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Impax Laboratories Reports Second Quarter 2012 Adjusted EPS Increased To $0.60; GAAP EPS Increased To $0.27

Cash and Short-term Investments

Cash and short-term investments were $354.5 million as of June 30, 2012, as compared to $346.4 million as of December 31, 2011.

2012 Financial Outlook

The Company updated its 2012 financial outlook as noted below.
  • Gross margins as a percent of total revenues of approximately 60%.
  • Total R&D expenses across the generic and brand divisions to approximate $89.0 million with generic R&D of approximately $48.0 million and brand R&D of approximately $41.0 million.
  • UPDATED - Patent litigation expenses of approximately $10.0 to $13.0 million.
  • SG&A expenses of approximately $113.0 million.
  • Effective tax rate of approximately 36%.
  • Capital expenditures of approximately $78.0 million.

Conference Call Information

The Company will host a conference call on July 31, 2012 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, A replay of the conference call will be available shortly after the call for a period of seven days. To access the replay, dial (855) 859-2056 (in the U.S.) and (404) 537-3406 (international callers). The access conference code is 99743725.

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 branded products through the Impax Pharmaceuticals Division. Additionally, where strategically appropriate, Impax has developed marketing partnerships to fully leverage its technology platform. Impax Laboratories is headquartered in Hayward, California, and has a full range of capabilities in its Hayward, Philadelphia and Taiwan facilities. For more information, please visit the Company's Web site at:

" Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995:

To the extent any statements made in this news release contain information that is not historical, these statements are forward-looking in nature and express the beliefs and expectations of management. Such statements are based on current expectations and involve a number of known and unknown risks and uncertainties that could cause the Company’s future results, performance or achievements to differ significantly from the results, performance or achievements expressed or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to, the effect of current economic conditions on the Company’s industry, business, financial position and results of operations, fluctuations in the Company’s revenues and operating income, the Company’s ability to successfully develop and commercialize pharmaceutical products, reductions or loss of business with any significant customer, the impact of consolidation of the Company’s customer base, the impact of competition, the Company’s ability to sustain profitability and positive cash flows, any delays or unanticipated expenses in connection with the operation of the Company’s Taiwan facility, the effect of foreign economic, political, legal and other risks on the Company’s operations abroad, the uncertainty of patent litigation, increased government scrutiny on the Company’s agreements with brand pharmaceutical companies, consumer acceptance and demand for new pharmaceutical products, the difficulty of predicting Food and Drug Administration filings and approvals, the Company’s inexperience in conducting clinical trials and submitting new drug applications, the Company’s ability to successfully conduct clinical trials, the Company’s reliance on third parties to conduct clinical trials and testing, the availability of raw materials and impact of interruptions in the Company’s supply chain, the use of controlled substances in the Company’s products, disruptions or failures in the Company’s information technology systems and network infrastructure, the Company’s reliance on alliance and collaboration agreements, the Company’s dependence on certain employees, the Company’s ability to comply with legal and regulatory requirements governing the healthcare industry, the regulatory environment, the Company’s ability to protect the Company’s intellectual property, exposure to product liability claims, changes in tax regulations, the Company’s ability to manage the Company’s growth, including through potential acquisitions, the restrictions imposed by the Company’s credit facility, uncertainties involved in the preparation of the Company’s financial statements, the Company’s ability to maintain an effective system of internal control over financial reporting, any manufacturing difficulties or delays, the effect of terrorist attacks on the Company’s business, the location of the Company’s manufacturing and research and development facilities near earthquake fault lines and other risks described in the Company’s periodic reports filed with the Securities and Exchange Commission. Forward-looking statements speak only as to the date on which they are made, and Impax undertakes no obligation to update publicly or revise any forward-looking statement, regardless of whether new information becomes available, future developments occur or otherwise.

Impax Laboratories, Inc.
Consolidated Statements of Operations

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

Three Months Ended

June 30,

Six Months Ended

June 30,
2012 2011 2012 2011
Global Pharmaceuticals Division $ 133,068 $ 120,559 $ 256,333 $ 223,907
Impax Pharmaceuticals Division   33,392   5,301   38,695   10,604
Total Revenues 166,460 125,860 295,028 234,511
Cost of revenues   88,637   66,158   154,652   116,272
Gross profit   77,823   59,702   140,376   118,239
Operating expenses:
Research and development 19,869 23,978 38,685 43,469
Patent litigation 2,914 2,209 6,952 3,983
Selling, general and administrative   24,870   15,509   46,103   32,088
Total operating expenses   47,653   41,696   91,740   79,540
Income from operations 30,170 18,006 48,636 38,699
Other expense, net (95) (545) (175) (540)
Interest income 244 290 499 611
Interest expense   (423)   (11)   (462)   (28)
Income before income taxes 29,896 17,740 48,498 38,742
Provision for income taxes   11,262   5,214   17,531   12,358
Net income before noncontrolling interest 18,634 12,526 30,967 26,384
Add back loss attributable to noncontrolling interest   38   24   70   29
Net Income $ 18,672 $ 12,550 $ 31,037 $ 26,413
Net Income per share:
Basic $ 0.29 $ 0.20 $ 0.48 $ 0.41
Diluted $ 0.27 $ 0.19 $ 0.46 $ 0.39
Weighted average common shares outstanding:
Basic 65,482,700 64,024,483 65,289,869 63,709,258
Diluted 67,954,573 67,654,047 68,064,934 67,401,018

Impax Laboratories, Inc.
Condensed Consolidated Balance Sheets

(unaudited, amounts in thousands)
June 30, December 31,
2012 2011
Current assets:
Cash and cash equivalents $ 184,632 $ 104,419
Short-term investments 169,851 241,995
Accounts receivable, net 143,447 153,773
Inventory, net 63,092 54,177
Prepaid expenses and other assets 46,919 7,718
Current portion deferred tax asset   33,993   37,853
Total current assets   641,934   599,935
Property, plant and equipment, net 136,888 118,158
Other assets 90,359 45,942
Intangible assets, net 61,636 2,250
Goodwill   27,574   27,574
Total assets $ 958,391 $ 793,859
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 131,112 $ 93,071
Accrued profit sharing and royalty expenses 32,984 40,766
Accrued product licensing payments 96,000 -
Deferred revenue   12,743   23,024
Total current liabilities   272,839   156,861
Deferred revenue 15,327 17,131
Other liabilities   20,780   16,861
Total liabilities 308,946 $ 190,853
Total stockholders' equity   649,445   603,006
Total liabilities and stockholders' equity $ 958,391 $ 793,859

Impax Laboratories, Inc.
Consolidated Statements of Cash Flows

(unaudited, amounts in thousands)

Six Months Ended

June 30,
2012 2011
Cash flows from operating activities:
Net income $ 31,037 $ 26,413
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization 12,144 8,351
Accretion of interest income on short-term investments (318) (461)
Deferred income taxes (29,486) 3,125
Tax benefit related to the exercise of employee stock options (2,338) (5,641)
Deferred revenue 931 1,887
Deferred product manufacturing costs (1,574) (1,061)
Recognition of deferred revenue (12,320) (13,461)
Amortization of deferred product manufacturing costs 1,709 2,026
Accrued profit sharing and royalty expense 58,445 44,789
Payments of profit sharing and royalty expense (66,226) (31,121)
Share-based compensation expense 8,323 6,133
Bad debt expense - 125
Changes in assets and liabilities:
Accounts receivable 10,326 (39,141)
Inventory (8,915) (1,489)
Prepaid expenses and other assets 36,626 (15,389)
Accounts payable and accrued expenses 37,374 (2,815)
Other liabilities   3,591   2,487
Net cash provided by (used in) operating activities   79,329   (15,243)
Cash flows from investing activities:
Purchase of short-term investments (104,869) (180,274)
Maturities of short-term investments 177,331 239,998
Purchases of property, plant and equipment (24,971) (14,569)
Payment for product licensing rights   (55,000)   -
Net cash provided by (used in) investing activities   (7,509)   45,155
Cash flows from financing activities:
Tax benefit related to the exercise of employee stock options and restricted stock 2,338 5,641
Proceeds from exercise of stock options and ESPP   6,055   10,833
Net cash provided by financing activities   8,393   16,474
Net increase in cash and cash equivalents 80,213 46,386
Cash and cash equivalents, beginning of period   104,419   91,796
Cash and cash equivalents, end of period $ 184,632 $ 138,182

Impax Laboratories, Inc.

Non-GAAP Financial Measures
Total adjusted net income, adjusted net income per diluted share and adjusted EBITDA 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, and net income per diluted share 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 calculation of adjusted net income, adjusted net income per diluted share and adjusted EBITDA, 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.

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

Three months ended

June 30,

Six months ended

June 30,
2012 2011 2012 2011
Net Income $ 18.7 $ 12.6 $ 31.0 $ 26.4
Adjusted to add (deduct):
Gross profit earned on Zomig® Agreement (a) 16.2 - 46.2 -
Amortization and acquisition-related costs (b) 14.3 - 14.3 -
Acquisition related in-process R&D (c) 1.6 - 1.6 -
Employee severance 1.9 - 1.9 0.8
Inventory adjustment - - 3.5 -
Lower of cost or market charge - - 1.7 -
Income tax effect   (11.7)   -   (24.2)   -

Adjusted net Income
$ 41.0 $ 12.6 $ 76.0 $ 27.2
Net Income excluding adjusted items per diluted share $ 0.60 $ 0.19 $ 1.12 $ 0.40
Net Income per diluted share $ 0.27 $ 0.19 $ 0.46 $ 0.39

Impax Laboratories, Inc.

Non-GAAP Financial Measures
The following table reconciles reported net income to adjusted EBITDA.
(Unaudited, amounts in millions)

Three months ended

June 30,

Six months ended

June 30,
2012 2011 2012 2011
Net Income $ 18.7 $ 12.6 $ 31.0 $ 26.4
Adjusted to add (deduct):
Interest income (0.2) (0.3) (0.5) (0.6)
Interest expense 0.4 0.0 0.5 0.0
Depreciation and other 3.9 4.2 7.6 8.4
Income taxes   11.3   5.2   17.5   12.4
EBITDA   34.1   21.7   56.1   46.6
Adjusted to add:
Gross profit earned on Zomig® Agreement (a) 16.2 - 46.2 -
Amortization and acquisition-related costs (b) 14.3 - 14.3 -
Acquisition related in-process R&D (c) 1.6 - 1.6 -
Employee severance 1.9 - 1.9 0.8
Inventory adjustment - - 3.5 -
Lower of cost or market charge - - 1.7 -
Share-based compensation   4.5   3.2   8.3   6.1
Adjusted EBITDA $ 72.6 $ 24.9 $ 133.6 $ 53.5
(a)   On February 1, 2012, the Company announced that it had entered into the AstraZeneca License Agreement. As part of the AstraZeneca License Agreement, AstraZeneca granted to the Company an exclusive license to commercialize the tablet, orally disintegrating and nasal spray formulations of Zomig® (zolmitriptan) products for the treatment of migraine headaches in the United States and in certain U.S. territories. Under the terms of the AstraZeneca License Agreement, the Company agreed to pay AstraZeneca quarterly payments totaling $130.0 million during 2012 of which $30.0 million was paid in the second quarter ($55.0 million for the first six months ended June 30, 2012). During the specified product transition period pursuant to the AstraZeneca License Agreement, the Company will receive the benefit of the gross profit ($16.2 million and $46.2 million for the three months and six months ended June 30, 2012, respectively) from U.S. Zomig® sales by AstraZeneca commencing from January 1, 2012 and ending when the Company commences commercialization of the Zomig® products. The benefit of the gross profit received from AstraZeneca is recorded as a reduction of the $130.0 million to be paid by the Company to AstraZeneca during 2012 and is not reflected within the Company’s income.
(b) Amortization and acquisition-related costs from the February 2012 AstraZeneca License Agreement.
(c) Acquisition related in-process R&D from the June 2012 Development, Distribution and Supply Agreement with TOLMAR, Inc.

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