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Lannett Company, Inc. Message Board

  • stocksaregood444 stocksaregood444 Dec 20, 2004 4:27 PM Flag

    Another Expense to Decrease Earnings

    Below is from the agreement that LCI has with JS. Now that both A/B ratings have been received by JS, LCI will now have another one time expense.

    As additional consideration for this Agreement, and in recognition of the efforts of JSP to obtain A/B ratings for its products to Levoxyl and Synthroid, LCI agrees to reimburse JSP for its direct out of pocket expenses in connection with obtaining such A/B ratings, up to an aggregate reimbursement of one million five hundred thousand ($1,500,000) dollars.

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    • Theoretically, LCI should have profits in excess of 65,500,000 over the next ten years directly related to the JSP deal (in other words, profits should out weigh cost ot the deal). The board of directors signed off on the deal and since they have a fiduciary duty to the shareholders they had to have estimated that the deal would be beneficial to the share holders. Since, typically, directors are not experts in all fields necessary to determine whether such a deal is good, they had to rely on experts. These experts, including management, among other factors, would have to had taken into account the likelyhood of receiving full approval for Synthroid, its profitability(analysis of competition) and that of other JSP drugs. After this analysis, they deemed it in the best interests of LCI shareholders.

      A few months after this deal (May), they release an earnings report (Nov.)which states that they face pricing competition and additional costs (due to paying JSP for its drugs) and thus the rest of fiscal 2005 will see lower profit results than 2004.

      In December, JSP finally receives full approval for Synthroid. The statement about lower profit results was not qualified. That is, it did not say we will see lower profit results "if we don't receive full approval". But even if that were the case, a company would(or should) play it conservatively and say that given such and such a situation (as presently exists), we expect lower profits. And that is what was done.

      Of course, it is always possible that management and the BOD had other reasons (for example strategic) for doing the deal which is not obvious to someone like myself who is not an expert in the drug area. Or that they just screwed up.

      But then again, it is possible (and maybe more likely)that things will play out more positively than comments made by management would seem to indicate.

      • 1 Reply to codehead321
      • Well said! By the way, how much in terms of cash was that 4 million shares worth.
        How much was that 4 million shares valued at.?
        In a 1.3 billion dollar market, if lci were to only capture 100 million dollars in sales, thats less than 10%. That does'nt sound unrealistic. Keep in mind, these approvals, thank god have already come, the revenue is forthcoming. Probably at a pretty good time now that they have expanded in their new facility.
        The company is in great shape with recent approvals. Sales will increase, profits will follow, and then the old eps will take care of itself.
        There was mention of some approvals that were supposed to take about 17 months. That time period puts us sometime after the 1st of the year. If anyone has more info on those drugs, I would be interested to hear.
        I am looking for some bigger blocks of trading after the 1st of the year. We are close to breaking out. For a small growing company, LCI is very profitable. The reports can be deceiving, we know that. With some companies you need to be able to read betweeen the lines.

 
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