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Lannett Reports Fiscal 2022 First-Quarter Financial Results; Revises Down Full-year Guidance

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--Company Announces Restructuring Plan Targeting $20 Million in Reduced Expenses, To Consolidate Manufacturing Operations and Restructure the R&D Function--

- Q1 Business and Financial Highlights:

-- Net Sales were $102 Million, Exceeding Expectations

-- Adjusted EBITDA was $10 Million

-- Cash Increased to More Than $105 Million at September 30

- Durable Product Pipeline Updates:

-- Generic Advair Diskus® ANDA Continues to Progress, FDA Provides Feedback

-- Insulin Glargine IND Application On Track for December 2021 Submission

PHILADELPHIA, Nov. 3, 2021 /PRNewswire/ -- Lannett Company, Inc. (NYSE: LCI) today reported financial results for its fiscal 2022 first quarter ended September 30, 2021.

Lannett Logo (PRNewsFoto/Lannett Company, Inc.)
Lannett Logo (PRNewsFoto/Lannett Company, Inc.)

"For the quarter, solid sales of several key products contributed to our better than expected topline," said Tim Crew, chief executive officer of Lannett. "Our gross margin however, was lower than anticipated, largely due to increasing competitive pressure on our base portfolio and product mix. Our strong cash position at September 30, 2021 grew to more than $105 million from approximately $93 million at June 30, 2021.

"Our pipeline of large durable assets continues to progress. As previously stated, we believe all five disclosed products could be approved, or tentatively approved, by 2025, with the product closest to commercialization, generic ADVAIR DISKUS®, possibly launching next fiscal year, and the potentially transformational biosimilar Insulin Glargine currently expected to launch in fiscal year 2024.

"Recently, the FDA provided mid-cycle discipline review comments on the pending Abbreviated New Drug Application (ANDA) for our generic Advair Diskus product. We are working to address the FDA's helpful comments and intend to respond to as many of the Agency's requests as possible before the FDA due dates. We expect to receive additional comments from the FDA on the FDA-assigned goal date of January 31, 2022. As previously disclosed, we expect to have more than one review cycle for the ANDA. Regarding our biosimilar insulin glargine product, we remain on track for submitting the Investigational New Drug (IND) Application next month and commencing the pivotal trial around March 2022.

"Looking ahead, we have revised our guidance down to reflect, in part, the particularly competitive environment of our current base oral generics portfolio. Fortunately, our strategy has been to commercialize and further expand a pipeline of large durable assets, especially around our respiratory and insulin product franchises, on top of other efforts to add value to our business.

"In the interim, we will prioritize maintaining a healthy cash position, so that we have the operational runway to launch our near- and mid-term pipeline, and we have implemented a restructuring plan (discussed below) to address the expected decline in current fiscal year net sales."

Restructuring, Cost Reduction Initiatives

Today, in light of the accelerated declines in the base business, the company also announced a restructuring plan approved by the board earlier this week. The restructuring retains core strategies, while further optimizing operations, improving efficiencies and reducing costs. Elements of the plan, which is expected to be completed in about 18 months, include:

  • consolidating the manufacturing footprint

  • restructuring the R&D function

  • further product rationalization, over time, as the company has done in the past. This particular exercise primarily involves scaling back or phasing out some low margin OTC products, made at the Carmel site, and two very low margin prescription products

Overall, the current organizational workforce will be reduced by approximately 11%, and other existing and anticipated future vacancies will not be filled. Ultimately, the plan is expected to result in a leaner, more focused organization and generate cost savings of approximately $20 million, annually.

First Quarter Financial Results: Fiscal 2022 vs Fiscal 2021

GAAP basis:

  • Net sales were $101.5 million compared with $126.5 million

  • Gross profit was $16.5 million, or 16% of net sales, compared with $25.7 million, or 20% of net sales

  • Net loss was $22.3 million, or $0.56 per share, compared with $6.5 million, or $0.17 per share

Non-GAAP basis:

  • Net sales were $101.5 million compared with $126.5 million

  • Adjusted gross profit was $20.6 million, or 20% of net sales, compared with $34.4 million, or 27% of net sales

  • Adjusted interest expense increased to $12.8 million from $11.2 million

  • Adjusted net loss was $10.6 million, or $0.27 per share, versus adjusted net income of $2.2 million, or $0.06 per diluted share

  • Adjusted EBITDA for the fiscal 2022 first quarter was $10.0 million compared with $33.2 million for the prior-year first quarter

Guidance for Fiscal 2022

Based on its current outlook, the company revised guidance for fiscal year 2022, as follows:


GAAP

Adjusted*

Net sales

$370 million to $400 million, down from $400 million to $440 million

$370 million to $400 million, down from $400 million to $440 million

Gross margin %

Approximately 15% to 17%, down from approximately 19% to 21%

Approximately 19% to 21%, down from approximately 23% to 25%

R&D expense

$25 million to $28 million, down from $26 million to $29 million

$25 million to $28 million, down from $26 million to $29 million

SG&A expense

$64 million to $67 million, down from $64 million to $68 million

$55 million to $58 million, down from $58 million to $61 million

Restructuring expense

$1.5 million to $2.5 million

$--

Interest and other

Approximately $58 million, unchanged

Approximately $52 million, unchanged

Effective tax rate

Approximately 0% to 5%, unchanged

Approximately 22% to 23%, up from 21% to 22%

Adjusted EBITDA

N/A

$22 million to $32 million, down from $40 million to $55 million

Capital expenditures

$10 million to $14 million, down from $12 million to $18 million

$10 million to $14 million, down from $12 million to $18 million

*A reconciliation of Adjusted amounts to most directly comparable GAAP amounts can be found in the attached financial tables.

Conference Call Information and Forward-Looking Statements

Later today, the company will host a conference call at 4:30 p.m. ET to review its results of operations for its fiscal 2022 first quarter ended September 30, 2021. The conference call will be available to interested parties by dialing 888-771-4371 from the U.S. or Canada, or 847-585-4405 from international locations, passcode 50246855. The call will be broadcast via the Internet at www.lannett.com. Listeners are encouraged to visit the website at least 10 minutes prior to the start of the scheduled presentation to register, download and install any necessary audio software. A playback of the call will be archived and accessible on the same website for at least three months.

Discussion during the conference call may include forward-looking statements regarding such topics as, but not limited to, the company's financial status and performance, regulatory and operational developments, and any comments the company may make about its future plans or prospects in response to questions from participants on the conference call.

Use of Non-GAAP Financial Measures
This news release contains references to Non-GAAP financial measures, including Adjusted EBITDA, which are financial measures that are not prepared in conformity with United States generally accepted accounting principles (U.S. GAAP). Management uses these measures internally for evaluating its operating performance. The Company's management believes that the presentation of Non-GAAP financial measures provides useful supplementary information regarding operational performance, because it enhances an investor's overall understanding of the financial results for the Company's core business. Additionally, it provides a basis for the comparison of the financial results for the Company's core business between current, past and future periods. The Company also believes that including Adjusted EBITDA is appropriate to provide additional information to investors. Non-GAAP financial measures should be considered only as a supplement to, and not as a substitute for or as a superior measure to, financial measures prepared in accordance with U.S. GAAP.

Detailed reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures are included with this release.

Non-GAAP financial measures exclude, among others, the effects of (1) amortization of purchased intangibles and other purchase accounting entries, (2) restructuring expenses, (3) asset impairment charges, (4) non-cash interest expense, as well as (5) certain other items considered unusual or non-recurring in nature.

ADVAIR DISKUS® is a registered trademark of GlaxoSmithKline.

About Lannett Company, Inc.:
Lannett Company, founded in 1942, develops, manufactures, packages, markets and distributes generic pharmaceutical products for a wide range of medical indications – see financial schedule below for net sales by medical indication. For more information, visit the company's website at www.lannett.com.

This news release contains certain statements of a forward-looking nature relating to future events or future business performance. Any such statements, including, but not limited to, successfully commercializing recently introduced products and launching and successfully commercializing additional products in fiscal 2022, the potential material impact of COVID-19 on future financial results, successfully reducing expenses as a result of the restructuring and achieving the financial metrics stated in the company's revised guidance for fiscal 2022, whether expressed or implied, are subject to risks and uncertainties which can cause actual results to differ materially from those currently anticipated due to a number of factors which include, but are not limited to, the difficulty in predicting the timing or outcome of FDA or other regulatory approvals or actions, the ability to successfully commercialize products upon approval, including acquired products, and Lannett's estimated or anticipated future financial results, future inventory levels, future competition or pricing, future levels of operating expenses, product development efforts or performance, and other risk factors discussed in the company's Form 10-K and other documents filed with the Securities and Exchange Commission from time to time. These forward-looking statements represent the company's judgment as of the date of this news release. The company disclaims any intent or obligation to update these forward-looking statements.

FINANCIAL SCHEDULES FOLLOW

LANNETT COMPANY, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)





(Unaudited)







September 30, 2021


June 30, 2021








ASSETS






Current assets:





Cash and cash equivalents

$ 105,321


$ 93,286

Accounts receivable, net

94,309


98,834

Inventories


112,637


109,545

Income taxes receivable

34,452


35,050

Assets held for sale


2,678


2,678

Other current assets


15,496


14,170

Total current assets

364,893


353,563

Property, plant and equipment, net

164,154


166,674

Intangible assets, net


135,338


137,835

Operating lease right-of-use asset

10,444


10,559

Other assets


16,039


15,106

TOTAL ASSETS


$ 690,868


$ 683,737















LIABILITIES





Current liabilities:





Accounts payable


$ 36,990


$ 29,585

Accrued expenses


19,771


13,077

Accrued payroll and payroll-related expenses

9,737


10,680

Rebates payable


25,825


19,025

Royalties payable


14,620


13,779

Current operating lease liabilities

2,049


2,045

Other current liabilities

3,285


2,278

Total current liabilities

112,277


90,469

Long-term debt, net


596,975


590,683

Long-term operating lease liabilities

10,800


11,047

Other liabilities


18,169


19,009

TOTAL LIABILITIES


738,221


711,208








STOCKHOLDERS' DEFICIT




Common stock($0.001 par value, 100,000,000 shares authorized; 41,786,848 and 40,913,148 shares issued;




40,302,111 and 39,576,606 shares outstanding at September 30, 2021 and June 30, 2021, respectively)

42


41

Additional paid-in capital

358,361


355,239

Accumulated deficit


(387,108)


(364,766)

Accumulated other comprehensive loss

(524)


(548)

Treasury stock(1,484,737 and 1,336,542 shares at September 30, 2021 and June 30, 2021, respectively)

(18,124)


(17,437)

Total stockholders' deficit

(47,353)


(27,471)

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

$ 690,868


$ 683,737














LANNETT COMPANY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except share and per share data)









Three months ended




September 30,




2021


2020








Net sales


$ 101,525


$ 126,479


Cost of sales


81,008


92,187


Amortization of intangibles


3,996


8,589


Gross profit


16,521


25,703


Operating expenses:






Research and development expenses


5,764


6,539


Selling, general and administrative expenses


18,905


15,136


Restructuring expenses


-


4,043


Total operating expenses


24,669


25,718


Operating loss


(8,148)


(15)


Other income (expense):






Investment income


34


45


Interest expense


(14,224)


(14,486)


Other


(62)


(23)


Total other expense


(14,252)


(14,464)


Loss before income tax


(22,400)


(14,479)


Income tax benefit


(58)


(7,980)


Net loss


$ (22,342)


$ (6,499)








Loss per common share (1):






Basic


$ (0.56)


$ (0.17)


Diluted


$ (0.56)


$ (0.17)








Weighted average common shares outstanding (1):






Basic


39,927,822


39,070,982


Diluted


39,927,822


39,070,982








(1) Effective with the Warrants issued on April 22, 2021, the basic and diluted earnings per share was calculated based on the two-class method.











LANNETT COMPANY, INC.

RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION (UNAUDITED)

(In thousands, except percentages, share and per share data)















Three months ended September 30, 2021


Net sales

Cost of sales

Amortization of
intangibles

Gross Profit

Gross
Margin
%

R&D expenses

SG&A expenses

Operating
income (loss)

Other expense

Loss before
income tax

Income tax
benefit

Net loss

Diluted loss per
share (h)




GAAP Reported

$ 101,525

$ 81,008

$ 3,996

$ 16,521

16%

$ 5,764

$ 18,905

$ (8,148)

$ (14,252)

$ (22,400)

$ (58)

$ (22,342)

$ (0.56)

Adjustments:














Amortization of intangibles (a)

-

-

(3,996)

3,996


-

-

3,996

-

3,996

-

3,996


Cody API business (b)

-

(33)

-

33


(6)

(13)

52

-

52

-

52


Depreciation on capitalized software costs (c)

-

-

-

-


-

(1,051)

1,051

-

1,051

-

1,051


Distribution agreement renewal costs (d)

-

-

-

-


-

(219)

219

-

219

-

219


Non-cash interest (e)

-

-

-

-


-

-

-

1,439

1,439

-

1,439


Other (f)

-

-

-

-


-

(2,419)

2,419

-

2,419

-

2,419


Tax adjustments (g)

-

-

-

-


-

-

-

-

-

(2,574)

2,574
















Non-GAAP Adjusted

$ 101,525

$ 80,975

$ -

$ 20,550

20%

$ 5,758

$ 15,203

$ (411)

$ (12,813)

$ (13,224)

$ (2,632)

$ (10,592)

$ (0.27)















(a)

To exclude amortization of purchased intangible assets primarily related to the acquisition of KUPI





(b)

To exclude the operating results of the ceased Cody API business







(c)

To exclude depreciation on previously capitalized software integration costs associated with the KUPI acquisition




(d)

To exclude the consideration recorded to renew the Company's distribution agreement with Recro Gainesville LLC




(e)

To exclude non-cash interest expense associated with debt issuance costs






(f)

To primarily exclude the reimbursement of legal costs associated with a distribution agreement





(g)

To exclude the tax effect of the pre-tax adjustments included above at applicable tax rates





(h)

The weighted average share number for the three months ended September 30, 2021 is 39,927,822 for GAAP and non-GAAP loss per share calculations.













LANNETT COMPANY, INC.

RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION (UNAUDITED)

(In thousands, except percentages, share and per share data)
















Three months ended September 30, 2020


Net sales

Cost of sales

Amortization of
intangibles

Gross Profit

Gross
Margin
%

R&D expenses

SG&A expenses

Restructuring
expenses

Operating
income
(loss)

Other expense

Income (loss)
before income
tax

Income tax
expense (benefit)

Net income (loss)

Diluted earnings
(loss) per share (h)




GAAP Reported

$ 126,479

$ 92,187

$ 8,589

$ 25,703

20%

$ 6,539

$ 15,136

$ 4,043

$ (15)

$ (14,464)

$ (14,479)

$ (7,980)

$ (6,499)

$ (0.17)

Adjustments:















Amortization of intangibles (a)

-

-

(8,589)

8,589


-

-

-

8,589

-

8,589

-

8,589


Cody API business (b)

-

(74)

-

74


(2)

(427)

-

503

-

503

-

503


Depreciation on capitalized software costs (c)

-

-

-

-


-

(1,051)

-

1,051

-

1,051

-

1,051


Restructuring expenses (d)

-

-

-

-


-

-

(4,043)

4,043

-

4,043

-

4,043


Non-cash interest (e)

-

-

-

-


-

-

-

-

3,277

3,277

-

3,277


Other (f)

-

-

-

-


-

(951)

-

951

-

951

-

951


Tax adjustments (g)

-

-

-

-


-

-

-

-

-

-

9,669

(9,669)

















Non-GAAP Adjusted

$ 126,479

$ 92,113

$ -

$ 34,366

27%

$ 6,537

$ 12,707

$ -

$ 15,122

$ (11,187)

$ 3,935

$ 1,689

$ 2,246

$ 0.06
















(a)

To exclude amortization of purchased intangible assets primarily related to the acquisition of KUPI







(b)

To exclude the operating results of the ceased Cody API business









(c)

To exclude depreciation on previously capitalized software integration costs associated with the KUPI acquisition






(d)

To exclude expenses associated with the 2020 Restructuring Plan









(e)

To exclude non-cash interest expense associated with debt issuance costs








(f)

To primarily exclude the reimbursement of legal costs associated with a distribution agreement







(g)

To exclude the tax effect of the pre-tax adjustments included above at applicable tax rates







(h)

The weighted average share number for the three months ended September 30, 2020 is 39,070,982 for GAAP and 40,717,506 for non-GAAP earnings (loss) per share calculations















LANNETT COMPANY, INC.

RECONCILIATION OF NET LOSS TO ADJUSTED EBITDA (UNAUDITED)

($ in thousands)






Three months ended



September 30, 2021




Net loss


$ (22,342)




Interest expense


14,224

Depreciation and amortization


9,585

Income tax benefit


(58)

EBITDA


1,409




Share-based compensation


3,018

Inventory write-down


2,839

Investment income


(34)

Other non-operating expense


62

Other (a)


2,690

Adjusted EBITDA (Non-GAAP)


$ 9,984




(a)

To primarily exclude the reimbursement of legal costs associated with a distribution agreement


LANNETT COMPANY, INC.

RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED INFORMATION (UNAUDITED)

($ in millions)








Fiscal Year 2022 Guidance









Non-GAAP





GAAP


Adjustments


Adjusted












Net sales


$370 - $400


-


$370 - $400



Gross margin percentage


approx. 15% to 17%


4%

(a)

approx. 19% to 21%



R&D expense


$25 - $28


-


$25 - $28



SG&A expense


$64 - $67


($9)

(b)

$55 - $58



Restructuring expense


$1.5 - $2.5


($1.5 - $2.5)

(c)

-



Interest and other


approx. $58


($6)

(d)

approx. $52



Effective tax rate


approx. 0% to 5%


-


approx. 22% to 23%



Adjusted EBITDA


N/A


N/A


$22 - $32



Capital expenditures


$10 - $14


-


$10 - $14





















(a)

The adjustment primarily reflects amortization of purchased intangible assets related to the acquisition of Kremers Urban Pharmaceuticals, Inc. ("KUPI")

(b)

The adjustment primarily excludes depreciation on previously capitalized software integration costs associated with the KUPI acquisition and the reimbursement of legal costs associated with a distribution agreement

(c)

To exclude expenses associated with the 2021 Restructuring Plan

(d)

The adjustment primarily reflects non-cash interest expense associated with debt issuance costs

LANNETT COMPANY, INC.

RECONCILIATION OF NET LOSS TO ADJUSTED EBITDA (UNAUDITED)

($ in millions)






Fiscal Year 2022 Guidance


Low


High





Net loss

$ (93.0)


$ (84.0)





Interest expense

58.0


58.0

Depreciation and amortization

36.5


39.5

Income taxes

-


(4.0)

EBITDA

1.5


9.5





Share-based compensation

9.0


9.0

Inventory write-down

7.0


8.0

Restructuring expenses (a)

1.5


2.5

Other (b)

3.0


3.0

Adjusted EBITDA (Non-GAAP)

$ 22.0


$ 32.0





(a) To exclude expenses associated with the 2021 Restructuring Plan




(b) Primarily relates to the reimbursement of legal costs associated with a distribution agreement


LANNETT COMPANY, INC.


NET SALES BY MEDICAL INDICATION









Three months ended



($ in thousands)

September 30,



Medical Indication

2021


2020



Analgesic

$ 5,314


$ 3,120



Anti-Psychosis

3,715


13,028



Cardiovascular

14,100


19,714



Central Nervous System

22,785


22,525



Endocrinology

7,845


3,233



Gastrointestinal

15,240


17,100



Infectious Disease

12,515


21,932



Migraine

4,685


9,690



Respiratory/Allergy/Cough/Cold

3,114


1,426



Urinary

1,176


1,458



Other

9,176


7,634



Contract Manufacturing revenue

1,860


5,619



Net Sales

$ 101,525


$ 126,479








Contact:

Robert Jaffe


Robert Jaffe Co., LLC


(424) 288-4098

Cision
Cision

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SOURCE Lannett Company, Inc.