Lannett Reports Fiscal 2016 Second Quarter Results

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

For the fiscal 2016 second quarter, net sales increased to $127.1 million from $114.8 million in last year's second quarter.  Gross profit was $71.6 million, or 56% of net sales, compared with $87.2 million, or 76% of net sales.  Research and development (R&D) expenses increased to $9.1 million from $7.8 million for the fiscal 2015 second quarter.  Selling, general and administrative (SG&A) expenses were $14.7 million compared with $10.8 million.  Acquisition-related expenses increased to $17.6 million from $2.0 million in the comparable prior-year period.  Operating income was $30.3 million compared with $66.5 million.  Net income attributable to Lannett was $13.5 million, or $0.36 per diluted share, compared with $44.8 million, or $1.21 per diluted share, for the fiscal 2015 second quarter. 

On a Non-GAAP adjusted basis, gross profit was $81.0 million, or 64% of net sales, compared with $87.2 million, or 76% of net sales, for the fiscal 2015 second quarter.  Adjusted SG&A expenses were $11.6 million compared with $10.8 million.  Adjusted operating income was $60.4 million compared with $68.6 million for the prior-year second quarter.  Adjusted net income attributable to Lannett was $35.4 million, or $0.95 per diluted share, compared with $46.1 million, or $1.24 per diluted share, for the fiscal 2015 second quarter.

"We are making solid progress on integrating KU and implementing accelerated restructuring and cost savings measures," said Arthur Bedrosian, chief executive officer of Lannett.  "As announced earlier this week, we have begun taking definitive and immediate actions to enhance efficiencies throughout the organization and reduce costs by approximately $40 million in the first 12 months following the close of the KU acquisition.  We estimate that our actions will result in annualized cost savings of approximately $50 million by the end of fiscal 2018 and $65 million by the end of fiscal 2020. 

"We are excited about Lannett's future by building upon the strong foundation already in place and further growing our business.  Our team is focused on rapidly integrating KU, leveraging our significantly larger size and reach and advancing our deep pipeline, which includes 37 drug applications pending at the FDA and more than 50 product candidates in various stages of development."

For the first six months of fiscal 2016, net sales rose 12% to $233.5 million from $208.2 million in the comparable prior-year period.  Gross profit was $149.1 million, or 64% of net sales, compared with $158.8 million, or 76% of net sales.  R&D expenses increased to $15.6 million from $14.2 million for the fiscal 2015 first six months.  SG&A expenses were $30.2 million compared with $21.3 million in the same period of the prior year.  Acquisition-related expenses increased to $21.5 million from $2.1 million in the comparable prior-year period.  Operating income was $81.7 million compared with $121.2 million.  Net income attributable to Lannett Company was $46.7 million, or $1.25 per diluted share, compared with $79.7 million, or $2.15 per diluted share, for the first six months of fiscal 2015. 

On a Non-GAAP adjusted basis, gross profit was $158.8 million, or 68% of net sales, compared with $158.8 million, or 76% of net sales, for the first six months of fiscal 2015.  Adjusted SG&A expenses were $25.4 million compared with $21.3 million.  Adjusted operating income was $117.7 million compared with $123.3 million for the prior-year period.  Adjusted net income attributable to Lannett was $72.5 million, or $1.94 per diluted share, compared with $81.1 million, or $2.19 per diluted share, for the fiscal 2015 first six months.

Guidance for Fiscal 2016
Based on its current outlook the company reiterated its financial guidance for the fiscal 2016 full year as follows:

• Net sales in the range of $585 million to $595 million;
• Adjusted gross margin as a percentage of net sales of approximately 62% to 63%;
• Adjusted R&D expense in the range of $49 million to $51 million;
• Adjusted SG&A expense ranging from $59 million to $61 million;
• Adjusted interest expense in the range of $50 million to $53 million;
• The adjusted effective tax rate for the full year in the range of 34% to 35%; and
• Capital expenditures in fiscal 2016 in the range of $35 million to $45 million.

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 second quarter ended December 31, 2015.  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 41706958.  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 net income attributable to the Company, and its components, as well as Adjusted earnings per diluted share, which are financial measures that are not prepared in conformity with United States generally accepted accounting principles (U.S. GAAP).  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.  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.

Adjusted net income and Adjusted earnings per diluted share exclude, among others, the effects of (1) the amortization of purchased intangibles, (2) acquisition-related expenses and other purchase accounting entries, (3) non-cash interest expense, as well as (4) certain other items considered unusual or non-recurring in nature. 

The company's fiscal 2016 guidance has been provided only on a Non-GAAP basis.  This is due to the inherent difficulty of forecasting the timing or amount of items that would be included in the most directly comparable forward-looking GAAP financial measures.  Because a reconciliation is not available without unreasonable effort, it is not included in this release.

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, realizing the expected benefits of optimizing operations, enhancing efficiencies or significantly reducing costs and achieving the financial metrics stated in the company's guidance for fiscal 2016, 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.

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SOURCE Lannett Company, Inc.