Impax Laboratories Reports Second Quarter 2013 Results

Impax Laboratories Reports Second Quarter 2013 Results

HAYWARD, Calif.--(BUSINESS WIRE)-- Impax Laboratories, Inc. today reported second quarter 2013 adjusted earnings per diluted share of $0.23, compared to adjusted earnings of $0.61 for the same quarter of 2012. On a GAAP basis, earnings per diluted share for the second quarter 2013 were $0.08, compared to $0.27 in the prior year period. The current quarter decline was primarily the result of additional generic competition on the Company's authorized generic Adderall XR® products and its fenofibrate products, as well as the loss of exclusivity in mid-May 2013 for branded Zomig® tablet products which provided higher profits in the prior year period compared to the current quarter. Refer to the attached "Non-GAAP Financial Measures" for a reconciliation of GAAP to non-GAAP items.

For the second quarter 2013, total revenues were $129.6 million, compared to $166.5 million in the prior year period.


"We were able to offset some of the revenue decline by successfully capturing sales and segment share with our non-AB rated oxymorphone hydrochloride extended-release products during our 180-day exclusivity period that expired in early July of this year," said Larry Hsu, Ph.D., president and CEO, Impax Laboratories, Inc. "However, until we are able to close out the warning letter at our Hayward facility, we expect continued delays in receiving approval for a number of products pending at the FDA that could drive future growth. The absence of new product approvals, combined with additional generic competition and significant segment erosion of Zomig's two largest dosage forms, will likely result in operating losses in the second half of this year."

"We continue to implement quality improvements across our facilities and remain committed to resolving all observations in the most recent Form 483 and exceeding current Good Manufacturing Practices. With a generic pipeline of 44 products pending approval at the FDA and our pending New Drug Application for RYTARYTM, as well as significant financial resources available for strategic external opportunities, I remain optimistic about the future of Impax," concluded Dr. Hsu.

Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA), was $36.2 million in the second quarter 2013, compared to $73.6 million in the prior year period.

Cash and short-term investments increased $153.5 million to $452.4 million as of June 30, 2013, compared to $298.9 million as of December 31, 2012. The increase was primarily due to the receipt of a one-time pre-tax payment of $102.0 million from Endo Pharmaceuticals in connection with a previously announced settlement and license agreement, and $48.0 million from Shire LLC in connection with the settlement of litigation relating to supply of authorized generic Adderall XR products to the Company under the terms of the License and Supply Agreement with Shire.

Business 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. All information presented is on a GAAP basis unless otherwise noted as on an adjusted basis.

Global Pharmaceuticals Division Information

Three Months Ended

Six Months Ended

(unaudited, amounts in thousands)

June 30,

June 30,

2013

2012

2013

2012

Revenues:

Global Product sales, net

$

89,758

$

126,435

$

187,563

$

242,642

Rx Partner

3,668

2,466

6,781

5,444

Other revenues

539

4,167

1,258

8,247

Total revenues

93,965

133,068

195,602

256,333

Cost of revenues

54,727

70,478

116,171

133,584

Gross profit

39,238

62,590

79,431

122,749

Operating expenses:

Research and development

9,291

12,146

21,002

22,819

Patent litigation

4,304

2,914

8,582

6,952

Selling, general and administrative

3,882

3,262

8,926

7,579

Total operating expenses

17,477

18,322

38,510

37,350

Income from operations

$

21,761

$

44,268

$

40,921

$

85,399

Gross margin

41.8%

47.0%

40.6%

47.9%

Adjusted gross profit (1)

$

46,641

$

63,597

$

102,235

$

129,977

Adjusted gross margin (1)

49.6%

47.8%

52.3%

50.7%

(1)

Adjusted gross profit is calculated as total revenues less adjusted cost of revenues. Adjusted gross margin is calculated as adjusted gross profit divided by total revenues. Refer to the attached "Non-GAAP Financial Measures" for a reconciliation of GAAP to non-GAAP items.

In the second quarter 2013, Global Product sales, net, were $89.8 million, compared to $126.4 million in the prior year period. The decline was primarily due to lower sales of authorized generic Adderall XR products and generic fenofibrate products as a result of additional competition, partially offset by the January 2013 launch of the Company's non-AB rated generic oxymorphone hydrochloride extended-release tablets.

Other revenues in the second quarter 2013 were $0.5 million, compared to $4.2 million in the prior year period. The decline is primarily the result of the extension of the revenue recognition period for the Joint Development Agreement with Valeant Pharmaceuticals International, Inc. (formerly Medicis Pharmaceutical Corporation) from November 2013 to December 2014 due to changes in the estimated timing of completion of certain research and development activities.

Gross profit in the second quarter 2013 was $39.2 million and gross margin was 41.8%, compared to gross profit of $62.6 million and gross margin of 47.0% in the prior year period. The decrease in gross profit is due to lower sales of Global Products, as noted above, as well as an increase in remediation costs related to the Hayward facility and the inclusion of employee severance charges from the Company's June 2013 workforce reduction. Adjusted gross profit in the second quarter 2013 was $46.6 million and adjusted gross margin was 49.6%. For the second quarter 2012, adjusted gross profit was $63.6 million and adjusted gross margin was 47.8%. The increase in adjusted gross margin is primarily due to the higher margin sales of oxymorphone tablets during the exclusivity period which expired in early July 2013 for which there was no comparable amount in the prior year period.

Total Global Pharmaceuticals operating expenses in the second quarter 2013 decreased to $17.5 million, compared to $18.3 million in the prior year period, primarily due to lower research and development expenses, partially offset by higher patent litigation expenses.

Impax Pharmaceuticals Division Information

Three Months Ended

Six Months Ended

(unaudited, amounts in thousands)

June 30,

June 30,

2013

2012

2013

2012

Revenues:

Impax Product sales, net

$

35,334

$

28,091

$

81,855

$

28,091

Other revenues

332

5,301

663

10,604

Total revenues

35,666

33,392

82,518

38,695

Cost of revenues

16,017

18,159

45,190

21,068

Gross profit

19,649

15,233

37,328

17,627

Operating expenses:

Research and development

6,249

7,723

14,143

15,866

Selling, general and administrative

11,836

6,707

24,599

9,768

Total operating expenses

18,085

14,430

38,742

25,634

Income (loss) from operations

$

1,564

$

803

$

(1,414)

$

(8,007)

Gross margin

55.1%

45.6%

45.2%

45.6%

Adjusted gross profit (1)

$

25,444

$

29,560

$

54,852

$

31,954

Adjusted gross margin (1)

71.3%

88.5%

66.5%

82.6%

(1)

Adjusted gross profit is calculated as total revenues less adjusted cost of revenues. Adjusted gross margin is calculated as adjusted gross profit divided by total revenues. Refer to the attached "Non-GAAP Financial Measures" for a reconciliation of GAAP to non-GAAP items.

In the second quarter 2013, Impax Product sales, net, increased $7.2 million to $35.3 million, compared to $28.1 million in the prior year period due to higher U.S. sales of Zomig. The U.S. exclusivity on Zomig tablets and orally disintegrating tablets expired on May 14, 2013. These two dosage forms represented approximately 85% of the Company's second quarter 2013 sales of Zomig products. Following the loss of exclusivity, several generic competitors launched products that have significantly impacted sales of these two dosage forms. The Company launched an authorized generic version of both products upon loss of exclusivity. Impax Pharmaceuticals continues to commercialize the Zomig nasal spray which has U.S. patents expiring as late as May 2021.

Other revenues in the second quarter 2013 declined to $0.3 million, compared to $5.3 million in the prior year period. This decrease was due to a $3.5 million decline in promotional partner revenues as the Company's detailing for Pfizer's product Lyrica® ended on June 30, 2012 and a $1.4 million decline related to the December 31, 2012 completion of the 24 month amortization period of the $11.5 million up-front payment received under the License, Development and Commercialization Agreement with Glaxo Group Limited.

Gross profit in the second quarter 2013 increased to $19.6 million, compared to $15.2 million in the prior year period. Gross margin in the second quarter 2013 increased to 55.1%, compared to 45.6% in the prior year period. The increase in gross profit and gross margin in the second quarter 2013 was primarily the result of a decrease in cost of revenues related to charges for the Company's branded products sales force that were incurred during the prior year period, for which there were no similar amounts included in cost of revenues in the current year period, as well as the commencement of sales of Impax-labeled Zomig products during 2012. Charges for the branded products sales force had been included as a component of cost of revenues in the prior year period (as of July 1, 2012, a component of selling, general and administrative expenses) as the sales force was previously engaged in providing co-promotion services to Pfizer as noted above. Adjusted gross profit in the second quarter 2013 decreased to $25.4 million and gross margin was 71.3%, compared to adjusted gross profit of $29.6 million and gross margin of 88.5% in the prior year period. The decline in adjusted gross profit and gross margin is due to the payment of royalties to AstraZeneca beginning January 1, 2013, on branded sales of Zomig under the terms of the AstraZeneca Agreement.

Total Impax Pharmaceuticals operating expenses in the second quarter 2013 increased to $18.1 million, compared to $14.4 million in the prior year period, primarily due to the expansion of the sales and marketing group during the third and fourth quarters of 2012 to support the previously anticipated launch of RYTARYTM, partially offset by lower research and development expenses.

Corporate and Other

Three Months Ended

Six Months Ended

(unaudited, amounts in thousands)

June 30,

June 30,

2013

2012

2013

2012

General and administrative expenses

$

17,557

$

14,901

$

29,468

$

28,756

Loss from operations

$

(17,557

)

$

(14,901

)

$

(29,468

)

$

(28,756

)

General and administrative expenses in the second quarter 2013 increased to $17.6 million, compared to $14.9 million in the prior year period. The increase is primarily due to higher employee severance costs of $5.4 million in the second quarter 2013 compared to $1.9 million in the prior year period, partially offset by lower corporate legal fees. Excluding the severance charges, adjusted general and administrative expenses in the second quarter 2013 decreased to $12.2 million, compared to $13.0 million in the prior year period due to lower corporate legal fees.

2013 Financial Guidance

Impax's estimates are based on the actual results for the first six months ended June 30, 2013, and management's current belief about prescription trends, pricing levels, inventory levels and the anticipated timing of future product launches and events. The Company updated its estimated adjusted 2013 financial guidance as noted below.

  • UPDATED - Gross margins as a percent of total revenues is expected to be in the mid to upper 40% range (previously mid 40% range).

  • UPDATED - Total R&D expenses across the generic and brand divisions of approximately $80.0 million to $87.0 million (previously $87.0 million to $95.0 million); generic R&D expenses of approximately $45.0 million to $49.0 million (previously $49.0 million to $53.0 million) and brand R&D expenses of approximately $35.0 million to $38.0 million (previously $38.0 million to $42.0 million).

  • UPDATED - Patent litigation expenses of approximately $12.0 million to $15.0 million (previously $10.0 million to $12.0 million).

  • UPDATED - SG&A expenses of approximately $113.0 million to $118.0 million (previously $115.0 million to $120.0 million).

  • Amortization expense of approximately $14.0 million. Approximate 2013 quarterly impact on cost of goods sold: first quarter $7.0 million, second quarter $5.0 million, third quarter $1.0 million and fourth quarter $1.0 million.

  • Effective tax rate of approximately 32% to 34% on a GAAP basis. The Company anticipates that its non-GAAP effective tax rate may experience volatility as the Company's tax benefits may be high compared to the Company's operating income or loss.

Conference Call Information

The Company will host a conference call on August 8, 2013 at 4:30 p.m. EDT to discuss its results. The call can also be accessed via a live Webcast through the Investor Relations section of the Company's Web site, www.impaxlabs.com. The number to call from within the United States is (877) 356-3814 and (706) 758-0033 internationally. The conference ID is 16817849. 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).

About Impax Laboratories, Inc.

Impax Laboratories, Inc. (Impax) 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 central nervous system disorder 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 develops marketing partnerships to fully leverage its technology platform and pursues partnership opportunities that offer alternative dosage form technologies, such as injectables, nasal sprays, inhalers, patches, creams and ointments. 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 revenues and operating income, the Company's ability to promptly correct the issues raised in the warning letter and Form 483 observations received from the FDA, the Company's ability to successfully develop and commercialize pharmaceutical products in a timely manner, 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, the increased government scrutiny on the Company's agreements with brand pharmaceutical companies, consumer acceptance and demand for new pharmaceutical products, the impact of market perceptions of the Company and the safety and quality of the Company's products, the difficulty of predicting FDA filings and approvals, the Company's ability to achieve returns on its investments in research and development activities, 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, impact of illegal distribution and sale by third parties of counterfeits or stolen products, 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 its intellectual property, exposure to product liability claims, changes in tax regulations, the Company's ability to manage 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, 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 the Company 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,

2013

2012

2013

2012

Revenues:

Global Pharmaceuticals Division

$

93,965

$

133,068

$

195,602

$

256,333

Impax Pharmaceuticals Division

35,666

33,392

82,518

38,695

Total revenues

129,631

166,460

278,120

295,028

Cost of revenues

70,744

88,637

161,361

154,652

Gross profit

58,887

77,823

116,759

140,376

Operating expenses:

Research and development

15,540

19,869

35,145

38,685

Patent litigation

4,304

2,914

8,582

6,952

Selling, general and administrative

33,275

24,870

62,993