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- Increases 2014 Adjusted Gross Margin Guidance -

- Planning to Launch Authorized Generic RENVELA® (Sevelamer Carbonate) in April -

HAYWARD, Calif.--(BUSINESS WIRE)-- Impax Laboratories, Inc. (NASDAQ: IPXL) today reported fourth quarter and full year ended December 31, 2013 results.

For the fourth quarter 2013, the Company recorded an adjusted net loss of $1.6 million, or ($0.02) per diluted share, compared to adjusted net income of $22.8 million, or $0.33 per diluted share in the prior year period. On a GAAP basis, the Company recorded a net loss of $9.6 million or ($0.14) per diluted share for the fourth quarter 2013, compared to net income of $4.8 million, or $0.07 per diluted share in the prior year period.

The adjusted net loss and loss per diluted share in the fourth quarter 2013 was primarily due to lower revenues from the loss of exclusivity of Zomig^® tablet and orally disintegrating tablet (ZMT) products and customer credits resulting primarily from fourth quarter pricing activities on certain generic products. The net loss on a GAAP basis in the fourth quarter 2013 was primarily due to the addition of $8.7 million in remediation costs related to the Hayward facility, compared to $3.2 million in the prior year period. Refer to the attached “Non-GAAP Financial Measures” for a reconciliation of GAAP to non-GAAP items.

Total revenues in the fourth quarter 2013 declined $40.3 million to $100.7 million, compared to $141.1 million in the prior year period. The reduction includes $19.2 million of customer credits recorded in the fourth quarter relating to certain pricing activities. The remaining $20.1 million decline in fourth quarter 2013 revenues is primarily due to lower Zomig tablet and ZMT product sales, partially offset by higher generic product sales as a result of five new products launched in 2013.

“We continue to dedicate significant resources to improve our manufacturing and quality systems and advance our Quality Improvement Program,” said Larry Hsu, Ph.D., president and chief executive officer of Impax Laboratories, Inc. “At the same time, we have successfully commercialized a number of new product opportunities as a result of prior investments in R&D and business development.”

“We are currently planning to begin marketing and selling our allotment of a specified number of bottles of authorized generic RENVELA tablets beginning in mid-April 2014. In addition, we continue to pursue FDA approval of our pending Abbreviated New Drug Applications, including for generic RENVELA, as well as the re-filing of a New Drug Application for RYTARY^TM,” concluded Dr. Hsu.

The Company currently estimates sales of the authorized generic RENVELA allotment to produce gross profit of approximately $50.0 million to $70.0 million in 2014, which corresponds to 7% to 10% of the total 2013 sevelamer HCL and carbonate sales in the U.S.

Full Year 2013

For the full year ended December 31, 2013, adjusted net income was $56.1 million or $0.82 per diluted share, compared to $134.1 million or $1.96 per diluted share for the full year 2012. The decline is primarily due to lower generic and branded product sales in 2013 compared to the prior year period, and the prior year receipt of the gross profit earned from U.S. Zomig sales pursuant to the License Agreement with AstraZeneca UK Limited (AstraZeneca Agreement). For the full year 2013, GAAP net income was $101.3 million or $1.47 per diluted share, compared to $55.9 million or $0.82 per diluted share in 2012. The increase in GAAP net income and earnings per diluted share is primarily due to the receipt of $150.0 million from settlements as noted below.

Total revenues for the full year 2013 were $511.5 million, compared to $581.7 million for the full year 2012. The decrease was primarily driven by lower sales of several generic products due to additional competition and the loss of exclusivity of the Zomig tablet and ZMT products as noted above, partially offset by sales of new generic products launched in 2013, including non-AB rated generic oxymorphone hydrochloride extended-release tablets, authorized generic Trilipix® delayed release capsules, generic Solaraze® Gel and authorized generic Zomig tablet and ZMT products.

Cash and short-term investments increased $114.2 million to $413.1 million as of December 31, 2013, compared to $298.9 million as of December 31, 2012. The increase was primarily due to 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.

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

⁽¹⁾ Adjusted gross profit is calculated as total adjusted revenues less adjusted cost of revenues. For the three months and year ended December 31, 2012, total adjusted revenues exclude the recognition of $9.0 million of previously deferred revenue under the Company’s OTC Partner alliance agreement with Pfizer Inc. (Pfizer). Adjusted gross margin is calculated as adjusted gross profit divided by total adjusted revenues. Refer to the "Non-GAAP Financial Measures" for a reconciliation of GAAP to non-GAAP items.

Fourth Quarter 2013

In the fourth quarter 2013, Global Product sales, net increased to $84.4 million, compared to $79.8 million in the prior year period. The increase was primarily due to sales of new generic products launched throughout 2013, partially offset by customer credits earned as noted above.

Other revenues in the fourth quarter 2013 decreased to $0.7 million, compared to $10.4 million in the prior year period, due to the recognition of $9.0 million in the fourth quarter 2012 of previously deferred revenue under the Company’s OTC Partner alliance agreement with Pfizer.

Gross profit in the fourth quarter 2013 decreased to $26.4 million and gross margin was 30.4%, compared to gross profit of $40.3 million and gross margin of 43.8% in the prior year period. Adjusted gross profit in the fourth quarter 2013 decreased to $36.3 million and adjusted gross margin was 41.8%, compared to adjusted gross profit of $43.5 million and adjusted gross margin of 52.5% in the prior year period. The decrease in gross profit/adjusted gross profit and gross margin/adjusted gross margin primarily reflects the impact of charges incurred in the fourth quarter 2013 as a result of customer credits earned as noted above.

Total Global Pharmaceuticals operating expenses in the fourth quarter 2013 decreased to $18.0 million, compared to $20.6 million in the prior year period due to reduced spending on research and development, partially offset by higher selling, general and administrative expenses.

Full Year 2013

Global Product sales, net decreased to $383.7 million for the full year 2013, compared to $421.9 million in the prior year period. The decrease was primarily due to lower sales of authorized generic Adderall XR and fenofibrate products as a result of additional competition and customer credits earned as noted above, partially offset by new generic products launched throughout 2013.

Rx Partner revenues increased to $11.6 million for the full year 2013, compared to $6.4 million in the prior year period resulting primarily from higher profit share earned under the Strategic Alliance Agreement with Teva Pharmaceuticals Industries, Limited. Rx Partner revenue also included a charge of $2.0 million in the prior year related to the voluntary market withdrawal of a product for which there was no similar charge in the current year.

Other revenues decreased to $3.0 million for the full year 2013, compared to $20.4 million in the prior year period. The decline is primarily due to the recognition of $9.0 million in 2012 of previously deferred revenue under the Pfizer Agreement as noted above, as well as a $6.9 million decrease related to the extension of the revenue recognition period for the Joint Development Agreement with Valeant Pharmaceuticals International, Inc., resulting from the estimated timing of completion of certain research and development activities under the agreement.

Gross profit decreased to $144.5 million and gross margin was 36.3% for the full year 2013, compared to gross profit of $219.3 million and gross margin of 48.9% in the prior year period. The decrease in gross profit and gross margin primarily reflects the decline in generic product sales, an increase of $18.1 million in remediation costs, an intangible asset impairment charge of $13.2 million, an increase of $7.8 million in expenses associated with new product launch delays caused by the warning letter at the Company’s Hayward facility, as well as reduced operating efficiencies due to lower manufacturing production levels at the Hayward facility.

Adjusted gross profit decreased to $201.4 million and gross margin was 50.6% for the full year 2013, compared to adjusted gross profit of $232.9 million and gross margin of 53.0% in the prior year period. The decrease in adjusted gross profit is primarily due to a decline in generic product sales and the impact of charges incurred in the fourth quarter 2013 as a result of customer credits earned and reduced operating efficiencies as noted above.

Total operating expenses for the full year 2013 increased to $75.6 million, compared to $73.8 in the prior year period due to higher patent litigation and selling, general and administrative expenses, partially offset by lower research and development expenses.

Impax Pharmaceuticals Division Information

⁽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.

Fourth Quarter 2013

In the fourth quarter 2013, Impax Product sales, net decreased to $13.5 million, compared to $46.7 million in the prior year period, due to lower U.S. sales of Zomig tablet and ZMT products from the loss of U.S. exclusivity as noted above, partially offset by higher sales of Zomig nasal spray which has U.S. patents expiring as late as May 2021.

Gross profit in the fourth quarter 2013 decreased to $7.8 million, compared to $23.9 million in the prior year period, primarily due to lower sales as noted above. Gross margin in the fourth quarter 2013 increased to 56.7%, compared to 48.6% in the prior year period, primarily due to significantly lower amortization and acquisition related costs incurred in the current period.

Adjusted gross profit in the fourth quarter 2013 was $8.5 million and adjusted gross margin was 62.0%, compared to adjusted gross profit of $47.3 million and adjusted gross margin of 96.1% in the prior year period. The decline in adjusted gross profit and adjusted gross margin was due to lower sales and the payment of royalties to AstraZeneca beginning January 1, 2013 on sales of Zomig products under the terms of the AstraZeneca Agreement.

Total operating expenses in the fourth quarter 2013 decreased to $18.5 million, compared to $24.9 million in the prior year period, primarily due to lower selling, general and administrative expenses.

Full Year 2013

Impax Product sales, net for the full year 2013 decreased to $111.9 million, compared to $118.1 million in the prior year period, due to lower U.S. sales of Zomig tablet and ZMT products as noted above.

Other revenues for the full year 2013 decreased to $1.3 million, compared to $14.9 million in the prior year period. The prior year period included $6.5 million of amortization related to the $11.5 million upfront payment received under the License, Development and Commercialization Agreement with Glaxo Group Limited in December 2010, which was recognized as revenue on a straight-line basis over the 24-month development period that ended December 2012. In addition, the prior year included $7.1 million promotional partner revenues as the Company’s detailing for Pfizer’s product Lyrica^® ended on June 30, 2012.

Gross profit for the full year 2013 decreased to $54.8 million, compared to $63.2 million in the prior year period. The decrease is primarily due to lower costs related to the Zomig products and charges included in the prior year period related to the Company’s branded sales force, for which there were no similar amounts in the current year period. Charges for the branded sales force had been included as a component of cost of revenues in the prior year period as the sales force was engaged in providing co-promotion services to Pfizer under an agreement which ended June 30, 2012. The decrease in 2013 was partially offset by an inventory reserve charge recorded in 2013 for pre-launch inventory related to RYTARY, as a result of the Complete Response Letter received in January 2013. Gross margin for the full year 2013 marginally improved to 48.4%, compared to 47.5% in the prior year period.

Adjusted gross profit for the full year 2013 was $73.8 million and adjusted gross margin was 65.2%, compared to adjusted gross profit of $122.6 million and adjusted gross margin of 92.1% in the prior year period. The decline in adjusted gross profit and adjusted gross margin was primarily due to the payment of royalties to AstraZeneca beginning January 1, 2013 on sales of Zomig products under the terms of the AstraZeneca Agreement, as well as a decline in other revenues as noted above.

Total operating expenses for the full year 2013 increased to $72.4 million, compared to $70.6 million in the prior year period, as higher selling, general and administrative expenses were partially offset by lower research and development expenses.

Corporate and Other

Fourth Quarter 2013

General and administrative expenses in the fourth quarter 2013 increased to $14.0 million, a slight increase compared to $13.7 million in the prior year period.

Full Year 2013

General and administrative expenses for the full year 2013 increased to $57.7 million, compared to $55.2 million in the prior year period, primarily due to executive severance and an increase in personnel expenses, partially offset by lower litigation and outside consulting expenses.

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. The Company updated its estimated adjusted 2014 financial guidance as noted below.

• UPDATED - Adjusted gross margins as a percent of total revenue are expected to be in the mid 50% range, excluding projections of Hayward facility remediation costs (previously low 50% range).
• Total research and development (R&D) expenses across the generic and brand divisions of approximately $82 million to $88 million; generic R&D expenses of approximately $46 million to $49 million and brand R&D expenses of approximately $36 million to $39 million.
• Patent litigation expenses of approximately $11 million to $13 million.
• Selling, general and administrative expenses of approximately $115 million to $120 million.
• Capital expenditures of approximately $40 million to $45 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 February 20, 2014 at 4:30 p.m. EST 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 47654631. 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.

The following table reconciles reported net (loss) income to adjusted EBITDA.

Source: Impax Laboratories, Inc.