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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended
March 31, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
from            to
 Commission file number: 000-27354
 Impax Laboratories, Inc.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    65-0403311(State or other jurisdiction of incorporation or
    
    (I.R.S. Employer Identification No.)organization)30831 Huntwood Avenue, Hayward, CA
    
    94544(Address of principal executive offices)
    
    (Zip Code)
 (510) 476 2000
 (Registrants telephone number, including area code)
  (Former name, former address and former fiscal year, if changed since last report)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer   þ
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



Impax Laboratories, Inc.
 INDEX
 PART I: FINANCIAL INFORMATIONItem 1:Financial StatementsConsolidated Balance Sheets as of March 31, 2009 (unaudited) and December 31, 2008
    
    
    1Consolidated Statements of Operations for each of the three months ended
March 31, 2009 and 2008 (unaudited)
    
    
    2Consolidated Statements of Cash Flows for each of the three months ended
March 31, 2009 and 2008 (unaudited)
    
    
    3Notes to Consolidated Financial Statements (unaudited)
    
    
    5Item 2:Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    43Item 3:Quantitative and Qualitative Disclosures About Market Risk
    
    
    65Item 4T:Controls and Procedures
    
    
    66PART II: OTHER INFORMATIONItem 1:Legal Proceedings
    
    
    67Item 1A:Risk Factors
    
    
    69Item 2:Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    70Item 3:Defaults Upon Senior Securities
    
    
    71Item 4:Submission of Matters to a Vote of Security Holders
    
    
    72Item 5:Other Information
    
    
    73Item 6:Exhibits
    
    
    74SIGNATURESEXHIBIT INDEXEX-10.1EX-31.1EX-31.2EX-32.1EX-32.2
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Impax Laboratories, Inc.
 
 CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
 March 31,
    
    
    December 31,2009
    
    
    2008(unaudited)
    
    
    (as adjusted)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    38,044
    
    
    $
    69,275Short-term investments
    
    
    60,311
    
    
    
    50,710Accounts receivable, net
    
    
    61,813
    
    
    
    43,306Inventory, net
    
    
    29,759
    
    
    
    32,305Current portion of deferred product manufacturing costs-alliance agreements
    
    
    14,136
    
    
    
    13,578Current portion of deferred income taxes
    
    
    21,607
    
    
    
    17,900Prepaid expenses and other current assets
    
    
    4,371
    
    
    
    9,298Total current assets
    
    
    230,041
    
    
    
    236,372Property, plant and equipment, net
    
    
    95,914
    
    
    
    95,629Deferred product manufacturing costs-alliance agreements
    
    
    94,839
    
    
    
    93,144Deferred income taxes, net
    
    
    51,871
    
    
    
    52,551Other assets
    
    
    11,892
    
    
    
    9,017Goodwill
    
    
    27,574
    
    
    
    27,574Total assets
    
    $
    512,131
    
    
    $
    514,287LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt, net
    
    $
    14,536
    
    
    $
    14,416Accounts payable
    
    
    11,795
    
    
    
    12,797Accrued expenses
    
    
    34,811
    
    
    
    41,360Current portion of deferred revenue-alliance agreements
    
    
    37,173
    
    
    
    35,015Current portion of accrued exclusivity period fee payments due
    
    
    3,000
    
    
    
    6,000Total current liabilities
    
    
    101,315
    
    
    
    109,588Long-term debt
    
    
    5,531
    
    
    
    5,990Deferred revenue-alliance agreements
    
    
    228,164
    
    
    
    225,804Other liabilities
    
    
    14,217
    
    
    
    13,255Total liabilities
    
    $
    349,227
    
    
    $
    354,637Commitments and contingencies (Note 18)Stockholders equity:Preferred Stock, $0.01 par value, 2,000,000 shares authorized,
0 shares outstanding at March 31, 2009 and December 31, 2008
    
    $
    
    
    
    $
    Common stock, $0.01 par value, 90,000,000 shares authorized and
60,793,195 and 60,135,686 shares issued at March 31, 2009
and December 31, 2008, respectively
    
    
    608
    
    
    
    602Additional paid-in capital
    
    
    212,867
    
    
    
    211,128Treasury stock-acquired as a result of achievement of milestone under
the Teva Agreement, 243,729 shares
    
    
    (2,157
    )
    
    
    (2,157
    )Accumulated other comprehensive loss
    
    
    (1,695
    )
    
    
    (995
    )Accumulated deficit
    
    
    (47,014
    )
    
    
    (49,233
    )Total Impax Laboratories, Inc. stockholders equity
    
    $
    162,609
    
    
    $
    159,345Noncontrolling interest
    
    
    295
    
    
    
    305Total stockholders equity
    
    
    162,904
    
    
    
    159,650Total liabilities and stockholders equity
    
    $
    512,131
    
    
    $
    514,287
  1




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Impax Laboratories, Inc.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except share and per share data)
 Three Months Ended March 31,2009
    
    
    2008(unaudited)
    
    
    (unaudited)(as adjusted)Revenues:Global product sales, net
    
    $
    39,121
    
    
    $
    22,979Private Label product sales
    
    
    1,297
    
    
    
    478Rx Partner
    
    
    10,736
    
    
    
    18,805OTC Partner
    
    
    1,858
    
    
    
    4,409Research Partner
    
    
    2,611
    
    
    
    Promotional Partner
    
    
    3,284
    
    
    
    3,252Other
    
    
    6
    
    
    
    7Total revenues
    
    
    58,913
    
    
    
    49,930Cost of revenues
    
    
    26,250
    
    
    
    23,378Gross profit
    
    
    32,663
    
    
    
    26,552Operating expenses:Research and development
    
    
    16,056
    
    
    
    13,339Patent litigation
    
    
    1,017
    
    
    
    1,701Selling, general and administrative
    
    
    11,455
    
    
    
    10,362Total operating expenses
    
    
    28,528
    
    
    
    25,402Income from operations
    
    
    4,135
    
    
    
    1,150Change in fair value of common stock purchase warrant
    
    
    
    
    
    
    44Other income (expense), net
    
    
    65
    
    
    
    61Interest income
    
    
    149
    
    
    
    1,537Interest expense
    
    
    (294
    )
    
    
    (1,764
    )Income before income taxes
    
    
    4,055
    
    
    
    1,028Provision for income taxes
    
    
    1,836
    
    
    
    568Net income
    
    $
    2,219
    
    
    $
    460Net Income per share:Basic
    
    $
    0.04
    
    
    $
    0.01Diluted
    
    $
    0.04
    
    
    $
    0.01Weighted average common shares outstanding:Basic
    
    
    59,711,133
    
    
    
    58,833,979Diluted
    
    
    60,222,215
    
    
    
    61,126,768
  2




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Impax Laboratories, Inc.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
 Three Months Ended March 31,2009
    
    
    2008(unaudited)
    
    
    (unaudited)(as adjusted)Cash flows from operating activities:Net income
    
    $
    2,219
    
    
    $
    460Adjustments
to reconcile net income to net cash used in
operating activities:Depreciation
    
    
    2,544
    
    
    
    2,174Amortization of discount and deferred financing costs
on the 3.5% Debentures
    
    
    150
    
    
    
    851Amortization of deferred financing costs on Wachovia
credit agreement
    
    
    
    
    
    
    37Bad debt expense
    
    
    23
    
    
    
    39Deferred income taxes
    
    
    (3,027
    )
    
    
    163Provision for uncertain tax positions
    
    
    218
    
    
    
    Deferred revenue  Rx Partners
    
    
    13,837
    
    
    
    57,149Deferred product manufacturing costs  Rx Partners
    
    
    (9,008
    )
    
    
    (10,887
    )Deferred revenue recognized  Rx Partners
    
    
    (10,736
    )
    
    
    (18,805
    )Amortization deferred product manufacturing costs  Rx Partners
    
    
    5,982
    
    
    
    7,454Deferred revenue  OTC Partners
    
    
    886
    
    
    
    5,166Deferred product manufacturing costs  OTC Partners
    
    
    (911
    )
    
    
    (5,150
    )Deferred revenue recognized  OTC Partners
    
    
    (1,858
    )
    
    
    (4,409
    )Amortization deferred product manufacturing costs  OTC Partners
    
    
    1,684
    
    
    
    4,213Deferred revenue  Research Partners
    
    
    5,000
    
    
    
    Deferred revenue recognized  Research Partners
    
    
    (2,611
    )
    
    
    Payments on exclusivity period fee
    
    
    (3,000
    )
    
    
    (3,000
    )Payments on accrued litigation settlements
    
    
    (549
    )
    
    
    (549
    )Share-based compensation expense
    
    
    1,437
    
    
    
    1,625Accretion of interest income on short-term investments
    
    
    (36
    )
    
    
    (1,146
    )Change in fair value of stock purchase warrants
    
    
    
    
    
    
    (44
    )Changes in assets and liabilities:Accounts receivable
    
    
    (18,530
    )
    
    
    (36,245
    )Inventory
    
    
    2,546
    
    
    
    861Prepaid expenses and other assets
    
    
    2,042
    
    
    
    1,210Accounts payable and accrued expenses
    
    
    (7,119
    )
    
    
    (5,615
    )Other liabilities
    
    
    734
    
    
    
    530Net cash used in operating activities
    
    $
    (18,083
    )
    
    $
    (3,918
    )Cash flows from investing activities:Purchase of short-term investments
    
    
    (27,810
    )
    
    
    (91,710
    )Maturities of short-term investments
    
    
    18,245
    
    
    
    82,306Purchases of property, plant and equipment
    
    
    (3,881
    )
    
    
    (4,241
    )Net cash used in investing activities
    
    $
    (13,446
    )
    
    $
    (13,645
    )Cash flows from financing activities:Repayment of long-term debt
    
    
    (36
    )
    
    
    (66
    )Proceeds from exercise of stock options and
purchases under the ESPP
    
    
    334
    
    
    
    154Net cash provided by financing activities
    
    $
    298
    
    
    $
    88Net decrease in cash and cash equivalents
    
    $
    (31,231
    )
    
    $
    (17,475
    )Cash and cash equivalents, beginning of period
    
    $
    69,275
    
    
    $
    37,462Cash and cash equivalents, end of period
    
    $
    38,044
    
    
    $
    19,987
 3




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Three Months Ended March 31,2009
    
    
    2008(in $ 000s)Cash paid for interest
    
    $
    169
    
    
    $
    268Cash paid for income taxes
    
    $
    63
    
    
    $
    63
   4




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NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 1. BASIS OF PRESENTATION
        March 31,
    
    March 31,(in $000s, except per share data)
    
    2009
    
    2008Additional interest expense
    
    $
    136
    
    
    $
    771Provision (benefit) for income taxes
    
    
    (48
    )
    
    
    (272
    )Decrease in net income
    
    $
    (88
    )
    
    $
    (499
    )Decrease in Net income per share:Basic
    
    $
    
    
    
    $
    (0.01
    )Diluted
    
    $
    
    
    
    $
    (0.01
    )
  5




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1. BASIS OF PRESENTATION (continued)
   6




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2. REVENUE RECOGNITION
   
    
    the delivered item has value to the customer on a stand alone basis;
    
    there is objective and reliable evidence of the fair value of the undelivered item; and
    
    if the arrangement includes a general right of return relative to the delivered item, delivery or performance of the
undelivered item is considered probable and substantially in the control of the vendor.
  Global product sales, net :
  Private Label product sales:
  7




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2. REVENUE RECOGNITION (continued)
 RX Partner and OTC Partner:
     
  8




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2. REVENUE RECOGNITION (continued)
 Research Partner:
   Promotional Partner:
   9




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3. RECENT ACCOUNTING PRONOUNCEMENTS
      10




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3. RECENT ACCOUNTING PRONOUNCEMENTS (continued)
      11




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4. INVESTMENTS
   Gross
    
    
    Gross(in $000s)
    
    Amortized
    
    
    Unrecognized
    
    
    Unrecognized
    
    
    FairMarch 31, 2009
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueCommercial paper
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Government agency obligations
    
    
    52,721
    
    
    
    256
    
    
    
    
    
    
    
    52,977Corporate bonds
    
    
    7,064
    
    
    
    
    
    
    
    (5
    )
    
    
    7,059Asset-backed securities
    
    
    293
    
    
    
    
    
    
    
    (11
    )
    
    
    282Certificates of deposit
    
    
    233
    
    
    
    
    
    
    
    
    
    
    
    233Total short-term investments
    
    $
    60,311
    
    
    $
    256
    
    
    $
    (16
    )
    
    $
    60,551
 Gross
    
    
    Gross(in $000s)
    
    Amortized
    
    
    Unrecognized
    
    
    Unrecognized
    
    
    FairDecember 31, 2008
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueCommercial paper
    
    $
    6,194
    
    
    $
    
    
    
    $
    
    
    
    $
    6,194Government agency obligations
    
    
    35,948
    
    
    
    52
    
    
    
    (6
    )
    
    
    35,994Corporate bonds
    
    
    7,856
    
    
    
    
    
    
    
    (54
    )
    
    
    7,802Asset-backed securities
    
    
    481
    
    
    
    
    
    
    
    (31
    )
    
    
    450Certificates of deposit
    
    
    231
    
    
    
    
    
    
    
    
    
    
    
    231Total short-term investments
    
    $
    50,710
    
    
    $
    52
    
    
    $
    (91
    )
    
    $
    50,671
 12




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5. ACCOUNTS RECEIVABLE
  March 31,
    
    
    December 31,(in $000s)
    
    2009
    
    
    2008Gross accounts receivable
    
    $
    78,023
    
    
    $
    54,591Less: Rebate reserve
    
    
    (7,537
    )
    
    
    (4,800
    )Less: Chargeback reserve
    
    
    (5,622
    )
    
    
    (4,056
    )Less: Other deductions
    
    
    (3,051
    )
    
    
    (2,429
    )Accounts receivable, net
    
    $
    61,813
    
    
    $
    43,306
   (in $000s)
    
    March 31,
    
    
    December 31Rebate reserve
    
    2009
    
    
    2008Beginning balance
    
    $
    4,800
    
    
    $
    3,603Provision recorded during the period
    
    
    10,819
    
    
    
    20,361Credits issued during the period
    
    
    (8,082
    )
    
    
    (19,164
    )Ending balance
    
    $
    7,537
    
    
    $
    4,800
 (in $000s)
    
    March 31,
    
    
    December 31Chargeback reserve
    
    2009
    
    
    2008Beginning balance
    
    $
    4,056
    
    
    $
    2,977Provision recorded during the period
    
    
    22,638
    
    
    
    50,144Credits issued during the period
    
    
    (21,072
    )
    
    
    (49,065
    )Ending balance
    
    $
    5,622
    
    
    $
    4,056
 13




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6. INVENTORY
  March 31,
    
    
    December 31,(in $000s)
    
    2009
    
    
    2008Raw materials
    
    $
    16,021
    
    
    $
    16,940Work in process
    
    
    1,739
    
    
    
    1,397Finished goods
    
    
    14,548
    
    
    
    16,504Total inventory, net
    
    $
    32,308
    
    
    $
    34,841Less: Non-current inventory, net
    
    
    (2,549
    )
    
    
    (2,536
    )Total inventory-current, net
    
    $
    29,759
    
    
    $
    32,305
      14




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7. PROPERTY, PLANT AND EQUIPMENT
  March 31,
    
    
    December 31,(in $000s)
    
    2009
    
    
    2008Land
    
    $
    2,270
    
    
    $
    2,270Buildings and improvements
    
    
    56,460
    
    
    
    55,310Equipment
    
    
    51,640
    
    
    
    49,983Office furniture and equipment
    
    
    6,268
    
    
    
    6,733Construction-in-progress
    
    
    21,113
    
    
    
    21,019Property, plant and equipment, gross
    
    $
    137,751
    
    
    $
    135,315Less: Accumulated depreciation
    
    
    (41,837
    )
    
    
    (39,686
    )Property, plant and equipment, net
    
    $
    95,914
    
    
    $
    95,629
  15




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8. ACCRUED EXPENSES
  March 31,
    
    
    December 31(in $000s)
    
    2009
    
    
    2008Payroll-related expenses
    
    $
    9,209
    
    
    $
    15,147Product returns
    
    
    16,229
    
    
    
    13,675Shelf stock price protection
    
    
    375
    
    
    
    572Medicaid rebates
    
    
    734
    
    
    
    584Royalty expense
    
    
    82
    
    
    
    259Physician detailing sales force fees
    
    
    1,755
    
    
    
    2,279Legal and professional fees
    
    
    2,694
    
    
    
    2,087Litigation settlements
    
    
    918
    
    
    
    4,526Other
    
    
    2,815
    
    
    
    2,231Total accrued expenses
    
    $
    34,811
    
    
    $
    41,360
   March 31,
    
    
    December 31(in $000s)
    
    2009
    
    
    2008Beginning balance
    
    $
    13,675
    
    
    $
    14,261Provision related to
sales recorded in the period
    
    
    3,256
    
    
    
    5,719Credits issued during the period
    
    
    (702
    )
    
    
    (6,305
    )Ending balance
    
    $
    16,229
    
    
    $
    13,675
 16




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9. INCOME TAXES
    17




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10. REVOLVING LINE OF CREDIT
     18




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11. LONG-TERM DEBT
 3.5% Convertible Senior Subordinated Debentures
        19




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11. LONG-TERM DEBT (continued)
  Adoption of FSP APB 14-1
      20




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11. LONG-TERM DEBT (continued)
  March 31,
    
    
    March 31,(in $000s)
    
    2009
    
    
    2008Contractual interest
    
    $
    128
    
    
    $
    750Discount amortization
    
    
    130
    
    
    
    735Deferred financing cost amortization
    
    
    20
    
    
    
    116Total interest cost
    
    $
    278
    
    
    $
    1,601Effective interest rate on 3.5% Debentures
    
    
    8.7
    %
    
    
    8.5
    %
  March 31,
    
    
    December 31,(in $000s)
    
    2009
    
    
    20083.5% Debentures face value
    
    $
    12,750
    
    
    $
    12,750Unamortized discount
    
    
    (111
    )
    
    
    (241
    )3.5% Debentures net carrying amount
    
    
    12,639
    
    
    
    12,509Subordinated
promissory note  (1)
    
    
    7,328
    
    
    
    7,760Vendor financing agreement (2)
    
    
    100
    
    
    
    137Total Debt
    
    $
    20,067
    
    
    $
    20,406Less: Current portion
    
    
    (14,536
    )
    
    
    (14,416
    )Long-term portion
    
    $
    5,531
    
    
    $
    5,990
 
 (1)
    
    Subordinated promissory note in the amount of $11.0 million related to the June
2006 settlement of litigation brought by Solvay Pharmaceuticals, Inc. (Solvay). The
subordinated promissory note interest rate is 6.0% per annum, and requires the Company to pay
24 quarterly installments of $549,165, commencing in March 2007 through December 2012.
Additionally, the subordinated promissory note becomes immediately due and payable upon the
occurrence of a default in any payment due, a change in control of the Company, voluntary or
involuntary bankruptcy proceeding by or against the Company, and working capital less than
150% of the remaining unpaid balance of the subordinated promissory note. At March 31, 2009,
none of these events has occurred to-date.(2)
    
    Vendor financing agreement at 3.10% payable in two monthly installments of $0 and
34 monthly installments of $12,871 commencing December 2006 through November 2009. 21




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12. ALLIANCE AGREEMENTS
 Strategic Alliance Agreement with Teva
  Three Months
    
    
    Inception(in $000s)
    
    Ended
    
    
    ThroughDeferred revenue
    
    March 31,2009
    
    
    Dec 31, 2008Beginning balance
    
    $
    200,608
    
    
    $
    Additions:Cost-sharing
    
    
    175
    
    
    
    5,953Product-related deferrals
    
    
    13,662
    
    
    
    376,071Sub-total
    
    
    13,837
    
    
    
    382,024Exclusivity charges
    
    
    
    
    
    
    (50,600
    )Forgiveness of advance deposit
    
    
    
    
    
    
    6,000Forgiveness of interest
    
    
    
    
    
    
    4,370Stock repurchase
    
    
    
    
    
    
    2,157Total additions
    
    $
    13,837
    
    
    $
    343,951Less: amounts recognized:Forgiveness of advance deposit
    
    $
    (83
    )
    
    $
    (2,499
    )Forgiveness of interest
    
    
    (61
    )
    
    
    (1,823
    )Stock repurchase
    
    
    (30
    )
    
    
    (899
    )Cost-sharing
    
    
    (158
    )
    
    
    (2,481
    )Product-related revenue
    
    
    (10,404
    )
    
    
    (135,641
    )Total amount recognized
    
    
    (10,736
    )
    
    
    (143,343
    )Total deferred revenue
    
    $
    203,709
    
    
    $
    200,608(in $000s)
    
    Three Months
    
    
    InceptionDeferred product
    
    Ended
    
    
    Throughmanufacturing costs
    
    March 31, 2009
    
    
    Dec 31, 2008Beginning balance
    
    $
    88,361
    
    
    $
    Additions
    
    
    9,008
    
    
    
    151,476Less amounts amortized
    
    
    (5,982
    )
    
    
    (63,115
    )Total deferred product
manufacturing costs
    
    $
    91,387
    
    
    $
    88,361
 22




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##### Table of Contents



12. ALLIANCE AGREEMENTS (continued)
 OTC Partners Alliance Agreements
  Three Months
    
    
    Inception(in $000s)
    
    Ended
    
    
    ThroughDeferred revenue
    
    March 31, 2009
    
    
    Dec 31, 2008Beginning balance
    
    $
    21,044
    
    
    $
    Additions:Upfront fees and milestone
payments
    
    
    
    
    
    
    8,436Cost-sharing and other
    
    
    
    
    
    
    1,642Product-related deferrals
    
    
    886
    
    
    
    81,866Total additions
    
    $
    886
    
    
    $
    91,944Less: amount recognized:Upfront fees and milestone payments
    
    (69
    )
    
    
    (7,469
    )Cost-sharing and other
    
    
    (28
    )
    
    
    (1,438
    )Product-related revenue
    
    
    (1,761
    )
    
    
    (61,993
    )Total amount recognized
    
    
    (1,858
    )
    
    
    (70,900
    )Total deferred revenue
    
    $
    20,072
    
    
    $
    21,044
 (in $000s)
    
    Three Months
    
    
    InceptionDeferred product
    
    Ended
    
    
    Throughmanufacturing costs
    
    March 31, 2009
    
    
    Dec 31, 2008Beginning balance
    
    $
    18,361
    
    
    $
    Additions:
    
    
    911
    
    
    
    75,941Less: amount amortized:
    
    
    (1,684
    )
    
    
    (57,580
    )Total deferred product
manufacturing costs
    
    $
    17,588
    
    
    $
    18,361
 23




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##### Table of Contents



12. ALLIANCE AGREEMENTS (continued)
 Supply and Distribution Agreement with DAVA Pharmaceuticals, Inc.
    Inception(in $000s)
    
    ThroughDeferred revenue
    
    April 2008Beginning balance
    
    $
    Additions:Upfront fees and milestone payments
    
    
    10,000Product-related deferrals
    
    
    152,447Total additions
    
    $
    162,447Less: amounts recognized:Upfront fees and milestone payments
    
    
    (10,000
    )Product-related revenue
    
    
    (152,447
    )Total amount recognized
    
    
    (162,447
    )Total deferred revenue
    
    $
    
 (in $000s)
    
    InceptionDeferred product
    
    Throughmanufacturing costs
    
    April 2008Beginning balance
    
    $
    Additions:
    
    
    29,044Less: amount amortized:
    
    
    (29,044
    )Total deferred product
manufacturing costs
    
    $
    
 24




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##### Table of Contents



12. ALLIANCE AGREEMENTS (continued)
 Joint Development Agreement with Medicis Pharmaceutical Corporation
   Three MonthsEnded
    
    
    Inception(in $000s)
    
    March 31,
    
    
    ThroughDeferred revenue
    
    2009
    
    
    Dec 31, 2008Beginning balance
    
    $
    39,167
    
    
    $
    Additions:Upfront fees and milestone payments
    
    
    5,000
    
    
    
    40,000Product-related deferrals
    
    
    
    
    
    
    Total additions
    
    $
    5,000
    
    
    $
    40,000Less: amounts recognized:Upfront fees and milestone payments
    
    
    (2,611
    )
    
    
    (833
    )Product-related revenue
    
    
    
    
    
    
    Total amount recognized
    
    
    (2,611
    )
    
    
    (833
    )Total deferred revenue
    
    $
    41,556
    
    
    $
    39,167
 25




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##### Table of Contents



12. ALLIANCE AGREEMENTS (continued)
 Shire Laboratories Promotional Services Agreement
   26




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##### Table of Contents



12. ALLIANCE AGREEMENTS (continued)
 Agreements with Wyeth
  Settlement and Release Agreement
  License Agreement
  Co-Promotion Agreement
  27




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##### Table of Contents



13. SHARE-BASED COMPENSATION
   Three months ended March 31(in $000s)
    
    2009
    
    
    2008Manufacturing expenses
    
    $
    349
    
    
    $
    473Research and development
    
    
    602
    
    
    
    616Selling, general & administrative
    
    
    486
    
    
    
    536Total
    
    $
    1,437
    
    
    $
    1,625
  Weighted AverageNumber of Shares
    
    Exercise PriceUnder Option
    
    per ShareOutstanding at December 31, 2008
    
    
    8,280,240
    
    
    $
    10.53Options granted
    
    
    671,596
    
    
    $
    5.18Options exercised
    
    
    (413,654
    )
    
    $
    0.81Options forfeited
    
    
    (31,296
    )
    
    $
    10.53Outstanding at March 31, 2009
    
    
    8,506,886
    
    
    $
    10.58Vested and expected to vest at March 31, 2009
    
    
    8,336,243
    
    
    $
    10.68Options exercisable at March 31, 2009
    
    
    6,057,986
    
    
    $
    11.25
   Weighted AverageRestricted
    
    Number of Restricted
    
    Grant-DateStock Awards
    
    Stock Awards
    
    Fair ValueNon-vested at December 31, 2008
    
    
    399,716
    
    
    $
    10.30Granted
    
    
    255,152
    
    
    $
    5.19Vested
    
    
    (13,125
    )
    
    $
    10.43Forfeited
    
    
    (6,402
    )
    
    $
    9.85Non-vested at March 31, 2009
    
    
    635,341
    
    
    $
    8.10
  28




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13. SHARE-BASED COMPENSATION (continued)
  29




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##### Table of Contents



14. STOCKHOLDERS EQUITY (DEFICIT)
 Preferred Stock
  Common Stock
  Shareholders Rights Plan
   30




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##### Table of Contents



15. EARNINGS PER SHARE
   Three months ended
    
    
    Three months endedMarch 31,
    
    
    March 31,(in $000s except per share amounts)
    
    2009
    
    
    2008Numerator:Net income
    
    $
    2,219
    
    
    $
    460Denominator:Weighted average common
shares outstanding
    
    
    59,711,133
    
    
    
    58,833,979Effect of dilutive options and
common stock purchase warrants
    
    
    511,082
    
    
    
    2,292,789Diluted weighted average
common shares outstanding
    
    
    60,222,215
    
    
    
    61,126,768Basic net income per share
    
    $
    0.04
    
    
    $
    0.01Diluted net income per share
    
    $
    0.04
    
    
    $
    0.01
  The Effect of Contingently Convertible Instruments on Diluted Earnings
per Share
 31




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##### Table of Contents



16. COMPREHENSIVE INCOME
 Three months ended March 31,(in $000s)
    
    2009
    
    
    2008Net income
    
    $
    2,219
    
    
    $
    460Currency translation adjustments
    
    
    (700
    )
    
    
    200Comprehensive income
    
    $
    1,519
    
    
    $
    660Comprehensive income attributable to the noncontrolling interest
    
    
    
    
    
    
    Comprehensive income attributable to Impax Laboratories, Inc.
    
    $
    1,519
    
    
    $
    660
 32




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##### Table of Contents



17. SEGMENT INFORMATION
      (in $000s)
    
    Global
    
    Impax
    
    Corporate
    
    TotalThree Months Ended March 31, 2009
    
    Division
    
    Division
    
    and Other
    
    CompanyRevenue, net
    
    $
    55,629
    
    
    $
    3,284
    
    
    $
    
    
    
    $
    58,913Cost of revenue
    
    
    23,233
    
    
    
    3,017
    
    
    
    
    
    
    
    26,250Research and development
    
    
    10,542
    
    
    
    5,514
    
    
    
    
    
    
    
    16,056Patent Litigation
    
    
    1,017
    
    
    
    
    
    
    
    
    
    
    
    1,017Income (loss) before provision for income taxes
    
    $
    18,609
    
    
    $
    (6,287
    )
    
    $
    (8,267
    )
    
    $
    4,055
 (in $000s)
    
    Global
    
    Impax
    
    Corporate
    
    TotalThree Months Ended March 31, 2008
    
    Division
    
    Division
    
    and Other
    
    CompanyRevenue, net
    
    $
    46,678
    
    
    $
    3,252
    
    
    $
    
    
    
    $
    49,930Cost of revenue
    
    
    20,410
    
    
    
    2,968
    
    
    
    
    
    
    
    23,378Research and development
    
    
    9,128
    
    
    
    4,211
    
    
    
    
    
    
    
    13,339Patent Litigation
    
    
    1,701
    
    
    
    
    
    
    
    
    
    
    
    1,701Income (loss) before provision for income taxes
    
    $
    14,176
    
    
    $
    (4,403
    )
    
    $
    (8,745
    )
    
    $
    1,028
 33




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##### Table of Contents



18. COMMITMENTS AND CONTINGENCIES
 Taiwan Facility Construction
  34




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##### Table of Contents



19. LEGAL AND REGULATORY MATTERS
 Patent Litigation
       35




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##### Table of Contents



19. LEGAL AND REGULATORY MATTERS (continued)
 Patent Infringement Litigation
 AstraZeneca AD et al. v. Impax Laboratories, Inc. (Omeprazole)
 ® ®
 Aventis Pharmaceuticals Inc., et al. v. Impax Laboratories, Inc. Fexofenadine (Pseudoephedrine)
 ® ® ®
 ® ® ®
 36




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##### Table of Contents



19. LEGAL AND REGULATORY MATTERS (continued)
 Abbott Laboratories v. Impax Laboratories, Inc. (Fenofibrate)
 ®
  Impax Laboratories, Inc. v. Aventis Pharmaceuticals, Inc. (Riluzole)
 ®
 Wyeth v. Impax Laboratories, Inc. (Venlafaxine)
 ® ® ®
 Endo Pharmaceuticals Inc., et al. v. Impax Laboratories, Inc. (Oxymorphone)
 ®
 37




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##### Table of Contents



19. LEGAL AND REGULATORY MATTERS (continued)
 lmpax Laboratories, Inc. v. Medicis Pharmaceutical Corp. (Minocycline)
 ®
 Pfizer Inc., et aI. v. Impax Laboratories, Inc. (Tolterodine)
 ®
 Boehringer Ingelheim Pharmaceuticals, et al. v. Impax Laboratories, Inc. (Tamsulosin)
 ®
 Purdue Pharma Products L.P., et al. v. Impax Laboratories, Inc. (Tramadol)
 ®
 Eli Lilly and Company v. Impax Laboratories, Inc. (Duloxetine)
 ®
 38




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##### Table of Contents



19. LEGAL AND REGULATORY MATTERS (continued)
 Warner Chilcott, Ltd. et.al. v. Impax Laboratories, Inc. (Doxycycline Hyclate)
 ®
 Eurand, Inc., et al. v. Impax Laboratories, Inc. (Cyclobenzaprine)
 ®
 Genzyme Corp. v. Impax Laboratories, Inc. (Sevelamer Hydrochloride)
 ®
 Genzyme Corp. v. Impax Laboratories, Inc. (Sevelamer Carbonate)
 ®
 39




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##### Table of Contents



19. LEGAL AND REGULATORY MATTERS (continued)
 Other Litigation Related to Our Business
 Axcan Scandipharm Inc. v. Ethex Corp, et al. (Lipram UL)
 ® ®
 Freeberg v. Impax Laboratories, Inc., et al. (Freeberg)
  Securities Litigation
   40




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##### Table of Contents



20. SUPPLEMENTARY FINANCIAL INFORMATION (unaudited)
  Three MonthsEnded:(in $000s except per share amounts)
    
    March 31, 2009Revenue:Global product sales, gross
    
    $
    78,696Less:Chargebacks
    
    
    22,638Rebates
    
    
    10,819Returns
    
    
    3,256Other credits
    
    
    2,862Global product sales, net
    
    
    39,121Private label product sales
    
    
    1,297RX Partner
    
    
    10,736OTC Partner
    
    
    1,858Research Partner
    
    
    2,611Promotional Partner
    
    
    3,284Other
    
    
    6Total revenues
    
    
    58,913Gross profit
    
    
    32,663Net income
    
    $
    2,219Net income per share (basic)
    
    $
    0.04Net income per share (diluted)
    
    $
    0.04Weighted Average:common shares outstanding:Basic
    
    
    59,711,133Diluted
    
    
    60,222,215
  41




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##### Table of Contents



20. SUPPLEMENTARY FINANCIAL INFORMATION
  Three MonthsEnded:(in $000s except per share amounts)
    
    March 31, 2008Revenues:Global product sales, gross
    
    $
    38,401Less:Chargebacks
    
    
    9,233Rebates
    
    
    4,191Returns
    
    
    946Other credits
    
    
    1,052Global product sales, net
    
    
    22,979Private label product sales
    
    
    478RX Partner
    
    
    18,805OTC Partner
    
    
    4,409Research Partner
    
    
    Promotional Partner
    
    
    3,252Other
    
    
    7Total revenues
    
    
    49,930Gross profit
    
    
    26,552Net income
    
    $
    460Net income  per share (basic)
    
    $
    0.01Net income  per share (diluted)
    
    $
    0.01Weighted
average common shares outstanding:Basic
    
    
    58,833,979Diluted
    
    
    61,126,768
  42




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
   43




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##### Table of Contents



Overview
    44




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##### Table of Contents



Global Product Sales, net.
 Private Label Sales.
 Rx Partner and OTC Partner.
 45




---



##### Table of Contents



Research Partner
 Promotional Partner
   46




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##### Table of Contents



Critical Accounting Estimates
    47




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##### Table of Contents



Chargebacks.
  (in $000s)
    
    March 31,
    
    
    December 31Chargeback reserve
    
    2009
    
    
    2008Beginning balance
    
    $
    4,056
    
    
    $
    2,977Provision recorded during the period
    
    
    22,638
    
    
    
    50,144Credits issued during the period
    
    
    (21,072
    )
    
    
    (49,065
    )Ending balance
    
    $
    5,622
    
    
    $
    4,056Provision as a percent of Global product sales, gross
    
    
    29
    %
    
    
    28
    %
  48




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##### Table of Contents



Rebates.
  (in $000s)
    
    March 31,
    
    
    December 31Rebate reserve
    
    2009
    
    
    2008Beginning balance
    
    $
    4,800
    
    
    $
    3,603Provision recorded during the period
    
    
    10,819
    
    
    
    20,361Credits issued during the period
    
    
    (8,082
    )
    
    
    (19,164
    )Ending balance
    
    $
    7,537
    
    
    $
    4,800Provision as a percent of Global product sales, gross
    
    
    14
    %
    
    
    11
    %
 ®
 49




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##### Table of Contents



Returns.
  March 31,
    
    
    December 31(in $000s)
    
    2009
    
    
    2008Beginning balance
    
    $
    13,675
    
    
    $
    14,261Provision related to
sales recorded in the period
    
    
    3,256
    
    
    
    5,719Credits issued during the period
    
    
    (702
    )
    
    
    (6,305
    )Ending balance
    
    $
    16,229
    
    
    $
    13,675Provision as a percent of Global product sales, gross
    
    
    4
    %
    
    
    3
    %
  50




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##### Table of Contents



Medicaid.
 Shelf-Stock Adjustments.
 Allowance for Doubtful Accounts
 51




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##### Table of Contents



Estimated Lives of Alliance Agreements.
    52




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##### Table of Contents



Third-Party Research and Development Agreements.
 Share-Based Compensation.
 Income Taxes.
 Fair Value of Financial Instruments.
 Contingencies.
 53




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##### Table of Contents



Goodwill
 54




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##### Table of Contents



Results of Operations
 Three Months Ended March 31, 2009 Compared to the Three Months Ended March 31, 2008
  Three Months Ended March 31,
    
    
    Increase/2009
    
    
    2008
    
    
    (Decrease)(unaudited)
    
    
    (unaudited)(in $000s)
    
    
    
    
    
    (as adjusted)Revenues:Global product sales, net
    
    $
    39,121
    
    
    $
    22,979
    
    
    $
    16,142
    
    
    
    70
    %Private Label product sales
    
    
    1,297
    
    
    
    478
    
    
    
    819
    
    
    
    171
    %Rx Partner
    
    
    10,736
    
    
    
    18,805
    
    
    
    (8,069
    )
    
    
    (43
    %)OTC Partner
    
    
    1,858
    
    
    
    4,409
    
    
    
    (2,551
    )
    
    
    (58
    %)Research Partner
    
    
    2,611
    
    
    
    
    
    
    
    2,611
    
    
    
    Promotional Partner
    
    
    3,284
    
    
    
    3,252
    
    
    
    32
    
    
    
    1
    %Other
    
    
    6
    
    
    
    7
    
    
    
    (1
    )
    
    
    14
    %Total revenues
    
    
    58,913
    
    
    
    49,930
    
    
    
    8,983
    
    
    
    18
    %Cost of revenues
    
    
    26,250
    
    
    
    23,378
    
    
    
    2,872
    
    
    
    12
    %Gross profit
    
    
    32,663
    
    
    
    26,552
    
    
    
    6,111
    
    
    
    23
    %Operating expenses:Research and development
    
    
    16,056
    
    
    
    13,339
    
    
    
    2,717
    
    
    
    20
    %Patent litigation
    
    
    1,017
    
    
    
    1,701
    
    
    
    (684
    )
    
    
    (40
    %)Selling, general and administrative
    
    
    11,455
    
    
    
    10,362
    
    
    
    1,093
    
    
    
    11
    %Total operating expenses
    
    
    28,528
    
    
    
    25,402
    
    
    
    3,126
    
    
    
    12
    %Income from operations
    
    
    4,135
    
    
    
    1,150
    
    
    
    2,985
    
    
    
    260
    %Change in fair value of common stock purchase warrant
    
    
    
    
    
    
    44
    
    
    
    (44
    )
    
    
    (100
    %)Other income (expense), net
    
    
    65
    
    
    
    61
    
    
    
    4
    
    
    
    7
    %Interest income
    
    
    149
    
    
    
    1,537
    
    
    
    (1,388
    )
    
    
    (90
    %)Interest expense
    
    
    (294
    )
    
    
    (1,764
    )
    
    
    1,470
    
    
    
    83
    %Income before income taxes
    
    
    4,055
    
    
    
    1,028
    
    
    
    3,027
    
    
    
    294
    %Provision for income taxes
    
    
    (1,836
    )
    
    
    (568
    )
    
    
    (1,268
    )
    
    
    (223
    %)Net income
    
    $
    2,219
    
    
    $
    460
    
    
    $
    1,759
    
    
    
    382
    %Total Revenues
 ® ® ® ® ® ® ® ® ® ®
 55




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##### Table of Contents



Cost of Revenues
  Gross Profit
 ®
 Research and Development Expenses
  Patent Litigation Expenses
  Selling, General and Administrative Expenses
  Other income (expense), net
  Interest Income
  56




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##### Table of Contents



Interest Expense
  Income Taxes
  Net Income
  57




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##### Table of Contents



Liquidity and Capital Resources
  Cash and Cash Equivalents
  Cash Flows
 Three Months Ended March 31, 2009 Compared to the Three Months Ended March 31, 2008.
  ® ®
 ®
  58




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##### Table of Contents



59




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##### Table of Contents



Outstanding Debt Obligations
 Senior Lenders; Wachovia Bank
     60




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##### Table of Contents



3.5% Debentures
      61




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##### Table of Contents



Solvay Promissory Note
  62




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##### Table of Contents



Recent Accounting Pronouncements
       63




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##### Table of Contents



64




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  65




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##### Table of Contents



ITEM 4T. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
   Changes in Internal Control over Financial Reporting
  66




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
 Patent Infringement Litigation
 Eurand, Inc., et al. v. Impax Laboratories, Inc. (Cyclobenzaprine)
 ®
 Eli Lilly and Company v. Impax Laboratories, Inc. (Duloxetine)
 ®
 Genzyme Corp. v. Impax Laboratories, Inc. (Sevelamer Hydrochloride)
 ®
 Warner Chilcott, Ltd. et.al. v. Impax Laboratories, Inc. (Doxycycline Hyclate)
 ®
 Genzyme Corp. v. Impax Laboratories, Inc. (Sevelamer Carbonate)
 ®
 67




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##### Table of Contents



Other Litigation Related to Our Business
 Freeberg v. Impax Laboratories, Inc., et al. (Freeberg)
  Securities Litigation
  68




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##### Table of Contents



ITEM 1A. RISK FACTORS
  69




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##### Table of Contents



ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  70




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##### Table of Contents



ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  71




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##### Table of Contents



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  72




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##### Table of Contents



ITEM 5. OTHER INFORMATION
  73




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##### Table of Contents



ITEM 6. EXHIBITS
 Exhibit No.
    
    Description of Document3.1
    
    Certificate of Designation of Series A Junior Participating
Preferred Stock, as filed with the Secretary of State of
Delaware on January 21, 2009. (1)4.1
    
    Preferred Stock Rights Agreement, dated as of January 20,
2009, by and between the Company and StockTrans, Inc., as
Rights Agent. (1)10.1
    
    Third Amendment to Amended and Restated Loan and Security
Agreement, effective as of March 31, 2009, by and among the
Company and Wachovia Bank, National Association.10.2
    
    Offer of Employment Letter, effective as of January 5, 2009,
between the Company and Christopher Mengler.* (2)10.3
    
    2008 Cash Incentive Awards for Executive Officers.* (3)11.1
    
    Statement re computation of per share earnings (incorporated
by reference to Note 15 to the Notes to the unaudited interim
Consolidated Financial Statements in this Quarterly Report on
Form 10-Q).31.1
    
    Certification of the Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of the Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of the Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    Certification of the Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 *
    
    Management contract, compensatory plan or arrangement.(1)
    
    Incorporated by reference to the Companys Current Report on Form 8-K filed on January 22,
2009.(2)
    
    Incorporated by reference to the Companys Annual Report on Form 10-K for the year ended
December 31, 2008.(3)
    
    Incorporated by reference to the Companys Current Report on Form 8-K filed on March 5,
2009. 74




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##### Table of Contents



SIGNATURES
  Date: May 7, 2009
    Impax Laboratories, Inc.By:
    /s/ Larry Hsu, Ph.D.Name:
    Larry Hsu, Ph.D.Title:
    President and Chief Executive Officer
(Principal Executive Officer)By:
    /s/ Arthur A. Koch, Jr.Name:
    Arthur A. Koch Jr.Title:
    Senior Vice President, Finance and
Chief Financial Officer
(Principal Financial and Accounting
Officer)




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description of Document3.1
    
    Certificate of Designation of Series A Junior Participating
Preferred Stock, as filed with the Secretary of State of
Delaware on January 21, 2009. (1)4.1
    
    Preferred Stock Rights Agreement, dated as of January 20,
2009, by and between the Company and StockTrans, Inc., as
Rights Agent. (1)10.1
    
    Third Amendment to Amended and Restated Loan and Security
Agreement, effective as of March 31, 2009, by and among the
Company and Wachovia Bank, National Association.10.2
    
    Offer of Employment Letter, effective as of January 5, 2009,
between the Company and Christopher Mengler.* (2)10.3
    
    2008 Cash Incentive Awards for Executive Officers.* (3)11.1
    
    Statement re computation of per share earnings (incorporated
by reference to Note 15 to the Notes to the unaudited interim
Consolidated Financial Statements in this Quarterly Report on
Form 10-Q).31.1
    
    Certification of the Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of the Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of the Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    Certification of the Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 *
    
    Management contract, compensatory plan or arrangement.(1)
    
    Incorporated by reference to the Companys Current Report on Form 8-K filed on January 22,
2009.(2)
    
    Incorporated by reference to the Companys Annual Report on Form 10-K for the year ended
December 31, 2008.(3)
    
    Incorporated by reference to the Companys Current Report on Form 8-K filed on March 5, 2009.