Impax Laboratories Reports Second Quarter 2013 Results

  Impax Laboratories Reports Second Quarter 2013 Results

Business Wire

HAYWARD, Calif. -- August 8, 2013

Impax Laboratories, Inc. (NASDAQ: IPXL) today reported second quarter 2013
adjusted earnings per diluted share of $0.23, compared to adjusted earnings of
$0.61 for the same quarter of 2012. On a GAAP basis, earnings per diluted
share for the second quarter 2013 were $0.08, compared to $0.27 in the prior
year period. The current quarter decline was primarily the result of
additional generic competition on the Company’s authorized generic Adderall
XR® products and its fenofibrate products, as well as the loss of exclusivity
in mid-May 2013 for branded Zomig® tablet products which provided higher
profits in the prior year period compared to the current quarter. Refer to the
attached “Non-GAAP Financial Measures” for a reconciliation of GAAP to
non-GAAP items.

For the second quarter 2013, total revenues were $129.6 million, compared to
$166.5 million in the prior year period.

“We were able to offset some of the revenue decline by successfully capturing
sales and segment share with our non-AB rated oxymorphone hydrochloride
extended-release products during our 180-day exclusivity period that expired
in early July of this year,” said Larry Hsu, Ph.D., president and CEO, Impax
Laboratories, Inc. “However, until we are able to close out the warning letter
at our Hayward facility, we expect continued delays in receiving approval for
a number of products pending at the FDA that could drive future growth. The
absence of new product approvals, combined with additional generic competition
and significant segment erosion of Zomig’s two largest dosage forms, will
likely result in operating losses in the second half of this year.”

“We continue to implement quality improvements across our facilities and
remain committed to resolving all observations in the most recent Form 483 and
exceeding current Good Manufacturing Practices. With a generic pipeline of 44
products pending approval at the FDA and our pending New Drug Application for
RYTARY^TM, as well as significant financial resources available for strategic
external opportunities, I remain optimistic about the future of Impax,”
concluded Dr. Hsu.

Adjusted earnings before interest, taxes, depreciation and amortization
(Adjusted EBITDA), was $36.2 million in the second quarter 2013, compared to
$73.6 million in the prior year period.

Cash and short-term investments increased $153.5 million to $452.4 million as
of June 30, 2013, compared to $298.9 million as of December 31, 2012. The
increase was primarily due to the receipt of a one-time pre-tax payment of
$102.0 million from Endo Pharmaceuticals in connection with a previously
announced settlement and license agreement, and $48.0 million from Shire LLC
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.

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. All information presented is on a GAAP basis unless otherwise
noted as on an adjusted basis.


Global Pharmaceuticals Division Information


                          Three Months Ended       Six Months Ended
(unaudited, amounts in      June 30,                   June 30,
thousands)
                            2013       2012          2013        2012
Revenues:
Global Product sales,       $ 89,758     $ 126,435     $ 187,563     $ 242,642
net
Rx Partner                    3,668        2,466         6,781         5,444
Other revenues               539         4,167        1,258        8,247
Total revenues               93,965      133,068      195,602      256,333
Cost of revenues             54,727      70,478       116,171      133,584
Gross profit                 39,238      62,590       79,431       122,749
Operating expenses:
Research and                  9,291        12,146        21,002        22,819
development
Patent litigation             4,304        2,914         8,582         6,952
Selling, general and         3,882       3,262        8,926        7,579
administrative
Total operating              17,477      18,322       38,510       37,350
expenses
Income from operations      $ 21,761     $ 44,268      $ 40,921      $ 85,399
                                                                       
Gross margin                  41.8%        47.0%         40.6%         47.9%
Adjusted gross profit       $ 46,641     $ 63,597      $ 102,235     $ 129,977
^(1)
Adjusted gross margin         49.6%        47.8%         52.3%         50.7%
^(1)


     
       Adjusted gross profit is calculated as total revenues less adjusted
^(1)   cost of revenues. Adjusted gross margin is calculated as adjusted gross
       profit divided by total revenues. Refer to the attached "Non-GAAP
       Financial Measures" for a reconciliation of GAAP to non-GAAP items.
       

In the second quarter 2013, Global Product sales, net, were $89.8 million,
compared to $126.4 million in the prior year period. The decline was primarily
due to lower sales of authorized generic Adderall XR products and generic
fenofibrate products as a result of additional competition, partially offset
by the January 2013 launch of the Company’s non-AB rated generic oxymorphone
hydrochloride extended-release tablets.

Other revenues in the second quarter 2013 were $0.5 million, compared to $4.2
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 second quarter 2013 was $39.2 million and gross margin was
41.8%, compared to gross profit of $62.6 million and gross margin of 47.0% in
the prior year period. The decrease in gross profit is due to lower sales of
Global Products, as noted above, as well as an increase in remediation costs
related to the Hayward facility and the inclusion of employee severance
charges from the Company’s June 2013 workforce reduction. Adjusted gross
profit in the second quarter 2013 was $46.6 million and adjusted gross margin
was 49.6%. For the second quarter 2012, adjusted gross profit was $63.6
million and adjusted gross margin was 47.8%. The increase in adjusted gross
margin is primarily due to the higher margin sales of oxymorphone tablets
during the exclusivity period which expired in early July 2013 for which there
was no comparable amount in the prior year period.

Total Global Pharmaceuticals operating expenses in the second quarter 2013
decreased to $17.5 million, compared to $18.3 million in the prior year
period, primarily due to lower research and development expenses, partially
offset by higher patent litigation expenses.


Impax Pharmaceuticals Division Information


                           Three Months Ended      Six Months Ended
(unaudited, amounts in       June 30,                  June 30,
thousands)
                             2013       2012         2013        2012
Revenues:
Impax Product sales, net     $ 35,334     $ 28,091     $ 81,855      $ 28,091
Other revenues                332         5,301       663          10,604
Total revenues                35,666      33,392      82,518       38,695
Cost of revenues              16,017      18,159      45,190       21,068
Gross profit                  19,649      15,233      37,328       17,627
Operating expenses:
Research and development       6,249        7,723        14,143        15,866
Selling, general and          11,836      6,707       24,599       9,768
administrative
Total operating expenses      18,085      14,430      38,742       25,634
Income (loss) from           $ 1,564      $ 803        $ (1,414)     $ (8,007)
operations
                                                                       
Gross margin                   55.1%        45.6%        45.2%         45.6%
Adjusted gross profit        $ 25,444     $ 29,560     $ 54,852      $ 31,954
^(1)
Adjusted gross margin          71.3%        88.5%        66.5%         82.6%
^(1)


     
       Adjusted gross profit is calculated as total revenues less adjusted
^(1)   cost of revenues. Adjusted gross margin is calculated as adjusted gross
       profit divided by total revenues. Refer to the attached "Non-GAAP
       Financial Measures" for a reconciliation of GAAP to non-GAAP items.
       

In the second quarter 2013, Impax Product sales, net, increased $7.2 million
to $35.3 million, compared to $28.1 million in the prior year period due to
higher U.S. sales of Zomig. The U.S. exclusivity on Zomig tablets and orally
disintegrating tablets expired on May 14, 2013. These two dosage forms
represented approximately 85% of the Company’s second quarter 2013 sales of
Zomig products. Following the loss of exclusivity, several generic competitors
launched products that have significantly impacted sales of these two dosage
forms. The Company launched an authorized generic version of both products
upon loss of exclusivity. Impax Pharmaceuticals continues to commercialize the
Zomig nasal spray which has U.S. patents expiring as late as May 2021.

Other revenues in the second 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 second quarter 2013 increased to $19.6 million, compared
to $15.2 million in the prior year period. Gross margin in the second quarter
2013 increased to 55.1%, compared to 45.6% in the prior year period. The
increase in gross profit and gross margin in the second quarter 2013 was
primarily the result of a decrease in cost of revenues related to charges for
the Company’s branded products sales force that were incurred during the prior
year period, for which there were no similar amounts included in cost of
revenues in the current year period, as well as the commencement of sales of
Impax-labeled Zomig products during 2012. Charges for the branded products
sales force had been included as a component of cost of revenues in the prior
year period (as of July 1, 2012, a component of selling, general and
administrative expenses) as the sales force was previously engaged in
providing co-promotion services to Pfizer as noted above. Adjusted gross
profit in the second quarter 2013 decreased to $25.4 million and gross margin
was 71.3%, compared to adjusted gross profit of $29.6 million and gross margin
of 88.5% in the prior year period. The decline in adjusted gross profit and
gross margin is due to the payment of royalties to AstraZeneca beginning
January 1, 2013, on branded sales of Zomig under the terms of the AstraZeneca
Agreement.

Total Impax Pharmaceuticals operating expenses in the second quarter 2013
increased to $18.1 million, compared to $14.4 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 previously anticipated
launch of RYTARY^TM, partially offset by lower research and development
expenses.

                                              
Corporate and Other
                                                   
                                                   
                   Three Months Ended              Six Months Ended
(unaudited,
amounts in         June 30,                        June 30,
thousands)
                   2013          2012            2013          2012
General and
administrative     $ 17,557       $ 14,901       $ 29,468       $ 28,756  
expenses
Loss from          $ (17,557 )     $ (14,901 )     $ (29,468 )     $ (28,756 )
operations
                                                                             

General and administrative expenses in the second quarter 2013 increased to
$17.6 million, compared to $14.9 million in the prior year period. The
increase is primarily due to higher employee severance costs of $5.4 million
in the second quarter 2013 compared to $1.9 million in the prior year period,
partially offset by lower corporate legal fees. Excluding the severance
charges, adjusted general and administrative expenses in the second quarter
2013 decreased to $12.2 million, compared to $13.0 million in the prior year
period due to lower corporate legal fees.

2013 Financial Guidance

Impax’s estimates are based on the actual results for the first six months
ended June 30, 2013, and management’s current belief about prescription
trends, pricing levels, inventory levels and the anticipated timing of future
product launches and events. The Company updated its estimated adjusted 2013
financial guidance as noted below.

  *UPDATED – Gross margins as a percent of total revenues is expected to be
    in the mid to upper 40% range (previously mid 40% range).
  *UPDATED – Total R&D expenses across the generic and brand divisions of
    approximately $80.0 million to $87.0 million (previously $87.0 million to
    $95.0 million); generic R&D expenses of approximately $45.0 million to
    $49.0 million (previously $49.0 million to $53.0 million) and brand R&D
    expenses of approximately $35.0 million to $38.0 million (previously $38.0
    million to $42.0 million).
  *UPDATED – Patent litigation expenses of approximately $12.0 million to
    $15.0 million (previously $10.0 million to $12.0 million).
  *UPDATED – SG&A expenses of approximately $113.0 million to $118.0 million
    (previously $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% on a GAAP basis. The
    Company anticipates that its non-GAAP effective tax rate may experience
    volatility as the Company’s tax benefits may be high compared to the
    Company’s operating income or loss.

Conference Call Information

The Company will host a conference call on August 8, 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 16817849. 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                  Six Months Ended
                    June 30,                              June 30,
                    2013             2012               2013             2012
Revenues:
Global
Pharmaceuticals     $ 93,965           $ 133,068          $ 195,602          $ 256,333
Division
Impax
Pharmaceuticals      35,666           33,392           82,518           38,695     
Division
Total revenues       129,631          166,460          278,120          295,028    
Cost of              70,744           88,637           161,361          154,652    
revenues
Gross profit         58,887           77,823           116,759          140,376    
Operating
expenses:
Research and          15,540             19,869             35,145             38,685
development
Patent                4,304              2,914              8,582              6,952
litigation
Selling,
general and          33,275           24,870           62,993           46,103     
administrative
Total operating      53,119           47,653           106,720          91,740     
expenses
Income from          5,768            30,170           10,039           48,636     
operations
Other income          2,997              (57        )       152,453            (105       )
(expense), net
Interest income       315                244                591                499
Interest             (45        )      (423       )      (328       )      (462       )
expense
Income before         9,035              29,934             162,755            48,568
income taxes
Provision for        3,416            11,262           51,694           17,531     
income taxes
Net income          $ 5,619           $ 18,672          $ 111,061         $ 31,037     
                                                                                          
Net Income per
share:
Basic               $ 0.08            $ 0.29            $ 1.67            $ 0.48       
Diluted             $ 0.08            $ 0.27            $ 1.62            $ 0.46       
                                                                                          
Weighted
average common
shares
outstanding:
Basic                 66,748,864         65,482,700         66,618,889         65,289,869
Diluted               68,287,948         67,954,573         68,382,004         68,064,934
                                                                                          


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


                                         June 30, 2013   December 31, 2012
Assets
Current assets:
Cash and cash equivalents                  $  222,983        $     142,162
Short-term investments                        229,427              156,756
Accounts receivable, net                      103,480              92,249
Inventory, net                                85,763               89,764
Deferred income taxes                         45,181               42,529
Prepaid expenses and other assets            8,909               22,083
Total current assets                         695,743             545,543
Property, plant and equipment, net            179,128              180,758
Other assets                                  72,756               62,145
Intangible assets, net                        34,583               47,950
Goodwill                                     27,574              27,574
Total assets                               $  1,009,784      $     863,970
                                                                   
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses      $  147,384        $     134,082
Accrued profit sharing and royalty            15,556               4,936
expenses
Deferred revenue                             4,453               6,277
Total current liabilities                    167,393             145,295
Deferred revenue                              5,961                6,362
Other liabilities                            24,256              21,210
Total liabilities                             197,610              172,867
Total stockholders' equity                   812,174             691,103
Total liabilities and stockholders'        $  1,009,784      $     863,970
equity
                                                                   


Impax Laboratories, Inc.

Consolidated Statements of Cash Flows

(unaudited, amounts in thousands)


                                               Six Months Ended June 30,
                                                 2013           2012
Cash flows from operating activities:
Net income                                       $ 111,061        $ 31,037
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization                      24,179           21,976
Provision for inventory reserves                   22,529           4,602
Accretion of interest income on short-term         (335     )       (318     )
investments
Deferred income taxes (benefit)                    (6,871   )       (31,824  )
Tax benefit related to the exercise of             (446     )       (2,338   )
employee stock options
Deferred revenue                                   -                931
Deferred product manufacturing costs               -                (1,574   )
Recognition of deferred revenue                    (2,226   )       (12,320  )
Amortization of deferred product                   -                1,709
manufacturing costs
Accrued profit sharing and royalty expense         38,011           58,445
Payments of profit sharing and royalty             (27,392  )       (66,226  )
expense
Share-based compensation expense                   10,503           8,323
Changes in assets and liabilities:
Accounts receivable                                (11,231  )       10,326
Inventory                                          (19,210  )       (13,517  )
Prepaid expenses and other assets                  6,886            (9,046   )
Accounts payable and accrued expenses              21,381           39,712
Other liabilities                                 1,596          3,591    
Net cash provided by operating activities        $ 168,435       $ 43,489   
Cash flows from investing activities:
Purchase of short-term investments                 (220,284 )       (104,869 )
Maturities of short-term investments               147,948          177,331
Purchases of property, plant and equipment         (20,075  )       (24,971  )
Payment for product licensing rights, net         -              (19,160  )
Net cash (used in) provided by investing          (92,411  )      28,331   
activities
Cash flows from financing activities:
Proceeds from exercise of stock options and        4,351            6,055
ESPP
Tax benefit related to the exercise of            446            2,338    
employee stock options and restricted stock
Net cash provided by financing activities         4,797          8,393    
Net increase in cash and cash equivalents          80,821           80,213
Cash and cash equivalents, beginning of           142,162        104,419  
period
Cash and cash equivalents, end of period         $ 222,983       $ 184,632  
                                                                             


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             Six months ended
(Unaudited, amounts
in thousands,           June 30,                       June 30,
except per share
data)
                        2013         2012            2013           2012
Net income              $ 5,619        $ 18,672        $ 111,061        $ 31,037
Adjusted to add
(deduct):
Amortization and
acquisition-related       6,225          14,327          13,367           14,327
costs ^(a)
Hayward facility
remediation costs         4,562          1,007           6,498            1,975
^(b)
Employee severance        7,988          1,926           7,988            1,926
^(c)
Payments received
from litigation           (3,000 )       -               (153,049 )       -
settlement ^(d)
Provision for
inventory reserve         -              -               18,053           5,253
^(e)
R&D partner
milestone payment         -              -               2,000            -
^(f)
Loss on asset             -              -               881              -
disposal ^(g)
Gross profit earned
on Zomig® Agreement       -              16,200          -                46,200
^(h)
Acquisition related       -              1,550           -                1,550
in process R&D ^(i)
Income tax effect        (5,476 )      (12,039 )      34,401         (24,507 )
Adjusted net income     $ 15,918      $ 41,643       $ 41,200        $ 77,761  
                                                                                  
Adjusted net income     $ 0.23         $ 0.61          $ 0.60           $ 1.14
per diluted share
Net income per          $ 0.08         $ 0.27          $ 1.62           $ 0.46
diluted share
                                                                                  


Impax Laboratories, Inc.

Non-GAAP Financial Measures

The following table reconciles reported net income to adjusted EBITDA.

                      Three months ended          Six months ended
(Unaudited, amounts     June 30,                      June 30,
in thousands)
                        2013         2012           2013           2012
Net income              $ 5,619        $ 18,672       $ 111,061        $ 31,037
Adjusted to add
(deduct):
Interest income           (315   )       (244   )       (591     )       (499    )
Interest expense          45             423            328              462
Depreciation and          5,556          3,919          10,812           7,649
other
Income taxes             3,416        11,262       51,694         17,531  
EBITDA                   14,321       34,032       173,304        56,180  
                                                                                 
Adjusted to add
(deduct):
Amortization and
acquisition-related       6,225          14,327         13,367           14,327
costs ^(a)
Hayward facility
remediation costs         4,562          1,007          6,498            1,975
^(b)
Employee severance        7,988          1,926          7,988            1,926
^(c)
Payments received
from litigation           (3,000 )       -              (153,049 )       -
settlement ^(d)
Provision for
inventory reserve         -              -              18,053           5,253
^(e)
R&D partner
milestone payment         -              -              2,000            -
^(f)
Loss on asset             -              -              881              -
disposal ^(g)
Gross profit earned
on Zomig® Agreement       -              16,200         -                46,200
^(h)
Acquisition related       -              1,550          -                1,550
in process R&D ^(i)
Share-based              6,144        4,514        10,503         8,323   
compensation
Adjusted EBITDA         $ 36,240      $ 73,556      $ 79,545        $ 135,734 
                                                                                 

    
      Amortization and acquisition-related costs from the January 2012
(a)   AstraZeneca Agreement and the June 2012 Development, Distribution and
      Supply Agreement with TOLMAR, Inc.
(b)   Remediation costs relating to the Hayward, CA. manufacturing facility.
(c)   Charges associated with the June 2013 announcements of a workforce
      reduction and Dr. Hsu’s retirement.
(d)   Settlement of litigation (included in “Other income (expense), net” on
      the Consolidated Statements of Operations).
      An inventory reserve charge relating to discontinued products, a reserve
(e)   of pre-launch inventory for RYTARY^TM and other generic products as a
      result of the delay in the anticipated regulatory approvals.
(f)   Milestone payment under the terms of a research and development
      partnership agreement.
(g)   Included in “Other income (expense), net” on the Consolidated Statements
      of Operations.
      During the product transition period, the Company received the benefit
      of the gross profit from U.S. Zomig® sales commencing from January 1,
      2012 and ending when the Company commenced commercialization of the
(h)   Zomig products. The benefit of the gross profit received from
      AstraZeneca was recorded as a reduction of the $130.0 million paid by
      the Company to AstraZeneca during 2012 and was not reflected within the
      Company’s income but included in the Company’s adjusted net income.
(i)   Acquisition related in-process R&D from the June 2012 Development,
      Distribution and Supply Agreement with TOLMAR, Inc.
      


Impax Laboratories, Inc.
Non-GAAP Financial Measures

The following table reconciles total Company reported cost of revenues,
research and development expenses and selling, general and administrative
expenses to adjusted cost of revenues, adjusted research and development
expenses and adjusted selling, general and administrative expenses.


                                                            
                             Three months ended        Six months ended
(Unaudited, amounts in       June 30,                  June 30,
millions)
                             2013         2012         2013          2012
Cost of revenues             $ 70,744     $ 88,637     $ 161,361     $ 154,652
Adjusted to deduct:
Amortization and
acquisition-related            6,225        14,327       13,367        14,327
costs
Hayward facility               4,562        1,007        6,498         1,975
remediation costs
Employee severance             2,411        -            2,411         -
Provision for inventory       -           -           18,053       5,253
reserve
Adjusted cost of             $ 57,546     $ 73,303     $ 121,032     $ 133,097
revenues
                                                                       
Adjusted gross profit        $ 72,085     $ 93,157     $ 157,088     $ 161,931
^(1)
Adjusted gross margin          55.6%        56.0%        56.5%         54.9%
^(1)
                                                                       
Research and development     $ 15,540     $ 19,869     $ 35,145      $ 38,685
expenses
Adjusted to deduct:
Employee severance             91           -            91            -
Acquisition related in         -            1,550        -             1,550
process R&D
R&D partner milestone         -           -           2,000        -
payment
Adjusted research and        $ 15,449     $ 18,319     $ 33,054      $ 37,135
development expenses
                                                                       
Selling, general and         $ 33,275     $ 24,870     $ 62,993      $ 46,103
administrative expenses
Adjusted to deduct:
Employee severance            5,486       1,926       5,486        1,926
Adjusted selling,
general and                  $ 27,789     $ 22,944     $ 57,507      $ 44,177
administrative expenses
                                                                       

    
      Adjusted gross profit is calculated as total revenues less adjusted cost
(1)   of revenues. Adjusted gross margin is calculated as adjusted gross
      margin divided by total revenues.
      

                                                            
Impax Laboratories, Inc.

Non-GAAP Financial Measures
                                                                       
The following table reconciles Global Pharmaceuticals reported cost of
revenues to adjusted cost of revenues.
                                                                       
                           Three months ended          Six months ended
(unaudited, amounts        June 30,                    June 30,
in thousands)
                           2013           2012         2013          2012
Cost of revenues           $  54,727      $ 70,478     $ 116,171     $ 133,584
Adjusted to deduct:
Amortization and
acquisition-related           430           -            859           -
costs
Hayward facility              4,562         1,007        6,498         1,975
remediation costs
Employee severance            2,411         -            2,411         -
Provision for                -            -           13,036       5,253
inventory reserve
Adjusted cost of           $  47,324      $ 69,471     $ 93,367      $ 126,356
revenues
                                                                       
Adjusted gross             $  46,641      $ 63,597     $ 102,235     $ 129,977
profit ^(1)
Adjusted gross                49.6%         47.8%        52.3%         50.7%
margin ^(1)
                                                                       
                                                                       
The following table reconciles Impax Pharmaceuticals reported cost of revenues
to adjusted cost of revenues.
                                                                       
                           Three months ended          Six months ended
(unaudited, amounts        June 30,                    June 30,
in thousands)
                           2013           2012         2013          2012
Cost of revenues           $  16,017      $ 18,159     $ 45,190      $ 21,068
Adjusted to deduct:
Amortization and
acquisition-related           5,795         14,327       12,507        14,327
costs
Provision for                -            -           5,017        -
inventory reserve
Adjusted cost of           $  10,222      $ 3,832      $ 27,666      $ 6,741
revenues
                                                                       
Adjusted gross             $  25,444      $ 29,560     $ 54,852      $ 31,954
profit ^(1)
Adjusted gross                71.3%         88.5%        66.5%         82.6%
margin ^(1)
                                                                       

    
      Adjusted gross profit is calculated as total revenues less adjusted cost
(1)   of revenues. Adjusted gross margin is calculated as adjusted gross
      margin divided by total revenues.
      

                                                  
Impax Laboratories, Inc.

Non-GAAP Financial Measures
                                                                        
The following table reconciles Corporate general and administrative expenses
to adjusted general and administrative expenses.
                                                                        
                      Three months ended                Six months ended
(unaudited,
amounts in            June 30,                          June 30,
thousands)
                      2013           2012             2013        2012
General and
administrative        $  17,557        $  14,901        $  29,468     $ 28,756
expenses
Adjusted to
deduct:
Employee                5,388           1,926           5,388       1,926
severance
Adjusted
general and           $  12,169        $  12,975        $  24,080     $ 26,830
administrative
expenses
                                                                        

Contact:

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