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Supplemental disclosure of non-cash investing and financing activities:
Nine Months Ended |
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(in $000's) |
September 30, |
September 30, 2014 |
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Cash paid for interest |
$ | 9,843 | $ | 16 | ||||
Cash paid for income taxes |
$ | 24,599 | $ | 48,047 |
Accrued vendor invoices of approximately $992,000 and $911,000 at September 30, 2015 and 2014, respectively, are excluded from the purchase of property, plant, and equipment and the change in accounts payable and accrued expenses and prepaid and other assets. Depreciation expense was $7,695,000 and $5,117,000 for the three months ended September 30, 2015 and 2014, respectively, and was $19,242,000 and $15,144,000 for the nine months ended September 30, 2015 and 2014, respectively.
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1. THE COMPANY & BASIS OF PRESENTATION
Impax Laboratories, Inc. (“Impax” or the “Company”) is a specialty pharmaceutical company that focuses on developing, manufacturing, marketing and distributing generic and branded pharmaceutical products. The Company has two reportable segments, referred to as “Impax Generics” and “Impax Specialty Pharma.” The Impax Generics division focuses on a broad range of therapeutic areas, including products having technically challenging drug-delivery mechanisms or unique product formulations. In addition to developing solid oral dosage products, the Impax Generic division’s portfolio includes alternative dosage form products, primarily through alliance and collaboration agreements with third parties. The Company’s Impax Specialty Pharma division is focused on the development and promotion, through the Company’s specialty sales force, of proprietary branded pharmaceutical products for the treatment of central nervous system (“CNS”) disorders and other select specialty segments. As described in detail below, in March 2015, the Company renamed its operating and reporting structure into its current structure; prior to such time, the Impax Generics division was referred to as “Global Pharmaceuticals” and the Impax Specialty Pharma division was referred to as “Impax Pharmaceuticals.”
Acquisition of Tower Holdings, Inc. (“Tower”) and Lineage Therapeutics Inc. (“Lineage”)
On March 9, 2015, Impax completed its acquisition of Tower, including its operating subsidiaries CorePharma LLC (“CorePharma”) and Amedra Pharmaceuticals LLC (“Amedra Pharmaceuticals”), and Lineage for a purchase price of approximately $691.3 million, net of approximately $41.5 million of cash acquired and including the repayment of indebtedness of Tower and Lineage (the “Transaction”). The privately-held companies specialized in the development, manufacture and commercialization of complex generic and branded pharmaceutical products. For additional information on the acquisition and the related financing of the acquisition, refer to “Note 10 – Business Acquisitions” and “Note 14 – Debt.”
In connection with the Transaction, the Company recorded an accrual for severance and related termination costs of $2.4 million in the nine month period ended September 30, 2015 related to the elimination of approximately 10 positions at the acquired companies. As of September 30, 2015, $1.0 million has been paid and the Company currently expects the remainder of this balance to be paid by the first half of 2016.
Revised Operating and Reporting Structure
In connection with the closing of the Transaction, Impax renamed the operating and reporting structure of its two divisions into Impax Generics and Impax Specialty Pharma. Impax Generics includes the Company’s legacy Global Pharmaceuticals business as well as the acquired CorePharma and Lineage businesses. Impax Specialty Pharma includes the legacy Impax Pharmaceuticals business as well as the acquired Amedra Pharmaceuticals business.
Impax Generics develops, manufactures, sells, and distributes generic pharmaceutical products primarily through the following four sales channels: the “Impax Generics” sales channel, for generic pharmaceutical prescription products the Company sells directly to wholesalers, large retail drug chains, and others; the “Private Label” sales channel, for generic pharmaceutical over-the-counter (“OTC”) and prescription products the Company sells to unrelated third-party customers who, in turn, sell the product to third parties under their own label; the “Rx Partner” sales channel, for generic prescription products sold through unrelated third-party pharmaceutical entities under their own label pursuant to alliance agreements; and the “OTC Partner” sales channel, for generic pharmaceutical OTC products sold through unrelated third-party pharmaceutical entities under their own labels pursuant to alliance and supply agreements. Revenues from the “Impax Generics” sales channel and the “Private Label” sales channel are reported under the caption “Impax Generics sales, net” in “Note 21 – Supplementary Financial Information.” The Company also generates revenue in Impax Generics from research and development services provided under a joint development agreement with another unrelated third-party pharmaceutical company, and reports such revenue under the caption “Other Revenues” in “Note 21 – Supplementary Financial Information.” The Company provides these services through the research and development group in Impax Generics. Revenues from the “OTC Partner” sales channel are also reported under the caption “Other Revenues” in “Note 21 – Supplementary Financial Information.”
Impax Specialty Pharma is engaged in the development of proprietary brand pharmaceutical products that the Company believes represent improvements to already-approved pharmaceutical products addressing CNS disorders and other select specialty segments. Impax Specialty Pharma currently has one internally developed branded pharmaceutical product, RYTARY® (IPX066), an extended release oral capsule formulation of carbidopa-levodopa for the treatment of Parkinson’s disease, post-encephalitic parkinsonism, and parkinsonism that may follow carbon monoxide intoxication and/or manganese intoxication, which was approved by the FDA on January 7, 2015 and which the Company began marketing in the United States (“U.S.”) in April 2015. The Company has also filed the required documents for a Market Authorization Application to the European Medicines Agency (EMA) for IPX066 (brand name NUMIENT™ outside of the United States) and on September 24, 2015 the Committee for Medicinal Products for Human Use (CHMP) of the EMA adopted a positive opinion recommending that NUMIENT™ be granted approval for the symptomatic treatment of adult patients with Parkinson’s disease. Impax Specialty Pharma is also engaged in the sale and distribution of four other branded products; the more significant include Zomig® (zolmitriptan) products, indicated for the treatment of migraine headaches, under the terms of a Distribution, License, Development and Supply Agreement (“AZ Agreement”) with AstraZeneca UK Limited (“AstraZeneca”) in the United States and in certain U.S. territories, and Albenza®, indicated for the treatment of tapeworm infections. Revenues from Impax-labeled branded products are reported under the caption “Impax Specialty Pharma sales, net” in “Note 21 – Supplementary Financial Information.” Finally, the Company generates revenue in Impax Specialty Pharma from research and development services provided under a development and license agreement with another unrelated third-party pharmaceutical company, and reports such revenue under the caption “Other Revenues” in “Note 21 – Supplementary Financial Information.” Impax Specialty Pharma also has a number of product candidates that are in varying stages of development.
In California, the Company utilizes a combination of owned and leased facilities mainly located in Hayward. The Company’s primary properties in California consist of a leased office building used as the Company’s corporate headquarters, in addition to five properties it owns, including a research and development center facility and a manufacturing facility. Additionally, the Company leases three facilities in Hayward, utilized for additional research and development, administrative services, equipment storage and quality assurance support. In Pennsylvania, the Company owns a packaging, warehousing, and distribution center located in Philadelphia and leases a facility in New Britain used for sales and marketing, finance, and administrative personnel, as well as providing additional warehouse space. In connection with the closing of the Transaction, the Company acquired leased manufacturing and warehousing facilities in Middlesex, New Jersey and leased office space utilized for administrative services in Horsham, Pennsylvania. The Company also leases office space in Bridgewater, New Jersey. Outside the United States, in Taiwan, Republic of China (“R.O.C.”), the Company owns a manufacturing facility.
The accompanying unaudited interim consolidated financial statements of the Company, have been prepared based upon United States Securities and Exchange Commission (“SEC”) rules permitting reduced disclosure for interim periods, and include all adjustments necessary for a fair presentation of statements of income, statements of comprehensive income, statements of cash flows, statement of changes in stockholders’ equity and financial condition for the interim periods shown, including normal recurring accruals and other items, noted below. While certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to SEC rules and regulations, the Company believes the disclosures are adequate to make the information presented not misleading. The unaudited interim consolidated financial statements of the Company include the accounts of the operating parent company, Impax Laboratories, Inc., its wholly owned subsidiaries, including Impax Laboratories (Taiwan), Inc., Impax Laboratories USA, LLC, ThoRx Laboratories, Inc., Impax International Holding, Inc., Impax Holdings, LLC, Impax Laboratories (Netherlands) BV and Impax Laboratories (Netherlands) CV, Lineage Therapeutics Inc. and Tower, including operating subsidiaries CorePharma, Amedra Pharmaceuticals, Mountain, LLC and Trail Services, Inc., in addition to an equity investment in Prohealth Biotech, Inc. (“Prohealth”), in which the Company held a 57.54% majority ownership interest at September 30, 2015. All significant intercompany accounts and transactions have been eliminated.
The unaudited results of operations and cash flows for the interim period are not necessarily indicative of the expected results of the Company’s operations for any other interim period or for the full year ending December 31, 2015. The unaudited interim consolidated financial statements and footnotes should be read in conjunction with the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 as filed with the SEC, wherein a more complete discussion of significant accounting policies and certain other information can be found.
The preparation of financial statements in conformity with GAAP and the rules and regulations of the SEC requires the use of estimates and assumptions, based on complex judgments considered reasonable, which affect the reported amounts of assets and liabilities and disclosure of contingent assets and contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant judgments are employed in estimates used in determining values of tangible and intangible assets, legal contingencies, tax assets and tax liabilities, fair value of share-based compensation related to equity incentive awards issued to employees and directors, fair value of derivative assets and liabilities and estimates used in applying the Company’s revenue recognition policy including those related to accrued chargebacks, rebates, product returns, Medicare, Medicaid, and other government rebate programs, shelf-stock adjustments, and the timing and amount of deferred and recognized revenue and deferred and amortized product manufacturing costs related to alliance and collaboration agreements. Actual results may differ from estimated results. Certain prior year amounts have been reclassified to conform to the current year presentation.
In the normal course of business, the Company is subject to loss contingencies, such as legal proceedings and claims arising out of its business, covering a wide range of matters, including, among others, patent litigation, and product and clinical trial liability. In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 450, “Contingencies,” the Company records accrued loss contingencies when it is probable a liability has been incurred and the amount of loss can be reasonably estimated. The Company, in accordance with FASB ASC Topic 450, does not recognize gain contingencies until realized.
Restructuring of Packaging and Distribution Operations
On June 30, 2015, the Company committed to a restructuring of its packaging and distribution operations. As a result of this restructuring, the Company will be closing its Philadelphia packaging site and all Company-wide distribution operations will be outsourced to United Parcel Services (UPS). In conjunction with the restructuring, approximately 93 positions have been eliminated. The Company recorded an accrual for severance and related termination costs of $2.6 million in the three month period ended June 30, 2015. As of September 30, 2015, $0.4 million has been paid and the Company currently expects the remainder of this balance to be paid by December 31, 2015.
Update to Significant Accounting Policies
Derivatives
The Company generally does not use derivative instruments or engage in hedging activities in its ordinary course of business. Prior to June 30, 2015, the Company had no derivative assets or liabilities and did not engage in any hedging activities. As a result of the Company’s June 30, 2015 issuance of the convertible senior notes described in “Note 14 – Debt”, the conversion option of the notes met the criteria for an embedded derivative liability which required bifurcation and separate accounting. Contemporaneously with the issuance of the notes, the Company entered into a series of convertible note hedge and warrant transactions which in combination are designed to reduce the potential dilution to the Company’s stockholders and/or offset the cash payments the Company is required to make in excess of the principal amount upon conversion of the notes. See “Note 5 – Derivatives” and “Note 17 – Stockholders’ Equity” for additional information regarding the note hedge transactions and warrant transactions. While the warrants sold were classified as equity and recorded in additional paid-in capital, the call options purchased were classified as a bond hedge derivative asset on the Company’s consolidated balance sheet. The Company engages a third-party valuation firm with expertise in valuing financial instruments to determine the fair value of the bond hedge derivative asset and conversion option derivative liability at each reporting period. The Company’s consolidated balance sheet reflects the fair value of the derivative asset and liability as of the reporting date, and changes in the fair value are reflected in current period earnings, as appropriate.
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2. REVENUE RECOGNITION
The Company recognizes revenue when the earnings process is complete, which under SEC Staff Accounting Bulletin No. 104, Topic No. 13, “Revenue Recognition” (“SAB 104”), is when revenue is realized or realizable and earned, there is persuasive evidence a revenue arrangement exists, delivery of goods or services has occurred, the sales price is fixed or determinable, and collectability is reasonably assured.
The Company accounts for revenue arrangements with multiple deliverables in accordance with FASB ASC Topic 605-25, revenue recognition for arrangements with multiple elements, which addresses the determination of whether an arrangement involving multiple deliverables contains more than one unit of accounting. A delivered item within an arrangement is considered a separate unit of accounting only if both of the following criteria are met:
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the delivered item has value to the customer on a stand-alone basis; and |
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if the arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered item is considered probable and substantially in the control of the vendor. |
Under FASB ASC Topic 605-25, if both of the criteria above are not met, then separate accounting for the individual deliverables is not appropriate. Revenue recognition for arrangements with multiple deliverables constituting a single unit of accounting is recognized generally over the greater of the term of the arrangement or the expected period of performance, either on a straight-line basis or on a modified proportional performance basis.
The Company accounts for milestones related to research and development activities in accordance with FASB ASC Topic 605-28, milestone method of revenue recognition. FASB ASC Topic 605-28 allows for the recognition of consideration, which is contingent on the achievement of a substantive milestone, in its entirety in the period the milestone is achieved. A milestone is considered to be substantive if all of the following criteria are met: the milestone is commensurate with either: (1) the performance required to achieve the milestone, or (2) the enhancement of the value of the delivered items resulting from the performance required to achieve the milestone; the milestone relates solely to past performance; and, the milestone is reasonable relative to all of the deliverables and payment terms within the agreement.
Impax Generics sales, net, and Impax Specialty Pharma sales, net
Impax Generics sales, net and Impax Specialty Pharma sales, net include revenue recognized related to shipments of generic and branded pharmaceutical products to the Company’s customers, primarily drug wholesalers and retail chains. Gross sales revenue is recognized at the time title and risk of loss passes to the customer, which is generally when product is received by the customer. Impax Generics and Impax Specialty Pharma revenue, net may include deductions from the gross sales price related to estimates for chargebacks, rebates, distribution service fees, returns, shelf-stock, and other pricing adjustments. The Company records an estimate for these deductions in the same period when the revenue is recognized. A summary of each of these deductions is as follows:
Chargebacks
The Company has agreements establishing contract prices for certain products with certain indirect customers, such as managed care organizations, hospitals and government agencies who purchase products from drug wholesalers. The contract prices are lower than the prices the customer would otherwise pay to the wholesaler, and the price difference is referred to as a chargeback, which generally takes the form of a credit memo issued by the Company to reduce the invoiced gross selling price charged to the wholesaler. An estimated accrued provision for chargeback deductions is recognized at the time of product shipment. The primary factors considered when estimating the provision for chargebacks are the average historical chargeback credits given, the mix of products shipped, and the amount of inventory on hand at the major drug wholesalers with whom the Company does business. The Company also monitors actual chargebacks granted and compares them to the estimated provision for chargebacks to assess the reasonableness of the chargeback reserve at each quarterly balance sheet date.
Rebates
The Company maintains various rebate programs with its customers in an effort to maintain a competitive position in the marketplace and to promote sales and customer loyalty. The rebates generally take the form of a credit memo to reduce the invoiced gross selling price charged to a customer for products shipped. An estimated accrued provision for rebate deductions is recognized at the time of product shipment. The primary factors the Company considers when estimating the provision for rebates are the average historical experience of aggregate credits issued, the mix of products shipped and the historical relationship of rebates as a percentage of total gross product sales, the contract terms and conditions of the various rebate programs in effect at the time of shipment, and the amount of inventory on hand at the major drug wholesalers with whom the Company does business. The Company also monitors actual rebates granted and compares them to the estimated provision for rebates to assess the reasonableness of the rebate reserve at each quarterly balance sheet date.
Distribution Service Fees
The Company pays distribution service fees to several of its wholesaler customers related to sales of its Impax products. The wholesalers are generally obligated to provide the Company with periodic outbound sales information as well as inventory levels of the Company’s products held in their warehouses. Additionally, the wholesalers have agreed to manage the variability of their purchases and inventory levels within specified days on hand limits. An accrued provision for distribution service fees is recognized at the time products are shipped to wholesalers.
Returns
The Company allows its customers to return product if approved by authorized personnel in writing or by telephone with the lot number and expiration date accompanying any request and if such products are returned within six months prior to or until twelve months following the products’ expiration date. The Company estimates and recognizes an accrued provision for product returns as a percentage of gross sales based upon historical experience. The product return reserve is estimated using a historical lag period, which is the time between when the product is sold and when it is ultimately returned and estimated return rates which may be adjusted based on various assumptions including changes to internal policies and procedures, changes in business practices, and commercial terms with customers, competitive position of each product, amount of inventory in the wholesaler supply chain, the introduction of new products, and changes in market sales information. The Company also considers other factors, including significant market changes which may impact future expected returns, and actual product returns. The Company monitors actual returns on a quarterly basis and may record specific provisions for returns it believes are not covered by historical percentages.
Shelf-Stock Adjustments
Based upon competitive market conditions, the Company may reduce the selling price of certain Impax Generics products. The Company may issue a credit against the sales amount to a customer based upon their remaining inventory of the product in question, provided the customer agrees to continue to make future purchases of product from the Company. This type of customer credit is referred to as a shelf-stock adjustment, which is the difference between the original selling price and the revised lower sales price, multiplied by an estimate of the number of product units on hand at a given date. Decreases in selling prices are discretionary decisions made by the Company in response to market conditions, including estimated launch dates of competing products and declines in market price. The Company records an estimate for shelf-stock adjustments in the period it agrees to grant such a credit memo to a customer.
Medicaid and Other Government Pricing Programs
As required by law, the Company provides a rebate on drugs dispensed under the Medicaid program, Medicare Part D, TRICARE, and other United States government pricing programs. The Company determines its estimated government rebate accrual primarily based on historical experience of claims submitted by the various states and other jurisdictions and any new information regarding changes in the various programs which may impact the Company’s estimate of government rebates. In determining the appropriate accrual amount, the Company considers historical payment rates and processing lag for outstanding claims and payments. The Company records estimates for government rebates as a deduction from gross sales, with corresponding adjustment to accrued liabilities.
Cash Discounts
The Company offers cash discounts to its customers, generally 2% of the gross selling price, as an incentive for paying within invoice terms, which generally range from 30 to 90 days. An estimate of cash discounts is recorded in the same period when revenue is recognized.
Rx Partner and OTC Partner
The Rx Partner and OTC Partner contracts include revenue recognized under alliance and collaboration agreements between the Company and unrelated third-party pharmaceutical companies. The Company has entered into these alliance agreements to develop marketing and/or distribution relationships with its partners to fully leverage its technology platform.
The Rx Partners and OTC Partners alliance agreements obligate the Company to deliver multiple goods and/or services over extended periods. Such deliverables include manufactured pharmaceutical products, exclusive and semi-exclusive marketing rights, distribution licenses, and research and development services. In exchange for these deliverables, the Company receives payments from its agreement partners for product shipments and research and development services, and may also receive other payments including royalty, profit sharing, upfront, and periodic milestone payments. Revenue received from the alliance agreement partners for product shipments under these agreements is not subject to deductions for chargebacks, rebates, product returns, and other pricing adjustments. Royalty and profit sharing amounts the Company receives under these agreements are calculated by the respective agreement partner, with such royalty and profit share amounts generally based upon estimates of net product sales or gross profit which include estimates of deductions for chargebacks, rebates, product returns, and other adjustments the alliance agreement partners may negotiate with their respective customers. The Company records the alliance agreement partner's adjustments to such estimated amounts in the period the agreement partner reports the amounts to the Company.
The Company applies the updated guidance of ASC 605-25 “Multiple Element Arrangements” to the Strategic Alliance Agreement with Teva Pharmaceuticals Curacao N.V., a subsidiary of Teva Pharmaceutical Industries Limited (“Teva Agreement”). The Company looks to the underlying delivery of goods and/or services which give rise to the payment of consideration under the Teva Agreement to determine the appropriate revenue recognition. The Company initially defers consideration received as a result of research and development-related activities performed under the Teva Agreement. The Company recognizes deferred revenue on a straight-line basis over the Company’s expected period of performance of such services. The Company recognizes revenue received as a result of the manufacture and delivery of products under the Teva Agreement at the time title and risk of loss passes to the customer which is generally when product is received by Teva. The Company recognizes profit share revenue in the period earned.
OTC Partner revenue is related to agreements with Pfizer Inc. (formerly Wyeth) and L. Perrigo Company with respect to the supply of over-the-counter pharmaceutical products. The OTC Partner sales channel is no longer a core area of the business, and the over-the-counter pharmaceutical products the Company sells through this sales channel are older products which are only sold to Pfizer and Perrigo, and which are currently sold at a loss, on a fully absorbed basis. The Company is currently only required to manufacture the over-the-counter pharmaceutical products under its agreements with Pfizer and Perrigo. The Company recognizes profit share revenue in the period earned.
Research Partner
The Research Partner contracts include revenue recognized under development agreements with unrelated third-party pharmaceutical companies. The development agreements generally obligate the Company to provide research and development services over multiple periods. In exchange for this service, the Company received upfront payments upon signing of each development agreement and is eligible to receive contingent milestone payments, based upon the achievement of contractually specified events. Additionally, the Company may also receive royalty payments from the sale, if any, of a successfully developed and commercialized product under one of these development agreements. The Company recognizes revenue received from the provision of research and development services, including the upfront payment and the milestone payments received before January 1, 2011 on a straight-line basis over the expected period of performance of the research and development services. The Company recognizes revenue received from the achievement of contingent research and development milestones after January 1, 2011 in the period such payment is earned. Royalty fee income, if any, will be recognized by the Company in the period when the revenue is earned.
Shipping and Handling Fees and Costs
Shipping and handling fees related to sales transactions are recorded as selling expense.
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3. RECENT ACCOUNTING PRONOUNCEMENTS
In May 2014, the FASB issued updated guidance regarding the accounting for and disclosures of revenue recognition, with an effective date for annual and interim periods beginning after December 15, 2016. The update provides a single comprehensive model for accounting for revenue from contracts with customers. The model requires that revenue recognized reflect the actual consideration to which the entity expects to be entitled in exchange for the goods or services defined in the contract, including in situations with multiple performance obligations. This guidance will be the same for both U.S. GAAP and International Financial Reporting Standards (IFRS). In July 2015, the FASB deferred the effective date by one year. The guidance will be effective for annual and interim periods beginning after December 15, 2017. The Company is currently evaluating the effect that this guidance may have on its consolidated financial statements.
In April 2015, the FASB issued updated guidance on the presentation requirements for debt issuance costs and debt discount and premium. The update requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the updated guidance. The updated guidance is effective for annual and interim periods beginning after December 15, 2015 and early adoption is permitted for financial statements that have not been previously issued. The Company adopted this guidance in the three month period ended March 31, 2015, and it had no effect on the Company’s results of operations. In August 2015, the FASB issued updated guidance on the presentation and measurement of debt issuance costs associated with line-of-credit arrangements. The guidance previously issued in April 2015 did not address presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. The August update states that the debt issuance costs shall be presented as an asset and deferred debt issuance costs shall be amortized over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The Company adopted this guidance in the three month period ended September 30, 2015, and it had no effect on the Company’s results of operations.
In July 2015, the FASB issued updated guidance regarding the accounting for and measurement of inventory. The update requires that inventory measured using first-in, first-out (FIFO) shall be measured at the lower of cost and net realizable value. When there is evidence that the net realizable value of inventory is lower than its cost, the difference shall be recognized as a loss in earnings in the period in which it occurs. The guidance will be effective for annual and interim periods beginning after December 15, 2016. The Company is currently evaluating the effect that this guidance may have on its consolidated financial statements.
In September 2015, the FASB issued updated guidance regarding the accounting for and disclosure of measurement-period adjustments that occur in periods after a business combination is consummated. This update requires that the acquirer recognize measurement-period adjustments in the reporting period in which they are determined. Prior period information should not be revised. This update also requires an entity to present separately on the face of the income statement or disclose in the notes the amount recorded in the current-period income statement that would have been recorded in previous reporting periods if the adjustments had been recognized as of the acquisition date. The effective date for annual and interim periods begins after December 15, 2016. The Company is currently evaluating the effect that this guidance may have on its consolidated financial statements.
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4. INVESTMENTS
Investments consist of commercial paper and corporate bonds. The Company’s policy is to invest in only high quality “AAA-rated” or investment-grade securities. Investments in debt securities are accounted for as “held-to-maturity” and are recorded at amortized cost, which approximates fair value, generally based upon observable market values of similar securities. The Company has historically held all investments in debt securities until maturity, and has the ability and intent to continue to do so. All of the Company’s investments have remaining contractual maturities of less than 12 months and are classified as short-term. Upon maturity, the Company uses a specific identification method.
There were no short-term investments outstanding as of September 30, 2015. A summary of short-term investments as of December 31, 2014 is as follows:
(in $000’s) |
Amortized Cost |
Gross Unrecognized Gains |
Gross Unrecognized Losses |
Fair Value |
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Commercial paper |
$ | 68,972 | $ | 17 | $ | -- | $ | 68,989 | ||||||||
Corporate bonds |
131,011 | -- | (101 | ) |
130,910 | |||||||||||
Total short-term investments |
$ | 199,983 | $ | 17 | $ | (101 | ) |
$ | 199,899 |
During the three month period ended March 31, 2015, the Company liquidated its entire portfolio of short-term investments to fund the purchase price of its March 9, 2015 acquisition of Tower and Lineage.
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5. DERIVATIVES
As discussed in “Note 14 – Debt”, on June 30, 2015, the Company issued an aggregate principal amount of $600.0 million of 2.00% Convertible Senior Notes due June 2022 in a private placement offering (the “Notes”). The net proceeds from the offering, after deducting transaction costs, were approximately $581.4 million.
The conversion rate for the Notes is initially set at 15.7858 shares per $1,000 of principal amount, which is equivalent to an initial conversion price of $63.35 per share of the Company’s common stock. The Notes will mature on June 15, 2022, unless earlier redeemed, repurchased or converted and will bear interest at a rate of 2.00% per year payable semiannually in arrears on June 15 and December 15 of each year, beginning December 15, 2015.
Concurrently with the issuance of the Notes, the Company entered into convertible note hedge transactions with a financial institution (the “Note Hedge Transactions”), which are generally expected to reduce the potential dilution to the Company’s stockholders and/or offset the cash payments the Company is required to make in excess of the principal amount upon conversion of the Notes. The Company also entered into separate warrant transactions with such financial institution in which it sold net-share-settled (or, at the Company’s election subject to certain conditions, cash-settled) warrants to the financial institution initially relating to the same number of shares of the Company’s common stock initially underlying the Notes, subject to customary anti-dilution adjustments (together, the “Warrant Transactions”). The strike price of the warrants will initially be $81.2770 per share (subject to adjustment). The Warrant Transactions could have a dilutive effect to the Company’s stockholders to the extent that the market price per share of the Company’s common stock, as measured under the terms of the Warrant Transactions, exceeds the applicable strike price of the warrants.
Derivative Asset
Pursuant to the Note Hedge Transactions, the Company purchased from the financial institution approximately 0.6 million call options on the Company’s common stock (the “Bond Hedge Derivative Asset”), for which it paid consideration of $147.0 million. Each call option entitles the Company to purchase 15.7858 shares of the Company’s common stock at an exercise price of $63.35 per share, is immediately exercisable, and has an expiration date of June 15, 2022, subject to earlier exercise. Taken together, the Note Hedge Transaction and the Warrant Transactions are intended to offset any actual dilution from the conversion of the Notes and to effectively increase the overall conversion price from $63.35 per share (the conversion price of the Notes and the exercise price of the call options) to $81.277 (the exercise price of the warrants). The Company received proceeds of approximately $88.3 million from the sale of the warrants.
The fair value of the Bond Hedge Derivative Asset at September 30, 2015 was $87.0 million, which is shown as a long-term asset on the Company’s consolidated balance sheet. The fair value was determined by a model-derived valuation utilizing Level 2 inputs which are observable or whose significant value drivers are observable. The following table summarizes the inputs and assumptions used in the Black-Scholes model to calculate the fair value of Bond Hedge Derivative Asset as of September 30, 2015:
Common stock price |
$ | 35.21 | ||
Exercise price |
$ | 63.35 | ||
Risk-free interest rate |
1.69 | % | ||
Volatility |
40 | % | ||
Dividend yield |
0 | % | ||
Remaining contractual term (in years) |
6.7 |
Derivative Liability
As of the June 30, 2015 issuance date of the Notes, the Company did not have the necessary number of authorized but unissued shares of its common stock available to share-settle the conversion option of the Notes. Until the Company’s stockholders approve a sufficient increase in the authorized number of shares of the Company’s common stock, the Company is required to settle the principal amount and conversion spread of the Notes in cash. Therefore, in accordance with guidance found in ASC 470-20 and ASC 815-15, the conversion option of the Notes was deemed an embedded derivative that must be bifurcated from the Notes (host contract) and accounted for separately as a derivative liability. This derivative liability will be remeasured at fair value at each reporting period, and changes in fair value will be reflected in current period earnings, as appropriate.
The fair value of the conversion option derivative liability at September 30, 2015 was $111.0 million, which is shown as a long-term liability on the Company’s consolidated balance sheet. The fair value was determined by a model-derived valuation utilizing Level 2 inputs which are observable or whose significant value drivers are observable. The following table summarizes the inputs and assumptions used in the binomial lattice model to calculate the fair value as of September 30, 2015:
Common stock price |
$ | 35.21 | ||
Exercise price |
$ | 63.35 | ||
Risk-free interest rate |
1.69 | % | ||
Volatility |
40 | % | ||
Annual coupon rate |
2 | % | ||
Remaining contractual term (in years) |
6.7 |
During the three month period ended September 30, 2015, the Company recognized in its consolidated statement of income $4.0 million of net expense related to the change in the fair value of the derivative instruments.
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6. FAIR VALUE MEASUREMENT AND FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, and accounts payable in the Company’s consolidated balance sheets approximated their fair values as of September 30, 2015 and December 31, 2014 due to their short-term nature.
Certain of the Company’s financial instruments are measured at fair value using a three-level hierarchy that prioritizes the inputs used to measure fair value. This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
● |
Level 1 - Inputs are quoted prices for identical instruments in active markets. |
● |
Level 2 - Inputs are quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; or model-derived valuations whose inputs are observable or whose significant value drivers are observable. |
● |
Level 3 - Inputs are unobservable and reflect the Company's own assumptions, based on the best information available, including the Company's own data. |
The carrying amounts and fair values of the Company’s financial instruments at September 30, 2015 and December 31, 2014 are indicated below:
As of September 30, 2015 (in thousands) |
||||||||||||||||||||
Fair Value Measurement Based on |
||||||||||||||||||||
Carrying Amount |
Fair Value |
Quoted Prices in Active Markets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
||||||||||||||||
Assets |
||||||||||||||||||||
Bond hedge derivative asset |
$ | 87,000 | $ | 87,000 | $ | - | $ | 87,000 | $ | - | ||||||||||
Deferred compensation plan (1) |
$ | 25,249 | $ | 25,249 | $ | - | $ | 25,249 | $ | - | ||||||||||
Liabilities |
||||||||||||||||||||
2% convertible senior notes due June 2022 |
$ | 419,413 | $ | 541,500 | $ | 541,500 | $ | - | $ | - | ||||||||||
Conversion option derivative liability |
$ | 111,000 | $ | 111,000 | $ | - | $ | 111,000 | $ | - | ||||||||||
Deferred compensation plan (1) |
$ | 24,762 | $ | 24,762 | $ | - | $ | 24,762 | $ | - |
As of December 31, 2014 (in thousands) |
||||||||||||||||||||
Fair Value Measurement Based on |
||||||||||||||||||||
Carrying Amount |
Fair Value |
Quoted Prices in Active Markets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
||||||||||||||||
Assets |
||||||||||||||||||||
Short-term investments |
$ | 199,983 | $ | 199,899 | $ | 199,899 | $ | - | $ | - | ||||||||||
Deferred compensation plan (1) |
$ | 29,241 | $ | 29,241 | $ | - | $ | 29,241 | $ | - | ||||||||||
Liabilities |
||||||||||||||||||||
Deferred compensation plan (1) |
$ | 25,837 | $ | 25,837 | $ | - | $ | 25,837 | $ | - |
(1) |
The deferred compensation liability is a non-current liability recorded at the value of the amount owed to the plan participants, with changes in value recognized as a compensation expense in the Company’s consolidated statements of income. The calculation of the deferred compensation obligation is derived from observable market data by reference to hypothetical investments selected by the participants and is included in the line items captioned “Other liabilities” on the Company’s consolidated balance sheets. The Company invests in corporate-owned life insurance (“COLI”) policies, of which the cash surrender value is included in the line item captioned “Other assets” on the Company’s consolidated balance sheets. |
|
7. ACCOUNTS RECEIVABLE
The composition of accounts receivable, net is as follows:
(in $000’s) |
September 30, 2015 |
December 31, 2014 |
||||||
Gross accounts receivable |
$ | 575,750 | $ | 287,362 | ||||
Less: Rebate reserve |
(238,893 | ) |
(88,812 | ) |
||||
Less: Chargeback reserve |
(83,890 | ) |
(43,125 | ) |
||||
Less: Other deductions |
(24,465 | ) |
(8,935 | ) |
||||
Accounts receivable, net |
$ | 228,502 | $ | 146,490 |
A roll-forward of the rebate and chargeback reserves activity for the nine months ended September 30, 2015 and the year ended December 31, 2014 is as follows:
(in $000’s) Rebate reserve |
September 30, 2015 |
December 31, 2014 |
||||||
Beginning balance |
$ | 88,812 | $ | 88,449 | ||||
Acquired balances |
75,448 | -- | ||||||
Provision recorded during the period |
368,929 | 260,747 | ||||||
Credits issued during the period |
(294,296 | ) |
(260,384 | ) |
||||
Ending balance |
$ | 238,893 | $ | 88,812 |
(in $000’s) Chargeback reserve |
September 30, 2015 |
December 31, 2014 |
||||||
Beginning balance |
$ | 43,125 | $ | 37,066 | ||||
Acquired balances |
24,532 | -- | ||||||
Provision recorded during the period |
584,078 | 487,377 | ||||||
Credits issued during the period |
(567,845 | ) |
(481,318 | ) |
||||
Ending balance |
$ | 83,890 | $ | 43,125 |
Other deductions include allowance for uncollectible amounts and cash discounts. The Company maintains an allowance for doubtful accounts for estimated losses resulting from amounts deemed to be uncollectible from its customers, with such allowances for specific amounts on certain accounts. The Company had an allowance for uncollectible amounts of $3,259,000 and $515,000 at September 30, 2015 and December 31, 2014, respectively.
|
8. INVENTORY
Inventory is stated at the lower of cost or market. Cost is determined using a standard cost method, and the cost flow assumption is first in, first out (“FIFO”) flow of goods. Standard costs are revised annually, and significant variances between actual costs and standard costs are apportioned to inventory and cost of goods sold based upon inventory turnover. Costs include materials, labor, quality control, and production overhead. Inventory is adjusted for short-dated, unmarketable inventory equal to the difference between the cost of inventory and the estimated value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by the Company, additional inventory write-downs may be required. Consistent with industry practice, the Company may build pre-launch inventories of certain products which are pending required approval from the FDA and/or resolution of patent infringement litigation, when, in the Company’s assessment, such action is appropriate to increase the commercial opportunity and FDA approval is expected in the near term and/or the litigation will be resolved in the Company’s favor. The Company accounts for all costs of idle facilities, excess freight and handling costs, and wasted materials (spoilage) as a current period charge in accordance with GAAP.
Inventory, net of carrying value reserves at September 30, 2015 and December 31, 2014 consisted of the following:
(in $000’s) |
September 30, 2015 |
December 31, 2014 |
||||||
Raw materials |
$ | 58,292 | $ | 34,681 | ||||
Work in process |
7,112 | 2,447 | ||||||
Finished goods |
78,363 | 55,102 | ||||||
Total inventory |
143,767 | 92,230 | ||||||
Less: Non-current inventory |
13,495 | 11,660 | ||||||
Total inventory-current |
$ | 130,272 | $ | 80,570 |
In connection with the Transaction, the Company acquired $34.0 million in inventory, including approximately $3.0 million of non-current inventory included in “Other Non-current Assets” on the Company’s consolidated balance sheets.
Inventory carrying value reserves were $22,107,000 and $25,639,000 at September 30, 2015 and December 31, 2014, respectively. The carrying value of unapproved inventory less reserves was $9,713,300 and $7,312,000 at September 30, 2015 and December 31, 2014, respectively.
The Company recognizes pre-launch inventories at the lower of its cost or the expected net selling price. Cost is determined using a standard cost method, which approximates actual cost, and assumes a FIFO flow of goods. Costs of unapproved products are the same as approved products and include materials, labor, quality control, and production overhead. When the Company concludes that FDA approval is expected within approximately six months for a drug product candidate, the Company may begin to schedule manufacturing process validation studies as required by the FDA to demonstrate the production process can be scaled up to manufacture commercial batches. Consistent with industry practice, the Company may build quantities of unapproved product inventory pending final FDA approval and/or resolution of patent infringement litigation, when, in the Company’s assessment, such action is appropriate to increase its commercial product opportunity, and FDA approval is expected in the near term, and/or the litigation will be resolved in the Company’s favor. The capitalization of unapproved pre-launch inventory involves risks, including, among other items, FDA approval may not occur; approvals may require additional or different testing and/or specifications than used for unapproved inventory, and in cases where the unapproved inventory is for a product subject to litigation, the litigation may not be resolved or settled in the Company’s favor. If any of these risks materialize and the launch of the unapproved product inventory is delayed or prevented, then the net carrying value of unapproved inventory may be partially or fully reserved. Generally, the selling price of a generic pharmaceutical product is at a discount from the corresponding brand product selling price. Typically, a generic drug is easily substituted for the corresponding brand product, and once a generic product is approved, the pre-launch inventory is typically sold within the next three months. If the market prices become lower than the product inventory carrying costs, then the pre-launch inventory value is reduced to such lower market value. If the inventory produced exceeds the estimated market acceptance of the generic product and becomes short-dated, a carrying value reserve will be recorded. In all cases, the carrying value of the Company's pre-launch product inventory is lower than the respective estimated net selling prices.
To the extent inventory is not scheduled to be utilized in the manufacturing process and/or sold within 12 months of the balance sheet date, it is included as a component of other non-current assets. Amounts classified as non-current inventory consist of raw materials, net of valuation reserves. Raw materials generally have a shelf life of approximately three to five years, while finished goods generally have a shelf life of approximately two years.
|
9. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net consisted of the following:
(in $000’s) |
September 30, 2015 |
December 31, 2014 |
||||||
Land |
$ | 5,773 | $ | 5,773 | ||||
Buildings and improvements |
167,172 | 154,374 | ||||||
Equipment |
135,698 | 122,184 | ||||||
Office furniture and equipment |
14,917 | 12,623 | ||||||
Construction-in-progress |
16,200 | 9,404 | ||||||
Property, plant and equipment, gross |
339,760 | 304,358 | ||||||
Less: Accumulated depreciation |
(133,633 | ) |
(116,189 | ) |
||||
Property, plant and equipment, net |
$ | 206,127 | $ | 188,169 |
In connection with the Transaction, the Company acquired $27.5 million in property, plant and equipment.
In connection with the Company’s restructuring of its packaging and distribution operations discussed in “Note 1 – The Company & Basis of Presentation”, the Company recorded $2.4 million of accelerated depreciation on certain buildings, leasehold improvements and machinery and equipment, in addition to $0.4 million of accelerated lease expense during the third quarter of 2015.
|
10. BUSINESS ACQUISITIONS
On March 9, 2015, the Company completed its previously announced acquisition of all of the outstanding shares of common stock of Tower and Lineage, pursuant to the Stock Purchase Agreement dated as of October 8, 2014, by and among the Company, Tower, Lineage, Roundtable Healthcare Partners II, L.P., Roundtable Healthcare Investors II, L.P., and the other parties thereto, including holders of certain options and warrants to acquire the common stock of Tower or Lineage. In connection with the Transaction, options and warrants of Tower and Lineage were cancelled. The total consideration paid for Tower and Lineage was approximately $691.3 million, net of approximately $41.5 million of cash acquired and including the repayment of indebtedness of Tower and Lineage. The Company incurred acquisition-related costs related to the Transaction of approximately $11 million, of which approximately $7 million are included in selling, general and administrative expenses in the Company’s consolidated statement of income for the nine months ended September 30, 2015.
The Transaction allows the Company to expand its commercialized generic and branded product portfolios; the Company also uses its sales and marketing organization to promote the marketed products acquired in the Transaction.
Consideration
The Company has accounted for the Transaction as a business combination under the acquisition method of accounting. The Company has preliminarily allocated the purchase price for the Transaction based upon the estimated fair value of net assets acquired and liabilities assumed at the date of acquisition. Accordingly, the preliminary purchase price allocation described below is subject to change. The Company expects to finalize the allocation of the purchase price upon receipt of final valuations for the intangible assets, final resolution of post-closing working capital adjustments and certain tax accounts that are based on the best estimates of management. The completion and filing of federal and state tax returns for the various purchased entities of the Transaction may result in adjustments to the carrying value of assets and liabilities. Any adjustments to the preliminary fair values will be made as soon as practicable but no later than one year from the March 9, 2015 acquisition date.
Recognition and Measurement of Assets Acquired and Liabilities Assumed at Fair Value
The following tables summarize the preliminary fair values of the tangible and identifiable intangible assets acquired and liabilities assumed in the Transaction at the acquisition date, net of cash acquired of approximately $41.5 million:
(in $000’s) | ||||
Accounts receivable(1) |
$ | 56,851 | ||
Inventory |
31,259 | |||
Income tax receivable and other prepaid expenses |
11,690 | |||
Deferred income taxes |
24,508 | |||
Property, plant and equipment |
27,540 | |||
Intangible assets |
632,600 | |||
Assets held for sale |
4,000 | |||
Goodwill |
182,592 | |||
Other non-current assets |
3,844 | |||
Total assets assumed |
974,884 | |||
Current liabilities |
64,938 | |||
Other non-current liabilities |
7,799 | |||
Deferred tax liability |
210,799 | |||
Total liabilities assumed |
283,536 | |||
Cash paid, net of cash acquired |
$ | 691,348 |
(1) |
The accounts receivable acquired in the Transaction had a fair value of approximately $57 million, including an allowance for doubtful accounts of approximately $9 million, which represents the Company’s best estimate on March 9, 2015 (the closing date of the Transaction) of the contractual cash flows not expected to be collected by the acquired companies in the Transaction. |
Intangible Assets
The following table identifies the Company’s preliminary allocations of purchase price to intangible assets including the weighted-average amortization period in total and by major intangible asset class:
(in $000’s) |
Estimated Fair Value |
Weighted-Average Estimated Useful Life (years) |
||||||
Currently marketed products |
$ | 381,100 | 13 | |||||
Royalties and contract manufacturing relationships |
80,800 | 12 | ||||||
In-process research and development |
170,700 | n/a | ||||||
Total intangible assets |
$ | 632,600 | 12 |
The estimated fair value of the in-process research and development and identifiable intangible assets was determined using the “income approach,” which is a valuation technique that provides an estimate of the fair value of an asset based on market participant expectations of the cash flows an asset would generate over its remaining useful life. Some of the more significant assumptions inherent in the development of those asset valuations include the estimated net cash flows for each year for each asset or product (including net revenues, cost of sales, research and development costs, selling and marketing costs and working capital/asset contributory asset charges), the appropriate discount rate to select in order to measure the risk inherent in each future cash flow stream, the assessment of each asset’s life cycle, the potential regulatory and commercial success risks, competitive trends impacting the asset and each cash flow stream as well as other factors. The discount rates used to arrive at the present value at the acquisition date of currently marketed products was 15% and for in-process research and development was 16% to reflect the internal rate of return and incremental commercial uncertainty in the cash flow projections. No assurances can be given that the underlying assumptions used to prepare the discounted cash flow analysis will not change. For these and other reasons, actual results may vary significantly from estimated results.
Goodwill
The Company recorded approximately $182.6 million of goodwill in connection with the Transaction, some of which will not be tax-deductible. Approximately $60.2 million of this goodwill was assigned to the Impax Specialty Pharma segment and approximately $122.4 million was assigned to the Impax Generics segment. Factors that contributed to the Company’s preliminary recognition of goodwill include the Company’s intent to expand its generic and branded pharmaceutical product portfolios and to acquire certain benefits from the Tower and Lineage product pipelines in addition to the anticipated synergies that the Company expects to generate from the acquisition.
Revenues and Earnings from Tower and Lineage for the Three and Nine Months Ended September 30, 2015
Included in the Company’s consolidated statements of income for the three and nine months ended September 30, 2015 were revenues of approximately $47.9 million and $120.0 million, respectively, and loss before income taxes of approximately $0.3 million and $1.3 million, respectively, representing the results of operations of Tower and Lineage and their subsidiaries.
Unaudited Pro Forma Results of Operations
The unaudited pro forma combined results of operations for the three and nine months ended September 30, 2015 and 2014 (assuming the closing of the acquisition of Tower and Lineage occurred on January 1, 2014) are as follows:
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, |
September 30, |
|||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
(in $000’s) |
||||||||||||||||
Total revenues |
$ | 221,099 | $ | 222,817 | $ | 610,814 | $ | 640,788 | ||||||||
Net income |
$ | 39,097 | $ | 19,614 | $ | 40,007 | $ | 43,835 |
The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the actual results of operations had the closing of the Transaction taken place on January 1, 2014. Furthermore, the pro forma results do not purport to project the future results of operations of the Company.
The unaudited pro forma information reflects primarily the following adjustments:
• |
Adjustments to amortization expense related to identifiable intangible assets acquired. Net income for the three and nine month periods ending September 30, 2015 reflects the lack of amortization expense for an acquired intangible asset with a short remaining estimated useful life, which causes the asset to be fully amortized by the end of 2014 under the pro forma assumption that the acquisition took place January 1, 2014; |
• |
Adjustments to depreciation expense related to property, plant and equipment acquired; |
• |
Adjustments to interest expense to reflect the long-term debt held by Tower and Lineage paid out and eliminated at the closing and the Barclays Senior Secured Credit Facilities (described in detail in “Note 14. – Debt” below); |
• |
Adjustments to cost of revenues related to the fair value adjustments in inventory sold including elimination of approximately $1 million and $6 million for the three and nine months ended September 30, 2015, respectively, and additional costs of approximately $6 million for the nine months ended September 30, 2014, respectively; |
• |
Adjustments to selling, general and administrative expense related to severance and retention costs of approximately $3 million incurred as part of the Transaction. These costs were eliminated in the pro forma results for the nine months ended September 30, 2015 and included in the corresponding comparative period; |
• |
Adjustments to selling, general and administrative expense related to transaction costs directly attributable to the Transaction include the elimination of $12 million of charges in the nine month period ended September 30, 2015 which have been included in the nine month period ended September 30, 2014 and $4 million of charges incurred in the second half of fiscal year 2014 which have been included in the nine month period ended September 30, 2015; and |
• |
Adjustments to reflect the elimination of approximately $2.3 million in commitment fees related to its $435 million term loan with Barclays that were incurred during the nine months ended September 30, 2015 and inclusion in the corresponding comparative period. |
All of the above adjustments were adjusted for the applicable tax impact.
|
11. GOODWILL AND INTANGIBLE ASSETS
Goodwill (including goodwill in connection with the Transaction) was $210,166,000 at September 30, 2015 and $27,574,000 at December 31, 2014. In connection with the Transaction, the Company recorded approximately $183 million of goodwill. As of September 30, 2015, the Company attributes $150 million of goodwill to Impax Generics and $60 million to Impax Specialty Pharma. Goodwill is tested at least annually for impairment or whenever events or changes in circumstances have occurred which could have a material adverse effect on the estimated fair value of the reporting unit, and thus indicate a potential impairment of the goodwill carrying value. The Company concluded the carrying value of goodwill was not impaired as of December 31, 2014.
Intangible assets consisted of the following:
(in $000’s) |
Initial Cost |
Accumulated |
Impairment |
Products Sold |
Carrying Value |
|||||||||||||||
September 30, 2015 |
||||||||||||||||||||
Amortized intangible assets: |
||||||||||||||||||||
Tower currently marketed products |
$ | 381,100 | $ | (18,808 | ) | $ | --- | $ | (9,291 | ) | $ | 353,001 | ||||||||
Tower in-process research and development |
170,700 | --- | --- | --- | 170,700 | |||||||||||||||
Tower royalties and contract manufacturing relationships |
80,800 | (105 | ) | --- | --- | 80,695 | ||||||||||||||
Zomig® product rights |
41,783 | (33,752 | ) | --- | --- | 8,031 | ||||||||||||||
Tolmar product rights |
38,450 | (16,077 | ) | (16,032 | ) | --- | 6,341 | |||||||||||||
Perrigo product rights |
1,500 | (344 | ) | --- | --- | 1,156 | ||||||||||||||
Acquired generics product rights |
8,000 | (1,120 | ) | --- | --- | 6,880 | ||||||||||||||
Other product rights |
1,550 | --- | --- | --- | 1,550 | |||||||||||||||
Total intangible assets |
$ | 723,883 | $ | (70,206 | ) | $ | (16,032 | ) | $ | (9,291 | ) | $ | 628,354 |
(in $000’s) December 31, 2014 |
Initial Cost |
Accumulated Amortization |
Impairment |
Carrying Value |
||||||||||||
Amortized intangible assets: |
||||||||||||||||
Zomig® product rights |
$ | 41,783 | $ | (31,561 | ) |
$ | --- | $ | 10,222 | |||||||
Tolmar product rights |
33,450 | (10,801 | ) |
(16,032 | ) |
6,617 | ||||||||||
Perrigo product rights |
1,000 | (297 | ) |
--- | 703 | |||||||||||
Ursodiol product rights |
3,000 | (331 | ) |
--- | 2,669 | |||||||||||
Other product rights |
7,250 | --- | (750 | ) |
6,500 | |||||||||||
Total intangible assets |
$ | 86,483 | $ | (42,990 | ) |
$ | (16,782 | ) |
$ | 26,711 |
In connection with the Transaction, the Company acquired approximately $633 million of intangible assets (“Tower products”). In July 2015, the Company received an unsolicited offer from Turing Pharmaceuticals AG to purchase the U.S. rights to Daraprim®, one of the intangible assets acquired from the Tower acquisition, as well as the active pharmaceutical ingredient for the product and the finished goods inventory on hand. The sale closed in August 2015, and the Company received proceeds of approximately $55.5 million at the closing. The carrying value of the Daraprim® rights at the time of the sale was approximately $9.3 million, net of $0.2 million of accumulated amortization. The Company recognized a gain on the sale of the intangible asset of approximately $45.6 million, net of expenses.
The Zomig® product rights under the Distribution, License, Development and Supply Agreement (“AZ Agreement”) with AstraZeneca UK Limited (“AstraZeneca”) were amortized on a straight-line basis over a period of 14 months starting in April 2012 and ending upon the expiration of the underlying patent for the tablet and over a period of 11 months starting in July 2012 and ending upon the expiration of the underlying patent for the orally disintegrating tablet. The Zomig® product rights under the AZ Agreement are also being amortized over a period of 72 months starting in July 2012 for the nasal spray.
In June 2012, the Company entered into a Development, Supply and Distribution Agreement (the “Tolmar Agreement”) with TOLMAR, Inc. (“Tolmar”). Under the terms of the Tolmar Agreement, Tolmar granted to the Company an exclusive license to commercialize up to 11 generic topical prescription drug products, including ten currently approved products and one product pending approval at the FDA, in the United States and its territories. Under the terms of the Tolmar Agreement, Tolmar is responsible for developing and manufacturing the products, and the Company is responsible for the marketing and sale of the products. During the three month period ended September 30, 2013, as a result of the most recent market share data obtained by the Company and the Company’s revised five year projections for the Tolmar product lines, the Company performed an intangible asset impairment test on the Tolmar products. Based on the results of the impairment analysis, the Company recorded a $13.2 million impairment charge to cost of revenues for Impax Generics in the three month period ended September 30, 2013. During the three month period ended March 31, 2014, as a result of a further decline in pricing, the Company revised its projections and performed an intangible asset impairment analysis. Based on the results of this analysis, the Company recorded a $2.9 million charge to cost of revenues for Impax Generics, which was 100% of the remaining net book value of this asset. The remaining carrying value of the Tolmar product rights are being amortized over the remaining estimated useful lives of the underlying products over a period ranging from five to 12 years, starting upon commencement of commercialization activities by the Company during the year ended December 31, 2012. During the quarter ended June 30, 2015, the Company paid a $5.0 million milestone related to certain topical products pursuant to the Tolmar Agreement.
Information concerning the AZ Agreement and the Tolmar Agreement can be found in “Note 15 - Alliance and Collaboration Agreements.”
During the three month period ended June 30, 2014, the Company paid a $1.0 million milestone payment to Perrigo Company, plc (“Perrigo”) in conjunction with its launch of a generic version of Astepro® nasal spray pursuant to a development agreement between the Company and an affiliate of Perrigo. The milestone was capitalized as an intangible asset acquisition and will be amortized over the expected cash flows of the product. During the three month period ended September 30, 2014, the Company acquired from Actavis two generic products including one product marketed under an existing Abbreviated New Drug Application (“ANDA”), the Ursodiol tablet, and one approved product that was not yet then marketed, the Lamotrigine orally disintegrating tablet. The entire purchase price was allocated to identifiable intangible assets and the Ursodiol intangible will be amortized over an eight year period. The Lamotrigine product was considered in-process research and development. The Company received FDA approval of the Lamotrigine tablet in blister packaging in January 2015 and launched the product in early April 2015. The Company began amortizing the Lamotrigine intangible asset during the three month period ended June 30, 2015.
Other product rights consist of ANDAs which have been filed with the FDA. For the remaining ANDAs, the Company will either commence amortization upon FDA approval and commercialization over the estimated useful life of the product rights, or will expense the related costs immediately upon failure to obtain FDA approval. Amortization expense is included as a component of cost of revenues on the consolidated statements of income and was $10,307,000 and $2,463,000 for the three month periods ended September 30, 2015 and 2014, respectively, and $27,216,000 and $7,487,000 for the nine month periods ended September 30, 2015 and 2014, respectively.
The following schedule shows the expected amortization of product rights as of September 30, 2015 for the next five years and thereafter:
(in $000s) |
Amortization Expense |
|||
Remainder of 2015 |
$ | 10,447 | ||
2016 |
22,046 | |||
2017 |
22,977 | |||
2018 |
33,059 | |||
2019 |
37,667 | |||
Thereafter |
329,908 | |||
Totals |
$ | 456,104 |
|
12. ACCRUED EXPENSES, COMMITMENTS AND CONTINGENCIES
The following table sets forth the Company’s accrued expenses:
(in $000’s) |
September 30, 2015 |
December 31, 2014 |
||||||
Payroll-related expenses |
$ | 31,146 | $ | 33,812 | ||||
Product returns |
52,862 | 27,174 | ||||||
Government rebates |
49,325 | 18,272 | ||||||
Legal and professional fees |
7,453 | 9,497 | ||||||
Income taxes payable |
494 | 40 | ||||||
Physician detailing sales force fees |
1,319 | 2,336 | ||||||
Litigation accrual |
4,750 | 12,750 | ||||||
Interest payable |
3,000 | --- | ||||||
Other |
9,542 | 6,589 | ||||||
Total accrued expenses |
$ | 159,891 | $ | 110,470 |
Product Returns
The Company maintains a return policy to allow customers to return product within specified guidelines. At the time of sale, the Company estimates a provision for product returns based upon historical experience for sales made through Impax Generics and Impax Specialty Pharma sales channels. Sales of product under the Private Label, Rx Partner and OTC Partner alliance and collaboration agreements are generally not subject to returns. A roll forward of the product returns reserve for the nine month period ended September 30, 2015 and for the year ended December 31, 2014 is as follows:
(in $000’s) Returns Reserve |
September 30, 2015 |
December 31, 2014 |
||||||
Beginning balance |
$ | 27,174 | $ | 28,089 | ||||
Acquired balances |
18,949 | -- | ||||||
Provision related to sales recorded in the period |
34,427 | 12,016 | ||||||
Credits issued during the period |
(27,688 | ) |
(12,931 | ) |
||||
Ending balance |
$ | 52,862 | $ | 27,174 |
Taiwan Facility Construction
The Company has entered into several contracts relating to ongoing construction at its manufacturing facility located in Jhunan, Taiwan, R.O.C. As of September 30, 2015, the Company had remaining obligations under these contracts of approximately $837,000.
Purchase Order Commitments
As of September 30, 2015, and excluding the Taiwan Facility Construction, the Company had $48,131,000 of open purchase order commitments, primarily for raw materials. The terms of these purchase order commitments are generally less than one year in duration.
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13. INCOME TAXES
The Company calculates its interim income tax provision in accordance with FASB ASC Topics 270 and 740. At the end of each interim period, the Company makes an estimate of the annual U. S. domestic and foreign jurisdictions’ expected effective tax rates and applies these rates to its respective year-to-date taxable income or loss. The computation of the annual estimated effective tax rates at each interim period requires certain estimates and assumptions including, but not limited to, the expected operating income for the year, projections of the proportion of income (or loss) earned and taxed in the United States, and the various state and local tax jurisdictions, as well as tax jurisdictions outside the United States, along with permanent differences, and the likelihood of deferred tax asset utilization. The accounting estimates used to compute the provision for income taxes may change as new events occur, more experience is acquired or additional information is obtained. The computation of the annual estimated effective tax rate includes modifications, which were projected for the year, for share-based compensation and state research and development credits, among others. In addition, the effect of changes in enacted tax laws, rates, or tax status is recognized in the interim period in which the respective change occurs.
During the nine month period ended September 30, 2015, the Company recognized an aggregate consolidated tax provision of $18,509,000 for U.S. domestic and foreign income taxes. In the nine month period ended September 30, 2014, the Company recognized an aggregate consolidated tax provision of $31,676,000 for U.S. domestic and foreign income taxes. The decrease in the tax provision during the current period resulted from lower consolidated income before taxes in the nine month period ended September 30, 2015, as compared to the same period in the prior year. The effective tax rate of 40% for the nine month period ended September 30, 2015 was higher than the effective tax rate of 36% for the prior year period as a result of a change in the timing and mix of U.S. and foreign income. Other contributing factors to the rate fluctuation included a higher add back for non-deductible executive compensation limited by section 162(m) of the Internal Revenue Code, which prohibits publicly held corporations from deducting more than $1 million per year in compensation paid to each of certain covered employees, and non-deductible acquisition-related transaction costs. The Company is closely monitoring the events and circumstances that determine the need for a valuation allowance related to state research and development tax credit carryforwards and have determined that it would be premature to set up the valuation allowance at this time.
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14. DEBT
2% Convertible Senior Notes due June 2022
On June 30, 2015, the Company issued an aggregate principal amount of $600.0 million of 2.00% Convertible Senior Notes due June 2022 (the “Notes”) in a private placement offering, which are the Company’s senior unsecured obligations. The Notes were issued pursuant to an Indenture dated June 30, 2015 (the “Indenture”) between the Company and Wilmington Trust, N.A. as trustee. The Indenture includes customary covenants and sets forth certain events of default after which the Notes may be due and payable immediately. The Notes will mature on June 15, 2022, unless earlier redeemed, repurchased or converted. The Notes bear interest at a rate of 2.00% per year, and interest is payable semiannually in arrears on June 15 and December 15 of each year, beginning on December 15, 2015.
The conversion rate for the Notes is initially set at 15.7858 shares per $1,000 of principal amount, which is equivalent to an initial conversion price of $63.35 per share of the Company’s common stock. If a Make-Whole Fundamental Change (as defined in the Indenture) occurs or becomes effective prior to the maturity date and a holder elects to convert its Notes in connection with the Make-Whole Fundamental Change, the Company is obligated to increase the conversion rate for the Notes so surrendered by a number of additional shares of the Company’s common stock as prescribed in the Indenture. Additionally, the conversion rate is subject to adjustment in the event of an equity restructuring transaction such as a stock dividend, stock split, spinoff, rights offering, or recapitalization through a large, nonrecurring cash dividend (“standard antidilution provisions,” per ASC 815-40 – Contracts in Entity’s Own Equity).
The Notes are convertible at the option of the holders at any time prior to the close of business on the business day immediately preceding December 15, 2021 only under the following circumstances:
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If during any calendar quarter commencing after the quarter ending September 30, 2015 (and only during such calendar quarter) the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than 130% of the conversion price on each applicable trading day; or |
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If during the five business day period after any 10 consecutive trading day period (the “measurement period”) in which the trading price per $1,000 of principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last report sale price of the Company’s common stock and the conversion rate on each such trading day; or |
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Upon the occurrence of corporate events specified in the Indenture. |
On or after December 15, 2021 until the close of business on the second scheduled trading day immediately preceding the maturity date, the holders may convert their Notes at any time, regardless of the foregoing circumstances. The Company may satisfy its conversion obligation by paying or delivering, as the case may be, cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock, at the Company’s election and in the manner and subject to the terms and conditions provided in the Indenture.
Concurrently with the offering of the Notes and using a portion of the proceeds from the sale of the Notes, the Company entered into a series of convertible note hedge and warrant transactions (the “Note Hedge Transactions” and “Warrant Transactions”) which are designed to reduce the potential dilution to the Company’s stockholders and/or offset the cash payments the Company is required to make in excess of the principal amount upon conversion of the Notes. The Note Hedge Transactions and Warrant Transactions are separate transactions, in each case, entered into by the Company with a financial institution and are not part of the terms of the Notes. These transactions will not affect any holder’s rights under the Notes, and the holders of the Notes have no rights with respect to the Note Hedge Transactions and Warrant Transactions. See “Note 5 – Derivatives” and “Note 17 – Stockholders’ Equity” for additional information.
As of the June 30, 2015 issuance date of the Notes, the Company did not have the necessary number of authorized but unissued shares of its common available to settle the conversion option of the Notes in shares of the Company’s common stock. Unless and until the Company’s stockholders approve a sufficient increase in the authorized share count, the Company is required to settle the principal amount and conversion spread of the Notes in cash. Therefore, in accordance with guidance found in ASC 470-20 – Debt with Conversion and Other Options (“ASC 470-20”) and ASC 815-15 – Embedded Derivatives (“ASC 815-15”), the conversion option of the Notes was deemed an embedded derivative which must be bifurcated from the Notes (host contract) and accounted for separately as a derivative liability. The fair value of the conversion option derivative liability at September 30, 2015 was $111.0 million, which was recorded with an offsetting debit to the book value of the debt. This debt discount will be amortized to interest expense over the term of the debt using the effective interest method.
In connection with the issuance of the Notes, the Company incurred approximately $18.7 million of debt issuance costs for banking, legal and accounting fees and other expenses. This was also recorded on the Company’s balance sheet as a debt discount, in accordance with the Company’s early adoption of Accounting Standards Update (“ASU”) No. 2015-03 – Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”), and will be amortized to interest expense over the term of the debt using the effective interest method.
As the private offering closed on the last day of the quarter ended June 30, 2015, there was no related interest expense recorded for the second quarter, and there was no accrued interest payable balance on the Notes as of June 30, 2015. For the quarter ended September 30, 2015, the Company recognized $8.1 million of interest expense related to the convertible notes, of which $3 million was cash and $5.1 million was non-cash accretion of the debt discount recorded. As the Notes mature in 2022, they have been classified as long-term debt on the Company’s balance sheet, with a book balance of approximately $419.4 million as of September 30, 2015.
Royal Bank of Canada $100.0 Million Revolver
On August 4, 2015, the Company entered into a senior secured revolving credit facility (the “Revolving Credit Facility”) of up to $100 million, pursuant to a credit agreement, by and among the Company, the lenders party thereto from time to time and Royal Bank of Canada, as administrative agent and collateral agent (the “Revolving Credit Facility Agreement”). The Revolving Credit Facility is available for working capital and other general corporate purposes. Borrowings under the Revolving Credit Facility will accrue interest at a rate equal to LIBOR or the base rate, plus an applicable margin. The applicable margin may be increased or reduced by 0.75% based on the Company’s total net leverage ratio. The Revolving Credit Facility will mature on August 4, 2020. No borrowings have been drawn from the Revolving Credit Facility to date.
Loss on Early Extinguishment of Debt – Barclays $435.0 Million Term Loan
In connection with the acquisition of Tower during the first quarter of 2015, the Company entered into a $435.0 million senior secured term loan facility (the “Term Loan”) and a $50.0 million senior secured revolving credit facility (the “Barclays Revolver” and collectively with the Term Loan, the “Barclays Senior Secured Credit Facilities”), pursuant to a credit agreement, dated as of March 9, 2015, by and among the Company, the lenders party thereto from time to time and Barclays Bank PLC, as administrative and collateral agent (the “Barclays Credit Agreement”). In connection with the Barclays Senior Secured Credit Facilities, the Company incurred debt issuance costs for banking, legal and accounting fees and other expenses of approximately $17.8 million, which were previously reflected as a debt discount on the Company’s balance sheet in accordance with ASU 2015-03. Prior to repayment of the Term Loan on June 30, 2015, these debt issuance costs were to be amortized to interest expense over the term of the loan using the effective interest rate method.
On June 30, 2015, the Company used approximately $436.4 million of the proceeds from the sale of the Notes to repay the $435.0 million of principal and approximately $1.4 million of accrued interest due on its Term Loan under the Barclays Credit Agreement. In connection with this repayment of the loan, the Company recorded a loss on early extinguishment of debt of approximately $16.9 million related to the unamortized portion of the deferred debt issuance costs during the quarter ended June 30, 2015.
For the six months ended June 30, 2015, the Company incurred total interest expense on the Term Loan of approximately $10.7 million, of which $9.8 million was cash and $0.9 million was non-cash amortization of the deferred debt issuance costs. Included in the year-to-date cash interest expense of $12.8 million is approximately $2.3 million related to a ticking fee paid to Barclays during the first quarter of 2015, prior to the funding of the Senior Secured Credit Facilities on March 9, 2015, to lock in the financing terms from the lenders’ commitment of the Term Loan until the actual allocation of the loan occurred.
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15. ALLIANCE AND COLLABORATION AGREEMENTS
The Company has entered into several alliance, collaboration, license and distribution agreements, and similar agreements with respect to certain of its products and services, with unrelated third-party pharmaceutical companies. The consolidated statements of income include revenue recognized under agreements the Company has entered into to develop marketing and/or distribution relationships with its partners to fully leverage its technology platform and revenue recognized under development agreements which generally obligate the Company to provide research and development services over multiple periods.
The Company’s alliance and collaboration agreements often include milestones and provide for milestone payments upon achievement of these milestones. Generally, the milestone events contained in the Company’s alliance and collaboration agreements coincide with the progression of the Company’s products and technologies from pre-commercialization to commercialization.
The Company groups pre-commercialization milestones in its alliance and collaboration agreements into clinical and regulatory categories, each of which may include the following types of events:
Clinical Milestone Events:
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Designation of a development candidate. Following the designation of a development candidate, generally, IND-enabling animal studies for a new development candidate take 12 to 18 months to complete. |
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Initiation of a Phase I clinical trial. Generally, Phase I clinical trials take one to two years to complete. |
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Initiation or completion of a Phase II clinical trial. Generally, Phase II clinical trials take one to three years to complete. |
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Initiation or completion of a Phase III clinical trial. Generally, Phase III clinical trials take two to four years to complete. |
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Completion of a bioequivalence study. Generally, bioequivalence studies take three months to one year to complete. |
Regulatory Milestone Events:
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Filing or acceptance of regulatory applications for marketing approval such as a New Drug Application in the United States or Marketing Authorization Application in Europe. Generally, it takes six to 12 months to prepare and submit regulatory filings and approximately two months for a regulatory filing to be accepted for substantive review. |
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Marketing approval in a major market, such as the United States or Europe. Generally it takes one to three years after an application is submitted to obtain approval from the applicable regulatory agency. |
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Marketing approval in a major market, such as the United States or Europe for a new indication of an already-approved product. Generally it takes one to three years after an application for a new indication is submitted to obtain approval from the applicable regulatory agency. |
Commercialization milestones in the Company’s alliance and collaboration agreements may include the following types of events:
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First commercial sale in a particular market, such as in the United States or Europe. |
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Product sales in excess of a pre-specified threshold, such as annual sales exceeding $100 million. The amount of time to achieve this type of milestone depends on several factors including but not limited to the dollar amount of the threshold, the pricing of the product and the pace at which customers begin using the product. |
License and Distribution Agreement with Shire
In January 2006, the Company entered into a License and Distribution Agreement with an affiliate of Shire Laboratories, Inc., which was subsequently amended (“Prior Shire Agreement”), under which the Company received a non-exclusive license to market and sell an authorized generic of Shire’s Adderall XR® product (“AG Product”) subject to certain conditions, but in any event by no later than January 1, 2010. The Company commenced sales of the AG Product in October 2009. On February 7, 2013, the Company entered into an Amended and Restated License and Distribution Agreement with Shire (the “Amended and Restated Shire Agreement”), which amended and restated the Prior Shire Agreement. The Amended and Restated Shire Agreement was entered into by the parties in connection with the settlement of the Company’s litigation with Shire relating to Shire’s supply of the AG Product to the Company under the Prior Shire Agreement. Under the Amended and Restated Shire Agreement Shire was required to supply the AG Product and the Company was responsible for marketing and selling the AG Product subject to the terms and conditions thereof until the earlier of (i) the first commercial sale of the Company’s generic equivalent product to Adderall XR® and (ii) September 30, 2014 (the “Supply Term”), subject to certain continuing obligations of the parties upon expiration or early termination of the Supply Term, including Shire’s obligation to deliver AG Products still owed to the Company as of the end of the Supply Term. The Company is required to pay a profit share to Shire on sales of the AG Product of which the company owed a profit share payable to Shire of $15,375,000 and $15,567,000 on sales of the AG Product during the nine month periods ended September 30, 2015 and 2014, respectively, with a corresponding charge included in the cost of revenues line on the consolidated statements of income. Although the Supply Term expired on September 30, 2014, the Company is permitted to sell any AG Products in its inventory or owed to the Company by Shire under the Amended and Restated Shire Agreement until all such products are sold; the Company will pay a profit share to Shire on sales of such products.
Development, Supply and Distribution Agreement with TOLMAR, Inc.
In June 2012, the Company entered into the Tolmar Agreement with Tolmar. Under the terms of the Tolmar Agreement, Tolmar granted to the Company an exclusive license to commercialize up to 11 generic topical prescription drug products, including ten currently approved products and one product pending approval at the FDA, in the United States and its territories. Under the terms of the Tolmar Agreement, Tolmar is responsible for developing and manufacturing the products, and the Company is responsible for marketing and sale of the products. The Company is required to pay a profit share to Tolmar on sales of each product commercialized pursuant to the terms of the Tolmar Agreement. The Company paid Tolmar a $21,000,000 upfront payment upon signing of the agreement and a $1,000,000 milestone payment in the year ended December 31, 2012. During the fourth quarter of 2013, the Company made a $12,000,000 payment to Tolmar upon Tolmar’s achievement of a regulatory milestone event in accordance with the terms of the agreement. The upfront payment for the Tolmar product rights has been allocated to the underlying topical products based upon the relative fair value of each product and is being amortized over the remaining estimated useful life of each underlying product, ranging from five to 12 years, starting upon commencement of commercialization activities by the Company during the second half of 2012. The amortization of the Tolmar product rights has been included as a component of cost of revenues on the consolidated statements of income. The Company initially allocated $1,550,000 of the upfront payment to two products which are still in development and recorded such amount as in-process research and development expense in its results of operations for the year ended December 31, 2012. The Company similarly recorded the $1,000,000 milestone paid in the year ended December 31, 2012 as a research and development expense. The Company is required to pay a profit share to Tolmar on sales of the products, of which the Company owed a profit share payable to Tolmar of $35,369,000 and $10,493,000 on sales of the products during the nine month periods ended September 30, 2015 and 2014, respectively, with a corresponding charge included in the cost of revenues line on the consolidated statements of income. Under the Tolmar Agreement, the Company has the potential to pay up to an aggregate of $5,000,000 in additional contingent milestone payments if certain commercialization events occur.
Contingent milestone payments will be initially recognized in the period the triggering event occurs. Milestone payments which are contingent upon commercialization events will be accounted for as an additional cost of acquiring the product license rights. Milestone payments that are contingent upon regulatory approval events will be capitalized and amortized over the remaining estimated useful life of the approved product. During the fourth quarter of 2014, the Company paid a $2.0 million milestone related to the Diclofenac Sodium Gel 3% or generic Solaraze® product to Tolmar pursuant to the Tolmar Agreement. During the quarter ended June 30, 2015, the Company paid a $5.0 million milestone related to certain topical products pursuant to the Tolmar Agreement.
The Company entered into a Loan and Security Agreement with Tolmar in March 2012 (the “Tolmar Loan Agreement”), under which the Company has agreed to lend to Tolmar one or more loans through December 31, 2014, in an aggregate amount not to exceed $15,000,000. As of September 30, 2015, Tolmar has borrowed the full amount of $15,000,000 under the Tolmar Loan Agreement. The outstanding principal amount of, including any accrued and unpaid interest on, the loans under the Tolmar Loan Agreement are payable by Tolmar beginning from March 31, 2017 through March 31, 2020 or the maturity date, in accordance with the terms therein. Tolmar may prepay all or any portion of the outstanding balance of the loans prior to the maturity date without penalty or premium.
Strategic Alliance Agreement with Teva
The Company entered into a Strategic Alliance Agreement with Teva Pharmaceuticals Curacao N.V., a subsidiary of Teva Pharmaceuticals Industries Limited, in June 2001 (“Teva Agreement”). The Teva Agreement commits the Company to develop and manufacture, and Teva to distribute, a specified number of controlled release generic pharmaceutical products (“generic products”), each for a 10-year period.
The Company identified the following deliverables under the Teva Agreement: (i) the manufacture and delivery of generic products; (ii) the provision of research and development activities (including regulatory services) related to each product; and (iii) market exclusivity associated with the products.
As of September 30, 2015, the Company was supplying Teva with oxybutynin extended release tablets (Ditropan XL® 5, 10 and 15 mg extended release tablets) and has agreed to supply another product (currently under development) to Teva; the other products under the Teva Agreement have either been returned to the Company, are being manufactured by Teva at its election, were voluntarily withdrawn from the market or the Company’s obligations to supply such product had expired or were terminated in accordance with the agreement.
OTC Partners Alliance Agreement
In June 2002, the Company entered into a Development, License and Supply Agreement with Pfizer, Inc., formerly Wyeth LLC (“Pfizer”), for a term of approximately 15 years, relating to the Company’s Loratadine and Pseudoephedrine Sulfate 5 mg/120 mg 12-hour Extended Release Tablets and Loratadine and Pseudoephedrine Sulfate 10 mg/240 mg 24-hour Extended Release Tablets for the OTC market. The Company previously developed the products, and is currently only responsible for manufacturing the products, and Pfizer is responsible for marketing and sale. The agreement included payments to the Company upon achievement of development milestones, as well as royalties paid to the Company by Pfizer on its sales of the product. Pfizer launched this product in May 2003 as Alavert® D-12 Hour. In February 2005, the agreement was partially cancelled with respect to the 24-hour Extended Release Product due to lower than planned sales volume. In December 2011, Pfizer and the Company entered into an agreement with L. Perrigo Company (“Perrigo”), which was subsequently amended whereby the parties agreed that the Company would supply the Company’s Loratadine and Pseudoephedrine Sulfate 5 mg/120 mg 12-hour Extended Release Tablets to Perrigo in the United States and its territories. The agreements with Pfizer and Perrigo are no longer a core area of the Company’s business, and the over-the-counter pharmaceutical products the Company sells to Pfizer and Perrigo under the agreements are older products which are only sold to Pfizer and to Perrigo. As noted above, the Company is currently only required to manufacture the products under its agreements with Pfizer and Perrigo. The Company recognizes profit share revenue in the period earned.
Joint Development Agreement with Valeant Pharmaceuticals International, Inc.
In November 2008, the Company and Valeant Pharmaceuticals International, Inc., formerly Medicis Pharmaceutical Corporation (“Valeant”), entered into a Joint Development Agreement and a License and Settlement Agreement (“Joint Development Agreement”).The Joint Development Agreement provides for the Company and Valeant to collaborate in the development of a total of five dermatology products, including four of the Company’s generic products and one branded advanced form of Valeant’s SOLODYN® product. Under the provisions of the Joint Development Agreement the Company received a $40,000,000 upfront payment, paid by Valeant in December 2008. The Company has also received an aggregate of $15,000,000 in milestone payments composed of two $5,000,000 milestone payments, paid by Valeant in March 2009 and September 2009, a $2,000,000 milestone payment paid by Valeant in December 2009, and a $3,000,000 milestone payment paid by Valeant in March 2011. The Company has the potential to receive up to an additional $8,000,000 of contingent regulatory milestone payments each of which the Company believes to be substantive, as well as the potential to receive royalty payments from sales, if any, by Valeant of its advanced form SOLODYN® brand product. Finally, to the extent the Company commercializes any of its four generic dermatology products covered by the Joint Development Agreement, the Company will pay to Valeant a gross profit share on sales of such products. The Company began selling one of the four dermatology products during the year ended December 31, 2011. As of December 31, 2014, the full amount of deferred revenue under the Joint Development Agreement was recognized.
Distribution, License, Development and Supply Agreement with AstraZeneca UK Limited
In January 2012, the Company entered into the AZ Agreement with AstraZeneca. Under the terms of the AZ Agreement, AstraZeneca granted to the Company an exclusive license to commercialize the tablet, orally disintegrating tablet and nasal spray formulations of Zomig® (zolmitriptan) products for the treatment of migraine headaches in the United States and in certain United States territories, except during an initial transition period when AstraZeneca fulfilled all orders of Zomig® products on the Company’s behalf and AstraZeneca paid to the Company the gross profit on such Zomig® products. The Company is obligated to fulfill certain minimum requirements with respect to the promotion of currently approved Zomig® products as well as other dosage strengths of such products approved by the FDA in the future. The Company may, but has no obligation to, develop and commercialize additional products containing zolmitriptan and additional indications for Zomig®, subject to certain restrictions as set forth in the AZ Agreement. The Company will be responsible for conducting clinical studies and preparing regulatory filings related to the development of any such additional products and would bear all related costs. During the term of the AZ Agreement, AstraZeneca will continue to be the holder of the NDA for existing Zomig® products, as well as any future dosage strengths thereof approved by the FDA, and will be responsible for certain regulatory and quality-related activities for such Zomig® products. AstraZeneca will manufacture and supply Zomig® products to the Company and the Company will purchase its requirements of Zomig® products from AstraZeneca until a date determined in the AZ Agreement. Thereafter, AstraZeneca may terminate its supply obligations upon certain advance notice to the Company, in which case the Company would have the right to manufacture or have manufactured its own requirements for the applicable Zomig® product.
Under the terms of the AZ Agreement, AstraZeneca was required to make payments to the Company representing 100% of the gross profit on sales of AstraZeneca-labeled Zomig® products during the specified transition period. The Company received transition payments from AstraZeneca aggregating $43,564,000 during 2012. The Company accounted for these payments as a reduction of the related receivable that was recorded in the initial purchase price allocation. The Company allocated $45,096,000 to an intangible asset, and the remaining $41,340,000 to prepaid royalty expense related to sales of Impax-labeled Zomig® products during 2012, with such royalty expense included in cost of revenues on the consolidated statements of income. Beginning in January 2013, the Company was obligated to pay AstraZeneca tiered royalties on net sales of branded Zomig® products, depending on brand exclusivity and subject to customary reductions and other terms and conditions set forth in the AZ Agreement. The Company is also obligated to pay AstraZeneca royalties after a certain specified date based on gross profit from sales of authorized generic versions of the Zomig® products subject to certain terms and conditions set forth in the AZ Agreement. In May 2013, the Company’s exclusivity period for branded Zomig® tablets and orally disintegrating tablets expired and the Company launched authorized generic versions of those products in the United States. The Company owed a royalty payable to AstraZeneca of $11,474,000 and $9,374,000 during the nine month periods ended September 30, 2015 and 2014, respectively, with a corresponding charge included in the cost of revenues line on the consolidated statements of income.
Development and Co-Promotion Agreement with Endo Pharmaceuticals, Inc.
In June 2010, the Company and Endo Pharmaceuticals, Inc. ("Endo") entered into a Development and Co-Promotion Agreement (“Endo Agreement”) under which the Company and Endo have agreed to collaborate in the development and commercialization of a next-generation advanced form of the Company’s lead brand product candidate ("Endo Agreement Product"). Under the provisions of the Endo Agreement, in June 2010, Endo paid to the Company a $10,000,000 upfront payment. The Company has the potential to receive up to an additional $30,000,000 of contingent milestone payments, which includes $15,000,000 contingent upon the achievement of clinical events, $5,000,000 contingent upon the achievement of regulatory events, and $10,000,000 contingent upon the achievement of commercialization events. The Company believes all milestones under the Endo Agreement are substantive. Upon commercialization of the Endo Agreement Product in the United States, Endo will have the right to co-promote such product to non-neurologists, which will require the Company to pay Endo a co-promotion service fee of up to 100% of the gross profits attributable to prescriptions for the Endo Agreement Product which are written by the non-neurologists.
The Company is recognizing the $10,000,000 upfront payment as revenue on a straight-line basis over a period of 112 months, which is the estimated expected period of performance of research and development activities under the Endo Agreement, commencing with the June 2010 effective date of the Endo Agreement and ending in September 2019, the estimated date of FDA approval of the Company's NDA. The FDA approval of the Endo Agreement Product NDA represents the end of the Company’s expected period of performance, as the Company will have no further contractual obligation to perform research and development activities under the Endo Agreement, and therefore the earnings process will be completed. Deferred revenue is recorded as a liability captioned “Deferred revenue” on the consolidated balance sheet and deferred revenue under the Endo Agreement was $3,630,000 as of September 30, 2015. Revenue recognized under the Endo Agreement is reported in the line item “Other Revenues” in “Note 21 - Supplementary Financial Information.” The Company determined the straight-line method aligns revenue recognition with performance as the level of research and development activities performed under the Endo Agreement are expected to be performed on a ratable basis over the Company’s estimated expected period of performance. Upon FDA approval of the Company’s Endo Agreement Product NDA, the Company will have the right (but not the obligation) to begin manufacture and sale of such product. The Company will sell its manufactured branded product to customers in the ordinary course of business through Impax Specialty Pharma. The Company will account for any sale of the product covered by the Endo Agreement as current period revenue. The co-promotion service fee paid to Endo, as described above, if any, will be accounted for as a current period selling expense as incurred.
The Company and Endo also entered into a Settlement and License Agreement in June 2010 (the “Endo Settlement Agreement”) pursuant to which Endo agreed to make a payment to the Company should prescription sales of Opana® ER (as defined in the Endo Settlement Agreement) fall below a predetermined contractual threshold in the quarter immediately prior to the Company launching a generic version of Opana® ER.
Agreement with DURECT Corporation
During the three month period ended March 31, 2014, the Company entered into an agreement with DURECT Corporation (“Durect”) granting the Company the exclusive worldwide rights to develop and commercialize DURECT’s investigational transdermal bupivacaine patch for the treatment of pain associated with post-herpetic neuralgia (PHN), referred to by the Company as IPX239. The Company paid Durect a $2,000,000 up-front payment upon signing of the agreement which was recognized immediately as research and development expense. The Company has the potential to pay up to $61,000,000 in additional contingent milestone payments upon the achievement of predefined development and commercialization milestones. If IPX239 is commercialized, Durect would also receive a tiered royalty on product sales.
Product Acquisition Agreement with Teva Pharmaceuticals USA, Inc.
In August 2013, the Company, through its Amedra Pharmaceuticals subsidiary, entered into a product acquisition agreement (the “Teva Product Acquisition Agreement”) with Teva Pharmaceuticals USA, Inc. (“Teva”) pursuant to which the Company acquired the assets (including the ANDA and other regulatory materials) and related liabilities related to Teva’s mebendazole tablet product in all dosage forms (the “Mebendazole Tablet”). The Company has the potential to pay up to $3,500,000 in additional contingent milestone payments upon the achievement of predefined regulatory and commercialization milestones. The Company is also obligated to pay Teva a royalty payment based on net sales of the Mebendazole Tablet, including a specified annual minimum royalty payment, subject to customary reductions and the other terms and conditions set forth in the Teva Product Acquisition Agreement.
Master Development Agreement with RiconPharma LLC
In June 2013, the Company, through its Amedra Pharmaceuticals subsidiary, entered into a development agreement (the “Albendazole Agreement”) with RiconPharma LLC (“RiconPharma”). Under the terms of the Albendazole Agreement, RiconPharma is responsible for the development of Albendazole tablets (the “Albendazole Tablet”) and the Company is responsible for the marketing and sale of the Albendazole Tablets. The Company made an incentive cash payment of $225,000 to RiconPharma during the fourth quarter of 2014 upon the achievement of a specified development milestone. The Company is also obligated to pay RiconPharma tiered royalty payments based on net sales of the Albendazole Tablet, subject to customary reductions and the other terms and conditions set forth in the agreement.
Master Development Agreement with RiconPharma LLC
In May 2011, the Company, through its CorePharma subsidiary, entered into an amended and restated master development Agreement with RiconPharma LLC (the “Amended and Restated Development Agreement”) which amended and restated the development agreement between the parties dated September 21, 2009, as amended. Under the Amended and Restated Development Agreement, RiconPharma is responsible for exclusively developing and manufacturing, on a non-exclusive basis, for the Company and the Company is responsible for commercializing Griseofulvin Ultra-microcrystalline 125 mg and 250 mg tablets. The Company has the potential to pay up to $500,000 in contingent milestone payments upon the achievement of certain specified commercialization milestones for each product, as specified in the agreement. The Company is also obligated to pay RiconPharma tiered profit share payments based on net sales of the products, subject to customary reductions and the other terms and conditions set forth in the agreement.
Product Agreement with Pfizer Inc.
In January 2008, the Company, through its CorePharma subsidiary, entered into a Product Agreement (the “Pfizer Product Agreement”) with Pfizer, formerly King Pharmaceuticals, Inc. (“Pfizer”), under which the Company received the non-exclusive right to manufacture, market and sell an authorized generic of Pfizer’s Skelaxin® 800 mg product (the “Pfizer AG Product”). The Company is obligated to pay Pfizer a distribution fee based on net sales of the Pfizer AG Product, subject to terms and conditions set forth in the Pfizer Product Agreement. Pursuant to a Manufacturing and Supply Agreement dated as of August 29, 2013 with Pfizer, the Company is also obligated to manufacture and supply the branded Skelaxin® 800 mg product to Pfizer in accordance with the terms of such agreement.
License, Supply and Distribution Agreement with Micro Labs Limited
In June 2012, the Company, through its CorePharma subsidiary, entered into a License, Supply and Distribution Agreement (“Micro Labs Agreement”) with Micro Labs Limited (“Micro Labs”), under which the Company received an exclusive license to commercialize and distribute a generic equivalent of Arthrotec® tablets (the “Diclofenac Sodium and Misoprostol Product”) in the U.S. and its possessions and territories, and Micro Labs agreed to exclusively supply such the Diclofenac Sodium and Misoprostol Product to the Company for the U.S. and its possessions and territories, in each case subject to the terms and conditions in the agreement. The Company has the potential to pay up to $750,000 in contingent milestone payments upon the achievement of predefined development milestones. The Company is also obligated to pay Micro Labs a profit share based on net sales of the Diclofenac Sodium and Misoprostol Product, subject to the terms and conditions set forth in the agreement.
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17. STOCKHOLDERS’ EQUITY
Preferred Stock
Pursuant to its Restated Certificate of Incorporation (the “Certificate of Incorporation”), the Company is authorized to issue 2,000,000 shares of “blank check” preferred stock, $0.01 par value per share, which enables the Board of Directors, from time to time, to create one or more new series of preferred stock. Each series of preferred stock issued can have the rights, preferences, privileges and restrictions designated by the Board of Directors. The issuance of any new series of preferred stock could affect, among other things, the dividend, voting, and liquidation rights of the Company’s common stock. The Company had no preferred stock issued or outstanding as of September 30, 2015.
Common Stock
Pursuant to its Certificate of Incorporation, the Company is authorized to issue 90,000,000 shares of common stock, $0.01 par value per share, of which 73,151,559 shares have been issued and 70,162,673 are outstanding as of September 30, 2015. In addition, the Company has reserved for issuance the following amounts of shares of its common stock for the purposes described below as of September 30, 2015:
(amount in millions) |
||||
Shares issued(1) |
73.15 | |||
Stock options outstanding(1) |
2.42 | |||
Warrants outstanding (see below) |
9.47 | |||
Total common stock shares issued and reserved for issuance |
85.04 |
(1) |
See “Note 16 – Share-based Compensation.” |
As of the June 30, 2015 issuance date of the Notes described in “Note 14 – Debt”, the Company did not have the necessary number of authorized but unissued shares of its common stock required to settle the conversion option of the Notes in shares of the Company’s common stock. Until the Company’s stockholders approve a sufficient increase in the authorized share count, the Company is required to settle the principal amount and conversion spread of the Notes in cash. The Notes are initially convertible into 9,471,480 shares of the Company’s common stock, based on an initial conversion price of $63.35 per share.
Warrants
As discussed in “Note 14 – Debt”, on June 30, 2015, the Company entered into a series of Note Hedge Transactions and Warrant Transactions with a financial institution which are designed to reduce the potential dilution to the Company’s stockholders and/or offset the cash payments the Company is required to make in excess of the principal amount upon conversion of the Notes. Pursuant to the Warrant Transactions, the Company sold to a financial institution approximately 9.47 million warrants to purchase the Company’s common stock, for which it received proceeds of approximately $88.3 million. The warrants have an exercise price of $81.277 per share (subject to adjustment), are immediately exercisable, and have an expiration date of September 15, 2022.
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19. SEGMENT INFORMATION
The Company has two reportable segments, Impax Generics and Impax Specialty Pharma. Impax Generics develops, manufactures, sells, and distributes generic pharmaceutical products, primarily through the following sales channels: the Impax Generics sales channel for sales of generic prescription products directly to wholesalers, large retail drug chains, and others; the Private Label Product sales channel for generic over-the-counter and prescription products sold to unrelated third-party customers who, in turn, sell the products under their own label; the Rx Partner sales channel for generic prescription products sold through unrelated third-party pharmaceutical entities under their own label pursuant to alliance agreements; and the OTC Partner sales channel for over-the-counter products sold through unrelated third-party pharmaceutical entities under their own labels pursuant to alliance and supply agreements. Revenues from the “Impax Generics” sales channel and the “Private Label” sales channel are reported under the caption “Impax Generics sales, net” in “Note 21 – Supplementary Financial Information.” The Company also generates revenue in Impax Generics from research and development services provided under a joint development agreement with another unrelated third-party pharmaceutical company, and reports such revenue under the caption “Other Revenues” revenue in “Note 21 – Supplementary Financial Information.” Revenues from the “OTC Partner” sales channel are also reported under the caption “Other Revenues” in “Note 21 – Supplementary Financial Information.”
Impax Specialty Pharma is engaged in the development of proprietary brand pharmaceutical products that the Company believes represent improvements to already-approved pharmaceutical products addressing central nervous system (“CNS”) disorders and other select specialty segments. Impax Specialty Pharma currently has one internally developed branded pharmaceutical product, RYTARY® (IPX066), an extended release oral capsule formulation of carbidopa-levodopa for the treatment of Parkinson’s disease, post-encephalitic parkinsonism, and parkinsonism that may follow carbon monoxide intoxication and/or manganese intoxication, which was approved by the FDA on January 7, 2015. The Company has also filed the required documents for a Market Authorization Application to the European Medicines Agency (EMA) for IPX066 (brand name NUMIENT™ outside of the United States) on November 5, 2014 and on September 24, 2015 the Committee for Medicinal Products for Human Use (CHMP) of the EMA adopted a positive opinion recommending that NUMIENT™ be granted approval for the symptomatic treatment of adult patients with Parkinson’s disease. Impax Specialty Pharma is also engaged in the sale and distribution of four other branded products including Zomig® (zolmitriptan) products, indicated for the treatment of migraine headaches, under the terms of a Distribution, License, Development and Supply Agreement (“AZ Agreement”) with AstraZeneca UK Limited (“AstraZeneca”) in the United States and in certain U.S. territories, and Albenza®, indicated for the treatment of tapeworm infections. Revenues from Impax-labeled branded products are reported under the caption “Impax Specialty Pharma sales, net” in “Note 21 – Supplementary Financial Information.” Finally, the Company generates revenue in Impax Specialty Pharma from research and development services provided under a development and license agreement with another unrelated third-party pharmaceutical company, and reports such revenue under the caption “Other Revenues” in “Note 21 – Supplementary Financial Information.” Impax Specialty Pharma also has a number of product candidates that are in varying stages of development. Revenues from Impax-labeled branded products are reported under the caption “Impax Specialty Pharma sales, net” in “Note 21 – Supplementary Financial Information.” Finally, the Company generates revenue in Impax Specialty Pharma from research and development services provided under a development and license agreement with another unrelated third-party pharmaceutical company, and reports such revenue under the caption “Other Revenues” in “Note 21 – Supplementary Financial Information.” Impax Specialty Pharma also has a number of product candidates that are in varying stages of development.
The Company’s chief operating decision maker evaluates the financial performance of the Company’s segments based upon segment income (loss) before income taxes. Items below income (loss) from operations are not reported by segment, since they are excluded from the measure of segment profitability reviewed by the Company’s chief operating decision maker. Additionally, general and administrative expenses, certain selling expenses, certain litigation settlements, and non-operating income and expenses are included in “Corporate and Other.” The Company does not report balance sheet information by segment since it is not reviewed by the Company’s chief operating decision maker. The accounting policies for the Company’s segments are the same as those described above in the discussion of "Revenue Recognition" and in the “Summary of Significant Accounting Policies” in the Company's Form 10-K for the year ended December 31, 2014. The Company has no inter-segment revenue.
The tables below present segment information reconciled to total Company consolidated financial results, with segment operating income or loss including gross profit less direct research and development expenses and direct selling expenses as well as any litigation settlements, to the extent specifically identified by segment:
(in $000’s) Three Months Ended September 30, 2015 |
Impax Generics |
Impax Specialty Pharma |
Corporate and Other |
Total Company |
||||||||||||
Revenues, net |
$ | 180,666 | $ | 40,433 | --- | $ | 221,099 | |||||||||
Cost of revenues |
112,716 | 14,834 | --- | 127,550 | ||||||||||||
Research and development |
14,346 | 4,285 | --- | 18,631 | ||||||||||||
Patent litigation expense |
397 | 655 | --- | 1,052 | ||||||||||||
Selling, general and administrative |
5,103 | 11,418 | 29,786 | 46,307 | ||||||||||||
Income before provision for income taxes |
$ | 48,104 | $ | 9,241 | $ | 3,987 | $ | 61,332 |
(in $000’s) Three Months Ended September 30, 2014 |
Impax Generics |
Impax Specialty Pharma |
Corporate and Other |
Total Company |
||||||||||||
Revenues, net |
$ | 145,633 | $ | 12,366 | --- | $ | 157,999 | |||||||||
Cost of revenues |
68,488 | 5,073 | --- | 73,561 | ||||||||||||
Research and development |
10,213 | 8,543 | --- | 18,756 | ||||||||||||
Patent litigation expense |
1,066 | 227 | --- | 1,293 | ||||||||||||
Selling, general and administrative |
4,867 | 10,794 | 23,227 | 38,888 | ||||||||||||
Income (loss) before provision for income taxes |
$ | 60,999 | $ | (12,271 | ) |
$ | (22,874 | ) |
$ | 25,854 |
(in $000’s) Nine Months Ended September 30, 2015 |
Impax Generics |
Impax Specialty Pharma |
Corporate and Other |
Total Company |
||||||||||||
Revenues, net |
$ | 484,086 | $ | 94,291 | --- | $ | 578,377 | |||||||||
Cost of revenues |
299,596 | 41,147 | --- | 340,743 | ||||||||||||
Research and development |
38,100 | 12,488 | --- | 50,588 | ||||||||||||
Patent litigation expense |
2,507 | 999 | --- | 3,506 | ||||||||||||
Selling, general and administrative |
16,673 | 39,186 | 88,917 | 144,776 | ||||||||||||
Income (loss) before provision for income taxes |
$ | 127,210 | $ | 471 | $ | (81,602 | ) |
$ | 46,079 |
(in $000’s) Nine Months Ended September 30, 2014 |
Impax Generics |
Impax Specialty Pharma |
Corporate and Other |
Total Company |
||||||||||||
Revenues, net |
$ | 431,167 | $ | 33,671 | $ | --- | $ | 464,838 | ||||||||
Cost of revenues |
195,382 | 17,624 | --- | 213,006 | ||||||||||||
Research and development |
32,175 | 29,574 | --- | 61,749 | ||||||||||||
Patent litigation expense |
5,006 | 227 | --- | 5,233 | ||||||||||||
Selling, general and administrative |
11,822 | 31,749 | 53,611 | 97,182 | ||||||||||||
Income (loss) before provision for income taxes |
$ | 186,782 | $ | (45,503 | ) |
$ | (52,370 | ) |
$ | 88,909 |
Foreign Operations
The Company’s wholly owned subsidiary, Impax Laboratories (Taiwan) Inc., constructed a manufacturing facility in Jhunan, Taiwan R.O.C. which is utilized for manufacturing, research and development, warehouse, and administrative functions, with approximately $132,651,000 of net carrying value of assets, composed principally of a building and equipment, included in the Company's consolidated balance sheet at September 30, 2015.
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20. LEGAL AND REGULATORY MATTERS
Patent Litigation
There is substantial litigation in the pharmaceutical, biological, and biotechnology industries with respect to the manufacture, use, and sale of new products which are the subject of conflicting patent and intellectual property claims. One or more patents typically cover most of the brand name controlled release products for which the Company is developing generic versions.
Under federal law, when a drug developer files an ANDA for a generic drug seeking approval before expiration of a patent, which has been listed with the FDA as covering the brand name product, the developer must certify its product will not infringe the listed patent(s) and/or the listed patent is invalid or unenforceable (commonly referred to as a “Paragraph IV” certification). Notices of such certification must be provided to the patent holder, who may file a suit for patent infringement within 45 days of the patent holder’s receipt of such notice. If the patent holder files suit within the 45 day period, the FDA can review and approve the ANDA, but is prevented from granting final marketing approval of the product until a final judgment in the action has been rendered in favor of the generic drug developer, or 30 months from the date the notice was received, whichever is sooner. Lawsuits have been filed against the Company in connection with the Company’s Paragraph IV certifications seeking an order delaying the approval of the Company’s ANDA until expiration of the patent(s) at issue in the litigation.
Should a patent holder commence a lawsuit with respect to an alleged patent infringement by the Company, the uncertainties inherent in patent litigation make the outcome of such litigation difficult to predict. The delay in obtaining FDA approval to market the Company’s product candidates as a result of litigation, as well as the expense of such litigation, whether or not the Company is ultimately successful, could have a material adverse effect on the Company’s results of operations and financial position. In addition, there can be no assurance that any patent litigation will be resolved prior to the end of the 30-month period. As a result, even if the FDA were to approve a product upon expiration of the 30-month period, the Company may elect to not commence marketing the product if patent litigation is still pending.
The Company is generally responsible for all of the patent litigation fees and costs associated with current and future products not covered by its alliance and collaboration agreements. The Company has agreed to share legal expenses with respect to third-party and Company products under the terms of certain of the alliance and collaboration agreements. The Company records the costs of patent litigation as expense in the period when incurred for products it has developed, as well as for products which are the subject of an alliance or collaboration agreement with a third-party.
Although the outcome and costs of the asserted and unasserted claims is difficult to predict, the Company does not expect the ultimate liability, if any, for such matters to have a material adverse effect on its financial condition, results of operations, or cash flows.
Patent Infringement Litigation
Endo Pharmaceuticals Inc. and Grunenthal GmbH v. Impax Laboratories, Inc. and ThoRx Laboratories, Inc. (Oxymorphone hydrochloride); Endo Pharmaceuticals Inc. and Grunenthal GmbH v. Impax Laboratories, Inc. (Oxymorphone hydrochloride)
In November 2012, Endo Pharmaceuticals, Inc. and Grunenthal GmbH (collectively, “Endo”) filed suit against ThoRx Laboratories, Inc., a wholly owned subsidiary of the Company (“ThoRx”), and the Company in the U.S. District Court for the Southern District of New York alleging patent infringement based on the filing of ThoRx’s ANDA relating to Oxymorphone hydrochloride, Extended Release tablets, 5, 7.5, 10, 15, 20, 30 and 40 mg, generic to Opana ER®. In January 2013, Endo filed a separate suit against the Company in the U.S. District Court for the Southern District of New York alleging patent infringement based on the filing of the Company’s ANDA relating to the same products. ThoRx and the Company filed an answer and counterclaims to the November 2012 suit and the Company filed an answer and counterclaims with respect to the January 2013 suit. A bench trial was completed in April 2015. In August 2015, the Court entered judgment that the products described in the Company’s and ThoRx’s ANDAs would, if marketed, infringe certain claims of the patents asserted by Endo and Grunenthal. The court also found that the asserted claims of patents owned by Endo were not invalid, but that the asserted claims of patents owned by Grunenthal were invalid. As a result, the court enjoined the Company and ThoRx from marketing their products until expiration of the Endo patents in 2023. All parties have filed notices of appeal with respect to the Court's judgment, and the appeal is pending.
In November 2014, Endo Pharmaceuticals Inc. and Mallinckrodt LLC filed suit against the Company in the U.S. District Court for the District of Delaware making additional allegations of patent infringement based on the filing of the Company’s Oxymorphone hydrochloride ANDA described above. Also in November 2014, Endo and Mallinckrodt filed a separate suit in the U.S. District Court for the District of Delaware making additional allegations of patent infringement based on the filing of the ThoRx Oxymorphone hydrochloride ANDA described above. ThoRx and the Company filed an answer and counterclaim to those suits in which they are named as a defendant. The cases are currently pending.
UCB Inc., et al. v. CorePharma LLC (Methylphenidate)
In March 2014, UCB Inc. and UCB Manufacturing (collectively, “UCB”) filed suit against CorePharma LLC, a wholly-owned subsidiary of the Company, in the United States District Court for the District of New Jersey alleging patent infringement based on the filing of CorePharma’s ANDA relating to methylphenidate hydrochloride extended-release capsules, 10 mg, 20 mg, 30 mg, 40 mg, 50 mg and 60 mg, generic to Metadate CD®. On May 27, 2014, CorePharma filed an answer and counterclaims. The parties have settled and the case was dismissed on September 2, 2015.
Impax Laboratories Inc., et al. v. Lannett Holdings, Inc. and Lannett Company (Zomig®)
In July 2014, the Company filed suit against Lannett Holdings, Inc. and Lannett Company (collectively, “Lannett”) in the United States District Court for the District of Delaware, alleging patent infringement based on the filing of the Lannett ANDA relating to Zolmitriptan Nasal Spray, 5mg, generic to Zomig® Nasal Spray. Lannett filed an answer and counterclaims alleging non-infringement and invalidity in September 2014, and the Company filed an answer to the counterclaims in October 2014. Discovery is proceeding, and trial is set for September 6, 2016. On July 28, 2015, Lannett filed petitions for Inter Partes Review of U.S. Patent Nos. 6,750,237 and 7,220,767 related to the product in the U.S. Patent and Trademark Office before the Patent Trial and Appeal Board (“PTAB”). Patent owner preliminary responses are due in these PTAB proceedings by November 4, 2015.
Impax Laboratories Inc., et al. v. Actavis Laboratories, Inc. and Actavis Pharma Inc. (RYTARY®)
In September 2015, the Company filed suit against Actavis Laboratories, Inc. and Actavis Pharma Inc. (collectively, “Actavis”) in the United States District Court for the District of New Jersey, alleging patent infringement based on the filing of the Actavis ANDA relating to carbidopa and levodopa extended release capsules, generic to RYTARY®.
Shire LLC v. CorePharma LLC (Mixed Amphetamines)
In September 2014, Shire LLC (“Shire”) filed suit against CorePharma LLC, a wholly-owned subsidiary of the Company, in the United States District Court for the District of New Jersey alleging patent infringement based on the filing of CorePharma’s ANDA relating to dextroamphetamine sulfate, dextroamphetamine saccharate, amphetamine aspartate monohydrate, amphetamine sulfate extended-release capsules, 5 mg, 10 mg, 15 mg, 20 mg, 25 mg and 30 mg, generic to Adderall XR®. On November 14, 2014, CorePharma filed an answer and counterclaims. Discovery is proceeding. A trial date has not been set.
Other Litigation Related to the Company’s Business
Civil Investigative Demand from the FTC (Minocycline Hydrochloride)
On May 2, 2012, the Company received a Civil Investigative Demand (“CID”) from the United States Federal Trade Commission (“FTC”) concerning its investigation into the drug SOLODYN® and its generic equivalents. According to the FTC, the investigation relates to whether Medicis Pharmaceutical Corporation, now a wholly owned subsidiary of Valeant Pharmaceuticals International, Inc. (“Medicis”), the Company, and six other companies have engaged or are engaged in unfair methods of competition in or affecting commerce by (i) entering into agreements regarding SOLODYN® or its generic equivalents and/or (ii) engaging in other conduct regarding the sale or marketing of SOLODYN® or its generic equivalents. The Company is cooperating with the FTC in producing documents, information and witnesses in response to the investigation. To the knowledge of the Company, no FTC proceedings have been initiated against the Company to date, however no assurance can be given as to the timing or outcome of this investigation.
Solodyn® Antitrust Class Actions
From July 2013 to April 2015, 15 class action complaints were filed against manufacturers of the brand drug Solodyn® and its generic equivalents, including the Company.
On July 22, 2013, Plaintiff United Food and Commercial Workers Local 1776 & Participating Employers Health and Welfare Fund, an indirect purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated.
On July 23, 2013, Plaintiff Rochester Drug Co-Operative, Inc., a direct purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated.
On August 1, 2013, Plaintiff International Union of Operating Engineers Local 132 Health and Welfare Fund, an indirect purchaser, filed a class action complaint in the United States District Court for the Northern District of California on behalf of itself and others similarly situated. On August 29, 2013, this Plaintiff withdrew its complaint from the United States District Court for the Northern District of California, and on August 30, 2013, re-filed the same complaint in the United States Court for the Eastern District of Pennsylvania, on behalf of itself and others similarly situated.
On August 9, 2013, Plaintiff Local 274 Health & Welfare Fund, an indirect purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated.
On August 12, 2013, Plaintiff Sheet Metal Workers Local No. 25 Health & Welfare Fund, an indirect purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated.
On August 27, 2013, Plaintiff Fraternal Order of Police, Fort Lauderdale Lodge 31, Insurance Trust Fund, an indirect purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated.
On August 29, 2013, Plaintiff Heather Morgan, an indirect purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated.
On August 30, 2013, Plaintiff Plumbers & Pipefitters Local 178 Health & Welfare Fund, an indirect purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated.
On September 9, 2013, Plaintiff Ahold USA, Inc., a direct purchaser, filed a class action complaint in the United States District Court for the District of Massachusetts on behalf of itself and others similarly situated.
On September 24, 2013, Plaintiff City of Providence, Rhode Island, an indirect purchaser, filed a class action complaint in the United States District Court for the District of Arizona on behalf of itself and others similarly situated.
On October 2, 2013, Plaintiff International Union of Operating Engineers Stationary Engineers Local 39 Health & Welfare Trust Fund, an indirect purchaser, filed a class action complaint in the United States District Court for the District of Massachusetts on behalf of itself and others similarly situated.
On October 7, 2013, Painters District Council No. 30 Health and Welfare Fund, an indirect purchaser, filed a class action complaint in the United States District Court for the District of Massachusetts on behalf of itself and others similarly situated.
On October 25, 2013, Plaintiff Man-U Service Contract Trust Fund, an indirect purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated.
On March 13, 2014, Plaintiff Allied Services Division Welfare Fund, an indirect purchaser, filed a class action complaint in the United States District Court for the District of Massachusetts on behalf of itself and others similarly situated.
On March 19, 2014, Plaintiff NECA-IBEW Welfare Trust Fund, an indirect purchaser, filed a class action complaint in the United States District Court for the District of Massachusetts on behalf of itself and others similarly situated.
On February 25, 2014, the United States Judicial Panel on Multidistrict Litigation ordered the pending actions transferred to the District of Massachusetts for coordinated pretrial proceedings, as In Re Solodyn (Minocycline Hydrochloride) Antitrust Litigation.
On March 26, 2015, Walgreen Co., The Kruger Co., Safeway Inc., HEB Grocery Company L.P., Albertson’s LLC, direct purchasers, filed a separate complaint in the United States District Court for the Middle District of Pennsylvania. On April 8, 2015, the Judicial Panel on Multi-District Litigation ordered the action be transferred to the District of Massachusetts, to be coordinated or consolidated with the coordinated proceedings. The original complaint filed by the plaintiffs asserted claims only against defendant Medicis. On October 5, 2015, the plaintiffs filed an amended complaint asserting claims against the Company and the other generic defendants.
On April 16, 2015, Rite Aid Corporation and Rite Aid Hdqtrs. Corp, direct purchasers, filed a separate complaint in the United States District Court for the Middle District of Pennsylvania. On May 1, 2015, the Judicial Panel on Multi-District Litigation ordered the action be transferred to the District of Massachusetts, to be coordinated or consolidated with the coordinated proceedings. The original complaint filed by the plaintiffs asserted claims only against defendant Medicis. On October 5, 2015, the plaintiffs filed an amended complaint asserting claims against the Company and the other generic defendants.
The consolidated amended complaints allege that Medicis engaged in anticompetitive schemes by, among other things, filing frivolous patent litigation lawsuits, submitting frivolous Citizen Petitions, and entering into anticompetitive settlement agreements with several generic manufacturers, including the Company, to delay generic competition of Solodyn® and in violation of state and federal antitrust laws. Plaintiffs seek, among other things, unspecified monetary damages and equitable relief, including disgorgement and restitution. On August 14, 2015, the Court granted in part and denied in part defendants’ motion to dismiss the consolidated amended complaints. Discovery is ongoing. No trial date has been scheduled.
Civil Investigative Demand from the FTC (Oxymorphone Hydrochloride)
On February 25, 2014, the Company received a CID from the FTC concerning its investigation into the drug Opana® ER and its generic equivalents. According to the FTC, the investigation relates to whether Endo Pharmaceuticals, Inc. (“Endo”), the Company have engaged or are engaged in unfair methods of competition in or affecting commerce by (i) entering into agreements regarding Opana® ER or its generic equivalents and/or (ii) engaging in other conduct regarding the regulatory filings, sale or marketing of Opana® ER or its generic equivalents. The Company is cooperating with the FTC in producing documents, information and witnesses in response to the CID. To the knowledge of the Company, no proceedings by the FTC have been initiated against the Company at this time, however no assurance can be given as to the timing or outcome of this investigation.
Opana ER® Antitrust Class Actions
From June 2014 to April 2015, 14 class action complaints were filed against the manufacturer of the brand drug Opana ER® and the Company.
On June 4, 2014, Plaintiff Fraternal Order of Police, Miami Lodge 20, Insurance Trust Fund, an indirect purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated.
On June 4, 2014, Plaintiff Rochester Drug Co-Operative, Inc., a direct purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated.
On June 6, 2014, Plaintiff Value Drug Company, a direct purchaser, filed a class action complaint in the United States District Court for the Northern District of California on behalf of itself and others similarly situated. On June 26, 2014, this Plaintiff withdrew its complaint from the United States District Court for the Northern District of California, and on July 16, 2014, re-filed the same complaint in the United States District Court for the Northern District of Illinois, on behalf of itself and others similarly situated.
On June 19, 2014, Plaintiff Wisconsin Masons’ Health Care Fund, an indirect purchaser, filed a class action complaint in the United States District Court for the Northern District of Illinois on behalf of itself and others similarly situated.
On July 17, 2014, Plaintiff Massachusetts Bricklayers, an indirect purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated.
On August 11, 2014, Plaintiff Pennsylvania Employees Benefit Trust Fund, an indirect purchaser, filed a class action complaint in the United States District Court for the Northern District of Illinois on behalf of itself and others similarly situated.
On September 19, 2014, Plaintiff Meijer Inc., a direct purchaser, filed a class action complaint in the United States District Court for the Northern District of Illinois on behalf of itself and others similarly situated.
On October 3, 2014, Plaintiff International Union of Operating Engineers, Local 138 Welfare Fund, an indirect purchaser, filed a class action complaint in the United States District Court for the Northern District of Illinois on behalf of itself and others similarly situated.
On November 17, 2014, Louisiana Health Service & Indemnity Company d/b/a Blue Cross and Blue Shield of Louisiana, an indirect purchaser, filed a class action complaint in the United Stated District Court for the Middle District of Louisiana on behalf of itself and others similarly situated.
On December 19, 2014, Plaintiff Kim Mahaffay, an indirect purchaser, filed a class action complaint in the Superior Court of the State of California, Alameda County, on behalf of herself and others similarly situated. On January 27, 2015, the Defendants removed the action to the United States District Court for the Northern District of California.
On January 12, 2015, Plaintiff Plumbers & Pipefitters Local 178 Health & Welfare Trust Fund, an indirect purchaser, filed a class action complaint in the United States District Court for the Northern District of Illinois on behalf of itself and others similarly situated.
On December 12, 2014, the United States Judicial Panel on Multidistrict Litigation ordered the pending actions transferred to the Northern District of Illinois for coordinated pretrial proceedings, as In Re Opana ER Antitrust Litigation.
On March 26, 2015 Walgreen Co., The Kruger Co., Safeway Inc., HEB Grocery Company L.P., Albertson’s LLC, direct purchasers, filed a separate complaint in the United States District Court for the Northern District of Illinois.
On April 23, 2015, Rite Aid Corporation and Rite Aid Hdqtrs. Corp, direct purchasers, filed a separate complaint in the United States District Court for the Northern District of Illinois.
In each case, the complaints allege that Endo engaged in an anticompetitive scheme by, among other things, entering into an anticompetitive settlement agreement with the Company to delay generic competition of Opana ER® and in violation of state and federal antitrust laws. Plaintiffs seek, among other things, unspecified monetary damages and equitable relief, including disgorgement and restitution. Consolidated amended complaints were filed on May 4, 2015. Defendants filed motions to dismiss the complaints on July 3, 2015. Those motions have been briefed and are under submission.
Civil Investigation Demand from the Attorney General of the State of Alaska
On February 10, 2015, the Company received three CIDs from the Office of the Attorney General of the State of Alaska (“Alaska AG”) concerning its investigations into the drugs Adderall XR®, Effexor XR® and Opana® ER (each a “Product” and collectively, the “Products”) and their generic equivalents. According to the Alaska AG, the investigation is to determine whether the Company may have violated Alaskan state law by entering into settlement agreements with the respective brand name manufacturer for each of the foregoing Products that delayed generic entry of such Product into the marketplace. The Company intends to cooperate with the Alaska AG in producing documents and information in response to the CIDs. To the knowledge of the Company, no proceedings have been initiated against the Company at this time, however no assurance can be given as to the timing or outcome of this investigation.
United States Department of Justice Investigations
Previously on November 6, 2014, the Company disclosed that one of its sales representatives received a grand jury subpoena from the Antitrust Division of the United States Justice Department (the “Justice Department”). In connection with this same investigation, on March 13, 2015, the Company received a grand jury subpoena from the Justice Department requesting the production of information and documents regarding the sales, marketing, and pricing of certain generic prescription medications. In particular, the Justice Department’s investigation currently focuses on four generic medications: digoxin tablets, terbutaline sulfate tablets, prilocaine/lidocaine cream, and calcipotriene topical solution. The Company has been cooperating and intends to continue cooperating with the investigation. However, no assurance can be given as to the timing or outcome of the investigation.
Securities and Derivative Class Actions
On March 7, 2013 and April 8, 2013, two class action complaints were filed against the Company and certain current and former officers and directors of the Company in the United States District Court for the Northern District of California by Denis Mulligan, individually and on behalf of others similarly situated, and Haverhill Retirement System, individually and on behalf of others similarly situated, respectively (“Securities Class Actions”), alleging that the Company and those named officers and directors violated the federal securities law by making materially false and misleading statements and/or failed to disclose material adverse facts to the public in connection with manufacturing deficiencies at the Hayward, California manufacturing facility, including but not limited to the impact the deficiencies would have on the Company’s ability to gain approval from the FDA for the Company’s branded product candidate, RYTARY® and its generic version of Concerta®. These two Securities Class Actions were subsequently consolidated, assigned to the same judge, and lead plaintiff has been chosen. The plaintiff’s consolidated amended complaint was filed on September 13, 2013. The Company filed a motion to dismiss the consolidated amended complaint on November 14, 2013. On April 18, 2014, the Court denied the Company’s motion to dismiss. On September 22, 2014, the Company, together with certain current and former officers and directors of the Company, agreed to settle this consolidated securities class action, without any admission or concession of wrongdoing or liability by the Company or the other defendants. Pursuant to the settlement, the Company will pay $8.0 million for a full and complete release of all claims that were or could have been asserted against the Company or other defendants in this action. On January 16, 2015, the Court granted preliminary approval of the settlement and on July 23, 2015, the Court granted final approval of the settlement. The Company did not take any charges for the settlement as the settlement amount was paid for and covered by the Company’s insurance policies. The settlement does not resolve the related shareholder derivative litigations discussed below.
On March 19, 2013, Virender Singh, derivatively on behalf of the Company, filed a state court action against certain current and former officers and directors for breach of fiduciary duty and unjust enrichment in the Superior Court of the State of California County of Santa Clara, asserting similar allegations as those in the Securities Class Actions. On November 6, 2014, plaintiff Singh filed a First Amended Complaint, adding allegations similar to those in the Aruliah Class Action (as described below). The parties have agreed to a settlement in this matter and the court granted final approval of the settlement on October 13, 2015.
On September 24, 2014, Nicholas Karant, derivatively on behalf of the Company, filed an action against certain current and former officers and directors in the United States District Court for the Northern District of California, asserting similar allegations as those by Virender Singh. On June 25, 2015, the court dismissed Mr. Karant’s complaint without prejudice.
On August 13, 2014, a class action complaint was filed against the Company and certain current and former officers and directors of the Company in the United States District Court for the Northern District of California by Linus Aruliah, individually and on behalf of all others similarly situated (“Aruliah Class Action”). The complaint alleged that the Company and those named officers and directors violated the federal securities laws by making materially false and misleading statements and/or failed to disclose material adverse facts to the public in connection with manufacturing deficiencies at the Company’s Taiwan manufacturing facility, including but not limited to the impact the deficiencies would have on the Company’s ability to gain approval from the FDA for the Company’s then branded product candidate, RYTARY® (which was subsequently approved by the FDA on January 7, 2015). On January 13, 2015, the Company, together with certain current and former officers and directors of the Company, agreed to settle this securities class action, without any admission or concession of wrongdoing or liability by the Company or the other defendants. Pursuant to the settlement, the Company will pay $4.75 million for a full and complete release of all claims that were or could have been asserted against the Company or other defendants in this action. On June 22, 2015, the Court granted preliminary approval of the settlement. The Company will not be taking any charges for the settlement as the settlement amount will be paid for and covered by the Company’s insurance policies. The settlement remains subject to final court approval and certain other conditions and does not resolve the related shareholder derivative litigations.
On September 22, 2014, Randall Wickey, derivatively on behalf of the Company, filed an action against certain current and former officers and directors of the Company in the United States District Court for the Northern District of California, alleging breaches of fiduciary duty in connection with the Company’s response to various FDA notices and warnings regarding problems in the manufacturing and quality control processes at the Company’s Hayward, California and Taiwan manufacturing facilities. On November 10, 2014, International Union of Operating Engineers Local 478, derivatively on behalf of the Company, filed an action against certain current and former officers and directors of the Company in the United States District Court for the Northern District of California, asserting similar allegations as those by Randall Wickey. These two derivative actions were consolidated on February 5, 2015 and a consolidated complaint was filed on February 20, 2015. On October 6, 2015, the court dismissed the consolidated complaint with prejudice.
Attorney General of the State of Connecticut Interrogatories and Subpoena Duces Tecum
On July 14, 2014, the Company received a subpoena and interrogatories (the “Subpoena”) from the State of Connecticut Attorney General (“Connecticut AG”) concerning its investigation into sales of the Company’s generic product, digoxin. According to the Connecticut AG, the investigation is to determine whether anyone engaged in a contract, combination or conspiracy in restraint of trade or commerce which has the effect of (i) fixing, controlling or maintaining prices or (ii) allocating or dividing customers or territories relating to the sale of digoxin in violation of Connecticut state antitrust law. The Company intends to cooperate with the Connecticut AG in producing documents and information in response to the Subpoena. To the knowledge of the Company, no proceedings by the Connecticut AG have been initiated against the Company at this time, however no assurance can be given as to the timing or outcome of this investigation.
|
21. SUPPLEMENTARY FINANCIAL INFORMATION (unaudited)
Selected financial information for the quarterly periods noted is as follows:
2015 Quarters Ended: | ||||||||||||
(in $000’s except shares and per share amounts) |
March 31 |
June 30 |
September 30 |
|||||||||
Revenue: |
||||||||||||
Impax Generic Product sales, gross |
$ | 355,321 | $ | 572,079 | $ | 565,261 | ||||||
Less: |
||||||||||||
Chargebacks |
126,607 | 228,977 | 212,588 | |||||||||
Rebates |
83,130 | 139,477 | 140,142 | |||||||||
Product Returns |
6,427 | 7,528 | 6,690 | |||||||||
Other credits |
13,198 | 24,824 | 27,385 | |||||||||
Impax Generic Product sales, net |
125,959 | 171,273 | 178,456 | |||||||||
Rx Partner |
2,239 | 2,579 | 1,957 | |||||||||
Other Revenues |
543 | 827 | 253 | |||||||||
Impax Generic Division revenues, net |
128,741 | 174,679 | 180,666 | |||||||||
Impax Specialty Pharma sales, gross |
29,219 | 65,269 | 69,286 | |||||||||
Less: |
||||||||||||
Chargebacks |
5,561 | 4,452 | 5,893 | |||||||||
Rebates |
2,132 | 2,970 | 1,078 | |||||||||
Product Returns |
2,620 | 6,763 | 4,399 | |||||||||
Other credits |
4,778 | 11,809 | 17,710 | |||||||||
Impax Specialty Pharma sales, net |
14,128 | 39,275 | 40,206 | |||||||||
Other Revenues |
227 | 228 | 227 | |||||||||
Impax Specialty Pharma revenues, net |
14,355 | 39,503 | 40,433 | |||||||||
Total revenues |
143,096 | 214,182 | 221,099 | |||||||||
Gross profit |
59,234 | 84,851 | 93,549 | |||||||||
Net income |
$ | (6,333 | ) |
$ | (1,852 | ) |
$ | 35,755 | ||||
Net income (loss) per share (basic) |
$ | (0.09 | ) |
$ | (0.03 | ) |
$ | 0.51 | ||||
Net income (loss) per share (diluted) |
$ | (0.09 | ) |
$ | (0.03 | ) |
$ | 0.49 | ||||
Weighted-average common shares outstanding: |
||||||||||||
Basic |
68,967,875 | 69,338,789 | 69,820,348 | |||||||||
Diluted |
68,967,875 | 69,338,789 | 72,777,746 |
Quarterly computations of net income per share amounts are made independently for each quarterly reporting period, and the sum of the per share amounts for the quarterly reporting periods may not equal the per share amounts for the year-to-date reporting period.
Selected financial information for the quarterly periods noted is as follows:
2014 Quarters Ended: | ||||||||||||
(in $000’s except shares and per share amounts) |
March 31 |
June 30 |
September 30 |
|||||||||
Revenue: |
||||||||||||
Impax Generic Product sales, gross |
$ | 265,850 | $ | 375,269 | $ | 340,379 | ||||||
Less: |
||||||||||||
Chargebacks |
95,714 | 110,518 | 115,419 | |||||||||
Rebates |
52,054 | 74,079 | 64,442 | |||||||||
Product Returns |
1,294 | 5,140 | 3,494 | |||||||||
Other credits |
10,671 | 21,571 | 13,449 | |||||||||
Impax Generic Product sales, net |
106,117 | 163,961 | 143,575 | |||||||||
Rx Partner |
2,435 | 9,204 | 1,447 | |||||||||
Other Revenues |
589 | 3,229 | 611 | |||||||||
Impax Generic Division revenues, net |
109,141 | 176,394 | 145,633 | |||||||||
Impax Specialty Pharma sales, gross |
20,643 | 24,375 | 23,840 | |||||||||
Less: |
||||||||||||
Chargebacks |
8,230 | 10,107 | 8,787 | |||||||||
Rebates |
1,070 | 938 | 469 | |||||||||
Product Returns |
181 | 216 | 223 | |||||||||
Other credits |
1,853 | 1,654 | 2,261 | |||||||||
Impax Specialty Pharma sales, net |
9,309 | 11,460 | 12,100 | |||||||||
Other Revenues |
268 | 267 | 266 | |||||||||
Impax Specialty Pharma revenues, net |
9,577 | 11,727 | 12,366 | |||||||||
Total revenues |
118,718 | 188,121 | 157,999 | |||||||||
Gross profit |
57,622 | 109,772 | 84,438 | |||||||||
Net income |
$ | 6,425 | $ | 35,071 | $ | 15,737 | ||||||
Net income per share (basic) |
$ | 0.09 | $ | 0.52 | $ | 0.23 | ||||||
Net income per share (diluted) |
$ | 0.09 | $ | 0.50 | $ | 0.22 | ||||||
Weighted-average common shares outstanding: |
||||||||||||
Basic |
67,702,296 | 68,095,159 | 68,254,327 | |||||||||
Diluted |
69,938,872 | 70,313,491 | 70,715,226 |
Quarterly computations of net income per share amounts are made independently for each quarterly reporting period, and the sum of the per share amounts for the quarterly reporting periods may not equal the per share amounts for the year-to-date reporting period.
|
22. SUBSEQUENT EVENTS
Special Meeting of the Stockholders
On November 9, 2015, the Company filed a definitive proxy statement with the SEC related to the Company’s Special Meeting of the Stockholders to be held on December 8, 2015 for the Company’s stockholders to approve the proposal to amend the Company’s Restated Certificate of Incorporation to increase the number of authorized shares of the Company’s common stock from 90 million shares to 150 million shares.
|
Nine Months Ended |
||||||||
(in $000's) |
September 30, |
September 30, 2014 |
||||||
Cash paid for interest |
$ | 9,843 | $ | 16 | ||||
Cash paid for income taxes |
$ | 24,599 | $ | 48,047 |
|
(in $000’s) |
Amortized Cost |
Gross Unrecognized Gains |
Gross Unrecognized Losses |
Fair Value |
||||||||||||
Commercial paper |
$ | 68,972 | $ | 17 | $ | -- | $ | 68,989 | ||||||||
Corporate bonds |
131,011 | -- | (101 | ) |
130,910 | |||||||||||
Total short-term investments |
$ | 199,983 | $ | 17 | $ | (101 | ) |
$ | 199,899 |
|
Common stock price |
$ | 35.21 | ||
Exercise price |
$ | 63.35 | ||
Risk-free interest rate |
1.69 | % | ||
Volatility |
40 | % | ||
Dividend yield |
0 | % | ||
Remaining contractual term (in years) |
6.7 |
Common stock price |
$ | 35.21 | ||
Exercise price |
$ | 63.35 | ||
Risk-free interest rate |
1.69 | % | ||
Volatility |
40 | % | ||
Annual coupon rate |
2 | % | ||
Remaining contractual term (in years) |
6.7 |
|
As of September 30, 2015 (in thousands) |
||||||||||||||||||||
Fair Value Measurement Based on |
||||||||||||||||||||
Carrying Amount |
Fair Value |
Quoted Prices in Active Markets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
||||||||||||||||
Assets |
||||||||||||||||||||
Bond hedge derivative asset |
$ | 87,000 | $ | 87,000 | $ | - | $ | 87,000 | $ | - | ||||||||||
Deferred compensation plan (1) |
$ | 25,249 | $ | 25,249 | $ | - | $ | 25,249 | $ | - | ||||||||||
Liabilities |
||||||||||||||||||||
2% convertible senior notes due June 2022 |
$ | 419,413 | $ | 541,500 | $ | 541,500 | $ | - | $ | - | ||||||||||
Conversion option derivative liability |
$ | 111,000 | $ | 111,000 | $ | - | $ | 111,000 | $ | - | ||||||||||
Deferred compensation plan (1) |
$ | 24,762 | $ | 24,762 | $ | - | $ | 24,762 | $ | - |
As of December 31, 2014 (in thousands) |
||||||||||||||||||||
Fair Value Measurement Based on |
||||||||||||||||||||
Carrying Amount |
Fair Value |
Quoted Prices in Active Markets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
||||||||||||||||
Assets |
||||||||||||||||||||
Short-term investments |
$ | 199,983 | $ | 199,899 | $ | 199,899 | $ | - | $ | - | ||||||||||
Deferred compensation plan (1) |
$ | 29,241 | $ | 29,241 | $ | - | $ | 29,241 | $ | - | ||||||||||
Liabilities |
||||||||||||||||||||
Deferred compensation plan (1) |
$ | 25,837 | $ | 25,837 | $ | - | $ | 25,837 | $ | - |
|
(in $000’s) |
September 30, 2015 |
December 31, 2014 |
||||||
Gross accounts receivable |
$ | 575,750 | $ | 287,362 | ||||
Less: Rebate reserve |
(238,893 | ) |
(88,812 | ) |
||||
Less: Chargeback reserve |
(83,890 | ) |
(43,125 | ) |
||||
Less: Other deductions |
(24,465 | ) |
(8,935 | ) |
||||
Accounts receivable, net |
$ | 228,502 | $ | 146,490 |
(in $000’s) Rebate reserve |
September 30, 2015 |
December 31, 2014 |
||||||
Beginning balance |
$ | 88,812 | $ | 88,449 | ||||
Acquired balances |
75,448 | -- | ||||||
Provision recorded during the period |
368,929 | 260,747 | ||||||
Credits issued during the period |
(294,296 | ) |
(260,384 | ) |
||||
Ending balance |
$ | 238,893 | $ | 88,812 |
(in $000’s) Chargeback reserve |
September 30, 2015 |
December 31, 2014 |
||||||
Beginning balance |
$ | 43,125 | $ | 37,066 | ||||
Acquired balances |
24,532 | -- | ||||||
Provision recorded during the period |
584,078 | 487,377 | ||||||
Credits issued during the period |
(567,845 | ) |
(481,318 | ) |
||||
Ending balance |
$ | 83,890 | $ | 43,125 |
|
(in $000’s) |
September 30, 2015 |
December 31, 2014 |
||||||
Raw materials |
$ | 58,292 | $ | 34,681 | ||||
Work in process |
7,112 | 2,447 | ||||||
Finished goods |
78,363 | 55,102 | ||||||
Total inventory |
143,767 | 92,230 | ||||||
Less: Non-current inventory |
13,495 | 11,660 | ||||||
Total inventory-current |
$ | 130,272 | $ | 80,570 |
|
(in $000’s) |
September 30, 2015 |
December 31, 2014 |
||||||
Land |
$ | 5,773 | $ | 5,773 | ||||
Buildings and improvements |
167,172 | 154,374 | ||||||
Equipment |
135,698 | 122,184 | ||||||
Office furniture and equipment |
14,917 | 12,623 | ||||||
Construction-in-progress |
16,200 | 9,404 | ||||||
Property, plant and equipment, gross |
339,760 | 304,358 | ||||||
Less: Accumulated depreciation |
(133,633 | ) |
(116,189 | ) |
||||
Property, plant and equipment, net |
$ | 206,127 | $ | 188,169 |
|
(in $000’s) | ||||
Accounts receivable(1) |
$ | 56,851 | ||
Inventory |
31,259 | |||
Income tax receivable and other prepaid expenses |
11,690 | |||
Deferred income taxes |
24,508 | |||
Property, plant and equipment |
27,540 | |||
Intangible assets |
632,600 | |||
Assets held for sale |
4,000 | |||
Goodwill |
182,592 | |||
Other non-current assets |
3,844 | |||
Total assets assumed |
974,884 | |||
Current liabilities |
64,938 | |||
Other non-current liabilities |
7,799 | |||
Deferred tax liability |
210,799 | |||
Total liabilities assumed |
283,536 | |||
Cash paid, net of cash acquired |
$ | 691,348 |
(in $000’s) |
Initial Cost |
Accumulated |
Impairment |
Products Sold |
Carrying Value |
|||||||||||||||
September 30, 2015 |
||||||||||||||||||||
Amortized intangible assets: |
||||||||||||||||||||
Tower currently marketed products |
$ | 381,100 | $ | (18,808 | ) | $ | --- | $ | (9,291 | ) | $ | 353,001 | ||||||||
Tower in-process research and development |
170,700 | --- | --- | --- | 170,700 | |||||||||||||||
Tower royalties and contract manufacturing relationships |
80,800 | (105 | ) | --- | --- | 80,695 | ||||||||||||||
Zomig® product rights |
41,783 | (33,752 | ) | --- | --- | 8,031 | ||||||||||||||
Tolmar product rights |
38,450 | (16,077 | ) | (16,032 | ) | --- | 6,341 | |||||||||||||
Perrigo product rights |
1,500 | (344 | ) | --- | --- | 1,156 | ||||||||||||||
Acquired generics product rights |
8,000 | (1,120 | ) | --- | --- | 6,880 | ||||||||||||||
Other product rights |
1,550 | --- | --- | --- | 1,550 | |||||||||||||||
Total intangible assets |
$ | 723,883 | $ | (70,206 | ) | $ | (16,032 | ) | $ | (9,291 | ) | $ | 628,354 |
(in $000’s) December 31, 2014 |
Initial Cost |
Accumulated Amortization |
Impairment |
Carrying Value |
||||||||||||
Amortized intangible assets: |
||||||||||||||||
Zomig® product rights |
$ | 41,783 | $ | (31,561 | ) |
$ | --- | $ | 10,222 | |||||||
Tolmar product rights |
33,450 | (10,801 | ) |
(16,032 | ) |
6,617 | ||||||||||
Perrigo product rights |
1,000 | (297 | ) |
--- | 703 | |||||||||||
Ursodiol product rights |
3,000 | (331 | ) |
--- | 2,669 | |||||||||||
Other product rights |
7,250 | --- | (750 | ) |
6,500 | |||||||||||
Total intangible assets |
$ | 86,483 | $ | (42,990 | ) |
$ | (16,782 | ) |
$ | 26,711 |
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, |
September 30, |
|||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
(in $000’s) |
||||||||||||||||
Total revenues |
$ | 221,099 | $ | 222,817 | $ | 610,814 | $ | 640,788 | ||||||||
Net income |
$ | 39,097 | $ | 19,614 | $ | 40,007 | $ | 43,835 |
(in $000’s) |
Estimated Fair Value |
Weighted-Average Estimated Useful Life (years) |
||||||
Currently marketed products |
$ | 381,100 | 13 | |||||
Royalties and contract manufacturing relationships |
80,800 | 12 | ||||||
In-process research and development |
170,700 | n/a | ||||||
Total intangible assets |
$ | 632,600 | 12 |
|
(in $000’s) |
Initial Cost |
Accumulated |
Impairment |
Products Sold |
Carrying Value |
|||||||||||||||
September 30, 2015 |
||||||||||||||||||||
Amortized intangible assets: |
||||||||||||||||||||
Tower currently marketed products |
$ | 381,100 | $ | (18,808 | ) | $ | --- | $ | (9,291 | ) | $ | 353,001 | ||||||||
Tower in-process research and development |
170,700 | --- | --- | --- | 170,700 | |||||||||||||||
Tower royalties and contract manufacturing relationships |
80,800 | (105 | ) | --- | --- | 80,695 | ||||||||||||||
Zomig® product rights |
41,783 | (33,752 | ) | --- | --- | 8,031 | ||||||||||||||
Tolmar product rights |
38,450 | (16,077 | ) | (16,032 | ) | --- | 6,341 | |||||||||||||
Perrigo product rights |
1,500 | (344 | ) | --- | --- | 1,156 | ||||||||||||||
Acquired generics product rights |
8,000 | (1,120 | ) | --- | --- | 6,880 | ||||||||||||||
Other product rights |
1,550 | --- | --- | --- | 1,550 | |||||||||||||||
Total intangible assets |
$ | 723,883 | $ | (70,206 | ) | $ | (16,032 | ) | $ | (9,291 | ) | $ | 628,354 |
(in $000’s) December 31, 2014 |
Initial Cost |
Accumulated Amortization |
Impairment |
Carrying Value |
||||||||||||
Amortized intangible assets: |
||||||||||||||||
Zomig® product rights |
$ | 41,783 | $ | (31,561 | ) |
$ | --- | $ | 10,222 | |||||||
Tolmar product rights |
33,450 | (10,801 | ) |
(16,032 | ) |
6,617 | ||||||||||
Perrigo product rights |
1,000 | (297 | ) |
--- | 703 | |||||||||||
Ursodiol product rights |
3,000 | (331 | ) |
--- | 2,669 | |||||||||||
Other product rights |
7,250 | --- | (750 | ) |
6,500 | |||||||||||
Total intangible assets |
$ | 86,483 | $ | (42,990 | ) |
$ | (16,782 | ) |
$ | 26,711 |
(in $000s) |
Amortization Expense |
|||
Remainder of 2015 |
$ | 10,447 | ||
2016 |
22,046 | |||
2017 |
22,977 | |||
2018 |
33,059 | |||
2019 |
37,667 | |||
Thereafter |
329,908 | |||
Totals |
$ | 456,104 |
|
(in $000’s) |
September 30, 2015 |
December 31, 2014 |
||||||
Payroll-related expenses |
$ | 31,146 | $ | 33,812 | ||||
Product returns |
52,862 | 27,174 | ||||||
Government rebates |
49,325 | 18,272 | ||||||
Legal and professional fees |
7,453 | 9,497 | ||||||
Income taxes payable |
494 | 40 | ||||||
Physician detailing sales force fees |
1,319 | 2,336 | ||||||
Litigation accrual |
4,750 | 12,750 | ||||||
Interest payable |
3,000 | --- | ||||||
Other |
9,542 | 6,589 | ||||||
Total accrued expenses |
$ | 159,891 | $ | 110,470 |
(in $000’s) Returns Reserve |
September 30, 2015 |
December 31, 2014 |
||||||
Beginning balance |
$ | 27,174 | $ | 28,089 | ||||
Acquired balances |
18,949 | -- | ||||||
Provision related to sales recorded in the period |
34,427 | 12,016 | ||||||
Credits issued during the period |
(27,688 | ) |
(12,931 | ) |
||||
Ending balance |
$ | 52,862 | $ | 27,174 |
|
(amount in millions) |
||||
Shares issued(1) |
73.15 | |||
Stock options outstanding(1) |
2.42 | |||
Warrants outstanding (see below) |
9.47 | |||
Total common stock shares issued and reserved for issuance |
85.04 |
|
(in $000’s) Three Months Ended September 30, 2015 |
Impax Generics |
Impax Specialty Pharma |
Corporate and Other |
Total Company |
||||||||||||
Revenues, net |
$ | 180,666 | $ | 40,433 | --- | $ | 221,099 | |||||||||
Cost of revenues |
112,716 | 14,834 | --- | 127,550 | ||||||||||||
Research and development |
14,346 | 4,285 | --- | 18,631 | ||||||||||||
Patent litigation expense |
397 | 655 | --- | 1,052 | ||||||||||||
Selling, general and administrative |
5,103 | 11,418 | 29,786 | 46,307 | ||||||||||||
Income before provision for income taxes |
$ | 48,104 | $ | 9,241 | $ | 3,987 | $ | 61,332 |
(in $000’s) Three Months Ended September 30, 2014 |
Impax Generics |
Impax Specialty Pharma |
Corporate and Other |
Total Company |
||||||||||||
Revenues, net |
$ | 145,633 | $ | 12,366 | --- | $ | 157,999 | |||||||||
Cost of revenues |
68,488 | 5,073 | --- | 73,561 | ||||||||||||
Research and development |
10,213 | 8,543 | --- | 18,756 | ||||||||||||
Patent litigation expense |
1,066 | 227 | --- | 1,293 | ||||||||||||
Selling, general and administrative |
4,867 | 10,794 | 23,227 | 38,888 | ||||||||||||
Income (loss) before provision for income taxes |
$ | 60,999 | $ | (12,271 | ) |
$ | (22,874 | ) |
$ | 25,854 |
(in $000’s) Nine Months Ended September 30, 2015 |
Impax Generics |
Impax Specialty Pharma |
Corporate and Other |
Total Company |
||||||||||||
Revenues, net |
$ | 484,086 | $ | 94,291 | --- | $ | 578,377 | |||||||||
Cost of revenues |
299,596 | 41,147 | --- | 340,743 | ||||||||||||
Research and development |
38,100 | 12,488 | --- | 50,588 | ||||||||||||
Patent litigation expense |
2,507 | 999 | --- | 3,506 | ||||||||||||
Selling, general and administrative |
16,673 | 39,186 | 88,917 | 144,776 | ||||||||||||
Income (loss) before provision for income taxes |
$ | 127,210 | $ | 471 | $ | (81,602 | ) |
$ | 46,079 |
(in $000’s) Nine Months Ended September 30, 2014 |
Impax Generics |
Impax Specialty Pharma |
Corporate and Other |
Total Company |
||||||||||||
Revenues, net |
$ | 431,167 | $ | 33,671 | $ | --- | $ | 464,838 | ||||||||
Cost of revenues |
195,382 | 17,624 | --- | 213,006 | ||||||||||||
Research and development |
32,175 | 29,574 | --- | 61,749 | ||||||||||||
Patent litigation expense |
5,006 | 227 | --- | 5,233 | ||||||||||||
Selling, general and administrative |
11,822 | 31,749 | 53,611 | 97,182 | ||||||||||||
Income (loss) before provision for income taxes |
$ | 186,782 | $ | (45,503 | ) |
$ | (52,370 | ) |
$ | 88,909 |
|
2015 Quarters Ended: | ||||||||||||
(in $000’s except shares and per share amounts) |
March 31 |
June 30 |
September 30 |
|||||||||
Revenue: |
||||||||||||
Impax Generic Product sales, gross |
$ | 355,321 | $ | 572,079 | $ | 565,261 | ||||||
Less: |
||||||||||||
Chargebacks |
126,607 | 228,977 | 212,588 | |||||||||
Rebates |
83,130 | 139,477 | 140,142 | |||||||||
Product Returns |
6,427 | 7,528 | 6,690 | |||||||||
Other credits |
13,198 | 24,824 | 27,385 | |||||||||
Impax Generic Product sales, net |
125,959 | 171,273 | 178,456 | |||||||||
Rx Partner |
2,239 | 2,579 | 1,957 | |||||||||
Other Revenues |
543 | 827 | 253 | |||||||||
Impax Generic Division revenues, net |
128,741 | 174,679 | 180,666 | |||||||||
Impax Specialty Pharma sales, gross |
29,219 | 65,269 | 69,286 | |||||||||
Less: |
||||||||||||
Chargebacks |
5,561 | 4,452 | 5,893 | |||||||||
Rebates |
2,132 | 2,970 | 1,078 | |||||||||
Product Returns |
2,620 | 6,763 | 4,399 | |||||||||
Other credits |
4,778 | 11,809 | 17,710 | |||||||||
Impax Specialty Pharma sales, net |
14,128 | 39,275 | 40,206 | |||||||||
Other Revenues |
227 | 228 | 227 | |||||||||
Impax Specialty Pharma revenues, net |
14,355 | 39,503 | 40,433 | |||||||||
Total revenues |
143,096 | 214,182 | 221,099 | |||||||||
Gross profit |
59,234 | 84,851 | 93,549 | |||||||||
Net income |
$ | (6,333 | ) |
$ | (1,852 | ) |
$ | 35,755 | ||||
Net income (loss) per share (basic) |
$ | (0.09 | ) |
$ | (0.03 | ) |
$ | 0.51 | ||||
Net income (loss) per share (diluted) |
$ | (0.09 | ) |
$ | (0.03 | ) |
$ | 0.49 | ||||
Weighted-average common shares outstanding: |
||||||||||||
Basic |
68,967,875 | 69,338,789 | 69,820,348 | |||||||||
Diluted |
68,967,875 | 69,338,789 | 72,777,746 |
2014 Quarters Ended: | ||||||||||||
(in $000’s except shares and per share amounts) |
March 31 |
June 30 |
September 30 |
|||||||||
Revenue: |
||||||||||||
Impax Generic Product sales, gross |
$ | 265,850 | $ | 375,269 | $ | 340,379 | ||||||
Less: |
||||||||||||
Chargebacks |
95,714 | 110,518 | 115,419 | |||||||||
Rebates |
52,054 | 74,079 | 64,442 | |||||||||
Product Returns |
1,294 | 5,140 | 3,494 | |||||||||
Other credits |
10,671 | 21,571 | 13,449 | |||||||||
Impax Generic Product sales, net |
106,117 | 163,961 | 143,575 | |||||||||
Rx Partner |
2,435 | 9,204 | 1,447 | |||||||||
Other Revenues |
589 | 3,229 | 611 | |||||||||
Impax Generic Division revenues, net |
109,141 | 176,394 | 145,633 | |||||||||
Impax Specialty Pharma sales, gross |
20,643 | 24,375 | 23,840 | |||||||||
Less: |
||||||||||||
Chargebacks |
8,230 | 10,107 | 8,787 | |||||||||
Rebates |
1,070 | 938 | 469 | |||||||||
Product Returns |
181 | 216 | 223 | |||||||||
Other credits |
1,853 | 1,654 | 2,261 | |||||||||
Impax Specialty Pharma sales, net |
9,309 | 11,460 | 12,100 | |||||||||
Other Revenues |
268 | 267 | 266 | |||||||||
Impax Specialty Pharma revenues, net |
9,577 | 11,727 | 12,366 | |||||||||
Total revenues |
118,718 | 188,121 | 157,999 | |||||||||
Gross profit |
57,622 | 109,772 | 84,438 | |||||||||
Net income |
$ | 6,425 | $ | 35,071 | $ | 15,737 | ||||||
Net income per share (basic) |
$ | 0.09 | $ | 0.52 | $ | 0.23 | ||||||
Net income per share (diluted) |
$ | 0.09 | $ | 0.50 | $ | 0.22 | ||||||
Weighted-average common shares outstanding: |
||||||||||||
Basic |
67,702,296 | 68,095,159 | 68,254,327 | |||||||||
Diluted |
69,938,872 | 70,313,491 | 70,715,226 |
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