"The company's exceptional performance could kill an unwelcome and already tenuous buyout proposal of minority shareholders by parent company Sun Pharmaceuticals Industries of India, holder of a 67 per cent stake in the company," business daily The Marker reported today.

Taro, a generic drug company specialising in dermatological treatments, issued a preliminary and unaudited report showing quarterly sales jumping 44 per cent from the previous year to USD 148 million.

Interim CEO Jim Kedrowski, however, warned that the growth may not be sustainable, attributing it to price increases on selected products in the US market.

Gross profits, which climbed 73 per cent vis-a-vis the fourth quarter of 2010 to USD 106 million, represented the most notable characteristic of the report.

Gross margins of the company rose from 51.6 per cent the year before to 71.6 per cent in 2011, exceptionally high for any industrial firm, and more so among generic drug companies, the business daily noted.

The company earned a USD 62 million net income for the quarter, translating into USD 1.40 per share and a 278 per cent rise over net income in the fourth quarter of 2010.

Taro's net earnings for the year totalled USD 183 million for the year, compared to USD 64 million in 2010.

The news boosted the company's share prices in New York by 10.3 per cent to USD 34.75 per share on the back of trading volumes eight times higher than the daily average.

This price indicates a company value of USD 1.55 billion, which is 42 per cent higher than Sun's buyout offer of USD 24.50 per share in October, the report said.

Taro's operating income also soared 245 per cent compared to the parallel quarter to USD 74 million, representing 50.2 per cent of turnover, compared to 21% in the previous year.

In view of the developments, Sun's offer now reflects a 'miserly' 4.75 price-earnings ratio based on annual 2011 profits, The Marker reported.

Taro's minority shareholders are likely aware that Sun itself is traded on the Bombay Stock Exchange at a USD 11 billion company value, reflecting a P/E ratio of 30, even though the Indian parent ascribes one-third of its consolidated sales and as much as 50 per cent of its profits to Taro, it added.

"It is fair to assume that Professor Dov Pekelman, who heads a special committee appointed by the board of directors to examine Sun's offer, will now recommend to the board that Sun be asked to consider dramatically upping its offer to reflect Taro's performance and prospects," the business daily noted.

Besides higher prices on select products, the upswing in the company's fortunes is believed to be due to increased use of active steroid-based cream and ointment ingredients made in Israel, replacing external purchases, and other raw materials and packaging originating in India.

The success could be achieved partly due to a 22 per cent drop in marketing and administrative expenses, which totalled USD 21 million for the quarter, the report said.

This was apparently achieved by a sharp cutback at the company's US headquarters and, to a lesser extent, in Israel, it added.

Taro's research and development costs remained flat at USD 9 million, reflecting a weak product pipeline that saw just one request for the approval of a generic product in the fourth quarter, and just three in all of 2011.

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