Transcript 1 of 2 generic companies vertically integrated from API to finished

ARTHUR BEDROSIAN, CEO ∙ MARTY GALVAN, CFO
May 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.
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USE OF NON-GAAP FINANCIAL MEASURES
This presentation contains references to non-GAAP financial measures, including Adjusted
operating income, 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 and integration-related expenses, restructuring expenses and
other purchase accounting entries, separation expenses, as well as certain other items
considered unusual or non-recurring in nature (settlement agreement). 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 third quarter
financial results press release. Non-GAAP financial measures, including Adjusted operating
income, 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.
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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
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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 directly call 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)
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LANNETT, AT A GLANCE
102
MARKETED
PRODUCTS
(~259 SKUs)
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LANNETT, AT A GLANCE
STRONG
RECORD
OF REGULATORY COMPLIANCE
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LANNETT, AT A GLANCE
31
ANDAs
PENDING
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LANNETT, AT A GLANCE
U.S. FACILITIES
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MANAGEMENT TEAM
ARTHUR BEDROSIAN, CEO
47 years in industry; 14 at Lannett; Trinity Labs, Pharmeral, Liquipharm, Zenith Labs, PurePac
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 APT, 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
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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
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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%
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ROBUST PRODUCT PORTFOLIO
32 in development
31 pending approval
• Sales of $10.5 billion (brand and
generic) LTM Dec. 2015, per IMS
102 marketed
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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
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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
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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)
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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
 Kremers Urban, acquired Nov 2015, integration on track;
Silarx, acquired June 2015, fully integrated as of Dec 2015
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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
 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, $90 million cash on
hand, $23 million revolver draw down
 Methylphenidate
 Performed additional BE studies which have been submitted to the FDA; currently
marketed in the U.S. under BX rating
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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 $27 million in fiscal 2016, $40 million in first 12
months, $65 million by end of fiscal 2020
 Aggregate plan costs of approximately $23 million
 Severance: $14 million
 Rationalization, consolidation of operations: $8 million
 Contract termination: $1 million
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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
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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
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FINANCIALS
FINANCIAL DISCUSSION
SALES, PROFITABILITY
BALANCE SHEET
GUIDANCE
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STRONG SALES TREND
In millions
$600
$560*
$500
$407
$400
GENERICS
$300
$200
CONTROLLED SUBSTANCES
$119 $125 $107$123
$151
$100
$12
$0
$274
$25
$43
$64
$45
$64
$83 $72
BRANDS
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Levothyroxine
OB-Natal
Lannett Company Inc.
Morphine
Sulfate
*Guidance at
mid-point on
5/3/2016
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FISCAL 2015 FULL YEAR
In millions
NET SALES
$420
ADJUSTED OPERATING INCOME*
$406.8
$240
$370
$190
$320
$140
$270
$220
GENERICS
$273.8
$231.1
$109.6
$90
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.
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FISCAL 2016 THIRD QUARTER
In millions
NET SALES
$180
$163.7
ADJUSTED OPERATING INCOME*
$70
$65.2
$54.9
$120
$50
$99.4
$60
$30
$0
$10
Q3-FY15
Q3-FY16
Q3-FY15
Q3-FY16
*Adjusted operating income excludes the effects of amortization of purchased intangible
assets, acquisition and integration-related expenses, restructuring expenses and other
purchase accounting entries, as well as certain other items considered unusual or nonrecurring in nature (settlement agreement).
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FISCAL 2016 FIRST NINE MONTHS
In millions
NET SALES
$410
ADJUSTED OPERATING INCOME*
$200
$397.2
$178.2
$182.9
$175
$340
$307.6
$270
$150
$200
$125
9mo-FY15
9mo-FY16
9mo-FY15
9mo-FY16
*Adjusted operating income excludes the effects of amortization of purchased intangible
assets, acquisition and integration-related expenses, restructuring expenses and other
purchase accounting entries, as well as certain other items considered unusual or nonrecurring in nature (settlement agreement).
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STRONG BALANCE SHEET
AS OF MARCH 31, 2016 (IN MILLIONS)
CASH & INVESTMENTS
$ 238
TOTAL ASSETS
$1,752
DEBT
$1,054
TOTAL
LIABILITIES
BRANDS
$1,205
STOCKHOLDERS’ EQUITY
$ 547
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RECENT ACHIEVEMENTS / ONGOING INITIATIVES
 In April, expanded collaboration with strategic partner to co-develop
generic insulin for $21 billion US market
 In March, met with key customer to re-establish business relationship
 In calendar 2016, received four product approvals for Potassium Chloride
ER Capsules, Sumatriptan Nasal Spray, Temolozomide Capsules
 February 2016, implemented restructuring plan, $27 million of cost
savings in fiscal 2016, $40 million in first 12 months, $65 million by end of
fiscal 2020
 November 2015, completed acquisition of KU; integration on track
 Completed integration of Silarx Pharmaceuticals, acquired in June
2015, a leading manufacturer and marketer of liquid generic
pharmaceutical products
 Continue to seek out and evaluate small-scale M&A opportunities for
both products and companiesLannett
thatCompany
are aInc.strategic fit and accretive
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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; 65% in Q3-FY 2016
 Pipeline: 32 products in development, 31 ANDAs pending at FDA
 Implemented Restructuring Plan: Cost reductions of $27 million in
fiscal 2016, $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
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THANK YOU
NYSE: LCI ∙ www.Lannett.com