Lannett Company develops, manufactures, markets and distributes generic versions of branded pharmaceutical products of which all of its products are prescription products. The company makes money by such pharmaceutical products as its Levothyroxine Sodium tablets (“Levo”). The company is currently among the top 20 companies, based on number of prescription transactions, for unbranded generic products in the United States. Increased legislation favoring generic production and limiting original pharmaceutical patent lives will help companies such as Lannett reach greater profitability.
Lannett's primary focus to increasing market share is on organic growth. By concentrating additional resources on the development of new products, in particular, narcotics and controlled drugs, Lannett plans to broaden product lines through internal development and strategic partnerships.
Typically, a pharmaceutical company that sells a patented drug receives special designation to hold all rights to reap the benefits of R&D for the original development of the drug for a set number of years after approval from the Food and Drug Administration (FDA). Once these patents expire, generic companies receive the authorization to develop same or similar products that often dilute the market share of the first developer. Because the Food and Drug Administration (FDA) give special privileges to the first generic manufacturer to submit an application, called Abbreviated New Drug Application (ANDA), for approval in order to encourage the generics industry, generics are highly incentivized to rush into drug as soon as the medicine is off-patent. Unfortunately, this prompts extremely high competition which erodes the profitability quickly such that generics have a tougher time to sustain the same gross profit margins experienced by the same pharmaceuticals under patent.
Lannett's largest wholesale distributors, McKesson (MCK), Cardinal Health (CAH), and AmerisourceBergen Corporation (Holding Co) (ABC) represented 9%, 7%, and 11%, respectively, of net sales. As a result, these large customers control the ability to influence the price the company may charge to them, which therefore influences its profitability. Any significant reduction of businesses from these top five customers may have material effects upon the business, and this is a force that is similar across most companies producing generic drugs (small molecule).
Lannett competes against other generic manufacturers including: