Lannett Company Moves to Replace Products it May Lose in Supply Agreement Cancellation

Lannett Company, Inc (NYSE: LCI) is a leading manufacturer of over 100 unique pharmaceutical product families that save and enhance people’s lives. LCI is a US-based company, with its headquarters in Philadelphia, PA, and top-notch facilities for research and development, manufacturing, packaging, business, and distribution in four states including Pennsylvania, Indiana, New York, and Wyoming.


On Aug. 28, 2018, the company reported financial results for its fiscal 2018 fourth quarter and full year ended June 30, 2018. 


Recent Highlights:

  • For both the fiscal 2018 fourth quarter and full year, revenue and adjusted net income solidly improved over last year, and the overall financial performance was within company’ full-year guidance.
  • Operationally, in the second half of fiscal 2018, the company completed several transactions acquiring more than 25 market-ready or near-market-ready product lines that have added to its pipeline and in-licensing several more.
  • LCI implemented a restructuring plan at its Cody Laboratories subsidiary and began the consolidation of its product distribution function.  Importantly, the company improved the pace of new product launches, and the customers well received these products.
  • The company was informed that its contract with Jerome Stevens Pharmaceuticals (JSP) would not be renewed upon its expiration on March 23, 2019. It said, the company has been assured of a continuous supply of the products covered under the agreement through March of next year, and the management expects these products to contribute to its financial performance in fiscal 2019 significantly.


Upcoming Catalysts/Goals:

  • The management’ overarching goal is to fortify its business as it builds for the future, while also preparing for the impact of the eventual expiration of the JSP contract.
  • The eight products that the company has launched since January 1st of this year are expected to contribute more than $50 million to revenues in the current fiscal year.
  • For the fiscal 2019 full year on an adjusted basis, the company currently expects net sales in the range of $580 million to $610 million; adjusted gross margin as a percentage of net sales of approximately 44% to 45%; adjusted R&D expense in the range of $28 million to $32 million; adjusted SG&A expense ranging from $63 million to $66 million; adjusted interest expense in the range of $63 million to $65 million; the full year adjusted effective tax rate in the range of 22% to 23%; and lastly, capital expenditures in fiscal 2019 to be approximately $30 million to $35 million.
  • Given its large pool of approved but not yet launched products and filed drug product applications awaiting approval at the FDA, the company’ goal is to continue this recent rate of launching products.
  • The company sold off two unused buildings in Philadelphia for about $14 million and restructured and refocused its Cody Laboratories’ API business significantly reducing operating overheads.
  • Moreover, LCI is focussing on cost savings initiatives to maximize profitability, liquidity and cash flow.



Analysts tracking the stock believes that the continued progression on LCI’ base business from new product launches combined with cost containments would ensure that the company has sufficient cash flow from operations to provide liquidity to fund its current obligations, projected working capital requirements and capital expenditures through this fiscal year.

As per, The average twelve-month price target is $24.8750, suggesting that the stock has a possible upside of 340.27%. The high price target for LCI is $43.00, and the low-price target for LCI is $8.00. There are currently six hold ratings for the stock, resulting in a consensus rating of “Hold.”


Below are the excerpts of recent analyst rating on the scrip:



About the company: Lannett Company, founded in 1942, develops, manufactures, packages, markets and distributes generic pharmaceutical products for a wide range of medical indications.


Revenue streams for the company:

2018 financial Results:

In thousands (except per share amount)


  • Revenues: For Fiscal 2018, net sales increased to $684.6 million compared to $637.3 million in the same prior-year period. Total net sales increased to $684.6 million compared to $633.3 million in the prior-year period, which reflected a $4.0 million settlement agreement adjustment.


  • Profitability:  Gross profit decreased $12.5 million to $288.7 million compared to the prior-year period, and gross profit percentage decreased to 42% compared to 48% in Fiscal 2017. Net income attributable to Lannett Company, Inc. for Fiscal 2018 was $28.7 million, or $0.75 per diluted share.  Comparatively, net loss attributable to Lannett Company, Inc. in the prior-year period was $581 thousand, or $0.02 per diluted share.
  • Liquidity and financial flexibility: At June 30, 2018, cash and cash equivalents totaled $98.6 million, and debt was $839.3 million. In July, the company closed on a sale of two buildings in Philadelphia for $14.0 million. LCI’ cash balance at June 30 does not include proceeds from this sale.


The management expects to have sufficient cash flow from operations to provide liquidity to fund its current obligations, projected working capital requirements and capital expenditures throughout this fiscal year.


Upcoming guidance:

  • This guidance includes sales of recently launched products, previously approved and not yet launched products as well as other products that the company reasonably assume will be approved and launched in the period.
  • With regards to fiscal 2020, LCI is implementing a growth plan which includes accelerating product launches and increasing its product offering through strategic relationships and product development.


Key risk factors and potential stock drivers:

  • Any adversities related to the future guidance might adversely impact the overall investor sentiments.
  • A substantial portion of LCI’ total net sales and gross profits are generated from products manufactured by JSP that it was pursuant to an agreement with JSP, and the termination of its distribution agreement with JSP could decrease its net sales, results of operations and cash flows.
  • LCI rely on an uninterrupted supply of finished products from JSP for a significant amount of its sales through March 23, 2019.  If it experiences an interruption of that supply, the operating results will suffer.
  • LCI has an aggressive capital structure. Therefore, management’ ability to prudently manage the liquidity and overall financial flexibility of the company will continue to remain a critical stock sensitivity factor.
  • Extensive industry regulation has had and will continue to have, an impact on LCI’ business in the area of cost of goods, especially its product development, manufacturing, and distribution capabilities.
  • The manufacturing and distribution of generic pharmaceutical products is a competitive industry.  Therefore, risk related to competition would continue to impinge the business profile of LCI.


Stock Chart:




  • On Friday, September 7th, 2018, LCI closed at $5.65 (up by +3.67%), on an average volume of 1.4 million shares exchanging hands. Market capitalization is $219.793 million. The current RSI is at 28.17
  • In the past 52 weeks, shares of LCI have traded as low as $4.60 and as high as $30.35
  • At $5.65, shares of LCI are trading below its 50-day moving average (MA) at $11.03 and below its 200-day moving average (MA) at $17.14
  • The present support and resistance levels for the stock are at $5.18 & $5.98 respectively.



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