EX-99 2 ex99-1.htm EXHIBIT 99.1 ex99-1.htm

 

Exhibit 99.1

 

 

Company Contact:

Mark Donohue

Investor Relations and Corporate Communications

(215) 558-4526               

www.impaxlabs.com 

 

Impax Laboratories Reports Second Quarter 2013 Results

 

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 RYTARYTM, 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.

 

 
1

 

 

Global Pharmaceuticals Division Information

 

   

Three Months Ended

   

Six Months Ended

 

(unaudited, amounts in thousands)

 

June 30,

   

June 30,

 
   

2013

   

2012

   

2013

   

2012

 

Revenues:

                               

Global Product sales, net

  $ 89,758     $ 126,435     $ 187,563     $ 242,642  

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 development

    9,291       12,146       21,002       22,819  

Patent litigation

    4,304       2,914       8,582       6,952  

Selling, general and administrative

    3,882       3,262       8,926       7,579  

Total operating expenses

    17,477       18,322       38,510       37,350  

Income from operations

  $ 21,761     $ 44,268     $ 40,921     $ 85,399  
                                 

Gross margin

    41.8 %     47.0 %     40.6 %     47.9 %

Adjusted gross profit (1)

  $ 46,641     $ 63,597     $ 102,235     $ 129,977  

Adjusted gross margin (1)

    49.6 %     47.8 %     52.3 %     50.7 %

 

(1)

Adjusted gross profit is calculated as total revenues less adjusted 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.

 

 
2

 

 

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 thousands)

 

June 30,

   

June 30,

 
   

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 administrative

    11,836       6,707       24,599       9,768  

Total operating expenses

    18,085       14,430       38,742       25,634  

Income (loss) from operations

  $ 1,564     $ 803     $ (1,414 )   $ (8,007 )
                                 

Gross margin

    55.1 %     45.6 %     45.2 %     45.6 %

Adjusted gross profit (1)

  $ 25,444     $ 29,560     $ 54,852     $ 31,954  

Adjusted gross margin (1)

    71.3 %     88.5 %     66.5 %     82.6 %

(1)

Adjusted gross profit is calculated as total revenues less adjusted 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.

 

 
3

 

 

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 RYTARYTM, partially offset by lower research and development expenses.

 

Corporate and Other

 

   

Three Months Ended

   

Six Months Ended

 

(unaudited, amounts in thousands)

 

June 30,

   

June 30,

 
   

2013

   

2012

   

2013

   

2012

 

General and administrative expenses

  $ 17,557     $ 14,901     $ 29,468     $ 28,756  

Loss from operations

  $ (17,557 )   $ (14,901 )   $ (29,468 )   $ (28,756 )

 

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).

 

 
4

 

 

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 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 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.

 

 
5

 

 

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 Division

  $ 93,965     $ 133,068     $ 195,602     $ 256,333  

Impax Pharmaceuticals Division

    35,666       33,392       82,518       38,695  

Total revenues

    129,631       166,460       278,120       295,028  

Cost of revenues

    70,744       88,637       161,361       154,652  

Gross profit

    58,887       77,823       116,759       140,376  

Operating expenses:

                               

Research and development

    15,540       19,869       35,145       38,685  

Patent litigation

    4,304       2,914       8,582       6,952  

Selling, general and administrative

    33,275       24,870       62,993       46,103  

Total operating expenses

    53,119       47,653       106,720       91,740  

Income from operations

    5,768       30,170       10,039       48,636  

Other income (expense), net

    2,997       (57 )     152,453       (105 )

Interest income

    315       244       591       499  

Interest expense

    (45 )     (423 )     (328 )     (462 )

Income before income taxes

    9,035       29,934       162,755       48,568  

Provision for income taxes

    3,416       11,262       51,694       17,531  

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  

 

 
6

 

 

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 expenses

    15,556       4,936  

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' equity

  $ 1,009,784     $ 863,970  

 

 
7

 

 

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 investments

    (335 )     (318 )

Deferred income taxes (benefit)

    (6,871 )     (31,824 )

Tax benefit related to the exercise of employee stock options

    (446 )     (2,338 )

Deferred revenue

    -       931  

Deferred product manufacturing costs

    -       (1,574 )

Recognition of deferred revenue

    (2,226 )     (12,320 )

Amortization of deferred product manufacturing costs

    -       1,709  

Accrued profit sharing and royalty expense

    38,011       58,445  

Payments of profit sharing and royalty expense

    (27,392 )     (66,226 )

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 activities

    (92,411 )     28,331  

Cash flows from financing activities:

               

Proceeds from exercise of stock options and ESPP

    4,351       6,055  

Tax benefit related to the exercise of employee stock options and restricted stock

    446       2,338  

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 period

    142,162       104,419  

Cash and cash equivalents, end of period

  $ 222,983     $ 184,632  

 

 
8

 

 

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, except per share data)

 

June 30,

   

June 30,

 
   

2013

   

2012

   

2013

   

2012

 

Net income

  $ 5,619     $ 18,672     $ 111,061     $ 31,037  

Adjusted to add (deduct):

                               

Amortization and acquisition-related costs (a)

    6,225       14,327       13,367       14,327  

Hayward facility remediation costs (b)

    4,562       1,007       6,498       1,975  

Employee severance (c)

    7,988       1,926       7,988       1,926  

Payments received from litigation settlement (d)

    (3,000 )     -       (153,049 )     -  

Provision for inventory reserve (e)

    -       -       18,053       5,253  

R&D partner milestone payment (f)

    -       -       2,000       -  

Loss on asset disposal (g)

    -       -       881       -  

Gross profit earned on Zomig® Agreement (h)

    -       16,200       -       46,200  

Acquisition related in process R&D (i)

    -       1,550       -       1,550  

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 per diluted share

  $ 0.23     $ 0.61     $ 0.60     $ 1.14  

Net income per diluted share

  $ 0.08     $ 0.27     $ 1.62     $ 0.46  

 

 
9

 

 

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 in thousands)

 

June 30,

   

June 30,

 
   

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 other

    5,556       3,919       10,812       7,649  

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 costs (a)

    6,225       14,327       13,367       14,327  

Hayward facility remediation costs (b)

    4,562       1,007       6,498       1,975  

Employee severance (c)

    7,988       1,926       7,988       1,926  

Payments received from litigation settlement (d)

    (3,000 )     -       (153,049 )     -  

Provision for inventory reserve (e)

    -       -       18,053       5,253  

R&D partner milestone payment (f)

    -       -       2,000       -  

Loss on asset disposal (g)

    -       -       881       -  

Gross profit earned on Zomig® Agreement (h)

    -       16,200       -       46,200  

Acquisition related in process R&D (i)

    -       1,550       -       1,550  

Share-based compensation

    6,144       4,514       10,503       8,323  

Adjusted EBITDA

  $ 36,240     $ 73,556     $ 79,545     $ 135,734  

 

 

(a)

Amortization and acquisition-related costs from the January 2012 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).

(e) 

An inventory reserve charge relating to discontinued products, a reserve of pre-launch inventory for RYTARYTM 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.

(h)

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 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.

 

 
10

 

 

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 millions)

 

June 30,

   

June 30,

 
   

2013

   

2012

   

2013

   

2012

 

Cost of revenues

  $ 70,744     $ 88,637     $ 161,361     $ 154,652  

Adjusted to deduct:

                               

Amortization and acquisition-related costs

    6,225       14,327       13,367       14,327  

Hayward facility remediation costs

    4,562       1,007       6,498       1,975  

Employee severance

    2,411       -       2,411       -  

Provision for inventory reserve

    -       -       18,053       5,253  

Adjusted cost of revenues

  $ 57,546     $ 73,303     $ 121,032     $ 133,097  
                                 

Adjusted gross profit (1)

  $ 72,085     $ 93,157     $ 157,088     $ 161,931  

Adjusted gross margin (1)

    55.6 %     56.0 %     56.5 %     54.9 %
                                 

Research and development expenses

  $ 15,540     $ 19,869     $ 35,145     $ 38,685  

Adjusted to deduct:

                               

Employee severance

    91       -       91       -  

Acquisition related in process R&D

    -       1,550       -       1,550  

R&D partner milestone payment

    -       -       2,000       -  

Adjusted research and development expenses

  $ 15,449     $ 18,319     $ 33,054     $ 37,135  
                                 

Selling, general and administrative expenses

  $ 33,275     $ 24,870     $ 62,993     $ 46,103  

Adjusted to deduct:

                               

Employee severance

    5,486       1,926       5,486       1,926  

Adjusted selling, general and administrative expenses

  $ 27,789     $ 22,944     $ 57,507     $ 44,177  

 

(1)

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

 

 
11

 

 

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 in thousands)

 

June 30,

   

June 30,

 
   

2013

   

2012

   

2013

   

2012

 

Cost of revenues

  $ 54,727     $ 70,478     $ 116,171     $ 133,584  

Adjusted to deduct:

                               

Amortization and acquisition-related costs

    430       -       859       -  

Hayward facility remediation costs

    4,562       1,007       6,498       1,975  

Employee severance

    2,411       -       2,411       -  

Provision for inventory reserve

    -       -       13,036       5,253  

Adjusted cost of revenues

  $ 47,324     $ 69,471     $ 93,367     $ 126,356  
                                 

Adjusted gross profit (1)

  $ 46,641     $ 63,597     $ 102,235     $ 129,977  

Adjusted gross margin (1)

    49.6 %     47.8 %     52.3 %     50.7 %

 

The following table reconciles Impax Pharmaceuticals reported cost of revenues to adjusted cost of revenues.

 

   

Three months ended

   

Six months ended

 

(unaudited, amounts in thousands)

 

June 30,

   

June 30,

 
   

2013

   

2012

   

2013

   

2012

 

Cost of revenues

  $ 16,017     $ 18,159     $ 45,190     $ 21,068  

Adjusted to deduct:

                               

Amortization and acquisition-related costs

    5,795       14,327       12,507       14,327  

Provision for inventory reserve

    -       -       5,017       -  

Adjusted cost of revenues

  $ 10,222     $ 3,832     $ 27,666     $ 6,741  
                                 

Adjusted gross profit (1)

  $ 25,444     $ 29,560     $ 54,852     $ 31,954  

Adjusted gross margin (1)

    71.3 %     88.5 %     66.5 %     82.6 %

 

(1)

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

 

 
12

 

 

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 thousands)

 

June 30,

   

June 30,

 
   

2013

   

2012

   

2013

   

2012

 

General and administrative expenses

  $ 17,557     $ 14,901     $ 29,468     $ 28,756  

Adjusted to deduct:

                               

Employee severance

    5,388       1,926       5,388       1,926  

Adjusted general and administrative expenses

  $ 12,169     $ 12,975     $ 24,080     $ 26,830  

 

 

 

 

 

 

13