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Impax Laboratories Inc. (NASDAQ:IPXL)

Q1 2010 Earnings Conference Call

May 4, 2010 11:00 AM ET

Executives

Mark Donohue – SVP, IR

Larry Hsu – President and CEO

Art Koch – CFO

Analysts

Ken Cacciatore – Cowen & Company

Michael Tong – Wells Fargo Securities

David Amsellem – Piper Jaffray

David Risinger – Morgan Stanley

Elliot Wilbur – Needham & Co.

Corey Davis – Jefferies & Co.

Louise Chen – Collins Stewart

Dewy (ph) – JPMorgan

Sumant Kulkarni – Bank of America Merill Lynch

Lane Yaffi (ph)

Tim Chiang – FTN Midwest Securities

Operator

Good morning. My name is Mitchell [ph] and I will be your conference operator today. At this time, I would like to welcome everyone to the Impax Laboratories First Quarter 2010 Earnings Conference call. All lines have been placed on mute to prevent any background noise. (Operator Instructions). Thank you Mr. Mark Donohue. You may begin your conference.

Mark Donohue

Thank you. Good morning everyone, welcome to our first quarter 2010 earnings conference call and webcast at www.impaxlabs.com. And on the call today we have with us Dr. Larry Hsu, our President and Chief Executive Officer and our Arthur Koch, our Chief Financial Officer. Following their prepared remarks both will be available to take any questions you may have as time permits.

Should you have any questions after the call, please feel free to telephone Mark Donohue. Investor Relations at 215-933-3526. A replay of today’s call will be available starting at 2:00 PM today through May 11. Please refer to our first quarter earnings release for replay details.

Our discussion today may include certain forward looking statements and actual results may differ from those presented here. The factors that could cause such a difference are outlined in our SEC filings and on our websites. A quarterly income statement with segment information and a reconciliation with deferred revenue and deferred manufacturing costs has been posted on the Investor Relations homepage of our website. And with that, it’s a pleasure to turn our call over to Dr. Larry Hsu.

Larry Hsu

Thank you, Mark. Good morning and thanks for joining us. We are off to a great start in 2010, as we reported significant growth in our first quarter financial results. Our ability to capitalize our new and existing product opportunities let us to $264 million increase in first quarter 2010 revenue to $323 million and a $2.02 increase in earning per diluted share to $2.06 per share.

This was a breaking quarter our previously record fourth quarter 2009 performance and it has put us on a path for tremendous year for impacts. Our strong first quarter result benefited significantly from our exclusive launch on March 2 of generic Flomax, which contributed more than $176 million in revenue and $168 million in gross profits in the quarter. We were fortunate to be the only company to launch the product during the eight week period, before the approval of several competing products.

With growth in the managed the demand for our product during the show window of opportunity to maximized profit and as reported by (inaudible) we achieved a significant market penetration of more than 77% as of April 23. In addition to realizing the benefits of this short term generic Flomax opportunity, we continued to see strong first quarter 2010 sales of our generic Adderall XR product. And to a lesser extent, fenofibrate product.

I will have more to say about these products in shortened. As always we forecast much of our effort on high margin opportunities with a limited competition. Our recent performance of further proof that our ongoing strategy to invest in our – I’m sorry in R&D to develop high value, limited competition opportunities has paid dividends and we’ll continue to provide the potential for earning growth in the future.

The generic Flomax launch represented significant short time opportunities that will provide plenty of cash opportunity to development activities. Our already healthy balance sheet has been enhanced and will contribute significantly to our ongoing business development activities. The range over development activities we can now consider is expanding as our resource increase significantly and our resolve to complete a transaction that meets our focused objectives remain very high.

We are aggressively looking at a generic and brand opportunities to acquire products, technologies or companies with a strategic value to create long-term growth opportunities. On the generic R&D side, we previously reported that we submitted 10 ANDAs in 2009 achieving the upper end of our 2009 ANDA filing objective of 8 to 10 new applications with the continuing focus on controlled release product. To-date we have been sued on five of these filings, generics of TriCor, Oracea Welchol, and most recently Trilipix, and (inaudible). We believe we are first to file on Welchol, Trilipix, and (inaudible). These 2009 filings further enhanced our pipeline where we currently have 32 pending ANDA and an additional 55 product under development.

We expect 2010 will be another exciting year for our generic business. We anticipate maintaining our investment in generic R&D, would continue to work on products in our development pipeline. Our 2010 ANDA filing goal remains consistent with our goals in the past several years. We will continue to focus on filing 8 to 10 new applications with two to three of these being first to file or first to market opportunities. We are confident that we can achieve or exceed our 2010 goals as we have done in the past several years.

We have numerous short and long-term generic opportunities that should generate solid future performance. Over the next 12 to 18 months, we have seven products with expiring 30 months (stage) and then we will look to monetize these assets as soon as possible. We also have a number of potential product launches based on prior settlement and other (inaudible) controlled release and the immediate release product opportunities.

Our rich product pipeline of 87 product combined with our committed R&D effort and the first to file and the first to market strategy, service and the foundation for future growth beyond 2010.

On the blend side, we announced that last month that we had a complete enrolment in the first of two required Phase III studies on our late stage drug candidates, IPX066 for Parkinson’s disease. The first study is a 30 week study (inaudible) naive Parkinson’s disease patient. Enrolment is in the second study, an advantage to patient, which has started six months later in September 2009, is checking closely with the plan. We expect to report results from both studies during the first half of 2011. We continue to plan to file the new drug application in the fourth quarter of 2011.

In closing, we continue to make significant progress toward our long-term goal. I wanted to reiterate our firm belief in the strategy we are executing which will position us well as we effectively confront the competition and it should provide the basis for average return for our investor.

I will now turn it over to Art Koch who will provide his comments on our first quarter financial results.

Art Koch

Thank you, Larry and good morning. Wow, what an outstanding quarterly performance. We continue to demonstrate our ability to successfully develop our pipeline of high value ANDA HNR generic business. We also continue to demonstrate our ability to successfully compete with aggressive targets in our marketplace and aggressively capture high value opportunities. This is the basis for our enthusiasm for the value of our pipeline and we are confident that the entire investments we have made will put us in a position to continue to generate above average return.

Our generic pipeline of 87 products offer full year and long-term opportunity and have the potential to generate and profit in the month and years ahead. We are also confident that our ongoing business development efforts will lead to long-term strategically and financially attractive opportunities to fuel additional growth.

For the first quarter of 2010, we reported total revenue of $323 million, an increase of $254 million over last year’s first quarter driven by the strong performance from several of our higher margin global products. Our strong first quarter was led by the March 2nd launch of generic Flomax, which generated 176 million in revenue. The trail leading up to this record breaking success all started with our insightful legal strategy, which resulted in us being one of only two companies authorized to launch approximately eight weeks before the approval of several competing products. Moreover on March 2nd, we were fortunate to learn we were the only company to receive final product approval. Our efforts to prepare for the launch were very rewarded as we were able to quickly capture a large percentage of the market.

Our manufacturing, quality, packaging, distribution and sales organization did an outstanding job of filling 100% of the initial orders providing sufficient supply to cover estimated usage during the exclusivity period. Our future generic Flomax sales will be lower as competing generic versions of the products entered the market last week and we will see both price erosion and reduction of our market share. Our focus continues to be on high margin products and therefore we expect to have a diminished role and to find the market with generic Flomax. However despite the short-term opportunity, the cash generated from this large launch will provide important additional capital for our business development activities and the number and size of opportunities these expanding while we put this additional capital to work.

For the second consecutive quarter, we generated strong sales from generic Adderall XR, a product we launched in October 2009. We continue to be pleased with the market dynamics. In the first quarter of 2010, we recorded profit sharing royalty expense from Shire of $41 million. Revenues for the balance of the period while the citizens petition remains outstanding, could decrease on a quarterly basis from the first quarter levels if for whatever reason pricing becomes unstable and declines from the current level or a return of any supply issues or we lose market share for some other reason.

We began to see some supply issues during the quarter, we were able to keep up with demand but we are waiting for resolution of these issues. We thought they would have been resolved by now and we are working with Shire to resolve them as quickly as possible. Once these are resolved, we could see our market share even expand over our current level. In the meantime we are managing our inventories to serve all of our customers.

As we have said from the launch, it could take until the end of the second quarter for a stable trend to appear, an IMS reported sales and market share number. Also contributing to the first quarter 2010 revenue increase was increased sales of our fenofibrate product. A couple of competitors returned to the market in December of 2009 and as expected we had experienced some pressure on market share and pricing. But the overall market for fenofibrate continues to expand and all in all our revenues were higher.

We continue to focus on satisfying our commitment to our customers with high quality product and capitalize on demand when customers require additional product as market conditions change. Partially offsetting our first quarter 2010 revenue increase was $50 million decline in Rx Partner segment. The decline in revenue from this segment continues to be attributable to reduced sales of our generic (inaudible) product where we have seen increased competition across the board. As a result of these declines, and with the very significant growth of our global label products coming out of our generic pipeline, this segment has become a smaller piece of our total generic sales, representing less than 2% of our first quarter revenues compared to 19% last year.

For the first quarter of 2010, total gross profit increased $211 million to $244 million due to the launch of generic Flomax which represented a $168 million of the increase. Also contributing to the increase were strong sales of generic Adderall XR and fenofibrate. Our total gross profit increase is 75% of revenue up from 55% in last year’s first quarter due to the addition of higher margin generic Flomax which commanded a 95% gross profit margin. Total operating expenses in the first quarter of 2010 increased about $4 million from the prior year period. This increase was expected and in line with our previously announced 2010 guidance of increased spending on R&D, patent litigation and selling and general administrative expenses. Please refer to our earnings release for additional color on these items.

With a very strong margin, much of solid growth in top line revenue from the first quarter 2010, flow through to income from operation, we generated $211 million in income from operation, an increase of $207 million compared to the $4 million earned in the first quarter of 2009.

Combining the significant topline growth with our continuing focus on controlling expenses, we earned first quarter net income of $131 million or $2.06 per dilute share. This represents a dramatic increase over net income of $2.2 million or $0.04 earned in the first quarter of 2009.

Our recent results – our recent success has resulted in tremendous growth of liquid assets. As of March 31, 2010, our cash and short-term investments totaled more than $130 million, up almost $40 million from December 2009. In addition, over this same period, our accounts receivable balance increased $135 million to $325 million. We are mindful that our recent good fortunes must be reinvested wisely. Our continued strong financial performance combined with our healthy balance sheet provides us with the ability to invest in our business both internally and through M&A activities to create long-term growth opportunities. In addition to our internal product development efforts, we have very aggressive business development activities to accelerate growth in both of our divisions.

In our generics division we are primarily focused on acquiring products, technology businesses in complementary dosage forms where our core competency in drug delivery and formulation expertise can be combined to produce above average growth in high value products. We have a number of opportunities under consideration and the field of opportunities has expanded with the important additional resources coming out of our operation.

Our brand business growth strategy is so much of that of our generics business and that we will continue to focus our effort on internal R&D programs, while searching for additional external growth opportunities. Our business development activities are focused on one, obtaining strategic partners for promotion and marketing of our products outside the U.S. and two, co-development agreements to co-marketing rights where our contribution to the venture is our commercial sales capabilities in our target market.

We have a number of opportunities under consideration and as I mentioned, we are excited as the field of opportunities we can consider has expanding as our resources have increased. It’s not possible to predict when any such transaction will occur if at all, but these activities are a critical element of our planned growth and management is devoting significant time and attention to these important initiatives.

Thank you all for your participation and we will now turn the call back to over to the operator to open the line for questions.

Question-and-Answer Session

Operator

(Operator Instructions) And your first question comes from the line of Ken Cacciatore. Cowen & Company.

Ken Cacciatore – Cowen & Company

Question on Adderall XR, Art, you went through it a little bit in terms of trying to get us a sense of the normalization. I don’t know if can point to Q2 as things will normalize or maybe I am using the wrong language here, clearly you said – you gave us what the Shire royalty was, understanding what you have given before, has your royalty have run 50%, that’s generally believe to be by the Street around the royalty rates. We are running about $80 million a quarter. Is there any unnatural inventory that’s still in or is that – I will use it, instead of you giving us the revenue rate that expending rate so we can back into, is that what we should be thinking about on a quarterly basis?

Art Koch

That was a very confidential statement there, but I will try to answer and then you are invited for a follow-up if I missed a point. But our sales are intended to track closely with demand for the product. And we are trying to achieve the normal kinds of potential as we know there were supply disruptions in the fourth quarter that created an unbalanced condition that continued into the first quarter and we expect that there will be more routine or normalized in the second quarter and the data will be reliable for purposes of looking forward by the end of June.

Ken Cacciatore – Cowen & Company

So Q2 should just naturally be down after the Q1 level?

Art Koch

I wouldn’t say that, Ken. It depends on what pricing and supply hold up. It’s a decline from current levels, I would expect this statement to be more accurate.

Ken Cacciatore – Cowen & Company

And then on Flomax, understanding that it’s big upfront, can you give us some sense of the magnitude of the pricing now that the competitors are in there, so that I mean should we clearly quite a bit, should we be pointing that down dramatically and can you give us a sense of just how much the pricing has changed with the new competitors?

Art Koch

I can’t – we don’t go all the way to answer your question, Ken. What can do is give some color, it is down dramatically in orders of magnitude, several orders of magnitude and it’s typical in our experience to us situations where we have a large number of additional competitors as we do here.

Ken Cacciatore – Cowen & Company

Right, okay, fair enough. And just a last question, the Concerta patent came in, just trying to understand how the rules now work here, if that’s a final unappealable ruling, does that have any impact on your exclusivity or do you feel you are going to hold your exclusivity kind of indefinitely until this gets resolved with the agency in terms of approval?

Art Koch

The completion of a final non-appealable ruling does start the exclusivity period and that is a fact of the pre-MA regulation. So that situation is affecting the marketplace.

Operator

Your next question comes from the line of Michael Tong.

Michael Tong – Wells Fargo Securities

Good morning. Again, congratulations on a good quarter. One question on accounts receivables, it looks to me that basically you’ve added the yearend AR into your sales of Flomax and ended up at the end of the March quarter with an AR of about a little over $300 million. I would have expected that AR to come down a little bit off of your Q4 launch of Adderall XR. So given the fact that just a little bit less Adderall XR sales in the quarter, can I expect the AR for Flomax to really just pull through and we wind up with an AR that’s closer to say 175 by the end of Q2?

Art Koch

Well, it’s really a function of expectation for the topline to get to that answer, Michael. You have to make an estimate of the revenue. Our typical average days sales outstanding is running pretty much in line with our past results of around 89, 90 some days. So that really hasn’t changed and then as additional sales come through they’ll be flowing through the accounts receivable.

Michael Tong – Wells Fargo Securities

Okay. And then the second question based on what you know about the dynamics of the Adderall XR market you talked about some supply issues coming in into Q1, and you’re hoping to get that resolved. Based on that, what the dynamics of Adderall XR is, are there any other trigger factors that may tip your profitability in future quarters like Q2, Q3 and Q4 or another way to ask the question is whether you expect to be at least profitable in each of the subsequent quarters for the year?

Art Koch

The heart of the answer runs to the existence and continuance of certain expectation, which we think is holding up our approval and others from entering the market. So if we – one has to make his own judgment about that is that it’s (inaudible) for purposes of this question that exists future profitability will be determined by pricing in the marketplace among a relatively small number of competitors just Shire, (inaudible). And then we have to make projections – each analyst would make his projection about what he thinks pricing is going to do.

Michael Tong – Wells Fargo Securities

Okay. And then the last question, do you have any communications with the FDA regarding perhaps the possibility of a tentative approval on Opana ER?

Art Koch

We are expecting – we have know of no reason why we wouldn’t receive our tentative approval on the target date of May 23rd.

Operator

Your next question comes from the line of David Amsellem.

David Amsellem – Piper Jaffray

So quick question on Flomax just a follow-up with all the recent generic entrants and given where pricing has come down, how should we think about your residual prescription share for Flomax?

Art Koch

Thank you David. We’ve said all along our focus is on the high value ANDA and the signs we’re seeing early in the market is the price pressure on this product is substantial as we said earlier and it could drive our interest in the continuing service very well. It’s difficult to say exactly where it’s all going to start off because there is always an initial flurry and then conditions can settle out later in the product lifecycle and will only add to point out everyone entering in. So it’s hard to answer your question but we know already that it’s going to be dramatically lower, which would suggest our participation will drop dramatically as well.

David Amsellem – Piper Jaffray

Okay. And then Concerta question, if the FDA were to require a partial area under the curve standard for showing equivalent, how long would it take to turn that analysis around and more broadly do you think that we’re closer to the agency using partial AUC as a standard or just more closer to the agency figuring out how to evaluate these more complicated small molecules? Thanks.

Art Koch

The answer to that David is really determined by what the regulations for measuring that area under the curve turn out to be, and without knowing that it’s really hard to answer your question. It is a question on many investors’ minds and it’s very frustrating for them not to be able to get a direct question. But until we know how to measure and what to measure, it’s really hard to know how to answer the question. And we saw in the recent advisory committee meeting what we considered to be the beginning of a pass to potentially measuring this but we’re only at the very beginning and our assessment is we are sometime away from any definitive guidance on the question.

David Amsellem – Piper Jaffray

Then just one last quick question, if I may. You didn’t mention anything on IPX056, the baclofen product that. But with the significant cash flows I mean any change in your thinking on development of the product or is that – should we still think of that as sort of being on the backburner for now.

Art Koch

Our focus is on 066, that is our top priority. And as we have told investors from the beginning of the year, our planned internal investment in R&D is $36 million, which is all directed at 066. Therefore 056 is taking a backseat at this time.

Operator

Your next question comes from the line of David Risinger.

David Risinger – Morgan Stanley

Yes, thanks very much. I have a couple of questions and sorry to keep asking about Flomax. But is there any way that you can sort of frame for us how to think about the second quarter specifically how significant the revenue and earnings contribution was in the month of April before competitors entered and how much it may step down in coming months and I know that that’s difficult to answer. And I guess when you comment on that if you can provide any sense for how many months of supply you shipped into the channel and whether there’s going to be any shelf stock adjustments. And then separately just on your fenofibrate franchise, if you could just please comment on your expectations for durability of that financial stream. Thank you.

Art Koch

The first question was on the continuing and the color for Flomax sales in the second quarter. And as we’ve already said both Larry and I in our remarks that the presence of these additional competitors is going to dramatically lower book of price in our share. On the issue of how much did we sell into the channel, our goal in managing our inventories was to reach as many customers as we could to cover their usage during the eight-week period. So there wouldn’t be substantial inventories in the channel when the other competitors arrive and so far our analysis is holding that we accomplished that to a large measure. Having said that, then we should expect April and second quarter sales to be off balance dramatically from the March level.

On the final question of fenofibrate, the product itself in units is expanding and that’s a very important element in a product like this. It’s not often where at this age in a product lifecycle we see units expanding. And that’s had us very encouraged in terms of outlook for the market and we continue to remain there. However, competitors are beginning to arrive. We saw the first two in December and therefore the outlook has to be guarded in case of the additional competition. I hope I got them all.

Operator

Your next question comes from the line of Elliot Wilbur.

Elliot Wilbur – Needham & Co.

Thanks, Elliot Wilbur from Needham and Company. Just maybe going back to some of the earlier question around Concerta, with respect to the final court decision being a triggery event, I think there’s still some additional procedural steps that have to take place before the clock actually starts ticking, I’m just wondering if you can confirm whether or not those have actually occurred so that in fact the clock is running. And then second question on this, given that decision has there been any change or new dialog with the FDA with respect to this product something along the lines of "Hey guys, it’s been six years, we need to get moving on this."

Larry Hsu

Well, let me help it on these questions, Elliot. I think one of the key factor here obviously is the citizen petitions and I think in addition to the trigger event, which Arthur has alluded to and obviously what the advisory panel talking about the (inaudible) stuff maybe it’s one step closer but at this point they still have no final decision from FDA in terms of what the requirement is. Until then I don’t think the FDA will be able to make a decision on the citizen’s petition. And therefore I guess until the roadblock is removed and we have to see what the final FDA decision will be, then we’ll have a much better picture of our situation.

Elliot Wilbur – Needham & Co.

Okay. And then just the question as to whether or not the clock actually has started –

Art Koch

The clock has not started yet. You’re correct, there are certain additional procedural items by the court that have to take place but there are administrators and we think that they will occur in a short period of time. I was speaking more for the balance of the year.

Elliot Wilbur – Needham & Co.

Okay. Then second question is, I guess sort of given the large near term cash bonus from Flomax and continued strength in the Adderall market and fibrate obviously the accumulation of cash continues in accelerated pace. Just wondering if the evergreen cash balance has sort of enabled or has led you guys to sort of broaden your thinking with respect to the types of – size and scale specifically of these strategic transactions that you might be evaluating.

Art Koch

Yes, the additional resources have factored into not so much the type but more the size and scale. The type as we talked about it has really been set for like two years now and there’s no change in that. But the size and scale of opportunities that we can consider has expanded with these additional resources and that’s been a very significant development and a very important change in the opportunities as we’re looking at them today.

Elliot Wilbur – Needham & Co.

Okay and then last question on Adderall XR, given what seems to be – one player has (inaudible) one quarter, then I guess is the other guy’s turn the next quarter. It’s still reasonable to assume that as we kind of get to a more normalized state, which I think (inaudible) at the end of the second quarter that you are still expecting basically roughly a 50-50 split whatever in the generic market?

Art Koch

Elliot, we don’t give that precise color or outlook for the product. What we’re trying to provide is a flavor for the conditions and we think the conditions as you correctly summarize will settle out by the end of June and make that data more relevant as we look forward. Others have reported that 50-50 split is reasonable to assume and we can say that there’s no structural reason why we couldn’t reach a 50-50 split and we’re competing everyday in the marketplace.

Operator

Your next question comes from the line of Corey Davis.

Corey Davis – Jefferies & Co.

Thanks very much. A couple questions on – first generic Flomax. It is the math as simple as it looks? I think you said 95% gross margins and if I tax it at your normal corporate rate, I end up with about $1.62 in EPS in this quarter contribution from Flomax, is that approximately right? Just trying to figure out a base earnings scenario here.

Art Koch

That’s a reasonable approach to the quarter. It’s not a lot of magic to us. It’s been a very significant contribution.

Corey Davis – Jefferies & Co.

OPANA ER, if you don’t get a tentative approval by May 23rd, do you think that you have an argument to present to the FDA that it was actually their fault with a change in review or that they were overly slow, so that you won’t lose your exclusivity?

Larry Hsu

At this point, let me try to answer the question. At this point, we are pretty confident that we will look at the tentative approval. Although, obviously, as usual, that we do look at the plan B just in case if we do not get the approval, we have some actions that we have to take. But at this point, we are – we feel optimistic that we believe that we will get approval.

Corey Davis – Jefferies & Co.

Okay. And then, sorry, jumping back to Flomax, I think I heard you say this that you won’t expect any significant shelf stock adjustment next quarter. So can we assume that your analysis says that you really or the channel really did sell all $176 million in scripts so that next quarter there is no potential for, say, negative revenue on Flomax?

Art Koch

It takes a lot for the data to confirm that, Corey. But our goal to managing inventories was to achieve as close, because to the – and reach as many customer as possible, so that we could penetrate a very significant. And certainly the early results are that we achieve that and we do not expect any kind of negative revenue in the second quarter, related to those first quarter sales. And we are in a reasonable position in the marketplace.

Corey Davis – Jefferies & Co.

Okay. And last question, kind of open ended, but all of us seem to be asking about the same stuff on this call. Is there something that hasn’t been asked that you kind wish had been asked or something that you really want to draw out that you think the Street is missing on the Impax story?

Larry Hsu

Let me add a couple of things here and maybe then Art can add what are his thoughts. I think what is important is that we want to emphasize our pipeline. I think, obviously, we have a wonderful quarter, and many of the investors were wondering what is after this wonderful quarter, what is left, what’s the remaining of the year, as well as in the next year, what the pictures will look.

And I want to just reemphasize that we have a very strong pipeline and we have several products which is at the 31 stage, which is going to expire in the next 12 to 18 months. We are preparing to launch some of those products. So I think obviously we don’t see the Flomax opportunity every quarter or every year necessary. But I think that our base business is going to continue to grow without any question in my mind. Art, you want to add anything?

Art Koch

I think you said it very well, Larry. I would just like to emphasize that the strategic direction we took in 2007 of focusing on first to file is really beginning to pay dividends with those number of first to files we have had in 2009. And the value here although is difficult to predict which individual candidate on which individual day is going to receive what kind of approval or exclusivity, the important thing I think you stressed and I would like to emphasize is that the value of pipeline, although difficult to comprehend by name is clearly a terrific resource for future growth for the company.

Larry Hsu

I do want to add one more thing is on M&A activities. I just want to reemphasize that M&A is still – is a very high priority activity in the company. Although, I mean, it’s been almost two years now, we haven’t reported anything. But believe us, that we have been working on this very hard. And the important is that we are not just – and we don’t want to just go out and grab something. What important is that we wanted to acquire something which does fit strategically, which you cannot add into our future growth.

Corey Davis – Jefferies & Co.

At this price would you be prepared to use your currency in equity for M&A?

Larry Hsu

A combination about any things, we could use in the – equity is definitely a consideration, but debt financing is also a possibility as well as the combined with the cash we have in the bank.

Corey Davis – Jefferies & Co.

Great. Thanks guys.

Mark Donohue

Thanks, Corey. Next question, please.

Operator

Your next question comes from the line of Louise Chen.

Louise Chen – Collins Stewart

Hi. Obviously you mentioned that you are pretty committed to doing generic or brand M&A in the space. I am just wondering if you can give us a sense of when you would ideally like to get something done or how far along you might be in discussions with potential opportunities.

Larry Hsu

You know on the M&A, it’s very difficult to set the deadline or set a goal by certain date, we are going to have an M&A done. But again, we will focus on the small sector of a company, either on the generic or brand side, which we are interested in. As pointed out, in the past, 12 to 18 months, we have been very aggressive looking at these opportunities. Some of the opportunity actually will go beyond just the superficial inquiry type of things but not everything panned out as quickly as we like to see. But we are hoping in the next year or two we will have some good things to wait for.

Louise Chen – Collins Stewart

Then, I had another question on OPANA ER. Just wondering now given that Teva has settled on all the strengths with Endo, if you were to consider a settlement with Endo on OPANA ER would you expect the timing of that to come before Teva’s entry given that you have the 180-day exclusivity on the major strengths?

Larry Hsu

Well, we are looking at all kinds of possibility. We are looking at the launch the product ourselves, we are looking to settlement, whatever makes sense to us, we are doing.

Louise Chen – Collins Stewart

And then just a last question, which is more quantitatively than quantitatively. As you look into 2011, obviously you had a great year in 2010, and you said that Flomax obviously can’t be repeated every year. But could you maybe highlight some of the growth prospects in 2011, maybe single out some interesting product opportunities that you think that people haven’t really focused on?

Larry Hsu

Well, I don’t think we can get into those product details. But I think that we have a table which I don’t know have it with me at this point, which lists the 30-month stage timeframe and all these products. I believe we have a seven or eight products, where actually is looking at the 30-month stage filing in the next 12 to 18 months, plus I emphasize that those are only the Paragraph IV. But in the pipeline, we also have some products which is not a Paragraph IV, which we do have a large opportunity in the next 12 to 18 months as well.

Louise Chen – Collins Stewart

Thank you.

Mark Donohue

Thank you. Next question, please.

Operator

Your next question comes from the line of Chris Schott.

Dewy – JPMorgan

Hi, this is actually Dewy (ph) for Chris. I was just wondering if you guys could comment on the switch on the promotion project that you guys have with Pfizer, switching from I guess Effexor XR over to – I am sorry, Pristiq over to Lyrica?

Larry Hsu

Well, I mean, our agreement originally was with Wyeth and then Wyeth acquire by the Pfizer. Obviously Pfizer, we look at those strategy and try to pick the benefit from our sales force and that would mutually come to the conclusion that the Lyrica would be a better partner for us to target on the neurologist, and therefore the switch.

Dewy – JPMorgan

Alright, thank you.

Mark Donohue

Thanks. Next question, please.

Operator

Your next question comes from the line of Sumant Kulkarni.

Sumant Kulkarni – Bank of America Merill Lynch

Thanks for taking my question. Could you give us an update on your Ultram ER case which has been stayed pending some public events and now that pars 180-day exclusivity is almost up?

Larry Hsu

Art, you want to add some –

Art Koch

The lower court decision by Teva is really weighing heavily on our decision and our outlook there. And we are considering our alternatives right now and it’s really difficult to predict what will ultimately take place.

Sumant Kulkarni – Bank of America Merill Lynch

And now that you have got somewhat of an unexpected windfall from generic Flomax in terms of cash this quarter, on the brand site, are you looking at more products to fill the sale representatives’ bags or are you looking at licensing products in?

Larry Hsu

We look at both opportunities. Obviously, we have – as we indicated, we have some blended product in the pipeline and still at the feasibility stage in addition to the 056, which you know that we put on the back burner for a while, so we can focus on the 066. But in addition to 056 and 066, as we have pointed out in the past, we also several products in the early stage of development. But in-licensing and also in the consideration in terms of looking at the best candidate for the move into the development of the pipeline.

Sumant Kulkarni – Bank of America Merill Lynch

And finally, on the generic side, do you have an optimal size of transaction that you are looking at and would you consider somewhat of a transformational acquisition if it comes along.

Larry Hsu

Wow, optimal size – Art, can you help?

Art Koch

Well, the way we try to get color on that is Sumant is just in the sweet spot for opportunities ranges between companies or businesses or technology will associate to a $150 million in revenues. And we don’t want that to be a boundary at all. It’s just kind of where we keep most of the opportunities that’s strategically for us. There are others on both ends of that scale goes that would also make sense that are just fewer and less in number.

Sumant Kulkarni – Bank of America Merill Lynch

Thanks.

Art Koch

Yes.

Mark Donohue

Okay. Next question, please.

Operator

Your next question comes from the line of Lane Yaffi (ph).

Lane Yaffi

Thank you very much. It seems like we are getting one of these perfect storm opportunities in the generic drug sector where there are fewer viable competitors, there is an incredible number of drugs coming off patent, and more and more of those drugs are going to have a period of exclusivity for greater profitability. I was just wondering, one, if you agree with that scenario; two, if you have ever seen an opportunity like this in the sector and how long you think it will last? And coming out of it how much stronger do you think you will be to take advantage of other opportunities like Biologics given the cash you may accumulate over at the next whatever number of years you think the opportunity lasts? Thank you.

Larry Hsu

I think you described it very well. There are a lot of opportunities coming, especially in the area where we focus on like controlled release, modified release which has turned out to be a lot of a flying (ph) extensions. This is an area worthy of big pharma focus and so that’s now is providing a lot of opportunity for us. Now, As far as the biosimilar, I know that it probably is the issue of a lot of companies are talking about, but those require a lot of investment. So at this point, we are not really looking at the biosimilar as one of the option.

Lane Yaffi

Thank you.

Mark Donahue

Okay. Next question, please.

Operator

Your next question comes from the line of Tim Chiang.

Tim Chiang – FTN Midwest Securities

Hi. Larry, I just had a question in terms M&A. I know you guys have done extremely well on the oral solid dose out of the business, especially in controlled release. How much time have you guys spent looking at other segments in the generic space, whether it’s on the injectible side, whether it’s in other non-oral delivery technologies? Is that something that you guys are exploring?

Larry Hsu

Yes. We are actually the alternative doses form, which I call it, is now oral solid doses in our case is definitely one of the area which we have done lot of interest in. And as I had mentioned in the past, in the oral solid doses form area, we have kind of a focus on the difficult formulate, difficult to compete in type of a area. And we believe that in the other doses where there will be similar type of formula where it will be difficult to formulate or present as a barrier of entry. So we are definitely going into those areas.

Tim Chiang – FTN Midwest Securities

Okay, great. Thanks Larry.

Mark Donahue

Alright, we have time for one more question, please.

Operator

And we do have a follow-up question from the line of Michael Tong.

Michael Tong – Wells Fargo Securities

Hi. My follow-up question has actually been answered. Thank you.

Mark Donahue

Well, thanks everybody for joining us. Please listen to our webcast. Tomorrow, we will be presenting at the Deutsche Bank Conference in Boston, and then the following week, we will be presenting at the Bank of America Merrill Lynch Conference. So we look forward to speaking to you again.

Larry Hsu

Thank you, all. Good-bye.

Operator

This concludes today’s conference call. You may now disconnect.

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Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

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Source: Impax Laboratories Inc. Q1 2010 Earnings Call Transcript

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