IPXL Impax Laboratories, Inc. (delisted)

Impax Laboratories, Inc. (NASDAQ: IPXL) today reported solid net income of $3.0 million, or $0.05 per diluted share for the second quarter 2009. The year ago period net income was higher primarily due to the inclusion of $34.5 million in Rx Partner revenue resulting from the licensed sales of generic OxyContin® pursuant to a litigation settlement agreement in 2008 for which there was no comparable amount in 2009. Excluding the second quarter 2008 sales of generic OxyContin®, net income increased $5.3 million to $3.0 million versus a loss of $2.3 million in the prior year period.

Total revenues for the second quarter 2009 were also solid at $58.4 million and income from operations was $4.0 million. Total revenues for the second quarter 2008 were $78.7 million and income from operations was $30.8 million, which included the $34.5 million in Rx Partner revenue and $34.2 million of gross profit resulting from the licensed sales of generic OxyContin® in the prior year period for which there was no comparable amount in 2009. Excluding the second quarter 2008 sales of generic OxyContin®, total revenue increased $14.2 million (up 32%) and income from operations increased $7.4 million (up 218%) in the second quarter 2009.

Larry Hsu, Ph.D., president and chief executive officer of Impax Laboratories, said: “We continue to be pleased with the strong year-to-date growth in our base generic business. Achieving this growth without any significant new product launches in the first half of 2009 is a reflection of our ability to capitalize on existing product opportunities. We are optimistic about our second half of 2009 with several product launches including generic versions of Adderall XR®.”

Dr. Hsu continued, “Looking forward, we continue to see positive developments from our significant generic and brand R&D investments. We are on track to achieve our 2009 ANDA submission goal of 8 to 10 new applications, including 2 to 3 of these being first-to-file or first-to-market opportunities. As of today, we have 3 new ANDAs accepted for filing at the FDA. We are also pleased with the continued development of both of our leading brand product candidates.”

Second Quarter 2009 Segment Information

The Company has two reportable segments, the Global Pharmaceuticals Division (generic products) and the Impax Pharmaceuticals Division (brand products).

Global Pharmaceuticals Division Information

(unaudited, amounts in thousands)  

Three Months Ended June 30,

  Six Months Ended June 30, 2009   2008 2009   2008 Revenues: (as adjusted) (as adjusted) Global product sales, net $37,387 $25,986 $76,508 $48,965 Private Label 2,220 639 3,517 1,117 Rx Partner (a) 11,119 43,870 21,855 62,675 OTC Partner 1,628 4,932 3,486 9,341 Research Partner 2,833 - 5,444 - Other 5 7 11 14 Total Revenues 55,192 75,434 110,821 122,112 Cost of revenues 24,007 18,340 47,240 38,750 Gross profit (b) 31,185 57,094 63,581 83,362   Operating expenses: Research and development 9,578 10,395 19,853 19,491 Patent litigation 1,394 1,250 2,411 2,951 Selling, general and administrative 2,473 2,614 5,067 4,919 Total operating expenses 13,445 14,259 27,331 27,361 Income from operations (b) $17,740 $42,835 $36,250 $56,001 (a)   Rx Partner revenue for the three and six months ended June 30, 2008 includes $34.5 and $40.8 million, respectively, from the completion of licensed sales of generic OxyContin® pursuant to a litigation settlement agreement in 2008 for which there was no comparable amount in 2009. (b) Gross profit and income from operations for the three and six months ended June 30, 2008 includes $34.2 and $38.7 million, respectively, from the sales of generic OxyContin® as noted above.

Global Pharmaceuticals Division revenues in the second quarter 2009 were $55.2 million. This represents a decrease from the year ago period due primarily to a reduction in Rx Partner sales as noted above, partially offset by a strong increase in net Global product sales.

Net Global product sales increased 44% to $37.4 million, a strong increase of $11.4 million over the same period in 2008 primarily due to sales of fenofibrate products. Private label product sales increased 247% to $2.2 million primarily due to sales of generic loratadine/pseudoephedrine, the generic version of Claritin® D 24-hour, as a result of a new supply agreement. Rx Partner revenues were $11.1 million, down 75%, primarily attributable to the loss of revenue related to the cessation of sales of generic OxyContin® ($34.5 million in the second quarter 2008) and reduced sales of generic Wellbutrin® XL 300mg. OTC Partner revenues decreased 67% to $1.6 million, primarily attributable to the expiration of the Company’s obligation to supply Schering-Plough with product effective December 31, 2008. Research Partner revenues were $2.8 million resulting from a Joint Development Agreement entered into during the fourth quarter of 2008.

Cost of revenues was $24.0 million for the second quarter 2009, an increase of 31% primarily related to the higher sales of Global products.

Gross profit for the second quarter 2009 was $31.2 million or approximately 57% of total revenues. Gross profit for the second quarter 2008 was $58.0 million or approximately 74% of total revenues, which included $34.2 million in OxyContin® gross profit for which there was no comparable amount in 2009, as well as lower manufacturing efficiencies, and an increase in inventory carrying-value reserves, offset by an increase in our generic product line margins.

Total research and development expenses for the second quarter 2009 decreased $0.8 million to $9.6 million, compared to the prior year period primarily due to lower spending on patent expenses and active pharmaceutical ingredient used in research activities, partially offset by additional research personnel.

Generic division income from operations in the second quarter of 2009 was a strong $17.7 million. This represents a decline of $25.1 million due to the loss of $34.2 million of income from operations resulting from prior period sales of generic OxyContin® for which there was no comparable amount in 2009. Excluding the impact of the second quarter 2008 sales and income from operations of generic OxyContin®, Global Division revenue increased $14.2 million (up 35%) and income from operations increased $9.1 million (up 105%).

Impax Pharmaceuticals Division Information

(unaudited, amounts in thousands)   Three Months Ended June 30,   Six Months Ended June 30, 2009   2008 2009   2008 (as adjusted) (as adjusted) Promotional Partner $3,224 $3,238 $6,508 $6,490 Cost of revenues 3,277   2,364   6,294   5,332   Gross profit (53 ) 874   214   1,158     Operating expenses: Research and development 6,134 3,384 11,649 7,595 Selling, general and administrative 727   866   1,767   1,341   Total operating expenses 6,861   4,250   13,416   8,936   Loss from operations ($6,914 ) ($3,376 ) ($13,202 ) ($7,778 )

Promotional Partner revenues of $3.2 million in the second quarter 2009, derived from the co-promotion of Carbatrol®, a product of Shire Plc, were down slightly versus the same period in 2008.

Cost of revenues for the second quarter 2009 increased 39% or $0.9 million due to credits in the prior year period resulting from incentive compensation which was not earned. As a result of this increase, gross profit decreased 106% to a loss of $0.1 million.

The Company is currently investing in research and development to develop brand products which provide longer product life cycles and the potential for significantly higher profit margins than generic products. In the second quarter 2009, R&D increased a planned $2.8 million to $6.1 million, due to increasing spending on clinical studies, additional research personnel, supplies and outside consultants.

The Company’s planned increase in investment in R&D during the second quarter 2009 resulted in a brand division loss of $6.9 million in income from operations.

Other Operating Expenses

Corporate general and administrative expenses for the second quarter 2009 were $6.8 million, a 21% decrease attributable principally to a decrease in professional fees related to the examination and review of the Company’s financial statements in conjunction with the financial statements for the years 2004 through 2007 and the resulting filing with the SEC of the Company’s Registration Statement on Form 10, and lower management consulting fees.

Interest income in the second quarter 2009 declined $0.7 million to $0.3 million, compared to the prior year period. The decline was due to lower average interest income rate combined with lower overall average cash and short-term investment balances during the second quarter 2009. The lower cash and short-term balance resulted from the use of funds to repurchase at a discount at the request of the holders, approximately $62.25 million face value of the Company’s 3.5% Debentures in August 2008 and September of 2008, along with the $5.1 million repayment-in-full in May 2008 of two bank term loans, and the payment of $12.75 million of the remaining 3.5% Debentures in June 2009, at the request of the holders.

Interest expense in the second quarter 2009 declined $1.5 million to $0.3 million, compared to the prior year period due to reduced amounts of average debt outstanding as a result of the August 2008 and September 2008 repurchase of 3.5% Debentures and repayment-in-full of the bank term loans noted above.

The effective tax rate for the second quarter 2009 was 26%, lower than the effective tax rate of 43% for the prior year period, resulting principally from the reversal of a valuation allowance on deferred tax assets related to net operating losses at our wholly owned subsidiary Impax Laboratories (Taiwan), Inc., and a higher research and development credit related to increased levels of qualified research expenditures in both generic and brand research and development activities.

Cash and short-term investments, net of interest-bearing debt, was $96.3 million as of June 30, 2009, as compared to $99.6 million as of December 31, 2008. As of June 30, 2009, cash and short-term investments, net of interest-bearing debt, increased $18.0 million from March 31, 2009. The slight change in cash and short-term investments, net from year-end 2008, included the Company’s June 15, 2009 repayment, at the option of the holders, of the $12.75 million remaining outstanding balance of the Company’s 3.5% Debentures, offset by changes in working capital assets and liabilities, including the collection of accounts receivable balances and payments of accounts payable during the six months ended June 30, 2009.

As reported on the Company’s (unaudited) interim consolidated statement of cash flows for the six months ended June 30, 2009, cash flow from operating activities was approximately a positive $1.1 million before changes in certain working capital assets and liabilities.

2009 Financial Outlook

The Company previously disclosed its 2009 financial outlook for the year ending December 31, 2009, on February 26, 2009. For the full year 2009, the Company continues to forecast:

• Its third consecutive year of positive cash flows from operating activities before changes in working capital assets and liabilities.
• Gross margins as a percent of total revenues to approximate 50%.
• Total research and development expenses across the generic and brand divisions to approximate $64 million with $40 million and $24 million allocated to generic and brand R&D, respectively.
• Patent litigation expenses of approximately $10 million.
• Selling, general and administrative expenses of approximately $39 million.

Conference Call Information

The Company will host a conference call today at 11:00 a.m. EDT to discuss its results. The number to call from within the United States is (877) 356-3814 and (706) 758-0033 internationally. The call can also be accessed via a live Webcast through the Investor Relations section of the Company’s Web site, www.impaxlabs.com. A replay of the conference call will be available for seven days shortly after the call. To access the replay, dial (800) 642-1687 (in the U.S.) and (706) 645-9291 (international callers). The access conference code is 20084313.

About Impax Laboratories, Inc.

Impax Laboratories, Inc. is a technology-based specialty pharmaceutical company applying its formulation expertise and drug delivery technology to the development of controlled-release and specialty generics in addition to the development of branded products. Impax markets its generic products through its Global Pharmaceuticals division and markets its branded products through the Impax Pharmaceuticals division. Additionally, where strategically appropriate, Impax has developed marketing partnerships to fully leverage its technology platform. Impax is headquartered in Hayward, California, and has a full range of capabilities in its Hayward and Philadelphia facilities. For more information, please visit the Company's Web site at: www.impaxlabs.com.

"Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995:

To the extent any statements made in this news release contain information that is not historical, these statements are forward-looking in nature and express the beliefs and expectations of management. Such statements are based on current expectations and involve a number of known and unknown risks and uncertainties that could cause the Company’s future results, performance or achievements to differ significantly from the results, performance or achievements expressed or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to; ability to timely file periodic reports required by the Exchange Act; ability to maintain an effective system of internal control over financial reporting; ability to sustain profitability and positive cash flows; ability to maintain sufficient capital to fund operations; any delays or unanticipated expenses in connection with the construction of our Taiwan facility; ability to successfully develop and commercialize pharmaceutical products; the uncertainty of patent litigation; consumer acceptance and demand for new pharmaceutical products; the impact of competitive products and pricing; the difficulty of predicting Food and Drug Administration filings and approvals; inexperience in conducting clinical trials and submitting new drug applications; reliance on key alliance agreements; the availability of raw materials; the regulatory environment; exposure to product liability claims; fluctuations in operating results and other risks described in our Annual Report on Form 10-K for the year ended December 31, 2008. Forward-looking statements speak only as to the date on which they are made, and Impax undertakes no obligation to update publicly or revise any forward-looking statement, regardless of whether new information becomes available, future developments occur or otherwise.

Impax Laboratories, Inc.

Consolidated Statements of Operations

    (amounts in thousands, except share and per share data) Three Months Ended June 30, Six Months Ended June 30, 2009   2008 2009   2008 (unaudited) (unaudited) (unaudited) (unaudited) Revenues: (as adjusted) (as adjusted) Global Pharmaceuticals Division (a) $55,192 $75,434 $110,821 $122,112 Impax Pharmaceuticals Division 3,224   3,238   6,508   6,490   Total Revenues 58,416   78,672   117,329   128,602     Cost of revenues 27,284   20,704   53,534   44,082   Gross profit (b) 31,132   57,968   63,795   84,520     Operating expenses: Research and development 15,712 13,779 31,502 27,086 Patent litigation 1,394 1,250 2,411 2,951 Selling, general and administrative 10,039   12,112   21,760   22,505   Total operating expenses 27,145   27,141   55,673   52,542   Income from operations 3,987   30,827   8,122   31,978   Change in fair value of common stock purchase warrants - 15 - 59 Other income (expense), net 18 (20 ) 83 40 Interest income 307 1,022 456 2,559 Interest expense (256 ) (1,712 ) (550 ) (3,477 ) Income before income taxes 4,056 30,132 8,111 31,159 Provision for income taxes 1,043   13,044   2,879   13,611   Net Income (c) $3,013   $17,088   $5,232   $17,548     Net Income per share: Basic $0.05   $0.29   $0.09   $0.30   Diluted $0.05   $0.28   $0.09   $0.29     Weighted average common shares outstanding: Basic 60,112,308 58,978,703 59,912,829 58,906,341 Diluted 60,552,344 60,584,709 60,384,179 60,870,589 (a)   Global Pharmaceuticals Division revenue for the three and six months ended June 30, 2008 includes $34.5 and $40.8 million, respectively, from the completion of licensed sales of generic OxyContin® pursuant to a litigation settlement agreement in 2008 for which there was no comparable amount in 2009. (b) Gross profit for the three and six months ended June 30, 2008 includes $34.2 and $38.7 million, respectively, from the sales of generic OxyContin® as noted above. (c) Net income from operations for the three and six months ended June 30, 2008 includes $19.4 and $21.8 million, respectively, from the sales of generic OxyContin® as noted above.

Impax Laboratories, Inc.

Condensed Consolidated Balance Sheets

    June 30, December 31, 2009 2008 (unaudited) (as adjusted) ASSETS Current assets: Cash and cash equivalents $42,198 $69,275 Short-term investments 61,072 50,710 Accounts receivable, net 53,530 43,306 Inventory, net 33,008 32,305 Current portion of deferred product manufacturing costs-alliance agreements 14,474 13,578 Current portion of deferred income taxes 25,943 17,900 Prepaid expenses and other current assets 3,059 9,298 Total current assets 233,284 236,372 Property, plant and equipment, net 95,844 95,629 Deferred product manufacturing costs-alliance agreements 94,321 93,144 Deferred income taxes, net 51,480 52,551 Other assets 13,502 9,017 Goodwill 27,574 27,574 Total assets $516,005 $514,287   Liabilities and Stockholders Equity Current liabilities Current portion of long-term debt, net $1,887 $14,416 Accounts payable 14,180 12,797 Accrued expenses 44,503 41,360 Current portion of deferred revenue-alliance agreements 37,966 35,015 Current portion of accrued exclusivity period fee payments due - 6,000 Total current liabilities 98,536 109,588 Long-term debt 5,065 5,990 Deferred revenue-alliance agreements 225,959 225,804 Other liabilities 15,180 13,255 Total liabilities 344,740 354,637 Stockholders equity 171,265 159,650 Total liabilities and stockholders equity $516,005 $514,287

Impax Laboratories, Inc.

Consolidated Statement of Cash Flows

  Six Months Ended June 30, 2009   2008 (unaudited) (unaudited) Cash flows from operating activities: (as adjusted) Net income $5,232 $17,548 Adjustments to reconcile net income to net cash used in operating activities: Depreciation 5,192 4,441 Amortization of 3.5% Debentures discount and deferred financing costs 301 1,486 Amortization of Wachovia Credit Agreement deferred financing costs 25 234 Bad debt expense 45 125 Deferred income taxes (6,972 ) 6,818 Provision for uncertain tax positions 463 - Deferred revenue - Rx Partners 27,697 70,386 Deferred product manufacturing costs - Rx Partners (14,755 ) (17,608 ) Deferred revenue recognized - Rx Partners (21,855 ) (62,675 ) Amortization deferred product manufacturing costs - Rx Partners 10,765 12,139 Deferred revenue - OTC Partners 1,194 10,878 Deferred product manufacturing costs - OTC Partners (1,202 ) (10,860 ) Deferred revenue recognized - OTC Partners (3,486 ) (9,341 ) Amortization deferred product manufacturing costs - OTC Partners 3,119 8,938 Deferred revenue - Research Partners 5,000 - Deferred revenue recognized - Research Partners (5,444 ) - Payments on exclusivity period fee (6,000 ) (6,000 ) Payments on accrued litigation settlements (1,098 ) (1,098 ) Share-based compensation expense 3,193 3,080 Accretion of interest income on short-term investments (277 ) (1,749 ) Change in fair value of stock purchase warrants - (59 ) Changes in assets and liabilities: Accounts receivable (10,269 ) 7,365 Inventory (703 ) (1,866 ) Prepaid expenses and other assets 1,899 (581 ) Accounts payable and accrued expenses 4,440 (5,218 ) Other liabilities 1,437   1,039   Net cash (used in) provided by operating activities ($2,059 ) $27,422     Cash flows from investing activities: Purchase of short-term investments ($41,772 ) ($162,693 ) Maturities of short-term investments 31,687 165,418 Purchases of property, plant and equipment (5,367 ) (12,776 ) Net cash used in investing activities ($15,452 ) ($10,051 )   Cash flows from financing activities: Repayment of long-term debt ($12,823 ) ($5,244 ) Proceeds from exercise of stock options and purchases under the ESPP 3,257   155   Net cash provided by financing activities ($9,566 ) ($5,089 )   Net increase (decrease) in cash and cash equivalents ($27,077 ) $12,282 Cash and cash equivalents, beginning of period $69,275 $37,462 Cash and cash equivalents, end of period $42,198 $49,744

Impax Laboratories, Inc.

Presentation of Deferred Revenue and Deferred Product Manufacturing Cost Data

 

The following table summarizes the additions to and deductions from the deferred revenue-alliance agreements and deferred product manufacturing costs under the Company’s Teva, DAVA, OTC, Medicis and Putney, Inc. alliance agreements. This information is used to explain the changes in the respective balance sheet accounts of deferred revenue-alliance agreements and deferred product manufacturing costs-alliance agreements. The table sets forth the amount of revenue deferred in each period as well as the amount recognized in the period under the Company’s modified proportional performance method of revenue recognition for revenue earned under the Teva, DAVA, and OTC alliance agreements and straight line revenue recognition for the Medicis alliance agreement. The summarized information for the six months ended June 30, 2009 is derived from the corresponding tables for each of these separate alliance agreements set forth in the Alliance Agreement footnote to the Company’s unaudited interim consolidated financial statements for the six months ended June 30, 2009.

    Six Months Inception Ended Through June 30, 2009 December 31, 2008 (unaudited) (unaudited) Deferred revenue:

 

Beginning balance $260,819 $ --- Deferrals 33,891 638,342 Less amounts recognized (30,785 ) (377,523 ) Ending deferred revenue $263,925   $260,819     Deferred product manufacturing costs: Beginning balance $106,722 $ --- Deferrals 15,957 256,461 Less amounts amortized (13,884 ) (149,739 ) Ending deferred product manufacturing costs $108,795   $106,722  

Note to the Financial Table Information Contained in this June 30, 2009 Earnings Release

As required, Financial Accounting Standards Board Staff Position APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” was applied on a retrospective basis, beginning with the year ended December 31, 2007. The 2008 financial results reported in the tables within this press release are “as adjusted”.