UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K
 
CURRENT REPORT

Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported): February 25, 2013
 
Impax Laboratories, Inc.	
(Exact name of registrant as specified in its charter)	
 
Delaware	001-34263	65-0403311	
(State or other jurisdiction
of incorporation)	(Commission
File Number)	(IRS Employer
Identification No.)	
 
30831 Huntwood Avenue, Hayward, CA	94544	
(Address of principal executive offices)	(Zip Code)	
 
Registrant’s telephone number, including area code:	(510) 240-6000	
 
Not Applicable	
(Former name or former address, if changed since last report)	

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)	
		
☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)	
		
☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))	

☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))	

 

 
Item 2.02	Results of Operations and Financial Condition.	

On February 25, 2013, Impax Laboratories, Inc. issued a press release announcing its results for the fourth quarter and the fiscal year ended December 31, 2012. A copy of the press release is attached hereto as Exhibit 99.1 and incorporated by reference herein.

The information in this report furnished pursuant to Item 2.02, including Exhibit 99.1 attached hereto, shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section. It may only be incorporated by reference in another filing under the Exchange Act or the Securities Act of 1933, as amended, if such subsequent filing specifically references the information furnished pursuant to Item 2.02 of this report.
 
Item 9.01     Financial Statements and Exhibits.
 
  (d)         Exhibits.

The following exhibit is furnished herewith.

Exhibit No.	Description	
     99.1	Press release issued February 25, 2013.	

 

 
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 	IMPAX LABORATORIES, INC .	 	
 	 	 	 	
Dated: February 25, 2013   	By:	/s/ Bryan M. Reasons	 	
 	 	Name: Bryan M. Reasons	 	
 	 	Title: Senior VP, Chief Financial Officer	 	

 

 
 
EXHIBIT INDEX

Exhibit No.	Description	
     99.1	Press release issued February 25, 2013.	

 
Exhibit 99.1

 
Company Contact:
Mark Donohue
Investor Relations and Corporate Communications
(215) 558-4526	 	 		
www.impaxlabs.com  
 
Impax Laboratories Reports Fourth Quarter and Full Year 2012 Results
 
‒	Company Updates 2013 Financial Guidance	
‒	Provides Update on IPX159 Phase IIb Trial in Restless Legs Syndrome	
 
HAYWARD, Calif. (February 25, 2013) – Impax Laboratories, Inc. (NASDAQ: IPXL) today reported fourth quarter 2012 adjusted net income of $20.5 million or $0.30 per diluted share, compared to $21.9 million or $0.33 per diluted share in the fourth quarter 2011. Adjusted net income for the fourth quarter 2012 excludes $15.7 million or $0.23 per diluted share, primarily related to amortization and acquisition costs from third-party business development transactions in 2012. GAAP net income for the fourth quarter 2012 was $4.8 million or $0.07 per diluted share, compared to $21.9 million or $0.33 per diluted share in the prior year period.
 
For the fourth quarter 2012, total revenues were $141.1 million, a decrease of 11%, compared to $158.6 million in the prior year period, primarily due to lower sales of the Company’s authorized generic Adderall XR® products as a result of additional competition, partially offset by United States (U.S.) sales of Zomig®. Total revenues for the fourth quarter 2012 included the recognition of $9.0 million of previously deferred revenue related to a product marketed under the generic OTC Partner alliance agreement with Pfizer (Pfizer Agreement).
 
Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA), was $38.3 million in the fourth quarter 2012, compared to $40.4 million in the fourth quarter 2011. Cash and short-term investments were $298.9 million as of December 31, 2012. Please refer to the attached “Non-GAAP Financial Measures” for a reconciliation of GAAP to non-GAAP items.
 
Full Year 2012 results
 
For the full year 2012, adjusted net income was $130.8 million or $1.91 per diluted share, compared to $66.0 million or $0.98 per diluted share for the full year 2011. The increase was primarily driven by U.S. sales of Zomig under the AstraZeneca License Agreement. Adjusted results exclude acquisition-related costs, as well as other items noted in the attached reconciliation table. GAAP net income for the full year 2012 was $55.9 million or $0.82 per diluted share, compared to $65.5 million or $0.97 per diluted share in 2011.
 
Total revenues for the full year 2012 increased 13% to $581.7 million, compared to $512.9 million for the full year 2011, primarily due to U.S. sales of Zomig and higher sales of fenofibrate products, partially offset by lower sales of authorized generic Adderall XR. Adjusted EBITDA was $228.5 million for the full year 2012, compared to $126.4 million in the prior year.
 
“While our adjusted full year 2012 financial results improved over last year, it was still a challenging year for Impax. We faced a few obstacles on two of our key objectives for 2012 - successfully resolving the warning letter at our Hayward facility and obtaining approval of our first internally developed branded product candidate RYTARY TM ,” said Larry Hsu, Ph.D., president and CEO, Impax Laboratories, Inc. “The resolution of the quality issues in Hayward continues to be a top priority throughout the company.”

 

 
The Company recently completed its Phase IIb trial of its investigational drug candidate IPX159 in primary Restless Legs Syndrome (RLS). Analysis of the study data indicated that although the results showed a modest improvement in addressing RLS symptoms, such results did not achieve the statistical criteria for its primary efficacy endpoints compared to placebo and does not support advancement of the program in RLS.
 
Dr. Hsu continued, “These obstacles, however, are not preventing us from continuing to invest in developing future generic and branded product opportunities or moving forward with our long-term growth strategy. In 2012 we made significant progress in diversifying our generics business by expanding our alternative dosage form portfolio from 9 products in 2011 to 33 currently marketed and pipeline products. We also focused on building a brand pipeline through both internal R&D and external business development activities.”
 
“We ended 2012 with almost $300 million in cash and short-term investments, and no debt. In addition, we expect the pre-tax receipt of approximately $150 million from Endo Health Solutions and Shire under previously announced agreements. These resources combined with our strong balance sheet will help to support our business objectives,” concluded Dr. Hsu.
  
The Company also announced that the United States Patent Office had granted a second formulation patent for IPX066 (RYTARY TM ), an extended-release capsule formulation of carbidopa and levodopa. The patent (No. 8,377,474), titled “Controlled Release Formulations of Levodopa and Uses Thereof” extends through 2028.
 
Fourth Quarter and Full Year 2012 Business Segment Information
 
The Company has two reportable segments, the Global Pharmaceuticals Division (generic products & services) and the Impax Pharmaceuticals Division (brand products & services) and does not allocate general corporate services to either segment.
 
Global Pharmaceuticals Division Information
(unaudited, amounts in thousands)		Three Months Ended December 31,			Twelve Months Ended December 31,		
 		2012			2011			2012			2011		
Revenues:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Global Product sales, net	 	$	79,771		 	$	142,694		 	$	421,875		 	$	443,818		
Rx Partner	 	 	1,793		 	 	6,164		 	 	6,445		 	 	26,333		
OTC Partner	 	 	9,365		 	 	1,015		 	 	11,602		 	 	5,021		
Research Partner	 	 	995		 	 	3,384		 	 	8,760		 	 	16,538		
Total revenues	 	 	91,924		 	 	153,257		 	 	448,682		 	 	491,710		
Cost of revenues	 	 	51,665		 	 	78,086		 	 	229,355		 	 	242,713		
Gross profit	 	 	40,259		 	 	75,171		 	 	219,327		 	 	248,997		
Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Research and development	 	 	13,350		 	 	11,441		 	 	48,540		 	 	46,169		
Patent litigation	 	 	3,191		 	 	1,409		 	 	9,772		 	 	7,506		
Selling, general and administrative	 	 	4,065		 	 	2,578		 	 	15,377		 	 	11,313		
Total operating expenses	 	 	20,606		 	 	15,428		 	 	73,689		 	 	64,988		
Income from operations	 	$	19,653		 	$	59,743		 	$	145,638		 	$	184,009		

 

 
Fourth Quarter 2012
 
Global Pharmaceuticals Division revenues in the fourth quarter 2012 declined to $91.9 million, compared to $153.3 million in the prior year period. The decline was primarily due to lower sales of authorized generic Adderall XR products as a result of additional generic competition and lower sales of Rx Partner products through the Company’s Strategic Alliance Agreement with Teva Pharmaceutical Industries Ltd. (Teva Agreement).
 
OTC Partner revenues in the fourth quarter 2012 increased to $9.4 million, compared to $1.0 million in the prior year period, due to the recognition of $9.0 million of previously deferred revenue under the Pfizer Agreement. The Global Division’s OTC Partner Sales Channel is no longer considered a core area of the Company’s generic business.
 
Research Partner revenues in the fourth quarter 2012 declined to $1.0 million, compared to $3.4 million in the prior year period, resulting from the extension of the revenue recognition period for the Joint Development Agreement with Valeant Pharmaceuticals International, Inc., formerly Medicis Pharmaceutical Corporation (Valeant Agreement) from November 2012 to November 2013 due to changes in the estimated timing of completion of certain research and development activities.
 
Gross profit in the fourth quarter 2012 was $40.3 million, compared to $75.2 million in the prior year period, primarily due to lower sales of authorized generic Adderall XR products. Gross margin in the fourth quarter 2012 decreased to 44%, compared to 49% in the prior year period, primarily due to the recognition of $8.6 million of previously deferred OTC Partner manufacturing costs under the Pfizer Agreement as described above.
 
Total generic operating expenses in the fourth quarter 2012 increased to $20.6 million, compared to $15.4 million in the prior year period, primarily due to higher patent litigation expenses and a one-time back-log fee required under the Generic Drug Fee User Amendments of 2012 for pending Abbreviated New Drug Applications.
 
Full Year 2012
 
Global Pharmaceuticals Division revenues for the full year 2012 declined to $448.7 million, compared to $491.7 million for the full year 2011, principally resulting from a decrease in Global Product sales, net and Rx Partner revenues.
 
Global Product sales, net, for the full year 2012 declined to $421.9 million, compared to $443.8 million in the prior year, primarily as a result of lower sales of authorized generic Adderall XR partially offset by higher sales of fenofibrate products.
 
Rx Partner revenues for the full year 2012 declined to $6.4 million, compared to $26.3 million in the prior year, primarily due to a profit-share adjustment from Teva under the Teva Agreement realized in 2011 for which there was no similar amount realized in 2012, as well as lower sales of products marketed through the Teva Agreement.
 
Research Partner revenues for the full year 2012 declined to $8.8 million, compared to $16.5 million in the prior year. The decline was due to the extension of the revenue recognition period for the Valeant Agreement as described above, and the recognition of a $3.0 million milestone payment in 2011 under the same agreement for which there was no such milestone payment recognized in 2012.
 
OTC Partner revenues for the full year 2012 increased to $11.6 million, compared to $5.0 million in the prior year, due to the recognition of $9.0 million of previously deferred revenue under the Pfizer Agreement as described above.

 

 
Gross profit for the full year 2012 declined to $219.3 million, compared to $249.0 million in the prior year. Gross margin for the full year 2012 decreased to 49%, compared to 51% in the prior year. The decline in both gross profit and gross profit margin were primarily due to lower sales of authorized generic Adderall XR products and lower profit share recognized under the Teva Agreement as described above.
 
Total generic operating expenses for the full year 2012 increased to $73.7 million, compared to $65.0 million in the prior year, due to increased patent litigation activity related to several cases which were not present in the prior year, higher executive-level compensation costs as a result of vacancies during the prior year period, higher marketing expenses and business development activities. Partially offsetting the increase was the reimbursement of $5.0 million for legal fees received in 2012 pursuant to the settlement of a lawsuit.
 
Impax Pharmaceuticals Division Information
(unaudited, amounts in thousands)		Three Months Ended December 31,			Twelve Months Ended December 31,		
 		2012			2011			2012			2011		
Revenues:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Impax Product sales, net	 	$	46,698		 	$	-		 	$	118,121		 	$	-		
Rx Partner	 	 	2,125		 	 	1,437		 	 	6,500		 	 	5,750		
Research Partner	 	 	330		 	 	330		 	 	1,319		 	 	1,319		
Promotional Partner	 	 	-		 	 	3,535		 	 	7,070		 	 	14,140		
Total revenues	 	 	49,153		 	 	5,302		 	 	133,010		 	 	21,209		
Cost of revenues	 	 	25,261		 	 	3,071		 	 	69,783		 	 	11,911		
Gross profit	 	 	23,892		 	 	2,231		 	 	63,227		 	 	9,298		
Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Research and development	 	 	9,273		 	 	8,952		 	 	32,780		 	 	36,532		
Selling, general and administrative	 	 	15,630		 	 	3,319		 	 	37,896		 	 	7,435		
Total operating expenses	 	 	24,903		 	 	12,271		 	 	70,676		 	 	43,967		
Loss from operations	 	$	(1,011	)	 	$	(10,040	)	 	$	(7,449	)	 	$	(34,669	)	
 
Fourth Quarter 2012
 
Impax Pharmaceuticals Division revenues in the fourth quarter 2012 increased $43.9 million to $49.2 million, compared to the prior year period, due to U.S. sales of Zomig for which there was no comparable amount in the prior year period. This increase was partially offset by a $3.5 million decline in Promotional Partner revenues as the Company’s detailing for Pfizer’s product Lyrica ® ended on June 30, 2012.
 
Gross profit in the fourth quarter 2012 increased $21.7 million to $23.9 million, compared to the prior year period, due to U.S. Zomig sales. Gross margin in the fourth quarter 2012 increased to 49%, compared to 42% in the prior year period. The fourth quarter 2012 gross margin was, however, negatively impacted by the inclusion of $23.4 million in cost of revenues for amortization and acquisition-related costs from the Zomig transaction.
 
Total brand operating expenses in the fourth quarter 2012 increased to $24.9 million, compared to $12.3 million in the prior year period, due to the expansion of the sales and marketing group, pre-launch planning costs for RYTARY TM and higher selling, general and administration expenses related to Zomig.

 

 
Full Year 2012
 
Impax Pharmaceuticals Division revenues for the full year 2012 increased $111.8 million to $133.0 million, compared to the full year 2011, due to U.S. sales of Zomig for which there was no comparable amount in the prior year. This increase was partially offset by a $7.1 million decline in Promotional Partner revenues as detailing for Pfizer’s product Lyrica ended on June 30, 2012.
 
For the full year 2012, gross profit increased $53.9 million to $63.2 million over the prior year, due to the addition of U.S. Zomig sales. Gross margin for the full year 2012 increased to 48%, compared to 44% for the prior year. The full year 2012 gross margin was, however, negatively impacted by the inclusion of $59.3 million in cost of revenues for amortization and acquisition-related costs due to the Zomig transaction.
 
Total brand operating expenses for the full year 2012 increased to $70.7 million, compared to $44.0 million in the prior year, primarily due to higher sales and marketing expenses related to Zomig, pre-launch marketing expenses related to RYTARY™, and higher compensation costs related to the expansion of the sales and marketing group. In addition, the Company incurred $8.9 million in 2012 for charges related to its branded products sales force which had been included as a component of cost of revenues in the prior year period as the sales force was previously engaged in providing co-promotion services for Pfizer’s product Lyrica, as described above.
 
Corporate and Other
(unaudited, amounts in thousands)		Three Months Ended December 31,			Twelve Months Ended December 31,		
 		2012			2011			2012			2011		
General and administrative expenses	 	$	13,745		 	$	14,174		 	$	55,197		 	$	49,729		
Loss from operations	 	$	(13,745	)	 	$	(14,174	)	 	$	(55,197	)	 	$	(49,729	)	
 
Fourth Quarter 2012
 
General and administrative expenses of $13.7 million in the fourth quarter 2012 were slightly lower as compared to $14.2 million in the prior year period.
 
Full Year 2012
 
General and administrative expenses for the full year 2012 increased to $55.2 million, compared to $49.7 million for the prior year, primarily due to increased headcount, severance-related charges, higher professional fees and IT initiatives in support of strategic growth, partially reduced by lower litigation expenses.
 
Cash and Short-term Investments
 
Cash and short-term investments were $298.9 million as of December 31, 2012, compared to $346.4 million as of December 31, 2011. The decline was primarily due to the Zomig and TOLMAR, Inc. transactions and investments in property, plant and equipment.

 

 
2013 Financial Guidance
 
The Company provided its 2013 financial guidance on January 7, 2013, which included estimated launch expenses related to the anticipated approval of RYTARY TM and product launch in the first quarter 2013 as the Prescription Drug User Fee Act date for a review of the New Drug Application (NDA) by the U.S. Food and Drug Administration (FDA) was January 21, 2013. On January 18, 2013, the Company received a complete response letter from the FDA indicating that the FDA requires a satisfactory re-inspection of the Company’s Hayward facility as a result of the warning letter issued in May 2011 before the NDA may be approved due to the facility’s involvement in the development of RYTARY TM , and supportive manufacturing and distribution activities. Since the timing for resolution of the warning letter and further review of the NDA by the FDA is currently unknown, estimated launch expenses have been removed from the 2013 selling, general and administrative (SG&A) guidance. However, the Company is continuing pre-launch planning for RYTARY TM and expenses associated with such pre-launch activities are included within the updated SG&A guidance set forth below.
 
	●  	Gross margins as a percent of total revenues in the low to mid 50% range.	
 	●	UPDATED - Total R&D expenses, excluding patent litigation expenses, across the generic and brand divisions of approximately $87.0 million to $95.0 million; generic R&D expenses of approximately $49.0 million to $53.0 million and brand R&D expenses of approximately $38.0 million to $42.0 million.	
 	●	UPDATED - Patent litigation expenses of approximately $10.0 million to $12.0 million.	
 	●	UPDATED - SG&A expenses of approximately $115.0 million to $120.0 million.	
 	●	Amortization expense of approximately $14.0 million. Approximate 2013 quarterly impact on cost of goods sold: first quarter $7.0 million, second quarter $5.0 million, third quarter $1.0 million and fourth quarter $1.0 million.	
	●	UPDATED - Effective tax rate of approximately 32% to 34%.	
       
Conference Call Information
The Company will host a conference call on February 25, 2013 at 4:30 p.m. EDT 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 90423980. 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. 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: 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, 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 December 31,			Twelve Months Ended December 31,		
 		2012			2011			2012			2011		
Revenues:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Global Pharmaceuticals Division	 	$	91,924		 	$	153,257		 	$	448,682		 	$	491,710		
Impax Pharmaceuticals Division	 	 	49,153		 	 	5,302		 	 	133,010		 	 	21,209		
Total revenues	 	 	141,077		 	 	158,559		 	 	581,692		 	 	512,919		
Cost of revenues	 	 	76,926		 	 	81,157		 	 	299,138		 	 	254,624		
Gross profit	 	 	64,151		 	 	77,402		 	 	282,554		 	 	258,295		
Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Research and development	 	 	22,623		 	 	20,393		 	 	81,320		 	 	82,701		
Patent litigation	 	 	3,191		 	 	1,409		 	 	9,772		 	 	7,506		
Selling, general and administrative	 	 	33,440		 	 	20,071		 	 	108,470		 	 	68,477		
Total operating expenses	 	 	59,254		 	 	41,873		 	 	199,562		 	 	158,684		
Income from operations	 	 	4,897		 	 	35,529		 	 	82,992		 	 	99,611		
Other expense, net	 	 	(119	)	 	 	(2,089	)	 	 	(138	)	 	 	(2,492	)	
Interest income	 	 	318		 	 	270		 	 	1,089		 	 	1,149		
Interest expense	 	 	(25	)	 	 	(76	)	 	 	(632	)	 	 	(157	)	
Income before income taxes	 	 	5,071		 	 	33,634		 	 	83,311		 	 	98,111		
Provision for income taxes	 	 	272		 	 	11,772		 	 	27,438		 	 	32,616		
Net income	 	$	4,799		 	$	21,862		 	$	55,873		 	$	65,495		
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Income per share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic	 	$	0.07		 	$	0.34		 	$	0.85		 	$	1.02		
Diluted	 	$	0.07		 	$	0.33		 	$	0.82		 	$	0.97		
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Weighted average common shares outstanding:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic	 	 	66,217,421		 	 	64,687,753		 	 	65,660,271		 	 	64,126,855		
Diluted	 	 	68,419,888		 	 	67,029,407		 	 	68,404,551		 	 	67,319,989		

 

 
 
Impax Laboratories, Inc .     
Condensed Consolidated Balance Sheets
(unaudited, amounts in thousands)
 
 		December 31,			December 31,		
 		2012			2011		
Assets	 	 	 	 	 	 	 	 	
Current assets:	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	142,162		 	$	104,419		
Short-term investments	 	 	156,756		 	 	241,995		
Accounts receivable, net	 	 	92,249		 	 	153,773		
Inventory, net	 	 	89,764		 	 	54,177		
Deferred income taxes	 	 	42,529		 	 	37,853		
Prepaid expenses and other assets	 	 	22,083		 	 	7,718		
Total current assets	 	 	545,543		 	 	599,935		
Property, plant and equipment, net	 	 	180,758		 	 	118,158		
Other assets	 	 	62,145		 	 	45,942		
Intangible assets, net	 	 	47,950		 	 	2,250		
Goodwill	 	 	27,574		 	 	27,574		
Total assets	 	$	863,970		 	$	793,859		
 	 	 	 	 	 	 	 	 	
Liabilities and Stockholders' Equity	 	 	 	 	 	 	 	 	
Current liabilities:	 	 	 	 	 	 	 	 	
Accounts payable and accrued expenses	 	$	134,082		 	$	93,071		
Accrued profit sharing and royalty expenses	 	 	4,936		 	 	40,766		
Deferred revenue	 	 	6,277		 	 	23,024		
Total current liabilities	 	 	145,295		 	 	156,861		
Deferred revenue	 	 	6,362		 	 	17,131		
Other liabilities	 	 	21,210		 	 	16,926		
Total liabilities	 	 	172,867		 	 	190,918		
Total stockholders' equity	 	 	691,103		 	 	602,941		
Total liabilities and stockholders' equity	 	$	863,970		 	$	793,859		

 

 
 
Impax Laboratories, Inc .
Consolidated Statements of Cash Flows
(unaudited, amounts in thousands)
 
 		Twelve Months Ended		
 		December 31,		
 		2012			2011		
Cash flows from operating activities:	 	 	 	 	 	 	 	 	
Net income	 	$	55,873		 	$	65,495		
Adjustments to reconcile net income to net cash provided by operating activities:	 	 	 	 	 	 	 	 	
Depreciation and amortization	 	 	77,934		 	 	15,710		
Accretion of interest income on short-term investments	 	 	(639	)	 	 	(870	)	
In-process research and development charge	 	 	1,550		 	 	-		
Deferred income taxes (benefit)	 	 	(18,861	)	 	 	13,641		
Tax benefit related to the exercise of employee stock options	 	 	(4,702	)	 	 	(6,535	)	
Deferred revenue	 	 	2,278		 	 	2,568		
Deferred product manufacturing costs	 	 	(2,823	)	 	 	(1,721	)	
Recognition of deferred revenue	 	 	(29,099	)	 	 	(25,579	)	
Amortization of deferred product manufacturing costs	 	 	11,669		 	 	3,111		
Accrued profit sharing and royalty expense	 	 	72,106		 	 	107,760		
Payments of profit sharing and royalty expense	 	 	(107,935	)	 	 	(81,145	)	
Share-based compensation expense	 	 	16,303		 	 	12,685		
Bad debt expense	 	 	-		 	 	163		
Changes in assets and liabilities:	 	 	 	 	 	 	 	 	
Accounts receivable	 	 	61,524		 	 	(71,882	)	
Inventory	 	 	(35,587	)	 	 	(9,628	)	
Prepaid expenses and other assets	 	 	(20,753	)	 	 	(17,627	)	
Accounts payable and accrued expenses	 	 	24,117		 	 	(2,042	)	
Other liabilities	 	 	3,254		 	 	2,254		
Net cash provided by operating activities	 	 	106,209		 	 	6,358		
 	 	 	 	 	 	 	 	 	
Cash flows from investing activities:	 	 	 	 	 	 	 	 	
Purchase of short-term investments	 	 	(210,688	)	 	 	(359,646	)	
Maturities of short-term investments	 	 	296,566		 	 	375,126		
Purchases of property, plant and equipment	 	 	(66,900	)	 	 	(30,524	)	
Payment for product licensing rights, net	 	 	(104,760	)	 	 	-		
Net cash used in investing activities	 	 	(85,782	)	 	 	(15,044	)	
 	 	 	 	 	 	 	 	 	
Cash flows from financing activities:	 	 	 	 	 	 	 	 	
Proceeds from exercise of stock options and ESPP	 	 	12,614		 	 	14,774		
Tax benefit related to the exercise of employee stock options and restricted stock	 	 	4,702		 	 	6,535		
Net cash provided by financing activities	 	 	17,316		 	 	21,309		
 	 	 	 	 	 	 	 	 	
Net increase in cash and cash equivalents	 	 	37,743		 	 	12,623		
Cash and cash equivalents, beginning of year	 	 	104,419		 	 	91,796		
Cash and cash equivalents, end of year	 	$	142,162		 	$	104,419		

 

 
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 December 31,			Twelve months ended December 31,		
 		2012			2011			2012			2011		
Net income	 	$	4.8		 	$	21.9		 	$	55.9		 	$	65.5		
Adjusted to add (deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Amortization and acquisition-related costs (a)	 	 	23.8		 	 	-		 	 	60.2		 	 	-		
Change in OTC Partner deferred revenue recognition, net (b)	 	 	(0.4	)	 	 	-		 	 	(0.4	)	 	 	-		
Generic product withdraw costs	 	 	-		 	 	-		 	 	2.0		 	 	-		
Patent litigation settlement	 	 	-		 	 	-		 	 	(5.0	)	 	 	-		
Gross profit earned on Zomig® Agreement (c)	 	 	-		 	 	-		 	 	46.2		 	 	-		
Acquisition related in process R&D (d)	 	 	-		 	 	-		 	 	1.6		 	 	-		
Employee severance	 	 	-		 	 	-		 	 	1.9		 	 	0.8		
Inventory adjustment	 	 	-		 	 	-		 	 	3.5		 	 	-		
Lower of cost or market charge	 	 	-		 	 	-		 	 	1.7		 	 	-		
Income tax effect	 	 	(7.7	)	 	 	-		 	 	(36.8	)	 	 	(0.3	)	
Adjusted net income	 	$	20.5		 	$	21.9		 	$	130.8		 	$	66.0		
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Adjusted net income per diluted share	 	$	0.30		 	$	0.33		 	$	1.91		 	$	0.98		
Net income per diluted share	 	$	0.07		 	$	0.33		 	$	0.82		 	$	0.97		

 

 
 
Impax Laboratories, Inc .
Non-GAAP Financial Measures
 
The following table reconciles reported net income to adjusted EBITDA.
 
(Unaudited, amounts in millions)		Three months ended December 31,			Twelve months ended December 31,		
 		2012			2011			2012			2011		
Net income	 	$	4.8		 	$	21.9		 	$	55.9		 	$	65.5		
Adjusted to add (deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest income	 	 	(0.3	)	 	 	(0.3	)	 	 	(1.1	)	 	 	(1.1	)	
Interest expense	 	 	0.0		 	 	0.1		 	 	0.6		 	 	0.2		
Depreciation and other	 	 	5.9		 	 	3.8		 	 	17.7		 	 	15.7		
Income taxes	 	 	0.3		 	 	11.8		 	 	27.4		 	 	32.6		
EBITDA	 	 	10.7		 	 	37.3		 	 	100.5		 	 	112.9		
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Adjusted to add:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Amortization and acquisition-related costs (a)	 	 	23.8		 	 	-		 	 	60.2		 	 	-		
Change in OTC Partner deferred revenue recognition, net (b)	 	 	(0.4	)	 	 	-		 	 	(0.4	)	 	 	-		
Generic product withdraw costs	 	 	-		 	 	-		 	 	2.0		 	 	-		
Patent litigation settlement	 	 	-		 	 	-		 	 	(5.0	)	 	 	-		
Gross profit earned on Zomig® Agreement (c)	 	 	-		 	 	-		 	 	46.2		 	 	-		
Acquisition related in process R&D (d)	 	 	-		 	 	-		 	 	1.6		 	 	-		
Employee severance	 	 	-		 	 	-		 	 	1.9		 	 	0.8		
Inventory adjustment	 	 	-		 	 	-		 	 	3.5		 	 	-		
Lower of cost or market charge	 	 	-		 	 	-		 	 	1.7		 	 	-		
Share-based compensation	 	 	4.2		 	 	3.1		 	 	16.3		 	 	12.7		
Adjusted EBITDA	 	$	38.3		 	$	40.4		 	$	228.5		 	$	126.4		

 	(a)	Amortization and acquisition-related costs from the January 2012 Distribution, License, Development and Supply Agreement with AstraZeneca UK Limited and the June 2012 Development, Distribution and Supply Agreement with TOLMAR, Inc.	
 	(b)	The net effect of $9.0 million of previously deferred revenue and $8.6 million of deferred manufacturing costs under the Pfizer Agreement.	
 	(c)	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. During the specified product transition period pursuant to the AstraZeneca License Agreement, the Company received the benefit of the gross profit ($46.2 million) from U.S. Zomig sales by AstraZeneca commencing from January 1, 2012 and ending when the Company commenced commercialization of the Zomig products. The benefit of the gross profit received from AstraZeneca is recorded as a reduction of the $130.0 million paid by the Company to AstraZeneca during 2012 and is not reflected within the Company’s income.	
 	(d)	Acquisition related in-process R&D from the June 2012 Development, Distribution and Supply Agreement with TOLMAR, Inc.