Impax Labs: Strong Balance Sheet, Focused R&D

Impax Labs (IPXL) is a small-cap specialty pharma which includes a generic drug division under the Global Pharmaceuticals label and a branded division with R&D operations under the Impax Pharmaceuticals name. The Company recently re-listed on the Nasdaq after previously trading on the pink sheets so many investors are unaware of IPXL and its excellent growth prospects as a smaller version of Teva Pharma (TEVA) with a mix of generic and branded product divisions.

Impax differentiates itself in the commoditized generic drug space through carefully chosen opportunities with minimal competition (i.e. first-to-file and first-to-market opportunities) by leveraging its expertise and technology in the production of controlled release medications, which also applies to the brand division. The Company employs a total of 183 R&D experts (who have a track record of 53 approved ANDAs and 17 NDAs), divided between the generic (137) and brand (46) product divisions.

Despite its much smaller size in terms of market cap ($331M), Impax has achieved 13 controlled-release product approvals since 2001 as compared to 17 for Mylan (MYL) ($4.3B market cap), 15 for Watson Pharma (WPI) ($3.1B), and 24 for TEVA ($39B market cap). Impax filed nine new ANDAs during 2008, with three additional undisclosed products (including one potential first-to-file opportunity).

The pipeline for Impax includes 25 pending ANDAs and 42 compounds which are under development, which represent $30B in sales in the U.S. market alone. The accompanying table highlights the Company's disclosed and pending ANDAs for brand drugs with over $12B in sales. Genzyme (GENZ) has filed a patent infringement lawsuit against Impax related to its accepted ANDA filing with the FDA and subsequent paragraph IV certification for Renvela (sevelamer) tablets, which represents a patent challenge to GENZ.

The brand division of Impax is focused on 505(b)(2) product opportunities, which represent improved formulations of existing drugs. The Company is focused on developing improved treatments for central nervous system (CNS) conditions with an average development time of 4-6 years and cost of $40-60M.

Today, IPXL announced the start of a Phase 3 clinical trial (APEX-PD) for IPX066 in patients with mild symptoms of Parkinson's Disease based on encouraging interim data from a Phase 2 trial. Impax plans to file a NDA for IPX066 by 4Q11 and two Phase 3 trials will be required for the compound.

Impax also clarified the FDA requirement for pediatric studies of its investigational medication IPX056, which is an extended-release formulation of baclofen. Baclofen is a widely used muscle relaxant available in generic forms, but IPXL is looking to improve patient convenience through less frequent dosing in their proprietary formulation.

Instead of being required to conduct pediatric studies prior to approval, the FDA will allow IPXL to submit a proposed pediatric development plan for IPX056 with the NDA in order to avoid delaying the review and approval of IPX056 for adults. IPXL plans to finalize the second Phase 3 clinical trial evaluating IPX056 in the treatment of spasticity in adult patients with Multiple Sclerosis, with a goal of starting the trial in late 2009 or early 2010 with a NDA filing expected during 1H12.

Impax ended 2008 with a solid balance sheet that is the strongest in the Company's history and includes about $99M in cash/equivalents and $69M in debt reduction for the year. The 2009 outlook is forecasting gross margins around 50% of total revenue, total R&D of $64M ($40M generic + $24M brand), $10M for litigation expenses, $39M for SG&A costs, a third consecutive year of generating positive cash flow from operations, and 8-10 new ANDAs filed by the generic Global Pharma division.

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