Lannett Reports Fiscal 2010 Third Quarter Financial Results

PHILADELPHIA--(BUSINESS WIRE)--Lannett Company, Inc. (NYSE AMEX: LCI) today reported financial results for the fiscal 2010 third quarter and nine months ended March 31, 2010.

“Strong sales of our pain management drugs combined with certain base business pharmaceutical products drove our topline growth”

For the third quarter of fiscal 2010, net sales increased to $31.3 million compared with $28.8 million for the third quarter of fiscal 2009. Gross profit was $10.4 million compared with $11.6 million for the same period in the prior year. Research and development (R&D) expenses increased to $3.4 million from $2.0 million in the 2009 fiscal third quarter. Selling, general and administrative (SG&A) expenses decreased to $4.4 million from $7.5 million in the same quarter of the prior year. Operating income was $2.7 million compared with $2.2 million in the fiscal 2009 third quarter. Net income was $2.1 million, or $0.08 per diluted share, compared with $1.3 million, or $0.05 per diluted share, for the prior year third quarter.

“Strong sales of our pain management drugs combined with certain base business pharmaceutical products drove our topline growth,” said Arthur Bedrosian, president and chief executive officer of Lannett. “Due to the growth in sales of our pain management products, our subsidiary, Cody Laboratories, was profitable for the third quarter of fiscal year 2010. We expect Cody to be profitable for the foreseeable future.”

Bedrosian added that SG&A expenses in fiscal 2009 included professional fees related to the patent challenge with KV Pharmaceuticals of $2.5 million and $5.7 million for the third quarter and nine month period, respectively. Last year’s financial results also include $452,000 of severance costs related to an executive who is no longer with the company.

In the fiscal 2010 third quarter, the company reached a settlement with the IRS related to its review of the federal income tax return for fiscal 2008. As a result of the settlement, the company recorded a refund receivable totaling approximately $418,000 and reduced its liability for unrecognized tax benefits by approximately $216,000. Accordingly, the effective tax rate for the three months ended March 31, 2010 was approximately 20%. The company expects its overall effective tax rate will be approximately 40% to 42% for the full year ended June 30, 2010.

For the first nine months of fiscal 2010, net sales increased to $91.4 million from $83.6 million for the comparable period of fiscal 2009. Gross profit was $30.0 million compared with $31.6 million for the same period in the prior year. R&D expenses increased to $9.1 million from $5.7 million in the first nine months of fiscal 2009. SG&A expenses decreased to $12.2 million from $19.1 million in the same period of the prior year. Net income grew to $5.0 million, or $0.20 per diluted share, from $4.1 million, or $0.17 per diluted share, for the first nine months of the prior year.

Conference Call Information and Forward-Looking Statements

On Wednesday, May 12, 2010, the company will host a conference call at 4:30 p.m. ET to review its results of operations for the third quarter ended March 31, 2010. The conference call will be available to interested parties by dialing 800-446-2782 from the U.S. or Canada, or 847-413-3235 from international locations, passcode 26929489. The conference call will also be available through a live audio Internet broadcast at www.lannett.com. The call will be archived and accessible at this site for approximately two weeks.

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 and 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 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, investing in R&D to add to the company’s growing product offering and further diversify its portfolio, 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. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
	Three months ended						Nine months ended
	March 31,						March 31,
		2010			2009			2010			2009
Net sales	$	31,266,224		$	28,761,316		$	91,417,926		$	83,553,341
Cost of sales		20,190,460			16,564,244			59,095,559			50,396,809
Amortization of intangible assets		448,667			446,167			1,346,000			1,338,500
Product royalties		229,827			143,877			967,889			186,874
Gross profit		10,397,270			11,607,028			30,008,478			31,631,158
Research and development expenses		3,352,173			1,981,338			9,110,126			5,685,168
Selling, general, and administrative expenses		4,392,593			7,491,583			12,205,145			19,116,199
Gain on sale of assets		(19,394	)		(38,472	)		(19,629	)		(60,481	)
Operating income		2,671,898			2,172,579			8,712,836			6,890,272
Other income (expense):
Foreign currency gain		2,050			-			2,758			-
Interest income		5,168			77,954			49,451			215,604
Interest expense		(49,528	)		(75,417	)		(204,032	)		(259,057	)
		(42,310	)		2,537			(151,823	)		(43,453	)
Income before income tax expense		2,629,588			2,175,116			8,561,013			6,846,819
Income tax expense		527,327			851,310			3,524,973			2,696,733
Consolidated net income		2,102,261			1,323,806			5,036,040			4,150,086
Less net income from noncontrolling interest		(9,407	)		(9,324	)		(31,224	)		(36,377	)
Net income attributable to Lannett Company, Inc.	$	2,092,854		$	1,314,482		$	5,004,816		$	4,113,709
Earnings per common share - Lannett Company, Inc.:
Basic	$	0.08		$	0.05		$	0.20		$	0.17
Diluted	$	0.08		$	0.05		$	0.20		$	0.17
Weighted average number of shares outstanding:
Basic		24,849,745			24,502,629			24,697,669			24,424,187
Diluted		25,286,331			24,756,041			25,171,750			24,524,822

LANNETT COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
	(Unaudited)
	March 31, 2010			June 30, 2009
ASSETS
Current Assets
Cash and cash equivalents	$	18,724,120		$	25,832,456
Investment securities - available for sale		735,866			347,921
Trade accounts receivable (net of allowance of $130,291 and $132,000, respectively)		36,351,222			29,945,748
Inventories, net		19,224,205			16,195,361
Interest receivable		10,373			90,425
Prepaid taxes		777,254			-
Deferred tax assets		4,402,216			4,296,929
Other current assets		2,325,475			602,335
Total Current Assets		82,550,731			77,311,175
Property, plant and equipment		47,455,902			41,431,158
Less accumulated depreciation		(20,587,319	)		(18,533,773	)
		26,868,583			22,897,385
Construction in progress		3,289,394			591,685
Investment securities - available for sale		397,164			801,748
Intangible assets (product rights) - net of accumulated amortization		8,243,652			9,118,710
Deferred tax assets		12,346,852			13,757,545
Other assets		156,913			98,873
Total Assets	$	133,853,289		$	124,577,121
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Current Liabilities
Accounts payable	$	17,744,719		$	16,805,468
Accrued expenses		2,664,225			1,842,434
Accrued payroll and payroll related		3,978,104			5,150,104
Income taxes payable		-			711,073
Current portion of long-term debt		4,862,141			435,386
Rebates, chargebacks and returns payable		15,488,545			13,734,540
Total Current Liabilities		44,737,734			38,679,005
Long-term debt, less current portion		3,025,377			7,703,382
Unearned grant funds		500,000			500,000
Other long-term liabilities		8,972			47,111
Total Liabilities		48,272,083			46,929,498
Commitment and Contingencies
SHAREHOLDERS' EQUITY
Common stock - authorized 50,000,000 shares, par value $0.001; issued and outstanding, 24,865,931 and 24,517,696 shares, respectively		24,866			24,518
Additional paid in capital		79,302,749			76,250,309
Retained earnings		6,748,381			1,743,565
Noncontrolling interest		124,878			93,654
Accumulated other comprehensive (loss) income		(7,572	)		24,751
		86,193,302			78,136,797
Less: Treasury stock at cost - 101,309 and 82,228 shares, respectively		(612,096	)		(489,174	)
TOTAL SHAREHOLDERS' EQUITY		85,581,206			77,647,623
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	133,853,289		$	124,577,121