It’s been a roller-coaster year for Impax Laboratories Inc. (IPXL.O). Earlier this year, the FDA raised concerns about its Taiwan manufacturing plant, which followed published concerns a couple of years earlier about its California facility. Now, this pharma company seems to be feeling better, with new management in place and strategic acquisitions in the pipeline. We take a look in the test tubes.
Impax, which has treatments for Parkinson’s Disease and migraines, among others, recently announced the acquisition of two privately-held Pennsylvania drugmakers: Lineage Therapeutics Inc. and Tower Holdings Inc. Looking at the StarMine analysis, Impax looks set to accelerate earnings, with a 3.7% positive Predicted Surprise leading us to believe that it will beat expectations when it reports earnings in November.
Source: Eikon/StarMine
Generic expectations
Despite those setbacks with the FDA, analysts are lauding the recent acquisitions. Impax’ generic products seem to be performing well and the company beat expectations last quarter with the highest revenue since 2010 at $188 million, a 45% improvement from a year ago. The I/B/E/S consensus estimate is now up more than 10 cents at 31 cents per share. The SmartEstimate is even higher at 32 cents per share. Analysts have also been raising their recommendations, and there are now three fewer hold recommendations and three more buys compared to 90 days ago. The mean price target for Impax has been raised by over $2 in the last 90 days. The analyst optimism is one reason why the company performs so well on the StarMine Analyst Revisions Model (ARM), with a score of 95.
Source: Eikon/StarMine
Improved prognosis
After having a product hold at the California plant because of the FDA ruling in 2010, the company saw operating margins fall as it rushed to update its manufacturing facilities. That also meant large capital expenditures. However, the last two quarters have seen an uptick in operating margins, which could be a good sign for the coming quarters. Although still under FDA scrutiny, it looks like 2015 may be the year that the company puts these issues behind it, and the strong R&D focus will likely kick in and translate to new products and increased revenues. Already, the company has the Parkinson drug Rytary waiting in the pipeline for the FDA’s final nod. That could potentially boost annual revenues by more than $175 million, by some estimates.
Source: Eikon/StarMine
Managing strategy
There are still issues on the FDA front, however, and Impax hired a new CEO, Fred Wilkinson, to help address them. He’s working with a strong balance sheet with over $400 million in cash and no debt (maybe less given the recent announcements). Given the strong M&A activity in the pharmaceutical space, Impax could potentially also be a takeover target. It also has the balance sheet to fund a strategic acquisition (like it did recently) and expand its product line. In any case, its fortunes in the long term hinge on successful FDA inspections, but in the short term, despite the FDA issues, the company continues to deliver strong results on its existing generics line and is likely to beat estimates in the current quarter, just like it did last quarter.
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