Stock:Lannett Co (LCI)/News/905611/Lannett Reports Fiscal 2010 Second-Quarter Financial Results

Lannett Company, Inc. (NYSE AMEX: LCI) today reported financial results for the fiscal 2010 second quarter and six months ended December 31, 2009.

For the second quarter of fiscal 2010, net sales were $28.7 million, compared with $29.2 million for the second quarter of fiscal 2009. Gross profit was $8.1 million, compared with $11.0 million for the same period in the prior year. Research and development (R&D) expenses increased to $2.7 million from $1.8 million in the 2009 fiscal second quarter. Selling, general and administrative (SG&A) expenses decreased to $4.0 million from $6.7 million in the same quarter of the prior year. Operating income was $1.3 million, compared with $2.5 million in the fiscal 2009 second quarter. Net income was $55,000, or breakeven on a per share basis, compared with $1.6 million, or $0.06 per diluted share, for the prior year second quarter.

In the fiscal 2010 second quarter, the company recorded a non-recurring, non-cash state income tax charge due to a change in Pennsylvania tax law. Although this change in apportionment rules by Pennsylvania will lower income taxes actually paid by Lannett in the future, the impact of this change caused the company to devalue its deferred tax assets, resulting in a significant increase in the effective tax rate for the quarter.

“For most of the second quarter, we were unable to sell certain pain management products manufactured by our Cody Laboratories subsidiary because of a delay in receiving quota from the DEA. The delay cost Cody two months of production, which contributed to our lower gross margins. It has since been resolved, and sales of our pain management products have rebounded in the current quarter,” said Arthur Bedrosian, president and chief executive officer of Lannett. “Second quarter results were also impacted by a change in product mix, including a decrease in sales of OB Natal One, as the manufacturer of the brand version ceased marketing and promoting its product, as well as price erosion for our heart drug and certain pain management products.

“We continue to invest in drug development to add to our robust product pipeline. We have 16 product applications pending at the FDA and an additional 47 product candidates in various stages of development,” Bedrosian added.

For the first six months of fiscal 2010, net sales increased to $60.2 million from $54.8 million for the comparable period of fiscal 2009. Gross profit was $19.6 million, compared with $20.0 million for the same period in the prior year. R&D expenses increased to $5.8 million from $3.7 million in the first half of fiscal 2009. SG&A expenses decreased to $7.8 million from $11.6 million in the same period of the prior year. Net income grew to $2.9 million, or $0.12 per diluted share, from $2.8 million, or $0.11 per diluted share, for the first half of the prior year.

Conference Call Information and Forward-Looking Statements

On Monday, February 8, 2010, the company will host a conference call at 4:30 p.m. ET to review its results of operations for the second quarter ended December 31, 2009. The conference call will be available to interested parties by dialing 800-447-0521 from the U.S. or Canada, or 847-413-3238 from international locations, passcode 26317836. The conference call will also be available through a live audio Internet broadcast at www.lannett.com. The call will be archived and accessible at this site for approximately two weeks.

Discussion during the conference call may include forward-looking statements regarding such topics as, but not limited to, the company’s financial status and performance and regulatory and operational developments, and any comments the company may make about its future plans or prospects in response to questions from participants on the conference call.

About Lannett Company, Inc.:

Lannett Company, founded in 1942, develops, manufactures, packages, markets and distributes generic pharmaceutical products for a wide range of indications. For more information, visit the company’s website at www.lannett.com.

This news release contains certain statements of a forward-looking nature relating to future events or future business performance. Any such statements, including, but not limited to, investing in R&D to add to the company’s growing product offering and further diversify its portfolio, whether expressed or implied, are subject to risks and uncertainties which can cause actual results to differ materially from those currently anticipated due to a number of factors which include, but are not limited to, the difficulty in predicting the timing or outcome of FDA or other regulatory approvals or actions, the ability to successfully commercialize products upon approval, Lannett’s estimated or anticipated future financial results, future inventory levels, future competition or pricing, future levels of operating expenses, product development efforts or performance, and other risk factors discussed in the company’s Form 10-K and other documents filed with the Securities and Exchange Commission from time to time. These forward-looking statements represent the company's judgment as of the date of this news release. The company disclaims any intent or obligation to update these forward-looking statements.

LANNETT COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)


	Three months ended						Six months ended
	December 31,						December 31,
	2009			2008			2009			2008

Net sales	$	28,716,713		$	29,224,372		$	60,151,702		$	54,792,025
Cost of sales		19,892,781			17,712,370			38,905,099			33,832,565
Amortization of intangible assets		448,666			446,167			897,333			892,333
Product royalties		298,288			42,997			738,062			42,997

Gross profit		8,076,978			11,022,838			19,611,208			20,024,130

Research and development expenses		2,730,112			1,840,717			5,757,953			3,703,830
Selling, general, and administrative expenses		4,049,391			6,675,472			7,812,552			11,624,616
Gain on sale of assets		(235	)		(26,940	)		(235	)		(22,009	)

Operating income		1,297,710			2,533,589			6,040,938			4,717,693

Other income (expense):
Foreign currency gain		708			-			708			-
Interest income		21,184			91,883			44,283			137,650
Interest expense		(84,091	)		(117,431	)		(154,504	)		(183,640	)
		(62,199	)		(25,548	)		(109,513	)		(45,990	)

Income before income tax expense		1,235,511			2,508,041			5,931,425			4,671,703
Income tax expense		1,169,996			925,433			2,997,646			1,845,423
Consolidated net income		65,515			1,582,608			2,933,779			2,826,280
Less net income from noncontrolling interest		(10,923	)		(9,546	)		(21,817	)		(27,053	)

Net income attributable to Lannett Company, Inc.	$	54,592		$	1,573,062		$	2,911,962		$	2,799,227

Earnings per common share - Lannett Company, Inc.:
Basic	$	0.00		$	0.06		$	0.12		$	0.11
Diluted	$	0.00		$	0.06		$	0.12		$	0.11

Weighted average number of shares outstanding:
Basic		24,713,006			24,468,149			24,623,284			24,385,818
Diluted		25,207,764			24,546,787			25,152,455			24,510,726

LANNETT COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
			(Unaudited)
			December 31, 2009			June 30, 2009

ASSETS
Current Assets
	Cash and cash equivalents		$	19,653,294		$	25,832,456
	Investment securities - available for sale			741,869			347,921
	Trade accounts receivable (net of allowance of $130,291 and $132,000, respectively)			28,919,488			29,945,748
	Inventories, net			18,775,851			16,195,361
	Interest receivable			94,593			90,425
	Prepaid taxes			808,522			-
	Deferred tax assets			4,232,572			4,296,929
	Other current assets			1,031,744			602,335
		Total Current Assets		74,257,933			77,311,175

Property, plant and equipment				46,922,895			41,431,158
	Less accumulated depreciation			(19,920,946	)		(18,533,773	)
				27,001,949			22,897,385

Construction in progress				1,424,042			591,685
Investment securities - available for sale				396,713			801,748
Intangible assets (product rights) - net of accumulated amortization				8,702,004			9,118,710
Deferred tax assets				12,560,834			13,757,545
Other assets				165,943			98,873
		Total Assets	$	124,509,418		$	124,577,121

LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Current Liabilities
	Accounts payable		$	14,388,197		$	16,805,468
	Accrued expenses			2,125,144			1,842,434
	Accrued payroll and payroll related			2,558,955			5,150,104
	Income taxes payable			-			711,073
	Current portion of long-term debt			359,971			435,386
	Rebates, chargebacks and returns payable			14,283,623			13,734,540
		Total Current Liabilities		33,715,890			38,679,005

Long-term debt, less current portion				7,585,473			7,703,382
Unearned grant funds				500,000			500,000
Other long-term liabilities				10,339			47,111
		Total Liabilities		41,811,702			46,929,498
Commitment and Contingencies

SHAREHOLDERS' EQUITY
	Common stock - authorized 50,000,000 shares, par value $0.001;
	issued and outstanding, 24,799,154 and 24,517,696 shares, respectively			24,799			24,518
	Additional paid in capital			78,431,215			76,250,309
	Retained earnings			4,655,527			1,743,565
	Noncontrolling interest			115,471			93,654
	Accumulated other comprehensive income			28,998			24,751
				83,256,010			78,136,797
	Less: Treasury stock at cost - 90,160 and 82,228 shares, respectively			(558,294	)		(489,174	)
		TOTAL SHAREHOLDERS' EQUITY		82,697,716			77,647,623

		TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	124,509,418		$	124,577,121