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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 1934
 For the quarterly period ended September 30, 2009
 OR
 o
    
    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: 001-34263
 Impax Laboratories, Inc.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    65-0403311(State or other jurisdiction of incorporation or 
organization)
    
    (I.R.S. Employer Identification No.)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
 Yes o No þ




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##### 



Impax Laboratories, Inc.
 INDEX
 PART I: FINANCIAL INFORMATIONItem 1:Financial Statements- Consolidated Balance Sheets as of September 30, 2009 (unaudited) and December 31, 2008
    
    
    3- Consolidated Statements of Operations for each of the three and nine months ended September 30, 2009 and 2008 (unaudited)
    
    
    4- Consolidated Statements of Cash Flows for each of the nine months ended September 30, 2009 and 2008 (unaudited)
    
    
    5- Notes to Consolidated Financial Statements (unaudited)
    
    
    7Item 2:Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    49Item 3:Quantitative and Qualitative Disclosures About Market Risk
    
    
    81Item 4T:Controls and Procedures
    
    
    82PART II: OTHER INFORMATIONItem 1:Legal Proceedings
    
    
    83Item 1A:Risk Factors
    
    
    85Item 2:Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    86Item 3:Defaults Upon Senior Securities
    
    
    87Item 4:Submission of Matters to a Vote of Security Holders
    
    
    88Item 5:Other Information
    
    
    89Item 6:Exhibits
    
    
    90SIGNATURESEXHIBIT INDEXExhibit 10.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   Page 2 of 92




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Impax Laboratories, Inc.
 
 CONSOLIDATED BALANCE SHEETS
 (in thousands, except share and per share data)
 September 30,
    
    
    December 31,2009
    
    
    2008(unaudited)
    
    
    (as adjusted)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    47,577
    
    
    $
    69,275Short-term investments
    
    
    52,950
    
    
    
    50,710Accounts receivable, net
    
    
    61,543
    
    
    
    43,306Inventory, net
    
    
    38,911
    
    
    
    32,305Current portion of deferred product manufacturing costs-alliance agreements
    
    
    14,750
    
    
    
    13,578Current portion of deferred income taxes
    
    
    18,611
    
    
    
    17,900Prepaid expenses and other current assets
    
    
    2,654
    
    
    
    9,298Total current assets
    
    
    236,996
    
    
    
    236,372Property, plant and equipment, net
    
    
    96,457
    
    
    
    95,629Deferred product manufacturing costs-alliance agreements
    
    
    93,075
    
    
    
    93,144Deferred income taxes, net
    
    
    61,270
    
    
    
    52,551Other assets
    
    
    14,521
    
    
    
    9,017Goodwill
    
    
    27,574
    
    
    
    27,574Total assets
    
    $
    529,893
    
    
    $
    514,287LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt, net
    
    $
    
    
    
    $
    14,416Accounts payable
    
    
    13,245
    
    
    
    12,797Accrued expenses
    
    
    55,799
    
    
    
    41,360Current portion of deferred revenue-alliance agreements
    
    
    39,925
    
    
    
    35,015Current portion of accrued exclusivity period fee payments due
    
    
    
    
    
    
    6,000Total current liabilities
    
    
    108,969
    
    
    
    109,588Long-term debt
    
    
    
    
    
    
    5,990Deferred revenue-alliance agreements
    
    
    223,439
    
    
    
    225,804Other liabilities
    
    
    16,739
    
    
    
    13,255Total liabilities
    
    $
    349,147
    
    
    $
    354,637Commitments and contingencies (Note 18)Stockholders equity:Preferred Stock, $0.01 par value, 2,000,000 shares authorized,
0 shares outstanding at September 30, 2009 and December 31, 2008
    
    $
    
    
    
    $
    Common stock, $0.01 par value, 90,000,000 shares authorized and
61,833,440 and 60,135,686 shares issued at September 30, 2009
and December 31, 2008, respectively
    
    
    618
    
    
    
    602Additional paid-in capital
    
    
    219,960
    
    
    
    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
    
    
    (615
    )
    
    
    (995
    )Accumulated deficit
    
    
    (37,316
    )
    
    
    (49,233
    )180,490
    
    
    
    159,345Noncontrolling interest
    
    
    256
    
    
    
    305Total stockholders equity
    
    
    180,746
    
    
    
    159,650Total liabilities and stockholders equity
    
    $
    529,893
    
    
    $
    514,287
   Page 3 of 92




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Impax Laboratories, Inc.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except share and per share data)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(unaudited)
    
    
    (unaudited)
    
    
    (unaudited)
    
    
    (unaudited)(as adjusted)
    
    
    
    
    
    
    (as adjusted)Revenues:Global product sales, net
    
    $
    46,636
    
    
    $
    20,080
    
    
    $
    123,144
    
    
    $
    69,044Private Label product sales
    
    
    1,752
    
    
    
    629
    
    
    
    5,269
    
    
    
    1,747Rx Partner
    
    
    8,328
    
    
    
    9,424
    
    
    
    30,183
    
    
    
    72,099OTC Partner
    
    
    1,769
    
    
    
    3,398
    
    
    
    5,255
    
    
    
    12,739Research Partner
    
    
    2,962
    
    
    
    
    
    
    
    8,406
    
    
    
    Promotional Partner
    
    
    3,499
    
    
    
    3,238
    
    
    
    10,007
    
    
    
    9,728Other
    
    
    
    
    
    
    5
    
    
    
    11
    
    
    
    19Total revenues
    
    
    64,946
    
    
    
    36,774
    
    
    
    182,275
    
    
    
    165,376Cost of revenues
    
    
    28,055
    
    
    
    22,296
    
    
    
    81,589
    
    
    
    66,378Gross profit
    
    
    36,891
    
    
    
    14,478
    
    
    
    100,686
    
    
    
    98,998Operating expenses:Research and development
    
    
    15,243
    
    
    
    16,188
    
    
    
    46,744
    
    
    
    43,275Patent litigation
    
    
    1,647
    
    
    
    1,876
    
    
    
    4,058
    
    
    
    4,827Selling, general and administrative
    
    
    9,838
    
    
    
    14,542
    
    
    
    31,600
    
    
    
    37,047Total operating expenses
    
    
    26,728
    
    
    
    32,606
    
    
    
    82,402
    
    
    
    85,149Income (loss) from operations
    
    
    10,163
    
    
    
    (18,128
    )
    
    
    18,284
    
    
    
    13,849Change in fair value of common stock
purchase warrant
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    59Other income (expense), net
    
    
    22
    
    
    
    (4
    )
    
    
    105
    
    
    
    36Interest income
    
    
    180
    
    
    
    723
    
    
    
    636
    
    
    
    3,282Interest expense
    
    
    (185
    )
    
    
    (971
    )
    
    
    (735
    )
    
    
    (4,447
    )Income (loss) before income taxes
    
    
    10,180
    
    
    
    (18,380
    )
    
    
    18,290
    
    
    
    12,779Provision (benefit) for income taxes
    
    
    3,495
    
    
    
    (7,850
    )
    
    
    6,373
    
    
    
    5,761Net income (loss)
    
    $
    6,685
    
    
    $
    (10,530
    )
    
    $
    11,917
    
    
    $
    7,018Net Income (loss) per share:Basic
    
    $
    0.11
    
    
    $
    (0.18
    )
    
    $
    0.20
    
    
    $
    0.12Diluted
    
    $
    0.11
    
    
    $
    (0.18
    )
    
    $
    0.20
    
    
    $
    0.12Weighted average common shares outstanding:Basic
    
    
    60,559,064
    
    
    
    59,166,319
    
    
    
    60,130,608
    
    
    
    58,993,633Diluted
    
    
    61,247,700
    
    
    
    59,166,319
    
    
    
    60,667,227
    
    
    
    60,813,707
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Impax Laboratories, Inc.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (dollars in thousands)
 Nine Months Ended September 30,2009
    
    
    2008(unaudited)
    
    
    (unaudited)(as adjusted)Cash flows from operating activities:Net income
    
    $
    11,917
    
    
    $
    7,018Adjustments to reconcile net income to net cash (used in) provided by
operating activities:Depreciation
    
    
    7,806
    
    
    
    6,791Amortization of 3.5% Debentures discount and deferred financing costs
    
    
    301
    
    
    
    1,946Amortization of Wachovia Credit Agreement deferred financing costs
    
    
    50
    
    
    
    287Bad debt expense
    
    
    131
    
    
    
    278Deferred income taxes (benefit)
    
    
    (9,430
    )
    
    
    1,997Provision for uncertain tax positions
    
    
    695
    
    
    
    Loss, net on repurchase of 3.5% Debentures
    
    
    
    
    
    
    114Deferred revenue  Rx Partners
    
    
    34,601
    
    
    
    82,774Deferred product manufacturing costs  Rx Partners
    
    
    (19,053
    )
    
    
    (25,405
    )Deferred revenue recognized  Rx Partners
    
    
    (30,183
    )
    
    
    (72,099
    )Amortization deferred product manufacturing costs  Rx Partners
    
    
    15,044
    
    
    
    17,153Deferred revenue  OTC Partners
    
    
    1,787
    
    
    
    13,901Deferred product manufacturing costs  OTC Partners
    
    
    (1,800
    )
    
    
    (13,760
    )Deferred revenue recognized  OTC Partners
    
    
    (5,255
    )
    
    
    (12,739
    )Amortization deferred product manufacturing costs  OTC Partners
    
    
    4,706
    
    
    
    12,059Deferred revenue  Research Partners
    
    
    10,000
    
    
    
    Deferred revenue recognized  Research Partners
    
    
    (8,406
    )
    
    
    Payments on exclusivity period fee
    
    
    (6,000
    )
    
    
    (9,000
    )Payments on accrued litigation settlements
    
    
    (8,037
    )
    
    
    (1,648
    )Share-based compensation expense
    
    
    5,179
    
    
    
    4,458Fair value of shares issued under severance arrangement
    
    
    
    
    
    
    561Accretion of interest income on short-term investments
    
    
    (424
    )
    
    
    (2,160
    )Change in fair value of stock purchase warrants
    
    
    
    
    
    
    (59
    )Changes in assets and liabilities:Accounts receivable
    
    
    (18,368
    )
    
    
    13,379Inventory
    
    
    (6,606
    )
    
    
    (3,060
    )Prepaid expenses and other assets
    
    
    1,346
    
    
    
    (6,102
    )Accounts payable and accrued expenses
    
    
    14,892
    
    
    
    753Other liabilities
    
    
    2,740
    
    
    
    3,051Net cash (used in) provided by operating activities
    
    $
    (2,367
    )
    
    $
    20,488Cash flows from investing activities:Purchase of short-term investments
    
    
    (49,563
    )
    
    
    (195,218
    )Maturities of short-term investments
    
    
    47,748
    
    
    
    248,143Purchases of property, plant and equipment
    
    
    (8,405
    )
    
    
    (20,873
    )Net cash (used in) provided by investing activities
    
    $
    (10,220
    )
    
    $
    32,052Cash flows from financing activities:Repayment of long-term debt
    
    
    (12,887
    )
    
    
    (65,198
    )Proceeds from exercise of stock options and purchases under the ESPP
    
    
    3,776
    
    
    
    1,079Net cash used in financing activities
    
    $
    (9,111
    )
    
    $
    (64,119
    )Net decrease in cash and cash equivalents
    
    $
    (21,698
    )
    
    $
    (11,579
    )Cash and cash equivalents, beginning of period
    
    $
    69,275
    
    
    $
    37,462Cash and cash equivalents, end of period
    
    $
    47,577
    
    
    $
    25,883
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Nine Months Ended September 30,(in $000s)
    
    2009
    
    
    2008Cash paid for interest
    
    $
    597
    
    
    $
    2,558Cash paid for income taxes
    
    $
    187
    
    
    $
    5,387
    Page 6 of 92




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NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 1. BASIS OF PRESENTATION
  TM
       Page 7 of 92




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1. BASIS OF PRESENTATION (continued)
  Three Months Ended:
    
    
    Nine Months Ended:September 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,(in $000s except per share amounts)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Additional interest expense
    
    $
    
    
    
    $
    487
    
    
    $
    253
    
    
    $
    2,045Reduction in gain on
extinguishment of debt
    
    
    
    
    
    
    (1,432
    )
    
    
    
    
    
    
    (1,432
    )Provision (benefit) for income taxes
    
    
    
    
    
    
    (303
    )
    
    
    (89
    )
    
    
    (853
    )Decrease in net income
    
    $
    
    
    
    $
    (1,616
    )
    
    $
    (164
    )
    
    $
    (2,624
    )Decrease in Net income per share:Basic
    
    $
    
    
    
    $
    (0.03
    )
    
    $
    
    
    
    $
    (0.04
    )Diluted
    
    $
    
    
    
    $
    (0.03
    )
    
    $
    
    
    
    $
    (0.04
    )
   Page 8 of 92




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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:
   Page 9 of 92




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2. REVENUE RECOGNITION (continued)
 Rx Partner and OTC Partner:
      Page 10 of 92




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2. REVENUE RECOGNITION (continued)
 Research Partner :
   Promotional Partner:
    Page 11 of 92




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3. RECENT ACCOUNTING PRONOUNCEMENTS
      Page 12 of 92




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3. RECENT ACCOUNTING PRONOUNCEMENTS (continued)
        Page 13 of 92




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3. RECENT ACCOUNTING PRONOUNCEMENTS (continued)
   Page 14 of 92




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4. INVESTMENTS
   Gross
    
    
    Gross(in $000s)
    
    Amortized
    
    
    Unrecognized
    
    
    Unrecognized
    
    
    FairSeptember 30, 2009
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueCommercial paper
    
    $
    1,797
    
    
    $
    
    
    
    $
    (1
    )
    
    $
    1,796Government agency obligations
    
    
    47,898
    
    
    
    84
    
    
    
    
    
    
    
    47,982Corporate bonds
    
    
    3,019
    
    
    
    2
    
    
    
    (1
    )
    
    
    3,020Asset-backed securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Certificates of deposit
    
    
    236
    
    
    
    
    
    
    
    
    
    
    
    236Total short-term investments
    
    $
    52,950
    
    
    $
    86
    
    
    $
    (2
    )
    
    $
    53,034
 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
  Page 15 of 92




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5. ACCOUNTS RECEIVABLE
  September 30,
    
    
    December 31,(in $000s)
    
    2009
    
    
    2008Gross accounts receivable
    
    $
    78,843
    
    
    $
    54,591Less: Rebate reserve
    
    
    (8,421
    )
    
    
    (4,800
    )Less: Chargeback reserve
    
    
    (6,022
    )
    
    
    (4,056
    )Less: Other deductions
    
    
    (2,857
    )
    
    
    (2,429
    )Accounts receivable, net
    
    $
    61,543
    
    
    $
    43,306
  (in $000s)
    
    September 30,
    
    
    December 31,Rebate reserve
    
    2009
    
    
    2008Beginning balance
    
    $
    4,800
    
    
    $
    3,603Provision recorded during the period
    
    
    33,655
    
    
    
    20,361Credits issued during the period
    
    
    (30,034
    )
    
    
    (19,164
    )Ending balance
    
    $
    8,421
    
    
    $
    4,800
 (in $000s)
    
    September 30,
    
    
    December 31,Chargeback reserve
    
    2009
    
    
    2008Beginning balance
    
    $
    4,056
    
    
    $
    2,977Provision recorded during the period
    
    
    68,747
    
    
    
    50,144Credits issued during the period
    
    
    (66,781
    )
    
    
    (49,065
    )Ending balance
    
    $
    6,022
    
    
    $
    4,056
   Page 16 of 92




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6. INVENTORY
  September 30,
    
    
    December 31,(in $000s)
    
    2009
    
    
    2008Raw materials
    
    $
    23,818
    
    
    $
    16,940Work in process
    
    
    2,028
    
    
    
    1,397Finished goods
    
    
    16,229
    
    
    
    16,504Total inventory, net
    
    $
    42,075
    
    
    $
    34,841Less: Non-current inventory, net
    
    
    (3,164
    )
    
    
    (2,536
    )Total inventory-current, net
    
    $
    38,911
    
    
    $
    32,305
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7. PROPERTY, PLANT AND EQUIPMENT
  September 30,
    
    
    December 31,(in $000s)
    
    2009
    
    
    2008Land
    
    $
    2,270
    
    
    $
    2,270Buildings and improvements
    
    
    58,103
    
    
    
    55,310Equipment
    
    
    54,872
    
    
    
    49,983Office furniture and equipment
    
    
    7,320
    
    
    
    6,733Construction-in-progress
    
    
    20,912
    
    
    
    21,019Property, plant and equipment, gross
    
    $
    143,477
    
    
    $
    135,315Less: Accumulated depreciation
    
    
    (47,020
    )
    
    
    (39,686
    )Property, plant and equipment, net
    
    $
    96,457
    
    
    $
    95,629
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8. ACCRUED EXPENSES
  September 30,
    
    
    December 31,(in $000s)
    
    2009
    
    
    2008Payroll-related expenses
    
    $
    13,835
    
    
    $
    15,147Product returns
    
    
    19,290
    
    
    
    13,675Income taxes payable
    
    
    9,745
    
    
    
    Shelf stock price protection
    
    
    187
    
    
    
    572Medicaid rebates
    
    
    857
    
    
    
    584Royalty expense
    
    
    340
    
    
    
    259Physician detailing sales force fees
    
    
    1,864
    
    
    
    2,279Legal and professional fees
    
    
    5,979
    
    
    
    2,087Litigation settlements
    
    
    
    
    
    
    4,526Other
    
    
    3,702
    
    
    
    2,231Total accrued expenses
    
    $
    55,799
    
    
    $
    41,360
   (in $000s)
    
    September 30,
    
    
    December 31,Returns Reserve
    
    2009
    
    
    2008(in $000s)Beginning balance
    
    $
    13,675
    
    
    $
    14,261Provision related to sales recorded in the period
    
    
    8,386
    
    
    
    5,719Credits issued during the period
    
    
    (2,771
    )
    
    
    (6,305
    )Ending balance
    
    $
    19,290
    
    
    $
    13,675
  Page 19 of 92




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9. INCOME TAXES
     Page 20 of 92




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10. REVOLVING LINE OF CREDIT
      Page 21 of 92




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11. LONG-TERM DEBT
 3.5% Convertible Senior Subordinated Debentures
       Page 22 of 92




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11. LONG-TERM DEBT (continued)
 Adoption of FASB ASC Topic 470
        Page 23 of 92




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11. LONG-TERM DEBT (continued)
  Three Months Ended:
    
    
    Nine Months Ended:September 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,(in $000s)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Contractual interest
    
    $
    
    
    
    $
    456
    
    
    $
    202
    
    
    $
    1,956Discount amortization
    
    
    
    
    
    
    460
    
    
    
    241
    
    
    
    1,946Deferred financing cost amortization
    
    
    
    
    
    
    87
    
    
    
    61
    
    
    
    319Total interest cost
    
    $
    
    
    
    $
    1,003
    
    
    $
    504
    
    
    $
    4,221Effective interest rate on 3.5% Debentures
    
    
    
    %
    
    
    8.4
    %
    
    
    8.6
    %
    
    
    8.4
    %
  September 30,
    
    
    December 31,(in $000s)
    
    2009
    
    
    20083.5% Debentures face value
    
    $
    
    
    
    $
    12,750Unamortized discount
    
    
    
    
    
    
    (241
    )3.5% Debentures net carrying amount
    
    
    
    
    
    
    12,509Subordinated promissory note  (1)
    
    
    
    
    
    
    7,760Vendor financing agreement (2)
    
    
    
    
    
    
    137Total Debt
    
    $
    
    
    
    $
    20,406Less: Current portion
    
    
    
    
    
    
    (14,416
    )Long-term portion
    
    $
    
    
    
    $
    5,990
 (1)
    
    In August 2009, the Company repaid-in-full the remaining outstanding balance of a
subordinated promissory note, paying $6,888,000 of principal and $51,000 of accrued
interest expense. Initially, the subordinated promissory note was issued in June 2006 in the
amount of $11.0 million, with an interest rate of 6.0% per annum, and 24 quarterly
installment payments of $549,165, commencing in March 2007.(2)
    
    Vendor financing agreement at 3.10% payable in two monthly installments of $0 and
34 monthly installments of $12,871 commencing December 2006.  Page 24 of 92




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12. ALLIANCE AND COLLABORATION AGREEMENTS
 Strategic Alliance Agreement with Teva
  Nine Months
    
    
    InceptionEnded
    
    
    Through(in $000s)
    
    September 30,
    
    
    Dec 31,Deferred revenue
    
    2009
    
    
    2008Beginning balance
    
    $
    200,608
    
    
    $
    Additions:Cost-sharing
    
    
    525
    
    
    
    5,953Product-related deferrals
    
    
    34,026
    
    
    
    376,071Sub-total
    
    
    34,551
    
    
    
    382,024Exclusivity charges
    
    
    
    
    
    
    (50,600
    )Forgiveness of advance deposit
    
    
    
    
    
    
    6,000Forgiveness of interest
    
    
    
    
    
    
    4,370Stock repurchase
    
    
    
    
    
    
    2,157Total additions
    
    $
    34,551
    
    
    $
    343,951Less: amounts recognized:Forgiveness of advance deposit
    
    $
    (249
    )
    
    $
    (2,499
    )Forgiveness of interest
    
    
    (183
    )
    
    
    (1,823
    )Stock repurchase
    
    
    (90
    )
    
    
    (899
    )Cost-sharing
    
    
    (489
    )
    
    
    (2,481
    )Product-related revenue
    
    
    (29,159
    )
    
    
    (135,641
    )Total amount recognized
    
    
    (30,170
    )
    
    
    (143,343
    )Total deferred revenue
    
    $
    204,989
    
    
    $
    200,608
 Nine Months
    
    
    Inception(in $000s)
    
    Ended
    
    
    ThroughDeferred product
    
    September 30,
    
    
    Dec 31,manufacturing costs
    
    2009
    
    
    2008Beginning balance
    
    $
    88,361
    
    
    $
    Additions
    
    
    19,053
    
    
    
    151,476Less amounts amortized
    
    
    (15,044
    )
    
    
    (63,115
    )Total deferred product
manufacturing costs
    
    $
    92,370
    
    
    $
    88,361
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12. ALLIANCE AND COLLABORATION AGREEMENTS (continued)
 OTC Partners Alliance Agreements
  Nine Months
    
    
    InceptionEnded
    
    
    Through(in $000s)
    
    September 30,
    
    
    Dec 31,Deferred revenue
    
    2009
    
    
    2008Beginning balance
    
    $
    21,044
    
    
    $
    Additions:Upfront fees and milestone payments
    
    
    
    
    
    
    8,436Cost-sharing and other
    
    
    
    
    
    
    1,642Product-related deferrals
    
    
    1,787
    
    
    
    81,866Total additions
    
    $
    1,787
    
    
    $
    91,944Less: amount recognized:Upfront fees and milestone payments
    
    
    (207
    )
    
    
    (7,469
    )Cost-sharing and other
    
    
    (84
    )
    
    
    (1,438
    )Product-related revenue
    
    
    (4,964
    )
    
    
    (61,993
    )Total amount recognized
    
    
    (5,255
    )
    
    
    (70,900
    )Total deferred revenue
    
    $
    17,576
    
    
    $
    21,044
 Nine Months
    
    
    Inception(in $000s)
    
    Ended
    
    
    ThroughDeferred product
    
    September 30,
    
    
    Dec 31,manufacturing costs
    
    2009
    
    
    2008Beginning balance
    
    $
    18,361
    
    
    $
    Additions:
    
    
    1,800
    
    
    
    75,941Less: amount amortized:
    
    
    (4,706
    )
    
    
    (57,580
    )Total deferred product
manufacturing costs
    
    $
    15,455
    
    
    $
    18,361
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12. ALLIANCE AND COLLABORATION AGREEMENTS (continued)
 Supply and Distribution Agreement with DAVA Pharmaceuticals, Inc.
    InceptionThrough(in $000s)
    
    AprilDeferred revenue
    
    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
    
    $
    
 Inception(in $000s)
    
    ThroughDeferred product
    
    Aprilmanufacturing costs
    
    2008Beginning balance
    
    $
    Additions:
    
    
    29,044Less: amount amortized:
    
    
    (29,044
    )Total deferred product
manufacturing costs
    
    $
    
  Page 27 of 92




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12. ALLIANCE AND COLLABORATION AGREEMENTS (continued)
 Joint Development Agreement with Medicis Pharmaceutical Corporation
   Nine Months
    
    
    InceptionEnded
    
    
    Through(in $000s)
    
    September 30,
    
    
    Dec 31,Deferred revenue
    
    2009
    
    
    2008Beginning balance
    
    $
    39,167
    
    
    $
    Additions:Upfront fees and milestone payments
    
    
    10,000
    
    
    
    40,000Product-related deferrals
    
    
    
    
    
    
    Total additions
    
    $
    10,000
    
    
    $
    40,000Less: amounts recognized:Upfront fees and milestone payments
    
    
    (8,406
    )
    
    
    (833
    )Product-related revenue
    
    
    
    
    
    
    Total amount recognized
    
    
    (8,406
    )
    
    
    (833
    )Total deferred revenue
    
    $
    40,761
    
    
    $
    39,167
  Page 28 of 92




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12. ALLIANCE AND COLLABORATION AGREEMENTS (continued)
 Shire Laboratories Promotional Services Agreement
   Page 29 of 92




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12. ALLIANCE AND COLLABORATION AGREEMENTS (continued)
 Agreements with Wyeth
 Co-Promotion Agreement
  Settlement and Release Agreement
  License Agreement
   Page 30 of 92




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12. ALLIANCE AND COLLABORATION AGREEMENTS (continued)
 Exclusive License, Development and Supply Agreement with Putney
 ®.
    Page 31 of 92




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13. SHARE-BASED COMPENSATION
   Three Months Ended:
    
    
    Nine Months Ended:September 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,(in $000s)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Manufacturing expenses
    
    $
    409
    
    
    $
    352
    
    
    $
    1,145
    
    
    $
    1,202Research and development
    
    
    655
    
    
    
    541
    
    
    
    1,906
    
    
    
    1,713Selling, general & administrative
    
    
    922
    
    
    
    485
    
    
    
    2,128
    
    
    
    1,543Total
    
    $
    1,986
    
    
    $
    1,378
    
    
    $
    5,179
    
    
    $
    4,458
  Weighted AverageNumber of Shares
    
    
    Exercise PriceUnder Option
    
    
    per ShareOutstanding at December 31, 2008
    
    
    8,280,240
    
    
    $
    10.53Options granted
    
    
    1,803,196
    
    
    $
    6.06Options exercised
    
    
    (1,068,177
    )
    
    $
    3.32Options forfeited
    
    
    (1,337,827
    )
    
    $
    13.85Outstanding at September 30, 2009
    
    
    7,677,432
    
    
    $
    9.90Vested and expected to vest at September 30, 2009
    
    
    7,659,816
    
    
    $
    10.02Options exercisable at September 30, 2009
    
    
    4,456,968
    
    
    $
    11.29
   Weighted AverageRestricted
    
    Number of Restricted
    
    
    Grant-DateStock Awards
    
    Stock Awards
    
    
    Fair ValueNon-vested at December 31, 2008
    
    
    399,716
    
    
    $
    10.30Granted
    
    
    629,152
    
    
    $
    6.03Vested
    
    
    (42,800
    )
    
    $
    9.08Forfeited
    
    
    (18,598
    )
    
    $
    7.77Non-vested at September 30, 2009
    
    
    967,470
    
    
    $
    7.53
  Page 32 of 92




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13. SHARE-BASED COMPENSATION (continued)
    Page 33 of 92




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14. STOCKHOLDERS EQUITY (DEFICIT)
 Preferred Stock
  Common Stock
  Shareholders Rights Plan
    Page 34 of 92




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15. EARNINGS PER SHARE
   Three Months Ended:
    
    
    Nine Months Ended:September 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,(in $000s except per share amounts)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Numerator:Net income (loss)
    
    $
    6,685
    
    
    $
    (10,530
    )
    
    $
    11,917
    
    
    $
    7,018Denominator:Weighted average common
shares outstanding
    
    
    60,559,064
    
    
    
    59,166,319
    
    
    
    60,130,608
    
    
    
    58,993,633Effect of dilutive options and common
stock purchase warrants
    
    
    688,636
    
    
    
    
    
    
    
    536,619
    
    
    
    1,820,074Diluted weighted average
common shares outstanding
    
    
    61,247,700
    
    
    
    59,166,319
    
    
    
    60,667,227
    
    
    
    60,813,707Basic net income per share
    
    $
    0.11
    
    
    $
    (0.18
    )
    
    $
    0.20
    
    
    $
    0.12Diluted net income per share
    
    $
    0.11
    
    
    $
    (0.18
    )
    
    $
    0.20
    
    
    $
    0.12
    Page 35 of 92




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16. COMPREHENSIVE INCOME
 Three Months Ended:
    
    
    Nine Months Ended:September 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,(in $000s)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Net income (loss)
    
    $
    6,685
    
    
    $
    (10,530
    )
    
    $
    11,917
    
    
    $
    7,018Currency translation adjustments
    
    
    351
    
    
    
    (905
    )
    
    
    380
    
    
    
    (659
    )Comprehensive income
    
    
    7,036
    
    
    
    (11,435
    )
    
    
    12,297
    
    
    
    6,359Comprehensive income attributable to
the noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive income attributable
to Impax Laboratories, Inc.
    
    $
    7,036
    
    
    $
    (11,435
    )
    
    $
    12,297
    
    
    $
    6,359
  Page 36 of 92




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17. SEGMENT INFORMATION
      Page 37 of 92




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17. SEGMENT INFORMATION (continued)
  (in $000s)
    
    Global
    
    
    Impax
    
    
    Corporate
    
    
    TotalThree Months Ended September 30, 2009
    
    Division
    
    
    Division
    
    
    and Other
    
    
    CompanyRevenue, net
    
    $
    61,447
    
    
    $
    3,499
    
    
    $
    
    
    
    $
    64,946Cost of revenue
    
    
    25,098
    
    
    
    2,957
    
    
    
    
    
    
    
    28,055Research and development
    
    
    8,909
    
    
    
    6,334
    
    
    
    
    
    
    
    15,243Patent Litigation
    
    
    1,647
    
    
    
    
    
    
    
    
    
    
    
    1,647Income (loss) before provision for income taxes
    
    $
    23,232
    
    
    $
    (6,553
    )
    
    $
    (6,499
    )
    
    $
    10,180
 (in $000s)
    
    Global
    
    
    Impax
    
    
    Corporate
    
    
    TotalThree Months Ended September 30, 2008
    
    Division
    
    
    Division
    
    
    and Other
    
    
    CompanyRevenue, net
    
    $
    33,536
    
    
    $
    3,238
    
    
    $
    
    
    
    $
    36,774Cost of revenue
    
    
    19,296
    
    
    
    3,000
    
    
    
    
    
    
    
    22,296Research and development
    
    
    12,253
    
    
    
    3,935
    
    
    
    
    
    
    
    16,188Patent Litigation
    
    
    1,876
    
    
    
    
    
    
    
    
    
    
    
    1,876Income (loss) before provision for income taxes
    
    $
    (4,246
    )
    
    $
    (4,235
    )
    
    $
    (9,899
    )
    
    $
    (18,380
    )
 (in $000s)
    
    Global
    
    
    Impax
    
    
    Corporate
    
    
    TotalNine Months Ended September 30, 2009
    
    Division
    
    
    Division
    
    
    and Other
    
    
    CompanyRevenue, net
    
    $
    172,268
    
    
    $
    10,007
    
    
    $
    
    
    
    $
    182,275Cost of revenue
    
    
    72,339
    
    
    
    9,250
    
    
    
    
    
    
    
    81,589Research and development
    
    
    28,761
    
    
    
    17,983
    
    
    
    
    
    
    
    46,744Patent Litigation
    
    
    4,058
    
    
    
    
    
    
    
    
    
    
    
    4,058Income (loss) before provision for income taxes
    
    $
    59,482
    
    
    $
    (19,754
    )
    
    $
    (21,438
    )
    
    $
    18,290
 (in $000s)
    
    Global
    
    
    Impax
    
    
    Corporate
    
    
    TotalNine Months Ended September 30, 2008
    
    Division
    
    
    Division
    
    
    and Other
    
    
    CompanyRevenue, net
    
    $
    155,648
    
    
    $
    9,728
    
    
    $
    
    
    
    $
    165,376Cost of revenue
    
    
    58,046
    
    
    
    8,332
    
    
    
    
    
    
    
    66,378Research and development
    
    
    31,745
    
    
    
    11,530
    
    
    
    
    
    
    
    43,275Patent Litigation
    
    
    4,827
    
    
    
    
    
    
    
    
    
    
    
    4,827Income (loss) before provision for income taxes
    
    $
    51,754
    
    
    $
    (12,013
    )
    
    $
    (26,962
    )
    
    $
    12,779
  Page 38 of 92




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18. COMMITMENTS AND CONTINGENCIES
 Purchase Order Commitments
  Taiwan Facility Construction
   Page 39 of 92




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19. LEGAL AND REGULATORY MATTERS
 Patent Litigation
        Page 40 of 92




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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)
 ® ® ®
 ® ® ®
  Page 41 of 92




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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)
 ® Markman
  Page 42 of 92




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19. LEGAL AND REGULATORY MATTERS (continued)
 Impax 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)
 ®
  Page 43 of 92




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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)
 ®
 The Research Foundation of State University of New York et al. v. Impax Laboratories, Inc.
(Doxycycline Monohydrate)
 ®
 Elan Pharma International Ltd. and Fournier Laboratories Ireland Ltd. v. Impax Laboratories,
Inc. Abbott Laboratories and Laboratoires Fournier S.A. v. Impax Laboratories, Inc.
(Fenofibrate)
 ®
  Page 44 of 92




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19. LEGAL AND REGULATORY MATTERS (continued)
 Other Litigation Related to Our Business
 Axcan Scandipharm Inc. v. Ethex Corp, et al. (Lipram UL)
 ® ®
 Securities Litigation
   Page 45 of 92




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19. LEGAL AND REGULATORY MATTERS (continued)
 Budeprion XL Litigation
 Kelly v. Teva Pharmaceuticals Indus. Ltd, et al. Morgan v. Teva Pharmaceuticals Indus.
Ltd, et al. th Weber v. Teva
Pharmaceuticals Indus., Ltd., et al Rosenfeld v. Teva
Pharmaceuticals USA, Inc.. et al. Henchenski and Vogel v. Teva
Pharmaceuticals Industries Ltd., et al., Anderson v. Teva
Pharmaceuticals Indus., Ltd., et al. Brown et al. v. Teva
Pharmaceuticals Inds., Ltd., et al. Latvala et al. v. Teva
Pharmaceuticals Inds., Ltd., et al. ®
  Page 46 of 92




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20. SUPPLEMENTARY FINANCIAL INFORMATION (unaudited)
  2009 Quarters Ended:(in $000s except per share amounts)
    
    March 31
    
    
    June 30
    
    
    September 30Revenue:Global product sales, gross
    
    $
    78,696
    
    
    $
    81,764
    
    
    $
    82,514Less:Chargebacks
    
    
    22,638
    
    
    
    24,844
    
    
    
    21,265Rebates
    
    
    10,819
    
    
    
    13,425
    
    
    
    9,411Returns
    
    
    3,256
    
    
    
    3,100
    
    
    
    2,030Other credits
    
    
    2,862
    
    
    
    3,008
    
    
    
    3,172Global product sales, net
    
    
    39,121
    
    
    
    37,387
    
    
    
    46,636Private label product sales
    
    
    1,297
    
    
    
    2,220
    
    
    
    1,752Rx Partner
    
    
    10,736
    
    
    
    11,119
    
    
    
    8,328OTC Partner
    
    
    1,858
    
    
    
    1,628
    
    
    
    1,769Research Partner
    
    
    2,611
    
    
    
    2,833
    
    
    
    2,962Promotional Partner
    
    
    3,284
    
    
    
    3,224
    
    
    
    3,499Other
    
    
    6
    
    
    
    5
    
    
    
    Total revenues
    
    
    58,913
    
    
    
    58,416
    
    
    
    64,946Gross profit
    
    
    32,663
    
    
    
    31,132
    
    
    
    36,891Net income
    
    $
    2,219
    
    
    $
    3,013
    
    
    
    6,685Net income per share (basic)
    
    $
    0.04
    
    
    $
    0.05
    
    
    
    0.11Net income per share (diluted)
    
    $
    0.04
    
    
    $
    0.05
    
    
    
    0.11Weighted Average: common shares outstanding:Basic
    
    
    59,711,133
    
    
    
    60,112,308
    
    
    
    60,559,064Diluted
    
    
    60,222,215
    
    
    
    60,552,344
    
    
    
    61,247,700
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20. SUPPLEMENTARY FINANCIAL INFORMATION (unaudited) (continued)
  2008 Quarters Ended:(in $000s except per share amounts)
    
    March 31
    
    
    June 30
    
    
    September 30Revenues:Global product sales, gross
    
    $
    38,401
    
    
    $
    45,064
    
    
    $
    41,714Less:Chargebacks
    
    
    9,233
    
    
    
    11,033
    
    
    
    13,770Rebates
    
    
    4,191
    
    
    
    5,190
    
    
    
    4,173Returns
    
    
    946
    
    
    
    1,381
    
    
    
    1,478Other credits
    
    
    1,052
    
    
    
    1,474
    
    
    
    2,213Global product sales, net
    
    
    22,979
    
    
    
    25,986
    
    
    
    20,080Private label product sales
    
    
    478
    
    
    
    639
    
    
    
    629Rx Partner
    
    
    18,805
    
    
    
    43,870
    
    
    
    9,424OTC Partner
    
    
    4,409
    
    
    
    4,932
    
    
    
    3,398Research Partner
    
    
    
    
    
    
    
    
    
    
    Promotional Partner
    
    
    3,252
    
    
    
    3,238
    
    
    
    3,238Other
    
    
    7
    
    
    
    7
    
    
    
    5Total revenues
    
    
    49,930
    
    
    
    78,672
    
    
    
    36,774Gross profit
    
    
    26,552
    
    
    
    57,968
    
    
    
    14,478Net income (loss)
    
    $
    460
    
    
    $
    17,088
    
    
    
    (10,530
    )Net income (loss) per share (basic)
    
    $
    0.01
    
    
    $
    0.29
    
    
    
    (0.18
    )Net income (loss) per share (diluted)
    
    $
    0.01
    
    
    $
    0.28
    
    
    
    (0.18
    )Weighted average
common shares outstanding:Basic
    
    
    58,833,979
    
    
    
    58,978,703
    
    
    
    59,166,319Diluted
    
    
    61,126,768
    
    
    
    60,584,709
    
    
    
    59,166,319
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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
    Page 49 of 92




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Overview
     Page 50 of 92




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##### Table of Contents



Global Product Sales, net.
 Private Label Sales. TM
 Rx Partner and OTC Partner.
  Page 51 of 92




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##### Table of Contents



Research Partner
 Promotional Partner
    Page 52 of 92




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##### Table of Contents



Critical Accounting Estimates
     Page 53 of 92




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##### Table of Contents



Chargebacks.
  (in $000s)
    
    September 30,
    
    
    December 31,Chargeback reserve
    
    2009
    
    
    2008Beginning balance
    
    $
    4,056
    
    
    $
    2,977Provision recorded during the period
    
    
    68,747
    
    
    
    50,144Credits issued during the period
    
    
    (66,781
    )
    
    
    (49,065
    )Ending balance
    
    $
    6,022
    
    
    $
    4,056Provision as a percent of Global product sales, gross
    
    
    28
    %
    
    
    28
    %
   Page 54 of 92




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Rebates.
  (in $000s)
    
    September 30,
    
    
    December 31,Rebate reserve
    
    2009
    
    
    2008Beginning balance
    
    $
    4,800
    
    
    $
    3,603Provision recorded during the period
    
    
    33,655
    
    
    
    20,361Credits issued during the period
    
    
    (30,034
    )
    
    
    (19,164
    )Ending balance
    
    $
    8,421
    
    
    $
    4,800Provision as a percent of Global product sales, gross
    
    
    14
    %
    
    
    11
    %
   Page 55 of 92




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Returns.
  (in $000s)
    
    September 30,
    
    
    December 31,Returns Reserve
    
    2009
    
    
    2008Beginning balance
    
    $
    13,675
    
    
    $
    14,261Provision related to
sales recorded in the period
    
    
    8,386
    
    
    
    5,719Credits issued during the period
    
    
    (2,771
    )
    
    
    (6,305
    )Ending balance
    
    $
    19,290
    
    
    $
    13,675Provision as a percent of Global product sales, gross
    
    
    4
    %
    
    
    3
    %
   Page 56 of 92




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Medicaid.
 Shelf-Stock Adjustments.
 Allowance for Uncollectible Amounts
  Page 57 of 92




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Estimated Lives of Alliance Agreements.
     Page 58 of 92




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Third-Party Research and Development Agreements.
 Share-Based Compensation.
 Income Taxes.
 Fair Value of Financial Instruments.
 Contingencies.
  Page 59 of 92




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Goodwill
  Page 60 of 92




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Results of Operations
 Three Months Ended September 30, 2009 Compared to the Three Months Ended September 30, 2008
 Overview:
  Increase/Three Months Ended
    
    
    (Decrease)September 30,
    
    
    September 30,(in $000s)
    
    2009
    
    
    2008
    
    
    $
    
    
    %(unaudited)
    
    
    (unaudited)(as adjusted)Total revenues
    
    $
    64,946
    
    
    $
    36,774
    
    
    $
    28,172
    
    
    
    77
    %Gross profit
    
    
    36,891
    
    
    
    14,478
    
    
    
    22,413
    
    
    
    155
    %Income (loss) from operations
    
    
    10,163
    
    
    
    (18,128
    )
    
    
    28,291
    
    
    nmIncome (loss) before income taxes
    
    
    10,180
    
    
    
    (18,380
    )
    
    
    28,560
    
    
    nmProvision for (benefit from) income taxes
    
    
    3,495
    
    
    
    (7,850
    )
    
    
    11,345
    
    
    nmNet income (loss)
    
    $
    6,685
    
    
    $
    (10,530
    )
    
    $
    17,215
    
    
    nm
 - nm
    
    - not meaningful Net Income
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Global Division
  Increase/Three Months Ended
    
    
    (Decrease)September 30,
    
    
    September 30,(in $000s)
    
    2009
    
    
    2008
    
    
    $
    
    
    %(unaudited)
    
    
    (unaudited)(as adjusted)Revenues:Global product sales, net
    
    $
    46,636
    
    
    $
    20,080
    
    
    $
    26,556
    
    
    
    132
    %Private Label product sales
    
    
    1,752
    
    
    
    629
    
    
    
    1,123
    
    
    
    179
    %Rx Partner
    
    
    8,328
    
    
    
    9,424
    
    
    
    (1,096
    )
    
    
    (12
    )%OTC Partner
    
    
    1,769
    
    
    
    3,398
    
    
    
    (1,629
    )
    
    
    (48
    )%Research Partner
    
    
    2,962
    
    
    
    
    
    
    
    2,962
    
    
    
    Other
    
    
    
    
    
    
    5
    
    
    
    (5
    )
    
    
    (100
    )%Total revenues
    
    
    61,447
    
    
    
    33,536
    
    
    
    27,911
    
    
    
    83
    %Cost of revenues
    
    
    25,098
    
    
    
    19,296
    
    
    
    5,802
    
    
    
    30
    %Gross profit
    
    
    36,349
    
    
    
    14,240
    
    
    
    22,109
    
    
    
    155
    %Operating expenses:Research and development
    
    
    8,909
    
    
    
    12,253
    
    
    
    (3,344
    )
    
    
    (27
    )%Patent litigation
    
    
    1,647
    
    
    
    1,876
    
    
    
    (229
    )
    
    
    (12
    )%Selling, general and administrative
    
    
    2,561
    
    
    
    4,357
    
    
    
    (1,796
    )
    
    
    (41
    )%Total operating expenses
    
    
    13,117
    
    
    
    18,486
    
    
    
    (5,369
    )
    
    
    (29
    )%Income (loss) from operations
    
    $
    23,232
    
    
    $
    (4,246
    )
    
    $
    27,478
    
    
    nm
 - nm
    
    - not meaningful  Page 62 of 92




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Revenues
 ® ®
 Cost of Revenues
  Gross Profit
  Research and Development Expenses
  Patent Litigation Expenses
  Selling, General and Administrative Expenses
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Impax Division
  Increase/Three Months Ended
    
    
    (Decrease)September 30,
    
    
    September 30,(in $000s)
    
    2009
    
    
    2008
    
    
    $
    
    
    %(unaudited)
    
    
    (unaudited)(as adjusted)Promotional Partner revenue
    
    $
    3,499
    
    
    $
    3,238
    
    
    
    261
    
    
    
    8
    %Cost of revenues
    
    
    2,957
    
    
    
    3,000
    
    
    
    (43
    )
    
    
    (1
    )%Gross profit
    
    
    542
    
    
    
    238
    
    
    
    304
    
    
    
    128
    %Operating expenses:Research and development
    
    
    6,334
    
    
    
    3,935
    
    
    
    2,399
    
    
    
    61
    %Selling, general and administrative
    
    
    761
    
    
    
    538
    
    
    
    223
    
    
    
    41
    %Total operating expenses
    
    
    7,095
    
    
    
    4,473
    
    
    
    2,622
    
    
    
    59
    %Loss from operations
    
    $
    (6,553
    )
    
    $
    (4,235
    )
    
    
    (2,318
    )
    
    
    (55
    )%
 Revenues
  Cost of Revenues
  Gross Profit
  Research and Development Expenses
  Selling, General and Administrative Expenses
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Corporate and other
  Increase/Three Months Ended
    
    
    (Decrease)September 30,
    
    
    September 30,(in $000s)
    
    2009
    
    
    2008
    
    
    $
    
    
    %(unaudited)
    
    
    (unaudited)(as adjusted)General and administrative expenses
    
    $
    6,516
    
    
    $
    9,647
    
    
    
    (3,131
    )
    
    
    (32
    )%Loss from operations
    
    
    (6,516
    )
    
    
    (9,647
    )
    
    
    3,131
    
    
    
    32
    %Other income (expense), net
    
    
    22
    
    
    
    (4
    )
    
    
    26
    
    
    nmInterest income
    
    
    180
    
    
    
    723
    
    
    
    (543
    )
    
    
    (75
    )%Interest expense
    
    
    (185
    )
    
    
    (971
    )
    
    
    (786
    )
    
    
    (81
    )%Provision for (benefit from) income taxes
    
    $
    3,495
    
    
    $
    (7,850
    )
    
    
    11,345
    
    
    nm
 - nm
    
    - not meaningful General and Administrative Expenses
  Other income (expense), net
  Interest Income
  Interest Expense
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Income Taxes
   Page 66 of 92




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Nine Months Ended September 30, 2009 Compared to the Nine Months Ended September 30, 2008
 Overview:
  Increase/Nine Months Ended
    
    
    (Decrease)September 30,
    
    
    September 30,(in $000s)
    
    2009
    
    
    2008
    
    
    $
    
    
    %(unaudited)
    
    
    (unaudited)(as adjusted)Total revenues
    
    $
    182,275
    
    
    $
    165,376
    
    
    $
    16,899
    
    
    
    10
    %Gross profit
    
    
    100,686
    
    
    
    98,998
    
    
    
    1,688
    
    
    
    2
    %Income from operations
    
    
    18,284
    
    
    
    13,849
    
    
    
    4,435
    
    
    
    32
    %Income before income taxes
    
    
    18,290
    
    
    
    12,779
    
    
    
    5,511
    
    
    
    43
    %Provision for income taxes
    
    
    6,373
    
    
    
    5,761
    
    
    
    612
    
    
    
    11
    %Net income
    
    $
    11,917
    
    
    $
    7,018
    
    
    $
    4,899
    
    
    
    70
    %
 Net Income
 ® ®
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Global Division
  Increase/Nine Months Ended
    
    
    (Decrease)September 30,
    
    
    September 30,(in $000s)
    
    2009
    
    
    2008
    
    
    $
    
    
    %(unaudited)
    
    
    (unaudited)(as adjusted)Revenues:Global product sales, net
    
    $
    123,144
    
    
    $
    69,044
    
    
    $
    54,100
    
    
    
    78
    %Private Label product sales
    
    
    5,269
    
    
    
    1,747
    
    
    
    3,522
    
    
    
    202
    %Rx Partner
    
    
    30,183
    
    
    
    72,099
    
    
    
    (41,916
    )
    
    
    (58
    )%OTC Partner
    
    
    5,255
    
    
    
    12,739
    
    
    
    (7,484
    )
    
    
    (59
    )%Research Partner
    
    
    8,406
    
    
    
    
    
    
    
    8,406
    
    
    
    Other
    
    
    11
    
    
    
    19
    
    
    
    (8
    )
    
    
    (42
    )%Total revenues
    
    
    172,268
    
    
    
    155,648
    
    
    
    16,620
    
    
    
    11
    %Cost of revenues
    
    
    72,339
    
    
    
    58,046
    
    
    
    14,293
    
    
    
    25
    %Gross profit
    
    
    99,929
    
    
    
    97,602
    
    
    
    2,327
    
    
    
    2
    %Operating expenses:Research and development
    
    
    28,761
    
    
    
    31,745
    
    
    
    (2,984
    )
    
    
    (9
    )%Patent litigation
    
    
    4,058
    
    
    
    4,827
    
    
    
    (769
    )
    
    
    (16
    )%Selling, general and administrative
    
    
    7,628
    
    
    
    9,276
    
    
    
    (1,648
    )
    
    
    (18
    )%Total operating expenses
    
    
    40,447
    
    
    
    45,848
    
    
    
    (5,401
    )
    
    
    (12
    )%Income from operations
    
    $
    59,482
    
    
    $
    51,754
    
    
    
    7,728
    
    
    
    15
    %
 Revenues
 ® ® ® ® ® ® ® ® ®
  Page 68 of 92




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Cost of Revenues
  Gross Profit
 ®
 Research and Development Expenses
  Patent Litigation Expenses
  Selling, General and Administrative Expenses
   Page 69 of 92




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Impax Division
  Increase/Nine Months Ended
    
    
    (Decrease)September 30,
    
    
    September 30,(in $000s)
    
    2009
    
    
    2008
    
    
    $
    
    
    %(unaudited)
    
    
    (unaudited)(as adjusted)Promotional Partner revenue
    
    $
    10,007
    
    
    $
    9,728
    
    
    
    279
    
    
    
    3
    %Cost of revenues
    
    
    9,250
    
    
    
    8,332
    
    
    
    918
    
    
    
    11
    %Gross profit
    
    
    757
    
    
    
    1,396
    
    
    
    (639
    )
    
    
    (46
    )%Operating expenses:Research and development
    
    
    17,983
    
    
    
    11,530
    
    
    
    6,453
    
    
    
    56
    %Selling, general and administrative
    
    
    2,528
    
    
    
    1,879
    
    
    
    649
    
    
    
    35
    %Total operating expenses
    
    
    20,511
    
    
    
    13,409
    
    
    
    7,102
    
    
    
    53
    %Loss from operations
    
    $
    (19,754
    )
    
    $
    (12,013
    )
    
    
    (7,741
    )
    
    
    (64
    )%
 Revenues
  Cost of Revenues
  Gross Profit
  Research and Development Expenses
  Selling, General and Administrative Expenses
   Page 70 of 92




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Corporate and other
  Increase/Nine Months Ended
    
    
    (Decrease)September 30,
    
    
    September 30,(in $000s)
    
    2009
    
    
    2008
    
    
    $
    
    
    %(unaudited)
    
    
    (unaudited)(as adjusted)General and administrative expenses
    
    $
    21,444
    
    
    $
    25,892
    
    
    
    (4,448
    )
    
    
    (17
    )%Loss from operations
    
    
    (21,444
    )
    
    
    (25,892
    )
    
    
    4,448
    
    
    
    17
    %Change in fair value of common stock purchase warrant
    
    
    
    
    
    
    59
    
    
    
    (59
    )
    
    
    (100
    )%Other income, net
    
    
    105
    
    
    
    36
    
    
    
    69
    
    
    
    192
    %Interest income
    
    
    636
    
    
    
    3,282
    
    
    
    (2,646
    )
    
    
    (81
    )%Interest expense
    
    
    (735
    )
    
    
    (4,447
    )
    
    
    (3,712
    )
    
    
    (83
    )%Provision for income taxes
    
    $
    6,373
    
    
    $
    5,761
    
    
    
    612
    
    
    
    11
    %
 General and Administrative Expenses
  Other income (expense), net
  Interest Income
  Interest Expense
   Page 71 of 92




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Income Taxes
   Page 72 of 92




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Liquidity and Capital Resources
    Cash and Cash Equivalents
  Cash Flows
 Nine Months Ended September 30, 2009 Compared to the Nine Months Ended September 30, 2008.
    Page 73 of 92




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Page 74 of 92




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Outstanding Debt Obligations
 Senior Lenders; Wachovia Bank
     Page 75 of 92




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3.5% Debentures
       Page 76 of 92




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Subordinated Promissory Note
   Page 77 of 92




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Recent Accounting Pronouncements
      Page 78 of 92




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Page 79 of 92




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Page 80 of 92




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ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   Page 81 of 92




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ITEM 4T.
    
    CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
   Changes in Internal Control over Financial Reporting
   Page 82 of 92




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PART II. OTHER INFORMATION
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
 Patent Infringement Litigation
 Endo Pharmaceuticals Inc., et al. v. Impax Laboratoires, Inc. (Oxymorphone)
 ® Markman
 Boehringer Ingelheim Pharmaceuticals, et al. v. Impax Laboratories, Inc. (Tamsulosin)
 ®
 The Research Foundation of State University of New York et al. v. Impax Laboratories, Inc.
(Doxycycline Monohydrate)
 ®
 Elan Pharma International Ltd. and Fournier Laboratories Ireland Ltd. v. Impax Laboratories,
Inc. Abbott Laboratories and Laboratoires Fournier S.A. v. Impax Laboratories, Inc.
(Fenofibrate)
 ®
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Other Litigation Related to Our Business
 Budeprion XL Litigation
 Kelly v. Teva Pharmaceuticals Indus. Ltd, et al. Morgan v. Teva Pharmaceuticals Indus. Ltd, et
al. th Weber v. Teva
Pharmaceuticals Indus., Ltd., et al Rosenfeld v. Teva
Pharmaceuticals USA, Inc.. et al. Henchenski and Vogel v. Teva
Pharmaceuticals Industries Ltd., et al., Anderson v. Teva
Pharmaceuticals Indus., Ltd., et al. Brown et al. v. Teva
Pharmaceuticals Inds., Ltd., et al. Latvala et al. v. Teva
Pharmaceuticals Inds., Ltd., et al. ®
  Page 84 of 92




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ITEM 1A.
    
    RISK FACTORS
   Page 85 of 92




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ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  TotalNumber ofShares (orUnits)Purchased
    
    
    Maximum Number (oras Part of
    
    
    Approximate DollarAverage
    
    
    Publicly
    
    
    Value) of Shares (orTotal Number of
    
    
    Price Paid
    
    
    Announced
    
    
    Units) that May YetShares (or Units)
    
    
    Per Share
    
    
    Plans or
    
    
    Be Purchased UnderPeriod
    
    Purchased
    
    
    (or Unit)
    
    
    Programs
    
    
    the Plans or ProgramsJuly 1, 2009 to July 31, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    August 1, 2009 to August 31, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    September 1, 2009 to September 30, 2009
    
    4,557 shares of 
  common stock (1)
    
    $
    7.90
    
    
    
    
    
    
    
    
 (1)
    
    During the indicated periods, we accepted 4,557 shares of our common stock as a tax
withholding from certain of our employees in connection with the vesting of shares of
restricted stock pursuant to the terms of our 2002 Plan.  Page 86 of 92




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ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIES
   Page 87 of 92




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ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   Page 88 of 92




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ITEM 5.
    
    OTHER INFORMATION
   Page 89 of 92




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ITEM 6.
    
    EXHIBITS
 Exhibit No.
    
    Description of Document10.1
    
    
    Joint Development Agreement, dated as of November 26, 2008,
between the Company and Medicis Pharmaceutical Corporation.*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.
 
 *
    
    The Company is re-filing the Joint Development Agreement, dated as of November 26, 2008 (the
Joint Development Agreement), with Medicis Pharmaceutical Corporation to disclose a
milestone payment that was previously omitted pursuant to a request for confidential treatment
pursuant to Rule 24b-2 under the Exchange Act. Certain portions of the Joint Development
Agreement remain confidential pursuant to an order granting confidential treatment under the
Exchange Act, which portions are omitted and filed separately with the SEC.  Page 90 of 92




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SIGNATURES
  Date: November 4, 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 andChief Financial Officer(Principal Financial and Accounting Officer)
  Page 91 of 92




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EXHIBIT INDEX
 Exhibit No.
    
    Description of Document10.1
    
    
    Joint Development Agreement, dated as of November 26, 2008,
between the Company and Medicis Pharmaceutical Corporation.*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.
 
 *
    
    The Company is re-filing the Joint Development Agreement, dated as of November 26, 2008 (the
Joint Development Agreement), with Medicis Pharmaceutical Corporation to disclose a
milestone payment that was previously omitted pursuant to a request for confidential treatment
pursuant to Rule 24b-2 under the Exchange Act. Certain portions of the Joint Development
Agreement remain confidential pursuant to an order granting confidential treatment under the
Exchange Act, which portions are omitted and filed separately with the SEC.  Page 92 of 92