Taro Reports Second Quarter & Six-Month 2004 Results and Provides Update on Proprietary Drug Pipeline
HAWTHORNE, N.Y.--(BUSINESS WIRE)--July 29, 2004--Taro Pharmaceutical Industries Ltd. (Nasdaq:TARO) today reported results for the Company's second quarter and six months ended June 30, 2004, and provided investors with an update on the progress of the Company's proprietary product pipeline.
Second Quarter 2004 Results
Taro's second quarter sales were $49.1 million, compared with $74.8 million in the second quarter of 2003. Gross profit for the quarter was $23.5 million, compared with $50.0 million for the second quarter of 2003.
A substantial majority of the decrease in sales in the second quarter of 2004 was attributable to reduced purchases by several of the Company's largest wholesaler customers. Additional factors that impacted sales during the quarter were competitive pricing pressure on the Company's generic products and the mix of products sold.
The Company believes that the decrease in sales to wholesalers primarily reflects a decision by wholesalers to reduce inventories, including inventories of the Company's products. This belief is supported by independent industry sources, which indicate that prescriptions filled with Taro products have been increasing despite the reduced purchases of those products by wholesalers. In addition, customary deductions by wholesaler customers to the Company also indicate that sales of Taro products by wholesalers to retailers remain strong. Moreover, wholesalers have recently disclosed publicly that their inventories are decreasing. The Company noted that if end-user demand for its products continues at current or increased levels, it is reasonable to assume that wholesalers' inventories will have to be replenished with a consequent increase of sales to wholesalers. The Company has no assurance that this assumption will ultimately be validated or when, if ever, the replenishment process might begin.
Selling, general and administrative expenses for the quarter were $30.6 million, compared with $22.4 million in the year-ago quarter. SG&A expenses in the quarter reflect increases in selling costs associated with the professional medical representatives of the Company's TaroPharma division and the Company's U.S. marketing activities for proprietary products.
R&D expenses were $10.5 million, compared with $9.6 million for the year-ago quarter. The Company reported an operating loss of $17.6 million, compared with operating income of $18.0 million in the second quarter of 2003.
As a result of the lower than expected sales, the Company reported a net loss for the quarter of $8.9 million, or $0.31 per share, compared with net income of $14.8 million, or $0.50 per diluted share, for the year-ago quarter.
"While we are, of course, disappointed with our results for the second quarter, we believe that the decrease in sales is largely attributable to the timing of purchases by wholesale customers, who appear to be reducing their inventories," said Barrie Levitt, M.D., Chairman of the Company. "Overall prescriptions for our products have increased during the second quarter compared with last year, according to industry sources. Therefore, we believe that once the wholesalers adjust their current inventories, their purchasing patterns will normalize in future quarters.
"Taro will continue to invest in research and development activities, the Company's primary growth strategy, as well as in other initiatives that are designed to build shareholder value in the long term. We are confident in the quality of our submissions to the FDA; however, the timing of new product approvals is impossible to predict with certainty. In light of the results of the first six months, we are implementing a comprehensive review of all of our costs in order to reduce our expense profile," said Dr. Levitt. "This action will not only help our profitability in the short term, but will make Taro a stronger organization."
First Half 2004 Results
Taro's sales for the first half of 2004 were $133.2 million, compared with $143.7 million for the same period in 2003. The Company's gross profit in the six-month period was $79.9 million, compared with $94.4 million for the same period in 2003.
Selling, general and administrative expenses for the period were $64.7 million, compared with $39.9 million for the first half of last year. R&D expenses were $22.2 million, compared with $18.3 million for the year-ago period. The Company reported an operating loss of $7.1 million, compared with operating income of $36.1 million for the same period of 2003.
Net income was $2.3 million, or $0.08 per diluted share, compared with $28.8 million, or $0.97 per diluted share, for the year-ago period.
Financial Position
At June 30, 2004, Taro's total assets were $635.1 million, an increase of $18.6 million, compared with $616.5 million at December 31, 2003.
Total liabilities were $284.3 million, an increase of $16.9 million, compared with $267.4 million at the end of 2003.
Shareholders' equity at June 30, 2004 was $349.9 million, an increase of $2.5 million, compared with $347.4 million at the end of 2003.
Recent FDA Approvals:
Terconazole Vaginal Cream and Ammonium Lactate Lotion Approved
In April 2004, Taro's U.S. affiliate received approval from the U.S. Food and Drug Administration ("FDA") for its Abbreviated New Drug Application ("ANDA") for terconazole vaginal cream, 0.8%, bioequivalent to Ortho-McNeil Pharmaceutical's Terazol(R) 3 Vaginal Cream 0.8%. Terconazole cream is a prescription antifungal medication used for the treatment of vaginal yeast infections. According to industry sources, the Ortho-McNeil product had U.S. sales of $27.5 million in 2003.
In June 2004, Taro's U.S. affiliate received approval of its ANDA for ammonium lactate lotion, 12% from the FDA. The product, bioequivalent to Bristol-Myers Squibb's Lac-Hydrin(R) lotion, is a prescription product used for the treatment of dry, itchy, scaly skin (xerosis and ichthyosis vulgaris). According to industry sources, U.S. sales of ammonium lactate lotion products were approximately $26.9 million in 2003.
Proprietary Research:
T2000 and T2001
T2000 and T2001 are the first two new compounds in a group of long-acting, non-sedating barbiturates under development at Taro.
Recently, the Canadian Therapeutic Products Directorate (the Canadian equivalent of the FDA) approved a multi-center, randomized, double-blind, placebo-controlled Phase III study of T2000 in patients with essential tremor. The approval came after the Canadian authorities had reviewed the pre-clinical and human Phase I and Phase II studies on T2000. However, there can be no assurance of the success of Phase III studies, of regulatory approval or of commercialization of T2000 for any indication.
In a separate development, the U.S. Patent and Trademark Office recently issued a patent on T2000 and other members of the non-sedating barbiturate group of compounds for the protection of brain tissue from damage during an ischemic stroke. Research indicated that rats pre-treated with T2000 experienced significantly less brain tissue damage after an experimental stroke than rats that did not receive the drug. In addition, the data suggested that neurologic function was better preserved in the animals that had been pre-treated with T2000. Of course, there can be no assurance that T2000 or any members of its class will be effective in influencing the outcome of strokes in human beings or that these drugs will be commercialized for this or any other indication.
The European Patent Office has informed the Company that a composition of matter patent on T2001 is allowable. The U.S. Patent and Trademark Office had previously issued a patent on T2001. There can be no assurance of the successful development of T2001, or that T2001 will be commercialized for any indication.
U.S. FDA Filings
Currently, Taro has 32 filings at the FDA. These consist of 31 ANDAs, including tentative approvals for fluconazole tablets and loratadine syrup, plus a New Drug Application related to the Company's proprietary NonSpil(TM) liquid drug delivery system. In addition, the Company has regulatory filings in Canada, Israel and other countries. The ANDAs address U.S. markets with annual sales in excess of $1 billion.
Recent Developments
Following the close of the second quarter, Taro entered into an agreement with Medicis Pharmaceutical Corporation to license four dermatologic products for the U.S. and Canada with a purchase option. Lustra(R) and Lustra-AF(R) are used for the treatment of dyschromia or discoloration of the skin. The other two products have not yet been launched. The products will be promoted by the professional medical representatives of the TaroPharma division. Financial terms of the agreement have not been disclosed.
Conference Call
The Company will conduct a conference call to discuss second quarter and six month results on Thursday, July 29, 2004 at 11 a.m. Eastern Time (8 a.m. Pacific Time). The call will be available live via the Internet by accessing www.taro.com. An online replay will be available through August 5, 2004 on www.taro.com. A telephone replay will also be available through August 5, 2004 by dialing 1-800-428-6051 (domestic U.S.) or +973-709-2089 (international) and providing the passcode 365748 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.
SAFE HARBOR STATEMENT
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, statements that include the word "will" and statements with respect to events or circumstances the Company "believes", "anticipates", "expects", "plans", "intends", or "designs" to happen or exist. In addition, certain statements in this release express the Company's belief as to certain matters (including, for example, statements concerning the inventory levels maintained by drug wholesalers and the impact of the wholesalers' inventory management practices on the Company and its financial performance). Although the Company believes that such statements are based on reasonable assumptions and reliable sources, it has no assurance thereof. Factors that could cause actual results to differ include general economic conditions, industry and market conditions, changes in buying patterns by any of the Company's customers, 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 2003 Annual Report on Form 20-F. On an ongoing basis, the Company reviews (and, if appropriate, revises) its estimates, including those related to reserves for customer charge-backs, bad debts, income taxes and contingencies. The Company bases its estimates on currently available information, historical experience and various other assumptions that it believes to be reasonable under circumstances prevailing from time to time. 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)
June 30, December 31,
2004 2003
-------- ------------
Assets
Current Assets:
Cash and Cash Equivalents $94,161 $159,121
Restricted Short-Term Bank Deposits 6,870 2,518
Accounts Receivable - Trade 118,677 120,522
Accounts Receivable - Other and Prepaid Expenses 15,756 17,046
Inventories 101,665 84,486
------------------------------------------------ -------- ----------
Total Current Assets 337,129 383,693
Long Term Investments 16,991 2,888
Property, Plant and Equipment, net 220,018 182,306
Deferred Taxes and Other Assets 60,970 47,636
------------------------------------------------ -------- ----------
TOTAL ASSETS $635,108 $616,523
================================================ ======== ==========
Liabilities and Shareholders' Equity
Current Liabilities:
Short-Term Bank Credits $33,254 $19,124
Current Maturities of Long-Term Liabilities 11,420 24,420
Accounts Payable and Accrued Expenses 50,964 60,194
------------------------------------------------ -------- ----------
Total Current Liabilities 95,638 103,738
Long -Term Liabilities 181,807 156,937
Deferred Taxes and Other Liabilities 6,838 6,737
------------------------------------------------ -------- ----------
Total Liabilities 284,283 267,412
Minority Interest 975 1,711
Shareholders'
Equity 349,850 347,400
------------------------------------------------ --------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $635,108 $616,523
================================================ ========= ==========
TARO PHARMACEUTICAL INDUSTRIES LTD.
SUMMARY CONSOLIDATED STATEMENTS OF INCOME
(US dollars in thousands, except per share data)
Quarter Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
-------- --------- --------- ---------
SALES $49,103 $74,753 $133,180 $143,721
Cost of Sales 25,613 24,746 53,327 49,334
-------- --------- --------- ---------
Gross Profit 23,490 50,007 79,853 94,387
Operating Expenses:
Selling, General and
Administrative 30,575 22,403 64,723 39,944
Research and
Development 10,510 9,594 22,229 18,317
-------- --------- --------- ---------
Operating Income (Loss) (17,595) 18,010 (7,099) 36,126
Financial and Other
Expenses Net 2,183 321 3,987 583
-------- --------- --------- ---------
(19,778) 17,689 (11,086) 35,543
Taxes on Income (10,352) 2,757 (12,610) 6,492
-------- --------- --------- ---------
(9,426) 14,932 1,524 29,051
Minority Share in Profits
(Loss) of Subsidiary (566) 114 (736) 244
-------- --------- --------- ---------
NET INCOME (LOSS) $(8,860) $14,818 $2,260 $28,807
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Earnings (Loss) per
Ordinary Share $(0.31) $0.51 $0.08 $1.00
Diluted Earnings per
Ordinary Share $0.50 $0.08 $0.97
Weighted Average Number of
Shares:
BASIC 29,023,594 28,861,534 29,006,821 28,826,449
DILUTED 29,658,734 29,762,244 29,574,611
CONTACT: Taro Pharmaceutical Industries Ltd.
Daniel Saks, 914-345-9000 ext. 6208
or
Kevin Connelly, 914-345-9000 ext. 6338
SOURCE: Taro Pharmaceutical Industries Ltd.