Impax: A Generic Impact

06/25/2004 12:00 am EST

Focus:

Vahan Janjigian

Editor, Bottom Line's Money Masters Stock Report

"I'm sticking with my January forecast that the S&P 500 will rise about 10% for the year," says Vahan Janjigian, editor of the Forbes Growth Investor. "Since the index is flat for the year, that would indicate a very good return from here." One of his latest picks is Impax Labs.

"Impax Labs (IPXL NASDAQ) specializes in controlled-release generic pharmaceuticals, focusing on drugs that require challenging delivery mechanisms. Impax has significant expertise in fabricating controlled-release medications, such as its system that releases multiple active ingredients at specified times to specific locations of the body. At the end of 2003, the firm was marketing 31 generic drugs. Some key products are Demeclocycline (an antibiotic), Bupropion (an antidepressant), and Loradine (allergy medication). Impax has strategic alliances with Novartis, Wyeth, and Schering-Plough that allow it to manufacture and sell various over-the-counter allergy medications including Triamic AllerChews, Alavert, and Claritin. Recently, the company formed an alliance with Teva and Andrx to distribute 12 controlled-release drugs including Bupropion Wellbutrin.

"The firm is also in the early stages of developing medications for the treatment of central nervous system (CNS) disorders. The branded pharmaceutical segment is not yet marketing any drugs but is focused on researching and development drugs, which combat CNS disorders such as Alzheimer’s disease, attention deficit hyperactivity, depression, epilepsy, migraines, multiple sclerosis, Parkinson’s disease, and schizophrenia. CNS-related medications are about a $20-billion market. Sales are growing at higher-than-average rates. Impax currently has four CNS research projects in development and 11 others planned.

"The first quarter of 2004 was the company’s first profitable quarter. Revenues of $38.9 million compare to only $11.4 million a year ago. The gross profit margin nearly doubled to 55.8%. Net income improved from a loss of $3.2 million to a gain of $9 million or 14 cents per share. Demand for generics is strong. Indeed, half of all 2002 prescriptions were for generics, up from just over a third in 1994. With drug prices soaring, patients are demanding generics when they are available. The company will also benefit from a slew of patents due to expire within the next three years. Impax has 16 abbreviated new drug applications filed with the FDA. Those that should receive approval soon are for generic version of Prilosec, Wellbutrin SR, Allegra-D, Oxycontin, and Ditropan XL. Overall, we believe the company’s prospects are extremely bright."

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