Why Impax Labs Is Crashing 22.5% Today

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What: After announcing second-quarter results that fell short of industry watchers' estimates and lowering its guidance for the full year, shares inImpax Laboratories (NASDAQ: IPXL) are falling by 22.5% at 3:00 p.m. EST.

So what:The generic drug company's sales fell 19.4% year over year to $172.6 million, and EPS came in at $0.21. Those results fell short of analysts' outlook by $51 million on the top line and $0.11 on the bottom line.

Following the weak performance, the company's management cut its full-year sales forecast from growth of 15% from last year's $860 million to between $900 million and $940 million. Management also ratcheted down its adjusted EPS outlook from growth of at least 20% from $1.45 last year to between $1.57 and $1.70.

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Fred Wilkinson, president and chief executive officer of Impax made the following comments:

Our second quarter results reflect the unexpected and rapid decline in sales of diclofenac and metaxalone as a result of additional competition. In particular, the change in the diclofenac market quickly moved us from an exclusive supplier position to a five competitor market. Unfortunately, the swiftness of the change in both of these product markets combined with lower sales of mixed amphetamine salts, more than offset solid growth from our epinephrine auto-injector and oxymorphone products, as well as growth in sales across our Specialty Pharma portfolio.

Now what:Impax Laboratories just closed on its $586 million acquisition of 15 generic drugs from Teva Pharmaceutical. Allergan recently sold its generic business to Teva Pharmaceutical, and to win regulators' support for the deal, Teva Pharmaceutical agreed to divest those drugs.

In doing this deal, Impax lands drugs with $150 million in sales last year and it gets its hands on four other generic drugs that have yet to be launched. The acquisition adds to earnings immediately,but financing the deal with debt frustrates some investors who were hoping for the company to lower its liabilities, rather than increase them.

Overall, the unexpected drop in generic sales due to new competition offsets much of the expected earnings upside following the purchase, and that could mean 2016 is a transition year for the company. Given its legacy generic drug franchise question marks, investors should probably focus on other investment ideas -- at least until their drag on sales fades.

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Todd CampbellTodd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. Like this article? Follow him onTwitter where he goes by the handle@ebcapitalThe Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days

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