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Impax Laboratories Reports First Quarter 2013 Results

  Impax Laboratories Reports First Quarter 2013 Results

Business Wire

HAYWARD, Calif. -- May 01, 2013

Impax Laboratories, Inc. (NASDAQ: IPXL) today reported first quarter 2013
adjusted net income of $25.3 million or $0.37 per diluted share, compared to
$35.8 million or $0.53 per diluted share in the first quarter 2012. GAAP net
income for the first quarter 2013 was $105.4 million or $1.55 per diluted
share, compared to $12.4 million or $0.18 per diluted share in the prior year
period.

For the first quarter 2013, total revenues were $148.5 million, an increase of
15%, compared to $128.6 million in the prior year period. The increase was due
to United States (U.S.) sales of Zomig® and sales from the January 4, 2013,
launch of generic oxymorphone hydrochloride extended-release tablets, for
which there was no comparable amount for either product in the prior year
period, partially offset by lower sales of the Company’s authorized generic
Adderall XR® products as a result of additional generic competition.

Cash and short-term investments increased $50.1 million to $349.0 million as
of March 31, 2013, compared to $298.9 million as of December 31, 2012,
primarily due to the receipt of a one-time pre-tax payment of $48.0 million in
connection with the settlement of litigation as described below. On April 18,
2013, the Company received a one-time pre-tax payment of $102.0 million from
Endo Pharmaceuticals, Inc. (Endo) under a previously announced agreement. The
payment is recorded as a receivable as of March 31, 2013 and is not reflected
in the first quarter 2013 cash and cash equivalents balance.

Adjusted earnings before interest, taxes, depreciation and amortization
(Adjusted EBITDA), was $43.4 million in the first quarter 2013, compared to
$62.1 million in the first quarter 2012.

The adjusted results in the first quarter 2013 primarily reflect the removal
of the following pre-tax items:

  *The receipt of $102.0 million from Endo in connection with a previously
    announced settlement and license agreement.
  *The receipt of $48.0 million from Shire LLC (Shire) in connection with the
    settlement of litigation relating to supply of authorized generic Adderall
    XR products to the Company under the terms of the License and Supply
    Agreement with Shire (Shire Agreement).
  *Total charges of $18.1 million, including an inventory reserve on
    discontinued products ($6.7 million), as further described below, and a
    reserve of pre-launch inventory for RYTARY^TM ($5.0 million) and other
    generic products ($6.4 million) as a result of the delay in the
    anticipated regulatory approvals.
  *A charge of $7.1 million for amortization and acquisition costs from
    third-party business development transactions.

The adjusted results in the first quarter 2012 primarily reflect the removal
of the following pre-tax items:

  *The receipt of the gross profit of $30.0 million earned from U.S. Zomig
    sales pursuant to the License Agreement with AstraZeneca UK Limited
    (AstraZeneca Agreement).
  *A charge of $5.2 million relating to an inventory adjustment as a result
    of a change in the strategic direction of certain generic products.

Please refer to the attached “Non-GAAP Financial Measures” for a
reconciliation of GAAP to non-GAAP items.

In the first quarter 2013, the Company recorded an inventory reserve of $6.7
million as stated above. This charge was the result of a strategic review
conducted by the Company with a third party consulting firm of the Company’s
currently manufactured generic product portfolio. This review was completed
during the first quarter 2013 and the Company decided to discontinue
manufacturing a number of low-sales/low-margin mature products. The total net
sales of these products in 2012 were less than 3% of the total Company product
revenues, with minimal impact on net income. The Company is currently
reviewing manufacturing costs and expects that the discontinuation of these
products and other efficiencies will result in cost savings of approximately
$10.0 million for the full year 2013, which has been reflected in the revised
full year gross margin guidance.

“We expect that this decision will improve operating efficiencies and ensures
that resources are allocated and aligned with our strategic growth
priorities,” said Larry Hsu, Ph.D., president and CEO, Impax Laboratories,
Inc. “We will continue to look for opportunities to free up resources that can
be invested to best position Impax for a strong future.”

“On March 21, 2013, we submitted our responses to the recent Form 483 to the
FDA and have requested a meeting with the San Francisco District Office to
ensure that our plan and actions are in alignment with the FDA’s expectations.
We expect to incur $10.0 million to $15.0 million in remediation costs during
fiscal year 2013. While we have implemented numerous improvements across our
manufacturing and quality operations over the past two years, we remain
committed to resolving all observations and exceeding current Good
Manufacturing Practices,” concluded Dr. Hsu.

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
                                              March 31,
                                              2013       2012
Revenues:
Global Product sales, net                     $ 97,785    $ 116,211
Rx Partner                                      3,114       2,978
Other revenues                                 737        4,076
Total revenues                                 101,636    123,265
Cost of revenues                               61,444     63,106
Gross profit                                   40,192     60,159
Operating expenses:
Research and development                        11,711      10,673
Patent litigation                               4,278       4,038
Selling, general and administrative            5,043      4,317
Total operating expenses                       21,032     19,028
Income from operations                        $ 19,160    $ 41,131
                                                          

In the first quarter 2013, Global Product sales, net, were $97.8 million,
compared to $116.2 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, partially offset by the January 4, 2013,
launch of oxymorphone hydrochloride extended-release tablets.

Other revenues in the first quarter 2013 were $0.7 million, compared to $4.1
million in the prior year period. The decline is primarily the result of the
extension of the revenue recognition period for the Joint Development
Agreement with Valeant Pharmaceuticals International, Inc. (formerly Medicis
Pharmaceutical Corporation) from November 2013 to December 2014 due to changes
in the estimated timing of completion of certain research and development
activities.

Gross profit in the first quarter 2013 decreased to $40.2 million, compared to
$60.2 million in the prior year period. This decrease is primarily due to
lower sales of authorized generic Adderall XR products and a $13.1 million
inventory reserve for discontinued products and other generic products as a
result of the delay in the anticipated regulatory approvals as described
above. Gross margin in the first quarter 2013 decreased to 40%, compared to
49% in the prior year period, primarily due to the inclusion of the $13.1
million inventory charge in cost of revenues as described above.

Total Global Pharmaceuticals operating expenses in the first quarter 2013
increased to $21.0 million, compared to $19.0 million in the prior year
period, with such difference primarily due to a $2.0 million milestone payment
to a research and development partner.

                                           
Impax Pharmaceuticals Division Information
                                             
(unaudited, amounts in thousands)            Three Months Ended
                                             March 31,
                                             2013       2012
Revenues:
Impax Product sales, net                     $ 46,521    $ -
Other revenues                                332        5,303
Total revenues                                46,853     5,303
Cost of revenues                              29,174     2,909
Gross profit                                  17,679     2,394
Operating expenses:
Research and development                       7,894       8,143
Selling, general and administrative           12,764     3,061
Total operating expenses                      20,658     11,204
Loss from operations                         $ (2,979)   $ (8,810)
                                                           

In the first quarter 2013, Impax Product sales, net, were $46.5 million as a
result of U.S. sales of Zomig for which there was no comparable amount in the
prior year period. The U.S. patents on Zomig tablets and orally disintegrating
tablets expire on May 14, 2013. These two dosage forms represent approximately
90% of the Company’s quarterly sales of Zomig. As a result of the patent
expiration, the Company expects generic competition that will significantly
impact future sales of these two dosage forms. The Company is planning to
launch authorized generic versions of both products upon patent expiration.
Impax Pharmaceuticals will continue to commercialize the Zomig nasal spray
which has U.S. patents expiring as late as May 2021.

Other revenues in the first quarter 2013 declined to $0.3 million, compared to
$5.3 million in the prior year period. This decrease was due to a $3.5 million
decline in promotional partner revenues as the Company’s detailing for
Pfizer’s product Lyrica^® ended on June 30, 2012 and a $1.4 million decline
related to the December 31, 2012 completion of the 24 month amortization
period of the $11.5 million up-front payment received under the License,
Development and Commercialization Agreement with Glaxo Group Limited.

Gross profit in the first quarter 2013 increased to $17.7 million, compared to
$2.4 million in the prior year period, primarily due to U.S. Zomig sales.
Gross margin in the first quarter 2013 decreased to 38%, compared to 45% in
the prior year period. The first quarter 2013 gross margin was, however,
negatively impacted by the inclusion in cost of revenues of $6.7 million for
amortization and acquisition-related costs from the Zomig transaction and a
$5.0 million charge for the reserve of RYTARY^TM pre-launch inventory as a
result of the delay in the anticipated regulatory approval. In addition,
beginning January 1, 2013, the Company paid AstraZeneca royalties on sales of
Zomig under the terms of the AstraZeneca Agreement.

Total Impax Pharmaceuticals operating expenses in the first quarter 2013
increased to $20.7 million, compared to $11.2 million in the prior year
period, primarily due to the expansion of the sales and marketing group during
the third and fourth quarters of 2012 to support the anticipated launch of
RYTARY^TM.

                                    
Corporate and Other
                                      
(unaudited, amounts in thousands)     Three Months Ended
                                      March 31,
                                      2013        2012
General and administrative expenses   $ 11,910     $ 13,855
Loss from operations                  $ (11,910)   $ (13,855)
                                                     

General and administrative expenses in the first quarter 2013 decreased to
$11.9 million, compared to $13.9 million in the prior year period primarily
due to lower corporate legal fees.

2013 Financial Guidance

The Company updated its 2013 financial guidance as noted below.

  *UPDATED - Gross margins as a percent of total revenues are expected to be
    in the mid 40% range.
  *Total R&D 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.
  *Patent litigation expenses of approximately $10.0 million to $12.0
    million.
  *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.
  *Effective tax rate of approximately 32% to 34%.

Conference Call Information

The Company will host a conference call on May 1, 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 32064217. 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. 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 revenues and operating income, the
Company’s ability to promptly correct the issues raised in the warning letter
and Form 483 observations received from the FDA, the Company’s ability to
successfully develop and commercialize pharmaceutical products in a timely
manner, 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, the increased government scrutiny on the Company’s
agreements with brand pharmaceutical companies, consumer acceptance and demand
for new pharmaceutical products, the impact of market perceptions of the
Company and the safety and quality of the Company’s products, the difficulty
of predicting FDA filings and approvals, the Company’s ability to achieve
returns on its investments in research and development activities, 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, impact of illegal distribution and sale by third parties of
counterfeits or stolen products, 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 its intellectual property, exposure to
product liability claims, changes in tax regulations, the Company’s ability to
manage 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, 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 andother 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 the Company
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 March 31,
                                              2013          2012
Revenues:
Global Pharmaceuticals Division               $ 101,636      $ 123,265
Impax Pharmaceuticals Division                 46,853        5,303
Total revenues                                 148,489       128,568
Cost of revenues                               90,618        66,015
Gross profit                                   57,871        62,553
Operating expenses:
Research and development                        19,605         18,816
Patent litigation                               4,278          4,038
Selling, general and administrative            29,717        21,233
Total operating expenses                       53,600        44,087
Income from operations                         4,271         18,466
Other income (expense), net                     149,456        (48)
Interest income                                 276            255
Interest expense                               (283)         (39)
Income before income taxes                      153,720        18,634
Provision for income taxes                     48,278        6,269
Net income                                    $ 105,442      $ 12,365
                                                             
Net Income per share:
Basic                                         $ 1.59         $ 0.19
Diluted                                       $ 1.55         $ 0.18
                                                             
Weighted average common shares outstanding:
Basic                                           66,487,470     65,122,240
Diluted                                         68,178,355     67,907,263
                                                             


Impax Laboratories, Inc.
Condensed Consolidated Balance Sheets
(unaudited, amounts in thousands)
                                                         
                                                            
                                              March 31,     December 31,
                                              2013          2012
Assets
Current assets:
Cash and cash equivalents                     $ 197,577     $   142,162
Short-term investments                          151,436         156,756
Accounts receivable, net                        113,606         92,249
Other receivable                                102,049         -
Inventory, net                                  82,090          89,764
Deferred income taxes                           44,365          42,529
Prepaid expenses and other assets              7,804          22,083
Total current assets                           698,927        545,543
Property, plant and equipment, net              176,963         180,758
Other assets                                    64,500          62,145
Intangible assets, net                          40,809          47,950
Goodwill                                       27,574         27,574
Total assets                                  $ 1,008,773   $   863,970
                                                            
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses         $ 151,199     $   134,082
Accrued profit sharing and royalty expenses     22,553          4,936
Deferred revenue                               4,452          6,277
Total current liabilities                      178,204        145,295
Deferred revenue                                7,074           6,362
Other liabilities                              25,038         21,210
Total liabilities                               210,316         172,867
Total stockholders' equity                     798,457        691,103
Total liabilities and stockholders' equity    $ 1,008,773   $   863,970
                                                                


Impax Laboratories, Inc.
Consolidated Statements of Cash Flows
(unaudited, amounts in thousands)
                                                    
                                                      
                                                      Three Months Ended
                                                      March 31,
                                                      2013         2012
Cash flows from operating activities:
Net income                                            $ 105,442     $ 12,365
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization                           12,397        3,730
Provision for inventory reserves                        22,804        4,094
Accretion of interest income on short-term              (158)         (171)
investments
Deferred income taxes (benefit)                         (2,800)       817
Tax impact related to the exercise of employee          3             (1,632)
stock options
Deferred revenue                                        -             315
Deferred product manufacturing costs                    -             (495)
Recognition of deferred revenue                         (1,113)       (6,061)
Amortization of deferred product manufacturing          -             661
costs
Accrued profit sharing and royalty expense              22,541        25,555
Payments of profit sharing and royalty expense          (4,925)       (40,755)
Share-based compensation expense                        4,359         3,809
Other receivable                                        (102,049)     -
Changes in assets and liabilities:
Accounts receivable                                     (21,357)      34,590
Inventory                                               (15,130)      (7,855)
Prepaid expenses and other assets                       12,561        (3,745)
Accounts payable and accrued expenses                   22,645        (4,153)
Other liabilities                                      2,527        2,661
Net cash provided by operating activities              57,747       23,730
                                                                    
Cash flows from investing activities:
Purchase of short-term investments                      (60,515)      (35,585)
Maturities of short-term investments                    65,993        126,549
Purchases of property, plant and equipment              (9,361)       (8,165)
Payment for product licensing rights                   -            (25,000)
Net cash (used in) provided by investing activities    (3,883)      57,799
                                                                    
Cash flows from financing activities:
Proceeds from exercise of stock options and ESPP        1,554         4,468
Tax impact related to the exercise of employee         (3)          1,632
stock options and restricted stock
Net cash provided by financing activities              1,551        6,100
                                                                    
Net increase in cash and cash equivalents               55,415        87,629
Cash and cash equivalents, beginning of period         142,162      104,419
Cash and cash equivalents, end of period              $ 197,577     $ 192,048
                                                                    


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
                                                          March 31,
                                                          2013       2012
Net income                                                $ 105.4     $ 12.4
Adjusted to add (deduct):
Payments received from litigation settlements^(a)           (150.0)     -
Provision for inventory reserves^(b)                        18.1        5.2
Amortization and acquisition-related costs^(c)              7.1         -
R&D partner milestone payment^(d)                           2.0         -
Hayward facility remediation costs^(e)                      1.9         1.0
Loss on asset disposal^(f)                                  0.9         -
Gross profit earned on Zomig® Agreement                     -           30.0
Income tax effect                                          39.9       (12.8)
Adjusted net income                                       $ 25.3      $ 35.8
                                                                      
Adjusted net income per diluted share                     $ 0.37      $ 0.53
Net income per diluted share                              $ 1.55      $ 0.18
                                                                      

                                                         
Impax Laboratories, Inc.
Non-GAAP Financial Measures
                                                           
The following table reconciles reported net income to
adjusted EBITDA.
                                                           
(Unaudited, amounts in millions)                           Three Months Ended
                                                           March 31,
                                                           2013       2012
Net income                                                 $ 105.4     $ 12.4
Adjusted to add (deduct):
Interest income                                              (0.3)       (0.3)
Interest expense                                             0.3         0.0
Depreciation and other                                       5.3         3.7
Income taxes                                                48.3       6.3
EBITDA                                                      159.0      22.1
                                                                       
Adjusted to add (deduct):
Payments received from litigation settlements^(a)            (150.0)     -
Provision for inventory reserves^(b)                         18.1        5.2
Amortization and acquisition-related costs^(c)               7.1         -
R&D partner milestone payment^(d)                            2.0         -
Hayward facility remediation costs^(e)                       1.9         1.0
Loss on asset disposal^(f)                                   0.9         -
Gross profit earned on Zomig® Agreement                      -           30.0
Share-based compensation                                    4.4        3.8
Adjusted EBITDA                                            $ 43.4      $ 62.1
                                                                       


      As of March 31, 2013, the Company had a $102.0 million receivable in
      connection with a previously announced settlement and license agreement
      with Endo Pharmaceuticals, Inc., which was recorded as other income in
      the first quarter 2013. The $102.0 million receivable was received by
(a)  the Company in April 2013. In addition, in connection with the
      settlement of litigation relating to supply of authorized generic
      Adderall XR® products to the Company under the terms of the Shire
      Agreement, the Company received a one-time payment of $48.0 million from
      Shire LLC in the first quarter 2013.
      In the first quarter 2013, the Company recorded an inventory reserve
      charge relating to discontinued products ($6.7 million), and a reserve
(b)   of pre-launch inventory for RYTARY^TM ($5.0 million) and other generic
      products ($6.4 million) as a result of the delay in the anticipated
      regulatory approvals.
      Amortization and acquisition-related costs from the January 2012
(c)   AstraZeneca Agreement and the June 2012 Development, Distribution and
      Supply Agreement with TOLMAR, Inc.
      In the first quarter 2013, the Company recorded a $2.0 million milestone
(d)   payment under the terms of a research and development partnership
      agreement.
(e)   Remediation costs relating to the Hayward, CA. manufacturing facility.
(f)   In the first quarter 2013, the Company recorded a loss of $0.9 million
      on the disposal of an asset.

Contact:

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