Taro Pharmaceutical Industries Ltd (TARO) 2015 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Taro second-quarter 2014 -- 2015 earnings call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, William Coote. You may begin.

Thank you. Good morning, everyone, and welcome to our second-quarter fiscal 2015 earnings call. Joining me today on the call are Mr. Dilip Shanghvi, Chairman of Taro's Board of Directors, who is joining us from India; Mr. Kal Sundaram, Taro's CEO; and Mr. Michael Kalb, Group Vice President and CFO.

We hope you received a copy of the earnings press release which was issued yesterday and which can also be found on our website at www.Taro.com. This is our first earnings call, therefore we anticipate that many of you may have questions concerning not only this quarter's financial performance but also our markets, operations, strategies, and other questions. We have scheduled this call for 1 hour; so as time permits, we will take your questions. However, we ask that you restrict yourself to one question, and if you have more questions please rejoin the queue.

As a reminder, this call is being recorded, and a replay will be made available on our website for the next 10 days. A call transcript will also be placed on and remain on the website.

Before we proceed I must remind you that today's discussion may include certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although the Company believes the expectations reflected in such forward-looking statements to be based on reasonable assumptions, it can give no assurances that the expectations will be attained and should be viewed in conjunction with the risks that our business faces, as detailed from time to time in the Company's SEC reports.

I would now like to turn the call over to Mr. Dilip Shanghvi.

Thank you, Bill. Welcome all of you and thank you for joining us today for Taro's earnings call after the announcement of Taro's second-quarter fiscal 2015 financial results.

Over the past few quarters, many of you have requested more interaction with Taro's team for a better understanding of Taro's business. This quarterly called is a step in that direction. While we'll try to respond to most of your queries, we will not be able to share product-specific and commercially sensitive information, including pipeline details.

I am pleased with Taro's performance and would like to thank Taro's management team for the Company's consistent performance, thus creating value for all Taro shareholders. I would also like to thank Taro's Board of Directors for their continued support.

Sun acquired Taro in 2010. Post this acquisition, Taro has tried to enhance its R&D pipeline. Taro's present level of filings awaiting FDA approval is higher than at the end of 2010, and we expect that to continue. In the past 4 years, Taro has filed more than 35 ANDAs with the FDA, many of which involve complex clinical studies, and has cumulatively spent in excess of $200 million on R&D.

There are many other milestones which Taro has achieved over the past 4 years. Kal will share some of these with you. Over to Kal.

Thank you, Mr. Shanghvi; welcome, everyone. Taro has achieved a significant accomplishment for the past 4 years. Let me highlight a few of these achievements.

Taro was listed on NYSE after a period over 5 years on the pink sheets. Taro's market capitalization has grown to $7 billion from $667 million in 2010. This is post a successful share buyback of $190 million.

In 2010, as per IMS data, Taro was ranked third amongst the generic dermatology companies in USA. In terms of sales, now it is ranked number one for the past 3 years. US remains the dominant market for Taro.

Taro's earnings per share also have grown 50% CAGR, or compounded annual growth, since 2010. Taro's sales and earnings growth is attributable to upward price adjustments and a prudent lifecycle management of our product portfolio, while our overall volumes remained relatively constant and we remain conscious about the long-term sustainability of these prices. We are pleased to present this quarter's results and with the consistent progress that we have made.

I'll now hand over the floor to Mike Kalb for a further discussion on financial performance. Mike?

Thank you, Kal. Hello, everyone and welcome. We are pleased with our second-quarter results, and the comparisons that I'll discuss are all with the comparable prior-year periods. I will first discuss the Q2 highlights, followed by first-half highlights.

Net sales for Q2 were $251 million, up 22% over Q2 last year. As we anticipated in last quarter's earnings release, we are realizing the benefits of the previous quarter's price adjustments in the current quarter.

Gross profits increased 24% to $198 million year-on-year, resulting in a 130 basis points expansion in our gross margins to 79%.

R&D expenses as a percentage of net sales at 5.5% were lower as compared to Q2 last year. Our R&D spending is not evenly distributed across quarters.

SG&A expenses as a percentage of net sales were at 8.6%, lower than Q2 last year. Richer product mix and focus on cost efficiencies have driven the decline.

As a result of the above, EBITDA for Q2 grew 32% year-on-year to $164 million. EBITDA margins improved to 66% as compared to 61% for Q2 last year.

Net income increased 49% to $143 million, driven mainly by top-line growth and improved profitability. EPS for the quarter was $3.35, compared to $2.15 for Q2 last year.

Let me now briefly discuss the half-year performance.

For the first half, net sales were up 6% to $381 million compared to $359 million for the first half of last year.

Gross profits increased 6.5% to $283 million, while gross margins remained relatively flat at 74% over H1 last year.

R&D expenses as a percentage of net sales were at 7.6%, in line with H1 last year.

As a result of the above, EBITDA for H1 grew 10% year-on-year to $223 million. EBITDA margins improved to 59% as compared to 56% for H1 last year.

Net income for the first half increased 22% to $189 million, resulting in EPS of $4.42 compared to $3.46 for H1 last year.

While our volumes are relatively flat year-on-year, the levels of both our cost of goods and SG&A reflect the cost efficiencies and benefits realized as we actively manage and remain disciplined with our spending. Our cash flows and balance sheet remain strong, with cash including marketable securities increasing $50 million to $683 million from March 31, 2014.

I will now hand the floor back to Kal.

Thanks, Mike. Taro's quarter-two and first-half results reflect our continuing effort to improve our business model and processes in order to supply high-quality products and maintain our customer service levels, together with continued focus on operating and cost efficiencies.

We are focused on the successful execution of these important initiatives in order to remain well positioned for the future. Our sales and earnings growth is attributable to upward price adjustments and prudent lifecycle management of our portfolio, while our overall volumes remain relatively constant.

We remain cautious of the increasing competition and major customer and industry consolidation, and the potential impact of both, which can impact our sustainability of our product prices. These factors create additional challenges in maintaining our current performance, given ever-changing market dynamics, in particular the creation of buying alliances between major wholesalers and retail pharmacy chains. As we have stated in the past, long-term sustainability of the growth achieved is uncertain given the unpredictable nature of our sales due to above-mentioned factors.

We have increased our R&D spend for the past 4 years, and we expect to continue to spend significantly on R&D in order to improve and grow our pipeline of quality products, in order to remain competitive in a highly competitive market. To some degree, the projects move at their own speed, even if you want to move them faster.

Year-to-date, we have filed the five ANDAs and received three approvals from FDA, the most recent of which is an approval for Desonide Lotion, 0.05%. Taro has ANDAs representing 30 products awaiting FDA approval, and 48 DMFs and been filed with FDA. As you may be aware, FDA has not reduced its approval timeline for ANDAs, which still remains at the magnitude of several years. We anticipate the benefits of our R&D efforts will provide long-term benefits to the Company.

Going forward, Taro continues to focus on building quality pipeline through R&D, improving processes team, increased speed to market, and looking for business development opportunities. We are always looking for opportunities to strengthen the Company, be it either through organic growth or study of acquisition opportunities. However, we are disciplined in our evaluation in order to ensure that acquisitions meet both our business as well as financial criteria.

Before we move on to your questions, I would like to thank Mr. Shanghvi and the entire Board of Directors for their continued support and assistance in helping Taro move forward. Wherever possible, we continue to leverage Sun's expertise and capabilities in areas such as procurement and other business imperatives in order to augment our own.

We think this is good for all shareholders to benefit from Sun's capabilities. With this I would like to open the floor for questions. Thank you.

(Operator Instructions) Neha Manpuria, JPMorgan.

Yes, hi. This is Neha Manpuria from JPMorgan. One question on R&D. I understand that you don't want to talk about what is in the pipeline.

But just in terms -- we have seen R&D expenditure increasing by the Company, and we have a filing rate of about 10 to 11 ANDAs. How should we look at R&D spend overall for the Company and this filing date on next 2- to 3-year period?

Kal, would you like to respond?

Sure. As I mentioned in my own text, we expect to maintain the current level of R&D spend. And depending upon the portfolio opportunities, we will certainly maintain; if not, we will even further increase the spend to further augment our pipeline. Neha, is that what you asked?

Yes, sir. Thank you so much.

Anubhav Aggarwal, Credit Suisse.

Yes, thank you. This is Anubhav here. One question regarding the results.

If I look at the results for this quarter, cost of sales have moved up from a level of about 45, 46, which has been there for the quarter, to 53, which is a jump of 18% quarter-over-quarter. Just wanted to check that.

Have our volumes moved up to the same proportion? Or is there one-off in cost of sales?

I think it is more relating to product mix. Our volumes have remained constant. So depending upon the product mix, needless to say, the cost of goods varies.

So it is not due to volume; it is more product mix.

Okay. Thank you very much.

Mitchell Sacks, Grand Slam Asset Management.

Yes, my question is related to accounts receivable. I see there was a jump in days for the quarter. Is that a timing difference, or what is causing that?

Mike, do you want to answer that?

Sure. Yes, timing difference. If you look at the DSO, I think we are still in the mid 60s, which has been consistent.

Okay, thank you.

Sameer Baisiwala, Morgan Stanley.

Thank you very much and thanks for doing this call, first time. It's now 4 or 5 years since Sun has acquired.

Again, for the first time, would Taro be taking up the practice of issuing the full-year guidance, the way Sun Pharma does? And if so, what is that for this year?

Kal, maybe you can respond.

I don't think we have plans to give forward guidance for the simple reason, as we explained, much of the sales increase is attributable to price adjustments. Given the uncertain nature of the market, it will be difficult for us to give guidance.

Okay. Thank you very much. I will get back in the queue.

Matthew Furnas, Raging Capital Management.

Thank you for taking the questions. Congratulations on the results. You talk about the pricing adjustments. Can you walk through or explain your policy regarding reserves for those pricing adjustments that you have made? How much of them have been utilized, and how should we look at that going forward?

Dilip, I'll ask Mike Kalb to answer.

Sure. The adjustments that we have had to take are based on our customer contracts that we have entered into. Those reflect our contractual obligations to our customers and is standard industry practice.

Mike, maybe you can give a little bit more color so that there is greater clarity.

Sure. Based on each customer, each product has slightly different requirements, as you probably are aware; and we have to take certain charges at the time we adjust prices. The payback varies on those price adjustments.

But I think, as I mentioned earlier, we are starting to see the benefits from the first-quarter price adjustments now.

Basically, Mike, we need to give, what do you say -- these price adjustments reflect the need to give some form of price protection for the trade, for the insurance to catch up, for them to get higher reimbursement.

That's correct.

So like Mike said, the entire approach is built on by product, by customer, and the nature of the contract we have with our customers.

Sudarshan Padmanabhan, Sundaram Mutual Fund.

Yes. What I would like to understand is, I am looking for the -- mainly the last 2 years, a substantial portion of your growth has come from the price. And given the fact that the competition is increasing, it appears that this is not going to be sustainable. It's what you have been cautioning us.

But if you can give me a 2- to 3-year kind of horizon, where do you see Taro, especially with the fact that you are building a pipeline and probably you have cash, cash of about $680 million or so, how would we plan for the next 2 to 3 years in terms of building the growth and building the profitability of your Company?

Like I mentioned and as you are saying, substantial amount of our sales we'll reinvest in R&D and build a pipeline. So given that the FDA takes, let's say, 3 years or so to give an approval for a given product, the impact of the pipeline that we have built will be felt in the future.

As to what those opportunities will be, how the market will be, how each product will perform, it is too soon for us to predict that part.

As to utilization of cash, like we mentioned we continue to look for opportunities. The opportunities need to meet both our strategic needs as well as the financial criteria. So if and when a suitable opportunity comes, certainly we will use the cash.

Thanks. I'll join the queue.

Prakash Agarwal, CIMB.

Yes, good evening. Thanks for the opportunity. Just a clarification on the volumes. You talked about decreasing volume, so are these only Y-on-Y or also Q-on-Q?

Mike?

Sure. Quarter-on-quarter, I think we are relatively flat.

Okay, so primarily --

Go on.

Yes, so quarter-on-quarter we are relatively flat; and we are down slightly H1 versus H1 a year ago.

Okay, understood. Thank you.

Girish Bakhru, HSBC.

Hi, thanks for taking my question. Just your thoughts ahead of Ranbaxy merger on top products that Ranbaxy brings into your portfolio, if you could throw some color on how you plan to integrate that with your current salesforce. And if possible also comment on possibility of taking price adjustment in those products.

Dilip, you want to answer?

What is the question?

The question is, ahead of the Ranbaxy merger, if you could just kind of hit on the topical dermatology products that Ranbaxy brings in support portfolio and how actually Sun plans to integrate especially Taro products with Ranbaxy products, if they are using the same salesforce or expanding it. And if you could also circle around if there is a possibility of taking price adjustment in those products.

We haven't studied the Ranbaxy products, so difficult to respond. But there is no plan to, what you call, rationalize field force because both the products -- products of both the companies will require to be promoted, and I don't think that it is feasible for us to run both the product promotion through a common field force.

So there is no -- there is also a separate field force of DUSA. Even that will continue to operate independently.

Thank you, sir. I'll join the queue.

(Operator Instructions) Chirag Talati, Kotak.

Yes, hi. Thanks for taking the question. One of your competitors alluded that the full impact of price increases is likely to be felt in the next quarter. So did we see the full impact in this quarter, or are we likely to see some impact also coming in next quarter?

I think, what do you say, a lot depends on the -- I don't know which competitor you are talking about, and I don't know the product; I don't know when they took the price increase. So therefore comparing them with us may not be appropriate.

If you ask me, we have felt pretty much the entire benefit of the price impact in this quarter.

Okay, thank you.

Nimish Mehta, Research Delta.

Yes, thanks for taking my question. I just wanted to know about any update on the product that we have acquired from NovaBiotics. It was supposed to be in Phase II, so any color on that would be very helpful.

We are still in early stages of clinical development. As things stand, it is premature for us to talk about what the future for the product holds. As and when we get any major data, at that point probably we will share it with you.

Okay. And if I may ask another question, can you just review the addressable market for the newly --?

Excuse me. Can you I think -- please join the queue--

Okay, thank you.

[Ebjeck Sharma], IIFL.

Yes. Just some color on competitive intensity within the derma generics space as it is building up would be helpful. Is the competition coming from within the existing peers as they expand their ANDA portfolio? Or do you see new competitors on the horizon?

Is it product-specific, or is it all across the board?

Remember, in the beginning we said that we are not going to share commercially sensitive information.

Okay. Sure, okay.

Matthew Furnas, Raging Capital Management.

Thank you. Can you just talk more generally about the pipeline of filings that you have? Obviously, they have increased significantly since Sun has become involved. But can you just talk maybe generally about the size of those opportunities and maybe how many competitors generally there are within each of those?

Again, the pipeline at product-specific level is commercially sensitive. Not appropriate for us to share it. I'm sorry.

But I think, Kal, I think if he is asking for overall indications I think you can talk or focus on products which would have relatively less competition because of complexity of development. So maybe some color would help.

Being in dermatology naturally or sort of sanctus dermatology and also in what are solids, narrow therapeutic index type of products, so to start with, the product has to have some level of complexity and most of the dermatological products also will have need for clinical development. Given this basic both in terms of timelines, certainty of the product meeting endpoints, and the cost of development will be, higher than most of the other ANDAs in other generic segments.

Much of our focus is we are very strong into steroids, so anything to do with where steroids can treat; it could be therapy atopic dermatitis or psoriasis, etc. We also have a portfolio of acne. And somebody spoke about NovaBiotics; that will be for onychomycosis.

So relatively speaking one can generally expect at this stage our focus is dermatology, between atopic dermatitis conditions, acne, and things like onychomycosis. Did we answer you?

I guess I was -- what is the size of those opportunities? Are they $50 million opportunities, $100 million? Generally can you provide a range for how we should think about how those opportunities can contribute to revenue growth going forward?

Number one, that depends on the product. And then with regard to, how-do-you-say, the talk more at a granular level, then we will be talking probably commercially sensitive information.

Okay, thank you.

Arvind Bothra, Religare Capital.

Arvind Bothra

Yes, hi, my question is in continuation to the previous one, essentially on the R&D costs. Somewhere Dilip mentioned that over the last 4 years 25 ANDAs have been filed and total R&D costs have been $200 million. So just wanted to understand: on an incremental basis product filing costs will be close to $6 million, $7 million, or should it be trending higher?

Ballpark, probably you are talking in excess of $5 million for a standard dermatological product.

Okay, and also in terms of product other than the generic side, will you be developing more NDAs in the future? Is that also in the works?

Certainly, what do you say, where the opportunity exists, that will be considered.

But nothing that is currently in development?

Again, we are getting to be too specific here.

Okay, okay. Final question just on product (multiple speakers)

Arvind, I will ask you Arvind, if you could get back in the queue please, we have other callers that want to call in. But thank you.

Okay, sure.

(Operator Instructions) Sonal Gupta, UBS Securities.

Thanks for taking my question. Good morning, everyone. Just on the -- could you highlight what exactly are the strategic imperatives that you are looking at in terms of M&A, when you are talking about it? And would the branded to space really be of interest, to you or are you looking at some generics as well?

Dilip, you want to answer that?

What was the question?

Sir, my question is that basically you briefly mentioned that we -- the usage of cash in M&A would depend on meeting strategic and financial objectives. So could you just elaborate on exactly what sort of strategic objectives you have? And will you be interested in really the specialty space?

I think one of the strengths of Taro has been dermatology, so clearly one area of interest would be that space. Also, the other focus is to find a way to create a consistent and stable revenue stream and profit streams; so that would be the focus. So this is relative to the strategic business interest.

Related to the financial discipline, I think generally we look at both synergy and value creation, looking at 20%-plus kind of annualized rate of returns we are looking at there. So that operating discipline we want to continue to maintain.

Right. Thank you so much.

Nimish Mehta, Research Delta.

Yes, thanks for taking my question. If you can highlight the addressable market that we are addressing for the three ANDAs that we have gotten approval this year, that will be great.

Kal, maybe?

Dilip, sort of on one thing. Is the question a bit too specific?

No, I think what he is asking is the size of the brands for which you got approval. So this is public domain.

It's market.

He is not asking you how much you expect to sell.

Sure. Give us a minute, probably, we need to estimate

So maybe that is something which you can send it to him privately. So this is a public domain information.

Dilip, I think we need to come to your desk, probably. I will go on to talk about maybe $30 million to $50 million in total for the market.

Great, okay.

I'm sorry, it is $30 million to $50 million you say?

Yes.

For all the three ANDAs put together?

That's correct.

Okay, okay.

And what Kal is explaining is the size of the market, not Taro's potential sales.

I understand fully. Thanks.

Anubhav Aggarwal, Credit Suisse.

Yes, one clarity on the discontinued products, just from an FDA perspective. When FDA reviews these discontinued products, clears to what players in the market have discontinued them. Have these start from the first step, or is it a much shorter-term process?

What is the question?

The question is, for example, in several of the products that Taro's sells, in each of the products there were players who have exited the market and are not yet back into the market. Let's say, if any one of those players wants to get back into the market, does it require the same amount, let's say, if FDA average approval timeline is 3 years, so if that player wants to come back to the market does FDA start from the first step and it takes 3 years? Or it could be just a very short-term process as well?

Depends.

It depends on the reason why the player has got out of the market. Let's say if it was very unattractive, then they can come back very fast. If they had product stability problems, then they have to solve the problem before they can come back.

If they are transferring the product to a new site, it will take the kind of time that the site transfer will require. So I think very difficult to respond to this. There is no single answer.

But, Dilip, I had just a clarity on that question. If let's say they took the product out of the market --?

I think if we are following some discipline, better to follow that. So maybe you can come back in the queue.

Sure, thank you.

Sudarshan Padmanabhan, Sundaram Mutual Fund.

Yes, my question is most on what is happening in the US right from the Congress level. The Congress had (inaudible) to various companies. What I would like to understand more broadly and less specifically to Taro, where do you see this going forward? And will that inhibit probably Taro tomorrow to take price exclusivities, if we'd see some kind of an opportunity to do so?

I don't know where you got this information. I don't think Taro has received any letter.

No, no, I am talking more generally, in the sense that would companies, other companies, be inhibited to take price hikes because now the Congress is talking about pricing, I mean. Which is more generally, not specifically from Taro or any specific companies.

Kal, you want to respond?

Sure. Generics remain --

I mean if you want --

-- a lot more, what do you say, value for money or cost competitive when it comes to the payers and patients. Generic companies, by and large, will have a larger portfolio. And some of the products, depending upon the competitive intensity, prices will be lower; some of them, when they see a short-term opportunity, prices go up.

As I understand, US is basically a free market, and our own evidence is, what do you say, with a change in prices, with increase in prices, competitive intensity also increases. That is also better for the market.

So -- but it will be very difficult for anybody to predict what the Congress will do. There is a very strong market mechanism which we believe is fully in operation, and the generics continue to accrue value to the patient and payers.

In short do you believe that it will remain a free pricing kind of a system?

Difficult to discern. Difficult question to answer isn't it? You are asking me to do crystal ball gazing.

That's -- just wanted a perspective from your side. (technical difficulty)

Nimish Mehta, Research Delta.

Yes, thanks again for taking my question. Please correct me if I am wrong, but I assume in Taro we have branded generics as well as pure generics in terms of the product portfolio. If yes, it will be great if you can provide a split and also some color as to what kind of products we need to launch as standard generic and what as pure generics.

Mike, we will give this to you.

Probably too specific a question for us to answer.

But whether you sell branded generics or pure generics?

We have both. We have both.

Okay. Any color what kind of products do we follow for branded -- I mean, for branded generics that may not be so specific?

Like I mentioned, we are focused on dermatology; within that therapy areas I mentioned: the psoriasis, atopic dermatitis, acne, and onychomycosis. These are our type of, what do you say, therapy areas in which -- both for generics as well as for brands that we'll be developing products for.

Anubhav Aggarwal, Credit Suisse.

Yes, just one question. Your facility in Israel was last inspected in December 2012. Just wanted to check that. Has that been recently inspected by the FDA?

After the 2012 inspection, it has not. It has yet to be inspected.

Okay. Thank you very much.

Sonal Gupta, UBS Securities.

Hi, thanks for taking my question again. I just wanted to understand, given that there are products that you have taken significant price increases, are you seeing some sort of substitution by the payers in terms of tier levels or the co-pay requirements for these, to make them less attractive? Has there been any thing which is happening from the market side, from the payers side, which is happening? If you could just throw some light on that.

Again, market volume fluctuations can happen for very different reasons. As and when a new generation product comes it will have impact on the older generation product. And once again in saying generics remain to be cost value for money and competitive, I don't think there will be any significant -- we have seen any significant impact of volumes shifting because of price adjustments.

Great. Thank you so much.

(Operator Instructions) Sumant Kulkarni, Bank of America Merrill Lynch.

Thanks for taking my question. On your cautionary comments on pricing, are those more due to financial prudence just from a modeling standpoint, or have you seen pricing come in on some products already?

I think it is prudent every which way you look at it, financially prudent and also the level of margins that is being generated, it will affect competition. It is a law of economics.

Thanks.

[Jeris Hicka], Goldman Sachs.

Thank you. The charge that was taken in the first quarter, was it a noncash charge or a cash charge?

The price adjustment charge?

Yes.

Yes, the price adjustment charge, typically the customers will take it in the way of deductions. So if you are asking specifically if we wrote checks, in many cases no; but it will reduce the cash inflow for a period of time.

So essentially a noncash charge, right?

Essentially. Depends how you look at it. Depends on how you want to look at it.

It is not like depreciation, for example.

It is a cash charge.

It is a cash charge?

Cash charge because we will receive that much less money.

Right.

So in June quarter did you actually pay that much money to the distributors? Or will you adjust it in future sales?

I didn't understand that question.

Is adjustment going to happen in future sales or --?

So again product ---(multiple speakers)

Was it an actual cash outgo from your side to the distributors, and you took the charge in the first? Or was it just a P&L charge and there was an adjustment that later on happen in future quarter sales?

I think I understood the question. Essentially the customers are taking those deductions; and again contractually there is timing on when they are allowed to deduct.

Actually it won't have any feature impact on the P&L. As to the cash flow, depending upon the timing of the deduction, it will have impact on the cash flow.

Sameer Baisiwala, Morgan Stanley.

Thanks. Sameer here. Just a quick clarification in the context of business development opportunities. You mentioned that one of the option is to find ways to have consistent revenues and profits. Are you referring to specialty products? Branded products?

Both. I think difficult to make products that we can acquire a company which has those kind of products and technology, but also branded products.

So we can have more kind of a deal with late-phase candidates?

Yes, theoretically, yes. Only thing is that with Taro's profitability it would have a much bigger financial impact. So we have to trade-off. But I am looking at equal sides but there will be smaller opportunities.

Okay, got it. Thank you.

(Operator Instructions) Lalit Kumar, Nomura Securities.

Yes, hi, this is Saion here from Nomura, just one question. Do we have any outstanding FDA issues regarding your Brampton facility?

All of them have been addressed. I don't think there is anything outstanding.

Oh, okay. Thank you.

Mitchell Sacks, Grand Slam Asset Management.

Hi. You are sitting on nearly $700 million of cash on the balance sheet. Do you have thoughts in terms of how to deploy that in terms of either maybe paying dividends, or is it really more for acquisitions?

Like we mentioned, much of the, sort of what do you say, cash is being built for future opportunities. In terms of -- I'll probably set up in terms of returning cash, last year we returned about $190 million in the form of share buyback, which is probably one of the most efficient way of returning cash to the shareholders.

On top, even in terms of share price appreciation, you will have seen more like a 10-fold increase for the past 4 years. So maybe, what do you say, we need to keep some cash for business opportunities, which we are building. And from time to time we have to evaluate and return cash to the shareholders in the form of a buyback.

Thank you.

Chirag Dagli, HDFC Asset Management.

Yes, so thank you for the opportunity. So can you indicate the size of our field force? Hello?

A typical dermatology field force in the US probably for branded segment could be in the region of about 70.

And that is where we would be?

Yes.

Okay, thank you, sir.

(Operator Instructions) Chirag Dagli, HDFC Asset Management.

Thank you for the opportunity. When you look at the opportunities between Sun and Taro, is there a carved-out area of interest for both these companies? Or is there any element of fungibility between these two from a strategic merit standpoint?

Kal, would you like to respond?

I think both the companies have independent evaluation process, as and when any opportunity comes that gets internally evaluated. And the proposals, what do you say, warranting review by the Board gets taken up to them. That's strictly Board. That is the process we have been following.

So then deals in the past, wouldn't they have been more appropriate for Taro than for Sun outside of the financial, the size of the deal per se? Whether it is a more compounded Sun has inlicensed or you don't do, sir, that Sun has acquired, would they not have been more for Taro than for Sun?

Okay, DUSA said -- Dilip, you want to?

Kal, let me respond. I think what Kal indicated is that the processes that whichever company accesses the opportunity, if it is an opportunity available for that company then it would evaluate that opportunity directly. And when -- if it is not something that they wish to pursue then they would share it with the other company.

Now let's say that in both these cases, more transaction -- more -- this was a very limited process that Merck ran, and that technology and product was available to Sun because of the existing Sun relationship. And the size of that transaction would have made it very difficult for Taro to take that kind of cost in its annual profitability.

Also, technology of biologics would have made it very difficult. And -- I mean for which Sun has in-house expertise. Technology also -- I mean the product also was global and Taro has only presence in the US predominantly, let's say, North America, and a small presence in Israel. So that's related to Merck proposal.

The second proposal which you talk of Sun, Sun has other products using photo-dynamic therapy in development, and it has in-house understanding and capability of photo-dynamic therapy. That was the reason why it was able to pay significant premium over other players who were competing, because it was a competitively run process.

And the reason why it would pay that kind of premium is because of the potential upside that Sun sees in introducing future product using this technology platform and capability. This is something which Sun shared with investors post the announcement at that point of time.

But to summarize I think a typical dermatology has the size which Taro can manage would be something which would be -- something which Taro would look at much more closely. But if it becomes a $5 billion opportunity, then it will become beyond Taro's capability to look at that opportunity.

Is that small -- opportunities are available in the market?

Valuation. I think challenge is the valuation, not opportunity.

Okay. Thank you so much.

[Ivas Shidak], private investor.

Yes, I had a recent inquiry and I got discue-ed from the response that you just gave. Taro basically has presence in, say, North America. What about geographical expansion of Taro going to be?

Dilip, you want to --?

Kal, would you like to respond?

Yes. So our main focus has been the US and if you look beyond -- US and Canada, let's say. If you look beyond US and Canada, I will probably take things into a few components: Europe, Japan, advanced markets, and then the rest of the many emerging markets.

For emerging markets we don't have anything specific to offer. As the portfolio, most of these products are available in these markets, the markets are fairly competitive.

Japan's regulatory requirements will require us to totally redevelop the products if we decide to go down that road. So what remains is only Europe. We will continue to evaluate opportunities in Europe.

How soon could that be? How soon could that be, your expansion into Europe?

Probably difficult to predict at this time.

Would you like to set any timeline?

Difficult to give any timelines on that.

Okay.

What is it?

Can you give a timeline on, what do you way, anything with respect to, say, in Europe?

No, difficult to give any predictable

[Tony Garabenas, Islands] Capital. [Aloq Hillel, Stella Oswell].

Yes, thanks for taking my question. Kal, how is the capacity utilization at Taro? Will you have enough capacities over the next 2 years or so?

Yes, sure. That is not an issue.

Okay, thank you.

Thank you. I am showing no further questions at this time.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Have a great day, everyone.