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How Impax Labs Can Impact Your Portfolio

Max Macaluso
August 6, 2012

Migraine drug Zomig helped Impax Laboratories (Nasdaq: IPXL  ) avoid a major financial headache this quarter.

The company licensed Zomig's U.S. commercial rights from Astra Zeneca (NYSE: AZN  ) earlier this year, and the deal has already started to pay off. Impax's revenue this quarter increased 32% year over year, and adjusted net income grew by 225% compared to Q2 2011. Net profit margin also increased from 10% to 11.2%, and this number is likely to improve as Impax pays the remainder of its Zomig licensing expenses this year.

Impax's generic-drug division, which comprised 80% of the company's sales this quarter, also had solid growth. Its generic version of the ADHD drug Adderall was a big seller and helped to increase year-over-year revenue by 10.4%.

A strong quarter is always good news for investors, but long-term success in the pharmaceutical industry depends on a rich pipeline. Fortunately, Impax has 46 new generic drugs under review at the FDA, and recently agreed to license several approved generics from pharmaceutical company TOLMAR. These drugs reportedly brought in almost $380 million over the past year, and Impax only has to pay TOLMAR up to $46 million in upfront and milestone payments to complete the deal.

The future for Impax's drug discovery division also looks rosy. Its Parkinson's disease drug, Rytary (IPX066), is gunning for FDA approval in October, its multiple sclerosis therapeutic has completed a first phase III trial, and a restless leg syndrome (RLS) drug is in phase IIb clinical trials.

RLS is indeed a real disease. According to the National Institute of Neurological Disorders and Stroke, it afflicts 10% of Americans. To give you an idea of its market size, GlaxoSmithKline's dual RLS/Parkinson's disease drug Requip earned $68 million in U.S. sales in fiscal 2011. RLS treatments clearly lack the blockbuster potential of drugs like Viagra and Lipitor, but Impax's drug will diversify the company's product line and can bring in modest and steady revenue if approved.