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Watson Wraps Up Key Buy Designed to Boost Profits

2006 has been a year of deals and consolidation among generic drug makers. Watson Pharmaceuticals Inc., based just over the county line in Corona, did its part.

Watson, which makes generic drugs and a smattering of name brand products, finally closed its $2 billion deal for Andrx Corp., a rival based out of Davie, Fla., earlier this month. Watson originally announced plans to buy Andrx in March.

Watson joined Barr Pharmaceuticals Inc. of Woodcliff Lake, N.J., and Canonsburg, Pa.-based Mylan Laboratories Inc. in recent generic drug deals. Barr finalized its $2.5 billion buy of Pliva DD, a Croatian drug maker, in October. Mylan said in August that it’s spending some $736 million for a controlling stake in India’s Matrix Laboratories Ltd.

The Motley Fool investor Web site broke down the Watson-Andrx deal in a recent column.

Author Brian Lawler, who doesn’t own shares of Watson, said he was hopeful that Watson’s buying Andrx would boost the combined company’s profits because Watson’s sales growth and margins had been low during the past four quarters.

In the third quarter, Watson’s sales were $440.5 million, up 7.4% from a year earlier. Lawler noted that the drug maker’s gross margins were 42% in the third quarter, down from 48% a year earlier, and “much lower than many of Watson’s competitors, which have more branded products that bring higher margins with them.”

Lawler said that even with increased size, “Watson will probably not be one of my favorite generic drug makers,” he wrote.

The company’s profits could lag those of Princeton, N.J.-based Sandoz Inc., Israel’s Teva Pharmaceutical Industries Ltd. or Barr “in a sector that’s becoming more competitive and where size and geographic reach matter more.”

Teva made a big Orange County buy in late 2003, when it spent $3.4 billion for Sicor Inc., an Irvine-based generic drug maker.

Watson’s buy of Andrx “better bring with it some major economies of scale” or a pattern of higher sales, lower margins and stagnant earnings would continue, Lawler said.

Allen Chao, Watson’s founder and chief executive, is an Anaheim Hills resident and has made big donations to the University of California, Irvine.

The Chao Family Comprehensive Cancer Center at UCI is named after the executive and members of his family.


S & P; Downgrades Valeant

Valeant Pharmaceuticals International, the Costa Mesa drug maker that’s moving to Aliso Viejo, saw its credit rating downgraded earlier this month on profit concerns.

Standard & Poor’s Ratings Services cut Valeant’s credit rating to B+ from BB-.

The downgrade reflected concerns regarding Valeant’s “continued struggles to generate earnings and cash flow growth,” S & P; analyst Arthur Wong said in a statement.

The ratings agency also kept Valeant on its CreditWatch with negative implications over the drug maker’s inability to file its third-quarter report with the Securities and Exchange Commission.

Valeant released its third-quarter results earlier this month, but has said those results could change as a review of past stock option practices continues.

The company’s failure to file its statement puts it in position of defaulting on several of its note agreements, and S & P; said it would monitor the company’s ability to deal with the situation before lifting the CreditWatch status.


Device Veteran Heads Triage

Walter Cuevas, former chief executive of 3F Therapeutics Inc., a heart valve maker that was based in Lake Forest, is the new chief executive of Triage Medical Inc. of Irvine. 3F was acquired earlier this year for $58 million by ATS Medical Inc. of Plymouth, Minn.

Triage makes pins and other medical devices to fix broken bones.

Triage comes out of the stable of Michael Henson, a seminal figure in the county’s device industry who has been involved in starting up more than a dozen medical device companies.

Besides 3F, Cuevas’ background also includes a stint at Medtronic Inc., a Minneapolis-based device maker that has a heart valve plant in Santa Ana.


Advanced Medical Gets Nod

Advanced Medical Optics Inc., the Santa Ana-based maker of contact lens care products and eye surgery devices, ranks No. 15 among publicly traded California companies when it comes to the percentage of female leaders, according to a study from the University of California, Davis.

UC Davis’ figures showed that 30% of Advanced Medical’s directors and executives are women. Those include Jane Rady, corporate vice president of strategy and business development; Aimee Weisner, corporate vice president, general counsel and secretary; Francine Meza, executive vice president of human resources; and Sheree Aronson, vice president, corporate communications and investor relations.

Hot Topic Inc., the City of Industry-based teen retail clothing chain, ranked No. 1 on the list with 45% of its directors and officers being women.


Bits and Pieces:

Edwards Lifesciences Corp. of Irvine said that it awarded more than $1 million worth of grants from its Edwards Lifesciences Fund, a philanthropic fund formed last year. Recipients included Hoag Hospital Foundation of Newport Beach, La Amistad de Jose Family Health Center, a clinic operated by St. Joseph Hospital-Orange and the Saddleback Memorial Foundation Dr. Russell Holman is the new chief operating officer of Irvine-based Cogent Healthcare Inc. Holman previously was senior vice president/national medical director for Cogent, which provides internal medicine physicians known as “hospitalists” who practice exclusively in inpatient settings.

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