arthur bedrosian, ceo ∙ marty galvan, cfolannett.investorroom.com/download/lci+-+investor... ·...
TRANSCRIPT
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November 2017
ARTHUR BEDROSIAN, CEO ∙ MARTY GALVAN, CFO
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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 the guidance for fiscal 2018, planned product launches, the expected positive FDA inspection results of the Company’s manufacturing facilities and product approvals, potential changes to corporate and/or border taxes, 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 alliance partners, 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.
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Lannett Company Inc. 3
USE OF NON-GAAP FINANCIAL MEASURES
This presentation contains references to non-GAAP financial measures, which are financial measures that are not prepared in conformity with accounting principles generally accepted in the United States (GAAP). Management uses these measures internally for evaluating its operating performance. Adjusted total net sales excludes a settlement agreement and Adjusted operating income is adjusted to exclude, among other things, the effects of amortization of purchased intangible assets and other purchase accounting entries, acquisition and integration-related expenses, restructuring expenses, separation expenses, as well as certain other items considered unusual or non-recurring in nature. 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 financial results press releases. Non-GAAP financial measures, including Adjusted total net sales and 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.
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Lannett Company Inc. 4
LANNETT, AT A GLANCE
~100MARKETED
PRODUCTS(~250 SKUs)
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Lannett Company Inc. 5
LANNETT, AT A GLANCE
STRONG
RECORDOF REGULATORY COMPLIANCE
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Lannett Company Inc. 6
LANNETT, AT A GLANCE
13ANDAsincludes 8 with Paragraph IV certification
1NDA for C-Topical®,
proprietary anesthetic product
PENDING DRUG APPLICATIONS
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Lannett Company Inc. 7
LANNETT, AT A GLANCE
U.S. FACILITIES
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MANAGEMENT TEAM
ARTHUR BEDROSIAN, CEO
49 years in industry; 15 at Lannett; Trinity Labs, Pharmeral, Liquipharm, Zenith Labs, PurePac
MARTIN GALVAN, CFO
37 years in industry; 6 at Lannett; Viasys Healthcare, Rhone-Poulenc Rorer, Revlon Health Care
10SAMUEL ISRAEL, GENERAL COUNSEL
20 years in industry; 1 at Lannett; Fox Rothschild
JOHN KOZLOWSKI, COO8 years in industry; 8 at Lannett; Optium, Finisar
KEVIN SMITH, SENIOR VP SALES & MARKETING30 years in industry; 15 at Lannett; Bi-Coastal Pharma, Mova Labs, Sidmak Labs, Purdue
ROBERT EHLINGER, VP and CIO
24 years in industry; 11 at Lannett; MedQuist, Kennedy Health Systems
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MANAGEMENT TEAM, cont’d
BERNHARD OPTIZ, PRESIDENT – CODY LABS
20 years in industry; 6 at Lannett; UniLife, Nanosphere, Bayer
JOHN ABT, VP QUALITY
30 years in industry; 2 at Lannett; Teva, Alpharma, RP Scherer
KRISTIN ARNOLD, PhD, VP RESEARCH & DEVELOPMENT29 years in industry; 1 at Lannett; Norwich Pharmaceuticals, Alpharma, Ecogen, Monsanto
MICHELLE RENFORS, Dir - Product Development – CODY LABS10 years in industry; 5 at Lannett; Thesis Chemistry, ZARS Pharma
KRISTIE STEPHENS, VP REGULATORY & COMPLIANCE18 years in industry; 18 at Lannett
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Lannett Company Inc. 10
SALES MIX BY MEDICAL INDICATION
Based on adjusted net sales* for fiscal 2017 full year
Thyroid
Deficiency
27%
Gallstone 8%
GI 11%
Urinary 2%
Cardiovascular
8%
Other
14%
Migraine 5%
CNS 6%
Glaucoma 3%
Pain 4%
Antibiotic 3%
*Adjusted net sales excludes $4.0 million related to a settlement agreement. Other includes contract manufacturing revenues.
Anti Psychosis
9%
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Lannett Company Inc. 11
CONTROLLED SUBSTANCE MARKET & GOAL
U.S. market: $33 billion in 2016*
Generic portion: $16 billion in 2016*
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. 2016
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Lannett Company Inc. 12
OUT OF ONE … MANY
MORPHINE
MORPHINE SULFATE
8 products; 48 strengths
HYDROMORPHONE HCL
7 products; 20 strengths
CODEINE
THEBAINE
ORIPAVINE
CODEINE PHOSPHATE
18 products; 27 strengths
CODEINE SULFATE
1 products; 3 strengths
HYDROCODONE BITARTRATE
14 products; 43 strengths
DIHYDROCODEINE BITARTRATE
2 product; 2 strengths
OXYCODONE
11 products; 33 strengths
BUPRENORPHINE
6 products; 27 strengths
NALTREXONE HCL
3 Products; 8 strengths
METHYLNALTREXONE BROMIDE
4 Products; 5 strengths
NALBUPHINE HCL
2 Products; 3 Strengths
BUTORPHANOL TARTRATE
1 Products; 4 Strengths
OXYMORPHONE
3 products; 10 strengths
BRAND NAMES
PLANT 1
ALKALOIDS 4
APIS 13
PRODUCTS 80
STRENGTHS 232
BRAND NAMES• Avinza
• Dilaudid
• Exalgo
• Hycodan
• Kadian
• Lortab
• Vicodin
• MS Contin
• Oxycontin
• Vivitrol
• Percocet
• Suboxone
• Nubain
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Lannett Company Inc. 13
COST SAVINGS, RESTRUCTURING PLAN
January - May 2017, paid down $125 million of revolving credit facility - entire principal balance; annualized cash interest savings of approximately $7.3 million
May – June 2016, refinanced all $250 million of 12% Senior Notes
Cash interest savings of approximately $170 million over the life of the loans
February 2016, implemented companywide cost savings and restructuring plan, actions include:
Closed KU corporate office in Princeton, NJ; completed 10% workforce reduction, rising to 20% over next three years
Streamlining manufacturing, packaging, distribution; consolidating research and product development functions
Achieved synergies of $33 million in FY 2016, estimated to generate ~$50 million of annualized synergies by end of FY 2018, $65 million by end of FY 2020
Aggregate plan costs of approximately $21 million
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Lannett Company Inc. 14
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
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
Capitalize on vertical integration strategy
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Lannett Company Inc. 15
GROWTH STRATEGY (continued)
STRATEGIC ALLIANCES: 11 additional product applications pending
Co-developing generic insulin
$23 billion U.S. market
Lannett exclusive U.S. distributor; partner to manufacture
Fifth project with partner
Fentanyl Transdermal System
Partner received FDA Acceptable for Filing letter
Large market opportunity
Expands pain management franchise
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Lannett Company Inc. 16
GROWTH STRATEGY (continued)
BRAND PRODUCT:
C-Topical® Cocaine HCl
Requirements for Commercialization:
– Completed Phase III clinical testing
– Filed 505(b)(2) NDA with 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
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Lannett Company Inc. 17
PLANTING THE SEEDS FOR FUTURE GROWTH
Generic Base
Device
Cocaine
DTC
Distribution
Pipeline
CMO
Addiction Business
UD Distribution
Insulin
Cody
DarmanTest
Post-Op Brand
EuryPharma
Veterinary Meds
Innovative APIs
17
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Lannett Company Inc. 18
PLANTING THE SEEDS FOR FUTURE GROWTH
18
Long Term Revenue• Innovative APIs
• Exporting LCI Products Internationally
Mid Term Revenue• Methadone
• New Addiction treatment
• Automated treatment
• New Rx opportunities
• Eury Pharma (Tax Relief)
• Post Operative New Product
• Insulin
Short Term Revenue• Sparsha Distribution (Fentanyl Patch)
• New Distribution (V ER)
• HEC Distribution (Various ANDAs)
• 13 Filed ANDAs with FDA
• New product NVP Manufacturing
• Cody API to Compounders
• Cody API Third Party Sales (Opioids)
• Unit Dose Distribution
• Various M&A Opportunities
• DarmanTest Laboratory
Current Revenue• Commercial Manufactured Generic Portfolio
• Jerome Stevens Distributed Products
• UCB Authorized Generics
• C-Topical
• Contract Manufacturing Business
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Lannett Company Inc. 19
FINANCIALS
FINANCIAL DISCUSSION
SALES, PROFITABILITY
BALANCE SHEET
GUIDANCE
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Lannett Company Inc. 20
STRONG SALES TREND
GENERICS
CONTROLLED SUBSTANCES
BRANDS$0
$100
$200
$300
$400
$500
$600
$700
2001 2003 2005 2007 2009 2011 2013 2015 2017
In millions
Levothyroxine OB-NatalMorphine
Sulfate
$12 $25$43
$64$45
$64$83 $72
$119 $125$107
$151
$274
$566
$123
$407
$637
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$244.0
$230.3
$200
$220
$240
$260
FY16 FY17
$566.1
$637.3
$500
$550
$600
$650
FY16 FY17
Lannett Company Inc. 21
FISCAL 2017 FULL YEAR
In millions
ADJ. TOTAL NET SALES* ADJ. OPERATING INCOME*
* Adjusted total net sales excludes settlement agreement of $4.0 million in FY17 and $23.6 million in FY16. Adjusted operating income excludes the effects of amortization of purchased intangible assets and other purchase accounting entries, acquisition and integration-related expenses, restructuring expenses, impairment charges, as well as certain other items considered unusual or non-recurring in nature.
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$60.7
$50.7
$20
$35
$50
$65
Q1-FY17 Q1-FY18
$161.6
$155.0
$120
$135
$150
$165
Q1-FY17 Q1-FY18
Lannett Company Inc. 22
FISCAL 2018 FIRST QUARTER
In millions
NET SALES ADJ. OPERATING INCOME*
* Adjusted operating income excludes the effects of amortization of purchased intangible assets and other purchase accounting entries, acquisition and integration-related expenses, restructuring expenses, as well as certain other items considered unusual or non-recurring in nature.
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Lannett Company Inc. 23
BALANCE SHEET
BRANDS
CASH & INVESTMENTS $ 116
TOTAL ASSETS $1,616
TOTAL LIABILITIES $1,040
DEBT $ 895
STOCKHOLDERS’ EQUITY $ 576
AS OF SEPTEMBER 30, 2017 (IN MILLIONS)
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Lannett Company Inc. 24
FISCAL 2018 GUIDANCE
NET SALES
ADJUSTED EFFECTIVE TAX RATE
ADJUSTED GROSS MARGIN %
ADJUSTED SG&A
ADJUSTED R&D
CAPEX
$710 M to $720 M
$46 M to $48 M
$65 M to $75 M
~35%
$77 M to $79 M
51% to 52%
As reported on November 6, 2017
ADJUSTED INTEREST EXPENSE $66 M to $67 M
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Lannett Company Inc. 25
RECENT ACHIEVEMENTS / ONGOING INITIATIVES
CY-2017
October, entered agreement to market Thalidomide, as of August 2019 or earlier under certain circumstances
January – October, received 11 product approvals, 12 in calendar 2016
September, submitted NDA for C-Topical®, proprietary anesthetic product
January - May, voluntarily paid down $125 million of revolving credit facility – entire principal balance
In February, announced plans for $50 million expansion of pain management facilities
CY-2016
In July, announced receipt of FDA Acceptable Filing letter for Fentanyl patch
In May - June, refinanced all $250 million of 12% Senior Notes; cash interest savings of $170 million
In April, expanded collaboration with strategic partner to co-develop generic insulin for $23 billion US market
In February, implemented restructuring plan, achieved $33 million of synergies in FY 2016, estimated to generate ~$50 million of annualized synergies by end of FY 2018, $65 million by end of FY 2020
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Lannett Company Inc. 26
INVESTMENT HIGHLIGHTS
Generics: 88% of new Rxs in the US and growing*
Sales Growth: LCI well-positioned for continued growth in multiple categories
13% top-line growth in FY 2017
Pipeline: 1 NDA and 13 ANDAs pending at FDA
Implemented Restructuring Plan: achieved synergies of $33 million in fiscal 2016, estimated to generate ~$50 million of annualized synergies by end of fiscal 2018, $65 million by end of fiscal 2020
RIFs: 10% immediate, 20% by end of third year from acquisition date
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 GPhA report “Generic Drug Savings in the US 2015”
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Lannett Company Inc. 27
ADDITIONAL INVESTMENT CONSIDERATIONS
Lannett manufactures ALL of its products in USA
Political Environment is favorable for generics
Cash Flow is strong; Adjusted EBITDA margin is approximately 40%
Well within Debt Covenant Ratio
Levothyroxine is a Narrow Therapeutic Index Drug, mitigates potential product switch. Largest to smallest customers have indicated they will continue to purchase
Compliance history is exemplary - FDA, DEA and DOJ
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NYSE: LCI ∙ www.Lannett.com
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