson), incorporated in 1985, is a specialty pharmaceutical company engaged in the development, manufacture, marketing, sale and distribution of brand and generic (off-patent) pharmaceutical products. Watson operates and manages its business as three operating segments: Generic, Brand and Distribution. As of December 31, 2008, the Company marketed approximately 150 generic pharmaceutical product families and 27 brand pharmaceutical product families through its generic and brand divisions, respectively, and distributed approximately 8,000 stock-keeping units (SKUs) through its distribution division. The Company’s operations are based predominantly in the United States and India, with its key commercial market being the United States. In July 2008, Watson and Mylan Inc. announced that Mylan Inc. has acquired Watson’s 50% interest in the Somerset Pharmaceuticals, Inc. joint venture.

Through collaborative agreements and strategic alliances, the Company develops and manufactures products that are marketed by other pharmaceutical companies, including products that utilize the Company’s technologies and formulation capabilities. Pursuant to a manufacturing and supply agreement and a license agreement, Watson supplies Fortamet and Altoprev to Sciele Pharma, Inc. (Sciele). During the year ended December 31, 2008, the Company continued its generic product development alliance with Cipla Ltd. (Cipla). Watson is responsible for conducting bioequivalence studies, pursuing regulatory approvals for all developed products and has exclusive United States marketing rights for the products. Cipla is responsible for manufacturing of products.

Generic Segment

Watson is engaged in the development, manufacture and sale of generic pharmaceutical products. These generic products are bioequivalent to their brand name counterparts. Its portfolio of generic products includes products developed by the Company internally, products licensed from third parties and products distributed by the Company for third parties. Net revenues in the Generic segment accounted for approximately 58% of Watson’s total net revenues during 2008.

The Company’s portfolio of 150 generic pharmaceutical product families includes products, such as alendronate sodium, bupropion hydrochloride SR, bupropion hydrochloride XL, Cartia XT, glipizide extended release (ER), hydrocodone bitartrate/acetaminophen, Levora, Low-Ogestrel, Lutera, Microgestin/Microgestin Fe, Necon, nicotine polacrilex gum, oxycodone/acetaminophen, TriNessa and Trivora.

The Generic Division receives other revenues consisting primarily of royalties and commission revenue. It receives royalties on GlaxoSmithKline’s (GSK’s) sales of Wellbutrin XL 150 milligram, and receives royalties on sales by Sandoz Pharmaceutical Corporation (Sandoz), a subsidiary of Novartis AG, of metoprolol succinate 50 milligram ER tablets. In addition, the Company promotes fentanyl citrate troche on behalf of Cephalon, Inc. (Cephalon) and receives commission revenue based on Cephalon’s sales. The Company markets its generic products to various drug wholesalers and national retail drugstore chains. It sells its generic products primarily under the Watson Laboratories and Watson Pharma labels, with the exception of its over-the-counter products, which it sells under Rugby label or under private label.

During 2008, Watson expanded its generic product line with the launch of 11 generic products. Key launches, in 2008, included bupropion hydrochloride XL 150 milligram tablets, an anti-depressant launched in November 2008; omeprazole 40 milligram delayed-release capsules, indicated for short-term treatment of active duodenal ulcer, launched in July 2008; dronabinol, indicated to treat nausea and vomiting associated with cancer chemotherapy, launched in June 2008; clarithomycin extended-release tablets, unique selling proposition (USP) in the 500 milligram strength, an anti-infective launched in January 2008 and galantamine hydrobromide extended-release, indicated for the treatment of Alzheimer’s disease, launched in December 2008.

Brand Segment

The Company markets a number of branded products to physicians, hospitals and other markets served by it. Net revenues in the Brand segment accounted for approximately 18% of the Company’s total net revenues in 2008. Watson’s portfolio of 27 brand pharmaceutical product families includes Androderm, Ferrlecit, INFeD, Oxytrol, Trelstar Depot and Trelstar LA. The Company sells its brand products under the Watson Pharma and the Oclassen Dermatologics labels.

The Brand segment develops, manufactures, markets, sells and distributes products primarily through two sales and marketing groups, Specialty Products and Nephrology. The Specialty Products product line focuses on urology products that it markets to urologists, primary care physicians, endocrinologists and gynecologists. The products promoted by the Company through the Specialty Products group include Trelstar DEPOT and Trelstar LA, and Oxytrol. It also promotes AndroGel on behalf of Solvay and other selected products on behalf of third parties. The Nephrology product line consists of products for the treatment of iron deficiency anemia. The Company’s primary products in the Nephrology group are Ferrlecit and INFeD, which are indicated for patients undergoing hemodialysis in conjunction with erythropoietin therapy.

The Brand segment receives other revenues consisting of co-promotion revenue and royalties. It promotes AndroGel on behalf of Unimed Pharmaceuticals, Inc., a wholly owned subsidiary of Solvay Pharmaceuticals, Inc. (Solvay) and other selected products on behalf of third parties. It also records revenue (including the amortization of deferred revenue) relating to its obligation to manufacture and supply Fortamet and Altoprev to Sciele. Other revenue totaled 12.7% of the Company’s total Brand segment net revenue during 2008.

Distribution Segment

The Distribution business, which consists of Anda, Anda Pharmaceuticals and Valmed subsidiaries (collectively, Anda), primarily distributes generic pharmaceutical products to independent pharmacies, alternate care providers (hospitals, nursing homes and mail order pharmacies) and pharmacy chains, and generic products and certain selective brand products to physicians’ offices. It also sells to members of buying groups, which are independent pharmacies. While the Company purchases most of the approximate 8,000 SKUs in its distribution operations from third-party manufacturers, it also utilizes these operations for the sale and marketing of its own products and its collaborative partners’ products. The Company distributes products from its facilities in Weston, Florida and Groveport, Ohio. During 2008, approximately 60% of the Company’s distribution sales were shipped from its Groveport, Ohio facility, and 40% from its Weston, Florida facility.

The Company competes with Teva Pharmaceutical Industries, Ltd., Barr Pharmaceuticals, Inc., Covidien AG, Sandoz, McKesson Corporation, AmerisourceBergen Corporation and Cardinal Health, Inc.