Taro Reports First Quarter 2004 Results
HAWTHORNE, N.Y.--(BUSINESS WIRE)--April 29, 2004--Taro Pharmaceutical Industries Ltd. (Nasdaq: TARO):
First Quarter Highlights
-- Sales of $84.1 Million Reflect a 22% Increase Over First
Quarter of 2003
-- Gross Profit Increases 27% to $56.4 Million, or 67% of Sales
-- Increased Marketing Expenses for New Proprietary Products are
Primary Reason for Net Income Decrease of 21% to $11.1
Million, or $0.37 per Diluted Share
-- One NDA and Four ANDAs Approved in the U.S. through April 28
-- ElixSure(R) IB Ibuprofen Oral Suspension and Kerasal(R) AL(TM)
Launched
-- Tax Benefits on Latest Approved Enterprise Plan in Israel
Extended from 10 to 15 Years
Taro Pharmaceutical Industries Ltd. (Nasdaq: TARO) today reported financial results for the Company's first quarter, ended March 31, 2004.
First Quarter Financial Results
Taro's first quarter 2004 sales increased 22% to $84.1 million, compared with sales of $69.0 million for the first quarter of 2003. Gross profit in the first quarter of 2004 increased 27% to $56.4 million, or 67% of sales, compared with $44.4 million, or 64% of sales, for the year-ago quarter.
Selling, general and administrative ("SG&A") expenses were 41% of sales, or $34.1 million, compared with 25% of sales, or $17.5 million, in the first quarter of 2003. SG&A expenses in the quarter reflect increases in selling costs associated with the Company's U.S. marketing activities for proprietary products, including its ElixSure(R) line of spill-resistant children's medicines, and Kerasal(R), Taro's exfoliating moisturizer for the feet, as well as costs associated with the professional medical representatives of the Company's TaroPharma division.
Operating income before R&D expenses decreased to $22.2 million, or 26% of sales, compared with $26.8 million, or 39% of sales, for the year-ago quarter. R&D expenses increased to $11.7 million, or 14% of sales, compared with $8.7 million, or 13% of sales, for the first quarter of 2003. Operating income decreased to $10.5 million from $18.1 million for the year-ago quarter.
Net income for the quarter decreased 21% to $11.1 million, or $0.37 per diluted ordinary share, compared with $14.0 million, or $0.47 per diluted ordinary share, for the first quarter of 2003. While revenues and gross profit increased compared with the first quarter of 2003, these increases were not sufficient to fully offset the additional investments in the Company's proprietary initiatives during the first quarter of 2004.
"Our results for the quarter reflect a strategic decision to make substantial investments in our Company in order, ultimately, to develop profitable proprietary products," said Barrie Levitt, M.D., Chairman of the Company. "While this decision is having a short-term negative impact on our results, we believe we are on the right path for the future."
U.S. Proprietary Product Initiatives
Taro Consumer Healthcare Products ("Taro Consumer")
The Taro Consumer division of Taro Pharmaceuticals U.S.A., Inc. ("Taro U.S.A.") markets proprietary over-the-counter ("OTC") products. In 2003, Taro Consumer launched the Kerasal(R) and ElixSure(R) OTC product lines. In the first quarter of 2004, these products were supported with direct-to-consumer advertising, as well as with product samples and clinical information provided to physicians.
Kerasal(R) Ointment, a unique, exfoliating moisturizer for the feet, has become a leading product in the footcare category. In the first quarter of 2004, Taro Consumer supported the launch of a cream version of the product, Kerasal(R) AL(TM) Daily Foot Cream.
In the second half of 2003, Taro Consumer launched the ElixSure(R) line of children's medicines for fever, pain, cough and congestion. ElixSure(R) products are based on the patented NonSpil(TM) liquid drug delivery system developed by Taro researchers, which pours like a liquid but resists spilling, affording parents increased accuracy and ease of dosing when giving liquid medicines to children.
"In the first cough and cold season of the ElixSure(R) launch, the product line has gained excellent distribution throughout the United States. We are continuing to support the ElixSure(R) line and are developing new over-the-counter and prescription ElixSure(R) products," said Dr. Levitt.
In January 2004, Taro U.S.A. received approval from the U.S. Food and Drug Administration ("FDA") for its New Drug Application ("NDA") for ElixSure(R) IB Ibuprofen Oral Suspension. In addition to its cough and congestion products, the ElixSure(R) line now offers parents a choice between acetaminophen and ibuprofen products for reducing fever and relieving pain in children.
TaroPharma
The TaroPharma division of Taro U.S.A. promotes proprietary prescription products directly to physicians. TaroPharma was established in January 2003 with fewer than 15 professional medical representatives. During 2003, additional representatives were hired and trained; TaroPharma's staff is now approximately 70 people.
TaroPharma representatives are visiting dermatologists and pediatricians to provide product samples and information related to the Topicort(R) line of high-potency topical corticosteroid products, Ovide(R), Taro's topical treatment for head lice, and U-cort(TM), a gentle topical corticosteroid cream suitable for pediatric use. In addition, TaroPharma representatives are distributing samples and clinical information to support the ElixSure(R) and Kerasal(R) product lines.
FDA Approvals
In addition to the approval of its NDA for ElixSure(R) IB, Taro U.S.A. received FDA approval for four Abbreviated New Drug Applications ("ANDAs") to date in 2004. These included Taro's phenytoin oral suspension, which is bioequivalent to Dilantin-125(R), a product of the Parke-Davis division of Warner Lambert. Phenytoin oral suspension is an antiepileptic prescription product used in controlling grand mal and temporal lobe seizures and is approved for pediatric use. FDA approvals also included clindamycin phosphate topical solution USP, 1%, bioequivalent to Pharmacia & Upjohn's Cleocin T(R), which is used in treating acne vulgaris, and hydrocortisone butyrate topical solution, 0.1%, bioequivalent to Ferndale Laboratories' Locoid(R) Topical Solution, which is used in treating inflammatory skin diseases. Taro's ANDA for terconazole vaginal cream, 0.8% was approved in April 2004. This product is bioequivalent to Ortho-McNeil Pharmaceutical's Terazol(R) 3 Vaginal Cream 0.8%. Terconazole cream is a prescription antifungal medication used for the local treatment of vulvovaginal candidiasis (yeast infections).
U.S. FDA Filings
Taro currently has 32 filings submitted to the FDA: 31 ANDAs, including tentative approvals for loratadine syrup and fluconazole tablets in four strengths, plus one NDA for a NonSpil(TM)-related product. By comparison, at this time last year, the Company had 23 filings at the FDA, including the NDA for ElixSure(R) IB. According to industry sources, the ANDAs in Taro's pipeline in 2004 address U.S. markets with annual sales in excess of one billion dollars. In addition, Taro has regulatory filings pending in Canada, Israel and other countries.
Proprietary Research
Clinical trials continue on T2000, the first compound in Taro's novel class of non-sedating barbiturates, which have potential applications in treating seizures, essential tremor, and other disorders. There can be no assurance of the regulatory approval or the successful commercialization of any proprietary pharmaceutical product for any indication.
"We intend to continue to invest in Taro's research programs and proprietary product initiatives," said Dr. Levitt. "While we do not know the timing of new product approvals and cannot predict the rate of growth of our proprietary products, we are confident that the company's research-based strategy will continue to succeed and that our proprietary products will continue to gain acceptance in the marketplace."
Balance Sheet
At March 31, 2004, total assets were $639.2 million, compared with $616.5 million at December 31, 2003. Cash and restricted short-term bank deposits were $113.2 million, compared with $161.6 million at the end of 2003. Accounts receivable - trade totaled $138.1 million, compared with $120.5 million at the end of 2003. Accounts receivable at March 31, 2004 includes approximately $20 million that customers withheld from payment to Taro U.S.A. in connection with customary deduction procedures. The Company believes that these amounts were withheld in error and that substantially all of these errors will be rectified in due course. Property, plant and equipment, net was $209.0 million, compared with $182.3 million at the end of 2003.
Total liabilities were $280.8 million, compared with $267.4 million at December 31, 2003. Current liabilities were $101.0 million, compared with $103.7 million at the end of 2003. Long-term liabilities were $173.2 million, compared with $156.9 million at the end of 2003. Shareholders' equity was $356.9 million, compared with $347.4 million at the end of 2003.
Increase in Tax Benefits from Approved Enterprise Status
Taro's production facilities in Israel have received "Approved Enterprise" status from the Israel Investment Center, entitling the Company to certain tax benefits on income derived from approved capital investments. Taro is a "foreign investors company" in Israel, and based on its level of capital investment, recently received an extension of benefits for an additional five-year period for its latest Approved Enterprise plan. This approval entitles the Company to a tax rate of not more than 10% on income subject to the plan, for a period of fifteen years ending in 2017.
Conference Call
The Company will conduct a conference call to discuss first quarter results on Thursday, April 29, 2004 at 11:00 a.m. Eastern Time (8:00 a.m. Pacific Time). The call will be available live via the Internet by accessing www.taro.com. Online and telephone replays of the call will be available from approximately 1:00 p.m. on April 29th through May 6, 2004. The online replay can be accessed at www.taro.com. The telephone replay can be heard by dialing 1-800-428-6051 (domestic U.S.) or +973-709-2089 (international) and entering the passcode 352645 when prompted.
Taro is a multinational, science-based pharmaceutical company, dedicated to meeting the needs of its customers through the discovery, development, manufacturing and marketing of the highest quality healthcare products.
For further information on Taro Pharmaceutical Industries Ltd., please visit the Company's website at www.taro.com.
Certain statements in this release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, statements that do not describe historical facts; events or circumstances the Company "anticipates," "expects," "plans," "intends," or "designs" to happen or exist; consumer, physician or marketplace acceptance of the Company's new or existing products; comments concerning marketing and consumer acceptance of proprietary products including ElixSure(R) and Kerasal(R) products; the potential benefits of ElixSure(R) products; initiatives undertaken by the Taro Consumer Healthcare Products and TaroPharma divisions; the Company's research and facilities expansion programs; Taro's filings with the FDA; and the Company's growth. Although Taro Pharmaceutical Industries Ltd. believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, it has no assurance that its expectations will be attained. Factors that could cause actual results to differ include general economic conditions, industry and market conditions, slower than anticipated penetration of new markets, changes in the Company's financial position, regulatory actions and legislative actions in the countries in which Taro operates, future demand and market size for products under development, marketplace acceptance of new or existing products, either generic or proprietary, and other risks detailed from time to time in the Company's SEC reports, including its 2002 Annual Report on Form 20-F where we explain that the preparation of the Company's financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We evaluate, on an ongoing basis, our estimates, including those related to bad debts, income taxes and contingencies. We base our estimates on currently available information, our historical experience and various other assumptions that we believe to be reasonable under the circumstances. The results of these assumptions are the basis for determining the carrying values of assets and liabilities that are not readily apparent from other sources. Since the factors underlying these assumptions are subject to change over time, the estimates on which they are based are subject to change accordingly. Forward-looking statements speak only as of the date on which they are made. The Company undertakes no obligations to update, change or revise any forward-looking statement, whether as a result of new information, additional or subsequent developments or otherwise.
TARO PHARMACEUTICAL INDUSTRIES LTD.
SUMMARY CONSOLIDATED BALANCE SHEETS
(US dollars in thousands)
MARCH 31, DECEMBER 31,
2004 2003
------------ ------------
Assets
Current Assets:
Cash and Cash Equivalents $106,360 $159,121
Restricted Short-Term Bank Deposits 6,850 2,518
Accounts Receivable - Trade 138,124 120,522
Accounts Receivable - Other and Prepaid
Expenses 17,588 17,046
Inventories 94,141 84,486
------------------------------------------- ------------ ------------
Total Current Assets 363,063 383,693
Long Term Investments 16,088 2,888
Property, Plant and Equipment, net 208,959 182,306
Deferred Taxes and Other Assets 51,116 47,636
------------------------------------------- ------------ ------------
TOTAL ASSETS $639,226 $616,523
=========================================== ============ ============
Liabilities and Shareholders' Equity
Current Liabilities:
Short-Term Bank Credits $18,870 $19,124
Current Maturities of Long-Term Liabilities 23,247 24,420
Accounts Payable and Accrued Expenses 58,871 60,194
------------------------------------------- ------------ ------------
Total Current Liabilities 100,988 103,738
Long-Term Liabilities 173,167 156,937
Deferred Taxes and Other Liabilities 6,615 6,737
------------------------------------------- ------------ ------------
Total Liabilities 280,770 267,412
Minority Interest 1,537 1,711
Shareholders' Equity 356,919 347,400
------------------------------------------- ------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $639,226 $616,523
=========================================== ============ ============
TARO PHARMACEUTICAL INDUSTRIES LTD.
SUMMARY CONSOLIDATED STATEMENTS OF INCOME
(US dollars in thousands, except per share data)
Three Months Ended
March 31,
2004 2003
------------ ------------
SALES $84,077 $68,968
Cost of Sales 27,714 24,588
------------ ------------
Gross Profit 56,363 44,380
Operating Expenses:
Selling, General and Administrative 34,148 17,541
------------ ------------
Operating Income before Research and
Development 22,215 26,839
Research and Development 11,720 8,722
------------ ------------
Operating Income 10,495 18,117
Financial Expenses - Net 1,809 271
------------ ------------
8,686 17,846
Other Income - Net 5 8
------------ ------------
8,691 17,854
Taxes on Income (2,258) 3,735
------------ ------------
10,949 14,119
Minority Share in Profits (Losses) of
Subsidiary (170) 130
------------ ------------
NET INCOME $11,119 $13,989
============ ============
Earnings per Ordinary Share $0.38 $0.49
Diluted Earnings per Ordinary Share $0.37 $0.47
Weighted Average Number of Shares-
BASIC EPS 28,990,049 28,790,973
DILUTED EPS 29,805,914 29,490,099
CONTACT: Taro Pharmaceutical Industries Ltd., Hawthorne
Daniel Saks, 914-345-9000 ext. 6208
Vice President, Corporate Affairs
Kevin Connelly, 914-345-9000 ext. 6338
Chief Financial Officer
SOURCE: Taro Pharmaceutical Industries Ltd.