DETROIT, July 28 /PRNewswire-FirstCall/ -- Caraco Pharmaceutical
Laboratories, Ltd. (NYSE Amex: CPD) recorded net sales of $48.1
million in the first quarter of Fiscal 2010, ended June 30, 2009,
compared to $108.3 million during the corresponding period of
Fiscal 2009. The reduction in sales was primarily due to reduced
sales of Para IV products in the current period, as compared to the
corresponding period of Fiscal 2009. Sales of distributed products
were also lower due to price erosion on the products sold,
partially offset by new product launches. Caraco's manufactured
product 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 incurred a
net pre-tax loss of $14.4 million during the first quarter of
Fiscal 2010, as compared to net pre-tax income of $14.6 million
during the corresponding period of Fiscal 2009. The net pre tax
loss was primarily due to the creation of an inventory reserve
relating to the inventory seized by the FDA, as well as lower
sales. Dan Movens, Caraco's Chief Executive Officer, said, "As
previously disclosed, on June 25, 2009, the FDA seized drug
products manufactured in our Michigan facilities. The seizure also
included ingredients held at these same facilities. The FDA's most
recent inspection of Caraco's Detroit facility, completed in May
2009, found observations of potential unresolved violations of cGMP
requirements as previously disclosed in our last SEC filing on Form
10-K for the fiscal year ended March 31, 2009, filed on June 15,
2009. The Company believes that corrective actions have been made
and continual improvements are in process. We are working with
consultants to further define and correct any remaining
deficiencies. Products sold and distributed by Caraco that are
manufactured outside of these facilities are not materially
impacted. As a result of this event, there has been a material
adverse effect on our current operations and may be a material
adverse effect on our near term operations. We anticipate working
with the FDA to resolve these concerns as effectively and
expeditiously as possible." The total value of the seized inventory
is $22.9 million. Of such inventory, we have created a partial
reserve in the amount of $8.4 million which consists of work in
process relating to those materials which are in various stages of
production within our manufacturing facilities, finished goods
having a shelf life of one year or less as of June 30, 2009, and
those products which will be difficult to recondition. Once we have
further understanding and clarity from the FDA on the status of the
entire inventory, we will make a determination of whether
adjustments to the reserve need to be made. 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 primarily due to the $8.4 million inventory reserve
and lower sales of manufactured and distributed products. "Although
gross profit margins have decreased to a negative 7.5% for the
first quarter of Fiscal 2010 as compared to 21.7% during the
corresponding period of Fiscal 2009, due to the creation of the
inventory reserve, lower sales, and the mix of distributed products
weight over manufactured products, we believe we will remain
competitive in marketing and distribution product sales and
manufactured products sales that are manufactured by third
parties," Mr. Movens said. Selling, general and administrative
("SG&A") expenses during the first quarter of Fiscal 2010 were
$3.7 million, as compared to $3.8 million during the corresponding
period of Fiscal 2009, representing a decrease of 4%. SG&A
expenses, as a percentage of net sales increased to 8% for the
first three months of Fiscal 2010, as compared to 4% for the
corresponding period of Fiscal 2009. The higher percentage of
SG&A is primarily due to the lower sales in the current period
versus the corresponding period last year. Total R&D expenses
for the first quarter of Fiscal 2010 were $7.1 million, as compared
to $5.5 million during the corresponding period of Fiscal 2009. The
R&D expenses during the first quarter of Fiscal 2010 were
higher compared to those during the corresponding period of Fiscal
2009 as we incurred increased expenses relating to bio-equivalency
studies for certain products under development and increased patent
related expenses in an effort to expand our product portfolio. We
did not file any Abbreviated New Drug Applications ("ANDAs") with
the FDA during the first quarter of Fiscal 2010. We have not
received FDA approval for any ANDAs during the first quarter of
Fiscal 2010 and do not expect to receive any approvals until we
resolve the FDA's concerns. The total number of ANDAs pending
approval by the FDA as of June 30, 2009 was 29 (including four
tentative approvals) relating to 25 products. We incurred a net
pre-tax loss of $14.4 million during the first quarter of Fiscal
2010, as compared to net pre-tax income of $14.6 million during the
corresponding period of Fiscal 2009. Net pre-tax income was lower
because of the $8.4 million inventory reserve, as disclosed above,
and the decreased sales. During the first quarter of Fiscal 2010,
we provided for an income tax benefit of $5.0 million, as compared
to an income tax expense of $5.1 million in the corresponding
period of Fiscal 2009. We incurred a net loss of $9.4 million
during the first quarter of Fiscal 2010, as compared to net income
of $9.4 million during the corresponding period of Fiscal 2009. As
noted, the cessation of manufacturing operations 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, including the indefinite reduction in its workforce of
approximately 350 employees. At June 30, 2009, the Company had $55
million in cash and $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. Mr. Movens added, "Though Fiscal 2009 and the first
quarter of Fiscal 2010 have seen several challenges in
manufacturing and compliance, we have hired experienced people in
these areas to help us correct any deficiencies. Sun Pharma has
provided assistance and guidance from its own corporate quality
group. It also continues to provide improvements for our quality
systems. We believe the Company's future performance in these areas
will be capable of supporting our efforts in providing a quality
product on time to satisfy our customers' needs once we have
satisfied the FDA's remaining concerns. Though near term sales of
manufactured products face significant challenges, we believe we
are effecting the changes required to improve our performance on
manufactured product sales on a long-term basis. We continue to
market 29 products which are categorized as distributed products.
We also currently have 4 products that are categorized under
manufactured products that are manufactured by third party
manufacturers including Sun Pharma for a total of 33 products that
we currently market and distribute. We intend to continue to
compete effectively in the market we serve." This press release
should be read in conjunction with our quarterly report on Form
10-Q which will provide more detailed information on the results of
the first quarter of Fiscal 2010. This report will be filed
shortly. 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. Without limitation, the words
"believe" or "expect" and similar expressions are intended to
identify forward-looking statements. 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 Part I, Item 1A
of our most recent 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, material litigation
from product recalls, the purported class action lawsuits alleging
federal securities laws violations, delays in returning the
Company's products to market, including loss of market share,
increased reserves against the FDA-seized inventory, 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. CARACO PHARMACEUTICAL LABORATORIES,
LTD. (A subsidiary of Sun Pharmaceutical Industries Limited)
STATEMENTS OF OPERATIONS (UNAUDITED) Three months ended June 30,
2009 2008 ---- ---- Net sales $48,070,016 $108,276,740 Cost of
goods sold 51,679,584 84,693,329 ---------- ---------- Gross (loss)
profit (3,609,568) 23,583,411 Selling, general and administrative
expenses 3,659,211 3,818,002 Research and development costs
7,085,135 5,484,229 --------- --------- Operating (loss) income
(14,353,914) 14,281,180 ----------- ---------- Other (expense)
income Interest expense (130,950) - Interest income 104,455 277,773
Loss on sale of equipment (114,272) - Other income 46,298 - ------
- Other (expense) income - net (94,469) 277,773 ------- -------
(Loss) income before income tax (benefit) expense (14,448,383)
14,558,953 Income tax (benefit) expense (5,025,332) 5,118,888 Net
(loss) income $(9,423,051) $9,440,065 =========== ========== Net
(loss) income per common share Basic $(0.25) $0.29 Diluted $(0.25)
$0.23 Weighted number of shares Basic 37,547,864 32,677,391 Diluted
37,547,864 40,536,369 DATASOURCE: Caraco Pharmaceutical
Laboratories, Ltd. CONTACT: Daniel Movens, +1-313-871-8400, or
Thomas Versosky, +1-313-556-4150, both of Caraco Pharmaceutical Web
Site: http://www.caraco.com/
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