Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Dec. 31, 2017 | Jan. 31, 2018 | |
Document and Entity Information | ||
Entity Registrant Name | LANNETT CO INC | |
Entity Central Index Key | 57,725 | |
Document Type | 10-Q | |
Document Period End Date | Dec. 31, 2017 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --06-30 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 37,843,600 | |
Document Fiscal Year Focus | 2,018 | |
Document Fiscal Period Focus | Q2 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands | Dec. 31, 2017 | Jun. 30, 2017 |
Current assets: | ||
Cash and cash equivalents | $ 139,862 | $ 117,737 |
Investment securities | 27,842 | 27,091 |
Accounts receivable, net | 256,728 | 204,066 |
Inventories | 135,591 | 122,604 |
Prepaid income taxes | 1,760 | 16,703 |
Other current assets | 6,471 | 6,592 |
Total current assets | 568,254 | 494,793 |
Property, plant and equipment, net | 258,206 | 243,148 |
Intangible assets, net | 439,639 | 453,861 |
Goodwill | 339,566 | 339,566 |
Deferred tax assets | 30,584 | 52,753 |
Other assets | 23,146 | 19,191 |
TOTAL ASSETS | 1,659,395 | 1,603,312 |
Current liabilities: | ||
Accounts payable | 78,633 | 44,720 |
Accrued expenses | 12,730 | 12,499 |
Accrued payroll and payroll-related expenses | 16,036 | 4,833 |
Rebates payable | 48,379 | 44,593 |
Royalties payable | 5,579 | 3,015 |
Restructuring liability | 4,581 | 5,431 |
Settlement liability | 12,000 | 17,000 |
Short-term borrowings and current portion of long-term debt | 66,845 | 60,117 |
Total current liabilities | 244,783 | 192,208 |
Long-term debt, net | 819,220 | 843,530 |
Other liabilities | 2,596 | 6,452 |
TOTAL LIABILITIES | 1,066,599 | 1,042,190 |
Commitments and Contingencies (Note 12 and 13) | ||
STOCKHOLDERS' EQUITY | ||
Common stock ($0.001 par value, 100,000,000 shares authorized; 37,760,877 and 37,528,450 shares issued; 37,105,338 and 36,919,296 shares outstanding at December 31, 2017 and June 30, 2017, respectively) | 38 | 37 |
Additional paid-in capital | 298,337 | 292,780 |
Retained earnings | 305,053 | 277,774 |
Accumulated other comprehensive loss | (347) | (222) |
Treasury stock (655,539 and 609,154 shares at December 31, 2017 and June 30, 2017, respectively) | (10,285) | (9,247) |
Total stockholders' equity | 592,796 | 561,122 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ 1,659,395 | $ 1,603,312 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares | Dec. 31, 2017 | Jun. 30, 2017 |
CONSOLIDATED BALANCE SHEETS | ||
Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Common stock, authorized shares | 100,000,000 | 100,000,000 |
Common stock, issued shares | 37,760,877 | 37,528,450 |
Common stock, outstanding shares | 37,105,338 | 36,919,296 |
Treasury stock, shares | 655,539 | 609,154 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2017 | Dec. 31, 2016 | |
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||
Net sales | $ 184,305 | $ 170,944 | $ 339,266 | $ 332,503 |
Cost of sales | 88,914 | 75,154 | 168,467 | 145,974 |
Amortization of intangibles | 7,941 | 7,737 | 15,678 | 16,624 |
Gross profit | 87,450 | 88,053 | 155,121 | 169,905 |
Operating expenses: | ||||
Research and development expenses | 10,722 | 9,939 | 18,131 | 22,310 |
Selling, general and administrative expenses | 28,493 | 18,069 | 47,531 | 39,329 |
Acquisition and integration-related expenses | 65 | 1,027 | 83 | 2,418 |
Restructuring expenses | 1,035 | 1,712 | 1,562 | 3,764 |
Intangible asset impairment charges | 23,000 | 88,084 | ||
Total operating expenses | 40,315 | 53,747 | 67,307 | 155,905 |
Operating income | 47,135 | 34,306 | 87,814 | 14,000 |
Other income (loss): | ||||
Investment income | 2,325 | 1,021 | 3,489 | 2,048 |
Interest expense | (20,686) | (23,333) | (41,598) | (46,327) |
Other | 3,386 | (266) | 3,135 | (263) |
Total other loss | (14,975) | (22,578) | (34,974) | (44,542) |
Income (loss) before income tax | 32,160 | 11,728 | 52,840 | (30,542) |
Income tax expense (benefit) | 18,138 | 3,542 | 25,561 | (9,340) |
Net income (loss) | 14,022 | 8,186 | 27,279 | (21,202) |
Less: Net income attributable to noncontrolling interest | 14 | 34 | ||
Net income (loss) attributable to Lannett Company, Inc. | $ 14,022 | $ 8,172 | $ 27,279 | $ (21,236) |
Earnings (loss) per common share attributable to Lannett Company, Inc.: | ||||
Basic (in dollars per share) | $ 0.38 | $ 0.22 | $ 0.74 | $ (0.58) |
Diluted (in dollars per share) | $ 0.37 | $ 0.22 | $ 0.72 | $ (0.58) |
Weighted average common shares outstanding: | ||||
Basic (in shares) | 37,066,902 | 36,810,388 | 37,029,483 | 36,754,828 |
Diluted (in shares) | 38,290,358 | 37,676,370 | 38,087,826 | 36,754,828 |
CONSOLIDATED STATEMENTS OF COMP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2017 | Dec. 31, 2016 | |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) | ||||
Net income (loss) | $ 14,022 | $ 8,186 | $ 27,279 | $ (21,202) |
Other comprehensive income (loss), before tax: | ||||
Foreign currency translation gain (loss) | (126) | 41 | (125) | 38 |
Total other comprehensive income (loss), before tax | (126) | 41 | (125) | 38 |
Total other comprehensive income (loss), net of tax | (126) | 41 | (125) | 38 |
Comprehensive income (loss) | 13,896 | 8,227 | 27,154 | (21,164) |
Less: Total comprehensive income attributable to noncontrolling interest | 14 | 34 | ||
Comprehensive income (loss) attributable to Lannett Company, Inc. | $ 13,896 | $ 8,213 | $ 27,154 | $ (21,198) |
CONSOLIDATED STATEMENTS OF CHAN
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - 6 months ended Dec. 31, 2017 - USD ($) shares in Thousands, $ in Thousands | Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | Total |
Balance at Jun. 30, 2017 | $ 37 | $ 292,780 | $ 277,774 | $ (222) | $ (9,247) | $ 561,122 |
Balance (in shares) at Jun. 30, 2017 | 37,528 | |||||
Increase (Decrease) in Shareholders' Equity | ||||||
Shares issued in connection with share-based compensation plans | $ 1 | 805 | 806 | |||
Shares issued in connection with share-based compensation plans (in shares) | 233 | |||||
Share-based compensation | 4,752 | 4,752 | ||||
Purchase of treasury stock | (1,038) | (1,038) | ||||
Other comprehensive loss, net of tax | (125) | (125) | ||||
Net income | 27,279 | 27,279 | ||||
Balance at Dec. 31, 2017 | $ 38 | $ 298,337 | $ 305,053 | $ (347) | $ (10,285) | $ 592,796 |
Balance (in shares) at Dec. 31, 2017 | 37,761 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands | 6 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
OPERATING ACTIVITIES: | ||
Net income (loss) | $ 27,279 | $ (21,202) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||
Depreciation and amortization | 27,354 | 27,963 |
Deferred income tax expense (benefit) | 22,169 | (24,709) |
Share-based compensation | 4,752 | 4,173 |
Excess tax benefits on share-based compensation awards | (705) | |
Intangible asset impairment charge | 88,084 | |
Loss on sale of assets | 233 | 267 |
Loss (gain) on investment securities | (2,834) | (1,697) |
Amortization of debt discount and other debt issuance costs | 9,987 | 10,509 |
Other noncash expenses | 87 | 1,056 |
Changes in assets and liabilities which provided (used) cash: | ||
Accounts receivable, net | (52,662) | (17,219) |
Inventories | (12,987) | (15,334) |
Prepaid income taxes/Income taxes payable | 15,040 | 1,827 |
Other assets | (8,160) | (7,099) |
Rebates payable | 3,786 | 14,891 |
Royalties payable | 2,564 | (1,577) |
Restructuring liability | (850) | 1,217 |
Settlement liability | (3,000) | |
Accounts payable | 28,913 | 9,052 |
Accrued expenses | 231 | 2,415 |
Accrued payroll and payroll-related expenses | 11,203 | (1,662) |
Net cash provided by operating activities | 76,105 | 67,250 |
INVESTING ACTIVITIES: | ||
Purchases of property, plant and equipment | (26,402) | (21,324) |
Proceeds from sale of property, plant and equipment | 17 | 33 |
Purchase of intangible asset | (2,038) | |
Proceeds from sale of investment securities | 44,924 | 31,019 |
Purchase of investment securities | (42,841) | (27,098) |
Net cash used in investing activities | (26,340) | (17,370) |
FINANCING ACTIVITIES: | ||
Repayments of long-term debt | (27,283) | (26,618) |
Purchase of noncontrolling interest | (1,500) | |
Proceeds from issuance of stock | 806 | 1,785 |
Excess tax benefits on share-based compensation awards | 705 | |
Purchase of treasury stock | (1,038) | (1,806) |
Net cash (used in) financing activities | (27,515) | (27,434) |
Effect on cash and cash equivalents of changes in foreign exchange rates | (125) | 38 |
NET INCREASE IN CASH AND CASH EQUIVALENTS | 22,125 | 22,484 |
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 117,737 | 224,769 |
CASH AND CASH EQUIVALENTS, END OF PERIOD | 139,862 | 247,253 |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||
Interest paid (net of capitalized interest of $974 thousand and $876 thousand for the six months ended December 31, 2017 and 2016, respectively) | 31,250 | 34,986 |
Income taxes paid (received) | (7,567) | $ 13,553 |
Credits issued pursuant to a Settlement Agreement | $ 5,000 |
CONSOLIDATED STATEMENTS OF CAS8
CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) - USD ($) $ in Thousands | 6 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||
Capitalized interest, net | $ 974 | $ 876 |
Interim Financial Information
Interim Financial Information | 6 Months Ended |
Dec. 31, 2017 | |
Interim Financial Information | |
Interim Financial Information | Note 1. Interim Financial Information The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for the presentation of interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the unaudited financial statements do not include all the information and footnotes necessary for a comprehensive presentation of the financial position, results of operations and cash flows for the periods presented. In the opinion of management, the unaudited financial statements include all the normal recurring adjustments that are necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. Operating results for the three and six months ended December 31, 2017 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2018. These unaudited financial statements should be read in combination with the other Notes in this section; “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing in Item 2; and the Consolidated Financial Statements, including the Notes to the Consolidated Financial Statements, included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2017. The Consolidated Balance Sheet for the fiscal year ended June 30, 2017 was derived from audited financial statements. |
The Business and Nature of Oper
The Business and Nature of Operations | 6 Months Ended |
Dec. 31, 2017 | |
The Business And Nature of Operations | |
The Business And Nature of Operations | Note 2. The Business And Nature of Operations Lannett Company, Inc. (a Delaware corporation) and its subsidiaries (collectively, the “Company” or “Lannett”) develop, manufacture, package, market and distribute solid oral and extended release (tablets and capsules), topical, nasal and oral solution finished dosage forms of drugs, that address a wide range of therapeutic areas. Certain of these products are manufactured by others and distributed by the Company, most notably under the Jerome Stevens Distribution Agreement. The Company also manufactures active pharmaceutical ingredients through its Cody Laboratories, Inc. (“Cody Labs”) subsidiary, providing a vertical integration benefit. On November 25, 2015, the Company completed the acquisition of Kremers Urban Pharmaceuticals, Inc. (“KUPI”), the former U.S. specialty generic pharmaceuticals subsidiary of global biopharmaceuticals company UCB S.A (“UCB”). KUPI is a specialty pharmaceuticals manufacturer focused on the development of products that are difficult to formulate or utilize specialized delivery technologies. Strategic benefits of the acquisition include expanded manufacturing capacity, a diversified product portfolio and pipeline and complementary research and development expertise. The Company operates pharmaceutical manufacturing plants in Philadelphia, Pennsylvania; Cody, Wyoming; Carmel, New York and Seymour, Indiana. The Company’s customers include generic pharmaceutical distributors, drug wholesalers, chain drug stores, private label distributors, mail-order pharmacies, other pharmaceutical manufacturers, managed care organizations, hospital buying groups, governmental entities and health maintenance organizations. |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 6 Months Ended |
Dec. 31, 2017 | |
Summary of Significant Accounting Policies | |
Summary of Significant Accounting Policies | Note 3. Summary of Significant Accounting Policies Basis of Presentation The Consolidated Financial Statements have been prepared in conformity with U.S. GAAP. Principles of consolidation The Consolidated Financial Statements include the accounts of Lannett Company, Inc. and its wholly-owned subsidiaries, as well as Cody LCI Realty, LLC (“Realty”), a variable interest entity (“VIE”) in which the Company had a 50% ownership interest until November 30, 2016, when the Company acquired the remaining 50% interest. Noncontrolling interest in Realty was recorded net of tax as net income attributable to the noncontrolling interest. Additionally, all intercompany accounts and transactions have been eliminated. In December 2017, the Company legally dissolved Realty. Business Combinations Acquired businesses are accounted for using the acquisition method of accounting, which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective estimated fair values. The fair values and useful lives assigned to each class of assets acquired and liabilities assumed are based on, among other factors, the expected future period of benefit of the asset, the various characteristics of the asset and projected future cash flows. Significant judgment is employed in determining the assumptions utilized as of the acquisition date and for each subsequent measurement period. Accordingly, changes in assumptions described above, could have a material impact on our consolidated results of operations. Reclassifications Certain prior year amounts have been reclassified to conform to the current year financial statement presentation. Use of estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions are required in the determination of revenue recognition and sales deductions for estimated chargebacks, rebates, returns and other adjustments including a provision for the Company’s liability under the Medicare Part D program. Additionally, significant estimates and assumptions are required when determining the fair value of long-lived assets, including goodwill and intangible assets, income taxes, contingencies and share-based compensation. Because of the inherent subjectivity and complexity involved in these estimates and assumptions, actual results could differ from those estimates. Foreign currency translation The Consolidated Financial Statements are presented in U.S. Dollars, the reporting currency of the Company. The financial statements of the Company’s foreign subsidiary are maintained in local currency and translated into U.S. dollars at the end of each reporting period. Assets and liabilities are translated at period-end exchange rates, while revenues and expenses are translated at average exchange rates during the period. The adjustments resulting from the use of differing exchange rates are recorded as part of stockholders’ equity in accumulated other comprehensive income (loss). Gains and losses resulting from transactions denominated in foreign currencies are recognized in the Consolidated Statements of Operations under Other income (loss). Amounts recorded due to foreign currency fluctuations are immaterial to the Consolidated Financial Statements. Cash and cash equivalents The Company considers all highly liquid investments with original maturities less than or equal to three months at the date of purchase to be cash and cash equivalents. Cash and cash equivalents are stated at cost, which approximates fair value, and consist of bank deposits and certificates of deposit that are readily convertible into cash. The Company maintains its cash deposits and cash equivalents at well-known, stable financial institutions. Such amounts frequently exceed insured limits. Investment securities The Company’s investment securities consist of publicly-traded equity securities which are classified as trading investments. Investment securities are recorded at fair value based on quoted market prices from broker or dealer quotations or transparent pricing sources at each reporting date. Realized and unrealized gains and losses are included in the Consolidated Statements of Operations under Other income (loss). Allowance for doubtful accounts The Company continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses. The Company determines its allowance for doubtful accounts by considering a number of factors, including the length of time balances are past due, the Company’s previous loss history, the customer’s current ability to pay its obligations to the Company and the condition of the general economy and the industry as a whole. The Company writes off accounts receivable when they are determined to be uncollectible. Inventories Inventories are stated at the lower of cost and net realizable value by the first-in, first-out method. Inventories are regularly reviewed and provisions for excess and obsolete inventory are recorded based primarily on current inventory levels and estimated sales forecasts. Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed on a straight-line basis over the assets’ estimated useful lives. Intangible Assets Definite-lived intangible assets are stated at cost less accumulated amortization. Amortization of definite-lived intangible assets is computed on a straight-line basis over the assets’ estimated useful lives, generally for periods ranging from 10 to 15 years. The Company continually evaluates the reasonableness of the useful lives of these assets. Indefinite-lived intangible assets are not amortized, but instead are tested at least annually for impairment. Costs to renew or extend the term of a recognized intangible asset are expensed as incurred. Valuation of Long-Lived Assets, including Intangible Assets The Company’s long-lived assets primarily consist of property, plant and equipment and definite and indefinite-lived intangible assets. Property, plant and equipment and definite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances (“triggering events”) indicate that the carrying amount of the asset may not be recoverable. If a triggering event is determined to have occurred, the asset’s carrying value is compared to the future undiscounted cash flows expected to be generated by the asset. If the carrying value exceeds the undiscounted cash flow of the asset, then impairment exists. Indefinite-lived intangible assets are tested for impairment at least annually during the fourth quarter of each fiscal year or more frequently if events or changes in circumstances indicate that the asset might be impaired. An impairment loss is measured as the excess of the asset’s carrying value over its fair value, which in most cases is calculated using a discounted cash flow model. Discounted cash flow models are highly reliant on various assumptions which are considered Level 3 inputs, including estimates of future cash flows (including long-term growth rates), discount rates and the probability of achieving the estimated cash flows. In-Process Research and Development Amounts allocated to in-process research and development (“IPR&D”) in connection with a business combination are recorded at fair value and are considered indefinite-lived intangible assets subject to impairment testing in accordance with the Company’s impairment testing policy for indefinite-lived intangible assets. As products in development are approved for sale, amounts will be allocated to product rights and will be amortized over their estimated useful lives. Definite-lived intangible assets are amortized over the expected lives of the related assets. The judgments made in determining the estimated fair value of in-process research and development, as well as asset lives, can materially impact our results of operations. The Company’s fair value assessments are highly reliant on various assumptions which are considered Level 3 inputs, including estimates of future cash flows (including long-term growth rates), discount rates and the probability of achieving the estimated cash flows. Goodwill Goodwill, which represents the excess of purchase price over the fair value of net assets acquired, is carried at cost. Goodwill is tested for impairment on an annual basis on the first day of the fourth quarter of each fiscal year or more frequently if events or changes in circumstances indicate that the asset might be impaired. The Company first performs a qualitative assessment to determine if the quantitative impairment test is required. If changes in circumstances indicate an asset may be impaired, the Company performs the quantitative impairment test. The Company first determines the fair value of our reporting unit (generic pharmaceuticals). If the net book value of our reporting unit exceeds its fair value, the difference will be recorded as a goodwill impairment, not to exceed the carrying amount of goodwill. The Company’s fair value assessments are highly reliant on various assumptions which are considered Level 3 inputs, including estimates of future cash flows (including long-term growth rates), discount rates and the probability of achieving the estimated cash flows. The judgments made in determining the estimated fair value of goodwill can materially impact our results of operations. Segment Information The Company operates in one reportable segment, generic pharmaceuticals. As such, the Company aggregates its financial information for all products. The following table identifies the Company’s net sales by medical indication for the three and six months ended December 31, 2017 and 2016: (In thousands) For the Three Months Ended For the Six Months Ended Medical Indication 2017 2016 2017 2016 Antibiotic $ $ $ $ Anti-Psychosis Cardiovascular Central Nervous System Gallstone Gastrointestinal Glaucoma Migraine Muscle Relaxant Pain Management Respiratory Thyroid Deficiency Urinary Other Contract manufacturing revenue Net sales $ $ $ $ Customer, Supplier and Product Concentration The following table presents the percentage of total net sales, for the three and six months ended December 31, 2017 and 2016, for certain of the Company’s products, defined as products containing the same active ingredient or combination of ingredients, which accounted for at least 10% of net sales in any of those periods: For the Three Months Ended For the Six Months Ended 2017 2016 2017 2016 Product 1 % % % % Product 2 % % % % The following table presents the percentage of total net sales, for the three and six months ended December 31, 2017 and 2016, for certain of the Company’s customers which accounted for at least 10% of net sales in any of those periods: For the Three Months Ended For the Six Months Ended 2017 2016 2017 2016 Customer A % % % % Customer B % % % % Customer C % % % % The Company’s primary finished goods inventory supplier is Jerome Stevens Pharmaceuticals, Inc. (“JSP”), in Bohemia, New York. Purchases of finished goods inventory from JSP accounted for approximately 39% of the Company’s inventory purchases during the three months ended December 31, 2017 and 2016. Purchases of finished goods inventory from JSP accounted for approximately 36% and 38% of the Company’s inventory purchases during the six months ended December 31, 2017 and 2016, respectively. See Note 21 “Material Contracts with Suppliers” for more information. Revenue Recognition The Company recognizes revenue when title and risk of loss have transferred to the customer and provisions for rebates, promotional adjustments, price adjustments, returns, chargebacks and other potential adjustments are reasonably determinable and collection is reasonably assured. The Company also considers all other relevant criteria specified in Securities and Exchange Commission Staff Accounting Bulletin No. 104, Topic No. 13, “ Revenue Recognition ”, in determining when to recognize revenue. Net Sales Adjustments When revenue is recognized a simultaneous adjustment to gross sales is made for estimated chargebacks, rebates, returns, promotional adjustments and other potential adjustments. These provisions are primarily estimated based on historical experience, future expectations, contractual arrangements with wholesalers and indirect customers and other factors known to management at the time of accrual. Accruals for provisions are presented in the Consolidated Financial Statements as a reduction to gross sales with the corresponding reserve presented as a reduction of accounts receivable or included as rebates payable, depending on the nature of the reserve. The reserves, presented as a reduction of accounts receivable, totaled $155.5 million and $175.8 million at December 31, 2017 and June 30, 2017, respectively. Rebates payable at December 31, 2017 and June 30, 2017 totaled $48.4 million and $44.6 million, respectively, for certain rebate programs, primarily related to Medicare Part D and Medicaid and certain sales allowances and other adjustments paid to indirect customers. Cost of Sales, including Amortization of Intangibles Cost of sales includes all costs related to bringing products to their final selling destination, which includes direct and indirect costs, such as direct material, labor and overhead expenses. Additionally, cost of sales includes product royalties, depreciation, amortization and costs to renew or extend recognized intangible assets, freight charges and other shipping and handling expenses. Research and Development Expenses Research and development costs are expensed as incurred, including all production costs until a drug candidate is approved by the Food and Drug Administration (“FDA”). Research and development expenses include costs associated with internal projects as well as costs associated with third-party research and development contracts. Contingencies Loss contingencies, including litigation-related contingencies, are included in the Consolidated Statements of Operations when the Company concludes that a loss is both probable and reasonably estimable. Legal fees related to litigation-related matters are expensed as incurred and included in the Consolidated Statements of Operations under the Selling, general and administrative expense line item. Restructuring Costs The Company records charges associated with approved restructuring plans to remove duplicative headcount and infrastructure associated with business acquisitions or to simplify business processes. Restructuring charges can include severance costs to eliminate a specified number of employees, infrastructure charges to vacate facilities and consolidate operations and contract cancellation costs. The Company records restructuring charges based on estimated employee terminations, site closure and consolidation plans. The Company accrues severance and other employee separation costs under these actions when it is probable that a liability exists and the amount is reasonably estimable. Share-Based Compensation Share-based compensation costs are recognized over the vesting period, using a straight-line method, based on the fair value of the instrument on the date of grant less an estimate for expected forfeitures. The Company uses the Black-Scholes valuation model to determine the fair value of stock options, the stock price on the grant date to value restricted stock and the Monte-Carlo simulation model to determine the fair value of performance-based shares. The Black-Scholes valuation and Monte-Carlo simulation models include various assumptions, including the expected volatility, the expected life of the award, dividend yield and the risk-free interest rate as well as performance assumptions of peer companies. These assumptions involve inherent uncertainties based on market conditions which are generally outside the Company’s control. Changes in these assumptions could have a material impact on share-based compensation costs recognized in the financial statements. Self-Insurance Effective January 1, 2017, the Company self-insures for certain employee medical and prescription benefits. The Company also maintains stop loss coverage with third party insurers to limit its total liability exposure. The liability for self-insured risks is primarily calculated using independent third party actuarial valuations which take into account actual claims, claims growth and claims incurred but not yet reported. Actual experience, including claim frequency and severity as well as health-care inflation, could result in different liabilities than the amounts currently recorded. The liability for self-insured risks under this plan as of December 31, 2017 totaled $3.2 million and was not material to the financial position of the Company as of June 30, 2017. Income Taxes The Company uses the liability method to account for income taxes as prescribed by Accounting Standards Codification (“ASC”) 740, Income Taxes . Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. Deferred tax expense (benefit) is the result of changes in deferred tax assets and liabilities. Deferred income tax assets and liabilities are adjusted to recognize the effects of changes in tax laws or enacted tax rates in the period during which they are signed into law. The factors used to assess the likelihood of realization are the Company’s forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. Under ASC 740, Income Taxes , a valuation allowance is required when it is more likely than not that all or some portion of the deferred tax assets will not be realized through generating sufficient future taxable income. Failure to achieve forecasted taxable income in applicable tax jurisdictions could affect the ultimate realization of deferred tax assets and could result in an increase in the Company’s effective tax rate on future earnings. The Company may recognize the tax benefit from an uncertain tax position claimed on a tax return only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The authoritative accounting standards also provide guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. On December 22, 2017, President Trump signed the Tax Cut and Jobs Act legislation (“2017 Tax Reform”) into law, which included a broad range of tax reform provisions affecting businesses, including corporate tax rates, business deductions and international tax provisions. Many of these provisions significantly differ from current U.S. tax law, resulting in pervasive financial reporting implications. As a result of the new law, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of 2017 Tax Reform. SAB 118 requires registrants to report the tax effects of 2017 Tax Reform, inclusive of provisional amounts for which the accounting is incomplete but a reasonable estimate can be determined. SAB 118 also allows for a measurement period of up to one year in cases where a registrant reports a provisional amount or is unable to reasonably estimate the impact of 2017 Tax Reform. Earnings (Loss) Per Common Share Basic earnings (loss) per common share attributable to the Company is computed by dividing net income attributable to Lannett Company, Inc. common stockholders by the weighted average number of shares outstanding during the period. Diluted earnings (loss) per common share attributable to the Company is computed by dividing net income attributable to Lannett Company, Inc. common stockholders by the weighted average number of shares outstanding during the period including additional shares that would have been outstanding related to potentially dilutive securities. These potentially dilutive securities consist of stock options, unvested restricted stock, performance-based shares and an outstanding warrant. Anti-dilutive securities are excluded from the calculation. Dilutive shares are also excluded in the calculation in periods of net loss because the effect of including such securities would be anti-dilutive. Comprehensive Income (Loss) Comprehensive income (loss) includes all changes in equity during a period except those that resulted from investments by or distributions to the Company’s stockholders. Other comprehensive income (loss) refers to gains and losses that are included in comprehensive income (loss), but excluded from net income as these amounts are recorded directly as an adjustment to stockholders’ equity. Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers . The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The authoritative guidance is effective for annual reporting periods beginning after December 15, 2017. Based on a preliminary review of the contracts representing a substantial portion of our revenues, the Company does not expect the guidance to have a material impact on our disclosures or the timing and recognition of our revenues. The Company is in the process of establishing and documenting key accounting policies, conducting training and education throughout the organization, and evaluating impacts on business processes, information technology, and controls resulting from the adoption of this new standard. The Company also continues to accumulate the necessary information to determine the cumulative effects of the accounting change to be recorded upon adoption of the guidance. The Company intends to use the modified retrospective approach upon implementation. In November 2015, the FASB issued ASU 2015-17, Income Taxes — Balance Sheet Classification of Deferred Taxes. ASU 2015-17 requires all deferred tax assets and liabilities to be classified as noncurrent on the balance sheet. The guidance may be applied either prospectively or retrospectively. The guidance became effective for the Company in the first quarter of Fiscal 2018. Accordingly, the Company currently presents all deferred tax assets and liabilities as noncurrent on the balance sheet. All prior period amounts have also been reclassified to conform with the current year presentation. In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 requires an entity to recognize right-of-use assets and liabilities on its balance sheet for all leases with terms longer than 12 months. Lessees and lessors are required to disclose quantitative and qualitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period and requires a modified retrospective application, with early adoption permitted. The Company is currently in the process of assessing the impact this guidance will have on the consolidated financial statements. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows — Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 addresses how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2017. The Company is currently in the process of assessing the impact this guidance will have on the consolidated financial statements. |
Restructuring Charges
Restructuring Charges | 6 Months Ended |
Dec. 31, 2017 | |
Restructuring Charges | |
Restructuring Charges | Note 4. Restructuring Charges 2016 Restructuring Program On February 1, 2016, in connection with the acquisition of KUPI, the Company announced a plan related to the future integration of KUPI and the Company’s operations. The plan focuses on the closure of KUPI’s corporate functions and the consolidation of manufacturing, sales, research and development and distribution functions. The Company estimates that it will incur an aggregate of up to approximately $20.0 million in restructuring charges for actions that have been announced or communicated since the 2016 Restructuring Program began. Of this amount, approximately $11.0 million relates to employee separation costs, approximately $1.0 million relates to contract termination costs and approximately $8.0 million relates to facility closure costs and other actions. The 2016 Restructuring Program is expected to be completed by the end of Fiscal 2019. The expenses associated with the restructuring program included in restructuring expenses during the three and six months ended December 31, 2017 and 2016 were as follows: For the Three Months Ended For the Six Months Ended (In thousands) 2017 2016 2017 2016 Employee separation costs (credits) $ $ $ ) $ Facility closure costs Total $ $ $ $ In the first quarter of Fiscal 2018, the Company decided to retain certain employees who were previously included in the 2016 Restructuring Program. As a result, the Company reversed all previous charges incurred related to these employees. A reconciliation of the changes in restructuring liabilities associated with the 2016 Restructuring Program from June 30, 2017 through December 31, 2017 is set forth in the following table: (In thousands) Employee Contract Facility Closure Total Balance at June 30, 2017 $ $ — $ — $ Restructuring Charges (Credits) ) — Payments ) — ) ) Balance at December 31, 2017 $ $ — $ — $ |
Accounts Receivable
Accounts Receivable | 6 Months Ended |
Dec. 31, 2017 | |
Accounts Receivable | |
Accounts Receivable | Note 5. Accounts Receivable Accounts receivable consisted of the following components at December 31, 2017 and June 30, 2017: (In thousands) December 31, June 30, Gross accounts receivable $ $ Less Chargebacks reserve ) ) Less Rebates reserve ) ) Less Returns reserve ) ) Less Other deductions ) ) Less Allowance for doubtful accounts ) ) Accounts receivable, net $ $ For the three months ended December 31, 2017, the Company recorded a provision for chargebacks, rebates (including rebates presented as rebates payable), returns and other deductions of $220.2 million, $77.6 million, $4.1 million, and $16.3 million, respectively. For the three months ended December 31, 2016, the Company recorded a provision for chargebacks, rebates (including rebates presented as rebates payable), returns and other deductions of $217.7 million, $73.5 million, $7.9 million, and $13.9 million, respectively. For the six months ended December 31, 2017, the Company recorded a provision for chargebacks, rebates (including rebates presented as rebates payable), returns, and other deductions of $474.9 million, $156.1 million, $14.5 million, and $28.6 million, respectively. For the six months ended December 31, 2016, the Company recorded a provision for chargebacks, rebates (including rebates presented as rebates payable), returns, and other deductions of $416.2 million, $143.0 million, $14.7 million, and $29.3 million, respectively. |
Inventories
Inventories | 6 Months Ended |
Dec. 31, 2017 | |
Inventories | |
Inventories | Note 6. Inventories Inventories at December 31, 2017 and June 30, 2017 consisted of the following: (In thousands) December 31, June 30, Raw materials $ $ Work-in-process Finished goods Total $ $ Inventories were reduced by $5.0 million and $4.5 million at December 31, 2017 and June 30, 2017, respectively for excess and obsolete inventory amounts. During the three months ended December 31, 2017 and 2016, the Company recorded provisions for excess and obsolete inventory of $2.2 million and $2.1 million, respectively. During the six months ended December 31, 2017 and 2016, the Company recorded provisions for excess and obsolete inventory of $4.4 million and $5.4 million, respectively. |
Property, Plant and Equipment
Property, Plant and Equipment | 6 Months Ended |
Dec. 31, 2017 | |
Property, Plant and Equipment | |
Property, Plant and Equipment | Note 7. Property, Plant and Equipment Property, plant and equipment, net at December 31, 2017 and June 30, 2017 consisted of the following: (In thousands) Useful Lives December 31, June 30, Land — $ $ Building and improvements 10 - 39 years Machinery and equipment 5 - 10 years Furniture and fixtures 5 - 7 years Less: accumulated depreciation ) ) Construction in progress Property, plant and equipment, net $ $ Depreciation expense for the three months ended December 31, 2017 and 2016 was $5.4 million and $5.5 million, respectively. Depreciation expense for the six months ended December 31, 2017 and 2016 was $11.1 million and $10.6 million, respectively. Property, plant and equipment, net included amounts held in foreign countries in the amount of $1.0 million at December 31, 2017 and June 30, 2017. |
Fair Value Measurements
Fair Value Measurements | 6 Months Ended |
Dec. 31, 2017 | |
Fair Value Measurements | |
Fair Value Measurements | Note 8. Fair Value Measurements The Company’s financial instruments recorded in the Consolidated Balance Sheets include cash and cash equivalents, accounts receivable, investment securities, accounts payable, accrued expenses and debt obligations. Included in cash and cash equivalents are certificates of deposit with maturities less than or equal to three months at the date of purchase and money market funds. The carrying value of certain financial instruments, primarily cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, approximate their estimated fair values based upon the short-term nature of their maturity dates. The carrying amount of the Company’s debt obligations approximates fair value based on current interest rates available to the Company on similar debt obligations. The Company follows the authoritative guidance of ASC Topic 820 “Fair Value Measurements and Disclosures.” Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The authoritative guidance also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Company’s financial assets and liabilities measured at fair value are entirely within Level 1 of the hierarchy as defined below: Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date. Level 2 — Directly or indirectly observable inputs, other than quoted prices, such as quoted prices for similar assets or liabilities; quoted prices for identical or similar instruments in markets that are not active; or model-derived valuations whose inputs are observable or whose significant value drivers are observable. Level 3 — Unobservable inputs that are supported by little or no market activity and that are material to the fair value of the asset or liability. Financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation are examples of Level 3 assets and liabilities. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. The Company’s financial assets and liabilities measured at fair value at December 31, 2017 and June 30, 2017, were as follows: December 31, 2017 (In thousands) Level 1 Level 2 Level 3 Total Assets Investment securities $ $ — $ — $ Total Assets $ $ — $ — $ June 30, 2017 (In thousands) Level 1 Level 2 Level 3 Total Assets Investment securities $ $ — $ — $ Total Assets $ $ — $ — $ |
Investment Securities
Investment Securities | 6 Months Ended |
Dec. 31, 2017 | |
Investment Securities | |
Investment Securities | Note 9. Investment Securities The Company uses the specific identification method to determine the cost of securities sold, which consisted entirely of equity securities classified as trading. The Company had a net gain on investment securities of $2.0 million during the three months ended December 31, 2017, which included an unrealized gain related to securities still held at December 31, 2017 of $1.2 million. The Company had a net gain on investment securities of $888 thousand during the three months ended December 31, 2016, which primarily consisted of realized gains. The Company had a net gain on investment securities of $2.8 million during the six months ended December 31, 2017, which included an unrealized gain related to securities still held at December 31, 2017 of $1.1 million. The Company had a net gain on investment securities of $1.7 million during the six months ended December 31, 2016, which included an unrealized gain related to securities still held at December 31, 2016 of $557 thousand. |
Intangible Assets
Intangible Assets | 6 Months Ended |
Dec. 31, 2017 | |
Intangible Assets | |
Intangible Assets | Note 10. Intangible Assets Intangible assets, net as of December 31, 2017 and June 30, 2017, consisted of the following: Weighted Gross Carrying Amount Accumulated Amortization Intangible Assets, Net (In thousands) Avg. Life December 31, June 30, December 31, June 30, December 31, June 30, Definite-lived: Cody Labs import license 15 $ $ $ ) $ ) $ $ KUPI product rights 15 ) ) KUPI trade name 2 ) ) — KUPI other intangible assets 15 ) ) Silarx product rights 15 ) ) Other product rights 4 ) ) Total definite-lived $ $ $ ) $ ) $ $ Indefinite-lived: KUPI in-process research and development — $ $ $ — $ — $ $ Silarx in-process research and development — — — Other product rights — — — Total indefinite-lived — — Total intangible assets, net $ $ $ ) $ ) $ $ For the three months ended December 31, 2017 and 2016, the Company recorded amortization expense of $8.2 million and $8.1 million, respectively. For the six months ended December 31, 2017 and 2016, the Company recorded amortization expense of $16.3 million and $17.4 million, respectively. Future annual amortization expense consisted of the following as of December 31, 2017: (In thousands) Annual Amortization Expense 2018 $ 2019 2020 2021 2022 Thereafter $ |
Long-Term Debt
Long-Term Debt | 6 Months Ended |
Dec. 31, 2017 | |
Long-Term Debt | |
Long-Term Debt | Note 11. Long-Term Debt Long-term debt, net consisted of the following: December 31, June 30, (In thousands) 2017 2017 Term Loan A due 2020 $ $ Unamortized discount and other debt issuance costs ) ) Term Loan A, net Term Loan B due 2022 Unamortized discount and other debt issuance costs ) ) Term Loan B, net Revolving Credit Facility due 2020 — — Other — Total debt, net Less short-term borrowings and current portion of long-term debt ) ) Total long-term debt, net $ $ Long-term debt amounts due, for the twelve month periods ending December 31 are as follows: Amounts Payable (In thousands) to Institutions 2018 $ 2019 2020 2021 2022 Total $ |
Legal, Regulatory Matters and C
Legal, Regulatory Matters and Contingencies | 6 Months Ended |
Dec. 31, 2017 | |
Legal, Regulatory Matters and Contingencies | |
Legal, Regulatory Matters and Contingencies | Note 12. Legal, Regulatory Matters and Contingencies Connecticut Attorney General Inquiry In July 2014, the Company received interrogatories and subpoena from the State of Connecticut Office of the Attorney General concerning its investigation into the pricing of digoxin. According to the subpoena, the Connecticut Attorney General is investigating whether anyone engaged in any activities that resulted in (a) fixing, maintaining or controlling prices of digoxin or (b) allocating and dividing customers or territories relating to the sale of digoxin in violation of Connecticut antitrust law. In June 2016, the Connecticut Attorney General issued interrogatories and a subpoena to an employee of the Company in order to gain access to documents and responses previously supplied to the Department of Justice. In December 2016, the Connecticut Attorney General, joined by numerous other State Attorneys General, filed a civil complaint alleging that six pharmaceutical companies engaged in anti-competitive behavior related to Doxycycline Hyclate and Gliburide. The Company was not named in the action and does not compete on the products that formed the basis of the complaint. On October 31, 2017, the state Attorneys General filed a motion for leave to amend their complaint to add numerous additional defendants, including the Company, and claims relating to 13 additional drugs. The claim amended in October 2017 relating to Lannett involves alleged price-fixing for one drug, doxycycline monohydrate, but did not involve the pricing for digoxin. The state Attorneys General also allege that all defendants were part of an overarching, industry-wide conspiracy to allocate markets and fix prices generally. None of the defendants, including the Company, has responded yet to the motion of the state Attorneys General. The Company maintains that it acted in compliance with all applicable laws and regulations and continues to cooperate with the Connecticut Attorney General investigation. Federal Investigation into the Generic Pharmaceutical Industry In fiscal years 2015 and 2016, the Company and certain affiliated individuals each were served with a grand jury subpoena relating to a federal investigation of the generic pharmaceutical industry into possible violations of the Sherman Act. The subpoenas request corporate documents of the Company relating to corporate, financial and employee information, communications or correspondence with competitors regarding the sale of generic prescription medications and the marketing, sale, or pricing of certain products, generally for the period of 2005 through the dates of the subpoenas. Based on reviews performed to date by outside counsel, the Company currently believes that it has acted in compliance with all applicable laws and regulations and continues to cooperate with the federal investigation. Texas Medicaid Investigation In August 2015, KUPI received a letter from the Texas Office of the Attorney General alleging that it had inaccurately reported certain price information in violation of the Texas Medicaid Fraud Prevention Act. UCB, KUPI’s previous parent company is handling the defense and is evaluating the allegations and cooperating with the Texas Attorney General’s Office. Per the terms of the Stock Purchase Agreement between the Company and UCB (“Stock Purchase Agreement”) dated September 2, 2015, the Company is fully indemnified for any pre-acquisition amounts. The Company is currently unable to estimate the timing or the outcome of this matter. Government Pricing During the quarter ended December 31, 2016, the Company completed a contract compliance review, for the period January 1, 2012 through June 30, 2016, for one of KUPI’s government-entity customers. As a result of the review, the Company identified certain commercial customer prices and other terms that were not properly disclosed to the government-entity resulting in potential overcharges. As of December 31, 2017 and June 30, 2017, the Company’s best estimate of the liability for potential overcharges was approximately $9.3 million. For the period January 1, 2012 through November 24, 2015 (“the pre-acquisition period”), the Company is fully indemnified per the Stock Purchase Agreement. Accordingly, the Company has recorded an indemnification asset and related liability of $8.3 million related to the pre-acquisition period. The Company does not believe that the ultimate resolution of this matter will have a significant impact on our financial position, results of operations or cash flows. AWP Litigation The Company and some of our competitors have been named as defendants in two lawsuits filed in 2016 alleging that the Company and a number of other generic pharmaceutical manufacturers caused the Average Wholesale Prices (AWPs) of our and their products to be inflated, thereby injuring government programs, entities and persons who reimbursed prescription drugs based on AWPs. The Company stopped using AWP as a basis for establishing prices in or around 2002 and the bulk of prescription drugs manufactured by the Company was sold under private label. The first lawsuit, filed in the United States District Court for the Eastern of Pennsylvania, was dismissed on September 25, 2017 (the “Federal Action”). The second lawsuit, pending in the Philadelphia (Pennsylvania) County Court of Common Pleas, was stayed pending the final resolution of the Federal Action. The Company disputes these allegations and does not believe that the ultimate resolution of these lawsuits will have a significant impact on our financial position, results of operations or cash flows. EPA Violation Notice On July 13, 2017, the United States Department of Environmental Protection Agency (“EPA”) sent a Finding of Violation to KUPI alleging several violations of national emissions standards for hazardous air pollutants at KUPI’s Seymour, Indiana facility. The EPA is giving the company the opportunity to discuss the matter with the agency before filing a formal complaint or assessing fines with respect to the alleged violations. The Company is conducting an investigation into the matter and cannot reasonably predict the outcome of any potential EPA action at this time. Private Antitrust and Consumer Protection Litigation The Company and certain competitors have been named as defendants in a number of lawsuits filed in 2016 and 2017 alleging that the Company and certain generic pharmaceutical manufacturers have conspired to fix prices of generic digoxin, levothyroxine, ursodiol and baclofen. These cases are part of a larger group of more than 100 lawsuits generally alleging that over 30 generic pharmaceutical manufacturers and distributors conspired to fix prices for at least 18 different generic drugs in violation of the federal Sherman Act, various state antitrust laws, and various state consumer protection statutes. The United States also has been granted leave to intervene in the cases. On April 6, 2017, the Judicial Panel on Multidistrict Litigation (the “JPML”) ordered that all of the cases alleging price-fixing for generic drugs be consolidated for pretrial proceedings in the United States District Court for the Eastern District of Pennsylvania under the caption In re: Generic Pharmaceuticals Pricing Antitrust Litigation . The various plaintiffs are grouped into three categories — Direct Purchaser Plaintiffs, End Payer Plaintiffs, and Indirect Reseller Purchasers — and filed Consolidated Amended Complaints (“CACs”) against the Company and the other defendants on August 15, 2017. The CACs naming the Company as a defendant involve generic digoxin, levothyroxine, ursodiol and baclofen. Pursuant to a court-ordered schedule grouping the 18 different drug cases into three separate tranches, the Company and other generic pharmaceutical manufacturer defendants on October 6, 2017 filed joint and individual motions to dismiss the CACs involving the six drugs in the first tranche, including digoxin. Those motions are pending. On January 22, 2018, three opt-out direct purchasers filed a complaint alleging an overarching conspiracy and individual conspiracies on behalf of the Company and numerous other defendants to fix the prices of and allocate markets for at least 30 different drugs, including digoxin, doxycycline, levothyroxine, ursodiol and baclofen. None of the defendants, including the Company, has responded yet to the complaint. In addition to the lawsuits brought by private plaintiffs, the Attorneys General of 45 states, the District of Columbia and Puerto Rico have filed parens patriae lawsuits alleging price-fixing conspiracies by various generic pharmaceutical manufacturers, but not involving the Company. The JPML has consolidated the suits by the state Attorneys General in the Eastern District of Pennsylvania as part of the multidistrict litigation. The original lawsuits did not name the Company, but the state Attorneys General on October 31, 2017 filed a motion with the District Court for leave to amend their complaint to add numerous additional defendants, including the Company, and claims relating to 13 additional drugs. The claim relating to Lannett involves alleged price-fixing for one drug, doxycycline monohydrate, although the state Attorneys General allege that all defendants were part of an overarching, industry-wide conspiracy to allocate markets and fix prices generally. All of the existing and proposed defendants, including the Company, have opposed the motion of the state Attorneys General. The motion is pending. The Company believes that it acted in compliance with all applicable laws and regulations. Accordingly, the Company disputes the allegations set forth in these class actions. Shareholder Litigation In November 2016, a putative class action lawsuit was filed against the Company and two of its officers claiming that the Company damaged the purported class by including in its securities filings false and misleading statements regarding the Company’s drug pricing methodologies and internal controls. A first amended complaint was filed in May 2017, and the Company filed a motion to dismiss the amended complaint in September 2017. In December 2017, counsel for the putative class filed a second amended complaint, and the Court denied as moot the Company’s motion to dismiss the first amended complaint. The Company expects to file a motion to dismiss the second amended complaint in the coming months. The Company cannot reasonably predict the outcome of the suit at this time. Patent Infringement (Paragraph IV Certification) There is substantial litigation in the pharmaceutical industry with respect to the manufacture, use and sale of new products which are the subject of conflicting patent and intellectual property claims. Certain of these claims relate to paragraph IV certifications, which allege that an innovator patent is invalid or would not be infringed upon by the manufacture, use, or sale of the new drug. Zomig® The Company filed with the Food and Drug Administration an ANDA No. 206350, along with a paragraph IV certification, alleging that the two patents associated with the Zomig® nasal spray product (U.S. Patent No. 6,750,237 and U.S. Patent No. 67,220,767) are invalid. In July 2014, AstraZeneca AB, AstraZeneca UK Limited and Impax Laboratories, Inc. filed two patent infringement lawsuits in the United States District Court for the District of Delaware, alleging that the Company’s filing of ANDA No. 206350 constitutes an act of patent infringement and seeking a declaration that the two patents at issue are valid and infringed. In September 2014, the Company filed a motion to dismiss one patent infringement lawsuit for lack of standing and responded to the second lawsuit by denying that any valid patent claim would be infringed. In the second lawsuit, the Company also counterclaimed for a declaratory judgment that the patent claims are invalid and not infringed. The Court has consolidated the two actions and denied the motion to dismiss the first action without prejudice. In July 2015, the Company filed with the United States Patent and Trademark Office (“USPTO”) a Petition for Inter Partes Review of each of the patents in suit seeking to reject as invalid all claims of the patents in suit. The USPTO has issued a decision denying initiation of the Inter Partes Review. A trial was conducted in September 2016. The Court issued its decision on March 29, 2017, finding that Lannett did not prove that the patents at issue are invalid. The Company has appealed the decision. All briefing to the appellate court has been submitted, and the parties are waiting for the appellate court to set a date for oral argument before the court. A final decision of the appellate court is expected in early to mid-2018. Thalomid® The Company filed with the Food and Drug Administration an ANDA No. 206601, along with a paragraph IV certification, alleging that the fifteen patents associated with the Thalomid drug product (U.S. Patent Nos. 6,045,501; 6,315,720; 6,561,976; 6,561,977; 6,755,784; 6,869,399; 6,908,432; 7,141,018; 7,230,012; 7,435,745; 7,874,984; 7,959,566; 8,204,763; 8,315,886; 8,589,188 and 8,626,53) are invalid, unenforceable and/or not infringed. On January 30, 2015, Celgene Corporation and Children’s Medical Center Corporation filed a patent infringement lawsuit in the United States District Court for the District of New Jersey, alleging that the Company’s filing of ANDA No. 206601 constitutes an act of patent infringement and seeking a declaration that the patents at issue are valid and infringed. The Company filed an answer and affirmative defenses, and an amended answer to the complaint. A settlement agreement was reached and the Court dismissed the lawsuit in October 2017. Pursuant to the settlement agreement, the Company entered into a license agreement that permits Lannett to manufacture and market in the U.S. its generic thalidomide product as of August 1, 2019 or earlier under certain circumstances. SUPREP® The Company filed ANDA No. 209941 with the Food and Drug Administration seeking approval to sell a bowel preparation oral solution (the “Company’s Oral Solution”), along with a paragraph IV certification, alleging that US Patent 6,946,149 associated with the Suprep® bowel preparation kit would not be infringed by the Company’s Oral Solution and/or that the patent is invalid. In March 2017, Braintree Laboratories, Inc. (“Braintree”) filed a patent infringement lawsuit in the United States District Court for the District of Delaware (C.A. No. 1:17-cv-00293-GMS), alleging that the Company’s filing of ANDA No. 209941 constitutes an act of patent infringement and seeking a declaration that the patent at issue was infringed by the submission of ANDA No. 209941. The Company answered the complaint denying infringement and raising invalidity as a defense, and has filed counterclaims seeking a declaration of non-infringement and invalidity. On July 28, 2017, the Company filed a motion for judgment on the pleadings, seeking a ruling that its ANDA product does not infringe the Braintree patent and seeking judgment as a matter of law. Braintree opposed the motion and has alternatively requested that the Court delay its decision on the motion until discovery is taken. The Company opposed Braintree’s request to delay the decision. While the motions were pending, the parties agreed to resolve this dispute. The parties signed a confidential settlement agreement and filed a Stipulation of Dismissal Without Prejudice on December 13, 2017. On December 17, 2017, the Court granted the parties’ Stipulation of Dismissal Without Prejudice. In connection with the settlement agreement, the Company received $3.5 million, which is included in Other Income within the Consolidated Statements of Operations. Although the Company cannot currently predict the length or outcome of paragraph IV litigation, legal expenses associated with these lawsuits could have a significant impact on the financial position, results of operations and cash flows of the Company. Other Litigation Matters The Company is also subject to various legal proceedings arising out of the normal course of its business including, but not limited to, product liability, intellectual property, patent infringement claims and antitrust matters. It is not possible to predict the outcome of these various proceedings. An adverse determination in any of these proceedings in the future could have a significant impact on the financial position, results of operations and cash flows of the Company. |
Commitments
Commitments | 6 Months Ended |
Dec. 31, 2017 | |
Commitments | |
Commitments | Note 13. Commitments Leases The Company leases certain manufacturing and office equipment, in the ordinary course of business. These leases are typically renewed annually. Rental and lease expense was not material for all periods presented. Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) for the remainder of Fiscal 2018 and the twelve month periods ending June 30 thereafter are as follows: (In thousands) Amounts Due Remainder of 2018 $ 2019 2020 2021 2022 Thereafter Total $ Other Commitment During the third quarter of Fiscal 2017, the Company signed an agreement with a company operating in the pharmaceutical business, under which the Company agreed to provide up to $15.0 million in revolving loans for the purpose of expansion and other business needs. The decision to provide any portion of the revolving loan is at the Company’s sole discretion. At any time after the outstanding revolving loan balance is equal to or greater than $7.5 million, the Company has the option to convert the first $7.5 million into a 50% ownership interest in the entity. As of December 31, 2017, $6.6 million was outstanding under the revolving loan. The board of the entity is comprised of five members, two of which are employees of the Company. Based on the guidance set forth in ASC 810-10 Consolidation, the Company has concluded that it has a variable interest in the entity. However, the Company is not the primary beneficiary to the entity and as such, is not required to consolidate the entity’s results of operations. |
Accumulated Other Comprehensive
Accumulated Other Comprehensive Loss | 6 Months Ended |
Dec. 31, 2017 | |
Accumulated Other Comprehensive Loss | |
Accumulated Other Comprehensive Loss | Note 14. Accumulated Other Comprehensive Loss The Company’s Accumulated Other Comprehensive Loss was comprised of the following components as of December 31, 2017 and 2016: (In thousands) December 31, December 31, Foreign Currency Translation Beginning Balance, June 30 $ ) $ ) Net gain (loss) on foreign currency translation (net of tax of $0 and $0) ) Reclassifications to net income (net of tax of $0 and $0) — — Other comprehensive income (loss), net of tax ) Ending Balance, December 31 ) ) Total Accumulated Other Comprehensive Loss $ ) $ ) |
Earnings (Loss) Per Common Shar
Earnings (Loss) Per Common Share | 6 Months Ended |
Dec. 31, 2017 | |
Earnings (Loss) Per Common Share | |
Earnings (Loss) Per Common Share | Note 15. Earnings (Loss) Per Common Share A dual presentation of basic and diluted earnings (loss) per common share is required on the face of the Company’s Consolidated Statement of Operations as well as a reconciliation of the computation of basic earnings per common share to diluted earnings per common share. Basic earnings (loss) per common share excludes the dilutive impact of potentially dilutive securities and is computed by dividing net income (loss) attributable to Lannett Company, Inc. by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per common share is computed using the treasury stock method and includes the effect of potential dilution from the exercise of outstanding stock options, a warrant and treats unvested restricted stock and performance-based shares as if it were vested. Potentially dilutive securities have been excluded in the weighted average number of common shares used for the calculation of earnings per share in periods of net loss because the effect of including such securities would be anti-dilutive. A reconciliation of the Company’s basic and diluted earnings (loss) per common share was as follows: Three Months Ended (In thousands, except share and per share data) 2017 2016 Net income attributable to Lannett Company, Inc. $ $ Basic weighted average common shares outstanding Effect of potentially dilutive stock options, warrants and restricted stock awards Diluted weighted average common shares outstanding Earnings per common share attributable to Lannett Company, Inc.: Basic $ $ Diluted $ $ Six Months Ended (In thousands, except share and per share data) 2017 2016 Net income (loss) attributable to Lannett Company, Inc. $ $ ) Basic weighted average common shares outstanding Effect of potentially dilutive stock options, warrants and restricted stock awards — Diluted weighted average common shares outstanding Earnings (loss) per common share attributable to Lannett Company, Inc.: Basic $ $ ) Diluted $ $ ) The number of anti-dilutive shares that have been excluded in the computation of diluted earnings per share for the three months ended December 31, 2017 and 2016 were 3.0 million. The number of anti-dilutive shares that have been excluded in the computation of diluted earnings per share for the six months ended December 31, 2017 and 2016 were 3.0 million and 4.4 million, respectively. |
Warrant
Warrant | 6 Months Ended |
Dec. 31, 2017 | |
Warrant | |
Warrant | Note 16. Warrant In connection with the KUPI acquisition on November 25, 2015, Lannett issued to UCB Manufacturing a warrant to purchase up to a total of 2.5 million shares of Lannett’s common stock (the “Warrant”). The Warrant has a term of three years (expiring November 25, 2018) and an exercise price of $48.90 per share, subject to customary adjustments, including for stock splits, dividends and combinations. The Warrant also has a “weighted average” anti-dilution adjustment provision. The fair value included as part of the total consideration transferred to UCB at the acquisition date was $29.9 million. The fair value assigned to the Warrant was determined using the Black-Scholes valuation model. The Company concluded that the warrant was indexed to its own stock and therefore the Warrant has been classified as an equity instrument. |
Share-Based Compensation
Share-Based Compensation | 6 Months Ended |
Dec. 31, 2017 | |
Share-Based Compensation | |
Share-Based Compensation | Note 17. Share-Based Compensation At December 31, 2017, the Company had two share-based employee compensation plans (the 2011 Long-Term Incentive Plan “LTIP” and the 2014 “LTIP”). Together these plans authorized an aggregate total of 4.5 million shares to be issued. The plans have a total of 1.6 million shares available for future issuances. The Company issues share-based compensation awards with a vesting period ranging up to 3 years and a maximum contractual term of 10 years. The Company issues new shares of stock when stock options are exercised. As of December 31, 2017, there was $10.2 million of total unrecognized compensation cost related to non-vested share-based compensation awards. That cost is expected to be recognized over a weighted average period of 2.3 years. Stock Options The Company measures share-based compensation cost for options using the Black-Scholes option pricing model. The following table presents the weighted average assumptions used to estimate fair values of the stock options granted during the six months ended December 31, 2017 and 2016: Six Months Ended December 31, 2017 December 31, 2016 Risk-free interest rate % % Expected volatility % % Expected dividend yield — % — % Forfeiture rate % % Expected term (in years) 5.4 years 5.2 years Weighted average fair value $ $ Expected volatility is based on the historical volatility of the price of our common shares during the historical period equal to the expected term of the option. The Company uses historical information to estimate the expected term, which represents the period of time that options granted are expected to be outstanding. The risk-free rate for the period equal to the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The forfeiture rate assumption is the estimated annual rate at which unvested awards are expected to be forfeited during the vesting period. This assumption is based on our actual forfeiture rate on historical awards. Periodically, management will assess whether it is necessary to adjust the estimated rate to reflect changes in actual forfeitures or changes in expectations. Additionally, the expected dividend yield is equal to zero, as the Company has not historically issued and has no immediate plans to issue, a dividend. A stock option roll-forward as of December 31, 2017 and changes during the six months then ended, is presented below: (In thousands, except for weighted average price and life data) Awards Weighted- Aggregate Weighted Outstanding at June 30, 2017 $ $ Granted $ Exercised ) $ $ Forfeited, expired or repurchased ) $ Outstanding at December 31, 2017 $ $ Vested and expected to vest at December 31, 2017 $ $ Exercisable at December 31, 2017 $ $ Restricted Stock The Company measures restricted stock compensation costs based on the stock price at the grant date less an estimate for expected forfeitures. The annual forfeiture rate used to calculate compensation expense was 6.5% for the six months ended December 31, 2017 and 2016. A summary of restricted stock awards as of December 31, 2017 and changes during the six months then ended, is presented below: (In thousands, except for weighted average price and life data) Awards Weighted Aggregate Non-vested at June 30, 2017 $ Granted $ Vested ) $ $ Forfeited ) $ Non-vested at December 31, 2017 $ Performance-Based Shares On September 22, 2017, the Company approved and granted performance-based awards to certain key executives. The stock-settled awards will vest based on relative Total Shareholder Return (“TSR”) over a three-year period. The Company measures share-based compensation cost for TSR awards using a Monte-Carlo simulation model. The impact of the grant was not material to the consolidated financial statements during the six months ended December 31, 2017. Employee Stock Purchase Plan In February 2003, the Company’s stockholders approved an Employee Stock Purchase Plan (“ESPP”). Employees eligible to participate in the ESPP may purchase shares of the Company’s stock at 85% of the lower of the fair market value of the common stock on the first day of the calendar quarter or the last day of the calendar quarter. Under the ESPP, employees can authorize the Company to withhold up to 10% of their compensation during any quarterly offering period, subject to certain limitations. The ESPP was implemented on April 1, 2003 and is qualified under Section 423 of the Internal Revenue Code. The Board of Directors authorized an aggregate total of 1.1 million shares of the Company’s common stock for issuance under the ESPP. During the six months ended December 31, 2017 and 2016, 28 thousand shares and 27 thousand shares were issued under the ESPP, respectively. As of December 31, 2017, 571 thousand total cumulative shares have been issued under the ESPP. The following table presents the allocation of share-based compensation costs recognized in the Consolidated Statements of Operations by financial statement line item: Three Months Ended Six Months Ended December 31, December 31, (In thousands) 2017 2016 2017 2016 Selling, general and administrative expenses $ $ $ $ Research and development expenses Cost of sales Total $ $ $ $ Tax benefit at statutory rate $ $ $ $ |
Employee Benefit Plan
Employee Benefit Plan | 6 Months Ended |
Dec. 31, 2017 | |
Employee Benefit Plan | |
Employee Benefit Plan | Note 18. Employee Benefit Plan The Company has a 401k defined contribution plan (the “Plan”) covering substantially all employees. Pursuant to the Plan provisions, the Company is required to make matching contributions equal to 50% of each employee’s contribution, not to exceed 4% of the employee’s compensation for the Plan year. Contributions to the Plan during the three months ended December 31, 2017 and 2016 were $458 thousand and $492 thousand, respectively. Contributions to the Plan during the six months ended December 31, 2017 and 2016 were $1.0 million and $1.1 million, respectively. |
Income Taxes
Income Taxes | 6 Months Ended |
Dec. 31, 2017 | |
Income Taxes | |
Income Taxes | Note 19. Income Taxes The Company uses the liability method to account for income taxes. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. Deferred tax expense (benefit) is the result of changes in deferred tax assets and liabilities. The federal, state and local income tax expense for the three months ended December 31, 2017 and 2016 was $18.1 million and $3.5 million, respectively. The effective tax rates for the three months ended December 31, 2017 and 2016 were 56.4% and 30.2%, respectively. The federal, state and local income tax expense for the six months ended December 31, 2017 was $25.6 million compared to income tax benefit of $9.3 million for the six months ended December 31, 2016. The effective tax rates were 48.4% and 30.6%, respectively. The effective tax rates for the three and six months ended December 31, 2017 were higher compared to the same prior-year periods primarily due to 2017 Tax Reform which was signed into law on December 22, 2017. Among numerous provisions included in the new law was the reduction of the statutory corporate federal income tax rate from 35% to 21%. In the second quarter of Fiscal 2018, the Company applied the newly enacted corporate federal income tax rate of 21% resulting in an approximately $18.7 million revaluation of the Company’s net long term deferred tax assets which are expected to reverse in future periods. The increase in the effective tax rate as a result of the revaluation was partially offset by a lower blended federal statutory tax rate of approximately 28.0% as compared to 35.0% in the same prior-year period. This resulted in an approximately $2.3 million and $3.8 million income tax benefit for the three and six months ended December 31, 2017, respectively. Overall, the Company anticipates the decrease in the U.S. federal statutory rate resulting from the enactment of the 2017 Tax Reform will have a favorable impact on future U.S. tax expense and operating cash flows. The Company recorded the impact of 2017 Tax Reform in the three months ended December 31, 2017, inclusive of provisional amounts based on reasonable estimates. However, the final impact of 2017 Tax Reform may differ due to and among other things, changes in interpretations, assumptions made by the Company, the issuance of additional guidance, and actions the Company may take as a result of 2017 Tax Reform. Adjustments, if any, will be made in accordance with SAB 118. The Company may recognize the tax benefit from an uncertain tax position claimed on a tax return only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. As of December 31, 2017 and June 30, 2017, the Company has total unrecognized tax benefits of $2.0 million and $5.9 million, respectively. The decrease was the result of an expiration in the statute of limitations related to several state-related unrecognized tax benefits. As a result of the positions taken during the period, the Company has not recorded any interest and penalties for the period ended December 31, 2017 in the statement of operations and no cumulative interest and penalties have been recorded in the Company’s statement of financial position as of December 31, 2017 and June 30, 2017. The Company will recognize interest accrued on unrecognized tax benefits in interest expense and any related penalties in operating expenses. The Company files income tax returns in the United States federal jurisdiction and various states. The Company’s tax returns for Fiscal Year 2013 and prior generally are no longer subject to review as such years generally are closed. The Company’s Fiscal Year 2016 federal return is currently under examination by the Internal Revenue Service. The Company cannot reasonably predict the outcome of the examination at this time. |
Related Party Transactions
Related Party Transactions | 6 Months Ended |
Dec. 31, 2017 | |
Related Party Transactions | |
Related Party Transactions | Note 20. Related Party Transactions The Company had sales of $1.2 million and $1.1 million during the three months ended December 31, 2017 and 2016, respectively, to a generic distributor, Auburn Pharmaceutical Company (“Auburn”). Sales to Auburn for the six months ended December 31, 2017 and 2016 were $2.0 million for both periods. Jeffrey Farber, Chairman of the Board, is the owner of Auburn. Accounts receivable includes amounts due from Auburn of $1.0 million and $751 thousand at December 31, 2017 and June 30, 2017, respectively. The Company also had sales of $516 thousand and $262 thousand during the three months ended December 31, 2017 and 2016, respectively, to a generic distributor, KeySource. Sales to KeySource for the six months ended December 31, 2017 and 2016 were $983 thousand and $329 thousand, respectively. Albert Paonessa, a current board member, was appointed the CEO of KeySource in May 2017. Accounts receivable includes amounts due from KeySource of $456 thousand and $606 thousand as of December 31, 2017 and June 30, 2017, respectively. In connection with the termination of the employment of Arthur P. Bedrosian, the Company’s former Chief Executive Officer, effective as of December 31, 2017, the Company entered into a separation agreement pursuant to which he will receive certain benefits including, among others, 36 months base salary, a pro-rated Fiscal 2018 cash bonus as well as accelerated vesting of his outstanding equity awards. The total benefits resulted in an approximately $3.4 million charge to the Company’s consolidated statements of operations in the second quarter of Fiscal 2018. On January 20, 2018, the Company also entered into a consulting agreement with Mr. Bedrosian to work on several important projects, primarily involving existing and new partnering efforts to expand and diversify opportunities, including but not limited to spearheading the effort to transition and strengthen the Company’s existing contractual relationships with its key partners. |
Material Contracts with Supplie
Material Contracts with Suppliers | 6 Months Ended |
Dec. 31, 2017 | |
Material Contracts with Suppliers | |
Material Contracts with Suppliers | Note 21. Material Contracts with Suppliers Jerome Stevens Pharmaceuticals Distribution Agreement: The Company’s primary finished goods inventory supplier is JSP, in Bohemia, New York. Purchases of finished goods inventory from JSP accounted for approximately 39% of the Company’s inventory purchases in the three months ended December 31, 2017 and 2016. Purchases of finished goods inventory from JSP accounted for 36% and 38% of the Company’s inventory purchases in the six months ended December 31, 2017 and 2016, respectively. On August 19, 2013, the Company entered into an agreement with JSP to extend its initial contract to continue as the exclusive distributor in the United States of three JSP products: Butalbital, Aspirin, Caffeine with Codeine Phosphate Capsules USP; Digoxin Tablets USP; and Levothyroxine Sodium Tablets USP. The amendment to the original agreement extends the initial contract, which was due to expire on March 22, 2014, for five years through March 2019. In connection with the amendment, the Company issued a total of 1.5 million shares of the Company’s common stock to JSP and JSP’s designees. In accordance with its policy related to renewal and extension costs for recognized intangible assets, the Company recorded a $20.1 million expense in cost of sales, which represents the fair value of the shares on August 19, 2013. If the parties agree to a second five year extension from March 23, 2019 to March 23, 2024, the Company is required to issue to JSP or its designees an additional 1.5 million shares of the Company’s common stock. Both Lannett and JSP have the right to terminate the contract if one of the parties does not cure a material breach of the contract within thirty (30) days of notice from the non-breaching party. During the renewal term of the JSP Distribution Agreement, the Company is required to use commercially reasonable efforts to purchase minimum dollar quantities of JSP products. There is no guarantee that the Company will be able to meet the minimum purchase requirement for Fiscal 2018 and in the future. If the Company does not meet the minimum purchase requirements, JSP’s sole remedy is to terminate the JSP Distribution Agreement. |
Subsequent Events
Subsequent Events | 6 Months Ended |
Dec. 31, 2017 | |
Subsequent Events | |
Subsequent Events | Note 22. Subsequent Events In February 2018, the Company made a $25.0 million voluntary prepayment against its outstanding debt balance. |
Summary of Significant Accoun31
Summary of Significant Accounting Policies (Policies) | 6 Months Ended |
Dec. 31, 2017 | |
Summary of Significant Accounting Policies | |
Basis of Presentation | Basis of Presentation The Consolidated Financial Statements have been prepared in conformity with U.S. GAAP. |
Principles of consolidation | Principles of consolidation The Consolidated Financial Statements include the accounts of Lannett Company, Inc. and its wholly-owned subsidiaries, as well as Cody LCI Realty, LLC (“Realty”), a variable interest entity (“VIE”) in which the Company had a 50% ownership interest until November 30, 2016, when the Company acquired the remaining 50% interest. Noncontrolling interest in Realty was recorded net of tax as net income attributable to the noncontrolling interest. Additionally, all intercompany accounts and transactions have been eliminated. In December 2017, the Company legally dissolved Realty. |
Business Combinations | Business Combinations Acquired businesses are accounted for using the acquisition method of accounting, which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective estimated fair values. The fair values and useful lives assigned to each class of assets acquired and liabilities assumed are based on, among other factors, the expected future period of benefit of the asset, the various characteristics of the asset and projected future cash flows. Significant judgment is employed in determining the assumptions utilized as of the acquisition date and for each subsequent measurement period. Accordingly, changes in assumptions described above, could have a material impact on our consolidated results of operations. |
Reclassifications | Reclassifications Certain prior year amounts have been reclassified to conform to the current year financial statement presentation. |
Use of estimates | Use of estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions are required in the determination of revenue recognition and sales deductions for estimated chargebacks, rebates, returns and other adjustments including a provision for the Company’s liability under the Medicare Part D program. Additionally, significant estimates and assumptions are required when determining the fair value of long-lived assets, including goodwill and intangible assets, income taxes, contingencies and share-based compensation. Because of the inherent subjectivity and complexity involved in these estimates and assumptions, actual results could differ from those estimates. |
Foreign currency translation | Foreign currency translation The Consolidated Financial Statements are presented in U.S. Dollars, the reporting currency of the Company. The financial statements of the Company’s foreign subsidiary are maintained in local currency and translated into U.S. dollars at the end of each reporting period. Assets and liabilities are translated at period-end exchange rates, while revenues and expenses are translated at average exchange rates during the period. The adjustments resulting from the use of differing exchange rates are recorded as part of stockholders’ equity in accumulated other comprehensive income (loss). Gains and losses resulting from transactions denominated in foreign currencies are recognized in the Consolidated Statements of Operations under Other income (loss). Amounts recorded due to foreign currency fluctuations are immaterial to the Consolidated Financial Statements. |
Cash and cash equivalents | Cash and cash equivalents The Company considers all highly liquid investments with original maturities less than or equal to three months at the date of purchase to be cash and cash equivalents. Cash and cash equivalents are stated at cost, which approximates fair value, and consist of bank deposits and certificates of deposit that are readily convertible into cash. The Company maintains its cash deposits and cash equivalents at well-known, stable financial institutions. Such amounts frequently exceed insured limits. |
Investment securities | Investment securities The Company’s investment securities consist of publicly-traded equity securities which are classified as trading investments. Investment securities are recorded at fair value based on quoted market prices from broker or dealer quotations or transparent pricing sources at each reporting date. Realized and unrealized gains and losses are included in the Consolidated Statements of Operations under Other income (loss). |
Allowance for doubtful accounts | Allowance for doubtful accounts The Company continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses. The Company determines its allowance for doubtful accounts by considering a number of factors, including the length of time balances are past due, the Company’s previous loss history, the customer’s current ability to pay its obligations to the Company and the condition of the general economy and the industry as a whole. The Company writes off accounts receivable when they are determined to be uncollectible. |
Inventories | Inventories Inventories are stated at the lower of cost and net realizable value by the first-in, first-out method. Inventories are regularly reviewed and provisions for excess and obsolete inventory are recorded based primarily on current inventory levels and estimated sales forecasts. |
Property, Plant and Equipment | Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed on a straight-line basis over the assets’ estimated useful lives. |
Intangible Assets | Intangible Assets Definite-lived intangible assets are stated at cost less accumulated amortization. Amortization of definite-lived intangible assets is computed on a straight-line basis over the assets’ estimated useful lives, generally for periods ranging from 10 to 15 years. The Company continually evaluates the reasonableness of the useful lives of these assets. Indefinite-lived intangible assets are not amortized, but instead are tested at least annually for impairment. Costs to renew or extend the term of a recognized intangible asset are expensed as incurred. |
Valuation of Long-Lived Assets, including Intangible Assets | Valuation of Long-Lived Assets, including Intangible Assets The Company’s long-lived assets primarily consist of property, plant and equipment and definite and indefinite-lived intangible assets. Property, plant and equipment and definite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances (“triggering events”) indicate that the carrying amount of the asset may not be recoverable. If a triggering event is determined to have occurred, the asset’s carrying value is compared to the future undiscounted cash flows expected to be generated by the asset. If the carrying value exceeds the undiscounted cash flow of the asset, then impairment exists. Indefinite-lived intangible assets are tested for impairment at least annually during the fourth quarter of each fiscal year or more frequently if events or changes in circumstances indicate that the asset might be impaired. An impairment loss is measured as the excess of the asset’s carrying value over its fair value, which in most cases is calculated using a discounted cash flow model. Discounted cash flow models are highly reliant on various assumptions which are considered Level 3 inputs, including estimates of future cash flows (including long-term growth rates), discount rates and the probability of achieving the estimated cash flows. |
In-Process Research and Development | In-Process Research and Development Amounts allocated to in-process research and development (“IPR&D”) in connection with a business combination are recorded at fair value and are considered indefinite-lived intangible assets subject to impairment testing in accordance with the Company’s impairment testing policy for indefinite-lived intangible assets. As products in development are approved for sale, amounts will be allocated to product rights and will be amortized over their estimated useful lives. Definite-lived intangible assets are amortized over the expected lives of the related assets. The judgments made in determining the estimated fair value of in-process research and development, as well as asset lives, can materially impact our results of operations. The Company’s fair value assessments are highly reliant on various assumptions which are considered Level 3 inputs, including estimates of future cash flows (including long-term growth rates), discount rates and the probability of achieving the estimated cash flows. |
Goodwill | Goodwill Goodwill, which represents the excess of purchase price over the fair value of net assets acquired, is carried at cost. Goodwill is tested for impairment on an annual basis on the first day of the fourth quarter of each fiscal year or more frequently if events or changes in circumstances indicate that the asset might be impaired. The Company first performs a qualitative assessment to determine if the quantitative impairment test is required. If changes in circumstances indicate an asset may be impaired, the Company performs the quantitative impairment test. The Company first determines the fair value of our reporting unit (generic pharmaceuticals). If the net book value of our reporting unit exceeds its fair value, the difference will be recorded as a goodwill impairment, not to exceed the carrying amount of goodwill. The Company’s fair value assessments are highly reliant on various assumptions which are considered Level 3 inputs, including estimates of future cash flows (including long-term growth rates), discount rates and the probability of achieving the estimated cash flows. The judgments made in determining the estimated fair value of goodwill can materially impact our results of operations. |
Segment Information | Segment Information The Company operates in one reportable segment, generic pharmaceuticals. As such, the Company aggregates its financial information for all products. The following table identifies the Company’s net sales by medical indication for the three and six months ended December 31, 2017 and 2016: (In thousands) For the Three Months Ended For the Six Months Ended Medical Indication 2017 2016 2017 2016 Antibiotic $ $ $ $ Anti-Psychosis Cardiovascular Central Nervous System Gallstone Gastrointestinal Glaucoma Migraine Muscle Relaxant Pain Management Respiratory Thyroid Deficiency Urinary Other Contract manufacturing revenue Net sales $ $ $ $ |
Customer, Supplier and Product Concentration | Customer, Supplier and Product Concentration The following table presents the percentage of total net sales, for the three and six months ended December 31, 2017 and 2016, for certain of the Company’s products, defined as products containing the same active ingredient or combination of ingredients, which accounted for at least 10% of net sales in any of those periods: For the Three Months Ended For the Six Months Ended 2017 2016 2017 2016 Product 1 % % % % Product 2 % % % % The following table presents the percentage of total net sales, for the three and six months ended December 31, 2017 and 2016, for certain of the Company’s customers which accounted for at least 10% of net sales in any of those periods: For the Three Months Ended For the Six Months Ended 2017 2016 2017 2016 Customer A % % % % Customer B % % % % Customer C % % % % The Company’s primary finished goods inventory supplier is Jerome Stevens Pharmaceuticals, Inc. (“JSP”), in Bohemia, New York. Purchases of finished goods inventory from JSP accounted for approximately 39% of the Company’s inventory purchases during the three months ended December 31, 2017 and 2016. Purchases of finished goods inventory from JSP accounted for approximately 36% and 38% of the Company’s inventory purchases during the six months ended December 31, 2017 and 2016, respectively. See Note 21 “Material Contracts with Suppliers” for more information. |
Revenue Recognition and Net Sales Adjustments | Revenue Recognition The Company recognizes revenue when title and risk of loss have transferred to the customer and provisions for rebates, promotional adjustments, price adjustments, returns, chargebacks and other potential adjustments are reasonably determinable and collection is reasonably assured. The Company also considers all other relevant criteria specified in Securities and Exchange Commission Staff Accounting Bulletin No. 104, Topic No. 13, “ Revenue Recognition ”, in determining when to recognize revenue. Net Sales Adjustments When revenue is recognized a simultaneous adjustment to gross sales is made for estimated chargebacks, rebates, returns, promotional adjustments and other potential adjustments. These provisions are primarily estimated based on historical experience, future expectations, contractual arrangements with wholesalers and indirect customers and other factors known to management at the time of accrual. Accruals for provisions are presented in the Consolidated Financial Statements as a reduction to gross sales with the corresponding reserve presented as a reduction of accounts receivable or included as rebates payable, depending on the nature of the reserve. The reserves, presented as a reduction of accounts receivable, totaled $155.5 million and $175.8 million at December 31, 2017 and June 30, 2017, respectively. Rebates payable at December 31, 2017 and June 30, 2017 totaled $48.4 million and $44.6 million, respectively, for certain rebate programs, primarily related to Medicare Part D and Medicaid and certain sales allowances and other adjustments paid to indirect customers. |
Cost of Sales, including Amortization of Intangibles | Cost of Sales, including Amortization of Intangibles Cost of sales includes all costs related to bringing products to their final selling destination, which includes direct and indirect costs, such as direct material, labor and overhead expenses. Additionally, cost of sales includes product royalties, depreciation, amortization and costs to renew or extend recognized intangible assets, freight charges and other shipping and handling expenses. |
Research and Development Expenses | Research and Development Expenses Research and development costs are expensed as incurred, including all production costs until a drug candidate is approved by the Food and Drug Administration (“FDA”). Research and development expenses include costs associated with internal projects as well as costs associated with third-party research and development contracts. |
Contingencies | Contingencies Loss contingencies, including litigation-related contingencies, are included in the Consolidated Statements of Operations when the Company concludes that a loss is both probable and reasonably estimable. Legal fees related to litigation-related matters are expensed as incurred and included in the Consolidated Statements of Operations under the Selling, general and administrative expense line item. |
Restructuring Costs | Restructuring Costs The Company records charges associated with approved restructuring plans to remove duplicative headcount and infrastructure associated with business acquisitions or to simplify business processes. Restructuring charges can include severance costs to eliminate a specified number of employees, infrastructure charges to vacate facilities and consolidate operations and contract cancellation costs. The Company records restructuring charges based on estimated employee terminations, site closure and consolidation plans. The Company accrues severance and other employee separation costs under these actions when it is probable that a liability exists and the amount is reasonably estimable. |
Share-Based Compensation | Share-Based Compensation Share-based compensation costs are recognized over the vesting period, using a straight-line method, based on the fair value of the instrument on the date of grant less an estimate for expected forfeitures. The Company uses the Black-Scholes valuation model to determine the fair value of stock options, the stock price on the grant date to value restricted stock and the Monte-Carlo simulation model to determine the fair value of performance-based shares. The Black-Scholes valuation and Monte-Carlo simulation models include various assumptions, including the expected volatility, the expected life of the award, dividend yield and the risk-free interest rate as well as performance assumptions of peer companies. These assumptions involve inherent uncertainties based on market conditions which are generally outside the Company’s control. Changes in these assumptions could have a material impact on share-based compensation costs recognized in the financial statements. |
Self-Insurance | Self-Insurance Effective January 1, 2017, the Company self-insures for certain employee medical and prescription benefits. The Company also maintains stop loss coverage with third party insurers to limit its total liability exposure. The liability for self-insured risks is primarily calculated using independent third party actuarial valuations which take into account actual claims, claims growth and claims incurred but not yet reported. Actual experience, including claim frequency and severity as well as health-care inflation, could result in different liabilities than the amounts currently recorded. The liability for self-insured risks under this plan as of December 31, 2017 totaled $3.2 million and was not material to the financial position of the Company as of June 30, 2017. |
Income Taxes | Income Taxes The Company uses the liability method to account for income taxes as prescribed by Accounting Standards Codification (“ASC”) 740, Income Taxes . Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. Deferred tax expense (benefit) is the result of changes in deferred tax assets and liabilities. Deferred income tax assets and liabilities are adjusted to recognize the effects of changes in tax laws or enacted tax rates in the period during which they are signed into law. The factors used to assess the likelihood of realization are the Company’s forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. Under ASC 740, Income Taxes , a valuation allowance is required when it is more likely than not that all or some portion of the deferred tax assets will not be realized through generating sufficient future taxable income. Failure to achieve forecasted taxable income in applicable tax jurisdictions could affect the ultimate realization of deferred tax assets and could result in an increase in the Company’s effective tax rate on future earnings. The Company may recognize the tax benefit from an uncertain tax position claimed on a tax return only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The authoritative accounting standards also provide guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. On December 22, 2017, President Trump signed the Tax Cut and Jobs Act legislation (“2017 Tax Reform”) into law, which included a broad range of tax reform provisions affecting businesses, including corporate tax rates, business deductions and international tax provisions. Many of these provisions significantly differ from current U.S. tax law, resulting in pervasive financial reporting implications. As a result of the new law, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of 2017 Tax Reform. SAB 118 requires registrants to report the tax effects of 2017 Tax Reform, inclusive of provisional amounts for which the accounting is incomplete but a reasonable estimate can be determined. SAB 118 also allows for a measurement period of up to one year in cases where a registrant reports a provisional amount or is unable to reasonably estimate the impact of 2017 Tax Reform. |
Earnings (Loss) Per Common Share | Earnings (Loss) Per Common Share Basic earnings (loss) per common share attributable to the Company is computed by dividing net income attributable to Lannett Company, Inc. common stockholders by the weighted average number of shares outstanding during the period. Diluted earnings (loss) per common share attributable to the Company is computed by dividing net income attributable to Lannett Company, Inc. common stockholders by the weighted average number of shares outstanding during the period including additional shares that would have been outstanding related to potentially dilutive securities. These potentially dilutive securities consist of stock options, unvested restricted stock, performance-based shares and an outstanding warrant. Anti-dilutive securities are excluded from the calculation. Dilutive shares are also excluded in the calculation in periods of net loss because the effect of including such securities would be anti-dilutive. |
Comprehensive Income (Loss) | Comprehensive Income (Loss) Comprehensive income (loss) includes all changes in equity during a period except those that resulted from investments by or distributions to the Company’s stockholders. Other comprehensive income (loss) refers to gains and losses that are included in comprehensive income (loss), but excluded from net income as these amounts are recorded directly as an adjustment to stockholders’ equity. |
Recent Accounting Pronouncements | Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers . The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The authoritative guidance is effective for annual reporting periods beginning after December 15, 2017. Based on a preliminary review of the contracts representing a substantial portion of our revenues, the Company does not expect the guidance to have a material impact on our disclosures or the timing and recognition of our revenues. The Company is in the process of establishing and documenting key accounting policies, conducting training and education throughout the organization, and evaluating impacts on business processes, information technology, and controls resulting from the adoption of this new standard. The Company also continues to accumulate the necessary information to determine the cumulative effects of the accounting change to be recorded upon adoption of the guidance. The Company intends to use the modified retrospective approach upon implementation. In November 2015, the FASB issued ASU 2015-17, Income Taxes — Balance Sheet Classification of Deferred Taxes. ASU 2015-17 requires all deferred tax assets and liabilities to be classified as noncurrent on the balance sheet. The guidance may be applied either prospectively or retrospectively. The guidance became effective for the Company in the first quarter of Fiscal 2018. Accordingly, the Company currently presents all deferred tax assets and liabilities as noncurrent on the balance sheet. All prior period amounts have also been reclassified to conform with the current year presentation. In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 requires an entity to recognize right-of-use assets and liabilities on its balance sheet for all leases with terms longer than 12 months. Lessees and lessors are required to disclose quantitative and qualitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period and requires a modified retrospective application, with early adoption permitted. The Company is currently in the process of assessing the impact this guidance will have on the consolidated financial statements. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows — Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 addresses how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2017. The Company is currently in the process of assessing the impact this guidance will have on the consolidated financial statements. |
Summary of Significant Accoun32
Summary of Significant Accounting Policies (Tables) | 6 Months Ended |
Dec. 31, 2017 | |
Summary of Significant Accounting Policies | |
Schedule of the Company's net sales by medical indication | (In thousands) For the Three Months Ended For the Six Months Ended Medical Indication 2017 2016 2017 2016 Antibiotic $ $ $ $ Anti-Psychosis Cardiovascular Central Nervous System Gallstone Gastrointestinal Glaucoma Migraine Muscle Relaxant Pain Management Respiratory Thyroid Deficiency Urinary Other Contract manufacturing revenue Net sales $ $ $ $ |
Summary of products which accounted for at least 10% of total net sales | For the Three Months Ended For the Six Months Ended 2017 2016 2017 2016 Product 1 % % % % Product 2 % % % % |
Summary of customers which accounted for at least 10% of total net sales | For the Three Months Ended For the Six Months Ended 2017 2016 2017 2016 Customer A % % % % Customer B % % % % Customer C % % % % |
Restructuring Charges (Tables)
Restructuring Charges (Tables) | 6 Months Ended |
Dec. 31, 2017 | |
Restructuring Charges | |
Schedule of restructuring charges associated with restructuring program | For the Three Months Ended For the Six Months Ended (In thousands) 2017 2016 2017 2016 Employee separation costs (credits) $ $ $ ) $ Facility closure costs Total $ $ $ $ |
Schedule of reconciliation of changes in restructuring liabilities associated with restructuring program | (In thousands) Employee Contract Facility Closure Total Balance at June 30, 2017 $ $ — $ — $ Restructuring Charges (Credits) ) — Payments ) — ) ) Balance at December 31, 2017 $ $ — $ — $ |
Accounts Receivable (Tables)
Accounts Receivable (Tables) | 6 Months Ended |
Dec. 31, 2017 | |
Accounts Receivable | |
Schedule of accounts receivable | (In thousands) December 31, June 30, Gross accounts receivable $ $ Less Chargebacks reserve ) ) Less Rebates reserve ) ) Less Returns reserve ) ) Less Other deductions ) ) Less Allowance for doubtful accounts ) ) Accounts receivable, net $ $ |
Inventories (Tables)
Inventories (Tables) | 6 Months Ended |
Dec. 31, 2017 | |
Inventories | |
Schedule of Inventories | (In thousands) December 31, June 30, Raw materials $ $ Work-in-process Finished goods Total $ $ |
Property, Plant and Equipment (
Property, Plant and Equipment (Tables) | 6 Months Ended |
Dec. 31, 2017 | |
Property, Plant and Equipment | |
Schedule of property, plant and equipment | (In thousands) Useful Lives December 31, June 30, Land — $ $ Building and improvements 10 - 39 years Machinery and equipment 5 - 10 years Furniture and fixtures 5 - 7 years Less: accumulated depreciation ) ) Construction in progress Property, plant and equipment, net $ $ |
Fair Value Measurements (Tables
Fair Value Measurements (Tables) | 6 Months Ended |
Dec. 31, 2017 | |
Fair Value Measurements | |
Schedule of financial assets and liabilities measured at fair value on recurring basis | December 31, 2017 (In thousands) Level 1 Level 2 Level 3 Total Assets Investment securities $ $ — $ — $ Total Assets $ $ — $ — $ June 30, 2017 (In thousands) Level 1 Level 2 Level 3 Total Assets Investment securities $ $ — $ — $ Total Assets $ $ — $ — $ |
Intangible Assets (Tables)
Intangible Assets (Tables) | 6 Months Ended |
Dec. 31, 2017 | |
Intangible Assets | |
Summary of intangible assets, net | Weighted Gross Carrying Amount Accumulated Amortization Intangible Assets, Net (In thousands) Avg. Life December 31, June 30, December 31, June 30, December 31, June 30, Definite-lived: Cody Labs import license 15 $ $ $ ) $ ) $ $ KUPI product rights 15 ) ) KUPI trade name 2 ) ) — KUPI other intangible assets 15 ) ) Silarx product rights 15 ) ) Other product rights 4 ) ) Total definite-lived $ $ $ ) $ ) $ $ Indefinite-lived: KUPI in-process research and development — $ $ $ — $ — $ $ Silarx in-process research and development — — — Other product rights — — — Total indefinite-lived — — Total intangible assets, net $ $ $ ) $ ) $ $ |
Summary of future annual amortization expense | (In thousands) Annual Amortization Expense 2018 $ 2019 2020 2021 2022 Thereafter $ |
Long-Term Debt (Tables)
Long-Term Debt (Tables) | 6 Months Ended |
Dec. 31, 2017 | |
Long-Term Debt | |
Summary of long-term debt, net | December 31, June 30, (In thousands) 2017 2017 Term Loan A due 2020 $ $ Unamortized discount and other debt issuance costs ) ) Term Loan A, net Term Loan B due 2022 Unamortized discount and other debt issuance costs ) ) Term Loan B, net Revolving Credit Facility due 2020 — — Other — Total debt, net Less short-term borrowings and current portion of long-term debt ) ) Total long-term debt, net $ $ |
Summary of long-term debt amounts due | Amounts Payable (In thousands) to Institutions 2018 $ 2019 2020 2021 2022 Total $ |
Commitments (Tables)
Commitments (Tables) | 6 Months Ended |
Dec. 31, 2017 | |
Commitments | |
Schedule of future minimum lease payments under noncancelable operating leases | (In thousands) Amounts Due Remainder of 2018 $ 2019 2020 2021 2022 Thereafter Total $ |
Accumulated Other Comprehensi41
Accumulated Other Comprehensive Loss (Tables) | 6 Months Ended |
Dec. 31, 2017 | |
Accumulated Other Comprehensive Loss | |
Schedule of Accumulated Other Comprehensive Loss | (In thousands) December 31, December 31, Foreign Currency Translation Beginning Balance, June 30 $ ) $ ) Net gain (loss) on foreign currency translation (net of tax of $0 and $0) ) Reclassifications to net income (net of tax of $0 and $0) — — Other comprehensive income (loss), net of tax ) Ending Balance, December 31 ) ) Total Accumulated Other Comprehensive Loss $ ) $ ) |
Earnings (Loss) Per Common Sh42
Earnings (Loss) Per Common Share (Tables) | 6 Months Ended |
Dec. 31, 2017 | |
Earnings (Loss) Per Common Share | |
Summary of reconciliation of the Company's basic and diluted earnings per common share | Three Months Ended (In thousands, except share and per share data) 2017 2016 Net income attributable to Lannett Company, Inc. $ $ Basic weighted average common shares outstanding Effect of potentially dilutive stock options, warrants and restricted stock awards Diluted weighted average common shares outstanding Earnings per common share attributable to Lannett Company, Inc.: Basic $ $ Diluted $ $ Six Months Ended (In thousands, except share and per share data) 2017 2016 Net income (loss) attributable to Lannett Company, Inc. $ $ ) Basic weighted average common shares outstanding Effect of potentially dilutive stock options, warrants and restricted stock awards — Diluted weighted average common shares outstanding Earnings (loss) per common share attributable to Lannett Company, Inc.: Basic $ $ ) Diluted $ $ ) |
Share-Based Compensation (Table
Share-Based Compensation (Tables) | 6 Months Ended |
Dec. 31, 2017 | |
Share-Based Compensation | |
Schedule of weighted average assumptions used to estimate fair values of the stock options granted and the estimated annual forfeiture rates used to recognize the associated compensation expense and the weighted average fair value of the options granted | Six Months Ended December 31, 2017 December 31, 2016 Risk-free interest rate % % Expected volatility % % Expected dividend yield — % — % Forfeiture rate % % Expected term (in years) 5.4 years 5.2 years Weighted average fair value $ $ |
Summary of stock option award activity | (In thousands, except for weighted average price and life data) Awards Weighted- Aggregate Weighted Outstanding at June 30, 2017 $ $ Granted $ Exercised ) $ $ Forfeited, expired or repurchased ) $ Outstanding at December 31, 2017 $ $ Vested and expected to vest at December 31, 2017 $ $ Exercisable at December 31, 2017 $ $ |
Summary of nonvested restricted stock awards | (In thousands, except for weighted average price and life data) Awards Weighted Aggregate Non-vested at June 30, 2017 $ Granted $ Vested ) $ $ Forfeited ) $ Non-vested at December 31, 2017 $ |
Schedule of allocation of share-based compensation costs recognized in the Consolidated Statements of Operations by financial statement line item | Three Months Ended Six Months Ended December 31, December 31, (In thousands) 2017 2016 2017 2016 Selling, general and administrative expenses $ $ $ $ Research and development expenses Cost of sales Total $ $ $ $ Tax benefit at statutory rate $ $ $ $ |
Summary of Significant Accoun44
Summary of Significant Accounting Policies - Consolidation (Details) - Realty | Nov. 30, 2016 | Nov. 30, 2016 |
Principles of consolidation | ||
Ownership interest (in percent) | 50.00% | |
Additional ownership interest acquired (in percent) | 50.00% |
Summary of Significant Accoun45
Summary of Significant Accounting Policies - Intangibles (Details) | 6 Months Ended |
Dec. 31, 2017 | |
Minimum | |
Finite-Lived Intangible Assets | |
Estimated useful lives | 10 years |
Maximum | |
Finite-Lived Intangible Assets | |
Estimated useful lives | 15 years |
Summary of Significant Accoun46
Summary of Significant Accounting Policies - Segment Information (Details) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Dec. 31, 2017USD ($) | Dec. 31, 2016USD ($) | Dec. 31, 2017USD ($)segment | Dec. 31, 2016USD ($) | |
Medical Indication Information | ||||
Contract manufacturing revenue | $ 6,593 | $ 8,024 | $ 10,185 | $ 13,088 |
Net sales | 184,305 | 170,944 | $ 339,266 | 332,503 |
Segment information | ||||
Number of Reportable Segments | segment | 1 | |||
Antibiotic | ||||
Medical Indication Information | ||||
Net sales | 3,552 | 4,792 | $ 6,900 | 8,572 |
Anti-Psychosis | ||||
Medical Indication Information | ||||
Net sales | 22,799 | 15,365 | 37,791 | 32,685 |
Cardiovascular | ||||
Medical Indication Information | ||||
Net sales | 10,135 | 11,975 | 21,441 | 24,669 |
Central Nervous System | ||||
Medical Indication Information | ||||
Net sales | 6,925 | 10,555 | 15,742 | 20,904 |
Gallstone | ||||
Medical Indication Information | ||||
Net sales | 5,282 | 13,425 | 11,846 | 26,308 |
Gastrointestinal | ||||
Medical Indication Information | ||||
Net sales | 15,055 | 18,977 | 29,608 | 37,029 |
Glaucoma | ||||
Medical Indication Information | ||||
Net sales | 2,164 | 5,311 | 4,832 | 11,095 |
Migraine | ||||
Medical Indication Information | ||||
Net sales | 15,484 | 7,863 | 30,499 | 15,023 |
Muscle Relaxant | ||||
Medical Indication Information | ||||
Net sales | 3,219 | 3,004 | 7,010 | 6,536 |
Pain Management | ||||
Medical Indication Information | ||||
Net sales | 6,128 | 7,439 | 11,889 | 14,047 |
Respiratory | ||||
Medical Indication Information | ||||
Net sales | 2,230 | 2,957 | 3,876 | 5,170 |
Thyroid Deficiency | ||||
Medical Indication Information | ||||
Net sales | 68,794 | 45,431 | 116,008 | 85,269 |
Urinary | ||||
Medical Indication Information | ||||
Net sales | 2,840 | 4,693 | 5,837 | 9,794 |
Other | ||||
Medical Indication Information | ||||
Net sales | $ 13,105 | $ 11,133 | $ 25,802 | $ 22,314 |
Summary of Significant Accoun47
Summary of Significant Accounting Policies - Customer, Supplier and Product Concentration (Details) | 3 Months Ended | 6 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2017 | Dec. 31, 2016 | |
Net sales | Products | Product 1 | ||||
Concentration risk | ||||
Concentration risk (as a percent) | 37.00% | 27.00% | 34.00% | 26.00% |
Net sales | Products | Product 2 | ||||
Concentration risk | ||||
Concentration risk (as a percent) | 12.00% | 8.00% | 10.00% | 9.00% |
Net sales | Customers | Customer A | ||||
Concentration risk | ||||
Concentration risk (as a percent) | 22.00% | 28.00% | 25.00% | 28.00% |
Net sales | Customers | Customer B | ||||
Concentration risk | ||||
Concentration risk (as a percent) | 19.00% | 20.00% | 20.00% | 20.00% |
Net sales | Customers | Customer C | ||||
Concentration risk | ||||
Concentration risk (as a percent) | 13.00% | 4.00% | 8.00% | 4.00% |
Inventory purchases | Suppliers | JSP | ||||
Concentration risk | ||||
Concentration risk (as a percent) | 39.00% | 39.00% | 36.00% | 38.00% |
Summary of Significant Accoun48
Summary of Significant Accounting Policies - Net Sales Adjustments (Details) - USD ($) $ in Thousands | Dec. 31, 2017 | Jun. 30, 2017 |
Summary of Significant Accounting Policies | ||
Reserves, net of accounts receivable | $ 155,500 | $ 175,800 |
Rebates payable | $ 48,379 | $ 44,593 |
Summary of Significant Accoun49
Summary of Significant Accounting Policies - Self-Insurance (Details) $ in Millions | Dec. 31, 2017USD ($) |
Summary of Significant Accounting Policies | |
Self Insurance Reserve | $ 3.2 |
Restructuring Charges (Details)
Restructuring Charges (Details) - USD ($) $ in Thousands | Feb. 01, 2016 | Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2017 | Dec. 31, 2016 |
Restructuring Charges | |||||
Estimated restructuring charges | $ 20,000 | ||||
Restructuring expenses | $ 1,035 | $ 1,712 | $ 1,562 | $ 3,764 | |
Employee separation costs (credits) | |||||
Restructuring Charges | |||||
Estimated restructuring charges | 11,000 | ||||
Restructuring expenses | 210 | 1,004 | (380) | 2,161 | |
Contract termination costs | |||||
Restructuring Charges | |||||
Estimated restructuring charges | 1,000 | ||||
Facility closure costs | |||||
Restructuring Charges | |||||
Estimated restructuring charges | $ 8,000 | ||||
Restructuring expenses | $ 825 | $ 708 | $ 1,942 | $ 1,603 |
Restructuring Charges - Changes
Restructuring Charges - Changes in restructuring liabilities - (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2017 | Dec. 31, 2016 | |
Reconciliation of the changes in restructuring liabilities | ||||
Beginning balance for the period | $ 5,431 | |||
Restructuring Charges (Credits) | $ 1,035 | $ 1,712 | 1,562 | $ 3,764 |
Payments | (2,412) | |||
Ending balance for the period | 4,581 | 4,581 | ||
Employee separation costs (credits) | ||||
Reconciliation of the changes in restructuring liabilities | ||||
Beginning balance for the period | 5,431 | |||
Restructuring Charges (Credits) | 210 | 1,004 | (380) | 2,161 |
Payments | (470) | |||
Ending balance for the period | 4,581 | 4,581 | ||
Facility closure costs | ||||
Reconciliation of the changes in restructuring liabilities | ||||
Restructuring Charges (Credits) | $ 825 | $ 708 | 1,942 | $ 1,603 |
Payments | $ (1,942) |
Accounts Receivable (Details)
Accounts Receivable (Details) - USD ($) $ in Thousands | Dec. 31, 2017 | Jun. 30, 2017 |
Accounts receivable | ||
Gross accounts receivable | $ 414,584 | $ 380,653 |
Less: reserve | (155,500) | (175,800) |
Less: Allowance for doubtful accounts | (2,356) | (796) |
Accounts receivable, net | 256,728 | 204,066 |
Chargebacks | ||
Accounts receivable | ||
Less: reserve | (54,460) | (79,537) |
Rebates | ||
Accounts receivable | ||
Less: reserve | (38,239) | (43,023) |
Returns | ||
Accounts receivable | ||
Less: reserve | (44,795) | (42,135) |
Other | ||
Accounts receivable | ||
Less: reserve | $ (18,006) | $ (11,096) |
Accounts Receivable - Provision
Accounts Receivable - Provisions (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2017 | Dec. 31, 2016 | |
Chargebacks | ||||
Accounts receivable | ||||
Provisions | $ 220.2 | $ 217.7 | $ 474.9 | $ 416.2 |
Rebates | ||||
Accounts receivable | ||||
Provisions | 77.6 | 73.5 | 156.1 | 143 |
Returns | ||||
Accounts receivable | ||||
Provisions | 4.1 | 7.9 | 14.5 | 14.7 |
Other | ||||
Accounts receivable | ||||
Provisions | $ 16.3 | $ 13.9 | $ 28.6 | $ 29.3 |
Inventories (Details)
Inventories (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | |||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2017 | Dec. 31, 2016 | Jun. 30, 2017 | |
Inventories: | |||||
Raw materials | $ 64,057 | $ 64,057 | $ 57,442 | ||
Work-in-process | 20,285 | 20,285 | 15,676 | ||
Finished goods | 51,249 | 51,249 | 49,486 | ||
Net inventory | 135,591 | 135,591 | 122,604 | ||
Excess and Obsolete | |||||
Inventories: | |||||
Inventory adjustments | (5,000) | (5,000) | $ (4,500) | ||
Provision for inventories | $ 2,200 | $ 2,100 | $ 4,400 | $ 5,400 |
Property, Plant and Equipment55
Property, Plant and Equipment (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | |||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2017 | Dec. 31, 2016 | Jun. 30, 2017 | |
Property, Plant and Equipment | |||||
Less: accumulated depreciation | $ (82,016) | $ (82,016) | $ (71,461) | ||
Property, plant and equipment, net before construction in progress | 178,897 | 178,897 | 188,499 | ||
Property, plant and equipment, net | 258,206 | 258,206 | 243,148 | ||
Depreciation expense | 5,400 | $ 5,500 | 11,100 | $ 10,600 | |
Held in foreign countries | |||||
Property, Plant and Equipment | |||||
Property, plant and equipment, net | 1,000 | 1,000 | 1,000 | ||
Land | |||||
Property, Plant and Equipment | |||||
Property, plant and equipment, gross | 6,191 | 6,191 | 6,191 | ||
Building and improvements | |||||
Property, Plant and Equipment | |||||
Property, plant and equipment, gross | 108,740 | 108,740 | 108,730 | ||
Machinery and equipment | |||||
Property, Plant and Equipment | |||||
Property, plant and equipment, gross | 142,040 | 142,040 | 142,086 | ||
Furniture and fixtures | |||||
Property, Plant and Equipment | |||||
Property, plant and equipment, gross | 3,942 | 3,942 | 2,953 | ||
Construction in progress | |||||
Property, Plant and Equipment | |||||
Property, plant and equipment, net | $ 79,309 | $ 79,309 | $ 54,649 |
Property, Plant and Equipment -
Property, Plant and Equipment - Useful Lives (Details) | 6 Months Ended |
Dec. 31, 2017 | |
Building and improvements | Minimum | |
Property, Plant and Equipment | |
Useful Lives | 10 years |
Building and improvements | Maximum | |
Property, Plant and Equipment | |
Useful Lives | 39 years |
Machinery and equipment | Minimum | |
Property, Plant and Equipment | |
Useful Lives | 5 years |
Machinery and equipment | Maximum | |
Property, Plant and Equipment | |
Useful Lives | 10 years |
Furniture and fixtures | Minimum | |
Property, Plant and Equipment | |
Useful Lives | 5 years |
Furniture and fixtures | Maximum | |
Property, Plant and Equipment | |
Useful Lives | 7 years |
Fair Value Measurements (Detail
Fair Value Measurements (Details) - USD ($) $ in Thousands | Dec. 31, 2017 | Jun. 30, 2017 |
Assets | ||
Total Assets | $ 27,842 | $ 27,091 |
Investment securities | ||
Assets | ||
Total Assets | 27,842 | 27,091 |
Level 1 | ||
Assets | ||
Total Assets | 27,842 | 27,091 |
Level 1 | Investment securities | ||
Assets | ||
Total Assets | $ 27,842 | $ 27,091 |
Investment Securities (Details)
Investment Securities (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2017 | Dec. 31, 2016 | |
Investment Securities | ||||
Net gain on investment securities | $ 2,000 | $ 888 | $ 2,834 | $ 1,697 |
Unrealized gain investment securities | $ 1,200 | $ 1,100 | $ 557 |
Intangible Assets - Components
Intangible Assets - Components (Details) - USD ($) $ in Thousands | 6 Months Ended | |
Dec. 31, 2017 | Jun. 30, 2017 | |
Intangible Assets | ||
Gross Carrying Amount, Definite-lived | $ 469,193 | $ 467,155 |
Accumulated Amortization | (66,003) | (49,743) |
Definite-lived Intangible Assets, Net | 403,190 | 417,412 |
Indefinite-lived assets, net | 36,449 | 36,449 |
Total intangible assets - Gross Carrying Amount, | 505,642 | 503,604 |
Total intangible assets, Net | 439,639 | 453,861 |
Other product rights | ||
Intangible Assets | ||
Indefinite-lived assets, net | 449 | 449 |
In-process research and development | KUPI | ||
Intangible Assets | ||
Indefinite-lived assets, net | 18,000 | 18,000 |
In-process research and development | Silarx | ||
Intangible Assets | ||
Indefinite-lived assets, net | 18,000 | 18,000 |
Cody Labs import license | ||
Intangible Assets | ||
Gross Carrying Amount, Definite-lived | 582 | 582 |
Accumulated Amortization | (366) | (347) |
Definite-lived Intangible Assets, Net | $ 216 | 235 |
Weighted Avg. Life (Yrs.) | 15 years | |
Product rights | ||
Intangible Assets | ||
Gross Carrying Amount, Definite-lived | $ 2,691 | 653 |
Accumulated Amortization | (580) | (355) |
Definite-lived Intangible Assets, Net | $ 2,111 | 298 |
Weighted Avg. Life (Yrs.) | 4 years | |
Product rights | KUPI | ||
Intangible Assets | ||
Gross Carrying Amount, Definite-lived | $ 434,000 | 434,000 |
Accumulated Amortization | (57,753) | (43,286) |
Definite-lived Intangible Assets, Net | $ 376,247 | 390,714 |
Weighted Avg. Life (Yrs.) | 15 years | |
Product rights | Silarx | ||
Intangible Assets | ||
Gross Carrying Amount, Definite-lived | $ 10,000 | 10,000 |
Accumulated Amortization | (1,722) | (1,389) |
Definite-lived Intangible Assets, Net | $ 8,278 | 8,611 |
Weighted Avg. Life (Yrs.) | 15 years | |
Trade name | KUPI | ||
Intangible Assets | ||
Gross Carrying Amount, Definite-lived | $ 2,920 | 2,920 |
Accumulated Amortization | $ (2,920) | (2,338) |
Definite-lived Intangible Assets, Net | 582 | |
Weighted Avg. Life (Yrs.) | 2 years | |
Other Intangible Assets | KUPI | ||
Intangible Assets | ||
Gross Carrying Amount, Definite-lived | $ 19,000 | 19,000 |
Accumulated Amortization | (2,662) | (2,028) |
Definite-lived Intangible Assets, Net | $ 16,338 | $ 16,972 |
Weighted Avg. Life (Yrs.) | 15 years |
Intangible Assets - Amortizatio
Intangible Assets - Amortization (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2017 | Dec. 31, 2016 | |
Intangible Assets | ||||
Amortization expense | $ 8.2 | $ 8.1 | $ 16.3 | $ 17.4 |
Intangible Assets - Future Annu
Intangible Assets - Future Annual Amortization Expense (Details) - USD ($) $ in Thousands | Dec. 31, 2017 | Jun. 30, 2017 |
Future annual amortization expense: | ||
2,018 | $ 16,493 | |
2,019 | 31,761 | |
2,020 | 30,938 | |
2,021 | 30,938 | |
2,022 | 30,938 | |
Thereafter | 262,122 | |
Intangible assets, net | $ 403,190 | $ 417,412 |
Long-Term Debt - Net (Details)
Long-Term Debt - Net (Details) - USD ($) $ in Thousands | Dec. 31, 2017 | Jun. 30, 2017 |
Long-term debt | ||
Debt, gross | $ 955,709 | |
Other | $ 735 | |
Total debt, net | 886,065 | 903,647 |
Less short-term borrowings and current portion of long-term debt | (66,845) | (60,117) |
Total long-term debt, net | 819,220 | 843,530 |
Term Loan A due 2020 | ||
Long-term debt | ||
Debt, gross | 247,500 | 254,375 |
Unamortized discount and other debt issuance costs | (13,398) | (16,238) |
Total debt, net | 234,102 | 238,137 |
Term Loan B due 2022 | ||
Long-term debt | ||
Debt, gross | 708,209 | 727,881 |
Unamortized discount and other debt issuance costs | (56,246) | (63,106) |
Total debt, net | $ 651,963 | $ 664,775 |
Long-Term Debt - Due (Details)
Long-Term Debt - Due (Details) $ in Thousands | Dec. 31, 2017USD ($) |
Debt maturities | |
2,018 | $ 66,845 |
2,019 | 66,845 |
2,020 | 231,845 |
2,021 | 39,345 |
2,022 | 550,829 |
Total debt, gross | $ 955,709 |
Legal, Regulatory Matters and64
Legal, Regulatory Matters and Contingencies (Details) $ in Millions | Jan. 22, 2018item | Dec. 17, 2017USD ($) | Sep. 30, 2014lawsuit | Jul. 31, 2014lawsuitpatent | Dec. 31, 2016customer | Dec. 31, 2017USD ($)Distributorlawsuittranchepatentitem | Jun. 30, 2016lawsuit | Oct. 31, 2017stateitem | Oct. 06, 2017item | Jun. 30, 2017USD ($) | Nov. 30, 2016item | Nov. 24, 2015USD ($) |
Legal, Regulatory Matters and Contingencies | ||||||||||||
Number of drugs | 30 | 18 | 13 | 6 | ||||||||
Compliance reviews, number of customers | customer | 1 | |||||||||||
Liability estimate | $ | $ 9.3 | $ 9.3 | ||||||||||
Indemnification asset | $ | $ 8.3 | |||||||||||
Number of lawsuits | lawsuit | 1 | 2 | 2 | |||||||||
Number of manufacturers and distributors | Distributor | 30 | |||||||||||
Number of tranches | tranche | 3 | |||||||||||
Number of States | state | 45 | |||||||||||
Patents allegedly invalid | patent | 2 | |||||||||||
Patents allegedly infringed | patent | 2 | |||||||||||
Patents allegedly invalid, unenforceable and/or not infringed | patent | 15 | |||||||||||
Opt-out purchasers, number | 3 | |||||||||||
Other Income | ||||||||||||
Legal, Regulatory Matters and Contingencies | ||||||||||||
Amount received from settlement agreement | $ | $ 3.5 | |||||||||||
Officers | ||||||||||||
Legal, Regulatory Matters and Contingencies | ||||||||||||
Number of officers | 2 | |||||||||||
Doxycycline Monohydrate | ||||||||||||
Legal, Regulatory Matters and Contingencies | ||||||||||||
Number of drugs | 1 | |||||||||||
Minimum | ||||||||||||
Legal, Regulatory Matters and Contingencies | ||||||||||||
Number of lawsuits | lawsuit | 100 |
Commitments (Details)
Commitments (Details) $ in Thousands | Dec. 31, 2017USD ($) |
Future minimum lease payments | |
Remainder of 2018 | $ 864 |
2,019 | 1,835 |
2,020 | 1,855 |
2,021 | 1,406 |
2,022 | 1,080 |
Thereafter | 5,238 |
Total | $ 12,278 |
Commitments - Other Commitment
Commitments - Other Commitment (Details) - Variable Interest Entity, Not Primary Beneficiary $ in Millions | 3 Months Ended | |
Mar. 31, 2017USD ($)employeeitem | Dec. 31, 2017USD ($) | |
Commitments | ||
Amount of potential loans offered | $ 15 | |
Current amount due from outstanding loan | $ 6.6 | |
Members in the board of the entity | item | 5 | |
Lannett employees as members of the board of the entity | employee | 2 | |
If loan balance is equal to or greater than $7.5 million | ||
Commitments | ||
Amount of ownership if converted | 50.00% | |
Conversion amount | $ 7.5 |
Accumulated Other Comprehensi67
Accumulated Other Comprehensive Loss - Foreign Currency Translation (Details) - USD ($) $ in Thousands | 6 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Jun. 30, 2017 | |
Accumulated Other Comprehensive Loss | |||
Beginning Balance | $ (222) | $ (295) | |
Net gain (loss) on foreign currency translation (net of tax of $0 and $0) | (125) | 38 | |
Other comprehensive income (loss), net of tax | (125) | 38 | |
Ending Balance | (347) | (257) | |
Total Accumulated Other Comprehensive Loss | (347) | (257) | $ (222) |
Net gain (loss) on foreign currency translation, tax | 0 | 0 | |
Reclassifications to net income, tax | $ 0 | $ 0 |
Earnings (Loss) Per Common Sh68
Earnings (Loss) Per Common Share (Details) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2017 | Dec. 31, 2016 | |
Earnings (Loss) Per Common Share | ||||
Net income (loss) attributable to Lannett Company, Inc | $ 14,022 | $ 8,172 | $ 27,279 | $ (21,236) |
Basic weighted average common shares outstanding | 37,066,902 | 36,810,388 | 37,029,483 | 36,754,828 |
Effect of potentially dilutive stock options, warrants and restricted stock awards | 1,223,456 | 865,982 | 1,058,343 | |
Diluted weighted average common shares outstanding | 38,290,358 | 37,676,370 | 38,087,826 | 36,754,828 |
Earnings (loss) per common share attributable to Lannett Company, Inc.: | ||||
Basic (in dollars per share) | $ 0.38 | $ 0.22 | $ 0.74 | $ (0.58) |
Diluted (in dollars per share) | $ 0.37 | $ 0.22 | $ 0.72 | $ (0.58) |
Anti-dilutive shares excluded in the computation of diluted earnings per share | 3,000,000 | 3,000,000 | 3,000,000 | 4,400,000 |
Warrant (Details)
Warrant (Details) - KUPI - Warrant issued to UCB $ / shares in Units, shares in Millions, $ in Millions | Nov. 25, 2015USD ($)$ / sharesshares |
Class of Warrant or Right | |
Number of common stock to be purchased under the warrant | shares | 2.5 |
Warrants expiration period | 3 years |
Warrants exercise price | $ / shares | $ 48.90 |
Fair Value warrant issued | $ | $ 29.9 |
Share-Based Compensation (Detai
Share-Based Compensation (Details) shares in Millions, $ in Millions | 6 Months Ended |
Dec. 31, 2017USD ($)ShareBasedCompensationPlanshares | |
Stock-based Compensation | |
Number of share-based employee compensation plans | ShareBasedCompensationPlan | 2 |
Aggregate number of shares authorized for issuance | 4.5 |
Shares for future issuances | 1.6 |
Maximum | |
Other disclosures | |
Share-based compensation awards vesting period | 3 years |
Share-based compensation awards maximum contractual term | 10 years |
Restricted stock | |
Other disclosures | |
Total unrecognized compensation cost related to non-vested share-based compensation awards granted under the Plans | $ | $ 10.2 |
Weighted average period during which the cost is expected to be recognized | 2 years 3 months 18 days |
Share-Based Compensation - Opti
Share-Based Compensation - Options Valuation (Details) - Stock options - $ / shares | 6 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Assumptions used to estimate fair values | ||
Risk-free interest rate (as a percent) | 1.90% | 1.10% |
Expected volatility (as a percent) | 57.40% | 55.60% |
Forfeiture rate (as a percent) | 6.50% | 6.50% |
Expected term (in years) | 5 years 4 months 24 days | 5 years 2 months 12 days |
Weighted average fair value (in dollars per share) | $ 9.06 | $ 15.33 |
Share-Based Compensation - Op72
Share-Based Compensation - Options Rollforward (Details) - Stock options - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands | 6 Months Ended | 12 Months Ended |
Dec. 31, 2017 | Jun. 30, 2017 | |
Awards | ||
Outstanding at the beginning of the period (in shares) | 1,475 | |
Granted (in shares) | 18 | |
Exercised (in shares) | (42) | |
Forfeited, expired or repurchased (in shares) | (12) | |
Outstanding at the end of the period (in shares) | 1,439 | 1,475 |
Vested and expected to vest, Awards (in shares) | 1,436 | |
Exercisable at the end of year (in shares) | 1,402 | |
Stock options, Weighted-Average Exercise Price | ||
Outstanding at the beginning of the period (in dollars per share) | $ 18.02 | |
Granted (in dollars per share) | 17.40 | |
Exercised (in dollars per share) | 8.14 | |
Forfeited, expired or repurchased (in dollars per share) | 30.77 | |
Outstanding at the end of the period (in dollars per share) | 18.20 | $ 18.02 |
Vested and expected to vest, Weighted-Average Exercise Price (in dollars per share) | 18.18 | |
Exercisable at the end of the period (in dollars per share) | $ 17.76 | |
Aggregate Intrinsic Value | ||
Exercised (in dollars) | $ 596 | |
Outstanding at the end of the period (in dollars) | 14,479 | $ 12,212 |
Vested and expected to vest, Aggregate Intrinsic Value | 14,467 | |
Exercisable at the end of the period (in dollars) | $ 14,376 | |
Weighted Average Remaining Contractual Life (yrs.) | ||
Outstanding at the end of the period (in years) | 5 years 2 months 12 days | 5 years 8 months 12 days |
Vested and expected to vest, Weighted Average Remaining Contractual Life | 5 years 2 months 12 days | |
Exercisable at the end of the period (in years) | 5 years 2 months 12 days |
Share-Based Compensation - Rest
Share-Based Compensation - Restricted Stock (Details) - Restricted stock - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands | 6 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Stock-based Compensation | ||
Annual forfeiture rate used to calculate compensation expense (as a percent) | 6.50% | 6.50% |
Awards | ||
Non-vested at the beginning of the period (in shares) | 334 | |
Granted (in shares) | 470 | |
Vested (in shares) | (162) | |
Forfeited (in shares) | (35) | |
Non-vested at the end of the period (in shares) | 607 | |
Weighted Average Grant-date Fair Value | ||
Non-vested at the beginning of the period (in dollars per share) | $ 30.71 | |
Granted (in dollars per share) | 17.29 | |
Vested (in dollars per share) | 31.15 | |
Forfeited (in dollars per share) | 22.05 | |
Non-vested at the end of the period (in dollars per share) | $ 20.67 | |
Aggregate Intrinsic Value | ||
Vested | $ 3,598 |
Share-Based Compensation - Perf
Share-Based Compensation - Performance-Based Shares (Details) | Sep. 22, 2017 |
Performance-Based Shares | |
Performance-Based Shares | |
Share-based compensation awards vesting period | 3 years |
Share-Based Compensation - Empl
Share-Based Compensation - Employee Stock Purchase Plan (Details) - shares shares in Thousands | 6 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Apr. 01, 2003 | |
Stock-based Compensation | |||
Shares authorized for issuance (in shares) | 4,500 | ||
Employee Stock Purchase Plan | |||
Stock-based Compensation | |||
Purchase price of stock as percent of market fair value (in percent) | 85.00% | ||
Compensation authorized by the employee to be withheld for stock purchase (in percent) | 10.00% | ||
Shares authorized for issuance (in shares) | 1,100 | ||
Shares issued (in shares) | 28 | 27 | |
Cumulative shares issued (in shares) | 571 |
Share-Based Compensation - Cost
Share-Based Compensation - Cost (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2017 | Dec. 31, 2016 | |
Share-based compensation costs | ||||
Share based compensation | $ 2,563 | $ 1,717 | $ 4,752 | $ 4,173 |
Tax benefit at statutory rate | 756 | 627 | 1,402 | 1,523 |
Selling, general and administrative | ||||
Share-based compensation costs | ||||
Share based compensation | 1,926 | 1,251 | 3,713 | 3,223 |
Research and development | ||||
Share-based compensation costs | ||||
Share based compensation | 176 | 152 | 327 | 325 |
Cost of sales | ||||
Share-based compensation costs | ||||
Share based compensation | $ 461 | $ 314 | $ 712 | $ 625 |
Employee Benefit Plan (Details)
Employee Benefit Plan (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2017 | Dec. 31, 2016 | |
Employee Benefit Plan | ||||
Company matching contributions equal to each employee's contribution (as a percent) | 50.00% | |||
Maximum contribution by the company as a percentage of employee's compensation for the Plan year | 4.00% | |||
Contributions to the Plan | $ 458 | $ 492 | $ 1,000 | $ 1,100 |
Income Taxes (Details)
Income Taxes (Details) - USD ($) $ in Thousands | Dec. 31, 2017 | Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2017 | Dec. 31, 2016 |
Income Taxes | |||||
Federal, state and local income tax expense | $ 18,138 | $ 3,542 | $ 25,561 | $ (9,340) | |
Effective income tax rate (as a percent) | 56.40% | 30.20% | 48.40% | 30.60% | |
Federal income tax at statutory rate (as a percent) | 21.00% | 35.00% | |||
Income tax charge, adjustment of deferred tax asset | $ 18,700 | ||||
Lower blended federal statutory tax rate (as a percent) | 28.00% | ||||
Income tax benefit | $ (2,300) | $ (3,800) |
Income Taxes - Unrecognized ben
Income Taxes - Unrecognized benefits (Details) - USD ($) $ in Thousands | Dec. 31, 2017 | Jun. 30, 2017 |
Income Taxes | ||
Unrecognized Tax Benefits | $ 2,000 | $ 5,900 |
Unrecognized tax benefits cumulative interest and penalties recorded | $ 0 | $ 0 |
Related Party Transactions (Det
Related Party Transactions (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | |||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2017 | Dec. 31, 2016 | Jun. 30, 2017 | |
Chairman of the Board | |||||
Related Party Transactions | |||||
Sales to a generic distributor | $ 1,200 | $ 1,100 | $ 2,000 | $ 2,000 | |
Amounts due from the related party | 1,000 | 1,000 | $ 751 | ||
Board Member | |||||
Related Party Transactions | |||||
Sales to a generic distributor | 516 | $ 262 | 983 | $ 329 | |
Amounts due from the related party | $ 456 | $ 456 | $ 606 | ||
Mr. Bedrosian | |||||
Related Party Transactions | |||||
Number of months base salary eligible to receive under separation agreement (in months) | 36 months | ||||
Employee termination benefits cost | $ 3,400 |
Material Contracts with Suppl81
Material Contracts with Suppliers (Details) - JSP shares in Millions, $ in Millions | Aug. 19, 2013product | Aug. 19, 2013USD ($)shares | Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2017 | Dec. 31, 2016 |
Material Contracts with Suppliers | ||||||
Number of shares of common stock issued in exchange for exclusive distribution rights | 1.5 | |||||
Number of products under the exclusive distribution agreement | product | 3 | |||||
Extension term of the agreement | 5 years | |||||
Second extension term of the agreement | 5 years | |||||
Number of shares of common stock issued in exchange for extension of exclusive distribution rights agreement | 1.5 | |||||
Period from notice within which if breach is not cured, non-breaching party has right to terminate contract | 30 days | |||||
Cost of sales | ||||||
Material Contracts with Suppliers | ||||||
Fair value of shares | $ | $ 20.1 | |||||
Inventory purchases | Suppliers | ||||||
Material Contracts with Suppliers | ||||||
Purchases of finished goods inventory from JSP as a percentage of the company's inventory purchases | 39.00% | 39.00% | 36.00% | 38.00% |
Subsequent Events (Details)
Subsequent Events (Details) $ in Millions | 1 Months Ended |
Feb. 28, 2018USD ($) | |
Subsequent event | |
Subsequent Events | |
Prepayment of debt | $ 25 |