Watson Pharmaceuticals, Inc., is engaged in the development, manufacture, marketing,
sale and distribution of branded and off-patent (generic) pharmaceutical products.
We also develop advanced drug delivery systems designed to enhance the therapeutic
benefits of existing drug forms. Watson operates manufacturing, distribution,
research and development, and administrative facilities primarily in the United
States of America (U.S.).
Watson was incorporated in 1985 and began operations as a manufacturer and
marketer of off-patent pharmaceuticals. In February 1993, we completed our initial
public offering. Through internal product development and acquisitions of products
and businesses, we have grown into a diversified specialty pharmaceutical company.
Prescription pharmaceutical products in the U.S. are generally marketed as
either brand or generic pharmaceuticals. Branded pharmaceutical products are
marketed under brand names through programs that are designed to generate physician
and consumer loyalty. Generic pharmaceutical products are bioequivalents of
their respective branded products and provide a cost-efficient alternative to
branded products. As a result of the differences between the two types of products,
we operate and manage our business as two segments: branded and generic pharmaceutical
products.
Branded Pharmaceutical Products
Newly developed pharmaceutical products are normally patented and, as a result,
generally are offered by a single provider when first introduced to the market.
We currently market a number of patented products to physicians, hospitals,
and other markets that we serve. We also market certain trademarked off-patent
products directly to healthcare professionals. We classify these patented and
off-patent trademarked products as our branded pharmaceutical products.
WOMEN’S HEALTH
Our Women’s Health product lines include oral contraceptives, a genital warts
treatment, a hormone replacement therapy and a visual cervical screening device.
Currently, we have a total of 17 oral contraceptives in our product portfolio.
We market our Women’s Health products primarily to obstetricians and gynecologists.
Customers
We sell our branded and generic pharmaceutical products primarily to drug wholesalers,
retailers and distributors, including large chain drug stores, hospitals, clinics,
government agencies and managed healthcare providers such as health maintenance
organizations and other institutions. These customers comprise a significant
part of the distribution network for pharmaceutical products in the U.S. This
distribution network is continuing to undergo significant consolidation marked
by mergers and acquisitions among wholesale distributors and the growth of large
retail drug store chains. As a result, a small number of large, wholesale distributors
controls a significant share of the market, and the number of independent drug
stores and small drug store chains has decreased. We expect that consolidation
of drug wholesalers and retailers will impact pricing and create other competitive
pressures on drug manufacturers.
Our largest customers are: AmeriSourceBergen Corp, McKesson HBOC, Cardinal
Health, Inc., Walgreen Co.
Competition
The pharmaceutical industry is highly competitive. We compete with different
companies depending upon product categories, and within each product category,
upon dosage strengths and drug delivery systems. Such competitors include the
major brand name and generic manufacturers of pharmaceutical products, especially
those doing business in the U.S. In addition to product development, other competitive
factors in the pharmaceutical industry include product quality and price, reputation
and service and access to proprietary and technical information. It is possible
that developments by others will make our products or technologies noncompetitive
or obsolete.
Competing in the branded product business requires us to identify and quickly
bring to market new products embodying technological innovations. Successful
marketing of branded products depends primarily on the ability to communicate
the effectiveness, safety and value to healthcare professionals in private practice,
group practices and managed care organizations. We anticipate that our branded
product offerings will support our existing areas of therapeutic focus. Based
upon business conditions and other factors, we regularly reexamine our business
strategies and may from time to time reallocate our resources from one therapeutic
area to another, withdraw from a therapeutic area or add an additional therapeutic
area in order to maximize our overall growth opportunities.
Our competitors in branded products include the major brand name manufacturers
of pharmaceuticals such as Johnson & Johnson, Wyeth and Pfizer. Based on
total assets, annual revenues and market capitalization, we are considerably
smaller than these and other national competitors in the branded product area.
These competitors, as well as others, have been in business for a longer period
of time, have a greater number of products on the market and have greater financial
and other resources than we do. If we directly compete with them for the same
markets and/or products, their financial strength could prevent us from capturing
a meaningful share of those markets.
We actively compete in the generic pharmaceutical business. Revenues and gross
profit derived from the sales of generic pharmaceutical products tend to follow
a pattern based on certain regulatory and competitive factors. As patents and
regulatory exclusivity for brand name products expire, the first off-patent
manufacturer to receive regulatory approval for generic equivalents of such
products is generally able to achieve significant market penetration. As competing
off-patent manufacturers receive regulatory approvals on similar products, market
share, revenues and gross profit typically decline, in some cases, dramatically.
Accordingly, the level of market share, revenues and gross profit attributable
to a particular generic product is normally related to the number of competitors
in that product’s market and the timing of that product’s regulatory approval
and launch, in relation to competing approvals and launches. Consequently, we
must continue to develop and introduce new products in a timely and cost-effective
manner to maintain our revenues and gross profit. In addition to competition
from other generic drug manufacturers, we face competition from brand name companies
in the generic market. Many of these companies seek to participate in sales
of generic products by, among other things, collaborating with other generic
pharmaceutical companies or by marketing their own generic equivalent to their
branded products. Our major competitors in generic products include Teva Pharmaceutical
Industries, Ltd., Barr Laboratories, Inc., Mylan Laboratories, Inc., Andrx Corporation,
IVAX Corporation and Sandoz Pharmaceuticals, a division of Novartis.