Impax Laboratories announces record net income of $0.61 per diluted share for fourth-quarter 2009

Impax Laboratories, Inc. (NASDAQ: IPXL) today reported its strongest financial results in its history due to record sales from its Global products sales channel.

Fourth-Quarter Highlights

  • Total revenue increased to $176.1 million, up $131.4 million over the prior year period
  • Net income increased to $38.1 million, or $0.61 per diluted share, compared to $9.0 million, or $0.15 per diluted share in the prior year
  • Excluding special items impacting comparability from the prior year period, net income increased to $42.7 million, or $0.69 per diluted share, compared to a loss of $4.6 million, or a loss of $0.08 per diluted share in the prior year

Full Year Highlights

  • Total revenue increased to $358.4 million, up $148.3 million over the prior year period
  • Net income increased to $50.1 million, or $0.82 per diluted share, compared to $16.0 million, or $0.26 per diluted share in the prior year
  • Excluding special items impacting comparability from the prior year period, net income increased to $55.9 million, or $0.91 per diluted share, compared to $1.9 million or $0.03 per diluted share in the prior year

Please refer to the attached information and footnotes on pages 10 and 11 for a more detailed description of special items.

Larry Hsu, Ph.D., president and chief executive officer of Impax Laboratories, said: “We are delighted with our record-breaking financial results. Our fourth quarter and full year 2009 results demonstrate our ability to capitalize on the significant investments we continue to make in research and development. The solid customer relationships we have developed were beneficial in producing strong sales from our fenofibrate products and the October 1 launch of generic Adderall XR®. Certain market disruptions caused by product supply shortages in the fourth quarter may have benefited sales of our Global Pharmaceutical Division’s generic Adderall XR® product, therefore fourth quarter sales may not be indicative of any future periods.”

Dr. Hsu continued, “In 2010, we will continue to focus on capturing every market opportunity from those products, as well as our expected launch of generic Flomax® (March 2) and several other products in our pipeline. We expect to invest $77 million for research and development in 2010, focusing on high-value ANDAs and the development of IPX066, our primary brand product for Parkinson’s disease. We believe these internally funded investments being made today will position us to continue to capitalize on current and future opportunities, producing above-average returns in the years ahead.”

Fourth Quarter and Full Year 2009 Segment Information

The Company has two reportable segments, the Global Pharmaceuticals Division (generic products) and the Impax Pharmaceuticals Division (brand products) and does not allocate general corporate services to either segment.

Global Pharmaceuticals Division Information

(a) Rx Partner revenue for the twelve months ended December 31, 2008 includes $40.8 million from sales of generic OxyContin® which ended in January 2008 pursuant to a litigation settlement agreement, in connection with which there was no revenue from sales of generic OxyContin® in 2009.

(b) Gross profit and income from operations for the twelve months ended December 31, 2008 includes $38.7 million from the sale of generic OxyContin® as noted in footnote (a).

Fourth Quarter 2009

Global Pharmaceuticals Division revenues in the fourth quarter 2009 increased $131.2 million to $172.7 million, driven by a significant increase in net Global product sales, as discussed below.

During the fourth quarter of 2009, net Global product sales increased $137.0 million to $163.9 million over the same period in 2008 primarily due to sales of generic Adderall XR®, and to a lesser extent, increased sales of our fenofibrate products. Research Partner revenues increased $2.4 million to $3.3 million resulting from a joint development agreement entered into during the fourth quarter 2008. Partially offsetting these gains were a $6.0 million decline in Rx Partner revenues primarily attributable to reduced sales of generic Wellbutrin XL® 300mg and a $1.6 million decline in OTC Partner revenues, primarily attributable to the cessation of the Company’s obligation to supply Schering-Plough with product effective December 31, 2008.

Cost of revenues was $85.9 million for the fourth quarter 2009, an increase of $63.3 million primarily related to the increase in net Global product sales offset by lower Rx Partner sales.

Gross profit for the fourth quarter 2009 increased $67.9 million to $86.8 million primarily due to sales of generic Adderall XR® and an increase in fenofibrate sales. Gross profit margin of 50% for the fourth quarter 2009 increased almost 500 basis points over the 45% margin for the prior year period primarily due to increased sales of generic Adderall XR® and higher-margined fenofibrate.

Total research and development expenses for the fourth quarter 2009 decreased $1.2 million to $9.9 million, compared to the prior year primarily due to lower spending on biostudies.

Total selling, general and administrative expenses for the fourth quarter 2009 increased $1.1 million to $3.3 million primarily due to higher expenses associated with a higher level of business development activities.

Generic division income from operations in the fourth quarter 2009 increased $68.4 million to $72.2 million, compared to $3.9 million in the prior year, primarily due to higher sales as noted above.

Full Year 2009

For the full year 2009, total revenue increased $147.8 million to $345.0 million, primarily due to an increase in net Global product sales, as discussed below.

Net Global product sales increased $191.1 million to $287.1 million primarily due to sales of generic Adderall XR®, and to a lesser extent, increased sales of our fenofibrate products. Private label revenues increased $2.9 million to $5.5 million primarily due to sales of loratadine/pseudoephedrine, the generic version of Claritin® D 24-hour, as a result of a new supply agreement. Research Partner revenues increased $10.8 million to $11.7 million resulting from twelve months revenue recognition in 2009 as compared to one month in 2008 of the $40 million upfront payment received in December 2008 and the pro rata revenue recognition of an aggregate $12 million from three milestone payments received during 2009 under a joint development agreement entered into during the fourth quarter 2008. Partially offsetting these revenue gains were a $47.9 million decline in Rx Partner revenues primarily attributable to the loss of revenue related to the cessation of sales of generic OxyContin® ($40.8 million in 2008) and reduced sales of generic Wellbutrin XL® 300mg, and a $9.1 million decline in OTC Partner revenues, primarily attributable to the cessation of the Company’s obligation to supply Schering-Plough with product effective December 31, 2008.

Cost of revenues for the full year 2009 was $158.3 million, an increase of $77.5 million primarily related to the increase in net Global product sales.

Gross profit for the full year 2009 increased $70.2 million to $186.7 million or approximately 54% of total revenues, compared to $116.5, or 59% of total revenue in the prior year. The 500 basis point reduction in gross margin is primarily due to the absence of high-margin OxyContin® sales in 2009.

Total research and development expenses for the full year 2009 decreased $4.2 million to $38.7 million, compared to the prior year primarily due to lower spending on biostudies and legal fees related to patent expenses.

Patent litigation expense decreased $1.1 million to $5.4 million due to lower overall charges related to ongoing patent litigation matters.

Total selling, general and administrative expenses for the full year 2009 decreased approximately $0.6 million primarily due to a charge for severance expenses in the prior year, partially offset by increased professional fees.

Global Pharmaceuticals Division income from operations for the full year 2009 increased $76.1 million to $131.7 million, compared to $55.6 million in the prior year, primarily due to higher sales and the other factors noted above.

Impax Pharmaceuticals Division Information

Fourth Quarter 2009

Promotional Partner revenues in the fourth quarter 2009 increased 9% to $3.4 million. The change from the prior year period is primarily the result of the commencement of physician detailing services under the co-promotion agreement with Wyeth on July 1, 2009 and the high level of such details made in the fourth quarter of 2009, while the promotional services agreement with Shire ended on June 30, 2009.

Cost of revenues for the fourth quarter 2009 were $2.8 million, down slightly from the prior year.

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 fourth quarter 2009, research and development increased $1.8 million to $6.6 million, due to planned increased spending on clinical studies and additional research personnel.

The Company’s planned increase in investment in research and development during the fourth quarter 2009 contributed to a brand division loss from operations of $6.9 million compared to a loss from operations of $5.3 million in the fourth quarter of 2008.

Full Year 2009

For the full year 2009, Promotional Partner revenues increased 4.3% to $13.4 million from the prior year primarily due to the reason noted above. Cost of revenues increased 7.1% to $12.0 million from the prior year due to higher detailing sales force expenses. Total research and development expenses increased 51% or $8.3 million from the prior year due to planned spending on clinical studies and additional research personnel. Selling, general and administrative expenses increased 30% or $0.8 million primarily due to the addition of executive personnel.

Other Operating Information

Litigation settlement expenses were $7.6 million and $9.3 million for the fourth quarter and full year 2009, respectively. In January 2010, the Company entered into an agreement to settle a lawsuit related to its formerly marketed Lipram UL products and reimburse the plaintiff for litigation costs. The litigation settlement expenses for the fourth quarter and full year 2009 also include legal and other professional fees incurred by the Company in its defense against the lawsuit.

General and administrative expenses for the fourth quarter 2009 declined 34% to $5.6 million, primarily attributable to decreased 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 October 2008 filing with the SEC of the Company’s Registration Statement on Form 10.

For the full year 2009, general and administrative expenses declined 26% to $25.4 million primarily due to lower professional fees related to the aforementioned examination and review of the Company’s financial statements and lower management consulting fees.

Interest income for the full year 2009 declined $3.5 million to $0.8 million due to lower overall interest rates and lower average cash and short-term investment balances.

Interest expense for the full year 2009 declined $4.5 million to $0.2 million due to reduced amounts of average debt outstanding, resulting from the Company’s June 2009 repurchase of its 3.5% Debentures and its August 2009 repayment-in-full of a subordinated promissory note.

Cash and Cash Equivalents

Cash and short-term investments, net of interest-bearing debt, was $90.4 million as of December 31, 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 repurchase of $12.75 million principal amount of its outstanding 3.5% Debentures, and the funding of increased working capital, including increased accounts receivable and inventory balances.

Cash flow from operating activities was approximately a positive $89.1 million before changes in certain working capital assets and liabilities.

2010 Financial Outlook

The Company previously disclosed its 2010 financial outlook on January 11, 2010. For 2010, the Company is currently forecasting:

  • Cash flows from operating activities, before changes in working capital, less capital expenditures (Free Cash Flow), planned to be positive.
  • Gross margins as a percent of total revenues to approximate 50%.
  • Total research and development expenses across the generic and brand divisions to approximate $77 million with generic R&D to approximate $41 million and brand R&D to approximate $36 million.
  • Patent litigation expenses of approximately $11 million.
  • Selling, general and administrative expenses of approximately $50 million.
  • Tax rate expected to be in the low 40% range (assumes the R&D tax credit is renewed for 2010).
  • Capital expenditures are expected to be approximately $20 million.

SOURCE Impax Laboratories, Inc.

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