Morgan Stanley Reports Two Sources Of Upside For Watson Pharmaceuticals

According to Morgan Stanley, Watson Pharmaceuticals WPI has two sources of upside. Morgan Stanley reported that it is not changing its estimates given conservative Fentora assumptions (it had been modeling that Fentora would contribute less than 0.5% of its 2011E total WPI revenues of $4.3B). “Even though WPI was in the process of building inventories in anticipation of launching soon, guidance only included a “small contribution from Paragraph IV patent challenges.” 1Q:11 results could theoretically include a write-down of Fentora inventory, but if that were to happen it would be a one-time charge. Our unchanged 2011E EPS of $4.10 is toward the high end of management's $3.85-$4.15 and 0.7% below consensus' $4.13.” Watson Pharmaceuticals closed yesterday at $55.38.