Lannett Stops Expansion Plan for New API Plant

By Akia Thorpe -

September 11, 2018

Lannett, a Philadelphia-headquartered generic drug manufacturer, has stopped expansion plans for its active pharmaceutical ingredient (API) manufacturing plant in Cody, Wyoming.

Lannett says the decision to stop expansion on the API plant owned by its subsidiary Cody Laboratories, a developer and manufacturer of pain-management APIs, is due to a changing landscape for these APIs. “In recent years, the regulatory and competitive landscape for pain-management APIs has changed, extending Cody's timeline to profitability and causing us to revise our plan for this business," said Tim Crew, Chief Executive Officer of Lannett, in a company statement in June 2018.  "We determined the substantial continuing investment to attain the size and scale necessary to become a broad competitive force in that space was inconsistent with our renewed focus on our core business, where we see a great deal more near-term opportunities to grow high-value assets….Savings that result from implementation of the restructuring and cost-reduction plan will be invested in the opportunities and initiatives mentioned above."

Earlier this year (June 2018), Lannett announced a restructuring of Cody with plans to transfer production of finished dosage liquid pharmaceutical products to its Carmel, New York facility, discontinue the manufacture of less profitable API products, and rationalize its API product-development program. These actions are estimated to ultimately result in the reduction of approximately 50 positions at Cody. The company estimates that it will incur approximately $5 million of total costs to implement the plan, comprised primarily of severance and employee-related costs. In addition, the company may incur non-cash impairment charges related to Cody's facility, equipment, and other plant-related assets. In addition, the restructuring plan is expected to generate annualized cost savings of approximately $10 million to be substantially completed by December 2018.

In addition, in August 2018, the company announced that its distribution agreement with Jerome Stevens Pharmaceuticals (JSP), a Bohemia, New York-headquartered pharmaceutical company, which expires on March 23, 2019, will not be renewed. The agreement covered the following products:  butalbital, aspirin, caffeine with codeine phosphate capsules USP, digoxin tablets USP and levothyroxine sodium tablets USP. The companies’ partnership and contract began in 2003. "The company has been assured of a continuous supply of the products covered under the agreement through March of next year, and we expect these products to significantly contribute to our financial performance in fiscal 2019,” said Crew, in an August 28, 2018 company statement.

For both the fiscal 2018 fourth quarter and full year, Lannett’s revenue and adjusted net income improved over last year. Lannett’s adjusted operating income was $50.3 million compared with $40.4 million for the prior-year fourth quarter. In the company’s fiscal 2018 fourth quarter, on a generally accepted accounting principles basis, net sales were $170.9 million compared with $139.1 million for the fourth quarter of fiscal 2017. Gross profit was $66.5 million, or 39% of total net sales, compared with $58.9 million, or 42% of total net sales. However, as part of plans to prepare for the impact of the expiration of the JSP contract, the company says it plans to implement a number of new cost-reduction initiatives, which it estimates will generate further cost savings in fiscal 2019. Research and development expenses were $8.3 million compared with $11.4 million for the fiscal 2017 fourth quarter. Selling, general and administrative expenses increased to $20.6 million from $16.5 million. Restructuring expenses were $4.1 million compared with $1.8 million.

Source: Lannett (Cody restructuring) and Lannett (contract loss)