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In a move to streamline operations, Impax Laboratories, Inc. (IPXL - Snapshot Report) recently announced that it reduced its workforce, primarily in manufacturing operations.

Impax eliminated approximately 110 positions from its existing workforce.

The majority of the reductions took place at the company’s manufacturing facility at Hayward, California.

The facility has been plagued by lower production volumes arising from the production transfer to the more cost efficient plant in Taiwan, previously announced product discontinuations and delayed product launches.

Impax has been facing challenges at its Hayward manufacturing facility in recent times. We note that Impax’s Parkinson's disease candidate, Rytary, was denied approval by the US Food and Drug Administration (FDA) in Jan 2013 due to manufacturing issues at this particular facility.

Moreover, in Mar 2013, the FDA completed its re-inspection of the company’s manufacturing facility at Hayward and issued a new Form 483 with 12 observations. Out of these, 3 were repeat observations from inspections that occurred prior to the warning letter.

The re-inspection was due to issuance of Form 483 in Mar 2012. Additionally, the FDA conducted a Pre-Approval Inspection (PAI) for Rytary in order to validate the analytical method.

The FDA also conducted a general Good Manufacturing Practices (GMP) inspection and observed deviations from the current practices by Impax.

We remind investors that Impax has been plagued with quality control issues since 2011. In May 2011, Impax received a warning letter from the FDA after an inspection at the Hayward facility.

Thereafter, in 2012, the FDA completed the re-inspection of the concerned facility along with a general GMP inspection and issued Form 483 with its observations.

Meanwhile, GlaxoSmithKline (GSK - Analyst Report) has decided to terminate its collaboration agreement for the development and commercialization of Rytary (outside the US and Taiwan) in Apr 2013 due to delays in regulatory approval.

Hence, Impax decided to realign its resources at the Hayward facility to reduce expenses and improve the cost structure. Impax targets annual cost savings of approximately $15 million, resulting from the reduction in both personnel and other variable expenses which included product discontinuations.

Impax estimates $10 million of cost savings from these actions within the line item of cost of goods sold.

Due to a delay in Rytary’s approval, Impax also plans to reduce its contracted brand sales force by 20 and eliminate 4 regional sales management positions.

This move is expected to lower the company’s selling expenses by approximately $2 million in 2013 without impacting the margin guidance.

Given the steps undertaken by Impax, we currently have low visibility on when the company will be able to resolve the manufacturing issues.

Both Impax and GlaxoSmithKline currently carry a Zacks Rank #3 (Hold). Right now, the companies that look attractive include Salix Pharmaceuticals (SLXP - Analyst Report) and Santarus, Inc. with a Zacks Rank #1 (Strong Buy).

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