Common Stock
Pursuant to its Certificate of Incorporation, the Company is authorized to issue
150,000,000
shares of common stock,
$0.01
par value per share, of which
74,080,636
shares have been issued and
73,836,907
shares were outstanding as of
March 31, 2018
. In addition, the Company had reserved for issuance the following amounts of shares of its common stock for the purposes described below as of
March 31, 2018
(in thousands):
|
|
|
|
|
|
|
Shares issued
|
74,081
|
|
|
Stock options outstanding
(1)
|
3,042
|
|
|
Conversion of Notes payable
(2)
|
9,471
|
|
|
Warrants outstanding (see below)
|
9,471
|
|
|
Total shares of common stock issued and reserved for issuance
|
96,065
|
|
(1)
See “Note 13. Share-based Compensation.”
(2)
See “Note 10. Debt.”
Warrants
As discussed in “Note 10. Debt,” on June 30, 2015, the Company entered into a series of Note Hedge Transactions and Warrant Transactions with a financial institution which are designed to reduce the potential dilution to the Company’s stockholders and/or offset the cash payments the Company is required to make in excess of the principal amount upon conversion of the Notes. Pursuant to the Warrant Transactions, the Company sold to a financial institution
9.47 million
warrants to purchase the Company’s common stock, for which it received proceeds of
$88.3 million
. The warrants have an exercise price of
$81.277
per share (subject to adjustment), are immediately exercisable, and have an expiration date of September 15, 2022.
Additional Paid-in Capital
Pursuant to the Note Hedge Transactions, the Company purchased from a financial institution
0.6 million
call options on the Company's common stock, for which it paid consideration of
$147.0 million
. Each call option entitles the Company to purchase
15.7858
shares of the Company's common stock at an exercise price of
$63.35
per share, is immediately exercisable, and has an expiration date of June 15, 2022, subject to earlier exercise. At the time of the Note Hedge Transactions, because of an insufficient number of authorized but unissued shares of the Company's common stock, these call options did not meet the criteria for equity classification under ASC 815-40 and were accounted for as a derivative asset.
Retained Earnings
Effective January 1, 2018, the Company adopted FASB ASU 2014-09, “
Revenue from Contracts with Customers
” (Topic 606) regarding the accounting for and disclosures of revenue recognition. The Company adopted the new guidance using the modified retrospective transition method, which resulted in a
$0.4 million
charge to opening retained earnings for 2018.
12. EARNINGS PER SHARE
The Company's basic earnings per common share (“EPS”) is computed by dividing net income (loss) available to the Company’s common stockholders (as presented on the consolidated statements of operations) by the weighted-average number of shares of the Company’s common stock outstanding during the period. The Company’s restricted stock awards (non-vested shares) are issued and outstanding at the time of grant but are excluded from the Company’s computation of weighted-average shares outstanding in the determination of basic EPS until vesting occurs.
For purposes of calculating diluted EPS, the denominator includes both the weighted-average number of shares of common stock outstanding and the number of common stock equivalents if the inclusion of such common stock equivalents would be dilutive. Dilutive common stock equivalents potentially include warrants, stock options and non-vested restricted stock awards using the treasury stock method and the number of shares of common stock issuable upon conversion of the Company’s outstanding convertible notes payable. In the case of the Company’s outstanding convertible notes payable, the diluted EPS calculation is further affected by an add-back of interest expense, net of tax, to the numerator under the assumption that the interest would not have been incurred if the convertible notes had been converted into common stock.
The following is a reconciliation of basic and diluted net loss per share of common stock for the
three
months ended
March 31, 2018
and
2017
(in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2018
|
|
2017
|
|
|
Basic Loss Per Common Share:
|
|
|
|
|
|
Net loss
|
$
|
(130,932
|
)
|
|
$
|
(98,431
|
)
|
|
|
Weighted-average common shares outstanding
|
72,266
|
|
|
71,594
|
|
|
|
Basic loss per share
|
$
|
(1.81
|
)
|
|
$
|
(1.37
|
)
|
|
|
|
|
|
|
|
|
Diluted Loss Per Common Share:
|
|
|
|
|
|
Net loss
|
$
|
(130,932
|
)
|
|
$
|
(98,431
|
)
|
|
|
Add-back of interest expense on outstanding convertible notes payable, net of tax
|
—
|
|
(1)
|
—
|
|
(1)
|
|
Adjusted net loss
|
$
|
(130,932
|
)
|
|
$
|
(98,431
|
)
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
72,266
|
|
|
71,594
|
|
|
|
Weighted-average incremental shares related to assumed exercise of warrants and stock options, vesting of non-vested shares and ESPP share issuance
|
—
|
|
(2)
|
—
|
|
(2)
|
|
Weighted-average incremental shares assuming conversion of outstanding notes payable
|
—
|
|
(1)
|
—
|
|
(1)
|
|
Diluted weighted-average common shares outstanding
|
72,266
|
|
(2)
|
71,594
|
|
(2)
|
|
Diluted loss per share
|
$
|
(1.81
|
)
|
|
$
|
(1.37
|
)
|
|
|
|
|
|
(1)
|
For the three months ended
March 31, 2018
and 2017, the Company incurred a net loss, which cannot be diluted, so basic and diluted loss per common share were the same. Accordingly, there were no numerator or denominator adjustments related to the Company’s outstanding Notes.
|
|
|
|
|
(2)
|
For the three months ended
March 31, 2018
and 2017, the Company incurred a net loss, which cannot be diluted, so basic and diluted loss per common share were the same. As of
March 31, 2018
, shares issuable but not included in the Company's calculation of diluted EPS, which could potentially dilute future earnings, included
9.47 million
warrants outstanding,
9.47 million
shares for conversion of outstanding Notes payable,
3.04 million
stock options outstanding and
1.56 million
non-vested restricted stock awards. As of
March 31, 2017
, shares issuable but not included in the Company's calculation of diluted EPS, which could potentially dilute future earnings, include
9.47 million
warrants outstanding,
9.47 million
shares for conversion of outstanding Notes payable,
3.34 million
stock options outstanding and
2.21 million
non-vested restricted stock awards.
|
13. SHARE-BASED COMPENSATION
The Company recognizes the grant date fair value of each option and share of restricted stock over its vesting period. Stock options and restricted stock awards are granted under the Company’s Fourth Amended and Restated 2002 Equity Incentive Plan (the “2002 Plan”) and generally vest over a
four
year period and, in the case of stock options, have a term of
10
years.
Impax Laboratories, Inc. Fourth Amended and Restated 2002 Equity Incentive Plan
The aggregate number of shares of common stock authorized for issuance pursuant to the Company's 2002 Plan is
18,050,000
shares. There were
2,192,269
and
2,324,997
stock options outstanding as of
March 31, 2018
and
December 31, 2017
, respectively, and
1,560,684
and
1,861,489
non-vested restricted stock awards outstanding as of
March 31, 2018
and
December 31, 2017
, respectively, under the 2002 Plan.
Impax Laboratories, Inc. 1999 Equity Incentive Plan ("1999 Plan")
The aggregate number of shares of common stock authorized for issuance pursuant to the Company’s 1999 Plan is
5,000,000
shares. There were
zero
stock options outstanding as of
March 31, 2018
and
December 31, 2017
, under the 1999 Plan. The Company has ceased granting equity awards under the 1999 Plan.
Awards Granted Out of Plan - CEO Inducement
On March 27, 2017, the Company granted Paul M. Bisaro, its new President and Chief Executive Officer, an option to purchase
850,000
shares of the Company’s common stock pursuant to the terms of his Employment Agreement dated as of March 24, 2017 with the Company. The grant was made in accordance with NASDAQ’s employment inducement grant exemption and therefore was not granted under a stockholder approved plan. The grant is subject to the terms of an option agreement with Mr. Bisaro to evidence the award. There were
850,000
stock options outstanding related to this grant as of
March 31, 2018
.
The following table summarizes all of the Company's stock option activity for the current year through
March 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
Number of
Shares
Under Option
|
|
Weighted-
Average
Exercise
Price
per Share
|
|
Outstanding at December 31, 2017
|
3,174,997
|
|
|
$
|
18.36
|
|
|
Options exercised
|
(127,648
|
)
|
|
9.28
|
|
|
Options forfeited
|
(5,080
|
)
|
|
8.38
|
|
|
Outstanding at March 31, 2018
|
3,042,269
|
|
|
$
|
18.76
|
|
|
Options exercisable at March 31, 2018
|
1,875,982
|
|
|
$
|
20.08
|
|
As of
March 31, 2018
, stock options outstanding and exercisable had average remaining contractual lives of
6.59
years and
5.70
years, respectively. Also, as of
March 31, 2018
, stock options outstanding and exercisable each had aggregate intrinsic values of
$13.7 million
and
$7.1 million
, respectively, and restricted stock awards outstanding had an aggregate intrinsic value of
$30.4 million
.
The Company grants restricted stock to certain eligible employees as a component of its long-term incentive compensation program. The restricted stock award grants are made in accordance with the Company’s 2002 Plan and are issued and outstanding at the time of grant but are subject to forfeiture if the vesting conditions are not met. A summary of the non-vested restricted stock awards is as follows:
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Awards
|
Number of
Restricted
Stock Awards
|
|
Weighted-
Average
Grant Date
Fair Value
|
|
Non-vested at December 31, 2017
|
1,861,489
|
|
|
$
|
25.36
|
|
|
Vested
|
(103,144
|
)
|
|
26.54
|
|
|
Forfeited
|
(197,661
|
)
|
|
26.15
|
|
|
Non-vested at March 31, 2018
|
1,560,684
|
|
|
$
|
25.19
|
|
Included in the
103,144
shares of restricted stock vested during the
three
months ended
March 31, 2018
are
49,427
shares with a weighted-average fair value of
$20.39
per share that were withheld for income tax withholding purposes upon vesting of such awards from stockholders who elected to net share settle such tax withholding obligation.
As of
March 31, 2018
, the Company had
2,130,036
shares available for issuance of either stock options or restricted stock awards under the 2002 Plan. Although there were also
296,921
shares available for issuance under the 1999 Plan, the Company has ceased granting equity awards under this plan. Additionally, the Company had
1,499,596
shares available for issuance under its 2001 Non-Qualified Employee Stock Purchase Plan, as amended (“ESPP”). The Company's Board of Directors terminated the ESPP effective after the expiration of the final purchase period prior to December 31, 2017.
As of
March 31, 2018
, the Company had total unrecognized share-based compensation expense of
$33.0 million
related to all of its share-based awards, which is expected to be recognized over a weighted average period of
1.5
years. The intrinsic value of options exercised during the
three
months ended
March 31, 2018
and
2017
was
$11.8 million
and immaterial, respectively. The total fair value of restricted stock which vested during the
three
months ended
March 31, 2018
and
2017
was
$2.7 million
and
$2.3 million
, respectively.
The Company estimated the fair value of each stock option award on the grant date using the Black-Scholes option pricing model, wherein expected volatility is based on historical volatility of the Company’s common stock. The expected term calculation is based on the “simplified” method described in SAB No. 107, Share-Based Payment, and SAB No. 110, Share-Based Payment, as the result of the simplified method provides a reasonable estimate in comparison to actual experience. The risk-free interest rate is based on the U.S. Treasury yield at the date of grant for an instrument with a maturity that is commensurate with the expected term of the stock options. The dividend yield of
zero
is based on the fact that the Company has never paid cash dividends on its common stock, and has no present intention to pay cash dividends. Options granted under each of the above plans generally vest over
four
years and have a term of
10
years.
The amount of share-based compensation expense recognized by the Company is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2018
|
|
2017
|
|
Cost of revenues
|
$
|
520
|
|
|
$
|
1,584
|
|
|
Selling, general and administrative
|
3,196
|
|
|
1,423
|
|
|
Research and development
|
1,100
|
|
|
3,950
|
|
|
Total
|
$
|
4,816
|
|
|
$
|
6,957
|
|
14. RESTRUCTURINGS
Consolidation and Improvement Plan
On May 10, 2017, the Company announced that it has initiated a series of actions designed to improve manufacturing and research and development ("R&D") efficiencies, capitalize on growth opportunities, improve profitability and mitigate current challenges. The actions include:
|
|
|
|
•
|
Consolidating all of Generic R&D, U.S. manufacturing and packing operations to its Hayward, California facility;
|
|
|
|
|
•
|
Continuing the previously announced closure of the Middlesex, New Jersey manufacturing site, which will now include the closure of the Middlesex Generic R&D site as further discussed below under "Middlesex, New Jersey Manufacturing and Packaging Operations" and "Middlesex, New Jersey Generic R&D";
|
|
|
|
|
•
|
Reorganizing certain functions including quality, engineering and supply chain operations as further described below under "Technical Operations Reduction-in-Force";
|
|
|
|
|
•
|
Reviewing strategic alternatives for the Company’s Taiwan facility, including a sale of the facility as further described below under "Sale of Impax Laboratories (Taiwan), Inc." and
|
|
|
|
|
•
|
Rationalizing the generic portfolio to eliminate low-value products and streamline operations such as the Company's divestment during the second quarter of 2017 of
29
ANDAs and
one
NDA for approved non-strategic generic products, the vast majority of which were not marketed, and all acquired as part of the Tower Acquisition, as described above under "Note 8. Intangible Assets and Goodwill."
|
By consolidating activities as outlined above, the Company expects to achieve cost savings and operating efficiency benefits while maintaining the infrastructure and expertise needed to capitalize on product and pipeline strengths. The Company currently expects to incur estimated charges for each initiative as described below. There are no charges currently expected to be incurred related to the rationalization of the generic product portfolio.
Middlesex, New Jersey Manufacturing and Packaging Operations
In March 2016, the Company's Board of Directors approved a plan of restructuring designed to reduce costs, improve operating efficiencies and enhance the Company's long-term competitive position by closing the Company's Middlesex, New Jersey manufacturing and packaging site and transferring the products and the functions performed there to the Company's other facilities or to third-party manufacturers. As of
March 31, 2018
this plan has been completed. As a result of the restructuring,
215
positions were eliminated.
The Company incurred aggregate pre-tax charges of
$43.6 million
in connection with this plan through the period ended
March 31, 2018
and does not anticipate any future charges. The following is a summary of the cumulative charges incurred by major type of cost (in thousands):
|
|
|
|
|
|
|
|
Type of Cost
|
Amount Incurred
|
|
Employee retention and severance payments
|
$
|
12,752
|
|
|
Technical transfer of products
|
9,716
|
|
|
Asset impairment and accelerated depreciation charges
|
20,900
|
|
|
Facilities lease terminations and asset retirement obligations
|
209
|
|
|
Legal and professional fees
|
9
|
|
|
Total estimated restructuring charges
|
$
|
43,586
|
|
Employee retention and severance payments are being accrued over the estimated service period. For the
three
months ended
March 31, 2018
and 2017 the Company recorded expense of
$0.2 million
and
$4.3 million
, respectively, to cost of revenues on the consolidated statement of operations.
For the three months ended
March 31, 2018
and
March 31, 2017
, the Company incurred charges to general and administrative expenses as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2018
|
|
2017
|
|
Employee retention and severance payments
|
|
$
|
25
|
|
|
$
|
1,480
|
|
|
Technical transfer of products
|
|
172
|
|
|
1,188
|
|
|
Asset impairment and accelerated depreciation charges
|
|
—
|
|
|
1,561
|
|
|
Facilities lease terminations and asset retirement obligations
|
|
—
|
|
|
93
|
|
|
Total
|
|
$
|
197
|
|
|
$
|
4,322
|
|
A rollforward of the charges incurred to general and administrative expense for the
three
months ended
March 31, 2018
is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of
|
|
Expensed/
|
|
|
|
|
|
Balance as of
|
|
|
|
December 31, 2017
|
|
Accrued Expense
|
|
Cash Payments
|
|
Non-Cash Items
|
|
March 31, 2018
|
|
Employee retention and severance payments
|
|
$
|
7,386
|
|
|
$
|
25
|
|
|
$
|
(7,073
|
)
|
|
$
|
—
|
|
|
$
|
338
|
|
|
Technical transfer of products
|
|
—
|
|
|
172
|
|
|
(172
|
)
|
|
—
|
|
|
—
|
|
|
Legal and professional fees
|
|
209
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
209
|
|
|
Total
|
|
$
|
7,595
|
|
|
$
|
197
|
|
|
$
|
(7,245
|
)
|
|
$
|
—
|
|
|
$
|
547
|
|
As of
March 31, 2018
the Company recognized a liability of
$0.5 million
, in accrued expenses on the Company's consolidated balance sheet and anticipates remaining payments to be made through the second quarter of 2018.
Middlesex, New Jersey Generic R&D
In May 2017, as part of its Consolidation and Improvement Plan, the Company announced its plan to close its Middlesex, New Jersey Generic R&D site and consolidate all Generic R&D activities to its Hayward, California facility. As a result, the Company eliminated a total of
31
positions in Middlesex. In connection with this Generic R&D consolidation, the Company incurred aggregate pre-tax charges for employee termination benefits, program termination costs and accelerated depreciation charges of
$3.4 million
through the end of 2017. As of
March 31, 2018
,
$2.8 million
of employee termination benefits and program termination costs had been paid.
Sale of Middlesex, New Jersey Assets
In the fourth quarter of 2017, management completed an evaluation of the assets located at the Company's Middlesex, New Jersey facilities in accordance with ASC 360 - Property, Plant and Equipment ("ASC 360") to determine whether all of the "held for sale" criteria under subsection 360-10-45-9 has been met. Based upon management's evaluation of the criteria under ASC 360, the Middlesex, New Jersey assets were determined to meet all of the "held for sale" criteria. As a result, the Company completed an impairment assessment related to the new book value of the assets of
$5.6 million
and based upon the estimated fair value less estimated costs to sell the assets the Company recorded a fixed asset impairment charges of
$3.3 million
in the Generic segment of its consolidated statement of operation for the year ended December 31, 2017.
On January 16, 2018, the Company sold all of its outstanding membership interest in CorePharma LLC, its wholly-owned subsidiary that held certain assets and leases to the Middlesex, New Jersey facility, including certain specified assets within the entity, to a third party for a purchase price of
$2.2 million
and received the cash during the first quarter of 2018.
Technical Operations Reduction-in-Force
In March 2017, the Company's management determined that a reduction-in-force was necessary in the Company's technical operations group in order to achieve greater operational efficiencies and to further streamline the organization. The Company identified
48
positions for elimination and recognized all expense as of December 31, 2017. In connection with this reduction-in-force, the Company incurred aggregate pre-tax charges for employee termination benefits and other associated costs of
$3.7 million
through the end of 2017. For the
three
months ended
March 31, 2018
and
2017
, the Company recorded
$0.0 million
and
$1.8 million
, respectively, of employee termination benefits and other associated costs to cost of revenues on the consolidated statement of operations. The accrued balance of
$1.7 million
as of December 31, 2017 was paid during the first quarter of 2018.
Sale of Impax Laboratories (Taiwan), Inc.
In May 2017, as part of its Consolidation and Improvement Plan, the Company announced that it was reviewing strategic alternatives for its Taiwan facility, including a sale of the facility to a qualified buyer capable of reliably producing Rytary® in accordance with FDA requirements as the Company’s CMO or, in the alternative, a closure of the facility following the completion of the technology transfer process to allow Rytary® to be manufactured either in the Company’s Hayward, California facility or at a CMO. Following this announcement, management completed an evaluation of the Taiwan facility in accordance with ASC 360 to determine whether all of the “held for sale” criteria under subsection 360-10-45-9 had been met. Based upon the evaluation of the criteria, including management's assessment of whether it was probable that a sale to a qualified buyer could be completed within one year, the Taiwan facility was determined to be “held and used” as of May 31, 2017.
Following the "held and used" determination, management next evaluated the Taiwan facility for recoverability. Recoverability of property is evaluated by a comparison of the carrying amount of an asset or asset group to the future net undiscounted cash flows expected to be generated by the asset or asset group. As the activities at the Taiwan facility were primarily focused on manufacturing Rytary®, which product represented the majority of the unit volume produced and cash flows generated, the Taiwan facility was included in the Impax Specialty Pharma asset group. Based upon the cash flows expected to be generated by the Impax Specialty Pharma asset group, management determined that there was no impairment of the asset group which included the Taiwan facility as of May 31, 2017.
As of May 31, 2017, the remaining useful life of the Taiwan facility was estimated to be
two years
, which was based on the estimated time required to complete the technology transfer process for Rytary® and reflected the new pattern of consumption of the expected benefits of the facility. The Company will recognize accelerated depreciation expense on a straight-line basis through May 31, 2019 to write the building and equipment associated with the Taiwan facility down to their estimated salvage values. For the year ended December 31, 2017 the Company recorded accelerated depreciation of
$9.1 million
.
After May 31, 2017 the Company continued to assess whether the Taiwan facility met the ASC 360 criteria. In the fourth quarter of 2017 based upon management's valuation of the criteria the Taiwan facility was determined to meet all of the “held for sale” criteria. As a result, excluding assets and liabilities subject to customary working capital adjustment, the Company completed an impairment assessment of the net book value of
$91.7 million
related to the net assets to be sold, and based upon an estimated fair value less estimated costs to sell for the net assets, the Company recorded an asset impairment charge of
$74.1 million
in the Company's consolidated statement of operations, of which
$73.6 million
related to property, plant and equipment. The remaining assets and liabilities associated with the Taiwan entity, which were part of the Impax Specialty Pharma segment, were reclassified as held for sale.
On February 6, 2018, the Company completed its sale of the outstanding shares of Impax Laboratories (Taiwan), Inc. to Bora Pharmaceuticals C. Ltd ("Bora") for
$16.5 million
in cash, a
$2.0 million
note receivable and customary working capital settlement. In connection with closing this transaction and settling working capital, the Company recorded an additional loss on disposal of
$1.2 million
primarily related to final working capital adjustments. As a result of the sale, the Company reclassified foreign currency translation adjustments, a gain, of $
0.8 million
from accumulated other comprehensive income to loss on sale of assets on the consolidated statement of operations.
15. INCOME TAXES
The Company has historically calculated the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate for the full fiscal year to “ordinary” income or loss (pretax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period. For the three months ended
March 31, 2017
, however, the Company began using the discrete effective tax rate method to calculate taxes. The Company had determined that since small changes in estimated “ordinary” income (or loss) would result in significant changes in the estimated annual effective tax rate, the historical method would not provide a reliable estimate for the three months ended
March 31, 2017
.
During the
three
months ended
March 31, 2018
and
2017
, the Company recognized an aggregate consolidated tax benefit of
($7.3) million
and aggregate consolidated tax expense of
$30.9
million, respectively, for U.S. domestic and foreign income taxes. The effective tax rates for the
three
month periods ended
March 31, 2018
and
2017
were
5.3%
and
(45.8)%
, respectively. The amount of tax benefit recorded for the
three
months ended
March 31, 2018
and the tax expense recorded for the three months ended
March 31, 2017
reflect the Company’s estimates as of such dates using the discrete effective tax rate method.
Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit the use of the existing deferred tax assets. A significant piece of objective evidence that management evaluated was the cumulative loss incurred over the three year period ended
December 31, 2017
. Such objective evidence limits management's ability to consider other subjective evidence, such as projected taxable income.
On the basis of this evaluation, as of
December 31, 2017
, the Company recorded a valuation allowance of
$185.9 million
. During the
three
months ended
March 31, 2018
, the Company considered new evidence, both positive and negative, that could impact the Company's assessment with regard to future realization of deferred tax assets. Based on the cumulative loss over the three year period ended
March 31, 2018
, an additional valuation allowance in the amount of
$22.6 million
was recorded against the gross deferred tax asset balance for a total valuation allowance of
$208.5 million
as of
March 31, 2018
.
Although the Company continued to be in a
three
year cumulative loss as of the first quarter 2018 and incurred a loss in the first quarter of 2018, the Company recorded a tax benefit of
($7.3) million
due to its ability to fully utilize the carryback of the
$20.7 million
capital loss on the sale of its Taiwan subsidiary in February 2018. Under the Internal Revenue Code's ordering of losses rules, the capital loss amount displaced the Net Operating Loss (NOL) previously utilized and the amount is essentially converted into an NOL before being carried back three years. This
$20.7 million
capital loss carryback loss was able to be benefited at the 35% rate in the 2015 carryback year.
16. ALLIANCE AND COLLABORATION AGREEMENTS
The Company has entered into several alliance, collaboration, license and distribution agreements, and similar agreements with respect to certain of its products and services, with unrelated third-party pharmaceutical companies. The consolidated statements of operations include revenue recognized under agreements the Company has entered into to develop marketing and/or distribution relationships with its partners to fully leverage the technology platform and revenue recognized under development agreements which generally obligate the Company to provide research and development services over multiple periods.
The Company’s alliance and collaboration agreements often include milestones and provide for milestone payments upon achievement of these milestones. Generally, the milestone events contained in the Company’s alliance and collaboration agreements coincide with the progression of the Company’s products and technologies from pre-commercialization to commercialization.
The Company groups pre-commercialization milestones in its alliance and collaboration agreements into clinical and regulatory categories, each of which may include the following types of events:
Clinical Milestone Events:
|
|
|
|
•
|
Designation of a development candidate
. Following the designation of a development candidate, generally, IND-enabling animal studies for a new development candidate take
12
to
18
months to complete.
|
|
|
|
|
•
|
Initiation of a Phase I clinical trial
. Generally, Phase I clinical trials take
one
to
two
years to complete.
|
|
|
|
|
•
|
Initiation or completion of a Phase II clinical trial
. Generally, Phase II clinical trials take
one
to
three
years to complete.
|
|
|
|
|
•
|
Initiation or completion of a Phase III clinical trial
. Generally, Phase III clinical trials take
two
to
four
years to complete.
|
|
|
|
|
•
|
Completion of a bioequivalence study
. Generally, bioequivalence studies take
three
months to
one
year to complete.
|
Regulatory Milestone Events:
|
|
|
|
•
|
Filing or acceptance of regulatory applications for marketing approval such as a New Drug Application in the United States or Marketing Authorization Application in Europe
. Generally, it takes
six
to
12
months to prepare and submit regulatory filings and
two
months for a regulatory filing to be accepted for substantive review.
|
|
|
|
|
•
|
Marketing approval in a major market, such as the United States or Europe
. Generally it takes
one
to
three
years after an application is submitted to obtain approval from the applicable regulatory agency.
|
|
|
|
|
•
|
Marketing approval in a major market, such as the United States or Europe for a new indication of an already-approved product
. Generally it takes
one
to
three
years after an application for a new indication is submitted to obtain approval from the applicable regulatory agency.
|
Commercialization Milestone Events:
|
|
|
|
•
|
First commercial sale in a particular market
,
such as in the United States or Europe
.
|
|
|
|
|
•
|
Product sales in excess of a pre-specified threshold, such as annual sales exceeding
$100.0 million
.
The amount of time to achieve this type of milestone depends on several factors including but not limited to the dollar amount of the threshold, the pricing of the product and the pace at which customers begin using the product.
|
License and Distribution Agreement with Shire
In January 2006, the Company entered into a License and Distribution Agreement with an affiliate of Shire Laboratories, Inc., which was subsequently amended (“Prior Shire Agreement”), under which the Company received a non-exclusive license to market and sell an authorized generic of Shire’s Adderall XR® product (“AG Product”) subject to certain conditions, but in any event by no later than January 1, 2010. The Company commenced sales of the AG Product in October 2009. On February 7, 2013, the Company entered into an Amended and Restated License and Distribution Agreement with Shire (the “Amended and Restated Shire Agreement”), which amended and restated the Prior Shire Agreement. Pursuant to the terms of the Amended and Restated Shire Agreement, the Company is required to pay to Shire a specified profit share based on sales of the AG Product and a specified profit share based on sales of the Company's generic Adderall XR® product. The Company began selling its generic Adderall XR® product during the second quarter of 2016. The Company accrued a profit share payable to Shire of
$0.1 million
and
$0.8 million
during the three months ended
March 31, 2018
and 2017, respectively, based on sales of the AG Product and the Company's generic Adderall XR® product, in each case with a corresponding charge included in the costs of revenues line on the consolidated statements of operations.
Development, Supply and Distribution Agreement with Tolmar, Inc.
In June 2012, the Company entered into the Tolmar Agreement with Tolmar. Under the terms of the Tolmar Agreement, Tolmar granted to the Company an exclusive license to commercialize up to
11
generic topical prescription drug products, including
10
currently approved products in the United States and its territories; the parties agreed in 2015 to terminate development efforts of
one
product under the Tolmar Agreement that had been pending approval at the FDA. Under the terms of the Tolmar Agreement, Tolmar is responsible for developing and manufacturing the products, and the Company is responsible for marketing and selling of the products. As of
March 31, 2018
, the Company was currently marketing and selling
four
approved products. The Company is required to pay a profit share to Tolmar on sales of each product commercialized pursuant to the terms of the Tolmar Agreement.
The Company paid Tolmar a
$21.0 million
upfront payment upon signing of the agreement and, pursuant to the terms of the agreement, is also required to make payments to Tolmar up to an aggregate amount of
$25.0 million
upon the achievement of certain specified milestone events. As of
March 31, 2018
, the Company had paid a total of
$20.0 million
to Tolmar upon the achievement of certain specified milestone events, including
$12.0 million
upon the achievement of a regulatory milestone event and
$5.0 million
upon the achievement of a commercialization event, and does not currently expect to make any additional milestone payments under the agreement. The Company is also required to pay a profit share to Tolmar on sales of the topical products, of which it accrued a profit share payable to Tolmar of
$0.6 million
and
$0.9 million
during the
three
months ended
March 31, 2018
and
2017
, respectively, with a corresponding charge included in the cost of revenues line in the Company’s consolidated statement of operations.
Strategic Alliance Agreement with Teva
The Company is a party to a Strategic Alliance Agreement dated as of June 27, 2001 with Teva, which was subsequently amended ("Teva Agreement”). The Teva Agreement commits the Company to develop and manufacture, and Teva to distribute, a specified number of controlled release generic pharmaceutical products (“generic products”), each for a
10
-year period. As of
March 31, 2018
, the Company was supplying Teva with oxybutynin extended release tablets (Ditropan XL® 5 mg, 10 mg and 15 mg extended release tablets); the other products under the Teva Agreement have either been returned to the Company, are being manufactured by Teva at its election, were voluntarily withdrawn from the market or the Company’s obligations to supply such product had expired or were terminated in accordance with the Teva Agreement.
Distribution, License, Development and Supply Agreement with AstraZeneca UK Limited
In January 2012, the Company entered into an agreement with AstraZeneca UK Limited to distribute branded products under the terms of a Distribution, License, Development and Supply Agreement ("AZ Agreement"). The parties subsequently entered into a First Amendment to the AZ Agreement dated May 31, 2016 (as amended, the "AZ Amendment"). Under the terms of the AZ Agreement, AstraZeneca granted to the Company an exclusive license to commercialize the tablet, orally disintegrating tablet and nasal spray formulations of Zomig® (zolmitriptan) products for the treatment of migraine headaches in the United States and in certain U.S. territories, except during an initial transition period when AstraZeneca fulfilled all orders of Zomig® products on the Company’s behalf and AstraZeneca paid to the Company the gross profit on such Zomig® products. Under the terms of the AZ Amendment, under certain conditions and depending on the nature and terms of the study agreed to with the FDA, the Company agreed to conduct, at its own expense, the juvenile toxicity study and pediatric study required by the FDA under the Pediatric Research Equity Act (“PREA”) for approval of the nasal formulation of Zomig
®
for the acute treatment of migraine in pediatric patients ages
six
through
eleven
years old, as further described in the study protocol mutually agreed to by the parties (the “PREA Study”). In consideration for the Company conducting the PREA Study at its own expense, the AZ Amendment provides for the total royalty payments payable by the Company to AstraZeneca on net sales of Zomig
®
products under the AZ Agreement to be reduced by certain specified amounts beginning from the quarter ended June 30, 2016 and through the quarter ended December 31, 2020, with such reduced royalty amounts totaling an aggregate amount of
$30.0 million
. In the event the royalty reduction amounts exceed the royalty payments payable by the Company to AstraZeneca pursuant to the AZ Agreement in any given quarter, AstraZeneca will be required to pay the Company an amount equal to the difference between the royalty reduction amount and the royalty payment payable by the Company to AstraZeneca. The Company’s commitment to perform the PREA Study may be terminated, without penalty, under certain circumstances as set forth in the AZ Amendment.
In May 2013, the Company’s exclusivity period for branded Zomig® tablets and orally disintegrating tablets expired and the Company launched authorized generic versions of those products in the United States. As discussed above, pursuant to the AZ Amendment, the total royalty payments payable by the Company to AstraZeneca on net sales of Zomig
®
products under the AZ Agreement is reduced by certain specified amounts beginning from the quarter ended June 30, 2016 and through the quarter ended December 31, 2020, with such reduced royalty amounts totaling an aggregate amount of
$30.0 million
. The Company accrued a royalty payable to AstraZeneca of
$2.2 million
and
$3.3 million
during the
three
months ended
March 31, 2018
and
2017
, respectively, with a corresponding charge included in the cost of revenues line on the consolidated statements of operations.
Mebendazole Product Acquisition Agreement with Teva Pharmaceuticals USA, Inc.
In August 2013, the Company, through its Amedra Pharmaceuticals subsidiary, entered into a product acquisition agreement (the “Mebendazole Product Acquisition Agreement”) with Teva pursuant to which the Company acquired the assets (including the ANDA and other regulatory materials) and related liabilities related to Teva’s mebendazole tablet product in all dosage forms. Pursuant to the Mebendazole Product Acquisition Agreement, the Company was required to pay certain milestone payments up to an aggregate amount of
$3.5 million
upon the approval and launch of the mebendazole tablet product; the Company paid the
$3.5 million
to Teva during the quarter ended March 31, 2016 upon the FDA's approval and the Company's subsequent launch of Emverm® (mebendazole) 100 mg chewable tablets. The Company is also obligated to pay Teva a royalty payment based on net sales of Emverm®, including a specified annual minimum royalty payment, subject to customary reductions and the other terms and conditions set forth in the Mebendazole Product Acquisition Agreement.
17. COMMITMENTS AND CONTINGENCIES
Executive Employment Agreements
The Company is a party to employment and separation agreements with certain members of its executive management team that provide for severance and other payments following termination of their employment for various reasons.
Lease Agreements
The Company leases land, office space, manufacturing, warehouse and research and development facilities, and equipment under non-cancelable operating leases expiring at various dates through December 2027.
Purchase Order Commitments
As of
March 31, 2018
, the Company had
$103.5 million
of open purchase order commitments, primarily for raw materials. The terms of these purchase order commitments are generally less than
one year
in duration.
18. LEGAL AND REGULATORY MATTERS
Patent Litigation
There is substantial litigation in the pharmaceutical, biological, and biotechnology industries with respect to the manufacture, use, and sale of new products which are the subject of conflicting patent and intellectual property claims.
One
or more patents often cover the brand name products for which the Company is developing generic versions and the Company typically has patent rights covering the Company’s branded products.
Under federal law, when a drug developer files an ANDA for a generic drug seeking approval before expiration of a patent, which has been listed with the FDA as covering the brand name product, the developer must certify its product will not infringe the listed patent(s) and/or the listed patent is invalid or unenforceable (commonly referred to as a “Paragraph IV” certification). Notices of such certification must be provided to the patent holder, who may file a suit for patent infringement within
45 days
of the patent holder’s receipt of such notice. If the patent holder files suit within the
45 days
period, the FDA can review and approve the ANDA, but is prevented from granting final marketing approval of the product until a final judgment in the action has been rendered in favor of the generic drug developer, or
30
months from the date the notice was received, whichever is sooner. The Company’s generic products division is typically subject to patent infringement litigation brought by branded pharmaceutical manufacturers in connection with the Company’s Paragraph IV certifications seeking an order delaying the approval of the Company’s ANDA until expiration of the patent(s) at issue in the litigation. Likewise, the Company’s branded products division is currently involved in patent infringement litigation against generic drug manufacturers who have filed Paragraph IV certifications to market their generic drugs prior to expiration of the Company’s patents at issue in the litigation.
The uncertainties inherent in patent litigation make the outcome of such litigation difficult to predict. For the Company’s generic products division, the potential consequences in the event of an unfavorable outcome in such litigation include delaying launch of its generic products until patent expiration. If the Company were to launch its generic product prior to successful resolution of a patent litigation, the Company could be liable for potential damages measured by the profits lost by the branded product manufacturer rather than the profits earned by the Company if is found to infringe a valid, enforceable patent. For the Company’s branded products division, an unfavorable outcome may significantly accelerate generic competition ahead of expiration of the patents covering the Company’s branded products. All such litigation typically involves significant expense.
The Company is generally responsible for all of the patent litigation fees and costs associated with current and future products not covered by its alliance and collaboration agreements. The Company has agreed to share legal expenses with respect to third-party and Company products under the terms of certain of the alliance and collaboration agreements. The Company records the costs of patent litigation as expense in the period when incurred for products it has developed, as well as for products which are the subject of an alliance or collaboration agreement with a third-party.
Although the outcome and costs of the asserted and unasserted claims is difficult to predict, based on the information presently known to management, the Company does not currently expect the ultimate liability, if any, for such matters to have a material adverse effect on its business, financial condition, results of operations, or cash flows.
Patent Infringement Litigation
Endo Pharmaceuticals Inc. and Grunenthal GmbH v. Impax Laboratories, Inc. and ThoRx Laboratories, Inc. (Oxymorphone hydrochloride); Endo Pharmaceuticals Inc. and Grunenthal GmbH v. Impax Laboratories, Inc. (Oxymorphone hydrochloride)
In November 2012, Endo Pharmaceuticals, Inc. and Grunenthal GmbH filed suit against ThoRx Laboratories, Inc., a wholly-owned subsidiary of the Company (“ThoRx”), and the Company in the U.S. District Court for the Southern District of New York alleging patent infringement based on the filing of ThoRx’s ANDA relating to Oxymorphone hydrochloride, Extended Release tablets, 5 mg, 7.5 mg, 10 mg, 15 mg, 20 mg, 30 mg and 40 mg, generic to Opana ER®. In January 2013, Endo filed a separate suit against the Company in the U.S. District Court for the Southern District of New York alleging patent infringement based on the filing of the Company’s ANDA relating to the same products. ThoRx and the Company filed an answer and counterclaims to the November 2012 suit and the Company filed an answer and counterclaims with respect to the January 2013 suit. A bench trial was completed in April 2015. In June 2016, the Court entered an amended judgment in both cases that the products described in the Company’s and ThoRx’s ANDAs would, if marketed, infringe certain claims of the patents asserted by Endo and Grunenthal. The Court also found that the asserted claims of patents owned by Endo were not invalid, but that the asserted claims of patents owned by Grunenthal were invalid. As a result, the Court enjoined the Company and ThoRx from marketing their products until expiration of the Endo patents in 2023. Appeals in these cases are pending. The appeals with respect to the Grunenthal patents are stayed. The Company and ThoRx moved to dismiss the appeals concerning the Endo patents. That motion is pending.
In November 2014, Endo Pharmaceuticals Inc. and Mallinckrodt LLC filed suit against the Company in the U.S. District Court for the District of Delaware making additional allegations of patent infringement based on the filing of the Company’s Oxymorphone hydrochloride ANDA described above. Also in November 2014, Endo and Mallinckrodt filed a separate suit in the U.S. District Court for the District of Delaware making additional allegations of patent infringement based on the filing of ThoRx’s Oxymorphone hydrochloride ANDA described above. ThoRx and the Company filed an answer and counterclaim to those suits in which they are named as a defendant. The cases were dismissed in February 2018.
Impax Laboratories Inc., et al. v. Lannett Holdings, Inc.
and Lannett Company (Zomig®)
In July 2014, the Company filed suit against Lannett Holdings, Inc. and Lannett Company (collectively, “Lannett”) in the United States District Court for the District of Delaware, alleging patent infringement based on the filing of the Lannett ANDA relating to Zolmitriptan Nasal Spray, 5mg, generic to Zomig® Nasal Spray. The case went to trial in September 2016. On March 29, 2017, the District Court issued a Trial Opinion finding the asserted patents valid and infringed. On April 17, 2017, the District Court entered a Final Judgment and Injunction that,
inter alia
, bars FDA approval of Lannett’s proposed generic product prior to May 29, 2021. On May 12, 2017, Lannett filed a Notice of Appeal with the United States Court of Appeals for the Federal Circuit. Briefing of Lannett’s appeal has been completed and oral argument occurred on April 5, 2018.
Impax Laboratories Inc., et al. v. Par Pharmaceutical, Inc. (Zomig®)
On September 23, 2016, the Company filed suit against Par Pharmaceutical, Inc. (“Par”) in the United States District Court for the District of Delaware, alleging patent infringement based on the filing of the Par ANDA relating to Zolmitriptan Nasal Spray, 2.5 mg and 5 mg, generic to Zomig® Nasal Spray. On October 12, 2016, the parties stipulated to stay the case pending the outcome of the related case,
Impax Laboratories Inc., et al. v. Lannett
matter described above. On April 24, 2017, the parties stipulated that the stay shall remain in effect until the
Impax Laboratories Inc., et al. v. Lannett
matter is fully resolved. As such, Par has not yet filed an answer or counterclaims to the Company’s complaint. The 30-month stay of approval for applicable to the Par ANDA has been tolled pending resumption of this case.
Impax Laboratories Inc., et al. v. Actavis Laboratories FL, Inc. and Actavis Pharma Inc. (Rytary
®
)
In September 2015, the Company filed suit against Actavis Laboratories FL, Inc. and Actavis Pharma Inc. (collectively, “Actavis”) in the United States District Court for the District of New Jersey, alleging patent infringement of U.S. Patent Nos. 7,094,427; 8,377,474; 8,454,998; 8,557,283; 9,089,607; 9,089,608, based on the filing of the Actavis ANDA relating to carbidopa and levodopa extended release capsules, generic to Rytary
®
. The Company filed related actions alleging infringement of later-issued U.S. Patent No. 9,463,246 in December 2016 and of later-issued U.S. Patent No. 9,533,046 in May 2017. Both related actions were consolidated with the lead action. On December 15, 2017, the Patent and Trademark Office issued an Ex Parte Reexamination Certificate canceling all claims of the ‘427 patent; the parties subsequently stipulated to dismiss with prejudice all claims and counterclaims relating to the ‘427 patent. Fact discovery and claim construction briefing have concluded and a claim construction hearing was held on April 26, 2017. On May 9, 2017, the District Court issued a decision interpreting certain claim terms in dispute in the litigation. Subject to reservation of all rights to appeal the Court’s May 9, 2017 decision, the parties stipulated to dismiss without prejudice all claims and counterclaims relating to the ‘474, ‘998, and ‘607 patents, and the Court entered an order recognizing this stipulation on June 8, 2017. The parties have completed expert discovery and Actavis filed a summary judgment motion on October 23, 2017. On March 8, 2018, the Court issued an Opinion and Order, granting in part Actavis’s motion for summary judgment. A four day trial is scheduled to begin on May 14, 2018.
Impax Laboratories, Inc. v. Sandoz Inc.
(
Rytary
®
)
On March 31, 2017, the Company filed suit against Sandoz Inc. in the United States District Court for the District of New Jersey, alleging infringement of U.S. Patent Nos. 7,094,427; 8,377,474; 8,454,998; 8,557,283; 9,089,607; 9,089,608; 9,463,246; and 9,533,046, based on the filing of Sandoz’s ANDA relating to carbidopa and levodopa extended release capsules, generic to Rytary
®
. Sandoz answered the complaint on March 22, 2018. Fact discovery has not yet commenced.
Impax Laboratories, Inc. v. Zydus Pharmaceuticals USA, Inc. and Cadila Healthcare Ltd. (Rytary
®
)
On December 21, 2017, Impax filed suit against Zydus Pharmaceuticals USA, Inc. and Cadila Healthcare Ltd. (collectively, “Zydus”) in the United States District Court for the District of New Jersey, alleging infringement of U.S. Patent No. 9,089,608, based on the filing of Zydus’s ANDA relating to carbidopa and levodopa extended release capsules, generic to Rytary
®
. Zydus has not yet answered or otherwise responded to the Complaint.
Bristol-Myers Squibb Company, et al. v. Impax Laboratories, Inc.(Apixiban)
On April 10, 2017, Bristol-Myers Squibb Company and Pfizer Inc. filed suit against the Company in the United States District Court for the District of Delaware alleging patent infringement based on the filing of the Company’s ANDA related to Apixaban Tablets, 2.5 mg and 5 mg, generic to Eliquis
®
. The Company responded to the complaint on June 2, 2017 and Plaintiffs further responded on June 22, 2017. On September 22, 2017, the parties jointly filed a proposed schedule with the Court, proposing that the Company’s case and a number of related cases be consolidated. On November 3, 2017, the Court consolidated the related cases and set the case schedule. Fact discovery has commenced. The trial is scheduled for October 15, 2019.
Biogen MA Inc. v. Impax Laboratories, Inc. (Dimethyl Fumarate)
On June 26, 2017, Biogen MA Inc. filed suit against the Company in the U.S. District Court for the District of Delaware alleging patent infringement based on the filing of the Company’s ANDA relating to Dimethyl Fumarate 120 and 240 mg capsules, generic to Tecfidera
®
. The Company answered the complaint on October 16, 2017. On February 2, 2017, the Court consolidated the related cases and set the case schedule. A trial with respect to this complaint by Biogen MA Inc. is scheduled to begin on December 9, 2019.
On March 5, 2018, Biogen International GmbH filed a complaint in the matter
Biogen International GmbH v. Impax Laboratories, Inc.
, based on the same ANDA, alleging infringement of
two
additional patents. The Company answered that complaint on March 26, 2018. No further schedule has been set with respect to this complaint.
Shire Development LLC, et al. v. Impax Laboratories, Inc. (Amphetamine Mixed Salts)
On April 13, 2018, Shire Development LLC, Shire LLC, and Shire US Inc. filed suit against the Company in the United States District Court for the District of Delaware alleging patent infringement based on the filing of the Company’s ANDA related to Amphetamine Mixed Salts Extended Release Oral Capsules, 12.5 mg, 25 mg, 37.5 mg, and 50 mg, generic to Mydayis
®
. The Company has not yet responded to the complaint, and no schedule has yet been set for the case.
Other Litigation Related to the Company’s Business
Solodyn
®
Antitrust Class Actions
From July 2013 to January 2016,
18
complaints were filed as class actions on behalf of direct and indirect purchasers, as well as by certain direct purchasers, against manufacturers of the brand drug Solodyn® and its generic equivalents, including the Company.
On July 22, 2013, Plaintiff United Food and Commercial Workers Local 1776 & Participating Employers Health and Welfare Fund, an indirect purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated.
On July 23, 2013, Plaintiff Rochester Drug Co-Operative, Inc., a direct purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated.
On August 1, 2013, Plaintiff International Union of Operating Engineers Local 132 Health and Welfare Fund, an indirect purchaser, filed a class action complaint in the United States District Court for the Northern District of California on behalf of itself and others similarly situated. On August 29, 2013, this Plaintiff withdrew its complaint from the United States District Court for the Northern District of California, and on August 30, 2013, re-filed the same complaint in the United States Court for the Eastern District of Pennsylvania, on behalf of itself and others similarly situated.
On August 9, 2013, Plaintiff Local 274 Health & Welfare Fund, an indirect purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated.
On August 12, 2013, Plaintiff Sheet Metal Workers Local No. 25 Health & Welfare Fund, an indirect purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated.
On August 27, 2013, Plaintiff Fraternal Order of Police, Fort Lauderdale Lodge 31, Insurance Trust Fund, an indirect purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated.
On August 29, 2013, Plaintiff Heather Morgan, an indirect purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated.
On August 30, 2013, Plaintiff Plumbers & Pipefitters Local 178 Health & Welfare Fund, an indirect purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated.
On September 9, 2013, Plaintiff Ahold USA, Inc., a direct purchaser, filed a class action complaint in the United States District Court for the District of Massachusetts on behalf of itself and others similarly situated.
On September 24, 2013, Plaintiff City of Providence, Rhode Island, an indirect purchaser, filed a class action complaint in the United States District Court for the District of Arizona on behalf of itself and others similarly situated.
On October 2, 2013, Plaintiff International Union of Operating Engineers Stationary Engineers Local 39 Health & Welfare Trust Fund, an indirect purchaser, filed a class action complaint in the United States District Court for the District of Massachusetts on behalf of itself and others similarly situated.
On October 7, 2013, Painters District Council No. 30 Health and Welfare Fund, an indirect purchaser, filed a class action complaint in the United States District Court for the District of Massachusetts on behalf of itself and others similarly situated.
On October 25, 2013, Plaintiff Man-U Service Contract Trust Fund, an indirect purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated.
On March 13, 2014, Plaintiff Allied Services Division Welfare Fund, an indirect purchaser, filed a class action complaint in the United States District Court for the District of Massachusetts on behalf of itself and others similarly situated.
On March 19, 2014, Plaintiff NECA-IBEW Welfare Trust Fund, an indirect purchaser, filed a class action complaint in the United States District Court for the District of Massachusetts on behalf of itself and others similarly situated.
On February 25, 2014, the United States Judicial Panel on Multidistrict Litigation ordered the pending actions transferred to the District of Massachusetts for coordinated pretrial proceedings, as In Re Solodyn (Minocycline Hydrochloride) Antitrust Litigation.
On March 26, 2015, Walgreen Co., The Kruger Co., Safeway Inc., HEB Grocery Company L.P., Albertson’s LLC, direct purchasers, filed a separate complaint in the United States District Court for the Middle District of Pennsylvania. On April 8, 2015, the Judicial Panel on Multi-District Litigation ordered the action be transferred to the District of Massachusetts, to be coordinated or consolidated with the coordinated proceedings. The original complaint filed by the plaintiffs asserted claims only against defendant Medicis. On October 5, 2015, the plaintiffs filed an amended complaint asserting claims against the Company and the other generic defendants.
On April 16, 2015, Rite Aid Corporation and Rite Aid Hdqtrs. Corp, direct purchasers, filed a separate complaint in the United States District Court for the Middle District of Pennsylvania. On May 1, 2015, the Judicial Panel on Multi-District Litigation ordered the action be transferred to the District of Massachusetts, to be coordinated or consolidated with the coordinated proceedings. The original complaint filed by the plaintiffs asserted claims only against defendant Medicis. On October 5, 2015, the plaintiffs filed an amended complaint asserting claims against the Company and the other generic defendants.
On January 25, 2016, CVS Pharmacy, Inc., a direct purchaser, filed a separate complaint in the United States District Court for the Middle District of Pennsylvania. On February 11, 2016, the Judicial Panel on Multi-District Litigation ordered the action to be transferred to the District of Massachusetts to be coordinated or consolidated with the coordinated proceedings.
The consolidated amended complaints allege that Medicis engaged in anticompetitive schemes by, among other things, filing frivolous patent litigation lawsuits, submitting frivolous Citizen Petitions, and entering into anticompetitive settlement agreements with several generic manufacturers, including the Company, to delay generic competition of Solodyn® and in violation of state and federal antitrust laws. Plaintiffs seek, among other things, unspecified monetary damages and equitable relief, including disgorgement and restitution. On August 14, 2015, the District Court granted in part and denied in part defendants’ motion to dismiss the consolidated amended complaints. On October 16, 2017, the Court certified the Direct Purchaser Plaintiffs’ and End-Payor Plaintiffs’ classes. On October 30, 2017, the Company filed a petition for interlocutor appeal challenging the Court’s certification of the End-Payor Plaintiffs’ class and motions for Summary Judgment were filed on November 1, 2017. On January 25, 2018, the Court denied Plaintiffs’ and Impax’s summary judgment motions. Trial began on March 12, 2018. During March 2018, the Company separately settled all claims with the direct purchaser plaintiff class, retailer plaintiffs and the end payor plaintiff class for a total settlement amount of
$84.5 million
. The settlements with the class plaintiffs are subject to court approval. The settlement with the direct purchaser plaintiff class was preliminarily approved by the Court on March 12, 2018, and a fairness hearing is scheduled for July 11, 2018. The settlement with the end payor plaintiff class was preliminarily approved by the Court on April 5, 2018.
Opana ER® FTC Antitrust Suit
On February 25, 2014, the Company received a Civil Investigative Demand ("CID") from the FTC concerning its investigation into the drug Opana® ER and its generic equivalents. On March 30, 2016, the FTC filed a complaint against the Company, Endo, and others in the United States District Court for the Eastern District of Pennsylvania, alleging that the Company and Endo violated antitrust laws when they entered into a June 2010 co-promotion and development agreement and a June 2010 settlement agreement that resolved patent litigation in connection with the submission of the Company’s ANDA for generic original Opana® ER. In July 2016, the defendants filed a motion to dismiss the complaint, and a motion to sever the claims regarding Opana® ER from claims with respect to a separate settlement agreement that was challenged by the FTC. On October 20, 2016, the Court granted the motion to sever, formally terminating the suit against the Company, with an order that the FTC re-file no later than November 3, 2016 and dismissed the motion to dismiss as moot. On October 25, 2016, the FTC filed a notice of voluntary dismissal. On January 19, 2017, the FTC filed a Part 3 Administrative complaint against the Company with similar allegations regarding the Company’s June 2010 settlement agreement with Endo that resolved patent litigation in connection with the submission of the Company’s ANDA for generic original Opana® ER. The Company filed its answer to the Administrative Complaint on February 7, 2017. Trial concluded on November 15, 2017. Post-trial briefing is complete and closing arguments were held on February 15, 2018. A decision is pending.
Opana ER® Antitrust Class Actions
From June 2014 to April 2015,
14
complaints were filed as class actions on behalf of direct and end-payor (indirect) purchasers, as well as by certain direct purchasers, against the manufacturer of the brand drug Opana ER® and the Company.
On June 4, 2014, Plaintiff Fraternal Order of Police, Miami Lodge 20, Insurance Trust Fund, an indirect purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated.
On June 4, 2014, Plaintiff Rochester Drug Co-Operative, Inc., a direct purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated.
On June 6, 2014, Plaintiff Value Drug Company, a direct purchaser, filed a class action complaint in the United States District Court for the Northern District of California on behalf of itself and others similarly situated. On June 26, 2014, this Plaintiff withdrew its complaint from the United States District Court for the Northern District of California, and on July 16, 2014, re-filed the same complaint in the United States District Court for the Northern District of Illinois, on behalf of itself and others similarly situated.
On June 19, 2014, Plaintiff Wisconsin Masons’ Health Care Fund, an indirect purchaser, filed a class action complaint in the United States District Court for the Northern District of Illinois on behalf of itself and others similarly situated.
On July 17, 2014, Plaintiff Massachusetts Bricklayers, an indirect purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated.
On August 11, 2014, Plaintiff Pennsylvania Employees Benefit Trust Fund, an indirect purchaser, filed a class action complaint in the United States District Court for the Northern District of Illinois on behalf of itself and others similarly situated.
On September 19, 2014, Plaintiff Meijer Inc., a direct purchaser, filed a class action complaint in the United States District Court for the Northern District of Illinois on behalf of itself and others similarly situated.
On October 3, 2014, Plaintiff International Union of Operating Engineers, Local 138 Welfare Fund, an indirect purchaser, filed a class action complaint in the United States District Court for the Northern District of Illinois on behalf of itself and others similarly situated.
On November 17, 2014, Louisiana Health Service & Indemnity Company d/b/a Blue Cross and Blue Shield of Louisiana, an indirect purchaser, filed a class action complaint in the United States District Court for the Middle District of Louisiana on behalf of itself and others similarly situated.
On December 12, 2014, the United States Judicial Panel on Multidistrict Litigation ordered the pending actions transferred to the Northern District of Illinois for coordinated pretrial proceedings, as In Re Opana ER Antitrust Litigation.
On December 19, 2014, Plaintiff Kim Mahaffay, an indirect purchaser, filed a class action complaint in the Superior Court of the State of California, Alameda County, on behalf of herself and others similarly situated. On January 27, 2015, the Defendants removed the action to the United States District Court for the Northern District of California.
On January 12, 2015, Plaintiff Plumbers & Pipefitters Local 178 Health & Welfare Trust Fund, an indirect purchaser, filed a class action complaint in the United States District Court for the Northern District of Illinois on behalf of itself and others similarly situated.
On March 26, 2015 Walgreen Co., The Kruger Co., Safeway Inc., HEB Grocery Company L.P., Albertson’s LLC, direct purchasers, filed a separate complaint in the United States District Court for the Northern District of Illinois.
On April 23, 2015, Rite Aid Corporation and Rite Aid Hdqtrs. Corp, direct purchasers, filed a separate complaint in the United States District Court for the Northern District of Illinois.
In each case, the complaints allege that Endo engaged in an anticompetitive scheme by, among other things, entering into an anticompetitive settlement agreement with the Company to delay generic competition of Opana ER® and in violation of state and federal antitrust laws. Plaintiffs seek, among other things, unspecified monetary damages and equitable relief, including disgorgement and restitution. Consolidated amended complaints were filed on May 4, 2015 by direct purchaser plaintiffs and end-payor (indirect) purchaser plaintiffs.
On July 3, 2015, defendants filed motions to dismiss the consolidated amended complaints, as well as the complaints of the “Opt-Out Plaintiffs” (Walgreen Co., The Kruger Co., Safeway Inc., HEB Grocery Company L.P., Albertson’s LLC, Rite Aid Corporation and Rite Aid Hdqtrs. Corp.).
On February 1, 2016, CVS Pharmacy, Inc. filed a complaint in the United States District Court for the Northern District of Illinois. The parties agreed that CVS Pharmacy, Inc. would be bound by the Court’s ruling on the defendants’ motion to dismiss the Opt-Out Plaintiffs’ complaints.
On February 10, 2016, the Court granted in part and denied in part defendants’ motion to dismiss the end-payor purchaser plaintiffs’ consolidated amended complaint, and denied defendants’ motion to dismiss the direct purchaser plaintiffs’ consolidated amended complaint. The end-payor purchaser plaintiffs have filed a second consolidated amended complaint and the Company has moved to dismiss certain state law claims.
On February 25, 2016, the Court granted defendants’ motion to dismiss the Opt-Out Plaintiffs’ complaints, with leave to amend. The Opt-Out Plaintiffs and CVS Pharmacy, Inc. have filed amended complaints and the Company has filed its answer.
Discovery is ongoing. No trial date has been scheduled.
United States Department of Justice Investigations
Previously on November 6, 2014, the Company disclosed that
one
of its sales representatives received a grand jury subpoena from the Antitrust Division of the United States Justice Department (the “Justice Department”). In connection with this same investigation, on March 13, 2015, the Company received a grand jury subpoena from the Justice Department requesting the production of information and documents regarding the sales, marketing, and pricing of certain generic prescription medications. In particular, the Justice Department’s investigation currently focuses on
four
generic medications: digoxin tablets, terbutaline sulfate tablets, prilocaine/lidocaine cream, and calcipotriene topical solution. The Company has been cooperating and intends to continue cooperating with the investigation. However, no assurance can be given as to the timing or outcome of the investigation.
Attorney General of the State of Connecticut Interrogatories and Subpoena Duces Tecum
On July 14, 2014, the Company received a subpoena and interrogatories (the “Subpoena”) from the State of Connecticut Attorney General (“Connecticut AG”) concerning its investigation into sales of the Company’s generic product, digoxin. According to the Connecticut AG, the investigation is to determine whether anyone engaged in a contract, combination or conspiracy in restraint of trade or commerce which has the effect of (i) fixing, controlling or maintaining prices or (ii) allocating or dividing customers or territories relating to the sale of digoxin in violation of Connecticut state antitrust law. The Company intends to cooperate with the Connecticut AG in producing documents and information in response to the Subpoena. To the knowledge of the Company, no proceedings by the Connecticut AG have been initiated against the Company at this time; however no assurance can be given as to the timing or outcome of this investigation.
In re Generic Pharmaceuticals Pricing Antitrust Litigation
From March 2016 to April 2017,
22
complaints were filed as class actions on behalf of direct and indirect purchasers against manufacturers of generic digoxin and doxycycline and the Company alleging a conspiracy to fix, maintain and/or stabilize prices of these generic products. From January 2017 to April 2017,
three
complaints were filed on behalf of indirect purchasers against manufacturers of generic lidocaine/prilocaine and the Company alleging a conspiracy to fix, maintain and/or stabilize prices of these generic products.
On March 2, 2016, Plaintiff International Union of Operating Engineers Local 30 Benefits Fund, an indirect purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated. The plaintiff filed an amended complaint on June 9, 2016.
On March 25, 2016, Plaintiff Tulsa Firefighters Health and Welfare Trust, an indirect purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated.
On March 25, 2016, Plaintiff NECA-IBEW Welfare Trust Fund, an indirect purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated.
On April 4, 2016, Plaintiff Pipe Trade Services MN, an indirect purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated.
On April 25, 2016, Plaintiff Edward Carpinelli, an indirect purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated.
On April 27, 2016, Plaintiff Fraternal Order of Police, Miami Lodge 20, Insurance Trust Fund, an indirect purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated.
On May 2, 2016, Plaintiff Nina Diamond, an indirect purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated.
On May 5, 2016, Plaintiff UFCW Local 1500 Welfare Fund, an indirect purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated.
On May 6, 2016, Plaintiff Minnesota Laborers Health and Welfare Fund, an indirect purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated.
On May 12, 2016, Plaintiff The City of Providence, Rhode Island, an indirect purchaser, filed a class action complaint in the United States District Court for the District of Rhode Island on behalf of itself and others similarly situated.
On May 18, 2016, Plaintiff KPH Healthcare Services, Inc. a/k/a Kinney Drugs, Inc., a direct purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated.
On May 19, 2016, Plaintiff Philadelphia Federation of Teachers Health and Welfare Fund, an indirect purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated.
On June 8, 2016, Plaintiff United Food & Commercial Workers and Employers Arizona Health and Welfare Trust, an indirect purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated.
On June 17, 2016, Plaintiff Ottis McCrary, an indirect purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated.
On June 20, 2016, Plaintiff Rochester Drug Co-Operative, Inc., a direct purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated.
On June 27, 2016, Plaintiff César Castillo Inc., a direct purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated.
On June 29, 2016, Plaintiff Plumbers & Pipefitters Local 33 Health and Welfare Fund, an indirect purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated.
On July 1, 2016, Plaintiff Plumbers & Pipefitters Local 178 Health and Welfare Trust Fund, an indirect purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated.
On July 15, 2016, Plaintiff Ahold USA, Inc., a direct purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated.
On September 7, 2016, Plaintiff United Here Health, an indirect purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated.
On September 20, 2016, Plaintiff Valerie Velardi, an indirect purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated.
On January 13, 2017, Plaintiff International Union of Operating Engineers Local 30 Benefits Fund, an indirect purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated against manufacturers of generic lidocaine/prilocaine and the Company alleging a conspiracy to fix, maintain and/or stabilize prices of this generic drug.
On April 17, 2017, Plaintiff UFCW Local 1500 Welfare Fund, an indirect purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated against manufacturers of generic lidocaine/prilocaine and the Company alleging a conspiracy to fix, maintain and/or stabilize prices of this generic drug.
On April 25, 2017, Plaintiff Louisiana Health Service Indemnity Company, an indirect purchaser, filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania on behalf of itself and others similarly situated against manufacturers of generic lidocaine/prilocaine and the Company alleging a conspiracy to fix, maintain and/or stabilize prices of this generic drug.
On May 19, 2016, several indirect purchaser plaintiffs filed a motion with the Judicial Panel on Multidistrict Litigation to transfer and consolidate the actions in the United States District Court for the Eastern District of Pennsylvania. The Judicial Panel ordered the actions consolidated in the Eastern District of Pennsylvania and ordered that the actions be renamed “
In re Generic Digoxin and Doxycycline Antitrust Litigation.
”
On January 27, 2017, plaintiffs filed
two
consolidated class action complaints. With respect to doxycycline, the plaintiffs dropped their allegations against the Company. On March 28, 2017, the Company, separately and along with other defendants, filed motions to dismiss the digoxin class action complaint. On April 6, 2017, the Judicial Panel on Multidistrict Litigation ordered the consolidation of all civil actions involving allegations of antitrust conspiracies in the generic pharmaceutical industry regarding
18
generic drugs to the Eastern District of Pennsylvania. The consolidated actions have been renamed
In re Generic Pharmaceuticals Pricing Antitrust Litigation.
On October 6, 2017, the Company filed a motion to dismiss the digoxin complaint. Briefing on the motion to dismiss is complete and a decision is pending. On February 9, 2018, the Court issued an order denying the discovery stay and allowing certain fact discovery to proceed.
On January 19, 2018, Plaintiffs The Kroger Co., Albertsons Companies, LLC, and H.E. Butt Grocery Company L.P., opt-outs, filed a complaint in the United States District Court for the Eastern District of Pennsylvania against
35
companies, including Impax, alleging a conspiracy to fix, maintain and/or stabilize prices of 30 drugs and specifically digoxin and lidocaine/prilocaine with respect to Impax. No schedule has been set.
AWP Litigation
On December 30, 2015, Plumbers’ Local Union No. 690 Health Plan and others similarly situated filed a class action against several generic drug manufacturers, including the Company, in the Court of Common Pleas of Philadelphia County, First Judicial District of Pennsylvania, Civil Trial Division, alleging that the Company and others violated the law, including the Pennsylvania Unfair Trade Practices and Consumer Protection law, by inflating the Average Wholesale Price (“AWP”) of certain generic drugs. The case has since been removed to federal court in the United States District Court for the Eastern District of Pennsylvania. By virtue of an amended complaint filed on March 29, 2016, the suit has been amended to comprise a nationwide class of third party payors that allegedly reimbursed or purchased certain generic drugs based on AWP and to assert causes of action under the laws of other states in addition to Pennsylvania. On May 17, 2016, this case was stayed. On January 18, 2017, the Company, along with the other defendants, filed a joint motion to dismiss the complaint. On September 15, 2017, the Court dismissed the complaint with prejudice. The time period to file an appeal has lapsed.
On February 5, 2016, Delaware Valley Health Care Coalition filed a lawsuit based on substantially similar allegations in the Court of Common Pleas of Philadelphia County, First Judicial District of Pennsylvania, Civil Trial Division that seeks declaratory judgment. On May 20, 2016, this case was stayed pending resolution of the federal court action described above.
Impax Laboratories, Inc. v. Turing Pharmaceuticals AG
On May 2, 2016, the Company filed suit against Turing Pharmaceuticals AG ("Turing") in the United States District Court for the Southern District of New York alleging breach of the terms of the contract by which Turing purchased from the Company the right to sell the drug Daraprim®, as well as the right to sell certain Daraprim® inventory (the “Purchase Agreement”). Specifically, the Company seeks (i) a declaratory judgment that the Company may revoke Turing’s right to sell Daraprim® under the Company’s labeler code and national drug codes; (ii) specific performance to require Turing to comply with its obligations under the Purchase Agreement for past due reports and for reports going forward; and (iii) money damages to remedy Turing’s failure to reimburse the Company for chargebacks and Medicaid rebate liability when due, currently in excess of
$40.9 million
and for future amounts that may be due. Turing has filed its answer and a counterclaim against the Company alleging breach of contract and breach of the duty of good faith and fair dealing. Discovery is closed. On October 14, 2016, the Company filed a motion for summary judgment. The District Court issued its order on September 29, 2017. The Court found that Turing breached the Purchase Agreement by failing to reimburse the Company for Medicaid rebate liability, however, the Court also found that the Company breached the Purchase Agreement by not filing a restatement with the Centers for Medicare and Medicaid Services at Turing’s request. Therefore, the Company was not entitled to damages. On October 13, 2017, the Company filed a Motion for Clarification/Reconsideration of the Summary Judgment Order. Briefing on the motion is complete and a decision is pending.
Telephone Consumer Protection Act Cases
On January 31, 2017, Plaintiff Family Medicine Pharmacy LLC filed a class action complaint in the United States District Court for the Southern District of Alabama on behalf of itself and others similarly situated against the Company alleging violation of the Telephone Consumer Protection Act, as amended by the Junk Fax Prevention Act of 2005 (the "Telephone Consumer Protection Act"). On March 27, 2017, the Company filed a motion to dismiss the complaint and plaintiff filed an amended complaint on April 10, 2017. On July 18, 2017, the parties reached an agreement in principle regarding the class settlement. On September 29, 2017, the District Court preliminarily approved the proposed class settlement. The Court held a hearing on March 6, 2018 and issued an order with final approval of the proposed class settlement.
On February 14, 2017, Plaintiff Medicine To Go Pharmacies, Inc. filed a class action complaint in the United States District Court for the District of New Jersey on behalf of itself and others similarly situated against the Company alleging violation of the Telephone Consumer Protection Act. On April 17, 2017, the Company filed a motion to dismiss, transfer, or stay this case in light of the first-filed case described above. This case was transferred to the Southern District of Alabama. On September 15, 2017, the Court stayed this matter pending the final approval of the class settlement described above.
Securities Class Action
On April 17, 2017, Lead Plaintiff New York Hotel Trades Council & Hotel Association of New York City, Inc. Pension Fund filed an amended class action complaint in the United States District Court for the Northern District of California on behalf of itself and others similarly situated against the Company alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5. The Company filed its motion to dismiss the amended complaint on June 1, 2017 and briefing has been completed.
Shareholder Derivative Action
On February 22, 2017, Plaintiff Ed Lippman filed a shareholder derivative complaint in the Superior Court for the State of California in the County of Alameda on behalf of the Company against former executives, a current executive, and certain current members of the board of directors alleging breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, and corporate waste. This matter has been stayed pending the securities class action referenced above.
Securities Class Actions related to the Combination
On December 12, 2017 and December 14, 2017, Plaintiffs Susan Vana and David Stone, respectively, filed class action
complaints in the United States District Court for the Northern District of California on behalf of themselves and others similarly situated against the Company alleging violations of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 generally alleging that the Registration Statement on Form S-4 related to the proposed business combination with Amneal Pharmaceuticals, LLC (“Amneal”) contains false and misleading statements and/or omissions concerning the financial projections of the Company, Amneal, and New Amneal; Morgan Stanley & Co. LLC’s valuation analyses and Fairness Opinions relating to the Company and Amneal; potential conflicts of interest associated with one of the Company’s financial advisors and the proposed business combination with Amneal; and background information of the proposed business combination, including confidentiality agreements entered into by the Company in connection with the Combination. On April 4, 2018, plaintiffs filed a Stipulation and Proposed Order voluntarily dismissing the actions and on April 5, 2018, the court issued an order to dismiss the actions. By no later than June 1, 2018, plaintiffs shall file any petition and supporting papers for an award of attorneys’ fees and expenses.
Teva v. Impax Laboratories, Inc.
On February 15, 2017, Plaintiffs Teva Pharmaceuticals USA, Inc. and Teva Pharmaceuticals Curacao N.V. (“Teva”) filed a Praecipe to Issue Writ of Summons and Writ of Summons (precursor to a complaint) in the Philadelphia County Court of Common Pleas against the Company alleging that the Company breached the Strategic Alliance Agreement between the parties by not indemnifying Teva in its
two
litigations with GlaxoSmithKline LLC regarding Wellbutrin
®
XL. The Company filed a Motion to Disqualify Teva’s counsel related to the matter, and on August 23, 2017, the Court denied the Company’s motion. Following the Court’s order, Teva filed its complaint. The Company has filed its appeal regarding the disqualification order, and oral argument was held on April 10, 2018. The matter is currently stayed.
California Wage and Hour Class Action
On August 3, 2017, Plaintiff Emielou Williams filed a class action complaint in the Superior Court for the State of California in the County of Alameda on behalf of herself and others similarly situated against the Company alleging violation of California Business and Professions Code section 17200 by violating various California wage and hour laws. On October 10, 2017, the Company filed a Demurrer and Motion to Strike Class Allegations. On December 12, 2017, the Court overruled Impax’s Demurrer to Plaintiff’s individual claims, however, it struck all of Plaintiff’s class allegations. On March 13, 2018, Plaintiff filed her First Amended Complaint once again including the same class allegations. The Company filed a Demurrer and Motion to Strike Class Allegations on April 12, 2018 and hearing is scheduled for May 25, 2018. Discovery is ongoing.
American Resources Insurance Company, Inc. Class Action
On March 28, 2018, Plaintiff American Resources Insurance Company, Inc. filed a class action complaint in the United States District Court for the Southern District of Alabama on behalf of itself and others similarly situated against the Company and several other drug manufacturers and distributors alleging violations of the RICO statute, negligence, fraud, unjust enrichment, and subrogation with respect to the sale and distribution of opioids. No schedule has been set.
19. SEGMENT INFORMATION
The Company has
two
reportable segments, Impax Generics and Impax Specialty Pharma. Impax Generics develops, manufactures, sells, and distributes generic pharmaceutical products, primarily through the following sales channels: the Impax Generics sales channel for sales of generic prescription products directly to wholesalers, large retail drug chains, and others; the Private Label Product sales channel for generic over-the-counter and prescription products sold to unrelated third-party customers who, in turn, sell the products under their own label; the Rx Partner sales channel for generic prescription products sold through unrelated third-party pharmaceutical entities under their own label pursuant to alliance agreements; and the OTC Partner sales channel for over-the-counter products sold through unrelated third-party pharmaceutical entities under their own labels pursuant to alliance and supply agreements. Revenues from generic products are reported under the caption "Impax Generics, net."
Impax Specialty Pharma is engaged in the development, sale and distribution of proprietary brand pharmaceutical products that the Company believes represent improvements to already-approved pharmaceutical products addressing central nervous system (“CNS”) disorders and other select specialty segments. Impax Specialty Pharma currently has
one
internally developed branded pharmaceutical product, Rytary® (IPX066), an extended release oral capsule formulation of carbidopa-levodopa for the treatment of Parkinson’s disease, post-encephalitic parkinsonism, and parkinsonism that may follow carbon monoxide intoxication and/or manganese intoxication, which was approved by the FDA on January 7, 2015 and which the Company launched in April 2015. In November 2015, the European Commission granted marketing authorization for Numient® (IPX066) (referred to as Rytary® in the United States). The review of the Numient® application was conducted under the centralized licensing procedure as a therapeutic innovation, and authorization is applicable in all
28
member states of the European Union, as well as Iceland, Liechtenstein and Norway. Impax Specialty Pharma is also engaged in the sale and distribution of
four
other branded products including Zomig® (zolmitriptan) products, indicated for the treatment of migraine headaches, under the terms of the AZ Agreement with AstraZeneca in the United States and in certain U.S. territories, and Emverm® (mebendazole) 100 mg chewable tablets, indicated for the treatment of pinworm, whipworm, common roundworm, common hookworm, and American hookworm in single or mixed infections.
Revenues from branded products are reported under the caption “Impax Specialty Pharma, net.” Impax Specialty Pharma also has a number of product candidates that are in varying stages of development.
The Company’s chief operating decision maker evaluates the financial performance of the Company’s segments based upon segment income (loss) before income taxes. Items below income (loss) from operations are not reported by segment, since they are excluded from the measure of segment profitability reviewed by the Company’s chief operating decision maker. Additionally, general and administrative expenses, certain selling expenses, certain litigation settlements, and non-operating income and expenses are included in “Corporate and Other.” The Company does not report balance sheet information by segment since it is not reviewed by the Company’s chief operating decision maker. The accounting policies for the Company’s segments are the same as those described in “Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates” and "Item 15. Exhibits and Financial Statement Schedules - Notes to Consolidated Financial Statements - Note 2. Summary of Significant Accounting Policies" to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2017.
The tables below present segment information reconciled to total Company financial results, with segment operating income or loss including gross profit less direct research and development expenses and direct selling expenses as well as any litigation settlements, to the extent specifically identified by segment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018
|
Impax
Generics
|
|
Impax
Specialty
Pharma
|
|
Corporate
and Other
|
|
Total
Company
|
|
Revenues, net
|
$
|
83,141
|
|
|
$
|
59,214
|
|
|
$
|
—
|
|
|
$
|
142,355
|
|
|
Cost of revenues
|
95,037
|
|
|
17,038
|
|
|
—
|
|
|
112,075
|
|
|
Selling, general and administrative
|
7,556
|
|
|
17,620
|
|
|
32,147
|
|
|
57,323
|
|
|
Research and development
|
9,616
|
|
|
2,680
|
|
|
—
|
|
|
12,296
|
|
|
Litigation, settlements and related charges
|
84,597
|
|
|
940
|
|
|
—
|
|
|
85,537
|
|
|
(Loss) income before income taxes
|
$
|
(113,665
|
)
|
|
$
|
20,936
|
|
|
$
|
(45,493
|
)
|
|
$
|
(138,222
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2017
|
Impax
Generics
|
|
Impax
Specialty
Pharma
|
|
Corporate
and Other
|
|
Total
Company
|
|
Revenues, net
|
$
|
134,147
|
|
|
$
|
50,256
|
|
|
$
|
—
|
|
|
$
|
184,403
|
|
|
Cost of revenues
|
103,335
|
|
|
16,897
|
|
|
—
|
|
|
120,232
|
|
|
Cost of revenues impairment charges
|
39,280
|
|
|
—
|
|
|
—
|
|
|
39,280
|
|
|
Selling, general and administrative
|
6,468
|
|
|
16,330
|
|
|
24,257
|
|
|
47,055
|
|
|
Research and development
|
17,396
|
|
|
5,093
|
|
|
—
|
|
|
22,489
|
|
|
In-process research and development impairment charges
|
6,079
|
|
|
—
|
|
|
—
|
|
|
6,079
|
|
|
Litigation, settlements and related charges
|
368
|
|
|
704
|
|
|
—
|
|
|
1,072
|
|
|
(Loss) income before income taxes
|
$
|
(38,779
|
)
|
|
$
|
11,232
|
|
|
$
|
(39,983
|
)
|
|
$
|
(67,530
|
)
|
Significant Products
The Company generally consolidates net revenue by "product family," meaning that it consolidates net revenue from products containing the same active ingredient(s) irrespective of dosage strength, delivery method or packaging size. The Company's significant product families, as determined based on net revenue, and their percentage of the Company's consolidated net revenue for each of the
three
months ended
March 31, 2018
and
2017
are set forth below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
|
|
Product Family
|
|
Three Months Ended March 31, 2018
|
|
|
|
|
|
|
$
|
%
|
|
|
Impax Specialty Pharma
|
|
Rytary® family
|
|
$
|
26,508
|
|
19
|
%
|
(1)
|
|
Impax Generics
|
|
Epinephrine Auto-Injector family (generic Adrenaclick®)
|
|
$
|
14,783
|
|
10
|
%
|
(2)
|
|
Impax Specialty Pharma
|
|
Albenza family
|
|
$
|
13,607
|
|
10
|
%
|
(3)
|
|
Impax Specialty Pharma
|
|
Oxymorphone HCI ER family
|
|
$
|
13,387
|
|
9
|
%
|
(4)
|
|
Impax Specialty Pharma
|
|
Zomig® family
|
|
$
|
10,478
|
|
7
|
%
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
|
|
Product Family
|
|
Three Months Ended March 31, 2017
|
|
|
|
|
|
|
$
|
%
|
|
|
Impax Generics
|
|
Epinephrine Auto-Injector family (generic Adrenaclick®)
|
|
$
|
20,318
|
|
11
|
%
|
(2)
|
|
Impax Generics
|
|
Rytary® family
|
|
$
|
19,905
|
|
11
|
%
|
(1)
|
|
Impax Specialty Pharma
|
|
Oxymorphone HCI ER family
|
|
$
|
18,970
|
|
10
|
%
|
(4)
|
|
Impax Specialty Pharma
|
|
Budesonide family
|
|
$
|
15,827
|
|
9
|
%
|
(6)
|
|
Impax Generics
|
|
Amphetamine Salts ER (CII) family (generic Adderall®)
|
|
$
|
12,173
|
|
7
|
%
|
(7)
|
(1) Rytary® product family consists of the capsules product in four different strengths and is indicated for the treatment of Parkinson’s disease, post-encephalitic parkinsonism, and parkinsonism that may follow carbon monoxide intoxication or manganese intoxication.
(2) Epinephrine Auto-Injector (generic Adrenaclick®) product family consists of the injector product in two different strengths and is indicated in the emergency treatment of allergic reactions (Type 1) including anaphylaxis.
(3) Albenza® product family consists of one strength and is indicated for the treatment of parenchymal neurocysticercosis due to active lesions caused by larval forms of the pork tapeworm, Taenia solium and the treatment of cystic hydatid disease of the liver, lung and peritoneum, caused by the larval form of the dog tapeworm, Echinococcus granulosus.
(4) Oxymorphone Hydrochloride Extended Release product family consists of the oxymorphone hydrochloride extended release tablet formulation of the product in seven different strengths and is indicated for the management of pain severe enough to require daily, around-the-clock, long-term opioid treatment and for which alternative treatment options are inadequate.
(5) Zomig® product family consists of products in tablet, orally disintegrating tablet and nasal spray dosage forms, each dosage form in two different strengths, and is indicated for the acute treatment of migraine with or without aura in adults. Zomig® (zolmitriptan) Nasal Spray is also indicated in pediatric patients 12 years of age or older.
(6) Budesonide product family consists of the budesonide inhalation suspension formulation of the product in two different strengths and is indicated for the maintenance treatment of asthma and as prophylactic therapy in children 12 months to eight years of age.
(7) Amphetamine Salts extended release (ER) capsules, CII (generic Adderall XR®) product family consists of the capsules product in six different strengths and is indicated for the treatment of attention deficit hyperactivity disorder.
Foreign Operations
During 2017 we announced that we entered into a stock and asset purchase agreement with Bora Pharmaceuticals Co., Ltd., pursuant to which we agreed to sell Impax Taiwan, our wholly-owned subsidiary which owns our manufacturing facility in Taiwan, R.O.C. The sale of Impax Taiwan subsequently closed in February 2018. On the Company's consolidated balance sheets at
March 31, 2018
and
December 31, 2017
, Impax Taiwan represents
$0.0 million
and
$22.9 million
, respectively, of net carrying value of assets, composed principally of a building and manufacturing equipment which are included in assets and liabilities held for sale. See "Note 14. Restructurings" for additional information related to the closure or sale of the Taiwan facility.
20. SUPPLEMENTARY FINANCIAL INFORMATION
Selected financial information for the quarterly period noted is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except share and per share amounts)
|
|
Quarter Ended March 31, 2018
|
|
Revenue:
|
|
|
|
Impax Generics, gross
|
|
$
|
474,043
|
|
|
Less:
|
|
|
|
Chargebacks
|
|
240,041
|
|
|
Rebates
|
|
104,339
|
|
|
Product Returns
|
|
16,174
|
|
|
Other credits
|
|
31,329
|
|
|
Impax Generic Product sales, net
|
|
82,160
|
|
|
|
|
|
|
Rx Partner
|
|
909
|
|
|
Other Revenues
|
|
72
|
|
|
Impax Generic Division revenues, net
|
|
83,141
|
|
|
|
|
|
|
Impax Specialty Pharma, gross
|
|
97,215
|
|
|
Less:
|
|
|
|
Chargebacks
|
|
8,548
|
|
|
Rebates
|
|
5,601
|
|
|
Product Returns
|
|
3,535
|
|
|
Other credits
|
|
20,317
|
|
|
Impax Specialty Pharma, net
|
|
59,214
|
|
|
|
|
|
|
Total revenues
|
|
142,355
|
|
|
|
|
|
|
Gross Profit
|
|
30,280
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(130,932
|
)
|
|
|
|
|
|
Net loss per common share:
|
|
|
|
Basic
|
|
$
|
(1.81
|
)
|
|
Diluted
|
|
$
|
(1.81
|
)
|
|
|
|
|
|
Weighted-average common shares outstanding:
|
|
|
|
Basic
|
|
72,265,794
|
|
|
Diluted
|
|
72,265,794
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except share and per share amounts)
|
|
Quarter Ended March 31, 2017
|
|
Revenue:
|
|
|
|
Impax Generics, gross
|
|
$
|
630,672
|
|
|
Less:
|
|
|
|
Chargebacks
|
|
298,744
|
|
|
Rebates
|
|
164,792
|
|
|
Product Returns
|
|
9,733
|
|
|
Other credits
|
|
28,481
|
|
|
Impax Generic Product sales, net
|
|
128,922
|
|
|
|
|
|
|
Rx Partner
|
|
5,159
|
|
|
Other Revenues
|
|
66
|
|
|
Impax Generic Division revenues, net
|
|
134,147
|
|
|
|
|
|
|
Impax Specialty Pharma, gross
|
|
84,133
|
|
|
Less:
|
|
|
|
Chargebacks
|
|
9,828
|
|
|
Rebates
|
|
4,483
|
|
|
Product Returns
|
|
1,844
|
|
|
Other credits
|
|
17,722
|
|
|
Impax Specialty Pharma, net
|
|
50,256
|
|
|
|
|
|
|
Other Revenues
|
|
—
|
|
|
Impax Specialty Pharma, net
|
|
50,256
|
|
|
|
|
|
|
Total revenues
|
|
184,403
|
|
|
|
|
|
|
Gross profit
|
|
24,891
|
|
|
|
|
|
|
Net loss
|
|
$
|
(98,431
|
)
|
|
|
|
|
|
Net loss per common share:
|
|
|
|
Basic
|
|
$
|
(1.37
|
)
|
|
Diluted
|
|
$
|
(1.37
|
)
|
|
|
|
|
|
Weighted-average common shares outstanding:
|
|
|
|
Basic
|
|
71,594,472
|
|
|
Diluted
|
|
71,594,472
|
|
21. SUBSEQUENT EVENTS
As described in “Note 1. Basis of Presentation” Impax completed its business combination with Amneal on May 4, 2018 pursuant to the BCA. The following events occurred subsequent to the closing (the “Closing”) of the transactions contemplated by the BCA:
|
|
|
|
•
|
Shares of Impax common stock ceased trading on the NASDAQ Global Select Market (“Nasdaq”) at the close of business on May 4, 2018. On May 4, 2018, Nasdaq filed a notification on Form 25 with the SEC with respect to shares of Impax common stock to request removal of Impax common stock from listing on the NASDAQ and from registration under Section 12(b) of the Securities and Exchange Act of 1934, as amended.
|
|
|
|
|
•
|
In accordance with the terms of the BCA, in connection with the Closing on May 4, 2018, (i) each share of Impax common stock was cancelled and automatically converted into the right to receive
one
fully paid and nonassessable share of Class A common stock of Amneal Pharmaceuticals, Inc. (“Class A Common Stock”); (ii) approximately
1.3 million
of Impax common stock issued with respect to unvested restricted stock awards issued and outstanding immediately prior to the Closing were fully vested and exchanged for shares of Class A Common Stock; and (iii) approximately
3.0 million
outstanding stock options issued under the Impax equity plans or as inducement grants outstanding immediately prior to the Closing were fully vested and exchanged into for options to acquire a number of shares of Class A Common Stock equal to the number of shares of Impax Common Stock subject to such Impax Option immediately prior to the Closing at a price per share equal to the exercise price per share of Impax common stock otherwise purchasable pursuant to such Impax option.
|
|
|
|
|
•
|
In connection with the Closing, the Company repaid in full all outstanding amounts under its Amended and Restated Credit Agreement, dated as of August 3, 2016 and as amended on March 27, 2017 by and among Impax, Royal Bank of Canada, as administrative agent and collateral agent, and the lenders and other parties from time to time party thereto (the “Credit Agreement”), and terminated the Credit Agreement and all commitments by the lenders to extent further credit thereunder.
|
|
|
|
|
•
|
In connection with the Closing, on May 4, 2018, the Company, Amneal Pharmaceuticals, Inc. and Wilmington Trust, National Association, as trustee (the “Trustee”), entered into the Second Supplemental Indenture (the “Second Supplemental Indenture”) with respect to the Indenture dated as of June 30, 2015 (the “Indenture”), as amended by the First Supplemental Indenture dated as of November 6, 2017, governing the Company’s
2.00%
Convertible Senior Notes due 2022 (the “Notes”). The Second Supplemental Indenture (x) made New Amneal a party to the Indenture and (y) changed the right to convert each $1,000 principal amount of the Notes into a right to convert such principal amount of Notes into shares of Class A Common Stock, cash or a combination of cash and shares of Class A Common Stock, at the Company’s election, in each case reflecting a conversion rate of 15.7853 shares of Class A Common Stock per $1,000 principal amount of Notes surrendered for conversion.
|
Further, as described in “Note 10. Debt”, concurrently with the offering of the Notes, the Company had entered into convertible note hedge transactions (the “Convertible Note Hedge Transactions”) with respect to shares of the Company’s common stock with Royal Bank of Canada (the “Counterparty”). On May 7, 2018 Impax and the Counterparty entered into a termination agreement terminating in full the Convertible Note Hedge Transactions and the Warrant Transactions (the “Termination Agreement”).
|
|
|
|
•
|
As of May 4, 2018 and subsequent to that date, certain executives separated from their respective positions at Impax. Each of these separations constituted a termination of employment by Impax without cause following a change of control for purposes of the executives’ respective employment agreements. These executives will receive certain termination benefits during the second quarter in accordance with their employment agreements.
|
The foregoing subsequent events did not impact the Impax Statement of Operations, Balance Sheet or Cash Flow Statement for the quarter ended March 31, 2018.