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Biotech / Medical : WPI Watson Pharmaceuticals -- Ignore unavailable to you. Want to Upgrade?

To: Selk who wrote (43)	4/12/1999 5:22:00 PM
From: Doughboy	Respond to of 61

Watson in the news today in CBS Marketwatch (basically a summary of a SmartMoney magazine article on WPI): Chew on this smoker By Jeff Clabaugh, CBS MarketWatch Last Update: 9:48 AM ET Apr 12, 1999 WASHINGTON (CBS.MW) -- When your company's stock is added to the S&P 500 index, there's always that big bounce. There are the index fund managers who have to load up on it, and there are the momentum investors who want to cash in on the "index effect." But a recent SmartMoney Stock Update says Watson Pharmaceuticals (wpi: news, msgs) deserves more than just a short-term boost from its newly found clout. Just what is Watson? A generic drug maker that, among other things, just won FDA approval for the first generic version of Nicorette gum. SmartMoney says that's a $200 million market and a competitor's product isn't expected for quite some time. SmartMoney says Watson's stock, up 145 percent since it named the company to its Best Investments Of 1997 Portfolio, has taken some hits lately. Investors were spooked by an FDA warning letter regarding its manufacturing process and its last earnings report that showed the company made estimates but left some investors wondering about revenue growth. SmartMoney says there's no reason to worry about Watson. Its new product pipeline is stronger than ever and analysts expect Watson to grow earnings by at least 20 percent a year. SmartMoney quotes a Bear Sterns analysts as saying the company's earnings have never been more balanced, consistent and predictable. And another from Gruntal who thinks the company's fundamentals are stronger and even more valuable today than they have been in its recent successful past. SmartMoney says even after the short-term volatility Watson stock will experience from its addition to the S&P 500 ($spx: news, msgs), there is a good chance its shares will completely rebound in the next six to 12 months with shares hitting $60 within that time frame. See the full story.

To: Selk who wrote (43)	4/12/1999 5:29:00 PM
From: Doughboy	Read Replies (1) \| Respond to of 61

Here's the SmartMoney article on WPI: The Cure for Watson Pharmaceuticals By Stacey L. Bradford FOR THE PAST three months, shares of Watson Pharmaceuticals (WPI) seem to have been afflicted with a mysterious wasting disease, dropping roughly 30% from their high in early January. But today came the miracle cure: membership in the S&P 500 index. After news of the stock's impending membership was announced early Wednesday, Watson shares jumped 9% to close at 46. It was a badly needed boost for a stock that had unaccountably been sinking. Unfortunately, the patient isn't out of the woods just yet. While stocks often move up after S&P announces that they will be added to the index, even this is not enough to nurse an ailing stock back to health. Companies often give back much of their gains after the momentum investors who bought in to play the "index effect" take their profits and quickly sell out. In Watson's case, however, entering the scene after all the momentum investors leave may be the best medicine. Why? Because this former Wall Street darling has been held hostage by the momentum gang. Both fund managers and individuals jumped on board as this tiny generic drug maker decided to expand its business aggressively and add some branded, higher margin products to its line up. The company's shares have soared 145% since we picked it for our "Best Investments of 1997" portfolio. Unfortunately, its more recent trading history isn't quite as impressive. After a stellar 1998, Watson's stock got a bit ahead of itself as the momentum players did their thing and pushed the stock higher than the fundamentals warranted. Then investors panicked a bit after the company received a warning letter from the FDA in January regarding its manufacturing practices. While this type of correspondence is often routine, it's never a welcome event. However, Watson is working very closely with the FDA to work out any issues the regulatory agency may have. While the FDA sends out a public warning letter so investors are aware of any problems, David Buck of Sands Brothers explains, it doesn't send out another letter when everything is worked out. Of course, the momentum investors who piled into the stock back in 1998 sold off their shares at the first hint of trouble. To make matters worse, the remaining investors were spooked by fourth-quarter results. Even though Watson made earnings estimates, its revenue growth looked a bit anemic, which made people wonder if perhaps they could no longer count on the company to continue producing at least 20% earnings growth a year. The good news is that investors can continue to count on this type of growth. They can expect higher margins, too. As Watson continues to focus on its branded products, which now account for over 50% of its profits, it has put less emphasis on its lower margin, older generic products. So in the fourth quarter it may have sold fewer generic medications, but this strategy will continue to help improve its margins. Plus, revenue should pick up again in the first quarter. "Although Watson may not currently be experiencing its explosive historical growth (a 56% increase in EBITDA since 1994), we believe its earnings have never been more balanced, consistent, and predictable," says Joseph Riccardo of Bear Stearns. Those investors who did stick around are finally being rewarded for their patience. Even before Wednesday's jump, the stock had been up 10% in the past two weeks, marking the start to a full recovery. And those on Wall Street agree. "In our opinion, Watson's fundamentals are stronger and even more valuable today than [they have] been in its recent successful past," says David Saks of Gruntal. Watson's new product pipeline is stronger than ever. It has six branded products, 17 generic drugs (already filed with the FDA), and seven sustained-release generics through a joint venture with Andrx (ADRX). Plus, its recent acquisition of drug delivery firm TheraTech brings Watson seven new potential medications including five skin patches and two oral delivery products, which Gruntal's Saks estimates to be worth $1.7 billion. Watson has also recently won approval from the FDA for the first generic version of Nicorette gum. This market is estimated to be worth $200 million and a competitor's product is not expected to be available for quite some time. There just aren't too many drug companies that have figured out how to make gum. This product should be on the market by the summer. So where does this leave investors? Don't panic if you already own shares. While the stock's addition to the S&P may lead to some short-term volatility, there is a very good chance these shares will completely rebound in the next six to 12 months. And that's even if the company doesn't make any more acquisitions, which is highly unlikely. Bear Stearns' Riccardo expects the shares to hit 60 within this time frame. What if you don't already own shares? According to PaineWebber's Ed Kerschner, stocks typically rise for around six days before falling after S&P has announced that they will be added to the index. But Watson may be a special case: It's not often investors have the opportunity to purchase a healthy drug firm trading at almost a 50% discount to its peers.