Impax Laboratories Inc. posted first-quarter 2017 adjusted earnings of 11 cents per share, missing the Zacks Consensus Estimate of 12 cents. Earnings were down 74.4% from 43 cents in the year-ago period due to lower revenues and higher costs.
Total revenue decreased 18.2% year over year to $184.4 million due to a decline in Generic division sales.
Moreover, revenues were below the Zacks Consensus Estimate of $190.7 million in the reported quarter. However, despite the miss, Impax’s share price increased more than 16.5% as it announced a restructuring plan that raised its annual cost savings target. In-fact, year-to-date, Impax shares are up 24.9%, while the Zacks classified Medical-Generic Drugs industry declined 4.9%.
Cost Savings Plan
In its effort to save costs, Impax has initiated several processes to improve efficiencies and margins, and focus on growth opportunities. The company has consolidated its generics R&D and manufacturing and packing operation in the U.S. to its Hayward, CA facility. Also, the company closed its manufacturing and R&D site at Middlesex, NJ.
As part of the strategic restructuring, the company has already ceased manufacturing in Taiwan and a decision on the sale or closure of the unit is yet to be taken.
The company is also modifying its generic portfolio so as to eliminate low-value products and streamline operations.
The company expects the above actions to save annualized costs to the tune of $85 million. All these initiatives are projected to save a total of $130 million by the end of 2019. However, the company expects a one-time charge of $65 million to fully achieve its cost saving goals.
Quarter in Detail
During the reported quarter, Impax Generic division revenues declined 21.1% from the year-ago quarter to $134.1 million. The decline in revenues was due to decreased sales of Voltaren Gel (diclofenac gel), metaxalone, fenofibrate and mixed amphetamine salts ER as a result of increased competition and pricing pressure. However, the decline was partially offset by increased sales of epinephrine auto-injector, oxymorphone ER and products acquired from Teva Pharmaceuticals Industries Ltd. (TEVA - Free Report) and affiliates of Allergan plc (AGN - Free Report) .
However, the company’s generic business showed improved margins.
The Impax Specialty Pharma division recorded revenues of $50.3 million, down 9.3% year over year, largely due to lower sales of Zomig and the anthelmintic products franchise.
Adjusted research and development (R&D) expenses grew 16.6% to $21.8 million in the reported quarter.
Adjusted selling, general and administrative expenses (SG&A) increased 9.2% to $47.5 million.
Sanofi (SNY - Free Report) has filed a suit for patent infringement against Impax’s abbreviated new drug application (ANDA) for the generic version of the former’s multiple sclerosis drug, Aubagio.
Also, the company reduced its outstanding debt and is focused on saving costs.
The company expects its full-year adjusted earnings to be in the range of 55 cents to 70 cents per share.
The company expects adjusted gross margin in the range of 47% to 49%.
Adjusted research and development expenses, including patent litigation expenses, across the generic and brand divisions are forecast to be in the range of $90 million to $95 million.
Adjusted selling, general and administrative expenses are expected to be in the range of $190 million to $195 million.
During the first quarter, some of the company’s generic products faced aggressive competition and pricing pressure, which impacted its revenues and profitability. The headwinds in the generic segment are likely to continue through 2017. However, we are positive on its cost-cutting initiatives.
Impax currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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