Impax (IPXL) Stock Declines On Deal To Buy Generic Products

Impax Laboratories, Inc. (NASDAQ:IPXL) entered into definitive agreements with Teva Pharmaceutical Industries Ltd. (NYSE:TEVA) and Allergan plc (NYSE:AGN) related to the acquisition of several generic products across solid oral, inhalable, injectable and topical dosage forms as well as the return of Impax’s rights to its pending abbreviated new drug application (ANDA) for the generic version of Concerta (methylphenidate hydrochloride). The deal will see Impax shelling out $586 million.

Once the deal closes, potentially by the end of this month, Impax will add 18 generic products to its portfolio including 15 currently marketed products, one yet-to-be launched but approved generic product, one pending ANDA and one in development. The portfolio also includes two approved strengths and 1 pipeline strength of currently marketed products.

Meanwhile, Impax will regain full commercial rights to its pending ANDA for the Concerta generic that was previously partnered with Teva.

Immediately Accretive to Earnings

Impax updated its financial guidance for 2016 and said that the deal will be immediately accretive to earnings. The updated guidance includes the impact of the deal, current prescription trends, pricing levels, inventory levels, and the anticipated timing of future product launches and events.

Impax expects to launch 12 to 14 generic products this year including 6 to 8 new generic product approvals.

The addition of the 15 marketed products is currently expected to boost second half 2016 revenues by about $80 million and is expected to offset the revenue decline from recent competition for Impax’s diclofenac sodium gel and metaxalone products.

While the company continues to expect revenue growth of at least 15% in 2016, earnings are now expected to grow at least 20% (up from the earlier guidance of earnings growth of at least 10%).

Gross margins are now expected in the low 50% range compared to the earlier guidance of approximately 50%. Impax maintained its R&D and SG&A guidance of $100 million - $105 million (about 10% of revenues) and $200 million - $210 million (about 20% - 21% of revenues), respectively.

However, interest expense is now expected to be about $20 million instead of the previously guided $12 million.

Why Did the Shares Decline?

Despite the raised earnings outlook for 2016, Impax’s shares declined 11.5% following the announcement of the deal reflecting investor concerns regarding the lack of visibility on the products covered by the deal as well as concern regarding the performance of the existing business especially accelerated pricing erosion for key generic products - diclofenac sodium gel and metaxalone.

IMPAX LABORATRS Price

IMPAX LABORATRS Price | IMPAX LABORATRS Quote

However, we note that the deal is expected to expand Impax’s portfolio of difficult-to-manufacture or limited-competition products. According to IMS Health, the pending and development pipeline programs are estimated to represent U.S. brand and generic sales of about $3.1 billion for the 12 months ending Mar 2016. Meanwhile, the to-be acquired marketed generic products generated sales of about $150 million in 2015.

Impax is a Zacks Rank #3 (Hold) stock. Amphastar Pharmaceuticals, Inc. (NASDAQ:AMPH) is a better-ranked stock in the generics segment with a Zacks Rank #1 (Strong Buy).