Impax Laboratories Reports Third Quarter 2012 Results

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Impax Laboratories Reports Third Quarter 2012 Results

Adjusted EPS Increased to $0.48; GAAP EPS Increased to $0.29

HAYWARD, Calif.--(BUSINESS WIRE)-- Impax Laboratories, Inc. today reported third quarter 2012 financial results.

  • Adjusted net income increased $15.3 million to $32.5 million in the third quarter 2012, or $0.48 per diluted share, compared to $17.2 million, or $0.26 per diluted share, in the prior year period. This increase was primarily driven by United States (U.S.) sales of Zomig® which was licensed from AstraZeneca pursuant to the previously disclosed January 2012 License Agreement. Adjusted results exclude acquisition-related costs, as well as other items noted below.
  • GAAP net income increased $2.8 million to $20.0 million in the third quarter 2012, or $0.29 per diluted share, compared to $17.2 million, or $0.26 per diluted share, in the prior year period.
  • Total revenues increased 21% to $145.6 million in the third quarter 2012, compared to $119.8 million in the prior year period, primarily due to U.S. sales of Zomig®. Partially offsetting this increase were lower generic Rx Partner and Research Partner revenues, as well as the completion in June 2012 of a three-year brand product promotional agreement for which there was no revenue recognized in the third quarter 2012 compared to the prior year period.
  • Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA), increased to $56.6 million in the third quarter 2012, compared to $32.5 million in the prior year period.

Adjusted results exclude amortization and acquisition-related costs related to recent third-party business development transactions, the receipt of reimbursed costs pursuant to the settlement of litigation and expenses associated with the voluntary withdrawal of a generic product from the market. Please refer to "Non-GAAP Financial Measures" below for a reconciliation of GAAP to non-GAAP items.

"Our U.S. promotional efforts of Zomig® exceeded our expectations in the third quarter and support our brand commercial organization as we continue to prepare for the potential launch of RytaryTM," said Larry Hsu, Ph.D., president and CEO, Impax Laboratories, Inc. "The success of our brand business is an important element to the future growth of the Company."

"A few weeks ago, the U.S. Food and Drug Administration (FDA) notified us that Rytary'sTM New Drug Application review date would be extended three months to January 21, 2013. We continue to have dialogue with the FDA on both this application and the resolution of the Hayward warning letter. We expect that upon the resolution of the warning letter, we should begin to see approvals for generic products in backlog and will look to commercialize these opportunities assuming the market dynamics remain attractive. In the meantime, we continue to explore investment opportunities that can deliver growth and progress the Company towards its long term generic and brand division goals," Dr. Hsu concluded.

Segment Information

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

   Three Months Ended   Nine Months Ended

(unaudited, amounts in thousands)

September 30,September 30,
2012  20112012  2011
Revenues:
Global Product sales, net$99,463$97,661$342,105$301,124
Rx Partner(792)12,6214,65220,169
OTC Partner7638792,2374,006
Research Partner 996  3,385 7,765 13,154
Total revenues100,430114,546356,759338,453
Cost of revenues 44,106  54,196 177,690 164,627
Gross profit 56,324  60,350 179,069 173,826
Operating expenses:
Research and development12,39211,48735,19034,728
Patent litigation (recovery) expense(371)2,1146,5816,097
Selling, general and administrative 3,790  3,694 11,482 8,892
Total operating expenses 15,811  17,295 53,253 49,717
Income from operations$40,513 $43,055$125,816$124,109
 

Global Pharmaceuticals Division revenues in the third quarter 2012 were $100.4 million, compared to $114.5 million in the prior year period, primarily due to lower Rx Partner and Research Partner revenues.

For the third quarter 2012, Rx Partner revenues declined $13.4 million, as the Company realized a $7.4 million profit share adjustment in the third quarter 2011 from Teva Pharmaceuticals Industries Limited ("Teva") for which there was no comparable amount in the third quarter 2012. Also contributing to the decline in the third quarter 2012 Rx revenues were lower sales of our generic products through our Strategic Alliance Agreement with Teva and an estimated $2.0 million charge for the voluntary withdrawal of bupropion XL 300 mg from the market.

Research Partner revenues in the third quarter 2012 declined $2.4 million to $1.0 million, compared to the prior year period of $3.4 million, due to the extension of the revenue recognition period for the Joint Development Agreement with Medicis Pharmaceutical Corporation (the "Medicis Agreement"). During the third quarter 2012, the Company extended the estimated performance period from the previous recognition period ending November 2012 to November 2013 due to changes in the estimated timing of completion of certain research and development activities.

Gross profit in the third quarter 2012 was $56.3 million, compared to $60.4 million in the prior year period. The decline in gross profit was due to the third quarter 2011 receipt of $7.4 million in profit share adjustment from Teva for which there was no comparable amount in the third quarter 2012, as well as the change in the estimated performance period for the Medicis Agreement. Partially offsetting the third quarter 2012 decrease in gross profit was a reduction in the royalty rate paid on sales of our authorized generic Adderall XR® products as a result of additional generic competition and increased sales of higher margin products. Gross margin in the third quarter 2012 increased to 56%, compared to 53% in the prior year period, due to the reduction in the royalty rate and increased sales of higher margin products as noted above.

Total generic operating expenses in the third quarter 2012 decreased $1.5 million to $15.8 million, compared to the prior year period of $17.3 million, due to lower patent litigation expenses resulting from the receipt of $5.0 million for reimbursement of legal fees received pursuant to the settlement of litigation. The increase in patent litigation expense before the $5.0 million reimbursement was the result of legal activity related to several Abbreviated New Drug Application cases.

Impax Pharmaceuticals Division Information

   Three Months Ended   Nine Months Ended

(unaudited, amounts in thousands)

September 30,September 30,
2012  20112012  2011
Revenues:
Impax Product sales, net$43,327$-$71,422$-
Rx Partner1,5001,4384,3754,313
Research Partner330330989989
Promotional Partner - 3,535  7,070  10,605 
Total revenues45,1575,30383,85615,907
Cost of revenues 23,454 2,999  44,522  8,840 
Gross profit 21,703 2,304  39,334  7,067 
Operating expenses:
Research and development7,6207,35223,50727,580
Selling, general and administrative 12,498 1,632  22,266  4,116 
Total operating expenses 20,118 8,984  45,773  31,696 
Income (loss) from operations$1,585$(6,680)$(6,439)$(24,629)
 

Impax Pharmaceuticals Division revenues in the third quarter 2012 increased $39.9 million to $45.2 million, compared to the prior year period of $5.3 million, due to U.S. sales of Zomig® pursuant to the AstraZeneca License Agreement for which there was no comparable amount in the prior year period. This increase was partially offset by a $3.5 million decline in Promotional Partner revenues as the Company's detailing for Pfizer's product Lyrica® pursuant to the Co-Promotion Agreement ended on June 30, 2012.

Gross profit of $21.7 million increased $19.4 million in the third quarter 2012, due to U.S. Zomig® sales, compared to the prior year period of $2.3 million. Gross margin in the third quarter 2012 increased to 48%, compared to 43% in the prior year period. The third quarter 2012 gross margin was, however, negatively impacted by the inclusion of $21.6 million in cost of revenues for amortization and acquisition-related costs due to the Zomig® transaction.

Total brand operating expenses in the third quarter 2012 increased $11.1 million to $20.1 million, compared to the prior year period of $9.0 million, due to higher selling, general and administration expenses resulting from Zomig® marketing costs, the expansion of the Company's neurology focused sales force and pre-launch planning costs for RytaryTM.

Corporate and Other

   Three Months Ended   Nine Months Ended

(unaudited, amounts in thousands)

September 30,September 30,
2012  20112012  2011
General and administrative expenses$12,639 $10,992 $41,282 $35,398 
Loss from operations$(12,639)$(10,992)$(41,282)$(35,398)
 

General and administrative expenses in the third quarter 2012 increased $1.6 million to $12.6 million, compared to the prior year period of $11.0 million, primarily due to increased consulting and personnel expenses.

Cash and Short-term Investments

Cash and short-term investments were $339.7 million as of September 30, 2012, compared to $346.4 million as of December 31, 2011.

2012 Financial Outlook

The Company updated its 2012 financial outlook as noted below.

Expense guidance:

  • UPDATED - Total R&D expenses across the generic and brand divisions to approximate $86.0 million with generic R&D of approximately $48.0 million and brand R&D of approximately $38.0 million.
  • UPDATED - Patent litigation expenses of approximately $13.0 million. In the third quarter 2012, the Company received a $5.0 million patent litigation settlement reimbursement.
  • SG&A expenses of approximately $113.0 million.

Other outlook items:

  • Gross margins as a percent of total revenues of approximately 60%.
  • UPDATED - Effective tax rate of approximately 35%.
  • Capital expenditures of approximately $78.0 million.

Revenue:

  • With the recent additional competition on fenofibrate capsules and generic Adderall XR®, the Company expects its total revenues for the fourth quarter of 2012 to decline by approximately 15% to 20% from the third quarter of 2012.

Conference Call Information

The Company will host a conference call on October 30, 2012 at 12:00 p.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 39759746.

About Impax Laboratories, Inc.

Impax Laboratories, Inc. (NAS: IPXL) 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 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, fluctuations in the Company's revenues and operating income, the Company's ability to successfully develop and commercialize pharmaceutical products, reductions or loss of business with any significant customer, the impact of consolidation of the Company's customer base, the impact of competition, the Company's ability to sustain profitability and positive cash flows, any delays or unanticipated expenses in connection with the operation of the Company's Taiwan facility, the effect of foreign economic, political, legal and other risks on the Company's operations abroad, the uncertainty of patent litigation, increased government scrutiny on the Company's agreements with brand pharmaceutical companies, consumer acceptance and demand for new pharmaceutical products, the difficulty of predicting Food and Drug Administration filings and approvals, the Company's inexperience in conducting clinical trials and submitting new drug applications, the Company's ability to successfully conduct clinical trials, the Company's reliance on third parties to conduct clinical trials and testing, the availability of raw materials and impact of interruptions in the Company's supply chain, the use of controlled substances in the Company's products, disruptions or failures in the Company's information technology systems and network infrastructure, the Company's reliance on alliance and collaboration agreements, the Company's dependence on certain employees, the Company's ability to comply with legal and regulatory requirements governing the healthcare industry, the regulatory environment, the Company's ability to protect the Company's intellectual property, exposure to product liability claims, changes in tax regulations, the Company's ability to manage the Company's growth, including through potential acquisitions, the restrictions imposed by the Company's credit facility, uncertainties involved in the preparation of the Company's financial statements, the Company's ability to maintain an effective system of internal control over financial reporting, any manufacturing difficulties or delays, the effect of terrorist attacks on the Company's business, the location of the Company's manufacturing and research and development facilities near earthquake fault lines 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.

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Impax Laboratories, Inc.

Consolidated Statements of Operations

(unaudited, amounts in thousands, except share and per share data)

 
   Three Months Ended  Nine Months Ended
September 30,September 30,
2012  20112012  2011
Revenues:
Global Pharmaceuticals Division$100,430$114,546$356,759$338,453
Impax Pharmaceuticals Division 45,157  5,303  83,856  15,907 
Total revenues145,587119,849440,615354,360
 
Cost of revenues 67,560  57,195  222,212  173,467 
Gross profit 78,027  62,654  218,403  180,893 
Operating expenses:
Research and development20,01218,83958,69762,308
Patent litigation (recovery) expense(371)2,1146,5816,097
Selling, general and administrative 28,927  16,318  75,030  48,406 
Total operating expenses 48,568  37,271  140,308  116,811 
Income from operations29,45925,38378,09564,082
Other income (expense), net4669(129)(470)
Interest income272268771879
Interest expense (145)