Impax Laboratories Reports First Quarter 2014 Results

May 1, 2014

FDA Accepts RYTARY™ NDA Resubmission; Sets PDUFA Date of October 9, 2014

HAYWARD, Calif., May 1, 2014 /PRNewswire/ -- Impax Laboratories, Inc. (NASDAQ: IPXL) today reported adjusted net income of $16.5 million, or $0.24 per diluted share for the first quarter ended March 31, 2014, compared to adjusted net income of $25.3 million, or $0.37 per diluted share in the prior year period. On a GAAP basis, the Company recorded net income of $6.4 million, or $0.09 per diluted share for the first quarter 2014, compared to net income of $105.4 million, or $1.55 per diluted share in the prior year period.

Adjusted net income and adjusted earnings per diluted share declined in the first quarter 2014 due to the loss of exclusivity of Zomig® tablet and orally disintegrating tablet (ZMT) products in May 2013. Partially offsetting the decline was an increase in generic revenues due to a favorable product mix and sales from new generic products launched in the second half of 2013 for which there were no comparable amounts in the prior year period. 

GAAP net income and GAAP earnings per diluted share declined in the first quarter 2014 primarily due to the recognition of one-time pre-tax payments in the first quarter 2013 totaling $150.0 million in connection with previously announced settlement and license agreements. Refer to the attached "Non-GAAP Financial Measures" for a reconciliation of GAAP to non-GAAP items.

Total revenues for the first quarter 2014 were $118.7 million, compared to $148.5 million in the prior year period, as the $8.3 million increase in generic Global Product sales, net during the current period were more than offset by a $37.2 million decline in sales of Zomig products as noted above.

"Our generics business is benefitting from recent marketing initiatives, as well as consistent success in commercializing the existing portfolio of products and capitalizing on new product launches," said Fred Wilkinson, president and chief executive officer of Impax Laboratories, Inc. "These events resulted in a $21.7 million increase in sales of our Global labeled products since the fourth quarter of 2013. In addition, we recently launched authorized generic RENVELA® and expect it to be a significant contributor to our 2014 results."

"A few weeks ago we resubmitted the New Drug Application (NDA) for RYTARY. The U.S. Food and Drug Administration (FDA) has accepted the application and set the review date under the Prescription Drug User Fee Act (PDUFA) of October 9, 2014. We remain committed to bringing this new treatment option to patients who are suffering from Parkinson's disease."

"My management team and I will be focused on continuing the plan towards resolving the FDA quality and manufacturing issues in Hayward, while emphasizing the importance of a world class quality organization. We will leverage our resources to ensure we are capitalizing on the strategies related to the brand and generic businesses, and analyze our internal pipeline to identify opportunities for improvement and growth."

"We will be looking to expand our product offerings and portfolio with strategic business development projects by utilizing our financial resources and balance sheet. I am confident we will drive growth and build value for our employees and stockholders." 

Business Segment Information

The Company has two reportable segments, the Global Pharmaceuticals Division (generic products and services) and the Impax Pharmaceuticals Division (brand products and services) and does not allocate general corporate services to either segment. All information presented is on a GAAP basis unless otherwise noted on an adjusted basis.

Global Pharmaceuticals Division Information



Three Months Ended

(unaudited, amounts in thousands)

March 31,


2014


2013

Revenues:




Global Product sales, net

$  106,117


$   97,785

Rx Partner

2,435


3,114

Other revenues

589


737

Total revenues

109,141


101,636

Cost of revenues

57,022


61,444

Gross profit

52,119


40,192

Operating expenses:




Research and development

11,217


11,711

Patent litigation expense

2,173


4,278

Selling, general and administrative

2,383


5,043

Total operating expenses

15,773


21,032

Income from operations

$   36,346


$  19,160





Gross margin

47.8%


39.5%

Adjusted gross profit (1)

$   65,890


$  55,594

Adjusted gross margin (1)

60.4%


54.7%

 

(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 "Non-GAAP Financial Measures" for a reconciliation of GAAP to non-GAAP items.

For the first quarter 2014, Global Product sales, net increased $8.3 million to $106.1 million, compared to $97.8 million in the prior year period. The increase was primarily due to a favorable product mix and sales of new products launched in the second half of 2013 for which there were no comparable amounts in the prior year period.

Gross margin in the first quarter 2014 increased to 47.8%, compared to gross margin of 39.5% in the prior year period. Adjusted gross margin in the first quarter 2014 increased to 60.4%, compared to adjusted gross margin of 54.7% in the prior year period. The increase in gross margin and adjusted gross margin primarily reflects the favorable product mix and new product launches as noted above.

Total Global Pharmaceuticals operating expenses in the first quarter 2014 decreased to $15.8 million, compared to $21.0 million in the prior year period, primarily due to reduced marketing and patent litigation expenses.

Impax Pharmaceuticals Division Information



Three Months Ended

(unaudited, amounts in thousands)

March 31,


2014


2013

Revenues:




Impax Product sales, net

$     9,309


$   46,521

Other revenues

268


332

Total revenues

9,577


46,853

Cost of revenues

4,074


29,174

Gross profit

5,503


17,679

Operating expenses:




Research and development

10,524


7,894

Selling, general and administrative

9,221


12,764

Total operating expenses

19,745


20,658

Loss from operations

$ (14,242)


$  (2,979)





Gross margin

57.5%


37.7%

Adjusted gross profit (1)

$     6,233


$   29,408

Adjusted gross margin (1)

65.1%


62.8%

 

(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 "Non-GAAP Financial Measures" for a reconciliation of GAAP to non-GAAP items.

For the first quarter 2014, Impax Product sales, net decreased $37.2 million to $9.3 million, compared to $46.5 million in the prior year period, due to lower sales of Zomig tablet and ZMT products from the loss of exclusivity as noted above, partially offset by higher sales of Zomig nasal spray which has patents expiring as late as May 2021.

Gross margin in the first quarter 2014 increased to 57.5%, compared to 37.7% in the prior year period, primarily due to significantly lower amortization and acquisition related costs and an inventory reserve charge recorded in the first quarter 2013 for pre-launch inventory related to RYTARY, as a result of the Complete Response Letter received in January 2013. Adjusted gross margin in the first quarter 2014 increased to 65.1%, compared to adjusted gross margin of 62.8% in the prior year period.

Total Impax Pharmaceuticals operating expenses in the first quarter 2014 decreased to $19.7 million, compared to $20.7 million in the prior year period. The decrease is primarily due to lower costs related to the Zomig products and the reduction of the branded sales force during the third quarter 2013. This was partially offset by a payment during the current period of $2.0 million to a development partner under a license agreement.

Corporate and Other


Three Months Ended

(unaudited, amounts in thousands)

March 31,


2014


2013

General and administrative expenses

$    13,873


$    11,910

Loss from operations

$ (13,873)


$ (11,910)

General and administrative expenses in the first quarter 2014 increased to $13.9 million, compared to $11.9 million in the prior year period, primarily due to higher litigation expenses.

Cash and Short-term Investments

Cash, cash equivalents and short-term investments decreased to $390.4 million as of March 31, 2014, compared to $413.1 million as of December 31, 2013, primarily due to a $21.0 million quarterly tax payment during the current year period.

2014 Financial Guidance

Impax Laboratories full year 2014 estimates are based on management's current belief about prescription trends, pricing levels, inventory levels, and the anticipated timing of future product launches and events.

  • Adjusted gross margins as a percent of total revenue are expected to be in the mid 50% range.
  • Total research and development (R&D) expenses across the generic and brand divisions of approximately $82.0 million to $88.0 million; generic R&D expenses of approximately $46.0 million to $49.0 million and brand R&D expenses of approximately $36.0 million to $39.0 million.
  • Patent litigation expenses of approximately $11.0 million to $13.0 million.
  • Selling, general and administrative expenses of approximately $115.0 million to $120.0 million.
  • Capital expenditures of approximately $40.0 million to $45.0 million.  
  • Hayward facility remediation costs of approximately $25.0 million to $30.0 million.   
  • Effective tax rate of approximately 32% to 34% on a GAAP basis, which assumes that the U.S. R&D tax credit is renewed for 2014. The R&D tax credit expired on December 31, 2013. 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 May 1, 2014 at 4:30 p.m. ET 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 25386332. 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: 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 substantial portion of our total revenues derived from sales of a limited number of products; 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 manufacturing facilities; the effect of foreign economic, political, legal, and other risks on the Company's operations abroad; the uncertainty of patent litigation and other legal proceedings; the increased government scrutiny on the Company's agreements with brand pharmaceutical companies; product development risks and the difficulty of predicting FDA filings and approvals; 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 Company's determinations to discontinue the manufacture and distribution of certain products; 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; the Company's lack of a license partner for commercialization of IPX066 outside of the United States; 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 Company's policies regarding returns, allowances and chargebacks; the use of controlled substances in the Company's products; the effect of current economic conditions on our industry, business, results of operations and financial condition; 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 reliance on licenses to proprietary technologies; 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; risks relating to goodwill and intangibles; 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; expansion of social media platforms 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.

Company Contact:                                                 
Mark Donohue
Investor Relations and Corporate Communications 
(215) 558-4526                                                          
www.impaxlabs.com                                               

 

Impax Laboratories, Inc.

Consolidated Statements of Operations

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



Three Months Ended


March 31,


2014


2013

Revenues:




Global Pharmaceuticals Division, net

$  109,141


$  101,636

Impax Pharmaceuticals Division, net

9,577


46,853

Total revenues

118,718


148,489

Cost of revenues

61,096


90,618

Gross profit

57,622


57,871

Operating expenses:




Research and development

21,741


19,605

Patent litigation expense

2,173


4,278

Selling, general and administrative

25,477


29,717

Total operating expenses

49,391


53,600

Income from operations

8,231


4,271

Other income, net

76


149,456

Interest income

388


276

Interest expense

(65)


(283)

Income before income taxes

8,630


153,720

Provision for income taxes

2,205


48,278

Net income

$      6,425


$  105,442





Net income per share:




Basic

$        0.09


$        1.59

Diluted

$        0.09


$        1.55





Weighted average common shares outstanding:




Basic

67,702,296


66,487,470

Diluted

69,938,872


68,178,355

 

 

Impax Laboratories, Inc.

Condensed Consolidated Balance Sheets

(unaudited, amounts in thousands)



March 31,


December 31,


2014


2013

Assets




Current assets:




Cash and cash equivalents

$        129,372


$        184,612

Short-term investments

261,055


228,521

Accounts receivable, net

119,521


112,993

Inventory, net

76,159


70,107

Deferred income taxes

51,333


50,788

Prepaid expenses and other assets

12,003


12,721

Total current assets

649,443


659,742

Property, plant and equipment, net

189,661


188,191

Other assets

91,163


91,746

Intangible assets, net

24,364


29,670

Goodwill

27,574


27,574

Total assets

$       982,205


$        996,923





Liabilities and Stockholders' Equity




Current liabilities:




Accounts payable and accrued expenses

$       109,398


$        138,347

Accrued profit sharing and royalty expenses

10,617


11,560

Deferred revenue

3,200


3,983

Total current liabilities

123,215


153,890

Deferred revenue

4,000


4,267

Other liabilities

29,806


28,563

Total liabilities

157,021


186,720

Total stockholders' equity

825,184


810,203

Total liabilities and stockholders' equity

$       982,205


$        996,923

 

 

Impax Laboratories, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited, amounts in thousands)



Three Months Ended

March 31,


2014


2013

Cash flows from operating activities:




Net income

$      6,425


$  105,442

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




Depreciation and amortization

8,015


12,397

Provision for inventory reserves

1,952


22,810

Intangible asset impairment charges

2,876


-

Charge for licensing agreement

2,000


-

Accretion of interest income on short-term investments

(223)


(158)

Deferred income tax benefit

(2,879)


(2,799)

Tax impact related to the exercise of employee stock options

(920)


3

Recognition of deferred revenue

(1,050)


(1,113)

Accrued profit sharing and royalty expense

10,608


22,541

Payments of profit sharing and royalty expense

(11,537)


(4,925)

Share-based compensation expense

4,386


4,359

Other receivable

-


(102,049)

Changes in assets and liabilities which (used) provided cash

(36,729)


1,937

Net cash (used in) provided by operating activities

(17,076)


58,445

Cash flows from investing activities:




Purchase of short-term investments

(133,754)


(60,515)

Maturities of short-term investments

101,443


65,993

Purchases of property, plant and equipment

(9,782)


(9,361)

Payment for licensing agreement

(2,000)


-

Net cash used in investing activities

(44,093)


(3,883)

Cash flows from financing activities:




Proceeds from exercise of stock options and ESPP

5,977


1,554

Tax impact related to the exercise of employee stock options and restricted stock

920


(3)

Net cash provided by financing activities

6,897


1,551

Effect of exchange rate changes on cash and cash equivalents

(968)


(698)

Net (decrease) increase in cash and cash equivalents

(55,240)


55,415

Cash and cash equivalents, beginning of period

184,612


142,162

Cash and cash equivalents, end of period

$  129,372


$  197,577

 

Impax Laboratories, Inc.
Non-GAAP Financial Measures

Adjusted net income, adjusted net income per diluted share, EBITDA, adjusted cost of revenues and adjusted research and development expenses are not measures of financial performance under generally accepted accounting principles (GAAP) and should not be construed as substitutes for, or superior to, GAAP net income, GAAP net income per diluted share, GAAP cost of revenues and GAAP research and development expenses 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 calculations of adjusted net income, adjusted net income per diluted share, EBITDA, adjusted cost of revenues and adjusted research and development expenses, 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 adjusted net income.


Three months ended

(Unaudited, amounts in thousands, except per share data)

March 31,


2014


2013

Net income

$   6,425


$ 105,442

Adjusted to add (deduct):




Amortization and acquisition-related costs (a)

2,430


7,142

Hayward facility remediation costs (b)

8,517


1,936

Employee severance (c)

678


-

Payments received from litigation settlement (d)

-


(150,049)

Intangible asset impairment charges (e)

2,876


-

Provision for inventory reserve (f)

-


18,053

R&D partner milestone payment (g)

-


2,000

Loss on asset disposal (h)

-


881

Payment for licensing agreement (i)

2,000


-

Income tax effect

(6,445)


39,877

Adjusted net income

$ 16,481


$  25,282





Adjusted net income per diluted share

$     0.24


$      0.37

Net income per diluted share

$     0.09


$      1.55



(a)

Resulting from the June 2012 Development, Supply and Distribution Agreement (Tolmar Agreement) with TOLMAR, Inc. (Tolmar) and the January 2012 AstraZeneca Agreement.

(b)

Remediation costs relating to the Hayward, CA manufacturing facility.

(c)

Included in "Cost of revenues" on the Consolidated Statements of Operations.

(d)

Reflects the receipt of a pre-tax payment of $102.0 million from Endo Health Solutions Inc. in connection with a previously announced settlement and license agreement and $48.0 million from Shire LLC (Shire) 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. Included in "Other income, net" on the Consolidated Statements of Operations.

(e)

In June 2012, the Company entered into the Tolmar Agreement which granted to the Company an exclusive license to commercialize up to 11 generic topical prescription drug products, including nine then currently approved products and two products then pending approval at the FDA, in the United States and its territories. During the first quarter 2014, as a result of a decline in pricing on a currently approved product, the Company revised the projections for the Tolmar product and performed an intangible asset impairment analysis. Based on the results of this analysis, the Company recorded a $2.9 million charge to cost of revenues for the Global Pharmaceuticals Division, which was 100% of the remaining net book value.

(f)

An inventory reserve charge relating to discontinued products, a reserve of pre-launch inventory for RYTARY and other generic products as a result of the delay in the anticipated regulatory approvals.

(g)

The Company recorded a $2.0 million milestone payment under the terms of a research and development partnership agreement. Included in Global Pharmaceuticals Division research and development expense.

(h)

Included in "Other income, net" on the Consolidated Statements of Operations.

(i)

In January 2014, the Company entered into a Development and Commercialization Agreement with DURECT Corporation and paid an upfront fee of $2.0 million. Included in Impax Pharmaceuticals Division research and development expense.

 

The following table reconciles reported net income to adjusted EBITDA.


Three months ended

(Unaudited, amounts in thousands, except per share data)

March 31,


2014


2013

Net income

$   6,425


$ 105,442

Adjusted to add (deduct):




Interest income

(388)


(276)

Interest expense

65


283

Depreciation and other

5,585


5,256

Income taxes

2,205


48,278

EBITDA

13,892


158,983





Adjusted to add (deduct):




Amortization and acquisition-related costs

2,430


7,142

Hayward facility remediation costs

8,517


1,936

Employee severance

678


-

Payments received from litigation settlement

-


(150,049)

Intangible asset impairment charges

2,876


-

Provision for inventory reserve

-


18,053

R&D partner milestone payment

-


2,000

Loss on asset disposal

-


881

Payment for licensing agreement

2,000


-

Share-based compensation

4,386


4,359

Adjusted EBITDA

$   34,779


$   43,305

 

Impax Laboratories, Inc.
Non-GAAP Financial Measures

The following table reconciles total Company reported cost of revenues and research and development expenses, to adjusted cost of revenues, adjusted gross profit, adjusted gross margin and adjusted research and development expenses.


Three months ended

(Unaudited, amounts in thousands)

March 31,


2014


2013

Cost of revenues

$   61,096


$   90,618

Adjusted to deduct:




Amortization and acquisition-related costs

2,430


7,142

Hayward facility remediation costs

8,517


1,936

Employee severance

678


-

Intangible asset impairment charge

2,876


-

Provision for inventory reserve

-


18,053

Adjusted cost of revenues

$   46,595


$   63,487





Adjusted gross profit (1)

$   72,123


$   85,002

Adjusted gross margin (1)

60.8%


57.2%





Research and development expenses

$   21,741


$   19,605

Adjusted to deduct:




Payment for licensing agreement (2)

2,000


-

R&D partner milestone payment (3)

-


2,000

Adjusted research and development expenses

$   19,741


$   17,605





(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.

(2)

Included within the Impax Pharmaceuticals Division reported results.

(3)

Included within the Global Pharmaceuticals Division reported results.

 

Impax Laboratories, Inc.
Non-GAAP Financial Measures

The following tables reconcile the Global Pharmaceuticals Division and the Impax Pharmaceuticals Division reported cost of revenues to adjusted cost of revenues, adjusted gross profit and adjusted gross margin.

Global Pharmaceuticals Division Information



Three months ended

(unaudited, amounts in thousands)

March 31,


2014


2013

Cost of revenues

$   57,022


$   61,444

Adjusted to deduct:




Amortization and acquisition-related costs

1,700


430

Hayward facility remediation costs

8,517


1,936

Employee severance

678


-

Provision for inventory reserve

-


13,036

Intangible asset impairment charge

2,876


-

Adjusted cost of revenues

$   43,251


$   46,042





Adjusted gross profit (1)

$   65,890


$   55,594

Adjusted gross margin (1)

60.4%


54.7%


Impax Pharmaceuticals Division Information



Three months ended

(unaudited, amounts in thousands)

March 31,


2014


2013

Cost of revenues

$     4,074


$   29,174

Adjusted to deduct:




Amortization and acquisition-related costs

730


6,712

Provision for inventory reserve

-


5,017

Adjusted cost of revenues

$     3,344


$   17,445





Adjusted gross profit (1)

$     6,233


$   29,408

Adjusted gross margin (1)

65.1%


62.8%



(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.

 

SOURCE Impax Laboratories, Inc.