U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission file number 0-27354
Impax Laboratories, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 65-0403311
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30831 Huntwood Avenue - Hayward, California 94544
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(Address of principal executive offices) (Zip code)
Registrant's telephone number including area code (215) 289-2220
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
The number of shares outstanding of the registrant's common stock as of April
24, 2002 was approximately 47,218,172.
IMPAX LABORATORIES, INC.
INDEX TO FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002
PART I. FINANCIAL INFORMATION
PAGE
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Item 1. Financial Statements:
Balance Sheets as of March 31, 2002, and December 31, 2001.......................................... 3
Statements of Operations for the Three Months Ended March 31, 2002 and 2001......................... 4
Statements of Cash Flows for the Three Months Ended March 31, 2002 and 2001......................... 5
Notes to Financial Statements....................................................................... 6
Item 2. Management's Discussions and Analysis of Financial Condition and Results of Operations.................... 7
Item 3. Quantitative and Qualitative Disclosure About Market Risk................................................. 10
PART II. OTHER INFORMATION AND SIGNATURES
Item 1. Legal Proceedings......................................................................................... 10
Item 6. Exhibits and Reports on Form 8-K.......................................................................... 13
Signatures .................................................................................................... 13
PART I - FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
IMPAX LABORATORIES, INC.
BALANCE SHEETS
(unaudited)
(in thousands, except share and per share data)
March 31, December 31,
2002 2001
------ ------
ASSETS
Current assets:
Cash and cash equivalents $ 21,900 $ 15,044
Short-term investments 8,775 20,422
Accounts receivable, net 3,422 3,523
Inventory 3,897 3,488
Prepaid expenses and other assets 2,326 1,506
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Total current assets 40,320 43,983
Property, plant and equipment, net 29,518 24,334
Investments and other assets 578 574
Goodwill, net 27,574 27,574
Intangibles, net 1,051 1,147
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Total assets $ 99,041 $ 97,612
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 232 $ 232
Accounts payable 5,721 3,996
Accrued expenses 4,224 3,575
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Total current liabilities 10,177 7,803
Refundable deposit 23,314 22,876
Long-term debt 6,796 6,868
Deferred revenues 101 117
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40,388 37,664
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Mandatorily redeemable convertible Preferred Stock:
Series 2 mandatorily redeemable convertible Preferred Stock, $0.01 par
value 75,000 shares outstanding at March 31, 2002,
and December 31, 2001, redeemable at $100 per share 7,500 7,500
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7,500 7,500
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Stockholders' equity:
Redeemable convertible Preferred Stock - -
Common stock, $0.01 par value, 75,000,000 shares authorized and
47,216,059 and 46,680,047 shares issued and outstanding
at March 31, 2002, and December 31, 2001, respectively 472 466
Additional paid-in capital 126,957 122,957
Unearned compensation (553) (673)
Accumulated deficit (75,723) (70,302)
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Total stockholders' equity 51,153 52,448
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Total liabilities and stockholders' equity $ 99,041 $ 97,612
======== ========
The accompanying notes are an integral part of these financial statements.
IMPAX LABORATORIES, INC.
STATEMENTS OF OPERATIONS
(unaudited)
(dollars in thousands, except share and per share data)
Three Months Ended
March 31,
-------------------
2002 2001
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Net sales $ 3,432 $ 1,772
Cost of sales 3,139 2,276
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Gross margin (loss) 293 (504)
Research and development 2,890 2,595
Less: Teva reimbursements (166) -
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Research and development, net 2,724 2,595
Selling 658 317
General and administrative* 2,170 2,159
Other operating income (expense), net (30) 25
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Net loss from operations (5,289) (5,550)
Interest income 235 262
Interest expense** (367) (50)
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Net loss $ (5,421) $ (5,338)
=========== ============
Net loss per share (basic and diluted) $ (0.12) $ (0.16)
=========== ============
Weighted average common shares outstanding 46,812,977 33,951,876
=========== ============
* Includes amortization of intangibles of $96K in the quarter ended March 31,
2002, and amortization of intangibles and goodwill of $972K in the quarter
ended March 31, 2001.
** The total interest of $539K for the quarter ended March 31, 2002, which was
reduced by $172K in capitalized interest, included interest of $438K on
refundable deposit from Teva.
The accompanying notes are an integral part of these financial statements.
IMPAX LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
Three Months Ended
March 31,
-------------------
2002 2001
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Cash flows from operating activities:
Net loss $ (5,421) $ (5,338)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization 512 1,334
Non-cash compensation charge (warrants and options) 120 115
Change in assets and liabilities:
Accounts receivable 101 (708)
Inventory (409) 680
Prepaid expenses and other assets (824) (32)
Accounts payable and other liabilities 2,796 (586)
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Net cash used in operating activities (3,125) (4,525)
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Cash flows from investing activities:
Purchases of property and equipment (5,600) (78)
Sale and maturities of short term investments 11,647 4,906
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Net cash provided by investing activities 6,047 4,828
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Cash flows from financing activities:
Notes payable borrowings (repayments) - (903)
Repayment of long-term debt (72) (35)
Proceeds from sale of common stock 3,750 -
Proceeds from issuance of common stock (upon exercise of
stock options and warrants) 256 124
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Net cash provided by financing activities 3,934 (814)
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Net increase in cash and cash equivalents 6,856 (511)
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Cash and cash equivalents, beginning of the quarter $ 15,044 $ 11,448
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Cash and cash equivalents, end of the quarter $ 21,900 $ 10,937
======== ========
Cash paid for interest $ 101 $ 50
======== ========
The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
Three Months Ended
March 31, 2002
Note 1. The financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations; however, the Company believes that the disclosures are adequate to
make the information presented not misleading. It is suggested that these
financial statements be read in conjunction with the financial statements and
the notes thereto included in the Company's latest annual report on Form 10-K.
The results of operations for the three months ended March 31, 2002, are not
necessarily indicative of the results of operations expected for the year ending
December 31, 2002.
Impax Laboratories, Inc. ("IMPAX", "we" or "the Company") is the result of a
business combination on December 14, 1999, of Impax Pharmaceuticals, Inc., a
privately held drug delivery company, and Global Pharmaceutical Corporation
("Global"), a specialty generic pharmaceutical company.
Impax Pharmaceuticals, Inc. was originally organized on September 27, 1994, as a
California corporation. Global was formed in April 1993 to acquire the assets
and liabilities of Richlyn Laboratories, Inc. Global commenced operations and
began shipping products in September 1997.
The Company's main business is the development, manufacturing and marketing of
specialty prescription pharmaceutical products utilizing its own formulation
expertise and unique drug delivery technologies. The Company is currently
marketing twenty-one products, has fifteen applications under review with the
Food and Drug Administration (FDA), nine of these filings being made under
Paragraph IV of the Hatch-Waxman Amendments, one for a central nervous system
(CNS) brand product. The Company has approximately seventeen additional products
under development.
We have experienced, and expect to continue to experience, operating losses and
negative cash flow from operations and our future profitability is uncertain. We
do not know whether or when our business will ever be profitable or generate
positive cash flow, and our ability to become profitable or obtain positive cash
flow is uncertain. We have generated minimal revenues to date and have
experienced operating losses and negative cash flow from operations since our
inception. As of March 31, 2002, our accumulated deficit was $75,723,000 and we
had outstanding indebtedness in an aggregate principal amount of $30,342,000. To
remain operational, we must, among other things:
o continue to obtain sufficient capital to fund our operations;
o obtain from the FDA approval for our products;
o prevail in patent infringement litigation in which we are involved;
o successfully launch our new products; and
o comply with the many complex governmental regulations that deal with
virtually every aspect of our business activities.
We expect to incur significant operating expenses, particularly research and
development and sales and marketing expenses, for the foreseeable future in
order to execute our business plan. We, therefore, anticipate that such
operating expenses, as well as planned capital expenditures, will constitute a
material use of our cash resources.
Although our existing cash, cash equivalents, and short-term investments are
expected to decline during 2002, we believe that our existing balances, together
with the proceeds from an anticipated $3,750,000 purchase of our equity by a
subsidiary of Teva Pharmaceutical Industries, Ltd. in June 2002, will be
sufficient to meet our operational plan for at least the next 12 months. We may,
however, seek additional financing in order to primarily fund our business plan
in the brand name pharmaceutical area. During 2002, we intend to negotiate for
the acquisition of a revolving line of credit to partially fund our working
capital requirements. However, we may be unable to obtain a new revolving line
of credit on terms acceptable to us, or at all.
To date, the Company has funded its research and development and other operating
activities through equity and debt financings.
Note 2. The major highlights of the quarter ended March 31, 2002, operational
activity included the following:
o In February 2002, the FDA tentatively approved the Company's ANDA for a
generic version of Tricor(R) (Fenofibrate), Micronized. Tricor(R) is
marketed by Abbott Laboratories ("Abbott"). The FDA approval covers 67mg,
134mg, and 200mg capsules and is contingent upon the earlier of (1) the
settlement of pending patent infringement litigation brought by Abbott
against IMPAX, or (2) the expiration of the 30 month stay process under the
Hatch-Waxman Amendments, and the expiration of any generic marketing
exclusivity. Final approval is also dependent upon FDA's evaluation of any
new information it receives subsequent to this tentative approval.
o In February 2002, the FDA accepted our filing of an ANDA for a generic
version of Allegra-D(R) (Fexofenadine HCl/Pseudoephedrine HCl) Extended
Release 60mg/120mg Tablets (Impax's eighth Paragraph IV filing). In March
2002, Aventis Pharmaceuticals Inc., which markets Allegra-D(R) for the
relief of symptoms associated with seasonal rhinitis in adults and children
12 years of age and older, filed a lawsuit against us in the United Stated
District Court in Delaware alleging patent infringement related to our
subject filing. U.S. sales of Allegra-D(R) Extended Release Tablets were
over $350 million in 2001.
o Also in February 2002, the FDA accepted our filing of an ANDA for a generic
version of Oxycontin(R) (Oxycodone HCl) Extended Release 80mg Tablets
(Impax's ninth Paragraph IV filing). Purdue Pharma markets Oxycontin(R) for
the management of moderate-to-severe pain. U.S. sales of Oxycontin(R)
Extended Release 80mg Tablets were over $400 million in 2001.
o In March 2002, under the terms of a strategic alliance announced in June
2001, we issued 419,933 shares of IMPAX common stock to a subsidiary of
Teva Pharmaceutical Industries Ltd., for net proceeds to the Company of
approximately $3.75 million.
o Also in March 2002, the FDA approved our ANDA to market Fludrocortisone
Acetate Tablets, a generic version of Florinef(R), which is marketed by
Monarch Pharmaceuticals, a division of King Pharmaceuticals, as partial
replacement for primary and secondary adrenocortical insufficiency in
Addison's disease. Florinef(R) sales in 2001 were approximately $27
million. Our Global Pharmaceuticals division began marketing the product
immediately.
Note 3. In April 2002, we submitted to the FDA our first application for a CNS
brand product in a form of an ANDA.
Note 4. In April 2002, Purdue Pharma L.P. filed a lawsuit against us alleging
patent infringement related to IMPAX's filing of an ANDA for a generic version
of Oxycontin(R)(Oxycodone HCl) Extended Release 80mg Tablets. U.S. sales of
Oxycontin(R)Extended Release 80mg Tablets were over $400 million in 2001.
Note 5. The Company adopted SFAS 141 and 142 effective January 1, 2002. In
adopting SFAS 142, the Company no longer amortizes goodwill. The Company
recorded $876,000 of goodwill amortization in the first quarter of last year, or
the equivalent of $0.03 per (basic and diluted) share. The Company's net loss
and net loss per share would have been $4,462,000 and $0.13 per (basic and
diluted) share, respectively, in the prior year's first quarter had SFAS 142
been adopted.
Note 6. The Company reports both basic earnings per share, which is based on the
weighted-average number of common shares outstanding, and diluted earnings per
share, which is based on the weighted-average number of common shares
outstanding and all dilutive potential common shares outstanding. Because the
Company had net losses in each of the years presented, only the weighted average
of common shares outstanding has been used to calculate both basic earnings per
share and diluted earnings per share, as inclusion of the potential common
shares would be anti-dilutive.
Mandatorily redeemable convertible stock of 1,500,000 shares (on an as-converted
basis), warrants to purchase 2,773,266 shares, and stock options to purchase
4,197,119 shares were outstanding at March 31, 2002, but were not included in
the calculation of diluted earnings per share, as their effect would be
anti-dilutive.
Note 7. Our inventory consists of the following:
March 31, December 31,
2002 2001
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(in thousands)
Raw materials......................................................... $ 2,256 $ 2,004
Finished goods........................................................ 1,883 1,634
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4,139 3,638
Less: Reserve for obsolete inventory and net realizable value 242 150
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$ 3,897 $ 3,488
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information in this report contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such statements are
based upon current expectations that involve risks and uncertainties. Any
statements contained herein that are not statements of historical facts may be
deemed to be forward-looking statements. For example, words such as "may,"
"will," "should," "estimates," "predicts" "potential," "continue," "strategy,"
"believes," "anticipates," "plans," "expects," "intends," and similar
expressions are intended to identify forward-looking statements. Our actual
results and the timing of certain events may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause or
contribute to such a discrepancy include, but are not limited to, risks and
uncertainties, including the difficulty of predicting FDA filings and approvals,
acceptance and demand for new pharmaceutical products, the impact of competitive
products and pricing, new product development and launch, reliance on key
strategic alliances, uncertainty of patent litigation filed against us,
availability of raw materials, the regulatory environment, fluctuations in
operating results and other risks detailed from time to time in the Company's
filings with the Securities and Exchange Commission.
General
Impax Laboratories, Inc. (referred to herein as "we") was formed through a
business combination on December 14, 1999 between Impax Pharmaceuticals, Inc., a
privately held drug delivery company, and Global Pharmaceutical Corporation, a
generic pharmaceutical company. Impax Pharmaceuticals, Inc. merged with and into
Global, with Impax stockholders receiving 3.3358 shares of Global common stock
for each share of Impax Pharmaceuticals, Inc. At the conclusion of the merger,
Impax Pharmaceuticals, Inc. stockholders held over 70% of the combined company.
For accounting purposes, the merger has been treated as a recapitalization of
Impax Pharmaceuticals, Inc. with Impax Pharmaceuticals, Inc. deemed the acquirer
of Global in a reverse acquisition. As a reverse acquisition, our historical
operating results prior to the merger are those of Impax Pharmaceuticals, Inc.
and only include the operating results of Global after the merger. In connection
with the merger, Global changed its name to Impax Laboratories, Inc.
We are a technology-based, specialty pharmaceutical company applying formulation
and development expertise, as well as our drug delivery technology, to the
development of controlled-release and niche generics, in addition to the
development of branded products. We currently market twenty-one generic products
and have fifteen ANDA filings pending at the FDA that address more than $8.0
billion in U.S. branded product sales in 2001. Nine of these filings were made
under Paragraph IV of the Hatch-Waxman Amendments and one was for a central
nervous system brand product. We have approximately seventeen additional
products under development.
Results of Operations
We have incurred net losses in each year since our inception. We had an
accumulated deficit of $75,723,000 at March 31, 2002.
THREE MONTHS ENDED MARCH 31, 2002, COMPARED TO THREE MONTHS ENDED MARCH 31, 2001
Overview
The net loss for the three months ended March 31, 2002, was $5,421,000 as
compared to $5,338,000 for the three months ended March 31, 2001. The increase
in the net loss was primarily due to higher research and development expenses
and infrastructure costs related to the new manufacturing facility in Hayward,
California, and expansion of our sales and marketing capabilities, partially
offset by higher revenues.
Revenues
The net sales for the three months ended March 31, 2002, were $3,432,000 as
compared to $1,772,000 for the same period in 2001. The higher sales were
primarily due to the sale of two newly approved products: Terbutaline Sulfate
(launched in June 2001) and Fludrocortisone Acetate Tablets (launched in March
2002).
Cost of Sales
The cost of sales for the three months ended March 31, 2002, was $3,139,000 as
compared to $2,276,000 for the same period in 2001. The overall increase in cost
of sales was primarily due to increased net sales. Included in the cost of sales
are startup costs of the new manufacturing facility in Hayward, California, and
fixed, unabsorbed costs of the excess plant capacity in Philadelphia,
Pennsylvania.
Gross Margin
Due primarily to higher net sales which offset the increase in the
infrastructure costs related to the new manufacturing facility in Hayward,
California, we realized a gross margin of $293,000 for the three months ended
March 31, 2002, as compared to a negative gross margin of $504,000 for the same
period in 2001.
Research and Development Expenses
The research and development expenses for the three months ended March 31, 2002,
were $2,890,000 less reimbursement of $166,000 by a subsidiary of Teva
Pharmaceutical Industries, Ltd. ("TEVA") under the strategic alliance agreement
signed in June 2001, as compared to $2,595,000 for the same period in 2001. The
increase of approximately 11% over 2001 was primarily due to higher personnel
costs.
Selling Expenses
The selling expenses for the three months ended March 31, 2002, were $658,000 as
compared to $317,000 for the same period in 2001. The increase in selling
expenses as compared to 2001 was primarily due to additional personnel,
advertising, and freight costs.
General and Administrative Expenses
The general and administrative expenses for the three months ended March 31,
2002, were $2,170,000 as compared to $2,159,000 for the same period in 2001. The
increase in 2002 general and administrative expenses as compared to 2001 was
primarily due to higher personnel costs, professional fees, insurance premiums,
and software expenses, partially offset by lower amortization expense since we
are not amortizing goodwill in 2002. The amortization of goodwill for the three
months ended March 31, 2002, was zero as compared to approximately $876,000 for
the same period in 2001.
Interest Income
Interest income for the three months ended March 31, 2002, was $235,000 as
compared to $262,000 for the same period in 2001, primarily due to lower
interest rates.
Interest Expense
Interest expense for the three months ended March 31, 2002, was $539,000 as
compared to $50,000 for the same period in 2001, primarily due to the $438,000
interest accrued on the refundable deposit from Teva and the interest payable on
the two Cathay Bank loans. The 2002 interest expense excludes $172,000 in
capitalized interest related to the renovation of the San Antonio Street -
Hayward, California building.
Net Loss
The net loss for the three months ended March 31, 2002, was $5,421,000 as
compared to $5,338,000 for the same period in 2001 The slight increase in net
loss was primarily due to higher research and development and infrastructure
costs related to the new manufacturing facility in Hayward, California, and the
expansion of our sales and marketing capabilities, partially offset by higher
net sales. Our 2002 net loss was favorably impacted by the absence of goodwill
amortization expense of approximately $876,000.
Liquidity and Capital Resources
As of March 31, 2002, we had $21,900,000 in cash and cash equivalents, and
$8,775,000 in short-term investments. The short-term investments mature within a
year and we believe that the market risk arising from holding these investments
is not material.
During the three months ended March 31, 2002, we received $3,750,000 in proceeds
from the sale of 419,333 shares of common stock to TEVA, pursuant to our
strategic alliance agreement announced in June 2001.
During the three months ended March 31, 2002, the sale and maturities of
short-term investments of $11,647,000 funded the net capital expenditures of
approximately $5,600,000 and the net cash used in operating activities of
$3,125,000.
The net cash provided by financing activities for the three months ended March
31, 2002, was approximately $3,934,000 consisting of the $3,750,000 sale of
common stock to TEVA, and proceeds from issuance of common stock upon exercise
of stock options and warrants.
We have no interest rate or derivative hedging contracts and material foreign
exchange or commodity price risks. We are also not party to any
off-balance-sheet arrangements, other than operating leases.
We expect to incur significant operating expenses, particularly research and
development and sales and marketing expenses, for the foreseeable future in
order to execute our business plan. We, therefore, anticipate that such
operating expenses, as well as planned capital expenditures, will constitute a
material use of our cash resources.
We anticipate obtaining, during 2002, a revolving line of credit to partially
fund our working capital requirements. However, we may be unable to obtain a new
revolving line of credit on terms acceptable to us, or at all.
Although our existing cash, cash equivalents, and short-term investments are
expected to decline during 2002, we believe that our existing balances, together
with the proceeds from an anticipated $3,750,000 purchase of our equity by TEVA
in June 2002, will be sufficient to meet our operational plan for at least the
next 12 months. We may, however, seek additional financing in order to primarily
fund our business plan in the brand name pharmaceutical area.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's investment portfolio consists of cash and cash equivalents and
marketable securities stated at cost which approximates market value. The
primary objective of the Company's investment activities is to preserve
principal while at the same time maximizing yields without significantly
increasing risk. To achieve this objective, the Company maintains its portfolio
in a variety of high credit quality securities, including U.S. Government
securities, treasury bills, short-term commercial paper, and highly rated money
market funds. One hundred percent of the Company's portfolio matures in less
than one year. The carrying value of the investment portfolio approximates the
market value at March 31, 2002. The Company's debt instruments at March 31,
2002, are subject to fixed interest rates and principal payments. We believe
that the fair value of our fixed rate long-term debt and refundable deposit
approximates their carrying value of approximately $30 million at March 31,
2002. While changes in market interest rates may affect the fair value of our
fixed rate long-term debt, we believe the effect, if any, of reasonably possible
near-term changes in the fair value of such debt on the Company's financial
statements will not be material.
We do not use derivative financial instruments and have no material foreign
exchange or commodity price risks.
PART II - OTHER INFORMATION
----------------------------
ITEM 1. LEGAL PROCEEDINGS
Patent Litigation
There has been substantial litigation in the pharmaceutical, biological, and
biotechnology industries with respect to the manufacture, use and sale of new
products that are the subject of conflicting patent rights. Most of the brand
name controlled-release products for which we are developing generic versions
are covered by one or more patents. Under the Hatch-Waxman Amendments, when a
drug developer files an ANDA for a generic drug, and the developer believes that
an unexpired patent which has been listed with the FDA as covering that brand
name product will not be infringed by the developer's product or is invalid or
unenforceable, the developer must so certify to the FDA. That certification must
also be provided to the patent holder, who may challenge the developer's
certification of non-infringement, invalidity or unenforceability by filing a
suit for patent infringement within 45 days of the patent holder's receipt of
such certification. If the patent holder files suit, the FDA can review and
approve the ANDA, but is prevented from granting final marketing approval of the
product until a final judgment in the action has been rendered or 30 months from
the date the certification was received, whichever is sooner. Should a patent
holder commence a lawsuit with respect to an alleged patent infringement by us,
the uncertainties inherent in patent litigation make the outcome of such
litigation difficult to predict. The delay in obtaining FDA approval to market
our product candidates as a result of litigation, as well as the expense of such
litigation, whether or not we are successful, could have a material adverse
effect on our results of operations and financial position. In addition, there
can be no assurance that any patent litigation will be resolved prior to the
30-month period. As a result, even if the FDA were to approve a product upon
expiration of the 30-month period, we may be prevented from marketing that
product if patent litigation is still pending.
Litigation has been filed against us in connection with eight of our Paragraph
IV filings. The outcome of such litigation is difficult to predict because of
the uncertainties inherent in patent litigation.
Prilosec (Omeprazole) Litigation
In May 2000, AstraZeneca AB and four of its related companies filed suit against
us in the United States District Court in Delaware, claiming our submission of
an ANDA for Omeprazole Delayed Release Capsules, 10mg and 20mg, constitutes
infringement of six U.S. patents relating to the AstraZeneca Prilosec product.
In February 2001, AstraZeneca filed a second action against us in the same court
making the same claim against our Omeprazole Delayed Release Capsules, 40mg.
These actions seek an order enjoining us from marketing Omeprazole Delayed
Release Capsules, 10mg, 20mg and 40mg, until February 4, 2014, and awarding
costs and attorney fees. There is no claim for damages. AstraZeneca has filed
essentially the same lawsuit against nine other generic pharmaceutical companies
(Andrx, Genpharm, Cheminor, Kremers, LEK, Eon, Mylan, Apotex and Zenith).
Due to the number of these cases, a multi-district litigation proceeding, In re
Omeprazole MDL-1291, has been established to coordinate pretrial proceedings. We
were added to the multi-district proceeding in September 2000. In the
multi-district litigation, the district court ruled that one of the six
patents-in-suit is not infringed by the sale of a generic Omeprazole product and
another patent-in-suit is invalid. These rulings effectively eliminate two of
the six patents from the litigation. In March, 2000, AstraZeneca advised all of
the defendants in the multidistrict litigation that AstraZeneca added four new
patents to the FDA's Orange Book as Omeprazole patents. We filed Paragraph IV
Certifications asserting that our Omeprazole Delayed Release Capsules will not
infringe valid claims of the four newly listed patents. The forty-five (45) day
period for AstraZeneca to file suit against Impax under the four newly listed
patents expired on August 6, 2001. AstraZeneca did not file suit on these
patents against us or any other generic pharmaceutical company that filed
Paragraph IV Certifications for these patents.
Presently, we and five of the other generic company defendants are awaiting the
outcome of the trial involving AstraZeneca and the first four generic company
defendants who were sued a year earlier than us and the other generic company
defendants. The trial began in December 2001 and is expected to lead to a
decision by the court in the second quarter of this year. Once this first trial
is concluded, discovery and other pretrial matters will proceed with respect to
us and the other remaining defendants.
We believe we have defenses to the claims made by AstraZeneca in the lawsuit
based upon non-infringement and invalidity of the patents-in-suit.
Tricor (Fenofibrate) Litigation
In 2000, Abbott Laboratories, Fournier Industrie et Sante, and a related company
filed two actions against us in the United States District Court in Chicago,
Illinois, claiming that our submission of an ANDA for Fenofibrate (Micronized)
Capsules, 67mg and 134mg constitutes infringement of a U.S. patent owned by
Fournier and exclusively licensed to Abbott, relating to Abbott's Tricor
product. In December 2000, Abbott and Fournier filed a third action against us
in the same court making the same claims against our 200mg Fenofibrate
(Micronized) Capsules. These actions seek an injunction preventing us from
marketing our fenofibrate products until January 19, 2009, and an award of
damages for any commercial manufacture, use or sale of our fenofibrate products,
together with costs and attorney fees. Abbott and Fournier previously filed
essentially the same lawsuit against Novopharm and Teva, also in the United
States District Court in Chicago.
We filed an answer to Abbott's complaint in April 2001. Our answer asserts that
Abbott's patent is invalid and not enforceable against us. The parties in this
matter have conducted discovery but the court has not set a trial date. We
believe we have defenses based upon non-infringement, invalidity and
unenforceability.
In a related litigation concerning the same patent, the U.S. District Court of
Illinois granted, in March 2001, summary judgment of non-infringement regarding
Teva's ANDA for Fenofibrate (Micronized) Capsules.
On April 23, 2002, we filed a Motion for Summary Judgment to finally resolve
this litigation without the need for a trial. The Motion is based in part on the
recent decision won by Teva.
Wellbutrin SR and Zyban (Bupropion) Litigation
In October 2000, Glaxo Wellcome Inc. filed a lawsuit against us in the United
States District Court, Northern District of California, claiming that our
submission of two ANDAs for Bupropion Hydrochloride constitutes infringement of
several patents owned by Glaxo relating to Glaxo's Wellbutrin SR and Zyban
products. The action seeks to enjoin us from receiving approval of our
application prior to the expiration date of Glaxo's patent, award Glaxo
preliminary and final injunctions enjoining us from continued infringement of
its patent, and award further relief as the Court may deem proper. Glaxo has
filed suit against Andrx, Watson and EON (only with regard to Wellbutrin SR) for
similar ANDA filings. We filed our answer and counterclaim to Glaxo's complaint
in November 2000. We filed a motion for Summary Judgment, which the court heard
in November 2001. To date, the Court has not ruled on our motion for Summary
Judgment nor entered a final date for the end of discovery. We believe that we
have strong defenses to the claims made by Glaxo in the lawsuit based on
non-infringement and invalidity. In related litigation concerning the same
patents, a federal judge in Florida has ruled that Andrx Pharmaceuticals does
not infringe the Glaxo patents covering Bupropion. Also, Glaxo has decided to
settle its Bupropion litigation with Watson Pharmaceuticals on terms that are
confidential.
Claritin (Loratadine) Litigation
In January 2001, Schering-Plough Corporation ("Schering") sued us in the United
States District Court for the District of New Jersey, alleging that our proposed
loratadine and pseudoephedrine sulfate 24-hour extended release tablets,
containing 10mgs of loratadine and 240mgs of pseudoephedrine sulfate, infringe
their U.S. Patent Nos. 4,659,716 and 5,314,697. Schering has sought to enjoin us
from obtaining FDA approval to market 24-hour extended release tablets until the
5,314,697 patent expires in 2012. Schering has also sought monetary damages
should we use, sell, or offer to sell our loratadine product prior to the
expiration of this patent.
We filed our answer to the complaint denying that we infringe any valid and/or
enforceable claim of their patents. Based in part on statements made by Schering
during the prosecution of its application for the 5,314,697 patent, we assert
that Schering should not succeed on its claims that our 24-hour product
infringes this patent. Additionally, we do not believe that Schering's claims
related to its 4,659,716 patent, which relate to an active metabolite of
loratadine produced in the body upon ingestion of loratadine, cover the generic
loratadine products.
In January 2001, Schering sued us in the United States District Court for the
District of New Jersey, alleging that our proposed orally-disintegrating
loratadine tablets, or reditabs, infringe claims of the 4,659,716 patent.
Schering has sought to enjoin us from obtaining approval to market our reditab
products until this patent expires in 2004. Schering has also sought monetary
damages should we use, sell, or offer to sell our loratadine product prior to
the expiration of their patent. We filed the answer to the complaint denying
that we infringe any valid and/or enforceable claim of their patent.
In February 2001, Schering sued us in the United States District Court for the
District of New Jersey, alleging that our proposed loratadine and
pseudoephedrine sulfate 12-hour extended release tablets, containing 5mgs of
loratadine and 120mgs of pseudoephedrine sulfate, infringes claims of the
4,659,716 patent. Schering has sought to enjoin us from obtaining approval to
market our 12-hour extended release tablets until this patent expires in 2004.
Schering has also sought monetary damages should we use, sell, or offer to sell
our loratadine product prior to the expiration of their patent. We filed the
answer to the complaint denying that we infringe any valid and/or enforceable
claim of their 4,659,716 patent.
These three cases have been consolidated for the purposes of discovery with
seven other cases in the District of New Jersey, in which Schering sued other
companies who sought FDA approval to market generic loratadine products. The
parties have concluded discovery related to the 4,659,716 patent. The parties
continue discovery related to the 5,314,697 patent and the court has not yet
entered a schedule for completion of this discovery.
Numerous Motions for Summary Judgment are pending.
On March 8, 2002, Schering announced that it had filed with the FDA an
application to switch all of the Claritin formulations from prescription to
over-the-counter ("OTC"). If Schering's application is approved by the FDA, we
may not be able to market our generic versions of the Claritin formulation as
prescription drugs. On December 17, 2001, we entered into an agreement granting
to Novartis exclusive rights to market an OTC generic Claritin (loratadine)
which we will supply to Novartis. We are also continuing discussions with
potential OTC partners for two additional generic formulations of Claritin
(loratadine).
Allegra-D(R) (Fexofenadine) Litigation
In March 2002, Aventis Pharmaceuticals, Inc. ("Aventis") filed a lawsuit against
us in the United States District Court in Delaware claiming our submission of an
ANDA for a generic version of Allegra-D(R) (Fexofenadine HCl/Pseudoephedrine
HCl) Extended Release 60mg/120mg Tablets constitutes infringement of
Allegra-D(R) patents. We have yet to file an answer in the litigation and no
discovery has been scheduled. We intend to vigorously defend our product and
believe that we have strong defenses to the claims made by Aventis in the
lawsuit.
Oxycontin(R) (Oxycodone HCl) Litigation
In April 2002 Purdue Pharma L.P. filed a lawsuit against us in the United States
Southern District Court of New York alleging patent infringement related to our
filing of an ANDA for a generic version of Oxycontin(R) (Oxycodone HCl) Extended
Release 80mg Tablets. We have yet to file an answer in the litigation and no
discovery has been scheduled. We intend to vigorously defend our product and
believe that we have strong defenses to the claims made by Purdue Pharma in the
lawsuit.
Other than the patent litigations described above, we are not aware of any other
material pending or threatened legal actions, private or governmental, against
us.
Insurance
As part of our patent litigation strategy, we have obtained up to $7 million of
patent infringement liability insurance from American International Specialty
Line Company (an affiliate of AIG International). This litigation insurance
covers us against the costs associated with patent infringement claims made
against us relating to seven of the nine ANDAs we filed under Paragraph IV of
the Hatch-Waxman Amendments. At present, we believe this insurance coverage is
sufficient for our legal defense costs related to these seven ANDAs. However, we
do not believe that this type of litigation insurance will be available to us on
acceptable terms for our other current or future ANDAs.
Product liability claims by customers constitute a risk to all pharmaceutical
manufacturers. We carry $10 million of product liability insurance for our own
manufactured products. This insurance may not be adequate to cover any product
liability claims to which we may become subject.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) None.
(b) None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IMPAX LABORATORIES, INC.
By: /s/ BARRY R. EDWARDS (Principal Executive Officer)
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Co-Chief Executive Officer
By: /s/ CORNEL C. SPIEGLER (Principal Financial and Accounting Officer)
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Chief Financial Officer