27 June 2014 Asia Pacific/India Equity Research Specialty Pharmaceuticals

Taro Pharma (TARO / TARO US) Rating OUTPERFORM* Price (25 Jun 14, US$) 113.92 Target price (US$) (from 85.00) 150.00¹ Upside/downside (%) 31.7 Mkt cap (US$ mn) 5,102 (US$ 5,102) Enterprise value (US$ mn) 4,488 Number of shares (mn) 44.79 Free float (%) 33.7 52-week price range 121.3 - 54.0 ADTO - 6M (US$ mn) 6.3 *Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector. ¹Target price is for 12 months.

Research Analysts Anubhav Aggarwal 91 22 6777 3808 [email protected] Chunky Shah 91 22 6777 3872 [email protected]

INCREASE TARGET PRICE

Significant price increases, again ■ Increase target price to $150. We maintain our OUTPERFORM rating on Taro and increase our target price to $150 (from $85). ■ Taro has taken significant price increases in Jun-14. Our channel checks suggest Taro has taken significant price increases in 11 products. If price increases are sustained (in line with past increases), sales and EBITDA for Taro could increase by >$300mn (which implies a 70% increase on FY14 EBITDA). We factor in only half of the price increases and wait for the competition to react. The largest price increase (~20x) is in Clobetasol Propionate. Other key products are Warfarin and Fluocinonide. ■ We stress that, besides price increases, Taro has ample opportunities to grow despite being the market leader in US derma. Taro currently addresses only 30% of the total derma market. Taro has multiple avenues to grow: (1) 50% of the patented derma market expires in next three years, (2) 17% of market is for drugs where patents have expired but there are no generics, (3) Taro only addresses half of the already genericised market, (4) potential acquisitions as Taro is cash-rich (net cash of $615mn and FY14 FCF of ~$300mn). ANDA filings at Taro have accelerated and should start contributing from FY16/17. ■ Competitor response to Taro's price increase is the key catalyst. Cadila has already followed Taro's price increase on Warfarin and as more competitors follow Taro (as in the past), price increases should sustain. The benefit of the price increases should be visible from the Sep-14 quarter. ■ Taro offers 8% FY15E FCF yield. Our FY15/16E EPS increases by ~70% as we factor price increases and our TP increases to $150 (9x FY16E EV/EBITDA).

Share price performance Price (LHS)

Rebased Rel (RHS)

120

70 20

400 300 200 100 0

The price relative chart measures performance against the S&P 500 INDEX which closed at 1959.53 on 25/06/14 On 25/06/14 the spot exchange rate was US$1./US$1

Performance Over Absolute (%) Relative (%)

1M 3M 12M 7.4 3.7 110.8 4.9 -1.8 88.6

— —

Financial and valuation metrics Year Revenue (US$ mn) EBITDA (US$ mn) EBIT (US$ mn) Net profit (US$ mn) EPS (CS adj.) (US$) Change from previous EPS (%) Consensus EPS (US$) EPS growth (%) P/E (x) Dividend yield (%) EV/EBITDA (x) P/B (x) ROE (%) Net debt/equity (%)

3/13A 671.0 368.3 350.6 266.0 5.95 n.a. n.a. 30.2 19.1 0 12.4 5.7 35.1 net cash

3/14E 759.3 448.6 430.8 360.4 8.40 41.5 8.15 41.0 13.6 0 10.0 4.8 37.7 net cash

3/15E 909.7 563.3 545.5 456.3 10.63 67.3 6.36 26.6 10.7 0 7.2 3.3 36.5 net cash

3/16E 972.6 620.7 603.0 507.4 11.82 72.0 6.87 11.2 9.6 0 5.7 2.5 29.3 net cash

Source: Company data, Thomson Reuters, Credit Suisse estimates.

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do

business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS

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27 June 2014

Focus tables and charts Figure 1: Products where Taro has taken price increases recently Product

% of Taro sales

Recent Price increase vs. old price

Date of price increase

Clobetasol Propionate - Ointment Clobetasol Propionate - Cream

1.4% 1.8%

21.6x 17.8x

Jun-14 Jun-14

Warfarin Fluocinonide Phenytoin Sodium ER Hydrocortisone Val - Cream Ketocanazole Carbamazepine - ER Ovide (g. Malathion) Hydrocortisone Val - Ointment Hydrocortisone Butyrate

4.0% 3.7% 1.2% 2.6% 1.0% 4.9% 1.5% 3.9% 0.4%

3.1x 3.1x 3.1x 1.4x 2.1x 1.1x 1.5x 1.1x 1.6x

Jun-14 Jun-14 Jun-14 Jun-14 Apr-14 Jun-14 May-14 Jun-14 Jun-14

Source: Price Rx, Credit Suisse research

Figure 2: Competition followed Taro in past price increases

Nystatin triam - Price increase

Price ($)

Sandoz re-entered at same price as Taro

Zydus has followed Taro to take price increase in Warfarin

50 40

100 80

Figure 3: Zydus has followed Taro in Warfarin already

30

Sandoz

Taro

20

60

10

40

0 Taro - old price

20

Taro - new Price

0

Zydus - old price

Zydus - new price

Price of Warfarin Sodium 2.5MG ($)

Jul-03

Mar-11

May-11

Apr-12

Jul-12

Feb-13

Apr-13

Source: Price Rx, Company data, Credit Suisse research

Source: Price Rx, Credit Suisse research

Figure 4: Taro sustained higher price increases in the past 70x Extent of Price increases at Taro

Figure 5: Organic growth opportunity still strong for Taro

60x 50x 40x 30x 20x 10x 0x

Derma Generic mkt - Taro addressing only 50%

Jun-14

Past

Market where Taro partly present 17%

Taro addressible market 53%

Taro opportunity

Market where Taro not present 30%

Source: Price Rx, Company data, Credit Suisse research

Source: IMS Health, Credit Suisse research

Figure 6: ANDA filings at Taro have accelerated

Figure 7: Ageing profile of Taro's ANDAs (27 pending)

10

15

8 6

Time-line of Taro's pending ANDAs

10

4 5

2 0 1HFY12

2HFY12

1HFY13

2HFY13

ANDA filings

Source: Company data, Credit Suisse research

1HFY14

2HFY14

0 > 3 years old

Between 2 and 3 Between 1 - 2 years Less than 1 year years old

Source: Company data, Credit Suisse research

Taro Pharma (TARO / TARO US)

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27 June 2014

Significant price increases at Taro Our channel checks suggest Taro has taken significant price increases in several products recently (Figure 8). The impact of price increases this time is significant and if price increases are sustained (all price increase by Taro so far have sustained), sales and EBITDA for Taro could increase by more than $300mn which implies a 70% increase in EBITDA from FY14. We factor in only half the price increases currently and wait for the competition to react. Taro's ANDA pipeline is weak for next two years (only ~10 launches expected over next two years) and therefore Taro requires price increases to drive growth. These price increases are a step in that direction. We highlight that the full impact of the price increases should only be visible by Sep-14 quarter as these were taken in Jun-14.

Key products where price increases have been taken are Clobetasol, Warfarin and Fluocinonide

The largest price increase has been in Clobetasol Propionate where prices have been increased by 21x in Ointment and 18x in Cream. Other significant products are Warfarin and Fluocinonide from the perspective of absolute sales added. We analyse these four products in more detail. Figure 8: Products where Taro has increased prices recently Product

% of Taro sales

Recent price increase vs. old price

Date of price increase

Clobetasol Propionate - Ointment Clobetasol Propionate - Cream

1.4% 1.8%

21.6x 17.8x

Jun-14 Jun-14

Warfarin Fluocinonide Phenytoin Sodium ER Hydrocortisone Val - Cream Ketocanazole Carbamazepine - ER Ovide (g. Malathion) Hydrocortisone Val - Ointment Hydrocortisone Butyrate

4.0% 3.7% 1.2% 2.6% 1.0% 4.9% 1.5% 3.9% 0.4%

3.1x 3.1x 3.1x 1.4x 2.1x 1.1x 1.5x 1.1x 1.6x

Jun-14 Jun-14 Jun-14 Jun-14 Apr-14 Jun-14 May-14 Jun-14 Jun-14

Source: Price Rx, Credit Suisse research

Clobetasol Propionate: Taro has increased prices by ~20x and is now closer to Sandoz's prices. Hi-Tech has not increased prices as yet (refer to Figure 9 and Figure 10 for market share splits). Companies which were selling these drugs and have exited the market include Glenmark, Actavis and Teva. Figure 9: Clobetasol Prop—Ointment – market shares

Figure 10: Clobetasol Prop—Cream – market shares

80%

80%

70%

70%

60%

60%

50%

50%

40%

40%

30%

30%

20%

20%

10%

10%

0% May-08

Mar-09 Hi-Tech

Jan-10

Nov-10 Sandoz

Sep-11 Taro

Source: IMS health, Credit Suisse research

Jul-12

May-13 Glenmark

Mar-14

0% May-08

Mar-09 Hi-Tech

Jan-10 Sandoz

Nov-10

Sep-11 Taro

Jul-12

May-13

Glenmark

Mar-14 Teva

Source: IMS health, Credit Suisse research

Taro Pharma (TARO / TARO US)

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27 June 2014

Warfarin: Active players in the market are Taro, Teva and Zydus. Zydus has already followed Taro on price increases. Other companies which are small or have exited the market are Actavis, Amneal, Camber, Mallinckdrodt, Mylan, Sandoz. As the market expands, these companies may return. Fluocinonide: Taro has a 50% market share in Ointment and an 88% share in Cream. Sandoz and Teva are yet to take price increase in Fluocinonide. Actavis can possibly enter both forms. Figure 11: Warfarin—Zydus has followed Taro on prices

Figure 12: Fluconide—ointment– market shares

80%

80%

70%

70%

60%

60%

50%

50%

40%

40%

30%

30%

20%

20%

10%

10%

0% May-08 Feb-09 Nov-09 Aug-10 May-11 Feb-12 Nov-12 Aug-13 Innovator

Taro

Source: IMS health, Credit Suisse research

Teva

Zydus

0% May-08

Mar-09

Jan-10 Sandoz

Nov-10

Sep-11 Taro

Jul-12

May-13

Mar-14

Teva

Source: IMS health, Credit Suisse research

Taro Pharma (TARO / TARO US)

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27 June 2014

Taro has ample scope for organic growth despite being market leader Taro is the leader in the dermatology generic market in the US but currently addresses only 30% of the total derma market and only half of the already genericised market. Taro has multiple avenues to grow which include; (1) patent expiry on branded market which accounts for one-quarter of the derma market, (2) Taro only addresses half of the already genericised market, (3) 17% of derma market corresponds to drugs where patents have expired but there are no generics (due to the FDA's requirement to conduct Ph III clinical studies in order to prove bioequivalence), and (4) potential acquisitions in dermatology as Taro is cash-rich (net cash of $615mn and FCF of ~$270mn annually). 1.

Taro addresses only 30% of the total derma market and 50% of the already genericised market

Taro addressing only 50% of already genericised market

Taro is strong in Corticosteroids and anti-fungal products but weak to non-existent in AntiAcne, and Anti-Viral. Overall Taro is not present in 30% of the already genericised derma market. Figure 13 lists the molecules where Taro has no presence and the level of competition in each of the molecules (Taro has now started filing in some of these areas) Taro has capabilities across creams, ointments, liquid/lotions, aerosol, foams. But on several of the genericised molecules, Taro is only partly present in one of the forms and therefore has scope to expand. We estimate that Taro could expand its presence on 18% of already genericised market ($774mn) by launching different forms (Figure 14). Overall, Taro addresses only half of the genericised market and has ample scope to expand.

Taro is non-existent in AntiAcne, Anti-Viral market => Taro not present at all in 30% of the genericised market Taro is only partly present in 18% of the genericised market

Figure 13: Already genericised market where Taro is not present currently API

US$ mn

No of players

Classification

5

Anti -acne

Isotretinoin

450

Benzoyl Peroxide + Clindamycin Permethrin

349 Benzacillin - 2 (Mylan and Prasco - AG); Duac (Perrigo) 105 2

Tretinoin

109

4

Anti -acne

Calcitriol Sulfadiazine

40 37

2 3

Psoriasis Anti-infective

Lidocaine + Prilocaine Acyclovir Benzoyl Peroxide + Erythromycin Cocaine Erythromycin Total

33 32 21

3 2 3

Anesthesia Anti-Viral Anti -acne

18 10 1,317

2 5+

Anesthesia Anti -acne

Anti -acne

Hair related

Comments Teva, Ranbaxy, Dr. Reddy's, Mylan, Douglas Benzacillin ($ 300 mn) and Duac ($50 mn) Actavis and Perrigo are the current players in the market. Lotion is OTC product Perrigo, Rouses Point, Spear and Fougera Perrigo is the only generic DRL is one of the players. Others are Par and Actavis Hi-tech, Fougera and Akorn Mylan and Valeant are the players Hi-ech, Fougera and Fresnius Kabi (Innovator) Lannett has 100% market share

Source: IMS Health, Credit Suisse research

Taro Pharma (TARO / TARO US)

5

27 June 2014

Figure 14: Already genericised market where Taro is partly present and has scope to expand into other forms Molecule Clindamycin

Calcipotriene

Total molecule Taro present in size (US$ mn) 177 Taro is only present in Liquid/lotion segment which is US$26 mn

Betamethasone Desonide Metronidazole

196 Taro is present in Ointment (only player) 160 Aerosol, Foam; 146 Liquid 107 Taro is present only in Jelly

Nystatin

134 Taro is present in creams

Mupirocin Fluocinolone Acetonide

Ketoconazole Fluticasone Mometasone Halobetasol Total

132 Taro currently sells Ointment 69 6+ players in the market; Taro has an approval, but is not selling 60 Taro is present in cream 35 Taro had an approval and now has discontinued 23 Taro is currently not selling. It can come back 19 Taro is currently not selling. It can come back 1,258

Opportunity where Taro Split where Taro is not present is not present (US$ mn) 151 Lotion ($47 mn) - 2 players; Jelly ($70 mn) - 3; Foam ($24 mn) - 1; Dressing - $15 mn - 5 players 137 2 players in Cream - $137 mn market 30 1 generic – Perrigo 80 2 - Novartis, Actavis 70 Cream: 4-5 players ($50mn); Lotion - 2 players ($20 mn) 75 Dusting powder - 2 players (Nystop); Ointment - $18mn - 3 players 60 Cream: 2 players ($60mn) 69

25 Liquid lotion - 3 players 35 23 19 774

Source: Company data, Credit Suisse research

2.

Half of the patented market to expire over next three years

Patents expiry in the derma market should pick up over the next three years after a weak period in 2013. Overall, patents on half of the patented Derma market will expire over next three years (Figure 15). Known litigations of Taro are on Vanos cream (2013), Clobex lotion (case settled), and Pennsaid (case ongoing).

50% of patented Derma market to expire over next three years

Figure 15: Patent expiry schedule of US derma market

USD mn

Derma Patent expiry timeline

450 400 350 300 250 200 150 100 50 -

Derma Patent expiry timeline

Source: US FDA Orange book, Credit Suisse research

Taro Pharma (TARO / TARO US)

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27 June 2014

Figure 16: Details of Derma patent expiry over next four years Product

Size ($mn)

Patent expiry

First ANDA filed on

71

Dec-13

1-Jan-08

Ertaczo Locoid Lipocream Tazorac Gel Vaniqa Solaraze Protopic Atralin Denavir Veltin 2015

13 34 37 15 81 114 52 44 13

31-May-14 3-Jun-14 7-Jun-14 15-Jun-14 17-Jun-14 9-Sep-14 23-Sep-14 4-Oct-14 25-Nov-14

Acanya Taclonex Targretin 2016

103 201 5

31-Mar-15 9-Jun-15 14-Jul-15

31-Mar-10 6-Jun-11

Elidel Aczone Retin-A Micro

117 143 137

26-Apr-16 11-Sep-16 21-Sep-16

20-Dec-10

2013 Vanos 2014

28-Jun-10

16-Dec-09 9-Sep-10

Source: US FDA, IMS Health, Credit Suisse research

3.

Patents expired but generics yet to enter 18% of derma market

In dermatology, proving bioequivalence (BE) for generics is not like oral drugs (BE measured through rate and extent of absorption of active ingredient at the site of drug action) and FDA requires several clinical trials to prove bio-equivalence. These clinical trials require Ph III to be run on subjects ranging from 400 to 1,000 and could cost $2-5mn on average. Therefore, there are several products where patents have expired but there are no generics as yet. Such products currently represent 18% of the dermatology market (Figure 17). Taro has already started working on these products and later we show that Taro is currently running a clinical trial on Naftin cream which is part of the branded market where the patent has expired but there are no generics as yet.

Taro has already started working on molecules where patents have expired but no generics present currently

Figure 17: Branded products where patent has expired but no generics as yet Brand

API

Market size (US$ mn) 239 236

Voltaren gel Zovirax Ointment

Diclofenac Acyclovir

Zovirax Cream

Acyclovir

116

Santyl

Collagenase

208

Naftin

Naftifine

85

Tazorac Cream

Tazarotene

77

Total

Comments No generics today but Endo expects generics to potentially enter in CY14 FDA issued draft guidance on Acyclovir ointment which requires clinical endpoint for proving bio-equivalency. Mylan got approval on 3-April-2013 and thereafter Valeant settled with Actavis for AG for Ointment. Amneal also approved. Patent on Zovirax cream has also expired but no generics so far and only Actavis selling with a co-promoting agreement with Valeant Santyl is approved as a BLA and Smith & Nephew (acquired Healthpoint) does not expect competition in near term. Naftin is Merz's product. FDA has issued a draft guidance on Naftitine also, which hinders generic competition Tazorac patent expired in mid-2011 and it is unlikely that Tazorac will face generic competition for few years, due to the FDA guidance on requirements for clinical bioequivalence

877

Source: Company data, Credit Suisse research

ANDA filing rate at Taro has accelerated ANDA filings at Taro have accelerated meaningfully over the last 18 months (Figure 18) – pending ANDAs at Mar-14 quarter were 27 with Taro making 11 filings in FY14. Our analysis on the ageing profile of ANDAs suggest that only seven ANDAs are more than Taro Pharma (TARO / TARO US)

7

27 June 2014

two years old and should come for approval over the next two years. Therefore, a large part of the growth should be driven by price increases in FY15 and FY16, and thereafter by Taro's own US pipeline taking over. Figure 20 highlights known ANDAs of Taro among 27 pending ANDAs. Figure 18: ANDA filings at Taro have accelerated

Figure 19: Ageing profile of Taro's ANDAs (27 pending)

10

Time-line of Taro's pending ANDAs

9

12

8

10

7 6

8

5

6

4 3

4

2 1

2

0 1HFY12

2HFY12

1HFY13

2HFY13

1HFY14

2HFY14

0 > 3 years old

ANDA filings

Source: Company data, Credit Suisse research

Between 2 and 3 Between 1 - 2 years Less than 1 year years old

Source: Company data, Credit Suisse research

Figure 20: Known ANDAs for Taro APIs

Brand name Market size ($ mn)

Patent expiry

Remarks Perrigo is FTF and Taro will launch in Jun-14 together with Glenmark

ANDAs older than three years Fluocinonide 0.1% Cream (Vanos) Tacrolimus Ointment 1% Clobetasol propionate lotion 0.05% (Clobex)

Vanos

96

Dec-13

Protopic Clobex

90 114

Sep-14 Sep-17

Adapalene Cream

Differin

40

Genericised

Levocetirizine Mometasone Cream

XYZAL Elocon

70 22

26-Jan-14 Genericised

Sandoz and Perrigo already in market and Taro is selling Gel form already Non-Derma product Taro is already selling Ointment

Pennsaid Malarone

30 76

Jul-29 Genericised

Mallinckrodt sued Taro in Mar-2013 Glenmark has launched

Case settled with Galderma on 28-July-2010

ANDAs between 1-3 years

ANDAs < 1 year Diclofenac Proguanil + Atovaquone

Source: Company data, Credit Suisse research

Clinical trials at Taro = future ANDAs In addition, Taro has been working on 10 products (development work started after Sun Pharma took control of Taro) where the clinical trial has completed and these should translate to future ANDA filings. Competition here is likely to be limited as, for all 10 products the FDA requires clinical endpoints for proving bio-equivalency and, on average, Taro is conducting these trials on a patient population of about 500-1,000. A quick calculation of market opportunity for Taro from these 10 applications suggests possible sales of $83mn which, when adjusted for a 50% success rate in clinical trials, presents a $41mn opportunity for Taro over the next four years.

Taro has completed 10 clinical trials which should translate into future ANDA filings

Taro Pharma (TARO / TARO US)

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27 June 2014

Figure 21: Taro's clinical studies which should translate to ANDA filings API

Market size ($mn)

Tacrolimus Ointment 1% Butenafine HCL 1% cream Naftifine Hcl 1% Cream Oxiconazole Nitrate Cream 1% Diclofenac Sodium Gel 3% Clindamycin 1% + Benzoyl Peroxide 5% Clindamycin and Benzoyl Peroxide Gel 1.2%/2.5% Adapalene and Benzoyl Peroxide 0.1%/2.5% Gel Mupirocin cream 2% Imiquimod Cream 3.75% Total

90 10 27 20 80 50

Generic players where filings visible 2 1 1 1 1 2

100

3

Probable launch

Taro sales ($mn)

Remarks

9 2 5 3 11

50% price erosion and 30% mkt share 40% PE and 40% share 40% PE and 40% share 40% PE and 40% share 50% PE and 40% share 50% PE and 40% share

FY15 FY17 FY17 FY17 FY17 FY17

7 FY17

40% PE and 25% share 11

207

2

60 65

FY17

3 3

50% PE and 30% share 22 6 7 83

FY17 FY19

40% PE and 25% share 40% PE and 25% share

Source: Clinical Trials.gov, Credit Suisse research

Details of these clinical trials at the molecule level are presented in Figure 22. Figure 22: Completed clinical studies of Taro to be converted to ANDA filings Product

Brand name

Market size ($mn)

Patent expiry

Tacrolimus Ointment 1%

Protopic

90

Sep-14

Butenafine HCL 1% Lotrimin cream Ultra Naftifine Hcl 1% Naftine Cream Oxiconazole Nitrate Oxistat Cream 1% Diclofenac Sodium Solaraze Gel 3% Clindamycin 1% + Duac Gel Benzoyl Peroxide 5% Clindamycin and Acanya Benzoyl Peroxide Gel Gel 1.2%/2.5% Adapalene and Epiduo Benzoyl Peroxide 0.1%/2.5% Gel Mupirocin cream 2% Bactroban cream

10

Imiquimod Cream 3.75%

Zyclara cream

Competition Taro BE study details Patient Start date Completion Enrollme date nt 500 Oct-08 Mar-10 Sandoz completed study on 793 patients in Aug-2009; First ANDA on Protopic received by FDA in Sep-2010 Jan-12 707 Dec-12 Only Taro working on this molecule (small size + OTC drug) May-12 1050 July 2013 No other generic working on Naftine

27

Expired

20

Expired

625

Nov-11

Nov-12

80

Jun-14

435

Oct-12

Oct-13

50

Perrigo launched on 26Jun-2012 (study completed in Sep-2008) Mar-15

650

Sep-12

Aug-13

1215

Nov-12

Dec-13

Watson completed the studies in Dec2012 and Perrigo in Feb-13

2008

Oct-12

Mar-14

Actavis completed study in Dec-2011

648

Feb-13

Feb-14

Glenmark and Prasco (AG) selling and no other generic working

443

Jan-13

Dec-13

Actavis Started study in Feb-11 on 410 patients and completed in Nov-11 (Actavis has settled to launch Zyclara in Jan-2019); Teva started study in Sep-12 on 588 patients and currently recruiting patients

100

207

60

65

Exclusivity expires in Feb2016 and patent in Dec2022 Glenmark launched in Jan13 and FDA guidance was put up in Jun-2011 Exclusivity expires on 24Mar-2014 and patent in 2029

No other generic working on Oxiconazole No other generic working on Solaraze generic Perrigo has the approval and no other generic running a study currently

Source: Clinical Trials.gov, Credit Suisse research

Increase target price to $150; Maintain Outperform We increase Taro's FY15/16E EPS by ~70% to factor in the recent price increases. Our target price increases to $150 from $85 and is based on 9x FY16E EV/EBITDA.

Taro Pharma (TARO / TARO US)

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27 June 2014

Companies Mentioned (Price as of 26-Jun-2014) Actavis (ACT.N, $222.83) Akorn (AKRX.OQ, $30.29) Cadila Healthcare (CADI.BO, Rs1025.05) Cipla Limited (CIPL.BO, Rs426.25) Dr. Reddy's Laboratories Limited (REDY.BO, Rs2504.8) Endo Health Solutions (ENDP.OQ, $71.62) Glenmark Pharmaceuticals (GLEN.BO, Rs573.95) Hospira Inc (HSP.N, $51.81) Lupin Ltd (LUPN.BO, Rs1028.55) Mylan Inc. (MYL.OQ, $51.63) Novartis (NOVN.VX, SFr80.3) Perrigo Company (PRGO.N, $147.94) Shire Pharmaceuticals (SHP.L, 4517.0p) Smith & Nephew (SNN.N, $88.3) Solta Medical (SLTM.OQ^A14, $2.92) Sun Pharmaceuticals Industries Limited (SUN.BO, Rs635.4, OUTPERFORM, TP Rs715.0) Taro Pharmaceutical Industries Ltd (TARO.N, $113.92, OUTPERFORM, TP $150.0) Teva Pharmaceutical Ind. (TEVA.N, $52.75) Torrent Pharma (TORP.BO, Rs701.8)

Disclosure Appendix Important Global Disclosures I, Anubhav Aggarwal, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. 3-Year Price and Rating History for Sun Pharmaceuticals Industries Limited (SUN.BO) SUN.BO Date 19-Oct-11 21-Nov-11 04-Jan-12 29-Mar-12 31-May-12 12-Aug-12 13-Sep-12 12-Dec-12 05-Feb-13 21-Feb-13 28-May-13 12-Jun-13 09-Aug-13 10-Dec-13 14-Feb-14

Closing Price (Rs) 241.00 249.18 250.68 285.40 283.75 337.80 338.42 362.35 373.65 397.85 497.78 490.50 507.10 587.25 608.95

Target Price (Rs) 267.50 288.00 297.50 312.50 325.00 370.00 387.50 410.00 420.00 450.00 560.00 545.00 585.00 685.00 715.00

Rating O

O U T PERFO RM

* Asterisk signifies initiation or assumption of coverage.

3-Year Price and Rating History for Taro Pharmaceutical Industries Ltd (TARO.N) TARO.N Date 25-Sep-13

Closing Price (US$) 69.66

Target Price (US$) 85.00

Rating O*

* Asterisk signifies initiation or assumption of coverage.

O U T PERFO RM

Taro Pharma (TARO / TARO US)

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The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12-month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +1015% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark.

Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward. Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cov er multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is: Global Ratings Distribution

Rating

Versus universe (%)

Of which banking clients (%)

Outperform/Buy* 44% (54% banking clients) Neutral/Hold* 40% (49% banking clients) Underperform/Sell* 13% (47% banking clients) Restricted 3% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdin gs, and other individual factors.

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research and analytics/disclaimer/managing_conflicts_disclaimer.html Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties. Price Target: (12 months) for Taro Pharmaceutical Industries Ltd (TARO.N) Method: Our target price of USD150 is based on DCF methodology assuming 10% WACC, 9% sales CAGR for the next 4 years and 1% terminal growth. Our target price implies one year EV/EBITDA multiple of 9x. Risk:

Risks to our target price of USD 150 are 1) Price erosion on top products 2) Delay in new approvals. Our estimates assume market share loss on existing products to be offset by sales from new launches. Timing mismatch between the two is a risk to our estimate 3) Approvals/ sales impacted by FDA action. Taro currently supplies to the US market through two facilities loacted in Israel and Canada. If any of the two facilities deviate from GMP requirements, supply or new approvals could be impacted.

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Price Target: (12 months) for Sun Pharmaceuticals Industries Limited (SUN.BO) Method: Our target price for Sun Pharmaceuticals Industries Limited is Rs715. This is based at 21x our earnings estimate for FY2016, at a 5% premium to the sector average, due to superior returns and a strong balance sheet of Sun Pharma. Sun Pharma has traded at a premium of 10-15% to large cap pharma peers over the last five years. Risk:

Downside risks to our Rs715 target price for Sun Pharmaceuticals include the following: (1) Price increase taken at Taro not sustaining; (2) competition becoming more intense in the chronic segment in India; and (3) expensive acquisition with the use of cash.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections. See the Companies Mentioned section for full company names

The subject company (ENDP.OQ, SHP.L, NOVN.VX) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (ENDP.OQ, SHP.L, NOVN.VX) within the past 12 months. Credit Suisse provided non-investment banking services to the subject company (SHP.L, NOVN.VX) within the past 12 months Credit Suisse has managed or co-managed a public offering of securities for the subject company (NOVN.VX) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject company (ENDP.OQ, SHP.L, NOVN.VX) within the past 12 months Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (SUN.BO, CIPL.BO, ENDP.OQ, SHP.L, NOVN.VX, LUPN.BO) within the next 3 months. Credit Suisse has received compensation for products and services other than investment banking services from the subject company (SHP.L, NOVN.VX) within the past 12 months As of the date of this report, Credit Suisse makes a market in the following subject companies (TARO.N, ENDP.OQ, ACT.N). As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (SHP.L, NOVN.VX). Credit Suisse has a material conflict of interest with the subject company (SHP.L) . Susan Kilsby, an employee of Credit-Suisse, is a member of the Board of Directors of Shire PLC. For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.creditsuisse.com/disclosures or call +1 (877) 291-2683.

Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (TARO.N, SUN.BO, CIPL.BO, CADI.BO, ENDP.OQ, SHP.L, TORP.BO, GLEN.BO, NOVN.VX, REDY.BO, ACT.N, LUPN.BO) within the past 12 months Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml. Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (NOVN.VX) within the past 3 years. As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Credit Suisse Securities (India) Private Limited................................................................................................ Anubhav Aggarwal ; Chunky Shah

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For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.creditsuisse.com/disclosures or call +1 (877) 291-2683.

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