IPXL Impax Laboratories, Inc. (delisted)

Impax Laboratories, Inc. (NASDAQ:IPXL) today reported significant growth in the first quarter of 2010 due to an increase in sales from its Global product sales channel. Total revenue increased $264.4 million to $323.3 million driven by the successful March 2 exclusive launch of generic Flomax® ($176.2 million of revenue and $167.9 million of gross profit) and continued strong sales of generic Adderall XR® for which there were no comparable amounts in the first quarter 2009, as well as increased sales of the Company’s fenofibrate products. Net income increased to $131.5 million, or $2.06 per diluted share, compared to $2.2 million, or $0.04 per diluted share in the prior year period.

Larry Hsu, Ph.D., president and chief executive officer of Impax Laboratories, said: “This has been a truly gratifying quarter as the investments we’ve been making across our organization are producing dramatic and record-breaking returns. A major contributor to our impressive first quarter was the launch of generic Flomax®, the largest product launch in our history under the Global Pharmaceuticals label. Our efforts to prepare for the launch were well-rewarded as we achieved significant penetration of the market during our eight-week exclusivity period. As anticipated, we do not expect our future sales of generic Flomax® to remain at first quarter 2010 levels as competing generic versions of the product entered the market in late April and are likely to result in both price erosion and reduction of our market share.”

Dr. Hsu continued, “The recent increase in cash flow generated from our operations, including our strong generic Flomax® and generic Adderall XR® product sales, will contribute significantly to our ongoing business development activities. We will continue our fundamental investments in internal research and development to take full advantage of our core competency in drug delivery formulation technology, as well as our experience in product development. In addition, we are aggressively looking at generic and brand opportunities to acquire products, technologies or companies with strategic value to create long-term growth opportunities. The range of these strategic opportunities we can consider is expanding as our resources increase significantly and our resolve to complete a transaction that meets our focused objectives remains very high. These are exciting times for Impax as we embark on another chapter in our long-term growth strategy.”

First Quarter 2010 Segment Information

The Company has two reportable segments, the Global Pharmaceuticals Division (generic products) and the Impax Pharmaceuticals Division (brand products) and does not allocate general corporate services to either segment.

Global Pharmaceuticals Division Information

    (amounts in thousands)

Three Months Ended

March 31,

2010 2009 (unaudited) (unaudited) Revenues: Global product sales, net $309,105 $39,121 Private Label 672 1,297 Rx Partner 4,903 10,736 OTC Partner 1,765 1,858 Research Partner 3,385 2,611 Other - 6 Total Revenues 319,830 55,629 Cost of revenues 76,432 23,233 Gross profit 243,398 32,396   Operating expenses: Research and development 9,435 10,275 Patent litigation 1,984 1,017 Selling, general and administrative 3,334 2,594 Total operating expenses 14,753 13,886 Income from operations $228,645 $18,510  

First Quarter 2010

Global Pharmaceuticals Division revenues in the first quarter 2010 increased $264.2 million to $319.8 million, driven by a significant increase in Global product net sales, as discussed below.

During the first quarter of 2010, Global product net sales increased $270.0 million to $309.1 million over the same period in 2009 primarily due to strong sales of generic Flomax®, generic Adderall XR®, and to a lesser extent, increased sales of the Company’s fenofibrate products. On March 2, 2010, the Company successfully launched generic Flomax® which contributed $176.2 million to first quarter 2010 sales. The Company was the only supplier of generic Flomax® during the period ending April 27, 2010, after which competitors entered the market. Partially offsetting these gains was a $5.8 million decline in Rx Partner revenues primarily attributable to reduced sales of generic Wellbutrin® products as competition continues to erode the Company’s market share.

Cost of revenues was $76.4 million for the first quarter 2010, an increase of $53.2 million primarily related to the increase in Global product net sales offset by lower Rx Partner sales.

Gross profit for the first quarter 2010 increased $211.0 million to $243.4 million primarily due to sales of generic Flomax® ($167.9 million in the first quarter 2010), generic Adderall XR® and an increase in fenofibrate sales. Gross profit margin of 76% for the first quarter 2010 increased significantly over the 58% margin for the prior year period primarily due to higher margin sales of generic Flomax® and, to a lesser extent, fenofibrate.

Total research and development expenses for the first quarter 2010 decreased slightly by $0.8 million to $9.4 million, compared to the prior year primarily due to lower spending on biostudies.

Total selling, general and administrative expenses for the first quarter 2010 increased $0.7 million to $3.3 million due to increased customer freight and higher sales force incentive compensation, both related to higher sales levels as noted above.

Generic division income from operations in the first quarter 2010 increased $210.1 million to $228.6 million, compared to $18.5 million in the prior year, due to the increase in sales as noted above.

The Company’s generic business development activities are primarily focused on acquiring products/technologies/businesses in complementary dosage forms where the Company’s core competency in drug delivery and formulation expertise can be combined to produce above-average growth in high-value products. The Company has a number of opportunities under consideration and has expanded the field of opportunities as the Company’s resources have increased. It is not possible to predict when any such transaction will occur, if at all, but these activities are a critical element of the Company’s planned growth and management is devoting significant time and attention to these activities.

Impax Pharmaceuticals Division Information

 

    (amounts in thousands)

Three Months Ended March 31,

2010 2009 (unaudited) (unaudited) Promotional Partner revenues $3,503 $3,284 Cost of revenues 3,144 3,017 Gross profit 359 267   Operating expenses: Research and development 8,874 5,514 Selling, general and administrative 809 1,040 Total operating expenses 9,683 6,554 Loss from operations ($9,324) ($6,287)  

First Quarter 2010

Promotional Partner revenues in the first quarter 2010 were $3.5 million, a slight increase over the prior year as the Company continues to meet its detailing objectives.

Cost of revenues for the first quarter 2010 were $3.1 million, up slightly from the prior year.

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 first quarter of 2010, research and development increased $3.4 million to $8.9 million, due to planned increased spending on clinical studies and to a lesser extent, staffing costs and incentives associated with the management of these studies and the division.

The Company’s planned increase in investment in research and development during the first quarter of 2010 contributed to a brand division loss from operations of $9.3 million compared to a loss from operations of $6.3 million in the first quarter of 2009.

The Company’s brand business development activities are focused on (1) obtaining strategic partners for promotion and marketing the Company’s products outside the United States and (2) co-development agreements with co-marketing rights where the Company’s contribution to the venture is its commercial capabilities in its current markets. The Company has a number of opportunities under consideration and has expanded the field of opportunities as the Company’s resources have increased. It is not possible to predict when any such transaction will occur, if at all, but these activities are a critical element of the Company’s planned growth and management is devoting significant time and attention to these activities.

Corporate and Other Information

   

(amounts in thousands)

Three Months Ended

March 31,

2010 2009 (unaudited) (unaudited) Litigation settlement - $237 General and administrative 8,342 7,851 Total operating expenses 8,342 8,088 Loss from operations ($8,342) ($8,088)  

Total corporate operating expenses for the first quarter 2010 increased slightly by $0.3 million to $8.3 million.

Cash and Cash Equivalents

Cash and short-term investments was $130.4 million as of March 31, 2010, as compared to $90.4 million as of December 31, 2009. The change in cash and short-term investments from year-end 2009 is due to strong product sales as noted above.

Cash flows from operating activities, before changes in working capital, less capital expenditures (Free Cash Flow) were a positive $112.6 million in the first quarter 2010.

2010 Financial Outlook

The Company previously disclosed its 2010 financial outlook on January 11, 2010. As of May 4, 2010, the Company has updated its full year 2010 forecast as noted below.

• Cash flows from operating activities, before changes in working capital, less capital expenditures (Free Cash Flow), planned to be positive.
• Updated - gross margins as a percent of total revenues to approximate 50% for the balance of the year.
• Total research and development expenses across the generic and brand divisions to approximate $77 million with generic R&D to approximate $41 million and brand R&D to approximate $36 million.
• Patent litigation expenses of approximately $11 million.
• Selling, general and administrative expenses of approximately $50 million.
• Updated - estimated consolidated effective tax rate of approximately 40% (without renewal in 2010 of the federal R&D tax credit).
• Capital expenditures expected to be approximately $20 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 shortly after the call for a period of seven days. To access the replay, dial (800) 642-1687 (in the U.S.) and (706) 645-9291 (international callers). The access conference code is 67229487.

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 Laboratories is headquartered in Hayward, California, and has a full range of capabilities in its Hayward, Philadelphia and Taiwan 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, the effect of current economic conditions on the Company’s industry, business, financial position, results of operations and market value of its common stock, the ability to maintain an effective system of internal control over financial reporting, fluctuations in revenues and operating income, reductions or loss of business with any significant customer, the impact of competitive pricing and products and regulatory actions on the Company’s products, the ability to sustain profitability and positive cash flows, the ability to maintain sufficient capital to fund operations, any delays or unanticipated expenses in connection with the operation of the Taiwan facility, the ability to successfully develop and commercialize pharmaceutical products, the uncertainty of patent litigation, consumer acceptance and demand for new pharmaceutical products, the difficulty of predicting Food and Drug Administration filings and approvals, the inexperience of the Company in conducting clinical trials and submitting new drug applications, reliance on key alliance and collaboration agreements, the availability of raw materials, the ability to comply with legal and regulatory requirements governing the healthcare industry, the regulatory environment, exposure to product liability claims and other risks described in the Company’s periodic reports filed with the Securities and Exchange Commission. 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 March 31, 2010 2009 (unaudited) (unaudited) Revenues: Global Pharmaceuticals Division $319,830 $55,629 Impax Pharmaceuticals Division 3,503 3,284 Total Revenues 323,333 58,913   Cost of revenues 79,576 26,250 Gross profit 243,757 32,663   Operating expenses: Research and development 18,309 15,789 Patent litigation 1,984 1,017 Litigation settlement - 237 Selling, general and administrative 12,485 11,485 Total operating expenses 32,778 28,528 Income from operations 210,979 4,135 Other income (expense), net (18) 55 Interest income 82 149 Interest expense (46) (294) Income before income taxes 210,997 4,045 Provision for income taxes 79,484 1,836 Net income before noncontrolling interest 131,513 2,209 Add back (profit) loss attributable to noncontrolling interest (28) 10 Net Income $131,485 $2,219   Net Income per share: Basic $2.16 $0.04 Diluted $2.06 $0.04   Weighted average common shares outstanding: Basic 61,008,015 59,711,133 Diluted 63,865,678 60,222,215      

Impax Laboratories, Inc.

Condensed Consolidated Balance Sheets

(amounts in thousands)

  March 31, December 31, 2010 2009 (unaudited) ASSETS Current assets: Cash and cash equivalents $83,747 $31,770 Short-term investments 46,615 58,599 Accounts receivable, net 324,692 185,854 Inventory, net 52,015 49,130 Current portion of deferred product manufacturing costs-alliance agreements 11,435 11,624 Current portion of deferred income taxes 35,109 32,286 Prepaid expenses and other current assets 3,963 4,748 Total current assets 557,576 374,011 Property, plant and equipment, net 102,330 101,650 Deferred product manufacturing costs-alliance agreements 95,986 96,619 Deferred income taxes, net 44,570 48,544 Other assets 16,993 12,358 Goodwill 27,574 27,574 Total assets $845,029 $660,756   Liabilities and Stockholders Equity Current liabilities: Accounts payable 33,249 23,295 Accrued expenses 64,758 62,055 Accrued income taxes payable 78,582 31,627 Accrued profit sharing and royalty expenses 41,307 53,695 Current portion of deferred revenue-alliance agreements 33,433 33,196 Total current liabilities 251,329 203,868 Deferred revenue-alliance agreements 219,727 224,522 Other liabilities 12,212 10,139 Total liabilities 483,268 438,529 Stockholders equity 361,761 222,227 Total liabilities and stockholders equity $845,029 $660,756      

Impax Laboratories, Inc.

Condensed Consolidated Statement of Cash Flows

(amounts in thousands)

  Three Months Ended March 31, 2010 2009 (unaudited) (unaudited) Cash flows from operating activities: Net income $131,485 $2,219 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation 2,946 2,544 Amortization of 3.5% Debentures discount and deferred financing costs - 150 Amortization of Wachovia Credit Agreement deferred financing costs 25 - Bad debt expense 91 23 Deferred income taxes (benefit) 1,151 (3,027) Provision for uncertain tax positions 12 218 Tax benefit related to the exercise of employee stock options (738) - Deferred revenue-Alliance Agreements 5,495 19,723 Deferred product manufacturing costs-Alliance Agreements (3,427) (9,919) Deferred revenue recognized-Alliance Agreements (10,053) (15,205) Amortization deferred product manufacturing costs-Alliance Agreements 4,249 7,666 Accrued profit sharing and royalty expense 41,307 72 Profit sharing and royalty payments (53,695) (252) Payments on exclusivity period fee - (3,000) Payments on accrued litigation settlements (5,865) (4,007) Share-based compensation expense 2,785 1,437 Accretion of interest income on short-term investments (64) (36) Changes in assets and liabilities: Accounts receivable (138,929) (18,530) Inventory (2,885) 2,546 Prepaid expenses and other assets (3,870) 2,042 Accounts payable and accrued expenses 64,678 (3,481) Other liabilities 2,089 734 Net cash provided (used in) by operating activities $36,787 ($18,083)   Cash flows from investing activities: Purchase of short-term investments (23,055) (27,810) Maturities of short-term investments 35,103 18,245 Purchases of property, plant and equipment (3,116) (3,881) Net cash provided by (used in) investing activities $8,932 ($13,446)   Cash flows from financing activities: Repayment of long-term debt - (36) Tax benefit related to the exercise of employee stock options 738 - Proceeds from exercise of stock options and purchases under the ESPP 5,520 334 Net cash provided by financing activities $6,258 $298   Net increase (decrease) in cash and cash equivalents $51,977 ($31,231) Cash and cash equivalents, beginning of period $31,770 $69,275 Cash and cash equivalents, end of period $83,747 $38,044