(Source: PRNewswire-FirstCall)
DETROIT, July 28 /PRNewswire-FirstCall/ -- Caraco Pharmaceutical Laboratories, Ltd. (NYSE Amex: CPD) recorded net sales of $48.1 million in the first quarter of Fiscal 2010, ended June 30, 2009, compared to $108.3 million during the corresponding period of Fiscal 2009. The reduction in sales was primarily due to reduced sales of Para IV products in the current period, as compared to the corresponding period of Fiscal 2009. Sales of distributed products were also lower due to price erosion on the products sold, partially offset by new product launches. Caraco's manufactured product sales in the first quarter of Fiscal 2010 were lower due to the negative impact of our voluntary recalls of certain products, and, in part, the FDA's seizure of certain of our inventory and cessation of manufacturing, as previously disclosed. We incurred a net pre-tax loss of $14.4 million during the first quarter of Fiscal 2010, as compared to net pre-tax income of $14.6 million during the corresponding period of Fiscal 2009. The net pre tax loss was primarily due to the creation of an inventory reserve relating to the inventory seized by the FDA, as well as lower sales.
Dan Movens, Caraco's Chief Executive Officer, said, "As previously disclosed, on June 25, 2009, the FDA seized drug products manufactured in our Michigan facilities. The seizure also included ingredients held at these same facilities. The FDA's most recent inspection of Caraco's Detroit facility, completed in May 2009, found observations of potential unresolved violations of cGMP requirements as previously disclosed in our last SEC filing on Form 10-K for the fiscal year ended March 31, 2009, filed on June 15, 2009. The Company believes that corrective actions have been made and continual improvements are in process. We are working with consultants to further define and correct any remaining deficiencies. Products sold and distributed by Caraco that are manufactured outside of these facilities are not materially impacted. As a result of this event, there has been a material adverse effect on our current operations and may be a material adverse effect on our near term operations. We anticipate working with the FDA to resolve these concerns as effectively and expeditiously as possible."
The total value of the seized inventory is $22.9 million. Of such inventory, we have created a partial reserve in the amount of $8.4 million which consists of work in process relating to those materials which are in various stages of production within our manufacturing facilities, finished goods having a shelf life of one year or less as of June 30, 2009, and those products which will be difficult to recondition. Once we have further understanding and clarity from the FDA on the status of the entire inventory, we will make a determination of whether adjustments to the reserve need to be made.
We incurred a gross loss of $3.6 million during the first quarter of Fiscal 2010, as compared to gross profit of $23.6 million during the corresponding period of Fiscal 2009. The gross loss in the first quarter of Fiscal 2010 was primarily due to the $8.4 million inventory reserve and lower sales of manufactured and distributed products. "Although gross profit margins have decreased to a negative 7.5% for the first quarter of Fiscal 2010 as compared to 21.7% during the corresponding period of Fiscal 2009, due to the creation of the inventory reserve, lower sales, and the mix of distributed products weight over manufactured products, we believe we will remain competitive in marketing and distribution product sales and manufactured products sales that are manufactured by third parties," Mr. Movens said.
Selling, general and administrative ("SG&A") expenses during the first quarter of Fiscal 2010 were $3.7 million, as compared to $3.8 million during the corresponding period of Fiscal 2009, representing a decrease of 4%.
