IMPAX Labs Reports First Quarter 2017 Financial Results
HAYWARD, Calif., May 10, 2017 /PRNewswire/ -- Impax Laboratories, Inc.(NASDAQ: IPXL), today announced first quarter 2017 financial results.
Total revenues in the first quarter 2017 were $184.4 million, a decrease of 18.2%, compared to $225.5 million in the prior year period, primarily related to a $48.5 million reduction in sales of generic diclofenac sodium gel as a result of increased competition, partially offset by higher sales of epinephrine auto-injector, oxymorphone ER, Rytary®, and the addition of products acquired from Teva Pharmaceuticals Industries Ltd. and affiliates of Allergan plc in August 2016 (the "Teva Transaction").
GAAP net loss and GAAP net loss per diluted share were $98.4 million and $1.37, respectively, in the first quarter 2017, compared to a loss of $10.4 million and $0.15, respectively, in the prior year period. The first quarter 2017 net loss was primarily driven by $45.4 million in intangible asset impairment charges, for which there were no comparable charges during the prior year period, as well as a $30.9 million income tax provision on the current period net loss. The Company could not record a tax benefit on the current quarter loss and revalued its previously recorded deferred tax assets in accordance with U.S. GAAP.
Adjusted net income and adjusted net income per diluted share were $7.7 million and $0.11, respectively, in the first quarter 2017, compared to $30.9 million and $0.43, respectively, in the prior year period. Refer to the attached "Non-GAAP Financial Measures" for a reconciliation of all GAAP to non-GAAP items.
"While our first quarter results reflect a challenging macro environment, Impax continues to have a number of strong performing products and R&D opportunities within our portfolio," said Paul Bisaro, President and Chief Executive Officer of Impax. "Since I joined the Company in March, we have carefully evaluated how best to improve profitability and capitalize on Impax's growth opportunities in both our generics and our specialty businesses. As a result of this work, we have made the decision to consolidate Impax's Generic R&D, manufacturing and packaging operations in Hayward, which will allow us to achieve operating efficiencies, improve manufacturing utilization, reduce costs and facilitate sharing of best practices."
Mr. Bisaro continued, "While our operating footprint is consolidating, we remain committed to growing our generics and specialty brand franchises by investing in both internal and external development opportunities. We believe that the actions we are announcing today will place us in an even better position to advance these strategic objectives with the intent to create long-term shareholder value."
Consolidation and Improvement Plan
The Company has initiated a series of actions that are designed to improve manufacturing and R&D efficiencies, capitalize on growth opportunities, improve profitability and mitigate current challenges. The actions include:
- Consolidating all of Generic R&D, U.S. manufacturing and packing operations to its Hayward, CA facility;
- Continuing the previously announced closure of the Middlesex, NJ manufacturing site, which will now include the closure of the Middlesex Generic R&D site;
- Reorganizing certain functions including quality, engineering and supply chain operations;
- Reviewing strategic alternatives for the Company's Taiwan manufacturing site including a sale of the facility or in the alternative, a closure of the facility; and
- Rationalizing generic portfolio to eliminate low-value products and streamline operations.
By consolidating activities as outlined above, the Company expects to achieve cost savings and operating efficiency benefits, while maintaining the infrastructure and expertise needed to capitalize on product and pipeline strengths. The Company expects these actions to produce annual cost savings of approximately $85.0 million, with a limited amount of savings in 2017. The Company will incur one-time cash charges of up to approximately $65.0 million to fully achieve these new initiatives. The combination of these new initiatives and the Company's previously announced initiatives are projected to result in total annualized cost savings of approximately $130.0 million, with the goal for all savings to be fully captured by the end of 2019. The timing to incur one-time cash charges and to achieve the total annual cost savings is dependent on the execution of the strategic alternatives relating to the Taiwan site.
Business Segment Information
The Company has two reportable segments, the Impax Generics division (generic products and services) and the Impax Specialty Pharma division (brand products and services) and does not allocate general corporate services to either segment. All information presented is on a GAAP basis unless otherwise noted.
Impax Generics Division Information (Unaudited, In thousands) | |||
Three Months Ended | |||
March 31, | |||
2017 | 2016 | ||
Revenues: | |||
Impax Generics Product sales, net | $ 128,922 | $ 167,184 | |
Rx Partner | 5,159 | 2,835 | |
Other revenues | 66 | 60 | |
Total revenues | 134,147 | 170,079 | |
Cost of revenues | 103,335 | 110,122 | |
Cost of revenues impairment charges | 39,280 | - | |
Gross (loss) profit | (8,468) | 59,957 | |
Operating expenses: | |||
Selling, general and administrative | 6,468 | 4,774 | |
Research and development | 17,396 | 14,595 | |
In-process research and development ("IPR&D") impairment charges | 6,079 | - | |
Patent litigation expense | 368 | 114 | |
Total operating expenses | 30,311 | 19,483 | |
(Loss) income from operations | $ (38,779) | $ 40,474 | |
Gross margin | (6.3%) | 35.3% | |
Adjusted gross profit (a) | $ 51,985 | $ 66,815 | |
Adjusted gross margin (a) | 38.8% | 39.3% | |
(a) 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 "Non-GAAP Financial Measures" for a reconciliation of GAAP to non-GAAP items. | |||
Total revenues for the Impax Generics division in the first quarter 2017 were $134.1 million, a decrease of 21.1%, compared to the prior year period. The decrease was primarily due to increased competition on diclofenac sodium gel, metaxalone, mixed amphetamine salts ER and fenofibrate. These decreases were partially offset by increased sales of epinephrine auto-injector, oxymorphone ER and the products acquired as part of the Teva Transaction.
Gross margin in the first quarter 2017 was negative 6.3%, compared to gross margin of 35.3% in the prior year period, driven largely by impairment charges of $39.3 million recognized in the current year period and primarily attributable to two products acquired as part of the Teva Transaction, for which there were no comparable charges in the prior year period. Adjusted gross margin in the first quarter 2017 was 38.8%, compared to 39.3% in the prior year period.
Total operating expenses in the first quarter 2017 were $30.3 million, compared to $19.5 million in the prior year period, partially due to higher selling, general and administrative expenses and increased research and development costs. In addition, the Company recorded an IPR&D impairment charge of $6.1 million in the first quarter 2017 as a result of expected increased research and development expenses and a delay in an anticipated product launch due to a change in the regulatory strategy to secure FDA approval on a product acquired as part of the Teva Transaction, for which there was no comparable charge in the prior year period.
Impax Specialty Pharma Division Information (Unaudited, In thousands) | |||
Three Months Ended | |||
March 31, | |||
2017 | 2016 | ||
Revenues: | |||
Rytary® sales, net | $ 19,905 | $ 14,926 | |
Zomig® sales, net | 9,857 | 11,450 | |
All other Specialty Pharma Product sales, net | 20,494 | 29,053 | |
Total revenues | 50,256 | 55,429 | |
Cost of revenues | 16,897 | 12,796 | |
Gross profit | 33,359 | 42,633 | |
Operating expenses: | |||
Selling, general and administrative | 16,330 | 13,818 | |
Research and development | 5,093 | 4,427 | |
Patent litigation expense | 704 | 1,205 | |
Total operating expenses | 22,127 | 19,450 | |
Income from operations | $ 11,232 | $ 23,183 | |
Gross margin | 66.4% | 76.9% | |
Adjusted gross profit (a) | $ 37,193 | $ 46,276 | |
Adjusted gross margin (a) | 74.0% | 83.5% | |
(a) 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 "Non-GAAP Financial Measures" for a reconciliation of GAAP to non-GAAP items. | |||
Total revenues for the Impax Specialty Pharma division in the first quarter 2017 were $50.3 million, a decrease of 9.3%, compared to the prior year period, as higher sales of Rytary were more than offset by lower sales of Zomig and the anthelmintic products franchise.
Gross margin in the first quarter 2017 was 66.4%, compared to 76.9% in the prior year period. Adjusted gross margin in the first quarter 2017 was 74.0%, compared to 83.5% in the prior year period, primarily due to product sales mix.
Total operating expenses in the first quarter 2017 were $22.1 million, compared to $19.5 million in the prior year period, primarily due to higher advertising and promotion costs related to Rytary and higher costs related to the sales force expansion.
Corporate and Other Information (Unaudited, In thousands) | |||
Three Months Ended | |||
March 31, | |||
2017 | 2016 | ||
General and administrative expenses | $ 24,257 | $ 25,706 | |
Unallocated corporate expenses | $ (24,257) | $ (25,706) | |
General and administrative expenses in the first quarter 2017 were $24.3 million, a decrease of 5.6% compared to the prior year period, primarily due to lower expenses related to lower IT and business development spending and the absence of a permanent President and Chief Executive Officer prior to Mr. Bisaro's appointment, effective March 27, 2017.
Interest expense in the first quarter 2017 was $13.4 million, an increase of $5.0 million compared to the prior year period, due to the $400.0 million Term Loan Facility entered into by the Company in the third quarter 2016 to finance the Teva Transaction.
During the first quarter 2017, the Company recorded a $30.9 million income tax provision on the current period loss before taxes, compared to a $7.1 million benefit from income taxes recognized on the prior year period loss before taxes. Due to the Company's cumulative loss over the three year period ended March 31, 2017, no current tax benefit can be recorded on the Company's first quarter loss before taxes. In addition, the Company revalued its deferred tax assets in a new reporting period in accordance with U.S. GAAP.
2017 Financial Guidance
The Company's full year 2017 financial guidance has been updated as of May 10, 2017, as noted below. The Company's full year 2017 estimates are based on management's current expectations, including with respect to prescription trends, pricing levels, inventory levels, and the anticipated timing of future product launches and events. The estimates exclude the cost savings and one-time charges from the new cost savings initiatives of $85.0 million as outlined in the Consolidation and Improvement Plan, described above.
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