Watson to Buy TheraTech for Its Drug Technology

Watson Pharmaceuticals Inc., one of the biggest makers of generic drugs, said on Sunday that it will acquire TheraTech Inc., which makes drug-delivery products such as skin patches, for about $300 million, expanding its proprietary drug products.

Corona, Calif.-based Watson, which has focused on niche markets such as hard-to-make pharmaceuticals, is trying to expand its line of higher-margin proprietary drugs to boost revenue, which was $338 million in 1997. The acquisition of TheraTech gives Watson the technology it needs to move beyond the price-competitive generic drug business as well as partnerships with larger pharmaceutical companies.

“They gain a number of proprietary technologies and an already profitable company,” said David Steinberg, an analyst at Volpe Brown Whelan & Co. “This furthers their products on the proprietary prescription side and relationships with existing blue-chip pharmaceutical companies.”

Salt Lake City-based TheraTech develops such drug-delivery systems as transdermal or skin patches and tablets that can be absorbed through the gums rather than being swallowed. It has four products on the market and more than 20 under development, including a project with Procter & Gamble Co. to develop testosterone patches for men to combat complications of aging.

“TheraTech had been a bit of a disappointment the last couple of years,” Steinberg said. “Their products hadn’t set the world on fire.” Management didn’t have the benefit of a direct sales force and made some bad bets on which drugs would be winners, he added.

TheraTech holders will receive 0.26 to 0.30 share of common stock based on Watson’s closing price during a set 10-day period, representing a premium of as much as 58% over TheraTech’s price of $9.75 Friday on Nasdaq.

Watson said it expects to take a $14-million charge when the acquisition closes, probably in the first quarter.