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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 June 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
    
    Smaller reporting company o(Do not check if a smaller 
reporting company)
 o þ




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##### 



Impax Laboratories, Inc.
 INDEX
 PART I: FINANCIAL INFORMATIONItem 1:Financial Statements- Consolidated Balance Sheets as of June 30, 2009 (unaudited) and December 31, 2008
    
    
    3- Consolidated Statements of Operations for each of the three and six months ended
June 30, 2009 and 2008 (unaudited)
    
    
    4- Consolidated Statements of Cash Flows for each of the six months ended
June 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
    
    
    79Item 4T:Controls and Procedures
    
    
    80PART II: OTHER INFORMATIONItem 1:Legal Proceedings
    
    
    81Item 1A:Risk Factors
    
    
    82Item 2:Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    83Item 3:Defaults Upon Senior Securities
    
    
    83Item 4:Submission of Matters to a Vote of Security Holders
    
    
    84Item 5:Other Information
    
    
    84Item 6:Exhibits
    
    
    85SIGNATURES
    
    
    86EXHIBIT INDEX
    
    
    87Exhibit 10.2.2Exhibit 10.3Exhibit 10.5Exhibit 10.6Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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Impax Laboratories, Inc.
 
 CONSOLIDATED BALANCE SHEETS
 (in thousands, except share and per share data)
 June 30,
    
    
    December 31,2009
    
    
    2008(unaudited)
    
    
    (as adjusted)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    42,198
    
    
    $
    69,275Short-term investments
    
    
    61,072
    
    
    
    50,710Accounts receivable, net
    
    
    53,530
    
    
    
    43,306Inventory, net
    
    
    33,008
    
    
    
    32,305Current portion of deferred product manufacturing costs-alliance agreements
    
    
    14,474
    
    
    
    13,578Current portion of deferred income taxes
    
    
    25,943
    
    
    
    17,900Prepaid expenses and other current assets
    
    
    3,059
    
    
    
    9,298Total current assets
    
    
    233,284
    
    
    
    236,372Property, plant and equipment, net
    
    
    95,844
    
    
    
    95,629Deferred product manufacturing costs-alliance agreements
    
    
    94,321
    
    
    
    93,144Deferred income taxes, net
    
    
    51,480
    
    
    
    52,551Other assets
    
    
    13,502
    
    
    
    9,017Goodwill
    
    
    27,574
    
    
    
    27,574Total assets
    
    $
    516,005
    
    
    $
    514,287LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt, net
    
    $
    1,887
    
    
    $
    14,416Accounts payable
    
    
    14,180
    
    
    
    12,797Accrued expenses
    
    
    44,503
    
    
    
    41,360Current portion of deferred revenue-alliance agreements
    
    
    37,966
    
    
    
    35,015Current portion of accrued exclusivity period fee payments due
    
    
    
    
    
    
    6,000Total current liabilities
    
    
    98,536
    
    
    
    109,588Long-term debt
    
    
    5,065
    
    
    
    5,990Deferred revenue-alliance agreements
    
    
    225,959
    
    
    
    225,804Other liabilities
    
    
    15,180
    
    
    
    13,255Total liabilities
    
    $
    344,740
    
    
    $
    354,637Commitments and contingencies (Note 18)Stockholders equity:Preferred Stock, $0.01 par value, 2,000,000 shares authorized,
0 shares outstanding at June 30, 2009 and December 31, 2008
    
    $
    
    
    
    $
    Common stock, $0.01 par value, 90,000,000 shares authorized and
61,727,109 and 60,135,686 shares issued at June 30, 2009
and December 31, 2008, respectively
    
    
    617
    
    
    
    602Additional paid-in capital
    
    
    217,492
    
    
    
    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
    
    
    (966
    )
    
    
    (995
    )Accumulated deficit
    
    
    (44,001
    )
    
    
    (49,233
    )170,985
    
    
    
    159,345Noncontrolling interest
    
    
    280
    
    
    
    305Total stockholders equity
    
    
    171,265
    
    
    
    159,650Total liabilities and stockholders equity
    
    $
    516,005
    
    
    $
    514,287
   3




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Impax Laboratories, Inc.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (dollars in thousands, except share and per share data)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(unaudited)
    
    
    (unaudited)
    
    
    (unaudited)
    
    
    (unaudited)(as adjusted)
    
    
    
    
    
    (as adjusted)Revenues:Global product sales, net
    
    $
    37,387
    
    
    $
    25,986
    
    
    $
    76,508
    
    
    $
    48,965Private Label product sales
    
    
    2,220
    
    
    
    639
    
    
    
    3,517
    
    
    
    1,117Rx Partner
    
    
    11,119
    
    
    
    43,870
    
    
    
    21,855
    
    
    
    62,675OTC Partner
    
    
    1,628
    
    
    
    4,932
    
    
    
    3,486
    
    
    
    9,341Research Partner
    
    
    2,833
    
    
    
    
    
    
    
    5,444
    
    
    
    Promotional Partner
    
    
    3,224
    
    
    
    3,238
    
    
    
    6,508
    
    
    
    6,490Other
    
    
    5
    
    
    
    7
    
    
    
    11
    
    
    
    14Total revenues
    
    
    58,416
    
    
    
    78,672
    
    
    
    117,329
    
    
    
    128,602Cost of revenues
    
    
    27,284
    
    
    
    20,704
    
    
    
    53,534
    
    
    
    44,082Gross profit
    
    
    31,132
    
    
    
    57,968
    
    
    
    63,795
    
    
    
    84,520Operating expenses:Research and development
    
    
    15,712
    
    
    
    13,779
    
    
    
    31,502
    
    
    
    27,086Patent litigation
    
    
    1,394
    
    
    
    1,250
    
    
    
    2,411
    
    
    
    2,951Selling, general and administrative
    
    
    10,039
    
    
    
    12,112
    
    
    
    21,760
    
    
    
    22,505Total operating expenses
    
    
    27,145
    
    
    
    27,141
    
    
    
    55,673
    
    
    
    52,542Income from operations
    
    
    3,987
    
    
    
    30,827
    
    
    
    8,122
    
    
    
    31,978Change in fair value of common stock
purchase warrant
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    59Other income (expense), net
    
    
    18
    
    
    
    (20
    )
    
    
    83
    
    
    
    40Interest income
    
    
    307
    
    
    
    1,022
    
    
    
    456
    
    
    
    2,559Interest expense
    
    
    (256
    )
    
    
    (1,712
    )
    
    
    (550
    )
    
    
    (3,477
    )Income before income taxes
    
    
    4,056
    
    
    
    30,132
    
    
    
    8,111
    
    
    
    31,159Provision for income taxes
    
    
    1,043
    
    
    
    13,044
    
    
    
    2,879
    
    
    
    13,611Net income
    
    $
    3,013
    
    
    $
    17,088
    
    
    $
    5,232
    
    
    $
    17,548Net Income per share:Basic
    
    $
    0.05
    
    
    $
    0.29
    
    
    $
    0.09
    
    
    $
    0.30Diluted
    
    $
    0.05
    
    
    $
    0.28
    
    
    $
    0.09
    
    
    $
    0.29Weighted average common shares outstanding:Basic
    
    
    60,112,308
    
    
    
    58,978,703
    
    
    
    59,912,829
    
    
    
    58,906,341Diluted
    
    
    60,552,344
    
    
    
    60,584,709
    
    
    
    60,384,179
    
    
    
    60,870,589
   4




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Impax Laboratories, Inc.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (dollars in thousands)
 Six Months Ended June 30,2009
    
    
    2008(unaudited)
    
    
    (unaudited)(as adjusted)Cash flows from operating activities:Net income
    
    $
    5,232
    
    
    $
    17,548Adjustments to reconcile net income to net cash (used in) provided by
operating activities:Depreciation
    
    
    5,192
    
    
    
    4,441Amortization of 3.5% Debentures discount and deferred financing costs
    
    
    301
    
    
    
    1,486Amortization of Wachovia Credit Agreement deferred financing costs
    
    
    25
    
    
    
    234Bad debt expense
    
    
    45
    
    
    
    125Deferred income taxes (benefit)
    
    
    (6,972
    )
    
    
    6,818Provision for uncertain tax positions
    
    
    463
    
    
    
    Deferred revenue  Rx Partners
    
    
    27,697
    
    
    
    70,386Deferred product manufacturing costs  Rx Partners
    
    
    (14,755
    )
    
    
    (17,608
    )Deferred revenue recognized  Rx Partners
    
    
    (21,855
    )
    
    
    (62,675
    )Amortization deferred product manufacturing costs  Rx Partners
    
    
    10,765
    
    
    
    12,139Deferred revenue  OTC Partners
    
    
    1,194
    
    
    
    10,878Deferred product manufacturing costs  OTC Partners
    
    
    (1,202
    )
    
    
    (10,860
    )Deferred revenue recognized  OTC Partners
    
    
    (3,486
    )
    
    
    (9,341
    )Amortization deferred product manufacturing costs  OTC Partners
    
    
    3,119
    
    
    
    8,938Deferred revenue  Research Partners
    
    
    5,000
    
    
    
    Deferred revenue recognized  Research Partners
    
    
    (5,444
    )
    
    
    Payments on exclusivity period fee
    
    
    (6,000
    )
    
    
    (6,000
    )Payments on accrued litigation settlements
    
    
    (1,098
    )
    
    
    (1,098
    )Share-based compensation expense
    
    
    3,193
    
    
    
    3,080Accretion of interest income on short-term investments
    
    
    (277
    )
    
    
    (1,749
    )Change in fair value of stock purchase warrants
    
    
    
    
    
    
    (59
    )Changes in assets and liabilities:Accounts receivable
    
    
    (10,269
    )
    
    
    7,365Inventory
    
    
    (703
    )
    
    
    (1,866
    )Prepaid expenses and other assets
    
    
    1,899
    
    
    
    (581
    )Accounts payable and accrued expenses
    
    
    4,440
    
    
    
    (5,218
    )Other liabilities
    
    
    1,437
    
    
    
    1,039Net cash (used in) provided by operating activities
    
    $
    (2,059
    )
    
    $
    27,422Cash flows from investing activities:Purchase of short-term investments
    
    
    (41,772
    )
    
    
    (162,693
    )Maturities of short-term investments
    
    
    31,687
    
    
    
    165,418Purchases of property, plant and equipment
    
    
    (5,367
    )
    
    
    (12,776
    )Net cash used in investing activities
    
    $
    (15,452
    )
    
    $
    (10,051
    )Cash flows from financing activities:Repayment of long-term debt
    
    
    (12,823
    )
    
    
    (5,244
    )Proceeds from exercise of stock options and purchases under the ESPP
    
    
    3,257
    
    
    
    155Net cash used in financing activities
    
    $
    (9,566
    )
    
    $
    (5,089
    )Net (decrease) increase in cash and cash equivalents
    
    $
    (27,077
    )
    
    $
    12,282Cash and cash equivalents, beginning of period
    
    $
    69,275
    
    
    $
    37,462Cash and cash equivalents, end of period
    
    $
    42,198
    
    
    $
    49,744
  5




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Six Months Ended June 30,(in $000s)
    
    2009
    
    
    2008Cash paid for interest
    
    $
    511
    
    
    $
    1,973Cash paid for income taxes
    
    $
    97
    
    
    $
    4,626
    6




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NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 1. BASIS OF PRESENTATION
        Three Months Ended:
    
    
    Six Months Ended:June 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,(in $000s except per share amounts)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Additional interest expense
    
    $
    117
    
    
    $
    787
    
    
    $
    253
    
    
    $
    1,558Provision (benefit) for income taxes
    
    
    (41
    )
    
    
    (278
    )
    
    
    (89
    )
    
    
    (550
    )Decrease in net income
    
    $
    (76
    )
    
    $
    (509
    )
    
    $
    (164
    )
    
    $
    (1,008
    )Decrease in Net income per share:Basic
    
    $
    
    
    
    $
    (0.01
    )
    
    $
    
    
    
    $
    (0.02
    )Diluted
    
    $
    
    
    
    $
    (0.01
    )
    
    $
    
    
    
    $
    (0.02
    )
   7




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1. BASIS OF PRESENTATION (continued)
    8




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##### Table of Contents



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:
   9




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##### Table of Contents



2. REVENUE RECOGNITION (continued)
 Rx Partner and OTC Partner:
     
   10




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##### Table of Contents



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




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3. RECENT ACCOUNTING PRONOUNCEMENTS
       12




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3. RECENT ACCOUNTING PRONOUNCEMENTS (continued)
       13




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##### Table of Contents



3. RECENT ACCOUNTING PRONOUNCEMENTS (continued)
  TM TM
  14




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4. INVESTMENTS
   Gross
    
    
    Gross(in $000s)
    
    Amortized
    
    
    Unrecognized
    
    
    Unrecognized
    
    
    FairJune 30, 2009
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueCommercial paper
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Government agency obligations
    
    
    57,785
    
    
    
    143
    
    
    
    
    
    
    
    57,928Corporate bonds
    
    
    3,020
    
    
    
    
    
    
    
    (1
    )
    
    
    3,019Asset-backed securities
    
    
    32
    
    
    
    
    
    
    
    
    
    
    
    32Certificates of deposit
    
    
    235
    
    
    
    
    
    
    
    
    
    
    
    235Total short-term investments
    
    $
    61,072
    
    
    $
    143
    
    
    $
    (1
    )
    
    $
    61,214
 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
  15




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5. ACCOUNTS RECEIVABLE
  June 30,
    
    
    December 31,(in $000s)
    
    2009
    
    
    2008Gross accounts receivable
    
    $
    70,958
    
    
    $
    54,591Less: Rebate reserve
    
    
    (8,433
    )
    
    
    (4,800
    )Less: Chargeback reserve
    
    
    (6,391
    )
    
    
    (4,056
    )Less: Other deductions
    
    
    (2,604
    )
    
    
    (2,429
    )Accounts receivable, net
    
    $
    53,530
    
    
    $
    43,306
  (in $000s)
    
    June 30,
    
    
    December 31Rebate reserve
    
    2009
    
    
    2008Beginning balance
    
    $
    4,800
    
    
    $
    3,603Provision recorded during the period
    
    
    24,244
    
    
    
    20,361Credits issued during the period
    
    
    (20,611
    )
    
    
    (19,164
    )Ending balance
    
    $
    8,433
    
    
    $
    4,800
 (in $000s)
    
    June 30,
    
    
    December 31Chargeback reserve
    
    2009
    
    
    2008Beginning balance
    
    $
    4,056
    
    
    $
    2,977Provision recorded during the period
    
    
    47,482
    
    
    
    50,144Credits issued during the period
    
    
    (45,147
    )
    
    
    (49,065
    )Ending balance
    
    $
    6,391
    
    
    $
    4,056
   16




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6. INVENTORY
  June 30,
    
    
    December 31,(in $000s)
    
    2009
    
    
    2008Raw materials
    
    $
    21,011
    
    
    $
    16,940Work in process
    
    
    1,870
    
    
    
    1,397Finished goods
    
    
    12,824
    
    
    
    16,504Total inventory, net
    
    $
    35,705
    
    
    $
    34,841Less: Non-current inventory, net
    
    
    (2,697
    )
    
    
    (2,536
    )Total inventory-current, net
    
    $
    33,008
    
    
    $
    32,305
       17




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7. PROPERTY, PLANT AND EQUIPMENT
  June 30,
    
    
    December 31,(in $000s)
    
    2009
    
    
    2008Land
    
    $
    2,270
    
    
    $
    2,270Buildings and improvements
    
    
    57,991
    
    
    
    55,310Equipment
    
    
    52,944
    
    
    
    49,983Office furniture and equipment
    
    
    6,778
    
    
    
    6,733Construction-in-progress
    
    
    20,347
    
    
    
    21,019Property, plant and equipment, gross
    
    $
    140,330
    
    
    $
    135,315Less: Accumulated depreciation
    
    
    (44,486
    )
    
    
    (39,686
    )Property, plant and equipment, net
    
    $
    95,844
    
    
    $
    95,629
   18




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8. ACCRUED EXPENSES
  June 30,
    
    

December
31,(in $000s)
    
    2009
    
    
    2008Payroll-related expenses
    
    $
    12,572
    
    
    $
    15,147Product returns
    
    
    18,222
    
    
    
    13,675Shelf stock price protection
    
    
    408
    
    
    
    572Medicaid rebates
    
    
    559
    
    
    
    584Royalty expense
    
    
    402
    
    
    
    259Physician detailing sales force fees
    
    
    1,830
    
    
    
    2,279Legal and professional fees
    
    
    4,102
    
    
    
    2,087Litigation settlements
    
    
    808
    
    
    
    4,526Other
    
    
    5,600
    
    
    
    2,231Total accrued expenses
    
    $
    44,503
    
    
    $
    41,360
   June 30,
    
    
    December 31,(in $000s)
    
    2009
    
    
    2008Beginning balance
    
    $
    13,675
    
    
    $
    14,261Provision related to
sales recorded in the period
    
    
    6,356
    
    
    
    5,719Credits issued during the period
    
    
    (1,809
    )
    
    
    (6,305
    )Ending balance
    
    $
    18,222
    
    
    $
    13,675
  19




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9. INCOME TAXES
     20




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10. REVOLVING LINE OF CREDIT
     21




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




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11. LONG-TERM DEBT (continued)
 Adoption of FSP APB 14-1
       23




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##### Table of Contents



11. LONG-TERM DEBT (continued)
  Three Months Ended:
    
    
    Six Months Ended:June 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,(in $000s)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Contractual interest
    
    $
    74
    
    
    $
    750
    
    
    $
    202
    
    
    $
    1,500Discount amortization
    
    
    111
    
    
    
    751
    
    
    
    241
    
    
    
    1,486Deferred financing cost amortization
    
    
    41
    
    
    
    116
    
    
    
    61
    
    
    
    232Total interest cost
    
    $
    226
    
    
    $
    1,617
    
    
    $
    504
    
    
    $
    3,218Effective interest rate on 3.5% Debentures
    
    
    8.5
    %
    
    
    8.6
    %
    
    
    8.6
    %
    
    
    8.6
    %
  June 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)
    
    
    6,889
    
    
    
    7,760Vendor financing agreement (2)
    
    
    63
    
    
    
    137Total Debt
    
    $
    6,952
    
    
    $
    20,406Less: Current portion
    
    
    (1,887
    )
    
    
    (14,416
    )Long-term portion
    
    $
    5,065
    
    
    $
    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 June 30, 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.  24




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##### Table of Contents



12. ALLIANCE AGREEMENTS
 Strategic Alliance Agreement with Teva
  Six Months
    
    
    InceptionEnded
    
    
    Through(in $000s)
    
    June 30,
    
    
    Dec 31,Deferred revenue
    
    2009
    
    
    2008Beginning balance
    
    $
    200,608
    
    
    $
    Additions:Cost-sharing
    
    
    350
    
    
    
    5,953Product-related deferrals
    
    
    27,297
    
    
    
    376,071Sub-total
    
    
    27,647
    
    
    
    382,024Exclusivity charges
    
    
    
    
    
    
    (50,600
    )Forgiveness of advance deposit
    
    
    
    
    
    
    6,000Forgiveness of interest
    
    
    
    
    
    
    4,370Stock repurchase
    
    
    
    
    
    
    2,157Total additions
    
    $
    27,647
    
    
    $
    343,951Less: amounts recognized:Forgiveness of advance deposit
    
    $
    (166
    )
    
    $
    (2,499
    )Forgiveness of interest
    
    
    (122
    )
    
    
    (1,823
    )Stock repurchase
    
    
    (60
    )
    
    
    (899
    )Cost-sharing
    
    
    (321
    )
    
    
    (2,481
    )Product-related revenue
    
    
    (21,175
    )
    
    
    (135,641
    )Total amount recognized
    
    
    (21,844
    )
    
    
    (143,343
    )Total deferred revenue
    
    $
    206,411
    
    
    $
    200,608
 Six Months
    
    
    InceptionEnded
    
    
    Through(in $000s)
    
    June 30,
    
    
    Dec 31,Deferred product manufacturing costs
    
    2009
    
    
    2008Beginning balance
    
    $
    88,361
    
    
    $
    Additions
    
    
    14,755
    
    
    
    151,476Less amounts amortized
    
    
    (10,765
    )
    
    
    (63,115
    )Total deferred product
manufacturing costs
    
    $
    92,351
    
    
    $
    88,361
  25




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12. ALLIANCE AGREEMENTS (continued)
 OTC Partners Alliance Agreements
  Six Months
    
    
    InceptionEnded
    
    
    Through Inception(in $000s)
    
    June 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
    
    
    1,194
    
    
    
    81,866Total additions
    
    $
    1,194
    
    
    $
    91,944Less: amount recognized:Upfront fees and milestone payments
    
    
    (138
    )
    
    
    (7,469
    )Cost-sharing and other
    
    
    (56
    )
    
    
    (1,438
    )Product-related revenue
    
    
    (3,292
    )
    
    
    (61,993
    )Total amount recognized
    
    
    (3,486
    )
    
    
    (70,900
    )Total deferred revenue
    
    $
    18,752
    
    
    $
    21,044
 Six Months
    
    
    InceptionEnded
    
    
    Through(in $000s)
    
    June 30,
    
    
    Dec 31,Deferred product manufacturing costs
    
    2009
    
    
    2008Beginning balance
    
    $
    18,361
    
    
    $
    Additions:
    
    
    1,202
    
    
    
    75,941Less: amount amortized:
    
    
    (3,119
    )
    
    
    (57,580
    )Total deferred product
manufacturing costs
    
    $
    16,444
    
    
    $
    18,361
  26




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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
    
    $
    
 Inception(in $000s)
    
    ThroughDeferred
product manufacturing costs
    
    April 2008Beginning balance
    
    $
    Additions:
    
    
    29,044Less: amount amortized:
    
    
    (29,044
    )Total deferred product
manufacturing costs
    
    $
    
  27




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12. ALLIANCE AGREEMENTS (continued)
 Joint Development Agreement with Medicis Pharmaceutical Corporation
   Six Months
    
    
    InceptionEnded
    
    
    Through(in $000s)
    
    June 30,
    
    
    Dec 31,Deferred revenue
    
    2009
    
    
    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
    
    
    (5,444
    )
    
    
    (833
    )Product-related revenue
    
    
    
    
    
    
    Total amount recognized
    
    
    (5,444
    )
    
    
    (833
    )Total deferred revenue
    
    $
    38,723
    
    
    $
    39,167
  28




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12. ALLIANCE AGREEMENTS (continued)
 Shire Laboratories Promotional Services Agreement
    29




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##### Table of Contents



12. ALLIANCE AGREEMENTS (continued)
 Agreements with Wyeth
  Settlement and Release Agreement
  License Agreement
  Co-Promotion Agreement
   30




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##### Table of Contents



12. ALLIANCE AGREEMENTS (continued)
 Exclusive License, Development and Supply Agreement with Putney
 ®.
    31




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13. SHARE-BASED COMPENSATION
   Three Months Ended:
    
    
    Six Months Ended:June 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,(in $000s)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Manufacturing expenses
    
    $
    387
    
    
    $
    377
    
    
    $
    736
    
    
    $
    850Research and development
    
    
    648
    
    
    
    555
    
    
    
    1,250
    
    
    
    1,172Selling, general & administrative
    
    
    721
    
    
    
    523
    
    
    
    1,207
    
    
    
    1,058Total
    
    $
    1,756
    
    
    $
    1,455
    
    
    $
    3,193
    
    
    $
    3,080
  Weighted AverageNumber of Shares
    
    
    Exercise PriceUnder Option
    
    
    per ShareOutstanding at December 31, 2008
    
    
    8,280,240
    
    
    $
    10.53Options granted
    
    
    1,776,696
    
    
    $
    6.04Options exercised
    
    
    (997,768
    )
    
    $
    3.26Options forfeited
    
    
    (1,162,383
    )
    
    $
    14.21Outstanding at June 30, 2009
    
    
    7,896,785
    
    
    $
    9.89Vested and expected to vest at June 30, 2009
    
    
    7,800,758
    
    
    $
    10.00Options exercisable at June 30, 2009
    
    
    4,502,852
    
    
    $
    11.26
   Weighted AverageRestricted
    
    Number of Restricted
    
    
    Grant-DateStock Awards
    
    Stock Awards
    
    
    Fair ValueNon-vested at December 31, 2008
    
    
    399,716
    
    
    $
    10.30Granted
    
    
    618,852
    
    
    $
    6.00Vested
    
    
    (30,450
    )
    
    $
    9.35Forfeited
    
    
    (14,360
    )
    
    $
    8.12Non-vested at June 30, 2009
    
    
    973,758
    
    
    $
    7.54
   32




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13. SHARE-BASED COMPENSATION (continued)
   33




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##### Table of Contents



14. STOCKHOLDERS EQUITY (DEFICIT)
 Preferred Stock
  Common Stock
  Shareholders Rights Plan
    34




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##### Table of Contents



15. EARNINGS PER SHARE
   Three Months Ended:
    
    
    Six Months Ended:June 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,(in
$000s except per share amounts)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Numerator:Net income
    
    $
    3,013
    
    
    $
    17,088
    
    
    $
    5,232
    
    
    $
    17,548Denominator:Weighted average common
shares outstanding
    
    
    60,112,308
    
    
    
    58,978,703
    
    
    
    59,912,829
    
    
    
    58,906,341Effect of dilutive options and common
stock purchase warrants
    
    
    440,036
    
    
    
    1,606,006
    
    
    
    471,350
    
    
    
    1,964,248Diluted weighted average
common shares outstanding
    
    
    60,552,344
    
    
    
    60,584,709
    
    
    
    60,384,179
    
    
    
    60,870,589Basic net income per share
    
    $
    0.05
    
    
    $
    0.29
    
    
    $
    0.09
    
    
    $
    0.30Diluted net income per share
    
    $
    0.05
    
    
    $
    0.28
    
    
    $
    0.09
    
    
    $
    0.29
  The Effect of Contingently Convertible Instruments on Diluted Earnings
per Share
  35




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16. COMPREHENSIVE INCOME
 Three Months Ended:
    
    
    Six Months Ended:June 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,(in
$000s)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Net income
    
    $
    3,013
    
    
    $
    17,088
    
    
    $
    5,232
    
    
    $
    17,548Currency translation adjustments
    
    
    729
    
    
    
    46
    
    
    
    29
    
    
    
    246Comprehensive income
    
    
    3,742
    
    
    
    17,134
    
    
    
    5,261
    
    
    
    17,794Comprehensive income attributable to
the noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive income attributable
to Impax Laboratories, Inc.
    
    $
    3,742
    
    
    $
    17,134
    
    
    $
    5,261
    
    
    $
    17,794
  36




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17. SEGMENT INFORMATION
      37




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##### Table of Contents



17. SEGMENT INFORMATION (continued)
  (in $000s)
    
    Global
    
    
    Impax
    
    
    Corporate
    
    
    TotalThree Months Ended June 30, 2009
    
    Division
    
    
    Division
    
    
    and Other
    
    
    CompanyRevenue, net
    
    $
    55,192
    
    
    $
    3,224
    
    
    $
    
    
    
    $
    58,416Cost of revenue
    
    
    24,007
    
    
    
    3,277
    
    
    
    
    
    
    
    27,284Research and development
    
    
    9,578
    
    
    
    6,134
    
    
    
    
    
    
    
    15,712Patent Litigation
    
    
    1,394
    
    
    
    
    
    
    
    
    
    
    
    1,394Income (loss) before provision for income taxes
    
    $
    17,740
    
    
    $
    (6,914
    )
    
    $
    (6,770
    )
    
    $
    4,056
 (in $000s)
    
    Global
    
    
    Impax
    
    
    Corporate
    
    
    TotalThree Months Ended June 30, 2008
    
    Division
    
    
    Division
    
    
    and Other
    
    
    CompanyRevenue, net
    
    $
    75,434
    
    
    $
    3,238
    
    
    $
    
    
    
    $
    78,672Cost of revenue
    
    
    18,340
    
    
    
    2,364
    
    
    
    
    
    
    
    20,704Research and development
    
    
    10,395
    
    
    
    3,384
    
    
    
    
    
    
    
    13,779Patent Litigation
    
    
    1,250
    
    
    
    
    
    
    
    
    
    
    
    1,250Income (loss) before provision for income taxes
    
    $
    42,835
    
    
    $
    (3,376
    )
    
    $
    (9,327
    )
    
    $
    30,132
 (in $000s)
    
    Global
    
    
    Impax
    
    
    Corporate
    
    
    TotalSix Months Ended June 30, 2009
    
    Division
    
    
    Division
    
    
    and Other
    
    
    CompanyRevenue, net
    
    $
    110,821
    
    
    $
    6,508
    
    
    $
    
    
    
    $
    117,329Cost of revenue
    
    
    47,240
    
    
    
    6,294
    
    
    
    
    
    
    
    53,534Research and development
    
    
    19,853
    
    
    
    11,649
    
    
    
    
    
    
    
    31,502Patent Litigation
    
    
    2,411
    
    
    
    
    
    
    
    
    
    
    
    2,411Income (loss) before provision for income taxes
    
    $
    36,250
    
    
    $
    (13,202
    )
    
    $
    (14,937
    )
    
    $
    8,111
 (in $000s)
    
    Global
    
    
    Impax
    
    
    Corporate
    
    
    TotalSix Months Ended June 30, 2008
    
    Division
    
    
    Division
    
    
    and Other
    
    
    CompanyRevenue, net
    
    $
    122,112
    
    
    $
    6,490
    
    
    $
    
    
    
    $
    128,602Cost of revenue
    
    
    38,750
    
    
    
    5,332
    
    
    
    
    
    
    
    44,082Research and development
    
    
    19,491
    
    
    
    7,595
    
    
    
    
    
    
    
    27,086Patent Litigation
    
    
    2,951
    
    
    
    
    
    
    
    
    
    
    
    2,951Income (loss) before provision for income taxes
    
    $
    56,001
    
    
    $
    (7,778
    )
    
    $
    (17,064
    )
    
    $
    31,159
  38




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##### Table of Contents



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




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##### Table of Contents



19. LEGAL AND REGULATORY MATTERS
 Patent Litigation
        40




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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)
 ® ® ®
 ® ® ®
  41




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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)
 ®
  42




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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)
 ®
  43




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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)
 ®
  44




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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
    45




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##### Table of Contents



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. ®
  46




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##### Table of Contents



20. SUPPLEMENTARY FINANCIAL INFORMATION (unaudited)
  2009 Quarters Ended:(in $000s except per share amounts)
    
    March 31
    
    
    June 30Revenue:Global product sales, gross
    
    $
    78,696
    
    
    $
    81,764Less:Chargebacks
    
    
    22,638
    
    
    
    24,844Rebates
    
    
    10,819
    
    
    
    13,425Returns
    
    
    3,256
    
    
    
    3,100Other credits
    
    
    2,862
    
    
    
    3,008Global product sales, net
    
    
    39,121
    
    
    
    37,387Private label product sales
    
    
    1,297
    
    
    
    2,220Rx Partner
    
    
    10,736
    
    
    
    11,119OTC Partner
    
    
    1,858
    
    
    
    1,628Research Partner
    
    
    2,611
    
    
    
    2,833Promotional Partner
    
    
    3,284
    
    
    
    3,224Other
    
    
    6
    
    
    
    5Total revenues
    
    
    58,913
    
    
    
    58,416Gross profit
    
    
    32,663
    
    
    
    31,132Net income
    
    $
    2,219
    
    
    $
    3,013Net income per share (basic)
    
    $
    0.04
    
    
    $
    0.05Net income per share (diluted)
    
    $
    0.04
    
    
    $
    0.05Weighted Average:common shares outstanding:Basic
    
    
    59,711,133
    
    
    
    60,112,308Diluted
    
    
    60,222,215
    
    
    
    60,552,344
   47




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20. SUPPLEMENTARY FINANCIAL INFORMATION
  2008 Quarters Ended:(in $000s except per share amounts)
    
    March 31
    
    
    June 30Revenues:Global product sales, gross
    
    $
    38,401
    
    
    $
    45,064Less:Chargebacks
    
    
    9,233
    
    
    
    11,033Rebates
    
    
    4,191
    
    
    
    5,190Returns
    
    
    946
    
    
    
    1,381Other credits
    
    
    1,052
    
    
    
    1,474Global product sales, net
    
    
    22,979
    
    
    
    25,986Private label product sales
    
    
    478
    
    
    
    639Rx Partner
    
    
    18,805
    
    
    
    43,870OTC Partner
    
    
    4,409
    
    
    
    4,932Research Partner
    
    
    
    
    
    
    Promotional Partner
    
    
    3,252
    
    
    
    3,238Other
    
    
    7
    
    
    
    7Total revenues
    
    
    49,930
    
    
    
    78,672Gross profit
    
    
    26,552
    
    
    
    57,968Net income
    
    $
    460
    
    
    $
    17,088Net income per share (basic)
    
    $
    0.01
    
    
    $
    0.29Net income per share (diluted)
    
    $
    0.01
    
    
    $
    0.28Weighted averagecommon shares outstanding:Basic
    
    
    58,833,979
    
    
    
    58,978,703Diluted
    
    
    61,126,768
    
    
    
    60,584,709
   48




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
    49




---



##### Table of Contents



Overview
     50




---



##### Table of Contents



Global Product Sales, net.
 Private Label Sales.
 Rx Partner and OTC Partner.
  51




---



##### Table of Contents



Research Partner
 Promotional Partner
    52




---



##### Table of Contents



Critical Accounting Estimates
     53




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##### Table of Contents



Chargebacks.
  (in $000s)
    
    June 30,
    
    
    December 31,Chargeback reserve
    
    2009
    
    
    2008Beginning balance
    
    $
    4,056
    
    
    $
    2,977Provision recorded during the period
    
    
    47,482
    
    
    
    50,144Credits issued during the period
    
    
    (45,147
    )
    
    
    (49,065
    )Ending balance
    
    $
    6,391
    
    
    $
    4,056Provision as a percent of Global product sales, gross
    
    
    30
    %
    
    
    28
    %
   54




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##### Table of Contents



Rebates.
  (in $000s)
    
    June 30,
    
    
    December 31,Rebate reserve
    
    2009
    
    
    2008Beginning balance
    
    $
    4,800
    
    
    $
    3,603Provision recorded during the period
    
    
    24,244
    
    
    
    20,361Credits issued during the period
    
    
    (20,611
    )
    
    
    (19,164
    )Ending balance
    
    $
    8,433
    
    
    $
    4,800Provision as a percent of Global product sales, gross
    
    
    15
    %
    
    
    11
    %
   55




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##### Table of Contents



Returns.
  June 30,
    
    
    December 31,(in $000s)
    
    2009
    
    
    2008Beginning balance
    
    $
    13,675
    
    
    $
    14,261Provision related to
sales recorded in the period
    
    
    6,356
    
    
    
    5,719Credits issued during the period
    
    
    (1,809
    )
    
    
    (6,305
    )Ending balance
    
    $
    18,222
    
    
    $
    13,675Provision as a percent of Global product sales, gross
    
    
    4
    %
    
    
    3
    %
   56




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##### Table of Contents



Medicaid.
 Shelf-Stock Adjustments.
 Allowance for Uncollectible Amounts
  57




---



##### Table of Contents



Estimated Lives of Alliance Agreements.
     58




---



##### Table of Contents



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




---



##### Table of Contents



Goodwill
  60




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##### Table of Contents



Results of Operations
 Three Months Ended June 30, 2009 Compared to the Three Months Ended June 30, 2008
 Overview:
  Increase/Three Months Ended June 30,
    
    
    (Decrease)(in $000s)
    
    2009
    
    
    2008
    
    
    $
    
    
    %(unaudited)
    
    
    (unaudited)(as adjusted)Total revenues
    
    $
    58,416
    
    
    $
    78,672
    
    
    $
    (20,256
    )
    
    
    (26
    )%Gross profit
    
    
    31,132
    
    
    
    57,968
    
    
    
    (26,836
    )
    
    
    (46
    )%Income from operations
    
    
    3,987
    
    
    
    30,827
    
    
    
    (26,840
    )
    
    
    (87
    )%Income before income taxes
    
    
    4,056
    
    
    
    30,132
    
    
    
    (26,076
    )
    
    
    (87
    )%Provision for income taxes
    
    
    1,043
    
    
    
    13,044
    
    
    
    (12,001
    )
    
    
    (92
    )%Net income
    
    $
    3,013
    
    
    $
    17,088
    
    
    $
    (14,075
    )
    
    
    (82
    )%
 Net Income
 ®
  61




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##### Table of Contents



Global Division
  Increase/Three Months Ended June 30,
    
    
    (Decrease)(in $000s)
    
    2009
    
    
    2008
    
    
    $
    
    
    %(unaudited)
    
    
    (unaudited)(as adjusted)Revenues:Global product sales, net
    
    $
    37,387
    
    
    $
    25,986
    
    
    $
    11,401
    
    
    
    44
    %Private Label product sales
    
    
    2,220
    
    
    
    639
    
    
    
    1,581
    
    
    
    247
    %Rx Partner
    
    
    11,119
    
    
    
    43,870
    
    
    
    (32,751
    )
    
    
    (75
    )%OTC Partner
    
    
    1,628
    
    
    
    4,932
    
    
    
    (3,304
    )
    
    
    (67
    )%Research Partner
    
    
    2,833
    
    
    
    
    
    
    
    2,833
    
    
    
    Other
    
    
    5
    
    
    
    7
    
    
    
    (2
    )
    
    
    (27
    )%Total revenues
    
    
    55,192
    
    
    
    75,434
    
    
    
    (20,242
    )
    
    
    (27
    )%Cost of revenues
    
    
    24,007
    
    
    
    18,340
    
    
    
    5,667
    
    
    
    31
    %Gross profit
    
    
    31,185
    
    
    
    57,094
    
    
    
    (25,909
    )
    
    
    (45
    )%Operating expenses:Research and development
    
    
    9,578
    
    
    
    10,395
    
    
    
    (817
    )
    
    
    (8
    )%Patent litigation
    
    
    1,394
    
    
    
    1,250
    
    
    
    144
    
    
    
    12
    %Selling, general and administrative
    
    
    2,473
    
    
    
    2,614
    
    
    
    (141
    )
    
    
    (5
    )%Total operating expenses
    
    
    13,445
    
    
    
    14,259
    
    
    
    (814
    )
    
    
    (6
    )%Income from operations
    
    $
    17,740
    
    
    $
    42,835
    
    
    $
    (25,095
    )
    
    
    (59
    )%
  62




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##### Table of Contents



Revenues
 ® ® ® ® ® ® ® ® ®
 Cost of Revenues
  Gross Profit
 ®
 Research and Development Expenses
  Patent Litigation Expenses
  Selling, General and Administrative Expenses
   63




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##### Table of Contents



Impax Division
  Increase/Three Months Ended June 30,
    
    
    (Decrease)(in $000s)
    
    2009
    
    
    2008
    
    
    $
    
    
    %(unaudited)
    
    
    (unaudited)(as adjusted)Promotional Partner revenue
    
    $
    3,224
    
    
    $
    3,238
    
    
    
    (14
    )
    
    
    
    %Cost of revenues
    
    
    3,277
    
    
    
    2,364
    
    
    
    913
    
    
    
    39
    %Gross profit (loss)
    
    
    (53
    )
    
    
    874
    
    
    
    (927
    )
    
    
    (106
    )%Operating expenses:Research and development
    
    
    6,134
    
    
    
    3,384
    
    
    
    2,750
    
    
    
    81
    %Selling, general and administrative
    
    
    727
    
    
    
    866
    
    
    
    (139
    )
    
    
    (16
    )%Total operating expenses
    
    
    6,861
    
    
    
    4,250
    
    
    
    2,611
    
    
    
    61
    %Income (loss) from operations
    
    $
    (6,914
    )
    
    $
    (3,376
    )
    
    
    (3,538
    )
    
    
    (105
    )%
 Revenues
  Cost of Revenues
  Gross Profit (Loss)
  Research and Development Expenses
  Selling, General and Administrative Expenses
   64




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##### Table of Contents



Corporate and other
  Increase/Three Months Ended June 30,
    
    
    (Decrease)(in $000s)
    
    2009
    
    
    2008
    
    
    $
    
    
    %(unaudited)
    
    
    (unaudited)(as adjusted)General and administrative expenses
    
    $
    6,839
    
    
    $
    8,632
    
    
    
    (1,793
    )
    
    
    (21
    )%Income (loss) from operations
    
    
    (6,839
    )
    
    
    (8,632
    )
    
    
    1,793
    
    
    
    21
    %Change in fair value of common stock purchase warrant
    
    
    
    
    
    
    15
    
    
    
    (15
    )
    
    
    (100
    )%Other income (expense), net
    
    
    17
    
    
    
    (20
    )
    
    
    37
    
    
    
    185
    %Interest income
    
    
    307
    
    
    
    1,022
    
    
    
    (715
    )
    
    
    (70
    )%Interest expense
    
    
    (256
    )
    
    
    (1,712
    )
    
    
    (1,456
    )
    
    
    (85
    )%Provision for income taxes
    
    $
    1,042
    
    
    $
    13,044
    
    
    
    (12,002
    )
    
    
    (92
    )%
 General and Administrative Expenses
  Other income (expense), net
  Interest Income
  Interest Expense
   65




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##### Table of Contents



Income Taxes
   66




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##### Table of Contents



Six Months Ended June 30, 2009 Compared to the Six Months Ended June 30, 2008
 Overview:
  Increase/Six Months Ended June 30,
    
    
    (Decrease)(in $000s)
    
    2009
    
    
    2008
    
    
    $
    
    
    %(unaudited)
    
    
    (unaudited)(as adjusted)Total revenues
    
    $
    117,329
    
    
    $
    128,602
    
    
    $
    (11,273
    )
    
    
    (9
    )%Gross profit
    
    
    63,795
    
    
    
    84,520
    
    
    
    (20,725
    )
    
    
    (25
    )%Income from operations
    
    
    8,122
    
    
    
    31,978
    
    
    
    (23,856
    )
    
    
    (75
    )%Income before income taxes
    
    
    8,111
    
    
    
    31,159
    
    
    
    (23,048
    )
    
    
    (74
    )%Provision for income taxes
    
    
    2,879
    
    
    
    13,611
    
    
    
    (10,732
    )
    
    
    (79
    )%Net income
    
    $
    5,232
    
    
    $
    17,548
    
    
    $
    (12,316
    )
    
    
    (70
    )%
 Net Income
 ®
  67




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Global Division
  Increase/Six Months Ended June 30,
    
    
    (Decrease)(in $000s)
    
    2009
    
    
    2008
    
    
    $
    
    
    %(unaudited)
    
    
    (unaudited)(as adjusted)Revenues:Global product sales, net
    
    $
    76,508
    
    
    $
    48,965
    
    
    $
    27,543
    
    
    
    56
    %Private Label product sales
    
    
    3,517
    
    
    
    1,117
    
    
    
    2,400
    
    
    
    215
    %Rx Partner
    
    
    21,855
    
    
    
    62,675
    
    
    
    (40,820
    )
    
    
    (65
    )%OTC Partner
    
    
    3,486
    
    
    
    9,341
    
    
    
    (5,855
    )
    
    
    (63
    )%Research Partner
    
    
    5,444
    
    
    
    
    
    
    
    5,444
    
    
    
    Other
    
    
    11
    
    
    
    14
    
    
    
    (3
    )
    
    
    (21
    )%Total revenues
    
    
    110,821
    
    
    
    122,112
    
    
    
    (11,291
    )
    
    
    (9
    )%Cost of revenues
    
    
    47,240
    
    
    
    38,750
    
    
    
    8,490
    
    
    
    22
    %Gross profit
    
    
    63,581
    
    
    
    83,362
    
    
    
    (19,781
    )
    
    
    (24
    )%Operating expenses:Research and development
    
    
    19,853
    
    
    
    19,491
    
    
    
    362
    
    
    
    2
    %Patent litigation
    
    
    2,411
    
    
    
    2,951
    
    
    
    (540
    )
    
    
    (18
    )%Selling, general and administrative
    
    
    5,067
    
    
    
    4,919
    
    
    
    148
    
    
    
    3
    %Total operating expenses
    
    
    27,331
    
    
    
    27,361
    
    
    
    (30
    )
    
    
    
    %Income from operations
    
    $
    36,250
    
    
    $
    56,001
    
    
    
    (19,751
    )
    
    
    (35
    )%
 Revenues
 ® ® ® ® ® ® ® ® ®
  68




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##### Table of Contents



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




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##### Table of Contents



Impax Division
  Increase/Six Months Ended June 30,
    
    
    (Decrease)(in $000s)
    
    2009
    
    
    2008
    
    
    $
    
    
    %(unaudited)
    
    
    (unaudited)(as adjusted)Promotional Partner revenue
    
    $
    6,508
    
    
    $
    6,490
    
    
    
    18
    
    
    
    
    %Cost of revenues
    
    
    6,294
    
    
    
    5,332
    
    
    
    962
    
    
    
    18
    %Gross profit
    
    
    214
    
    
    
    1,158
    
    
    
    (944
    )
    
    
    (82
    )%Operating expenses:Research and development
    
    
    11,649
    
    
    
    7,595
    
    
    
    4,054
    
    
    
    53
    %Selling, general and administrative
    
    
    1,767
    
    
    
    1,341
    
    
    
    426
    
    
    
    32
    %Total operating expenses
    
    
    13,416
    
    
    
    8,936
    
    
    
    4,480
    
    
    
    50
    %Income (loss) from operations
    
    $
    (13,202
    )
    
    $
    (7,778
    )
    
    
    (5,424
    )
    
    
    (70
    )%
 Revenues
  Cost of Revenues
  Gross Profit
  Research and Development Expenses
  Selling, General and Administrative Expenses
   70




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##### Table of Contents



Corporate and other
  Increase/Six Months Ended June 30,
    
    
    (Decrease)(in $000s)
    
    2009
    
    
    2008
    
    
    $
    
    
    %(unaudited)
    
    
    (unaudited)(as adjusted)General and administrative expenses
    
    $
    14,926
    
    
    $
    16,245
    
    
    
    (1,319
    )
    
    
    (8
    )%Income (loss) from operations
    
    
    (14,926
    )
    
    
    (16,245
    )
    
    
    1,319
    
    
    
    8
    %Change in fair value of common stock purchase warrant
    
    
    
    
    
    
    59
    
    
    
    (59
    )
    
    
    (100
    %)Other income , net
    
    
    83
    
    
    
    40
    
    
    
    43
    
    
    
    108
    %Interest income
    
    
    456
    
    
    
    2,559
    
    
    
    (2,103
    )
    
    
    (82
    )%Interest expense
    
    
    (550
    )
    
    
    (3,477
    )
    
    
    (2,927
    )
    
    
    (84
    )%Provision for income taxes
    
    $
    2,879
    
    
    $
    13,611
    
    
    
    (10,732
    )
    
    
    (79
    )%
 General and Administrative Expenses
  Other income (expense), net
  Interest Income
  Interest Expense
   71




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##### Table of Contents



Income Taxes
   72




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##### Table of Contents



Liquidity and Capital Resources
  Cash and Cash Equivalents
  Cash Flows
 Six Months Ended June 30, 2009 Compared to the Six Months Ended June 30, 2008.
  ®
  73




---



##### Table of Contents



74




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##### Table of Contents



Outstanding Debt Obligations
 Senior Lenders; Wachovia Bank
     75




---



##### Table of Contents



3.5% Debentures
      Solvay Promissory Note
   76




---



##### Table of Contents



Recent Accounting Pronouncements
 
      77




---



##### Table of Contents



78




---



##### Table of Contents



TM TM
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   79




---



##### Table of Contents



ITEM 4T. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
   Changes in Internal Control over Financial Reporting
   80




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
 Patent Infringement Litigation
 Boehringer Ingelheim Pharmaceuticals, et al. v. Impax Laboratories, Inc. (Tamsulosin)
 ®
 Eurand, Inc., et al. v. Impax Laboratories, Inc. (Cyclobenzaprine)
 ®
 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)
 ®
  81




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##### Table of Contents



Other Litigation Related to Our Business
 Freeberg v. Impax Laboratories, Inc., et al. (Freeberg)
  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. ®
 
 ITEM 1A. RISK FACTORS
   82




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##### Table of Contents



ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  Total Numberof Shares(or Units)
    
    
    Maximum NumberPurchased as
    
    
    (or Approximate DollarAverage
    
    
    Part of
    
    
    Value) of SharesTotal Number of
    
    
    Price Paid
    
    
    Publicly
    
    
    (or Units) that May Yet BeShares
    
    
    Per Share
    
    
    Announced
    
    
    Purchased Under thePeriod
    
    (or Units) Purchased
    
    

(or Unit)
    
    
    Plans or Programs
    
    
    Plans or ProgramsApril 1, 2009 to April 30, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    May 1,
2009 to May 31, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    June 1,
2009 to June 30, 2009
    
    5,942 shares ofcommon stock (1)
    
    
    $7.59$12.75 million
    
    $1,000 perprincipal
    
    
    1,000amount of 3.5%
    
    principalDebentures (2)
    
    amount (2)
    
    
    
    
    
    
    
 (1)
    
    During the indicated periods, we accepted 5,942 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 Amended and Restated 2002 Equity Incentive Plan.(2)
    
    On June 15, 2009, we repurchased, at the request of the holders, an aggregate of $12.75
million in principal amount of our 3.5% Debentures, which were convertible into our common
stock at an initial conversion price of $20.69 per share, for $12.75 million plus $
0.2 million of interest accrued through the repurchase date. 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
   83




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##### Table of Contents



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    Nominee
    
    For
    
    
    WithheldLeslie Z. Benet, Ph.D.
    
    
    48,003,834
    
    
    
    9,560,779Robert L. Burr
    
    
    48,007,403
    
    
    
    9,557,210Nigel Ten Fleming, Ph.D.
    
    
    47,922,443
    
    
    
    9,642,170Larry Hsu, Ph.D.
    
    
    49,741,456
    
    
    
    7,823,157Michael Markbreiter
    
    
    49,817,788
    
    
    
    7,746,825Oh Kim Sun
    
    
    49,822,862
    
    
    
    7,741,751Peter R. Terreri
    
    
    49,817,958
    
    
    
    7,746,655
  For
    
    Against
    
    Abstain
    
    Broker Non-Votes34,958,662
    
    12,124,298
    
    58,181
    
    10,423,472
  For
    
    Against
    
    Abstain
    
    Broker Non-Votes33,761,649
    
    13,154,382
    
    125,110
    
    10,423,472
  For
    
    Against
    
    Abstain
    
    Broker Non-Votes55,148,006
    
    2,384,787
    
    31,820
    
    
 
 ITEM 5. OTHER INFORMATION
   84




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##### Table of Contents



ITEM 6. EXHIBITS
 Exhibit No.
    
    Description of Document3.1
    
    
    Amended and Restated Bylaws of the Company, effective June 29, 2009. (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. (2)10.2.1
    
    
    Impax Laboratories Inc. Amended and Restated 2002 Equity Incentive Plan.* (3)10.2.2
    
    
    Amendment to Impax Laboratories, Inc. Amended and Restated 2002 Equity
Incentive Plan, effective May 19, 2009.*10.3
    
    
    Amendment No. 1, dated May 19, 2009, to Employment Agreement, dated December
14, 1999, by and between the Company and Larry Hsu, Ph.D.*10.4
    
    
    Promotional Services Agreement, dated as of January 19, 2006, by and between
the Company and Shire US Inc. (1)10.5
    
    
    Joint Development Agreement, dated as of November 26, 2008, between the
Company and Medicis Pharmaceutical Corporation.**10.6
    
    

Copromotion
Agreement, dated July 16, 2008, by and between the Company and
Wyeth, acting through its Wyeth Pharmaceuticals Division.***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.**
    
    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.***
    
    The Company is re-filing
the Copromotion Agreement, dated July 16, 2008 (the
Copromotion Agreement), with Wyeth, acting through
its Wyeth Pharmaceutical Division, to disclose the name of the initial product
and related information under the agreement, which was previously omitted
pursuant to a request for confidential treatment pursuant to Rule 24b-2
under the Exchange Act. Certain portions of the Copromotion Agreement remain
confidential pursuant to an order granting confidential treatment under the
Exchange Act, which portions are omitted and filed separately with the SEC.(1)
    
    Incorporated by reference to the Companys Current Report on Form 8-K filed on July 2, 2009.(2)
    
    Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the quarter
ended March 31, 2009.(3)
    
    Incorporated by reference to the Companys Definitive Proxy Statement on Schedule 14A filed
on April 8, 2009.  85




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##### Table of Contents



SIGNATURES
  Date: August 5, 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)  86




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description of Document3.1
    
    
    Amended and Restated Bylaws of the Company, effective June 29, 2009. (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. (2)10.2.1
    
    
    Impax Laboratories Inc. Amended and Restated 2002 Equity Incentive Plan.* (3)10.2.2
    
    
    Amendment to Impax Laboratories, Inc. Amended and Restated 2002 Equity
Incentive Plan, effective May 19, 2009.*10.3
    
    
    Amendment No. 1, dated May 19, 2009, to Employment Agreement, dated December
14, 1999, by and between the Company and Larry Hsu, Ph.D.*10.4
    
    
    Promotional Services Agreement, dated as of January 19, 2006, by and between
the Company and Shire US Inc. (1)10.5
    
    
    Joint Development Agreement, dated as of November 26, 2008, between the
Company and Medicis Pharmaceutical Corporation.**10.6
    
    

Copromotion
Agreement, dated July 16, 2008, by and between the Company and
Wyeth, acting through its Wyeth Pharmaceuticals Division.***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.**
    
    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.***
    
    The Company is re-filing
the Copromotion Agreement, dated July 16, 2008 (the
Copromotion Agreement), with Wyeth, acting through
its Wyeth Pharmaceutical Division, to disclose the name of the initial product
and related information under the agreement, which was previously omitted
pursuant to a request for confidential treatment pursuant to Rule 24b-2
under the Exchange Act. Certain portions of the Copromotion Agreement remain
confidential pursuant to an order granting confidential treatment under the
Exchange Act, which portions are omitted and filed separately with the SEC.(1)
    
    Incorporated by reference to the Companys Current Report on Form 8-K filed on July 2, 2009.(2)
    
    Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the quarter
ended March 31, 2009.(3)
    
    Incorporated by reference to the Companys Definitive Proxy Statement on Schedule 14A filed
on April 8, 2009.  87