Impax Laboratories, Inc. (NASDAQ: IPXL) today
reported second quarter ended June 30, 2011 financial results.
“Our second quarter 2011 revenues and earnings were lower than
the prior year period primarily due to higher second quarter 2010
sales from the remaining exclusive period of generic Flomax® .
However, our second quarter 2011 revenues improved sequentially
over the first quarter 2011 revenues and exceeded our
expectations,” said Larry Hsu, Ph.D., president and CEO, Impax
Laboratories, Inc. “The sequential improvement was primarily due to
the late April receipt of our supplier’s initial product shipment
from 2011 quota of generic Adderall XR® which resulted in second
quarter generic Adderall XR® product sales of $58.2 million, as
compared to $36.1 million in the first quarter of 2011.”
Dr. Hsu continued, “We began to receive generic Adderall XR®
product supply from our supplier’s 2011 quota during the quarter,
although below our request for quantities sufficient to satisfy
strong customer demand. The supply helped us alleviate some of the
customer backorder for the product. Nonetheless, our second quarter
2011 sales of the product were still lower than the prior year
period and customer demand for generic Adderall XR ® continues to
exceed available supply. We continue to pursue every available
means to acquire sufficient product to meet this demand. In the
third quarter of 2011, assuming continued receipt of scheduled
shipments, our generic Adderall XR® sales could be similar to
second quarter 2011 levels, while fourth quarter expectations will
depend on additional updated shipment information from our supplier
in August and September 2011.”
Second Quarter 2011
Results
(unaudited, amounts in millions)
Three Months
Ended June 30,
Revenues
2011
2010
$ change
% change
Generic and brand products and services $ 64.0 $ 62.3 $ 1.7 3 %
Generic Adderall XR ® 58.2 63.3
(5.1
) (8 %) Generic Flomax® 3.7 27.4
(23.7 ) (87 %) Total Revenues $ 125.9
$ 153.0 $ (27.1 ) (18 %)
- Total revenue was $125.9 million
compared to $153.0 million in the prior year period primarily due
to higher second quarter 2010 sales from the remaining exclusive
period of generic Flomax®, whereby the Company had contractual
market exclusivity starting on March 2, 2010 and continuing for the
succeeding eight week period. The entry of competing generic
versions of Flomax® into the market in late April 2010 resulted in
both price erosion and reduction in the Company’s market
share.
- Earnings before interest, taxes,
depreciation and amortization (EBITDA), excluding adjusted items,
was $25.6 million compared to $54.8 million in the prior year
period (generic Flomax® contributed $22.3 million to the second
quarter 2010 EBITDA, excluding adjusted items).
- Net income, excluding adjusted items,
was $15.1 million compared to $32.8 million in the prior year
period (generic Flomax® contributed $14.1 million to the second
quarter 2010 net income, excluding adjusted items).
- Net income per diluted share, excluding
adjusted items, was $0.22 compared to $0.50 in the prior year
period (generic Flomax® contributed $0.22 to the second quarter
2010 net income per diluted share, excluding adjusted items).
- Net income was $12.6 million, or $0.19
per diluted share, compared to $31.3 million, or $0.48 per diluted
share in the prior year period.
Please refer to “Non-GAAP Financial Measures” below for a
reconciliation of GAAP to non-GAAP items.
Dr. Hsu further stated, “We are working expeditiously to resolve
the manufacturing observations raised in the warning letter to the
satisfaction of the U.S. Food and Drug Administration (FDA). In
late June 2011, we submitted our warning letter response and will
continue to cooperate with the FDA to resolve the observations. We
have already made significant manufacturing and quality control
systems improvements and believe we have addressed a number of the
FDA’s observations. Upon our internal completion, we will request a
re-inspection of our Hayward facility by the FDA, the timing of
which is wholly dependent upon the FDA’s availability. Based on our
most recent estimate, we expect to incur charges of approximately
$10.0 million in 2011 related to the development and implementation
of manufacturing and quality control systems improvements
associated with our response to the observations raised in the
warning letter.”
“This current interruption has not impacted our ability to
execute our long-term growth strategy. We have a significant
pipeline of generic products pending at the FDA and continue to
file Abbreviated New Drug Applications which we believe will create
additional product launch opportunities. Regarding our brand
business, we remain on schedule to file a New Drug Application for
IPX066, our leading brand product candidate for Parkinson’s
Disease, in the fourth quarter of 2011. We also remain active
pursuing external opportunities with the potential to further drive
future growth,” concluded Dr. Hsu.
Segment Information – Second Quarter 2011
The Company has two reportable segments, the Global
Pharmaceuticals Division (generic products & services) and the
Impax Pharmaceuticals Division (brand products & services) and
does not allocate general corporate services to either segment.
Global Pharmaceuticals Division Information
(unaudited, amounts in thousands)
Three Months EndedJune
30,
Six Months EndedJune 30,
2011 2010 2011 2010
Revenues: Global Product sales, net $ 111,125 $ 137,977 $ 203,463 $
447,754 RX Partner 4,866 5,802 7,548 10,705 OTC Partner 1,184 2,309
3,127 4,074 Research Partner 3,384 3,384 9,769
6,769 Total Revenues 120,559 149,472 223,907 469,302 Cost of
revenues 63,257 65,599 110,431 142,031
Gross profit 57,302 83,873 113,476
327,271 Operating expenses: Research and development 13,466 10,354
23,242 19,789 Patent litigation 2,209 1,769 3,983 3,753 Selling,
general and administrative 2,938 3,688 5,870
7,023 Total operating expenses 18,613 15,811
33,095 30,565 Income from operations $ 38,689 $
68,062 $ 80,381 $ 296,706
Global Pharmaceuticals Division revenues in the second quarter
of 2011 were $120.6 million compared to $149.5 million in the prior
year period, the reduction in revenues were driven by a decrease in
Global Product sales, net, as discussed below.
For the second quarter of 2011, Global Product sales, net, were
$111.1 million, down $26.9 million from the prior year period due
to a $23.8 million decline in sales of generic Flomax® as noted
above, and a $5.1 million decline in sales of authorized generic
Adderall XR® products, partially offset by higher sales of our
fenofibrate products. The decrease in sales of authorized generic
Adderall XR® was principally the result of product supply
disruptions.
Gross profit of $57.3 million represents a 48% gross margin in
the second quarter of 2011, and was lower than the 56% gross margin
for the prior year period primarily due to higher sales of our
generic Flomax® products in the second quarter of 2010 which
carried a higher average gross margin during the contractual market
exclusivity period.
Total generic operating expenses of $18.6 million in the second
quarter of 2011 increased $2.8 million over the prior year period
primarily due to higher spending on research and development.
Impax Pharmaceuticals Division Information
(unaudited, amounts in thousands)
Three Months EndedJune
30,
Six Months EndedJune 30,
2011 2010
2011 2010 Revenues: Rx
Partner $ 1,437 $ - $ 2,875 $ - Promotional Partner 3,535 3,500
7,070 7,003 Research Partner 329 110
659 110 Total revenues 5,301 3,610
10,604 7,113 Cost of revenues 2,901 3,293
5,841 6,437 Gross profit
2,400 317 4,763 676
Operating expenses: Research and development 10,512 10,755
20,227 19,629 Selling, general and administrative 1,377
738 2,483 1,547
Total operating expenses 11,889 11,493
22,710 21,176 Loss from operations $
(9,489 ) $ (11,176 ) $ (17,947 ) $ (20,500 )
Impax Pharmaceuticals Division revenues in the second quarter of
2011 increased $1.7 million to $5.3 million over the prior year
period due to the addition of Rx Partner revenues.
In the second quarter of 2011, the Company recognized $1.4
million of Rx Partner revenue related to the $11.5 million up-front
payment (recognized over 24 months) received under the License,
Development and Commercialization Agreement with Glaxo Group
Limited which was entered into in December 2010.
The loss from operations in the second quarter of 2011 is a
result of the Company’s strategy to invest 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.
Corporate and Other
Three Months Ended Six Months Ended
(unaudited, amounts in thousands)
June 30, June 30,
2011 2010 2011 2010
General and administrative expenses $ 11,194 $ 7,592
$ 23,735 $ 15,934 Loss from operations $ (11,194 ) $
(7,592 ) $ (23,735 ) $ (15,934 )
Corporate general and administrative expenses in the second
quarter of 2011 increased $3.6 million compared to the prior year
period primarily due to an increase in legal fees.
Cash and short-term investments were $335.5 million as of June
30, 2011, as compared to $348.4 million as of December 31, 2010.
The decline is primarily due to capital expenditures during the six
month period ended June 30, 2011.
2011 Financial Outlook
The Company updated its full year 2011 financial outlook as
noted below.
- Cash flows from operating activities,
less capital expenditures (Free Cash Flow), planned to be
positive.
- Gross margins as a percent of total
revenues of approximately 50%.
- Total research and development expenses
across the generic and brand divisions to approximate $87 million
with generic R&D of approximately $47 million and brand R&D
of approximately $40 million.
- Patent litigation expenses of
approximately $13 million.
- Selling, general and administrative
expenses of approximately $65 million.
- Updated August 2011 - Effective tax
rate of approximately 34% to 36%.
- Capital expenditures to be
approximately $69 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 (855)
859-2056 (in the U.S.) and (404) 537-3406 (international callers).
The access conference code is 83298478.
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 third-party 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 and results of
operations, the ability to maintain an effective system of internal
control over financial reporting, fluctuations in revenues and
operating income, the ability to successfully develop and
commercialize pharmaceutical products, reductions or loss of
business with any significant customer or a reduction in sales of
any significant product, the impact of competition, the ability to
sustain profitability and positive cash flows, any delays or
unanticipated expenses in connection with the operation of the
Taiwan facility, the effect of foreign economic, political, legal
and other risks on operations abroad, 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,
the ability to successfully conduct clinical trials, reliance on
alliance and collaboration agreements, the availability of raw
materials, the ability to comply with legal and regulatory
requirements governing the pharmaceuticals and healthcare
industries, the regulatory environment, the ability to protect the
Company’s intellectual property, 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 (unaudited, amounts in thousands, except share
and per share data) Three Months Ended
Six Months Ended June 30, June 30,
2011 2010
2011 2010 Revenues:
Global Pharmaceuticals Division $ 120,559 $ 149,472 $ 223,907 $
469,302 Impax Pharmaceuticals Division 5,301
3,610 10,604 7,113 Total
Revenues 125,860 153,082 234,511 476,415 Cost of revenues
66,158 68,892 116,272
148,468 Gross profit 59,702
84,190 118,239 327,947
Operating expenses: Research and development 23,978 21,109 43,469
39,418 Patent litigation 2,209 1,769 3,983 3,753 Selling, general
and administrative 15,509 12,018
32,088 24,504 Total operating expenses
41,696 34,896 79,540
67,675 Income from operations 18,006 49,294 38,699 260,272
Other expense, net (545 ) (25 ) (540 ) (42 ) Interest income 290
192 611 274 Interest expense (11 ) (23 ) (28 )
(70 ) Income before income taxes 17,740 49,438 38,742
260,434 Provision for income taxes 5,214
18,130 12,358 97,613 Net income
before noncontrolling interest 12,526 31,308 26,384 162,821 Add
back loss attributable to
noncontrolling interest
24 40 29 12
Net Income $ 12,550 $ 31,348 $ 26,413 $
162,833 Net Income per share: Basic $ 0.20 $
0.51 $ 0.41 $ 2.65 Diluted $ 0.19 $
0.48 $ 0.39 $ 2.51 Weighted average
common shares outstanding: Basic 64,024,483 61,876,599 63,709,258
61,444,707 Diluted 67,654,047 65,538,805 67,401,018 64,887,770
Impax Laboratories, Inc. Condensed Consolidated Balance
Sheets (unaudited, amounts in thousands)
June 30, December 31, 2011 2010 Assets
Current assets: Cash and cash equivalents $ 138,182 $ 91,796
Short-term investments 197,342 256,605 Accounts receivable, net
121,070 82,054 Inventory, net 46,038 44,549 Deferred product
manufacturing costs 1,371 2,012 Deferred income taxes 40,465 39,271
Prepaid expenses and other current assets 10,060
4,407 Total current assets 554,528 520,694 Property,
plant and equipment, net 111,413 106,280 Deferred product
manufacturing costs 7,900 8,223 Deferred income taxes, net 6,470
5,069 Other assets 35,689 25,478 Goodwill 27,574
27,574 Total assets $ 743,574 $ 693,318 Liabilities and
Stockholders’ Equity Current liabilities: Accounts payable $ 18,484
$ 18,812 Accrued expenses 73,048 72,788 Accrued income taxes
payable - 2,393 Accrued profit sharing and royalty expenses 27,818
14,147 Deferred revenue 23,413 18,276 Total current
liabilities 142,763 126,416 Deferred revenue 27,484
44,195 Other liabilities 17,152 14,558 Total
liabilities 187,399 185,169 Total stockholders’ equity
556,175 508,149 Total liabilities and stockholders’ equity $
743,574 $ 693,318
Impax Laboratories, Inc. Consolidated
Statements of Cash Flows (unaudited, amounts in
thousands) Six Months Ended June 30, 2011
2010 Cash flows from operating activities: Net income
$ 26,413 $ 162,833 Adjustments to reconcile net income to net cash
(used in) provided by operating activities: Depreciation and
amortization 8,338 6,068 Amortization of Credit Agreement deferred
financing costs 13 25 Accretion of interest income on short-term
investments (461 ) (168 ) Deferred income taxes 3,046 7,026
Provision for uncertain tax positions 79 24 Tax benefit related to
the exercise of employee stock options (5,641 ) (4,329 ) Deferred
revenue 1,887 21,764 Deferred product manufacturing costs (1,061 )
(8,791 ) Recognition of deferred revenue (13,461 ) (21,658 )
Amortization deferred product manufacturing costs 2,026 9,425
Accrued profit sharing and royalty expense 44,789 71,902 Payments
of profit sharing and royalty expense (31,121 ) (94,925 ) Payments
of accrued litigation settlements - (5,865 ) Share-based
compensation expense 6,133 5,234 Bad debt expense 125 153 Changes
in assets and liabilities: Accounts receivable (39,141 ) 49,686
Inventory (1,489 ) 6,554 Prepaid expenses and other assets (15,389
) (7,852 ) Accounts payable, accrued expenses and income taxes
payable (2,815 ) 29,151 Other liabilities 2,487
1,859 Net cash (used in) provided by operating
activities (15,243 ) 228,116 Cash flows
from investing activities: Purchase of short-term investments
(180,274 ) (195,450 ) Maturities of short-term investments 239,998
103,551 Purchases of property, plant and equipment (14,569 )
(7,690 ) Net cash provided by (used in) investing activities
45,155 (99,589 ) Cash flows from
financing activities: Tax benefit related to the exercise of
employee stock options 5,641 4,329 Proceeds from exercise of stock
options and ESPP 10,833 12,818 Net cash
provided by financing activities 16,474 17,147
Net increase in cash and cash equivalents 46,386
145,674 Cash and cash equivalents, beginning of period
91,796 31,770 Cash and cash equivalents, end
of period $ 138,182 $ 177,444
Impax Laboratories, Inc.Second
Quarter 2011Non-GAAP Financial Measures
Net income excluding adjusted items, net income per diluted
share excluding adjusted items, and EBITDA excluding adjusted
items, are not measures of financial performance under generally
accepted accounting principles (GAAP) and should not be construed
as substitutes for, or superior to, net income, and net income per
diluted share as a measure of financial performance. However,
management uses both GAAP financial measures and the disclosed
non-GAAP financial measures internally to evaluate and manage the
Company’s operations and to better understand its business.
Further, management believes the inclusion of non-GAAP financial
measures provides meaningful supplementary information to and
facilitates analysis by investors in evaluating the Company’s
financial performance, results of operations and trends. The
Company’s calculation of net income excluding adjusted items, net
income per diluted share excluding adjusted items and EBITDA
excluding adjusted items, may not be comparable to similarly
designated measures reported by other companies, since companies
and investors may differ as to what type of events warrant
adjustment.
The following table reconciles reported net income to net income
excluding adjusted items.
Three months ended Six months ended (Unaudited, in
millions, except per share amounts) June 30, June 30, 2011
2010 2011 2010 Net income $ 12.6 $ 31.3 $ 26.4 $ 162.8
Adjusted to add (deduct): Share-based compensation 3.2 2.4 6.0 5.2
Employee severance - - 0.8 - Income tax effect (0.7 )
(0.9 ) (1.3 ) (2.0 ) Net income excluding adjusted
items $ 15.1 $ 32.8 $ 32.0 $ 166.1
Net income excluding adjusted items per diluted share $ 0.22
$ 0.50 $ 0.45 $ 2.56 Net income per diluted share $ 0.19 $ 0.48 $
0.38 $ 2.51
The following table reconciles reported net income to EBITDA
excluding adjusted items.
Three months ended Six months ended (Unaudited,
amounts in millions) June 30, June 30, 2011 2010 2011
2010 Net income $ 12.6 $ 31.3 $ 26.4 $ 162.8 Adjusted to add
(deduct): Interest income (0.3 ) (0.2 ) (0.6 ) (0.3 ) Interest
expense 0.0 0.0 0.0 0.1 Depreciation and amortization 4.9 3.1 8.3
6.1 Income taxes 5.2 18.1 12.4
97.6 EBITDA 22.4 52.4
46.5 266.3 Adjusted to
add: Share-based compensation 3.2 2.4 6.0 5.2 Severance -
- 0.8 - EBITDA
excluding adjusted items $ 25.6 $ 54.8 $ 53.4
$ 271.5
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