LCI-I took a crash and burn here!
Lannett Company Reports Fiscal 2005 Third Quarter Financial Results
Monday May 9, 4:30 pm ET
PHILADELPHIA--(BUSINESS WIRE)--May 9, 2005--Lannett Company, Inc. (AMEX:LCI - News) today reported fiscal 2005 financial results for the third quarter and nine months ended March 31, 2005.
Net sales for the third quarter of fiscal 2005 were $7.6 million, compared with $16.0 million for the third quarter of fiscal 2004. Net loss for the third quarter of fiscal 2005 was $29.2 million, or $1.21 per basic and diluted share, including a non-cash impairment loss on the Jerome Stevens Pharmaceuticals, Inc. (JSP) product rights intangible asset of $46.1 million, compared with net income of $3.2 million, or $0.16 per basic and diluted share, for the third quarter of fiscal 2004.
The company said it believes that certain events occurred that will make it unlikely that the carrying value of the JSP product rights intangible asset could be realized. For the quarter ended March 31, 2005, the company performed an impairment test and concluded that the intangible asset was impaired. As a result, Lannett recorded a non-cash impairment loss of $46.1 million to write down the asset to its fair value of $16.1 million as of March 31, 2005.
Management believes that several factors contributed to the impairment of this asset. In December 2004, the Levothyroxine Sodium tablet product received the AB rating to Synthroid®. The expected sales increase as a result of the AB rating did not occur in the third quarter of 2005. The delay in receiving the AB rating to Synthroid® caused the company to be competitively disadvantaged with its Levothyroxine Sodium tablet product and to lose market share to competitors whose products had already received AB ratings to both major brand thyroid deficiency drugs. Additionally, the generic market for thyroid deficiency drugs turned out to be smaller than anticipated, as a result of a lower brand-to-generic substitution rate. Increased competition in the generic drug market, both from existing competitors and new entrants, resulted in significant pricing pressure on other products supplied by JSP. The combination of these factors resulted in the impairment of the JSP product rights asset.
"While we are disappointed with the unfortunate sales results on the JSP products due to the adverse events and market conditions, we continue to develop and invest in the expansion of our product line," said Arthur Bedrosian, president of Lannett. "We have recently received FDA approval for two products which we expect to launch in the coming weeks. Lannett has nine other product applications currently pending at the FDA, and we continue to develop and in-license new products where we see opportunities. Currently, Lannett's R&D effort includes 23 potential candidates for ANDAs, plus outsourced contracts for the development of 22 additional products."
For the third quarter of fiscal 2005, gross profit was $3.3 million, or 44% of net sales, compared with $9.1 million, or 57% of net sales, in the third quarter of fiscal 2004. Research and development expenses decreased to $1.2 million from $1.4 million in the same period in 2004. Selling, general and administrative (SG&A) expenses were $2.9 million, compared with $2.3 million in the third quarter of fiscal 2004, largely due to Sarbanes-Oxley costs. Amortization expense for the three months ended March 31, 2005 was $1.7 million, as compared with zero for the prior year period.
For the nine months ended March 31, 2005, net sales were $35.5 million, compared with $45.8 million for the same period of 2004. Including the non-cash impairment loss of $46.1 million, the company recorded a net loss for the nine-month period of $27.1 million, or $1.12 per basic and diluted share, compared with net income of $10.5 million, or $0.52 per basic and diluted share, for the first nine months of fiscal 2004.
For the fiscal 2005 year-to-date period, gross profit was $16.6 million, or 47% of net sales, compared with $27.4 million, or 60% of net sales, for the corresponding period. Research and development expenses were $3.5 million for the first nine months of fiscal 2005, relatively unchanged from the same period in 2004. SG&A expenses were $6.8 million, compared with $6.2 million for the fiscal 2004 nine month period, largely due to Sarbanes-Oxley costs. Amortization expense for the nine months ended March 31, 2005 was $5.1 million as compared with zero for the prior year period.
On January 27, 2005, the company's board of directors announced the authorization of a stock repurchase program. The company repurchased approximately $395,000 of Lannett shares as part of this program, which authorizes management to repurchase up to $5 million of the company's outstanding common stock from time to time at management's discretion.
About Lannett Company:
Lannett Company, founded in 1942, develops, manufactures, packages, markets and distributes generic pharmaceutical products for a wide range of indications. For more information, visit Lannett 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, 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.
LANNETT COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended For the Nine Months Ended
March 31, March 31, March 31, March 31,
2005 2004 2005 2004
------------- ------------ ------------- ------------
Net sales $7,603,189 $16,000,251 $35,533,206 $45,795,638
Cost of sales 4,266,839 6,947,195 18,973,152 18,405,293
------------- ------------ ------------- ------------
Gross profit 3,336,350 9,053,056 16,560,054 27,390,345
Research and
development
expenses 1,172,853 1,361,681 3,521,507 3,500,759
Selling, general
and administrative
expenses 2,930,801 2,276,780 6,817,487 6,179,980
Amortization
expense 1,690,083 - 5,070,251 -
Impairment loss
on intangible
asset 46,093,236 - 46,093,236 -
------------- ------------ ------------- ------------
Operating (loss)
income (48,550,623) 5,414,595 (44,942,427) 17,709,606
------------- ------------ ------------- ------------
Other income
(expense) (46,660) 1,632 (147,161) 3,920
------------- ------------ ------------- ------------
(Loss) Income
before taxes (48,597,283) 5,416,227 (45,089,588) 17,713,526
Income tax
(benefit)
expense (19,438,913) 2,217,829 (18,035,836) 7,258,196
------------- ------------ ------------- ------------
Net (loss)
income $(29,158,370) $3,198,398 $(27,053,752) $10,455,330
============= ============ ============= ============
(Loss) Earnings
per share:
Basic $(1.21) $0.16 $(1.12) $0.52
============= ============ ============= ============
Diluted $(1.21) $0.16 $(1.12) $0.52
============= ============ ============= ============
Shares used to
calculate (loss)
earnings per
share:
Basic 24,103,256 20,058,753 24,092,958 20,049,647
============= ============ ============= ============
Diluted 24,103,256 20,265,833 24,092,958 20,263,146
============= ============ ============= ============
LANNETT COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, June 30,
2005 2004
------------- -------------
(Unaudited)
Assets:
Current Assets:
Cash $10,786,863 $8,966,954
Trade accounts receivable, net 8,663,377 24,240,887
Inventories 17,923,955 12,813,250
Prepaid taxes 2,181,155 882,613
Other current assets 1,172,315 1,016,050
Deferred tax asset 941,069 942,689
------------- -------------
Total current assets 41,668,734 48,862,443
Property and equipment, net 16,597,130 9,592,895
Investment securities-available-for-sale 5,944,077 -
Deferred tax asset 18,634,013 166,332
Intangible asset, net 16,062,002 65,725,490
Construction in progress 1,919,674 7,352,821
Other assets 187,710 204,103
------------- -------------
Total Assets $101,013,340 $131,904,084
============= =============
Liabilities and Shareholders' Equity:
Current liabilities $16,229,364 $19,938,629
Long-term debt, less current portion 7,744,206 8,104,141
Unearned grant funds 500,000 -
Deferred income taxes and other
liabilities 1,614,323 1,614,323
Shareholders' equity 74,925,447 102,246,991
------------- -------------
Total Liabilities and Shareholders'
Equity $101,013,340 $131,904,084
============= =============
Contact:
PondelWilkinson Inc.
Robert Jaffe/Rob Whetstone, 310-279-5980
Source: Lannett Company, Inc.
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