Why Impax Laboratories Shares Cratered

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of pharmaceutical company Impax Laboratories (NASDAQ: IPXL  ) plunged as much as 26% after announcing an update on the Food and Drug Administration's inspection at its Hayward, Calif., facility for its idiopathic Parkinson's drug, Rytary.

So what: The FDA's findings from its pre-approval inspection and good manufacturing practices inspection revealed 12 points of concern -- three of which were repeat violations that the FDA had issued concerns about in a warning letter in 2011. Unfortunately, this would appear to pit Impax and the FDA much further apart than investors had first thought with regard to the number and scope of manufacturing deficiencies discovered. Brokerage firm Canaccord also downgraded Impax on the news from "buy" to "hold," adding insult to injury.

Now what: This really is a shame because Rytary has shown plenty of promise in trials, and there's little question about its efficacy. However, two complete response letters later and Impax still can't seem to get things right. One possible scenario could see the company sell its entire rights to Rytary to international licensing partner GlaxoSmithKline (NYSE: GSK  )  -- if it wereinterested that is! While this scenario is a long shot, it's pretty clear Impax has no clue what to do to bring Rytary to market, and it can't be completely discounted. The other scenario is Impax will trudge along, make the appropriate fixes, and perhaps in nine months to a year we'll see if the third time is the charm.

Craving more input? Start by adding Impax Laboratories to your free and personalized watchlist so you can keep up on the latest news with the company.

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Comments from our Foolish Readers

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  • Report this Comment On March 05, 2013, at 2:57 PM, awallejr wrote:

    Well why the long delay on addressing the 2011 letter lies squarely at the CEO's feet. And the biggest problem with any regulatory agency is once they keep coming back for inspections they always seem to find more issues.

    The company should go point blank with the FDA and flat out ask them how they want things fixed otherwise this could be never ending.

    I think the market is over reacting as usual since the company has no debt, sitting on 300 million cash and has other profitable products on the market.

    The CEO may need to go but since this is also a Taiwan involved company too perhaps that is where his usefulness lies.

    I say start buying because the market has overshot to the downside and all the weak hands have left.

  • Report this Comment On March 05, 2013, at 11:17 PM, naughtyguy wrote:

    If you look at a five year chart, this doesn't look like much of a correction. The company still has a billion dollar market cap.

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