Taro Pharmaceutical Industries Ltd.

For the second quarter ended September 30, 2020, net sales were $143 million, down $18 million year over year, while gross profit was $82 million and gross margin was 57% versus 63% in the prior-year quarter. EBITDA was $47 million with a 33% margin versus 42% a year ago, operating income was $41 million versus $63 million, net income attributable to Taro was $45 million versus $56 million, and diluted EPS was $1.18 versus $1.46. For the first half, net sales were $261 million, down $62 million year over year; gross profit was $147 million with a 56% margin; and diluted loss per share was $10.19 versus EPS of $3.17, while pro forma diluted EPS excluding settlement and loss-contingency impacts was $1.94. Management did not give formal next-quarter or full-year guidance, but said Q2 sales improved 21% sequentially from Q1 and volumes were still not fully normalized.

Dilip Shanghvi framed the quarter as a reflection of “challenging times” and said Taro remained focused on delivering quality products while protecting employees during the pandemic. He emphasized the company’s long-term track record under Sun’s majority ownership, including more than 70 FDA filings, over 65 approvals, and over $1.2 billion returned to shareholders through repurchases, tender offers, and a special dividend. His tone was cautious on the environment, noting the U.S. generic market will remain competitive for the foreseeable future.

Daphne Huang highlighted the main financial drivers: Q2 net sales of $143 million, gross profit of $82 million, SG&A of $24 million, R&D of $17 million, and EBITDA of $47 million. She said gross margin was 57%, down from 63% last year but up from 55% in Q1, and that interest and other financial income fell to $6 million because of the low-rate environment. On the balance sheet, cash and cash equivalents plus short- and long-term marketable securities were $1.5 billion, down $50 million from March 31, 2020, mainly due to a partial DOJ settlement payment; 6-month operating cash flow was negative $48 million, or $55 million pro forma excluding the settlement and loss contingency impact.

Analysts asked about the pace of clinic and patient-visit recovery, the Aquinox acquisition, diversification beyond dermatology, market-share maintenance, and whether price erosion was stabilizing. Management said the clinic trend was “positive” but still uncertain, described Aquinox as an early-stage development company in cancer, and said market share has been supported by good supply and customer service, in some cases even improving share. On pricing, Uday Baldota said price declines depend on the portfolio and that the company has not seen a major trend reversal, while also saying the company continues to look for opportunities in branded and other therapy areas without committing to any specific move.