Taro Pharmaceutical Industries Ltd. (NYSE:TARO) (“Taro” or the “Company”) today provided unaudited financial results for the three and nine months ended December 31, 2016.

Quarter ended December 31, 2016 Highlights - compared to December 31, 2015

  • Net sales of $220.4 million, decreased $37.9 million, or 14.7%, the result of continuing increased competition and the challenging pricing environment. Overall volumes increased 1%.
  • Gross profit of $167.3 million decreased $46.8 million, and as a percentage of net sales, was 75.9% compared to 82.9%.
  • Research and development expenses remained in line with the comparable quarter at $18.0 million.
  • Selling, marketing, general and administrative expenses (SG&A) decreased $2.6 million to $20.3 million, principally the result of reduced marketing spend related to Keveyis.
  • Operating income of $129.0 million decreased $44.4 million and as a percentage of net sales was 58.5% as compared to 67.1% in the prior year quarter.
  • FX income decreased $5.4 million to $18.5 million, principally the result of the strengthening of the U.S. vs. Canadian dollar at a lower rate than in prior period.
  • Other income of $9.0 million increased $8.3 million vs. the prior period, due to the sale of Keveyis in December 2016.
  • Tax expense increased $8.7 million to $20.5 million resulting in an effective tax rate of 12.8% compared to 5.9%. This increase is principally the result of certain tax benefits reflected in the prior year, not realized in the current year quarter, as well as the geographic mix of products manufactured in 2016.
  • Net income attributable to Taro was $139.8 million compared to $189.0 million, resulting in diluted earnings per share of $3.42 compared to $4.41 for the same period last year.

Nine Months ended December 31, 2016 Highlights - compared to December 31, 2015

  • Net sales of $683.0 million, slightly decreased $2.7 million, or 0.4%. Overall volumes increased 2%.
  • Gross profit decreased $27.3 million to $527.4 million and as a percentage of net sales, was 77.2% compared to 80.9%.
  • Research and development expenses of $50.8 million remained relatively in line with prior year expenses.
  • SG&A expenses decreased $6.4 million to $63.5 million, principally as a result of reduced Keveyis spend and we continue to actively manage and gain efficiencies, as well as remaining disciplined with our overall spend.
  • Operating income of $413.2 million decreased $19.5 million, and as a percentage of net sales was 60.5% as compared to 63.1%.
  • FX income decreased $28.5 million to $26.0 million, principally driven by the strengthening of the U.S. vs. Canadian dollar at a lower rate compared to the prior year. The FX is mainly balance sheet driven.
  • Other income of $10.5 million increased $8.6 million, primarily driven by the sale of Keveyis.
  • Tax expense increased $14.1 million, principally the result of certain tax benefits reflected in the prior year, not realized in the current year, resulting in the effective tax rate increasing to 18.8% from 14.5%.
  • Net income attributable to Taro was $373.4 million compared to $426.0 million, resulting in diluted earnings per share of $8.99 compared to $9.95 for the nine months ended December 31, 2015.

Mr. Abhay Gandhi, Taro’s Interim CEO stated, “We continue to face challenging headwinds given an increasingly competitive environment, highlighted by new entrants to our base business and pressure from buyer consolidations.” Mr. Gandhi continued, “While these factors are impacting the generic sector as a whole, and not unique to Taro, we believe we are well positioned in the market. We continue to invest in R&D to nurture our pipeline as we consistently look for ways to generate value from our product portfolio. I am encouraged by the continuing increase in generic volumes that we are experiencing throughout the year.”

Cash Flow and Balance Sheet Highlights

  • Cash flow provided by operations for the nine months ended December 31, 2016, was $320.5 million compared to $239.7 million for the nine months ended December 31, 2015.
  • As of December 31, 2016, cash, including short-term bank deposits and marketable securities, decreased $120.4 million to $1.1 billion from March 31, 2016, mainly due to the $269.7 million impact from the Company’s share repurchases, and a $143.5 million increase in long-term bank deposits.

FDA Approvals and Filings

The Company recently received an approval from the U.S. Food and Drug Administration (“FDA”) for an Abbreviated New Drug Application (“ANDA”) Acyclovir Ointment USP, 5%. The Company currently has a total of thirty-six ANDAs awaiting FDA approval.

Officer and Director Appointments

On November 22, 2016, the Company announced the appointment of Mr. Uday Baldota as Chief Executive Officer and as a nominee to Taro’s Board of Directors. His nomination was subsequently approved by the Company’s shareholders at the annual general meeting (AGM) on December 29, 2016.

In addition to Mr. Baldota’s nomination, Mr. Abhay Gandhi, was also nominated to the Board. His nomination was also approved by the shareholders at the AGM and he is expected to as assume the role of Vice Chairman in early 2017. On December 1, 2016, Mr. Gandhi was appointed to the position of Interim Chief Executive Officer, effective January 1, 2017, and will serve in this role until Mr. Baldota’s arrival.

Due to Taro’s regular rotation principle for external directors, Mr. Dan Biran and Ms. Ilana Avidov-Mor are retired from Taro’s Board of Directors after six years of dedicated service. Two well-qualified candidates were nominated, and approved at the AGM, to fill these vacancies – Mrs. Linda Benshoshan and Mr. Elli Streit.

Share Repurchase Program

On November 23, 2016, the Company announced that its Board of Directors approved a new $250 million share repurchase of ordinary shares. This authorization follows the successful completion of the previous $250 million share repurchase program on August 19, 2016. Under the initial authorization, the Company bought back 1,801,099 of its ordinary shares, of which 1,733,760 shares were purchased subsequent to April 1, 2016.

Under the November 2016, authorization, repurchases may be made from time to time at the Company’s discretion, based on ongoing assessments of the capital needs of the business, the market price of its stock, and general market conditions. No time period has been set for the repurchase program, and any such program may be suspended or discontinued at any time. The repurchase authorization enables the Company to purchase its ordinary shares from time to time through open market purchases, negotiated transactions or other means, including 10b5-1 trading plans in accordance with applicable securities laws or other restrictions. The table below presents the purchase of ordinary shares as of January 31, 2017, which were acquired in accordance with a 10b5-1 program:

     
Period  

Total Number of
Shares Purchased
as Part of the
Current Program

  

Average Price Paid per Share

  

Dollar Value of
Shares that may yet
be Purchased Under
the Program

November 25, 2016 - November 30, 2016   68,641   $105.21    
December 1, 2016 - December 31, 2016   242,821   $104.87    
January 1, 2017 - January 31, 2017   156,353   $103.33    
TOTAL 467,815   $104.40   $201,157,915
 

Sale of Keveyis

On December 23, 2016, Taro announced the sale of the U.S. rights to Keveyis® (dichlorphenamide) to Strongbridge Biopharma plc (Strongbridge). Under the terms of the purchase agreement, Strongbridge will provide Taro with upfront and deferred payments of $8.5 million in two installments; Taro is also eligible to receive additional future payments upon the achievement of certain sales unit milestones. Taro has agreed to continue to manufacture Keveyis for Strongbridge, under an exclusive supply agreement at least for the period of Keveyis orphan exclusivity, subject to certain commercial terms and conditions, including minimum supply purchases.

About Taro

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 further information on Taro Pharmaceutical Industries Ltd., please visit the Company’s website at www.taro.com.

SAFE HARBOR STATEMENT

The unaudited consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments necessary to present fairly the financial condition and results of operations of the Company. The unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 20-F, as filed with the SEC.

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 or that refer or relate to events or circumstances the Company “estimates,” “believes,” or “expects” to happen or similar language, and statements with respect to the Company’s financial performance, availability of financial information, and estimates of financial results and information for fiscal year 2017. Although the Company believes the expectations reflected in such forward-looking statements to be based on reasonable assumptions, it can give no assurances that its expectations will be attained. Factors that could cause actual results to differ include general domestic and international economic conditions, industry and market conditions, changes in the Company's financial position, litigation brought by any party in any court in Israel, the United States, or any country in which Taro operates, regulatory and legislative actions in the countries in which Taro operates, and other risks detailed from time to time in the Company’s SEC reports, including its Annual Reports on Form 20-F. Forward-looking statements are applicable 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 STATEMENTS OF INCOME
(Unaudited)
(U.S. dollars in thousands, except share data)
 
Quarter Ended Nine Months Ended
December 31, December 31,

2016

2015

2016

2015

Sales, net $ 220,395 $ 258,342 $ 682,973 $ 685,678
Cost of sales 53,053 44,166 155,366 128,994
Impairment   -     -     184     1,947  
Gross profit 167,342 214,176 527,423 554,737
 
Operating Expenses:
Research and development 18,001 17,944 50,766 51,212
Selling, marketing, general and administrative 20,312 22,866 63,450 69,804
Settlements and loss contingencies   -     (27 )   -     973  
Operating income 129,029 173,393 413,207 432,748
 
Financial (income) expense, net:
Interest and other financial income (3,961 ) (3,038 ) (10,814 ) (9,708 )
Foreign exchange income (18,533 ) (23,887 ) (25,998 ) (54,545 )
Other gain, net   9,009     710     10,466     1,820  
Income before income taxes 160,532 201,028 460,485 498,821
Tax expense   20,483     11,831     86,467     72,363  
Income from continuing operations 140,049 189,197 374,018 426,458
Net loss from discontinued operations attributable to Taro   (137 )   (101 )   (314 )   (202 )
Net income 139,912 189,096 373,704 426,256
Net income attributable to non-controlling interest   94     98     334     274  
Net income attributable to Taro $ 139,818   $ 188,998   $ 373,370   $ 425,982  
 
Net income per ordinary share from continuing operations attributable to Taro:
Basic $ 3.42   $ 4.41   $ 9.00   $ 9.95  
Diluted $ 3.42   $ 4.41   $ 9.00   $ 9.95  
 
Net loss per ordinary share from discontinued operations attributable to Taro:
Basic $ (0.00 )

*

$ (0.00 ) * $ (0.01 ) $ (0.00 )

*

Diluted $ (0.00 ) * $ (0.00 ) * $ (0.01 ) $ (0.00 )

*

 
Net income per ordinary share attributable to Taro:
Basic $ 3.42   $ 4.41   $ 8.99   $ 9.95  
Diluted $ 3.42   $ 4.41   $ 8.99   $ 9.95  
 
Weighted-average number of shares used to compute net income per share:
Basic   40,961,015     42,833,533     41,541,010     42,833,533  
Diluted   40,961,015     42,833,533     41,541,010     42,833,533  
 
* Amount is less than $0.01
May not foot due to rounding.
 
 
TARO PHARMACEUTICAL INDUSTRIES LTD.
SUMMARY CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands)
       
December 31,

March 31,

2016 2016
ASSETS (unaudited) (audited)
CURRENT ASSETS:
Cash and cash equivalents $ 549,646 $ 576,757
Short-term and current maturities of long-term bank deposits 555,127 648,297
Marketable securities 3,422 3,572
Accounts receivable and other:
Trade, net 251,623 238,611
Other receivables and prepaid expenses 275,103 270,724
Inventories 145,955 138,553
Long-term assets held for sale, net   999   1,081
TOTAL CURRENT ASSETS 1,781,875 1,877,595
Long-term bank deposits 258,685 115,173
Property, plant and equipment, net 173,446 159,459
Other assets   33,173   35,806
TOTAL ASSETS $ 2,247,179 $ 2,188,033
 
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade payables and other current liabilities $ 239,463 $ 245,462
TOTAL CURRENT LIABILITIES 239,463 245,462
Deferred taxes and other long-term liabilities   5,457   5,427
TOTAL LIABILITIES 244,920 250,889
 
Taro shareholders' equity 1,995,923 1,931,142
Non-controlling interest   6,336   6,002
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,247,179 $ 2,188,033
 
 
TARO PHARMACEUTICAL INDUSTRIES LTD.
SUMMARY CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(U.S. dollars in thousands)
 
Nine Months Ended December 31,
  2016     2015  
Cash flows from operating activities:
Net income $ 373,704 $ 426,256
Adjustments required to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 11,067 11,304
Impairment for long-lived assets 184 1,947
Realized (gain) loss on sale of marketable securities and long-lived assets (8,517 ) 91
Change in derivative instruments, net 4,501 (6,242 )
Effect of change in exchange rate on inter-company balances and bank deposits (30,017 ) (52,860 )
Deferred income taxes, net (13,138 ) (43,768 )
Increase in trade receivables, net (13,411 ) (58,129 )
Increase in inventories, net (9,120 ) (9,878 )
Decrease (increase) in other receivables, income tax receivable, prepaid expenses and other 16,744 (16,888 )
Decrease in trade, income tax and other payables and accrued expenses   (11,542 )   (12,122 )
Net cash provided by operating activities   320,455     239,711  
 
Cash flows from investing activities:
Purchase of plant, property & equipment, net (26,377 ) (13,111 )
Proceeds from (investment in) other intangible assets 955 (134 )
Proceeds from other assets - 35,000
Proceeds from (investment in) short-term bank deposits 250,854 (8,808 )
Investment in long-term deposits and other assets (301,616 ) (200,676 )
Proceeds from restricted bank deposits - 199
Proceeds from (investment in) marketable securities, net   95     (105 )
Net cash used in investing activities   (76,089 )   (187,635 )
 
Cash flows from financing activities:
Purchase of treasury stock (269,712 ) -
Repayment of long-term debt   -     (5,888 )
Net cash used in financing activities   (269,712)   (5,888)
 
Effect of exchange rate changes on cash and cash equivalents   (1,765 )   (4,615 )
(Decrease) increase in cash and cash equivalents (27,111 ) 41,573
Cash and cash equivalents at beginning of period   576,757     481,641  
Cash and cash equivalents at end of period $ 549,646   $ 523,214  
Non-cash operating transactions:
Sale of Intangible Asset $ 7,500   $ -  
Non-cash investing transactions:
Purchase of property, plant and equipment included in accounts payable $ 354   $ 949  
Non-cash financing transactions:
Purchase of treasury stock $ 3,602   $ -