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Lannett, Jerome Stevens Extend Contract

Zacks Equity Research

Lannett Company, Inc. (LCI) recently extended its contract with Jerome Stevens Pharmaceuticals, Inc. for the exclusive distribution of Jerome Stevens’ Butalbital, Aspirin, Caffeine with Codeine Phosphate capsules USP, Digoxin tablets USP and Levothyroxine Sodium tablets USP in the U.S.

The agreement, which was due to expire in Mar 2014, is now extended for another five years. Moreover, Lannett and Jerome Stevens have agreed to mutually discuss the extension of the agreement for five more years up to Mar 2024.

We note that in Mar 2004, Lannett inked a 10-year deal with Jerome Stevens for the exclusive distribution rights in the U.S. to products in the latter’s portfolio, in lieu of 4,000 shares of Lannett’s common stock. The minimum purchase quantity as per the deal for the first year was $15,000, which increased by $1,000 every year after that.

For the tenth year of the agreement, the minimum quantity is expected to be $24,000. So far, Lannett has successfully met the minimum purchase requirement of the contract. On the other hand, Jerome Stevens has the option to terminate the agreement if Lannett fails to meet the minimum purchase requirement of the contract.

Lannett stated in its press release that the products under the contract contributed around $250 million to the company’s gross profit in 10 years. Moreover, the purchase of the products exceeded the initial targets.

Lannett currently carries a Zacks Rank #3 (Hold). Other players like Actelion (ALIOF), Biogen Idec Inc. (BIIB) and Gilead Sciences, Inc. (GILD) currently look more attractive in the pharma space with a Zacks Rank #1 (Strong Buy).

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