Impax Laboratories, Inc. (NASDAQ: IPXL) today reported adjusted net revenue in the third quarter of 2010, excluding the effect of a change in accounting for revenue received under the Company's Strategic Alliance Agreement with Teva, increased $42.6 million to $107.6 million compared to the prior year period, driven by sales of generic Adderall XR® for which there were no sales in the third quarter of 2009, as well as increased sales of the Company's fenofibrate products. Earnings before interest, taxes, depreciation and amortization (EBITDA) for the third quarter of 2010, excluding adjusted items, increased $12.2 million to $27.8 million, compared to $15.6 million in the prior year period. Net income for the third quarter 2010, excluding adjusted items, increased to $15.8 million, or $0.24 per diluted share, compared to $9.0 million, or $0.15 per diluted share, in the prior year period. On a generally accepted accounting principles (GAAP) basis, net revenue in the third quarter of 2010 increased $239.0 million to $304.0 million due to the change in revenue recognition, and net income increased to $75.2 million, or $1.15 per diluted share, compared to $6.7 million, or $0.11 per diluted share in the prior year period.
In July 2010, the Company materially modified its Strategic Alliance Agreement with Teva and applied the revised revenue recognition standards of FASB ASC 605-25 Multiple Element Arrangements. Application of the revised standards resulted in the recognition in the third quarter of 2010 of previously deferred net revenue of $196.4 million that would have been recognized over the remaining life of the Teva agreement under the prior standards. This had the effect of increasing third quarter net revenue by $196.4 million, net income by $61.4 million and net income per diluted share by $0.98. Please refer to the attached information and footnotes on pages 9 and 10 for a further description and reconciliation of adjusted items.
"Our positive third quarter results continued to reflect demand for our generic Adderall XR® and fenofibrate products. However, on-going supply issues of generic Adderall XR® with our supplier Shire Laboratories continued to constrain our ability to fill strong customer demand leading to lower than expected sales and market share. Following numerous attempts to resolve the recent and recurring supply issues, we have initiated litigation alleging breach of contract and other related claims due to Shire's failure to fill our orders for product." said Larry Hsu, Ph.D., president and CEO, Impax Laboratories.
Dr. Hsu continued, "With our strong balance sheet consisting of more than $358 million in cash and short-term investments and no debt, we continue to aggressively pursue generic and brand opportunities to acquire products, technologies or companies with compelling business strategies to drive near and long term growth. We also remain excited with the continued development of our late-stage product IPX066 for Parkinson's disease patients. We recently completed the APEX-PD Phase III study in naïve patients and expect to release the top line results later this year. Enrollment in the ADVANCED-PD Phase III study was completed in late August and we look forward to the completion of this study in early 2011, with data release in the second quarter of 2011. We continue to progress toward filing the new drug application in the fourth quarter of 2011."
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) The following table reflects the impact on the Global Pharmaceuticals Division results due to the change in revenue recognition to the Company's Strategic Alliance Agreement with Teva.
Excluding the change in revenue recognition under the Teva Agreement, Global Pharmaceuticals Division revenues increased $42.2 million to $103.7 million, driven by a significant increase in Global Product sales, net, as discussed below.
During the third quarter of 2010, Global Product sales, net, increased $44.4 million to $91.1 million over the same period in 2009 primarily due to sales of generic Adderall XR® and, to a lesser extent, increased sales of the Company's fenofibrate products. Partially offsetting these gains was a $2.0 million decline in Rx Partner revenue (before the change in revenue recognition) and a $1.2 million decline in Private Label revenue. The decline in Rx Partner revenue is primarily attributable to reduced sales of generic Wellbutrin® products as competition continues to erode the Company's market share, while Private Label product sales declined due to lower demand for the Company's generic loratadine/PSE products.
Excluding the change in revenue recognition, gross profit increased $22.5 million to $58.8 million primarily due to sales of generic Adderall XR® and an increase in fenofibrate sales. Adjusted gross profit margin of 57% for the third quarter 2010 declined from the 59% margin for the prior year period due to the slightly higher concentration of lower-margin products.
Research and development expenses for the third quarter of 2010 increased $3.9 million to $12.8 million, compared to the prior year primarily due to higher spending on bioequivalency studies, active pharmaceutical ingredients and compensation expenses.
Selling, general and administrative expenses for the third quarter of 2010 increased $1.6 million to $4.1 million due to increased marketing expenses, sales incentives and customer freight, all related to higher sales levels as noted above.
Excluding the change in revenue recognition, Global Pharmaceuticals Division income from operations in the third quarter of 2010 increased $22.9 million to $40.9 million, compared to $17.7 million in the prior year, due to the increase in sales as noted above.
Impax Pharmaceuticals Division Information
Impax Pharmaceuticals Division revenues in the third quarter of 2010 were $3.9 million, a slight increase over the prior year due primarily to the addition of Research Partner revenue related to a Development and Co-Promotion Agreement with Endo Pharmaceuticals which was entered into in June 2010.
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 third quarter of 2010, research and development expense increased $4.7 million to $11.0 million, primarily due to planned increased spending on clinical studies for the Company's leading drug candidate for Parkinson's disease.
The Company's planned increase in investment in research and development during the third quarter of 2010 contributed to an Impax Pharmaceuticals Division loss from operations of $10.9 million compared to a loss from operations of $6.6 million in the third quarter of 2009.
Corporate and Other Information
Total corporate operating expenses for the third quarter of 2010 increased $1.1 million to $7.6 million, due to increased compensation, higher insurance costs related to increasing levels of business activity and an increase in systems implementation expenses.
Cash and Short-Term Investments
Cash and short-term investments were $358.4 million as of September 30, 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 year to date product sales.
2010 Financial Outlook
The Company previously updated its full year 2010 forecast on August 3, 2010. The Company provides this further update to its full year 2010 forecast.
- Cash flows from operating activities, before changes in working capital, less capital expenditures (Free Cash Flow), planned to be positive.
- Updated May 2010 - gross margins as a percent of total revenues to approximate 50% for the balance of the year.
- Updated November 2010 - Total research and development expenses across the generic and brand divisions to approximate $85 million with generic R&D to approximate $43 million (an increase of $2 million due to increased purchases of active pharmaceutical ingredients) and brand R&D to approximate $42 million.
- Updated November 2010 - Patent litigation expenses of approximately $8 million (a decrease of approximately $3 million due to delayed spending on litigation).
- Selling, general and administrative expenses of approximately $50 million.
- Updated May 2010 - 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.