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Impax Laboratories, Inc. (NASDAQ:IPXL)

Q3 2010 Earnings Call

November 02, 2010; 11:00 am ET

Executives

Larry Hsu - President & Chief Executive Officer

Art Koch – Senior Vice President of Finance & Chief Financial Officer

Mark Donohue - Senior Director of Investor Relations & Corporate Communications

Analysts

Dewey Steadman - JPMorgan

David Amsellem - PiperJaffray

Louise Chen - Collins Stewart

Corey Davis - Jefferies

Sumant Kulkarni - Bank of America

Elliot Wilbur - Needham & Company

Michael Tong - Wells Fargo

Tim Chiang - CRT Capital

Operator

Good day and welcome to the Impax Laboratories Incorporated third quarter 2010 earnings conference call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Mark Donohue, please go ahead sir.

Mark Donohue

Thank you, Rachel. Good morning everyone. Welcome to our third quarter 2010 earnings conference call and webcast at www.impaxlabs.com. On today’s call we have with us, Dr. Larry Hsu, our President and Chief Executive Officer, and Art 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 myself at Investor Relations at 215-933-3526. A replay of today’s call will be available starting at 2:00 PM today through November 9th. Please refer to our third 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 website. In addition, our discussion today includes certain non-GAAP measures as defined by the SEC. Please refer to our earnings release and reconciliation tables posted on our website.

With that, it’s a pleasure to turn our call over to Dr. Larry Hsu.

Larry Hsu

Thank you, good morning and well thanks for joining us. Our third quarter performance was driven by continuous strong demand for several of our global label products. Total adjusted revenue excluding the impact of the change in revenue recognition discussed in the earnings release this morning includes approximately 40% to $180 million lead by our generic Adderall XR, and the fenofibrate products.

Adjusted EBITDA includes a 78% to almost $28 million from $16 million last year. This solid result lead to a $7 million increase in adjusted net income and a $0.09 or 60% increase in earnings per diluted share.

Sales within our global business have benefited since the launch of our generic Adderall XR in October of 2009. It continues to be an important component of our generic business and we are working hard to build a significant and a lasting customer relationship. However, ongoing supply issue with our supplier continues to constrain our ability to fill strong customer demand leading to lower than expected sales and a market share. Keep in mind that we will always be dependent on supply and hitting our target depends on consistent product supply.

Demand from our customers has remained very strong since launch. Our supply provider to us has significantly deteriorated. Since our launch in October 2009, our total sales over the first two quarters aggregated close to $200 million. Over the past two quarters, our total sales are approximately 50% of these levels as we have experienced supply issue and have been unable to meet customer demand.

We’re encouraged with our receipt of overdue deliverers in the third quarter, and we’ve began a new initiative to retain some of the customers we had lost due to our inability to supply. Since then however, other shipments we’ll promise have come in late and our supplier has told us recently to expect lower volume than previously committed for the balance of the 2010.

We had to severely allocate product, we have on hand to protect our customers from stocking out and we have had to seize our new business effort. We have demonstrated significant demand over current levels. Based on well with an additional description or disruption and forecast, we believe we have no alternative to protect the interest of our customer and shareholders, but to initiate litigation.

We are checking to enforce Shire’s application to supply impacts with product pursuant to our agreement. For the first nine months of 2010, we generated adjusted revenue of $584 million and adjusted earnings per share of $2.81 far exceeding any other years in our history. This strong performance has resulted in the significant increase in our cash position to more than $358 million that we’ve plan to reinvest in vital strategic initiatives to continue to drive near and the long-term growth.

We have been very disciplined in our M&A approach checking deals that are strategically appropriate driving toward high value product, technologies, or business with meaningful R&D capabilities that are financially attractive with manageable execution risk.

We remained very active on the business development front, as we are pursuing generic and brand opportunities to acquire product, technology, and companies with compelling business strategies to drive near and the long-term growth.

During the quarter, we announced a collaboration agreement with Perrigo, with respect to the development and commercialization of two topical drug products. This marks our second entry this year into alternative dosage forms as we begin to execute our strategy of diversifying our product base.

We continue to aggressively explore similar type of opportunities as one component of our M&A activities. We look forward to updating you on our business development activities as we continue our due diligence on numerous prospects.

One of our key generic strategy initiative is to focus our internal research and development effort on high margin opportunities with limited competition. Our current generic pipeline has never been more valuable than ever. It is today with more first-to-file and first-to-market opportunities either pending or under development than ever before.

We currently have 33 pending ANDA with at least eight ANDA having first-to-file or first-to-market potential and additional 63 products under development. We are progressing toward our 2010 goal of filing eight to 10 new ANDAs. So far in 2010, we have filed numerous new applications, eight of this have been accepted for filing and as expected, we’ve currently been sure on two of them.

We are confident that we can achieve or exceed our 2010 filing goal as we have done the past several years. The ability to acquire the first or to be first on the market is proven to be more challenging. So far this year, we have been second on two key applications by only a matter of a week, in both cases we missed, because of delay and obtained active ingredients and we have already initiated steps to avoid these delays in the future.

On the brand side, we continue to be pleased with the advancement in our late-stage drug candidate IPX066 for Parkinson’s disease. We recently completed the first Phase III study in levodopa-naïve patients and look forward to reporting the top line result later this year. In late August, we completed enrollment in the second Phase III study in advanced patients. We currently expect that the advanced study will be complete early next year with data disclosed in the second quarter of 2011.

We remain on schedule to file the new drug application in the fourth quarter of 2011. We have been actively pursuing the marketing partner or territory outside the United States, and we are pleased with the receptions we have been given and we are confident we will be able to attract the highly capable partner before we file our NDA next year.

I now turn it over to Art, who will provide his comment on our third quarter financial results. Art?

Art Koch

Thank you, Larry and good morning. Before discussing our quarterly results, I want to update you on our business development activities as there have been several recent deal announcements in our industry.

We have very aggressive business development activities ongoing to accelerate growth in both our generics and brand divisions and we are devoting significant amounts of time and attention to this area. With our cash and short-term investments having increased to more than $358 million, and our clean balance sheet with no debt, the range of business development activities we can pursue is very large.

Our approach is very diligent as we are searching for assets that are strategically right and financially attractive. We won’t do a deal just for the sake of doing a deal, unless it meets our strict criteria.

Opportunities exists in the generic space for us to acquire products, technologies and/or businesses in complementary dosage forms, while our core competency in drug delivery and formulation expertise can be combined to produce above average growth in high-value products.

On the brand side, we continue to actively pursue marketing partners for our Parkinson’s disease product outside the US as well as additional products for our US based sales force. We are excited about the opportunities available and we will continue to be very thorough in our evaluation ensuring that any transaction will provide the best fit for our company.

We are pursuing opportunities that will complement our business well into the future rather than businesses with limited capabilities to develop high-value products and pipeline.

Moving to our third quarter results; in our third quarter earnings release, we have provided GAAP to non-GAAP tables adjusting for the accounting change to our Teva agreement, as well as a couple of other adjustments including share-based compensation in order to present adjusted earnings.

My discussion of third quarter results will focus solely on the adjusted numbers. Consistent with disclosures by industry peers, we will continue to provide cash basis results, so analysts and investors have a comparable basis for comparison.

Earlier this year, accounting rule-making authorities issued new guidance on accounting for agreements with multiple elements, such as our 2001 Strategic Alliance Agreement with Teva. Under the new guidance, we would not be required to apply the modified proportion or performance method of accounting, but we would not be able to adopt this new accounting for existing agreements unless and until there was a material modification to such an existing agreement.

In July, we entered into a material modification of our Strategic Alliance Agreement with Teva. The agreement was amended to terminate the provisions with respect to omeprazole product, in addition in exchange for previously returned rights to us with effect of fenadine-pseudoephedrine product, we agreed in July to pay Teva a profit share on future sales, but not to exceed an aggregate amount of $3 million.

Due to the material modification to the agreement, we applied the revised accounting standards for Multiple Element Arrangements, which became effective for agreements entered into or materially modified on or after June 15 of this year.

The application of this standard resulted in current period recognition in the third quarter of previously deferred revenue and related manufacturing costs. In effect, the effect of these non-cash adjustments increased our third quarter GAAP basis Rx Partner revenue by a $196 million and increasing cost of revenues by $95 million. The impact on third quarter GAAP earnings per share was an increase of approximately $0.98.

Going forward, future Rx Partner product shipment and profit share revenues and cost of goods sold, will no longer be deferred, but will be recognized in the period in which they occur. The Teva accounting is finished.

For the third quarter of 2011, we reported total adjusted revenue of $108 million, an increase of almost $43 million over last year’s third quarter. The growth was led by our two largest generic products Adderall XR and fenofibrate. We recorded a profit share sharing royalty expense for Shire of approximately $15 million.

Though we are pleased with the positive results, our expectations for stronger generic Adderall XR sales were dampened by the recent and recurring supply issues. Following the receipt of some supply in July and August, our sales team was very active working to regain market share lost in the middle of the year due to lack of sufficient supply to fill strong demand.

Maintaining and growing our sales and share will always be dependent on consistent supply of the product. As Larry mentioned, we’re seeking such sufficient supplies under our agreement, so we can meet our strong customer demand.

Our fenofibrate product sales continued to perform well, even with the additional competition that entered the market in late 2009. Although we have experienced some pressure on market share and pricing, the overall market for fenofibrate continues to expand. Sales of generic Flomax declined as expected in the third quarter to the low single-digits of market share compared to the second quarter of 2010 when reported $27 million in revenue.

This decline was anticipated due to competing generic versions entering the market at the end of April, resulting in both price erosion and a significant reduction in our market share, as we are able to direct our rather scarce manufacturing capacity toward higher margin products. For the fourth quarter of 2010, global division sales are expected to decline year-over-year, as last year’s fourth included the significant launch of generic Adderall XR.

On a sequential basis, growth in fourth quarter 2010 generic Adderall XR sales versus the third quarter are uncertain and will be dependent on spilling our outstanding open orders for the product. We are hopeful that a fair resolution of this ongoing issue will occur near term, so our customers will have sufficient supply to meet the needs of their patients with Impax products.

For the third quarter of 2010, total adjusted gross profit increased $23 million to $60 million, due to sales of generic Adderall and fenofibrate. Our total gross profit margin decreased slightly to 56% of revenues from 57% in last year’s third quarter due to a slightly higher concentration of somewhat lower margin products. Total operating expense in the third quarter increased almost $11 million from the prior year period. This increase was expected and in line with our previously announced guidance of increased spending on R&D and SG&A.

The biggest expense increase was in R&D, up $9.9 million driven by a $4 million increase in generic R&D and almost $5 million increase in brand R&D. Our level of investment in generic R&D has paid dividend with the recent significant launches, such as generic Flomax and Adderall XR. We expect to once again hit the upper end of our annual ANDA filing of eight to ten new ANDAs as we have already had eight applications accepted for filing in 2010. We believe our continued commitment to invest in both generic and brand R&D will provide long-term growth opportunities.

The increase in generic R&D was primarily due to higher spending on bio-equivalency study and active pharmaceutical ingredients. We have slightly increased our estimated 2010 generic R&D spend by $2 million to a total of $43 million, due to increased purchases of API as we are aiming to modestly increase the number of annual ANDA filings for next year.

On the brand side, R&D increased primarily due to planned increased spending on clinical studies for IPX066, the company’s leading drug candidate for Parkinson’s disease. Another modification to our 2010 guidance is patent litigation expenses, where we have been running wider than our 2010 outlook of approximately $11 million. We now expect 2010 litigation expenses of about $8 million.

For additional details on SG&A increases, please refer to this morning’s press release, but we have not changed our full year expectations. Our adjusted EBITDA have increased $12 million to almost $28 million, with the margin expanding to 26% of revenues, compared to 24% in last year’s third quarter driven by increased sales. The 66% increase in adjusted revenue resulted in a 60% or $0.09 increase in the third quarter adjusted earnings per diluted share. We earned $0.24 in the third quarter of 2010 versus $0.15 in the prior year period.

In closing, we continue to make significant progress toward our long-term goal. Our generic pipeline has never been stronger with more than 90 products pending or under development. These will continue to create short and long-term significant opportunities.

Our brand division continues the development of our lead drug candidate and in a couple of months, we will report the first, a two Phase III clinical study results. We also continue to be very focused on many external opportunities to invest the capital; our business has generated, which will in turn fuel additional long-term growth. We believe we have the right strategy in place that should provide the basis for above average returns for our investors.

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

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And our first question we’ll hear from Chris Schott with JPMorgan.

Dewey Steadman - JPMorgan

Hey, good morning. This is actually Dewey Steadman for Chris. I was just wondering on the fenofibrate market with the additional competition in the market and how is pricing holding on?

Art Koch

Thanks, Dewey, nice to hear from you. The pricing has been intense and increasingly intense. But not on the wholesale or order of magnitude kind of level we’ve seen in the past. So I would characterize it as, present there is pricing competition, but not the wholesale kind of experience we saw, the first time Ranbaxy was in the market.

Dewey Steadman - JPMorgan

Okay. And then on Adderall XR, can you just elaborate on the rationale for filing in New York State Court as opposed to Federal Court? And if the issue is not resolved with Shire in the near term, do you expect be able to hold about that 20% market share you have now?

Art Koch

Two parts of the question Dewey, first is, the agreement has a prescribed course for legal

Action and we are following that under the agreement and with regard to future share, so much of the fourth quarter result will be dependent on product shipments as we said it’s very difficult to predict fourth quarter from current levels. We have been seeing them we do have significant customer demand we just need the product to be able to fill that.

Dewey Steadman – JPMorgan

Alright, great. Thanks.

Art Koch

Welcome.

Operator

Next I’ll move to David Amsellem with PiperJaffray

David Amsellem - PiperJaffray

Thanks. Just a couple. So, I know you said that this summer the supply constraints eased somewhat and you expect that your share to rebound. Now you are saying you’re having trouble meeting customer demand. So just help us understand better, what changed here between July and now?

Art Koch

The easiest way to explain it is, in this early second half, we had worked with Shire to develop the expectations for product supplies that we could expect for the remainder of the year. And we in fact saw the first bits of those expectations come to fruition with product deliveries in July and August. As regard to October, another key delivery month, we saw shipments being delayed.

And during that same time, they came to us with revised expectations of what additional product we could expect during the second half of the year, for the remainder of the year. And very recently, delivery dates were missed and recent statements indicate that they don’t intend to ship us what we had believed we will be receiving to the balance of the year. And that’s really the chronology of events.

We have been working all along to avoid litigation but we just felt that, or with these most recent turn of events that it’s customer’s best interest to get in there with this litigation and compel them to deliver the product we believe is a fair – pursuant to our orders under the agreement.

David Amsellem - PiperJaffray

Okay, that’s helpful. And as a follow-up, is an expansion of the DEA quota a possible outcome here if you and Shire can and do settle out of Court as was the case with Teva?

Art Koch

Well, David as you know, the quota issue is really between Shire and its supplier and the DEA. We are not really ready to or interested in whatever the allocations are we would just like – invest the product that we work and how they do that is really of little interest to us, we just need them to fill our orders.

David Amsellem - PiperJaffray

Okay and then one last question if I may. If it’s becomes clear that the litigation will be protracted, what are the remedies are at your disposal to move share and more specifically is lowering the price of uridine or something that you may consider?

Art Koch

Well, we certainly believe and we are pursuing this on an expedited basis. Time is critical here for the reasons you mentioned. We have demand for several times over our current supply. So, a change in price wouldn’t really help us in terms of serving our customers. We worked hard to get these customers and we intend to keep them in product until additional shipments arrive.

David Amsellem - PiperJaffray

Okay, thanks.

Mark Donohue

Thanks David. Next question please. Rachel, next question please.

Operator

Yeah, we’ll move to Louise Chen with Collins Stewart

Louise Chen - Collins Stewart

Hi, just a few questions. First question I had was, given the settlement with J&J and also Watson on Concerta today can you comment or give an update on where you are with your ANDA filings for that product?

Larry Hsu

Well, this is Larry. We continue working with the FDA try to get the FDA approval. Now obviously, the news this morning that the Watson settled with J&J, we have spoken each for them. But at this point it does not prevent any other generic on the market and we continue working with the FDA and try to get our ANDA approved. So we can launch the product.

Louise Chen - Collins Stewart

And then second question I had was just with respect to 2011. It looks like consensus estimates are obviously very low in terms of earnings for the following year. I’m just wondering if you could comment on, what you think the growth might be in 2011 at least qualitatively? What kind of opportunities people might be missing in the market there?

Larry Hsu

Well go ahead, Art.

Art Koch

Well, I was just going to say Larry that, the traditional sources of growth comes from our pipeline of the new products and our – and the progress of our brand business towards ultimate approval of that ANDA.

In terms of the short-term horizon for 2011, we have a number of products where the 30 month day expires and we will be looking forward to those they include important products like Doryx and Rubella and there are other products that we are not involved in litigation that will come through the approval process as well.

Now obviously comparing 2011 to the important launch in March of last year of Flomax is going to be, everyone recognizes the Flomax was once a very unusual situation. But clearly there is growth ahead from – largely driven from the pipeline of new products.

Louise Chen - Collins Stewart

And then a last question is just on Adderall XR, again just curious if there is anyway, if you give us a framework for how to think of the sales quarter-to-quarter just I think it’s a little bit harsh or keep it a model or if you could even possibly talk about what sales would have been this quarter? Had you have the sufficient supply something, even just to give us a benchmark?

Art Koch

Larry, would you like to take that?

Larry Hsu

Yes, go ahead.

Art Koch

Okay. So Louise, it’s not really possible to predict what it would have been under different circumstances, because the circumstances drive demand so heavily. I think it is important to explain that we went out to obtain new accounts on a case-by-case, account-by-account basis and we had some success. But we had to curtail those activities, because we didn’t have sufficient products to continue to obtain new customers.

We have sufficient products, we believe to service our current account, but we couldn’t go get anymore. Clearly, we think our market share can grow from here, but quantifying it is really a function of how much product we receive by when.

Louise Chen - Collins Stewart

Thank you.

Mark Donohue

Thank you Louise, next question please.

Operator

Next question will come from Corey Davis with Jefferies

Corey Davis - Jefferies

Thanks very much. First question is, how long do you think it will take for the lawsuit to resolve itself either through the Courts or just through outright settlement with Shire?

Art Koch

Well, go ahead Larry?

Larry Hsu

Go ahead Art.

Art Koch

Okay. The path we are on Corey is an expedited path in the Courts. We stressed the urgency of this situation. The Courts have been willing to listen so far and I think we will be able to address this on an expedited basis. There’s really no way to put a time sense on this? Could it be a month? Could it take a little longer? It’s very hard to know. But we think it is something that can be resolved either through litigation or outside of litigation in the relatively near time.

Corey Davis - Jefferies

And just to be clear how the process actually works. Are they – I am assuming they are not shipping you zero right now, but are they shipping you supply that’s in line with the prescription demand that everybody can see in IMS? Or are they shipping you zero?

Art Koch

No, no, they are not shipping zero. It’s very hard to say that’s it’s in line with the prescription percentage Corey, because we have significant demand over current prescription share. So they are clearly, what has us upset is we have a very clear need for the product. We have customers behind and documenting that need and they are not shipping us. They are not selling our orders and we really need them to sell our order.

Corey Davis - Jefferies

Okay. And then just switching to the model for next year and thinking about R&D spend without giving a specific guidance shouldn’t – with these trials kind of running down, I would expect your R&D line to go way down, but are there other plans ramp upped in R&D, just the question is, in aggregate should R&D go up down or stay the same in 2011 over 2010?

Art Koch

Larry, the expectation for R&D, we’ll go through the budget outlook in 2011 in the January conferences Corey. But, we have a number of initiatives that are underway to continue to ensure that we continue to deliver above average returns. So our studies finishing upon the brand business, but we have a pipeline of additional products that are queued up behind IPX066, and you are likely to see us talk about those more in the early part of next year.

Corey Davis - Jefferies

And are those big projects moving into Phase III that I just can think of right now?

Art Koch

The number of – the closest project is our IPX056, which is specificity in MS patients. There are others in the pipeline that we disclose very little about that are also – and they’ve demonstrated proof-of-concept and are ready to proceed. And you’ll get more color on that as we go through the outlook for 2011.

Corey Davis - Jefferies

Alright, so continued investment in the brand side, I guess is the message I’m hearing?

Art Koch

Correct.

Corey Davis - Jefferies

Great. Thanks guys.

Mark Donohue

Thanks Corey. Next question please.

Operator

And next we’ll hear from Sumant Kulkarni with Bank of America.

Sumant Kulkarni – Bank of America

Good morning. Thanks for taking my questions. First a question on the generic side. Could you comment on the departure of Chris Mengler and if your strategy for the generics division has changed or remain the same after he left?

Larry Hsu

Can you repeat the question again? I didn’t get very well, I’m sorry.

Sumant Kulkarni – Bank of America

Sure, yes, could you comment on the strategy for the generics division after Chris Mengler left the company?

Larry Hsu

Okay. We do not believe that there will be any change on the strategy. I don’t want to make a comment. The separation of Chris Mengler with the Impax was is under a amicable situation with the difference in the management style and a different view of the management. We feel it’s better that the, we separate from that point of view. But as far as the one in the generic, as far as the company’s overall direction, I think it has not been changed and we do not expect we will have a dramatic change in the future, at least in the near term.

Sumant Kulkarni – Bank of America

And just moving on to the Adderall XR situation. Could you comment on where the ANDAs for your own product stands? Have you had any interactions with the FDA? And is there anything, any movement on that front?

Larry Hsu

Well, as you know that we’ve been continue working with the FDA on the approval. We had the, our only ANDA on the Adderall XR as well. And as you are aware that the FDA had a meeting, the Advisory Committee Meeting in April to talk about two products, Concerta and the Ambien, but it did not include the Adderall at this point. So at this point, while we continue working with the FDA and FDA has not – we hadn’t issued any guidance or any specific requests on the profile requirement for the Adderall XR at this point.

Sumant Kulkarni – Bank of America

And my final question is on your business development efforts. So, at the target that you have looked at already, what has been the source of them not meeting your expectations?

Larry Hsu

The product development target, I mean, we obviously been working aggressively in the past and try to looking at the opportunity. But the important is, I think in both my talks and then the past comment was that we need to look for something, which fit in our strategy at this point. And obviously that the – with the both competitive landscape and in terms of M&A, we will continue working on it, but at this point, we don’t have anything to report yet.

Sumant Kulkarni – Bank of America

Thank you.

Operator

And next we’ll move to Elliot Wilbur with Needham & Company.

Elliot Wilbur – Needham & Company

Maybe, just going back to the Shire supply agreement. Is there anything that you can detail or elaborate on or explain to us that kind of gives us some sense that there is some minimum quantity for the agreement that you’re going to be able to sell even if it’s just at the current level?

Art Koch

Well, as we mentioned in the last question Elli, they are not shipping us. They continue to ship us, if just they are shipping to us at a far reduced rate over what we believe we are able to sell and we have the demand to support significantly greater business. But we have been receiving products all year. It’s just significantly behind our demand.

Elliot Wilbur - Needham & Company

Understood Art, but I guess, what I’m trying to get at is, if you asked for volume that effectively works to 40% in the market and they only want to ship you volume that works out for 2.5% in the market. I mean, I got to believe that there’s something in this agreement that gives you some sort of floor downside protection in the incident, in the circumstance that frankly they’re just not sort of cooperative with or not behaving in the spirit of the agreement?

Art Koch

Yes, that is the part of this. There is no kind of floor. There is an absolute obligation that they fill our order. So, there is no kind of floor. We just expect them to ship product.

Elliot Wilbur - Needham & Company

Okay. But there is – it sounds like there's a clause in there that they are contractually obligated to fulfill your orders, which is in effect of law.

Art Koch

Okay.

Elliot Wilbur - Needham & Company

Okay. And then, maybe thinking about some of the other, some movement around somebody rather settlement agreements and things and going back to a couple of weeks ago and the stock price was kind of beat up on development rumors around OPANA ER and what looks like it could be a significant lengthening of initial genericization of that product.

Anything that you guys can say there that can provide some assurances that the settlement you reached isn’t going to basically windup being of de minimis economic value, there is some sort of downside protection causes build into that, that gives you a net present value that’s relatively close to what you would have realized, had you been able to launch the product?

Art Koch

Elliot, what we said and there’s been really no change to what we said is that, we have downside protection, but it’s an important relationship for us, and it’s a positive relationship and under the terms of the relationship, we’re obligated not to disclose the specifics behind that. But we are satisfied that we have adequate downside protection.

Elliot Wilbur - Needham & Company

Okay. One last question for Larry just kind of going back in some of the earlier querying around Concerta; I mean I guess with the Watson agreement with J&J. The read-through seems to be that at least from their perspective; it seems increasingly unlikely that approval was going to come anytime soon.

So I don’t know if there is something specific to their application or something more general with FDA. But anything that you could provide us with in terms of color on sort of your dialogue with the agency that gives you more less or no change, I guess in terms of sort of expectation on what’s going to be needed to eventually get the product approved and monetize that asset?

Larry Hsu

Well let me help answer that question, Art, was it, okay?

Art Koch

Sure

Larry Hsu

Obviously, – only Watson knows about that what kind of a profile they have and whether they can get approval. And again, in the communication between Impax and FDA will continue try to learn more about this, unfortunately, as you're aware of that. Other than that the Advisory Panel Meeting back in April, there’s really not much movement in that side.

Although, you are aware of that this we do see some Ambien CR approval, which are obvious also indicate FDA is looking at is some of these products. Obviously, those are the possible scenario is that now with the – Watson be will be on the market as AG, that possible can take some pressure off the FDA even further slowing down in terms of looking at the two generic sort of approval on this one. It may be, may be not, I do not know. And we don’t have a crystal ball to see what the FDA would do.

But if it does happen, you draw a parallel line between the Concerta and the Adderall XR. With the Adderall XR, will now have two authorized generics on the market. It probably will even be less reason or less pressure for FDA to continue pursuing the two generic approvals on that. So again, on the Concerta side, we are obviously anxious to want to get our ANDA on the market, but at this point we don’t see the FDA have any movement on that. But on the other hand the Adderall XR has continued in status quo, will be able to continue market, the authorized generic.

Elliot Wilbur - Needham & Company

Alright. Thank you for taking the questions.

Mark Donohue

Thanks Elliot. Next question please.

Operator

(Operator Instructions) We’ll next move to Michael Tong with Wells Fargo.

Michael Tong – Wells Fargo

Hi good morning guys. Maybe a bigger picture question. Clearly, in last several years, you’ve done pretty well in terms of bolstering the pipeline. But, in this fairly near term, I’m saying six to 12 months from now, you are still pretty dependent on a handful of products. So, is there anything strategically that you can do to try to minimize or at least reduce the dependence on things that you can control or the Adderall XR or situation? Is that, could it come from the brand side? Could it come from the generic side? Just some thoughts on that Larry, if you could.

Larry Hsu

Okay, I think it’s a bulk there is bulk of questions and I think we obviously are looking at the type of issue everyday. You mentioned about the brand program, obviously that’s one very important thing for us to help us - the overall company’s strategy. But, going back to the generic side, there is a couple things I do want to comment. Number one, it is important working on itself, we do have first own pipeline at this point.

Okay, and may be we cannot pinpoint one product, say we know this product is going to sell $200 million just like the Tamsulosin, Flomax today. However, recall that a year ago before we launched the Tamsulosin within now well it’s going to be a good product. So, as a matter of fact, if you look at that Impax history in the last several years, we have several experience like this from the OxyContin, from the XR and also looking at the Wellbutrin XL.

So all these things which demonstrated – as long as we continue to have a strong pipeline when the opportunity is here, we will be ready to grab that opportunity. So from that point of view, I think it is really important to point it out a strong pipeline means we will be able to get the opportunity when it comes.

The other important thing is that we are working very hard, is working on the M&A side. Okay, we are looking at the company which fit in our strategy and either acquire or partner or do whatever we have to do.

And I think it’s more than just skilled – well you look at as the board than in the – board in the next couple of years, but more importantly, I think it will accelerate the growth of impact. So we are doing many things from the client side, from the M&A, as well as looking at the opportunity to do a monetize our pipeline to help us to grow the company.

Michael Tong – Wells Fargo Securities

Great, thanks. That’s helpful.

Operator

And next I’ll move to Tim Chiang with CRT Capital.

Tim Chiang - CRT Capital

Right, thanks. Larry, my question is really just about the timing of an acquisition. I think certainly about we are focusing on 2011 and is that a right point and already even with all these Adderall issues, but how far along are you in terms of closing in on an acquisition? And sort of – you’ve talked about this for a while now; have you sort of refined, what sort of companies you are particularly interested in or what particular segments that you want to grow in the generic and branded space?

Larry Hsu

Thank you. Well, that you know that the M&A that the overall landscape has been real competitive. So it’s not something if we want to try to acquire a company tomorrow and we can get it down right away. And the most important, as both Art and I have emphasized again, we don’t want to do M&A or acquisition of a company just for the heck of acquire a company. I think it is important that we find a target, which will fit in our strategy very well. And with the competitive landscape of across the very selective criteria, we have set up was obviously, it does not give us a quick fix on these things.

But again, I think we wanted to stick with that, because in our point of view, Impax assumes grow beyond the next two years. We are going to, find anyway to grow the company in the next five to ten years and that’s what we have to focus on. And we are looking for a target that will not only help us in the short-term, but also help us to grow in the next five to ten years.

Tim Chiang - CRT Capital

Thanks, Larry. I just had a one follow-up just looking at your pipeline on the generic side, could you just provide an update on, where you guys sort of stand on Effexor XR?

Larry Hsu

Where we out of the Effexor XR?

Tim Chiang - CRT Capital

Yes.

Larry Hsu

Well, obviously this is something we continue working with the FDA on that at this point.

Tim Chiang - CRT Capital

Okay, great. Thanks Larry.

Operator

And there are no further questions at this time. I would like to turn the call back over to the speakers.

Mark Donohue

Thank you Rachael and thanks for joining us today. Please turn into our presentation next Friday morning at 9:00 am at the Credit Suisse Conference in Phoenix. Thanks again, take care. Have a nice weekend.

Operator

And that will conclude today’s call. We thank you for your participation.

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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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