Taro Pharmaceutical Industries Ltd.
Q4 2017 Earnings Call Transcript

Published: 23 May 2017

[Operator:]

Good morning ladies and gentlemen and welcome to the Taro Pharmaceuticals Fourth Quarter 2016 - 17 Earnings Conference Call. As a reminder for the duration of this conference call, all participants lines will be in a listen-only mode and there will be an opportunity for you to ask questions at the end of today’s presentation [Operator Instructions]. Please note that this conference is being recorded. I would now like to turn the conference over to Mr. William Coote. Mr. Coote, please go ahead.

[William Coote:]

Thank you. Good morning everyone and welcome to our year-end 2016 - 17 earnings conference call. Joining me today on the call are Mr. Dilip Shanghvi, Chairman of Taro’s Board of Directors; Mr. Abhay Gandhi, Interim CEO; and Mr. Mariano Balaguer, Taro’s CFO. We hope you received a copy of the earnings press release, which can be found on our website at taro.com. We anticipate that many of you may have questions concerning not only this quarter’s and year-to-date financial performance, but also our markets, operations, strategies and other matters. While we’ll try to respond to most of your queries, we’ll not be able to share product specific and commercially sensitive information, including pipeline details. We ask that you limit yourself to one question, and if you have more 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 24 days. A call transcript will also be placed and remain on our website. Before I 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 are based on reasonable assumptions, it can give no assurances that its expectations will be attained and should be reviewed in conjunction with the risks that our business faces, as detailed from time to time in the Company’s SEC reporting. I will now turn the call over to Mr. Dilip Shanghvi.

[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 the fourth quarter and full year fiscal 16 -17 financial results. As we have stated for quite some time, we were cautious about the long-term sustainability of some of the product prices that we were experiencing in the U.S. We continued to see a difficult generic pricing environment particularly in the U.S. given by more intense competition among manufacturers, new entrants to the market, buying consortium pressures and higher ANDA approval rate from the FDA. This product specific pricing pressure is expected to continue in future as well. Despite these challenges, Taro continues to invest in R&D to develop a differentiated product pipeline, which will help us in getting new business in future. Taro continues to be a preferred supplier with high standards of customer service. It also enjoys healthy market share for many of the products in the U.S. Approximately 72% of Taro’s product lines rank number one and number two within the product segment itself. I believe that Taro will maintain its leadership position delivering high quality products and creating long-term shareholder value. I will now hand over the call to Abhay.

[Abhay Gandhi:]

Thank you, Mr. Shanghvi. Welcome everyone and thank you for joining us today. Q4 has been a difficult quarter for Taro. As indicated in the past, we have faced pricing pressure in some of our products which has impacted the performance. While we are faced with a challenging market environment, we did a number of significant accomplishments during the year. Our facilities are fully compliant with regulatory agencies. During the year, we had two successful FDA inspections Health Canada and a health inspection, which have gone very well, 10 key customer orders that were all successful. Our New Jersey the distribution facility was VWAG certified. We continue to focus on R&D. We had the leading number of generic topical FDA approvals in 2016 among our competitors. Our customer service is our spending with 97% service levels. Taro received the supply chain excellence award from Cardinal Health, and the RBC 2016 Manufacturer of the Year award. We repurchased a total of 2.3 million shares during the year, returning significant value to shareholders with a large portion of our current authorization remaining. Finally, we are encouraged by the 3% volume increase in the quarter, our third consecutive quarter of increase as compared to the prior year quarters and by the overall 2% volume increase this year. With cash of approximately $1.4 billion, we will continue to evaluate business development opportunities with appropriate targets. However, we will remain disciplined in our approach for deploying this cash, ensuring that our financial and operational targets are met. In summary, I believe we are well positioned in our target markets. Our strategy is solid with the leadership position in many of our key molecules, the continuing focus on R&D investment, a healthy pipeline, effective new product launches, a strong balance sheet, and excellent manufacturing and customer service capabilities. I will now handover the call to Mariano.

[Mariano Balaguer:]

Thank you, Abhay. Hello, everyone and welcome. Let me discuss some of the key financial highlights. The comparisons that I will discuss are with comparable prior year periods. First, the Q4 highlights followed by the full year comparison. Q4 net sales were at $196 million, a decrease of $69 million, or 26%, the result of continue increased competition and challenging pricing environment. Overall volumes increased 3% driven principally by the U.S. generic business. Gross profit of $144 million decreased $80 million and as a percentage of net sales, was 73% compared to 85%. R&D expenses of $20 million remained in line with the comparable quarter. Selling, marketing, general and administrative expenses of $22 million decreases slightly, as we continue to actively manage and remained disciplined with our spending and seek efficiencies wherever is possible. Operating income of $102 million decreased $80 million and as a percentage of net sales was 52% as compared to 69% in the prior year quarter. As the result of the above, Q4 EBITDA decreased 43% to $106 million. EBITDA margins were 54% compared to 70% for Q4 last year. Foreign Exchange expense decreased $42 million to $6 million, principally the result of the weakening of the U.S. dollar versus Canadian dollar at a lower rate than prior period and increased U.S. dollar cash and intercompany balances. The FX is mainly balance sheet driven by U.S. dollar denominated bank accounts and intercompany accounts receivable balances on our Canadian subsidiary books. Tax expense decreased $6 million to $17 million resulting in an effective tax rate of 17.3% compared to 16.6%. Net income attributable to Taro was $83 million as compared to a $115 million as the decrease in operating income was offset by the decrease in FX expenses and tax expenses and slightly increased in interest income. Resulting in diluted earnings per share of $2.05 compared to $2.68 for the same period last year. Let me now briefly discuss the full year performance and comparison to last year. Net sales of 879 million decreased 71 million or 8% while overall volumes increased 2% on this trend of our generic basis. Cost of goods increased 38 million, the result of high volume and product mix. Gross profit of 671 million decreased 108 million as a percentage of net sales was 76% compared to 82% while the margin obviously they are still very strong and amounted best in the industry. R&D expenses of 71 million decrease slightly. SG&A expenses decreased 7 million to 86 million principally as a result of a reduced Keveyis spend as well as remain disciplined with our overall expenses. Operating income of 515 million decreased a 100 million or 16% versus last year. EBITDA of 530 million with a decreasing margin from 66% to 60% again is helping margin to highlight. FX income increased 13 million to 20 million principally driven by the strengthening of U.S. dollar versus Canadian dollar at a slightly lower rate as compared to the prior year. FX again is mainly balance sheet driven. Other gain of 11 million increased 9 million primarily driven by the sale of Keveyis in the fiscal third quarter of fiscal 2017. Tax expenses increased 8 million, principally the result of certain tax benefit in the prior year, not realized in the current year resulting in an effective tax rate increase to 18.5% from 15%. Net income attributable to Taro was 456 million compared to 541 million and 85 million decrease, as the decrease in operating income was partially offset by the increase of FX and the interest income, resulting in diluted earnings per share of $11.05 million compared to $12.62. Our cash flow and balance sheet remain extremely strong. Cash provided by operation for the year ended March 31, 2017 of 438 million as compared to 395 million for the year ended March 31, 2016. Cash including short-term bank deposit and marketable securities of 1.4 billion increased a 158 million from March 2016 despite of a 295 million impact on the Company share repurchase in fiscal 2017. Recently, we entered in two agreements, one of them on April 25 of 2017, we entered into a development and commercialization license agreement with Crescita Therapeutics under which Crescita has granted Taro an exclusive license to the right to serve and distribute Pliaglis in the U.S. for a second-generation enhanced version with patent pending, while these are relatively small transactions that demonstrate our willingness to pursue opportunities which might farther with our portfolio. We return value to our shareholders through our share repurchase program. In August, we successfully complete our 250 million share repurchase program, repurchasing 1.8 million shares in open market transactions of which 1.7 million were purchased subsequent to April 1, 2016. During the fourth quarter, the Company repurchased 208,000 shares at an average price of $103.99 in total during the fiscal year ending March 31, 2017 the Company repurchased 2.3 million shares at an average price of a $130.87. We still have unutilized buyback authorization of 196 million. I will now turn the floor back to Abhay Gandhi

[Abhay Gandhi:]

Thanks, Mariano. Before we open the floor to your questions, I want to briefly address the DoJ investigation. While we have nothing new to report on this, we take this matter very seriously and we continue to work with our counsel to cooperate DoJ. We also remain committed to strong corporate governance and fostering a compliance culture at Taro. Finally, I would like to thank the entire Taro team and all of our employees for their continuing outstanding efforts throughout the year during these very challenging times. I’m confident that Taro is well positioned for the future and that we will continue to meet these challenges to move the Company forward. With this, I would like to open the floor up for your questions. Thank you.

[Operator:]

Thank you. [Operator instructions] The first question from the line is Gregg Gilbert from Deutsche Bank. Sir, your line is now open.

[Gregg Gilbert:]

Yes, thank you. Good day. I was hoping you could speak to your expectations for revenues and margins for the coming year and if you can’t be specific, could you at least talk qualitatively or directionally around the challenges you’re facing now and whether you expect them to sort of abate and stabilize in the next year or so? Thanks a lot.

[Abhay Gandhi:]

Thanks, Gregg, for your question. I think directionally I think the challenges that we have seen in the last quarter were continued in the new financial year going ahead also. I think what we talked about in the readout and what we all know in the consolidation of the buyer groups, which has now down to three buyers with [indiscernible] also joining the WBAD group, and then the higher number of approval that we are seeing from the FDA, I think the pressure on the business is going to continue. And I think the challenge for us is to find ways and means to hold onto the business that we have and keep increasing the volumes and market share in products where we can get a sensible kind of price.

[Gregg Gilbert:]

Let’s hope that the pressure from the consolidation of the buyers will sort of anniversary in 2018 versus ’17 and result in pricing going down next year versus this year?

[Abhay Gandhi:]

Difficult to estimate, we cannot predict how it will pan out, but logically when you have a consolidation of buying in the hands of just three conglomerates, which will account for 90% of the total market. Your guess is as good as mine.

[Operator:]

And our next question comes from the line of Prakash Agarwal from Axis Capital. Your line is now open.

[Prakash Agarwal:]

Just trying to understand with the approval that has come during the last quarter and approval that we’re expecting given the 30 plus NDAs that we have, so how good is this to offset the increasing pricing pressure because we saw the increased pressure in Q4, and if we analyze in fiscal ’18, that could be further markdowns. So, I’m just trying to understand, how confident in terms of number of products or qualitatively any key approvals that we are looking at which could help arrest this fall? Thank you.

[Abhay Gandhi:]

The new product that we will get during the year will be available of course through the course of the year at different periods of time, but as the pricing pressure that we see will be for the duration of the year, so not really sure whether the products that will come in and can entirely mitigate the pricing pressure that we are talking about on the size and the scale of the business that we are seeing. Our objective of course will be to launch a new product and keep up with the track record that Taro has that we wish to be either number one or number two with each of the product launches. That will be our task going ahead and it’s a track record that we have worked hard to maintain going ahead.

[Operator:]

Thank you and our next question comes from Ram Selvaraju from Rodman & Renshaw. Sir, your line is now open.

[Unidentified Analyst:]

Hi, there, this is Mitchell on for Ram. Thanks for taking my questions. Can you outline the development timeline for Shigamab? And do you have the total breakdown of 2016 sales by Pliaglis?

[Abhay Gandhi:]

I couldn’t get the second part of your question, so I’ll answer the first part and then maybe you could repeat the second part for my benefit. So, the first product I think we should we able to file during the current financial year, that’s our expectation. And what other question on Crescita you said?

[Unidentified Analyst:]

Do you have the breakdown of sales for 2016 generated by Pliaglis?

[Abhay Gandhi:]

I mean we have clearly, but not something that I can share on this call.

[Operator:]

And our next question comes from the line of Anubhav Aggarwal from Credit Suisse. Your line is now open.

[Anubhav Aggarwal:]

Yes, so one question. With the new environment of more competition, can you give some color of how Taro’s R&D program will change from now in the sense that do you want to spend more on R&D from now or less in terms selection of products, some colors will be useful on the R&D program in the new context?

[Abhay Gandhi:]

I think in the readout and release also we have said that investment in R&D will continue. It is not something that we look on a quarter-on-quarter basis. So, I think on a long-term perspective I think we have good R&D team in place. We are excited about the projects that we are working on and the investment in R&D will continue. And directionally I don’t want to take a standard increase or remain same, but its depends on the projects and the product that we have in the pipeline and how much each one of them will require to be invested, but it’s a continuous investment for the future that we will continue to do.

[Operator:]

And our next question comes from the line of [indiscernible] SBI Capital. Your line is now open.

[Unidentified Analyst:]

Just a couple of few things. One, would there be any impact of new shelf stock adjustment for prior quarter deliveries that came into the fourth quarter? And second, with the new pricing pressure and competitive pressure that you’re seeing in your core area of dermatology, would your R&D programs taking new direction in terms of other therapeutic areas or other product lines et cetera?

[Abhay Gandhi:]

I’ll answer the second part of your question and it’s a continuation on the earlier question, which was asked of me. I think and we will continue to invest on R&D. Most of our R&D is derm focus, but we also have some products which are not exactly in dermatology, which is especially being developed for the generic part of the business. So, no, there is no sudden change in our R&D strategy. That’s the question you’re trying to ask. For the first part, I think Mariano would you like to answer.

[Mariano Balaguer:]

It was difficult to understand you. Do you mind please to repeat your question?

[Abhay Gandhi:]

The first part of your question. Sorry, could you please repeat your first part of your question?

[Dilip Shanghvi:]

Okay. We will take it later. Can we go to the next question please?

[Operator:]

Our next participant called by the name of Neha Manpuria from JP Morgan. Your line is now open.

[Neha Manpuria:]

Thank you for taking my question. Sir, given we have about $1.4 billion of cash in our books. We have done some smaller deals, but how are we looking at inorganic growth opportunities particularly given the generic dermatology and business is becoming more tough with the competition?

[Abhay Gandhi:]

So, I don’t know that I heard you correctly, I heard organic opportunities.

[Neha Manpuria:]

Inorganic, sorry.

[Abhay Gandhi:]

Inorganic opportunities.

[Neha Manpuria:]

Inorganic.

[Abhay Gandhi:]

Yes, Yes. Thank you. Clearly, Neha, I mean we continue to look for opportunities with the same kind of discipline that we have always talked about. If we can find a product or a business which we think and grow in our hands and we can make is successful, and at the right kind of financial metrics and payback that we all just talk about, I think we definitely keep looking out for that.

[Neha Manpuria:]

So your preference would be for a more product like approach rather than business because those are the kind of deals that you seem to be doing on more on the specialty side would that be fair to say?

[Abhay Gandhi:]

No, we have no such preference. I mean we’ll keep looking for opportunities and whatever helps us to grow. We will be open, so no preference really.

[Operator:]

And our next question comes from the line of Nimish Mehta from Research Delta Advisors. Your line is now open.

[Nimish Mehta:]

Yes, hi, thanks for taking my question. I just wanted to clarify I heard and wanted to make sure, you said that the price erosion was more pronounced in few products at this quarter, is that right? And second, also wanted to know was the price erosion in general more aggravated or it was more aggravated for derma as a segment than the other segments of generic industry? Thank you.

[Abhay Gandhi:]

I think the price erosion does not differentiate between therapies, so it’s equally bad and I think all therapies that we are looking at. As far as Taro is concerned, we are more worried about what happens in the derm space. And naturally in a particular product where you have two or three or four approvals coming in in a particular quarter, that those are the kinds of products where the price erosion is far more than the others. So, the buyer consolidation being like a constant, the other factor which then impacts you is the number of approvals that come in the quarter for a given product.

[Nimish Mehta:]

So, it was more because of I mean this quarter was more impacted because of few products?

[Abhay Gandhi:]

Last two quarters the rate of approvals have gone up much higher than what we normally used to see. So, what we saw in the Q3, the impact of that would be really felt in Q4 because for the products to then become available, get some share from customer, so you see a little bit of a lag. So as far as approvals are concerned, we saw in the peak in Q3 slightly less in Q4, but overall for the last six months far higher than what we would normally see.

[Nimish Mehta:]

So, it was across the Board, right? It was not concentrated in few products, is what I am trying to understand?

[Abhay Gandhi:]

No, I don’t know what you mean by across the Board. I mean, I cannot guarantee then each and every molecule that we are marketing there were large number of competitors which came in. For example, 16 new approvals came in Q3 and approximately 12 new approvals came in Q4. Those are the numbers I can give you, but whether it is for each and every molecule that we are marketing that’s not really true.

[Operator:]

Our next question comes from the line of Elliot Wilbur from Raymond James. Sir, your line is now open.

[Elliot Wilbur:]

Good morning. With respect to price erosion, could you quantify that number for the fourth quarter, I mean understand obviously reported sales growth and you gave volumes, but just trying to tease out the differential between price impact on the portfolio and then what the contribution may have been from new products. And I guess if it's possible to discern the difference between the negative impact of new competitive of new competitive launches against your existing portfolio versus the impact of the consolidation of the buyers group, maybe not a specific quantitative measure. But if you could talk about qualitatively which of those you think have the greater impact over the last couple of quarters? Thank you.

[Abhay Gandhi:]

I actually don’t know any methodology by which I can differentiate the pricing pressure, how much of that is because of buyer consolidation and how much of that is because of new approvers. So, overall if you want to see what kind of an impact we have, then you should directly look at what is the volume increase we have see in the business and overall decline in the revenues. That will give you a fair indicator of by how much the prices have come down because overall we have run a tight shift. So, on expenses we haven’t really increased. R&D, we continue to invest. So, the difference is essentially because price erosion.

[Mariano Balaguer:]

[indiscernible] mix as well

[Elliot Wilbur:]

Okay, but no, no significant positive benefit from new products than year-over-year?

[Abhay Gandhi:]

I’m sorry can you repeat that please?

[Elliot Wilbur:]

So there wasn't really a significant positive impact from new launches year-over-year in terms of the reported revenue number?

[Abhay Gandhi:]

We did around one significant product during the year, but just remember on the scale that we are talking about, one new product in the very first year doesn’t really help us to move the needle.

[Operator:]

And our next question comes from the line of Girish Bakhru from HSBC. Your line is now open.

[Girish Bakhru:]

Hi, just again on the approval side. Abhay, any I mean concern on some delayed approvals on certain products given that we have seen some of the markets have gone generic with Taro not getting approval in those products despite all facilities being clear?

[Abhay Gandhi:]

Actually, no Girish. If I see our own R&D productivity, I think during the course of the year, we have been the number one company in terms of the number of approvals that we have received. So, I think overall, I think we are happy with the R&D productivity, the quality of our filing. And therefore, I think the approvals that we get from the FDA. I think the task for all of us is to being able to do that sustainably year-on-year.

[Girish Bakhru:]

Actually related question on that is in the pipeline of 35 ANDAs. I mean how do you basically judge, then going forward is these pipeline of products are more technical even though they maybe derm products or they something of the sort where you would see the number of approvals on one day would not be more than one or two. Is there a possible color that you can give on that?

[Abhay Gandhi:]

No, I mean we have our best guess but that’s about it. We would not know for a given molecule how many would have filed and we can only guess.

[Operator:]

Our next question comes from the line of Sameer Baisiwala from Morgan Stanley. Your line is now open.

[Sameer Baisiwala:]

Hi, thank you so much. Just a quick one, if I look at your financials were in last six quarters, they have been coming off say on the top line and on the operating profit line, but last quarter was quite peculiar, like early it was some gradual 10 million, 5 million sort of time down, but last quarter it came down 20 million plus on top line and also on operating profit. So, the question here is, was anything one-off in the quarter? And second are should we start working from this new base of roughly 200 million on top line and 100 million dollar on the operating profit for the current business assuming no new approvals?

[Abhay Gandhi:]

Sameer, there is no one-off. So, this is a market reality and the challenge which all of us in the space are going to face. And we do our best to try and mitigate these circumstances, so there is no one-off.

[Sameer Baisiwala:]

Okay. And just a related question, I can send competitive intensity, but just on the buyer consolidation and the three consortiums which are there. Is it something to say that you know this is at some point I am behind us or is this a recurring theme that every year there is shop up on your door and then give you a $50 million tap, what is the right way to think about this pressure?

[Abhay Gandhi:]

I don’t know. I’m trying to understand your question little more clearly. I know it used to be five, then four, then three, now whether that three will become a two I could not know. You and I should pray together on this one.

[Sameer Baisiwala:]

No, Abhay. What I mean to say is, assuming it remains three, is it something to say that they work towards a certain goal and the method in terms of their cost savings or is this a recurring theme with just three around that they will come and ask for their pound of flesh every year, hope for a foreseeable future. So it's a recurring pressure.

[Abhay Gandhi:]

It will be Sameer a recurring pressure, I think rather than look at it as how do they want to run the business or we want to run the business, I think the logic is simple. If you have your sales spread across just three buyers and even if you loss one for a particular product then the loss is very significant for any company. So you would try and do your best to protect your existing business and that is where I think any trade-off between keeping a share of the market or losing a little bit of value on price. So it’s more to do with handling of the large buyer groups as an organization in a competitive environment. So it’s not that they come with the prefix step, every year you have to give me this kind of a reduction. Its more to do with what kind of trade-offs happen in the process of trying to keep your shade.

[Operator:]

[Operator Instructions] Our next question comes from the line of Kartik Mehta from Deutsche Bank. Your line is now open.

[Kartik Mehta:]

Yes, hi, I just trying to understand this, so Abhay is it fair to assume that 3% volume, which we deal now, it's more out of an option which we have to I mean just to ensure that we also participate to maintain and increase our market share in an event where three overall buyers are consolidating. I'm just trying to understand here that from where did the volume gain happened in this quarter? Thank you.

[Abhay Gandhi:]

I think irrespective of the buyer consolidation or otherwise, I think any good business would like to focus on volume gain as a strategy so that you have more people using your product. You have more customers who are using your products and buying your products. So I think it’s a strategic objective of any organization to try and increase volumes wherever they can. I am not saying every time the Company would be successful but clearly if you ask me that would be an objective, right.

[Kartik Mehta:]

Yes, because we have seen in Q3, this is driven by 1% now, 3% and previously the commentary and the results have been either the volumes have seen very marginal increase or they have decreased. So, I'm just understanding, is this a new way in which Taro is approaching existing competition [indiscernible]?

[Abhay Gandhi:]

It’s not a new way. It’s not a new way. What I’m trying to say is that it’s been always an objective maybe we are seeing the result of it.

[Operator:]

Our next question comes from the line of Rahul Deshmukh from Private Investor. Your line is now open.

[Unidentified Analyst:]

Hello, hi. This is Rahul Deshmukh, again thank you for taking my call. My question for is more some of ownership structure, and this is to do with the Sun Taro relationship. Right now, I believe that Sun owns about 81% of voting rights of Taro. So my question is, how does Taro management look at this ownership and what are their thoughts. Once Sun reaches 90% of the ownership, Sun has the right to own Taro completely. So how is does Taro management looking at this?

[Abhay Gandhi:]

The Taro is an independent company and all decisions that we take are with the best interest of the Taro as a company and our employees work for the business. So that has been our overarching principle of operations anyway. So, I don’t think there is any kind of pressure or directive from the Sun ownership to try and influence the way Taro functions. So, that’s very clear and I don’t think there's any ambiguity on it.

[Unidentified Analyst:]

Okay. Appreciate your response.

[Abhay Gandhi:]

I think we differentiate ownership from management of the Company and I think we manage the business and Taro in the best interest of the Company.

[Unidentified Analyst:]

Okay. Appreciate that. And my second question was regarding the Phase II product that the clinical trials were completed about 16 months ago on Novexatin for the onychomycosis treatment of the fungal toe infection. And we haven't seen any update whatsoever from Taro and yet and we are monitoring the clinical trial sides and stuff, but we don't see anything. All we know is the trials are completed, the Phase IIb and no updates have been provided by Taro as yet, and it's a big market opportunity.

[Abhay Gandhi:]

Rahul, I can give you brief right now. So when you see that the study we did, the singles are positive but we are going to do a larger scale of Phase 2b study. And that study is completed only then we can say that any degree of confidence of the products will meet the expected efficacy and safety parameter. The initial results of course are encouraging and we hope for the best. The previous examples practically like Phase IIa, so it helped to design certain parameters in Phase IIb, which is the current one. And right now, we are in the middle of -- sorry, you wanted to ask the question when I am answering.

[Unidentified Analyst:]

No sorry, sorry. Go ahead, please.

[Abhay Gandhi:]

Okay. So, we are in the middle of recruitment of the patients and due to the FDA requirement and the clinical nature of onychomycosis, we do not think study will end before the 2017 calendar year.

[Operator:]

And our next question comes from the line of Chirag Dagli from HDFC Mutual Fund. Your line is now open.

[Chirag Dagli:]

Yes, thank you for the opportunity. So, there is volume growth of 2% for the full fiscal. Is this from new product launches or is this existing product that you're gaining some share?

[Abhay Gandhi:]

Mix of both actually.

[Chirag Dagli:]

Okay. Meaningfully tilted towards I mean I know the number is too small, but this one product that you launched, has that materially contributed to this volume growth or is it that the existing basis?

[Abhay Gandhi:]

Logically as I said one product will not on total volumes mean an increase of 2% that’s why I said it’s a mix of both.

[Chirag Dagli:]

Okay, fair point. And sir what would be your tax rate guidance?

[Abhay Gandhi:]

No, we don’t give any tax rate guidance?

[Chirag Dagli:]

But this I mean is there some, is there an element of you know unsustainable tax benefit in this?

[Mariano Balaguer:]

I think when you see our announcement in the press release you can see 2016 were some one-off benefit there. We do not provide any tax item but we also believe our sustainability of our current situation.

[Operator:]

And our next question comes from the line of Sameer Baisiwala from Morgan Stanley. Your line is now open.

[Sameer Baisiwala:]

Yes, thanks for the follow-on. Quick question Abhay, is there any thoughts on geographic diversification taking your high class for a portfolio outside of United States and what you’re doing in Canada and Israel?

[Abhay Gandhi:]

Constantly evaluating in a couple of products we are filing in the EU during the course of this year.

[Sameer Baisiwala:]

Okay. But looks like a little incremental, I mean is there a plan to take whatever 50, 100 products to Latin America, Europe or any other geography?

[Abhay Gandhi:]

From what I see right now, it will not be a big bank.

[Sameer Baisiwala:]

Okay. And second question very quickly on that list, looks like the patent is going to expire in 2019. I think it was approved in 2006, if I’m not wrong. So, the key attraction is the newer version of the product. I mean is that the key motivation behind this deal?

[Abhay Gandhi:]

I think it’s a good product and it fits into our basket and also allows us to get into a little bit of a specialty space and that’s what the major attraction is. Often, I don’t recall which year the patent expires, you may be right its 2019, but I think it’s a product where we don’t expect at least at this point in time too much of competition. So, we feel we can do well, fits into our portfolio and gives us the specialty look.

[Sameer Baisiwala:]

Okay, so and you’re referring to the end market product?

[Abhay Gandhi:]

Yes.

[Operator:]

And our next question comes from the line of Rahul Deshmukh, Private Investor. Your line is now open.

[Unidentified Analyst:]

Thank you. Again, much appreciated. So my second question was regarding this $1.4 billion of cash that Taro is sitting and obviously over the years, you have been very frugal and prudent with your investment approach focusing more on R&D. My question though is now, looking at the U.S. market, yes, definitely the pharma market was highly inflated at some point, but right now with big the companies, pretty much generic big companies and big trouble it must have become very lucrative. So my question for you is, at this point what is your thought process in defining what does it mean that whatever acquisitions you may explore are lucrative because you have been saying that many times that we are monitoring and stuff, but what time that monitoring becomes action?

[Abhay Gandhi:]

I really couldn’t understand your question, Rahul.

[Unidentified Analyst:]

Sorry my question was you have $1.4 billion in cash and now a lot of assets out there in the pharma sector have become lucrative from an acquisition perspective just because of the fact that their prices have dropped dramatically. So when now are you going..

[Abhay Gandhi:]

As I said, Rahul, we don’t look at what is an asset cost today and is it lucrative in as you say,but it also has to fit into what we are good at doing. Is there a way for us to grow that business? Is that a way to make it profitable, if it is not? So, all those things come into consideration. We would not just go and buy something just because it is available at cheap or at the right kind of valuation. It also has to do with how does it add value to Taro.

[Unidentified Analyst:]

So, then maybe what I can ask you is what kind of areas would add value to current Taro business line? What was therapeutic area?

[Abhay Gandhi:]

I think on the other cause itself this question has been answered, we really aren’t a global company. So, the business that we are looking at has to be U.S. focus. It can be in term, it can be in areas which are specialty. And, yes, these are the two basic criteria that we will look at or it has product portfolio which has to be complementary to what we have and we think we can do good with that.

[Operator:]

And our next question comes from the line of Ram Selvaraju from Rodman & Renshaw. Your line is now open.

[Unidentified Analyst:]

Hi, there it’s Mitchell on again. I was just wondering, if you guys are open the business development opportunities and the orphan disease and medical esthetics domains, if you guys are actively looking or plan to look?

[Abhay Gandhi:]

Open to both those options, if there is something happy to look at.

[Operator:]

And thank you, ladies and gentlemen. That was our last question. I will now hand the floor back to Mr. Coote for closing remarks.

[William Coote:]

Thank you. Thank you everyone for joining us today and taking the time to be on our earnings call. We look forward to speaking to you again after our -- the release of our second quarter earnings. And this concludes our conference. Again, thank you and have a good day.

[Operator:]

Ladies and gentlemen, thank you for participating in this conference. This conclude today’s program and you may now disconnect. Everyone have a great day.