Impax Laboratories Reports Third Quarter 2012 Results

  Impax Laboratories Reports Third Quarter 2012 Results

         Adjusted EPS Increased to $0.48; GAAP EPS Increased to $0.29

Business Wire

HAYWARD, Calif. -- October 30, 2012

Impax Laboratories, Inc. (NASDAQ: IPXL) today reported third quarter 2012
financial results.

  *Adjusted net income increased $15.3 million to $32.5 million in the third
    quarter 2012, or $0.48 per diluted share, compared to $17.2 million, or
    $0.26 per diluted share, in the prior year period. This increase was
    primarily driven by United States (U.S.) sales of Zomig^® which was
    licensed from AstraZeneca pursuant to the previously disclosed January
    2012 License Agreement. Adjusted results exclude acquisition-related
    costs, as well as other items noted below.
  *GAAP net income increased $2.8 million to $20.0 million in the third
    quarter 2012, or $0.29 per diluted share, compared to $17.2 million, or
    $0.26 per diluted share, in the prior year period.
  *Total revenues increased 21% to $145.6 million in the third quarter 2012,
    compared to $119.8 million in the prior year period, primarily due to U.S.
    sales of Zomig^®. Partially offsetting this increase were lower generic Rx
    Partner and Research Partner revenues, as well as the completion in June
    2012 of a three-year brand product promotional agreement for which there
    was no revenue recognized in the third quarter 2012 compared to the prior
    year period.
  *Adjusted earnings before interest, taxes, depreciation and amortization
    (Adjusted EBITDA), increased to $56.6 million in the third quarter 2012,
    compared to $32.5 million in the prior year period.

Adjusted results exclude amortization and acquisition-related costs related to
recent third-party business development transactions, the receipt of
reimbursed costs pursuant to the settlement of litigation and expenses
associated with the voluntary withdrawal of a generic product from the market.
Please refer to “Non-GAAP Financial Measures” below for a reconciliation of
GAAP to non-GAAP items.

“Our U.S. promotional efforts of Zomig^® exceeded our expectations in the
third quarter and support our brand commercial organization as we continue to
prepare for the potential launch of Rytary^TM,” said Larry Hsu, Ph.D.,
president and CEO, Impax Laboratories, Inc. “The success of our brand business
is an important element to the future growth of the Company.”

“A few weeks ago, the U.S. Food and Drug Administration (FDA) notified us that
Rytary’s^TM New Drug Application review date would be extended three months to
January 21, 2013. We continue to have dialogue with the FDA on both this
application and the resolution of the Hayward warning letter. We expect that
upon the resolution of the warning letter, we should begin to see approvals
for generic products in backlog and will look to commercialize these
opportunities assuming the market dynamics remain attractive. In the meantime,
we continue to explore investment opportunities that can deliver growth and
progress the Company towards its long term generic and brand division goals,”
Dr. Hsu concluded.

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

                    Three Months Ended           Nine Months Ended
(unaudited,
amounts in             September 30,                   September 30,
thousands)
                       2012          2011            2012        2011
Revenues:
Global Product         $ 99,463        $ 97,661        $ 342,105     $ 301,124
sales, net
Rx Partner               (792    )       12,621          4,652         20,169
OTC Partner              763             879             2,237         4,006
Research Partner        996           3,385          7,765        13,154
Total revenues           100,430         114,546         356,759       338,453
Cost of revenues        44,106        54,196         177,690      164,627
Gross profit            56,324        60,350         179,069      173,826
Operating
expenses:
Research and             12,392          11,487          35,190        34,728
development
Patent
litigation               (371    )       2,114           6,581         6,097
(recovery)
expense
Selling, general
and                     3,790         3,694          11,482       8,892
administrative
Total operating         15,811        17,295         53,253       49,717
expenses
Income from            $ 40,513       $ 43,055        $ 125,816     $ 124,109
operations
                                                                     

Global Pharmaceuticals Division revenues in the third quarter 2012 were $100.4
million, compared to $114.5 million in the prior year period, primarily due to
lower Rx Partner and Research Partner revenues.

For the third quarter 2012, Rx Partner revenues declined $13.4 million, as the
Company realized a $7.4 million profit share adjustment in the third quarter
2011 from Teva Pharmaceuticals Industries Limited (“Teva”) for which there was
no comparable amount in the third quarter 2012. Also contributing to the
decline in the third quarter 2012 Rx revenues were lower sales of our generic
products through our Strategic Alliance Agreement with Teva and an estimated
$2.0 million charge for the voluntary withdrawal of bupropion XL 300 mg from
the market.

Research Partner revenues in the third quarter 2012 declined $2.4 million to
$1.0 million, compared to the prior year period of $3.4 million, due to the
extension of the revenue recognition period for the Joint Development
Agreement with Medicis Pharmaceutical Corporation (the “Medicis Agreement”).
During the third quarter 2012, the Company extended the estimated performance
period from the previous recognition period ending November 2012 to November
2013 due to changes in the estimated timing of completion of certain research
and development activities.

Gross profit in the third quarter 2012 was $56.3 million, compared to $60.4
million in the prior year period. The decline in gross profit was due to the
third quarter 2011 receipt of $7.4 million in profit share adjustment from
Teva for which there was no comparable amount in the third quarter 2012, as
well as the change in the estimated performance period for the Medicis
Agreement. Partially offsetting the third quarter 2012 decrease in gross
profit was a reduction in the royalty rate paid on sales of our authorized
generic Adderall XR^® products as a result of additional generic competition
and increased sales of higher margin products. Gross margin in the third
quarter 2012 increased to 56%, compared to 53% in the prior year period, due
to the reduction in the royalty rate and increased sales of higher margin
products as noted above.

Total generic operating expenses in the third quarter 2012 decreased $1.5
million to $15.8 million, compared to the prior year period of $17.3 million,
due to lower patent litigation expenses resulting from the receipt of $5.0
million for reimbursement of legal fees received pursuant to the settlement of
litigation. The increase in patent litigation expense before the $5.0 million
reimbursement was the result of legal activity related to several Abbreviated
New Drug Application cases.

Impax Pharmaceuticals Division Information

                   Three Months Ended         Nine Months Ended
(unaudited,
amounts in            September 30,                 September 30,
thousands)
                      2012       2011             2012         2011
Revenues:
Impax Product         $ 43,327     $ -              $ 71,422       $ -
sales, net
Rx Partner              1,500        1,438            4,375          4,313
Research                330          330              989            989
Partner
Promotional            -           3,535          7,070        10,605  
Partner
Total revenues          45,157       5,303            83,856         15,907
Cost of                23,454      2,999          44,522       8,840   
revenues
Gross profit           21,703      2,304          39,334       7,067   
Operating
expenses:
Research and            7,620        7,352            23,507         27,580
development
Selling,
general and            12,498      1,632          22,266       4,116   
administrative
Total operating        20,118      8,984          45,773       31,696  
expenses
Income (loss)         $ 1,585      $ (6,680 )       $ (6,439 )     $ (24,629 )
from operations
                                                                     

Impax Pharmaceuticals Division revenues in the third quarter 2012 increased
$39.9 million to $45.2 million, compared to the prior year period of $5.3
million, due to U.S. sales of Zomig^® pursuant to the AstraZeneca License
Agreement 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^®
pursuant to the Co-Promotion Agreement ended on June 30, 2012.

Gross profit of $21.7 million increased $19.4 million in the third quarter
2012, due to U.S. Zomig^® sales, compared to the prior year period of $2.3
million. Gross margin in the third quarter 2012 increased to 48%, compared to
43% in the prior year period. The third quarter 2012 gross margin was,
however, negatively impacted by the inclusion of $21.6 million in cost of
revenues for amortization and acquisition-related costs due to the Zomig^®
transaction.

Total brand operating expenses in the third quarter 2012 increased $11.1
million to $20.1 million, compared to the prior year period of $9.0 million,
due to higher selling, general and administration expenses resulting from
Zomig^® marketing costs, the expansion of the Company’s neurology focused
sales force and pre-launch planning costs for Rytary^TM.

Corporate and Other

                  Three Months Ended             Nine Months Ended
(unaudited,
amounts in           September 30,                     September 30,
thousands)
                     2012          2011              2012          2011
General and
administrative       $ 12,639       $ 10,992         $ 41,282       $ 35,398  
expenses
Loss from            $ (12,639 )     $ (10,992 )       $ (41,282 )     $ (35,398 )
operations
                                                                         

General and administrative expenses in the third quarter 2012 increased $1.6
million to $12.6 million, compared to the prior year period of $11.0 million,
primarily due to increased consulting and personnel expenses.

Cash and Short-term Investments

Cash and short-term investments were $339.7 million as of September 30, 2012,
compared to $346.4 million as of December 31, 2011.

2012 Financial Outlook

The Company updated its 2012 financial outlook as noted below.

Expense guidance:

  *UPDATED - Total R&D expenses across the generic and brand divisions to
    approximate $86.0 million with generic R&D of approximately $48.0 million
    and brand R&D of approximately $38.0 million.
  *UPDATED - Patent litigation expenses of approximately $13.0 million. In
    the third quarter 2012, the Company received a $5.0 million patent
    litigation settlement reimbursement.
  *SG&A expenses of approximately $113.0 million.

Other outlook items:

  *Gross margins as a percent of total revenues of approximately 60%.
  *UPDATED - Effective tax rate of approximately 35%.
  *Capital expenditures of approximately $78.0 million.

Revenue:

  *With the recent additional competition on fenofibrate capsules and generic
    Adderall XR^®, the Company expects its total revenues for the fourth
    quarter of 2012 to decline by approximately 15% to 20% from the third
    quarter of 2012.

Conference Call Information

The Company will host a conference call on October 30, 2012 at 12:00 p.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, www.impaxlabs.com. 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 39759746.

About Impax Laboratories, Inc.

Impax Laboratories, Inc. (NASDAQ: IPXL) 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: 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                  Nine Months Ended
                      September 30,                         September 30,
                      2012             2011               2012             2011
Revenues:
Global
Pharmaceuticals       $ 100,430          $ 114,546          $ 356,759          $ 338,453
Division
Impax
Pharmaceuticals        45,157           5,303            83,856           15,907     
Division
Total revenues          145,587            119,849            440,615            354,360
                                                                               
Cost of                67,560           57,195           222,212          173,467    
revenues
Gross profit           78,027           62,654           218,403          180,893    
Operating
expenses:
Research and            20,012             18,839             58,697             62,308
development
Patent
litigation              (371       )       2,114              6,581              6,097
(recovery)
expense
Selling,
general and            28,927           16,318           75,030           48,406     
administrative
Total operating        48,568           37,271           140,308          116,811    
expenses
Income from             29,459             25,383             78,095             64,082
operations
Other income            46                 69                 (129       )       (470       )
(expense), net
Interest income         272                268                771                879
Interest               (145       )      (53        )      (607       )      (81        )
expense
Income before           29,632             25,667             78,130             64,410
income taxes
Provision for          9,635            8,486            27,166           20,844     
income taxes
Net income
before                  19,997             17,181             50,964             43,566
noncontrolling
interest
Add back loss
attributable to        40               39               110              67         
noncontrolling
interest
Net income            $ 20,037          $ 17,220          $ 51,074          $ 43,633     
                                                                               
Net income per
share:
Basic                 $ 0.30            $ 0.27            $ 0.78            $ 0.68       
Diluted               $ 0.29            $ 0.26            $ 0.75            $ 0.65       
                                                                               
Weighted
average common
shares
outstanding:
Basic                   65,797,722         64,387,413         65,451,926         63,937,796
Diluted                 68,366,849         66,986,758         68,230,487         67,318,658
                                                                                 


Impax Laboratories, Inc.
Condensed Consolidated Balance Sheets
(unaudited, amounts in thousands)

                                             September 30,   December 31,
                                                2012              2011
Assets
Current assets:
Cash and cash equivalents                       $   172,692       $   104,419
Short-term investments                              167,046           241,995
Accounts receivable, net                            97,770            153,773
Inventory, net                                      78,674            54,177
Deferred tax asset                                  43,170            37,853
Prepaid expenses and other assets                  24,040           7,718
Total current assets                               583,392          599,935
Property, plant and equipment, net                  171,126           118,158
Other assets                                        64,941            45,942
Intangible assets, net                              54,172            2,250
Goodwill                                           27,574           27,574
Total assets                                    $   901,205       $   793,859
                                                                  
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses           $   121,742       $   93,071
Accrued profit sharing and royalty                  9,159             40,766
expenses
Accrued product licensing payments                  40,000            -
Deferred revenue                                   12,328           23,024
Total current liabilities                          183,229          156,861
Deferred revenue                                    15,092            17,131
Other liabilities                                  21,242           16,861
Total liabilities                                   219,563       $   190,853
Total stockholders' equity                         681,642          603,006
Total liabilities and stockholders'             $   901,205       $   793,859
equity
                                                                      


Impax Laboratories, Inc.
Consolidated Statements of Cash Flows
(unaudited, amounts in thousands)

                                              Nine Months Ended
                                                 September 30,
                                                 2012           2011
Cash flows from operating activities:
Net income                                       $ 51,074         $ 43,633
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization                      23,273           11,903
Accretion of interest income on short-term         (473     )       (665     )
investments
Recognition of deferred charge – Zomig^®           24,997           -
prepaid royalty
In-process research and development charge         1,550            -
Deferred income taxes                              (23,437  )       4,464
Tax benefit related to the exercise of             (3,515   )       (6,086   )
employee stock options
Deferred revenue                                   1,738            2,182
Deferred product manufacturing costs               (2,743   )       (1,275   )
Recognition of deferred revenue                    (16,236  )       (19,489  )
Amortization of deferred product                   2,775            2,494
manufacturing costs
Accrued profit sharing and royalty expense         67,427           67,210
Payments of profit sharing and royalty             (99,034  )       (58,759  )
expense
Share-based compensation expense                   12,146           9,632
Bad debt expense                                   -                163
Changes in certain assets and liabilities:
Accounts receivable                                56,003           (24,112  )
Inventory                                          (24,497  )       (5,577   )
Prepaid expenses and other assets                  47,446           (9,606   )
Accounts payable and accrued expenses              23,019           (6,871   )
Other liabilities                                 5,774          1,213    
Net cash provided by operating activities         147,287        10,454   
                                                                  
Cash flows from investing activities:
Purchase of short-term investments                 (177,461 )       (280,602 )
Maturities of short-term investments               252,883          316,277
Purchases of property, plant and equipment         (58,618  )       (18,433  )
Payment for product licensing rights              (111,000 )      -        
Net cash (used in) provided by investing          (94,196  )      17,242   
activities
                                                                  
Cash flows from financing activities:
Tax benefit related to the exercise of
employee stock options and restricted              3,515            6,086
stock
Proceeds from exercise of stock options           11,667         12,632   
and ESPP
Net cash provided by financing activities         15,182         18,718   
                                                                  
Net increase in cash and cash equivalents          68,273           46,414
Cash and cash equivalents, beginning of           104,419        91,796   
period
Cash and cash equivalents, end of period         $ 172,692       $ 138,210  
                                                                  

                           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.

                           Three months ended     Nine months ended
(Unaudited, amounts in
millions, except per          September 30,             September 30,
share data)
                              2012       2011         2012        2011
Net income                    $ 20.0       $ 17.2       $ 51.1        $ 43.6
Adjusted to add
(deduct):
Amortization and
acquisition-related             22.1         -            36.4          -
costs^(a)
Generic product                 2.0          -            2.0           -
withdrawal costs^(b)
Patent litigation
settlement                      (5.0 )       -            (5.0  )       -
reimbursement^(c)
Gross profit earned on          -            -            46.2          -
Zomig® Agreement
Acquisition related in          -            -            1.6           -
process R&D
Employee severance              -            -            1.9           0.8
Inventory adjustment            -            -            3.5           -
Lower of cost or market         -            -            1.7           -
charge
Income tax effect              (6.6 )      -           (30.4 )      (0.3 )
Adjusted net income           $ 32.5      $ 17.2       $ 109.0      $ 44.1 
                                                                      
Net income adjusted per       $ 0.48       $ 0.26       $ 1.60        $ 0.66
diluted share
Net income per diluted        $ 0.29       $ 0.26       $ 0.75        $ 0.65
share
                                                                      


Impax Laboratories, Inc.
Non-GAAP Financial Measures

The following table reconciles reported net income to adjusted EBITDA.
                         Three months ended       Nine months ended
(Unaudited, amounts         September 30,               September 30,
in millions)
                            2012       2011           2012        2011
Net income                  $ 20.0       $ 17.2         $ 51.1        $ 43.6
Adjusted to add
(deduct):
Interest income               (0.3 )       (0.3 )         (0.8  )       (0.9 )
Interest expense              0.1          0.1            0.6           0.1
Depreciation and              4.3          3.5            11.9          11.9
other
Income taxes                 9.6        8.5          27.2        20.8 
EBITDA                       33.7       29.0         90.0        75.5 
                                                                      
Adjusted to add:
Amortization and
acquisition-related           22.1         -              36.4          -
costs^(a)
Generic product               2.0          -              2.0           -
withdrawal costs^(b)
Patent litigation
settlement                    (5.0 )       -              (5.0  )       -
reimbursement^(c)
Gross profit earned           -            -              46.2          -
on Zomig® Agreement
Acquisition related           -            -              1.6           -
in process R&D
Employee severance            -            -              1.9           0.8
Inventory adjustment          -            -              3.5           -
Lower of cost or              -            -              1.7           -
market charge
Share-based                  3.8        3.5          12.1        9.6  
compensation
Adjusted EBITDA             $ 56.6      $ 32.5        $ 190.4      $ 85.9 
                                                                        

        Amortization and acquisition-related costs from the January 2012
(a)   Distribution, License, Development and Supply Agreement with
        AstraZeneca UK Limited and the June 2012 Development, Distribution and
        Supply Agreement with TOLMAR, Inc.
        
        The Company recorded a charge of $2.0 million related to the voluntary
(b)     withdrawal from the market of bupropion XL 300 mg, manufactured by
        Impax and marketed through our Strategic Alliance Agreement with Teva.
        
(c)     The Company received $5.0 million for reimbursement of legal fees
        pursuant to the settlement of litigation.
        

Contact:

Impax Laboratories, Inc.
Mark Donohue, 215-558-4526
Sr. Director
Investor Relations and Corporate Communications
www.impaxlabs.com