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Here's Why Lannett Company Stock Is Collapsing Today

What happened

Shares of Lannett Company (NYSE: LCI) fell over 16% today after the company reported fiscal third-quarter 2019 operating results.

The results were actually pretty good. Excluding contributions from its former primary product, levothyroxine, the business grew revenue 17% from the fiscal first quarter to the most recent three-month period ending March 30. Revenue in the fiscal third quarter beat Wall Street expectations, and the business exited the quarter with $205 million in cash on hand. It even raised full-year fiscal 2019 guidance.

But analysts have other concerns. In its quarterly filing with the Securities and Exchange Commission, Lannett disclosed that it has received written notification from several state attorneys general about their intention to bring price-fixing and anticompetitive-behavior claims against the company. It wasn't the only generic pharmaceutical company that received the notice, but Wall Street worries that the business already has its hands full as it attempts to replace levothyroxine revenue.

As of 12:26 p.m. EDT, the stock had settled to a 15.9% loss.

A scientist in the lab with a disappointed look on his face.
A scientist in the lab with a disappointed look on his face.

Image source: Getty Images.

So what

This isn't the first time the generic pharmaceutical industry has found itself facing the gavel. In fact, it's probably more accurate to call recent developments the continuation of that trend. Lannett Company has been identified in claims brought by state attorneys general involving over 13 drugs and multiple companies since 2014, although it doesn't manufacture all of the drugs listed in the complaints.

Those suits have worked their way through the court system over the years with little fanfare, but things could be heating up. According to the latest SEC filing: "On May 1, 2019, the Company and one of its employees, along with other generic pharmaceutical manufacturers, received written notice from various state Attorneys General that they intend to bring claims alleging price fixing and anti-competitive behavior with respect to additional drug products, some of which are manufactured and distributed by the Company."

In other words, more states (right now, Connecticut and Pennsylvania are the only ones identified) could be joining the fray, and the list of drug products involved in the case could rise above 13.

Now what

The risk to Lannett Company is that it may have to pay increased legal costs and even fines. Considering it needs every penny to roll out new products and acquire others, Wall Street is paying close attention. While the risk is potentially serious, the litigation could take years to settle. There simply aren't many details for investors right now, but it's something to keep an eye on until more information is available.

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Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.