Impax Laboratories Continues Trend of Solid Growth in Revenue, Profit and Earnings for the Third Quarter 2009

November 3, 2009 7:30 AM EST

HAYWARD, Calif.--(BUSINESS WIRE)-- Impax Laboratories, Inc. (NASDAQ: IPXL) today reported strong growth in revenue, net income and earnings per diluted share in the third quarter 2009. Net income increased to $6.7 million, up $17.2 million compared to a net loss of $10.5 million in the prior year period. Net Income per diluted share increased to $0.11, up $0.29 per share, compared to a loss of $0.18 per diluted share in the prior year period.

Total revenue for the third quarter 2009 increased 77% to $64.9 million, compared to the prior year period, due primarily to strong sales of the Company's Global label products. Gross profit increased to 57% of total revenue, compared to 39% of total revenue in the prior year period. The strong growth in revenue and gross profit resulted in an increase of $28.3 million in income from operations to $10.2 million, compared to a loss from operations of $18.1 million in the prior year period.

Larry Hsu, Ph.D., president and chief executive officer of Impax Laboratories, said: "We continue to successfully execute our strategic plan as we produced another solid quarter of financial performance in our base generic business and further development of our brand products. Our strong third quarter and year-to-date financial results reflect our ability to capitalize on existing product opportunities. In addition, the research and development investments we are making in creating high-value opportunities continue to pay dividends as shown by our October 1 launch of generic versions of Adderall XR(R). These investments will further increase our portfolio as we are on track to achieve our 2009 ANDA submission goal of 8 to 10 new applications."

Dr. Hsu continued, "We also remain pleased with the development of our brand products. During the third quarter, our brand business reported positive results from our completed Phase II trial of our late-stage Parkinson's Disease drug candidate IPX066. In April 2009, based on encouraging interim data, we began enrolling patients in the Phase III trial in levodopa naive Parkinson's disease patients in North America and Europe. In October, ahead of schedule, we commenced a second Phase III trial in patients with advanced Parkinson's Disease. The positive developments confirm our belief that the investments we are making in our brand division will further enhance our long-term growth prospects."

Third Quarter 2009 Segment Information

The Company has two reportable segments, the Global Pharmaceuticals Division (generic products) and the Impax Pharmaceuticals Division (brand products).

Global Pharmaceuticals Division Information

(unaudited,                                          Nine Months Ended September
amounts in         Three Months Ended September 30,  30,
thousands)

                   2009      2008                    2009       2008

Revenues:                    (as adjusted)                      (as adjusted)

Global product     $ 46,636  $ 20,080                $ 123,144  $ 69,044
sales, net

Private Label        1,752     629                     5,269      1,747

Rx Partner (a)       8,328     9,424                   30,183     72,099

OTC Partner          1,769     3,398                   5,255      12,739

Research Partner     2,962     -                       8,406      -

Other                -         5                       11         19

Total Revenues       61,447    33,536                  172,268    155,648

Cost of revenues     25,098    19,296                  72,339     58,046

Gross profit (b)     36,349    14,240                  99,929     97,602

Operating
expenses:

Research and         8,909     12,253                  28,761     31,745
development

Patent litigation    1,647     1,876                   4,058      4,827

Selling, general
and                  2,561     4,357                   7,628      9,276
administrative

Total operating      13,117    18,486                  40,447     45,848
expenses

Income (loss)
from operations    $ 23,232    ($4,246 )             $ 59,482   $ 51,754
(b)

(a) Rx Partner revenue for the nine months ended September 30, 2008 includes
$40.8 million from sales of generic OxyContin(R) which ended in January 2008
pursuant to a litigation settlement agreement, for which there was no amount in
2009.

(b) Gross profit and income from operations for the nine months ended September
30, 2008 includes $38.7 million from the sale of generic OxyContin(R) as noted
above.

Global Pharmaceuticals Division revenues in the third quarter 2009 increased $27.9 million to $61.4 million, due primarily to an increase in net Global product sales.

Net Global product sales increased 132% to $46.6 million, an increase of $26.6 million over the same period in 2008 primarily due to sales of fenofibrate products. Private label product sales increased 179% to $1.8 million primarily due to sales of generic loratadine/pseudoephedrine, the generic version of Claritin(R) D 24-hour, as a result of a new supply agreement. Rx Partner revenues were $8.3 million, down 12%, primarily attributable to reduced sales of generic Wellbutrin(R) XL 300mg. OTC Partner revenues decreased 48% to $1.8 million, primarily attributable to the expiration of the Company's contract to supply Schering-Plough with product effective December 31, 2008. Research Partner revenues were $3.0 million resulting from a Joint Development Agreement entered into during the fourth quarter of 2008.

Cost of revenues was $25.1 million for the third quarter 2009, an increase of 30% primarily related to the higher sales of Global products.

Gross profit for the third quarter 2009 increased $22.1 million to $36.3 million primarily due to an increase in margins on fenofibrate sales. Gross profit margin of 59% for the third quarter 2009 increased significantly over the 42% for the prior year period.

Total research and development expenses for the third quarter 2009 decreased $3.3 million to $8.9 million, compared to the prior year period primarily due to lower spending on bio-studies, bio-analytical expenses and active pharmaceutical ingredient used in research activities.

Total selling, general and administrative expenses for the third quarter 2009 decreased $1.8 million to $2.6 million primarily due to executive level severance paid out in the prior year period, in addition to prior period strategic management consulting and business development related activities.

Generic division income from operations in the third quarter 2009 increased $27.5 million to $23.2 million, compared to a loss in the prior year period, due primarily to higher sales as noted above.

Impax Pharmaceuticals Division Information

(unaudited,     Three Months Ended September
amounts in      30,                           Nine Months Ended September 30,
thousands)

                2009         2008             2009          2008

                             (as adjusted)                  (as adjusted)

Promotional     $ 3,499      $ 3,238          $ 10,007      $ 9,728
Partner

Cost of           2,957        3,000            9,250         8,332
revenues

Gross profit      542          238              757           1,396

Operating
expenses:

Research and      6,334        3,935            17,983        11,530
development

Selling,
general and       761          538              2,528         1,879
administrative

Total
operating         7,095        4,473            20,511        13,409
expenses

Loss from         ($6,553 )    ($4,235 )        ($19,754 )    ($12,013 )
operations

Promotional Partner revenues in the third quarter 2009 increased 8% to $3.5 million. The change from the prior year period is primarily the result of the commencement of physician detailing services under our Co-Promotion Agreement with Wyeth on July 1, 2009, while the Promotional Services Agreement with Shire ended on June 30, 2009.

Cost of revenues for the third quarter 2009 were $3.0 million, down slightly from the prior year period.

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 third quarter 2009, R&D increased $2.4 million to $6.3 million, due to planned increased spending on clinical studies and additional research personnel.

The Company's planned increase in investment in R&D during the third quarter 2009 contributed to a brand division loss from operations of $6.6 million compared to a loss from operations of $4.2 million in the third quarter of 2008.

Other Operating Information

Corporate general and administrative expenses for the third quarter 2009 declined 32% to $6.5 million, primarily attributable to a decrease in professional fees related to the examination and review of the Company's financial statements in conjunction with the financial statements for the years 2004 through 2007 and the resulting filing with the SEC of the Company's Registration Statement on Form 10. Also contributing to the decline was the adjustment of accrued settlement-related charges in conjunction with the repayment of a subordinated promissory note, and lower employment-related expenses.

Cash and short-term investments, net of interest-bearing debt, was $100.5 million as of September 30, 2009, as compared to $99.6 million as of December 31, 2008. The change in cash and short-term investments, net from year-end 2008, included the Company's June 15, 2009 repayment, at the option of the holders, of the $12.75 million remaining outstanding balance of the Company's 3.5% Debentures, offset by changes in working capital assets and liabilities, including the collection of accounts receivable balances and payments of accounts payable during the nine months ended September 30, 2009.

Cash flow from operating activities was approximately a positive $3.6 million before changes in certain working capital assets and liabilities.

2009 Financial Outlook

The Company previously disclosed its 2009 financial outlook on February 26, 2009. As of November 3, 2009, the Company has updated its full year 2009 forecast as noted below.

    --  Positive cash flows from operating activities before changes in working
        capital assets and liabilities for the third consecutive year.
    --  Gross margins as a percent of total revenues to approximate 50%.
    --  Total research and development expenses across the generic and brand
        divisions to approximate $64 million with $40 million and $24 million
        allocated to generic and brand R&D, respectively.
    --  Patent litigation expenses of approximately $6 to $7 million (previously
        $10 million).
    --  Selling, general and administrative expenses of approximately $44
        million (previously $39 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 35901562.

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 is headquartered in Hayward, California, and has a full range of capabilities in its Hayward and Philadelphia 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; ability to timely file periodic reports required by the Exchange Act; ability to maintain an effective system of internal control over financial reporting; ability to sustain profitability and positive cash flows; ability to maintain sufficient capital to fund operations; any delays or unanticipated expenses in connection with the construction of our Taiwan facility; ability to successfully develop and commercialize pharmaceutical products; the uncertainty of patent litigation; consumer acceptance and demand for new pharmaceutical products; the impact of competitive products and pricing; the difficulty of predicting Food and Drug Administration filings and approvals; inexperience in conducting clinical trials and submitting new drug applications; reliance on key alliance agreements; the availability of raw materials; the regulatory environment; exposure to product liability claims; fluctuations in operating results and other risks described in our 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        Three Months Ended              Nine Months Ended
thousands,
except share and  September 30,                   September 30,
per share data)

                  2009            2008            2009            2008

Revenues:                         (as adjusted)                   (as adjusted)

Global
Pharmaceuticals   $ 61,447        $ 33,536        $ 172,268       $ 155,648
Division (a)

Impax
Pharmaceuticals     3,499           3,238           10,007          9,728
Division

Total Revenues      64,946          36,774          182,275         165,376

Cost of revenues    28,055          22,296          81,589          66,378

Gross profit (b)    36,891          14,478          100,686         98,998

Operating
expenses:

Research and        15,243          16,188          46,744          43,275
development

Patent              1,647           1,876           4,058           4,827
litigation

Selling, general
and                 9,838           14,542          31,600          37,047
administrative

Total operating     26,728          32,606          82,402          85,149
expenses

Income (loss)       10,163          (18,128    )    18,284          13,849
from operations

Change in fair
value of common     -               -               -               59
stock purchase
warrants

Other income        22              (4         )    105             36
(expense), net

Interest income     180             723             636             3,282

Interest expense    (185       )    (971       )    (735       )    (4,447     )

Income (loss)
before income       10,180          (18,380    )    18,290          12,779
taxes

Provision
(benefit) for       3,495           (7,850     )    6,373           5,761
income taxes

Net Income        $ 6,685           ($10,530   )  $ 11,917        $ 7,018
(loss) (c)

Net Income
(loss) per
share:

Basic             $ 0.11            ($0.18     )  $ 0.20          $ 0.12

Diluted           $ 0.11            ($0.18     )  $ 0.20          $ 0.12

Weighted average
common shares
outstanding:

Basic               60,559,064      59,166,319      60,130,608      58,993,633

Diluted             61,247,700      59,166,319      60,667,227      60,813,707

(a) Global Pharmaceuticals Division revenue for the nine months ended September
30, 2008 includes $40.8 million from sales of generic OxyContin(R) which ended
in January 2008 pursuant to a litigation settlement agreement, for which there
was no amount in 2009.

(b) Gross profit for the nine months ended September 30, 2008 includes $38.7
million from the sale of generic OxyContin(R) as noted above.

(c) Net income from operations for the nine months ended September 30, 2008
includes $21.2 million from the sale of generic OxyContin(R) as noted above.

Impax Laboratories, Inc.

Condensed Consolidated Balance Sheets

(amounts in thousands)                             September 30,  December 31,

                                                   2009           2008

                                                   (unaudited)    (as adjusted)

ASSETS

Current assets:

Cash and cash equivalents                          $ 47,577       $ 69,275

Short-term investments                               52,950         50,710

Accounts receivable, net                             61,543         43,306

Inventory, net                                       38,911         32,305

Current portion of deferred product manufacturing    14,750         13,578
costs-alliance agreements

Current portion of deferred income taxes             18,611         17,900

Prepaid expenses and other current assets            2,654          9,298

Total current assets                                 236,996        236,372

Property, plant and equipment, net                   96,457         95,629

Deferred product manufacturing costs-alliance        93,075         93,144
agreements

Deferred income taxes, net                           61,270         52,551

Other assets                                         14,521         9,017

Goodwill                                             27,574         27,574

Total assets                                       $ 529,893      $ 514,287

Liabilities and Stockholders Equity

Current liabilities

Current portion of long-term debt, net               -            $ 14,416

Accounts payable                                     13,245         12,797

Accrued expenses                                     55,799         41,360

Current portion of deferred revenue-alliance         39,925         35,015
agreements

Current portion of accrued exclusivity period fee    -              6,000
payments due

Total current liabilities                            108,969        109,588

Long-term debt                                       -              5,990

Deferred revenue-alliance agreements                 223,439        225,804

Other liabilities                                    16,739         13,255

Total liabilities                                    349,147        354,637

Stockholders equity                                  180,746        159,650

Total liabilities and stockholders equity          $ 529,893      $ 514,287

Impax Laboratories, Inc.

Consolidated Statement of Cash Flows

(unaudited, amounts in thousands)                Nine Months Ended September 30,

                                                 2009          2008

Cash flows from operating activities:                          (as adjusted)

Net income                                       $ 11,917      $ 7,018

Adjustments to reconcile net income to net cash
(used in) provided by operating activities:

Depreciation                                       7,806         6,791

Amortization of 3.5% Debentures discount and       296           1,946
deferred financing costs

Amortization of Wachovia Credit Agreement          50            287
deferred financing costs

Bad debt expense                                   131           278

Deferred income taxes (benefit)                    (9,430   )    1,997

Provision for uncertain tax positions              695           -

Loss, net of repurchase of 3.5% Debentures         -             114

Deferred revenue - Rx Partners                     34,601        82,774

Deferred product manufacturing costs - Rx          (19,053  )    (25,405   )
Partners

Deferred revenue recognized - Rx Partners          (30,183  )    (72,099   )

Amortization deferred product manufacturing        15,044        17,153
costs - Rx Partners

Deferred revenue - OTC Partners                    1,787         13,901

Deferred product manufacturing costs - OTC         (1,800   )    (13,760   )
Partners

Deferred revenue recognized - OTC Partners         (5,255   )    (12,739   )

Amortization deferred product manufacturing        4,706         12,059
costs - OTC Partners

Deferred revenue - Research Partners               10.000        -

Deferred revenue recognized - Research Partners    (8,406   )    -

Payments on exclusivity period fee                 (6,000   )    (9,000    )

Payments on accrued litigation settlements         (8,037   )    (1,648    )

Share-based compensation expense                   5,179         4,458

Fair value of shares issued under severance        -             561
agreement

Accretion of interest income on short-term         (424     )    (2,160    )
investments

Change in fair value of stock purchase warrants    -             (59       )

Changes in assets and liabilities:

Accounts receivable                                (18,368  )    13,379

Inventory                                          (6,606   )    (3,060    )

Prepaid expenses and other assets                  1,351         (6,102    )

Accounts payable and accrued expenses              14,892        753

Other liabilities                                  2,740         3,051

Net cash (used in) provided by operating           ($2,367  )  $ 20,448
activities

Cash flows from investing activities:

Purchase of short-term investments                 ($49,563 )    ($195,218 )

Maturities of short-term investments               47,748        248,143

Purchases of property, plant and equipment         (8,405   )    (20,873   )

Net cash (used in) provided by investing           ($10,220 )  $ 32,052
activities

Cash flows from financing activities:

Repayment of long-term debt                        ($12,887 )    ($65,198  )

Proceeds from exercise of stock options and        3,776         1,079
purchases under the ESPP

Net cash used in financing activities              ($9,111  )    ($64,119  )

Net decrease in cash and cash equivalents          ($21,698 )    ($11,579  )

Cash and cash equivalents, beginning of period   $ 69,275      $ 37,462

Cash and cash equivalents, end of period         $ 47,577      $ 25,883

Impax Laboratories, Inc.

Presentation of Deferred Revenue and Deferred Product Manufacturing Cost
Data

The following table summarizes the additions to and deductions from deferred
revenue and deferred product manufacturing costs under the Company's Teva,
DAVA, OTC, Medicis and Putney, Inc. alliance agreements. This information is
used to explain the changes in the respective balance sheet accounts of
deferred revenue-alliance agreements and deferred product manufacturing
costs-alliance agreements. The table sets forth the amount of revenue
deferred in each period as well as the amount recognized in the period under
the Company's modified proportional performance method of revenue
recognition for revenue earned under the Teva, DAVA, and OTC alliance
agreements and straight line revenue recognition for the Medicis alliance
agreement. The summarized information for the nine months ended September
30, 2009 is derived from the corresponding tables for each of these separate
alliance agreements set forth in the Alliance Agreement footnote to the
Company's unaudited interim consolidated financial statements for the nine
months ended September 30, 2009.

                                       Nine Months         Inception

                                       Ended               Through

                                       September 30, 2009  December 31, 2008

                                       (unaudited)         (unaudited)

Deferred revenue:

Beginning balance                      $ 260,819           $ ---

Deferrals                                46,388              638,342

Less amounts recognized                  (43,843 )           (377,523 )

Ending deferred revenue                $ 263,364           $ 260,819

Deferred product manufacturing costs:

Beginning balance                      $ 106,722           $ ---

Deferrals                                20,853              256,461

Less amounts amortized                   (19,750 )           (149,739 )

Ending deferred product manufacturing  $ 107,825           $ 106,722
costs

Note to the Financial Table Information Contained in this September 30, 2009 Earnings Release

As required, the Company adopted Financial Accounting Standards Board Accounting Standards Codification Topic 470, discussing the accounting for convertible debt instruments which may be settled in cash upon conversion, was applied on a retrospective basis, with the restatement of all reporting periods beginning January 1, 2007. The 2008 financial results reported in the tables within this press release are "as adjusted".

    Source: Impax Laboratories, Inc.

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