Taro Pharmaceutical Industries Ltd.

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Taro Pharmaceutical Industries Ltd.

14 Hakitor Street
Haifa Bay 26110
Israel
Telephone: +972 9 971 18 00
Fax: +972 9 955 74 43
Web site: http://www.taro.com

Public Company
Incorporated: 1950
Employees: 364
Sales: $315.46 million (2003)
Stock Exchanges: NASDAQ
Ticker Symbol: TARO
NAIC: 325412 Pharmaceutical Preparation Manufacturing; 325411 Medicinal and Botanical Manufacturing; 541710 Research and Development in the Physical Sciences and Engineering Sciences

Taro Pharmaceutical Industrials Ltd. is one of Israel's leading pharmaceutical companies. The company's major focus has long been on providing generic medications and pharmaceutical preparations—the company is the leading producer of topical medications (ointments, gels, etc.) for the North American market. Other company specialties are the fields of cardiology, pediatrics, and neurology. The company also develops its own proprietary formulations and medications, under its TaroPharma division, such as its Ovide head lice treatment, the Topicort line of topical corticosteroids, and Elixsure, introduced in 2003, which provides a spill-resistant preparation for liquid cough, cold, and other children's medicines. Although based in Israel and founded by Israeli pharmacists, Taro has long had an American connection: the company is listed on the NASDAQ stock exchange and North America remains its largest market, accounting for 90 percent of the company's sales. In the 2000s, however, Taro has begun expanding its geographic scope, targeting especially the European market. As part of that effort, the company bought a pharmaceutical production facility in Ireland and established a U.K. marketing subsidiary in 2003. The company also operates research and production facilities in Israel, Canada, and the United States. Taro boasts an impressive growth record, with sales rising from less than $50 million in the mid-1990s to more than $315 million at the end of 2003. Leading the company is Chairman Barrie Levitt, M.D.

Founding Israel's Pharmaceuticals Industry in the 1950s

Just two years after the founding of the state of Israel, a number of pharmacists and physicians in Israel and in the United States sought to make use of the new country's large pool of highly educated researchers and scientists. In 1950 a team of Israeli pharmacists joined in founding a new company in Haifa, called Taro Pharmaceutical Industries (the name Taro was derived from the Hebrew words for "pharmaceutical industry"). Two years after its founding, Taro found firm financial footing when it was acquired by U.S. investors. The company's development was led by Dr. Daniel Moros, and his nephews Dr. Barrie Levitt, and Andrew Levitt.

Taro initially sought to build an Israeli pharmaceutical industry in order to produce drugs and medications for Israel itself, while also developing the expertise to market to the global pharmaceutical industry. The company started out by producing pain relievers, launching its own Rokal and Rokacet brands in the early 1950s. Both products remained mainstays in Israeli pharmacies into the 2000s.

The next phase in Taro's development came through the acquisition of licenses to produce third-party products for the Israeli market. In 1957, the company launched production of its first three licensed products, including Coumadin, also known under its generic name, Warfarin, one of the world's most widely prescribed medications. The company also started manufacturing two other important drugs under license, Percodan and Percocet, adding to Taro's array of pain relievers.

Through the 1950s, Taro relied on imports for the active pharmaceutical ingredients (APIs) of its products. Yet the political situation following the Suez War in 1956 severely restricted Taro's ability to procure its APIs. Instead, the company decided to begin producing its own active ingredients. In 1960, the company instituted a new chemical synthesis operation that enabled it to achieve a stronger degree of independence in its pharmaceutical formulations. The company then became capable of ensuring the quality of its products by producing both the API and the completed dosage formulation.

Generics Leader in the 1990s

Taro went public in 1961, listing its stock on the over-the-counter market in the United States. Nonetheless, through the 1970s and into the early 1980s, Taro remained focused on the Israeli market. It was only at the beginning of the 1980s that the company became interested in moving into the North American market, in part because of the impending opening of the U.S. generics market through the passage of a new law then in preparation. The legislation, known as the Hatch-Waxman Act, was passed in 1984 and provided a framework for the production and marketing of off-patent drugs in the United States. Among other features, the act opened up the U.S. market to greater competition, which significantly reduced prices of a number of important drugs.

In preparation for this opening, Taro shifted its listing to the NASDAQ stock index in 1982. At that time, the company's market valuation was less than $5 million. Yet the listing helped Taro raise the investment capital it needed to move into the North American market. By 1984, Taro had found its foothold—buying up Toronto, Canada-based K-Line Pharmaceuticals Ltd. K-Line specialized in generic topical medications, that is, gels, creams, and ointments used especially for dermatological applications. This niche market then became Taro's primary focus in the North American market.

Exports to the United States began soon after the K-Line purchase, centered around the company's generic version of Lidex, a dermatological medication originally developed by Syntex. At first Taro relied on a distributor to introduce its products into the United States. In 1988, however, the company founded a dedicated import and distribution subsidiary for its U.S. sales.

Taro's sales grew steadily through the 1980s, based on its successful entry into the United States. By the late 1980s, the company's sales had already topped $11 million. Expansion into the United States had cut into the company's profits, yet by 1991, with sales of more than $20 million, Taro posted a profit of $1.4 million.

By then, North America had clearly become the company's primary target market, as the company took advantage of the loosening of control over generic medications. By targeting the niche market of topical applications, Taro was able to gain scale rapidly, and by the end of the decade had captured the leading share of that segment. An important early product in the company's success was its generic version of the antifungal product Lotrimin, developed by Schering-Plough. In the early 1990s, that product alone accounted for some 30 percent of Taro's revenues, which reached $32 million by 1994. The North American market already accounted for more than three-quarters of Taro's sales.

Research-Driven for the New Century

Part of Taro's success in North America came from the adoption of a new business model in 1991 that established a new research-driven strategy. The company now diverted a significant share of its revenues—as much as 12 percent of sales or more, doubling the industry average—into its research and development operations. Supporting the company's strategy was the creation of a new unit, the Taro Research Unit, that year.

The company's commitment to research enabled it to step up the rate of its new product applications, especially its submission of Abbreviated New Drug Applications (ANDAs), used for introducing generic medications. By the early 2000s, Taro had succeeded in developing 80 ANDA-approved medications for the U.S. market, as well as a number of applications in Canada, Israel, and elsewhere. The company also boosted its API capacity, with more than 20 approved by the FDA in the United States. This allowed Taro to broaden its operations to include the manufacture of medications for the third-party channel, as well as developing its own proprietary formulas. To promote its international sales, the company established a new subsidiary, Taro International Ltd., in 1992.

Nearly all of Taro's product line, which topped more than 60 in the mid-1990s, targeted the topical applications market, such as the generic versions of Diprosone and Synalar, both introduced in 1994. In 1996, however, Taro achieved its first approval for an oral dosage drug, based on the anti-seizure medication carbamazepine, used to control epilepsy. That product also enabled Taro to move beyond North America. In 1998, the company was granted approval to introduce its carbamazepine formulation into the United Kingdom.

The following year, the company's Warfarin Sodium Tablets received FDA approval in the United States. The company enjoyed a distinct advantage as it entered this new generic market, since it had been manufacturing the API for Warfarin, marketed as Coumadin in Israel, for more than 30 years. Approval for the sale of Taro's Warfarin in Canada followed in 2000; by 2002, the company had received permission to sell its Warfarin preparation in the United Kingdom as well. The success of Warfarin enabled Taro to extend beyond its core topical medications line to develop an expertise in oral dosage drugs for the fields of cardiology and neurology.

Taro's sales began to skyrocket in the early 2000s. From sales of $100 million in 2000, the company jumped to $150 million just one year later. By 2002, sales had topped $211 million—and soared past $315 million just one year later.

Company Perspectives:

Taro is a multinational, science-based pharmaceutical company dedicated to meeting the needs of its customers through the discovery, development, manufacturing and marketing of the highest quality healthcare products.

In support of this group, Taro made a number of significant investments. In 2002, the company, which continued to operate two manufacturing facilities in Canada, turned to the United States. In that year, the company bought up the privately held New York company, Thames Pharmacal, Inc. The purchase was made in part to allow Taro to expand its range of products.

That expansion came in January 2003, when the company reached an agreement with Medicis to license four of its branded products, Topicort, A/T/S, Ovide, and Primsol, for sale in the United States and Puerto Rico. Soon after, Taro created a new division for its proprietary products in the United States, called TaraPharma, which began directly marketing to U.S. physicians using a team of medical sales representatives hired from Elan Pharmaceutical Products.

Having gained leadership in its topical application niche in the United States, and with rising strength in both its proprietary and generic products, Taro's attention turned toward deepening its entry into the European market. In 2003, the company established a new subsidiary, Taro Pharmaceuticals Ireland, and bought up an idled multipurpose pharmaceutical manufacturing and research and development plant in Ireland. That plant had formerly been owned by Miza Pharmaceuticals before being placed in liquidation.

Toward the end of that year, Taro launched a new proprietary product line called Elixsure, which enabled the preparation of liquid medications, especially children's medications such as cough and cold medicines, in a spill-resistant form. The company began marketing a number of Elixsure formulations as over-the-counter preparations in 2004. Taro had grown from a tiny generics-based company into an increasingly innovative, multinationally operating niche pharmaceuticals player in the new century.

Principal Subsidiaries

Taro Pharmaceuticals Inc. (Canada); Taro Pharmaceuticals Ireland Ltd.; Taro Pharmaceuticals (UK) Ltd.; Taro Pharmaceuticals U.S.A., Inc.

Key Dates:

1950:: A team of pharmacists and physicians found Taro in Haifa, Israel, in order to create the Israeli pharmaceutical industry.
1952:: Taro is acquired by U.S. investors and begins marketing Rokal and Rokacet pain relievers.
1957:: Taro begins producing Coumadin, Percodan, and Percocet under licenses.
1960:: Taro begins production of APIs, including Warfarin.
1961:: Taro goes public on the U.S. over-the-counter market.
1982:: The company shifts its listing to the NASDAQ.
1984:: The company acquires Canada's K-Line Pharmaceuticals Ltd. in order to enter the U.S. generics market, focusing on topical formulations.
1991:: Taro Research Institute is established as part of its new research-driven strategy.
1996:: Taro receives FDA approval to market carbamazepine, the company's first oral dosage formulation.
1998:: The company begins marketing carbamazepine in the United Kingdom.
1999:: The company receives approval to market Warfarin in the United States.
2000:: The company launches Warfarin in Ireland.
2002:: Thames Pharmacal in New York is acquired; the company launches Warfarin in the United Kingdom.
2003:: Taro acquires a manufacturing and research facility in Ireland and forms the Taro Pharmaceuticals Ireland subsidiary; TaroPharm is formed to market proprietary products in the United States; the company acquires the license for four drugs from Medicis.
2004:: The company launches the Elixsure spill-resistant medication formulation in the United States.

Principal Competitors

Pfizer Inc.; Procter & Gamble Co.; Johnson & Johnson; Bayer AG; GlaxoSmithKline PLC; Merck and Company Inc.; Alpharma Inc.; Altana Inc.; Barr Laboratories Inc.; Teva Pharmaceutical Industries Ltd.