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Why Is Lannett Company Soaring Today?

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Today, generic pharmaceutical player Lannett Company (LCI) entered into a distribution agreement with China-based specialty pharmaceutical company Sinotherapeutics Inc. The deal makes Lannett the exclusive distributor of Sinotherapeutics’ Posaconazole delayed-release tablet, which is a generic version of Merck’s Noxafil. On August 21, Sinotherapeutics secured ANDA (abbreviated new drug application) approval for Posaconazole delayed-release tablets.

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After this news, Lannett Company’s share price soared 38.66% and is traded close to $8.38. According to IQVIA, Noxafil reported revenues of $325 million in the 12 months ended June 2019. This deal is expected to position Lannett Company as one of the major generic competitors to Merck’s Noxafil. Lannett Company expects the product to be a meaningful revenue contributor in fiscal 2020.

Lannett reports fourth-quarter results

On August 27, Lannett Company reported its fourth-quarter earnings results. The company reported revenues of $133.84 million, a year-over-year decline of 21.69%. However, this was $13.56 million higher than the consensus estimate. The company also reported non-GAAP EPS (earnings per share) of $0.37. This is $0.16 higher than the consensus.

Lannett Company has projected an annual revenue contribution of new product launches to be close to $75 million. However, the company expected new partnered products to report gross margin close to 35%. This gross margin is lower than the company’s overall gross margin of 45% in the fourth quarter.

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Guidance for fiscal 2020

In its fourth-quarter earnings call, Lannett Company guided for GAAP and non-GAAP net sales of $525 million–$545 million in fiscal 2020. This range implies YoY growth of 15%–19%.

The company has guided for an adjusted gross margin of 40%–42% in fiscal 2020. This range is lower than the adjusted gross margin reported in fiscal 2019, due to changes in product mix.

According to Lannett Company’s fourth-quarter earnings call, its fiscal 2020 gross margin should be affected by competitive pressures for existing products, the anticipated launch of lower-margin new partnered products, and the loss of a key drug supplier contract for Levothyroxine.

Lannett Company has guided for fiscal 2020 adjusted R&D expenses of $34 million–$36 million, which is in line with the R&D expenses reported in fiscal 2019. The company expects its adjusted SG&A (selling, general, and administrative) expenses to be $63 million–$66 million.

The company expects its fiscal 2020 adjusted interest expense to be $56 million–$58 million. Lannett Company has guided for its adjusted effective tax rate to be 22%–23%. The company expects its capital expenditures to be around $20 million–$25 million and for its fiscal 2020 adjusted EBITDA to be $145 million–$160 million.

Guidance for the first quarter

In its fourth-quarter earnings call, Lannett Company guided for a sequential revenue decline of around 10% in the first quarter. However, it expects its top-line and bottom-line metrics to ramp up gradually in the subsequent quarters of fiscal 2020.

Lannett Company also guided for a sequential gross margin decline in the first quarter. However, its expects relatively stable operating expenses in all quarters of fiscal 2020.

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