arthur bedrosian, ceo ∙ marty galvan, cfolannett.investorroom.com/download/investor... · except...

June 2016

ARTHUR BEDROSIAN, CEO ∙ MARTY GALVAN, CFO

Lannett Company Inc. 2

FORWARD-LOOKING STATEMENTS

Except for historical facts, the statements in this presentation, as well as oral statements or other written statements made or to be made by Lannett Company, Inc. (the “Company”), are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and involve risks and uncertainties. For example, statements about the expected positive FDA inspection results of the Company’s manufacturing facilities and product approvals, anticipated growth and future operations, the current or expected market size for its products, the success of current or future product offerings, continued relationships with the Company’s suppliers and customers, the research and development efforts, the Company’s ability to file for and obtain U.S. Food and Drug Administration (FDA) approvals for future products, and the Company’s ability to obtain and maintain necessary licenses and permits, are forward-looking statements. Forward-looking statements are merely the Company’s current prediction of future events. The statements are inherently uncertain and actual results could differ materially from the statements made herein. There is no assurance that the Company will achieve the sales levels that will keep its operations profitable or that FDA filings and approvals will be completed and obtained as anticipated. For a description of additional risks and uncertainties, please refer to the Company’s filings with the Securities and Exchange Commission, including its latest Annual Report on Form 10–K and its latest Quarterly Reports on Form 10-Q. The Company assumes no obligation to update its forward-looking statements to reflect new information and developments.


USE OF NON-GAAP FINANCIAL MEASURES

This presentation contains references to non-GAAP financial measures, including Adjusted operating income, which are financial measures that are not prepared in conformity with accounting principles generally accepted in the United States (GAAP). Adjusted operating income is adjusted to exclude, among other things, the effects of amortization of purchased intangible assets, acquisition and integration-related expenses, restructuring expenses and other purchase accounting entries, separation expenses, as well as certain other items considered unusual or non-recurring in nature (settlement agreement). We believe that our 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. A reconciliation of non-GAAP financial measures to the nearest comparable GAAP amounts are contained in the Company’s fiscal 2016 third quarter financial results press release. Non-GAAP financial measures, including Adjusted operating income, 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.

• Strong Drivers For Continued Growth Cost: Often 80-85% less than the brand

Supply: $81 billion of brand drugs are coming off patent through 2020

Demand: Aging baby boomers will continue to fuel market growth

• Account For Over 84% Of Prescriptions* Same active ingredient, dosage form and route of administration as brand

Similar safety, efficacy and quality as brand, at a lower price


U.S. GENERIC PHARMACEUTICAL INDUSTRY

* Per IMS Dec. 2015

• Product approval process: Abbreviated New Drug Application (ANDA)

Generally, no preclinical/clinical data required; need only to demonstrate bioequivalence

Less development time, money and risk compared with New Drug Applications (NDA) for brands

• Distribution Model Brand products require marketing budgets and investment in sales reps

to directly call on physicians/hospitals -- new products need detailing

Generics are sold through 3rd party channels including: • Wholesaler distributors (McKesson, Cardinal, AmerisourceBergen) • Chain drug stores (Walgreens, CVS, RiteAid) • Mail-order pharmacies (Express Scripts/Medco, OPTUMRx, Caremark)


U.S. GENERIC PHARMACEUTICAL INDUSTRY


LANNETT, AT A GLANCE

102 MARKETED

PRODUCTS (~259 SKUs)



STRONG

RECORD OF REGULATORY COMPLIANCE



31 ANDAs

PENDING



U.S. FACILITIES

MANAGEMENT TEAM

ARTHUR BEDROSIAN, CEO

47 years in industry; 14 at Lannett; Trinity Labs, Pharmeral, Liquipharm, Zenith Labs, PurePac

MARTIN GALVAN, CFO

35 years in industry; 4 at Lannett; Viasys Healthcare, Rhone-Poulenc Rorer, Revlon Health Care

KEVIN SMITH, SENIOR VP SALES & MARKETING

29 years in industry; 14 at Lannett; Bi-Coastal Pharma, Mova Labs, Sidmak Labs, Purdue

ROBERT EHLINGER, VP LOGISTICS, CIO

22 years in industry; 9 at Lannett; MedQuist, Kennedy Health Systems

JOHN APT, VP QUALITY

28 years in industry; 1 at Lannett; Teva, Alpharma, RP Scherer

MAHENDRA DEDHIYA, VP SCIENTIFIC AFFAIRS 40 years in industry; 1 year at Silarx/Lannett; Forest Labs, Roxane Labs, Bayer, Endo Labs, Wyeth

10

Talented management across all functional areas: product development, regulatory, manufacturing, compliance, sales, finance

Strong customer relationships fostered over many years; business is personal

Track record of: Selecting products with high profit potential and manageable competition

Getting products approved and maintaining regulatory compliance

Stability plus growth: Base generics business represents a solid financial foundation

Controlled substances represent area for higher profit margins and growth rates

1 of 2 generic companies vertically integrated from API to finished dosage in opiates

OUR STRENGTHS



COMBINED SALES MIX BY PRODUCT CATEGORY

Based on LTM 6/30/15 net sales

Thyroid Deficiency

38%

Gallstone 16%

Cardiovascular 14%

Pain 7%

Migraine 6%

Glaucoma 5%

Other 14%

CNS 31%

GI 27%

Cardiovascular 13%

Urinary 9%

Respiratory 8%

Other 12%

Thyroid Deficiency

19%

Cardiovascular 13%

GI 14%

Gallstone 8%

Urinary 5%

CNS 15%

Other 23%

Pain 3%

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&ved=0CAcQjRxqFQoTCI7jtbq1xMcCFct5PgodLF8Hrg&url=http://www.pharmacytimes.com/publications/supplement/2012/generic-supplement-2012/kremersurban_2012&ei=FHjcVY6JOcvz-QGsvp3wCg&psig=AFQjCNEPavUaldnAW96rOAI74qFKXofbQA&ust=1440598417800631

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&ved=0CAcQjRxqFQoTCI7jtbq1xMcCFct5PgodLF8Hrg&url=http://www.pharmacytimes.com/publications/supplement/2012/generic-supplement-2012/kremersurban_2012&ei=FHjcVY6JOcvz-QGsvp3wCg&psig=AFQjCNEPavUaldnAW96rOAI74qFKXofbQA&ust=1440598417800631


ROBUST PRODUCT PORTFOLIO

32 in development

31 pending approval

102 marketed

• Sales of $10.5 billion (brand and

generic) LTM Dec. 2015, per IMS


CONTROLLED SUBSTANCE MARKET & GOAL

U.S. market: $31 billion in 2015*

Generic portion: $16 billion in 2015*

High barrier to entry: DEA-required licenses and quotas

1 of 2 generic companies vertically integrated from API to finished dosage in opiates

Concentrated Poppy Straw (CPS) = natural raw material from which APIs are extracted

Profitability and growth: Current gross margin on controlled substances: 60% 5-year goal: significantly increase production of controlled substances (as a percentage of total

net sales)

* Per IMS Dec. 2015


OUT OF ONE … MANY

MORPHINE

MORPHINE SULFATE 9 products; 56 strengths

HYDROMORPHONE 7 products; 18 strengths

CODEINE

THEBAINE

ORIPAVINE

CODEINE PHOSPHATE 20 products; 28 strengths

CODEINE SULFATE 1 products; 3 strengths

HYDROCODONE 15 products; 42 strengths

OXYCODONE 7 products; 25 strengths

BUPRENORPHINE 7 products; 20 strengths

OXYMORPHONE 3 products; 10 strengths

PLANT

ALKALOIDS

APIS

PRODUCTS

STRENGTHS

1

4

9

70

203

BRAND NAMES

• Avinza

• Dilaudid

• Exalgo

• Hycodan

• Kadian

• Lortab

• Opana

• Oxycontin

• Percocet

• Suboxone

• Vicodin


VERTICAL INTEGRATION = HIGH MARGINS

Vertically Integrated Today:

Hydromorphone tablets (patented API process)

Cocaine HCI topical solution (patented API process)

Fully Developed:

Morphine Sulfate

Near-Term Goal Products:

Hydrocodone (patented process)

Oxycodone HCI (patented process)

CODY, WYOMING: API

PHILADELPHIA: FINISHED

DOSAGE FORM


ACQUISITION STRATEGY

Continuing due diligence on other, small-scale acquisition candidates

Quickly, efficiently integrate acquisitions to optimize ROI

Kremers Urban, acquired Nov 2015, integration on track; Silarx, acquired June 2015, fully integrated as of Dec 2015

Evaluate M&A opportunities for both products and companies that are a strategic fit and accretive Expand, complement current portfolio

Further vertically integrate operations

Seek out acquisition opportunity in a tax favorable jurisdiction


KREMERS URBAN (KU) TRANSACTION HIGHLIGHTS

November 2015, completed the acquisition of KU, a wholly owned subsidiary of UCB S.A.

Creates a leading specialty pharmaceuticals manufacturer with a diversified portfolio of 18 high-value products

proven development and regulatory capabilities, and a successful track record of managing all aspects of Paragraph IV certifications

expertise in the development of products that are difficult to formulate or utilize specialized delivery technologies

Significant manufacturing capacity of more than 3 billion doses

Transaction funded by debt financing and cash on hand

$910 million term loans, $250 million senior unsecured notes, $90 million cash on hand, $23 million revolver draw down

Methylphenidate

Performed additional BE studies which have been submitted to the FDA; currently marketed in the U.S. under BX rating


COST SAVINGS, RESTRUCTURING PLAN

February 2016, implemented companywide cost savings and restructuring plan, actions include:

Closing KU corporate office in Princeton, NJ

Immediate 10% workforce reduction, rising to 20% over next three years

Streamlining manufacturing, packaging, distribution

Consolidating research and product development functions

Cost savings of $27 million in fiscal 2016, $40 million in first 12 months, $65 million by end of fiscal 2020

Aggregate plan costs of approximately $23 million

Severance: $14 million

Rationalization, consolidation of operations: $8 million

Contract termination: $1 million


GROWTH STRATEGY

BASE GENERIC PRODUCTS: Commercialize products upon FDA approval

Acquire ANDAs and products that meet our expectations for sales potential, barriers to entry, limited competition and gross margin

Expand product development partnerships to enhance internal efforts

Monitor market for opportunities to increase prices

File Paragraph IV challenges for products which meet target metric thresholds

CONTROLLED SUBSTANCE PRODUCTS: Become a dominant player and one-stop shop in the U.S.

Substantially grow percentage of manufactured products

Continue to invest in development of higher margin products

Develop novel (proprietary) forms of API delivery


GROWTH STRATEGY (continued)

BRAND PRODUCT:

C-Topical® Cocaine HCl

Requirements for Commercialization:

• Currently in Phase III clinical testing

• To file NDA to FDA

Product Advantages:

• Increased number of procedures per day due to

faster therapeutic onset

• Ease of use - one product versus current therapy of

combining two products

Potential to provide:

• Higher profit margins

• New Chemical Entity (NCE) designation = Market

Exclusivity


FINANCIALS

FINANCIAL DISCUSSION

SALES, PROFITABILITY

BALANCE SHEET

GUIDANCE


STRONG SALES TREND

GENERICS

CONTROLLED SUBSTANCES

BRANDS $0

$100

$200

$300

$400

$500

$600

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

In millions

Levothyroxine OB-Natal Morphine

Sulfate

$12 $25

$43 $64

$45 $64

$83 $72

$119 $125 $107

$151

$274

$407

$123

$560*

*Guidance at mid-point on 5/3/2016


FISCAL 2015 FULL YEAR

GENERICS

CONTROLLED SUBSTANCES

BRANDS

$273.8

$406.8

$220

$270

$320

$370

$420

FY14 FY15

$109.6

$231.1

$40

$90

$140

$190

$240

FY14 FY15

In millions NET SALES ADJUSTED OPERATING INCOME*

Adjusted gross margin up 11 percentage points to 75%.

*Adjusted operating income excludes the effects of amortization of purchased intangible assets, acquisition-related expenses and other purchase accounting entries, as well as certain other items considered unusual or non-recurring in nature.

$54.9

$65.2

$10

$30

$50

$70

Q3-FY15 Q3-FY16

$99.4

$163.7

$0

$60

$120

$180

Q3-FY15 Q3-FY16


FISCAL 2016 THIRD QUARTER


*Adjusted operating income excludes the effects of amortization of purchased intangible assets, acquisition and integration-related expenses, restructuring expenses and other purchase accounting entries, as well as certain other items considered unusual or non-recurring in nature (settlement agreement).

$178.2$182.9

$125

$150

$175

$200

9mo-FY15 9mo-FY16

$307.6

$397.2

$200

$270

$340

$410

9mo-FY15 9mo-FY16


FISCAL 2016 FIRST NINE MONTHS


*Adjusted operating income excludes the effects of amortization of purchased intangible assets, acquisition and integration-related expenses, restructuring expenses and other purchase accounting entries, as well as certain other items considered unusual or non-recurring in nature (settlement agreement).


STRONG BALANCE SHEET

BRANDS

CASH & INVESTMENTS $ 238

TOTAL ASSETS $1,752

TOTAL LIABILITIES $1,205

DEBT $1,054

STOCKHOLDERS’ EQUITY $ 547

AS OF MARCH 31, 2016 (IN MILLIONS)


RECENT ACHIEVEMENTS / ONGOING INITIATIVES

In May, voluntarily paid down $50 million of 12% Senior Notes

In April, expanded collaboration with strategic partner to co-develop generic insulin for $21 billion US market

In March, met with key customer to re-establish business relationship

In calendar 2016, received four product approvals for Potassium Chloride ER Capsules, Sumatriptan Nasal Spray, Temolozomide Capsules

February 2016, implemented restructuring plan, $27 million of cost savings in fiscal 2016, $40 million in first 12 months, $65 million by end of fiscal 2020

November 2015, completed acquisition of KU; integration on track

Completed integration of Silarx Pharmaceuticals, acquired in June 2015, a leading manufacturer and marketer of liquid generic pharmaceutical products

Continue to seek out and evaluate small-scale M&A opportunities for both products and companies that are a strategic fit and accretive


INVESTMENT HIGHLIGHTS

Generics: 84% of new Rxs in the US and growing*

Sales Growth: LCI well-positioned for continued growth in multiple categories

49% top-line growth in FY 2015; 65% in Q3-FY 2016

Pipeline: 32 products in development, 31 ANDAs pending at FDA

Implemented Restructuring Plan: Cost reductions of $27 million in fiscal 2016, $40 million in first 12 months, $65 million by end of fiscal 2020

RIFs: 10% immediate, 20% by end of year 3

Consolidating manufacturing, packaging, distribution

Streamlining research and product development functions

Vertical Integration: just beginning to unleash value

Barriers to entry and higher gross margins to fuel sales and profits

* Per IMS Dec. 2015

NYSE: LCI ∙ www.Lannett.com

THANK YOU

arthur bedrosian, ceo ∙ marty galvan, cfolannett.investorroom.com/download/investor... · except...

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