Caraco Pharmaceutical Labortories Ltd (CPD) filed Quarterly Report for the period ended 2009-06-30.
CARACO PHARMACEUTICAL is engaged in the business of developing manufacturing and marketing generic drugs for the ethical (prescription) and over-the-counter(non-prescription) markets. A generic drug is a pharmaceutical product which is the chemical and therapeutic equivalent of a brand-name drug as to which the patent and/or market exclusivity has expired. Generics are well accepted for substitution of brand products as they sell at a discount to the branded product\'s price and for their equivalence in quality and bioavailability. Caraco Pharmaceutical Labortories Ltd has a market cap of $131.48 million; its shares were traded at around $3.51 with a P/E ratio of 117 and P/S ratio of 0.39.
Highlight of Business Operations:
Net Sales. Net sales for the first quarter of Fiscal 2010, ended June 30, 2009, were $48.1 million, as compared to $108.3 million for the first quarter of Fiscal 2009, reflecting a decrease of 56%. The sales for the first quarter of Fiscal 2009 included high levels of sales of Para IV products which were launched by the Company during the fourth quarter of Fiscal 2008 under the distribution and sale agreement with Sun Pharma. These product sales may or may not be sustainable, as previously disclosed. The sales of distributed products were also lower due to price erosion on the products sold, partially offset by new product launches. Sales of one product (oxcarbazepine), launched under the marketing agreement during the third quarter of Fiscal 2008 were significantly higher during the first quarter of Fiscal 2009. This product was launched with 180 days shared exclusivity, which allowed its higher sales during the period. 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 manufactured products sales in the first quarter of Fiscal 2010 were lower due to the negative impact of our voluntary recalls of certain products, and, in part, the FDA s seizure of certain of our inventory and cessation of manufacturing, as previously disclosed. We did not distribute any digoxin during the period subsequent to the recall of digoxin that occurred on March 31, 2009. We also had a recall on various products on April 17, 2009, as previously disclosed. The subsequent sales on some of those manufactured products were negatively impacted by the recall. Net sales for distributed products were $35.0 million for the first quarter of Fiscal 2010, as compared to $76.2 million for the corresponding period of Fiscal 2009. Net sales for manufactured products were $13.1 million for the first quarter of Fiscal 2010, as compared to $32.0 million for the corresponding period of Fiscal 2009. We were manufacturing and marketing all except two of our approved products. However, as a result of action taken by the FDA, we have ceased manufacturing operations of the products which we manufacture at our facilities located in the state of Michigan. We continue to have manufacturing products sales that are manufactured by third party manufacturers including Sun Pharma.
Gross Profit. We incurred a gross loss of $3.6 million during the first quarter of Fiscal 2010, as compared to gross profit of $23.6 million during the corresponding period of Fiscal 2009. The gross loss in the first quarter of Fiscal 2010 was due to a reserve of $8.4 million we provided on the inventory seized by the FDA. (See “Inventory” above). The gross profit has also decreased due to lower sales of both distributed as well as manufactured products, as disclosed above.
Results of Operations. We incurred a net pre-tax loss of $14.4 million during the first quarter of Fiscal 2010, as compared to a net pre-tax income of $14.6 million during the corresponding period of Fiscal 2009. We incurred a net loss of $9.4 million for the first quarter ended June 30, 2009, as compared to net income of $9.4 million for the three-month period ended June 30, 2008.
decreases in accounts receivable and inventory balances. Accounts receivable decreased by $7.8 million to $7.3 million as of June 30, 2009, as compared to $15.2 million at the end of Fiscal 2009. Accounts receivable is 14 days sales outstanding (“DSO”) as of June 30, 2009 versus 27 days as of March 31, 2009. The lower level in DSO is temporary and is mainly due to the timing of payments made by the wholesale customers and lower sales in the period. However, a deduction for chargebacks will be made by these wholesale customers as they continue to sell to retail chain stores and managed care organizations with whom we have contractual pricing. The Company believes that it has provided adequate reserves for chargeback deductions which are likely to be taken by the wholesale customers in subsequent periods. Certain wholesale customers purchased quantities of a certain product based on their own forecast, to ensure an in-stock position for such product, as there were uncertainties related to the future availability of such product and continued shipments from the Company. Further, the accounts receivable balances are low as we have received payment from a certain wholesale customer which were not due at June 30, 2009. Inventory levels are equivalent to 205 days sales on hand, as compared to 140 days on hand as of March 31, 2009. Excluding the reserve created for inventory seized by FDA, inventory levels were equivalent to 221 days sales on hand. The inventory as of June 30, 2009 includes higher levels of inventory of Para IV products to support anticipated sales in the near term period. At March 31, 2009 we had negligible stock of such product on hand. If the sale of the Para IV products are not allowed by any regulatory authority and Sun Pharma does not file a timely appeal, we would have various rights to return the product to Sun Pharma.
As disclosed above the FDA has initiated certain actions and, as a consequence, production at the Company s Michigan facilities has voluntarily been ceased. This will adversely affect the overall profitability of the Company in the near term. The Company has initiated a reduction in various expenses in an effort to bring its expenses in line with its current levels of sales. Such reduction is expected to continue until FDA concerns are resolved and the Company resumes its manufacturing activities, of which there is no assurance. The sales of distributed products and certain manufactured products made by third parties will continue and will contribute to the ongoing cash flows. Also, the Company has recently entered into an agreement with Forest, which, if it is consummated, is expected to provide certain additional products to the Company s product portfolio (see “16. Subsequent Events-Asset Purchase Agreement,” and such products will generate incremental revenues under manufactured product sales manufactured by third parties. The Company has four manufactured products that are manufactured by other third party manufacturers including Sun Pharma and its affiliates. As of June 30, 2009, we have $55 million in cash and another $10 million in short-term investments (excluding borrowings). The Company believes that its cash flow from operations and cash balances will continue to support its ongoing business requirements, however, because of, among other things, decreased customer confidence, the uncertainty of future costs of FDA compliance and associated costs, there can be no assurance.
At June 30, 2009, we had working capital of $85.4 million, compared to working capital of $112.5 million at March 31, 2009.
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