Taro Reports Third Quarter and Nine Month 2005 Results.HAWTHORNE, N.Y. -- Taro Pharmaceutical Industries Ltd. ("Taro," the "Company," Nasdaq: TARO) today reported results for the Company's third quarter and the nine-month period ended September 30, 2005. Third Quarter 2005 Results Taro's third quarter sales were $72.5 million, compared with $73.3 million in the third quarter of 2004. Sales in the third quarter of 2004 included the contribution from proprietary over-the-counter ("OTC OTC See: Over-the-counter. OTC See over-the-counter market (OTC). ") product lines, which were divested earlier this year. Gross profit for the quarter was $37.7 million, compared with $42.5 million in the third quarter of 2004. Selling, general and administrative expenses ("SG&A") were $22.3 million, compared with $29.6 million in the year-ago quarter. The decrease in SG&A reflects a reduction of marketing expenses following the above mentioned divestiture The breakup of AT&T. By federal court order, AT&T divested itself on January 1, 1984 of its 23 operating companies, which became known as the Regional Bell Operating Companies (RBOCs). of the Company's proprietary OTC product lines and the Company's continuing focus on expense control. R&D expenses were $11.7 million, compared with $10.5 million for the third quarter of 2004. Operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. was $3.7 million, compared with $2.4 million for the year-ago quarter. Net income for the quarter was $2.1 million, or $0.07 per diluted share, compared with net income of $4.0 million, or $0.14 per diluted share, for the third quarter of 2004. Accounting Treatment Revised for ElixSure(R) and Kerasal(R) Divestiture In March 2005, the Company reported that it had entered into multi-year agreements to divest To deprive or take away. Divest is usually used in reference to the relinquishment of authority, power, property, or title. If, for example, an individual is disinherited, he or she is divested of the right to inherit money. its over-the-counter ElixSure(R) and Kerasal(R) products in North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. . Pursuant to the terms of the agreements, including the sale of inventories, the Company received $10 million in cash in the first quarter. Among other matters, the agreements provide for additional payments to be made to Taro in each of the next three years. The Company accounted for the initial $10 million payment by recording the sale of inventories of approximately $4.9 million in the first quarter, and deferring the remaining $5.1 million, as well as all other revenues to be recognized over the ensuing en·sue intr.v. en·sued, en·su·ing, en·sues 1. To follow as a consequence or result. See Synonyms at follow. 2. To take place subsequently. three-year contract period. The Company has reconsidered the timing of revenue recognition for a portion of the $4.9 million in sales in the first quarter and accordingly revised the accounting treatment to allocate that portion over the three-year contract period. This change did not have any effect on the Company's cash position. The change will reduce revenue and net income in the first quarter of 2005 by $4.8 million and $1.2 million respectively, and allocate the amount of the reduction in revenue and net income over the three-year contract period. In the second quarter, revenue was increased by $0.4 million and net income by $0.1 million. The results of the third quarter and the nine months reflect these changes. Nine Month Results Sales were $225.3 million for the nine-month period ended September 30, 2005, compared with $206.5 million for the same period in 2004. The Company's gross profit in the nine-month period was $123.0 million, compared with $122.4 million for the same period in 2004. SG&A expenses for the nine-month period were $72.1 million, compared with $94.4 million for the year-ago period. R&D expenses were $33.3 million for the first nine months of this year, compared with $32.7 million in the year-ago period. Operating income for the nine-month period was $17.7 million, compared with an operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. of $4.7 million for the year-ago period. Net income for the nine-month period was $12.6 million, or $0.42 per diluted share, compared with net income of $6.3 million, or $0.21 per diluted share, for the first nine months of 2004. Discussion of Third Quarter Results The results for the third quarter of 2005 were affected by various factors, including price erosion, an increase in production costs resulting from the strengthening of the Canadian dollar Noun 1. Canadian dollar - the basic unit of money in Canada; "the Canadian dollar has the image of loon on one side of the coin" loonie dollar - the basic monetary unit in many countries; equal to 100 cents against the U.S. dollar, and the mix of products sold. In the third quarter of 2005, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. industry sources, total prescriptions for Taro products increased approximately 8% compared with the third quarter of 2004 and approximately 3% from the second quarter of 2005. Sales were reduced from $79.0 million in the second quarter of 2005 to $72.5 million in the third quarter, while prescriptions for the Company's products increased. "The increase in prescriptions and the decrease in sales suggest a reduction in customer inventories," said Bill Seiden, Senior Vice-President of Sales and Marketing. Financial Position At September 30, 2005, Taro's total assets were $710.2 million, an increase of $13.4 million compared with $696.8 million at December 31, 2004. Total liabilities were $325.4 million at September 30, 2005, a decrease of $2.6 million compared with $328.0 million at the end of 2004. Shareholders' equity Shareholders' Equity A firms' total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity is the amount by which a company is financed through common and preferred shares. at September 30, 2005 was $384.1 million, an increase of $16.0 million compared with $368.1 million at the end of 2004. "Our results reflect the competitive nature of the generic drug generic drug, a drug sold or prescribed under the nonproprietary name of its active ingredients or under a generally descriptive name rather than under a brand or trade name. industry and our continuing investment in the development of proprietary and generic drugs," said Barrie Levitt, M.D., Chairman of the Board. "We believe that Taro has a robust pipeline which includes the critical products necessary to sustain the long-term growth of our generic business. In addition, two of our major proprietary research initiatives are approaching definitive clinical studies." Proprietary Research Update Novel Formulation of Ovide(R) On October 26, 2005, the Company announced that it will initiate a multi-center Phase III Noun 1. phase III - a large clinical trial of a treatment or drug that in phase I and phase II has been shown to be efficacious with tolerable side effects; after successful conclusion of these clinical trials it will receive formal approval from the FDA study in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. to evaluate a novel formulation of Ovide(R), a prescription product for control of head lice head lice Pediculosis capitis Public health A louse transmitted in crowded conditions–eg, day care centers, homeless shelters Treatment Topical insecticides–permethrin, synergized pymethrin, malathion. See Crabs. (Pediculus humanus capitis) in pediatric pediatric /pe·di·at·ric/ (pe?de-at´rik) pertaining to the health of children. pe·di·at·ric adj. Of or relating to pediatrics. and adult subjects. Taro Pharmaceuticals U.S.A., Inc. currently markets Ovide(R) (malathion) Lotion lotion /lo·tion/ (lo´shun) a liquid suspension, solution, or emulsion for external application to the body. lo·tion n. 1. , 0.5%. The Company expects that the new formulation of Ovide(R) will maintain the efficacy of Ovide(R) Lotion with shorter application time and greater ease of use, thus improving patient compliance. Approximately six to twelve million cases of head lice are reported annually in the United States, according to the American Academy of Pediatrics The American Academy of Pediatrics ("AAP") is an organization of pediatricians, physicians trained to deal with the medical care of infants, children, and adolescents. Its motto is: "Dedicated to the Health of All Children. . Taro has filed a patent application in the U.S. Patent and Trademark Office with claims that cover this new, proprietary formulation. There can be no assurance as to the successful outcome of any studies of the novel formulation of Ovide(R), or of its eventual approval by any regulatory authorities or successful commercialization if approved. T2000 Studies T2000 is the first compound in a group of long-acting, non-sedating barbiturates Barbiturates Definition Barbiturates are medicines that act on the central nervous system and cause drowsiness and can control seizures. Purpose under development at Taro. As reported earlier, the Canadian Health Products and Food Branch The Health Products and Food Branch (HPFB) of Health Canada manages the health-related risks and benefits of health products and food by minimizing risk factors while maximizing the safety provided by the regulatory system. Inspectorate has approved a multi-center, randomized ran·dom·ize tr.v. ran·dom·ized, ran·dom·iz·ing, ran·dom·iz·es To make random in arrangement, especially in order to control the variables in an experiment. , double-blind, placebo-controlled Phase III study of T2000 in patients with essential tremor Essential tremor An uncontrollable (involuntary) shaking of the hands, head, and face. Also called familial tremor because it is sometimes inherited, it can begin in the teens or in middle age. The exact cause is not known. . Essential tremor is a common form of involuntary shaking not related to Parkinson's disease Parkinson's disease or Parkinsonism, degenerative brain disorder first described by the English surgeon James Parkinson in 1817. When there is no known cause, the disease usually appears after age 40 and is referred to as Parkinson's disease. . It is estimated that essential tremor affects more than five million people in the U.S. To date, T2000 has been administered to 165 people in Phase I and II studies to evaluate the compound's safety and efficacy. There can be no assurance of the ultimate demonstration of safety and efficacy, or successful completion of Phase III testing, or of the approval by any regulatory authority of T2000 for any indication, or of its commercial success if and when approved. FDA FDA abbr. Food and Drug Administration FDA, n.pr See Food and Drug Administration. FDA, n.pr the abbreviation for the Food and Drug Administration. Approvals During the third quarter, the Company reported that five final approvals were received from the U.S. Food and Drug Administration ("FDA") for Abbreviated New Drug Applications abbreviated new drug application Pharmacology An application made in the US by a pharmaceutical company requesting authority to market a 'new' drug for which both its therapeutic indications and formulation were previously approved by the FDA in another similar ("ANDAs") for topical generic pharmaceutical products. Three are prescription corticosteroids Corticosteroids Definition Corticosteroids are group of natural and synthetic analogues of the hormones secreted by the hypothalamic-anterior pituitary-adrenocortical (HPA) axis, more commonly referred to as the pituitary gland. used in treating inflammatory skin conditions: Hydrocortisone Butyrate hydrocortisone butyrate Locoid Pharmacologic class: Short-acting corticosteroid Therapeutic class: Anti-inflammatory (steroidal) Pregnancy risk category C ActionCream USP USP - unique sales point , 0.1%, bioequivalent bi·o·e·quiv·a·lentn. A value indicating the rate at which a substance enters the bloodstream and becomes available to the body. to Ferndale Laboratories' Locoid(R) cream; Halobetasol Propionate halobetasol propionate (halōbā´t  sol prō´pē Cream, 0.05%, bioequivalent to Bristol-Myers Squibbs' Ultravate(R)
cream; and Alclometasone Dipropionate Cream USP, 0.05%, bioequivalent to
GlaxoSmithKline's Aclovate(R) cream. Two are prescription products
used in treating infections of the skin: Ciclopirox Topical Suspension
USP, 0.77%, an antifungal antifungal /an·ti·fun·gal/ (-fung´gal)1. destructive to fungi, or suppressing their reproduction or growth; effective against fungal infections. 2. an agent that so acts. product, which is bioequivalent to Medicis Pharmaceutical Medicis Pharmaceutical is a pharmaceutical company headquartered in Scottsdale, Arizona. One of their divisions is Ucyclyd Pharma. External links
oint·ment n. USP, 2%, an antibiotic used to treat impetigo impetigo (ĭmpətī`gō), contagious skin infection affecting mainly infants and children. The causative organisms are either hemolytic streptococci or staphylococci. . This product is bioequivalent to GlaxoSmithKline's Bactroban(R) Ointment. In addition, during the quarter, Taro received tentative approval from the FDA of its ANDA ANDA abbr. abbreviated new drug application for Gabapentin Capsules 100 mg, 300 mg, and 400 mg. Tentative approvals do not grant marketing rights. On October 4, 2005, Taro received FDA approval of its New Drug Application for Loratadine Oral Suspension, 5mg / 5mL. This spill-resistant OTC product, used for the temporary relief of symptoms due to upper respiratory allergies, utilizes the proprietary NonSpil(R) liquid drug delivery system developed by Taro researchers. FDA Filings Currently, Taro has 25 ANDA filings at the FDA, including four tentative approvals. These filings address U.S. markets with annual sales of more than $1 billion. In addition, Taro and its affiliates have regulatory filings in Canada, Israel and other countries. Conference Call The Company will conduct a conference call to discuss third quarter and nine-month results on Thursday, November 17, 2005 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. An online replay will be available through November 25, 2005 on www.taro.com. A telephone replay will also be available through November 25, 2005 by dialing 1-888-286-8010 (domestic U.S.) or +617-801-6888 (international) and providing the passcode 69447933. Taro Pharmaceutical Industries Ltd. 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 more information on the Company, please visit www.taro.com. SAFE HARBOR Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. STATEMENT Certain statements in this release are forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. within the meaning of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. These statements include, but are not limited to, statements that do not describe historical facts, statements that include the words "hope," "will," "believe," "suggest," "anticipate," "expect," "plan," "intend," or "design" to happen or exist, or similar language; and statements concerning the Company's sales and profitability, the impact of strategic initiatives, customer inventory levels, cost reductions, studies of Ovide(R) and T2000, recently approved products, the market environment, and the market size of the Company's pipeline. 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, the ability of third parties to execute their agreements with Taro successfully, 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 Annual Reports 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 Carrying Value Also know as "book value," it is a company's total assets minus intangible assets and liabilities, such as debt. Notes: This is different than market value, as it can be higher or lower depending on the circumstances. 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)
September 30, June 30, December 31,
2005 2005* 2004
------------- ------------ ------------
Assets
Current Assets:
Cash and Cash Equivalents $76,740 $78,665 $98,630
Restricted Short-Term Bank
Deposits 6,738 6,750 6,598
Accounts Receivable - Trade 139,838 138,965 124,674
Accounts Receivable - Other
and Prepaid Expenses 20,436 20,086 16,621
Inventories 79,011 79,003 86,591
------------------------------ ------------- ------------ ------------
Total Current Assets 322,763 323,469 333,114
Long Term Investments 19,558 18,512 19,984
Property, Plant and Equipment,
net 266,080 260,383 241,966
Deferred Taxes and Other
Assets 101,829 103,435 101,783
------------------------------ ------------- ------------ ------------
TOTAL ASSETS $710,230 $705,799 $696,847
============================== ============= ============ ============
Liabilities and Shareholders'
Equity
Current Liabilities:
Short-Term Bank Credits $63,126 $67,282 $64,961
Current Maturities of Long-
Term Liabilities 20,009 19,325 16,944
Accounts Payable and Accrued
Expenses 44,154 51,669 49,624
------------------------------ ------------- ------------ ------------
Total Current Liabilities 127,289 138,276 131,529
Long -Term Liabilities 187,250 179,495 187,346
Deferred Taxes and Other
Liabilities 10,879 10,726 9,158
------------------------------ ------------- ------------ ------------
Total Liabilities 325,418 328,497 328,033
Minority Interest 668 664 694
Shareholders' Equity 384,144 376,638 368,120
------------------------------ ------------- ------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $710,230 $705,799 $696,847
============================== ============= ============ ============
* Revised to reflect change in accounting treatment of ElixSure(R) and
Kerasal(R) transaction.
TARO PHARMACEUTICAL INDUSTRIES LTD.
SUMMARY CONSOLIDATED STATEMENTS OF INCOME
(US dollars in thousands, except per share data)
Quarter Ended Nine Months Ended
September 30, September 30,
2005 2004 2005* 2004
----------- ----------- ----------- -----------
SALES $72,541 $73,282 $225,297 $206,462
Cost of Sales 34,809 30,743 102,266 84,070
----------- ----------- ----------- -----------
Gross Profit 37,732 42,539 123,031 122,392
Operating Expenses:
Selling, General and
Administrative 22,319 29,628 72,058 94,351
Research and
Development 11,664 10,502 33,263 32,731
----------- ----------- ----------- -----------
Operating Income
(Loss) 3,749 2,409 17,710 (4,690)
Financial and other
Expenses - Net 2,080 1,658 5,710 5,645
----------- ----------- ----------- -----------
Income (Loss) Before
Income Taxes 1,669 751 12,000 (10,335)
Taxes on Income (477) (3,041) (538) (15,651)
Minority Share in
Profits (Loss) of
Subsidiary 4 (237) (27) (973)
----------- ----------- ----------- -----------
NET INCOME $2,142 $4,029 $12,565 $6,289
=========== =========== =========== ===========
Earnings per Ordinary
Share $0.07 $0.14 $0.43 $0.22
Diluted Earnings per
Ordinary Share $0.07 $0.14 $0.42 $0.21
Weighted Average
Number of Shares-
BASIC EPS 29,277,846 29,069,163 29,235,477 29,027,753
DILUTED EPS 29,597,293 29,485,542 29,619,815 29,670,162
* Revised to reflect change in accounting treatment of ElixSure(R) and
Kerasal(R) transaction.
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