Impax Laboratories Reports Third Quarter 2012 Results

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

2011

2012

2011

Revenues:

Global Product sales, net

$

99,463

$

97,661

$

342,105

$

301,124

Rx Partner

(792

)

12,621

4,652

20,169

OTC Partner

763

879

2,237

4,006

Research Partner

996

3,385

7,765

13,154

Total revenues

100,430

114,546

356,759

338,453

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 development

12,392

11,487

35,190

34,728

Patent litigation (recovery) expense

(371

)

2,114

6,581

6,097

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

2011

2012

2011

Revenues:

Impax Product sales, net

$

43,327

$

-

$

71,422

$

-

Rx Partner

1,500

1,438

4,375

4,313

Research Partner

330

330

989

989

Promotional Partner

-

3,535

7,070

10,605

Total revenues

45,157

5,303

83,856

15,907

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 development

7,620

7,352

23,507

27,580

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

2011

2012

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.

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

2011

2012

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 revenues

145,587

119,849

440,615

354,360

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 development

20,012

18,839

58,697

62,308

Patent litigation (recovery) expense

(371

)

2,114

6,581

6,097

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 operations

29,459

25,383

78,095

64,082

Other income (expense), net

46

69

(129

)

(470

)

Interest income

272

268

771

879

Interest expense

(145

)