Lannett Company Inc (LCI, Financial) filed Quarterly Report for the period ended 2009-03-31.
Lannett Inc. manufactures and distributes pharmaceutical products sold under generic names and historically has manufactured and distributed pharmaceutical products sold under its trade or brand names. In addition the Company contract manufactures and private labels pharmaceutical products for other companies. Lannett Company Inc has a market cap of $144.4 million; its shares were traded at around $5.89 with a P/E ratio of 117.8 and P/S ratio of 2.
Intangible Assets In March 2004, the Company entered into an agreement with Jerome Stevens Pharmaceuticals, Inc. (JSP) for the exclusive marketing and distribution rights in the United States to the current line of JSP products in exchange for four million (4,000,000) shares of the Companys common stock. As a result of the JSP agreement, the Company recorded an intangible asset of $67,040,000 for the exclusive marketing and distribution rights obtained from JSP. The intangible asset was recorded based upon the fair value of the four million (4,000,000) shares at the time of issuance to JSP. During the quarter ended March 31, 2005, the Company recorded a non-cash impairment loss of approximately $46,093,000 in accordance with SFAS 144, Accounting for Impairment or Disposal of Long-lived Assets to reduce the carrying value of the intangible asset to its fair value of approximately $16,062,000 as of the date of the impairment. As of March 31, 2009 and June 30, 2008, management concluded the carrying value of the intangible asset was less than its fair value and, therefore, no further impairment was required.
The Company will incur annual amortization expense of approximately $1,785,000 for the intangible asset over the remaining term of the contract. For each nine month period ended March 31, 2009 and 2008, the Company incurred amortization expense of approximately $1,338,000.
On April 10, 2007, the Company entered into a Stock Purchase Agreement to acquire Cody by purchasing all of the remaining shares of common stock of Cody. The consideration for the April 10, 2007 acquisition was approximately $4,438,000, which represented the fair value of the tangible net assets acquired. The agreement also required Lannett to issue to the sellers up to 120,000 shares of unregistered common stock of the Company contingent upon the receipt of a license from a regulatory agency. This license was subsequently received in July 2008 and triggered the payment of 105,000 shares of Lannett stock to the former owners of Cody Labs, which was completed in October 2008. Therefore, the Company has recorded an intangible asset related to the acquisition of a drug import license in the original amount of $581,175 to the Intangible Asset account and has recorded a corresponding Deferred Tax Liability in the amount of approximately $150,700 due to the non-deductibility of the amortization for tax purposes. The Company has assigned a 15 year life to this intangible asset based on average life cycles of Lannett products.
Advertising Costs - The Company charges advertising costs to operations as incurred. Advertising expense for the nine months ended March 31, 2009 and 2008 was approximately $41,000 and $5,000, respectively.
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Lannett Inc. manufactures and distributes pharmaceutical products sold under generic names and historically has manufactured and distributed pharmaceutical products sold under its trade or brand names. In addition the Company contract manufactures and private labels pharmaceutical products for other companies. Lannett Company Inc has a market cap of $144.4 million; its shares were traded at around $5.89 with a P/E ratio of 117.8 and P/S ratio of 2.
Highlight of Business Operations:
The total reserve for chargebacks, rebates, returns and other adjustments decreased from $18,326,417 at June 30, 2008 to $11,172,174 at March 31, 2009. The significant decrease in the returns reserve balance was primarily the result of credits issued during the first nine months of Fiscal 2009 related to the returns of the Prenatal Multivitamin product shipped in Fiscal 2008. It is our expectation that all of the product will be returned based on our inability to have the product specified as a brand equivalent, and information from our customers regarding their intentions to return the product. As of March 31, 2009 approximately $9,507,000 of the return reserve was applied to accounts receivable for customers who had returned the Prenatal Multivitamin product by that date, leaving a balance of approximately $1,038,000 of Multivitamin returns reserve on the books at March 31, 2009.Intangible Assets In March 2004, the Company entered into an agreement with Jerome Stevens Pharmaceuticals, Inc. (JSP) for the exclusive marketing and distribution rights in the United States to the current line of JSP products in exchange for four million (4,000,000) shares of the Companys common stock. As a result of the JSP agreement, the Company recorded an intangible asset of $67,040,000 for the exclusive marketing and distribution rights obtained from JSP. The intangible asset was recorded based upon the fair value of the four million (4,000,000) shares at the time of issuance to JSP. During the quarter ended March 31, 2005, the Company recorded a non-cash impairment loss of approximately $46,093,000 in accordance with SFAS 144, Accounting for Impairment or Disposal of Long-lived Assets to reduce the carrying value of the intangible asset to its fair value of approximately $16,062,000 as of the date of the impairment. As of March 31, 2009 and June 30, 2008, management concluded the carrying value of the intangible asset was less than its fair value and, therefore, no further impairment was required.
The Company will incur annual amortization expense of approximately $1,785,000 for the intangible asset over the remaining term of the contract. For each nine month period ended March 31, 2009 and 2008, the Company incurred amortization expense of approximately $1,338,000.
On April 10, 2007, the Company entered into a Stock Purchase Agreement to acquire Cody by purchasing all of the remaining shares of common stock of Cody. The consideration for the April 10, 2007 acquisition was approximately $4,438,000, which represented the fair value of the tangible net assets acquired. The agreement also required Lannett to issue to the sellers up to 120,000 shares of unregistered common stock of the Company contingent upon the receipt of a license from a regulatory agency. This license was subsequently received in July 2008 and triggered the payment of 105,000 shares of Lannett stock to the former owners of Cody Labs, which was completed in October 2008. Therefore, the Company has recorded an intangible asset related to the acquisition of a drug import license in the original amount of $581,175 to the Intangible Asset account and has recorded a corresponding Deferred Tax Liability in the amount of approximately $150,700 due to the non-deductibility of the amortization for tax purposes. The Company has assigned a 15 year life to this intangible asset based on average life cycles of Lannett products.
Advertising Costs - The Company charges advertising costs to operations as incurred. Advertising expense for the nine months ended March 31, 2009 and 2008 was approximately $41,000 and $5,000, respectively.
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