Taro Pharmaceutical Industries Ltd (TARO) 2004 Q2 法說會逐字稿

Good morning and welcome ladies and gentlemen. This is Taro's second quarter 2004 conference call. At this time, I would like to inform you that this conference call 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 August 5. To hear the archived call log in 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 365748, request the Taro call. Today's call will begin with a presentation by Taro's executive. Then at the request of the company, we were open to conference for questions and answers from participants on the call. At this time let me read you the following `Safe Harbor` statement. Certain statements in this call are forward-looking statements within the meaning of Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, statements that do not describe historical facts, statements that include the word `will` and statements with respect to events and circumstances the Company `believes`, `anticipates`, `expects`, `plans`, `intends`, or `designs` to happen or exist. In addition, certain statements in this release express the Company's belief as to certain matters including, for example, statements concerning the inventory levels maintained by drug wholesalers and the impact of the wholesalers' inventory, management practices on the Company and its financial performance. Although the Company believes that such statements are based on reasonable assumptions and reliable sources, it has no assurance thereof.

.Factors that could cause actual results to differ include general economic conditions, industry and market conditions, changes in buying patterns by any of the Company's customers, 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 2003 Annual Report on Form 20-F. On an ongoing basis, the Company reviews, and, if appropriate, revises its estimates, including those related to reserves for customer charge-backs, bad debits, income taxes and contingencies. The Company bases its estimates on currently available information, historical experience, and various other assumptions that it believes to be reasonable under circumstances prevailing from time to time. The results of these assumptions are the basis for determining the carrying values of assets and liabilities that are not readily apparent from other sources. Since the factors underlying these assumptions are subject to change over time, the estimates on which they are based are subject to change accordingly. Forward-looking statements speak only as of the date on which they are made. The Company undertakes no obligations to update, change or revise any forward-looking statement, whether as a result of new information, additional or subsequent developments or otherwise. I would now turn the conference over to Mr. Daniel Saks of Taro. Please go ahead, sir.

Thank you, Jenny. Good morning and thank you for joining us on today's conference call. With me today are Dr. Barrie Levitt, Chairman of Taro and Kevin Connelly, our CFO. Barrie and Kevin have some brief remarks and then we are going to open the call to your questions. And to get started, we will turn the call over to Barrie.

Thank you, Dan and good morning everyone. Obviously we are all disappointed with the results for the second quarter. This morning, I will attempt to discuss the factors that we believe contributed to the second quarter results, explain the concrete steps we are taking to regain profitability, and review our longer-term growth initiatives including our product pipeline. To begin with, the second quarter results. Our sales performance in the second quarter was substantially below our expectations. We believe this was caused principally by three factors. First, we experienced an unexpected decline in purchases by wholesalers. The initial reduction expenses that we achieved since the first quarter did not offset the decline in sales. Second, we experienced price erosion on certain of our products, an issue which is inherent in the generic drug business. And third, our product mix was less favorable than it had been in other quarters. With respect to the wholesalers, their purchases have historically taken place at the very end of each quarter.

Our customers do not share their inventory positions or policies with us. Therefore, we relay on internal estimate of their inventory positions when forecasting sales. At the end of the second quarter, it became apparent that some of our principles also in customers sales order, the quantities, which we had anticipated. This appears to be in line with recently announced wholesaler inventory reduction program. It appears that other customer groups did not significantly change their buying patterns of Taro products. Despite the reduction in sales for wholesalers in the second quarter, we believe that Taro still has a strong position in it's markets fact, according to industry sources, prescriptions for Taro products in Untied States increased during the second quarter compared to the same period last year. These industry sources report that prescriptions filled with Taro's major products increased more than 20% compared to the same period a year ago and more than 5% compared to the first quarter of this year.

Increasing demand for our products suggest that the results of the second quarter are related to the timing of purchasing and not to a change in Taro's market position. Never the less, in the light of the results for the second quarter it is prudent for management to respond with the changing market dynamics. First, we were reducing inventories to bring them in line with current business conditions. Second, as we lower inventories, we are adjusting production and purchasing accordingly. Third, we have implemented a comprehensive review of all of Taro's costs in order to reduce the Company's expense profile. Fourth, we are eliminating or differing all non-essential initiatives including some capital investments. The Company's cost profile had been appropriate for the rapid growth of the last six years. We are modifying our cost structure in a manner consistent with the current business environment. These steps will not only help our profitability in the short-term although make Taro a stronger organization. For the longer term, it's important to preserve the strategic initiatives design to create a solid financial future for Taro.

I would to like to take a few moments to discuss the major initiatives in which Taro has invested to build long-term value. These initiatives include the establishment of the TaroPharma division in the Untied States and Canada and the Taro consumer healthcare products division as well as in both generic and proprietary drug. The TaroPharma division markets proprietary products for the focus on the dermatology and pediatrics. TaroPharma division is already producing results, as prescriptions generated for it's major products are significantly higher than a year ago. This morning we were pleased to announce that Lustra and Lustra-AF as well as two other dermatology products are being added to the TaroPharma portfolio. The Taro consumer healthcare products division has launched two new OTC product lines. Both of them branded, after it's first year in the market, has became a leading brand in the foot care category. is making a positive contribution to the Company's results was launched less than one year ago and we are continuing monitoring it's performance, of course in addition to these initiatives, the Company's introduction of new generic and proprietary products is key to our future growth. We are confident in the quality of our submissions to regulatory agencies and expect to get a fair share of approvals in the coming months.

This morning, we announced that we received FDA approval for our generic Lotrizone lotion our seventh approval this year. Regarding Taro's proprietary drug development program, the TDP, the Canadian equivalent of the FDA has recently approved our applications undertake a phase III, multi-center, randomized, placebo-controlled study of T2000 in patients with essential tremor. We are obviously pleased by response of the Canadian regulatory agencies to our data on T2000. However, positive, this response may seem, there is many slip to and despite of our confidence in this product, there can be no assurance that we will succeed in phase III studies or T2000. US patent and Trademark office recently issues a patent on T2000 and other members of its class for the protection of brain tissue from damage during an ischemic stroke. Research has indicated that rats pre-treated with T2000 sustained significantly less brain damage after an experimental stroke in rats that did not receive the drug. In addition, the data suggested neurological function was better preserved in animals pre-treated with T2000. It is inappropriate to extrapolate from animal experiments to human beings. Therefore it's too early to draw any conclusions with respect to end commercial use of this drugs in reducing damage associated with stokes in people. There could be no assurance of regulatory approval or commercialization of these drugs in any country or for any indication.

I am also pleased to report the European Patent Office has informed the Company that a composition of matter patent on T2001 is allowable. The U.S. Patent and Trademark Office had previously issued a similar patent on T2001. T2001 is a chemically modified form of T2000. Taro intends to develop T2001 for a number of clinical indications. However, as in the case of T2000, there could be no assurance of success in the development program or of the ultimate commercialization of the product. In summary, we need to take a balanced view of the future. This is very important to return to profitability as quickly as possible. At the same time, we must be careful to preserve the initiatives that we believe are the foundation for future growth and success. Although we had a disappointing quarter, Taro is a strong company sustained by a solid underlying business with good margins. This is not the first time in our history that Taro has encountered major challenges. We are a resilient organization and we believe that we are equal to the task and that we will fix the problems before us. Thank you. Kevin will now provide you with more details on our results. Kevin?

Thanks Barrie. Good morning, afternoon everybody. I will review certain items related to the Company's performance year-to-date, and also for the second quarter of 2004. Sales for the quarter were $49.1m, which was 34% below the second quarter of 2003. In the quarter, approximately 85% of Taro's sales took place in the United States, 8% of our sales took place in Canada, and the remaining 7% took place in Israel and other international markets. Now, traditionally wholesalers in the US account for approximately 50% of our consolidated sales, and the majority of our sales for this segment occurred at the very end of the quarter. Unfortunately, in the second quarter, these sales came in far below our expectations and this was the major factor in our revenue shortfall for the quarter. Now, in addition, price erosion, which is inherent in the generic drug industry, also reduced the revenues we realized from certain products. And, Taro did not have a sufficient contribution from new products to offset this erosion. Our gross profit for the quarter was $23.5m, compared to a gross profit of $15m for the same quarter a year ago. And, this decrease reflects the impact of the sales shortfall, product mix, and the allocation of certain period cost against the reduced sales base.

Our SG&A expenses in the second quarter were $30.6m, as compared with an SG&A of $22.4m in the second quarter of '03. Now, included in this quarters' cost are the full expenses of our Taro Pharma sales force of approximately 70 people that are calling on dermatologists and pediatricians. In addition, the Company continued to invest in its proprietary OTC product lines, Terazol and Elixir. Taro's commitment to research and development continued with $10.5m invested in R&D during the second quarter, compared with $9.6m a year ago. Now, approximately 75% of this amount was focused on our generic pipeline and the remaining 25% was focused on our proprietary pipeline, which includes products that use our non-spill drug delivery system, and also our new class of non-sedating barbiturate compounds, which as Barrie mentioned earlier, are entering Phase- III studies in Canada. We continue to have more than 30 ANDA filings at the US FDA, and numerous filings with regulatory agencies in other countries. Our operating loss was $17.6m in the second quarter of 2004, compared with operating income of $18m in the same quarter last year. The loss reflects the decrease in revenues and the impact of the marketing and the research expenses we've described.

At the end of the first quarter, we initiated a cost reduction program throughout Taro. The reduction in cost included advertising, research as well as general administration. And although we were successful in achieving our goal, the 10% reduction in expenses in comparisons to the first-quarter, did not compensate for the sale of shortfall and the other factors we've been discussing. All of these factors combined to produce a net loss of $8.9m or $0.31 per share for the quarter, and year-to date our sales now total a $133.2m and our net income totals $2.3m or $0.8 per share. And before we take your questions, I will also review some items from the quarter and balance sheet. Cash and restricted deposits stood at a $101m at the end of the quarter and this represents a decrease of approximately $61m from the end of '03, as we funded our working capital requirements, capital investments, and product acquisitions from cash. Accounts receivable trades stood at $118.7m as compared with a $120.5m at the end of last year. The inventory level of $101.7m was built in accordance with our policy of maintaining the finished goods required, to meet anticipated customer demand, as well as new product launches.

And as we have discussed, these sales didn't fully materialized. And line measures were taken to control inventories and other related cost. And the CapEx runs a total of $15m has been invested in property plans and equipment in the second quarter of this year, are combined with the $29m we invested in the first quarter, this bring the year-to-date total of capital investments to $44m. Projects included in this number, are our new distribution center in New Jersey and on going projects in Israel, Ireland and Canada. Now we intend to invest the total of $20m to $30m in the capital projects for the remainder of 2004, as our permanent capital investment programs reach completion. The activities of the second quarter, included the final payments to Medicis of approximately $13m related to the acquisition of Ovide, Topicort and Primsol, and ATS product lines and these products were originally license was Medicis in January of 2003.

And today we announced the licensing of the Lustra product line from Medicis, also with the purchase option and we believe this edition to the product line of our top performance sales force, will enhance the profitability of this division. Now in conclusion, TARO's fundamentals remain strong. First, our Generic market position is solid, prescription for Taro's Generic products continue to increase and the channel group is increasing demand in prescriptions for our proprietary products. Second, Kerasal has become a leader in the foot care category and is making a positive contribution to our financial performance. Third, we have a robust product pipe line at the FDA, as well as an excellent research program developing products to be filed in the coming months. Fourth, our current capital investment program is largely complete, and we are reducing our overall expense profile. And finally, perhaps most importantly, we have a management team that is equal to the challenges ahead. Now, Dan let me turn it over to you and then I am sure we will take some questions.

Thank you Kevin. Before we take questions, I would like to offer some perspective on generic pipeline. After today's announced approval for CV lotions, there are currently 31 filings in our pipeline at the FDA. These consist of 30 ANDAs and one NDA related to NonSpil.18 of the filings are for the Tropical products and 13 are for oral dosage form products. And the current market value of the ANDAs in the pipeline remains more than one $1b. Now to begin our question and answer session, let me remind you briefly of three of our communications policy guidelines. First, we do not provide guidance or comments on analyst estimates. Second, for competitive reasons and to be fair to be customers our policy is not to provide information on sales and profitability of individual products. And third, again for competitive reasons we do not disclose the product filed with the FDA. Thank you and now we will be happy to respond to your to your questions. So, we can start the session.

Thank you sir. The question and answer session will begin at this time. If you are using a speakerphone, please pick up the handset before pressing any numbers. Should you have a question, please press star one, on our push button telephone. If you wish to withdraw your question, please press star two. Your questions will be taken in the order that they are received, please stand by for the first question. Our first question comes from Elliot Wilbur with CIBC World markets. Please state your question.

Good morning. Thank you for taking the question. First question for Barrie and Kevin within -- on the wholesaler issue, approximately 50% of your business directed the wholesalers but it was any of these shortfall in terms of purchase patterns more attributable to what -- that is a quickly answered question. What's it -- maybe just propositionally attributable to one customer versus another or did you see it pretty much in sort of your normal proposition across your wholesaler customer base?

Elliott, it was pretty much across the entire wholesale customer base. Not, but not one customer.

Okay, and then, you know, one of the most typical things I was find in following companies in this industry is that if -- it is very difficult to just read on inventory levels in the channel and it is probably at times equally difficult for you. But we see more and more the wholesalers talk about, you know, these distribution management agreements and a lot of them have indicated they are going to start with small and start with the smaller companies. I am just wondering what your thought process is on that is at some thing you think is a step that you need to take going forward?

Actually Elliot, we would welcome an opportunity to understand in wholesaler inventories. We don't have some indication of sales was from their deductions which they report us periodically. But we really have no idea what their inventories on or what their inventory buying patterns or policies are and obviously those change from time-to-time. So, we would be much more comfortable if we get the inventory ourselves and supply the wholesalers on an as needed basis as opposed to just meeting their orders when they issue them. So, obviously there are any wholesaler listening to this call, but we certainly would be open to any arrangements that would allow wholesalers to optimize their inventories, so we will be able to optimize ours.

Okay. Great. Let me ask one follow-up question here on the, the placing issues that you have mentioned in the quarter Kevin or Barrie, when you talk about pricing pressure obviously it is a red flag for anyone who knows anything about this industry. And I am wondering when -- we were taking about pricing erosion that hurt our business this quarter, and we are talking about situations where you have relatively new product launches where you maybe one up -- or one or one of two competitors where you have seen a couple of new hindrance in pricing is just kind of step down and sort of and step up that the pattern that you would expect historically, or we are talking about something maybe a little bit more beyond that sort of price indicate across the portfolio?

Elli, it is kind of no -- no I wouldn't say it is anything across the portfolio and anything it is more isolated and to some has been a bit rational but it is there. I mean if I was going to put this three factors that impacted the overall performance for the quarter-end I any particular order, volume obviously was the important part here, the mix would be second and then last would be price, I mean there was some erosion but it is definitely not at the level that gave us these results.

Okay. And then one final question for Barrie and all, jump back into the queue -- seeing that these kind of situations happened the Company is over the years and generally there is a pretty quick doubt stack in the business and obviously it is difficult to watching the stock price reaction. But a couple of your comments kind of common here, and when you talk about things such as reducing G&A, capital investment, I mean to me those are more suggestive of your thinking that may be a prominent and Fairmount in the business. I just want to make sure that I didn't misunderstand you in the stock messages that you are trying to communicate?

But why I think that -- maybe I didn't rise the proper of perspective. We have not lost any customers, we have lost any products, none of our plans have been disqualified. The company is very much intact. But what did happen is that we anticipated higher levels of sales for wholesalers then we got, and I think it is very important for us to reduce our expense profile and reduce our inventories in a manner consistent with prevailing business conditions. I also said that we don't want to compromise any future initiatives but where there are elective expenses and since we can guarantee when wholesaler purchasing will pick up, those elective expenses can and should be deferred.

If I could just jump in Eli and finish off one thing on the CapEx program. It is basically coming to a completion so that is more a matte of we are wrapping up some of out initiatives in Canada, in Israel and here in United States. As opposed to really cutting back on things we planned on doing. And the positive result of that is there by expanding our capacity we actually can react quickly to the customer demand. So in the past when we build up certain inventory levels with in the organization because we did know exactly when things are going to come and orders are going to happen. This way we have the ability now after our capital program is completed to able to react a little bit faster to changes in customer demand, so that is going to also allow us to drive down our inventory levels going forward.

Thank you. Our next question comes from Greg Gilbert with Merrill Lynch. Please state your question.

Thanks. I have a couple. First for Dr. Levitt, you did mention anything about some of the management turnover we are seeing particularly in sales and marketing. Could you review that for us? What are you doing to replace people and maybe more importantly to figure out how you can better retain key people? And you know whether or not any turnover effected sales? Kevin, other than natural price erosion in market share loss that you discussed which is inherent in the industry, is there any reason to believe that revenues and margin cannot return to previous levels?

Its true that there were three to four people in last sales force which in the aggregate must be the 80 to 100 people range. We see majority of our sales force is intact, and we have had very little turnover in sales force over the years.

I mean on the generic side. I'm sorry to interrupt.

Even on the generic side, we are seeing a vast majority of our sales force is intact. We have excellent relations with all of our customers, and we have had excellent relationships over the years. I don't believe that the few people who left had any material impact on wholesaler purchasing tenants, I mean, I think that the two things are separate and distinct from each other. I just would like to give reinforce the confidence that I have in the sales team headed by people who have been with the Company over a decade. So, I'm unsatisfied that we are going to maintain our relationships with our customers, we realize how important service to customers really is, we understand that the customers and what the business is all about, and we have a season team of professionals in place.

And just maybe a stupid question, but why not hire someone from a wholesaler to refer you guys to figure out how it goes on?

I don't want to disclose exactly what's working here, but we have done that. We have a very senior person from one of the wholesalers and a very senior person from one of the chains working here.

Thanks.

And Greg, I'll jump in on your second question, which relates to levels return and all of the underlying data that we see that basically -- you're actually kind enough to provide to us at times points to the fact that we really haven't seen a loss of our market share. Just unfortunate that the middleman between us and our ultimate customer knows ultimate restrictions contracted . So, at the end of the day, I mean the underlying script data looks real positive. The R&D has now delivered a good product force today with the accrual of CB lotion, the acquisition of ElixSure product line is also going to help us. So, there are some positive signs out there for us.

And Kevin, it was mentioned that product mix was unfavorable. It doesn't sound that was sort of an abnormality that would bounce back in your direction, but we are seeing that warfarin, carbon, CB Cream and products just inventory levels for those must have been higher? Or is there some other factor that you can mention other than some market share loss on CB Cream?

We're not going to take individual products, but it's obvious that from looking at the overall margins of some of our more profitable products, probably more effective by the change in the buying patterns from the wholesalers and others.

I think, Kevin, if I can just jump in for a second, the products from the Taro Pharma division which has very high profit margins, a very much wholesaler products, because they are still the one finally develops the volume that makes it worthwhile for these products to be sucked by change. Most of the changes are deployed but most of the changes are supplied through the wholesaler, so a change in wholesaler buying pattern changes the mix automatically, since many of the very highly profitable products are .

Thanks. That's helpful. Thank you.

Thank you. Our next question comes from Rich Watson from William Blair & Company. Please state your question.

Hi. I guess I had a follow-up on an earlier question about the wholesaler inventory levels and what your kind of -- how are you characterizing outlook? It seems like when you talk to companies in this kind of situation, you know, they would kind of characterize the situation like this as maybe, you know, the worse is behind us we've seen the work down in inventory at the wholesalers and to, you know, be selling the stock based on that is actually wrong because, you know, now the worst behind us and you see a more positive outlook with inventories as low as it potentially been worked down until now, but it didn't seem like you are necessarily saying that. Could you just maybe clarify how we should view the outlook in terms of wholesaler buying patterns? Do you think that levels are down to where -- you know, I can't predict the future performance in a, you know, reasonable standpoint, you would expect to see a pickup in buying?

Rich, I guess, I mean unfortunately we really don't have the visibility into their wholesaler channels so that we can assure you a 100% that they are done and whatever their policies are going to be in the future. We can point obviously the positive things, the prescriptions for our products are increasing that's -- at the end of the day what really counts in the business. So, we love to tell you that we had that visibility into the wholesaler, inventory levels, but we don't -- but we know that the script that is there is for us, the approvals are coming through now for us. So, all of that points obviously to a much better performance in the future.

Okay great and just a follow-up on the sales force question. I don't think if you said this, I apologize, but I don't think you mentioned whether you plan to replace those people or whether part of this cost rationalization will include reducing the sales force?

No, we are not going to reduce cost by cutting the sales people. We expect that most of the positions that needs to be replaced will be replaced, obviously the way to get profitability is to enhance sales, to bring new products to market, to expand distribution in a rational way and that involves people and we are going to do what's necessary to maintain appropriate relationships and service levels to our customers. But, that's not the place to reduce expenses, but we will reduce expenses in other areas, which are a non-essential.

Okay great. And then, one last question if I could, part of your covenants on your debt that you have outstanding have sort of covenants attached regarding debt equity ratios and EBITDA in interest coverage ratios basically are you comfortable that all those kind of things are intact based on your outlook for the company?

Yes.

Okay. Thanks.

Thank you, your next question comes from Arnold Ursaner with CJS Securities. Please state your question.

Hi, good morning. I guess we're all focused on the same issue, can you give us a better field of what the typical terms of your products would be at the wholesaler level?

Again Arni, it's Kevin. It's difficult to give you that number because we just don't have that visibility into their level of inventory for number of different reasons, -- first of all they don't give it to us and for whatever their own practices are -- I guess they figure it to their advantage to keep us a little bit in the dark as to exactly where they stand on their inventory levels. So, I just can't get you that answer unfortunately.

But, Kevin you haven’t selling to this market for decades, do they term once every - once a every -- four times a year, eight times a year. There must be some sense of what typical terms would be in the normal environment?

Is the word trends you are talking about trends while -- I would normally say Arni what we've seen in the past as they usually come in basically with one by every quarter. So based on that, I would have to say that they are turning their inventory three to four times a year.

Got it. So in theory, if this is in fact a backing up of the channels so to speak, it's unlikely as long as final demand remains strong, this would take more than a few quarters to work us way through.

We hope. Yes, absolutely.

Great. You had a 34% decline in revenues. Can you give us the percent decline in sales to all of your wholesales? Got to be 70% or 80% mathematically.

What we really don't break out individual customers or individual products, so unfortunately I am not going to be able to give you that number?

We are not asking you for individual customer or individual product. We are talking about a category, which you have given us.

Even class of trade, I don't think we've actually broken that out. The only think we can tell you is that in total over 50% of our sales take place to the wholesalers and that was the impact that really was that class of trade, and the impact on reducing our sales for this quarter.

Okay. Can you comment on whether you've seen any trend change in July, meaning would it be possible if these wholesalers had cut back inventory in anticipation of the June quarter? Are you seeing any change in July so far?

Even though July trends are positive, it really can't tell -- we are in the summer time now it's very difficult because the sales in July are better than they were in April doesn't mean anything. It doesn't mean that we can't predict again. The wholesalers will make their buys when they make them -- right now, what we're seeing from wholesalers is replenishment - the standard replenishment of stock which goes on all the time, but with this the wholesalers typically buy at the end of the quarter, which is one of the reasons that we really don't know until we get close to the end of September.

And I have a question for Dr. Levitt if I can. In the 8-K filing you had disclosed the issues related to a family and partnership. I just want to be clear because I get to ask a lot of questions on it. What impact if any at all it has on the Taro parent corporation?

First of all Taro is not a party to that dispute is Private Litigation within the family. We disclosed all in our 20th and nothing has changed since the 20th. So, I rather not say anymore than what is probably disclosed.

Thank you.

Thank you. Our next question comes from Gergely Varkonyi with ING. Please state your question.

Good morning gentlemen. Can you give your estimate for the estimated cost cuts that you planning the business?

Well, our costs. I can't give you a definitive number, because the review is currently underway. But all areas of the company are being reviewed. Obviously, the way out of this is to increase sales to get new products. Cost reduction is part of it. We have reduced the expenses across the board 10% as Kevin said in Q2 versus Q1 and that was a $4m savings and we are going to do everything that we can without harming our sales and marketing initiatives and without harming the long-term strategic objectives of the company.

But only if you expect the quarter-on-quarter decline was partly related to the seasonality of the Elixir product line. I mean, probably you didn't, you wouldn't have spent that much on advertising Elixir in Q2 than you did in Q1 anyway?

There's no doubt that Elixir was a part of that cost reduction, but really across the board, we really attacked our expense base. So, the Elixir advertising was a piece of the reduction quarter-over-quarter, but we also looked at all other areas within the company. You see a reduction in overall admin expenses, you see a reduction in our R&D investments as well. So, I think across the board, we were able to reduce our overall expense base.

I know that you don't give us specific guidelines, but shall we expect continued quarter-on-quarter decline in their court space in Q3?

Let me just say that we are going to do everything that we can to be cost-effective and we will do our very best to turn this around as quickly as we possibly can.

Thank you very much.

Thank you. Our next question comes from Slim with Martin Carry . Please state your question.

Yes, hi. Can you give us some color on the pipeline in terms of FDA approvals and actually I'm very surprised by the timing of getting an FDA approval today. We are not seeing your results. So I was, want to have an idea whether it will be possible that you can get an approval and now it's a couple of days later or you actually didn't get the approval today, and then looking at the pipeline, you seem to have , you had very dry spell, only couple of drugs presented this year, so can you give us some color, because when I look at '04 with '03, '02, the challenge is quite different?

First of all, the approval, I guess at this very end of business yesterday and as a matter of policy, we always announced them, I mean and that's been our policy over the last 15 years. Though, I wish that we could time the FDA approvals but obviously we can't, but we will just be reassured that it happens when it happens, we report it when it happens. With respect to the FDA, we have great confidence in the submissions that we've made and we are sure that we are going to be treated expeditiously by the FDA and that we are going to get our fair share of approvals for coming months. We've had seven approvals so far this year and, but no reason to believe that if there's any reason why the FDA wouldn't continue to process our submissions in a fair and reasonable manner. But it's not under our control.

What about the ANDAs find, only two versus 20 last year?

I'm not clear that it is 2 versus 20 and we've been filing pretty much at the rate that we've been getting them. The number has if you look at any particular point in time if you get one or two approvals and you don't do one or two filings during that time, then you get it different the number, but , we expect that the filings are going in a continued and in a copy of rate.

All right. Thanks.

Thank you. Our next question comes from Elliott Wilbur with CIBC World Markets. Please state your question.

Thanks, my follow up has been answered.

Ladies and gentlemen, we have time for one last question. Our last question comes from Rich Watson with William Blair and Company. Please state your question.

Yes, hi. I just wanted to follow up to get a little more clarity on the T 2000 Phase III Trial, can you just tell us the fact that the trials are being run in Canada, how that plays into your ability to make the NDA filing in the USA? Thanks.

First of all, thank you for the question. The entire T2000 program was run in Canada, it was cost-effective to do it in Canada. We did our preclinical studies through Canadian companies. We did our Phase I studies in Canada, we did our Phase II studies in Canada, we have an active IND in Canada, the Canadian authorities are very familiar with everything that we're doing because they have been following us from the very beginning. And, we believe, of course, I can't guarantee that we're going to be successful, but we believe that the - a solidly organized, properly designed Phase III study in Canada is going to be acceptable, not just the Canadian authorities but to - I mean Canadian PPP is a very well respected agency, and we would assume that a good Canadian study would be acceptable to others. Now, with respect to essential tremor, which I think is the issue, there aren't - I think there is only one drug approved for essential tremor in United States and that is Inderal, an immediate release and it is not as primary indication. There have not really been any drug studied from a regulatory standpoint for essential tremor in the last 50 years to my knowledge. In our Phase II studies, we have to establish and validate the various parameters of study, the patient selection criteria etcetera, and as we go forward in Phase III, I hope we will benefits from the work that we've done in Phase II.

That's great. If I could, just one last question on the balance sheet. In the first quarter Kevin, I think you mentioned there was a dispute outstanding with one of your customers and can you just tell us whether that dispute has been resolved and in general, why the accounts receivables haven't ticked down further based on seeing the sales trending the way they are? Thanks.

They are, well for the year balances are more related to terms and the credit worthiness of our customers, and in relation to the issues that we discussed in Q1, it was a number of different customers related to excess deductions, etcetera. Some of that has been resolved but there is still approximately 16m of it is still under discussion with the number of different customers for resolution.

Thank you.

Thanks.

Ladies and gentlemen, that's all the time we have for the questions. I will now turn the conference back to Mr. Saks.

Well, thank you very much, and we look forward to speaking with you again at the end of the third quarter.

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