ARTHUR BEDROSIAN, CEO ∙ MARTY GALVAN, CFOlannett.investorroom.com/download/LCI+-+Investor... ·...

November 2017

ARTHUR BEDROSIAN, CEO ∙ MARTY GALVAN, CFO

Lannett Company Inc. 2

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 the guidance for fiscal 2018, planned product launches, the expected positive FDA inspection results of the Company’s manufacturing facilities and product approvals, potential changes to corporate and/or border taxes, 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 alliance partners, 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. 3

USE OF NON-GAAP FINANCIAL MEASURES

This presentation contains references to non-GAAP financial measures, which are financial measures that are not prepared in conformity with accounting principles generally accepted in the United States (GAAP). Management uses these measures internally for evaluating its operating performance. Adjusted total net sales excludes a settlement agreement and Adjusted operating income is adjusted to exclude, among other things, the effects of amortization of purchased intangible assets and other purchase accounting entries, acquisition and integration-related expenses, restructuring expenses, separation expenses, 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 financial results press releases. Non-GAAP financial measures, including Adjusted total net sales and 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.

Lannett Company Inc. 4

LANNETT, AT A GLANCE

~100MARKETED

PRODUCTS(~250 SKUs)

Lannett Company Inc. 5

LANNETT, AT A GLANCE

STRONG

RECORDOF REGULATORY COMPLIANCE

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LANNETT, AT A GLANCE

13ANDAsincludes 8 with Paragraph IV certification

1NDA for C-Topical®,

proprietary anesthetic product

PENDING DRUG APPLICATIONS

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LANNETT, AT A GLANCE

U.S. FACILITIES

MANAGEMENT TEAM

ARTHUR BEDROSIAN, CEO

49 years in industry; 15 at Lannett; Trinity Labs, Pharmeral, Liquipharm, Zenith Labs, PurePac

MARTIN GALVAN, CFO

37 years in industry; 6 at Lannett; Viasys Healthcare, Rhone-Poulenc Rorer, Revlon Health Care

10SAMUEL ISRAEL, GENERAL COUNSEL

20 years in industry; 1 at Lannett; Fox Rothschild

JOHN KOZLOWSKI, COO8 years in industry; 8 at Lannett; Optium, Finisar

KEVIN SMITH, SENIOR VP SALES & MARKETING30 years in industry; 15 at Lannett; Bi-Coastal Pharma, Mova Labs, Sidmak Labs, Purdue

ROBERT EHLINGER, VP and CIO

24 years in industry; 11 at Lannett; MedQuist, Kennedy Health Systems

MANAGEMENT TEAM, cont’d

BERNHARD OPTIZ, PRESIDENT – CODY LABS

20 years in industry; 6 at Lannett; UniLife, Nanosphere, Bayer

JOHN ABT, VP QUALITY

30 years in industry; 2 at Lannett; Teva, Alpharma, RP Scherer

KRISTIN ARNOLD, PhD, VP RESEARCH & DEVELOPMENT29 years in industry; 1 at Lannett; Norwich Pharmaceuticals, Alpharma, Ecogen, Monsanto

MICHELLE RENFORS, Dir - Product Development – CODY LABS10 years in industry; 5 at Lannett; Thesis Chemistry, ZARS Pharma

KRISTIE STEPHENS, VP REGULATORY & COMPLIANCE18 years in industry; 18 at Lannett

Lannett Company Inc. 10

SALES MIX BY MEDICAL INDICATION

Based on adjusted net sales* for fiscal 2017 full year

Thyroid

Deficiency

27%

Gallstone 8%

GI 11%

Urinary 2%

Cardiovascular

8%

Other

14%

Migraine 5%

CNS 6%

Glaucoma 3%

Pain 4%

Antibiotic 3%

*Adjusted net sales excludes $4.0 million related to a settlement agreement. Other includes contract manufacturing revenues.

Anti Psychosis

9%

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CONTROLLED SUBSTANCE MARKET & GOAL

U.S. market: $33 billion in 2016*

Generic portion: $16 billion in 2016*

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. 2016

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OUT OF ONE … MANY

MORPHINE

MORPHINE SULFATE

8 products; 48 strengths

HYDROMORPHONE HCL

7 products; 20 strengths

CODEINE

THEBAINE

ORIPAVINE

CODEINE PHOSPHATE

18 products; 27 strengths

CODEINE SULFATE

1 products; 3 strengths

HYDROCODONE BITARTRATE

14 products; 43 strengths

DIHYDROCODEINE BITARTRATE

2 product; 2 strengths

OXYCODONE

11 products; 33 strengths

BUPRENORPHINE

6 products; 27 strengths

NALTREXONE HCL

3 Products; 8 strengths

METHYLNALTREXONE BROMIDE

4 Products; 5 strengths

NALBUPHINE HCL

2 Products; 3 Strengths

BUTORPHANOL TARTRATE

1 Products; 4 Strengths

OXYMORPHONE

3 products; 10 strengths

BRAND NAMES

PLANT 1

ALKALOIDS 4

APIS 13

PRODUCTS 80

STRENGTHS 232

BRAND NAMES• Avinza

• Dilaudid

• Exalgo

• Hycodan

• Kadian

• Lortab

• Vicodin

• MS Contin

• Oxycontin

• Vivitrol

• Percocet

• Suboxone

• Nubain

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COST SAVINGS, RESTRUCTURING PLAN

January - May 2017, paid down $125 million of revolving credit facility - entire principal balance; annualized cash interest savings of approximately $7.3 million

May – June 2016, refinanced all $250 million of 12% Senior Notes

Cash interest savings of approximately $170 million over the life of the loans

February 2016, implemented companywide cost savings and restructuring plan, actions include:

Closed KU corporate office in Princeton, NJ; completed 10% workforce reduction, rising to 20% over next three years

Streamlining manufacturing, packaging, distribution; consolidating research and product development functions

Achieved synergies of $33 million in FY 2016, estimated to generate ~$50 million of annualized synergies by end of FY 2018, $65 million by end of FY 2020

Aggregate plan costs of approximately $21 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

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

Capitalize on vertical integration strategy

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GROWTH STRATEGY (continued)

STRATEGIC ALLIANCES: 11 additional product applications pending

Co-developing generic insulin

$23 billion U.S. market

Lannett exclusive U.S. distributor; partner to manufacture

Fifth project with partner

Fentanyl Transdermal System

Partner received FDA Acceptable for Filing letter

Large market opportunity

Expands pain management franchise

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GROWTH STRATEGY (continued)

BRAND PRODUCT:

C-Topical® Cocaine HCl

Requirements for Commercialization:

– Completed Phase III clinical testing

– Filed 505(b)(2) NDA with 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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PLANTING THE SEEDS FOR FUTURE GROWTH

Generic Base

Device

Cocaine

DTC

Distribution

Pipeline

CMO

Addiction Business

UD Distribution

Insulin

Cody

DarmanTest

Post-Op Brand

EuryPharma

Veterinary Meds

Innovative APIs

17

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PLANTING THE SEEDS FOR FUTURE GROWTH

18

Long Term Revenue• Innovative APIs

• Exporting LCI Products Internationally

Mid Term Revenue• Methadone

• New Addiction treatment

• Automated treatment

• New Rx opportunities

• Eury Pharma (Tax Relief)

• Post Operative New Product

• Insulin

Short Term Revenue• Sparsha Distribution (Fentanyl Patch)

• New Distribution (V ER)

• HEC Distribution (Various ANDAs)

• 13 Filed ANDAs with FDA

• New product NVP Manufacturing

• Cody API to Compounders

• Cody API Third Party Sales (Opioids)

• Unit Dose Distribution

• Various M&A Opportunities

• DarmanTest Laboratory

Current Revenue• Commercial Manufactured Generic Portfolio

• Jerome Stevens Distributed Products

• UCB Authorized Generics

• C-Topical

• Contract Manufacturing Business

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FINANCIALS

FINANCIAL DISCUSSION

SALES, PROFITABILITY

BALANCE SHEET

GUIDANCE

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STRONG SALES TREND

GENERICS

CONTROLLED SUBSTANCES

BRANDS$0

$100

$200

$300

$400

$500

$600

$700

2001 2003 2005 2007 2009 2011 2013 2015 2017

In millions

Levothyroxine OB-NatalMorphine

Sulfate

$12 $25$43

$64$45

$64$83 $72

$119 $125$107

$151

$274

$566

$123

$407

$637

$244.0

$230.3

$200

$220

$240

$260

FY16 FY17

$566.1

$637.3

$500

$550

$600

$650

FY16 FY17

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FISCAL 2017 FULL YEAR

In millions

ADJ. TOTAL NET SALES* ADJ. OPERATING INCOME*

* Adjusted total net sales excludes settlement agreement of $4.0 million in FY17 and $23.6 million in FY16. Adjusted operating income excludes the effects of amortization of purchased intangible assets and other purchase accounting entries, acquisition and integration-related expenses, restructuring expenses, impairment charges, as well as certain other items considered unusual or non-recurring in nature.

$60.7

$50.7

$20

$35

$50

$65

Q1-FY17 Q1-FY18

$161.6

$155.0

$120

$135

$150

$165

Q1-FY17 Q1-FY18

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FISCAL 2018 FIRST QUARTER

In millions

NET SALES ADJ. OPERATING INCOME*

* Adjusted operating income excludes the effects of amortization of purchased intangible assets and other purchase accounting entries, acquisition and integration-related expenses, restructuring expenses, as well as certain other items considered unusual or non-recurring in nature.

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BALANCE SHEET

BRANDS

CASH & INVESTMENTS $ 116

TOTAL ASSETS $1,616

TOTAL LIABILITIES $1,040

DEBT $ 895

STOCKHOLDERS’ EQUITY $ 576

AS OF SEPTEMBER 30, 2017 (IN MILLIONS)

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FISCAL 2018 GUIDANCE

NET SALES

ADJUSTED EFFECTIVE TAX RATE

ADJUSTED GROSS MARGIN %

ADJUSTED SG&A

ADJUSTED R&D

CAPEX

$710 M to $720 M

$46 M to $48 M

$65 M to $75 M

~35%

$77 M to $79 M

51% to 52%

As reported on November 6, 2017

ADJUSTED INTEREST EXPENSE $66 M to $67 M

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RECENT ACHIEVEMENTS / ONGOING INITIATIVES

CY-2017

October, entered agreement to market Thalidomide, as of August 2019 or earlier under certain circumstances

January – October, received 11 product approvals, 12 in calendar 2016

September, submitted NDA for C-Topical®, proprietary anesthetic product

January - May, voluntarily paid down $125 million of revolving credit facility – entire principal balance

In February, announced plans for $50 million expansion of pain management facilities

CY-2016

In July, announced receipt of FDA Acceptable Filing letter for Fentanyl patch

In May - June, refinanced all $250 million of 12% Senior Notes; cash interest savings of $170 million

In April, expanded collaboration with strategic partner to co-develop generic insulin for $23 billion US market

In February, implemented restructuring plan, achieved $33 million of synergies in FY 2016, estimated to generate ~$50 million of annualized synergies by end of FY 2018, $65 million by end of FY 2020

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INVESTMENT HIGHLIGHTS

Generics: 88% of new Rxs in the US and growing*

Sales Growth: LCI well-positioned for continued growth in multiple categories

13% top-line growth in FY 2017

Pipeline: 1 NDA and 13 ANDAs pending at FDA

Implemented Restructuring Plan: achieved synergies of $33 million in fiscal 2016, estimated to generate ~$50 million of annualized synergies by end of fiscal 2018, $65 million by end of fiscal 2020

RIFs: 10% immediate, 20% by end of third year from acquisition date

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 GPhA report “Generic Drug Savings in the US 2015”

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ADDITIONAL INVESTMENT CONSIDERATIONS

Lannett manufactures ALL of its products in USA

Political Environment is favorable for generics

Cash Flow is strong; Adjusted EBITDA margin is approximately 40%

Well within Debt Covenant Ratio

Levothyroxine is a Narrow Therapeutic Index Drug, mitigates potential product switch. Largest to smallest customers have indicated they will continue to purchase

Compliance history is exemplary - FDA, DEA and DOJ

NYSE: LCI ∙ www.Lannett.com

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