Lannett Drops After ‘Unanticipated Market Softness’ Prompts Guidance Review

Shares of Lannett Company (LCI) slid in early trading after the company said it would review its sales guidance for fiscal year 2016. The generic drug maker also said it is in talks to re-establish business relations with a key customer.

WHAT’S NEW: Citing “unanticipated market softness,” Lannett said it would review its sales guidance for the year and expects to expects to issue an updated outlook by the end of next week. On February 3, Lannett forecast FY16 revenue of $585M-$595M, against analysts’ consensus estimate at that time of $591.26M. Arthur Bedrosian, the company’s chief executive officer, said the company will review “a number of factors” in its reassessment that “have or are expected to impact our business in the near-term, the net effect of which we expect to be modest.” Bedrosian commented that the factors under review include a mild flu season, additional competition for the company’s Ursodiol product, reduction in sales of its authorized generic Tussionex product due to a change by the U.S. Food and Drug Administration in the classification the product and delays to certain product launches in the third and fourth quarters of FY16.

WHAT’S NOTABLE: Lannett announced that its wholly owned subsidiary, Kremers Urban Pharmaceuticals, or KU, is in the process of re-establishing a business relationship with a “key” customer. Lannett acquired KU, the U.S. specialty generic pharmaceuticals subsidiary of global biopharmaceuticals company UCB, last year for $1.23B. Bedrosian commented that “We have addressed the outstanding concerns related to the customer to their satisfaction, and the customer subsequently extended an invitation to our team to begin rebuilding the relationship. We expect to meet shortly.”

COST SAVINGS INITIATIVES: On February 1, Lannett announced cost savings actions, including closing KU’s corporate offices in Princeton, New Jersey, and immediately cutting its workforce by 10%, with a total staff reduction of about 20% over three years. At the time, Lannett said these actions would result in about $40M of cost reductions during the 12 months following the close of the KU acquisition, including $27M in FY16. This morning, CEO Bedrosian said the company’s cost reduction initiatives are “on track,” adding that the integration of KU is also on plan. PRICE ACTION: Lannett is down 12.5% to $19.61 in morning trading. 


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