Impax Laboratories, Inc. (NASDAQ:IPXL) today reported significant growth in the first quarter of 2010 due to an increase in sales from its Global product sales channel. Total revenue increased $264.4 million to $323.3 million driven by the successful March 2 exclusive launch of generic Flomax® ($176.2 million of revenue and $167.9 million of gross profit) and continued strong sales of generic Adderall XR® for which there were no comparable amounts in the first quarter 2009, as well as increased sales of the Company's fenofibrate products. Net income increased to $131.5 million, or $2.06 per diluted share, compared to $2.2 million, or $0.04 per diluted share in the prior year period.
Larry Hsu, Ph.D., president and chief executive officer of Impax Laboratories, said: "This has been a truly gratifying quarter as the investments we've been making across our organization are producing dramatic and record-breaking returns. A major contributor to our impressive first quarter was the launch of generic Flomax®, the largest product launch in our history under the Global Pharmaceuticals label. Our efforts to prepare for the launch were well-rewarded as we achieved significant penetration of the market during our eight-week exclusivity period. As anticipated, we do not expect our future sales of generic Flomax® to remain at first quarter 2010 levels as competing generic versions of the product entered the market in late April and are likely to result in both price erosion and reduction of our market share."
Dr. Hsu continued, "The recent increase in cash flow generated from our operations, including our strong generic Flomax® and generic Adderall XR® product sales, will contribute significantly to our ongoing business development activities. We will continue our fundamental investments in internal research and development to take full advantage of our core competency in drug delivery formulation technology, as well as our experience in product development. In addition, we are aggressively looking at generic and brand opportunities to acquire products, technologies or companies with strategic value to create long-term growth opportunities. The range of these strategic opportunities we can consider is expanding as our resources increase significantly and our resolve to complete a transaction that meets our focused objectives remains very high. These are exciting times for Impax as we embark on another chapter in our long-term growth strategy."
First Quarter 2010 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.
First Quarter 2010
Global Pharmaceuticals Division revenues in the first quarter 2010 increased $264.2 million to $319.8 million, driven by a significant increase in Global product net sales, as discussed below.
During the first quarter of 2010, Global product net sales increased $270.0 million to $309.1 million over the same period in 2009 primarily due to strong sales of generic Flomax®, generic Adderall XR®, and to a lesser extent, increased sales of the Company's fenofibrate products. On March 2, 2010, the Company successfully launched generic Flomax® which contributed $176.2 million to first quarter 2010 sales. The Company was the only supplier of generic Flomax® during the period ending April 27, 2010, after which competitors entered the market. Partially offsetting these gains was a $5.8 million decline in Rx Partner revenues primarily attributable to reduced sales of generic Wellbutrin® products as competition continues to erode the Company's market share.
Cost of revenues was $76.4 million for the first quarter 2010, an increase of $53.2 million primarily related to the increase in Global product net sales offset by lower Rx Partner sales.
Gross profit for the first quarter 2010 increased $211.0 million to $243.4 million primarily due to sales of generic Flomax® ($167.9 million in the first quarter 2010), generic Adderall XR® and an increase in fenofibrate sales. Gross profit margin of 76% for the first quarter 2010 increased significantly over the 58% margin for the prior year period primarily due to higher margin sales of generic Flomax® and, to a lesser extent, fenofibrate.
Total research and development expenses for the first quarter 2010 decreased slightly by $0.8 million to $9.4 million, compared to the prior year primarily due to lower spending on biostudies.
Total selling, general and administrative expenses for the first quarter 2010 increased $0.7 million to $3.3 million due to increased customer freight and higher sales force incentive compensation, both related to higher sales levels as noted above.
Generic division income from operations in the first quarter 2010 increased $210.1 million to $228.6 million, compared to $18.5 million in the prior year, due to the increase in sales as noted above.
The Company's generic business development activities are primarily focused on acquiring products/technologies/businesses in complementary dosage forms where the Company's core competency in drug delivery and formulation expertise can be combined to produce above-average growth in high-value products. The Company has a number of opportunities under consideration and has expanded the field of opportunities as the Company's resources have increased. It is not possible to predict when any such transaction will occur, if at all, but these activities are a critical element of the Company's planned growth and management is devoting significant time and attention to these activities.
First Quarter 2010
Promotional Partner revenues in the first quarter 2010 were $3.5 million, a slight increase over the prior year as the Company continues to meet its detailing objectives.
Cost of revenues for the first quarter 2010 were $3.1 million, up 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 first quarter of 2010, research and development increased $3.4 million to $8.9 million, due to planned increased spending on clinical studies and to a lesser extent, staffing costs and incentives associated with the management of these studies and the division.
The Company's planned increase in investment in research and development during the first quarter of 2010 contributed to a brand division loss from operations of $9.3 million compared to a loss from operations of $6.3 million in the first quarter of 2009.
The Company's brand business development activities are focused on (1) obtaining strategic partners for promotion and marketing the Company's products outside the United States and (2) co-development agreements with co-marketing rights where the Company's contribution to the venture is its commercial capabilities in its current markets. The Company has a number of opportunities under consideration and has expanded the field of opportunities as the Company's resources have increased. It is not possible to predict when any such transaction will occur, if at all, but these activities are a critical element of the Company's planned growth and management is devoting significant time and attention to these activities.
Total corporate operating expenses for the first quarter 2010 increased slightly by $0.3 million to $8.3 million.
Cash and Cash Equivalents
Cash and short-term investments was $130.4 million as of March 31, 2010, as compared to $90.4 million as of December 31, 2009. The change in cash and short-term investments from year-end 2009 is due to strong product sales as noted above.
Cash flows from operating activities, before changes in working capital, less capital expenditures (Free Cash Flow) were a positive $112.6 million in the first quarter 2010.
2010 Financial Outlook
The Company previously disclosed its 2010 financial outlook on January 11, 2010. As of May 4, 2010, the Company has updated its full year 2010 forecast as noted below.
- Cash flows from operating activities, before changes in working capital, less capital expenditures (Free Cash Flow), planned to be positive.
- Updated - gross margins as a percent of total revenues to approximate 50% for the balance of the year.
- 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.
- Updated - estimated consolidated effective tax rate of approximately 40% (without renewal in 2010 of the federal R&D tax credit).
- Capital expenditures expected to be approximately $20 million.