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Lannett Reports Solid Fiscal 2016 Third Quarter Results

PHILADELPHIA, May 3, 2016 /PRNewswire/ -- Lannett Company, Inc. (LCI) today reported financial results for its fiscal 2016 third quarter and nine months ended March 31, 2016. As previously announced, the company completed the acquisition of Kremers Urban Pharmaceuticals Inc. (KU) on November 25, 2015. Accordingly, fiscal 2016 third quarter and year-to-date financial results include the operations of KU since the acquisition date.

For the fiscal 2016 third quarter reported on a Non-GAAP basis, adjusted total net sales increased to $163.7 million from $99.4 million in last year's third quarter. Adjusted gross profit was $97.4 million, or 59% of net sales, compared with $75.7 million, or 76% of net sales, for the fiscal 2015 third quarter. Adjusted research and development (R&D) expenses increased to $16.4 million from $9.2 million. Adjusted selling, general and administrative (SG&A) expenses were $15.8 million compared with $11.6 million. Adjusted operating income increased to $65.2 million from $54.9 million for the prior-year third quarter. Adjusted net income attributable to Lannett was $27.9 million, or $0.75 per diluted share, compared with $36.6 million, or $0.98 per diluted share, for the fiscal 2015 third quarter.

On a GAAP basis, for the fiscal 2016 third quarter, total net sales before adjustment were $163.7 million compared with $99.4 million in last year's third quarter. As previously announced, the company recorded a pre-tax, non-recurring settlement agreement of $23.6 million during the fiscal 2016 third quarter, which was recorded as a reduction to net sales. As a result, total net sales for the fiscal 2016 third quarter were $140.1 million. Gross profit was $57.5 million compared with $75.6 million. Primarily due to the inclusion of KU's lower-margin business and the impact of the settlement agreement, gross profit as a percentage of net sales was 41% compared with 76% in last year's third quarter.

R&D expenses increased to $16.5 million from $9.2 million for the fiscal 2015 third quarter. SG&A expenses were $16.2 million compared with $11.6 million. Acquisition and integration-related expenses were $1.5 million compared with $587 thousand in the prior-year third quarter. The company implemented a restructuring plan in February 2016, which resulted in a charge of $4.7 million in the fiscal 2016 third quarter. Operating income was $18.6 million compared with $54.3 million. Interest expense was $27.0 million compared with $8 thousand for the third quarter of fiscal 2015. Net loss attributable to Lannett was $5.5 million, or $0.15 per share, compared to net income attributable to Lannett of $36.2 million, or $0.97 per diluted share, for the fiscal 2015 third quarter.

"We continued with our strategy to enhance our near and longer term prospects," said Arthur Bedrosian, chief executive officer of Lannett. "In March, we met with a key former customer to attempt to re-establish a relationship with KU and initiate a relationship with Lannett; we appreciate their willingness to quickly resolve our minor differences and look forward to a long-term association. In April, we expanded our collaboration with a strategic partner to co-develop a generic insulin product for the $21 billion U.S. market. In addition, our efforts are on track to complete the integration of KU and implement substantial cost savings throughout the organization. Looking ahead, we expect our financial performance in fiscal 2017 and beyond to benefit from three recent drug approvals and a deep pipeline that includes 31 product applications pending at the FDA.

"Our overall third quarter financial performance was affected by a number of factors. The substantial increase in net sales was driven by the first full quarter of KU operations; however, our results were impacted by interest expense related to the debt financing of the KU acquisition."

For the first nine months of fiscal 2016 reported on a Non-GAAP basis, adjusted total net sales increased to $397.2 million from $307.6 million in the comparable prior-year period. Adjusted gross profit was $256.1 million, or 64% of net sales, compared with $234.5 million, or 76% of net sales, for the first nine months of fiscal 2015. Adjusted R&D expenses were $32.0 million compared with $23.4 million. Adjusted SG&A expenses were $41.2 million compared with $32.9 million for first nine months of the prior year. Adjusted operating income increased to $182.9 million from $178.2 million. Adjusted net income attributable to Lannett was $100.4 million, or $2.69 per diluted share, compared with $117.8 million, or $3.18 per diluted share, for the fiscal 2015 first nine months.

For the first nine months of fiscal 2016 reported on a GAAP basis, total net sales before adjustment rose 29% to $397.2 million from $307.6 million in the comparable prior-year period. Total net sales, which includes the settlement agreement discussed above, were $373.6 million compared with $307.6 million. Gross profit, including the impact of the settlement agreement, was $206.6 million, or 55% of net sales, compared with $234.4 million, or 76% of net sales. R&D expenses increased to $32.1 million from $23.4 million for the first nine months of fiscal 2015. SG&A expenses were $46.4 million compared with $32.9 million. Acquisition and integration-related expenses were $23.0 million compared with $2.7 million in the prior-year period. As noted above, restructuring expenses were $4.7 million for the nine months of fiscal 2016. Operating income was $100.4 million compared with $175.5 million. Interest expense was $38.8 million compared with $119 thousand for the first nine months of fiscal 2015. Net income attributable to Lannett Company was $41.2 million, or $1.10 per diluted share, which includes the pre-tax settlement agreement discussed above. For the comparable prior-year period, net income attributable to Lannett Company was $116.0 million, or $3.13 per diluted share.

Guidance for Fiscal 2016

The company's fiscal 2016 third quarter was favorably impacted by a number of factors, including product mix and manufacturing efficiencies, which are not expected to continue in the fourth quarter. The company continues to expect its fiscal 2016 fourth quarter performance on an adjusted basis to be in line with its previous outlook.

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 2016 third quarter ended March 31, 2016. 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 42449989...


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