Taro Pharmaceutical Industries Ltd (TARO) 2003 Q2 法說會逐字稿

Good morning and welcome ladies and gentlemen to the Taro Second Quarter 2003 conference call. At this time, I would like to inform you that this conference is being recorded for rebroadcast and that all participants are in a listen-only mode. This recording will be archived and can be heard at any time following this call through July 31st. To hear the archived call, log on to www.taro.com and click the link on the home page or telephone 1-800-428-6051 in the United States or 973-709-2089 from overseas. When prompted, provide pass code 300842 to request the Taro call.

Today’s call will begin with a presentation by Taro’s executives. Then, at the request of the Company, we will open the conference up to Q&A from participants on the call. At this time, let me read you the following Safe Harbor statement.

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 are not describing historical facts and comments concerning uses of the proceeds of Taro’s June 2003 debt offering, marketing of generic products such as Taro’s ammonium lactate cream, 12%, marketing of proprietary products including Kerasal and ElixSure products, the potential benefits of ElixSure products, initiatives undertaken by the TaroPharma and Taro Consumer Healthcare Products divisions, Taro’s filings with the FDA, the expansion and diversification of Taro’s operations and the Company’s growth. Although Taro Pharmaceutical Industries Ltd. 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 economic conditions, industry and market conditions, slower than anticipated penetration of new markets, changes in the Company's financial position, regulatory actions and legislative actions in the countries in which Taro operates, future demand and market size for products under development, marketplace acceptance of new or existing products, either generic or proprietary, and other risks detailed from time to time in the Company's SEC reports, including its 2002 Annual Report on Form 20-F.

I will now turn the conference over to Mr. Daniel Saks, with Taro. Please go ahead, sir.

Thank you Chris. Good morning and welcome to Taro’s conference call on the Company’s second quarter results, which were released early this morning. With me today are Dr. Barrie Levitt, Chairman of Taro Pharmaceutical Industries and Kevin Connelly, our CFO. Barrie, Kevin, and I have some brief remarks and then we’re going to open the call to your questions and to get started, we’ll turn the call over to Barrie.

Thank you Dan. Well, we have now reached round numbers 30 and 20. This was Taro’s 30th consecutive quarter of record sales and 20th consecutive quarter of record net income. This translates into 7.5 years of record sales and 5 years of record net income. Taro’s base generic business in the United States, both topical and oral products, remained strong during the quarter. The growth was augmented by the introduction of topical products approved by the FDA at the end of last year.

Before I review our proprietary product divisions and our capital expenditures, I’d like to discuss our research operations. We are proud of the increasing productivity of our research scientists and of the pipeline that they have created. We now have 32 filings awaiting action at the FDA, including one new drug application related to our patented NonSpil liquid delivery system, two unique ANDA supplements, and in our generic pipeline there are 29 ANDAs, including our tentative approval for Loratadine syrup. We have filed 13 ANDAs in the last six months.

With respect to the new drug development, we’ve continued working on T2000, the first of our class of non-sedating barbiturates. Previously we’ve reported that in an early Phase II study the drug was found effective in the central tremor or involuntary shaking and we have applied for a patent application for this use. Based on the data we have, we are continuing to study the drug. Of course there can be no assurance of the success of T2000 or of any of the additional drugs we’re developing in this class.

We are also working on the development of proprietary drugs that can add to the portfolio of products promoted by our two new divisions, TaroPharma, our proprietary pharmaceutical division and Taro Consumer Healthcare Products, our direct-to-consumer division.

With respect to our new proprietary marketing initiatives, Taro Consumer Healthcare Products has secured nationwide placement for Kerasal, a unique moisturizing exfoliant for use on dry calloused feet. We’re still in the initial phases of the Kerasal program. While we’re satisfied with the distribution and with the initial reception of this product, it’s too soon to tell if this initiative will make a material contribution to our results.

Recently, we announced plans for the commercialization of NonSpil, Taro’s patented spill resistant liquid drug delivery system. A line of over-the-counter (OTC) analgesic, cough, and cold products will be launched under the ElixSure trade name. We hope that the ElixSure product line will enable parents to concentrate on comforting their sick children instead of struggling with them when giving liquid medicine for fever, cough, or congestion.

ElixSure has the potential to insure correct doses of medicine, since parents will know that what they’ve put in the spoon is what gets into the mouth of the child. We hope that in the future our NonSpil delivery system can make it easier to administer many types of liquid medicine in both the OTC and prescription markets. The ultimate success of ElixSure depends upon consumer acceptance of this novel approach to delivering liquid medicine. Of course, I can’t assure you of the success of this project.

In our TaroPharma division, the Company’s growing team of medical representatives is developing a platform to launch and sustain a portfolio of proprietary products. This is a long-term strategic initiative for Taro.

With respect to the Company’s capital expenditures, we’re implementing an aggressive capital investment program designed to more than treble our manufacturing capacity. The program consists of investments in manufacturing and research facilities in Israel, Canada, Ireland, and the United States. We believe that Taro has the human resources to create opportunities and the capital resources to turn them into commercial realities.

Thank you and now Kevin will give you the details our financial results. Kevin?

Thanks Barrie, good morning and good afternoon to everybody. I’ll just touch on some highlights for the Company’s performance for the second quarter and then a little bit on the balance sheet.

We’re obviously very pleased with the results of the second quarter of 2003. These results continue to demonstrate the sustained performance of the Company, our commitment to research and development (R&D), as well as our ability to invest in what are essentially two new business initiatives, TaroPharma and Taro Consumer Healthcare, while still increasing our bottom line.

Sales of $74.8m for the quarter are a 51% increase from the prior year and represents the Company’s 30th consecutive quarter of record sales. The sales breakdown by geographic area for the quarter are approximately 89% of the sales took place in the United States, 5% in Canada, 5% in Israel, and a remaining 1% from other international markets. The sales were driven by the strong performance of our U.S. group, where across virtually all of our product lines we increased the market share of our base business.

We also had contributions from some of our new product introductions, such as econazole and ketoconazole cream, which were approved during the fourth quarter of last year and ammonium lactate cream, which was provide during the beginning of the second quarter. In addition, Kerasal, the branded OTC footcare product, we continued to promote in Q2 and that also contributed to the overall growth in sales.

The gross margin of 67% for the quarter remains among the highest in the generic industry and again demonstrates the sustained performance of our in line business, the contribution from new product approvals, and also the sales of some of our proprietary product lines.

Our SG&A as a percentage of sales was 30% for the quarter, an increase of 77% from a year ago and the SG&A expenses were impacted by the costs related to the launch of new products introduced in the US and the marketing efforts behind the promotion of Kerasal. In addition, we are investing in a team of professional sales reps who are responsible for marketing our proprietary products directly to physicians.

Our commitment to R&D continued with 13% of our top line invested in R&D during the quarter or approximately $9.6m. Approximately 75% to 80% of that investment was focused on our generic pipeline, which currently includes 32 filings at the US FDA and numerous filings with other regulatory agencies in other countries. 20% to 25% of our R&D remains focused on our proprietary pipeline, including the NonSpil drug delivery system and our new class of drugs, the non-sedating barbiturate products, which Barrie mentioned earlier.

Our operating income of $18m for the quarter represented 24% of sales and was an increase of 51% from 2002. The tax rate of 16% for the quarter reflected the change in product mix between our Canadian and Israeli facilities and just to remind everybody, we are approved enterprise Company in Israel and that does reduce our tax burden on products manufactured and exported from there.

Finally, the sustained performance of the Company was demonstrated by the net income for the quarter of $14.8m or $0.50 per fully diluted share, our 20th consecutive quarter of record earnings. And this represents an increase of 45% in net income for the quarter, a performance that all of us at Taro are quite proud of.

Now, before I turn it over to Dan and then we entertain some questions, I’d just like to highlight some of the items from the quarter end balance sheet. Cash and cash equivalents, as of June 30th, increased $22m from year-end as the Company funded part of its working capital requirements, the capital expansion and product acquisition programs through operating income. And in addition, it also reflects the proceeds from the $60m bond offering we recently completed in Israel.

Accounts receivables, trade receivables at $81.6m represent day sales outstanding (DSO). DSO is at about 98 days, which are pretty much in line with the Company norm. Our inventory of $61.6m reflects the Company’s policy of maintaining the finished goods, required to meet the anticipated growth in customer demand.

Property, plant, and equipment continued to increase as the Company expands its capacity in manufacturing, distribution, and R&D. These programs are ongoing in our facilities in the United States, in Israel, Canada, and now Ireland. Approximately $48m was invested during the year and that included the purchase of the production facility in Ireland for approximately $7m.

Just one quick note, that both of the inventory and fixed assets are impacted by the change in the strength of the U.S. dollar during the year. Some of our investments are maintained in either Canadian dollars or in Euros and as the dollar weakens against these currencies, the value of these investments increases accordingly.

The growth in other assets reflects the intangibles associated with the products acquired earlier this year and related to this acquisition is the change in current maturity of long-term debt. The final payment on this acquisition is scheduled for June of 2004 and is not considered at current maturity.

Dan, I’ll now turn it over to you.

Thank you, Kevin. I’d like to offer some perspective on Taro’s results and on the Company’s pipeline. One unique aspect of Taro’s results in the second quarter is that the Company’s gross profit of more than $50m is greater than the Company’s total revenues for the year ago quarter. That has not occurred in Taro’s recent history.

As Kevin noted, Taro’s gains in gross profit for the quarter reflect the Company’s product mix and the inception of sales of higher margin proprietary products. The increase in gross margins in the second quarter has in turn enabled Taro to invest in the SG&A required to promote the Company’s proprietary products and continues to achieve strong operating results and earnings. The Company’s operating margin of 24% and net margin of about 20% are in line with Taro’s recent financial performance.

As Barrie mentioned, there are currently 29 ANDAs, 2 unique ANDA supplements, and 1 NDA related to NonSpil in the pipeline, 21 of the filings are for topical products and 11 are for oral dosage form products. The current market value of the ANDAs in the pipeline is more than $1b.

And now we’ll begin our Q&A session. Let me remind you of three of our communications policy guidelines.

First, we cannot provide guidance or comment on analyst estimates and the rate of Taro’s continued growth remains largely dependent on new product introductions and we don’t know when these approvals will occur, so we cannot really provide guidance. Second, for competitive reasons and to be fair to our customers, our policy is not to provide information on sales and profitability of individual products and of course, for competitive reasons, we do not disclose the product trials with the FDA.

So now, Chris, we’d like to begin the Q&A.

Thank you. The question-and-answer session will begin at this time. (Caller Instructions follow.)

Our first question comes from Greg Gilbert [ph] from Merrill Lynch. Please state your question.

Yes, hi, I have a couple, first for Kevin. Can I assume that we did not see any significant sales of the new branded products in the quarter, but that we did see SG&A associated with them?

Again, it depends on your definition of significant, Greg. But no, I mean, it was moderate in regards to its contribution from both Kerasal and the other branded products.

And can you help us out at all with -- I know you mentioned product mix is driving the tax rate lower. How should we think about that going forward for the rest of this year? And can you also give us some help with the shape of the curve of SG&A in the back half? Obviously you have brand products. You have ElixSure. Can you give us any color on that?

Yeah. Again, the tax rate is always difficult to predict, just because such a small difference in where those products originate from and their sales can have an impact on our tax rate. You know a $3-4m in a shift on sales between an Israeli produced product versus a Canadian produced product or from one of our other manufacturing sites can have an impact.

I think, in the past, everyone has been somewhere in that 18-19%, high-teen range and that seems to be where things always have a tendency to average out, so again, difficult to predict. It depends on what the customers are buying. But that’s seems to have worked in the past for a lot of people.

On the SG&A side, you are correct in that we haven’t launched ElixSure in through the second quarter. Barrie mentioned that we’re now in the act of going ahead and doing that. In regards to the SG&A curve, we’re going to support that product.

And just finally, ElixSure is a significant milestone for the Company. I’m curious as to when we’re going to get some more color on either the specific timing or some more color around what you’re trying to do there and who you’re partnering with, etc. Can we get something this year?

Well, Barrie, Greg. ElixSure is going to be launched in the second half of the year. We are going to support it, as Kevin said, with all the means that are appropriate for a launch. We’re doing it on our own. We’re partnering with our customers and we are obviously optimistic that we will achieve a degree of success, but we can’t be sure, because everything depends upon consumer acceptance.

If we are able to obtain consumer acceptance, then we hope that there will be a material impact. However, until we’ve allowed some time to elapse, it’s just impossible to predict. So, we’re all in the same position of hoping for success but waiting to see what the results will be and I hope that by the end of another quarter, we will be a lot of smarter and be able to provide you with more definitive information.

I’m not necessarily being nit picky here. I’m just curious as to whether you’re going to see if it’s successful before you share the strategy with us or would it hurt it your competitive positioning if you were to share a little more detail on what your strategy is.

Well, for competitive reasons, we’re not going to outline the details of our tactics while the launch is underway, so we’re just going to all have to wait. And this is very, very new undertaking. Nobody has every marketed a product like this before. There’s no prior history, there’s no prior manufacturing history, so that we’re on our own.

We’re sailing in uncharted waters. There’s no prior marketing history for a liquid that really resists spilling, so we don’t have anything to guide on and it’s not that we can follow a roadmap that somebody else has prepared in the past. So, the tactics are going to innovative and we would rather play with our cards close to our vests through the launch period.

Fair enough. Thank you guys.

Thank you. Our next question comes from Elliot Wilbur [ph] from CIBC World Markets. Please state your question.

Good morning gentlemen. Congratulations on another strong quarter. The first question is for you, Kevin, on your gross margin performance in the quarter. I’m not sure if this is accurate or not, but it looks pretty close to being a record level. And I’m wondering if that’s reflective of the contribution of the branded products in the mix or if, perhaps, just simply higher volumes and increased absorption are also driving that strong performance?

I’m happy to say it’s both, actually, Elliot and good to hear from you. Yeah, it really is a combination of both things. Obviously the base business makes up the biggest part of the sales and that’s really being driven by efficiencies in manufacturing, which is allowing us to continue to drive a very healthy gross margin.

At the same time, I think there is a bit of a shift in the overall Company strategy. We are talking about getting into some branded products and basically what you see in the model is, obviously, some higher gross margins, but at the same time a higher investment on the sales and marketing end of it.

And we’ve worked closely with our sales and marketing people here to make sure that we’re efficient in our investment and expenses in getting those products out there, but I think that’s kind of reflected in the numbers for this quarter. So, you’ll see some higher margins, but at the same time an investment on the SG&A side.

Okay, fair enough and then another question for yourself or Barrie on a couple of the products. Huge acceleration in your keto scripts in the past couple of weeks and that’s a market that I’ve felt was fairly well penetrated by the initial generic entrant. And I’m wondering if this is just attributable to your broad product offering or there may be something out there perhaps on the part of your competitor that is limiting your ability to supply that market?

Well, I think that what you see with ketoconazole is just the relationships that we have with our customers. Our ability to deliver the goods on time, our emphasis on customer service, our emphasis on quality, and so you see that over time we do achieve our fair share of market. Obviously the market has to be shared among all generic participants. That’s what competition is all about and we have done what we think is appropriate to get a reasonable share of that market and we’ve been successful so far.

Okay, just one additional question on another product here, Barrie, Ovide. Last week there was a large jump in the prescriptions for that product as well, at least according to the IMS data. Is there something unusual behind that number?

Well, it’s too early, really, to assess what our marketing initiatives are going to bring with respect to individual proprietary products.

In the case of Ovide, it’s unfortunate that the competing prescription product has been reported by FDA to produce neurological disease, seizures, and indeed death in some patients who have used it. So, it’s understandable that physicians might shy away from using a prescription product for a relatively minor disease that has such dire consequences. I mean, the margin of safety here is just out of proportion to the disease. Or it’s not a margin of safety. It’s actually a margin of toxicity, so the toxic therapeutic ratio is really skewed in the wrong direction.

Now, in the case of Ovide, we have a remarkably safe drug, metabolized very poorly by insects and therefore it kills them, but it’s metabolized very readily by humans and birds and other mammals. So it’s relatively benign for the species that we would like to preserve and it’s relatively malignant for the species that we would like to kill. So I would hope that we could get that message out over time, that we have a safe drug that’s effective.

There hasn’t been resistance to Ovide reported in the United States and so I mean, all I can say is that on its face, Ovide seems to be a drug that physicians can turn to if the OTC remedies don’t produce the desired result with respect to life. Unfortunately, lice are becoming resistant to many of the prometherine-related compounds in the market and that’s really too bad. But I’m glad that we’re able to provide a therapeutic modality, which can be relied upon to produce an effective cure for a bothersome illness, even though it’s not malignant.

I think, once again, it’s impossible to state that because we’re in the market and the other product has serious adverse events that that’s the reason for the jump in prescriptions. It’s just too early to tell. I mean, we just have high hopes for our product and maybe I’m selling it now on the conference call and maybe that inappropriate to do. But, I feel very positive about the safety and efficacy of our product.

Well, let me do my part to help your selling efforts. I know you can’t promote off label use of Kerasal, but I’ll also make the suggestion that it works very well on elbows as well. So, with that, congrats again on the strong quarter.

Thanks Elliot.

Thank you.

Thank you. Our next question comes from Paul Elliott from Elco Management. Please state your question.

Hi Barrie. How are you guys doing? Basically most of my questions were answered. I just want to get a little more detail on the ElixSure. Do you expect that for the most part the pipeline still could be completed by September? That’s one question. The second question is are you going to be using what is your typical distribution in terms of the outlets and as far as any OTC drug is concerned or there’ll be some unusual other activities? And the third one is do you see an overseas market for these products?

Paul, this is Barrie. I’ll do it in reverse order. Yes, we do hope that there will be an overseas market for these products, if they prove to be successful, if they are, if we do get consumer acceptance in the United States.

The second question had to do with whether we’re going to use unusual outlets for ElixSure. Again, I’m going to take the 5th Amendment and tell you that we’re not going to release any of the tactical information associated with the launch.

And with respect to the first question - do we expect to have all of the distribution in place by September - we certainly are going to make an effort to have our distribution in place by the time the cough, cold, and fever season begins in earnest. Part of our economic results will be determined, of course, by consumer acceptance and part will be determined by what happens in terms of influenza and other respiratory diseases in the course of the next nine months.

And this puts us in an unusual -- I mean it puts me in an unusual position. As a physician, of course I would like to see as few respiratory diseases as possible. As a pharmaceutical executive, of course we would like to be in a position to respond to whatever disease is there and of course the more that’s there, the better the opportunity for the sales products. So, we do have a clear conflict of interest, but it’s not under our control in any event.

So, the two factors are the extent of upper respiratory diseases in the coming winter season and secondly, consumer acceptance of our product as remedies for the victims of upper respiratory infections compared to other products that are available. So that’s the best I can do with the three questions in reverse order.

Thank you.

Thank you. Our next question comes from Koti Danny [ph] from CAIB. Please state your question.

Hi, first of all, congratulations for the excellent results. It’s really impressive. A couple of questions, one is to Kevin. If you could give us some guidance, what do you expect for the EBIT margin for the coming quarters? You have positive and negative effects, so where do you see the direction going?

Then, how the proprietary service team looks like currently? How many do you have? Do you believe you will still increase in the quarter and will you have some experiences that you could share with us about how the team is working?

And then the last one, that point is we see a very strong sales increase and Capex increase during the six-months. What does this follow the number of increases in inventory, in the number of inventory use in the Company? How much of this increase is in the R&D team and where you will plan these sort of increases in the next six-months?

I think I’ve gotten all that down. I think we’re okay. Well, maybe I’ll go in reverse order as well, because when we get to the guidance question, I’m going to basically waffle and not really give you any. So maybe we should start off with one that we can talk a little bit about and that’s on the number of employees on the R&D team. And maybe for that -- and Barrie, you’re my R&D expert, if you’d like to handle that one?

Well, we are increasing the R&D staff and you can see that, because if you look at the overall absolute expenditure in R&D, that expenditure really is involved with three things. One is the expenditure of materials, secondly, the conduct of various clinical studies and thirdly, people. And people, of course, are the most important components in the entire R&D effort. We’re proud of the fact that not only do we have more scientists, but the very excellent level of scientists who are able to attract and I think that we’re able to attract scientific talent because of the scientific environment that we’ve created at Taro.

I’ve spent most of my life at universities, as a professor of medicine and pharmacology and I can tell you that being at Taro, from a scientific perspective, is like being at a university. We have scientists from every discipline working together in a very harmonious fashion, which is unlike a university and they are being highly productive, which is not always consistent with every university. But the spirit that we have here is a very academic spirit, so we’re able to attract a very high level of talent.

But I don’t want to leave the impression that our goals are academic goals, because they’re not. The filing of 13 ANDAs and a number of NDAs that we have in our pipeline that have not yet been filed, as well as ANDAs of course, are part of a really defined, focused, commercial effort to a bunch of really very brilliant scientists.

And we are going to try to make real impacts on therapeutics, not only by providing less costly alternatives to expensive proprietary drugs, but to provide some expensive, effective proprietary drugs on our own. Which are going to be, in the last analysis, cost effective in therapeutics, because we hope to be able to treat diseases that haven’t really been treated effectively before and to do it in a cost effective manner.

So, both things are going on and R&D is expanding and the numbers of people are increasing. The addition of people is appropriate to the number of projects that are going on and we do, of course, have a very significant number of physicians that have been added to the staff. As we get into more of the proprietary drugs, as well as a large number of Ph.D.s in chemistry, pharmacology, and toxicology, etc.

Thank you very much.

Now, do you want me to take some of the other questions for you, Kevin?

You’re on roll. You’re doing pretty well.

Well, with respect to the number of people in the sales team, I don’t really think it’s appropriate. Again, this is part of tactics, as we start the proprietary initiatives and incidentally, there’s a blend, when we talk about sales. The TaroPharma sales team, which goes to physicians, also provides information to physicians about the products that are sold direct to consumers.

So there is -- and of course the Taro Generic Sales team is actually selling products into the trade and then we have the Taro Consumer Sales team, in addition to the other two. So, I don’t even know how you want to count. Do you want to merge them all into together or do you want to separate them? Suffice it to say that we believe that every medical representative should be a profit center. And to the extent that they are profit centers, we are going to continue to increase the number of the people in the field, as long as we feel we are getting an additional response and that we’re making an additional profit by making that investment.

So, as you look at the promotion response curve for individual physicians for individual products, we will be optimizing the number of people in the field in order to optimize the results. However, I think whatever kind of model you’re building, be assured of one thing. That we are not going to spend more than we feel is prudent in order to increase the bottom line. In the last analysis, that’s what our charge is. That’s what our mandate is, to increase the bottom line, to enhance shareholder value, to have a better, more effective, more stable Company.

So, we are going to take advantage of opportunities. We are going to continue to increase the number of people in the field, both on the consumer side and on the physician side. As well, selling to the trade, if we believe and if we can be convinced that making those additions are going to increase our profitability both in the short-term and in the long-term. Do we have some more questions that you want me to answer, Kevin?

I think you’re doing okay. Just to, I think, the other question that Koti had was regarding the guidance on the EBITDA margins. As you know, I mean, Dan, you started off by saying that it was not our policy to give guidance. But more just to Barrie’s point, the investments we’re making are all there so that we can drive our bottom line forward and I’ll leave it at that.

Thank you very much, Kevin.

Thank you.

Thank you. Our next question comes from Arnold Ursaner [ph] from CJS Securities. Please state your question.

Hi, good morning, a couple of questions. One is the FDA seems to be allocating a fair amount of additional dollars to try to accelerate the generic process of getting ANDAs through the FDA. Can you comment on how you think this might impact some of your products in the pipeline?

Well, this is Barrie, Arnie. You know it’s going to take a little while, I think -- and I haven’t been at the FDA -- I used to work there. I spent 21 years at the FDA, but haven’t been there for the last 10 years and it may take a little while for OGD, for the Office of Generic Drugs, to be able to do the necessary recruitment, expand staff, and optimize procedures internally.

Of course we all hope that the FDA is going to be able to process applications more quickly. But, I also think that all of us, as citizens, understand that the FDA has a mandate to protect the health and safety of the population of the U.S., which includes all of us. So, we don’t want any generic drugs or branded drugs approved if there is some question about safety or effectiveness and the FDA take this responsibility very, very seriously. I can tell you that.

And so, while I’m sure that they are going to use the money in an effective manner, it may take them some time to do that and I think we all need to be patient and we all need to be thankful. The FDA has done a terrific job of making sure that bad drugs don’t get onto the market and that’s been good for the entire industry. Each of it hates it when our drug is the one that gets held up. But as an industry, we’re all better off that we haven’t had any major catastrophes.

My second question is you’ve added quite a few additional products to your pipeline and yet you maintained the dollar value of the branded dollar value. Could you be a little more specific on the branded dollar value of the products that you’ve gotten - that you have filed with the FDA?

Well, I think that we are being intentionally vague. When we say more than a billion dollars, first of all I think you can be sure that this branded dollar is indeed more than a billion dollars. How much more, we hesitate to say simply because we don’t want to be misleading. Its very difficult to predict with any degree of certainty what the value of a drug will be when it gets out of the FDA.

Most of the drugs - all of the drugs - for which we’re filing ANDAs, aside from having perhaps some patent protection on the chemical synthesis, these are all drugs for which there is no patent protection. Therefore we can assume that competitors are probably focused on the same drugs that we are focused on and therefore you don’t know how many competitors will be in the market. And clearly, the way the market works, is the more competitors the lower the price and therefore the lower the value of any particular brand of drugs.

So, it would really be - we think - inappropriate to try to put specific values on the various drugs that are in our pipeline. Suffice it to say that the market is a large market and we hope that the products that we are working on are going to provide a return on the investment that would be adequate to maintain or enhance - enhance is, I guess is the better word - shareholder value.

Okay. My final question is on the cough and cold. You’re using ElixSure or your new products for the cough and cold market, which has really not been historically the core strength or competency of the Company. Should we assume that as soon, as is practical, you’ll try to shift other products into NonSpil that are more in your core competencies?

Well, first of all, with all due respect, the drugs that we have or the active ingredients that we have in NonSpil are well within our core competency. We have been working with these compounds for the better part of 20 years. For some of them, marketing in other markets for more than 30 years. So, in terms of core competency, it’s within our core competency.

Secondly, if the NonSpil achieves consumer acceptance as a reasonable way to give medicines to children and I might add to older people as well, then you can be sure that both additional OTC products and additional prescription products will find their way into this vehicle. We will do this on our own.

And if approached by an appropriate partner that feels that the NonSpil is an appropriate vehicle for one of their patent protected drugs or if they want to collaborate with us to extend patent life on drugs with otherwise would have the patent expire, we will collaborate with anybody who is reasonably interested in collaborating with us.

So, we have, over the last six months, been expanding our research group that deals with NonSpil. We’ve been expanding our research laboratories and all of that is in the capital investment program that Kevin referred to. So that we should be in a position to take advantage of NonSpil if it’s accepted by the public, in order to be able to meet the legitimate needs in the pharmaceutical market.

Okay, thank you.

Thank you. This is all the time we have to take questions. I will turn the conference now back to Mr. Daniel Saks.

Well, thank you for joining us today and we look forward to our next quarterly conference call and hope to have you participate on that call as well. Thank you.

Thank you. This recording will be archived and can be heard at any time following this call through July 31st. To hear the archived call, log on to www.taro.com and click the link on the home page or telephone 1-800-428-6051 in the United States or 973-709-2089 from overseas. When prompted, provide pass code 300842 to request the Taro call. That concludes our conference call for today.

Thank you all for participating and have a nice day. All parties may now disconnect.

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