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Executives

R. Todd Joyce - Chief Financial Officer, Executive Vice President, Principal Accounting Officer, Corporate Controller and Treasurer

David A. Buchen - Executive Vice President, Secretary and General Counsel

Albert Paonessa - Chief Operating Officer of Distribution Division and Executive Vice President of Distribution Division

Paul M. Bisaro - Chief Executive Officer, President and Director

Patricia L. Eisenhaur - Vice President of Investor Relations & Corporate Communications

George Frederick Wilkinson - Executive Vice President of Global Brands

Sigurdur Oli Olafsson - Executive Vice President of Global Generics

Analysts

Ken Cacciatore - Cowen and Company, LLC, Research Division

Jason M. Gerberry - Leerink Swann LLC, Research Division

Gregory B. Gilbert - BofA Merrill Lynch, Research Division

David Risinger - Morgan Stanley, Research Division

Michael K. Tong - Wells Fargo Securities, LLC, Research Division

Aaron Gal - Sanford C. Bernstein & Co., LLC., Research Division

David Amsellem - Piper Jaffray Companies, Research Division

Jami Rubin - Goldman Sachs Group Inc., Research Division

Michael Faerm - Crédit Suisse AG, Research Division

Shibani Malhotra - RBC Capital Markets, LLC, Research Division

Randall Stanicky - Canaccord Genuity, Research Division

Elliot Wilbur - Needham & Company, LLC, Research Division

John T. Boris - Citigroup Inc, Research Division

David G. Buck - Buckingham Research Group, Inc.

Christopher Schott - JP Morgan Chase & Co, Research Division

Louise A. Chen - Collins Stewart LLC, Research Division

Frank H. Pinkerton - SunTrust Robinson Humphrey, Inc., Research Division

Watson Pharmaceuticals (WPI) Q3 2011 Earnings Call November 1, 2011 8:30 AM ET

Operator

Good morning, my name is Cristal, and I will be your conference operator today. At this time, I would like to welcome everyone to the third quarter 2011 earnings conference call. [Operator Instructions] Thank you. Ms. Eisenhaur, please go ahead.

Patricia L. Eisenhaur

Thank you, and good morning, everyone. I'd like to welcome you to Watson's Third Quarter 2011 Earnings Conference Call. Earlier this morning, Watson issued a press release reporting its earnings for the third quarter ended September 30, 2011. The press release, together with additional materials reconciling our GAAP and adjusted financial results and forecast, are available on our website at www.watson.com. Additionally, we are conducting a live webcast of this call, which will also be available on our website after the call's conclusion.

With us on today's call are Paul Bisaro, our President and CEO, who will provide an overview of the third quarter within our Global Generics, Global Brands and Distribution business segments; Todd Joyce, our Chief Financial Officer, will then provide additional details on the performance of our business segments, as well as our consolidated financial results for the quarter. Paul will conclude our presentation with our updated outlook for 2011. We'll then open up the call for questions and answers.

Also on the call and available during the Q&A are Siggi Olafsson, Executive Vice President of our Global Generics division; Fred Wilkinson, Executive Vice President of Global Brands; Al Paonessa, Executive Vice President and Chief Operating Officer of our Anda Distribution division; and David Buchen, our Executive Vice President and General Counsel and Secretary.

Please note that today’s call is a copyrighted material of Watson Pharmaceuticals, Inc. and cannot be rebroadcast without the company’s expressed written consent. I’d also like to remind you that during the course of this call, management will make projections or other forward-looking remarks regarding future events or the future financial performance of the company.

It's important to note that such statements about estimated or anticipated Watson results, prospects or other nonhistorical facts are forward-looking statements and reflect our current perspective of existing trends and information as of today's date.

Watson disclaims any intent or obligation to update these forward-looking statements, except as expressly required by law. Actual results may differ materially from current expectations and projections, depending on a number of factors affecting the Watson business. These factors are detailed on our periodic public filings with the Securities and Exchange Commission including, but not limited to, the Watson Form 10-K for the period ended December 31, 2010 and the Form 10-Q for the period ended June 30, 2011.

With that, I'll turn the call over to Paul.

Paul M. Bisaro

Thanks, Patty, and thanks, everyone, for joining the call today. We are pleased to report our second consecutive quarter of record net revenues of $1.1 billion. This represents a 23% increase over the third quarter of 2010. We also delivered record profitability with non-GAAP earnings per diluted share of $1.09, and adjusted EBITDA increased to $258 million. We continue to focus on executing our strategies, and our results reflect this.

In the third quarter, our Global Generics business performed exceptionally well based on strong continued performance of our extended release and oral contraceptive franchises in the U.S. In our non-U.S. business, we increased both revenue and profitability as result of the addition of a full quarter of Specifar and the impact of increased product launches, including an authorized generic version of Esomeprazole tablets in the U.K. These launches helped to offset competitive pressures in certain markets and also contributed to improve margins in our non-U.S. business.

Results within our Global Brands business were in line with expectations, driven by strong sales of key promoted products, including RAPAFLO, Gelnique, Trelstar and Crinone. RAPAFLO reached a milestone of more than 500,000 prescriptions dispensed since launch. Generess Fe, our newly launched OC, also contributed to these results. These company-wide strong results allowed us to continue to derive investment in our global businesses, including investment in R&D within both our Generics and Brands businesses.

Within our Global Generics business, we invested in product development and an additional bio studies to support further expansion of our product portfolios, including patch and gel products such as our recently announced first-to-file generic version of Daytrana, a transdermal patch to treat ADHD.

In our Global Brands business, we are on target to initiate our Esmya Phase III uterine fibroid study by year end, and we are preparing to enter Phase I in early 2012 for our FSH biological product. We also licensed in another product in the overactive bladder category through an agreement with Antares Pharma. This oxybutynin gel product will provide the OAD product line with dosing and delivery enhancements and has a PDUFA date of December 8 of this year. We also received approval for ANDRODERM 2 milligram and 4 milligram, which we anticipate launching later this month.

Second, we increased our investment in selling and marketing in the third quarter, driven mainly by the addition of Specifar and higher selling and marketing spend outside the U.S., notably focused on the upcoming launch of our portfolio brand products in Canada. We expanded our sales force in the U.S. by just over 40 reps to provide promotion to RAPAFLO and also to support the launch of the 2 new strands of ANDRODERM.

Lastly, in Anda. We announced we our building a 234,000 square foot state-of-the-art distribution facility in Olive Branch, Mississippi, which aligns more closely with our plans for growth of this business in the future.

During the quarter, we continued our integration of Specifar, which I'm pleased to say is right on target. We have identified numerous products to be added to the Specifar pipeline and even more products to add to the Greek domestic business. We are consolidating product development and will realize synergies by consolidating API purchasing and harmonizing in-licensing activities.

With that, I'll turn the call over to Todd, who can take us through the financial results in more detail.

R. Todd Joyce

Thanks, Paul. I will now review our results on a consolidated and divisional basis. Net revenue for the third quarter were $1,082,000,000, an increase of 23% over the prior year, reflecting strong growth in both our Global Generics and Global Brands divisions.

Net revenue for Global Generics were $803 million, up 39% on a year-over-year basis. Sales increase as a result of new products, including the generic versions of Concerta and Seasonique, both of which were launched this year. The addition of Specifar also contributed to the year-over-year revenue growth. Sales of extended-release products were $341.7 million, up 89% year-over-year as a result of the launch of generic Concerta in the second quarter. Sales of oral contraceptives were $113.7 million, up 12% compared to the prior year, primarily as a result of the launch of our generic version of Seasonique in the third quarter.

Ex-U.S. net revenues were $144.6 million, up 41% from the third quarter of last year, reflecting the acquisition of Specifar and a number of product launches in certain key markets. Adjusted gross margin for the Generic division was 46.5%, down 3.6 percentage points year-over-year due to the launch of generic Concerta. Adjusted gross margin improved sequentially as our share of generic Concerta margins increased under the terms of our agreement with J&J. Our share of margin on this product will continue to increase each quarter through the middle of next year. However, margins for our Global Generics division will decline in the fourth quarter due to launch of generic LIPITOR. Under our agreement with Pfizer, our share of generic LIPITOR margin is lower than our third quarter generic product margins.

Moving to Global Brands. Net revenues were $110.3 million, up 11% on higher sales of promoted products, including RAPAFLO, Trelstar, Gelnique, Crinone and Generess Fe. Global Brands adjusted gross margin was 77.5%, down 260 basis points year-over-year due to lower margins on Nulecit, a value brand of Ferrlecit.

Finally, net revenues for our Anda Distribution division were $168.8 million, down 18% from the prior-year period due to fewer third-party product launches. Distribution adjusted gross margin for the quarter was 17%, up 210 basis points from last year.

Turning now to operating expenses. Consolidated R&D for the third quarter was $73.4 million, down 3% year-over-year as the prior-year results include brand development milestone payments for our rFSH, Uracyst, and ella. For the full year, we expect R&D spending on a GAAP basis to be in the range of $310 million to $320 million. On a non-GAAP basis, we expect fourth quarter consolidated R&D to increase 5% to 10% from third quarter levels.

SG&A for the third quarter was $189.6 million, a decrease of $52 million. The third quarter 2010 includes an $89.9 million charge associated with the company's drug pricing litigation. Excluding that amount, SG&A increased $38 million, reflecting higher brand selling costs and higher international SG&A in our Global Generics business, which include the addition of Specifar. For the full year, we expect SG&A expenses on a GAAP basis to be in the range of $725 million to $750 million. And on a non-GAAP basis, we expect SG&A expense in the fourth quarter to increase 7% to 10% from the third quarter levels due to the increased brand marketing cost, including the field force expansion and product spending associated in the planned launch of PROCHIEVE and higher Anda Distribution cost associated with projected sales levels in the fourth quarter. And we also expect higher legal costs associated with our generic product development program.

Amortization for the third quarter was $71.8 million. For the full year, we expect amortization expense to be approximately $340 million, which includes approximately $55 million of amortization related to our Atorvastatin product rights. On a non-GAAP basis, our income tax rate was 35% in the third quarter, down from 37.4% in the prior-year period. Our income tax rate on a GAAP basis was 42.9%. In the current-year period, our tax rate was positively impacted by cash reductions in the U.K. For the full year 2011, we continue to expect our effective tax rate on a non-GAAP basis to be approximately 36%. On a non-GAAP basis, which excludes amortization and impairment charges and other charges detailed in Table 4 of our earnings press release, earnings for the third quarter were $1.09 per share, up 28% year-over-year. GAAP earnings for the quarter were $0.54 per share.

Our adjusted EBITDA for the second quarter was $258.2 million, a 22% increase. And cash flow from operations was $118 million for the quarter, and cash and marketable securities were $172 million at September 30. We remain well positioned financially following the acquisition of Specifar. During the third quarter, we refinanced our revolving credit facility on favorable terms and repaid $125 million of the $250 million that we borrowed upon the Specifar acquisition.

Our debt-to-adjusted-EBITDA ratio is now just 1.2x, and we expect to pay off our revolving credit balance by the end of the year. We remain well positioned to take advantage of opportunities to invest in our businesses in support of our long-term earnings growth objectives.

With that, I'll turn the call back over to Paul for an update on our 2011 forecast and concluding remarks.

Paul M. Bisaro

Thanks, Todd. Our estimate for full year net revenue is approximately $4.5 billion. We now expect our Global Generics segment revenue to be approximately $3.3 billion. On the Brands side of our business, we continue to expect net revenue of approximately $445 million. With the Anda Distribution business, we continue to anticipate revenue to be approximately $770 million. As a reminder, Anda's results do not include the sale of Watson products. We expect adjusted EBITDA of approximately $1.1 billion.

We now expect non-GAAP earnings per diluted share in the range of $4.55 and $4.65 per share. The increase in our non-GAAP earnings per share reflects forecast -- reflects better-than-expected earnings in the third quarter, reduced competition, assumptions for oral contraceptives and extended-release products and additional launches that were not included in the previous forecast, including generic Seasonique, which launched in the third quarter, and other undisclosed launches expected to incur in the fourth quarter. Given the recent court decision, LOVENOX continues to be excluded from our guidance for 2011.

Regarding the launch of generic LIPITOR later this month, which will be Watson's largest product launch ever from a revenue perspective, we anticipate the Atorvastatin launch to contribute between $0.48 and $0.53 in diluted earnings per share in the fourth quarter. This includes the assumption that Ranbaxy will launch with Watson and that Pfizer will compete aggressively and retain approximately 40% market share for the LIPITOR brand.

In summary, Watson reported a second consecutive quarter of $1 billion-plus sales in record earnings. We are aggressively investing in the business and paying down debt to support continued growth, and we expect to meet or exceed our growth objectives for 2011 and beyond. As always, I would like to thank our employees for their hard work and then the contributions that they are making towards the future growth of all of our global businesses.

With that, Patty, I'll turn it back to you for Q&A.

Patricia L. Eisenhaur

Thanks, Paul. And, Cristal, we'll open up the Q&A right now.

Question-and-Answer Session

Operator

[Operator Instructions]

Your first question comes from the line of Chris Schott with JP Morgan.

Christopher Schott - JP Morgan Chase & Co, Research Division

I just had a couple of questions on generic LIPITOR. First, can you elaborate on the type of launch you're expecting from Ranbaxy this quarter? Is that going to be a full launch or a partial launch? Second, can you elaborate on what type of actions you're seeing from Pfizer in terms of protecting its franchise and what that translates to into price for the generic? And then finally, what type of impact would the lack of a generic launch by Ranbaxy have on your numbers?

Paul M. Bisaro

Okay. Well, for purposes of these estimates, Chris, we're assuming a full launch by Ranbaxy. So we're expecting them to have sufficient capacity and sufficient product to meet demands as they get market share. Regarding Pfizer and the activities that have been going on, I think they've been very aggressive at maintaining their brand shares. I mentioned in my prepared remarks, I said we expect them to maintain -- this forecast expects them to maintain roughly 40% of the brand market share. And they're actually doing it a couple of different ways. One is by going to PBMs, paying PBMs to, in some cases, NDC block generics. So that's a pretty effective way to make sure that generic doesn't get dispensed, and they maintain market share. Also, LIPITOR is a chronic tier medication, so it has a high mail order utilization. And they've gone very aggressive in mail order segment and maintained a large -- we expect them to maintain a large position in the mail orders. So with that, I think that's where we see the efforts that they've undertaken to maintain market share. Regarding our price, I mean, I think we've always said we'll do our best to maximize our generic value for this product. So we won't disclose what the pricing plans are, but we do expect to try to maximize our value.

Christopher Schott - JP Morgan Chase & Co, Research Division

Okay. Just a final question in terms of if Ranbaxy were not to come to market. Do you have any sense of just what type of leverage that would have in terms of your numbers?

Paul M. Bisaro

Well, I think a little bit would depend on how long we expected them to not be there. If it was a short period of time, probably have very little impact. If it was going to be a month or 2, then I think we could see potentially 2x what we're talking about.

Operator

Your next question comes from the line of David Risinger with Morgan Stanley.

David Risinger - Morgan Stanley, Research Division

A couple of questions. With respect to Nexium and the U.K. contribution to the third quarter, could you just provide some more color on that and also the outlook for additional country launches, the competitive landscape, relative profitability on Nexium ex-U.S.? And then my second question is, with respect to LIPITOR and contracting with customers, could you just update us on where things stand? It's now November 1, obviously the clock is ticking for Ranbaxy. Are your customers telling you they're not yet willing to sign with Watson because they're waiting longer for Ranbaxy? Or when does the actual rubber meet the road in terms of customer signing contracts with you and giving up on Ranbaxy?

Sigurdur Oli Olafsson

David, it's Siggi here. Let's start with Nexium in Europe. So we have the authorized generic of Nexium in U.K. Ranbaxy launched the generic on the AstraZeneca, signed up with us, and that has been a very successful launch. We don't give out what the contribution was in our U.K. business, but it was successful, and we kept a significant market share of the generic part. With regard to the rest of the business is that Ranbaxy has launched in, as I mentioned, in U.K. They also have launched in France. There's a shortage of tablets in the market from them. So we still expect that we will launch our generic version from Specifar before the end of this year, first in France. As we mentioned, our focus market is France. Then we would focus on Switzerland, and Spain after that. There's still -- in France, there's still the generic capsules on the market. But clearly, the generic tablets are taking a significant market share than more competitors will be on the market. I think that will confirm what we have previously said, that the tablets will be the preferred dosage form. Regarding the customers on Atorvastatin, I think we are speaking to the customers. I think Ranbaxy is also speaking to the customers. It's not unusual that 1 month before launch that prices haven't been agreed. I think they're just waiting to see what happens in the market. We wait to see how many players are in the market because our pricing strategy will be based on that. So I don't think it's an unusual situation that we sit and wait until later this month.

Operator

Your next question comes from the line of Greg Gilbert with Bank of America Merrill Lynch.

Gregory B. Gilbert - BofA Merrill Lynch, Research Division

My first one is on LOVENOX, Paul. I know it's excluded from guidance, but can you walk us through the possible timeline and outcomes, and of course, your personal view on what's likely to happen? And then I have a second.

Paul M. Bisaro

Sure. I think, as you probably know, an appeal has been filed. I think that process is going to take some time even if we get an expedited review or an expedited treatment of that appeal. I think we -- as from what we can see, I think we believe we're going to -- we have a strong case on appeal, and we'll take it from there. What I -- timeline here is really going to be dependent on what the Federal Circuit is -- how quickly they're going to move on this. So I think we still stand ready to launch the product as soon as possible, and we'll wait and see. But at the moment, as you said, we have excluded it from guidance for the rest of 2011.

Gregory B. Gilbert - BofA Merrill Lynch, Research Division

Just to frame the book ends, would you say it's a couple of months fastest case and maybe a couple of years longer case? Is that reasonable? Or could it be faster?

Paul M. Bisaro

I think it's probably fast as to probably 3 months, and longest case could be a year.

Gregory B. Gilbert - BofA Merrill Lynch, Research Division

Okay. And then my second question is about -- a sneaky way of asking about 2012 outlook, Paul, without asking it. We know that LIPITOR and Concerta will be a big chunk, possibly over $2 of earnings next year. So how are you thinking about sort of -- not that I'm trying exclude those items, but if you put those aside, can you talk about the key pushes and pulls over the next year or so for Watson earnings power recognizing that there are couple of big chunky items that folks will be continuously be nervous about?

Paul M. Bisaro

Sure, Greg. And just to remind everybody, it's been our practice to give guidance for 2012 in probably January or maybe even February next year. But we'll obviously give pretty specific guidance then. But I think the moving factors for us continued to be our extended-release franchise and our oral contraceptive franchise in the U.S. We do expect those to continue to be strong and provide strong value. We, of course, have a pipeline of extended-release products that we expect to -- that we continue to expect to be those extended-release franchise with these new products through '12, through '13 and then onto '14. I think the same is true on the oral contraceptives although there's fewer and fewer product opportunities because most of them have been -- either are now ours or not. And then I think internationally, of course, we have, as Siggi was talking about just a second ago, the Esomeprazole tablet opportunity in the markets that he mentioned, as well as additional markets throughout '12 and '13. Also, ex-U.S., the additional launches that we might be seeing from the pipeline as it starts to mature. And then finally -- not finally, but on the Brands side, of course, we're very excited about the launch of PROCHIEVE. We have a PDUFA date in February, and we're working very hard to get prepared for that launch. And I think that product has -- as you know, I've been very excited about this product. It's a very important product to the medical community here in the U.S., and I think it's going to be a great product for Watson. And then we also continue to see good growth from Anda. I think Anda's got a good business model in place. They're working hard to improve on all aspects of their business. The move to Mississippi makes a lot of sense. It's right next to the FedEx facility, so we can ship products down to customers even faster than we've ever been able to do. So all 3 of the business segments, I think, provide that growth that we're looking for, continued growth from '11 to '12 to '13.

Operator

Your next question comes from the line of Jami Rubin with Goldman Sachs.

Jami Rubin - Goldman Sachs Group Inc., Research Division

Paul, just a couple of questions. Back to LIPITOR, sort of the opposite question to Chris's earlier question on whether or not if Ranbaxy is delayed. What if there is a 3-generic player market or even a 4-generic player market? And I know that the clock is running, but it seems to me that, that possibility or scenario cannot be completely eliminated. I'm just wondering what the economics look like for Watson under that scenario. And my second question relates to Lidoderm. There's been a lot of noise recently around Lidoderm. I'm just wondering if you could clarify your expectations in terms of both the regulatory and the legal landscape.

Paul M. Bisaro

Sure. Well, regarding LIPITOR, Jami, I think I would say that there's a pretty small likelihood now, in my view, that we'll see in November of this year a multiplayer market other than the brand, Watson and Ranbaxy. I think there is always some possibility that, that could occur, but I think it's pretty unlikely given the state of the situation. What I would say, though, 6 months from now, after Ranbaxy launches in their exclusivity runs, I would say that we could anticipate a 3- or 4-player, maybe a 5- or 6- player market, at which point I think the product has a completely different economic outlook for us at that point. So we will see competition 6 months after Ranbaxy has launched. We fully expect that. And now that we've seen other people start to settle with Pfizer, we sort of expect to see more players at that point. Although I think, as many people have said, there are no tentative approvals yet, that could just be the FDA having the backlog that they're trying to deal with. But nevertheless -- and that's kind of the way we're modeling it for purposes of our forecast. Regarding Lidoderm, our efforts to increase our capacity in Salt Lake are well under way. We're on target to complete the expansion in time in 2012. And we'll be ready to, I guess, monetize that asset as early as possible. We like our case. We like that -- our case fits. We think the district court has been -- certainly, the marketing hearing, I think, was favorable to us, and we're pretty excited about where that product opportunity presents itself. And Lidoderm is just one example of the products that can continue to drive growth for Watson in '12 and '13 and '14. So following up on my answer to Greg, it would be the paragraph 4. Pipeline at Watson has probably never been stronger, never been deeper. And there's still opportunities out there for companies like us to get very successful growth through paragraph 4 challenges and we continue to be very focused on that.

Jami Rubin - Goldman Sachs Group Inc., Research Division

Paul, just a follow-up. Are you comfortable that FDA would ask you for clinical trials for Lidoderm?

Paul M. Bisaro

Our position has been and remains that the FDA has already given guidance on this issue, and we have followed that guidance. And we don't believe we're going to be required to do any more work than what we've already done.

Operator

Your next question comes from the line of Ken Cacciatore with Cowen and Company.

Ken Cacciatore - Cowen and Company, LLC, Research Division

Just around Crinone and PROCHIEVE. Just wondering if you could give us any sense on what's happening with -- from a managed care perspective, for Crinone for preterm birth, I don't know if there's been any changes in any formularies that are already going ahead in reimbursing for that indication. Also, wondering if you can give us some of the pricing increases around Crinone over the last year. And then finally, maybe a discussion about conversations with ACOG or maternal-fetal medicine association, any early discussions about them changing their guidelines for the preterm indication?

Paul M. Bisaro

Ken, I'll have Fred answer that. Go, Fred.

George Frederick Wilkinson

Let me kind of run through the process. Under this current coverage of Crinone, which, just to remind you, we'll be filing a separate NDA for the preterm birth. So it'll really start a new cycle on reimbursement. But under the current provisions, insurance companies generally cover for what's called the -- that once a woman is pregnant, so they're already covering the cost of the product after the first 14 days and after the woman's become pregnant. So we've got very good coverage at this particular point for Crinone in that situation. In all of our discussions with the insurance companies and the payers around coverage for preterm, that's some very positive discussions. We believe that will happen almost immediately after the approval. Regarding price increases, I believe we took a price increase somewhere earlier this year. Don't remember the amount. It's probably around the 8% range. The product had not had many product price increases over its history, and we thought that it probably warranted. The market had moved in the infertility space, so we moved with the infertility market place. And then finally, there's actually been a lot of activity going on with ACOG and with the SMFM group, which is the maternal-fetal medicine subsection of ACOG, on trying -- on starting to establish guidelines for 2 things: both transvaginal ultrasound on all women that are pregnant; and secondly then, what therapy should be used once they find the short cervix. And the findings of our studies have shown that short cervix is clearly an indicator for preterm birth and with potential therapy that we're starting to move towards a general and routine screening. When those guidelines come out is we're still waiting to see, although there was a kind of a preview to it and in one of the recent news letters from the maternal-fetal medicine group.

Operator

Your next question comes from the line of David Amsellem with Piper Jaffray.

David Amsellem - Piper Jaffray Companies, Research Division

Just a bigger-picture question on the Brand business. You had previously had an aspirational target of, I believe, double in revenue from Brands to around $1 billion longer term, is that still an aspirational goal? Do you feel you can get there primarily on PROCHIEVE and the existing end-market portfolio continuing to grow? Or do you feel that you'll need additional in-licensing and acquisitions to get there?

Paul M. Bisaro

Well, David, we still do have that as our goal, and we do think that PROCHIEVE and RAPAFLO and the continued growth of the product line we have now, ANDRODERM as well, I think gives us a big push toward that $1 billion target. I do think probably the -- if Esmya works out the way we think it's going to work out, we have high expectations for that product. So I think the current product line plus the pipeline can get us to that $1 billion. However, as you know, we've been very aggressive at looking for additional opportunities in Urology and Women's Health, and in some cases, even on the oncology side. So we continue to aggressively pursue opportunities to add products to our Brand portfolio.

David Amsellem - Piper Jaffray Companies, Research Division

Okay. And then switching gears back to the generics. On Mucinex D and DM generics, any update on where you are at the FDA regarding the filing. Any color there? Do you see this as a high-probability opportunity for either the fourth quarter or for next year?

Paul M. Bisaro

Well, we continued to pursue our applications for the Mucinex product line. At this point, we don't expect anything for 2011. On 2012, we probably would see some contribution. But again, if there is -- we're sort of swimming upstream at some of the issues with the FDA. There's this enormous amounts of backlog and issues that have to be -- or the workload of the FDA is enormous, so it takes time to get anything done. And that's kind of what we're up against. Hopefully, with the generic user fees on the horizon, we'll get some help to the agency, and they can process these applications faster. But for now, not anything in 2011.

Operator

Your next question comes from the line of Frank Pinkerton with SunTrust.

Frank H. Pinkerton - SunTrust Robinson Humphrey, Inc., Research Division

First one's on Anda. Can you just please talk to me about -- I know this is a business that's kind of the base business than with launches. Is anything coming up on that launch calendar, particularly comments around like Zyprexa or some of the other drugs? Potentially, they could be launched than maybe niche drugs fitting into Anda over the near term.

Paul M. Bisaro

Well, I'll pass this one off to Al.

Albert Paonessa

Yes, Frank. Zyprexa just launched last week. So it was a long drought for the whole year of getting new product launches, but we were very successful on that launch. As you know, the LIPITOR is coming shortly, too. And then next year is a pretty good year for launches even though I have to handicap it a little bit. IMS shows about 32 billion of products coming off, but about 17 billion of that are going to be meto [ph] products with multiple vendors, so heavily discounted. But it'll still be one of the best years ever for new product launches.

Frank H. Pinkerton - SunTrust Robinson Humphrey, Inc., Research Division

And then, Paul, just a follow-up for you. As we think about not 2011, not 2012, but what most people are pointing to is the cliff, and let's call that 2015 or 2016, can you just talk about the discussions you have at a higher level about ultimately, is Watson positioned such that if new generic opportunities slow down, where is Watson headed to continue to show growth in the longer term?

Paul M. Bisaro

Sure, Frank. There's been a lot of talk about the cliff, and we've talked about this quite a bit. I think what I've said in the past, and I'll repeat some of it, and one of the issues I think you've got to look at is you've got to look at each company's product portfolio as it approaches 2015 and 2016. While there is not as many blockbuster generic opportunities in the U.S., there are still good product opportunities. So I do think the Generic business will not go away, and I don't think -- what I have said though is it will be harder for a Watson, or at least I'll just speak about Watson, for Watson to continue to see the growth rate that it has if we rely solely on U.S. generics. So what we've done to position ourselves for that time period is continue to expand our generics globally. I think we still have a lot of runway ahead of us to increase our generic portfolio across the globe, and we're going to be very focused on doing that. At the same time, we continue to build our brand franchise because we think we can add a lot of value in specialty areas like Urology, Women's Health, and in some cases, even oncology. And then finally, when we start to get out to 2015, 2016, 2017, we start seeing the inflow of revenue from our Biologics program when we would see FSH coming to market, and hopefully, in some of the emerging markets first, then in Europe, and then ultimately, the U.S. And as I've said, we've been very aggressive at looking with partners to build a bigger portfolio of Biologics opportunities. So more to come on that on the Biologics front from us, but that's the way we see ourselves growing through those years of '15, '16 and 17.

Patricia L. Eisenhaur

Operator, next question.

Operator

Your next question comes from the line of Elliot Wilbur with Needham & Company.

Elliot Wilbur - Needham & Company, LLC, Research Division

Just real quickly. My first question is for Todd, just more of a mechanistic question on EBITDA and EPS guidance. Actually, it was a modest reduction to full year adjusted EBITDA expectations, and I'm trying to reconcile that with the increase to adjusted EPS given that the expected adjusted tax rate is remaining the same. And then I guess I'll just throw in another question later going for Paul. We're coming off from a 2-year anniversary of filing. So obviously, still some runway left in terms of getting approval within the 30-month period. The question is, based on the CP filings, some changes that may have been requested by FDA, do you still believe that you have to get approval within the 30 months in order to maintain your statutory exclusivity on products?

Paul M. Bisaro

Okay. I'll take the first. I'll answer my question first, and then I will turn it over to Todd. On Lidoderm, I think we're comfortable that we should get our tentative approval before the 30 months. However, in situations where the approvals have been held up by citizen's petitions, the agency, I think, has a policy of allowing companies to go beyond the TA time if, in fact, it's held up for that reason. So you still have to prosecute your applications as quickly as possible and you still have to do everything. But if the application has been -- at least that's my understanding, they have allowed for companies to go beyond the 30 months in a situation where an application has been held up due to a citizen's petition.

R. Todd Joyce

Yes. In terms of the EBITDA guidance, as part of our last quarter's call, we gave guidance of $1,025 million to $1,075 million with the EBITDA guidance range. We've changed that guidance to $1,080 million to $1.1 billion. So that's the revision. You should kind of focus on those, the midpoint of that range. And the tax rate has moved a little bit, but not dramatically from our quarter's guidance range.

Operator

Your next question comes from the line of Michael Faerm with Crédit Suisse.

Michael Faerm - Crédit Suisse AG, Research Division

On LIPITOR, can you just clarify your assumption regarding assumed 40% brand share? How long do you expect that to be? And how do you expect that to play out over time? And also with respect to your fourth quarter EPS guidance on LIPITOR, what are your assumptions around stocking in that number?

Paul M. Bisaro

Well, I'll answer the first part and hand it over to Siggi for the stocking part. I think, our assumption around the 40% would be for pretty much the 6-month period of exclusivity that Ranbaxy has, once it becomes the multiple player market, it's unlikely that they would maintain that much market share. It's possible, but it's unlikely, I think. So we're expecting that 6-month scenario. Siggi?

Sigurdur Oli Olafsson

So in our assumption for the stocking of LIPITOR, ultimate [ph] LIPITOR, we assume that we are roughly at 10-week stocking in the beginning when we go to the market, like with any other generic launch we do in the U.S.

Michael Faerm - Crédit Suisse AG, Research Division

Can I Just ask one follow-up? Regarding oral contraceptives, you mentioned that reduced assumptions on competition are a factor on your higher 2011 guidance. Can you talk a little bit about what the drivers are of those assumptions and to what extent you think those are durable or more temporary phenomena?

Paul M. Bisaro

Sure. A couple of things. One is that, yet again, the FDA backlog is keeping people from getting the approvals. We certainly heard that a number of companies have filed portfolios of oral contraception products. We haven't seen anybody emerge yet with a portfolio of products. We've had one-off kind of approvals, but we really haven't seen a portfolio. So how long that'll continue is probably dependent a bit on the FDA. And then I think there's been a few situations that have actually increased our draw on our oral conception products. There was an unfortunate situation where there was a recall that one of our competitors had on the OCs. And when that happens, a number of customers came to us to look -- at least the momentary loss of product for those customers. So we had a bump from that as well as we supply the additional OCs into the customers who were with that other competitor. And that happens from time to time, not just on oral contraceptives, but it happens on other products like the narcotic products. We see that happen when people get in shortages of their quota or whatever. If we're in a good stock position, we can jump in and supply the market. So we've been opportunistic on that front as well.

Operator

Your next question comes from the line of Ronny Gal with Sanford Bernstein.

Aaron Gal - Sanford C. Bernstein & Co., LLC., Research Division

A couple of them first. Around the respiratory area, we know you've got some capabilities there with Arrow and with some other products coming off that around the 2015 time zone. I've noticed you have not mentioned that as an area for growth for you, and I was wondering if you could comment on that. And second, again, on the higher level, your debt is coming down quite a bit, and I noticed you haven't instituted a dividend policy yet. Is that something you're considering? Is that a possibility going forward? Or is the cash kind of going to be dedicated elsewhere?

Paul M. Bisaro

Okay. Well, as to respiratory, I should have mentioned that. It is an area that we've spent a lot of time and a lot of effort on and will continue to do so. So that is one of the areas we could see growth in, as you point out, the 2014, 2015 timeframe.

Aaron Gal - Sanford C. Bernstein & Co., LLC., Research Division

Can you give us a bit more details there?

Paul M. Bisaro

Well, not at this point. But I will certainly put -- okay. But we are working on the products that you would expect we will be working on. So regarding branding the debt and dividend policy, at the moment and I think for the foreseeable future, we continue to see opportunities for us to use our cash to continue to grow our business. I think our growth rate over the last few years demonstrates that we can provide great return to our shareholders by focusing on our business operationally, as well as executing on the strategy we have in place. And a part of that strategy includes the appointment of that cash we have, and we'll be deploying that cash over the next few months for Biologics, for brand opportunities, as well generic opportunities. So for the foreseeable future, no dividend policy, no dividend at all, I think, but we certainly see growth.

Operator

The next question comes from the line of Randall Stanicky with Canaccord Genuity.

Randall Stanicky - Canaccord Genuity, Research Division

Paul, just a question, a follow-up question on LIPITOR. There's been a lot of discussion today. Are you effectively saying that you don't think there's any likelihood or at least a low likelihood that Ranbaxy would license their exclusivity to anybody? And if that was the case, would there be any change to the way you're thinking about the economics that you played out? And I have a follow-up.

Paul M. Bisaro

Sure. No, there is -- I'll answer the first -- the last question first. No, we don't expect any changes even if they had to move their exclusivity to someone else. If that -- we would expect the situation to probably be the same. And then as to why, I guess maybe I was a bit bullish about this, but I mean, I think our market intelligence tells us that Ranbaxy has products. So if they were going to move the exclusivity to somebody else, they wouldn't have built inventory. So I think that's where I came down with the Ranbaxy comment.

Randall Stanicky - Canaccord Genuity, Research Division

Okay. That's helpful. And we've been getting a lot of questions around Concerta. There's been a couple of additional settlements out there. Can you just comment on the impact or probably more likely the lack of impact based on the economics with your settlement with J&J. Should we see another generic emerge over the next year or 2?

Paul M. Bisaro

Sure. Well, as you know, we've been pretty quiet on the -- well, for confidentiality reasons, we're not permitted to give all the details around the financial arrangements. What we've said and continue to believe is that we won't see competition -- we don't expect to see competition on Concerta until sometime in the earliest of late 2012. And that's really based on the timelines that people must be facing -- because we know we're facing them at the FDA. So assuming a normal timeline, a normal review, it's going to take people -- we think it's going to take them about that long to get the product approved. Regarding what happens to the economics, the economics do change if another party enters the market, but we haven't disclosed what that would be.

Randall Stanicky - Canaccord Genuity, Research Division

But to be clear, you have some level of protection there, so we shouldn't be expecting any big impact if we see an additional generic come in?

Paul M. Bisaro

That's correct. There would be some offsetting increase.

Operator

Your next question comes from the line of David Buck with Buckingham Research.

David G. Buck - Buckingham Research Group, Inc.

Quick question, I guess, for Siggi on the international Generics. Can you talk a little bit about how sustainable you think that record -- the record level of sales might be? You mentioned obviously the tablet launch but also some pricing pressure. I'm just curious to the impact of pricing pressure. And then for Paul, what have you learned so far, maybe early, but on your generic OxyContin filing, the new tamper-resistant one. What have you learned in terms of the FDA's willingness to approve one of the non-tamper resistant what's your comfort level there?

Sigurdur Oli Olafsson

David, on the European business, I think as Paul mentioned before, we are benefiting from both the introduction of Specifar into the Watson group. But also, we have launched significant amount of products this year. Just in France alone, we have launched around 25 products in France. So we are building our portfolio, which is helping us in the pricing environment we are seeing in Europe. Clearly, the situation in France is still that. We are keeping up with our new launches. U.K. is similar. As I mentioned, in the second quarter call, we have had good launches in the U.K., which has benefited us clearly. And the Esomeprazole authorized generics helped us. With regard to the Greek market, the utilization of generics is significantly increasing. At the same time, obviously, the prices are going a little bit down, but the volume in the market is increasing faster than the pricing. So overall, I'm a little bit more optimistic with our international markets. To add to that, the Canadian market, there's a built-in price decrease, which are agreed with the provinces where the pharmaceutical companies have agreed. The general companies have agreed with the provinces. We know what's going to happen next year, so we can build our focus pretty accurately. But there again, with a significant number of new products, which come from the Watson portfolio, helps us to grow the business. So overall, I think it's quite a positive sum for us in this quarter.

Paul M. Bisaro

And David, you asked about the generic OxyContin filing. At the moment, we don't have a lot of visibility into the answer to your question. Our application is fairly new. So there's not a lot of activity going on with it right now. I'm not quite sure where. I don't think any of us are quite sure where the FDA is going to come down on this idea of approving nontamper-resistant products. So it is still an open question and one that we expect to get an answer to as time goes on.

David G. Buck - Buckingham Research Group, Inc.

Great. Maybe if I can just take one in on the extended-release competition assumption. You talked about the OC competition assumption, and I was just curious what changed your view on the extended-release competition and how sustainable that might be with the lessened competition?

Paul M. Bisaro

Sure. For 2011, I think we're pretty comfortable that we don't expect to see much change in the big products we have in the extended-release franchise. It may be early next year we could see some additional changes, but right now, for 2011, I think we're a bit more optimistic that things are going to pretty much stay, I think, normalized.

Operator

Your next question comes from the line of Louise Chen with Collins Stewart.

Louise A. Chen - Collins Stewart LLC, Research Division

First question I had was on your PROCHIEVE product. Given the update on the follow-on product, what are some unmet needs you could potentially address here? And would this just be for the U.S. market or a worldwide opportunity? And then the second question I have was just on the LOVENOX opportunity. How large is the retail market? And what is the current generic penetration there?

George Frederick Wilkinson

This is Fred Wilkinson. Let me take the PROCHIEVE question. I'll say we are deep in development of a second-generation of our progesterone gel product. We've not given any detail on what it looks like or what it will be, but we will be into the clinics in middle of 2012 with the fairly aggressive programs trying to get the market into play -- get it into the marketplace within a couple of years. It will be a global development, so it would be available to us to be able to commercialize throughout the world.

Sigurdur Oli Olafsson

So if I take the LOVENOX thing is in the retail market, I don't have the accurate -- the size of the market in millions of dollars, but overall in the retail market, the generic penetration is about 80%. Central has about 80% penetration in retail. Sanofi is about 21. Also, Sanofi announced that they are launching an AG, so there will be a 3-player market plus the brand if and when we launched our generic to the market.

Operator

Your next question comes from the line of Jason Gerberry with Leerink Swann.

Jason M. Gerberry - Leerink Swann LLC, Research Division

Just a couple. First on LOVENOX, Momenta is out there saying that their expectations for timing is 12 to 18 months, and basically, a patent trial, that I presume would go to the District Court level. Whereas you guys are talking about somewhere in the range of 3 to 12 months, and I guess a legal process going through the Federal Circuit. So, maybe if you can just help reconcile those timing differences. Are you guys are talking about different tracks there. And then on LIPITOR, just curious, do you expect your generic to be Tier 1 or Tier 2? And can you just maybe outline your assumptions if you expect any copay differential versus the brand?

Paul M. Bisaro

David, why don't you handle this one?

David A. Buchen

On the LOVENOX, I think our assumption on the timing is 3 months as would assume that the Federal Circuit grants expedited review for the preliminary injunction. 12 months would be the assumption to get through a District Court judgment. And so I think that was the range that we are talking about. Naturally, if there's a District Court judgment after 12 months, reasonable to expect the side that did not win to file an appeal to the Federal Circuit, so that would take longer.

Paul M. Bisaro

Okay. Yes. And then, Jason, regarding the activity around copays and Tier 1 versus Tier 2 versus Tier 3, in addition to the NDC blocks that I was talking about before, that Pfizer is doing with PBMs, they're also working aggressively to move the brand to Tier 1, pushing the generics into Tier 2 or Tier 3, increasing the copays then for the generic -- obviously making the co-pays for the generic more expensive than for the brand. So there's been a number -- I mean, that's not an unusual tactic, I guess. It is what happens and what companies have done in the past, and that's what's going on right now in the marketplace. So there are some plans that are putting generics in Tier 3, some plans are putting it into Tier 2. And some plans are being more true to their roots and dispensing the generic.

Operator

Your next question comes from the line of John Boris with Citi.

John T. Boris - Citigroup Inc, Research Division

Just first question on Toprol XL as you called out to Greg's question on the extended-release assets. Is your assumption that there won't be any Toprol XL additional generics in 2012?

Paul M. Bisaro

Oh, no, no. We wouldn't anticipate additional competition on that product on the metoprolol in 2012. And I was speaking mostly to the rest of the year. I mean, we just haven't got -- it's always possible. It's just given it's November when we just haven't really heard of anybody coming imminently. So it's probably a pretty good bet that the rest of 2011 will be pretty stable.

John T. Boris - Citigroup Inc, Research Division

Okay. One on PROCHIEVE. Any thoughts on some of the questions that you're anticipating that you might be getting from the FDA at the December AdCom? And any update on the dialogue that you're having with the FDA related to PROCHIEVE?

George Frederick Wilkinson

Yes, maybe first a correction. We're not seeing the FDA in December. The AdCom meeting in December is more about YASMIN that we have [ph]. But we are deep in discussions with the agency. We're kind of having the appropriate discussions that you'd have when you have about 4 months to go on your NDA process. So I think that we do see it going generally well. So that's 4 more months to go.

Paul M. Bisaro

And John, I guess I would just add and remind you that as of now, we don't have -- we have not been told that we are going through an Advisory Committee, although as we've said, we continue to prepare as though we're going to one. I think the earliest date then would be January.

George Frederick Wilkinson

And they haven't published their dates for 2012 yet. They are focused on finishing up '11, and they'll be publishing any dates for '12 sometime within the next 2 to 3 months.

John T. Boris - Citigroup Inc, Research Division

Great. And then just one last one for Siggi. The distributor relationships that you have in Europe and just linking that to some of the price compression that we've had, as these distributor agreements then come up for renewal, how does pricing potentially -- if generic pricing compresses on an asset that you're supplying, how does that impact your negotiation once you realign with those distributors over supplying product?

Sigurdur Oli Olafsson

John, it's a good question. Basically, as you know, in Europe, there's 3 main wholesalers, the 3 big wholesalers in Europe: Celesio, Alliance Boots and Phoenix. We work with all of them. Obviously, the big part of our business is all these wholesalers are cross-European, so we work with them in every market we are. So the more we can offer them in different markets, the better situation we are in, in the negotiation. Obviously, when the prices are going down, the wholesalers are looking for better price for the product. And with that, we have a global operation and excellence program in which we are trying to lower our cost of goods to be able to compete in the market. But overall, I think due to that we are growing in size in Europe, we are in more than 7 countries in Europe, helps us in the negotiations between different markets. But clearly, there's enormous pressure in each and every market to keep up. There's a price pressure that is in the marketplace itself.

Operator

Your next question comes from the line of Shibani Malhotra with RBC Capital.

Shibani Malhotra - RBC Capital Markets, LLC, Research Division

I've just got a couple. First on Concerta, I know there was a number of factors influencing the performance this quarter. We saw the market share increased, but the overall market declined. And then your profit was obviously larger than it was last quarter. We also understand that there was some de-stocking this quarter, but can you help us think through what drivers we should be looking for next quarter and as we go forward and whether this is a decent run rate for Concerta over the next year or so? And then separately, on my Lidoderm generic and more related to the FDA approval, I guess what surprised us with Voltaren Gel recently wasn't so much that the FDA required studies, but the scope of the studies and how large these were and the design of these studies. What gives you confidence that Lidoderm is potentially more straightforward and you wouldn't be required to do those types of studies? And if you will, would you still pursue this opportunity?

Sigurdur Oli Olafsson

Okay. Let me start, it's Siggi here, on Concerta. As you know, we are roughly at 82% market share. I think the numbers that came out yesterday, we have 82% market share. We mentioned on the last call this is a very seasonal product. There's a significant decrease in prescription over the summertime and over the holiday period when the kids are not in school. So we saw that. But I think the biggest thing is we talked about de-stocking. We mentioned this also before, that our customers expected that we might have some supply issue similar to that the customers saw for Adderall XR in the market. I think we have proven to our customers we have an excellent supply chain and we haven't been in stock-out in any of our strengths. So with that and with the confirmation, having been on the market for 5, 6 months, they have released and they have less-stocked themselves, and that has impacted third quarter. Overall, we see for fourth quarter, just to talk about it, we see that we will be around the number we are. We have been around 82% now for 3 weeks. It's slowly creeping up, but 82% to 84% would not be unreasonable to see through the end of the year. But we don't expect any more de-stocking to happen in fourth quarter.

Paul M. Bisaro

And Shibani, regarding the Lidoderm, as you know, we have very extensive development program on patches and gels, so we're real familiar with how the FDA has been -- what they've been requiring. We certainly understand that the FDA has been requiring clinical endpoint studies for gel products, and we have been engaged in doing those, which is why our R&D expenditures have been going up. But we're happy about that because they're hard to do and they're expensive, and that means there will be fewer and fewer competitors. On the Lidoderm, it's a patch product, and the FDA has been very clear about patch products. We believe that patches don't require that kind of clinical endpoint study. What it requires is the studies that we performed for the guidance that they issued. And again, they were asked this very specific question, and their answer was, you don't need to do it. So I don't understand why the FDA would go back and change their mind on this when they were that clear when they were asked through the citizen's petition process. So that's where we stand on this.

Patricia L. Eisenhaur

Operator, we'll take our last question for today.

Operator

Your last question comes from the line of Michael Tong with Wells Fargo Securities.

Michael K. Tong - Wells Fargo Securities, LLC, Research Division

First one, maybe it's for Fred. You talked about sales, sales force expansion in the U.S. Could you remind us where you stand in terms of how your sales force is structured currently? And is that going to be the same structure going -- that you're going to the market with PROCHIEVE on? And then secondly, for Paul, given your current -- your sort of debt structure, you're definitely ready to do some type of business development activity. Realistically, I know you look at everything, but based on what's going on in the E.U., is that still a priority of yours? Or would you steer us to thinking towards more Asia Pacific or maybe even more branded opportunities in the U.S.?

George Frederick Wilkinson

Okay. Let me start with sales force structure. Yes, we actually just added about 42, 43 representatives in October. They're actually out now promoting. It was a very rapid process of hiring representatives. They got into the company pretty quickly, and we're pleased that they're out there in the streets right now promoting. They were actually added to our Euro primary care sales force that brings that group up to just under 150. There are 175 that are doing urology and OB/GYN coverage. That will be the group that will launch PROCHIEVE to the OBs. And just to remind you, we have a 55-person SAS team, strategic accounts specialist team, that call on the key specialists in those areas, meaning urologists, infertility specialists, and now the maternal-fetal medicine. That essentially will be the group that we see launching PROCHIEVE and also carrying the ball on to continue to grow RAPAFLO, launching ANDRODERM, too, and a series of other things that we have in our bag.

Paul M. Bisaro

And Michael, you asked about, I guess, M&A. And you're right, we do continue to look at all the opportunities that are presented in the market. There are some that are out there and that have been intriguing, and we've looked at hard. I don't think we're shying away from any regions, really. While there are challenges in the E.U., there are certainly challenges all over the world. But as we look out, we think the future is bright for generic utilization around the world. As you know, we have invested in the Greek market. Part of the answer to the Greek debt problem is generic utilization. There's still very low penetration rates, very low utilization rates. At some point, the government's got to require utilization of generics, and when they do, we'll be well positioned to take advantage of that upside. So the markets, we recognize there are challenges, but we also see a lot of opportunities around the world. SO we're not -- I guess to answer your question directly, we're not saying no to the Europe -- to the eurozone.

Patricia L. Eisenhaur

Great. Well, thank you, everyone, for joining us today, and we look forward to speaking with you afterwards. Thanks again.

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