Lannett Returns To Profitability, Reports Strong Sales Growth

| About: Lannett Company, (LCI)

Lannett (NYSEMKT:LCI) is a generic and specialty pharmaceutical company that reported its fourth-quarter and full-year fiscal year 2012 results last week for the three and 12 months ended June 30, 2012, including the financial and operational highlights summarized below.

  • LCI reported net sales rose 40% to $35.7 million during Q4 FY 2012 compared to $25.5 million in the year-ago period.
  • LCI reported net income of $1.4 million compared to a net loss of ($1.9 million) in the year-ago period.
  • As of June 30, 2012, LCI reported 28.4 million shares of common stock outstanding with $7.2 million in total debt (including primarily long-term debt of $6.5 million).
  • As of June 30, 2012, LCI reported $29.2 million in cash plus investments.
  • LCI reported FY 2012 net sales increased by 15.2% to $123 million vs. $106.8 million during FY 2011.
  • LCI reported FY 2012 net income was $3.9 million, or $0.14 per diluted share (NYSEARCA:EPS), compared to a net loss of $0.3 million in FY 2011.
  • LCI provided guidance to receive two FDA generic drug approvals within the next several months (i.e., two to three months) plus two additional potential approvals a few months later (i.e., four to six months). Earlier today, LCI received FDA approval for a generic version of prescription headache drug Fioricet (Butalbital, Acetaminophen and Caffeine, 50mg/325mg/40mg tablets).
  • LCI provided FY 2013 financial guidance for net income to be comparable to FY 2012 with net sales expected to increase by approximately 10% to $132 million to $136 million.
  • LCI expects FY 2013 R&D expenses to increase to $18 million to $20 million (including approximately $5 million for the C-Topical study outlined below to support a planned NDA filing), compared to R&D expenses of $11.8 million in FY 2012 and $8.6 million in FY 2011.

Below is a summary of the company's two lead pipeline drug candidates in development:

1. C-Topical (Cocaine HCl topical solution product) is being evaluated in a pivotal Phase III clinical trial under SPA. LCI expects to complete the study and file a 505(b)(2) NDA by end of FY 2013 (June 30, 2013) for use as topical anesthetic prior to diagnostic procedures or surgery. C-Topical is a grandfathered product that was never formally approved by FDA, but is currently marketed as a brand product by LCI.

2. In September 2012, LCI began bio-equivalence studies for Thalidomide oral capsules to support a planned first-to-file (six-month marketing exclusivity if approved by the FDA) Abbreviated New Drug Application (ANDA) by late December 2012 for a generic version of the anti-cancer (multiple myeloma) drug Thalomid marketed by Celgene (NASDAQ:CELG) ($277 million in annual brand sales) with potential approval and market launch during the first half of 2014. LCI is back on track in terms of profitability and sales growth, although increased investments in R&D are expected to keep net income flat during FY 2013 with projected sales growth of 10%. Based on expected timelines for FDA approval submissions of C-Topical and thalidomide, FDA decisions are likely to occur for both of these key pipeline products during the first half of 2014.

I expect shares to slowly trend higher back toward the $6 level over the next year, with thalidomide first-to-file FDA approval representing a major long-term upside catalyst. Even a relatively small market share of 10%-20% of the nearly $300 million in annual sales for thalidomide would represent a huge boost to the company's projected FY 2013 net sales range of $132 million to $136 million, providing the potential to raise baseline annual sales to the high $100 million to low $200 million range for LCI.

However, given the expectation of potential FDA approval decisions during the first half of 2014 for both Thalidomide and C-Topical, along with guidance for net income to remain flat with 10% sales growth for FY 2013, shares of LCI are not likely to make any major upside moves. But they could easily drift higher as the company makes progress on filing the Thalidomide ANDA, receiving other generic approvals and delivering on sales growth objectives for FY 2013.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.