DETROIT, Jan. 29 /PRNewswire-FirstCall/ -- Caraco Pharmaceutical Laboratories, Ltd. (NYSE Alternext US: CPD) posted net sales for the third quarter ended December 31, 2008 and first nine months of Fiscal 2009 of $55.7 million and $286.2 million, respectively, as compared to $81.9 million and $158.6 million, respectively, for the third quarter and first nine months of Fiscal 2008, reflecting a decrease of 32% in the third quarter of Fiscal 2009 and an increase of 80% in the first nine months of Fiscal 2009, as compared to the corresponding periods of Fiscal 2008. The Company earned a net pre-tax income of $6.5 million and $33.4 million, respectively, during the third quarter and first nine months of Fiscal 2009, as compared to a net pre-tax income of $10.1 million and $24.6 million during the corresponding periods of Fiscal 2008. Caraco earned net income of $5.1 million and $22.9 million, respectively, for the third quarter and first nine months of Fiscal 2009, compared to net income of $10.8 million and $23.9 million, respectively, for the corresponding periods of Fiscal 2008.
Daniel H. Movens, Caraco's Chief Executive Officer, said, "The sales decline in third quarter Fiscal 2009 was primarily due to sales of one product (oxcarbazepine), launched under our marketing agreement with Sun Pharmaceutical Industries Limited during the third quarter of Fiscal 2008. The sales in third quarter Fiscal 2008 were significantly higher than current sales during the third quarter of Fiscal 2009 since this product enjoyed 180 days shared exclusivity in Fiscal 2008, which allowed its higher sales. Subsequent to the end of the exclusivity period, which occurred during the first quarter of Fiscal 2009, the net realizations for this product have decreased significantly as several other competitors have entered the market for this generic product. The increase in the first nine months of Fiscal 2009 of 80% is primarily due to sales of pantoprazole partially offset by the reduction in oxcarbazepine sales."
Third Quarter and First Nine Months Fiscal 2009 Results
Net sales for the third quarter ended December 31, 2008 and first nine months of Fiscal 2009 were $55.7 million and $286.2 million, respectively, as compared to $81.9 million and $158.6 million, respectively, for the third quarter and first nine months of Fiscal 2008, reflecting a decrease of 32% in the third quarter of Fiscal 2009 and an increase of 80% in the first nine months of Fiscal 2009, as compared to the corresponding periods of Fiscal 2008. The decrease in net sales for the third quarter of Fiscal 2009, as compared to the corresponding period of Fiscal 2008 is primarily due to lower sales of distributed products by the Company under the marketing agreement with Sun Pharma, and to a lesser extent, sales of manufactured products. Also as previously disclosed, the sales of Para IV products being marketed under the distribution and sales agreement may not be sustainable. A significant decrease on the sale of a Para IV product (pantoprazole) contributed to the lower sales in third quarter Fiscal 2009 as compared to first two quarters of Fiscal 2009.
Mr. Movens added, "Though the first nine months of Fiscal 2009 reflects growth of 80% over the corresponding period of Fiscal 2008, we believe that full-year Fiscal 2009 sales will be in line with level achieved during Fiscal 2008. This is based primarily on the reduction in sales on pantoprazole, and to a lesser extent our manufactured product sales. We have not taken any specific position on projected pantoprazole sales at this time. This product was launched at risk as part of our distribution and sale agreement with Sun Pharma. This product remains under litigation. We will continue to assess our level of risk that we are comfortable with and once we cross that threshold, we will have to weigh our options."
The gross profit margin as a percentage of net sales for the third quarter and first nine months of Fiscal 2009 was 29% and 21%, respectively, as compared to 28% and 36%, respectively, during the corresponding periods of Fiscal 2008. The decrease in the nine month period margin was primarily due to the weight of increased sales of distributed products versus the sales of manufactured products, which had an impact on the overall margins. The gross profit margin on distributed products was 10% and 9%, respectively, for the third quarter and first nine months of Fiscal 2009, as compared to 15% and 16%, respectively, for the corresponding periods of Fiscal 2008. The decrease was primarily due to the weight of increased sales of Para IV products, which earn lower margins as a percentage of sales versus the sale of other distributed products. The gross profit margin for manufactured products was 45% and 48%, respectively, for the third quarter and first nine months of Fiscal 2009, as compared to 49% for both of the corresponding periods of Fiscal 2008. Manufactured product margins have remained fairly stable during the Fiscal 2009 nine-month period. For the third quarter of Fiscal 2009, the overall gross profit margin for manufactured products was lower due to price erosion on certain products that faced new competition, as well as the change in customer mix. These rates may, or may not, remain at current levels in future periods.
Mr. Movens stated, "We are hopeful that manufactured margins remain in line with Fiscal 2008 as we continue to manage, among other things, various factors such as changes in product sales mix, the balance of product sold to the various classes of trade, price erosion, new competitors entering the market and protecting and growing our market share. We can not determine the mix of distributed product sales versus manufactured product sales in any given period as it depends on our ability to gain market share on each product and is relative to when the FDA approves any given product in either category of product and the revenue potential of that product once it has been approved."
Selling, general and administrative ("SG&A") expenses during the third quarter and first nine months of Fiscal 2009 were $3.7 million and $11.8 million, respectively, as compared to $3.7 million and $10.2 million, respectively, during the corresponding periods of Fiscal 2008, representing no change in the third quarter of Fiscal 2009 as compared to corresponding period of Fiscal 2008 and an increase of 16% in the first nine months of Fiscal 2009 versus the same period of Fiscal 2008. The increase in the nine-month period was mainly related to higher marketing and administrative efforts relative to the increase in sales.
Total R&D expenses for the third quarter and first nine months of Fiscal 2009 were $5.8 million and $16.9 million, respectively, as compared to $10.0 million and $23.8 million, respectively, during the corresponding periods of Fiscal 2008. The Company did not incur any non-cash R&D expenses (technology transfer costs) during the third quarter or first nine months of Fiscal 2009, as compared to $5.9 million and $11.3 million, respectively, for the corresponding periods of Fiscal 2008. The cash R&D expenses during the first nine months of Fiscal 2009 were higher compared to those during the corresponding period of Fiscal 2008 due to increased R&D activity, including increased patent related expenses and increases in other expenses in an effort to file more products with the FDA. The Company filed six Abbreviated New Drug Applications ("ANDAs"), relating to five products, with the FDA during the first nine months of Fiscal 2009. Caraco has received FDA approval for eight ANDAs, relating to three products during the first nine months of Fiscal 2009. This brings the Company's total number of ANDAs pending approval by the FDA to 25 (including four tentative approvals), relating to 21 products. We need to continue to improve our output on research and development by filing more ANDAs with the FDA so as to increase our own manufactured products portfolio. It is our intention to do so both internally and by utilizing third party developers.
Mr. Movens said, "The Company intends to aggressively move forward with the development of new products. We believe we will file additional products with the FDA before the end of Fiscal 2009. In addition to the Sun Pharma products agreement, we have implemented additional development strategies with various third parties, both domestically and abroad, that are intended to complement the Sun Pharma development pipeline. We anticipate additional development agreements will be entered into in order to eliminate any future gaps in our calendar of approvals that we anticipate from the FDA. We expect these agreements to run parallel to our own internal product development. In order to improve the amount of filings, we continue to fortify our own research and development team by adding formulators and increasing the number of products we have in development internally. We continue to be on track in our development expectations and subsequent filings."
We generated cash from operations in the amount of $0.2 million during the first nine months of Fiscal 2009, as compared to generating cash from operations of $24.3 million during the corresponding period of Fiscal 2008. The decrease in cash flows from operations was primarily due to a decrease in accounts payable balances offset, in part, by decreases in accounts receivable and inventory balances. At December 31, 2008, we had working capital of $104.4 million, compared to working capital of $104.5 million at March 31, 2008. Although the Company generated negative cash flows from operations in the first quarter of Fiscal 2009 in the amount of $27.4 million, the cash provided from operations during the second and third quarters of Fiscal 2009 were $19.2 million and $8.2 million, respectively. The Company's cash and cash equivalents balance was $34.0 million at December 31, 2008. Additionally, the Company has available a $10.0 million line of credit obtained through JP Morgan Chase Bank, N.A. Currently the credit line has no outstanding balances. The Company believes that its cash flows from operations will continue to support its business requirements. Further, during the first nine months of Fiscal 2009, the Company expended $21.7 million in purchases of property, plant and equipment, primarily to self-fund the expansion of its primary facility located in Detroit, Michigan. As of December 31, 2008, the expansion of this facility is nearing completion, and the Company believes that cash disbursements for capital expansions will decline significantly.
Mr. Movens stated, "The expansion of our facilities should provide us the capacity we need to supply our customers effectively. We are currently working on streamlining our procedures by adding improved systems and processes which should provide a quality output. Our training and succession planning is being enhanced both internally and by utilizing third parties, to support our growth and predict future operational efficiencies, and improved outcome in quality. We continue to work with local governments, universities and technical schools in order to provide the proper talented employees required to perform in a highly regulated business. We anticipate improved productivity and quality as our newer staff continues to increase their experience in their respective positions."
"With our planned expansion during Fiscal 2009, it remains important to have the proper management team in place to support the anticipated improvements and growth. Our production capacity and output needs to be increased in order to maximize sales throughout the remainder of Fiscal 2009 and beyond. Though we may decide to incur debt for target acquisitions or other business propositions, we currently remain free of any debt," Mr. Movens added.
On October 31, 2008, the Company received a warning letter from the Detroit District of the FDA. In this letter, the Agency reiterated some of the concerns detailed in the previous Form 483 issued as a result of our inspection that concluded in June 2008. These concerns included inadequate and untimely investigations by our quality control unit of certain incidents contrary to the Company's standard operating procedures. The FDA also commented on our corrective action plans. The FDA added that failure to promptly correct the deficiencies may result in legal action without further notice, including, without limitation, seizure and injunction. It also noted that other federal agencies may take this warning letter into account when considering the award of contracts. Additionally, the FDA may withhold approval of requests for export certificates, or approval of pending new drug applications. We promptly responded to the warning letter on November 24, 2008 for the deficiencies noted and provided our corrective actions. The Detroit District acknowledged our response on December 22, 2008. It noted that our corrective actions will be evaluated during the FDA's next scheduled inspection of our Detroit facility. It is unlikely that we will receive any approvals for products out of our Detroit facility until after our next inspection. At this time, no further meetings were deemed necessary by the FDA. We have changed our leadership in both manufacturing and quality control in order to better align these areas with our corporate goals.
"We believe we are substantially compliant with cGMP. We have corrective actions in place and continue to work to improve our quality system. It is our intention to be a model of compliance at all times. We remain confident in our action plan. We continue to invest in improved systems, equipment, training and personnel in quality and manufacturing to improve our overall performance in quality and production. In the last two years we have added a considerable amount of infrastructure in our quality control laboratories. Our current focus is on manufacturing and quality assurance. The Company's sales of current products continue in the normal course of business. We continue to add products to our portfolio through Sun Pharma and its affiliates that we will launch into the US," Mr. Movens concluded.
This press release should be read in conjunction with our Form 10-Q, which provides more detailed information on the results of the third quarter and first nine months of Fiscal 2009.
Detroit-based Caraco Pharmaceutical Laboratories, Ltd., develops, manufactures, markets and distributes generic and private-label pharmaceuticals to the nation's largest wholesalers, distributors, drugstore chains and managed care providers.
Safe Harbor: This news release contains forward-looking statements made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and are subject to risks and uncertainties that could cause actual results to differ materially from those described in the forward- looking statements. These risks and uncertainties are contained in the Corporation's filings with the Securities and Exchange Commission, including Item 1A to the Corporation's annual report on Form 10-K, and include, but are not limited to: information of a preliminary nature that may be subject to adjustment, potentially not obtaining or delay in obtaining FDA approval for new products, governmental restrictions on the sale of certain products, development by competitors of new or superior products or less expensive products or new technology for the production of products, the entry into the market of new competitors, market and customer acceptance and demand for new pharmaceutical products, availability of raw materials, timing and success of product development and launches, dependence on few products generating majority of sales, product liability claims for which the Company may be inadequately insured, and other risks identified in this report and from time to time in our periodic reports and registration statements. These forward- looking statements represent our judgment as of the date of this report. We disclaim, however, any intent or obligation to update our forward-looking statements.
Financial Statements to Follow CARACO PHARMACEUTICAL LABORATORIES, LTD. (A subsidiary of Sun Pharmaceutical Industries Limited) STATEMENTS OF INCOME Nine months ended Quarter ended December 31, December 31, 2008 2007 2008 2007 (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) Net sales $286,185,477 $158,614,840 $55,720,312 $81,859,956 Cost of goods sold 224,698,828 101,445,849 39,818,936 58,574,542 Gross profit 61,486,649 57,168,991 15,901,376 23,285,414 Selling, general and administrative expenses 11,790,777 10,159,869 3,735,532 3,723,144 Research and development costs - affiliate - 11,320,640 - 5,880,640 Research and development costs - other 16,886,738 12,476,952 5,820,799 4,087,742 Operating income 32,809,134 23,211,530 6,345,045 9,593,888 Other income (expense) Interest income 570,847 1,420,730 150,589 534,275 Loss on disposal of assets - (4,420) - (4,420) Other income 570,847 1,416,310 150,589 529,855 Net income before income taxes 33,379,981 24,627,840 6,495,634 10,123,743 Income tax expense / (benefit) 10,431,391 718,627 1,411,082 (649,339) Net income $22,948,590 $23,909,213 $5,084,552 $10,773,082 Net income per common share Basic 0.68 0.82 0.15 0.37 Diluted 0.57 0.63 0.13 0.28 Weighted number of Shares Basic 33,609,119 29,197,836 34,749,920 29,197,836 Diluted 40,577,201 38,035,421 40,608,355 38,169,114
|SOURCE Caraco Pharmaceutical Laboratories, Ltd.|
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