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Lannett Achieves Stellar Financial Results for Fiscal 2014

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Lannett Company, Inc. (NYSE:LCI) today reported financial results for its fiscal 2014 fourth quarter and full year ended June 30, 2014.

For the fiscal 2014 fourth quarter, net sales doubled to $80.6 million from $40.2 million in last year’s fourth quarter. Gross profit more than tripled to $55.9 million, or 69% of net sales, from $15.2 million, or 38% of net sales, for the fiscal 2013 fourth quarter. Research and development (R&D) expenses increased to $6.6 million from $3.7 million for the fiscal 2013 fourth quarter. Selling, general and administrative (SG&A) expenses were $12.0 million, compared with $5.8 million in the same quarter of the prior year. Operating income rose dramatically to $37.4 million from $5.7 million for the fourth quarter of fiscal 2013. Net income attributable to Lannett Company grew more than six-fold to $23.5 million, or $0.64 per diluted share, from $3.6 million, or $0.12 per diluted share.

“The fiscal 2014 fourth quarter represents the seventh consecutive quarter of record net sales, as well as the tenth consecutive quarter in which net sales and adjusted EPS exceeded the comparable prior-year period,” said Arthur Bedrosian, president and chief executive officer of Lannett. “Our excellent financial results are due, in large part, to our loyal and supportive customers, as well as our dedicated employees, who are committed to making Lannett a formidable force in the generic drug industry.

“Looking ahead, we have recently received approvals for Oxycodone Hydrochloride, Diazepam and Codeine Sulfate, completed two product acquisitions and formed strategic relationships, all of which will further expand our offering. We also have a robust pipeline with 23 ANDAs, including four with a Paragraph IV certification, currently pending at the FDA and several product applications nearing submission. Importantly, our plans also include the continued and significant investment in R&D to drive future growth.”

For the full year of fiscal 2014, net sales rose 81% to $273.8 million from $151.1 million for fiscal 2013. Cost of sales for fiscal 2014 included a non-recurring, pre-tax charge of $20.1 million related to the previously announced contract extension with Jerome Stevens Pharmaceuticals, Inc. (JSP) to continue as the exclusive distributor in the United States of three JSP products. Accordingly, gross profit was $154.4 million, or 56% of net sales. Excluding the JSP contract renewal charge, gross profit was $174.5 million, or 64% of net sales, compared with $57.4 million, or 38% of net sales, for fiscal 2013. R&D expenses increased to $27.7 million, compared with $16.3 million for fiscal 2013. SG&A expenses increased to $38.6 million, compared with $22.4 million in the prior year. Operating income was $88.1 million. Excluding the JSP contract renewal charge, operating income grew to $108.2 million from $18.8 million in fiscal 2013.

For fiscal 2014, net income attributable to Lannett Company grew to $57.1 million, or $1.62 per diluted share. Adjusted net income, which excludes the impact of the non-recurring JSP contract renewal charge equal to $12.6 million after-tax, was $69.7 million, or $1.98 per diluted share, compared to net income attributable to Lannett Company of $13.3 million, or $0.46 per diluted share, for the prior year. Fiscal 2013 included a favorable pre-tax litigation settlement of $1.3 million, equal to $0.03 per diluted share.

Guidance for Fiscal 2015

Based on Lannett’s current outlook, the company provided financial guidance for the fiscal 2015 full year, which significantly exceeds fiscal 2014, as follows:

  • Net sales in the range of $350 million to $370 million;
  • Gross margin as a percentage of net sales of approximately 70% to 72%;
  • R&D expense in the range of $36 million to $38 million;
  • SG&A expense ranging from $47 million to $49 million;
  • The full year effective tax rate to be in the range of 36% to 38%; and
  • Capital expenditures in fiscal 2015 in the range of $40 million to $50 million, which includes $7 million to continue the partial fit-out of two buildings recently acquired by the company.

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 the fiscal 2014 fourth quarter and full year ended June 30, 2014. The conference call will be available to interested parties by dialing 877-261-8992 from the U.S. or Canada, or 847-619-6548 from international locations, passcode 37865186. The call will also be available through a live, listen-only audio broadcast via the Internet at www.lannett.com. A playback of the call will be archived and accessible at this site 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.

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. 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, achieving the financial metrics stated in the company’s guidance for fiscal 2015; expected product approvals; the successful commercialization of products in development, acquired products, products included in the strategic relationships and recently approved products; and product applications pending at the FDA, 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, 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 TABLES FOLLOW

LANNETT COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except share and per share data)
Three months ended Fiscal Year ended
June 30, June 30,
2014 2013 2014 2013
Net sales $ 80,619 $ 40,174 $ 273,771 $ 151,054
Cost of sales 24,691 24,971 99,263 93,634
JSP contract renewal cost - 20,100
Gross profit 55,928 15,203 154,408 57,420
Operating expenses:
Research and development 6,600 3,688 27,713 16,253
Selling, general, and administrative 11,977 5,839 38,606 22,410
Total operating expenses 18,577 9,527 66,319 38,663
Operating income 37,351 5,676 88,089 18,757
Other income (expense):
Foreign currency gain - 1 3
Gain (loss) on sale of assets - 60 (142 ) 111
Gain (loss) on investment securities 142 (144 ) 1,907 699
Litigation settlement - - 1,250
Interest and dividend income 91 32 295 116
Interest expense (13 ) (57 ) (130 ) (251 )
Total other income (expense) 220 (109 ) 1,931 1,928
Income before income taxes 37,571 5,567 90,020 20,685
Income tax expense 14,019 1,950 32,857 7,303
Net income 23,552 3,617 57,163 13,382
Less: Net income attributable to noncontrolling interest 17 54 62 65
Net income attributable to Lannett Company, Inc. $ 23,535 $ 3,563 $ 57,101 $ 13,317
Earnings per common share attributable to Lannett Company, Inc.
Basic $ 0.66 $ 0.12 $ 1.70 $ 0.47
Diluted $ 0.64 $ 0.12 $ 1.62 $ 0.46
Weighted average common shares outstanding:
Basic 35,413,363 28,757,885 33,663,589 28,467,598
Diluted 36,913,944 29,778,828 35,193,376 28,942,933
LANNETT COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)

(Unaudited)

June 30, 2014 June 30, 2013

ASSETS

Current assets:
Cash and cash equivalents $ 105,587 $ 42,689
Investment securities 40,693 8,461
Accounts receivable, net 61,325 26,413
Inventories, net 44,844 32,531
Deferred tax assets 11,265 4,874
Other current assets 1,833 1,161
Total current assets 265,547 116,129
Property, plant and equipment, net 61,704 40,141
Intangible assets, net 927 2,547
Deferred tax assets 14,234 8,005
Other assets 361 930
TOTAL ASSETS $ 342,773 $ 167,752

LIABILITIES

Current liabilities:
Accounts payable $ 20,982 $ 22,668
Accrued expenses 3,901 1,630
Accrued payroll and payroll-related 12,860 6,910
Rebates payable 4,558 1,067
Income taxes payable 4,569 154
Current portion of long-term debt 129 670
Total current liabilities 46,999 33,099
Long-term debt, less current portion 1,009 5,844
TOTAL LIABILITIES 48,008 38,943
Commitments and Contingencies

STOCKHOLDERS’ EQUITY

Common stock ($0.001 par value, 100,000,000 and 50,000,000 shares authorized; 36,088,272 and 29,284,592 shares issued; 35,571,280 and 28,848,679 shares outstanding at June 30, 2014 and 2013, respectively)

36 29
Additional paid-in capital 216,793 104,075
Retained earnings 83,654 26,553
Accumulated other comprehensive loss (54 ) (47 )
Treasury stock (516,992 and 435,913 shares at June 30, 2014 and 2013, respectively) (5,959 ) (2,034 )
Total Lannett Company, Inc. stockholders’ equity 294,470 128,576
Noncontrolling interest 295 233
Total stockholders’ equity 294,765 128,809
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 342,773 $ 167,752

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