Transcript USE OF NON-GAAP FINANCIAL MEASURES This presentation

ARTHUR BEDROSIAN, CEO ∙ MARTY GALVAN, CFO
March 2016
FORWARD-LOOKING STATEMENTS
Except for historical facts, the statements in this presentation, as well as oral statements or
other written statements made or to be made by Lannett Company, Inc. (the “Company”),
are forward-looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995 and involve risks and uncertainties. For example, statements about the
expected positive FDA inspection results of the Company’s manufacturing facilities and
product approvals, anticipated growth and future operations, the current or expected
market size for its products, the success of current or future product offerings, continued
relationships with the Company’s suppliers and customers, the research and development
efforts, the Company’s ability to file for and obtain U.S. Food and Drug Administration (FDA)
approvals for future products, and the Company’s ability to obtain and maintain necessary
licenses and permits, are forward-looking statements. Forward-looking statements are
merely the Company’s current prediction of future events. The statements are inherently
uncertain and actual results could differ materially from the statements made herein. There
is no assurance that the Company will achieve the sales levels that will keep its operations
profitable or that FDA filings and approvals will be completed and obtained as anticipated.
For a description of additional risks and uncertainties, please refer to the Company’s filings
with the Securities and Exchange Commission, including its latest Annual Report on Form
10–K and its latest Quarterly Reports on Form 10-Q. The Company assumes no obligation to
update its forward-looking statements to reflect new information and developments.
Lannett Company Inc.
2
USE OF NON-GAAP FINANCIAL MEASURES
This presentation contains references to non-GAAP financial measures, including Adjusted
operating income and Adjusted EBITDA, which are financial measures that are not prepared
in conformity with accounting principles generally accepted in the United States (GAAP).
Adjusted operating income is adjusted to exclude, among other things, the effects of
amortization of purchased intangible assets, acquisition-related expenses and other
purchase accounting entries, separation expenses, as well as certain other items considered
unusual or non-recurring in nature. We define Adjusted EBITDA as net income or loss from
the consolidated statements of operations before interest, income taxes, depreciation and
amortization, and other non-operating items, as well as certain other items considered
unusual or non-recurring in nature. We believe that our presentation of non-GAAP financial
measures provides useful supplementary information regarding operational performance,
because it enhances an investor's overall understanding of the financial results for the
Company’s core business. Additionally, it provides a basis for the comparison of the financial
results for the Company’s core business between current, past and future periods. A
reconciliation of non-GAAP financial measures to the nearest comparable GAAP amounts
are contained in the Company’s fiscal 2016 second quarter financial results press release.
Non-GAAP financial measures, including Adjusted operating income and Adjusted EBITDA,
should be considered only as a supplement to, and not as a substitute for or as a superior
measure to, financial measures prepared in accordance with U.S. GAAP.
Lannett Company Inc.
3
U.S. GENERIC PHARMACEUTICAL INDUSTRY
• Strong Drivers For Continued Growth



Cost: Often 80-85% less than the brand
Supply: $81 billion of brand drugs are coming off patent through 2020
Demand: Aging baby boomers will continue to fuel market growth
• Account For Over 84% Of Prescriptions*


Same active ingredient, dosage form and route of administration as brand
Similar safety, efficacy and quality as brand, at a lower price
* Per IMS Dec. 2015
Lannett Company Inc.
4
U.S. GENERIC PHARMACEUTICAL INDUSTRY
• Product approval process: Abbreviated New Drug
Application (ANDA)
 Generally, no preclinical/clinical data required; need only to
demonstrate bioequivalence
 Less development time, money and risk compared with New Drug
Applications (NDA) for brands
• Distribution Model
 Brand products require marketing budgets and investment in sales reps
to call directly on physicians / hospitals -- new products need detailing
 Generics are sold through 3rd party channels including:
•
•
•
Wholesaler distributors (McKesson, Cardinal, AmerisourceBergen)
Chain drug stores (Walgreens, CVS, RiteAid)
Mail-order pharmacies (Express Scripts / Medco, OPTUMRx, Caremark)
Lannett Company Inc.
5
LANNETT, AT A GLANCE
101
MARKETED
PRODUCTS
(~259 SKUs)
Lannett Company Inc.
6
LANNETT, AT A GLANCE
STRONG
RECORD
OF REGULATORY COMPLIANCE
Lannett Company Inc.
7
LANNETT, AT A GLANCE
32
ANDAs
PENDING
Lannett Company Inc.
8
LANNETT, AT A GLANCE
U.S. FACILITIES
Lannett Company Inc.
9
MANAGEMENT TEAM
ARTHUR BEDROSIAN, CEO
47 years in industry; 14 at Lannett; Trinity Labs, Pharmeral, Liquipharm, Zenith Labs, PurePac
MICHAEL BOGDA, PRESIDENT
28 years in industry; 1 at Lannett; Teva, Barr, Copley
MARTIN GALVAN, CFO
35 years in industry; 4 at Lannett; Viasys Healthcare, Rhone-Poulenc Rorer, Revlon Health Care
KEVIN SMITH, SENIOR VP SALES & MARKETING
29 years in industry; 14 at Lannett; Bi-Coastal Pharma, Mova Labs, Sidmak Labs, Purdue
ROBERT EHLINGER, VP LOGISTICS, CIO
22 years in industry; 9 at Lannett; MedQuist, Kennedy Health Systems
JOHN ABT, VP QUALITY
28 years in industry; 1 at Lannett; Teva, Alpharma, RP Scherer
MAHENDRA DEDHIYA, VP SCIENTIFIC AFFAIRS
40 years in industry; 1 year at Silarx/Lannett; Forest Labs, Roxane Labs, Bayer, Endo Labs, Wyeth
Lannett Company Inc.
10
OUR STRENGTHS
 Talented management across all functional areas: product
development, regulatory, manufacturing, compliance, sales,
finance
 Strong customer relationships fostered over many years;
business is personal
 Track record of:
 Selecting products with high profit potential and manageable competition
 Getting products approved and maintaining regulatory compliance
 Stability plus growth:
 Base generics business represents a solid financial foundation
 Controlled substances represent area for higher profit margins and growth
rates
 1 of 2 generic companies vertically integrated from API to
finished dosage in opiates
Lannett Company Inc.
11
COMBINED SALES MIX BY PRODUCT CATEGORY
Based on LTM 6/30/15 net sales
Other
14%
Thyroid
Deficiency
38%
Glaucoma
5%
Migraine
6%
Thyroid
Deficiency
19%
Other
23%
Other
12%
CNS
31%
Respiratory
8%
Urinary
9%
Pain
3%
Pain
7%
CNS
15%
Urinary
5%
Cardiovascular
13%
Cardiovascular
14%
Gallstone
16%
GI
27%
Gallstone
8%
Cardiovascular
13%
Lannett Company Inc.
GI
14%
12
ROBUST PRODUCT PORTFOLIO
36 in development
32 pending approval
• Sales of $10.5 billion (brand and
generic) LTM Dec. 2015, per IMS
101 marketed
Lannett Company Inc.
13
CONTROLLED SUBSTANCE MARKET & GOAL




U.S. market: $31 billion in 2015*
Generic portion: $16 billion in 2015*
High barrier to entry: DEA-required licenses and quotas
1 of 2 generic companies vertically integrated from API to
finished dosage in opiates
 Concentrated Poppy Straw (CPS) = natural raw material from
which APIs are extracted
 Profitability and growth:
 Current gross margin on controlled substances: 60%
 5-year goal: significantly increase production of controlled substances (as a percentage of total
net sales)
* Per IMS Dec. 2015
Lannett Company Inc.
14
OUT OF ONE…MANY
1
4
9
70
203
PLANT
ALKALOIDS
APIS
PRODUCTS
STRENGTHS
BRAND NAMES
•
•
•
•
•
•
Avinza •
Dilaudid •
Exalgo •
Hycodan •
Kadian •
Lortab
MORPHINE SULFATE
9 products; 56 strengths
HYDROMORPHONE
MORPHINE
CODEINE
7 products; 18 strengths
CODEINE PHOSPHATE
20 products; 28 strengths
CODEINE SULFATE
THEBAINE
1 products; 3 strengths
ORIPAVINE
15 products; 42 strengths
HYDROCODONE
OXYCODONE
Opana
Oxycontin
Percocet
Suboxone
Vicodin
7 products; 25 strengths
BUPRENORPHINE
7 products; 20 strengths
OXYMORPHONE
3 products; 10 strengths
Lannett Company Inc.
15
VERTICAL INTEGRATION = HIGH MARGINS
 Vertically Integrated Today:
CODY, WYOMING: API
 Hydromorphone tablets (patented API
process)
 Cocaine HCI topical solution (patented API
process)
 Fully Developed:
 Morphine Sulfate
 Near-Term Goal Products:
PHILADELPHIA: FINISHED
DOSAGE FORM
 Hydrocodone (patented process)
 Oxycodone HCI (patented process)
Lannett Company Inc.
16
ACQUISITION STRATEGY
 Evaluate M&A opportunities for
both products and companies
that are a strategic fit and
accretive
 Expand, complement current portfolio
 Further vertically integrate operations
 Seek out acquisition opportunity in a tax
favorable jurisdiction
 Continuing due diligence on other, small-scale acquisition
candidates
 Quickly, efficiently integrate acquisitions to optimize ROI
 Silarx, acquired June 2015, fully integrated as of December
2015
Lannett Company Inc.
17
KREMERS URBAN (KU) TRANSACTION HIGHLIGHTS
 November 2015, completed the acquisition of KU, a wholly
owned subsidiary of UCB S.A.
 Creates a leading specialty pharmaceuticals manufacturer with
 a diversified portfolio of 18 high-value products, 9 pending at FDA
 proven development and regulatory capabilities, and a successful track record of
managing all aspects of Paragraph IV certifications
 expertise in the development of products that are difficult to formulate or utilize
specialized delivery technologies
 Significant manufacturing capacity of more than 3 billion doses
 Transaction funded by debt financing and cash on hand
 $910 million term loans, $250 million senior unsecured notes, $23 million revolving
credit facility, with $102 million available
 Methylphenidate
 Performed additional BE studies which have been submitted to the FDA; currently
marketed in the U.S. under BX rating
Lannett Company Inc.
18
COST SAVINGS, RESTRUCTURING PLAN
 February 2016, implemented companywide cost savings and
restructuring plan, actions include:
 Closing KU corporate office in Princeton, NJ
 Immediate 10% workforce reduction, rising to 20% over next three years
 Streamlining manufacturing, packaging, distribution
 Consolidating research and product development functions
 Cost savings of $40 million in first 12 months, $65 million by end of
fiscal 2020
 Aggregate plan costs of approximately $20 to $22 million
 Severance: $11 to 13 million
 Rationalization, consolidation of operations: $8 million
 Contract termination: $1 million
Lannett Company Inc.
19
GROWTH STRATEGY
BASE GENERIC PRODUCTS:
 Commercialize products upon FDA approval
 Acquire ANDAs and products that meet our expectations for sales potential,
barriers to entry, limited competition and gross margin
 Expand product development partnerships to enhance internal efforts
 Monitor market for opportunities to increase prices
 File Paragraph IV challenges for products which meet target metric thresholds
CONTROLLED SUBSTANCE PRODUCTS:
 Become a dominant player and one-stop shop in the U.S.
 Substantially grow percentage of manufactured products
 Continue to invest in development of higher margin products
 Develop novel (proprietary) forms of API delivery
Lannett Company Inc.
20
GROWTH STRATEGY (continued)
BRAND PRODUCT:
C-Topical® Cocaine HCl
 Requirements for Commercialization:
•
Currently in Phase III clinical testing
•
To file NDA to FDA
 Product Advantages:
•
Increased number of procedures per day due to
faster therapeutic onset
•
Ease of use - one product versus current therapy of
combining two products
 Potential to provide:
•
Higher profit margins
•
New Chemical Entity (NCE) designation = Market
Exclusivity
Lannett Company Inc.
21
FINANCIALS
FINANCIAL DISCUSSION
SALES, PROFITABILITY
BALANCE SHEET
GUIDANCE
Lannett Company Inc.
22
STRONG SALES TREND
In millions
$450
$407
$400
$350
$300
$274
GENERICS
$250
$200
$151
$150
$123
$119 $125
CONTROLLED SUBSTANCES
$107
$100
$64
$50
$12
$0
$43
$45
$64
$83
$72
BRANDS
$25
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Levothyroxine
OB-Natal
Lannett Company Inc.
Morphine
Sulfate
23
FISCAL 2015 FULL YEAR
In millions
NET SALES
$420
ADJUSTED OPERATING INCOME*
$406.8
$380
$240
$231.1
$190
$340
$300
$140
GENERICS
$273.8
$109.6
$90
$260
$220
CONTROLLED SUBSTANCES
$40
FY14
FY15
FY14
FY15
Adjusted gross
margin up 11 percentage points to 75%.
BRANDS
*Adjusted operating income excludes the effects of amortization of purchased intangible
assets, acquisition-related expenses and other purchase accounting entries, as well as certain
other items considered unusual or non-recurring in nature.
Lannett Company Inc.
24
FISCAL 2016 SECOND QUARTER
In millions
NET SALES
$130
$127.1
ADJUSTED OPERATING INCOME*
$70
$68.6
$60.4
$115
$114.8
$50
$100
$30
$85
$10
Q2-FY15
Q2-FY15
Q2-FY16
Q2-FY16
*Adjusted operating income excludes the effects of amortization of purchased intangible
assets, acquisition-related expenses and other purchase accounting entries, as well as
certain other items considered unusual or non-recurring in nature.
Lannett Company Inc.
25
FISCAL 2016 FIRST SIX MONTHS
In millions
NET SALES
$240
$233.5
ADJUSTED OPERATING INCOME*
$130
$123.3
$117.7
$208.2
$200
$100
$160
$70
$120
$40
H1-FY15
H1-FY15
H1-FY16
H1-FY16
*Adjusted operating income excludes the effects of amortization of purchased intangible
assets, acquisition-related expenses and other purchase accounting entries, as well as
certain other items considered unusual or non-recurring in nature.
Lannett Company Inc.
26
STRONG BALANCE SHEET
AS OF DECEMBER 31, 2015 (IN MILLIONS)
CASH & INVESTMENTS
$ 193
TOTAL ASSETS
$1,753
DEBT
$1,061
TOTAL
LIABILITIES
BRANDS
$1,203
STOCKHOLDERS’ EQUITY
$ 550
Lannett Company Inc.
27
SOURCES, USES AND PROFORMA CAPITALIZATION
SOURCES AND USES
Sources $MM
Amount
%
Term Loan A
275.0
21.6%
Term Loan B
635.0
49.9%
22.8
1.8%
200.0
15.7%
Bond - Banks
50.0
3.9%
Cash from Balance Sheet
90.0
7.1%
Total Sources
$1,272.8
100.0%
Uses $MM
Amount
%
1,230.0
96.6%
Working Capital Adjustment
(46.2)
(3.6%)
OID Reimbursement - UCB
(33.3)
(2.6%)
Revolver ($125 MM)
Bond - UCB
Acquisition price
UCB Bond Commit Fee Reimbursement
Estimated Fees, Expenses &
OID
Total Uses
1)
2)
PRO FORMA CAPITALIZATION
(4.0)
(0.3%)
126.3
9.9%
$MM
Cash and Equivalents
9/30/2015
x LTM EBITDA
$122.0
Term Loan A
275.0
0.8x
Term Loan B
635.0
1.7x
22.8
0.1x
1.0
0.0x
Total Secured Debt
933.8
2.6x
Net Secured Debt
811.8
2.2x
200.0
0.5x
50.0
0.1x
Total Debt
1,183.8
3.2x
Net Debt
1,061.8
2.9x
Revolver ($125MM)
First Bank of Cody Mortgage
Bond – UCB
Bond – Banks
Pro Forma Financials
PF LTM
Net Revenues(1)
799.5
PF Adjusted EBITDA(2)
365.8
PF Capital Expenditures
39.2
Pro Forma Credit Ratios
$1,272.8
Warrants – 2.5 MM shares
29.9
Total Cost of Acquisition
$1,302.7
100.0%
Not adjusted for approximately $77MM reduction due to customer loss
Adjusted for approximately $42MM reduction due to customer loss
Total Secured Debt / PF Adjusted EBITDA
2.6x
Net Secured Debt / PF Adjusted EBITDA
2.2x
Total Debt / PF Adjusted EBITDA
3.2x
Net Debt / PF Adjusted EBITDA
2.9x
Lannett Company Inc.
28
INTEREST EXPENSE SUMMARY
($ in millions)
Amount
Maturity
Rate
Rate
Cash Interest
Term Loan A
$275.0
5 years
L + 4.75
5.75%
$15.8
Term Loan B
635.0
7 years
L + 5.375
6.375%
40.5
Bonds
250.0
8 years
12.00%
12.00%
30.0
Total Debt
$1,160.0
$86.3
Cash effective interest rate
7.44%
Estimated Transaction Fees
Commitment Fee
$1,285.0
2.0%
OID
$25.7
72.1
Other Financing Fees
Noncash (NonGAAP) Interest
7.0
Total Deferred Financing Fees
$104.8
Transaction Expenses
7 years
$15.0
Noncash effective interest rate
1.27%
21.5
Total Deferred Financing and Transaction
Expenses
$126.3
Lannett Company Inc.
Total Interest Expense
$101.3
Total Debt
$1,160.0
Effective Interest Rate
8.73%
29
RECENT ACHIEVEMENTS / ONGOING INITIATIVES
 February 2016, received two product approvals for Sumatriptan Nasal
Spray and Temolozomide Capsules
 February 2016, implemented restructuring plan, $40 million of cost
savings in first 12 months, $65 million by end of fiscal 2020
 November 2015, completed acquisition of Kremers Urban
Pharmaceuticals. Continue to seek out and evaluate small-scale M&A
opportunities for both products and companies that are a strategic fit and
accretive
 Completed integration of Silarx Pharmaceuticals, acquired in June
2015, a leading manufacturer and marketer of liquid generic
pharmaceutical products
 Ongoing significant investment in product development – base
generics, controlled substances, branded pharmaceutical
 Advanced recently formed strategic relationships
Lannett Company Inc.
30
INVESTMENT HIGHLIGHTS
 Generics: 84% of new Rxs in the US and growing*
 Sales Growth: LCI well-positioned for continued growth in multiple
categories
 49% top-line growth in FY 2015; 11% in Q2-FY 2016
 Pipeline: 36 products in development, 32 ANDAs pending at FDA
 Implemented Restructuring Plan: Reduced costs by $40 million in
first 12 months, $65 million by end of fiscal 2020
 RIFs: 10% immediate, 20% by end of year 3
 Consolidating manufacturing, packaging, distribution
 Streamlining research and product development functions
 Vertical Integration: just beginning to unleash value
 Barriers to entry and higher gross margins to fuel sales and profits
* Per IMS Dec. 2015
Lannett Company Inc.
31
THANK YOU
NYSE: LCI ∙ www.Lannett.com