Caraco came out w/ earnings today. Although the quarterly performance was reported, we are not too interested in looking at the numbers. The main concern for us is any update on the FDA compliance, moving production to other facilities, and cash burn.
As for cash burn the company had 72M in cash and 10M in short-term investments a quarter ago. For the quarter ended 12/31/09, the company had 67M in cash and 10M in short-term investment. They burned through 5M in the quarter, given that the company had no manufacturing in the quarter this is not bad. Also, the other action by the management will further reduce this cash burn.
From the 8K:
As previously disclosed, on June 25, 2009, U.S. Marshals, at the request of the FDA, arrived and seized drug products manufactured in our Michigan facilities. The seizure also included ingredients and in-process materials held at these same facilities. The estimated value of such seized inventory as of December 31, 2009 was $24.0 million. Products sold and distributed by Caraco that are manufactured by third parties and outside of these facilities are not impacted and distribution and marketing of these products continues. The Company has also transferred certain Caraco-owned products to additional alternate manufacturing sites that would allow the Company to regain revenues from those products while Caraco completes the necessary remedial actions that would lead to resumption of its manufacturing operations.
This is great news and a major move towards cutting the cash burn, more likely increasing the cash flow. Although they didn’t mention the ‘alternate manufacturing sites,’ it is certainly a Sun Pharma manufacturing site. This will drastically improve cash flow and reduce negative impact on relationship w/ distributors.
The biggest news from the 8K was:
The Consent Decree provides a series of measures that, when satisfied, will permit the Company to resume manufacturing and distributing those products which are manufactured in its Michigan facilities. In accordance with the Consent Decree, the Company has engaged a consulting firm which is comprised of current good manufacturing practice (“cGMP”) experts and has submitted a work plan to the FDA in October 2009 for remedial actions leading to resumption of its manufacturing operations. Some additional details and clarifications to the work plan were submitted to the FDA for its approval on January 14, 2010. As a result of the FDA action, Caraco voluntarily ceased manufacturing operations and instituted, in two phases, indefinite layoffs of approximately 430 of our employees. The Company has subsequently started recalling some of these employees in conjunction with its efforts to restart its manufacturing activities. Further details on the results of operations are provided below.
The recalling of employees is huge news. This means that management believes that resumption of manufacturing is likely to happen shortly. The mention of a ‘work plan’ sounds like Caraco is expecting to receive a manufacturing approval in phases. Any restart of manufacturing, however limited it may be, will dramatically move the share price of Caraco.