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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2021
OR
For the transition period from to
Commission File No. 001-31298
LANNETT COMPANY, INC.
(Exact name of registrant as specified in its charter)
State of Delaware
State of Incorporation
23-0787699
I.R.S. Employer I.D. No.
1150 Northbrook Drive, Suite 155
Trevose, Pennsylvania 19053
Registrant’s telephone number, including area code: (215) 333-9000
(Address of principal executive offices and telephone number)
Securities registered under Section 12(b) of the Exchange Act:
Title of each class
Common Stock, $0.001 par value
Trading Symbol(s)
LCI
Name of each exchange on which registered
New York Stock Exchange
Securities registered under Section 12(g) of the Exchange Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90
days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-
T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions
of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☐
Non-accelerated filer ☐
Accelerated filer ☒
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12B-12 of the Exchange Act). Yes ☐ No ☒
Aggregate market value of common stock held by non-affiliates of the registrant, as of December 31, 2020 was $214,124,709 based on the closing price of the stock
on the NYSE.
As of July 31, 2021, there were 42,276,052 shares of the registrant’s common stock, $.001 par value, outstanding.
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TABLE OF CONTENTS
ITEM 1. DESCRIPTION OF BUSINESS
ITEM 1A. RISK FACTORS
ITEM 2. DESCRIPTION OF PROPERTY
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. MINE SAFETY DISCLOSURES
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
ITEM 6. [RESERVED]
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART I
PART II
PART III
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE
SIGNATURES
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements. Any statements made in this Annual Report that
are not statements of historical fact or that refer to estimated or anticipated future events are forward-looking statements.
We have based our forward-looking statements on management’s beliefs and assumptions based on information available
to them at this time. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,”
“anticipate,” “intend,” “could,” “would,” “estimate,” “continue,” or “pursue,” or the negative other variations thereof or
comparable terminology, are intended to identify forward-looking statements. Such forward-looking statements reflect our
current perspective of our business, future performance, existing trends and information as of the date of this filing. These
include, but are not limited to our beliefs about future revenue and expense levels, growth rates, prospects related to our
strategic initiatives and business strategies, express or implied assumptions about government regulatory action or inaction,
anticipated product approvals and launches, business initiatives and product development activities, assessments related to
clinical trial results, product performance and competitive environment, anticipated financial performance. The statements
are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to
predict. We caution the reader that certain important factors may affect our actual operating results and could cause such
results to differ materially from those expressed or implied by forward-looking statements. Lannett is under no obligation
to, and expressly disclaims any such obligation to, update or alter its forward-looking statements, whether as a result of
new information, future events or otherwise and other events or factors, many of which are beyond our control, including
those resulting from such events, or the prospect of such events, such as public health issues including health epidemics or
pandemics, such as the recent outbreak of the novel coronavirus (“COVID-19”), whether occurring in the United States or
elsewhere, which could disrupt our operations, disrupt the operations of our suppliers and business development and other
strategic partners, disrupt the global financial markets or result in political or economic instability. We believe the risks and
uncertainties discussed under the “Item 1A - Risk Factors” and other risks and uncertainties detailed herein and from time
to time in our SEC filings may affect our actual results.
We disclaim any obligation to publicly update any forward-looking statements, whether as a result of new information,
future events or otherwise. We also may make additional disclosures in our Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K and in other filings that we may make from time to time with the SEC. Other factors besides those
listed here could also adversely affect us.
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ITEM 1. DESCRIPTION OF BUSINESS
Business Overview
PART I
Lannett Company, Inc. and subsidiaries (the “Company,” “Lannett,” “we,” or “us”) was incorporated in 1942 under the
laws of the Commonwealth of Pennsylvania and reincorporated in 1991 as a Delaware corporation. We primarily develop,
manufacture, market and distribute generic versions of brand pharmaceutical products. Generics represent the vast majority
of U.S. prescriptions today, accounting for approximately 90% of prescriptions in the 12-month period ending June 30,
2021. We report financial information on a quarterly and fiscal year basis with the most recent being the fiscal year ended
June 30, 2021. All references herein to a “fiscal year” or “Fiscal” refer to the applicable fiscal year ended June 30.
Over the past 18 years, the Company has grown total net sales from $12.1 million in fiscal year 2001 to $478.8 million in
fiscal year 2021. The Company generates revenue through filing and receiving approvals for abbreviated new drug
applications (“ANDAs”), strategic partnerships and launches of additional manufactured drugs, as well as from products
acquired from Silarx Pharmaceuticals, Inc. (“Silarx”) and Kremers Urban Pharmaceuticals Inc. (“KUPI”) in 2015. More
recently, the Company’s revenues have grown through a renewed emphasis on new product launches, strategic portfolio
management and business development. We have launched 55 products since January 2018, anchored by 24 new partner
agreements, covering 33 new product launches, and complemented by 22 acquired or internally developed products. Over
the last three years, new product launches have generated more than $485 million of revenues.
Today, we market more than 100 products, mainly tablet, capsule or liquid oral generic medications. Examples of marketed
products include generics such as Posaconazole, Fluphenazine, Levothyroxine and Sumatriptan and our NDA-based
product Numbrino. Our portfolio includes medications across multiple and diverse groups of therapeutic categories. The 55
products we launched have grown our revenue base, diversified our portfolio and reduced product concentration. For the
fiscal years 2017, 2018 and 2019, the Company’s top two products contributed, on average, approximately 40% of
revenues. By comparison, our top two products accounted for approximately 28% and 19% of revenues for fiscal years
2020 and 2021, respectively.
The Company’s pipeline includes 12 ANDAs currently pending at the FDA and more than 20 additional product candidates
in various stages of development. More recent additions to our pipeline include high value, large market opportunity
products that are often partnered. These higher value products generally have more technical, manufacturing, regulatory
and operational complexity and require significant capital investment for specialized and dedicated manufacturing facilities
and equipment, making them more durable product opportunities with fewer expected competitors. Four of the product
candidates, generic Advair Diskus and generic Flovent Diskus, combination drug/devices for the treatment of asthma, and
biosimilar Insulin Glargine and biosimilar Insulin Aspart for the treatment of diabetes both delivered in a device, are
widely used medications that we believe represent a combined U.S. addressable market opportunity of over $13 billion in
2021, which includes the entire Insulin Glargine market. The ANDA for the generic Advair Diskus product was submitted
to the FDA on April 1, 2021, and the generic Flovent Diskus product along with the Insulin Glargine and Insulin Aspart
biosimilar products are all in relatively advanced stages of development. We have identified and are negotiating with
current and potential partners for additional complex, large and durable market opportunity products, including other
biosimilars and inhalation drug/device products.
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Over the past three years, we have made cost and operational discipline, along with reducing our debt, key priorities. Since
the beginning of calendar year 2018, we lowered our gross debt level by more than $320 million, which included paying
off our Term A Loan in November 2020 and Term Loan B in April 2021. We have streamlined our operations by
restructuring and generally exiting the pain management Active Pharmaceutical Ingredients (“APIs”) business. We
consolidated plants and facilities, and substantially increased production and output at our remaining manufacturing sites in
Seymour, Indiana and Carmel, New York. In addition, we have reduced costs companywide; these efforts included
substantial workforce reductions, a $66 million cost savings plan implemented in 2018 (approximately half of which we re-
invested into the business) and another $15 million cost reduction plan implemented in July 2020. The July 2020 cost
reduction plan included consolidating our Research and Development (“R&D”) function into one location, as well as other
cost savings measures focused on our manufacturing base.
Competitive Strengths
Diversified product portfolio. We currently market over 100 products across multiple therapeutic categories. For the fiscal
years 2017, 2018 and 2019, the Company’s top two products contributed, on average, approximately 40% of revenues. By
comparison, our top two products accounted for approximately 28% and 19% of revenues for fiscal years 2020 and 2021,
respectively.
Attractive mid to longer term pipeline. We believe we have an attractive pipeline of large product opportunities that will
enable us to grow revenue and profitability. For example, we filed the ANDA for generic Advair on April 1, 2021, and are
on track to launch in calendar year 2022, if approved. The other dry powder inhaler we have in partnership with Respirent,
generic Flovent Diskus, is currently in clinical development. Additionally, we are focused on advancing our biosimilar
Insulin Glargine and biosimilar Insulin Aspart pipeline products to potentially launch in calendar years 2023 and 2024,
respectively. We believe leveraging our existing relationships to collaborate on opportunities across dry powder inhalation,
metered dose inhalation, and other biosimilar products will enable us to further strengthen our pipeline.
Extensive experience with productive partnerships. We continue to grow, diversify and strengthen our business by entering
into partnerships to distribute both externally developed products and authorized generic equivalents of brand products. We
are focused on the U.S. generics market, but our partnership opportunities are global, as demonstrated by our partnerships
with HEC, Respirent, Rivopharm, IBSA, Cediprof/Neolpharma and Sinotherapeutics, due to our experience, expertise and
reliability in commercialization in the U.S. market. In fiscal year 2021, we successfully launched around a dozen new
products, several of which are sourced from external parties, including Levothyroxine tablets and Levothyroxine capsules
(Tirosint®). We believe that our success with these products, along with existing alliances, has established us as a strong
development and marketing partner creating the foundation for continued productive partnership alliances in the future.
Strong internal product development capabilities. We believe that our U.S.-based manufacturing expertise, low overhead
expenses and skilled product development capabilities will contribute to being competitive in the generic pharmaceutical
market. We intend to dedicate significant resources toward developing new products because we believe our success is
linked to our ability to continually introduce new generic products into the marketplace.
Strong track record of obtaining regulatory approvals for new products. During the past three fiscal years, we have
received one NDA approval and 12 ANDA approvals from the FDA. Although the timing of ANDA approvals by the FDA
is uncertain, we currently expect to continue to receive more during Fiscal 2022. These regulatory approvals will enable us
to manufacture and supply a broader portfolio of generic pharmaceutical products.
Market orientation. We believe that our success depends on our ability to properly assess the competitive market for new
products, including customer interest, the number of competitors, market share opportunity and the generic unit price
erosion. We look to reduce our exposure to competitive influences that may negatively affect our sales and profits,
including the potential saturation of the market for certain products, by continuing to emphasize a strong product selection
process with an orientation in internal development to areas where we have technological and manufacturing expertise and
use external development partnerships to access other technologies and associated manufacturing capacity as well as risk
sharing.
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Leverage our flexibility and speed. We believe flexibility and speed in decision-making are critical success factors in the
generic industry. Our mid-sized scale and relatively less complex organizational structure as a U.S. based organization
results in a nimbler response to securing market opportunities. For example, Fluphenazine, a product that contributed
approximately $96 million of net revenue in fiscal year 2020, was the result of the Company capitalizing on changing
market opportunity and achieving significant market share and profitability for about a decade before other new
manufacturers entered the market in early fiscal year 2021.
Dependable U.S.-based supplier to our customers. We believe we are viewed by our customers as a strong, dependable
supplier due in part to our agile and reliable operations network, as well as having a less complex manufacturing/supply
chain based mostly within the U.S. We have cultivated productive customer relationships by focusing on what is important
to them and their patients, along with maintaining adequate inventory levels, employing a responsive order filling system
and prioritizing timely fulfillment of those orders. Unless a later delivery date is specified, a majority of our orders are
filled and shipped on or the day after we receive the order.
Reputation for regulatory compliance. We have a strong track record of regulatory compliance. We believe that we have
effective regulatory compliance capabilities and practices due to: (1) the hiring of qualified individuals, (2) the
implementation of comprehensive Standard Operating Procedures (“SOP”), (3) adherence to current Good Manufacturing
Practices (“cGMP”) and (4) operating an owned manufacturing network less complex than larger firms. Our agility in
responding quickly to market events and a reputation for regulatory compliance positions us to avail ourselves of market
opportunities as they materialize.
We continue to pursue “Quality by Design” for improving and maintaining product quality in our pharmaceutical
development and manufacturing facilities, which is outlined in the Food and Drug Administration (the “FDA”) report
entitled, “Pharmaceutical Quality for the 21st Century: A Risk-Based Approach.” The FDA periodically inspects our
operations to determine our compliance with applicable laws and regulations. During an inspection, the FDA may issue an
inspection report, entitled a “Form 483,” containing potentially objectionable observations arising from an inspection.
Additionally, at the close of each inspection, FDA will issue an Establishment Inspection Report (“EIR”) that details the
final classification for each site, either No Action Indicated (“NAI”), Voluntary Action Indicated (“VAI”), or Official
Action Indicated (“OAI”). The FDA’s observations may be minor or severe in nature and the degree of severity is generally
determined by potential consequences to the consumer. By strictly complying with cGMPs and the various FDA guidelines
as well as adherence to our Standard Operating Procedures, we have never received a cGMP Warning Letter in more than
70 years of business.
Experienced management team. We have been focused on maintaining and augmenting the quality of our management
team in anticipation of continuing growth. Our team is distinctive with regard to their generic industry tenure and extensive
U.S. focus. We have hired experienced personnel from large, established, pharmaceutical companies as well as competing
generic companies to complement the skills and knowledge of the existing management team. As we continue to grow,
additional personnel may need to be added to our management team and we intend to hire the best people available to
expand the knowledge base and expertise within our team.
Business Strategies
Focus on the large U.S. generic market and larger U.S. brand market opportunities
We believe generics are the foundation of efficient pharmaceutical care and are estimated to be approximately 90% of all
U.S. pharmaceutical prescription volume with an IQVIA value of approximately $56 billion for the 12-month period
ending June 30, 2021. While that estimate likely well exceeds actual market size, Lannett’s opportunity is significant
relative to Lannett’s size. Meanwhile, the brand market subject to eventual genericization exceeds $450 billion, according
to IQVIA. As new branded products become off patent and existing generic product opportunities become available, we
will seek to generate new business through both internal development and partnerships.
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We are focused on increasing our market share in the U.S. generic pharmaceutical industry while directing additional
resources on the development of new products. We look to grow revenue and profitability by expanding our line of generic
products, increasing unit sales to current customers, creating manufacturing efficiencies and managing our overhead and
administrative costs.
Emphasis on in-line execution
We have a broad portfolio of existing generics and we continually look to optimize the share and value of our existing
portfolio. We look to capitalize on competitor supply disruptions, which occur frequently in the industry of both a shorter
and longer duration. We seek to reduce the cost of our products through various life cycle management approaches
including increasing the efficiency of our plant, and our product manufacturing yields, and lowering incipient and API
costs from third-party suppliers.
Strategic expansion of our product offering
We have three primary strategies for expanding our product offerings: (1) entering into product development partnerships
or strategic alliances with third-party product developers and formulators; (2) deploying our experienced R&D staff to
develop products in-house; and (3) purchasing ANDAs or New Drug Applications (“NDA”) from other manufacturers. We
expect that each strategy will facilitate our identification, selection and development of additional pharmaceutical products
that we may sell to our existing network of customers.
We are focused on the U.S. market, but our business development efforts are global. Our relationships with global partners
and our track record of delivering regulatory and commercialization expertise to global biopharmaceutical companies is a
competitive advantage and offers significant opportunities for future growth. Between January 2018 and June 2021, the
number of alliances that our business development efforts have secured increased significantly and we have acquired or in-
licensed over 75 ANDA products as a result of these efforts.
One of our major strategic partnerships was struck in October 2019 when the Company announced it had entered into an
exclusive U.S. distribution agreement for the therapeutically equivalent generic of ADVAIR DISKUS® (Fluticasone
Propionate – Salmeterol Xinafoate Powder Inhaler) of Respirent Pharmaceuticals Co. Ltd. ADVAIR DISKUS had U.S.
sales of $3.6 billion for the 12 months ending July 2019, according to IQVIA, although the accessible generic market is
expected to be lower. We currently estimate the generic accessible market to be approximately $1 billion, annually. The
Company submitted to the FDA an ANDA for the product on April 1, 2021. Under the agreement, the Company will
commence U.S. distribution of the product after FDA approval. The Company will make an upfront payment, as well as
future milestone payments, and receive a portion of the net profits once it commences distribution of the product. The term
of the agreement is 12 years, which begins upon commencement of distribution.
As an expansion in our partnership with Respirent, in August 2020, the Company announced it had entered into an
exclusive U.S. distribution agreement for a second product, the therapeutically equivalent generic of Flovent® Diskus®
(Fluticasone Propionate Powder Inhaler). U.S. sales of Flovent Diskus were $96 million for the 12 months ending June
2021 according to IQVIA, although actual accessible generic market values are expected to be lower. Early development of
the product is underway. Subsequently, the Company announced further expansion of the relationship to target the
therapeutically equivalent generic to SPIRIVA® handihaler®. U.S. sales of SPIRIVA handihaler were approximately $1.5
billion for the 12 months ending June 2021 according to IQVIA.
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In 2016, the Company announced a strategic partnership with YiChang HEC ChangJiang Pharmaceutical Co., Ltd, an HEC
Group company, to co-develop a biosimilar insulin glargine pharmaceutical product for the U.S. market. The product is
currently in development, and a healthy human Pharmacokinetic/Pharmacodynamic modeling (“PK/PD”) clinical trial was
conducted in South Africa. The study met all of its primary endpoints. Subsequently, Lannett held a Biosimilar Biological
Product Development Type II meeting with the FDA. The feedback was consistent with our expectation. The Company
plans to manage the clinical and regulatory steps for FDA approval and will have the exclusive U.S. marketing rights to the
product. Drug substance and drug product have been produced at a newly commissioned facility and we are targeting
completing an Investigational New Drug Application (“IND”) towards the end of calendar year 2021. We currently expect
to file the product in early calendar year 2023 and, if approved, launch the product in the first half of calendar year 2024. In
February 2021, the Company expanded its strategic relationship with HEC and added a new co-development agreement for
biosimilar Insulin Aspart. In addition, we will market other generic products developed by HEC with several launches
expected over the next few years.
In August 2020, the Company announced it had commenced distributing Cediprof, Inc’s (“Cediprof”) Levothyroxine
product under an interim exclusive supply and distribution agreement. The interim supply agreement covers the period
from July 2020 through the start of the previously executed 10-year exclusive supply and distribution agreement with
Cediprof to distribute Levothyroxine Sodium Tablets USP, which was entered into in July 2019 and becomes effective
August 2022. The Company also entered into an exclusive U.S. distribution agreement with IBSA Institut Biochemique SA
and commenced the launch of the authorized generic of Tirosint® (Levothryoxine Sodium Capsules USP) in November
2020. Levothyroxine is one of the largest volume generics sold in the United States.
We have several other existing supply and development agreements with both international and domestic companies; in
addition, we are currently in negotiations on similar agreements with other companies through which we can market and
distribute future products. We intend to continue to capitalize on our strong customer relationships to build our market
share for such products.
Internal research and development is also an important prong of our growth strategy. Examples of internally developed
products include Chlorpromazine and butalbital, acetaminophen and caffeine (“BAC”), and co-development projects such
as Sumatriptan Nasal Spray. Opportunistically, we may increase our focus on specialty markets within the pharmaceutical
industry. For example, in Fiscal 2018, the Company filed its first NDA for Numbrino (cocaine hydrochloride solution),
which was approved by the FDA in January 2020.
Key Products
Key products were selected based on current and future sales and profitability. In aggregate, the 11 products noted below
accounts for approximately 47% of Lannett sales in Fiscal 2021. While these products are our top selling products, margins
may vary well above or below average margins based on changing competitive circumstances as well as product
partnership royalties, where applicable.
Fluphenazine Tablets
Fluphenazine tablets are used for the management of manifestations of psychotic disorders. Net sales of Fluphenazine
tablets represented approximately 7% of total net sales in fiscal year 2021.
Posaconazole DR Tablets
Posaconazole DR tablets are used to prevent fungal infections in people who have a weak immune system resulting from
certain treatments or conditions. The product is the generic version of Noxafil®. Net Sales of Posaconazole DR represented
approximately 12.1% of total net sales in fiscal year 2021.
Verapamil SR Tablets
Verapamil SR tablets are a calcium channel blocker used in the treatment of high blood pressure, arrhythmia and angina.
We market the authorized generic of Verelan PM.
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Methylphenidate CD Capsules
Methylphenidate CD is a central nervous system (“CNS”) stimulant indicated for the treatment of Attention Deficit
Hyperactivity Disorder (“ADHD”). This product is the authorized generic version of the brand Metadate CD®.
Omeprazole Capsules
Omeprazole is a proton pump inhibitor. The product is a generic version of the branded drug Prilosec®. It is indicated for
the treatment of certain diseases of the esophagus and stomach ulcers as well as pathologic hypersecretory conditions.
KUPI produces Omeprazole DR capsules in 10mg, 20mg and 40mg dosages.
Pantoprazole Sodium DR Tablets
Pantoprazole is a proton pump inhibitor. The product is a generic version of the branded drug Nexium®. It is indicated for
the treatment of certain diseases of the esophagus and pathological hypersecretory conditions. KUPI produces Pantoprazole
tablets in 20mg and 40mg dosages.
Sumatriptan Nasal Spray
Sumatriptan Nasal Spray is indicated for the acute treatment of migraine attacks. This product is a generic version of
Imitrex® Nasal Spray. The Company distributes the 5mg and 20mg dosages.
Metolazone Tablets
Metolazone is a diuretic medication. It is indicated for the treatment of hypertension, alone or in combination with other
anti-hypertensives. We market the authorized generic version of Zaroxolyn®. This product is currently on extended back
order due to an API supply issue.
Amphetamine IR Tablets
Amphetamine IR Tablets are used to treat ADHD and narcolepsy. It is the generic version of Adderall.
Cocaine Hydrochloride Solution
In December 2017, a competitor received approval from the FDA to market and sell a Cocaine Hydrochloride topical
product. This approval affects the Company’s right to market and sell its unapproved cocaine hydrochloride solution
product. In March 2018, in accordance with its guidance, the FDA requested the Company to cease manufacturing and
distributing its unapproved cocaine hydrochloride solution product as a result of an approved product on the market. The
Company committed to not manufacture or distribute cocaine hydrochloride 10% solution, which has not been sold during
Fiscal 2019, as of April 15, 2019 and agreed to cease manufacturing its unapproved cocaine hydrochloride 4% solution on
June 15, 2019 and cease distributing the product on August 15, 2019.
We filed a NDA for Numbrino® Nasal Solution in Fiscal 2018. We received approval in January 2020 and launched the
product in March 2020.
The competitor filed a series of Citizen Petitions and lawsuits beginning in 2019, first attempting to block the FDA from
approving our NDA for cocaine hydrochloride solution and, following the FDA’s approval, seeking a court order requiring
FDA to withdraw approval of the NDA. To date, the competitor has been unsuccessful, although litigation has not yet been
concluded. Refer to Note 10 “Legal, Regulatory Matters and Contingencies” for further information regarding the pending
litigation.
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Levothyroxine Tablets
Levothyroxine tablets is a thyroid hormone medication that is used to treat underactive thyroid (hypothyroidism) and other
conditions. It is deemed bioequivalent to Levoxyl®, Synthroid®, Unithroid® and Euthyrox®.
Levothyroxine Capsules
Levothyroxine capsules are soft gel capsules used to treat patients with hypothyroidism and other conditions. It is the
generic version of the branded drug Tirosint®.
Sales & Marketing and Customers
We enter into contracts with Group Purchasing Organizations (“GPOs”) to sell our products to their members who are our
direct and indirect customers. The largest GPOs are ClarusOne, Red Oak Sourcing and Walgreens Boots Alliance
Development. Net sales to these GPOs accounted for 73% of total net sales in fiscal year 2021 and 74% in fiscal year 2020.
We sell our pharmaceutical products to generic pharmaceutical distributors, drug wholesalers, chain drug retailers, private
label distributors, mail-order pharmacies, other pharmaceutical companies, managed care organizations, hospital buying
groups, governmental entities and health maintenance organizations. The pharmaceutical industry’s largest wholesale
distributors, Amerisource Bergen, McKesson and Cardinal Health, each associated with one of the GPOs mentioned above,
accounted for 27%, 21% and 12%, respectively, of our total net sales in fiscal year 2021, 25%, 23% and 11%, respectively,
of our total net sales in fiscal year 2020 and 21%, 18% and 10%, respectively, of our total net sales in fiscal year 2019.
Sales to wholesale customers include “indirect sales,” which represent sales to third-party entities, such as independent
pharmacies, managed care organizations, hospitals, nursing homes and group purchasing organizations, collectively
referred to as “indirect customers.”
We enter into definitive agreements with our indirect customers to establish pricing for certain covered products. Under
such agreements, the indirect customers independently select a wholesaler from which to purchase the products at these
agreed-upon prices. We will provide credit to the wholesaler for the difference between the agreed-upon price with the
indirect customer and the wholesaler’s invoice price. This credit is called a “chargeback.” For more information on
chargebacks, see the section entitled “Critical Accounting Policies and Estimates” in Item 7, “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” of this Form 10-K. These indirect sale transactions are
recorded on our books as sales to wholesale customers.
We promote our products through direct sales, trade shows and group purchasing organizations’ bidding processes. We also
have a limited number of products that are marketed as part of our customers’ “private label” programs. Private label
products are manufactured by Lannett but distributed to the customer with a label typically containing the name and logo
of the customer. Private label allows us to leverage our internal sales efforts by using the sales and marketing efforts of
those customers.
Strong and dependable customer relationships have created a positive platform for us to increase our sales volumes.
Historically and in fiscal years 2021, 2020 and 2019, our advertising expenses have been modest. When our sales
representatives make contact with a customer, we will generally offer to supply the customer our products at fixed prices. If
accepted, the customer’s purchasing department will coordinate the purchase, receipt and distribution of the products
throughout its distribution centers and retail outlets. Once a customer accepts our supply of a product, the customer
typically expects a high standard of service, including timely receipt of products ordered, availability of convenient, user-
friendly and effective customer service functions and maintaining open lines of communication.
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We believe that retail-level consumer demand dictates the total volume of sales for most of our various products. In the
event that wholesale and retail customers adjust their purchasing volumes, we believe that consumer demand will be
fulfilled by other wholesale or retail sources of supply. As a result, we attempt to develop and maintain strong relationships
with most of the major retail chains, wholesale distributors and mail-order pharmacies in order to facilitate the supply of
our products through whatever channel the consumer prefers. Although we have agreements with customers governing the
transaction terms of our sales, generally there are no minimum purchase quantities applicable to these agreements. Our
practice of maintaining adequate inventory levels, employing a responsive order filling system and prioritizing timely
fulfillment of those orders have contributed to a strong reputation among our customers as a dependable supplier of high-
quality generic pharmaceuticals.
Competition
The manufacturing and distribution of generic pharmaceutical products is a highly competitive industry. Competition is
based primarily on a reliable supply and price. In addition to competitive pricing, our competitive advantages are our
ability to provide strong and dependable customer service by maintaining adequate inventory levels, employing a
responsive order filling system and prioritizing timely fulfillment of orders. We look to ensure that our products are
available from national wholesale, chain drug and mail-order suppliers as well as our own warehouse. The modernization
of our facilities, hiring of experienced staff and implementation of inventory and quality control programs have improved
our competitive cost position. Our primary competitors across our product portfolio are Teva Pharmaceutical Industries
Ltd., Mylan N.V., and Amneal Pharmaceuticals Inc.
Validated Pharmaceutical Capabilities
The Company’s 432,000 square foot Seymour, Indiana facility contains approximately 107,000 square feet of
manufacturing space as well as a leased 116,000 square foot temperature/humidity-controlled storage warehouse. The
Seymour facility has had satisfactory inspections conducted by the FDA and EMA and similar regulatory authorities of
Japan, Taiwan, Brazil, China, Korea and Turkey. As of June 30, 2021, the facility has a production capacity of
approximately 4.0 billion doses based on our current product mix and plant configuration.
The Company has an 110,000 square foot manufacturing facility located in Carmel, New York, which sits on 25.8 acres of
land. The facility specializes in liquid products and currently houses manufacturing, packaging, quality and research and
development and has capacity for additional manufacturing space, if needed.
Lannett owns two facilities in Philadelphia, Pennsylvania. The research and development facilities are located in a 31,000
square foot facility at 9000 State Road and a second, 63,000 square foot facility that is located within one mile of the State
Road facility at 9001 Torresdale Avenue, Philadelphia, PA. The latter facility contains our analytical research and
development and quality control laboratories. We have adopted many systems and processes to ensure adherence to FDA
requirements and we believe we are operating our facilities in substantial compliance with the FDA’s cGMP regulations.
Raw Materials and Finished Goods Suppliers
Our use of raw materials in the production process consists of pharmaceutical chemicals in various forms that are often
available from several sources. In addition to the raw materials we purchase for the production process, we purchase
certain finished dosage inventories. We sell these finished dosage form products directly to our customers along with the
finished dosage form products manufactured in-house. We generally take precautionary measures to avoid a disruption in
raw materials and finished goods, such as finding secondary suppliers for certain raw materials or finished goods when
available and maintaining adequate inventory levels.
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Over time, we have entered into supply and development agreements with Summit Bioscience LLC, Respirent
Pharmaceuticals Co., Ltd., HEC Pharm Group, Dexcel Pharma, Elite Pharmaceuticals, RivoPharm and various other
international and domestic companies. The Company is currently in negotiations on similar agreements with other
companies and is actively seeking additional strategic partnerships, through which it will market and distribute products
manufactured in-house or by third parties. The Company also continues to assess product acquisitions that are a strategic fit
and accretive to the business.
Research and Development Process
Over the past several years, we have invested in R&D projects. The costs of these R&D efforts are expensed during the
periods incurred. We believe that such costs may be recovered in future years when we receive approval from the FDA to
manufacture and distribute such products. We have embarked on a plan to grow in future years, which includes organic
growth to be achieved through our R&D efforts. We expect that our list of generic products under development will help
drive future growth. The following steps outline the numerous stages in the generic drug development process:
1.) Formulation and analytical method development. After a drug candidate is selected for future sale, product
development scientists perform various experiments to incorporate excipients with the APIs to produce a robust,
stable and bioequivalent dosage form that will be therapeutically equivalent to the brand name drug and meet all
FDA requirements for approval. These experiments will result in the creation of a number of product
formulations to determine which formula will be most suitable for our subsequent development process. Various
formulations are tested in the laboratory to measure results against the innovator brand drug. During this time, we
may use reverse engineering methods on samples of the innovator drug to determine the type and quantity of
inactive ingredients. During the formulation phase, our R&D chemists begin to develop an analytical, laboratory
testing method. The successful development of this test method will allow us to test developmental and
commercial batches of the product in the future. All of the information used in the final formulation, including the
analytical test methods adopted for the generic drug candidate, will be included as part of the Chemistry,
Manufacturing and Controls (“CMC”) section of the ANDA submitted to the FDA.
2.) Scale-up and tech transfer. After product development, our R&D formulators and our R&D chemists agree on a
final formulation for use in moving the drug candidate forward in the developmental process, we then attempt to
increase the batch size of the product. The batch size represents the standard magnitude to be used in
manufacturing a batch of the product. The determination of batch size affects the amount of raw material that is
used in the manufacturing process and the number of expected dosages to be created during the production cycle.
We attempt to determine batch size based on the amount of active ingredient in each dosage, the available
production equipment and unit sales projections. The scaled-up batch is then generally produced in our
commercial manufacturing facilities. During this manufacturing process, we document the equipment used, the
amount of time in each major processing step and any other steps needed to consistently produce a batch of that
product.
3.) Bio equivalency and clinical testing. After a successful scale-up of the generic drug batch, we schedule and
perform generally required bio equivalency testing on the product and in some cases, clinical testing, if required
by the FDA. These procedures, which are generally outsourced to third parties, include testing the absorption rate
and extent of the generic product in the human bloodstream compared to the absorption of the innovator drug.
The results of this testing are then documented and reported to us to determine the “success” of the generic drug
product. Success, in this context, means that we are able to demonstrate that our product is comparable to the
innovator product in dosage form, strength, route of administration, quality, performance characteristics and
intended use.
Bioequivalence (meaning that the product has the same blood levels and dosage form as the innovator drug) and a
stable formula are the primary requirements for a generic drug approval (assuming the manufacturing plant is in
compliance with the FDA’s cGMP regulations). Lengthy and costly clinical trials proving safety and efficacy,
which are required by the FDA for NDAs (and may include 505(b)(2)NDAs), are typically unnecessary for
generic companies. If the results are successful, we will continue the collection of information and documentation
for assembly of the drug application.
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4.) Submission of the ANDA for FDA review and approval. An ANDA is a comprehensive submission that contains,
among other things, data and information pertaining to the proposed labeling, active pharmaceutical ingredient,
excipients, container/closure, drug product formulation, drug product testing specification, methodology and
results. Bioequivalence study reports are also included in the ANDA submission.
Our ANDAs and NDAs are submitted to the FDA electronically using the most current Electronic Common Technical
Document standards. Lannett strives to achieve a first cycle approval for each ANDA under the Generic Drug User Fee
Amendments of 2012 (“GDUFA”) review metrics.
In fiscal year 2021, we launched several products from internal and external sources. The following summary contains
more specific details regarding our latest product launches. Market data was obtained from IQVIA although actual generic
market sizes are expected to be smaller.
Product Launch
1 Mexiletine Capsules
2 Levothyroxine Tablets
3 Lidocaine 2% Solution
4 Levorphanol Tablets - 2mg
5 Cocaine HCl Nasal Solution (AG)
6 Azithromycin
7 Levothyroxine Capsules
8 Methadone Solution (Sugar Free) 30ml
9 Chlorpromazine Tablets
10 Levorphanol Tablets - 3mg
11 Venlafaxine ER Tablets - 75mg
12 Fluvastatin ER Tablets
Equivalent Brand
Mexitil®
Synthroid®/Levoxyl®
Month of Launch
$
July, 2020
August, 2020
$
August, 2020 Xylocaine® Viscous Solution $
$
August, 2020
$
September, 2020
$
October, 2020
$
November, 2020
$
November, 2020 Methadose™ (Mallinkrodt)
$
February, 2021
$
February, 2021
$
April, 2021
$
June, 2021
Thorazine®
Levo-Dromoran®
Effexor XR®
Lescol XL®
Levo-Dromoran®
Numbrino®
Zithromax®
Tirosint®
Total Market Size as of
June 2021 ($ in millions)
15.1
806.0
17.1
24.1
36.5
83.0
122.3
0.8
101.9
3.0
9.4
8.1
We have additional products of various dosage forms currently under development. Our developmental drug products are
intended to treat a diverse range of indications. The products under development are at various stages in the development
cycle—formulation, scale-up, clinical testing and/or FDA review.
The cost associated with each product that we are currently developing is dependent on numerous factors, including but not
limited to, the complexity of the active ingredient’s chemical characteristics, the price of the raw materials and the FDA-
mandated requirement of bioequivalence studies (depending on the FDA’s Product Specific Guidance). With the
introduction of GDUFA and additional guidance issued by the FDA, the cost to develop a new generic product varies but
can total several million dollars.
In addition, we currently own several ANDAs for products that are not currently marketed and noted as Discontinued in
FDA’s Orange Book. Occasionally, we review such discontinued products to determine if the market potential for any of
these products has recently changed to make it attractive for us to reconsider manufacturing and selling. If we decide to
commercially market one of these products, we evaluate the requirements necessary for commercial launch, including a
filing strategy to properly report the relaunch to the FDA so that the product is moved to the Active section of the Orange
Book.
In addition to the efforts of our internal product development group, we have contracted with numerous outside firms for
the formulation and development of several new generic drug products. These outsourced R&D products are at various
stages in the development cycle—formulation, analytical method development and testing and manufacturing scale-up.
These products include orally administered solid dosage products, injectables and nasal delivery products that are intended
to treat a diverse range of medical indications.
We intend to ultimately transfer the formulation technology and manufacturing process for some of these R&D products to
our own commercial manufacturing sites. We initiated these outsourced R&D efforts to complement the progress of our
own internal R&D efforts.
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We recorded R&D expenses of $24.2 million in fiscal year 2021, $30.0 million in fiscal year 2020 and $38.3 million in
fiscal year 2019. These amounts included expenses associated with bioequivalence studies, internal development resources
as well as outsourced development. While we manage all R&D from our principal executive office in Philadelphia,
Pennsylvania, we have also been taking steps to capitalize on favorable development costs in other countries. We have
strategic relationships with various companies that either act as contract research organizations or API suppliers as well as
dosage form manufacturers. In addition, U.S.-based research organizations have been engaged for product development to
enhance our internal development. Fixed payment arrangements are established between Lannett and these research
organizations and in some cases include a royalty provision. Development payments are normally scheduled in advance,
based on attaining development milestones.
Human Capital Management
We provide affordable medicines to improve the quality of life of our patients. It is our mission and the foundation of our
Lannett Cares culture. Our mission guides the way we work and we strive to put people and patients at the forefront of
what we do. We are thus committed to providing a positive, inclusive and team-oriented workplace. We encourage and
promote open communication with our teams, aspire to strong social connections, and provide learning and growth
opportunities to our employees. We want our people, our business and our corporate responsibility to reflect the core values
of Lannett.
Lannett helps bring together employees with a wide variety of backgrounds, skills and cultures. Combining such a wealth
of talent and resources creates the diverse and dynamic teams that consistently drive our success. As of June 30, 2021, we
have more than 810 full-time employees. Employees identifying as female represent approximately 44% of our employee
population and approximately 41% of employees at the leadership level (employees at manager and above) at June 30,
2021. These ratios are consistent with approximately 45% and approximately 39% respectively as of June 30, 2020.
Approximately 40% of the employees holding positions at the Vice President level and above identify as female.
Employee rewards, growth and development
We strive to ensure that our employees are provided equal opportunity and equal treatment. With a focus on all our
employees, we offer a variety of resources and rewards to support their health and well-being and career aspirations.
Lannett is committed to attracting and retaining the best talent by providing competitive benefits, supporting continued
learning for employees, and encouraging employees to gain exposure across many aspects of our business.
Lannett recognizes the importance, contributions and performance of its employees in pursuing, achieving and supporting
the company’s business objectives. Therefore, Lannett is committed to designing and maintaining compensation policies
and programs that ensure equitable job and position evaluation, and competitive and performance-based pay. We have an
annual short-term incentive program for eligible employees to be rewarded, in part, based on their individual goal
performance, rather than being based solely on the Company’s financial performance. Under this program, an employee’s
potential bonus is a blend of corporate goals and individual goals. We are committed to remaining transparent on payout
opportunities and, as part of the quarterly earnings release process, Lannett communicates progress toward our corporate
goals. In addition to the annual short-term incentive opportunity, we are committed to rewarding employees for exceptional
performance during the year including (1) celebrating length of service milestones, (2) granting recognition awards and (3)
for eligible employees, an annual discretionary long-term incentive award. During 2020, we also awarded bonuses to
certain essential employees who consistently came to work at our plants during the COVID-19 pandemic to produce the
affordable medicines we make for patients.
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In addition to bonus opportunities, we offer a competitive benefits package, including medical, dental, and vision care. We
offer a variety of wellness programs including a personal health survey and individual health coaching, fitness challenges
and incentives for incremental HSA contributions, on-site health screenings, and wellness webinars. We are also focused
on supporting our employees in reaching their personal financial goals. We have a 401k defined contribution plan (the
“Plan”) available for substantially all employees, which includes a matching contribution during each Plan year. Further,
we offer an Employee Stock Purchase Program (“ESPP”), which allows eligible employees to purchase shares of the
Company’s stock at a discount to nurture an ownership mentality in everyone who works at the Company. Additionally, in
2021, we provided access to financial wellness webinars with Morgan Stanley, which included a variety of topics including
college planning, budgeting, investing and retirement.
Moreover, Lannett is committed to supporting our employees in their continued learning and career development. We offer
employees training for their current positions and opportunities to access learning platforms. We also provide tuition
reimbursement to eligible employees for all or a portion of the costs incurred by the employee to attend educational courses
related to the successful performance of their duties. Employees are encouraged to seek advancement opportunities and
obtain promotions, transfers and career guidance from all levels of management within Lannett and Human Resources.
Across all other aforementioned matters, we understand the importance of employee satisfaction and aim to improve the
employee experience. We regularly conduct and share engagement surveys with employees to obtain feedback on various
matters, including executive leadership effectiveness, communication, total rewards, and development and recognition.
Various actions taken by management have been a direct result of suggestions provided as part of these surveys and follow-
up focus groups. During the COVID-19 pandemic, for example, we spent time to gauge the pulse of our employees and
their needs, including childcare needs, using surveys and Q&A sessions.
The Company’s total employee turnover rate for fiscal year 2021, which the Company defines as the ratio of the number of
separated employees during the year to the average active employees during fiscal year 2021, was approximately 37%, up
from approximately 17% in fiscal year 2020. The turnover rate at our Philadelphia, PA locations was approximately 17%,
up from approximately 8% in fiscal year 2020 and our Carmel, NY facility turnover rate was approximately 11%, down
from approximately 18% in fiscal year 2020. Competing demands for manufacturing skills, some pandemic burnout and
more job opportunities resulted in approximately 47% turnover in our Seymour, IN manufacturing site, up from 20% in
fiscal year 2020. The turnover rate in Seymour, IN was much higher than our historical average. While a portion of this
increase is related to the 2020 Restructuring Plan, implemented in July 2020, the Company continues to focus on employee
retention by establishing a purpose-driven and inclusive culture, investing in our employees, and providing transparency
and opportunities for feedback to management.
Employee safety
A safe, healthy and secure work environment is our top priority for all employees, contractors and visitors. Our goal is to
conduct business with minimal injuries and incidents and maintain compliance with applicable rules and codes.
Management, as well as the Board of Directors, regularly review and monitor metrics on our safety performance. We also
use these metrics to identify hazards for correction before an incident or injury occurs. If employees have concerns
regarding safety, they are expected to report the concerns to their manager, to a member of the executive team, or by
contacting the Company’s anonymous whistleblower hotline.
In response to the COVID-19 pandemic, we have continued to prioritize safety and follow local, state, federal and CDC
mandates. When possible, employees have been directed to work from home throughout the duration of the pandemic.
Across our work sites, we implemented enhanced cleaning and sanitizing procedures and provided additional personal
hygiene supplies and personal protective equipment such as rubber gloves, N95 respirators and powered air-purifying
respirator that are in line with Centers for Disease Control and Preventions (“CDC”) recommendations. We have also
implemented thermal screening for employees and visitors entering our facilities. Employees are required to adhere to the
CDC guidelines, social distancing and any employee experiencing any symptoms of COVID-19 is required to stay home
and seek medical attention. We will continue to monitor COVID-19 protocols and the safety of our employees, contractors,
and visitors as CDC recommendations evolve and restrictions are lifted or raised in our various states of operations.
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Corporate social responsibility
Lannett believes that it is important to invest in the communities where we live, work and operate. Every year, Lannett and
its employees give time and money to registered charities, schools, service clubs and community organizations. Our
Charitable Contributions Policy focuses on employee involvement and is structured to provide (1) direct cash donations,
(2) monetary matching for cash or goods donated by employees, and (3) monetary matching for time volunteered by
employees. Lannett and our employees have participated in various charitable events throughout fiscal year 2021,
including virtual charity walks, clothing and food drives, and blood drives. In addition, we have partnered with various
charitable organizations to donate excess and short-dated product that would otherwise be unused. In the last two years,
Lannett and its employees have raised or donated over $0.6 million of pharmaceutical products, valued at wholesale
acquisition cost, to a variety of worthy organizations, with our most recent emphasis on assisting local communities
impacted by COVID-19. We believe in giving back to the people, causes and organizations that make a difference in the
lives of others and that inspire our employees.
Environmental Matters
Lannett is committed to a more sustainable future with a reduced environmental footprint, effective use of natural resources
and a multi-pronged approach to managing carbon intensity that strengthens our quality-oriented focus of providing
affordable medicines to patients who depend on them. As the manufacturer of high-quality generic medicines, we are
focused on developing, manufacturing and distributing safe and cost-effective medicines in the United States. Because we
operate primarily in the U.S., our supply chain is more compact and resilient than many of our competitors and has a
smaller corresponding carbon footprint. As a U.S.-based, publicly traded company, we are also subject to various strict
U.S. compliance requirements. We follow regulations issued by the Environmental Protection Agency (“EPA”),
Occupational Safety and Health Administration (“OSHA”), and various state environmental agencies in the U.S. We have
consistently had a good record of compliance with these agencies. The majority of our large competitors that manufacture
and are headquartered abroad are not always subject to the same set of requirements.
Our product portfolio has been migrating to lower relative volume products that, as a result of their market and production
requirement, have a smaller environmental impact than higher relative volume products. We still strive to reduce the
amount of natural resources consumed and minimize the amount of facility and pharmaceutical-related waste generated
and disposed of in our communities. Measures include implementing projects that reduce the total amount of energy &
natural resources utilized and improving manufacturing operations to improve production output per unit of resources used.
In addition, we participate in a drug takeback program, which provides channels for consumers to return unused
prescriptions in an effort to divert waste from landfills and water supply. The Company is currently developing our plan to
address climate change and intends to issue a report during fiscal year 2022 to address our goals and metrics for the future.
We expect to monitor and revise these goals and metrics as the climate change landscape evolves over time. We also intend
to communicate our performance against these metrics and to be transparent with our progress in improving our
environmental impact.
Government Regulation
Pharmaceutical manufacturers are subject to extensive regulation by the federal government, including the FDA and, in
cases of controlled substance products the DEA as well as other federal regulatory bodies and state governments. The
Federal Food, Drug and Cosmetic Act (the “FDCA”), the Controlled Substance Act (the “CSA”) and other federal statutes
and regulations govern or influence the testing, manufacture, safety, labeling, storage, record keeping, approval, advertising
and promotion of our generic drug products. Non-compliance with applicable regulations can result in fines, product recalls
and seizure of products, total or partial suspension of production, personal and/or corporate prosecution and debarment and
refusal of the government to approve applications. The FDA also has the authority to revoke previously approved drug
applications.
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Generally, FDA approval is required before a drug can be marketed. A new drug is one not generally recognized by
qualified experts as safe and effective for its intended use and is submitted to the FDA as a NDA. The FDA review process
for new drugs is very extensive and requires a substantial investment to research and test the drug candidate. A less
burdensome approval pathway, the ANDA, is used for generic drug products. Typically, the investment required to develop
a generic drug is less costly than the new drug. Some drug products may be submitted as a 505(b)(2) NDA, allowing some
of the required research and testing to be waived by relying on FDA’s previous findings of safety and efficacy and
literature. For additional information on the FDA approval pathways, refer to section 505(b)(1) and 505(b)(2) of the FD&C
Act for NDAs, section 505(j) for ANDAs and resources available on the FDA website, www.fda.gov.
Manufacturing cGMP requirements
Among the requirements for a new drug approval, facilities identified in each application that perform operations related to
the drug product, including drug substance manufacturers and outside contract facilities, must conform to FDA cGMP
regulations. The FDA may perform general GMP and/or pre-approval inspections to assess a company’s compliance with
cGMP regulations. These inspections include reviews of procedures, operations, and data used to support the application
and ongoing drug product manufacturing and testing. FDA’s cGMP regulations require, among other things, quality control
and quality assurance systems as well as the corresponding records and documentation. In complying with the evolving
standards set forth in the cGMP regulations, we must continue to expend time, money and effort in many areas to ensure
compliance.
Failure to comply with statutory and regulatory requirements subject a manufacturer to possible legal or regulatory action,
including but not limited to, warning letters, consent decrees placing significant restrictions on or suspending
manufacturing operations, injunctions, the seizure of non-complying drug products and/or civil and criminal penalties.
Adverse experiences with the product and certain non-compliance events may need to be reported to the FDA and could
result in regulatory actions such as labeling changes or FDA request for application withdrawal or product removal.
Other regulatory requirements
With respect to post-market product advertising and promotion, the FDA imposes a number of regulations on entities that
advertise and promote pharmaceuticals, which include, among others, standards for direct-to-consumer advertising, off-
label promotion, industry-sponsored scientific and educational activities and promotional activities involving the internet.
The FDA has very broad enforcement authority under the FDCA and failure to abide by these regulations can result in
penalties, including the issuance of a warning letter directing entities to correct deviations from FDA standards, a
requirement that future advertising and promotional materials be pre-cleared by the FDA and state and/or federal civil and
criminal investigations and prosecutions. Some of our products require participation in Risk Evaluation and Mitigation
Strategies (“REMS”) programs. A shared system REMS encompasses multiple prescription drug products and is developed
and implemented jointly by two or more companies marketing the same products. These programs can add significant costs
for the Company, depending on market share and complexity of the program.
Any one or a combination of FDA regulatory or enforcement actions against the Company could have a material adverse
effect on our financial results.
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DEA regulation
We maintain registrations and quota (limitations on purchases of controlled substances) with the DEA that enable us to
receive, manufacture, store, develop, test and distribute controlled substances in connection with our operations. Controlled
substances are those drugs that appear on one of five schedules promulgated and administered by the DEA under the CSA.
The CSA governs, among other things, the distribution, recordkeeping, quota, handling, security and disposal of controlled
substances. We are subject to periodic and ongoing inspections by the DEA and similar state drug enforcement authorities
to assess our ongoing compliance with the DEA’s regulations. Any failure to comply with these regulations could lead to a
variety of sanctions, including the revocation or a denial of renewal of our DEA registration or quota, injunctions, or civil
or criminal penalties. We are subject to an allocation of national (aggregate) quota for several products in our portfolio. Our
quota requests require DEA approval in full for us to meet our forecasted customer demands. The DEA may or may not
approve our quota requests in full based on factors that we do not control.
Fraud and abuse laws
Because of the significant federal and state funding involved in the provision of health care services, including Medicare
and Medicaid funding, Congress and state legislatures have enacted, and federal and state prosecutors actively enforce, a
number of laws whose purpose is to eliminate fraud, abuse, and corruption in the health care industry. Our business is
subject to compliance with these laws, including both federal and state level anti-kickback laws and statutes aimed at
eliminating false or fraudulent claims for payment. In addition, we are subject to the Foreign Corrupt Practices Act
(“FCPA”), which prohibits offering, promising, authorizing, or making payments to any foreign government official to
obtain or retain business. Because health care systems in many countries are run and funded at least in part by the
government, the FCPA applies to interactions with most healthcare professionals and procurement representatives in many
countries. Other countries have enacted similar anti-bribery laws.
Anti-kickback statutes
One of the primary federal laws aimed at curbing fraud and abuse in the federal health care programs is the Anti-Kickback
Statute (“AKS”), which prohibits persons from knowingly and willfully soliciting, offering, receiving, or providing
remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing or
arranging for a good or service, for which payment may be made under a federal health care program such as Medicare,
Medicaid or TRICARE. The definition of “remuneration” has been broadly interpreted to include anything of value, and
can take many forms besides cash or compensation, including for example gifts and entertainment, certain discounts, the
furnishing of free supplies, equipment or services, credit arrangements, rebates, and waivers of payments, including
copayments. For example, under the AKS, a pharmaceutical company is prohibited from offering, directly or indirectly,
any remuneration to induce Medicare patients to purchase the company’s drugs or to induce physicians to prescribe the
company’s drugs. Several courts have interpreted the statute’s intent requirement to mean that if any one purpose of an
arrangement involving remuneration is to induce referrals of federal health care covered business, the statute has been
violated, regardless of the existence of other legitimate purposes for the remuneration. In addition, the AKS may not even
require proof of a kickback recipient’s motivation for accepting an illegal payment, so long as he or she accepts the
kickback knowingly and willfully. Penalties for AKS violations include criminal penalties and civil sanctions such as fines,
imprisonment, and possible exclusion from Medicare, Medicaid, and other federal health care programs. In addition, claims
for services or goods resulting from kickback arrangements are “false claims” within the meaning of the federal False
Claims Act, discussed in more detail below.
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The AKS is broad and prohibits many arrangements and practices that are lawful in businesses outside of the health care
industry. Recognizing that the AKS is broad and may technically prohibit many innocuous or beneficial arrangements,
Congress incorporated several statutory exceptions into the AKS’s framework, which protect certain types of business
arrangements. Congress also authorized the Office of Inspector General of the U.S. Department of Health and Human
Services (“OIG”) to issue a series of “regulatory safe harbors.” The "safe harbor" regulations describe various payment
and business practices that, although they potentially implicate the AKS, are not treated as offenses under the statute. Both
the statutory exceptions and regulatory safe harbors set forth requirements that, if met, assure health care providers and
other parties to the arrangement that they will not be prosecuted under the AKS. The failure of a transaction or arrangement
to fit precisely within one or more safe harbors does not necessarily mean that it is illegal. However, conduct and business
arrangements that do not fully satisfy each applicable safe harbor may result in increased scrutiny by government
enforcement authorities such as OIG.
Many states have adopted laws similar to the AKS. Some of these state prohibitions apply to referrals of patients for health
care items or services reimbursed by any source, including commercial payers and private pay patients.
The federal government is aggressive and particularly active in pursuing suspected violations of the AKS against
companies and certain sales, marketing, and executive personnel, for allegedly offering unlawful inducements to potential
or existing customers in an attempt to procure their business (i.e. to promote drug sales). Additionally, a number of courts
have ruled that a transaction that violates the AKS is unenforceable as against public policy.
In addition to applying federal and state anti-kickback statutes in enforcement actions involving the marketing of
healthcare services and products, the federal government and various states also have enacted laws specifically regulating
the sales and marketing practices of pharmaceutical companies. These laws and regulations may limit financial interactions
between manufacturers and health care providers, require disclosure to the federal or state government and the public of
such interactions (e.g. federal and state “Sunshine” laws), or require the adoption of compliance standards or programs.
Many of these laws and regulations contain ambiguous requirements or require administrative guidance for implementation
and, given the lack of clarity, our activities could be subject to the penalties under the pertinent laws and regulations.
False claims act statutes
The federal False Claims Act (“FCA”) imposes liability on any person or entity who, among other things, knowingly
presents, or causes to be presented, a false or fraudulent claim for payment by a federal health care program. The Qui Tam
provisions of the FCA allow private individuals with evidence of fraud to file suits on behalf of the federal government and
to share in any monetary recovery. In recent years, the number of suits brought against health care providers by private
individuals has increased dramatically, and in Fiscal 2020, the federal government recovered more than $1.8 billion in
judgements and settlements related to FCA violations in the health care industry. In addition to the FCA, various states
have enacted false claims laws analogous to the FCA, which similarly enable private individuals to bring claims on behalf
of a state or local government that has been defrauded. Because the Medicaid program is jointly funded by the federal
government and the states, for example, qui tam plaintiffs frequently pursue both federal and state law claims.
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When an entity is determined to have violated the FCA, it may be required to pay up to three times the actual damages
sustained by the government, plus civil penalties in excess of $23,000 per claim, as adjusted annually. Liability arises,
primarily, when an entity knowingly submits or causes another to submit a false or fraudulent claim for payment to the
federal government. The definition of a “false” claim is broad: In addition to actual or objective falsity, a claim may be
considered “false” for purposes of liability under the FCA based on an express or implied certification that the person or
company who submitted the claim is in compliance with all applicable statutes, regulations, or government contract
provisions. For example, the federal government has used the FCA to assert liability on the basis of inadequate care,
kickbacks, and other improper referrals; improper use of Medicare numbers by the provider of services; as well as
allegations regarding misrepresentations with respect to the services rendered. In addition, the federal government has
prosecuted companies under the FCA in connection with off-label promotion of products (because government health
programs ordinarily do not cover “off-label” uses of medications). Our future activities relating to the reporting of
wholesale or estimated retail prices of our products, the reporting of discount and rebate information and other information
affecting federal, state, and third-party reimbursement of our products, and the sale and marketing of our products may be
subject to scrutiny under these laws. We are unable to predict whether we will be subject to actions under the FCA or a
similar state law, or the impact of such actions. However, the costs of defending such claims, as well as any sanctions
imposed, could significantly affect our financial performance.
Foreign corrupt practices act
The U.S. Foreign Corrupt Practices Act of 1977, as amended, (the “FCPA”) and similar anti-bribery laws in other
jurisdictions generally prohibit certain persons and entities, and their intermediaries, from making payments to foreign
government officials to obtain or retain business. In recent years, for example, pharmaceutical, medical device, and other
health care companies have resolved FCPA allegations of bribing government procurement officials to win tenders and/or
bribing public health care providers to prescribe products. If we are found to be liable for FCPA or other violations, we
could suffer from civil and criminal penalties or other sanctions, including contract cancellations or debarment, and loss of
our reputation, any of which could have a significant impact on our business, financial condition, and operations.
HIPAA and other fraud and privacy regulations
The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) created two new federal crimes: health care
fraud and false statements relating to health care matters. The HIPAA health care fraud statute prohibits, among other
things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any health care benefit program,
including private payment programs. HIPAA’s extensive privacy and security regulations impose significant regulatory
requirements on covered entities to acquire and implement information systems and to adopt business procedures and
security measures designed to protect the privacy and security of patients’ protected health information. These particular
HIPAA requirements have had a significant financial impact on many sectors of the health care industry because they
impose extensive new requirements and restrictions on the use and disclosure of identifiable patient information, and the
financial consequences of a data breach or unauthorized disclosure of patients’ protected health information, including data
breaches caused by malicious third parties and inadvertent disclosures, can result in substantial civil fines, penalties and
lawsuits, negative publicity, and costly remediation efforts imposed by the Office for Civil Rights of the U.S. Department
of Health and Human Services. The HIPAA false statements statute prohibits knowingly and willfully falsifying,
concealing, or covering up a material fact or making any materially false, fictitious, or fraudulent statement or
representation in connection with the delivery of or payment for health care benefits, items, or services. A violation of this
statute is a felony and may result in fines, imprisonment and/or exclusion from government-sponsored programs.
Pricing
In the United States, our sales are dependent upon the availability of coverage and reimbursement for our products from
third-party payors, including federal and state programs such as Medicare and Medicaid and private organizations such as
commercial health insurance and managed care companies. Such third-party payors challenge the price of medical products
and services and continue to institute cost containment measures to control or significantly influence the purchase of
medical products and services.
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Over the past several years, the rising costs of providing health care services has triggered legislation to make certain
changes to the way in which pharmaceuticals are covered and reimbursed, particularly by government programs. For
instance, federal legislation and regulations have created a voluntary prescription drug benefit, Medicare Part D, which
revised the formula used to reimburse health care providers and physicians under Medicare Part B and imposed significant
revisions to the Medicaid Drug Rebate Program. These changes have resulted in and may continue to result in, coverage
and reimbursement restrictions and increased rebate obligations by manufacturers.
In addition, there continues to be legislative and regulatory proposals at the federal and state levels directed at containing or
lowering the cost of health care. Examples of how limits on drug coverage and reimbursement in the United States may
cause reduced payments for drugs in the future include:
● changing Medicare reimbursement methodologies;
● revising drug rebate calculations under the Medicaid program;
● reforming drug importation laws;
● fluctuating decisions on which drugs to include in formularies; and
● requiring pre-approval of coverage for new or innovative drug therapies.
Also, over the last few years, several states have passed legislation or have proposed legislation that have imposed price
reporting requirements for both generic and brand pharmaceutical products and that include price transparency, price
increase notification and supplement rebate requirements.
We cannot predict the likelihood or pace of such additional changes or whether there will be significant legislative or
regulatory reform impacting our products, nor can we predict with precision what effect such governmental measures
would have if they were ultimately enacted into law. However, in general, we believe that legislative and regulatory reform
activity likely will continue.
Current or future federal or state laws and regulations may influence the prices of drugs and, therefore, could adversely
affect the prices that we receive for our products. Programs in existence in certain states seek to set prices of all drugs sold
within those states through the regulation and administration of the sale of prescription drugs. Expansion of these
programs, in particular, state Medicaid programs, or changes required in the way in which Medicaid rebates are calculated
under such programs, could adversely affect the price we receive for our products and could have a material adverse effect
on our business, results of operations and financial condition. Further, generic pharmaceutical drug prices have been the
focus of increased scrutiny by certain states’ attorneys general, the U.S. Department of Justice and Congress. Decreases in
health care reimbursements or prices of our prescription drugs could limit our ability to sell our products or could decrease
our revenues, which could have a material adverse effect on our business, results of operations and financial condition.
The Company believes that under the current regulatory environment, the generic pharmaceutical industry as a whole will
be the target of increased governmental scrutiny, especially with respect to state and federal anti-trust and price-fixing
claims.
See Note 10 “Legal, Regulatory Matters and Contingencies” for a description of current state and federal anti-trust and
price-fixing claims.
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Other applicable laws
We are also subject to federal, state and local laws of general applicability, including laws regulating working conditions
and the storage, transportation, or discharge of items that may be considered hazardous substances, hazardous waste, or
environmental contaminants. We monitor our compliance with laws and we believe we are in substantial compliance with
all regulatory bodies.
As a publicly-traded company, we are also subject to significant regulations and laws, including the Sarbanes-Oxley Act of
2002. Since its enactment, we have developed and instituted a corporate compliance program based on what we believe are
the current best practices and we continue to update the program in response to newly implemented or changing regulatory
requirements.
Employees
As of June 30, 2021, we had 812 full-time employees.
Securities and Exchange Act Reports
We maintain a website at www.lannett.com. We make available on or through our website our current and periodic reports,
including any amendments to those reports, that are filed with the Securities and Exchange Commission (the “SEC”) in
accordance with the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These reports include Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. This information is available
on our website free of charge as soon as reasonably practicable after we electronically file the information with, or furnish
it to, the SEC.
The contents of our website are not incorporated by reference in this Form 10-K and shall not be deemed “filed” under the
Exchange Act.
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ITEM 1A.
RISK FACTORS
Operational and Industry-specific Risks
The generic pharmaceutical industry is highly competitive.
We face strong competition in our generic product business. Revenues and gross profit derived from the sales of generic
pharmaceutical products tend to follow a pattern based on certain regulatory and competitive factors. For example, as a
result of new competitors entering the market, sales of Fluphenazine and Posaconazole, two of our top products, decreased
during the fiscal year ended June 30, 2021.
Typically, as patents for brand-name products and related exclusivity periods expire or fall under patent challenges, the first
generic manufacturer to receive regulatory approval for generic equivalents of such products is generally able to achieve
significant market penetration. As competing off-patent manufacturers receive regulatory approvals on similar products or
as brand manufacturers launch generic versions of such products (for which no separate regulatory approval is required),
market share, revenues and gross profit typically decline, in some cases dramatically. Accordingly, the level of market
share, revenue and gross profit attributable to a particular generic product is normally related to the number of competitors
in that product’s market and the timing of that product’s regulatory approval and launch, in relation to competing approvals
and launches. Consequently, we must continue to develop and introduce new products in a timely and cost-effective
manner to maintain our revenues and gross margins.
If we are unable to successfully develop or commercialize new products on a timely basis, our revenues, gross
margins and operating results will suffer.
Our future results of operations will depend to a significant extent upon our ability to successfully commercialize new
generic products in a timely manner. There are numerous difficulties in developing and commercializing new products,
including developing, testing and manufacturing products in compliance with regulatory standards in a timely manner;
receiving requisite regulatory approvals for such products in a timely manner; the availability, on commercially reasonable
terms, of raw materials, including active pharmaceutical ingredients (“APIs”) and other key ingredients; developing and
commercializing a new product is time consuming, costly and subject to numerous factors that may delay or prevent the
successful commercialization of new products; and commercializing generic products may be substantially delayed by
unexpired patents covering the brand drug.
As a result of these and other difficulties, products currently in development by Lannett may or may not receive the
regulatory approvals necessary for marketing. If any of our products, when developed and approved, cannot be
successfully or timely commercialized, our revenue, gross margins and operating results could be adversely affected. We
cannot guarantee that any investment we make in developing products will be recouped, even if we are successful in
commercializing those products.
We have and will continue to enter into strategic alliances and collaborations with third parties, including
companies based outside of the U.S., for the commercialization of some of our drug candidates. If those
collaborations are not successful, we may not be able to capitalize on the market potential of these drug candidates.
We previously have and will continue in the future to seek third-party collaborators for the commercialization of some of
our drug candidates on a selected basis, which adds a level of complexity to our supply network. If we do enter into any
such arrangements with any third parties, we will likely have limited control over the amount and timing of resources that
our collaborators dedicate to the development of our drug candidates. Our ability to generate revenues from these
arrangements will depend on our collaborators’ abilities and efforts to successfully perform the functions assigned to them
in these arrangements. Many risks associated with relying on third-party collaborators for developing new products are
beyond our control. For example, some of our collaboration partners may decide to make substantial changes to a product’s
formulation or design, may experience supply interruptions or financial difficulties or may have limited financial resources.
Any of the foregoing may delay the development of new products or interrupt their market supply. In addition, if a third-
party collaborator on a new product terminates our collaboration agreement or does not perform under the agreement, we
may experience delays and additional costs in developing or replacing that product.
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In addition, Lannett has multiple collaborations with partners outside of the U.S. and is subject to certain risks associated
with having partners’ operations located in foreign jurisdictions. It is difficult to predict the impact of geopolitical risks or
other factors that may interrupt supply, regulatory approval and new product launches. Disruptions in our partners’
operations or any deterioration in the geopolitical environment as a result of the above risks or otherwise could have a
material adverse effect on our business, financial condition, results of operations and cash flows.
The development, approval process, manufacture and commercialization of biosimilar products involve unique
challenges and uncertainties, and our failure to successfully introduce biosimilar products could have a negative
impact on our business, financial condition, results of operations and cash flows.
We and our partners and suppliers are actively working to develop and commercialize biosimilar products, including
biosimilar Insulin Glargine and biosimilar Insulin Aspart. Although the Biologics Price Competition and Innovation Act
(“BPCIA”) established a framework for the review and approval of biosimilar products and the FDA has begun to review
and approve biosimilar product applications, there continues to be uncertainty regarding the regulatory pathway in the U.S.,
with the FDA continuing to issue and revise guidance related to its interpretation and implementation of the BPCIA. If we
are unable to obtain FDA or other non-U.S. regulatory authority approval for our products, we will be unable to market
them. Access to and the supply of necessary biological materials may be limited, and government regulations restrict
access to and regulate the transport and use of such materials.
Even if our biosimilar products are approved for marketing, the products may not be commercially successful, may require
more time than expected to achieve market acceptance, and may not generate profits in amounts that are sufficient to offset
the amount invested to obtain such approvals. Market success of biosimilar products will depend on demonstrating to
regulators, patients, physicians and payors (such as insurance companies) that such products are safe and effective and yet
offer a more competitive price or other benefit over existing therapies. In addition, manufacturers of biologic products may
try to dissuade physicians from prescribing or accepting biosimilar products. If our development efforts do not result in the
development and timely approval of biosimilar products or if such products, once developed and approved, are not
commercially successful, or if any of the above risks occur, our business, financial condition, results of operations and cash
flows could be materially adversely affected.
If we are unable to obtain sufficient supplies from key suppliers that in some cases may be the only source of
finished products or raw materials, our ability to deliver our products to the market may be impeded.
We are required to identify the supplier(s) of all the raw materials for our products in our applications with the FDA. To the
extent practicable, we attempt to identify more than one supplier in each drug application. However, some products and
raw materials are available only from a single source and, in some of our drug applications, only one supplier of products
and raw materials has been identified, even in instances where multiple sources exist. To the extent any difficulties
experienced by our suppliers cannot be resolved within a reasonable time and at reasonable cost, or if raw materials for a
particular product become unavailable from an approved supplier and we are required to qualify a new supplier with the
FDA, our profit margins and market share for the affected product could decrease and our development and sales and
marketing efforts could be delayed.
Our policies regarding returns, allowances and chargebacks and marketing programs adopted by wholesalers may
reduce our revenues in future fiscal periods.
Consistent with industry practice, the Company establishes provisions for chargebacks, rebates, returns and other
adjustments to gross sales. The provisions are primarily estimated based on historical experience, future expectations,
contractual arrangements with wholesalers and indirect customers and other factors known to management at the time of
accrual. However, we cannot ensure that our reserves are adequate or that actual product returns, allowances and
chargebacks will not exceed our estimates.
Health care initiatives and other third-party payor cost-containment pressures have and could continue to cause us
to sell our products at lower prices, resulting in decreased revenues.
Some of our products are purchased or reimbursed by state and federal government authorities, private health insurers and
other organizations, such as health maintenance organizations, or HMOs, and managed care organizations, or MCOs.
Third-party payors increasingly challenge pharmaceutical product pricing. There also continues to be a trend toward
managed health care in the United States. Pricing pressures by third-party payors and the growth of organizations such as
HMOs and MCOs could result in lower prices and a reduction in demand for our products.
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One such governmental program, known as the 340B Program, requires pharmaceutical manufacturers to enter into an
agreement, called a pharmaceutical pricing agreement (“PPA”), with the Secretary of Health and Human Services. Under
the PPA, the manufacturer agrees to provide front-end discounts on covered outpatient drugs purchased by specified
providers, called “covered entities,” that serve the nation’s most vulnerable patient populations. Outpatient prescription
drugs, over the counter drugs (accompanied by a prescription), and clinic-administered drugs within eligible facilities are
covered.
In addition, legislative and regulatory proposals and enactments to reform health care and government insurance programs
could significantly influence the manner in which pharmaceutical products and medical devices are prescribed and
purchased. We expect there will continue to be federal and state laws and/or regulations, proposed and implemented, that
could limit the amounts that federal and state governments will pay for health care products and services. The extent to
which future legislation or regulations, if any, relating to the health care industry or third-party coverage and
reimbursement may be enacted or what effect such legislation or regulation would have on our business remains uncertain.
Since its enactment, there have been numerous judicial, administrative, executive, and legislative challenges to certain
aspects of the Patient Protection and Affordable Care Act (“ACA”), and we expect there will be additional challenges and
amendments to the ACA in the future. For example, various portions of the ACA are currently undergoing legal and
constitutional challenges in the United States Supreme Court. Additionally, the Trump administration issued various
Executive Orders which eliminated cost sharing subsidies and various provisions that would impose a fiscal burden on
states or a cost, fee, tax, penalty or regulatory burden on individuals, healthcare providers, health insurers, or manufacturers
of pharmaceuticals or medical devices. Finally, Congress has introduced several pieces of legislation aimed at significantly
revising or repealing the ACA. Although a number of these and other proposed measures may require authorization
through additional legislation to become effective, and the Biden administration may reverse or otherwise change these
measures, Congress has indicated that it will continue to seek new legislative measures to control drug costs. It is unclear
whether the ACA will be overturned, repealed, replaced, or further amended, although the Biden administration has
signaled that it plans to build on the ACA and expand the number of people who are eligible for subsidies under it. It is
unknown what form any such changes or any law proposed to replace the ACA would take, and how or whether it may
affect our business in the future. We expect that changes to the ACA, the Medicare and Medicaid programs, changes
allowing the federal government to directly negotiate drug prices and changes stemming from other healthcare reform
measures, especially with regard to healthcare access, financing or other legislation in individual states, could have a
material adverse effect on the healthcare industry and on our business, financial condition, results of operations, cash flows,
and/or our stock price operations.
Sales of our products may continue to be adversely affected by the continuing consolidation of our distribution
network and the concentration of our customer base.
Our principal customers are wholesale drug distributors, major retail drug store chains and mail order pharmacies. These
customers comprise a significant part of the distribution network for pharmaceutical products in the U.S. This distribution
network has undergone significant consolidation marked by mergers and acquisitions among wholesale distributors and the
growth of large retail drug store chains. As a result, a small number of large wholesale distributors control a significant
share of the market and the number of independent drug stores and small drug store chains has decreased. We expect that
consolidation of drug wholesalers and retailers will increase pricing and other competitive pressures on drug
manufacturers, including Lannett.
Our net sales may also be affected by fluctuations in the buying patterns of retail chains, mail order distributors,
wholesalers and other trade buyers, whether resulting from pricing, wholesaler buying decisions or other factors.
Our three largest customers accounted for 27%, 21% and 12%, respectively, of our total net sales for Fiscal 2021 and 25%,
23% and 11%, respectively, of our total net sales for Fiscal 2020. The loss of any of these customers, any financial
difficulties experienced by any of these customers or any delay in receiving payments from such customers could
materially adversely affect our business, results of operations and financial condition and our cash flows. In addition, the
Company generally does not enter into long-term supply agreements with its customers that would require them to
purchase our products.
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We expend a significant amount of resources on research and development efforts that may not lead to successful
product introductions.
We conduct R&D primarily to enable us to gain approval for, manufacture, and market pharmaceuticals in accordance with
applicable laws and regulations. We also partner with third parties to develop products. We cannot be certain that any
investment made in developing products will be recovered, even if we are successful in commercialization. To the extent
that we expend significant resources on R&D efforts and are not able, ultimately, to introduce successful new and/or
complex products as a result of those efforts, there could be a material adverse effect on our business, financial condition,
results of operations, cash flows, and/or the price of our common stock.
Risks Related to our Indebtedness
Our substantial indebtedness may adversely affect our financial health.
We have substantial indebtedness. As of June 30, 2021, we had total indebtedness of $635.6 million, including $350.0
million of 7.75% senior secured notes (the “Notes”), the $190.0 million Second Lien Secured Loan Facility (the “Second
Lien Facility”) and $86.3 million aggregate principal amount of 4.50% Convertible Senior Notes (the “Convertible
Notes”). We also have availability of $45.0 million under the Amended ABL Credit Facility.
Our substantial indebtedness may have important consequences for us. For example, it may make it more difficult for us to
make payments on our indebtedness; increase our vulnerability to general economic and industry conditions, including
recessions and periods of significant inflation and financial market volatility; expose us to the risk of increased interest
rates because any borrowings we make under the Amended ABL Credit Facility will bear interest at variable rates; require
us to use a substantial portion of our cash flow from operations to service our indebtedness, thereby reducing our ability to
fund working capital, capital expenditures and other expenses; limit our flexibility in planning for, or reacting to, changes
in our business and the industry in which we operate; increase our cost of future borrowing; place us at a competitive
disadvantage compared to competitors that have less indebtedness; and limit our ability to borrow additional funds that
may be needed to operate and expand our business.
The agreements and instruments governing our debt, contain restrictions and limitations that could significantly
impact our ability to operate our business.
The operating and financial restrictions and covenants in the agreements and instruments that govern our indebtedness
restrict, and future debt instruments may restrict, subject to certain important exceptions and qualifications, our and our
subsidiaries’ ability to, among other things, incur or guarantee indebtedness; grant or permit liens on our assets; pay
dividends on or make distributions in respect of our capital stock; make investments or acquisitions; prepay, repurchase or
redeem certain other indebtedness; sell or otherwise transfer assets, including capital stock of our subsidiaries; merge,
consolidate or transfer all or substantially all of our assets; enter into transactions with our affiliates; grant or permit
dividend or other payment restrictions affecting certain of our subsidiaries; and change the business we conduct or enter
into new lines of business.
In addition, the Amended ABL Credit Facility includes a minimum fixed charge coverage ratio of no less than 1.10 to 1.00,
which is tested only when excess availability is less than 15.0% of the lesser of (A) the borrowing base and (B) the then
effective commitments under the Amended ABL Credit Facility for three consecutive business days, and continuing until
the first day immediately succeeding the last day of 30 consecutive days on which Excess Availability is in excess of such
threshold, and the Second Lien Credit Facility requires us to maintain at least $5.0 million in a deposit account subject at
all times to control by the collateral agent for the Second Lien Lenders, and minimum liquidity of $15 million as of the last
day of each month. These covenants could adversely affect our ability to finance our future operations or capital needs,
withstand a future downturn in our business or the economy in general, engage in business activities, including future
opportunities that may be in our interest, and plan for or react to market conditions or otherwise execute our business
strategies. Our ability to comply with these covenants may be affected by events beyond our control. A breach of any of
these covenants could result in a default in respect of the related indebtedness. If a default occurs, the relevant lenders or
holders of such indebtedness could elect to declare the indebtedness, together with accrued interest and other fees, to be
immediately due and payable and proceed against any collateral securing that indebtedness. Acceleration of our other
indebtedness could result in a default under the terms of the agreements that govern the Amended ABL Credit Facility and
the Second Lien Credit Facility or the indentures governing the 4.50% Convertible Senior Notes and the Senior Notes.
There is no guarantee that we would be able to satisfy our obligations if any of our indebtedness is accelerated.
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In addition, the limitations that are imposed in the agreements that govern the Amended ABL Credit Facility and the
Second Lien Credit Facility on our ability to incur certain additional debt and to take other corporate actions might
significantly impair our ability to obtain other financing. If, for any reason, we are unable to comply with the restrictions in
the agreements that govern the Amended ABL Credit Facility and the Second Lien Credit Facility, we may not be granted
waivers or amendments to such restrictions or we may not be able to refinance our debt on terms acceptable to us, or at all.
The lenders under the Amended ABL Credit Facility also have the right in these circumstances to terminate any
commitments they have to provide further borrowings. If we were unable to pay such amounts, the lenders under the
Amended ABL Credit Facility and the Second Lien Credit Facility could recover amounts owed to them by foreclosing
against the collateral pledged to them.
Due to many factors beyond our control, we may not be able to generate sufficient cash to service all of our
indebtedness and meet our other ongoing liquidity needs and we may be forced to take other actions to satisfy our
obligations under our debt agreements, which may not be successful.
Our ability to make payments on, and to refinance, our indebtedness and to fund planned capital expenditures will depend
on our ability to generate cash in the future. This is subject to general economic, financial, competitive, legislative,
regulatory and other factors, many of which are beyond our control.
Our business may not generate sufficient cash flow from operations, and we may not have available to us future
borrowings in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. In these
circumstances, we may need to refinance all or a portion of our indebtedness on or before maturity. Any refinancing of our
debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further
restrict our business operations. Our ability to refinance our indebtedness or obtain additional financing will depend on,
among other things our financial condition at the time; restrictions in the agreements governing our indebtedness, and the
condition of the financial markets and the industry in which we operate.
As a result, we may not be able to refinance any of our indebtedness on commercially reasonable terms or at all. In such a
case, we could be forced to sell assets, reduce or delay capital expenditures or issue equity securities to make up for any
shortfall in our payment obligations under unfavorable circumstances. The terms of the indentures that govern the 4.50%
Convertible Senior Notes and the Senior Notes and the agreements that govern the Amended ABL Credit Facility and the
Second Lien Credit Facility limit our ability to sell assets. In addition, we may not be able to sell assets quickly enough or
for sufficient amounts to enable us to meet our obligations. Any failure to make scheduled payments of interest and
principal on our outstanding indebtedness when due would permit the holders of such indebtedness to declare an event of
default and accelerate the indebtedness, which in turn could lead to cross defaults under the instruments governing our
other indebtedness. This could result in the lenders under the agreement that governs the Amended ABL Credit Facility
terminating their commitments to lend us money and could result in the lenders under the agreement that governs the
Amended ABL Credit Facility and the Second Lien Credit Facility foreclosing against the assets securing such facilities,
and we could be forced into bankruptcy or other insolvency proceedings. In addition, any failure to make payments of
interest and principal on our outstanding indebtedness on a timely basis would likely result in a reduction of our credit
rating, which could harm our ability to incur additional indebtedness on acceptable terms.
Risks Related to our Financial Condition and Results
Our gross profit may fluctuate from period to period depending upon our product sales mix, our product pricing
and our costs to manufacture or purchase products.
Our future results of operations, financial condition and cash flows depend to a significant extent upon our product sales
mix. Sales of certain products that we manufacture tend to create higher gross margins than the products we purchase and
resell. As a result, our sales mix will significantly impact our gross profit from period to period.
Factors that may cause our sales mix to vary include the number of new product introductions; marketing exclusivity, if
any, which may be obtained on certain new products; the level of competition in the marketplace for certain products; the
availability of raw materials and finished products from our suppliers; and the scope and outcome of governmental
regulatory action that may involve us.
The Company is continuously seeking to keep product costs low, however there can be no guarantee that gross profit
percentages will stay consistent in future periods. Pricing pressure from competitors, changes in product mix and the costs
of producing or purchasing new drugs may also fluctuate in future periods.
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A relatively small group of products may represent a significant portion of our revenues, gross profit, or net
earnings from time to time.
Sales of a limited number of our products from time to time represent a significant portion of our revenues, gross profit and
net earnings. For the fiscal years ended June 30, 2021, 2020 and 2019, our top five products in terms of sales, in the
aggregate, represented approximately 36%, 45% and 52%, respectively, of our total net sales. If the volume or pricing of
our largest selling products decline in the future (including with respect to Fluphenazine and Posaconazole, two products
for which net sales decreased during the fiscal year ended June 30, 2021 due to lower sales prices driven by new
competitors entering the market), our business, financial condition, results of operations, cash flows and/or share price
could be materially adversely affected. See “Description of Business” below for more information on our top products.
If our intangible assets become impaired, we may be required to record a significant charge to earnings.
Under U.S. GAAP, we review our intangible assets for impairment if a triggering event occurs, which would indicate a
potential change in market conditions or future outlook of value. We may be required to record additional significant
charges to earnings in our financial statements during the period in which any impairment of our intangible assets is
determined, resulting in a negative effect on our results of operations. Changes in market conditions or other changes in the
future outlook of value may lead to further impairments in the future. In addition, we continue to review the potential
divestment of certain assets as part of our future plans, which may lead to additional impairments. Future events or
decisions may lead to asset impairments and/or related charges. For assets that are not impaired, we may adjust the
remaining useful lives. Certain non-cash impairments may result from a change in our strategic goals, business direction or
other factors relating to the overall business environment. Any significant impairment could have a material adverse effect
on our results of operations.
We may incur additional tax liabilities related to our operations.
We are subject to income tax in the United States. We record liabilities for uncertain tax positions that involve significant
management judgment as to the application of law. Our effective tax rate may also be adversely affected by numerous other
factors, including changes in tax laws and regulations, and tax effects of the accounting for stock-based compensation
(which depend in part on the price of our stock and, therefore, are beyond our control). Due to the results of the recent U.S.
Presidential and Congressional elections, the potential for U.S. tax law changes exists, including as a result of proposals to
increase the income tax rate. Increases to the income tax rate or other changes to the tax law could materially impact our
tax provision, cash tax liability, and effective tax rate. The pressure to generate tax revenue to offset economic relief
measures due to the COVID-19 pandemic could increase the likelihood of adverse tax law changes being enacted. If
changes in U.S. federal and applicable state income tax laws increase our U.S. federal or state income tax liability, we will
be obligated to pay such increased U.S. federal and state income tax liability which would reduce our cash available for
business operations. Changes to or the imposition of new U.S. federal, state, or local taxes could have a material adverse
effect on our liquidity and financial condition.
Our tax returns and positions are subject to review and audit by the Internal Revenue Service and other tax
authorities, and any adverse outcomes resulting from any examination of our tax returns could adversely affect our
liquidity and financial condition.
The positions taken in our U.S. federal, state and local income tax return filings require significant judgments and the
interpretation and application of complex tax laws. Our income tax returns are subject to examination by the U.S. Internal
Revenue Service and other tax authorities. While we believe our tax return positions are proper and supportable, certain
positions could be successfully challenged. An unfavorable outcome of any current or future tax audit could result in our
need to utilize available cash to satisfy such tax liabilities and any interest or penalties thereon rather than for our business
operations. As a result, the occurrence of an unfavorable outcome with respect to any future tax audit could have a material
adverse effect on our liquidity and financial condition.
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Legal and Regulatory Risks
Governmental investigations into sales and marketing practices in the generic pharmaceutical industry and claims
by private parties relating to such investigations may result in substantial penalties or settlements.
There has been increased press coverage and increased scrutiny from regulatory and enforcement agencies and legislative
bodies with respect to matters relating to the pricing of generic pharmaceuticals, including publicity and pressure resulting
from prices charged by our competitors. We have experienced and may continue to experience downward pricing pressure
on the price of our products due to competitive pressure to lower the cost of drugs to the ultimate consumer, which could
reduce our revenue and future profitability. This increased press coverage and public scrutiny have resulted in, and may
continue to result in, investigations, and calls for investigations, by governmental agencies at both the federal and state
level and have resulted in, and may continue to result in, claims brought against us by private parties or by regulators
taking other measures that could have a negative effect on our business. For a description of current, federal, and state
investigations and claims by private parties, see Note 10 “Legal, Regulatory Matters and Contingencies.” Additional
actions are possible. Responding to such investigations and claims is costly and involves a significant diversion of
management attention. Such proceedings are unpredictable and may develop over lengthy periods of time. Future
settlements may involve large monetary penalties. It is not possible at this time to predict the ultimate outcome of any such
investigations or claims or what other investigations or lawsuits or regulatory responses may result from such assertions, or
their impact on our business, financial condition, results of operations, cash flows, and/or our stock price. Any such
investigation or claim could also result in reputational harm and reduced market acceptance and demand for our products,
could harm our ability to market our products in the future, could cause us to incur significant expense, could cause our
senior management to be distracted from execution of our business strategy, and could have a material adverse effect on
our business, financial condition, results of operations and growth prospects. Accompanying the press and media coverage
of pharmaceutical pricing practices and public complaints about the same, there has been increasing U.S. federal and state
legislative and enforcement interest with respect to drug pricing. In recent years, both the U.S. House of Representatives
and the U.S. Senate have conducted numerous hearings with respect to pharmaceutical drug pricing practices, including in
connection with the investigation of specific price increases by pharmaceutical companies, designed to, among other
things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient support
programs, reduce the costs of drugs under Medicare and reform government program reimbursement methodologies for
drug products. Any proposed measures will require authorization through additional legislation to become effective, and it
is uncertain whether Congress or the Biden administration will seek new legislative and/or administrative measures to
control drug costs. The Biden administration has indicated that lowering drug prices continues to be a legislative and
political priority. Further, it is possible that additional governmental action is taken in response to the COVID-19
pandemic. In addition to the effects of any investigations or claims brought against us described above, our revenue and
future profitability could also be negatively affected if any such inquiries, of us or of other pharmaceutical companies or
the industry more generally, were to result in legislative or regulatory proposals that limit our ability to increase the prices
of our products. Any of the events or developments described above could have a material adverse impact on our business,
financial condition or results of operations, as well as on our reputation.
The recent enactment of State laws affecting the pricing of our products could have the effect of reducing our
profitability.
Since 2016, several state legislatures have enacted laws regulating the pricing of various types of pharmaceutical products,
including generic pharmaceutical products. These laws vary in applicability and scope, and generally require manufacturers
to notify various state agencies of price increases over a given threshold for a given period of time and to include a
justification for any price increases. At least one state law (subsequently struck down by the court) authorized the state
attorney general to seek civil penalties and disgorgement in the event a price increase is deemed unconscionable. To the
extent these laws apply to our products, they could limit the prices which the company may charge for its products and
reduce the company’s profitability and could have a material adverse effect on our financial condition, results of operations
and growth prospects.
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Extensive industry regulation has had and will continue to have, a significant impact on our business in the area of
cost of goods, especially our product development, manufacturing and distribution capabilities.
All pharmaceutical companies, including Lannett, are subject to extensive, complex, costly and evolving regulation by the
federal government, including the FDA and, in the case of controlled drugs, the DEA and state government agencies. The
Food, Drug and Cosmetic Act (the “FDCA”), the Controlled Substance Act (the “CSA”) and other federal statutes,
regulations and guidance govern or influence the development, testing, manufacturing, packing, labeling, storing, record
keeping, safety, approval, advertising, promotion, sale and distribution of our products.
The process for obtaining governmental approval to manufacture and market pharmaceutical products is rigorous, time-
consuming and costly and we cannot predict the extent to which we may be affected by legislative and regulatory
developments. We are dependent on receiving FDA and other governmental or third-party approvals prior to
manufacturing, marketing and shipping our products. The FDA approval process for a particular product candidate can take
several years and requires us to dedicate substantial resources to complete all activities necessary to secure approvals and
we may not be able to obtain regulatory approval for our product candidates in a timely manner, or at all. In order to obtain
approval of Abbreviated New Drug Applications (“ANDAs”) for our generic product candidates, we must demonstrate that
our drug product is therapeutically equivalent and bioequivalent to a drug previously approved by the FDA through the
drug approval process, known as the reference listed drug (“RLD”) or reference standard drug (“RS”). Bioequivalence may
be demonstrated in vivo or in vitro by comparing the generic product candidate to the innovator drug product. Approval of
our drug products that vary in certain ways from a brand name version of that drug may require a different FDA review
process and application known as a 505(b)(2) NDA. Such 5050(b)(2) applications may require costly human clinical
studies which may extend the time for approval of such drug product. Moreover, the FDA may request additional
information and studies to support approval of an application, which could delay approval of the product and impair our
ability to compete with other versions of the generic drug product.
Consequently, there is always the chance that we will not obtain FDA or other necessary approvals, or that the rate, timing
and cost of such approvals will adversely affect our product introduction plans or results of operations. We carry
inventories of certain products in anticipation of launch and if such products are not subsequently launched, we may be
required to write-off the related inventory. Furthermore, the FDA also has the authority to withdraw drug approvals
previously granted after a hearing and require a firm to remove these products from the market for a variety of reasons,
including a failure to comply with applicable regulations or the discovery of previously unknown safety problems with the
product.
We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or
administrative action. For example, the new presidential administration, sworn in January 2021, may impact our business
and industry. The policies and priorities of the new administration are unknown and could materially impact the regulations
governing our product candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption of
new requirements or policies, or if we are not able to maintain regulatory compliance, we may be subject to enforcement
action and there could be a material adverse effect on our business, financial condition, results of operations, cash flows,
and/or the price of our common stock.
In addition, facilities used to manufacture and/or test materials and drug products we market are subject to periodic
inspection of facilities by the FDA, the DEA and other authorities to confirm that firms are in compliance with all
applicable regulations. The FDA conducts pre-approval and/or post-approval inspections to determine whether systems and
processes are in compliance with cGMP and other FDA regulations. A Form 483 notice is generally issued at the
conclusion of a FDA inspection and lists conditions the FDA inspectors believe may violate cGMP or other FDA
regulations. If more serious violations are identified, the FDA may take additional action, such as issuing warning letters,
import alerts, etc. The DEA and comparable state-level agencies also heavily regulate the manufacturing, holding,
processing, security, record-keeping and distribution of drugs that are controlled substances. Lannett manufactures and/or
distributes a variety of controlled substances. The DEA periodically inspects facilities for compliance with its regulations.
If our manufacturing facilities or those of our suppliers fail to comply with applicable regulatory requirements, it could
result in regulatory action and additional costs. All of our facilities as well as applicable contract/supplier facilities, rely on
maintaining current FDA registration and other licenses to produce and develop generic drugs. If the Company does not
successfully renew its FDA registrations, the financial results of Lannett would be negatively impacted. We and our third-
party manufacturers are subject to periodic inspection by the FDA to assure regulatory compliance regarding the
manufacturing, distribution, and promotion of pharmaceutical products. The FDA imposes stringent mandatory
requirements on the manufacture and distribution of pharmaceutical products to ensure
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their safety and efficacy. If we or our partners receive similar notices of manufacturing and quality-related observations and
correspondence in the future, and if we are unable to resolve these observations and address the FDA’s concerns in a timely
fashion, our business, financial results and/or stock price could be materially affected.
Our inability or the inability of our suppliers to comply with applicable FDA and other regulatory requirements can result
in, among other things, delays in or denials of new product approvals, warning letters, import alerts, fines, consent decrees
restricting or suspending manufacturing operations, injunctions, civil penalties, recall or seizure of products, total or partial
suspension of sales and/or criminal prosecution. Any of these or other regulatory actions could materially harm our
operating results and financial condition. Although we have instituted internal compliance programs, if these programs do
not meet regulatory agency standards or if compliance is deemed deficient in any significant way, it could materially harm
our business. Additionally, if the FDA were to undertake additional enforcement activities with Lannett’s Grandfathered
products, their actions could result in, among other things, removal of some products from the market, seizure of the
product and total or partial suspension of sales. Any of these regulatory actions could materially harm our operating results
and financial condition.
If brand pharmaceutical companies are successful in limiting the use of generics through their legislative and
regulatory efforts, our sales of generic products may suffer.
Many brand pharmaceutical companies have increasingly used state and federal legislative and regulatory means to delay
generic competition. These efforts have included pursuing new patents for existing products which may be granted just
before the expiration of one patent, which could extend patent protection for additional years or otherwise delay the launch
of generics; using the Citizen Petition process to request amendments to FDA standards; seeking changes to U.S.
Pharmacopeia, an organization which publishes industry recognized compendia of drug standards; attaching patent
extension amendments to non-related federal legislation; engaging in state-by-state initiatives to enact legislation that
restricts the substitution of some generic drugs, which could have an impact on products that we are developing;
persuading regulatory bodies to withdraw the approval of brand-name drugs for which the patents are about to expire and
converting the market to another product of the brand company on which longer patent protection exists; limiting the
availability of certain RLDs, with Risk Evaluation and Mitigation Strategies (“REMS”) distribution requirements, to
generic companies for bioequivalence testing required for ANDA premarket approval for commercialization; entering into
agreements whereby other generic companies will begin to market an AG, a generic equivalent of a branded product, at the
same time or after generic competition initially enters the market; filing suits for patent infringement and other claims that
may delay or prevent regulatory approval, manufacture and/or scale of generic products; and, introducing “next-
generation” products prior to the expiration of market exclusivity for the reference product, which often materially reduces
the demand for the generic or the reference product for which we seek regulatory approval.
In the U.S., some pharmaceutical companies have lobbied Congress for amendments to the Hatch-Waxman Act that would
give them additional advantages over generic competitors. For example, although the term of a company’s drug patent can
be extended to reflect a portion of the time an NDA is under regulatory review, some companies have proposed extending
the patent term by a full year for each year spent in clinical trials rather than the one-half year that is currently permitted.
If proposals like these were to become effective, or if any other actions by our competitors and other third parties to
prevent or delay activities necessary to the approval, manufacture, or distribution of our products are successful, our entry
into the market and our ability to generate revenues associated with new products may be delayed, reduced, or eliminated,
which could have a material adverse effect on our business, financial condition, results of operations, cash flows and/or
share price.
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The generic pharmaceutical industry is characterized by intellectual property litigation and third parties may claim
that we infringe on their proprietary rights, which could result in litigation that could be costly, result in the
diversion of management’s time and efforts, require us to pay damages or prevent us from marketing our existing
or future products.
Our commercial success will depend in part on not infringing or violating the intellectual property rights of others. The
manufacture, use and sale of new products that are the subject of conflicting patent rights have been the subject of
substantial litigation in the pharmaceutical industry. These lawsuits relate to the validity and infringement of patents or
proprietary rights of third parties. We may have to defend against charges that we violated patents or proprietary rights of
third parties. This is especially true in the case of generic products on which the patent covering the brand product is
expiring, an area where infringement litigation is prevalent and in the case of new brand products in which a competitor
has obtained patents for similar products. Our competitors, some of which have substantially greater resources than we do
and have made substantial intellectual property investments in competing technologies, may have applied for or obtained,
or may in the future apply for and obtain, patent rights and other intellectual property that will prevent, limit or otherwise
interfere with our ability to make, use and sell our products. We may not be aware of whether our products do or will
infringe existing or future patents or the intellectual property rights of others. In addition, patent applications can be
pending for many years and may be confidential for a number of months after filing and because pending patent claims can
be revised before issuance, there may be applications of others now pending of which we are unaware that may later result
in issued patents that will prevent, limit or otherwise interfere with our ability to make, use or sell our products. Even if we
prevail, litigation may be costly and time-consuming and could divert the attention of our management and technical
personnel. Any potential intellectual property litigation also could force us to stop making, selling or using products or
technologies that allegedly infringe the asserted intellectual property; lose the opportunity to license our technology to
others or to collect royalty payments based upon successful protection and assertion of our intellectual property rights
against others; incur significant legal expenses; pay substantial damages or royalties to the party whose intellectual
property rights we may be found to be infringing; pay the attorney fees and costs of litigation to the party whose
intellectual property rights we may be found to be infringing; redesign or rename, in the case of trademark claims, those
products that contain the allegedly infringing intellectual property, which could be costly, disruptive and/or infeasible; or
attempt to obtain a license to the relevant intellectual property from third parties, which may not be available on reasonable
terms or at all.
Any litigation or claim against us, even those without merit, may cause us to incur substantial costs and could place a
significant strain on our financial resources, divert the attention of management from our core business and harm our
reputation. If we are found to infringe the intellectual property rights of third parties, we could be required to pay
substantial damages and/or substantial royalties and could be prevented from selling our products unless we obtain a
license or are able to redesign our products to avoid infringement. If we fail to obtain any required licenses or make any
necessary changes to our products or technologies, we may have to withdraw existing products from the market or may be
unable to commercialize one or more of our products, all of which could have a material adverse effect on our business,
results of operations and financial condition.
Although the parties to patent and intellectual property disputes in the pharmaceutical industry have often settled their
disputes through licensing or similar arrangements, the costs associated with these arrangements may be substantial and
could include ongoing royalties. Any such license may not be available on reasonable terms, if at all and there can be no
assurance that we would be able to redesign our products in a way that would not infringe the intellectual property rights of
others. Even if we were able to obtain rights to the third-party’s intellectual property, these rights may be non-exclusive,
thereby giving our competitors access to the same intellectual property. As a result, an adverse determination in a judicial
or administrative proceeding or failure to obtain necessary licenses could prevent us from manufacturing and selling a
number of our products, or force us to redesign or rename our products to avoid infringing the intellectual property rights
of third parties, which, even if it is possible to so redesign or rename our products, which could harm our business,
financial condition, results of operations and cash flows.
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Our reporting and payment obligations related to our participation in U.S. federal healthcare programs, including
Medicare, Medicaid and the Department of Veterans Affairs, are complex and often involve subjective decisions
that could change as a result of new business circumstances, new regulations or agency guidance, or advice of legal
counsel. Any failure to comply with those obligations could subject us to investigation, penalties, and sanctions.
U.S. federal laws regarding reporting and payment obligations with respect to a pharmaceutical company’s participation in
federal healthcare programs, including Medicare, Medicaid and the Department of Veterans Affairs (“VA”), are complex.
Because our processes for calculating applicable government prices and the judgments involved in making these
calculations involve subjective decisions and complex methodologies, these calculations are subject to risk of errors and
differing interpretations. In addition, they are subject to review and challenge by the applicable governmental agencies, and
it is possible that such reviews could result in changes that may have material adverse legal, regulatory, or economic
consequences.
Any governmental agencies or authorities that have commenced, or may commence, an investigation of us relating to the
sales, marketing, pricing, quality, or manufacturing of pharmaceutical products could seek to impose, based on a claim of
violation of anti-fraud and false claims laws or otherwise, civil and/or criminal sanctions, including fines, penalties, and
possible exclusion from federal healthcare programs, including Medicare, Medicaid and/or the VA. Some of the applicable
laws may impose liability even in the absence of specific intent to defraud. Furthermore, should there be ambiguity with
regard to how to properly calculate and report payments—and even in the absence of any such ambiguity—a governmental
authority may take a position contrary to a position we have taken, and may impose or pursue civil and/or criminal
sanctions. Governmental agencies may also make changes in program interpretations, requirements or conditions of
participation, some of which may have implications for amounts previously estimated or paid. There can be no assurance
that our submissions will not be found by Centers for Medicare & Medicaid Services or the VA to be incomplete or
incorrect. Any failure to comply with the above laws and regulations, and any such penalties or sanctions could have a
material adverse effect on our business, financial condition, results of operations, cash flows and/or stock price.
We may need to change our business practices to comply with changes to fraud and abuse laws.
We are subject to various federal and state laws pertaining to health care fraud and abuse, including the federal Medicare
and Medicaid Anti-Kickback Statute (the “AKS”), which apply to our sales and marketing practices and our relationships
with physicians and other referral sources. The AKS prohibits any person or entity from knowingly and willfully soliciting,
receiving, offering, or paying any remuneration, including a bribe, kickback, or rebate, directly or indirectly, in return for or
to induce the referral of patients for items or services covered by federal health care programs, or the furnishing,
recommending, or arranging for products or services covered by such programs (which include plans and programs that
provide health benefits funded by the federal government, including Medicare and Medicaid, among others).
“Remuneration” has been broadly interpreted to include anything of value, including, for example, gifts, discounts, the
furnishing of supplies or equipment, credit arrangements, payments of cash and waivers of payments. Several courts have
interpreted the AKS’s intent requirement to mean that if even one purpose in an arrangement involving remuneration is to
induce referrals or otherwise generate business involving goods or services reimbursed in whole or in part under federal
health care programs, the statute has been violated, and in 2020, the Eleventh Circuit ruled that no proof of a payee’s
motivation for accepting a payment is required. The federal government has issued “safe harbor” regulations that set forth
certain provisions which, if fully met, will assure parties that they will not be sanctioned under the AKS. The failure of a
transaction or arrangement to fit within a specific safe harbor does not necessarily mean that the transaction or arrangement
will be illegal or that prosecution under the AKS will be pursued, but such transactions or arrangements face an increased
risk of scrutiny by government enforcement authorities and an ongoing risk of prosecution. If our sales and marketing
practices or our relationships with physicians are considered by federal or state enforcement authorities to be knowingly
and willfully soliciting, receiving, offering, or providing any remuneration in exchange for arranging for or recommending
our products and services and such activities do not fit within a safe harbor, then these arrangements could be challenged
under the AKS.
If our operations are found to be in violation of the AKS we may be subject to civil and criminal penalties including fines
of up to $100,000 per violation, civil monetary penalties of up to $100,000 per violation, assessments of up to three times
the amount of the prohibited remuneration, imprisonment and exclusion from participating in the federal health care
programs. Violations of the AKS also may result in a finding of civil liability under the Federal False Claims Act
(“FFCA”) (as further discussed below) and the potential imposition of additional civil fines and monetary penalties that
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could be substantial. Falsely certifying compliance with the AKS in connection with a claim submitted to a federally
funded insurance program is actionable under the FFCA. In addition, The Health Insurance Portability and Accountability
Act of 1996 (“HIPAA”) and its implementing regulations prohibits, among other things, knowingly and willfully
executing, or attempting to execute, a scheme to defraud any health care benefit program, including private payors. A
violation of this statue is a felony and may result in fines, imprisonment and/or exclusion from government-sponsored
programs. The HIPAA false statements statute prohibits, among other things, knowingly and willfully falsifying,
concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement or representation
in connection with the delivery of or payment for health care benefits, items, or services.
A number of states also have anti-fraud and anti-kickback laws similar to the AKS that prohibit certain direct or indirect
payments if such arrangements are designed to induce or encourage the referral of patients or the furnishing of goods or
services. Some states’ anti-fraud and anti-kickback laws apply only to goods and services covered by Medicaid or
programs such as workers’ compensation. Other states’ anti-fraud and anti-kickback laws apply to all health care goods and
services, regardless of whether the source of payment is governmental or private. Due to the breadth of these laws and the
potential for changes in laws, regulations, or administrative or judicial interpretations, we may have to change our business
practices or our existing business practices could be challenged as unlawful, which could materially adversely affect our
business.
Certain federal and state governmental agencies, including the U.S. Department of Justice and the U.S. Department of
Health and Human Services, have been investigating issues surrounding pricing information reported by drug
manufacturers and used in the calculation of reimbursements as well as sales and marketing practices. For example, many
government and third-party payors, historically including Medicare and Medicaid, reimburse doctors and others for the
purchase of certain pharmaceutical products based on the product’s average wholesale price (“AWP”) reported by
pharmaceutical companies, although the Company has not used the term AWP since 2000. Medicare currently uses average
sales price (“ASP”) and wholesale acquisition cost (“WAC”) when ASP data is unavailable. The federal government,
certain state agencies and private payors are investigating and have begun to file court actions related to pharmaceutical
companies’ reporting practices with respect to AWP, alleging that the practice of reporting prices for pharmaceutical
products has resulted in a false and overstated AWP, which in turn is alleged to have improperly inflated the reimbursement
paid by Medicare beneficiaries, insurers, state Medicaid programs, medical plans and others to health care providers who
prescribed and administered those products. In addition, some of these same payors are also alleging that companies are not
reporting their “best price” to the states under the Medicaid program.
Furthermore, under the FDCA, it is illegal for pharmaceutical companies to promote their products for uses that are not
approved by the FDA, and companies that market drugs for so-called “off-label” indications may be subject to civil
liability under the FFCA (as further discussed below), as well as to criminal penalties. Over the past decade, numerous
lawsuits have been filed against pharmaceutical companies challenging their off-label promotional activities, and
pharmaceutical companies, in the aggregate, have paid billions of dollars to defend and settle these cases.
We may become subject to federal and state false claims litigation brought by private individuals and the
government.
We are subject to state and federal laws that govern the submission of claims for reimbursement. The FFCA imposes civil
liability on individuals or entities that knowingly submit, or cause to be submitted, false or fraudulent claims for payment
to the government. Violations of the FFCA and other similar laws may result in criminal fines, imprisonment and
substantial civil penalties for each false claim submitted (including civil penalties presently in excess of $23,607 per claim,
plus treble damages, plus liability for attorney’s fees) and exclusion from federally funded health care programs, including
Medicare and Medicaid. The FFCA also allows private individuals to bring a suit on behalf of the government against an
individual or entity for violations of the FFCA. These suits, also known as Qui Tam or whistleblower actions, may be
brought by, with only a few exceptions, any private citizen who has material information of a false claim that has not yet
been previously disclosed. These suits have increased significantly in recent years because the FFCA allows an individual
to share in the amounts paid to the federal government in fines or settlement as a result of a successful Qui Tam action, in
addition to the recovery of legal fees in bringing such an action. If our past or present operations are found to be in
violation of any of such laws or any other governmental regulations that may apply to us, we may be subject to penalties,
including civil and criminal penalties, damages, fines, exclusion from federal health care programs and/or the curtailment
or restructuring of our operations. Any penalties, damages, fines, curtailment, or restructuring of our operations could
adversely affect our ability to operate our business and our financial results. Action against us for
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violation of these laws, even if we successfully defend against them, could cause us to incur significant legal expenses and
divert our management’s attention from the operation of our business.
Federal regulation of arrangements between manufacturers of brand and generic products could adversely affect
our business.
As part of the Medicare Prescription Drug, Improvement and Modernization Act of 2003, companies are now required to
file with the Federal Trade Commission (“FTC”) and the Department of Justice certain types of agreements entered into
between brand and generic pharmaceutical companies related to the manufacture, marketing and sale of generic versions of
brand drugs. This new requirement could affect the manner in which generic drug manufacturers resolve intellectual
property litigation and other disputes with brand pharmaceutical companies and could result generally in an increase in
private-party litigation against pharmaceutical companies or additional investigations or proceedings by the FTC or other
governmental authorities. The impact of this new requirement and the potential private-party lawsuits associated with
arrangements between brand-name and generic drug manufacturers is uncertain and could adversely affect our business.
Investigations of the calculation of average wholesale prices may adversely affect our business.
Many government and third-party payers, including Medicare, Medicaid, Health Maintenance Organization and Managed
Care Organization, have historically reimbursed doctors, pharmacies and others for the purchase of certain prescription
drugs based on a drug’s AWP or WAC. In the past several years, state and federal government agencies have conducted
ongoing investigations of manufacturers’ reporting practices with respect to AWP and WAC, in which they have suggested
that reporting of inflated AWP’s or WAC’s has led to excessive payments for prescription drugs. For a description of
current and federal and state investigations and claims by private parties, see Note 10 “Legal, Regulatory Matters and
Contingencies.” Additional actions are possible. These actions, if successful, could adversely affect us and may have a
material adverse effect on our business, results of operations, financial condition and cash flows.
We may incur product liability losses or recall expenses relating to the sale of products containing nitrosamines.
According to FDA guidance, nitrosamine impurities, including, among others, N-nitrosodimethylamine (“NDMA”) may
increase the risk of cancer if people are exposed to them above acceptable levels and over long periods of time, but a
person taking a drug that contains nitrosamines at-or-below the acceptable daily intake limits every day for 70 years is not
expected to have an increased risk of cancer. FDA published a guidance entitled “Control of Nitrosamine Impurities in
Human Drugs” that recommends steps manufacturers of APIs and drug products should take to detect and prevent
unacceptable levels of nitrosamine impurities in pharmaceutical products. Lannett initiated an internal risk assessment and
control strategy for nitrosamines prior to issuance of the guidance. In some cases where its marketed products contain
nitrosamines above published FDA acceptable levels (such as ranitidine), Lannett may be required to recall affected
product, such as Lannett’s ranitidine product, which was subject to an industry wide recall when NDMA was discovered as
a byproduct of the manufacturing process. Subsequent to the recall of its ranitidine product, Lannett was named a
defendant in a series of product liability lawsuits. Product liability claims and lawsuits, safety alerts, product recalls or
corrective actions, regardless of their ultimate outcome, could have a material adverse effect on our business and reputation
and on our ability to attract and retain customers. We are unable to predict at this time if any other Lannett products will be
adversely impacted by the global pharmaceutical nitrosamine review.
As part of our risk management policy, we carry third-party product liability insurance coverage; however, the insurance
industry recently adopted an exclusion into its comprehensive general liability policies for nitrosamine impurities. To the
extent that any of Lannett’s products are subject to recall as a result of nitrosamine impurities and/or are subject to lawsuit
arising out of the presence of nitrosamine impurities in its products, such losses may not be covered by insurance and could
have a material adverse effect on our profitability and financial condition.
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Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with
respect to our environmental, social and governance practices may impose additional costs on us or expose us to
new or additional risks.
Companies are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to their
environmental, social and governance (“ESG”) practices and disclosure. Investor advocacy groups, investment funds and
influential investors are also increasingly focused on these practices, especially as they relate to the environment, climate
change, health and safety, supply chain management, diversity, labor conditions and human rights, both in our own
operations and in our supply chain. Increased ESG-related compliance costs for the Company as well as among our
suppliers, vendors and various other parties within our supply chain could result in material increases to our overall
operational costs. Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and
standards could negatively impact our reputation, ability to do business with certain partners, access to capital, and our
stock price.
General Business Risks
Public health threats, including a pandemic, epidemic or outbreak of an infectious disease in the United States or
elsewhere may adversely affect our business and financial results.
Our business may be adversely affected by public health threats, including any pandemic, epidemic or outbreak of an
infectious disease occurring in the United States or worldwide. The COVID-19 virus has spread to over 200 countries since
December 2019 and continues to impact the global economy. The virus may impact our business, operations and financial
results.
Any business shutdowns or other business interruptions affecting our suppliers or interruptions in global shipping affecting
our suppliers could result in our inability to continue receiving sufficient amount of finished dosage products, API and
other raw materials. Any business shutdowns or other business interruptions affecting our business development and other
strategic partners could also cause delays in the regulatory approval process for and launching of some or all of our
pipeline drug candidates. We cannot presently predict the duration and severity of any potential business shutdowns or
disruptions, but if we or any of the third parties with whom we engage, including the partners and other third parties with
whom we conduct business, were to experience shutdowns or other business disruptions, our ability to conduct our
business in the manner and on the timelines presently planned could be materially and adversely impacted. Additionally,
subsequent to an initial stocking up of supplies at the start of the pandemic, the total volume of drug prescriptions written
during the pandemic has decreased, causing less demand for our products. The length and severity of the pandemic may
continue to affect the demand for our products in the future.
We have taken temporary precautionary measures intended to help minimize the risk of the virus to our employees,
including temporarily requiring all employees, other than employees in our manufacturing plants, distribution centers, and
R&D facilities, who are able to work from home to work remotely. We have suspended non-essential travel worldwide for
our employees and are discouraging employee attendance at other gatherings. These measures could negatively affect our
business. For instance, temporarily requiring many of our employees to work remotely may disrupt our operations or
increase the risk of a cybersecurity incident.
Although the Company has taken many safety measures to reduce the impact of COVID-19 on our employees, we have
experienced an increase in absenteeism arising from intermittent spikes in cases across the country, which has caused an
increase in overtime and cost to produce the products. The Company has also experienced an increase in employee
turnover, due to, in part, the COVID-19 pandemic and competing demands for manufacturing skills. To date, the rate of
employee absenteeism and employee turnover has not had any material effect on the Company’s business or its ability to
manufacture and distribute products and plants continue to operate at normal capacity. The ongoing risk of employee
absenteeism and employee turnover could materially impact the Company’s operations.
The full extent to which COVID-19 has impacted and may continue to impact our business will depend on future
developments, which are still uncertain and cannot be predicted with confidence, such as the duration of the outbreak, or
the effectiveness of actions to contain and treat COVID-19, particularly in the geographies where we or our third-party
suppliers or business development and other strategic partners operate. Given the speed and frequency of continuously
evolving developments with respect to this pandemic, we cannot reasonably estimate the magnitude of any impact on our
operations and the full extent to which COVID-19 may impact our business, results of operations, liquidity or financial
position is uncertain.
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The loss of key personnel could cause our business to suffer.
The success of our present and future operations will depend, to a significant extent, upon the experience, abilities and
continued services of our key personnel. If we lose the services of our key personnel, or if they are unable to devote
sufficient attention to our operations for any other reason, our business may be significantly impaired. If the employment of
any of our current key personnel is terminated, we cannot assure you that we will be able to attract and replace the
employee with the same caliber of key personnel. As such, we have entered into employment agreements with all of our
senior executive officers in order to help retain these key individuals.
We are increasingly dependent on information technology and our systems and infrastructure face certain risks,
including cybersecurity and data leakage risks.
Significant disruptions to our information technology systems or breaches of information security could adversely affect
our business. We are increasingly dependent on information technology systems and infrastructure to operate our business.
In the ordinary course of business, we collect, store and transmit large amounts of confidential information (including trade
secrets or other intellectual property, proprietary business information and personal information) and it is critical that we do
so in a secure manner to maintain the confidentiality and integrity of such confidential information. We could be
susceptible to third-party attacks on our information technology systems, which attacks are of ever-increasing levels of
sophistication and are made by groups and individuals with a wide range of motives and expertise, including state and
quasi-state actors, criminal groups, “hackers” and others. Maintaining the security, confidentiality and integrity of this
confidential information (including trade secrets or other intellectual property, proprietary, business information and
personal information) is important to our competitive business position. The Company maintains cyber security insurance
and, as part of the renewal process, the carrier undertakes an assessment of the security system controls. Additionally,
information security falls within the scope of the annual audit performed by our independent audit firm. The Audit
Committee has oversight responsibilities over cybersecurity and meets at least quarterly with the Company’s IT
management and an outside cybersecurity consulting firm, which performs an annual assessment of our cybersecurity
controls. The Audit Committee also communicates with the Company’s independent audit firm frequently regarding their
annual audit procedures. Nevertheless, there can be no assurance that we can prevent service interruptions or security
breaches in our systems or the unauthorized or inadvertent wrongful use or disclosure of confidential information that
could adversely affect our business operations or result in the loss, misappropriation and/or unauthorized access, use or
disclosure of, or the prevention of access to, confidential information. A breach of our security measures or the accidental
loss, inadvertent disclosure, unapproved dissemination, misappropriation or misuse of trade secrets, proprietary
information, or other confidential information, whether as a result of theft, hacking, fraud, trickery or other forms of
deception, or for any other cause, could enable others to produce competing products, use our proprietary technology or
information and/or adversely affect our business position. Further, any such interruption, security breach, or loss,
misappropriation and/or unauthorized access, use or disclosure of confidential information could result in financial, legal,
business and reputational harm to us and could have a material adverse effect on our business, financial condition and
results of operations.
Rising insurance costs, as well as the inability to obtain certain insurance coverage for risks faced by us, could
negatively impact profitability.
The design, development, manufacture and sale of our products involve an inherent risk of product liability claims and the
associated adverse publicity. The cost of insurance, including product liability as well as workers compensation and general
liability insurance, has risen in recent years and may increase in the future. In response, we may increase deductibles and/or
decrease certain coverage to mitigate these costs. These increases and our increased risk due to increased deductibles and
reduced coverage, could have a negative impact on our results of operations, financial condition and cash flows.
Additionally, certain insurance coverage may not be available to us for risks faced by us. Sometimes the coverage we
obtain for certain risks may not be adequate to fully reimburse the amount of damage that we could possibly sustain.
Should either of these events occur, the lack of insurance to cover our entire cost would adversely affect our results of
operations and financial condition.
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ITEM 2.
DESCRIPTION OF PROPERTY
The Company’s 432,000 square foot Seymour, Indiana facility contains approximately 107,000 square feet of
manufacturing space as well as a leased 116,000 square foot temperature/humidity-controlled storage warehouse. The
Seymour facility has had satisfactory inspections conducted by the FDA and EMA and similar regulatory authorities of
Japan, Taiwan, Brazil, China, Korea and Turkey. As of June 30, 2021, the facility has a production capacity of
approximately 4.0 billion doses based on our current product mix and plant configuration.
The Company has an 110,000 square foot manufacturing facility located in Carmel, New York, which sits on 25.8 acres of
land. The facility specializes in liquid products and currently houses manufacturing, packaging, quality and research and
development and has capacity for additional manufacturing space, if needed.
Lannett owns two facilities in Philadelphia, Pennsylvania. The research and development facilities are located in a 31,000
square foot facility at 9000 State Road and a second, 63,000 square foot facility that is located within one mile of the State
Road facility at 9001 Torresdale Avenue, Philadelphia, PA. The latter facility contains our analytical research and
development and quality control laboratories. We have adopted many systems and processes to ensure adherence to FDA
requirements and we believe we are operating our facilities in substantial compliance with the FDA’s cGMP regulations.
ITEM 3.
LEGAL PROCEEDINGS
Information pertaining to legal proceedings can be found in Note 10 “Legal, Regulatory Matters and Contingencies” under
Item 15. Exhibits and Financial Statement Schedule and is incorporated by reference herein.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable
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PART II
ITEM 5.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The Company’s common stock trades on the NYSE. The following table sets forth certain information with respect to the
intraday high and intraday low sales prices per share of the Company’s common stock during Fiscal 2021 and 2020, as
quoted by the NYSE.
Fiscal Year Ended June 30, 2021
First quarter
Second quarter
Third quarter
Fourth quarter
First quarter
Second quarter
Third quarter
Fourth quarter
Fiscal Year Ended June 30, 2020
High
Low
$
$
$
$
7.55
7.18
10.70
5.82
High
$
15.52
$
$
$
13.12
10.34
10.01
$
$
$
$
$
$
$
$
4.89
5.75
5.23
4.12
Low
5.46
8.16
5.91
6.10
Holders
As of June 30, 2021, there were 1,056 holders of record of the Company’s common stock.
Dividends
The Company did not pay cash dividends in Fiscal 2021, Fiscal 2020 or Fiscal 2019. The Company intends to use available
funds for working capital, to pay down outstanding debt, plant and equipment additions, various product extension
ventures and merger and acquisition or other growth opportunities. The Company does not expect to pay, nor should
stockholders expect to receive, cash dividends in the foreseeable future.
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The following table sets forth certain information with respect to the Company’s share repurchase activity in the fourth
quarter of Fiscal 2021.
ISSUER PURCHASES OF EQUITY SECURITIES
Period
(In thousands)
April 1 to April 30, 2021
May 1 to May 31, 2021
June 1 to June 30, 2021
Total
(d) Maximum
Number (or
Approximate
Dollar Value)
of Shares (or
Units) that
May Yet Be
Purchased
Under the
Plans or
Programs Programs
(c) Total
Number of
Shares (or
Units)
Purchased as
Part of
Publicly
Announced
Plans or
(a) Total
Number of
Shares (or
Units)
Purchased*
(b) Average
Price Paid
per Share (or
Unit)
1,094
2,468
293
3,855
$
$
4.37
4.43
4.60
4.43
— $
—
—
—
—
—
—
—
* Shares were repurchased to settle employee tax withholding obligations pursuant to equity award programs.
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Stock Performance Chart
The following graph compares Lannett Company’s annual percentage change in cumulative total return on common shares
over the past five years, commencing July 1, 2016 and ending June 30, 2021, with the cumulative total return of companies
comprising the NYSE Composite Index and the S&P Pharmaceuticals Select Industry Index. The S&P Pharmaceuticals
Select Industry Index is an industry index published by S&P Dow Jones Indices, a division of S&P Global, and is
comprised stocks in the S&P Total Market Index that are classified in the GICS pharmaceuticals sub-industry. This
presentation assumes that $100 was invested in shares of the relevant issuers on June 30, 2016, and that dividends received
were immediately invested in additional shares. The graph plots the value of the initial $100 investment at one-year
intervals for the fiscal years shown. The S&P Pharmaceuticals Select Industry Index replaces the Morningstar Drug
Manufacturers -Specialty & Generic Index in this analysis and going forward, as the latter data is no longer accessible. The
latter index has been included with data through June 30, 2020.
ITEM 6. [RESERVED]
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ITEM 7.
RESULTS OF OPERATIONS
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
The following discussion and analysis describes significant changes in the financial condition and results of operations, as
well as liquidity and capital resources of the Company. Additionally, it addresses accounting policies and estimates that
management has deemed are “critical accounting policies and estimates.” This discussion and analysis is intended as a
supplement to and should be read in conjunction with the Consolidated Financial Statements, the Notes to the Consolidated
Financial Statements and other sections of this Form 10-K.
The following discussion contains forward-looking statements. You should refer to the “Cautionary Statement Regarding
Forward-Looking Statements” set forth in Part I of this Annual Report.
We report financial information on a quarterly and fiscal year basis with the most recent being the fiscal year ended
June 30, 2021. All references herein to a “fiscal year” or “Fiscal” refer to the applicable fiscal year ended June 30.
Company Overview
Lannett Company, Inc. (a Delaware corporation) and its subsidiaries (collectively, the “Company”, “Lannett”, “we” or
“us”) primarily develop, manufacture, package, market and distribute solid oral and extended release (tablets and capsules),
topical, liquids, nasal and oral solution finished dosage forms of drugs, generic forms of both small molecule and biologic
medications, that address a wide range of therapeutic areas. Certain of these products are manufactured by others and
distributed by the Company. Additionally, the Company is pursuing partnerships, research contracts and internal expansion
for the development and production of other dosage forms including: ophthalmic, nasal, patch, foam, buccal, sublingual,
suspensions, soft gel, injectable and oral dosages.
The Company operates pharmaceutical manufacturing plants in Carmel, New York and Seymour, Indiana. The Company’s
customers include generic pharmaceutical distributors, drug wholesalers, chain drug stores, private label distributors, mail-
order pharmacies, other pharmaceutical manufacturers, managed care organizations, hospital buying groups, governmental
entities and health maintenance organizations.
Impact of COVID-19 Pandemic
In December 2019, the COVID-19 virus emerged in Wuhan, China and spread to other parts of the world. In March 2020,
the World Health Organization (“WHO”) designated COVID-19 a global pandemic. Governments on the national, state and
local level in the United States, and around the world, have implemented lockdown and shelter-in-place orders, requiring
many non-essential businesses to shut down operations for the time being. The Company’s business, however, is deemed
“essential” and it has continued to operate and has continued to manufacture and distribute its medicines to customers. The
Company has developed a comprehensive plan that enables it to maintain operational continuity with an emphasis on
manufacturing, distribution and R&D facilities during this crisis, and to date, has not encountered any significant obstacles
implementing its business continuity plans. However, the Company continually assesses COVID-19 related developments
and adjusts its risk mitigation planning and business continuity activities as needed.
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In mid-March, 2020, the Company instituted a work from home process for all employees, other than employees in our
manufacturing plants, distribution center, and R&D facilities which support manufacturing. For employees who cannot
perform their job remotely, the Company has implemented enhanced cleaning and sanitizing procedures, weekly fogging
and provided additional personal hygiene supplies and personal protective equipment such as rubber gloves, N95
respirators and powered air-purifying respirator that are in line with Centers for Disease Control and Preventions (“CDC”)
recommendations. The Company has also implemented thermal screening for all employees and visitors entering its
facilities. Employees are required to adhere to the CDC guidelines, social distancing and any employee experiencing any
symptoms of COVID-19 is required to stay home and seek medical attention. Any employee who tests positive for
COVID-19 is required to quarantine and is not allowed to return to the facilities without a physician’s release. The
Company has closed its facilities to outside persons that are not critical to continuing our operations. In cases where they
are essential, visitors undergo a pre-admittance check to include a thermal screening and risk evaluation. The Company has
experienced an increase in absenteeism arising from intermittent spikes in cases across the country, which has caused an
increase in overtime and cost to produce the products, but to date the rate of employee absenteeism has not had any
material effect on the Company’s business or its ability to manufacture and distribute products and plants continue to
operate at normal capacity. As the pandemic continues to linger due to variants or limited vaccine supplies, there is an
ongoing risk of employee absenteeism which could materially impact the Company’s operations. To date, the Company’s
work from home process has not materially impacted the Company’s financial reporting systems or controls over financial
reporting and disclosures nor do we expect that the remote work arrangement will have a material impact in the future.
Currently and as anticipated for the near future, the supply chain supporting the Company’s products remains intact,
enabling the Company to receive sufficient inventory of the key materials needed across the Company’s network. The
Company is experiencing some delays and allocations for certain API and other raw materials of higher demand, which, to
date, have not had a material impact on its results of operations. However, the Company is regularly communicating with
its suppliers, third-party partners, customers, healthcare providers and government officials in order to respond rapidly to
any issues as they arise. The longer the current situation continues, it is more likely that the Company may experience
some sort of interruption to its supply chain, and such an interruption could materially affect its business, including but not
limited to, our ability to timely manufacture and distribute its products as well as unfavorably impact our results of
operations. Additionally, subsequent to an initial stocking up of supplies at the start of the pandemic, the total volume of
drug prescriptions written during the pandemic has decreased causing less demand for our products. Specifically, the
pandemic has resulted in fewer elective surgeries being performed, causing less demand for our Numbrino cocaine
hydrochloride product.
As a result of the pandemic, certain clinical trials which were underway or scheduled to begin were temporarily placed on
hold, although all such clinical trials were resumed and have been completed. Such delays impacted the Company’s timing
for filing applications for product approvals with the FDA as well as related timing of FDA approval of such filings.
Additionally, the pandemic has slowed down the Company’s efforts to expand its product portfolio through acquisitions
and distribution opportunities, impacting the speed with which the Company is able to bring additional products to market.
While there have been some efforts by some of our customers to increase their inventory levels for the Company’s products
in the near term, the Company has not seen significant increases in demand. The Company does not anticipate any
significant changes in demand for its products in the future, however, depending on the duration and severity of the
outbreak, levels of demand may change.
In light of the economic impacts of COVID-19, the Company reviewed the assets on our Consolidated Balance Sheet as of
June 30, 2021, including intangible and other long-lived assets. Based on our review, the Company determined that no
impairments or other write-downs specifically related to COVID-19 were necessary during the fiscal year ended June 30,
2021. Our assessment is based on information currently available and is highly reliant on various assumptions. Changes in
market conditions could impact the Company’s future outlook and may lead to impairments in the future.
Based on the foregoing, the Company cannot reasonably predict the ultimate impact of COVID-19 on our future results of
operations and cash flows due to the continued uncertainty around the duration and severity of the pandemic.
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2020 Restructuring Plan
On July 10, 2020, the Board of Directors authorized a restructuring and cost savings plan (the “2020 Restructuring Plan”)
to enhance manufacturing efficiencies, streamline operations and reduce the Company’s cost structure. The 2020
Restructuring Plan was implemented, in part, as a result of previously anticipated near-term competition and pricing
pressure with respect to certain key products. The 2020 Restructuring Plan included lowering operating costs and reducing
the workforce by approximately 80 positions. The 2020 Restructuring Plan was initiated on July 13, 2020 and completed as
of December 31, 2020.
The Company incurred approximately $4.0 million in severance-related costs in the fiscal year ended June 30, 2021, in
connection with the 2020 Restructuring Plan. The Company expects the 2020 Restructuring Plan to result in annual cost
savings in excess of $15.0 million.
Climate Change
The Company believes in a more sustainable future with a reduced environmental footprint, effective use of natural
resources and a multi-pronged approach to reducing our effect on the climate while maintaining our focus on providing
affordable medicines to our customers and ultimately the patients who depend on them. Commitment to this belief,
however, may come at increased costs to the Company including, but not limited to, capital investments, additional
management and compliance costs, and reduced output, all of which may be material. Costs incurred by our suppliers and
vendors to comply with their own sustainability commitments may also be passed through the supply chain resulting in
higher operational costs to the Company. Climate change and the associated risks continues to evolve over time and could
materially impact the Company’s results of operations and cash flows in any given year. The Company monitors such
changes and strives to address these risks in a timely manner.
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Results of Operations — Fiscal 2021 compared to Fiscal 2020
Net sales decreased 12% to $478.8 million for the fiscal year ended June 30, 2021. The following table identifies the
Company’s net product sales by medical indication for the fiscal years ended June 30, 2021 and 2020.
(In thousands)
Medical Indication
Analgesic
Anti-Psychosis
Cardiovascular
Central Nervous System
Endocrinology
Gastrointestinal
Infectious Disease
Migraine
Respiratory/Allergy/Cough/Cold
Urinary
Other
Contract manufacturing revenue
Total net sales
Fiscal Year Ended June 30,
2021
$ 14,684
43,720
65,987
95,115
27,070
67,540
67,761
25,554
9,258
5,786
35,312
20,991
$ 478,778
$
2020
8,680
104,934
88,576
77,256
—
73,477
73,237
44,266
11,576
4,225
35,013
24,504
$ 545,744
The decrease in net sales was driven by a decrease in the selling price of products of $90.1 million partially offset by
increased volumes of $23.1 million. The decrease in the selling price of products was primarily driven by lower sales
prices of Fluphenazine, which is included within the Anti-Psychosis medical indication, and Posaconazole, which is
included in Infectious Disease medical indication, due to new competitors entering the market, as well as lower average
selling price across the remaining medical indications. Overall volumes increased primarily due to increased volumes of
Posaconazole and from new product launches, including Levothyroxine Tablets and Capsules, partially offset by lower
volumes of Fluphenazine. The Company has seen increased competitive market pressure in recent years, which has
resulted in overall decreases in selling prices of products and sales volume across our product portfolio. We have partially
offset these competitive pressures with new product launches and will continue to seek opportunities for additional
launches.
In January 2017, a provision in the Bipartisan Budget Act of 2015 required drug manufacturers to pay additional rebates to
state Medicaid programs if the prices of their generic drugs rise at a rate faster than inflation. The provision negatively
impacted the Company’s net sales by $18.9 million and $35.7 million in Fiscal 2021 and Fiscal 2020, respectively, which
contributed to the overall decreased average selling price.
The following chart details price and volume changes by medical indication between Fiscal 2021 and Fiscal 2020:
Medical indication
Analgesic
Anti-Psychosis
Cardiovascular
Central Nervous System
Endocrinology
Gastrointestinal
Infectious Disease
Migraine
Respiratory/Allergy/Cough/Cold
Urinary
45
Sales volume
change %
Sales price
change %
73 %
(29)%
(17)%
44 %
100 %
— %
16 %
(17)%
(14)%
26 %
(4)%
(29)%
(9)%
(21)%
— %
(8)%
(23)%
(25)%
(6)%
11 %
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The Company sells its products to customers through various distribution channels. The table below presents the
Company’s net sales to each distribution channel for the fiscal year ended June 30:
(In thousands)
Customer Distribution Channel
Wholesaler/Distributor
Retail Chain
Mail-Order Pharmacy
Contract manufacturing revenue
Total net sales
June 30,
2021
$ 390,356
57,120
10,311
20,991
$ 478,778
June 30,
2020
$ 429,824
79,606
11,810
24,504
$ 545,744
The overall decrease in sales was primarily driven by lower sales of Fluphenazine and Posaconazole due to new
competitors entering the market partially offset by sales from new product launches. The Company has seen increased
competitive market pressure in recent years, which has resulted in overall decrease in sales to the distribution channels
above. We have partially offset these competitive pressures with new product launches and will continue to seek
opportunities for additional launches.
Cocaine Hydrochloride Solution
In December 2017, a competitor received approval from the FDA to market and sell a Cocaine Hydrochloride topical
product. In March 2018, in accordance with FDA guidance, the FDA requested the Company cease manufacturing and
distributing our unapproved cocaine hydrochloride solution product as a result of an approved product on the market. The
Company committed to not manufacture or distribute cocaine hydrochloride 10% solution, which was not sold during
Fiscal 2019, and also ceased manufacturing its unapproved cocaine hydrochloride 4% solution on June 15, 2019 and
ceased distributing the product on August 15, 2019.
The competitor filed a series of Citizen Petitions beginning in 2019, seeking to block approval of the Company’s Section
505(b)(2) NDA for its cocaine hydrochloride solution product by claiming that the grant of the New Chemical Entity
(“NCE”) exclusivity issued to the competitor blocks the approval of the Company’s application for five years. Following
the FDA’s rejection of the competitor’s argument and approval of the Company’s Section 505(b)(2) NDA, the competitor
filed two lawsuits against the FDA (one in federal court in the District of Columbia and one in federal court in the District
of Maryland) seeking a court order in two different federal courts directing the FDA to withdraw approval of the Section
505(b)(2) NDA. To date, neither court has directed the FDA to withdraw the NDA. The Company has intervened in both
lawsuits and there are currently cross motions for summary judgment pending in the case filed in federal court for the
District of Columbia and a motion to dismiss the complaint filed in the federal court for the District of Maryland.
Separately, on June 6, 2020, the competitor filed a patent infringement complaint, since amended, in the United States
District Court for the District of Delaware, asserting that the Company’s approved cocaine hydrochloride product infringes
six patents issued to the competitor. The Company filed an answer and counterclaim, alleging that the Company either does
not infringe or that the six asserted patents and three additional unasserted patents are invalid. The competitor filed a
motion to partially dismiss a portion of the counterclaim as to the unasserted patents. The motion to dismiss is pending a
determination by the court and discovery is ongoing. The Company continues to market its approved cocaine
hydrochloride product.
On August 16, 2021, the Company and the competitor reached an agreement in principle to amicably resolve all pending
cases, including the cases in the federal courts in the District of Columbia, District of Maryland and District of Delaware.
The parties are working to negotiate and finalize the settlement documents over the next 45 days and have filed motions in
each of the courts to stay the cases pending the finalization of the settlement documents.
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Thalomid®
The Company filed with the FDA an ANDA No. 206601, along with a paragraph IV certification, alleging that the fifteen
patents associated with the Thalomid drug product are invalid, unenforceable and/or not infringed. On January 30, 2015,
Celgene Corporation and Children’s Medical Center Corporation filed a patent infringement lawsuit in the United States
District Court for the District of New Jersey, alleging that the Company’s filing of ANDA No. 206601 constitutes an act of
patent infringement and seeking a declaration that the patents at issue are valid and infringed. A settlement agreement was
reached, and the Court dismissed the lawsuit in October 2017. Pursuant to the settlement agreement, the Company entered
into a license agreement that permitted Lannett to manufacture and market in the U.S. its generic thalidomide product as of
August 1, 2019 or earlier under certain circumstances. In the second quarter of Fiscal 2019, the Company received a Major
Complete Response Letter (“CRL”) related to issues at its API supplier. The Company filed a response to the CRL. The
Company received a second Major CRL in the first quarter of Fiscal 2020 related to continued issues at the API supplier, as
well as issues with the Risk Evaluation and Mitigation Strategy (“REMS”) program hosted by Celgene. On March 26,
2021, the Company received a third Major CRL from the FDA relating to continuing issues with the API supplier. The
Company is working on addressing the FDA comments and cannot reasonably predict timing of the product launch.
Ranitidine Oral Solution, USP
As part of an industry-wide action, the Company issued a voluntary recall on all lots within expiry of Ranitidine Syrup
(Ranitidine Oral Solution, USP), 15mg/mL to the consumer level due to levels of N-Nitrosodimethylamine (“NDMA”), a
probable human carcinogen, above the levels recently established by the FDA. On September 17, 2019, the FDA notified
the Company about the possible presence of NDMA in its Ranitidine Oral Solution product and the Company immediately
commenced testing and analysis of the active pharmaceutical ingredient (“API”) and drug product and confirmed the
presence of NDMA. The Company’s net sales of Ranitidine Oral Solution in the fourth quarter of fiscal year 2019 totaled
$1.9 million. On April 1, 2020, the FDA ordered all Ranitidine products (including the Company’s product) withdrawn
from the U.S. market and provided guidance on the requirements for submitting additional information to the FDA in order
to re-introduce the product to the market. Since initiating the voluntary recall, the Company has not been marketing its
Ranitidine Oral Solution product and has no future plans to attempt to re-introduce the product at this time. The Company
does not believe the recall will have a significant impact on our future expected financial position, results of operations and
cash flows.
On June 1, 2020, a class action complaint was served upon the Company and approximately forty-five (45) other
companies asserting claims for personal injury arising from the presence of NDMA in Ranitidine products. The complaint
is consolidated in a multidistrict litigation (“MDL”) pending in the United States District Court for the Southern District of
Florida. Similar complaints were filed in state court in New Mexico and state court in Maryland and served upon the
Company. Subsequently, a number of similar complaints were served on the Company. The Company has filed a motion to
dismiss the complaint filed in the MDL which, on December 31, 2020, was granted with leave to amend as to certain of the
claims. The plaintiffs filed a First Amended complaint on February 9, 2021, to which the generic manufacturer defendants,
including the Company, filed a renewed motion to dismiss all claims. On July 8, 2021, the Court issued an Order granting
the motion and dismissing all claims with prejudice based on federal preemption. Separately, the New Mexico case was
conditionally transferred to the MDL, but ultimately remanded back to the state court. Since the Company was not licensed
to do business in New Mexico and, based upon the information received to date, did not sell Ranitidine in New Mexico, we
plan to file a motion to dismiss based, among other things, federal preemption and lack of jurisdiction. Separately, the
Company filed a notice to remove and transfer the Maryland case to the MDL which the plaintiff has opposed. On April 1,
2021, the case was remanded back to the state court. On August 17, 2021, Helena Hilbert & William Hilbert III,
Individually and on behalf of their minor child "WH", filed a complaint in the Philadelphia Court of Common Pleas against
the Company and approximately seven other defendants, alleging personal injury as a result of using the Company’s
Ranitidine products. The Company intends to file a motion to dismiss all of the pending state claims, among other reasons,
based on federal preemption. The Company has placed its insurance carrier on notice of the claim and the carrier has
appointed counsel to defend the Company.
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Cost of Sales, including amortization of intangibles. Cost of sales, including amortization of intangibles, for Fiscal 2021
increased 6% to $403.2 million from $380.5 million in the same prior-year period. The increase was attributable to an
increase of $13.2 million in write-downs for excess and obsolete inventory, which primarily relates to the Company’s
decision to discontinue 23 lower margin product lines, as well as additional volumes from new product launches. The
Company also recorded $5.0 million in consideration to renew the Company’s distribution agreement with Recro
Gainesville, LLC (“Recro”) during the second quarter of Fiscal Year 2021.
Gross Profit. Gross profit for Fiscal 2021 decreased 54% to $75.6 million or 16% of total net sales. In comparison, gross
profit for Fiscal 2020 was $165.2 million or 30% of total net sales. The decrease in gross profit percentage was primarily
attributable to lower volumes of Fluphenazine, which had higher than average gross profit margins, as well as overall lower
average selling prices of our products. The Company also recorded an increase in the write-downs for excess and obsolete
inventory as well as consideration to renew the distribution agreement with Recro in the second quarter of Fiscal 2021.
Research and Development Expenses. Research and development expenses decreased 19% to $24.2 million in Fiscal 2021
from $30.0 million in Fiscal 2020. The decrease was primarily due to lower R&D expenses as a result of timing of certain
milestones related to product development projects as well as employee headcount reductions related to the 2020
Restructuring Plan.
Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased 14% to $68.1
million in Fiscal 2021 compared with $79.5 million in Fiscal 2020. The decrease was primarily driven by a lower branded
prescription drug fee, lower incentive-based compensation, lower expenses at the Company’s Cody Labs subsidiary and
other cost reduction initiatives.
Asset impairment charges. In Fiscal 2021, the Company recorded various asset impairment charges totaling $216.6
million. The Company reviewed its product portfolio during Fiscal 2021 and decided to discontinue 23 lower gross margin
product lines, including product lines that were acquired through various past business and product acquisitions. As a result
of the discontinuance and the reduction in net sales and gross margin of certain other product lines, the Company recorded
an impairment charge of $193.0 million related to the KUPI product rights intangible assets. The impairment charge is
primarily a result of the decline in net sales and gross margin of certain product lines acquired in connection with the KUPI
acquisition, including those product lines being discontinued. In addition, the Company recorded a $17.0 million
impairment charge to its intangible asset for a distribution and supply agreement with Cediprof, Inc., which is included
within the other product rights category of definite-lived intangible assets, as a result of increased competition and lower
projected cash flows for the Levothyroxine product. The Company also recorded a $5.0 million impairment charge to its
KUPI in-process research and development intangible asset due to delays in the expected launch of a product within the
portfolio, which results in reduced projected cash flows. See Note 8 “Goodwill and Intangible Assets” for more
information.
Other Loss. Interest expense for the year ended June 30, 2021 totaled $53.8 million compared to $66.8 million for the year
ended June 30, 2020. The decrease was due to a lower average debt balance in Fiscal 2021 as compared to the prior-year as
well as a lower weighted-average interest rate due to the full repayment of the outstanding Term Loan A in November
2020. The weighted average interest rate for Fiscal 2021 and 2020 was 8.0% and 8.8%, respectively. The Company also
recorded a $10.3 million loss on extinguishment of debt related to the payoff of the Term Loan B Facility during Fiscal
2021.
Income Tax. The Company recorded income tax expense in Fiscal 2021 of $60.6 million compared to income tax benefit
of $15.3 million in Fiscal 2020. The effective tax rate for Fiscal 2021 was (20.0)%, compared to 31.4% for Fiscal 2020.
The income tax expense recorded in Fiscal 2021 was primarily driven by the full valuation allowance recorded against the
Company’s deferred tax assets. See Note 17 “Income Taxes” for more information.
Net Loss. For the year ended June 30, 2021, the Company reported net loss of $363.5 million, or $(9.23) per diluted share.
Comparatively, net loss in the corresponding prior-year period was $33.4 million, or $(0.86) per diluted share.
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Results of Operations — Fiscal 2020 compared to Fiscal 2019
Net sales decreased 17% to $545.7 million for the fiscal year ended June 30, 2020. The following table identifies the
Company’s net product sales by medical indication for the fiscal years ended June 30, 2020 and 2019. The medical
indication categories for the fiscal year ended June 30, 2019 were reclassified to better align with industry standards and
the Company’s peers.
(In thousands)
Medical Indication
Analgesic
Anti-Psychosis
Cardiovascular
Central Nervous System
Endocrinology
Gastrointestinal
Infectious Disease
Migraine
Respiratory/Allergy/Cough/Cold
Urinary
Other
Contract manufacturing revenue
Total net sales
Fiscal Year Ended June 30,
—
$
2020
8,680
104,934
88,576
77,256
73,477
73,237
44,266
11,576
4,225
35,013
24,504
$ 545,744
2019
$
8,251
73,453
101,467
59,019
197,522
63,043
16,950
41,592
12,479
6,755
51,517
23,359
$ 655,407
The decrease in net sales was driven by decreased volumes of $79.4 million and, to a lesser extent, decreased average
selling price of products of $30.3 million. Overall volumes decreased primarily due to the loss of Levothyroxine sales
associated with the expiration of the JSP Distribution Agreement, partially offset by additional volumes from product
launches and increased market share in certain key products. Average selling prices were impacted by product mix and
price decreases in certain key products due to competitive pricing pressures. Although the Company has benefited in the
past from favorable pricing trends, these trends have reversed. Net sales within the infectious disease category increased
significantly as a result of the distribution and supply agreement with Sinotherapeutics Inc., which was signed in August
2019, to distribute Posaconazole tablets.
In January 2017, a provision in the Bipartisan Budget Act of 2015 required drug manufacturers to pay additional rebates to
state Medicaid programs if the prices of their generic drugs rise at a rate faster than inflation. The provision negatively
impacted the Company’s net sales by $35.7 million and $30.8 million in Fiscal 2020 and Fiscal 2019, respectively, which
contributed to the overall decreased average selling price.
The following chart details price and volume changes by medical indication between Fiscal 2020 and Fiscal 2019:
Medical indication
Analgesic
Anti-Psychosis
Cardiovascular
Central Nervous System
Endocrinology
Gastrointestinal
Infectious Disease
Migraine
Respiratory/Allergy/Cough/Cold
Urinary
49
Sales volume
change %
Sales price
change %
25 %
33 %
(12)%
47 %
(100)%
16 %
346 %
21 %
(5)%
(34)%
(20)%
10 %
(1)%
(16)%
— %
1 %
(14)%
(14)%
(2)%
(3)%
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The Company sells its products to customers through various distribution channels. The table below presents the
Company’s net sales to each distribution channel for the fiscal year ended June 30:
(In thousands)
Customer Distribution Channel
Wholesaler/Distributor
Retail Chain
Mail-Order Pharmacy
Contract manufacturing revenue
Total net sales
June 30,
2020
$ 429,824
79,606
11,810
24,504
$ 545,744
June 30,
2019
$ 529,717
80,944
21,387
23,359
$ 655,407
Overall net sales decreased primarily due to the loss of the Levothyroxine sales associated with the expiration of the JSP
Distribution Agreement, partially offset by additional volumes from product launches and increased market share in certain
key products. The decrease in sales to wholesalers, as well as mail-order pharmacies, was also primarily due to the loss of
Levothyroxine sales.
Cost of Sales, including amortization of intangibles. Cost of sales, including amortization of intangibles, for Fiscal 2020
decreased 8% to $380.5 million from $411.8 million in the same prior-year period. The decrease was primarily attributable
to the loss of Levothyroxine sales associated with the expiration of the JSP Distribution Agreement as well as lower cost of
sales as a result of the Company’s decision to cease operations at Cody Labs, partially offset by additional volumes of other
products sold as well as increased product royalties expense related to various distribution agreements.
Gross Profit. Gross profit for Fiscal 2020 decreased 32% to $165.2 million or 30% of total net sales. In comparison, gross
profit for Fiscal 2019 was $243.6 million or 37% of total net sales. The decrease in gross profit percentage was primarily
attributable to the loss of Levothyroxine sales associated with the expiration of the JSP Distribution Agreement, which had
higher than average gross profit margins, price decreases across our product portfolio as well as increased product royalties
related to various distribution agreements, partially offset by manufacturing efficiencies as a result of cost reduction
initiatives and an increase in volumes of certain key products with higher than average gross margins.
Research and Development Expenses. Research and development expenses decreased 23% to $30.0 million in Fiscal 2020
from $38.8 million in Fiscal 2019. The decrease was primarily due to lower R&D expenses as a result of the Company’s
decision to cease operations at Cody Labs as well as the timing of certain milestones related to product development
projects.
Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased 9% to $79.5
million in Fiscal 2020 compared with $87.6 million in Fiscal 2019. The decrease was primarily driven by lower financial
advisory costs, a decrease in regulatory-related costs, lower expenses at the Company’s Cody Labs subsidiary and other
cost reduction initiatives, partially offset by a branded prescription drug fee as well as increased legal costs.
Asset impairment charges. In Fiscal 2020, the Company recorded various asset impairment charges totaling $34.4 million.
During Fiscal 2020, the Company performed an impairment analysis of its AB-rated Methylphenidate Hydrochloride
product, which is distributed under a license agreement with Andor, due to significant declines in the projected profitability
of the distribution arrangement. As a result of the analysis, the Company recorded a $14.0 million impairment charge. The
Company also performed an annual impairment analysis of our indefinite-lived intangible assets. As a result, the Company
recorded a $9.0 million and an $8.0 million impairment charge to its KUPI IPR&D and Silarx IPR&D assets, respectively,
due to the abandonment of several pipeline products within both portfolios. The Company recorded a ROU lease asset
totaling $1.2 million related to an existing lease at Cody Labs upon adoption of ASU No. 2016-02 and subsequently
recorded a full impairment of the asset as a result of the decision to cease operations at Cody Labs.
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Other Income (Loss). Interest expense for the year ended June 30, 2020 totaled $66.8 million compared to $84.6 million
for the year ended June 30, 2019. The decrease was due to a lower average debt balance in Fiscal 2020 as compared to the
prior-year period as well as a lower weighted-average interest rate due to the partial repayment of the outstanding Term
Loan A balance with proceeds from the issuance of the 4.50% Convertible Senior Notes. The weighted average interest
rate for Fiscal 2020 and 2019 was 8.8% and 9.7%, respectively. Investment income totaled $1.6 million in Fiscal 2020
compared with $3.2 million in Fiscal 2019.
Income Tax. The Company recorded income tax benefit in Fiscal 2020 of $15.3 million compared to income tax benefit of
$74.1 million in Fiscal 2019. The effective tax rate for Fiscal 2020 was 31.4%, compared to 21.4% for Fiscal 2019. The
effective tax rate for the period ended June 30, 2020 was higher compared to the same prior-year period primarily due to
the impact of the CARES Act which allowed the Company to carryback its 2020 taxable loss into its Fiscal 2015 tax year,
where the statutory tax rate was 35%. The increase was slightly offset by excess tax shortfalls related to stock
compensation as well as a non-deductible branded prescription drug fee.
Net Income (Loss). For the year ended June 30, 2020, the Company reported net loss of $33.4 million, or $(0.86) per
diluted share. Comparatively, net loss in the corresponding prior-year period was $272.1 million, or $(7.20) per diluted
share.
Liquidity and Capital Resources
Cash Flow
The Company finances its operations with cash flow generated from operations and has $45.0 million available to draw
upon under the Amended ABL Credit Facility, which is discussed further below. At June 30, 2021, working capital was
$263.1 million as compared to $228.3 million at June 30, 2020, an increase of $34.8 million. Current product portfolio
sales as well as sales related to future product approvals are anticipated to continue to generate positive cash flow from
operations.
Net cash provided by operating activities of $60.9 million for the fiscal year ended June 30, 2021 reflected net loss of
$363.5 million, adjustments for non-cash items of $441.0 million, as well as cash used in operating assets and liabilities of
$16.6 million. In comparison, net cash from operating activities of $116.0 million for the fiscal year ended June 30, 2020
reflected net loss of $33.4 million, adjustments for non-cash items of $110.7 million, as well as cash provided by changes
in operating assets and liabilities of $38.7 million.
Significant changes in operating assets and liabilities from June 30, 2020 to June 30, 2021 are comprised of:
● A decrease in accounts receivable of $26.9 million mainly due to the overall decrease in sales, as well as the
timing of sales and cash receipts. The Company’s days sales outstanding (“DSO”) at June 30, 2021, based on
gross sales for the fiscal year ended June 30, 2021 and gross accounts receivable at June 30, 2021, was 77 days.
The level of DSO at June 30, 2021 was comparable to the Company’s expectation that DSO will be in the 70 to
85-day range based on customer payment terms.
● An increase in income taxes receivable totaling $20.4 million primarily due to additional estimated tax refunds
related to provisions of the CARES Act and an anticipated Fiscal 2021 taxable loss, partially offset by income tax
receipts of $36.8 million.
● A decrease in rebates payable of $19.2 million primarily due to lower sales of Fluphenazine in Fiscal 2021, which
had higher than average government-related rebates.
● A decrease in royalties payable of $7.1 million primarily due to lower sales of distributed products with royalty
arrangements in Fiscal 2021.
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● A decrease in accrued payroll and payroll-related costs of $5.6 million primarily related to payments made in
August 2020 in connection with incentive-based compensation accrued in Fiscal Year 2020 as well as lower
incentive-based compensation accrued in Fiscal Year 2021.
Significant changes in operating assets and liabilities from June 30, 2019 to June 30, 2020 are comprised of:
● A decrease in accounts receivable of $39.1 million mainly due to the timing of sales and cash receipts, as well as
adjustments to wholesale acquisition pricing to our customers. The Company’s days sales outstanding (“DSO”) at
June 30, 2020, based on gross sales for the fiscal year ended June 30, 2020 and gross accounts receivable at June
30, 2020, was 61 days. The level of DSO at June 30, 2020 was significantly lower than the Company’s
expectation that DSO will be in the 70 to 85-day range based on customer payment terms, due to higher gross
sales in the three months ended March 31, 2020 compared to the three months ended June 30, 2020.
● An increase in accounts payable totaling $19.0 million primarily due to the timing of vendor invoices and
payments.
● An increase in prepaid income taxes totaling $14.5 million primarily due to the carryback of the Company’s
Fiscal 2020 taxable loss into the Fiscal 2015 tax year as a result of the CARES Act as well as tax payments made
in Fiscal 2020.
Net cash used in investing activities of $14.8 million for the fiscal year ended June 30, 2021 was mainly the result of
purchases of property, plant and equipment of $10.4 million and purchases of intangible assets of $4.5 million. Net cash
used in investing activities of $40.0 million for the fiscal year ended June 30, 2020 was mainly the result of purchases of
intangible assets of $28.8 million and purchases of property, plant and equipment of $18.3 million, partially offset by
proceeds from the sale of property, plant and equipment of $7.4 million.
Net cash used in financing activities of $92.2 million for the fiscal year ended June 30, 2021 was primarily due to debt
repayments of $437.9 million and payment of debt issuance costs of $10.1 million, partially offset by proceeds from
issuance of long-term debt of $356.2 million. The financing activities during Fiscal 2021 were primarily related to the
refinancing in April 2021. Net cash used in financing activities of $71.9 million for the fiscal year ended June 30, 2020 was
due to debt repayments of $146.7 million, purchase of capped calls in connection with the 4.50% Convertible Senior Notes
offering totaling $7.1 million, payments of debt issuance costs totaling $3.5 million, and purchases of treasury stock
totaling $1.9 million, partially offset by proceeds from issuance of 4.50% Convertible Senior Notes of $86.3 million and
proceeds from sale of stock pursuant to stock compensation plans of $1.0 million.
Credit Facility and Other Indebtedness
The Company has previously entered into and may enter future agreements with various financial institutions to provide
additional cash to help finance the Company’s acquisitions, various capital investments and potential strategic
opportunities. These borrowing arrangements as of June 30, 2021 are as follows:
7.750% Senior Secured Notes due 2026
On April 22, 2021, the Company issued $350.0 million aggregate principal amount of 7.750% senior secured notes due
2026 (the “Notes”) in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act
of 1933, as amended (the “Securities Act”) and outside the United States to persons other than U.S. persons in reliance
upon Regulation S under the Securities Act. The Notes bear interest semi-annually in arrears on April 15 and October 15 of
each year, beginning on October 15, 2021, at a rate of 7.750% per annum in cash. The Notes will mature on April 15, 2026,
unless earlier redeemed or repurchased in accordance with their terms.
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Second Lien Secured Loan Facility
On April 5, 2021, the Company entered into an Exchange Agreement with certain participating lenders to exchange a
portion of their existing Term B Loans for Second Lien Loans pursuant to a new $190.0 million Second Lien Secured Loan
Facility (“Second Lien Facility”). On April 22, 2021, in connection with the issuance of the Notes and the entrance into the
Amended ABL Credit Facility, which is discussed further below, the exchange between the Company and the participating
lenders was consummated. From the Closing Date until the one-year anniversary of the Closing Date, the Second Lien
Loans bear 10.0% PIK interest. Thereafter, the Second Lien notes will bear 5.0% cash interest and 5.0% PIK interest until
maturity, except to the extent the Company elects to pay all or portion of the PIK interest in cash. The Second Lien Loans
will mature on July 21, 2026. In connection with the Second Lien Facility, the Company issued to the Participating Lenders
warrants to purchase up to 8,280,000 shares of common stock of the Company (the “Warrants”) at an exercise price of
$6.88 per share. The Warrants were issued on April 22, 2021 with an eight-year term. The Participating Lenders received
registration rights with respect to the shares of common stock of the Company to be received upon exercise of the
Warrants. The holders of the Warrants are entitled to receive dividends or distributions of any kind made to the common
stockholders to the same extent as if the holder had exercised the Warrant into common stock. The Warrants are considered
participating securities under ASC 260, Earnings per share.
Amended ABL Credit Facility
On December 7, 2020, the Company entered into a credit and guaranty agreement, which provided for an asset-based
revolving credit facility (the “ABL Credit Facility”) of up to $30 million, subject to borrowing base availability, and
included letter of credit and swing line sub-facilities. On April 22, 2021, the Company entered into an amendment to that
certain Credit and Guaranty Agreement, dated as of December 7, 2020 (such agreement as so amended, the “Amended
ABL Credit Agreement”), among the Company, certain of its wholly-owned domestic subsidiaries party thereto, as
borrowers or as guarantors, Wells Fargo Bank, National Association, as administrative agent and as collateral agent and the
other lenders party thereto, for the purpose of, among other things, increasing the aggregate amount of the revolving credit
facility from $30.0 million to $45.0 million and extending the maturity thereof to the fifth anniversary of the closing date of
Notes Offering (subject to a springing maturity as set forth therein).
The Amended ABL Credit Agreement provides for a revolving credit facility (the “Amended ABL Credit Facility”) that
includes letter of credit and swing line sub-facilities. Borrowing availability under the Amended ABL Credit Facility is
determined by a monthly borrowing base collateral calculation that is based on specified percentages of eligible accounts
receivable less certain reserves and subject to certain other adjustments as set forth in the Amended ABL Credit
Agreement. Availability is reduced by issuance of letters of credit as well as any borrowings. Loans outstanding under the
Amended ABL Credit Agreement bear interest at a floating rate measured by reference to, at the Company’s option, either
an adjusted London Inter-Bank Offered Rate (“LIBOR”) (subject to a floor of 0.75%) plus an applicable margin of 2.50%
per annum, or an alternate base rate plus an applicable margin of 1.50% per annum. Unused commitments under the
Amended ABL Credit Facility are subject to a fee of 0.50% per annum, which fee increases to 0.75% per annum for any
quarter during which the Company’s average usage under the Amended ABL Credit Facility is less than $5.0 million.
In connection with the Second Lien Facility, the Company is required to maintain at least $5.0 million in a deposit account
at all times subject to control by the Second Lien Collateral Agent, and a minimum cash balance of $15.0 million as of the
last day of each month. At June 30, 2021, the Company classified the $5.0 million required deposit account balance as
restricted cash, which is included in other assets caption in the Consolidated Balance Sheet.
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4.50% Convertible Senior Notes due 2026
On September 27, 2019, the Company issued $86.3 million aggregate principal amount of the 4.50% Convertible Senior
Notes (the “Convertible Notes”) in a private offering to qualified institutional buyers pursuant to Rule 144A under the
Securities Act of 1933, as amended. The Convertible Notes are senior unsecured obligations of the Company and bear
interest at an annual rate of 4.50% payable semi-annually in arrears on April 1 and October 1 of each year, beginning on
April 1, 2020. The Convertible Notes will mature on October 1, 2026, unless earlier repurchased, redeemed or converted in
accordance with their terms. The Convertible Notes are convertible into shares of the Company’s common stock at an
initial conversion rate of 65.4022 shares per $1,000 principal amount of Convertible Notes (which is equivalent to an initial
conversion price of approximately $15.29 per share), subject to adjustments upon the occurrence of certain events (but will
not be adjusted for any accrued and unpaid interest). The Company may redeem all or a part of the Convertible Notes on or
after October 6, 2023 at a redemption price equal to 100% of the principal amount of the Convertible Notes redeemed, plus
accrued and unpaid interest, if any, up to, but excluding, the redemption date, subject to certain conditions relating to the
Company’s stock price having been met. Following certain corporate events that occur prior to the maturity date or if the
Company delivers a notice of redemption, the Company will, in certain circumstances, increase the conversion rate for a
holder who elects to convert its Convertible Notes in connection with such corporate event or notice of redemption. The
indenture covering the Convertible Notes contains certain other customary terms and covenants, including that upon certain
events of default occurring and continuing, either the trustee or holders of at least 25% in principal amount of the
outstanding Convertible Notes may declare 100% of the principal of, and accrued and unpaid interest on, all the
Convertible Notes to be due and payable.
In connection with the offering of the Convertible Notes, the Company also entered into privately negotiated “capped call”
transactions with several counterparties. The capped call transaction will initially cover, subject to customary anti-dilution
adjustments, the number of shares of common stock that initially underlie the Convertible Notes. The capped call
transactions are expected to generally reduce the potential dilutive effect on the Company’s common stock upon any
conversion of the Convertible Notes with such reduction subject to a cap which is initially $19.46 per share.
Other Liquidity Matters
Refer to the “Impact of COVID-19 Pandemic” section above for the impact on our future liquidity.
Future Acquisitions
We are continuously evaluating the potential for product and company acquisitions as a part of our future growth strategy.
In conjunction with a potential acquisition, the Company may utilize current resources or seek additional sources of capital
to finance any such acquisition, which could have an impact on future liquidity.
We may also from time to time depending on market conditions and prices, contractual restrictions, our financial liquidity
and other factors, seek to prepay outstanding debt or repurchase our outstanding debt through open market purchases,
privately negotiated purchases, or otherwise. The amounts involved in any such transactions, individually or in the
aggregate, may be material and may be funded from available cash or from additional borrowings.
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Contractual Obligations
The following table represents material annual contractual obligations as of June 30, 2021:
(In thousands)
Long-Term Debt (1)
Interest on Obligations (1)
Operating Lease Obligations (2)
Asset Purchase Payment Obligations (3)
Total
Total
$ 631,950
278,580
18,939
13,627
$ 943,096
— $
Less than 1
year
$
30,885
2,051
1,250
$ 34,186
1-3 years
3-5 years
— $ 350,000
87,342
4,228
—
$ 441,570
84,991
4,147
12,377
$ 101,515
More than 5
Years
$ 281,950
75,362
8,513
—
$ 365,825
(1) Long-term debt amounts above relate to principal amounts due for the Notes, Second Lien Facility, and the
Convertible Notes. Interest on obligations primarily consists of cash interest on the Notes, Second Lien Facility and
the Convertible Notes. PIK interest on the Second Lien Facility is due upon maturity and is also included in the
interest on obligations line above. However, following the one-year anniversary of the closing date of the Second Lien
Facility, the Company may elect to pay in cash any interest required to be paid in the form of PIK interest. Refer to
Note 9 “Long-Term Debt” for additional information.
(2) Operating lease obligations primarily relate to an eight-year lease for the Company’s headquarters in Trevose,
Pennsylvania as well as a 116,000 square foot leased warehouse in Seymour, Indiana.
(3) The asset purchase payment obligation above refers to the consideration due to Andor Pharmaceuticals, LLC for the
AB-rated Methylphenidate Hydrochloride perpetual license agreement.
In the normal course of business, the Company may enter into noncancelable purchase orders for API and has various
ongoing capital expenditure projects that may result in contractual obligations. Under the terms of the License and
Collaboration Agreement with HEC to develop an insulin glargine product, the Company agreed to fund up to the initial
$32 million of the development costs and split 50/50 any development costs in excess thereof. As of June 30, 2021, the
Company has incurred approximately $4 million of development costs towards the $32 million commitment made by the
Company. Under the terms of a separate License and Collaboration Agreement with HEC and affiliates to develop a
biosimilar insulin aspart product, the Company agreed to fund up to the initial $32 million of the development costs,
provided that if total development and other costs paid by Lannett are less than $32 million then the difference will be paid
to Sunshine over the first year of commercialization. As of June 30, 2021, the Company has not yet incurred material costs
towards the $32 million commitment made by the Company. Refer to Note 11 “Commitments” for additional information.
Research and Development Arrangements
In the normal course of business, the Company has entered into certain research and development and other arrangements.
As part of these arrangements, the Company has agreed to certain contingent payments, which generally become due and
payable only upon the achievement of certain developmental, regulatory, commercial and/or other milestones. In addition,
under certain arrangements, we may be required to make royalty payments based on a percentage of future sales, or other
metric, for products currently in development in the event that the Company begins to market and sell the product. Due to
the inherent uncertainty related to these developmental, regulatory, commercial and/or other milestones, it is unclear if the
Company will ever be required to make such payments.
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Critical Accounting Policies and Estimates
The preparation of our Consolidated Financial Statements in accordance with accounting principles generally accepted in
the United States and the rules and regulations of the U.S. Securities & Exchange Commission requires the use of estimates
and assumptions. A listing of the Company’s significant accounting policies is detailed in Note 2 “Summary of Significant
Accounting Policies.” A subsection of these accounting policies has been identified by management as “Critical
Accounting Policies and Estimates.” Critical accounting policies and estimates are those which require management to
make estimates using assumptions that were uncertain at the time the estimates were made and for which the use of
different assumptions, which reasonably could have been used, could have a material impact on the financial condition or
results of operations.
Management has identified the following as “Critical Accounting Policies and Estimates”: Revenue
Recognition, Inventories, Income Taxes, and Valuation of Long-Lived Assets, including Intangible Assets.
Revenue Recognition
The Company complies with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with
Customers, which superseded ASC Topic 605, Revenue Recognition. Under ASC 606, the Company recognizes revenue
when title and risk of loss of promised goods or services have transferred to the customer at an amount that reflects the
consideration the Company is expected to be entitled. Our revenue consists almost entirely of sales of our pharmaceutical
products to customers, whereby we ship product to a customer pursuant to a purchase order. Revenue contracts such as
these do not generally give rise to contract assets or contract liabilities because: (i) the underlying contracts generally have
only a single performance obligation and (ii) we do not generally receive consideration until the performance obligation is
fully satisfied. The new revenue standard also impacts the timing of the Company’s revenue recognition by requiring
recognition of certain contract manufacturing arrangements to change from “upon shipment or delivery” to “over time.”
However, the recognition of these arrangements over time does not currently have a material impact on the Company’s
consolidated results of operations or financial position. The Company adopted ASC 606 using the modified retrospective
method.
When revenue is recognized, a simultaneous adjustment to gross sales is made for estimated chargebacks, rebates, returns,
promotional adjustments and other potential adjustments. These provisions are primarily estimated based on historical
experience, future expectations, contractual arrangements with wholesalers and indirect customers and other factors known
to management at the time of accrual. Accruals for provisions are presented in the Consolidated Financial Statements as a
reduction to gross sales with the corresponding reserve presented as a reduction of accounts receivable or included as
rebates payable, depending on the nature of the reserve.
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Provisions for chargebacks, rebates, returns and other adjustments require varying degrees of subjectivity. While rebates
generally are based on contractual terms and require minimal estimation, chargebacks and returns require management to
make more subjective assumptions. Each major category is discussed in detail below:
Chargebacks
The provision for chargebacks is the most significant and complex estimate used in the recognition of revenue.
The Company sells its products directly to wholesale distributors, generic distributors, retail pharmacy chains and
mail-order pharmacies. The Company also sells its products indirectly to independent pharmacies, managed care
organizations, hospitals, nursing homes and group purchasing organizations, collectively referred to as “indirect
customers.” The Company enters into agreements with its indirect customers to establish pricing for certain
products. The indirect customers then independently select a wholesaler from which to purchase the products. If
the price paid by the indirect customers is lower than the price paid by the wholesaler, the Company will provide a
credit, called a chargeback, to the wholesaler for the difference between the contractual price with the indirect
customers and the wholesaler purchase price. The provision for chargebacks is based on expected sell-through
levels by the Company’s wholesale customers to the indirect customers and estimated wholesaler inventory levels.
As sales to the large wholesale customers, such as Cardinal Health, AmerisourceBergen and McKesson increase
(decrease), the reserve for chargebacks will also generally increase (decrease). However, the size of the increase
(decrease) depends on product mix and the amount of sales made to indirect customers with which the Company
has specific chargeback agreements. The Company continually monitors the reserve for chargebacks and makes
adjustments when management believes that expected chargebacks may differ from the actual chargeback reserve.
Rebates
Rebates are offered to the Company’s key chain drug store, distributor and wholesaler customers to promote
customer loyalty and increase product sales. These rebate programs provide customers with credits upon
attainment of pre-established volumes or attainment of net sales milestones for a specified period. Other
promotional programs are incentive programs offered to the customers. Additionally, as a result of the Patient
Protection and Affordable Care Act (“PPACA”) enacted in the U.S. in March 2010, the Company participates in a
new cost-sharing program for certain Medicare Part D beneficiaries designed primarily for the sale of brand drugs
and certain generic drugs if their FDA approval was granted under a NDA or 505(b) NDA versus an ANDA.
Drugs purchased within the Medicare Part D coverage gap (commonly referred to as the “donut hole”) result in
additional rebates. The Company estimates the reserve for rebates and other promotional credit programs based on
the specific terms in each agreement when revenue is recognized. The reserve for rebates increases (decreases) as
sales to certain wholesale and retail customers increase (decrease). However, since these rebate programs are not
identical for all customers, the size of the reserve will depend on the mix of sales to customers that are eligible to
receive rebates.
Returns
Consistent with industry practice, the Company has a product returns policy that allows customers to return
product within a specified time period prior to and subsequent to the product’s expiration date in exchange for a
credit to be applied to future purchases. The Company’s policy requires that the customer obtain pre-approval
from the Company for any qualifying return. The Company estimates its provision for returns based on historical
experience, changes to business practices, credit terms and any extenuating circumstances known to management.
While historical experience has allowed for reasonable estimations in the past, future returns may or may not
follow historical trends. The Company continually monitors the reserve for returns and makes adjustments when
management believes that actual product returns may differ from the established reserve. Generally, the reserve
for returns increases as net sales increase.
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Other Adjustments
Other adjustments consist primarily of price adjustments, also known as “shelf-stock adjustments” and “price
protections,” which are both credits issued to reflect increases or decreases in the invoice or contract prices of the
Company’s products. In the case of a price decrease, a credit is given for product remaining in customer’s
inventories at the time of the price reduction. Contractual price protection results in a similar credit when the
invoice or contract prices of the Company’s products increase, effectively allowing customers to purchase
products at previous prices for a specified period of time. Amounts recorded for estimated shelf-stock adjustments
and price protections are based upon specified terms with direct customers, estimated changes in market prices
and estimates of inventory held by customers. The Company regularly monitors these and other factors and
evaluates the reserve as additional information becomes available. Other adjustments also include prompt
payment discounts and “failure-to-supply” adjustments. If the Company is unable to fulfill certain customer
orders, the customer can purchase products from our competitors at their prices and charge the Company for any
difference in our contractually agreed upon prices.
Inventories
Inventories are stated at the lower of cost or net realizable value determined by the first-in, first-out method. Inventories are
regularly reviewed and write-downs for excess and obsolete inventory are recorded based primarily on current inventory
levels, expiration date and estimated sales forecasts. While estimated sales forecasts are subjective in nature, the
projections allow management to reasonably predict the net realizable value of current inventory based on expected
demand. A decrease in the estimated sales forecasts would indicate the need to write-down excess and obsolete inventory.
Management continuously monitors the market activity and assesses inventory levels.
Income Taxes
The Company uses the liability method to account for income taxes as prescribed by ASC 740, Income Taxes. Deferred
taxes are recorded to reflect the tax consequences on future years of events that the Company has already recognized in the
financial statement or tax returns. Deferred income tax assets and liabilities are adjusted to recognize the effect of changes
in tax law or tax rates in the period during which the new law is enacted. Under ASC 740, Income Taxes, a valuation
allowance is required when it is more likely than not that all or some portion of the deferred tax assets will not be realized
through generating sufficient future taxable income. Failure to achieve forecasted taxable income in applicable tax
jurisdictions could affect the ultimate realization of deferred tax assets and could result in an increase in the Company’s
effective tax rate on future earnings.
The Company may recognize the tax benefit from an uncertain tax position claimed on a tax return only if it is more likely
than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the
position. The tax benefits recognized in the financial statements from such a position should be measured based on the
largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The benefit from uncertain
tax positions recorded in the financial statements was immaterial for all periods presented.
The Company’s future effective income tax rate is highly reliant on future projections of taxable income, tax legislation,
and potential tax planning strategies. A change in any of these factors could materially affect the effective income tax rate
of the Company in future periods.
Valuation of Long-Lived Assets, including Intangible Assets
The Company’s long-lived assets primarily consist of property, plant and equipment and definite-lived intangible assets.
Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed on a straight-line
basis over the assets’ estimated useful lives, generally for periods ranging from 5 to 39 years. Definite-lived intangible
assets are stated at cost less accumulated amortization and are amortized on a straight-line basis over the assets’ estimated
useful lives, generally for periods ranging from 5 to 15 years. The Company continually evaluates the reasonableness of the
useful lives of these assets.
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Property, plant and equipment and definite-lived intangible assets are reviewed for impairment whenever events or changes
in circumstances (“triggering events”) indicate that the carrying amount of the asset may not be recoverable. The nature
and timing of triggering events by their very nature are unpredictable; however, management regularly considers the
performance of an asset as compared to its expectations, industry events, industry and economic trends, as well as any
other relevant information known to management when determining if a triggering event occurred.
If a triggering event is determined to have occurred, the first step in the impairment test is to compare the asset’s carrying
value to the undiscounted cash flows expected to be generated by the asset. If the carrying value exceeds the undiscounted
cash flows of the asset, then an impairment exists. An impairment loss is measured as the excess of the asset’s carrying
value over its fair value, which in most cases is calculated using a discounted cash flow model. Discounted cash flow
models are highly reliant on various assumptions which are considered Level 3 inputs, including estimates of future cash
flows (including long-term growth rates), discount rates and the probability of achieving the estimated cash flows.
Management regularly reviews estimated future cash flows for reasonableness and considers how recent activity, including
a triggering event, may impact those projections. Management also compares various industry benchmarks when
determining the discount rate to use in an impairment. A higher (lower) estimate of future cash flows and/or discount rate
would result in a larger (smaller) impairment. assessment. The judgments made in determining the estimated fair value can
materially impact our results of operations. There can be no assurances as to when, or if, future impairments may occur.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which changes the
impairment model used to measure credit losses for most financial assets. We are required to recognize an allowance that
reflects the Company’s current estimate of credit losses expected to be incurred over the life of the financial asset,
including trade receivables. The Company adopted this guidance in the first quarter of Fiscal 2021. The adoption of ASU
2016-13 did not have a material impact on the Company’s Consolidated Financial Statements for the fiscal year ended June
30, 2021.
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options and Derivatives and
Hedging - Contracts in Entity’s Own Equity, with changes to modify and simplify the application of U.S. GAAP for certain
financial instruments with characteristics of liabilities and equity. ASU 2020-06 is effective for fiscal years beginning after
December 15, 2021, including interim periods within those fiscal years, with early adoption permitted. The ASU requires
adoption using either the retrospective basis or the modified retrospective basis. The Company is currently evaluating the
impact of ASU 2020-06 on its Consolidated Financial Statements.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the fiscal year ended June 30, 2021, the Company paid off our outstanding, variable-rate Senior Secured Credit
Facility with cash and the proceeds from new fixed-rate debt. The Company has historically invested in equity securities,
U.S. government agency securities and corporate bonds, which are exposed to market and interest rate fluctuations. The
market value, interest and dividends earned on these investments may vary based on fluctuations in interest rate and market
conditions.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and Report of the Independent Registered Public Accounting Firm is set forth in
Item 15 of this Annual Report on Form 10-K under the caption “Consolidated Financial Statements” and incorporated
herein by reference.
ITEM 9.
FINANCIAL DISCLOSURE
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
None.
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ITEM 9A.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We carried out an evaluation under the supervision and with the participation of our management, including our chief
executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and
procedures, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act, as amended, for financial
reporting as of June 30, 2021. Based on that evaluation, our chief executive officer and chief financial officer concluded
that these controls and procedures are effective to ensure that information required to be disclosed by the Company in
reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported as specified in SEC
rules and forms and is accumulated and communicated to our management to allow timely decisions regarding required
disclosures. There were no changes in these controls or procedures identified in connection with the evaluation of such
controls or procedures that occurred during our last fiscal quarter, or in other factors that have materially affected, or are
reasonably likely to materially affect these controls or procedures.
Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports
that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods
specified in the rules and forms of the Securities and Exchange Commission. These disclosure controls and procedures
include, among other things, controls and procedures designed to ensure that information required to be disclosed by us in
the reports that we file under the Exchange Act is accumulated and communicated to our management, including our chief
executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
The report of management of the Company regarding internal control over financial reporting is set forth in Item 15 of this
Annual Report on Form 10-K under the caption “Consolidated Financial Statements: Management’s Report on Internal
Control Over Financial Reporting” and incorporated herein by reference.
Attestation Report of Independent Registered Public Accounting Firm
The attestation report of the Company’s independent registered public accounting firm regarding internal control over
financial reporting is set forth in Item 15 of this Annual Report on Form 10-K under the caption “Consolidated Financial
Statements: Report of Independent Registered Public Accounting Firm” and incorporated herein by reference.
Changes in Internal Control over Financial Reporting
During the quarter ended June 30, 2021, there were no changes in the Company’s internal control over financial reporting
(as defined in Rule 13a-15(f) of the Exchange Act) that materially affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.
ITEM 9B.
OTHER INFORMATION
None.
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ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
Directors and Executive Officers
The directors and executive officers of the Company are set forth below:
Age
Position
Directors:
Patrick G. LePore
John C. Chapman
Timothy C. Crew
David Drabik
Jeffrey Farber
Melissa Rewolinski
Paul Taveira
Officers:
Timothy C. Crew
John Kozlowski
John M. Abt
Maureen M. Cavanaugh
Robert Ehlinger
Samuel H. Israel
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66
60
53
60
51
61
60
49
56
61
63
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Chairman of the Board
Director
Director
Director
Director
Director
Director
Chief Executive Officer
Vice President of Finance, Chief Financial Officer
and Principal Accounting Officer
Vice President and Chief Quality and Operations Officer
Senior Vice President and Chief Commercial Operations Officer
Vice President and Chief Information Officer
General Counsel and Chief Legal Officer
Patrick G. LePore was appointed as a Director of the Company in July 2017. On July 1, 2018, Mr. LePore succeeded Mr.
Farber as Chairman of the Board of Directors. Mr. LePore served as chairman, Chief Executive Officer and president of
PAR Pharmaceuticals, Inc., until the company’s acquisition by private equity investor TPG in 2012. He remained as
chairman of the new company through the sale of the company to Endo Pharmaceuticals. Mr. LePore began his career with
Hoffmann LaRoche. Later, he founded Boron LePore and Associates, a medical communications company, which he took
public and was eventually sold to Cardinal Health. Mr. LePore is the Vice Chairman of the board of Matinas BioPharm. On
September 10, 2020, Mr. LePore was appointed as a director of the board of VYNE Therapeutics, Inc. Mr. LePore earned
his bachelor’s degree from Villanova University and Master of Business Administration from Fairleigh Dickinson
University.
The Governance and Nominating Committee concluded that Mr. LePore is well qualified to serve as a Director due, in part,
to his understanding and experience as a Chief Executive Officer and Director of highly regarded companies within the
pharmaceutical industry. Mr. LePore is an independent director as defined by the rules of the NYSE.
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John C. Chapman was appointed as a Director of the Company in July 2018. Mr. Chapman is a retired audit partner for
KPMG, having specialized in providing audit services to large complex multinational pharmaceutical and consumer market
companies. During his tenure at KPMG, he served for six years as a member of the firm’s board of directors and for several
years as KPMG’s global chair of pharmaceuticals and chemicals. Mr. Chapman also served as global lead partner for some
of KPMG’s largest clients, including Pfizer, Hoechst and PepsiCo, among others. Mr. Chapman, a certified public
accountant, earned a Bachelor of Business Administration in accounting practice degree from Pace University, New York.
The Governance and Nominating Committee concluded that Mr. Chapman is well qualified to serve as a Director, due to
his extensive experience in the public accounting profession. Additionally, Mr. Chapman has significant experience in
dealing with acquisitions, divestitures, initial public offerings and secondary offerings. Mr. Chapman is an independent
director as defined by the rules of the NYSE.
Timothy C. Crew was appointed as the Company’s Chief Executive Officer and a Director of the Company in January
2018. Mr. Crew has more than 30 years of experience in the generic and branded pharmaceutical industries. Previously, he
served as Chief Executive Officer of Cipla North America, a global pharmaceutical company based in Mumbai, India.
Before Cipla, he worked for eight years at Teva Pharmaceuticals Industries Ltd. (“Teva”), where he ultimately served as
Senior Vice President and Commercial Operating Officer of the North American Generics division, the world’s largest
generic operation with multibillion dollars of annual sales. Before that, he was Teva’s Vice President, Alliances and
Business Development. Mr. Crew was also an Executive Vice President, North America, for Dr. Reddy’s Laboratories Ltd.
Mr. Crew began his pharmaceutical career at Bristol-Myers Squibb, where he held a number of senior management
positions in global marketing, managed healthcare, marketing, business development and strategic planning. Prior to his
pharmaceutical roles, Mr. Crew served in the United States Army, where he rose to the rank of Captain. Mr. Crew earned a
Bachelor of Arts degree in economics from Pomona College and a Masters of Business Administration degree from
Columbia Business School.
The Governance and Nominating Committee concluded that Mr. Crew is well qualified to serve as a Director due, in part,
to his understanding and experience as a Chief Executive Officer and Director of highly regarded companies within the
pharmaceutical industry.
David Drabik was elected a Director of the Company in January 2011. Mr. Drabik is a National Association of Corporate
Directors Governance Fellow. Since 2002, Mr. Drabik has been President of Cranbrook & Co., LLC (“Cranbrook”), an
advisory firm primarily serving the private equity and venture capital community. At Cranbrook, Mr. Drabik assists and
advises its clientele on originating, structuring and executing private equity and venture capital transactions. From 1995 to
2002, Mr. Drabik served in various roles and positions with UBS Capital Americas (and its predecessor UBS Capital LLC),
a New York City based private equity and venture capital firm that managed $1.5 billion of capital. From 1992 to 1995, Mr.
Drabik was a banker with Union Bank of Switzerland’s Corporate and Institutional Banking division in New York City. Mr.
Drabik graduated from the University of Michigan with a Bachelor of Business Administration degree.
The Governance and Nominating Committee concluded that Mr. Drabik is well qualified to serve as a Director due, in part,
to his understanding and involvement in investment banking. As a global investment bank professional with extensive
experience advising senior management, his skills include business analytics, financing and a strong familiarity with SEC
documentation. Mr. Drabik is an independent director as defined by the rules of the NYSE.
Jeffrey Farber was appointed a Director of the Company in May 2006 and was appointed Chairman of the Board of
Directors in July 2012. In July 2018, Patrick LePore succeeded Jeffrey Farber as the Chairman of the Board. Jeffrey Farber
joined the Company in August 2003 as Secretary. Since 1994, Mr. Farber has been President and the owner of Auburn
Pharmaceutical (“Auburn”), a national generic pharmaceutical distributor. Prior to starting Auburn, Mr. Farber served in
various positions at Major Pharmaceutical (“Major”), where he was employed for over 15 years. At Major, Mr. Farber was
involved in sales, purchasing and eventually served as President of the Midwest division. Mr. Farber also spent time
working at Major’s manufacturing division, Vitarine Pharmaceuticals, where he served on its Board of Directors. Mr.
Farber graduated from Western Michigan University with a Bachelor of Science Degree in Business Administration and
participated in the Pharmacy Management Graduate Program at Long Island University.
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The Governance and Nominating Committee concluded that Mr. Farber is qualified to serve, due, in part, to his significant
experience in the generic drug industry and his ongoing role as the owner of a highly regarded and successful generic drug
distributor. His skills include a thorough knowledge of the generic drug marketplace and drug supply chain management.
Melissa Rewolinski was appointed as a Director of the Company in July 2019. Dr. Rewonliski is a National Association of
Corporate Governance Fellow. Dr. Rewolinski currently serves as principal of MVR Consulting, where she specializes in
providing counsel to small and mid-size biotechnology and pharmaceutical companies. Earlier she held a number of senior
level R&D positions for Intercept, rising to Senior Vice President, Head of Technical Operations, and member of the
Executive Team. Previously, she served as Senior Director, Development for Amira Pharmaceuticals, and before that as a
Chemical Development Group Leader and a Pharmaceutical Sciences Project Team Leader for Pfizer Global R&D. Dr.
Rewolinski began her career at Pharmacia & Upjohn as a post-doctoral research scientist. Dr. Rewolinski earned a
Doctorate degree in Organic Chemistry and Bachelor of Science degree in Chemistry, magna cum laude, from Rice
University.
The Governance and Nominating Committee concluded that Dr. Rewolinski is well qualified to serve as a Director due, in
part, to her significant experience in operational and drug development roles within the pharmaceutical industry. Dr.
Rewolinski is an independent director as defined by the rules of the NYSE.
Paul Taveira was appointed a Director of the Company in May 2012. Mr. Taveira was the Chief Executive Officer of the
National Response Corporation, an international firm specializing in environmental services, from June 2015 to February
2019. He previously served on the Board of Directors and as the Chief Executive Officer of A&D Environmental Services
Inc., an environmental and industrial services company. From 2007 to 2009, Mr. Taveira was a Managing Partner of
Precision Source LLC, a manufacturer of precision parts for various industries across the United States. From 1997 to
2007, Mr. Taveira held several positions at PSC Inc., a national provider of environmental services, including President,
Vice President and Regional General Manager. From 1987 to 1997, Mr. Taveira held several management positions with
Clean Harbors Inc., an international provider of environmental and energy services. Mr. Taveira graduated from Worcester
State University with a Bachelor of Science degree in Biology.
The Governance and Nominating Committee concluded that Mr. Taveira is well qualified to serve as a Director due, in
part, to his understanding and experience as a Chief Executive Officer and Director of various companies. Mr. Taveira is an
independent director as defined by the rules of the NYSE.
John Kozlowski joined the Company in 2009 and was promoted in 2010 to Corporate Controller. In 2016, Mr. Kozlowski
was promoted to Vice President Financial Operations & Corporate Controller. In October 2017, Mr. Kozlowski was
promoted to Chief Operating Officer. In April 2018, Mr. Kozlowski was promoted to Chief of Staff and Strategy Officer. In
August 2019, Mr. Kozlowski succeeded Martin Galvan as the Vice President of Finance and Chief Financial Officer. In
July 2020, Mr. Kozlowski was also appointed the Principal Accounting Officer. Prior to joining the Company, Mr.
Kozlowski served in senior finance and accounting roles for Optium Corporation and Finisar Australia. He earned a
Bachelor of Arts degree in finance from James Madison University and a Masters of Business Administration degree from
Rider University.
John M. Abt joined the Company in March 2015 as Vice President of Quality and was promoted to Vice President and
Chief Quality and Operations Officer in April 2018. Prior to joining the Company, Mr. Abt held senior level positions in
both quality and operations and has extensive knowledge in pharmaceutical manufacturing, quality, strategy, business
improvement and site transformation. Prior to joining the Company, he most recently served as Teva Pharmaceuticals’ Vice
President Global Quality Strategy, overseeing the development and implementation of strategy and associated initiatives
for the global quality organization. Before that, he held a number of leadership positions of increasing responsibility in
operations, continuous improvement, quality systems and compliance. He earned his Doctorate in Business Administration
from Temple University, Masters of Administrative Science in Business Management from Johns Hopkins University and a
Bachelor of Science in Biochemistry from Niagara University.
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Maureen M. Cavanaugh joined the Company in May 2018 as Senior Vice President and Chief Commercial Operations
Officer. Prior to joining the Company, Ms. Cavanaugh spent the past 11 years at Teva, most recently as Senior Vice
President, Chief Commercial Officer, North American Generics. Earlier at Teva, Ms. Cavanaugh served as Senior Vice
President and General Manager, U.S. Generics and before that held a variety of positions in sales, marketing and customer
operations. Ms. Cavanaugh also previously served as Senior Director of Marketing at PAR Pharmaceuticals, as Director,
Product Management and Marketing Research at Sandoz Inc., and held a number of finance, sales and marketing
operations positions at Bristol Myers-Squibb. Ms. Cavanaugh earned a Bachelor of Science in Business Administration
degree from LaSalle University and a Masters of Business Administration degree from Rider University.
Robert Ehlinger joined the Company in July 2006 as Chief Information Officer. In June 2011, Mr. Ehlinger was promoted
to Vice President of Logistics and Chief Information Officer. Prior to joining Lannett, Mr. Ehlinger was the Vice President
of Information Technology at MedQuist, Inc., a healthcare services provider, where his career spanned 10 years in
progressive operational and technology roles. Prior to MedQuist, Mr. Ehlinger was with Kennedy Health Systems as their
Corporate Director of Information Technology supporting acute care and ambulatory care health information systems and
biomedical support services. Earlier on, Mr. Ehlinger was with Dowty Communications where he held various technical
and operational support roles prior to assuming the role of International Distribution Sales Executive managing the Latin
America sales distribution channels. Mr. Ehlinger received a Bachelor’s of Arts degree in Physics from Gettysburg College
in Gettysburg, PA.
Samuel H. Israel joined the Company in July 2017 as General Counsel and Chief Legal Officer. Prior to joining Lannett,
Mr. Israel was a partner with Fox Rothschild LLP, a national, full-service law firm, with 26 offices that provide services in
more than 60 practice areas, since 1998. He served as chair of the firm’s Pharmaceutical and Biotechnology Practice and
handled a variety of commercial litigation matters. Mr. Israel earned a Bachelor of Science degree in Chemical Engineering
from the University of Pennsylvania and a Juris Doctor degree with honors from Rutgers University School of Law.
To the best of the Company’s knowledge, there have been no events under any bankruptcy act, no criminal proceedings and
no judgments or injunctions that are material to the evaluation of the ability or integrity of any director, executive officer,
or significant employee during the past ten years.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act (“Section 16”) requires the Company’s directors, executive officers and persons who
own more than ten percent of the common stock of the Company, to file with the SEC initial reports of beneficial
ownership and reports of changes in beneficial ownership of common stock of the Company. Based solely on review of
these reports, or written representations from these persons that no other reports were required to be filed with the SEC, the
Company believes that all reports for the Company’s directors, executive officers and ten percent shareholders that were
required to be filed under Section 16 during the fiscal year ended June 30, 2021 were timely filed, except for one Form 4
for Melissa Rewolinski reporting a single sale of 14,150 shares. The transaction was subsequently reported on a Form 4.
Code of Ethics
The Company has adopted the Code of Professional Conduct (the “code of ethics”), a code of ethics that applies to the
Company’s Chief Executive Officer and Chief Financial Officer, as well as all other company personnel. The code of ethics
is publicly available on our website at www.lannett.com. If the Company makes any substantive amendments to the code
of ethics or grants any waiver, including any implicit waiver, from a provision of the code to our Chief Executive Officer,
Chief Financial Officer, or any other executive, we will disclose the nature of such amendment or waiver on our website or
in a report on Form 8-K.
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Audit Committee
The Audit Committee has responsibility for overseeing the Company’s financial reporting process on behalf of the Board.
In addition, Audit Committee responsibilities include selection of the Company’s independent auditors, conferring with the
independent auditors regarding their audit of the Company’s Consolidated Financial Statements, pre-approving and
reviewing the independent auditors’ fees and considering whether non-audit services are compatible with maintaining their
independence and considering the adequacy of internal financial controls. The Audit Committee operates pursuant to a
written charter adopted by the Board, which is available on the Company’s website at www.lannett.com. The charter
describes the nature and scope of the Audit Committee’s responsibilities. The members of the Audit Committee are Paul
Taveira, David Drabik, John Chapman, and Melissa Rewolinski. All members of the Audit Committee are independent
directors as defined by the rules of the NYSE.
Financial Expert on Audit Committee: The Board has determined that John Chapman, a current Director and Chairman of
the Audit Committee, is the Audit Committee financial expert as defined in section 3(a)(58) of the Exchange Act and the
related rules of the Commission for the year ended June 30, 2021.
Information Security Experience on Audit Committee: The Audit Committee is responsible for overseeing management’s
controls over information security. The Audit Committee meets at least quarterly with the Company’s IT management and
an outside cybersecurity consulting firm, which performs an annual assessment of our cybersecurity controls, as well as the
Company’s independent auditors regarding their annual audit procedures, which include information security. John
Chapman has information security experience. Pursuant to the Audit Committee charter, the Audit Committee is briefed
periodically on the status of the Company’s systems and processes to ensure that the Company’s electronic information is
not compromised. There have not been any breaches of Company information systems in the last three years and the
Company, which maintains a cyber security insurance policy, has not paid any expenses or penalties related to any
information breaches.
Environmental, Social and Governance Committee
In April 2021, the Board formed an Environmental, Social and Governance (“ESG”) Committee to provide oversight of the
Company’s ESG activities and evaluation of risks that may arise from these activities. The members of the ESG Committee
are Timothy Crew, John Chapman, David Drabik, Melissa Rewolinski, and Paul Taveira. Timothy Crew currently serves as
the Chairman of the ESG Committee.
Corporate Governance
Other information required in this Item 10 was included in the 2021 Proxy Statement, which was filed with the SEC on
December 7, 2020. The sections incorporated by reference in this Item 10 include: “The Role of the Board and Risk
Oversight,” “Board Leadership Structure,” “Communicating with the Board of Directors,” “Board Committees,” and
“Executive Sessions of Independent Directors.”
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ITEM 11.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
This Compensation Discussion and Analysis (“CD&A”) describes our Fiscal 2021 Executive Compensation Program. It
provides an overview of the compensation program for the following Named Executive Officers (“NEOs”) and how the
Compensation Committee of the Board of Directors (“the Committee”) made its decisions for our 2021 Fiscal Year.
NEO
Timothy C. Crew
John Kozlowski
Maureen Cavanaugh
Samuel H. Israel
John Abt
Say on Pay Results in 2021
Title/Role
Chief Executive Officer (“CEO”)
Vice President of Finance, Chief Financial Officer and Principal Accounting Officer
Senior Vice President and Chief Commercial Operations Officer
Chief Legal Officer and General Counsel
Vice President and Chief Quality and Operations Officer
At our annual stockholders meeting in January 2021, our stockholders approved the “say-on-pay” proposal, with
approximately 80% of votes cast in support of our executive compensation program.
Although this vote is non-binding, its outcome, along with stockholder feedback and the competitive business environment,
plays an important role in how the Committee makes decisions about the program’s structure. To this end, the Committee
periodically conducts reviews of the Executive Compensation Program, monitors industry practices and seeks feedback
from some of our largest investors. Based in part on this feedback, the Committee introduced performance shares tied to
the Company’s three-year total stockholder returns (“TSR”) relative to companies in the S&P Pharmaceuticals Select
Industry Index as part of the long-term incentive program for NEOs in Fiscal 2018 and has increased its weighting over
time from 25% initially to 35% of the target award opportunity in Fiscal 2021. For equity grants to NEOs in Fiscal 2022,
the weighting on performance shares increased to 50% of total award opportunities, with half tied to three-year relative
TSR and half to strategic portfolio goals over the three-year measurement period. The Committee also added a provision
for the relative TSR component capping performance share award funding at target if we outperform comparator
companies and our absolute TSR is negative. The Fiscal 2022 Annual Bonus Plan for NEOs will include a component tied
to the internal development and external assessment of a report outlining the Company’s Environmental, Social and
Governance (“ESG”) strategy and practices. Our executive compensation program for NEOs continues to place a
significant emphasis on performance-based variable pay tied to key strategic objectives. We also maintain stock ownership
requirements for executive officers and non-employee directors, and in Fiscal 2021 our Board of Directors approved an
expanded compensation recovery or “clawback” provision amending all executive officer employment contracts in the
event of the need for a restatement of financial statement arising from fraud or misconduct. We believe these actions
demonstrate our responsiveness to stockholder feedback and our ongoing commitment to aligning executive pay with
performance and long-term value creation.
The following pages of this CD&A highlight performance results since Fiscal 2018 that have had a direct impact on the
compensation paid to our NEOs over the same period of time. It looks specifically at the performance measures used in the
short- and long-term incentive awards under the Executive Compensation Program that the Committee believes drive
stockholder value. It also describes recently approved changes for Fiscal 2022 to further align our Executive Compensation
Program with our objectives and best competitive practice.
A Word About Risk
The Committee believes that incentive plans, along with the other elements of the Executive Compensation Program,
provide appropriate rewards to our NEOs to keep them focused on our goals. The Committee also believes that the
program’s structure, along with its oversight, continues to provide a setting that does not encourage the NEOs to take
excessive risks in their business decisions.
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Executive Summary
Business Highlights
Fiscal 2021 was a year of significant challenges as well as strategic accomplishments that we believe will position the
Company for future growth and value creation. Our financial results were adversely impacted by the ongoing impact of the
COVID-19 pandemic, pricing pressures within the generic pharmaceuticals industry, and organizational and portfolio
restructuring actions. Despite these challenges, we continued to seamlessly maintain and enhance our operations, safeguard
our employees, and provide safe, high quality medications to customers and patients. We continued to successfully execute
on our strategy of enhancing our core business, launching new products, building our R&D pipeline, expanding strategic
alliances, and reducing costs. We launched a total of 12 new products during Fiscal 2021, most of which have limited or
moderate competitors. We also removed 23 lower margin products from our portfolio which, combined with the above-
referenced macroeconomic challenges, adversely impacted near-term net sales but is expected to improve longer-term
profitability. While we did not achieve budgeted revenue and profitability goals for Fiscal 2021, we continued to operate
profitably, based on adjusted Operating Income, which excludes impairments, amortization, restructuring and non-cash
interest expenses, and certain other non-recurring items, during a very challenging operating environment. During Fiscal
2021, we continued to diligently pay down our term loan debt by approximately $80 million and in April 2021, we
completed a refinancing transaction that significantly extended the maturity of our debt and enhanced our capital structure.
The refinance significantly improves our near-term free cash flow through a reduction in cash interest and loan
amortization, providing us with increased flexibility to invest in additional growth opportunities. During the first quarter of
Fiscal 2021, we fully implemented a new restructuring and cost savings plan with expected annual savings of more than
$15 million to help address ongoing competitive pricing pressure within the generic pharmaceuticals sector. These
activities significantly strengthened our financial flexibility and ability to make ongoing investments in our business and
product pipeline. We continue to execute on a number of key strategic initiatives as discussed below. We believe these
actions will better position the Company for long-term profitable growth and stockholder value creation.
In addition, we continued to make important advances in product development and mix and in our regulatory approval
process, allowing us to efficiently and safely place our products that span a variety of categories on the market. We
launched a total of 48 new products over the past three fiscal years, including 12 in Fiscal 2021, with additional launches
planned in Fiscal 2022 and beyond. As of June 30, 2021, we had over 100 products available to the market. We also
continue to capitalize on our strategic partnerships, both domestically and internationally. Since January 2018, we acquired
or in-licensed over 75 Abbreviated New Drug Application (ANDA) products and entered into several new strategic
alliance agreements which diversified and enhanced our revenue streams. In Fiscal 2020 and 2021, we entered into
commercialization agreements with several leading pharmaceutical companies that have the potential to significantly
increase our future annual revenues. Included among these is a revised and expanded agreement with our strategic alliance
partner, HEC Group, for an insulin-based product with significant market potential to treat type 1 and type 2 diabetes,
which impacts approximately 34 million Americans, as well as a fast-acting, biosimilar insulin aspart product candidate
with significant market potential. We also entered into agreements with Respirent for inhalation products. We continue to
make progress advancing these and other product candidates towards commercial launches over the next several years.
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As noted above, our financial performance in Fiscal 2021 was adversely impacted by the COVID-19 pandemic and
ongoing competitive pressures within the generic pharmaceutical industry. Despite these challenges, our executive
leadership and other employees made significant progress in executing our strategic plan and positioning the Company for
future growth. The impact of these events and developments are reflected in our compensation decisions for Fiscal 2021,
consistent with our pay for performance philosophy. In response to the COVID-19 pandemic, salary increases for NEOs
were delayed until January 2021, except for Mr. Kozlowski, whose market adjustment was effective in July 2020 as his
salary remained well below 50th percentile market values. Short-term incentive (annual bonus) payouts to NEOs for Fiscal
2021 were well below target, with no awards earned for components tied to corporate financial goals (representing 70% of
total target award opportunities) due to below-threshold performance results, and awards tied to individual performance
and strategic objectives earned at or above target levels. Based on overall performance results, short-term incentive payouts
for NEOs for Fiscal 2021 were earned at levels ranging from 30% to 40% of total target award opportunities (averaging
34% of target), well-below payouts earned for Fiscal 2020. Additionally, performance shares tied to 3-year relative TSR
cycles ending in September 2020 and July 2021 were forfeited since our TSR results relative to comparator companies in
the S&P Pharmaceuticals Select Industry Index were below the threshold level. We believe these actions demonstrate our
commitment to aligning executive pay with performance. In July 2021, our NEOs received target long-term incentive
grants based on a target value mix of 30% for restricted stock, 20% for cash awards tied to changes in our absolute stock
price over the three-year period ending June 30, 2024, and 50% for performance shares, with half tied to our relative TSR
vs. companies in the S&P Pharmaceuticals Select Index for the three-year performance cycle running from July 1, 2021
through June 30, 2024 and half to various strategic portfolio goals over the three-year measurement period ending June 30,
2024. Many outstanding stock options held by our NEOs are currently “underwater” and the value of many other
outstanding equity awards are below grant date target values. Based on our interim relative TSR results through June 30,
2021, performance shares granted in Fiscal 2020 and 2021 are tracking below threshold levels which, if sustained over the
applicable three-year performance periods, would result in no awards being earned by NEOs.
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Key financial performance highlights, as reported in accordance with GAAP requirements, are shown below. GAAP-based
results for Fiscal 2021 reflect asset impairments and certain other non-cash and/or non-recurring expenses that are excluded
from adjusted profitability metrics. Year over year declines vs. Fiscal 2020 results reflect continued challenging market
conditions within the generic pharmaceuticals industry as well as within the broader market due to the ongoing pandemic,
and for comparisons vs. Fiscal 2018 and 2019 results, the non-renewal of the former distribution agreement with Jerome
Stevens Pharmaceuticals (JSP), which expired in March 2019 and had significantly contributed to our prior net sales and
profitability. See the section of our Form 10-K entitled “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” for additional details and discussion of Company performance.
† Peer Group average pertains to the Fiscal 2021 peer group.
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Comparison of Disclosed Versus Realizable CEO Pay for Mr. Crew (Based on Summary Compensation Table)
Compared with values reported in the Summary Compensation Table for Mr. Crew, current realizable values are 40% lower
for Fiscal 2020 and 54% lower for Fiscal 2021. Mr. Crew’s reported compensation for Fiscal 2020 includes actual base
salary plus STI earned plus the full value of a retention incentive earned in December 2019 plus equity awards granted in
Fiscal 2020 (with stock options and restricted stock based on Fiscal 2019 performance). Fiscal 2021 reported compensation
includes actual base salary plus STI earned plus grant date accounting values for target equity grants for Fiscal 2021.
Realizable pay reflects current intrinsic values for equity grants based on our stock price as of June 30, 2021, with assumed
performance share award funding at 0% of target for the Fiscal 2020 and 2021 grants based on interim relative TSR results
from date of grant through June 30, 2021.
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Fiscal 2021 Executive Compensation Program Changes
As our Company grows, the Committee is committed to the evolution and improvement of our Executive Compensation
Program to ensure alignment with our business strategy and stockholder interests, as well as best competitive practices.
The Committee made the following adjustments to the program’s core compensation elements for 2021:
What’s Changed
Short-Term Incentives (“Annual Bonus”)
How It’s Changed
· Added cash flow from
Long-Term Incentives
operations as a percentage of
Adjusted EBITDA to the
strategic objectives component.
· Increased award funding for
threshold performance from
25% to 50% of target award
opportunities.
· Changed target value mix from
an equal weighting for all
vehicles to 35% performance
shares tied to 3-year relative
TSR, 20% stock options, and
45% service-based restricted
stock
· Revised full vesting time period
from four years to three years
for all award vehicles.
71
Explanation
No changes were made to the overall
performance mix or target award
opportunities expressed as
percentages of base salary. The cash
flow metric was added to reinforce
strategic priorities associated with
further enhancing our financial
flexibility. Threshold award funding
was increased to align more closely
with peer group and broader market
practice and recognize use of
challenging performance goals.
Emphasis on stock options was
reduced to help manage overall
equity plan share usage, and
emphasis on restricted stock was
increased to enhance retention
during a time of heightened
uncertainty, with the majority of
total award opportunities continuing
to be tied to performance and/or
stock price appreciation. The time
frame for full vesting for all awards
was set at three years to align more
closely with peer group and broader
market practice.
Table of Contents
Our Commitment to Sound Corporate Governance
In order to align our executive compensation program with long-term stockholder interests, we have adopted a variety of
sound corporate governance practices, as illustrated in the following table:
What We Do
· Emphasize variable incentives to align pay with
· Provide multi-year pay guarantees within employment
What We Don’t Do
performance
agreements
· Tie incentive compensation to multiple performance
metrics that reinforce key business objectives
· Allow stock option repricing without stockholder
approval
· Place primary emphasis on equity compensation to align
· Permit stock hedging or pledging activities
executive and stockholder interests
· Use stock ownership guidelines for executive officers
· Provide uncapped short-term incentive and performance
and non-employee directors
share awards
· Maintain a clawback policy allowing for the
· Pay tax gross-ups on any awards
recoupment of excess compensation in the event of a
material financial restatement and fraud or misconduct
· Engage an independent compensation consultant to
· Provide excessive executive perquisites
advise the Compensation Committee
Executive Officer Stock Ownership Guidelines
To further encourage alignment with stockholder interests, the Board has established stock ownership and retention
requirements for executive officers. Within five years of first being subject to guidelines in their current role, each
executive officer is required to achieve and maintain ownership levels, based on a multiple of base salary, as noted in the
following table.
Position
CEO
All Other Executive Officers
Base Salary Multiple Ownership Requirement
3.0X (300%) annual base salary
1.5X (150%) annual base salary
Until guidelines are met, executive officers must retain 50% of net after-tax shares received from equity grants, including
net after-tax shares received from stock option exercise or vesting of restricted stock and performance shares, until they are
in compliance. If guidelines are not met within the five-year compliance period, the holding requirement increases to 100%
of net after-tax shares from equity grants until achieved. Shares owned outright by executive officers or their spouse, as
well as shares held in retirement plans and unvested time-based restricted stock count towards ownership requirements.
Unearned performance shares and outstanding stock options do not count towards ownership. Non-employee directors are
also subject to stock ownership and holding requirements, as described in the “Compensation of Directors” section of this
10-K.
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Overview of the Executive Compensation Program
Our Philosophy
A fundamental objective of our Executive Compensation Program is to focus our executives on creating long-term
stockholder value — all aspects of our program are rooted in this goal and designed around the following guiding
principles:
● Pay for performance: A significant portion of compensation should be variable and directly linked to corporate and
individual performance goals and results.
● Competitiveness: Compensation should be sufficiently competitive to attract, motivate and retain an executive team
fully capable of driving exceptional performance.
● Alignment: The interests of executives should be aligned with those of our stockholders through equity-based
compensation and performance measures that help to drive stockholder value over the long term.
To support these guiding principles, our program includes the following compensation elements:
Pay Element
Base Salary
Short-Term Incentives (Annual Bonus)
Long-Term Incentives
Target Compensation Mix
Form
Cash
(Fixed)
Cash
(Variable)
Equity and
Cash
(Variable)
Purpose
Provides a competitive level of compensation that reflects
position responsibilities, strategic importance of the position and
individual experience.
Provides a cash-based award that recognizes the achievement of
corporate goals in support of the annual business plan, as well as
specific, qualitative and quantitative individual goals for the most
recently completed fiscal year.
Provides incentives for management to execute on financial and
strategic goals that drive long-term stockholder value creation
and support the Company’s retention strategy.
The charts below show that most of our NEO’s target compensation for Fiscal 2021 is variable (82% for our CEO and an
average of 69% for our other current NEOs). Variable pay includes the target value of short-term cash incentives (“STI”),
performance shares, stock options, and restricted stock.
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Based upon Fiscal 2021 compensation as reported in the Summary Compensation Table on page 86 of this 10-K, variable
pay represents approximately 82% of total pay for our CEO and 70% of average total pay for our other current NEOs. This
mix reflects below-target short-term incentives earned at an average of 34% of target award levels in Fiscal 2021 under the
Annual Bonus Plan (shown as STI), the grant date accounting fair value of target performance share, stock option, and
restricted stock grants in Fiscal 2021, and additional restricted stock grants of 5,000 shares for Mr. Kozlowski and 10,000
shares for Mr. Abt to further recognize contributions and additional responsibilities assumed during Fiscal 2021.
How Compensation Decisions Are Made
● The Role of the Compensation Committee. The Committee, composed entirely of independent directors, is
responsible for making executive compensation decisions for the NEOs. The Committee works closely with its
independent compensation consultant, Pearl Meyer & Partners (“Pearl Meyer”), and management to examine pay and
performance matters throughout the year. The Committee’s charter, which sets out its objectives and responsibilities,
can be found at our website at www.lannett.com under the “Investors” section.
The Committee has authority and responsibility to establish and periodically review our Executive Compensation Program
and compensation philosophy. Importantly, the Committee also has the sole responsibility for approving the corporate
performance goals upon which compensation for the CEO is based, evaluating the CEO’s performance and determining
and approving the CEO’s compensation, including equity-based compensation, based on the achievement of his goals. The
Committee also reviews and approves compensation levels for other NEOs, taking into consideration recommendations
from the CEO.
In making its determinations, the Committee considers market data and advice from Pearl Meyer, as well as budgets,
reports, performance assessments and other information provided by management. It also considers other factors, such as
the experience, skill sets, and contributions of each NEO towards our overall success. However, the Committee is
ultimately responsible for all compensation-related decisions for the NEOs and may exercise its own business judgment
when evaluating performance results and making compensation decisions.
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Timing of Committee Meetings and Grants; Option and Share Pricing
The Committee meets as necessary to fulfill its responsibilities, and the timing of these meetings is established during the
year. The Committee holds special meetings from time to time as its workload requires. Annual equity grants occur after
finalizing fiscal year end performance results, typically within the July/August time frame. Individual grants (for example,
associated with the timing of a new NEO or promotion to an NEO position) and special recognition awards may occur at
any time of year. The exercise price of each stock option and fair value of restricted stock awarded to our NEOs is the
closing price of our common stock on the date of grant.
● The Role of the CEO. The CEO does not play any role in the Committee’s determination of his own compensation.
However, he presents the Committee with recommendations for each element of compensation including base salaries
and short- and long-term incentive awards for the other NEOs, as well as non-executive employees who are eligible
for equity grants. The CEO bases these recommendations upon his assessment of each individual’s performance, as
well as market practice. The Committee has full discretion to modify the recommendations of the CEO in the course
of its approvals.
● The Role of the Independent Consultant. The Committee consults, as needed, with an outside compensation
consulting firm. As it makes decisions about executive compensation, the Committee reviews data and advice from its
consultant about current compensation practices and trends among publicly traded companies in general and
comparable generic pharmaceutical companies in particular. The Committee also periodically reviews
recommendations from its outside consultant and makes recommendations to the Board about the compensation for
non-employee directors.
In Fiscal 2020, Pearl Meyer was retained by the Committee, as its independent consultant, to review the competitiveness of
the Executive Compensation Program. Pearl Meyer provided the Committee with compensation data with respect to
similarly sized biopharmaceutical and life sciences companies and consulted with the Committee about a variety of issues
related to competitive compensation practices and incentive plan designs. Pearl Meyer was also retained by the Committee
in Fiscal 2021 to review the competitiveness of the Executive Compensation Program and to provide ongoing advice
relating to the Executive Compensation Program. The Committee assessed the independence of Pearl Meyer pursuant to
the SEC rules and concluded that no conflict of interest exists that would prevent Pearl Meyer from independently advising
the Committee.
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Peer Group & Benchmarking
The Committee evaluates industry-specific and general market compensation practices and trends to ensure the Executive
Compensation Program is appropriately competitive. When making decisions about the program for Fiscal 2020, the
Committee considered publicly available data, as well as a market study conducted by Pearl Meyer in May 2020. The Pearl
Meyer study developed market values using a blend of peer group proxy pay data for the companies shown below as well
as published survey data for the broader life sciences industry. Using this information, the Committee compared our
program to the compensation practices of other companies which the Committee believes are comparable to the Company
in terms of size, scope and business complexity (the “peer group”). As shown below, the Company ranked in the upper half
of the peer group in terms of employee headcount, at the 50th percentile for net sales, and between the 25th and 50th
percentiles for enterprise value.
Company Name
Acorda Therapeutics, Inc.
Amneal
Pharmaceuticals, Inc.
Amphastar
Pharmaceuticals, Inc.
ANI Pharmaceuticals, Inc.
Assertio
Therapeutics, Inc.
Catalent, Inc.
Momenta
Pharmaceuticals, Inc.
Prestige Consumer
Healthcare Inc.
Supernus
Pharmaceuticals, Inc.
United Therapeutics
Corporation
Lannett Company, Inc.
Percentile Rank
Fiscal Year
End # of
Employees
Enterprise
Value
6/30/2021
($mm)
Fiscal Year
End Operating
Income
($mm)
Fiscal
Year End
Sales
($mm)
Cumulative
1 YR TSR
6/30/2021
Cumulative
3 YR TSR
6/30/2021
Cumulative
5 YR TSR
6/30/2021
168
$
181
6,000
$ 3,319
1,980
369
$
$
955
588
27
13,900
96
$
$ 20,951
$
$
$
$
$
$
(87) $
153
-89.6%
(96.0)%
(97.6)%
146
$ 1,993
-28.6%
— %
— %
16
$
(5) $
350
208
-4.5%
-57.4%
12.9 %
(25.1)%
14.7 %
(43.5)%
(43) $
410
108
$ 3,094
-88.7%
99.4 %
(96.4)%
208.0 %
(98.2)%
268.6 %
118
$
N/A $
(312) $
24
— %
— %
— %
505
$ 4,093
563
$ 1,247
$
$
297
188
$
$
943
64.5 %
(1.3)%
12.7 %
520
(7.0)%
(28.6)%
81.3 %
$
$ 5,672
950
730
812
$
$
33%
60%
591
(237) $
10%
$ 1,483
479
50%
129.8 %
-22.9%
44 %
38.3 %
(77.1)%
25 %
3.1 %
(92.1)%
25 %
Subsequent to the 2020 study, former peer Momenta Pharmaceuticals was acquired. For purposes of a subsequent market
pay analysis conducted by Pearl Meyer in May 2021, the Committee approved a revised peer group excluding Momenta
Pharmaceuticals (acquired) and Catalent (size outlier) and including the 8 remaining companies from the 2020 peer group
as shown above as well as Coherus BioSciences, Inc.. The revised peer group aligns with us in terms of company size and
industry focus.
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The Committee uses external market data as a reference point to ensure the Company’s executive compensation program is
sufficiently competitive to attract, retain, and motivate highly experienced and talented NEOs. The Committee generally
seeks to position target total direct compensation for NEOs at or near 50th percentile market values for comparable
positions but does not utilize a purely formulaic benchmarking approach. Based on the May 2020 Pearl Meyer study, target
total direct compensation, including the sum of base salary plus target short-term and long-term incentives, was within the
competitive range (defined as +/- 15%) of 50th percentile market values for all NEOs other than Mr. Abt, who was slightly
above the range, and equal to 95% of the 50th percentile in the aggregate. Actual total direct compensation, which included
Fiscal 2020 short-term incentives earned between threshold and target, the annualized value of one-time retention bonuses
paid in Fiscal 2020, and grant date values for Fiscal 2020 equity grants, was within or above a competitive range of 50th
percentile market values for all NEOs other than Mr. Kozlowski, who was below the range, and equal to 104% of the 50th
percentile in the aggregate. As previously noted, when evaluating our executive compensation program, the Committee
considers a variety of other factors in addition to external market data, such as Company and individual performance, and
each NEO’s qualifications, skill sets, and past and expected future contributions towards our success.
2021 Executive Compensation Program Decisions
Base Salary
We attribute much of our success to our highly experienced executive management team, and the strength of their
leadership has been clearly demonstrated by our exceptional long-term performance results and strategic accomplishments.
In order to remain competitive among our industry peers, the Committee believes it should set compensation at market-
competitive levels that reflect the executive’s experience, role and responsibilities. Based on Pearl Meyer’s 2020 study,
current salaries were below 50th percentile market values for four of our five NEOs and within a competitive range (+/-
10%) of the 50th percentile for all incumbents other than Mr. Kozlowski, who was below the range. The Committee
approved merit increases equal to 6.5% of base salary for Mr. Kozlowski and 3% base salary for all of our other current
NEOs for Fiscal 2021. Due to the impact of the COVID-19 pandemic, the effective date of salary increases was delayed,
for all incumbents other than Mr. Kozlowski, to January 2021, with no retroactive adjustments provided. The following
table summarizes annualized salaries for Fiscal 2020 and 2021 for our NEOs. Annualized salaries differ from actual values
received as reported in the Summary Compensation Table due to the timing of effective dates.
NEO
Timothy C. Crew
John Kozlowski
Maureen Cavanaugh
Samuel H. Israel
John Abt
Short-Term Incentives (Annual Bonus)
2020 Base Salary 2021 Base Salary % Change
3 %
6.5 %
3 %
3 %
3 %
750,000
385,000
438,000
412,000
354,500
772,500
410,000
451,140
424,360
365,135
$
$
$
$
$
$
$
$
$
$
The Company’s NEOs participate in an annual bonus program, which is designed to reinforce the annual business plan and
budgeted goals and to recognize yearly performance achievements focused primarily on financial and operating results.
Actual payouts can range from 0% (below threshold) to 200% (superior performance) of target awards and are paid in cash.
The Committee sets each NEO’s threshold, target and superior bonus opportunity as a percentage of base salary, as follows:
NEO
Timothy C. Crew
All Other NEOs
Threshold
(50% of Target)
Annual Bonus Opportunity As a % of Salary
Target
(100% of Target)
Superior
(200% of Target)
50 %
30 %
100 %
60 %
200 %
120 %
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Expressed as percentages of salary, Fiscal 2021 target and maximum award opportunities were the same as those
established in Fiscal 2020 for all NEOs, while threshold award funding was increased to 50% of target (vs. 25% of target in
Fiscal 2020).
The overall annual bonus plan for Fiscal 2021 was comprised of two components:
● Corporate Financial & Operational Goals: 70% of the total target award opportunity is tied to operating results
versus targets established by the Committee to promote a focus on Company-wide profitable growth and
collaboration:
Performance Metric
Adjusted Operating Income
Adjusted Earnings Per Share (“EPS”)
Net Sales
Strategic Objectives
Individual Objectives
Weighting (out of 100%)
30 %
20 %
20 %
20 %
10 %
Fiscal 2021 performance metrics and weightings for corporate financial and operational goals were identical to those
established in Fiscal 2020.
Adjusted Operating Income and Adjusted EPS are defined as GAAP Operating Income and diluted EPS, respectively,
excluding bonus and stock-based compensation expense, as further adjusted for certain non-recurring items.
● Strategic / Individual Objectives: 30% of the total target award opportunity is based on the achievement of pre-
established quantitative and qualitative strategic and individual goals, to reinforce key strategic objectives and to
promote individual accountability and “line of sight.” For Fiscal 2021, the strategic objectives component for all
NEOs was tied to an equally weighted blend of Cash Flow from Operations as a percentage of Adjusted EBITDA and
number of product launches and filings. The individual objectives component for each NEO is tied to various other
strategic, financial and operational objectives, taking into consideration each NEO’s job function and responsibilities.
For competitive harm reasons, the Company does not disclose specific details on individual goals and other strategic
objectives.
2021 Short-Term Incentives (Annual Bonus): Results and Payouts
● Corporate Financial & Operational Results (Collectively Weighted 70% of Total Target Award) Fiscal 2021
Target goals were set below Fiscal 2020 actual levels for Adjusted Operating Income and Adjusted EPS and above
Fiscal 2020 actual results for Net Sales, based on our 2021 internal budgets which anticipated continued challenging
market conditions within the generic pharmaceuticals sector. The Committee viewed the Fiscal 2021 performance
hurdles as very challenging in light of then-current internal forecasts and industry and economic conditions, including
the ongoing COVID-19 pandemic. The Committee established Threshold performance hurdles at 85% of Target goals
and Superior hurdles at 120% of Target to account for stretch goals, challenging market conditions, and to align more
closely with our historical performance range spreads. Fiscal 2021 financial performance goals and actual results are
shown in the following table:
Performance Metric
Adjusted Operating Income ($ millions)
Adjusted EPS
Net Sales ($ millions)
Threshold
100.3
1.12
505.0
$
$
$
Performance Goals
Target
Superior
118.0
1.32
594.1
$
$
$
141.6
1.58
712.9
$
$
$
Actual
55.5
0.21
478.8
Weighting
(Out of 70%)
30 % $
20 % $
20 % $
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Actual Fiscal 2021 performance results were below the Threshold goal level for all three Corporate financial metrics,
impacted by even more challenging market conditions within the generic pharmaceuticals sector than originally
anticipated, use of stretch goals, and the ongoing COVID-19 pandemic. Actual Adjusted Operating Income for Fiscal 2021
excluded pre-tax items totaling approximately $292.7 million, including restructuring expenses, impairments, and other
non-recurring items. Actual Adjusted EPS excluded the same $292.7 million in pre-tax items plus $22.0 million primarily
related to non-cash interest expense and a loss on extinguishment of debt as well as the related tax effects for all of these
items. For Fiscal 2021, the Net Sales result was the same as the GAAP-reported value, with no adjustments applied.
● Strategic and Individual Performance Results (Collectively Weighted 30% of Total Target Award) For Fiscal
2021, the strategic objectives component was primarily tied to Cash Flow from Operations goals, which exceeded the
Superior level, and number of product launches and filings, which was below the Threshold level. The Committee also
considered each NEO’s contributions towards a variety of other company-wide strategic and function-specific
objectives, including the debt restructuring which significantly enhanced our financial flexibility, revisions to our
product portfolio to improve longer-term profitability, and product launches and development. While no specific
weightings were assigned to these other objectives, the Committee considered each NEO’s contributions towards,
ongoing success with restructuring activities, the continued strengthening of our balance sheet, maintaining
operational discipline within a challenging market environment, and achievement of various other strategic growth
milestones. Based on the Committee’s overall assessment, each NEO met or exceeded most goals for the strategic
objectives and individual performance components. All NEOs earned target payouts for the strategic objectives
component. Mr. Kozlowski and Ms. Cavanaugh earned maximum awards for their individual performance component
to recognize their significant contributions towards our debt refinancing and strengthening of our balance sheet (in the
case of Mr. Kozlowski) and strategic partnership collaborations and pipeline expansion and progression (in the case of
Ms. Cavanaugh) and all other NEOs earned target awards for individual performance achievements.
Total Annual Bonus
Based on our Fiscal 2021 performance results, calculated award funding levels were equal to approximately 30% of target
for Messrs. Crew, Israel, and Abt and 40% of target for Mr. Kozlowski and Ms. Cavanaugh. In evaluating these results, the
Committee chose to not apply any discretion to calculated performance outcomes and award funding levels. Total Fiscal
2021 payouts for current NEOs are summarized in the following table:
Current NEO
Timothy C. Crew
John Kozlowski
Maureen Cavanaugh
Samuel H. Israel
John Abt
Long-Term Incentives
Corporate Financial /
Strategic / Individual
Operational Component Objectives Component
— $
— $
— $
— $
— $
231,750
98,400
108,274
76,385
65,724
$
$
$
$
$
Total Actual Bonus for
Fiscal 2021
$
$
$
$
$
231,750
98,400
108,274
76,385
65,724
NEOs participate in a performance-based long-term incentive program. Target award opportunities, expressed as
percentages of base salary, for Fiscal 2021 are unchanged from Fiscal 2020 levels and are summarized in the following
table:
NEO
Timothy C. Crew
John Kozlowski
Maureen Cavanaugh
Samuel H. Israel
John Abt
Target Award as % of Base Salary
350 %
175 %
175 %
175 %
150 %
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The target value mix for our NEOs in Fiscal 2021 is summarized below:
Beginning in Fiscal 2021, all equity grants are made at target levels, to align more closely with market practice, provide for
more consistent and predictable awards, and further enhance retention. Grants occur during the first quarter of each Fiscal
Year, with stock options and restricted stock tied to continued service over the applicable vesting period and performance
shares tied to three-year relative TSR vs. comparator companies.
Target Equity Grants Made in Fiscal 2021
Beginning in Fiscal 2021, all equity grants are made at target award levels. For Fiscal 2021 grants, the Committee
approved a target value mix equal to 35% for performance shares, 20% for stock options, and 45% for service-based
restricted shares. The Committee approved the following performance share, stock option and restricted stock target grants,
effective as of July 31, 2020:
Target Equity Grants
NEO
Timothy C. Crew
John Kozlowski
Maureen Cavanaugh
Samuel H. Israel
John Abt
# of Performance Shares # of Stock Options # of Restricted Shares
204,016
52,364
59,573
56,036
41,328
158,679
40,728
46,334
43,584
32,144
144,628
37,121
42,231
39,725
29,298
These stock options vest in three equal annual increments, beginning on the first anniversary of the grant date and expire
on the tenth anniversary from the date of grant. Each stock option has an exercise price of $5.95, equal to our closing stock
price on the date of grant. Restricted stock granted in Fiscal 2021 also vests in three equal annual increments, beginning on
the first anniversary of grant.
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Target performance share grant levels were determined by dividing target award values by the grant date closing stock
price of $5.95 per share, consistent with the approach used to determine restricted stock grants. For accounting expense
recognition and proxy disclosure purposes, Fiscal 2021 performance shares were valued at $9.22 per share, based on a
Monte Carlo binomial modeling valuation tool, as discussed in Note 15 “Share-based Compensation” of our Consolidated
Financial Statements. Award vesting will be based on the Company’s TSR relative to companies in the S&P
Pharmaceuticals Index for the three-year period ending June 30, 2023, as illustrated below, with no awards earned for
below-Threshold results and maximum awards of up to 200% of target grants for Superior performance.
Lannett Three-Year Relative TSR vs. S&P
Pharmaceuticals Select Index
Below 40th Percentile
40th Percentile
50th Percentile
80th Percentile or Higher
Percentage of Target Grant
Earned
—
50 %
100 %
200 %
The Committee also approved additional restricted stock grants of 5,000 shares to Mr. Kozlowski and 10,000 shares of Mr.
Abt, effective September 7, 2020, to further recognize their contributions in Fiscal 2020 and assumption of additional
responsibilities. These grants vest in three equal annual increments, beginning on the first anniversary of the grant date.
Compensation Recoupment (Clawback) Policy for Executive Officers
In early Fiscal 2021, our Board of Directors approved an expanded compensation recovery or “clawback” provision that
will be incorporated into all executive officer employment contracts. Under the revised contracts, if the Company is
required to issue a material financial restatement as a result of fraud or other misconduct, the Board may, in its discretion,
seek to recoup any excess performance-based short-term or long-term incentive compensation awarded during the three-
year period following the originally filed financial statement(s). The recoupment provision applies to any executive officer
who is found to have participated in or knew or should have known about such fraud or misconduct and took no action to
prevent it. In determining the amount of any excess performance-based incentives, the Board will compare the award
received based on the original financial statement(s) against the amount that would have been earned based on the restated
financial results. Prior to this new policy, the Company maintained a clawback policy under the Sarbanes-Oxley Act, with
incentive awards for the CEO and CFO subject to recoupment in the event of a material financial restatement triggered by
fraud or misconduct. Additionally, any employee who violates the provisions of the Company’s Code of Business Conduct
and Ethics is subject to disciplinary penalties that may include termination of employment. The Committee intends to
comply with any regulatory requirements pertaining to clawback provisions under the Dodd-Frank Act once rules are
finalized by the SEC and New York Stock Exchange.
Other Policies, Programs and Guidelines
NEOs, like all other employees, have retirement programs and other benefits as part of their overall compensation package.
The Committee believes that these programs and benefits support our compensation philosophy, part of which is to provide
compensation that is sufficiently competitive to attract, motivate and retain an executive team fully capable of driving
exceptional performance. The Committee periodically reviews these programs to validate that they are reasonable and
consistent with market practice. Attributed costs of the personal benefits available to the NEOs are included in column (h)
of the Summary Compensation Table on page 86.
● Retirement Benefits. Each of our NEOs is eligible to participate in a 401(k) plan that is available to all employees.
Through December 2020, the Company provided matching contributions on a $0.50 basis up to 8% of the contributing
employee’s base salary, subject to limitations of the 401(k) plan and applicable law. Beginning January 1, 2021, the
Company reduced the portion of base salary eligible for the matching contribution from 8% to 4% of the contributing
employee’s base salary, subject to limitations of the 401(k) plan and applicable law.
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● Other Benefits. Our NEOs are eligible to participate in the same health benefits available to all other employees.
They also participate in a wellness program where Lannett pays up to $2,250 towards the cost of a comprehensive
annual physical examination. Lannett provides life insurance for NEOs which would, in the event of death, pay up to
$187,500 to designated beneficiaries. Premiums paid for coverage above $50,000 are treated as imputed income.
Lannett also provides short- and long-term disability insurance which would, in the event of disability, pay the NEO
100% of his base salary up to the plan limits of $10,000 per week for short-term disability and $15,000 per month for
long-term disability. The NEOs are also provided with car allowances.
● Post-Termination Pay. The Committee believes that reasonable severance and change-in-control benefits are
necessary in order to recruit and retain qualified senior executives and are generally required by the competitive
recruiting environment within our industry and the marketplace in general. These severance benefits reflect the fact
that it may be difficult for our NEOs to find comparable employment within a short period of time and are designed to
alleviate concerns about the loss of his or her position without cause. The Committee also believes that a change-in-
control arrangement will provide security that will likely reduce the reluctance of an NEO to pursue a change in
control transaction that could be in the best interest of our stockholders. Lannett’s severance plan is designed to pay
severance benefits to a NEO for a qualifying separation. For the CEO, the severance plan provides for payment of
three times base salary, plus a pro-rated annual cash bonus for the current year calculated as if all targets and goals are
achieved. For the other NEOs, the severance plan currently provides for a payment of 18-months of base salary, plus a
pro-rated annual cash bonus for the current year calculated as if all targets and goals are achieved for qualifying
termination of employment scenarios not associated with a change in control. For qualifying termination of
employment scenarios within 18 months following a change in control (as defined in the agreements), the severance
payment would equal two times base salary for NEOs other than the CEO (whose severance payment would remain at
three times base salary ). Employment agreements with NEOs do not have any tax gross-up provisions and only
provide for severance benefits upon a qualifying termination of employment by the Company without “Cause” (as
defined in the agreements) or a voluntary resignation for “Good Reason” (as defined in the agreements). They also
include non-compete, non-solicitation, and other restrictive covenants for designated time frames.
● Tax and Accounting Implications. Section 162(m) of the Internal Revenue Code of 1986, as amended, precludes the
deductibility of an NEO’s compensation that exceeds $1,000,000 per year. The Tax Cuts and Jobs Act, which became
effective as of January 1, 2018, modified Section 162(m) provisions, including the elimination of the “performance-
based exception” that previously allowed certain performance-based compensation meeting specific requirements to
qualify for full tax deductibility by the Company. The changes to Section 162(m) do not apply to certain compensation
paid pursuant to a binding written contract that was in effect as of November 2, 2017. As a result of the tax law
changes, compensation paid to designated “covered executives”, including current and former NEOs, in excess of
$1,000,000 per individual will generally not be deductible, whether or not it is performance-based. Although the
Committee has historically attempted to structure executive compensation to preserve deductibility, it also reserves the
right to provide compensation that may not be fully deductible, in order to maintain flexibility in compensating NEOs
in a manner consistent with our compensation philosophy, as deemed appropriate. The Committee believes that
stockholder interests are best served by not restricting the Committee’s discretion in this regard, even though such
compensation may result in non-deductible compensation expenses to the Company.
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● Non-Qualified Deferred Compensation Plan. Effective July 1, 2019, the Company established a non-qualified
deferred compensation plan that allows NEOs and a select group of other senior management and highly compensated
employees to elect to defer up to 50% of base salary and up to 100% of annual bonuses. Deferral elections must be
made prior to the start of each calendar plan year, with participants selecting among a variety of investment
alternatives. The Committee has the discretion to periodically authorize company contributions but is under no
obligation to do so, and any such company contributions may be subject to vesting requirements. Participant
compensation deferrals are immediately vested and will be credited to individual participant accounts, along with any
company contributions (if applicable) and any investment returns. Distribution of the participant’s accounts is
triggered by the occurrence of the applicable event (i.e., separation from service, retirement, death, disability, a
Change in Control, or pre-determined in-service distributions that are no earlier than three years after the year in which
deferrals were made) under the terms of the plan, but the date on which payment is actually processed will be subject
to timing requirements associated with Section 409A of the Internal Revenue Code (“409A”). The plan is unfunded
and payouts will generally be made in one cash lump sum; however, subject to the 409A restrictions on initial and
subsequent form of payment elections, participants will also be eligible to elect to receive payments in annual
installments of up to five years for in-service distributions and up to ten years following retirement.
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Looking Ahead: Executive Compensation Program Changes for Fiscal 2022
For Fiscal 2022, the Committee decided to once again delay the timing of base salary merit increases, modify the short-
term incentive (Annual Bonus) design, and to modify the long-term incentive plan design, as shown below.
● Base Salaries. The Committee approved the following market adjustments, for all incumbents other than Mr. Crew, to
position NEO salaries at or near 50th percentile market values. Due to the ongoing COVID-19 pandemic and current
market conditions, the effective date for all salary increases was delayed from the first quarter to the second quarter of
Fiscal 2022.
NEO
Timothy C. Crew
John Kozlowski
Maureen Cavanaugh
Samuel H. Israel
John Abt
2021 Base Salary* 2022 Base Salary* % Change
$
$
$
$
$
772,500
410,000
451,140
424,360
365,135
$
$
$
$
$
772,500
451,000
464,670
437,090
376,090
— %
10.0 %
3.0 %
3.0 %
3.0 %
*Reflects full-year annualized salaries; as noted above, Fiscal 2021 increases became effective as of January 1, 2021 and
those for Fiscal 2022 are effective as of October 1, 2021
● Short-Term Incentives (Annual Bonus). For Fiscal 2022, target award opportunities, expressed as percentages of
base salary, are the same as in Fiscal 2021, except that a portion (20%) will be tied to deferred strategic goals relating
to product development and regulatory filing milestones payable over the next several years if and when achieved.
Award opportunities for the deferred strategic goals component will be capped at target and payable upon achievement
of each applicable milestone prior to the end of Fiscal 2024. This will likely reduce potential short-term incentive
awards payable in Fiscal 2022, as the deferred strategic milestones are not currently anticipated to occur prior to Fiscal
2023 and/or 2024, if at all. As shown in the following table, weightings for other metrics have been adjusted to
account for the introduction of the deferred strategic milestones component. The former individual performance
component was eliminated for Fiscal 2022 to allow for increased emphasis / focus for all NEOs on a common set of
strategic objectives, which will be tied to the internal development and external assessment of a report outlining the
Company’s ESG strategy and practices, operational efficiency goals, and cash flow / liquidity goals. These changes
were made to more closely align short-term incentive goals with our current strategic priorities, with the majority of
award opportunities continuing to be tied to challenging corporate financial and operational goals.
Performance Metric
Adjusted Operating Income
Adjusted Earnings Per Share (“EPS”)
Net Sales
Fiscal 2022 Strategic Objectives
Deferred Strategic Goals
Weighting (out of
100%)
20 %
20 %
20 %
20 %
20 %
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● Long-Term Incentives. Expressed as percentages of base salary, target long-term incentive award opportunities are
the same as in Fiscal 2021 for all NEOs. The target award value mix is 50% performance shares (up from 35% in
Fiscal 2021), 30% restricted stock (down from 40% in Fiscal 2021), and 20% provided in the form of a cash-based
incentive where the value varies based on changes in our stock price over the three-year period ending June 30, 2024.
For Fiscal 2022 grants, the Committee chose to eliminate stock options and add a cash-based component to help
manage equity plan share usage and reserves. Half of performance shares will be tied to our three-year relative TSR
vs. companies in the S&P Pharmaceuticals Select Index, as shown below, with the other half tied to a variety of
strategic portfolio goals relating to regulatory filings and approvals of certain key products and gross margin targets
for new internal launches. Strategic portfolio goals are not currently disclosed due to competitive harm concerns, but
will be disclosed following the end of the three-year performance measurement period. The revised LTI award mix for
Fiscal 2022 increases the emphasis on long-term strategic objectives and value creation while continuing to promote
retention and alignment with shareholder interests. All grants will continue to be made at target award levels, with the
majority of award opportunities “at risk”. Full vesting periods for all grants in Fiscal 2022 were set at three years. In
response to feedback from shareholders and shareholder advisory groups, the Committee also approved a change to
performance share award funding that caps potential awards at the target number of shares if we outperform
comparator companies but our absolute TSR is negative.
Restricted stock grants were made at target award levels in July 2021, vesting in three equal annual increments based on
continued service. The cash-based incentive component was also approved in July 2021, with a three-year “cliff” vesting
requirement based on continued service and the award value is tied to changes in our stock price over the three-year period
ending June 30, 2024.
For the performance share component tied to relative TSR, award opportunities can range from 0% to 200% of target
levels, based on our three-year TSR relative to companies in the S&P Pharmaceuticals Select Industry Index, as follows:
Lannett Three-Year Relative TSR vs. S&P
Pharmaceuticals Select Index
Below 40th Percentile
40th Percentile
50th Percentile
80th Percentile or Higher
Percentage of Target Award Opportunity
Earned
—
50 %
100 %
200 %
As noted above, the other half of performance shares are tied to strategic portfolio goals to be achieved during the three-
year period ending June 30, 2024. Target performance shares were granted in July 2021. Any earned shares will vest
following the end of the three-year performance period. As noted above, awards for the relative TSR component will be
capped at target if our relative TSR is above the 50th percentile but absolute TSR is negative.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee has reviewed, discussed and approved the CD&A as set forth above with management.
Taking this review and discussion into account, the undersigned Committee members recommend to the Board of Directors
that the CD&A be included in the annual report on Form 10-K.
Paul Taveira, Chairman
John C. Chapman
David Drabik
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COMPENSATION OF EXECUTIVE OFFICERS
Overview
The tables and narratives set forth below provide specified information concerning the compensation of our Named
Executive Officers (NEOs) for the fiscal year ended June 30, 2021.
Summary Compensation Table
This table summarizes all compensation paid to or earned by our Fiscal 2021 NEOs for the years indicated to the extent
they were serving as NEOs.
Name and Principal Position Fiscal Year
(a)
Timothy Crew
(b)
Salary
(c)
Bonus
(d)
Restricted
Stock Awards Options Awards
Non-equity
incentive plan
compensation Compensation
All Other
(e)
(f)
(g)
(h)
Total
(i)
Chief Executive Officer
John Kozlowski (1)
Vice President of Finance,
Chief Financial
Officer and Principal
Accounting Officer
Maureen Cavanaugh
Senior VP and Chief
Commercial
Operations Officer
Samuel Israel
Chief Legal Officer and
General Counsel
John Abt
Vice President and Chief
Quality
Operations Officer
2021
2020
2019
2021
2020
2019
2021
2020
2019
2021
2020
2019
2021
2020
2019
$
760,385
$
— $ 2,676,916
$
558,264
$
231,750
$
36,573
$
4,263,888
748,269
735,000
1,605,283
840,603
619,390
27,768
4,576,313
735,000
—
483,359
141,002
735,000
40,635
2,134,996
$
409,327
$
— $
714,128
$
143,287
$
98,400
$
24,117
$
1,389,259
378,077
325,000
354,878
185,840
188,096
35,582
1,467,473
325,000
—
219,228
64,894
195,000
47,199
851,321
$
444,065
$
— $
781,659
$
163,012
$
108,274
$
18,937
$
1,515,947
436,500
425,000
534,926
277,144
217,034
25,206
1,915,810
425,000
—
-
-
255,000
31,799
711,799
$
417,705
$
— $
735,259
$
153,339
$
76,385
$
27,856
$
1,410,544
410,616
400,000
503,548
260,863
228,871
24,896
1,828,794
400,000
—
300,969
89,096
240,000
27,122
1,057,187
$
359,409
— $
596,369
$
113,090
$
65,724
$
19,611
$
1,154,203
353,346
344,500
283,703
131,340
175,659
25,080
1,313,628
344,500
—
144,249
42,080
206,700
24,221
761,750
(1) Mr. Kozlowski was appointed to the role of Vice President of Finance and Chief Financial Officer effective August 31,
2019. Mr. Kozlowski assumed the Principal Accounting Officer role effective July 13, 2020.
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All Other Compensation
The following summarizes the components of column (g) of the Summary Compensation Table above:
Name and Principal Position
Timothy Crew
Chief Executive Officer
John Kozlowski
Vice President of Finance, Chief Financial
Officer and Principal Accounting Officer
Maureen Cavanaugh
Senior VP and Chief Commercial
Operations Officer
Samuel Israel
Chief Legal Officer and
General Counsel
John Abt
Vice President and Chief
Quality Operations Officer
Company
Match
Contributions
401(k) Plan
5,625
9,750
5,655
$
Auto
Allowance
13,500
$
13,500
13,500
Fiscal Year
2021
2020
2019
2021
2020
2019
2021
2020
2019
2021
2020
2019
2021
2020
2019
$
$
$
$
$
$
$
$
3,073
13,035
9,556
5,491
9,760
16,442
7,935
9,588
8,727
6,303
9,832
9,033
10,800
10,800
10,800
10,800
10,800
10,800
10,800
10,800
10,800
10,800
10,800
10,800
Pay in Lieu of
Vacation
Wellness
Benefit
$
$
$
$
$
14,856
-
16,962
7,885
7,404
22,500
$
$
— $
—
—
6,529
-
3,077
$
— $
—
—
2,250
4,250
4,250
2,250
4,250
4,250
2,250
4,250
4,250
2,250
4,250
4,250
2,250
4,250
4,250
$
Excess Life
Insurance
342
268
268
$
$
$
$
109
93
93
396
396
307
342
258
268
258
198
138
$
$
$
$
$
Total
36,573
27,768
40,635
24,117
35,582
47,199
18,937
25,206
31,799
27,856
24,896
27,122
19,611
25,080
24,221
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Grants of Plan-Based Awards in Fiscal 2021
Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards
Target
($)
(d)
$ 772,500
Maximum
($)
(e)
$ 1,545,000
Threshold
($)
(c)
$ 386,250
Estimated Future Payouts
Under Equity Incentive Plan
Awards
Threshold
(f)
Target
(g)
Maximum
(h)
All Other Stock
Awards:
Number of
Shares of
Stocks or Units
(#) (1) (2)
(i)
All Other
Option Awards:
Number of
Securities
Underlying
Options (#) (1)
(j)
Exercise or
Base Price
of Option
Awards
($/sh) (3)
Grant Date
Fair Value of
Stock and
Options
Awards (4)
(i)
79,340
158,679
317,358
204,016
144,628
$
5.95
$ 123,000
$ 246,000
$
492,000
20,364
40,728
81,456
$ 135,342
$ 270,684
$
541,368
23,167
46,334
92,668
$ 127,308
$ 254,616
$
509,232
21,792
43,584
87,168
$ 109,541
$ 219,081
$
438,162
16,072
32,144
64,288
52,364
5,000
59,573
56,036
41,328
10,000
37,121
$
5.95
42,231
$
5.95
39,725
$
5.95
29,298
$
5.95
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,463,020
1,213,895
558,264
375,512
311,566
27,050
143,287
427,199
354,459
163,012
401,844
333,414
153,339
296,368
245,902
54,100
113,090
Name
(a)
Timothy Crew
Chief Executive
Officer
John Kozlowski
Vice President of
Finance,
Chief Financial
Officer and
Principal
Accounting
Officer
Maureen
Cavanaugh
Senior VP and
Chief Commercial
Operations
Officer
Samuel Israel
Chief Legal
Officer and
General Counsel
John Abt
Vice President and
Chief Quality
Operations
Officer
Grant Date
(b)
7/31/2020
7/31/2020
7/31/2020
7/31/2020
7/31/2020
9/7/2020
7/31/2020
7/31/2020
7/31/2020
7/31/2020
7/31/2020
7/31/2020
7/31/2020
7/31/2020
7/31/2020
9/7/2020
7/31/2020
(1) All stock option and restricted stock grants vest in three equal annual increments.
(2) Restricted stock grants on 9/7/20 to Messrs. Kozlowski and Abt were made to further recognize their contributions in
Fiscal 2020 and assumption of additional responsibilities.
(3) The exercise price was equal to the Company’s closing stock price on the date of grant.
(4) Stock options were valued using the Black-Scholes option pricing model. Performance shares were valued using a
Monte Carlo binomial model. The assumptions used in fair value calculations are described in Note 15 “Share-based
Compensation,” in the Form 10-K. The grant date fair value for other stock grants reflects the number of shares
multiplied by the Company’s closing stock price on the applicable date of grant.
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Outstanding Equity Awards at 2021 Fiscal Year End
The following table sets forth information concerning the outstanding stock awards held at June 30, 2021 by each of the
NEOs. The options were granted ten years prior to the option expiration date and vest over three or four years from that
grant date. Restricted shares vest over three or four years from the date of grant.
Name
(a)
Timothy Crew
Chief Executive Officer
John Kozlowski
Vice President of Finance,
Chief Financial Officer and
Principal Accounting
Officer
Maureen Cavanaugh
Senior VP and Chief
Commercial
Operations Officer
Samuel Israel
Chief Legal Officer and
General Counsel
John Abt
Vice President and Chief
Quality
Operations Officer
Option Awards
Equity
Incentive Plan
Awards:
Number of
Number of
Number of
Securities
Securities
Securities
Underlying
Underlying
Underlying
Unexercised Unexercised Unexercised
Options (#)
Unearned
Options (#)
Exercisable Unexercisable Options (#)
(c)
(d)
Stock Awards
Equity
Equity
Incentive Plan Incentive Plan
Number of
Shares or Market Value
of Shares or
Units of
Awards:
Number of
Unearned
Shares, Units
or Other
Stock That Units of Stock Rights That
Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Option
Option
Exercise Expiration Have Not That Have Not
Price ($)
(e)
Vested ($)
(h)
Vested (#)
(g)
Date
(f)
Have Not
Vested (#)
(i)
Rights That
Have Not
Vested ($)
—
7,209
156,053
144,628
— $ 23.65
— $ 12.20
— $ 6.57
— $ 5.95
1/1/2028
7/29/2028
7/28/2029
7/30/2030
306,988
$
1,433,634
244,437 $
1,141,521
(b)
32,103
14,417
52,017
—
4,000
9,334
4,200
6,635
11,500
—
17,150
—
2,759
9,110
16,142
—
1,970
1,155
2,759
4,302
8,127
—
—
—
—
3,318
34,500
37,121
51,450
42,231
—
4,555
48,428
39,725
—
—
—
2,152
24,383
29,298
— $ 4.16 10/25/2022
9/4/2023
— $ 13.86
8/11/2024
— $ 34.77
— $ 12.20
— $ 6.57
— $ 5.95
7/29/2028
7/28/2029
7/30/2030
— $ 6.57
7/28/2029
— $ 5.95
7/30/2030
— $ 17.40
— $ 12.20
— $ 6.57
— $ 5.95
9/21/2027
7/29/2028
7/28/2029
7/30/2030
— $ 59.20
7/21/2025
— $ 31.30
— $ 17.40
— $ 12.20
— $ 6.57
— $ 5.95
7/26/2026
9/21/2027
7/29/2028
7/28/2029
7/30/2030
89
81,512
$
380,661
63,178 $
295,041
91,613
$
427,833
70,074 $
327,246
89,846
$
419,581
75,393 $
352,085
71,991
$
336,198
47,730 $
222,899
Table of Contents
Options Exercised and Stock Vested During the Fiscal Year Ended June 30, 2021
The following table sets forth information concerning stock options exercised and stock awards that vested during Fiscal
2021 for each of the NEOs.
Name and Principal Position
(a)
Timothy Crew
Chief Executive Officer
John Kozlowski
Vice President of Finance, Chief Financial Officer and
Principal Accounting Officer
Maureen Cavanaugh
Senior VP and Chief Commercial Operations Officer
Samuel Israel
Chief Legal Officer and General Counsel
John Abt
Vice President and Chief Quality Operations Officer
Employment and Separation Agreements
Options
Number of Shares Value
Acquired
On Exercise
Realized
on Exercise
—
— $
Stock Awards
Number of
Shares Acquired
on Vesting
43,814
Value
Realized
on Vesting
$ 271,218
— $
—
12,437
$ 77,850
— $
—
18,560
$ 100,484
— $
—
19,778
$ 115,398
— $
—
9,768
$ 56,929
The Company has entered into employment agreements with its current NEOs. Each of the agreements provides for an
annual base salary and eligibility to receive a bonus. The salary and bonus amounts of these executives are determined by
the review and approval of the Compensation Committee in accordance with the Committee’s charter as approved by the
Board of Directors. Additionally, these executives are eligible to receive stock options and restricted stock awards. In 2018,
the Company amended each of the employment agreements it has entered into with its current NEOs and with other
employees to confirm and clarify that nothing in the employment agreements prohibits or limits the right of any employee
from providing confidential information to or otherwise communicating with the SEC or any other governmental entity or
self-regulatory organization or from accepting financial awards from the SEC or any other governmental entity or self-
regulatory organization. Under the terms of the employment agreements, these executive employees may be terminated at
any time with or without cause, or by reason of death or disability. In certain termination situations, the Company is liable
to pay these executives severance compensation as discussed in the table below.
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Table of Contents
Potential Payments upon Termination or Change in Control
The following table summarizes potential payments or benefits upon various termination of employment scenarios for our
current NEOs as of fiscal year end and assumes that the relevant triggering event occurred on June 30, 2021. The fair
market values of share-based compensation (i.e. Stock Options and Restricted Stock) were calculated using the closing
price of Lannett Company, Inc. stock ($4.67) on June 30, 2021, which was the last trading day of Fiscal 2021. The
“spread” or difference between the fair market value of Lannett Company’s stock on June 30, 2021, and the option exercise
price, was used for valuing stock options.
Name
Timothy Crew
Without Cause/ With Good Reason
(1) (2)
Base
Salary
Continuation
Annual
Cash
Bonus
$ 2,317,500
$ 231,750
For Cause or Retirement / Death /
Disability (3) (4)
$
— $ 231,750
Change in Control (5)
$ 2,317,500
$ 231,750
John Kozlowski
Without Cause/ With Good Reason
(1) (2)
For Cause or Retirement / Death /
Disability (3) (4)
Change in Control (5)
Maureen Cavanaugh
Without Cause/ With Good Reason
(1) (2)
For Cause or Retirement / Death /
Disability (3) (4)
Change in Control (5)
Samuel Israel
Without Cause/ With Good Reason
(1) (2)
For Cause or Retirement / Death /
Disability (3) (4)
Change in Control (5)
John Abt
Without Cause/ With Good Reason
(1) (2)
For Cause or Retirement / Death /
Disability (3) (4)
Change in Control (5)
$
$
$
$
$
$
$
$
$
$
$
$
615,000
$ 98,400
— $ 98,400
820,000
$ 98,400
676,710
$ 108,274
— $ 108,274
902,280
$ 108,274
636,540
$ 76,385
— $ 76,385
848,720
$ 76,385
547,703
$ 65,724
— $ 65,724
730,270
$ 65,724
Acceleration and
Exercisability
Of Unvested
Stock Option
Awards
Acceleration
Of Unvested
Restricted
Stock
Insurance
Benefit
Other
Continuation Benefits
Total
— $ 2,575,155
$
26,882
$ 5,100
$ 5,156,387
— $
— $
— $ 5,100
$
236,850
— $ 2,575,155
$
26,882
$ 5,100
$ 5,156,387
— $
675,702
$
21,721
$ 6,792
$ 1,417,615
— $
— $
— $ 6,792
$
105,192
— $
675,702
$
21,721
$ 6,792
$ 1,622,615
— $
755,078
$
26,882
$ 4,368
$ 1,571,312
— $
— $
— $ 4,368
$
112,642
— $
755,078
$
26,882
$ 4,368
$ 1,796,882
— $
771,666
$
3,972
$ 4,176
$ 1,492,739
— $
— $
— $ 4,176
$
80,561
— $
771,666
$
3,972
$ 4,176
$ 1,704,919
— $
559,097
$
50,880
$ 5,992
$ 1,229,396
— $
— $
— $ 5,992
$
71,716
— $
559,097
$
50,880
$ 5,992
$ 1,411,963
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
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Table of Contents
(1) Each employment agreement ranges from 1-3 years and is automatically renewed unless notice is given by either
party. Any non-renewal of the existing employment agreements by the Company and any resignation of the Executive
with Good Reason both constitute a termination without Cause. Under the current employment agreements with our
NEOs, base salary continuation for a period of 18-36 months (and ranging from 24-36 months for a qualifying
termination following a Change in Control ), pro-rated cash bonus as if all targets and goals were achieved subject to
any applicable cap on cash payments, acceleration of exercisability of unvested stock option awards, acceleration of
unvested restricted stock, and insurance benefit continuation for a period of 18 months (collectively “Severance
Compensation”) will only be made if the Executive executes and delivers to the Company, in a form prepared by the
Company, a release of all claims against the Company and other appropriate parties, excluding the Company’s
performance obligation to pay Severance Compensation and the Executive’s vested rights under the Company
sponsored retirement plans, 401(k) plans and stock ownership plans (“General Release”). Severance Compensation is
paid in equal monthly installments over a 12-month period to commence on the 90th day following the Termination
Date provided the Executive has not revoked the General Release prior to that date. Earned but unpaid base salary,
accrued but unpaid annual bonus (if the Executive otherwise meets the eligibility requirements) and accrued but
unpaid paid time off and other miscellaneous items are to be paid in a single lump sum in cash no later than the earlier
of: (1) the date required under applicable law; or (2) 60 days following the Termination Date.
(2) Under the existing employment agreements, Good Reason is defined as giving written notice of his resignation within
thirty (30) days after Executive has actual knowledge of the occurrence, without the written consent of Executive, of
one of the following events: (A) the assignment to Executive of duties materially and adversely inconsistent with
Executive’s position or a material and adverse alteration in the nature of his duties, responsibilities and/or reporting
obligations, (B) a reduction in Executive’s Base Salary or a failure to pay any such amounts when due; or (C) the
relocation of Company headquarters more than 100 miles from its current location.
(3) Under the existing employment agreements, if the Executive is terminated For Cause; by death; by disability; resigns
without Good Reason; or retires; earned but unpaid base salary, accrued but unpaid annual bonus (if the Executive
otherwise meets the eligibility requirements) and accrued but unpaid paid time off and other miscellaneous items are
to be paid in a single lump sum in cash no later than the earlier of: (1) the date required under applicable law; or (2) 60
days following the Termination Date.
(4) For Cause generally means Executive’s willful commission of an act constituting fraud, embezzlement, breach of
fiduciary duty, material dishonesty with respect to the Company, gross negligence or willful misconduct in
performance of Executive duties, willful violation of any law, rule or regulation relating to the operation of the
Company, abuse of illegal drugs or other controlled substances or habitual intoxication, willful violation of published
business conduct guidelines, code of ethics, conflict of interest or other similar policies, and Executive becoming
under investigation by or subject to any disciplinary charges by any regulatory agency having jurisdiction over the
Company (including but not limited to the Drug Enforcement Administration (DEA), Food and Drug Administration
(FDA) or the Securities and Exchange Commission (SEC)) or if any complaint is filed against the Executive by any
such regulatory agency.
(5) Under the existing employment agreements, a Change in Control is defined as a “change in ownership of the
Company”, “a change in effective control of the Company”, or “a change in ownership of a substantial portion of the
Company’s assets.” If the Executive is terminated by the Company without Cause or resigns with Good Reason within
24 months of a Change in Control event, the Executive shall be entitled to earned but unpaid base salary, accrued but
unpaid annual bonus (if the Executive otherwise meets the eligibility requirements) and accrued but unpaid paid time
off and other miscellaneous items. These items are to be paid in a single lump sum in cash no later than the earlier of:
(1) the date required under applicable law; or (2) 60 days following the Termination Date. Additionally, the Executive
shall be entitled to Severance Compensation to be paid in equal monthly installments over a 12-month period to
commence on the 90th day following the Termination Date provided the Executive has not revoked the General
Release prior to that date. A written notice that the Executive’s employment term is not extended within the 24-month
period after a Change in Control shall be deemed a termination without Cause, unless the Executive and the Company
execute a new employment agreement.
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Table of Contents
CEO Pay Ratio Disclosure
As required by the Dodd-Frank Wall Street Reform and Consumer Protection Act and the regulations of the SEC, we are
providing the following information about the annual total compensation of our employees and the annual total
compensation of our current CEO, Timothy Crew. For the year ended June 30, 2021, Mr. Crew’s total compensation, as
reported in the Summary Compensation Table of this proxy, was $4,263,888 and total compensation for our median
employee, as calculated in accordance with the requirements of Regulation S-K, was $59,834, resulting in a ratio of 71.3 to
1. This pay ratio information has been calculated in a manner consistent with SEC regulations.
For purposes of determining the median employee for the fiscal year ending June 30, 2021, we determined that as of May
31, 2021, our employee population consisted of 810 individuals working at our company and its consolidated subsidiaries.
For each of the 810 U.S.-based employees (other than Mr. Crew), we used their annualized base salary and target cash and
equity incentive awards as of May 31, 2021 as a consistently applied compensation measure to identify the median
employee. We used target cash and equity incentives since actual awards for Fiscal 2021 for each employee were not yet
determined. We annualized values for employees hired after July 1, 2020, the start of our Fiscal Year.
Because the SEC rules permit significant flexibility in terms of approaches used to calculate compensation and identify the
median employee, comparisons among companies may not be very meaningful, even for companies within the same
industry.
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COMPENSATION OF DIRECTORS
Our Board of Directors is actively involved in providing strategic direction and fiduciary oversight to the Company. During
Fiscal 2021, we had a total of seven Board members, which resulted in a significant workload for our directors. Our Board
of Directors held numerous meetings and teleconferences in Fiscal 2021 in carrying out its responsibilities. The Board is
actively involved in transactional due diligence, management succession planning, on-going reviews of business
development activities and strategic initiatives to position the Company for future growth. The Board also continued to be
actively involved in addressing the COVID-19 pandemic.
For Fiscal 2021, our non-employee directors received a cash retainer of $90,000, unchanged from Fiscal 2020, payable in
monthly increments of $7,500, for Board and committee service. Mr. LePore also received an additional retainer of
$30,000 for serving as our Independent Non-Employee Board Chairman, and Mr. Drabik received an additional retainer of
$24,000 for his central role and for continued board leadership work. No other cash retainers or meeting fees were
provided during Fiscal 2021. As an executive director, Mr. Crew does not participate in the non-employee director
compensation program.
Board members receive annual equity grants to recognize their service during the prior fiscal year. Grant levels may vary
from year to year based on Company performance. Based on the Company’s performance and the significant efforts and
contributions of our directors in Fiscal 2020, in September 2020, each non-employee Board member received an award of
38,986 common shares with a grant date value of $199,998, immediately vested at grant. These grants are shown in the
table below, since they occurred in Fiscal 2021. Beginning with equity awards in Fiscal 2021, the Board moved the annual
grant date from July to September 1, which is not during a “blackout” period, to allow directors to immediately sell shares
to fund tax liabilities.
Effective in July 2014, the Board of Directors approved stock ownership guidelines for non-employee directors equal to
three times their cash retainer. Non-employee directors must meet required ownership levels within five years of first
becoming subject to the guidelines and must hold 50% of all net after-tax shares from equity grants until ownership
requirements are met (or 100% of such shares if ownership levels are not met by the end of the five-year compliance
period). All directors other than Dr. Rewolinski, who joined the board in Fiscal 2020, and Mr. Drabik, who sold some
shares in Fiscal 2021 to fund tax liabilities while still in compliance with guidelines, met required ownership levels as of
the end of Fiscal 2021. Mr. Drabik will regain compliance with ownership guidelines following the next director equity
grant in September 2021.
We maintain policies that prohibit Directors from pledging Lannett stock or engaging in activity considered hedging of our
common stock, and none of our Directors has pledged Lannett stock as collateral for a personal loan or other obligations.
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Table of Contents
The following table shows compensation information for Fiscal 2021 for non-employee members of our Board of
Directors.
DIRECTOR COMPENSATION
Name
(a)
Jeffrey Farber
Fees Earned
(b)
$ 90,000
Non-Equity
Incentive Plan
Options
Stock Awards Awards Compensation
(d)
—
(c) (1)
$ 199,998
—
(e)
David Drabik
$ 114,000
$ 199,998
—
Paul Taveira
$ 90,000
$ 199,998
—
Patrick LePore
$ 120,000
$ 199,998
—
John Chapman
$ 90,000
$ 199,998
—
Melissa Rewolinski
$ 90,000
$ 199,998
—
—
—
—
—
—
Change in
Pension Value
and Nonqualified
Deferred
Compensation
(f)
—
—
—
—
—
—
All Other
Compensation
(g)
Total
(h)
— $ 289,998
— $ 313,998
— $ 289,998
— $ 319,998
— $ 289,998
— $ 289,998
(1) Reflects grant date award value for equity grants received in Fiscal 2021 to recognize Board service in Fiscal
2020.
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Table of Contents
ITEM 12.
RELATED STOCKHOLDER MATTERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
The following table sets forth, as of July 31, 2021, information regarding the security ownership of the directors and certain
executive officers of the Company and persons known to the Company to be beneficial owners of more than five (5%)
percent of the Company’s common stock. Although grants of restricted stock under the Company’s 2014 and 2021 Long
Term Incentive Plans (“LTIPs”) generally vest equally over time from the grant date, the restricted shares are included
below because the voting rights with respect to such restricted stock are acquired immediately upon grant.
Name and Address of
Beneficial Owner /
Director / Executive
Officer
John M. Abt
1150 Northbrook Drive, Suite 155
Trevose, Pennsylvania 19053
Maureen Cavanaugh
1150 Northbrook Drive, Suite 155
Trevose, Pennsylvania 19053
John Chapman
1150 Northbrook Drive, Suite 155
Trevose, Pennsylvania 19053
Timothy Crew
1150 Northbrook Drive, Suite 155
Trevose, Pennsylvania 19053
David Drabik
1150 Northbrook Drive, Suite 155
Trevose, Pennsylvania 19053
Robert Ehlinger
1150 Northbrook Drive, Suite 155
Trevose, Pennsylvania 19053
Jeffrey Farber
1150 Northbrook Drive, Suite 155
Trevose, Pennsylvania 19053
David Farber
1150 Northbrook Drive, Suite 155
Trevose, Pennsylvania 19053
Samuel H. Israel
1150 Northbrook Drive, Suite 155
Trevose, Pennsylvania 19053
John Kozlowski
1150 Northbrook Drive, Suite 155
Trevose, Pennsylvania 19053
Patrick G. Lepore
1150 Northbrook Drive, Suite 155
Trevose, Pennsylvania 19053
Melissa Rewolinski
1150 Northbrook Drive, Suite 155
Trevose, Pennsylvania 19053
Paul Taveira
1150 Northbrook Drive, Suite 155
Trevose, Pennsylvania 19053
All directors and executive officers as a
group
(12 persons)
Office
Shares Held
Directly
Shares Held
Indirectly
Total
Shares
Percent of Number of
Class
Shares
Percent of
Class
Excluding Options (*)
Including Options (**)
VP and Chief Quality
and Operations Officer
Senior VP & Chief
Commercial Operations
Officer
124,764
—
124,764 (1)
0.30 %
163,122 (1), (2)
0.39 %
157,378
—
157,378 (3)
0.37 % 205,755 (3), (4)
0.49 %
Director
85,005
—
85,005
0.20 %
85,005
0.20 %
Chief Executive Officer
564,270
—
564,270 (5)
1.33 % 770,242 (5), (6)
1.82 %
Director
51,513
—
51,513
0.12 %
51,513
0.12 %
VP and Chief
Information Officer
84,832
—
84,832 (7)
0.20 % 140,307 (7), (8)
0.33 %
Director
2,055,635
2,194,140
4,249,775 (9)
10.05 % 4,249,775 (9)
10.05 %
1,924,870
1,693,149
3,618,019 (10)
8.56 % 3,618,019 (10)
8.56 %
Chief Legal Officer and General Counsel
160,983
—
160,983 (11)
0.38 % 222,932 (11), (12)
0.53 %
VP of Finance,
Chief Financial Officer and
Principal Accounting Officer
142,068
—
142,068 (13)
0.34 % 204,928 (13), (14)
0.48 %
Chairman of the Board, Director
260,326
—
260,326
0.62 % 260,326
0.62 %
Director
30,621
—
30,621
0.07 %
30,621
0.07 %
Director
60,401
—
60,401
0.14 %
60,401
0.14 %
3,777,796
2,194,140
5,971,936
14.08 % 6,444,927
15.20 %
(1) Includes 85,138 unvested shares received pursuant to restricted stock awards granted in July 2019, July 2020,
September 2020 and July 2021.
(2) Includes 1,970 vested options to purchase common stock at an exercise price of $59.20 per share, 1,155 vested options
to purchase common stock at an exercise price of $31.30 per share, 2,759 vested options to purchase common stock at
an exercise price of $17.40 per share, 6,454 vested options to purchase common stock at an exercise price of $12.20
per share, 16,254 vested options to purchase common stock at an exercise price of $6.57 per share and 9,766 vested
options to purchase common stock at an exercise price of $5.95.
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Table of Contents
(3) Includes 111,469 unvested shares received pursuant to restricted stock awards granted in July 2019, July 2020 and July
2021.
(4) Includes 34,300 vested options to purchase common stock at an exercise price of $6.57 per share and 14,077 vested
options to purchase common stock at an exercise price of $5.95.
(5) Includes 373,387 unvested shares received pursuant to restricted stock awards granted in July 2019, July 2020 and
July 2021.
(6) Includes 32,103 vested options to purchase common stock at an exercise price of $23.65 per share, 21,626 vested
options to purchase common stock at an exercise price of $12.20 per share, 104,034 vested options to purchase
common stock at an exercise price of $6.57 per share and 48,209 vested options to purchase common stock at an
exercise price of $5.95 per share.
(7) Includes 41,955 unvested shares received pursuant to restricted stock awards granted in July 2019, July 2020 and July
2021.
(8) Includes 11,667 vested options to purchase common stock at an exercise price of $13.86 per share, 10,000 vested
options to purchase common stock at an exercise price of $34.77 per share, 6,300 vested options to purchase common
stock at an exercise price of $59.20 per share, 968 vested options to purchase common stock at an exercise price of
$31.30 per share, 2,759 vested options to purchase common stock at an exercise price of $17.40 per share 5,569 vested
options to purchase common stock at an exercise price of $12.20 per share, 12,914 vested options to purchase common
stock at an exercise price of $6.57 per share and 5,298 vested options to purchase common stock at an exercise price
of $5.95 per share.
(9) Includes 994,412 shares held by the Jeffrey Farber Family Foundation which is managed by Jeffrey Farber. Jeffrey
Farber disclaims beneficial ownership of these shares. Includes 30,000 shares held by the Jeffrey and Jennifer Farber
Family Foundation which is managed by Jeffrey Farber. Jeffrey Farber disclaims beneficial ownership of these shares.
Includes 528,122 shares held by Farber Family LLC (“FFLLC”) which is managed by Jeffrey and David Farber. David
Farber and Jeffrey Farber each disclaim beneficial ownership of these shares. Includes 73,408 shares held by Jeffrey
Farber as custodian for his children and 17,279 shares held as joint custodian with David Farber for a relative. Jeffrey
Farber disclaims beneficial ownership of these shares. Includes 550,919 shares held by a Grantor Retained Annuity
Trust, in which Jeffrey Farber is the trustee.
(10) Includes 819,443 shares held by the David and Nancy Family Foundation. David Farber disclaims beneficial
ownership of these shares. Includes 528,122 shares held by FFLLC which is managed by Jeffrey and David Farber.
David Farber and Jeffrey Farber each disclaim beneficial ownership of these shares. Includes 180,145 shares held by
David Farber as joint custodian with his children, 148,160 shares held as trustee for his children and 17,279 shares
held as joint custodian with Jeffrey Farber for a relative. David Farber disclaims beneficial ownership of these shares.
(11) Includes 104,866 unvested shares received pursuant to restricted stock awards granted in July 2019, July 2020 and
July 2021.
(12) Includes 2,759 vested options to purchase common stock at an exercise price of $17.40 per share, 13,665 vested
options to purchase common stock at an exercise price of $12.20 per share, 32,284 vested options to purchase common
stock at an exercise price of $6.57 per share and 13,241 vested options to purchase common stock at an exercise price
of $5.95 per share.
(13) Includes 100,034 unvested shares received pursuant to restricted stock awards granted in July 2019, July 2020,
September 2020 and July 2021.
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Table of Contents
(14) Includes 4,000 vested options to purchase common stock at an exercise price of $4.16 per share, 9,334 vested options
to purchase common stock at an exercise price of $13.86 per share, 4,200 vested options to purchase common stock at
an exercise price of $34.77 per share, 9,953 vested options to purchase common stock at an exercise price of $12.20
per share, 23,000 vested options to purchase common stock at an exercise price of $6.57 per share and 12,373 vested
options to purchase common stock at an exercise price of $5.95 per share.
* Percent of class calculation is based on 42,276,052 outstanding shares of common stock at July 31, 2021.
** Assumes that all options exercisable within sixty days after July 31, 2021 have been exercised.
The following table sets forth, as of July 31, 2021, information regarding the names and addresses of the shareholders
known to the Company to be beneficial owners of more than five (5%) percent of the Company’s common stock.
Name and Address of Beneficial Owner
JP Morgan Chase & Co.
383 Madison Avenue
New York, NY 10179
The Vanguard Group
100 Vanguard Blvd.
Malvern, PA 19355
Highbridge Capital Management, LLC
277 Park Avenue, 23rd Floor
New York, New York 10172
Number of Percent of
Shares
Class
3,498,048 (1)
8.30 %
2,306,196 (2)
5.53 %
2,341,398 (3)
5.32 %
(1) Based on a Schedule 13G/A filed by JP Morgan Chase & Co. with the SEC on January 25, 2021, JP Morgan Chase &
Co. has sole voting power over 3,057,467 shares, shared voting power over 0 shares, sole dispositive power over
3,492,948 shares and shared dispositive power over 0 shares.
(2) Based on a Schedule 13G/A filed by The Vanguard Group with the SEC on February 10, 2021, The Vanguard Group
has sole voting power over 0 shares, shared voting power over 33,690 shares, sole dispositive power over 2,247,913
shares and shared dispositive power over 58,283 shares.
(3) Based on Schedule 13G/A filed by Highbridge Capital Management, LLC with the SEC on February 9, 2021,
Highbridge Capital Management, LLC has sole voting power over 0 shares, shared voting power over 2,341,398
shares, sole dispositive power over 0 shares and shared dispositive power over 2,341,398 shares.
Equity Compensation Plan Information
The following table summarizes the equity compensation plans as of June 30, 2021:
(In thousands, except for weighted average exercise price)
Plan Category
Equity Compensation plans approved by security holders
Equity Compensation plans not approved by security holders
Total
Number of securities to
be issued upon exercise
of outstanding options, options, warrants
Weighted average
exercise price of
outstanding
warrants and rights
(a)
and rights
(b)
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
(c)
1,046
$
—
$
1,046
9.51
—
9.51
3,053
—
3,053
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ITEM 13.
INDEPENDENCE
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
Review and Approval of Transactions with Related Persons
The responsibility for the review of transactions with “related persons” (as defined below) has been assigned to the Audit
Committee of the Board of Directors, which is comprised of four independent directors. “Related persons” are defined as
directors and executive officers or their immediate family members or stockholders owning more than five percent of the
Company’s common stock. The Audit Committee annually reviews related party transactions with any related person in
which the amount exceeds $120,000.
The Company had net sales of $2.6 million, $3.0 million and $3.8 million during the fiscal years ended June 30, 2021,
2020 and 2019, respectively, to a generic distributor, Auburn Pharmaceutical Company (“Auburn”). Jeffrey Farber, a
current board member, is the owner of Auburn, which is a member of the Premier Buying Group. Accounts receivable
includes amounts due from Auburn of $0.4 million and $0.7 million at June 30, 2021 and 2020, respectively.
As part of its review, the Audit Committee noted that the amount of net sales to Auburn approximated 0.6% of total net
sales during the fiscal years ended June 30, 2021, 2020 and 2019, respectively.
The Audit Committee reviewed an analysis of sales prices charged to Auburn, which compared the average sales prices by
product for Auburn sales to the average sales prices by product to other Lannett customers during the same period. As a
result of this analysis, the Audit Committee ratified the net sales made to Auburn during the fiscal years ended June 30,
2021, 2020 and 2019.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Grant Thornton LLP served as the independent auditors of the Company during Fiscal 2021, 2020 and 2019. No
relationship exists, other than the usual relationship between independent public accountant and client. The following table
identifies the fees incurred for services rendered by Grant Thornton LLP in Fiscal 2021, 2020 and 2019.
(In thousands)
Fiscal 2021:
Fiscal 2020:
Fiscal 2019:
Audit Fees
Tax Fees (1)
All Other Fees (2)
Total Fees
$
$
$
1,413
1,510
1,409
$
$
$
72
211
193
$
$
$
— $
— $
$
7
1,485
1,721
1,609
(1) Tax fees include fees paid for preparation of annual federal, state and local income tax returns, quarterly estimated
income tax payments and various tax planning services.
(2) Other fees include fees paid for review of various correspondences including IRS audit assistance, miscellaneous
studies, etc.
The non-audit services provided to the Company by Grant Thornton LLP were pre-approved by the Company’s Audit
Committee. Prior to engaging its auditor to perform non-audit services, the Company’s Audit Committee reviews the
particular service to be provided and the fee to be paid by the Company for such service and assesses the impact of the
service on the auditor’s independence.
99
Table of Contents
PART IV
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULE
1. Consolidated Financial Statements:
See accompanying Index to Consolidated Financial Statements.
2. Consolidated Financial Statement Schedule:
Lannett Company, Inc.
Schedule II - Valuation and Qualifying Accounts
For the years ended June 30:
Description
(In thousands)
Allowance for Doubtful Accounts
2021
2020
2019
Deferred Tax Asset Valuation Allowance
2021
2020
2019
3. Exhibits:
Balance at
Beginning of
Fiscal Year
Charged to
(Reduction of)
Expense
Deductions
Balance at
End of Fiscal
Year
$
$
$
$
1,103
1,223
1,308
$ 14,622
13,549
8,120
374
386
870
138,761
1,073
5,429
$
$
$
(776) $
(506) $
(955)
701
1,103
1,223
— $ 153,383
14,622
—
13,549
—
Those exhibits marked with a (*) refer to management contracts or compensatory plans or arrangements.
Exhibit
Number
2.1
2.2
2.3
3.1
Description
Method of Filing
Stock Purchase Agreement by and among Lannett
Company, Inc., Rohit Desai, the RD Nevada Trust, Silarx
Pharmaceuticals, Inc. and Stoneleigh Realty, LLC, dated as of
May 15, 2015
Incorporated by reference to Exhibit 2.1 on
Form 8-K dated May 18, 2015
Stock Purchase Agreement among UCB S.A., UCB
Manufacturing, Inc. and Lannett Company, Inc. dated as of
September 2, 2015
Incorporated by reference to Exhibit 2.2 on
Form 8-K dated September 4, 2015
Amendment No. 2 to Stock Purchase Agreement
Certificate of Incorporation
Incorporated by reference to Exhibit 2.3 on
Form 8-K dated December 2, 2015
Incorporated by reference to the Proxy
Statement filed with respect to the Annual
Meeting of Shareholders held on
December 6, 1991 (the “1991 Proxy
Statement”).
100
Table of Contents
Exhibit
Number
3.2
By-Laws, as amended
Description
Amendment No. 1 to Amended and Restated By-Laws
Amendment No. 2 to Amended and Restated By-Laws
Updated and Amended Certificate of Incorporation
Updated and Amended By-Laws
Method of Filing
Incorporated by reference to the 1991 Proxy
Statement.
Incorporated by reference to Exhibit 3.3 on
Form 8-K dated January 16, 2014
Incorporated by reference to Exhibit 3.4 on
Form 8-K dated July 17, 2014
Incorporated by reference to Exhibit 3.5 to
the Annual Report on 2014 Form 10-K
Incorporated by reference to Exhibit 3.6 to
the Annual Report on 2014 Form 10-K
Amended and Restated Bylaws of Lannett Company Inc., as
amended through January 21, 2015.
Incorporated by reference to Exhibit 3.7 on
Form 8-K dated April 3, 2015
Amended and Restated Bylaws of Lannett Company Inc., as
amended through July 6, 2015.
Incorporated by reference to Exhibit 3.8 on
Form 8-K dated July 9, 2015
Specimen Certificate for Common Stock
Incorporated by reference to Exhibit 4(a) to
Form 8 dated April 23, 1993 (Amendment
No. 3 to Form 10-KSB for Fiscal 1992)
(“Form 8”)
Lannett Company, Inc. Indenture. Wilmington Trust, National
Association, Providing for the Issuance of Notes in Series
Incorporated by reference to Exhibit 4.1 on
Form 8-K dated December 2, 2015
First Supplemental Indenture dated as of November 25, 2015
Supplemental Indenture in Respect of Subsidiary Guarantee
Description of Capital Stock of Lannett Company, Inc.
Indenture, dated as of September 27, 2019, between the
Company and Wilmington Trust, National Association, as
trustee (including form of 4.50% Convertible Senior Notes due
2026)
Incorporated by reference to Exhibit 4.2 on
Form 8-K dated December 2, 2015
Incorporated by reference to Exhibit 4.3 on
Form 8-K dated December 2, 2015
Incorporated by reference to Exhibit 4.4 on
Form 10-K dated August 28, 2019
Incorporated by reference to Exhibit 4.5 on
Form 8-K dated September 27, 2019
Line of Credit Note dated March 11, 1999 between the
Company and First Union National Bank
Incorporated by reference to Exhibit 10(ad)
to the Annual Report on 1999 Form 10-KSB
Philadelphia Authority for Industrial Development Taxable
Variable Rate Demand/Fixed Rate Revenue Bonds, Series of
1999
Incorporated by reference to Exhibit 10(ae)
to the Annual Report on 1999 Form 10-KSB
101
3.3
3.4
3.5
3.6
3.7
3.8
4
4.1
4.2
4.3
4.4
4.5
10.1
10.2
Table of Contents
Exhibit
Number
10.3
Description
Philadelphia Authority for Industrial Development Tax-
Exempt Variable Rate Demand/Fixed Revenue Bonds (Lannett
Company, Inc. Project) Series of 1999
Method of Filing
Incorporated by reference to Exhibit 10(af)
to the Annual Report on 1999 Form 10-KSB
10.4
Letter of Credit and Agreements supporting bond issues
between the Company and First Union National Bank
Incorporated by reference to Exhibit 10(ag)
to the Annual Report on 1999 Form 10-KSB
10.5*
2003 Stock Option Plan
10.6*
Employment Agreement with Kevin Smith
10.7*
Employment Agreement with Arthur Bedrosian
Incorporated by reference to the Proxy
Statement for Fiscal Year Ending June 30,
2002
Incorporated by reference to Exhibit 10.6 to
the Annual Report on 2003 Form 10-KSB
Incorporated by reference to Exhibit 10 to
the Quarterly Report on Form 10-Q dated
May 12, 2004.
10.9
10.10
Agreement between Lannett Company, Inc and Siegfried
(USA), Inc.
Incorporated by reference to Exhibit 10.9 to
the Annual Report on 2003 Form 10-KSB
Agreement between Lannett Company, Inc and Jerome
Stevens Pharmaceuticals, Inc.
Incorporated by reference to Exhibit 2.1 to
Form 8-K dated May 5, 2004
10.11*
Terms of Employment Agreement with Stephen J. Kovary
Incorporated by reference to Exhibit 10.11 to
the Annual Report on 2009 Form 10-K
10.12
Agreement of Sale Between Anvil Construction
Company, Inc. and Lannett Company, Inc.
Incorporated by reference to Exhibit 10.12
to the Annual Report on 2009 Form 10-K
10.13*
2006 Long Term Incentive Plan
10.15*
2011 Long Term Incentive Plan
10.16*
Terms of Employment Agreement with Martin P. Galvan
Incorporated by reference to the Proxy
Statement dated January 5, 2007
Incorporated by reference to the Proxy
Statement dated January 19, 2011
Incorporated by reference to Exhibit 10.1 on
Form 8-K dated August 11, 2011
10.17
10.18
10.19*
10.20*
Amended and Restated Loan Agreement dated April 29, 2011
between the Company and Wells Fargo Bank, N.A.
Incorporated by reference to Exhibit 10.17
to the Annual Report on 2011 Form 10-K
Loan Agreement dated May 26, 2011 between the Company,
the Pennsylvania Industrial Development Authority (“PIDA”)
and PIDC Financing Corporation
Incorporated by reference to Exhibit 10.18
to the Annual Report on 2011 Form 10-K
Second Amended and Restated Employment Agreement of
Arthur P. Bedrosian
Incorporated by reference to Exhibit 10.19
on Form 8-K dated January 3, 2013
Amended and Restated Employment Agreement of Martin P.
Galvan
Incorporated by reference to Exhibit 10.20
on Form 8-K dated January 3, 2013
102
Table of Contents
Exhibit
Number
10.21*
10.22*
10.23*
10.24*
10.25
10.26
10.27
10.28*
10.29
Description
Method of Filing
Amended and Restated Employment Agreement of William F.
Schreck
Incorporated by reference to Exhibit 10.21
on Form 8-K dated January 3, 2013
Amended and Restated Employment Agreement of Kevin
Smith
Incorporated by reference to Exhibit 10.22
on Form 8-K dated January 3, 2013
Amended and Restated Employment Agreement of Ernest J.
Sabo
Incorporated by reference to Exhibit 10.23
on Form 8-K dated January 3, 2013
Amended and Restated Employment Agreement of Robert
Ehlinger
Incorporated by reference to Exhibit 10.24
on Form 8-K dated January 3, 2013
Amendment to Agreement dated March 23, 2004 by and
between Lannett Company, Inc. and Jerome Stevens
Pharmaceuticals, Inc.
Incorporated by reference to Exhibit 10.25
on Form 8-K dated August 19, 2013
Credit Agreement dated as of December 18, 2013 among
Lannett Company Inc., as the Borrower, Certain Financial
Institutions as the Lenders and Citibank, N.A., as
Administrative Agent
Guaranty and Security Agreement dated as of December 18,
2013, among Lannett Company, Inc., the Subsidiaries of
Lannett Company, Inc. identified therein and Citibank, N.A.,
as Administrative Agent
Incorporated by reference to Exhibit 10.26
on Form 8-K dated December 19, 2013
Incorporated by reference to Exhibit 10.27
on Form 8-K dated December 19, 2013
Employment Agreement of Michael Bogda dated December 1,
2014
Incorporated by reference to Exhibit 10.28
on Form 8-K dated December 5, 2014
Lender Joinder and First Amendment to Credit Agreement
dated as of April 21, 2015 among Lannett Company, Inc., as
the Borrower, Certain Financial Institutions as the Lenders and
Citibank, N.A., as Administrative Agent
Incorporated by reference to Exhibit 10.29
on Form 8-K dated April 24, 2015
10.30*
Employment Agreement of John Abt
10.31*
Employment Agreement of Rohit Desai
10.32*
Employment Agreement of Dr. Mahendra Dedhiya
10.33
Project Orion Commitment Letter
10.34*
Separation Agreement and General Release between William
F. Schreck and Lannett Company, Inc., dated September 11,
2015
10.35
Project Orion Amended and Restated Commitment Letter
Incorporated by reference to Exhibit 10.30
on Form 10-Q dated May 8, 2015
Incorporated by reference to Exhibit 10.31
to the Annual Report on 2015 Form 10-K
Incorporated by reference to Exhibit 10.32
to the Annual Report on 2015 Form 10-K
Incorporated by reference to Exhibit 10.33
on Form 8-K dated September 4, 2015
Incorporated by reference to Exhibit 10.34
on Form 8-K dated September 15, 2015
Incorporated by reference to Exhibit 10.35
on Form 8-K dated September 25, 2015
103
Table of Contents
Exhibit
Number
10.36
Credit and Guaranty Agreement dated as of November 25,
2015
Incorporated by reference to Exhibit 10.36
on Form 8-K dated December 2, 2015
Description
Method of Filing
10.37
Credit Agreement Joinder
Incorporated by reference to Exhibit 10.37
on Form 8-K dated December 2, 2015
10.38
Pledge and Security Agreement dated as of November 25,
2015
Incorporated by reference to Exhibit 10.38
on Form 8-K dated December 2, 2015
10.39
Supplement No. 1 to the Pledge and Security Agreement
10.40
Warrant to Purchase Common Stock
10.41
Registration Rights Agreement
Incorporated by reference to Exhibit 10.39
on Form 8-K dated December 2, 2015
Incorporated by reference to Exhibit 10.40
on Form 8-K dated December 2, 2015
Incorporated by reference to Exhibit 10.41
on Form 8-K dated December 2, 2015
10.42*
Separation Agreement and General Release between Michael
Bogda and Lannett Company, Inc., dated April 11, 2016
Incorporated by reference to Exhibit 10.42
on Form 8-K dated April 12, 2016
10.43
10.44
Amendment No. 1 to Credit and Guaranty Agreement dated
June 17, 2016
Incorporated by reference to Exhibit 10.43
on Form 8-K dated June 20, 2016
Amendment No. 2 to Credit and Guaranty Agreement dated
June 17, 2016
Incorporated by reference to Exhibit 10.44
on Form 8-K dated June 20, 2016
10.45*
Employment Agreement of Samuel H. Israel
Incorporated by reference to Exhibit 10.45
on Form 8-K dated July 19, 2017
10.46*
10.47*
10.48*
10.49*
10.50*
10.51*
10.52
Restated Employment Agreement of John Kozlowski dated
October 26, 2017
Incorporated by reference to Exhibit 10.46
on Form 8-K dated November 1, 2017
Employment Agreement of Timothy C. Crew effective as of
January 2, 2018
Incorporated by reference to Exhibit 10.47
on Form 8-K dated December 21, 2017
Separation Agreement and General Release by and between
Arthur P. Bedrosian and Lannett Company, Inc. dated
January 19, 2018
Incorporated by reference to Exhibit 10.48
on Form 8-K dated January 24, 2018
Addendum to Employment Agreement of Timothy C. Crew
dated March 28, 2018
Incorporated by reference to Exhibit 10.49
on Form 8-K dated April 2, 2018
Employment Agreement of Maureen M. Cavanaugh effective
as of May 7, 2018
Incorporated by reference to Exhibit 10.50
on Form 8-K dated April 23, 2018
Separation Agreement and General Release by and between
Kevin Smith and Lannett Company, Inc. dated June 20, 2018
Incorporated by reference to Exhibit 10.51
on Form 8-K dated June 22, 2018
Amendment No. 3 to the Credit and Guaranty Agreement,
dated as of December 10, 2018, by and among Lannett
Company, Inc., Morgan Stanley Senior Funding, Inc., and each
lender party thereto.
Incorporated by reference to Exhibit 10.52
on Form 8-K dated December 12, 2018
104
Table of Contents
Exhibit
Number
Description
Method of Filing
10.53*
Form of Retention Plan Bonus Letter
10.54
Amneal Distribution and Transition Support Agreement
Incorporated by reference to Exhibit 10.53
on Form 8-K dated December 18, 2018
Incorporated by reference to Exhibit 10.54
on Form 10-Q dated February 7, 2019
10.55*
10.56*
Separation Agreement and General Release by and between
Martin Galvan and Lannett Company, Inc. dated May 22, 2019
Incorporated by reference to Exhibit 10.55
on Form 8-K dated May 24, 2019
Second Amendment to Restated Employment Agreement of
John Kozlowski, dated as of July 31, 2019
Incorporated by reference to Exhibit 10.56
on Form 8-K dated August 1, 2019
10.57
Form of Capped Call Confirmations
10.58
Cediprof Agreement
10.59
Sinotherapeutics Distribution and Supply Agreement
Incorporated by reference to Exhibit 10.57
on Form 8-K dated September 27, 2019
Incorporated by reference to Exhibit 10.58
on Form 10-Q dated November 7, 2019
Incorporated by reference to Exhibit 10.59
on Form 10-Q dated November 7, 2019
10.60*
10.61
10.62
10.63
Lannett Company, Inc. Non-Qualified Deferred Compensation
Plan
Incorporated by reference to Exhibit 10.60
on Form 10-Q dated November 7, 2019
Collaboration and License Agreement by and among Lannett
Company, Inc., North & South Brother Pharmacy Investment
Co., Ltd and HEC GROUP PTY LTD, dated as of November
21, 2019
Incorporated by reference to Exhibit 10.61
on Form 10-Q dated February 6, 2020
Supply Agreement by and among North & South Brother
Pharmacy Investment Co., Ltd, HEC GROUP PTY LTD and
Lannett Company, Inc., dated as of November 21, 2019
Incorporated by reference to Exhibit 10.62
on Form 10-Q dated February 6, 2020
Amendment to Sinotherapeutics Distribution and Supply
Agreement
Incorporated by reference to Exhibit 10.63
to the Annual Report on 2020 Form 10-K
10.64*
Third Addendum to Employment Agreement of Timothy Crew Incorporated by reference to Exhibit 10.64
10.65*
10.66*
10.67*
Third Amendment to Restated Employment Agreement of
John Kozlowski
on Form 8-K dated August 28, 2020
Incorporated by reference to Exhibit 10.65
on Form 8-K dated August 28, 2020
Second Addendum to Employment Agreement of Maureen
Cavanaugh
Incorporated by reference to Exhibit 10.66
on Form 8-K dated August 28, 2020
Second Addendum to Employment Agreement of Samuel H.
Israel
Incorporated by reference to Exhibit 10.67
on Form 8-K dated August 28, 2020
10.68*
Second Addendum to Employment Agreement of John Abt
Incorporated by reference to Exhibit 10.68
on Form 8-K dated August 28, 2020
105
Table of Contents
Exhibit
Number
10.69*
10.70
10.71
10.72
10.73
10.74
Second Addendum to Amended and Restated Employment
Agreement of Robert Ehlinger
Incorporated by reference to Exhibit 10.69
on Form 8-K dated August 28, 2020
Description
Method of Filing
Credit and Guaranty Agreement, dated as of December 7,
2020, among Lannett Company, Inc., the subsidiary borrowers
from time to time party thereto, the guarantors party thereto,
the several banks and other financial institutions from time to
time party thereto and Wells Fargo Bank, National
Association, as administrative agent and collateral agent.
Pledge and Security Agreement, dated as of December 7,
2020, made by Lannett Company, Inc. and certain of its
subsidiaries from time to time party thereto, in favor of Wells
Fargo Bank, National Association, as collateral agent and
administrative agent.
ABL/Term Loan Intercreditor Agreement, dated as of
December 7, 2020, among Alter Domus (US) LLC, as Term
Loan Agent and Wells Fargo Bank, National Association, as
ABL Agent.
Intellectual Property Security Agreement, dated as of
December 7, 2020, made by Lannett Company, Inc.; Lannett
Holdings, Inc.; and Cody Laboratories, Inc. in favor of Wells
Fargo Bank, National Association, as collateral agent and
administrative agent.
Amendment No. 4 to Credit and Guaranty Agreement, dated
as of December 7, 2020, among Lannett Company, Inc., the
lenders party thereto and Morgan Stanley Senior Funding,
Inc., as administrative agent.
Incorporated by reference to Exhibit 10.70
on Form 8-K dated December 10, 2020
Incorporated by reference to Exhibit 10.71
on Form 8-K dated December 10, 2020
Incorporated by reference to Exhibit 10.72
on Form 8-K dated December 10, 2020
Incorporated by reference to Exhibit 10.73
on Form 8-K dated December 10, 2020
Incorporated by reference to Exhibit 10.74
on Form 8-K dated December 10, 2020
10.75*
Fourth Addendum to Employment Agreement of Timothy C.
Crew dated December 28, 2020
Incorporated by reference to Exhibit 10.75
on Form 8-K dated December 29, 2020
10.76
10.77
10.78
10.79
License and Supply Agreement with Alkermes Pharma Ireland
Limited and Kremers Urban Pharmaceuticals Inc.
Incorporated by reference to Exhibit 10.76
on Form 10-Q dated February 4, 2021
Amendment No. 1 to License and Supply Agreement between
Recro Gainesville LLC (as successor to Alkermes Pharma
Ireland Limited) and Kremers Urban Pharmaceuticals, Inc.
Incorporated by reference to Exhibit 10.77
on Form 10-Q dated February 4, 2021
Amendment No. 2 to License and Supply Agreement between
Recro Gainesville LLC (as successor to Alkermes Pharma
Ireland Limited) and Kremers Urban Pharmaceuticals, Inc.
Incorporated by reference to Exhibit 10.78
on Form 10-Q dated February 4, 2021
Exchange Agreement dated April 5, 2021, among Lannett
Company, Inc. and the participating lenders party thereto.
Incorporated by reference to Exhibit 10.79
on Form 8-K dated April 6, 2021
106
Table of Contents
Exhibit
Number
10.80
10.81
Description
Amended and Restated Exchange Agreement dated April 8,
2021, among Lannett Company, Inc. and the participating
lenders party thereto.
Method of Filing
Incorporated by reference to Exhibit 10.80
on Form 8-K dated April 12, 2021
Second Lien Credit and Guaranty Agreement, dated as of
April 22, 2021, among Lannett Company, Inc., the guarantors
party thereto, the lenders from time to time party thereto and
Alter Domus (US) LLC, as administrative agent and collateral
agent.
Incorporated by reference to Exhibit 10.81
on Form 8-K dated April 26, 2021
10.82
Form of Warrant to Purchase Common Stock.
10.83
10.84
10.85
10.86
10.87
10.88
10.89
10.90
10.91
Registration Rights Agreement, dated as of April 22, 2021, by
and among Lannett Company, Inc., Deerfield Partners, L.P.,
Deerfield Private Design Fund III, L.P. and BPC Lending II
LLC.
Notes Pledge and Security Agreement, dated as of April 22,
2021, made by Lannett Company, Inc. and certain of its
subsidiaries from time to time party thereto, in favor of
Wilmington Trust, as collateral agent.
Second Lien Pledge and Security Agreement, dated as of April
22, 2021, made by Lannett Company, Inc. and certain of its
subsidiaries from time to time party thereto, in favor of Alter
Domus (US) LLC, as collateral agent and administrative
agent.
Cash Flow Intercreditor Agreement, dated as of April 22,
2021, among Wilmington Trust, National Association, as Cash
Flow Agent and Alter Domus (US) LLC, as Initial Junior
Priority Agent.
Amendment Number One to Credit and Guaranty Agreement,
dated as of April 22, 2021, by and among by Lannett
Company, Inc.; the guarantors party thereto, the lenders party
thereto and Wells Fargo Bank, National Association, as
administrative agent and collateral agent.
Incorporated by reference to Exhibit 10.82
on Form 8-K dated April 26, 2021
Incorporated by reference to Exhibit 10.83
on Form 8-K dated April 26, 2021
Incorporated by reference to Exhibit 10.84
on Form 8-K dated April 26, 2021
Incorporated by reference to Exhibit 10.85
on Form 8-K dated April 26, 2021
Incorporated by reference to Exhibit 10.86
on Form 8-K dated April 26, 2021
Incorporated by reference to Exhibit 10.87
on Form 8-K dated April 26, 2021
Collaboration and License Agreement by and among Lannett
Company, Inc. and Sunshine Lake Pharma Co., Ltd.
Incorporated by reference to Exhibit 10.88
on Form 10-Q dated May 6, 2021
Supply Agreement by and among Lannett Company, Inc. and
Sunshine Lake Pharma Co., Ltd.
Incorporated by reference to Exhibit 10.89
on Form 10-Q dated May 6, 2021
Distribution Agreement Between Respirent Pharmaceuticals
Co. Ltd. and Lannett Company, Inc.
Filed Herewith
Amendment No. 1 to Distribution Agreement Between
Respirent Pharmaceuticals Co. Ltd. and Lannett Company,
Inc.
Filed Herewith
107
Table of Contents
Method of Filing
Exhibit
Number
21.1
23.1
31.1
31.2
32
Subsidiaries of the Company
Description
Consent of Grant Thornton, LLP
Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
Certifications of Chief Executive Officer and Chief Financial
Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
Filed Herewith
Filed Herewith
Filed Herewith
Filed Herewith
Filed Herewith
101.INS
XBRL Instance Document – the instance document does not
appear within the Interactive Data File because its XRBL tags
are embedded within the Inline XRBL Document
Filed Herewith
101.SCH XBRL Taxonomy Extension Schema Document
Filed Herewith
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
Filed Herewith
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
Filed Herewith
101.LAB XBRL Taxonomy Extension Label Linkbase Document
Filed Herewith
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
Filed Herewith
104
Cover Page Interactive Data File – The cover page interactive
data file does not appear in the Interactive Data File because
its XRBL tags are embedded within the Inline XRBL
document
Filed Herewith
108
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: August 26, 2021
LANNETT COMPANY, INC.
By: /s/ Timothy C. Crew
Timothy C. Crew,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
Date: August 26, 2021
Date: August 26, 2021
Date: August 26, 2021
Date: August 26, 2021
Date: August 26, 2021
Date: August 26, 2021
Date: August 26, 2021
Date: August 26, 2021
/s/ John Kozlowski
John Kozlowski,
Vice President of Finance, Chief Financial Officer and
Principal Accounting Officer
/s/ Patrick G. LePore
Patrick G. LePore,
Director, Chairman of the Board of Directors
/s/ Timothy C. Crew
Timothy C. Crew,
Director, Chief Executive Officer, Chairman of
Environmental, Social and Governance Committee
/s/ David Drabik
David Drabik,
Director, Chairman of Governance and Nominating
Committee
/s/ Paul Taveira
Paul Taveira,
Director, Chairman of Compensation Committee
/s/ Melissa Rewolinski
Melissa Rewolinski,
Director
/s/ John C. Chapman
John C. Chapman,
Director, Chairman of Audit Committee
/s/ Jeffrey Farber
Jeffrey Farber,
Director
By:
By:
By:
By:
By:
By:
By:
By:
109
Table of Contents
Index to Consolidated Financial Statements
Management’s Report on Internal Control Over Financial Reporting
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of June 30, 2021 and 2020
Consolidated Statements of Operations for the Fiscal Years Ended June 30, 2021, 2020 and 2019
Consolidated Statements of Comprehensive Loss for the Fiscal Years Ended June 30, 2021, 2020 and 2019
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the Fiscal Years Ended June 30, 2021,
2020 and 2019
Consolidated Statements of Cash Flows for the Fiscal Years Ended June 30, 2021, 2020 and 2019
Notes to Consolidated Financial Statements
111
112
116
117
118
119
120
121
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Management’s Report on Internal Control over Financial Reporting
Management of Lannett Company Inc. (the “Company”) is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under
the Securities Exchange Act of 1934, as amended. The Company’s internal control framework was designed to provide the
Company’s management and Board of Directors, reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in
the United States of America.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.
Management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”) in Internal Control — Integrated Framework (2013) in conducting its assessment as of June 30, 2021. As a
result of this assessment, management has concluded that, as of June 30, 2021, the Company’s internal control over
financial reporting is effective.
The Company’s independent registered public accounting firm, Grant Thornton, LLP, has issued its report on the
effectiveness of the Company’s internal control over financial reporting as of June 30, 2021. Grant Thornton LLP’s opinion
on the Company’s internal control over financial reporting appears on page 115 of this Form 10-K.
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Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Lannett Company Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Lannett Company, Inc. (a Delaware corporation) and
subsidiaries (the “Company”) as of June 30, 2021 and 2020, the related consolidated statements of operations,
comprehensive loss, changes in stockholders’ equity (deficit), and cash flows for each of the three years in the period
ended June 30, 2021, and the related notes and financial statement schedule included under Item 15 (collectively referred to
as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial
position of the Company as of June 30, 2021, and 2020, and the results of its operations and its cash flows for each of the
three years in the period ended June 30, 2021, in conformity with accounting principles generally accepted in the United
States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (“PCAOB”), the Company’s internal control over financial reporting as of June 30, 2021, based on criteria
established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (“COSO”), and our report dated August 26, 2021 expressed an unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our
opinion.
Critical audit matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements
that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or
disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex
judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements,
taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the
critical audit matters or on the accounts or disclosures to which they relate.
Reserve for net sales adjustments
As described in Notes 2 and 4 to the financial statements, when the Company recognizes sales, a simultaneous adjustment
to gross sales is made for estimated chargebacks, rebates, returns, promotional adjustments and other adjustments. The
estimates of these reserves are primarily based on historical experience, future expectations, contractual arrangements with
wholesalers and indirect customers and other factors known to management at the time the reserves are recorded and are
presented in the financial statements as a reduction to gross sales with the corresponding reserves presented as reductions
of accounts receivable or included as rebates payable, depending on the nature of the reserve. We identified the estimation
of the reserves for these net sales adjustments by management as a critical audit matter.
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The principal considerations for our determination that the reserves for net sales adjustments for estimated chargebacks,
rebates, returns, promotional adjustments and other adjustments is a critical audit matter includes the high degree of
estimation uncertainty and judgment involved in determining the reserve estimates. There is a high degree of subjectivity in
management’s assessment of the reasonableness of the reserves for net sales adjustments, specifically the amount of
chargebacks, rebates, returns, promotional adjustments and other adjustments, which requires a heightened level of auditor
judgment in auditing the estimates. Further, variations in these estimates could have a significant impact on the recorded
reserves for net sales adjustments.
Our audit procedures related to this critical audit matter included the following, among others:
● We obtained an understanding of management’s processes and controls over calculating the reserves for net sales
adjustments, including understanding relevant inputs and assumptions.
● We evaluated the design and tested the operating effectiveness of key controls relating to the calculation of the
reserves for net sales adjustments, including key management review controls over the period-end accrual of
chargebacks, rebates, returns, promotional adjustments and other adjustments. We also utilized information
technology specialists to assist in testing key controls over the processing of chargebacks submitted by customers.
● We tested management’s process for calculating the reserves for net sales adjustments. We tested key inputs and
assumptions relevant to the adjustments, such as contractual pricing and rebate arrangements with customers,
historical returns data, and other contractual arrangements.
● We reviewed subsequent transactions occurring prior to the date of our audit report, which involved inspecting
customer contracts and relevant source documents submitted by customers in conjunction with the chargeback,
rebate, return, or other adjustment claims.
● We performed a look back analysis to assess management’s ability to estimate the reserves for net sales
adjustments through review of actual activity compared to previous estimates.
Measurement of the long-lived intangible asset impairment charge
As described further in Notes 2 and 8 to the financial statements, the Company’s long-lived assets, including definite-lived
intangible assets, are reviewed for impairment whenever events or changes in circumstances (“triggering events”) indicate
that the carrying amount of the asset may not be recoverable. In December 2020, the Company determined that as a result
of the discontinuation of certain lower gross margin product lines and the reduction in net sales and gross margin of certain
other product lines, a triggering event and an impairment of intangible assets was present. The impairment loss is
measured as the excess of the asset’s carrying value over its fair value, which is calculated using a discounted cash flow
model. We identified the measurement of the long-lived asset impairment charge as a critical audit matter.
The principal consideration for our determination that the measurement of the long-lived asset impairment charge is a
critical audit matter is that the impairment assessment includes a high degree of estimation uncertainty due to significant
management judgments in regards to the assumptions used within the assessment, including the estimates of future cash
flows, discount rates and the probability of achieving the estimated cash flows, and for which management utilized an
independent valuation specialist (“management’s valuation specialist”). There is a high degree of subjectivity in
management’s assessment of the inputs of the impairment assessment, which requires a heightened level of auditor
judgment in auditing the estimates. Further, variation in these estimates could have a significant impact on the
measurement of the impairment charge.
Our audit procedures related to this critical audit matter included the following, among others:
● We evaluated the design and tested the operating effectiveness of controls relating to the Company’s quantitative
impairment analysis processes, including controls related to the forecasted cash flows and management’s review
of key assumptions which were prepared by management’s valuation specialists.
● We evaluated the level of knowledge, skill, and ability of management’s valuation specialists and their
relationship to the Company.
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● We compared the Company’s cash flows used in the forecast model to historical actual results as well as available
industry data. With the assistance of internal valuation specialists, we performed audit procedures over the data,
methods and assumptions utilized in performing the quantitative impairment assessment, which included
reviewing supporting documents and assessing reasonableness by comparing to historical trends and industry
expectations. Certain key inputs/ assumptions tested by us included the following:
o Long-term growth rates
o Discount rates
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2000.
Philadelphia, Pennsylvania
August 26, 2021
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Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Lannett Company, Inc.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of Lannett Company, Inc. (a Delaware corporation) and
subsidiaries (the “Company”) as of June 30, 2021, based on criteria established in the 2013 Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our
opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30,
2021, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended June 30, 2021, and
our report dated August 26, 2021 expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in
all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing
the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ GRANT THORNTON LLP
Philadelphia, Pennsylvania
August 26, 2021
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LANNETT COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
June 30, 2021
June 30, 2020
$
$
$
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net
Inventories
Income taxes receivable
Assets held for sale
Other current assets
Total current assets
Property, plant and equipment, net
Intangible assets, net
Operating lease right-of-use assets
Deferred tax assets
Other assets
TOTAL ASSETS
LIABILITIES
Current liabilities:
Accounts payable
Accrued expenses
Accrued payroll and payroll-related expenses
Rebates payable
Royalties payable
Restructuring liability
Current operating lease liabilities
Short-term borrowings and current portion of long-term debt
Other current liabilities
Total current liabilities
Long-term debt, net
Long-term operating lease liabilities
Other liabilities
TOTAL LIABILITIES
Commitments and contingencies (Notes 10 and 11)
STOCKHOLDERS’ EQUITY (DEFICIT)
Common stock ($0.001 par value, 100,000,000 shares authorized;
40,913,148 and 39,963,127 shares issued; 39,576,606 and 38,798,787
shares outstanding at June 30, 2021 and June 30, 2020, respectively)
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Treasury stock (1,336,542 and 1,164,340 shares at June 30, 2021 and
June 30, 2020, respectively)
Total stockholders’ equity (deficit)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
$
$
93,286
98,834
109,545
35,050
2,678
14,170
353,563
166,674
137,835
10,559
—
$
$
15,106
683,737
29,585
13,077
10,680
19,025
13,779
8
2,045
—
2,270
90,469
590,683
11,047
19,009
711,208
144,329
125,688
142,867
14,419
2,678
13,227
443,208
179,518
374,735
9,343
117,890
11,861
1,136,555
32,535
14,962
16,304
38,175
20,863
27
1,097
88,189
2,713
214,865
592,940
9,844
16,010
833,659
41
355,239
(364,766)
(548)
(17,437)
(27,471)
683,737
$
40
321,164
(1,291)
(627)
(16,390)
302,896
1,136,555
The accompanying notes are an integral part of the Consolidated Financial Statements.
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LANNETT COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
Net sales
Cost of sales
Amortization of intangibles
Gross profit
Operating expenses:
Research and development expenses
Selling, general and administrative expenses
Restructuring expenses
Asset impairment charges
Total operating expenses
Operating income (loss)
Other income (loss):
Loss on extinguishment of debt
Investment income
Interest expense
Other
Total other loss
Loss before income tax
Income tax expense (benefit)
Net loss
Loss per common share (1):
Basic
Diluted
$
$
$
$
$
Fiscal Year Ended June 30,
2020
545,744
348,508
32,016
165,220
2021
478,778
378,335
24,850
75,593
$
24,173
68,078
4,043
216,550
312,844
(237,251)
29,978
79,467
1,771
34,448
145,664
19,556
(10,341)
236
(53,830)
(1,664)
(65,599)
(302,850)
60,625
(363,475) $
(2,145)
1,646
(66,845)
(840)
(68,184)
(48,628)
(15,262)
(33,366) $
2019
655,407
379,601
32,196
243,610
38,807
87,648
4,095
375,381
505,931
(262,321)
(448)
3,166
(84,624)
(2,018)
(83,924)
(346,245)
(74,138)
(272,107)
(9.23) $
(9.23) $
(0.86) $
(0.86) $
(7.20)
(7.20)
Weighted average common shares outstanding (1):
Basic
Diluted
________________________________
(1) See Note 14 "Loss Per Common Share" for details on calculation.
39,391,589
39,391,589
38,592,618
38,592,618
37,779,812
37,779,812
The accompanying notes are an integral part of the Consolidated Financial Statements.
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LANNETT COMPANY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
Net loss
Other comprehensive income (loss):
Foreign currency translation gain (loss)
Total other comprehensive income (loss)
Comprehensive loss
Fiscal Year Ended June 30,
2020
$ (363,475) $ (33,366) $ (272,107)
2021
2019
79
79
(100)
(100)
$ (363,396) $ (33,378) $ (272,207)
(12)
(12)
The accompanying notes are an integral part of the Consolidated Financial Statements.
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LANNETT COMPANY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands)
Common Stock
Shares
Issued
Amount
Additional
Paid-In
Capital
Retained Accumulated
Earnings
Other
(Accumulated Comprehensive
Deficit)
Loss
Treasury
Stock
Total
Stockholders’
Equity (Deficit)
Balance, June 30, 2018
38,257
$
38
$
306,817
$
306,464
$
(515)
$
(13,889)
$
598,915
Shares issued in connection with share-based
compensation plans
Share-based compensation
Purchase of treasury stock
Other comprehensive income
ASC 606 adjustment
Net loss
713
—
—
—
—
—
1
—
—
—
—
—
1,179
9,027
—
—
—
—
—
—
—
—
(2,282)
(272,107)
—
—
—
(100)
—
—
—
—
(592)
—
—
—
1,180
9,027
(592)
(100)
(2,282)
(272,107)
Balance, June 30, 2019
38,970
$
39
$
317,023
$
32,075
$
(615)
$
(14,481)
$
334,041
Shares issued in connection with share-based
compensation plans
Share-based compensation
Purchase of treasury stock
Other comprehensive income
Capped call transaction
Net loss
993
—
—
—
—
—
1
—
—
—
—
—
997
10,216
—
—
(7,072)
—
—
—
—
—
—
(33,366)
—
—
—
(12)
—
—
—
—
(1,909)
—
—
—
998
10,216
(1,909)
(12)
(7,072)
(33,366)
Balance, June 30, 2020
39,963
$
40
$
321,164
$
(1,291)
$
(627)
$
(16,390)
$
302,896
Shares issued in connection with share-based
compensation plans
Share-based compensation
Purchase of treasury stock
Issuance of warrant
Other comprehensive income
Net loss
950
—
—
—
—
—
1
—
—
—
—
—
663
9,037
—
24,375
—
—
—
—
—
—
—
(363,475)
—
—
—
—
79
—
—
—
(1,047)
—
—
—
664
9,037
(1,047)
24,375
79
(363,475)
Balance, June 30, 2021
40,913
$
41
$
355,239
$
(364,766)
$
(548)
$
(17,437)
$
(27,471)
The accompanying notes are an integral part of the Consolidated Financial Statements.
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LANNETT COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
OPERATING ACTIVITIES:
Net loss
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization
Deferred income tax expense (benefit)
Share-based compensation
Asset impairment charges
Loss (gain) on sale/disposal of assets
Loss on extinguishment of debt
Accrual of payment-in-kind interest on Second Lien Credit Facility
Amortization of debt discount and other debt issuance costs
Provision for inventory write-downs
Other noncash expenses
Changes in assets and liabilities which provided (used) cash:
Accounts receivable, net
Inventories
Income taxes receivable/payable
Other assets
Rebates payable
Royalties payable
Restructuring liability
Operating lease liability
Accounts payable
Accrued expenses
Accrued payroll and payroll-related expenses
Other liabilities
Net cash provided by operating activities
INVESTING ACTIVITIES:
Purchases of property, plant and equipment
Proceeds from sale of property, plant and equipment
Proceeds from sale of outstanding loan to Variable Interest Entity (“VIE”)
Advance to VIE
Purchases of intangible assets
Net cash used in investing activities
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt
Purchase of capped call
Repayments of long-term debt
Proceeds from issuance of stock
Payment of debt issuance costs
Purchase of treasury stock
Net cash used in financing activities
Effect on cash and cash equivalents of changes in foreign exchange rates
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid
Income taxes paid (refunded)
Andor Pharmaceuticals, LLC (“Andor”) License Agreement acquisition
Accrued purchases of property, plant and equipment
Issuance of warrant in connection with Second Lien Credit Facility
$
$
$
$
$
$
The accompanying notes are an integral part of the Consolidated Financial Statements.
120
Fiscal Year Ended
June 30,
2020
2019
2021
$
(363,475)
$
(33,366)
$
(272,107)
47,824
117,890
9,037
216,550
171
10,341
3,642
10,146
24,328
1,021
26,854
8,994
(20,437)
2,509
(19,150)
(7,084)
(19)
(194)
(2,950)
(1,885)
(5,624)
2,362
60,851
(10,415)
114
—
—
(4,500)
(14,801)
356,225
—
(437,926)
664
(10,088)
(1,047)
(92,172)
79
(46,043)
144,329
98,286
$
56,309
(8,585)
10,216
34,448
(159)
2,145
—
14,336
10,341
1,969
39,064
(9,237)
(14,465)
4,095
(8,000)
4,648
(2,288)
(1,464)
19,042
2,213
(3,620)
(1,628)
116,014
(18,330)
7,380
—
(250)
(28,800)
(40,000)
86,250
(7,072)
(146,700)
998
(3,489)
(1,909)
(71,922)
(12)
4,080
140,249
144,329
$
34,859
(36,830)
$
$
— $
$
$
1,809
24,375
51,928
7,787
$
$
— $
$
— $
2,295
55,594
(87,242)
9,027
375,381
1,559
448
—
17,641
21,765
2,579
84,949
(24,101)
18,319
2,643
(3,225)
10,260
(4,391)
—
(43,274)
(1,620)
12,105
—
176,310
(24,340)
14,450
5,600
—
(3,000)
(7,290)
—
—
(126,743)
1,180
(1,102)
(592)
(127,257)
(100)
41,663
98,586
140,249
66,750
(4,641)
16,000
765
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LANNETT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The Business and Nature of Operations
Lannett Company, Inc. (a Delaware corporation) and its subsidiaries (collectively, the “Company” or “Lannett”) primarily
develop, manufacture, package, market and distribute solid oral and extended release (tablets and capsules), topical, nasal
and oral solution finished dosage forms of drugs that address a wide range of therapeutic areas. Certain of these products
are manufactured by others and distributed by the Company.
The Company operates pharmaceutical manufacturing plants in Carmel, New York and Seymour, Indiana. The Company’s
customers include generic pharmaceutical distributors, drug wholesalers, chain drug stores, private label distributors, mail-
order pharmacies, other pharmaceutical manufacturers, managed care organizations, hospital buying groups, governmental
entities and health maintenance organizations.
COVID-19 Update
In December 2019, the COVID-19 virus emerged in Wuhan, China and spread to other parts of the world. In March 2020,
the World Health Organization (“WHO”) designated COVID-19 a global pandemic. Governments on the national, state and
local level in the United States, and around the world, implemented lockdown and shelter-in-place orders, requiring many
non-essential businesses to shut down operations. The Company’s business, however, is deemed “essential” and it has
continued to operate, manufacture, and distribute its medicines to customers.
In light of the economic impacts of COVID-19, the Company reviewed the assets on our Consolidated Balance Sheet as of
June 30, 2021, including intangible and other long-lived assets. Based on our review, the Company determined that no
impairments or other write-downs specifically related to COVID-19 were necessary during Fiscal Year 2021. Our
assessment is based on information currently available and is highly reliant on various assumptions. Changes in market
conditions could impact the Company’s future outlook and may lead to impairments in the future.
While COVID-19 has thus far not had a material impact on the Company’s operations, subsequent to an initial stocking up
of supplies by our customers at the start of the pandemic, the total volume of drug prescriptions being written in the
country has decreased causing less demand for our products. We cannot reasonably predict the ultimate impact of COVID-
19 on our future results of operations and cash flows due to the continued uncertainty around the duration and severity of
the pandemic.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The Consolidated Financial Statements have been prepared in conformity with U.S. GAAP.
Principles of consolidation
The Consolidated Financial Statements include the accounts of Lannett Company, Inc. and its wholly-owned subsidiaries.
All intercompany accounts and transactions have been eliminated.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year financial statement presentation.
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Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Significant estimates and assumptions are required in the
determination of revenue recognition and sales deductions for estimated chargebacks, rebates, returns and other
adjustments including a provision for the Company’s liability under the Medicare Part D program. Additionally, significant
estimates and assumptions are required when determining the value of inventories and long-lived assets, including
intangible assets, income taxes, and contingencies.
Because of the inherent subjectivity and complexity involved in these estimates and assumptions, actual results could differ
from those estimates.
Foreign currency translation
The Consolidated Financial Statements are presented in U.S. dollars, the reporting currency of the Company. The financial
statements of the Company’s foreign subsidiary are maintained in local currency and translated into U.S. dollars at the end
of each reporting period. Assets and liabilities are translated at period-end exchange rates, while revenues and expenses are
translated at average exchange rates during the period. The adjustments resulting from the use of differing exchange rates
are recorded as part of stockholders’ equity in accumulated other comprehensive income (loss). Gains and losses resulting
from transactions denominated in foreign currencies are recognized in the Consolidated Statements of Operations under
other income (loss). Amounts recorded due to foreign currency fluctuations are immaterial to the Consolidated Financial
Statements.
Cash, cash equivalents and restricted cash
The Company considers all highly liquid investments with original maturities less than or equal to three months at the date
of purchase to be cash and cash equivalents. Cash and cash equivalents are stated at cost, which approximates fair value,
and consist of bank deposits and money market funds. The Company maintains its cash deposits and cash equivalents at
well-known, stable financial institutions. Such amounts frequently exceed insured limits. In connection with the Second
Lien Secured Loan Facility (“Second Lien Facility”), which is discussed in further detail in Note 9 “Long-Term Debt,” the
Company is required to maintain at least $5 million in a deposit account at all times, subject to control by the Second Lien
Collateral Agent. At June 30, 2021, the Company classified this balance as restricted cash, which is included in other assets
on the Consolidated Balance Sheets.
Presented in the table below is a reconciliation of the cash, cash equivalents and restricted cash amounts presented on the
Consolidated Balance Sheets to the sum of such amounts presented on the Consolidated Statements of Cash Flows for the
periods ended June 30, 2021, 2020 and 2019.
Cash and cash equivalents
Restricted cash, included in other assets
Cash, cash equivalents and restricted cash as
presented on the Consolidated Statements of Cash
Flows
$
$
122
June 30, 2021
June 30, 2020
June 30, 2019
93,286
5,000
98,286
$
$
144,329
—
144,329
$
$
140,249
—
140,249
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Allowance for doubtful accounts
On July 1, 2020, the Company adopted guidance issued by the FASB in ASU 2016-13, Measurement of Credit Losses on
Financial Instruments, which requires the Company to recognize an allowance that reflects a current estimate of credit
losses expected to be incurred over the life of the financial asset, including trade receivables. The adoption of ASU 2016-
13 did not have a material impact on the Company’s Consolidated Financial Statements for the fiscal year ended June 30,
2021. The Company continuously monitors collections and payments from its customers and maintains a provision for
estimated credit losses. The Company determines its allowance for doubtful accounts by considering a number of factors,
including the length of time balances are past due, the Company’s previous loss history, the customer’s current ability to
pay its obligations to the Company and the expected condition of the general economy and the industry as a whole. The
Company writes off accounts receivable when they are determined to be uncollectible.
Inventories
Inventories are stated at the lower of cost or net realizable value by the first-in, first-out method. Inventories are regularly
reviewed and write-downs for excess and obsolete inventory are recorded based primarily on current inventory levels,
expiration date and estimated sales forecasts.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed on a straight-line
basis over the assets’ estimated useful lives. Repairs and maintenance costs that do not extend the useful life of the asset
are expensed as incurred.
Intangible Assets
Definite-lived intangible assets are stated at cost less accumulated amortization. Amortization of definite-lived intangible
assets is computed on a straight-line basis over the assets’ estimated useful lives which commences upon shipment of the
product, generally for periods ranging from 5 to 15 years. The Company continually evaluates the reasonableness of the
useful lives of these assets. Indefinite-lived intangible assets are not amortized, but instead are tested at least annually for
impairment. Costs to renew or extend the term of a recognized intangible asset are expensed as incurred.
Valuation of Long-Lived Assets, including Intangible Assets
The Company’s long-lived assets primarily consist of property, plant and equipment and definite and indefinite-lived
intangible assets. Property, plant and equipment and definite-lived intangible assets are reviewed for impairment whenever
events or changes in circumstances (“triggering events”) indicate that the carrying amount of the asset may not be
recoverable. If a triggering event is determined to have occurred, the asset’s carrying value is compared to the future
undiscounted cash flows expected to be generated by the asset. If the carrying value exceeds the undiscounted cash flows
of the asset, then impairment exists. Indefinite-lived intangible assets are tested for impairment at least annually during the
fourth quarter of each fiscal year or more frequently if events or triggering events indicate that the asset might be impaired.
An impairment loss is measured as the excess of the asset’s carrying value over its fair value, which in most cases is
calculated using a discounted cash flow model. Discounted cash flow models are highly reliant on various assumptions
which are considered Level 3 inputs, including estimates of future cash flows (including long-term growth rates), discount
rates and the probability of achieving the estimated cash flows.
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Segment Information
The Company operates in one reportable segment, generic pharmaceuticals. As such, the Company aggregates its financial
information for all products. The following table identifies the Company’s net sales by medical indication for fiscal years
ended June 30, 2021, 2020 and 2019. The medical indication categories for the fiscal year ended June 30, 2019 were
reclassified to better align with industry standards and the Company’s peers.
(In thousands)
Medical Indication
Analgesic
Anti-Psychosis
Cardiovascular
Central Nervous System
Endocrinology
Gastrointestinal
Infectious Disease
Migraine
Respiratory/Allergy/Cough/Cold
Urinary
Other
Contract manufacturing revenue
Total net sales
Fiscal Year Ended June 30,
2020
2019
$
2021
14,684
43,720
65,987
95,115
27,070
67,540
67,761
25,554
9,258
5,786
35,312
20,991
$ 478,778
$
8,680
104,934
88,576
77,256
—
73,477
73,237
44,266
11,576
4,225
35,013
24,504
$ 545,744
$
8,251
73,453
101,467
59,019
197,522
63,043
16,950
41,592
12,479
6,755
51,517
23,359
$ 655,407
Customer, Supplier and Product Concentration
The following table presents the percentage of total net sales, for the fiscal years ended June 30, 2021, 2020 and 2019, for
certain of the Company’s products, defined as products containing the same active ingredient or combination of
ingredients, which accounted for at least 10% of total net sales in any of those periods:
Product 1
Product 2
Product 3
June 30,
2021
June 30,
2020
June 30,
2019
12 %
7 %
3 %
10 %
18 %
— %
— %
10 %
30 %
The following table presents the percentage of total net sales, for the fiscal years ended June 30, 2021, 2020 and 2019, for
certain of the Company’s customers which accounted for at least 10% of total net sales in any of those periods:
Customer A
Customer B
Customer C
Customer D
June 30,
June 30,
June 30,
2021
2020
2019
27 %
21 %
12 %
— %
25 %
23 %
11 %
— %
21 %
18 %
10 %
12 %
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Revenue Recognition
The Company complies with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with
Customers, which superseded ASC Topic 605, Revenue Recognition. Under ASC 606, the Company recognizes revenue
when (or as) we satisfy our performance obligations by transferring a promised good or service to a customer at an amount
that reflects the consideration the Company is expected to be entitled. Our revenue consists almost entirely of sales of our
pharmaceutical products to customers, whereby we ship product to a customer pursuant to a purchase order. Revenue
contracts such as these do not generally give rise to contract assets or contract liabilities because: (i) the underlying
contracts generally have only a single performance obligation and (ii) we do not generally receive consideration until the
performance obligation is fully satisfied. The revenue standard impacts the timing of the Company’s revenue recognition
by requiring recognition of certain contract manufacturing arrangements to change from “upon shipment or delivery” to
“over time.” However, the recognition of these arrangements over time does not currently have a material impact on the
Company’s consolidated results of operations or financial position.
When revenue is recognized, a simultaneous adjustment to gross sales is made for estimated chargebacks, rebates, returns,
promotional adjustments and other potential adjustments. These provisions are primarily estimated based on historical
experience, future expectations, contractual arrangements with wholesalers and indirect customers and other factors known
to management at the time of accrual. Accruals for provisions are presented in the Consolidated Financial Statements as a
reduction to gross sales with the corresponding reserve presented as a reduction of accounts receivable or included as
rebates payable, depending on the nature of the reserve.
Provisions for chargebacks, rebates, returns and other adjustments require varying degrees of subjectivity. While rebates
generally are based on contractual terms and require minimal estimation, chargebacks and returns require management to
make more subjective assumptions. Each major category is discussed in detail below:
Chargebacks
The provision for chargebacks is the most significant and complex estimate used in the recognition of revenue.
The Company sells its products directly to wholesale distributors, generic distributors, retail pharmacy chains and
mail-order pharmacies. The Company also sells its products indirectly to independent pharmacies, managed care
organizations, hospitals, nursing homes and group purchasing organizations, collectively referred to as “indirect
customers.” The Company enters into agreements with its indirect customers to establish pricing for certain
products. The indirect customers then independently select a wholesaler from which to purchase the products. If
the price paid by the indirect customers is lower than the price paid by the wholesaler, the Company will provide a
credit, called a chargeback, to the wholesaler for the difference between the contractual price with the indirect
customers and the wholesaler purchase price. The provision for chargebacks is based on expected sell-through
levels by the Company’s wholesale customers to the indirect customers and estimated wholesaler inventory levels.
As sales to the large wholesale customers, such as Cardinal Health, AmerisourceBergen and McKesson increase
(decrease), the reserve for chargebacks will also generally increase (decrease). However, the size of the increase
(decrease) depends on product mix and the amount of sales made to indirect customers with which the Company
has specific chargeback agreements. The Company continually monitors the reserve for chargebacks and makes
adjustments when management believes that expected chargebacks may differ from the actual chargeback reserve.
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Rebates
Rebates are offered to the Company’s key chain drug store, distributor and wholesaler customers to promote
customer loyalty and increase product sales. These rebate programs provide customers with credits upon
attainment of pre-established volumes or attainment of net sales milestones for a specified period. Other
promotional programs are incentive programs offered to the customers. Additionally, as a result of the Patient
Protection and Affordable Care Act (“PPACA”) enacted in the U.S. in March 2010, the Company participates in a
cost-sharing program for certain Medicare Part D beneficiaries designed primarily for the sale of brand drugs and
certain generic drugs if their Food and Drug Administration (“FDA”) approval was granted under a New Drug
Application (“NDA”) or 505(b) NDA versus an Abbreviated New Drug application ("ANDA’). Drugs purchased
within the Medicare Part D coverage gap (commonly referred to as the “donut hole”) result in additional rebates.
The Company estimates the reserve for rebates and other promotional credit programs based on the specific terms
in each agreement when revenue is recognized. The reserve for rebates increases (decreases) as sales to certain
wholesale and retail customers increase (decrease). However, since these rebate programs are not identical for all
customers, the size of the reserve will depend on the mix of sales to customers that are eligible to receive rebates.
Returns
Consistent with industry practice, the Company has a product returns policy that allows customers to return
product within a specified time period prior to and subsequent to the product’s expiration date in exchange for a
credit to be applied to future purchases. The Company’s policy requires that the customer obtain pre-approval
from the Company for any qualifying return. The Company estimates its provision for returns based on historical
experience, changes to business practices, credit terms and any extenuating circumstances known to management.
While historical experience has allowed for reasonable estimations in the past, future returns may or may not
follow historical trends. The Company continually monitors the reserve for returns and makes adjustments when
management believes that actual product returns may differ from the established reserve. Generally, the reserve
for returns increases as net sales increase.
Other Adjustments
Other adjustments consist primarily of “price adjustments”, also known as “shelf-stock adjustments” and “price
protections,” which are both credits issued to reflect increases or decreases in the invoice or contract prices of the
Company’s products. In the case of a price decrease, a credit is given for product remaining in customer’s
inventories at the time of the price reduction. Contractual price protection results in a similar credit when the
invoice or contract prices of the Company’s products increase, effectively allowing customers to purchase
products at previous prices for a specified period of time. Amounts recorded for estimated shelf-stock adjustments
and price protections are based upon specified terms with direct customers, estimated changes in market prices
and estimates of inventory held by customers. The Company regularly monitors these and other factors and
evaluates the reserve as additional information becomes available. Other adjustments also include prompt
payment discounts and “failure-to-supply” adjustments. If the Company is unable to fulfill certain customer
orders, the customer can purchase products from our competitors at their prices and charge the Company for any
difference in our contractually agreed upon prices.
Leases
The Company complies with ASC Topic 842, Leases, which superseded ASC Topic 840, Leases. Under ASC 842, when
the Company enters into a new arrangement, it must determine, at the inception date, whether the arrangement is or
contains a lease. This determination generally depends on whether the arrangement conveys to the Company the right to
control the use of an explicitly or implicitly identified asset for a period of time in exchange for consideration. Control of
an underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain
substantially all of the economic benefits from using the underlying asset. Once a lease has been identified, the Company
must determine the lease term, the present value of lease payments and the classification of the lease as either operating or
financing.
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The lease term is determined to be the non-cancelable period including any lessee renewal options which are considered to
be reasonably certain of exercise. Our lease agreements do not contain any material residual value guarantees or material
restrictive covenants.
The present value of lease payments includes fixed and certain variable payments, less lease incentives, together with
amounts probable of being owed by the Company under residual value guarantees and, if reasonably certain of being paid,
the cost of certain renewal options and early termination penalties set forth in the lease arrangement. To calculate the
present value of lease payments, we use our incremental borrowing rate based on the information available at
commencement date, as the rate implicit in the lease is generally not readily available.
In making the determination of whether a lease is an operating lease or a finance lease, the Company considers the lease
term in relation to the economic life of the leased asset, the present value of lease payments in relation to the fair value of
the leased asset and certain other factors.
Upon the commencement of the lease, the Company will record a lease liability and right-of-use (“ROU”) asset based on
the present value of the future minimum lease payments over the lease term at commencement date. The ROU asset also
includes any lease payments made and excludes lease incentives and initial direct costs incurred.
For operating leases, a single lease cost is generally recognized in the Consolidated Statements of Operations on a straight-
line basis over the lease term unless an impairment has been recorded with respect to a leased asset. For finance leases,
amortization expense and interest expense are recognized separately in the Consolidated Statements of Operations, with
amortization expense generally recorded on a straight-line basis and interest expense recorded using the effective interest
method. Variable lease costs not initially included in the lease liability and ROU asset impairment charges are expensed as
incurred.
Cost of Sales, including Amortization of Intangibles
Cost of sales includes all costs related to bringing products to their final selling destination, which includes direct and
indirect costs, such as direct material, labor and overhead expenses. Additionally, cost of sales includes product royalties,
depreciation, amortization and costs to renew or extend recognized intangible assets, freight charges and other shipping and
handling expenses.
Research and Development
Research and development costs are expensed as incurred, including all production costs until a drug candidate is approved
by the FDA. Research and development expenses include costs associated with internal projects as well as costs associated
with third-party research and development contracts.
Contingencies
Loss contingencies, including litigation-related contingencies, are included in the Consolidated Statements of Operations
when the Company concludes that a loss is both probable and reasonably estimable. Legal fees for litigation-related matters
are expensed as incurred and included in the Consolidated Statements of Operations under the Selling, general and
administrative expenses line item.
Restructuring Costs
The Company records charges associated with approved restructuring plans to remove duplicative headcount and
infrastructure associated with business acquisitions or to simplify business processes. Restructuring charges can include
severance costs to eliminate a specified number of employees, infrastructure charges to vacate facilities and consolidate
operations and contract cancellation costs. The Company records restructuring charges based on estimated employee
terminations, site closure and consolidation plans. The Company accrues severance and other employee separation costs
under these actions when it is probable that a liability exists, and the amount is reasonably estimable.
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Share-Based Compensation
Share-based compensation costs are recognized over the vesting period, using a straight-line method, based on the fair
value of the instrument on the date of grant less an estimate for expected forfeitures. The Company uses the Black-Scholes
valuation model to determine the fair value of stock options, the stock price on the grant date to value restricted stock and
the Monte-Carlo simulation model to determine the fair value of performance-based shares. The Black-Scholes valuation
and Monte-Carlo simulation models include various assumptions, including the expected volatility, the expected life of the
award, dividend yield and the risk-free interest rate as well as performance assumptions of peer companies. These
assumptions involve inherent uncertainties based on market conditions which are generally outside the Company’s control.
Changes in these assumptions could have a material impact on share-based compensation costs recognized in the
Consolidated Financial Statements.
Self-Insurance
The Company self-insures for certain employee medical and prescription benefits. The Company also maintains stop loss
coverage with third party insurers to limit its total liability exposure. The liability for self-insured risks is primarily
calculated using independent third-party actuarial valuations which take into account actual claims, claims growth and
claims incurred but not yet reported. Actual experience, including claim frequency and severity as well as health-care
inflation, could result in different liabilities than the amounts currently recorded. The liability for self-insured risks under
this plan was not material to the consolidated financial position of the Company as of June 30, 2021 and June 30, 2020.
Income Taxes
The Company uses the liability method to account for income taxes as prescribed by ASC 740, Income Taxes. Deferred tax
assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and
liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. Deferred tax expense
(benefit) is the result of changes in deferred tax assets and liabilities. Deferred income tax assets and liabilities are adjusted
to recognize the effects of changes in tax laws or enacted tax rates in the period during which they are signed into law. The
Company evaluates the need for a valuation allowance each reporting period weighing all positive and negative evidence.
The factors used to assess the likelihood of realization include, but are not limited to, the Company’s forecast of future
taxable income, historical results of operations, statutory expirations and available tax planning strategies and actions that
could be implemented to realize the net deferred tax assets. Under ASC 740, Income Taxes, a valuation allowance is
required when it is more likely than not that all or some portion of the deferred tax assets will not be realized.
The Company may recognize the tax benefit from an uncertain tax position claimed on a tax return only if it is more likely
than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the
position. The tax benefits recognized in the financial statements from such a position should be measured based on the
largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The authoritative
accounting standards also provide guidance on de-recognition, classification, interest and penalties on income taxes,
accounting in interim periods and requires increased disclosures.
On March 27, 2020, in response to COVID-19 and its detrimental impact to the global economy, former President Trump
signed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) into law, which provides a stimulus to the
U.S. economy in the form of various individual and business assistance programs as well as temporary changes to existing
tax law. Among the changes to the provision in business tax laws include a five-year net operating loss carryback for the
Fiscal 2019 - 2021 tax years, a deferral of the employer’s portion of certain payroll tax, and an increase in the interest
expense deductibility limitation for the Fiscal 2020 and 2021 tax years. ASC 740 requires the tax effects of changes in tax
laws or rates to be recorded in the period of enactment. As a result of the CARES Act, the Company carried back its Fiscal
2020 taxable loss into the Fiscal 2015 tax year.
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Earnings (Loss) Per Common Share
The presentation of basic and diluted earnings (loss) per common share is required on the face of the Company's
Consolidated Statements of Operations as well as a reconciliation of the computation of basic earnings (loss) per common
share to diluted earnings (loss) per common share. In accordance with ASC 260, Earnings per share, the Company
computes earnings (loss) per share using the two-class method, which requires an allocation of earnings between the
holders of common stock and the Company’s participating security holders. The warrants issued in connection with the
Second Lien Secured Loan Facility (the “Warrants”) are considered participating securities, as discussed further in Note 13
“Warrants.” Basic earnings (loss) per share is calculated by dividing net income (loss) available to common stockholders,
which excludes the income allocated to participating security holders, by the basic weighted average common shares
outstanding.
For purposes of determining diluted earnings per share, the Company further adjusts the basic earnings per share to include
the effect of potentially dilutive shares outstanding, including options and restricted stock awards, the 4.50% Convertible
Senior Notes (the “Convertible Notes”), and the Warrants. In this calculation, the Company reallocates net income based
on the rights of each potentially dilutive share and will report the most dilutive earnings (loss) per share. The weighted
average number of diluted shares is adjusted for the potential dilutive effect of the exercise of stock options, treats unvested
restricted stock and performance-based shares as if it were vested, and assumes the conversion of the 4.50% Convertible
Senior Notes. The Company uses the “if-converted" method to compute earnings (loss) per share when assuming the
conversion of the Convertible Notes, which is calculated by dividing the adjusted "if-converted" net income by the adjusted
weighted average number of shares of common stock outstanding during the period. The adjusted "if-converted" net
income is adjusted for interest expense and amortization of debt issuance costs, both net of tax, associated with the
Convertible Notes. Because the Warrants do not participate in losses, the Company will allocate undistributed earnings
when calculating basic and diluted earnings per share in periods of net income only. Anti-dilutive securities are excluded
from the calculation. Dilutive shares are also excluded in the calculation in periods of net loss because the effect of
including such securities would be anti-dilutive.
Comprehensive Income (Loss)
Comprehensive income (loss) includes all changes in equity during a period except those that resulted from investments by
or distributions to the Company’s stockholders. Other comprehensive income (loss) refers to gains and losses that are
included in comprehensive income (loss) but excluded from income (loss) for all amounts are recorded directly as an
adjustment to stockholders’ equity.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options and Derivatives and
Hedging - Contracts in Entity’s Own Equity, with changes to modify and simplify the application of U.S. GAAP for certain
financial instruments with characteristics of liabilities and equity. ASU 2020-06 is effective for fiscal years beginning after
December 15, 2021, including interim periods within those fiscal years, with early adoption permitted. The ASU requires
adoption using either the retrospective basis or the modified retrospective basis. The Company is currently evaluating the
impact of ASU 2020-06 on its Consolidated Financial Statements.
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Note 3. Restructuring Charges
2020 Restructuring Plan
On July 10, 2020, the Board of Directors authorized a restructuring and cost savings plan (the “2020 Restructuring Plan”)
to enhance manufacturing efficiencies, streamline operations and reduce the Company’s cost structure. The 2020
Restructuring Plan was implemented, in part, as a result of previously anticipated near-term competition and pricing
pressure with respect to certain key products. The 2020 Restructuring Plan included lowering operating costs and reducing
the workforce by approximately 80 positions. The 2020 Restructuring Plan was initiated on July 13, 2020 and completed as
of December 31, 2020.
The Company incurred $4.0 million in severance-related costs in Fiscal 2021 in connection with the 2020 Restructuring
Plan. The Company expects the 2020 Restructuring Plan to result in annual cost savings in excess of $15.0 million.
A reconciliation of the changes in restructuring liabilities associated with the 2020 Restructuring Plan from June 30, 2020
through June 30, 2021 is set forth in the following table:
(In thousands)
Balance at June 30, 2020
Restructuring charges
Payments
Balance at June 30, 2021
Note 4. Accounts Receivable
Accounts receivable consisted of the following components at June 30, 2021 and 2020:
Employee
Separation Costs
—
4,043
(4,035)
8
$
$
(In thousands)
Gross accounts receivable
Less: Chargebacks reserve
Less: Rebates reserve
Less: Returns reserve
Less: Other deductions
Less: Allowance for doubtful accounts
Accounts receivable, net
June 30,
2021
$ 239,271
(69,564)
(16,272)
(38,395)
(15,505)
(701)
$ 98,834
June 30,
2020
$ 271,557
(61,877)
(24,536)
(40,796)
(17,557)
(1,103)
$ 125,688
For the fiscal year ended June 30, 2021, the Company recorded a provision for chargebacks, rebates, returns and other
deductions of $650.3 million, $133.9 million, $20.3 million and $68.2 million, respectively. For the fiscal year ended
June 30, 2020, the Company recorded a provision for chargebacks, rebates, returns and other deductions of $761.8 million,
$223.9 million, $16.9 million and $88.5 million, respectively. For the fiscal year ended June 30, 2019, the Company
recorded a provision for chargebacks, rebates, returns and other deductions of $1.0 billion, $250.6 million, $42.0 million
and $67.3 million, respectively.
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The following table identifies the activity and ending balances of each major category of revenue-related reserve for fiscal
years 2021, 2020 and 2019:
Reserve Category
(In thousands)
Balance at June 30, 2018
Adjustment related to adoption of ASC 606
Current period provision
Credits issued during the period
Balance at June 30, 2019
Current period provision
Credits issued during the period
Balance at June 30, 2020
Current period provision
Credits issued during the period
Balance at June 30, 2021
Chargebacks Rebates
$
153,034
82,502
Returns
43,059
Other
—
—
—
1,047,192
(1,110,659)
89,567
761,787
(789,477)
61,877
650,317
(642,630)
69,564
$
250,555
(254,783)
78,274
223,932
(239,495)
62,711
133,898
(161,312)
35,297
$
41,982
(29,487)
55,554
16,863
(31,621)
40,796
20,280
(22,681)
$ 38,395
20,021
3,536
67,344
(72,773)
18,128
88,468
(89,039)
17,557
68,177
(70,229)
$ 15,505
Total
298,616
3,536
1,407,073
(1,467,702)
241,523
1,091,050
(1,149,632)
182,941
872,672
(896,852)
158,761
$
For the fiscal years ended June 30, 2021, 2020 and 2019, as a percentage of gross sales the provision for chargebacks was
48.9%, 47.2% and 51.4%, respectively, the provision for rebates was 10.1%, 13.9% and 12.3%, respectively, the provision
for returns was 1.5%, 1.0% and 2.1%, respectively and the provision for other adjustments was 5.1%, 5.5% and 3.3%,
respectively.
The increase in the chargebacks reserve was primarily due to timing of sales and product mix partially offset by lower
sales. The rebates reserve decreased primarily due to lower sales of Fluphenazine in Fiscal 2021, which had higher than
average government-related rebates. Historically, we have not recorded any material amounts in the current period related
to reversals or additions of prior period reserves.
Note 5. Inventories
Inventories at June 30, 2021 and 2020 consisted of the following:
(In thousands)
Raw Materials
Work-in-process
Finished Goods
Total
June 30,
2021
$ 45,370
12,685
51,490
$ 109,545
June 30,
2020
$ 59,703
12,235
70,929
$ 142,867
During the fiscal years ended June 30, 2021, 2020 and 2019, the Company recorded write-downs to net realizable value for
excess and obsolete inventory of $24.3 million, $10.3 million and $21.8 million, respectively. The increase in write-downs
for excess and obsolete inventory was primarily related to the discontinuation of certain product lines during the second
quarter of Fiscal 2021, which is discussed further in Note 8 “Intangible Assets.”
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Note 6. Property, Plant and Equipment
Property, plant and equipment at June 30, 2021 and 2020 consisted of the following:
(In thousands)
Land
Building and improvements
Machinery and equipment
Furniture and fixtures
Less accumulated depreciation
Construction in progress
Property, plant and equipment, net
June 30,
2021
$
Useful Lives
—
1,783
10 - 39 years 103,082
166,617
5 - 10 years
3,399
5 - 7 years
(123,294)
151,587
15,087
$ 166,674
June 30,
2020
$
1,783
100,285
164,704
3,116
(102,983)
166,905
12,613
$ 179,518
Depreciation expense for the fiscal years ended June 30, 2021, 2020 and 2019 was $22.9 million, $24.3 million and $23.4
million, respectively.
Property, plant and equipment, net included amounts held in foreign countries in the amount of $0.6 million at June 30,
2021 and June 30, 2020.
Note 7. Fair Value Measurements
The Company’s financial instruments recorded in the Consolidated Balance Sheets include cash and cash equivalents,
accounts receivable, accounts payable, accrued expenses and debt obligations. The Company’s cash and cash equivalents
include bank deposits and money market funds. The carrying value of certain financial instruments, primarily cash and
cash equivalents, accounts receivable, accounts payable and accrued expenses, approximate their estimated fair values
based upon the short-term nature of their maturity dates.
The Company follows the authoritative guidance of ASC Topic 820 “Fair Value Measurements and Disclosures.” Fair
value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the
measurement date. The authoritative guidance also establishes a fair value hierarchy which requires an entity to maximize
the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Company’s
financial assets and liabilities measured at fair value are entirely within Level 1 of the hierarchy as defined below:
Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can
access at the measurement date.
Level 2 — Directly or indirectly observable inputs, other than quoted prices, such as quoted prices for similar assets or
liabilities; quoted prices for identical or similar instruments in markets that are not active; or model-derived valuations
whose inputs are observable or whose significant value drivers are observable.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are material to the fair value
of the asset or liability. Financial instruments whose values are determined using pricing models, discounted cash flow
methodologies, or similar techniques, as well as instruments for which the determination of fair value requires
significant judgment or estimation are examples of Level 3 assets and liabilities.
If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the
categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
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Financial Instruments Disclosed, But Not Reported, at Fair Value
In April 2021, the Company refinanced its Term Loan B Facility by issuing 7.750% senior secured notes due 2026 (the
“Notes”) and entering into a Second Lien Secured Loan Facility (“Second Lien Facility”), which is discussed further in
Note 9 “Long Term Debt”. The Company also has 4.50% Convertible Senior Notes (“Convertible Senior Notes”)
outstanding as of June 30, 2021. We estimate the fair value of the Notes, the Convertible Senior Notes and, previously, the
Term Loan B Facility using market quotations for debt that have quoted prices in active markets (Level 1). Since our
Second Lien Facility does not trade on a daily basis in an active market, the fair value estimate is based on market
observable inputs based on borrowing rates currently available for debt with similar terms and average maturities (Level 2).
As of June 30, 2021, the estimated fair value of the Notes and the Second Lien Facility were approximately $347 million
and $189 million, respectively. The estimated fair value of Term Loan B Facility was approximately $608 million as of
June 30, 2020. The estimated fair value of our 4.50% Convertible Senior Notes was approximately $53 million and $58
million as of June 30, 2021 and June 30, 2020, respectively. The fair value as of June 30, 2021 was lower than the carrying
value primarily due to the Company’s stock price at June 30, 2021 as compared to the $15.29 conversion price.
Non-recurring Fair Value Measurements
The Company has certain assets that are measured at fair value on a non-recurring basis and are adjusted to fair value only
when the carrying values are greater than the fair values. These assets are subject to fair value adjustments when there is
evidence of impairment. The Company’s estimation of the fair value of intangible assets for impairment represents a Level
3 fair value measurement, due to the use of internal and external projections and unobservable measurement inputs. Based
on an impairment analysis performed during the second quarter of Fiscal 2021, the Company adjusted the KUPI product
rights assets and the KUPI in-process research and development asset to fair value, $84.0 million and $4.0 million
respectively, as of December 31, 2020. In addition, the Company adjusted certain intangible assets included within the
other product rights category of definite-lived intangible to fair value, $3.7 million, as of June 30, 2021 based on an
impairment analysis performed during the fourth quarter of Fiscal 2021. Refer to Note 8 “Intangible Assets” for further
information.
Note 8. Intangible Assets
Intangible assets, net as of June 30, 2021 and June 30, 2020, consisted of the following:
Weighted
Avg. Life June 30,
Gross Carrying Amount
June 30,
(In thousands)
Definite-lived:
KUPI product rights
KUPI trade name
KUPI other intangible assets
Silarx product rights
Other product rights
Total definite-lived
Indefinite-lived:
KUPI in-process research
and development
Total indefinite-lived
Total intangible assets, net
(Yrs.)
2021
2020
15
2
15
15
10
—
83,955
2,920
19,000
20,000
35,918
$ 161,793
416,154
2,920
19,000
20,000
50,718
$ 508,792
$
4,000
4,000
$ 165,793
$
9,000
9,000
$ 517,792
Accumulated Amortization
Intangible Assets, Net
June 30,
2021
June 30,
2020
June 30,
June 30,
2021
2020
(4,198)
(2,920)
(7,095)
(4,889)
(8,856)
79,757
—
11,905
15,111
27,062
$ (27,958) $ (143,057) $ 133,835
(125,327)
(2,920)
(5,828)
(3,556)
(5,426)
$
— $
—
4,000
4,000
$ (27,958) $ (143,057) $ 137,835
— $
—
290,827
—
13,172
16,444
45,292
$ 365,735
$
9,000
9,000
$ 374,735
For the fiscal years ended June 30, 2021, 2020 and 2019, the Company recorded amortization expense of $24.9 million,
$32.0 million and $32.2 million, respectively.
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In December 2020, the Company reviewed its product portfolio and decided to discontinue 23 lower gross margin product
lines, including product lines that were acquired through various past business and product acquisitions. As a result of the
discontinuance and the reduction in net sales and gross margin of certain other product lines, the Company determined that
such decision represents a “triggering event” and, therefore, commenced an analysis to determine the potential for
impairment of certain long-lived assets, primarily its intangible assets. Based on that analysis, the Company recorded an
impairment charge of $193.0 million related to the KUPI product rights intangible assets. The impairment charge is
primarily a result of the decline in net sales and gross margin of certain product lines acquired in connection with the KUPI
acquisition, including those product lines being discontinued.
In connection with a review of the Company’s product portfolio in the fourth quarter of fiscal year 2021, the Company
identified lower projected cash flows as a result of increased competition for the Levothyroxine tablets product, which is
sold under an agreement with Cediprof, Inc. As a result, the Company recorded a $17.0 million impairment charge to its
intangible asset for the distribution and supply agreement with Cediprof, Inc., which is included within the other product
rights category of definite-lived intangible assets.
The Company also recorded a $5.0 million impairment charge in the second quarter of fiscal year 2021 to its KUPI in-
process research and development intangible asset due to delays in the expected launch of a product within the portfolio,
which resulted in reduced projected cash flows.
In November 2020, the Company entered into Amendment No. 2 to License and Supply Agreement (the “2020
Amendment”) with Recro Gainesville LLC (“Recro”), which amended the Company’s agreement with Recro to
exclusively distribute Verelan PM ®, Verelan SR ®, and Verapamil PM. In accordance with the Company’s policy to
expense costs to renew or extend the term of a recognized intangible asset as incurred, the Company recorded $5.0 million
in consideration to renew the Company’s distribution agreement during Fiscal Year 2021, which is included within cost of
sales on the Consolidated Statements of Operations.
Future annual amortization expense consists of the following:
(In thousands)
Fiscal Year Ending June 30,
2022
2023
2024
2025
2026
Thereafter
134
Amortization
Expense
$
$
14,780
14,587
14,312
14,119
13,465
62,572
133,835
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Note 9. Long-Term Debt
Long-term debt, net consisted of the following:
(In thousands)
Term Loan A
Unamortized discount and other debt issuance costs
Term Loan A, net
Term Loan B
Unamortized discount and other debt issuance costs
Term Loan B, net
7.75% senior secured notes due 2026
Unamortized discount and other debt issuance costs
7.75% senior secured notes due 2026, net
Second Lien Secured Loan Facility due 2026 ($190.0M Principal, $5.7M Exit Fee, and
$3.6M accrued PIK interest)
Unamortized discount and other debt issuance costs
Second Lien Secured Loan Facility due 2026, net
4.50% Convertible Senior Notes due 2026
Unamortized discount and other debt issuance costs
4.50% Convertible Senior Notes, net
$45 million Amended ABL Credit Facility
Total debt, net
Less short-term borrowings and current portion of long-term debt
Total long-term debt, net
$
June 30,
2021
— $
—
—
—
—
—
350,000
(5,594)
344,406
199,342
(36,701)
162,641
86,250
(2,614)
83,636
—
590,683
—
590,683 $
$
June 30,
2020
48,844
(433)
48,411
572,857
(23,278)
549,579
—
—
—
—
—
—
86,250
(3,111)
83,139
—
681,129
(88,189)
592,940
The weighted average interest rate for Fiscal 2021, which includes the impact of paid-in-kind (“PIK”) interest expense
incurred during the period, was 8.0%. The weighted average interest rate for Fiscal 2020 was 8.8%.
The Company paid off the outstanding balance of the Term Loan A of $42.0 million on November 25, 2020 with cash on
hand. The Company’s undrawn $125.0 million Revolving Credit Facility also expired on November 25, 2020.
On April 22, 2021, the Company issued $350.0 million aggregate principal amount of 7.750% senior secured notes due
2026 (the “Notes”) in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act
of 1933, as amended (the “Securities Act”) and outside the United States to persons other than U.S. persons in reliance
upon Regulation S under the Securities Act. The Notes bear interest semi-annually in arrears on April 15 and October 15 of
each year, beginning on October 15, 2021, at a rate of 7.750% per annum in cash. The Notes will mature on April 15, 2026,
unless earlier redeemed or repurchased in accordance with their terms.
On April 5, 2021, the Company entered into an Exchange Agreement with certain participating lenders to exchange a
portion of their existing Term B Loans for Second Lien Loans pursuant to a new $190.0 million Second Lien Secured Loan
Facility (“Second Lien Facility”). On April 22, 2021, in connection with the issuance of the Notes and the entrance into the
Amended ABL Credit Facility, which is discussed further below, the exchange between the Company and the participating
lenders was consummated. From the Closing Date until the one-year anniversary of the Closing Date, the Second Lien
Loans will bear 10.0% PIK interest. Thereafter, the Second Lien notes will bear 5.0% cash interest and 5.0% PIK interest
until maturity, except to the extent the Company elects to pay all or a portion of the PIK interest in cash. The Second Lien
Loans will mature on July 21, 2026. When a portion or all of the Second Lien Facility is repaid, the Company is required to
pay a non-refundable exit fee (“Exit Fee”) equal to 3.0% of the principal amount of the loan repaid up to a maximum of
$5.7 million. In connection with the Second Lien Facility, the Company issued to the Participating Lenders warrants to
purchase up to 8,280,000 shares of common stock of the Company (the “Warrants”) at an exercise price of $6.88 per share.
Refer to Note 13 “Warrants” for further information on the Warrants issued.
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In addition to the Notes Offering and the Second Lien Facility, on April 22, 2021, the Company entered into an amendment
to that certain Credit and Guaranty Agreement, dated as of December 7, 2020 (such agreement as so amended, the
“Amended ABL Credit Agreement”), among the Company, certain of its wholly-owned domestic subsidiaries party
thereto, as borrowers or as guarantors, Wells Fargo Bank, National Association, as administrative agent and as collateral
agent and the other lenders party thereto, for the purpose of, among other things, increasing the aggregate amount of the
revolving credit facility from $30.0 million to $45.0 million and extending the maturity thereof to the fifth anniversary of
the closing date of Notes Offering (subject to a springing maturity as set forth therein).
The Amended ABL Credit Agreement provides for a revolving credit facility (the “Amended ABL Credit Facility”) that
includes letter of credit and swing line sub-facilities. Borrowing availability under the Amended ABL Credit Facility is
determined by a monthly borrowing base collateral calculation that is based on specified percentages of eligible accounts
receivable less certain reserves and subject to certain other adjustments as set forth in the Amended ABL Credit
Agreement. Availability is reduced by issuance of letters of credit as well as any borrowings. Loans outstanding under the
Amended ABL Credit Agreement bear interest at a floating rate measured by reference to, at the Company’s option, either
an adjusted London Inter-Bank Offered Rate (“LIBOR”) (subject to a floor of 0.75%) plus an applicable margin of 2.50%
per annum, or an alternate base rate plus an applicable margin of 1.50% per annum. Unused commitments under the
Amended ABL Credit Facility are subject to a per annum fee of 0.50% per annum, which fee increases to 0.75% per
annum for any quarter during which the company's average usage under the Amended ABL Credit Facility is less than $5.0
million.
The Amended ABL Credit Agreement includes a covenant to maintain a minimum fixed charge coverage ratio of no less
than 1.10 to 1.00, which is tested only when Excess Availability is less than 15.0% of the lesser of (A) the borrowing base
and (B) the then effective commitments under the Amended ABL Credit Facility for three consecutive business days and
continuing until the first day immediately succeeding the last day of 30 consecutive days on which Excess Availability is in
excess of such threshold.
The Amended ABL Credit Agreement provides for events of default, which, if any of them occur, would permit or require
the principal, premium, if any, and interest on all of the then outstanding obligations under the Amended ABL Credit
Facility to be due and payable immediately and the commitments under the Amended ABL Credit Facility to be
terminated.
In connection with the Second Lien Facility, the Company is required to maintain at least $5.0 million in a deposit account
at all times, subject to control by the Second Lien Collateral Agent and a minimum cash balance of $15.0 million as of the
last day of each month. At June 30, 2021, the Company classified the $5.0 million required deposit account balance as
restricted cash, which is included in other assets caption on the Consolidated Balance Sheets.
The Company used the net proceeds of the Notes Offering and Second Lien Facility, in addition to cash on hand, to pay off
the existing Term Loan B Facility in full and pay certain fees and expenses related to the transactions. In accordance with
ASC 470, Debt, the Company also recorded a $10.3 million loss on extinguishment of debt related to the payoff of the
Term Loan B Facility.
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Long-term debt amounts due, for the twelve-month periods ending June 30 were as follows:
(In thousands)
2022
2023
2024
2025
2026
Thereafter
Total
$
Amounts Payable
to Institutions
—
—
—
—
350,000
285,592
635,592
$
The long-term debt amounts due above include accrued PIK interest on the Second Lien Facility as of June 30, 2021.
Following the one-year anniversary of the closing date of the Second Lien Facility, the Company may elect to pay in cash
any interest required to be paid in the form of PIK interest.
The outstanding Notes, Second Lien Facility, and Amended ABL Credit Facility amounts above are guaranteed by all of
Lannett’s significant wholly-owned domestic subsidiaries and are collateralized by substantially all present and future
assets of the Company.
Note 10. Legal, Regulatory Matters and Contingencies
State Attorneys General Inquiry into the Generic Pharmaceutical Industry
In July 2014, the Company received interrogatories and a subpoena from the State of Connecticut Office of the Attorney
General concerning its investigation into the pricing of digoxin. According to the subpoena, the Connecticut Attorney
General is investigating whether anyone engaged in any activities that resulted in (a) fixing, maintaining or controlling
prices of digoxin or (b) allocating and dividing customers or territories relating to the sale of digoxin in violation of
Connecticut antitrust law. In June 2016, the Connecticut Attorney General issued interrogatories and a subpoena to an
employee of the Company in order to gain access to documents and responses previously supplied to the Department of
Justice pursuant to the federal investigation described below. Beginning in December 2016, the Connecticut Attorney
General and numerous other State Attorneys General have filed civil complaints against the Company and numerous other
companies and individuals relating to alleged anti-competitive behavior as more fully described below.
Based on internal investigations performed to date, the Company currently believes that it has acted in compliance with all
applicable laws and regulations.
Federal Investigation into the Generic Pharmaceutical Industry
In November and December 2014, the Company and certain affiliated individuals and customers were served with grand
jury subpoenas relating to a federal investigation of the generic pharmaceutical industry into possible violations of the
Sherman Act. The subpoenas requested corporate documents of the Company relating to corporate, financial and employee
information, communications or correspondence with competitors regarding the sale of generic prescription medications
and the marketing, sale, or pricing of certain products, generally for the period of 2005 through the dates of the subpoenas.
The Company received a Civil Investigative Demand (“CID”) from the Department of Justice on May 14, 2018. The CID
requested information from 2009-present regarding allegations that the generic pharmaceutical industry engaged in market
allocation, price fixing, payment of illegal remuneration and submission of false claims. The Company has responded to
the CID.
Based on internal investigations performed to date, the Company believes that it has acted in compliance with all
applicable laws and regulations.
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Government Pricing
During the quarter ended December 31, 2016, the Company completed a contract compliance review, for the period
January 1, 2012 through June 30, 2016, for one of KUPI’s government-entity customers. As a result of the review, the
Company identified certain commercial customer prices and other terms that were not properly disclosed to the
government-entity resulting in potential overcharges. For the period January 1, 2012 through November 24, 2015 (“the pre-
acquisition period”), the Company is fully indemnified per the Stock Purchase Agreement.
On May 22, 2019, the Department of Veterans Affairs issued a Contracting Officer’s Final Decision and Demand for
Payment, assessing the sum of $9.4 million for overpayments by the Veteran’s Administration for the period of January 1,
2012 through June 30, 2016. In August 2019, the Company remitted payment to the VA and received reimbursement from
UCB for the indemnified portion of the payment in the amount of $8.1 million. The VA requested additional information
for the period of July 1, 2016 through March 2018. The Company is in the process of responding to the information
request.
State Attorneys General and Private Plaintiffs Antitrust and Consumer Protection Litigation
In December 2016, the Connecticut Attorney General and various other State Attorneys General filed a civil complaint
alleging that six pharmaceutical companies engaged in anti-competitive behavior. The Company was not named in the
action and does not compete on the products that formed the basis of the complaint. The complaint was later transferred for
pretrial purposes to the United States District Court for the Eastern District of Pennsylvania as part of a multidistrict
litigation captioned In re: Generic Pharmaceuticals Pricing Antitrust Litigation (the “MDL”). On October 31, 2017, the
State Attorneys General filed a motion for leave to amend their complaint to add numerous additional defendants,
including the Company, and claims relating to 13 additional drugs. The District Court granted that motion on June 5, 2018.
The State Attorneys General filed their amended complaint on June 18, 2018. The claim relating to Lannett involves
alleged price-fixing for one drug, doxycycline monohydrate, but does not involve the pricing for digoxin. The State
Attorneys General also allege that all defendants were part of an overarching, industry-wide conspiracy to allocate markets
and fix prices generally. On August 15, 2019, the Court denied the defendants' joint motion to dismiss the overarching
conspiracy claims but has yet to decide an individual motion filed by the Company to dismiss the overarching conspiracy
claims as to it.
On May 10, 2019, the State Attorneys General filed a new lawsuit naming the Company and one of its employees as
defendants, along with 33 other companies and individuals. The complaint again alleges an overarching conspiracy and
contains claims for price-fixing and market allocation under the Sherman Act and related state laws. The complaint focuses
on the conduct of another generic pharmaceutical company, and the relationships that company had with other generic
companies and their employees. The specific allegations in this complaint against Lannett relate to the Company’s sales of
baclofen and levothyroxine. The complaint also names another current employee as a defendant, but the allegations pertain
to conduct that occurred prior to their employment by Lannett. In June 2020, the State Attorneys General filed a third
overarching conspiracy complaint involving scores of different drugs used primarily to treat dermatological conditions,
including alleged price-fixing by the Company for acetazolamide. Both complaints have been added to the MDL.
In 2016 and 2017, the Company and certain competitors were named as defendants in a number of lawsuits filed by private
plaintiffs alleging that the Company and certain generic pharmaceutical manufacturers have conspired to fix prices of
generic digoxin, levothyroxine, ursodiol and baclofen. These cases are part of a larger group of more than 100 lawsuits
generally alleging that over 30 generic pharmaceutical manufacturers and distributors conspired to fix prices for multiple
different generic drugs in violation of the federal Sherman Act, various state antitrust laws, and various state consumer
protection statutes. The United States also has been granted leave to intervene in the cases. On April 6, 2017, these cases
were added to the MDL. The various plaintiffs are grouped into three categories - Direct Purchaser Plaintiffs, End Payer
Plaintiffs, and Indirect Reseller Purchasers - and filed Consolidated Amended Complaints (“CACs”) against the Company
and the other defendants in August 2017.
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The CACs naming the Company as a defendant involve generic digoxin, levothyroxine, ursodiol and baclofen. Pursuant to
a court-ordered schedule grouping the 18 different drug cases into three separate tranches, the Company and other generic
pharmaceutical manufacturer defendants in October 2017 filed joint and individual motions to dismiss the CACs involving
the six drugs in the first tranche, including digoxin. In October 2018, the Court (with one exception) denied defendants’
motions to dismiss plaintiffs’ Sherman Act claims with respect to the drugs in the first tranche. In March 2019, the
Company and other defendants filed answers to the Sherman Act claims. In addition, in February 2019, the Court
dismissed certain of the plaintiffs’ state law claims but denied the remainder of defendants’ motions to dismiss and set a
deadline of April 1, 2019 for certain plaintiffs to amend their existing complaints. Those plaintiffs amended their
complaints, but further motions to dismiss the state-law claims remain pending.
Following the lead of the state Attorneys General, the Direct Purchaser Plaintiffs, End Payer Plaintiffs and Indirect Reseller
Plaintiffs filed their own complaints in June 2018 alleging an overarching conspiracy relating to 14 generic drugs in the
End Payer complaint and 15 generic drugs in the Indirect Reseller complaint. Although the complaints allege an
overarching conspiracy with respect to all of the drugs identified, the specific allegations related to drugs the Company
manufactures involve acetazolamide and doxycycline monohydrate.
In addition, between December 2019 and February 2020, the End Payer Plaintiffs, Indirect Reseller Purchasers, and Direct
Purchaser Plaintiffs filed separate complaints alleging overarching, industry-wide price-fixing conspiracies modeled on the
second one filed by the state Attorneys General. The new complaint involves 135 new drugs in addition to those named in
previous complaints. As to the Company, the new drugs involved are pilocarpine HCL, triamterene HCTZ capsules,
amantadine HCL, and oxycodone HCL. None of the defendants, including the Company, has responded yet to these new
complaints.
Between January 2018 and December 2020, a number of opt-out parties filed individual complaints or otherwise
commenced actions against the Company and dozens of other companies and individuals alleging an overarching
conspiracy and individual conspiracies to fix the prices and allocate markets on scores of different drug products, including
digoxin, doxycycline, levothyroxine, ursodiol and baclofen. The opt-out parties include various retailers, insurers and
county governments, which have filed federal suits in Pennsylvania, New York, California, Minnesota and Texas. All of
those complaints have been added to the MDL but none of the defendants, including the Company, has responded to any of
the complaints. Other groups of insurers have commenced actions in Pennsylvania state court against the Company and
other drug companies by filing writs of summons, which are not complaints but can serve to toll the running of statutes of
limitations. Those state-court cases have not been added to the MDL, although the parties have agreed to stay those cases
pending further developments in the MDL.
In June 2020, the Company and a number of other generic pharmaceutical manufacturers were named as defendants in a
Statement of Claim in a proposed class proceeding in federal court in Toronto, Ontario, Canada. The case alleges a
violation of Canada’s Competition Act. The allegations are similar to those in the MDL alleging an overarching, industry-
wide conspiracy to allocate markets and fix the price of generic drugs. That alleged conspiracy reached Canada because
these same manufacturers also allegedly sell the majority of generic drugs in Canada. The Statement of Claim alleges that
the conspiracy extends to the entire generic pharmaceutical market. The specific drugs identified with respect to the
Company are: acetazolamide, baclofen, digoxin, doxycycline monohydrate, levothyroxine, and ursodiol. The Company has
not yet responded to the Statement of Claim.
On July 13, 2020, the District Court overseeing the MDL selected as “bellwether” cases the second overarching conspiracy
case filed by the state Attorneys General in May 2019 as well as individual-conspiracy cases filed by the Direct Purchaser
Plaintiffs, End Payer Plaintiffs, and Indirect Reseller Purchasers involving the drugs clobetasol, clomipramine and
pravastatin. The Company is a defendant only in the overarching conspiracy case. On February 9, 2021, the District Court
vacated the order selecting the bellwether cases. Thereafter, the District Court re-designated the clobetasol and
clomipramine cases as individual-conspiracy bellwethers, and on May 7, 2021, selected the third complaint filed by the
state Attorneys General in June 2020 as the new overarching conspiracy bellwether case. The state Attorneys General have
since indicated that they intend to amend their complaint in the overarching conspiracy bellwether case but have not yet
filed a new amended complaint. To date, none of the bellwether cases have been scheduled for trial.
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The Company believes that it acted in compliance with all applicable laws and regulations. Accordingly, the Company
disputes the allegations set forth in these class actions and plans to vigorously defend itself against these claims.
Shareholder Litigation
In November 2016, a putative class action lawsuit was filed against the Company and two of its former officers in the
federal district court for the Eastern District of Pennsylvania, alleging that the Company and two of its former officers
damaged the purported class by making false and misleading statements regarding the Company’s drug pricing
methodologies and internal controls. In December 2017, counsel for the putative class filed a second amended complaint.
The Company filed a motion to dismiss the second amended complaint in February 2018. In July 2018, the court granted
the Company’s motion to dismiss the second amended complaint. In September 2018, counsel for the putative class filed a
third amended complaint alleging that the Company and two of its former officers made false and misleading statements
regarding the impact of competition on prices and sales of certain of the Company’s products, regarding the potential
effects on the Company of regulatory investigations and antitrust litigation, and regarding the defendants’ investigation of
purported anticompetitive conduct. The Company filed a motion to dismiss the third amended complaint in November
2018. In May 2019, the court denied the Company’s motion to dismiss the third amended complaint. In July 2019, the
Company filed an answer to the third amended complaint. On October 1, 2020, counsel for the putative class filed a motion
for class certification. In March 2021, the Company filed a brief in opposition to the motion to certify the putative class. On
August 12, 2021, the Court entered an Order granting the motion and certifying the class. In August 2021, the court granted
the motion to certify the proposed class, to appoint class representatives, and to appoint class counsel. The Company
believes it acted in compliance with all applicable laws and continues to vigorously defend itself from these claims. The
Company cannot reasonably predict the outcome of the suit at this time.
In May 2019, a shareholder derivative lawsuit was filed against certain of the Company’s current and former officers and
certain of the current and former members of the Company’s Board of Directors in the federal court for the District of
Delaware. The Company was also named as a nominal defendant in the suit. The suit alleges that the defendants breached
their fiduciary duties as directors and/or officers of the Company, that certain of the defendants caused the Company to
issue false and misleading proxy statements in violation of Section 14(a) of the Securities Exchange Act of 1934, that the
defendants were unjustly enriched at the expense of the Company, and that the defendants wasted corporate assets
belonging to the Company. On December 4, 2019 the Court entered a stipulation consolidating the suit with a separate
shareholder derivative suit filed in July 2019, as described below. On December 6, 2019, the Company filed a motion to
dismiss the consolidated cases. On January 14, 2020, the parties reached an agreement in principle to resolve the
consolidated cases, subject to the execution of a mutually acceptable settlement document and Court approval.
In July 2019, a shareholder derivative lawsuit was filed against certain of the Company’s current and former officers and
directors in the federal court for the Eastern District of Pennsylvania. The Company was also named as a nominal
defendant in the suit. The suit alleges that the defendants breached their fiduciary duties as directors and/or officers of the
Company and that certain of the defendants caused the Company to violate Sections 10(b), 14(a), and 29(b) of the
Securities Exchange Act of 1934. In October 2019, this suit was transferred to the federal court for the District of Delaware
and was pending before the same judge presiding over the shareholder derivative suit that was filed in May 2019. On
December 4, 2019, the Court entered a stipulation consolidating the suit with a separate shareholder derivative suit filed in
May 2019, as described above. On December 6, 2019, the Company filed a motion to dismiss the consolidated cases. On
January 14, 2020, the parties reached an agreement in principle to resolve the consolidated cases, subject to the execution
of a mutually agreeable settlement document and Court approval.
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The settlement of the two consolidated cases, which was preliminarily approved by the Court on August 7, 2020, requires
the Company to implement certain new corporate policies and pay the plaintiffs’ counsel in the consolidated cases,
collectively, the sum of $600,000 in exchange for a release of all liability with respect to both of the consolidated cases. A
settlement hearing was held on October 7, 2020. At the settlement hearing, the Magistrate Judge issued an oral Report and
Recommendation approving the settlement and denying the objecting parties’ motion to intervene. The time period to
object to the Report and Recommendation has expired. On October 22, 2020, the Court adopted the Report and
Recommendation, granted the motion for final approval of the settlement, denied the objecting parties’ motion to intervene,
and issued a final judgement dismissing the consolidated cases with prejudice. The Company considers these matters
closed.
In September 2019, a shareholder derivative lawsuit was filed against certain of the Company’s current and former officers,
directors, and employees in the federal court for the District of Delaware. The Company was also named as a nominal
defendant in the suit. The suit alleges that the defendants breached their fiduciary duties as directors and/or officers of the
Company, alleges waste of corporate assets and gross mismanagement, and alleges that certain of the defendants caused the
Company to violate Section 14(a) of the Securities and Exchange Act of 1934. On November 22, 2019, the Company filed
a motion to dismiss the complaint. On January 16, 2020, the Court entered the parties’ stipulation to stay the case pending
the resolution of the defendants’ motion to dismiss the two earlier filed consolidated shareholder derivative cases
referenced above. On February 18, 2020, the Court entered the parties’ stipulation to withdraw the Company’s motion to
dismiss without prejudice to the Company’s ability to refile a renewed motion to dismiss after the stay is lifted. On March
11, 2020, following notice that Plaintiffs no longer consented to the stay, the Court lifted the stay. On April 6, 2020, certain
of the defendants, including the Company, filed a renewed motion to dismiss or, in the alternative, to stay the account. On
April 29, 2020, the Court entered the parties’ stipulation to stay the action, pending a decision from the Court regarding the
settlement in the consolidated derivative actions discussed above. In light of the Final Order and Judgment entered in the
two earlier filed consolidated shareholder derivative cases referenced above, the parties filed a stipulation and proposed
order dismissing this action, with prejudice. On October 29, 2020, the District Court Judge entered an Order approving the
parties’ Stipulation of Dismissal, with prejudice. The Company considers this matter closed.
In February 2020, a shareholder derivative lawsuit was filed against certain of the Company’s current and former officers,
directors, and employees in the Court of Chancery of the State of Delaware. The Company was also named as a nominal
defendant in the suit. The suit alleges that the defendants breached their fiduciary duties as directors and/or officers of the
Company and were unjustly enriched. On March 16, 2020, the Company filed a motion to dismiss the complaint, and a
motion to stay the proceedings. On March 27, 2020, the Company filed its opening brief in support of its motion to stay the
proceedings. On April 6, 2020, the parties entered into a stipulation and proposed order to stay the action. The Court
granted the stipulation and proposed order that same day. In light of the Final Order and Judgment entered in the two
earlier filed consolidated shareholder derivative cases referenced above, the parties agreed to dismiss this action, with
prejudice. The Court granted Stipulation of Dismissal with Prejudice on November 4, 2020. The Company considers this
matter closed.
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Genus Life Sciences
In December 2018, Genus Lifesciences, Inc. (“Genus”) sued the Company, Cody Labs, and others in California federal
court, alleging violations of the Lanham Act, Sherman Act, and California false advertising law. Genus received FDA
approval for a cocaine hydrochloride product in December 2018, and its claims are premised in part on allegations that the
Company falsely advertises its unapproved cocaine hydrochloride solution product. The Company denied that it is falsely
advertising its cocaine hydrochloride solution product and continued to market its unapproved product relying on the
Guidance for FDA Staff and Industry, Marketed Unapproved Drugs — Compliance Policy Guide, pending approval of its
Section 505(b)(2) application (until August 15, 2019, when it agreed to a request by the FDA to cease marketing its
unapproved product as a result of the approval of a competitor’s product). In January 2019, the Company filed a motion to
dismiss the complaint. On May 3, 2019, the Court issued a written decision granting in part and denying in part the motion
to dismiss. On June 6, 2019, Genus filed an Amended Complaint. On June 27, 2019, the Company filed a motion to
dismiss the amended complaint. By Order dated September 3, 2019, the Court granted in part and denied in part the
Company's motion to dismiss. On November 20, 2019, Genus filed a second amended complaint. On December 17, 2019,
the Company filed an answer to the second amended complaint. The Company believes it acted in compliance with all
applicable laws and regulations and plans to vigorously defend itself from these claims. On August 16, 2021, the Company
and Genus reached an agreement in principle to amicably resolve this case, along with three other cases involving the
Company’s approved cocaine hydrochloride product. The parties are in the process of negotiating and finalizing various
agreements memorializing the settlement and have a motion to stay the case for 60 days.
Sandoz, Inc.
On July 20, 2020, Sandoz, Inc. (“Sandoz”) filed a complaint in federal court in Philadelphia, alleging claims for tortious
interference with contract, unfair competition and conversion of confidential information, arising out of Cediprof, Inc.’s
(“Cediprof”) termination of Sandoz’s contract to distribute levothyroxine tablets in the United States and certain territories.
Along with the complaint, Sandoz filed a motion for a temporary restraining order and preliminary injunction, seeking to
enjoin the Company from commencing the distribution of levothyroxine tablets on August 3, 2020. On the same day,
Sandoz filed a separate complaint and application for a temporary restraining order and preliminary injunction against
Cediprof in federal court in New York, seeking to prevent Cediprof from selling its levothyroxine tablets in the United
States and certain of its territories to anyone other than Sandoz. On July 27, 2020, the New York court held a hearing and
denied Sandoz’s application for a temporary restraining order, ruling Sandoz had failed to establish irreparable harm.
Sandoz subsequently dismissed the complaint and is proceeding against Cediprof in an Arbitration in New York, where the
Company has agreed to indemnify Cediprof. On July 28, 2020, the Philadelphia court held a hearing and denied Sandoz’s
application for a temporary restraining order, ruling that Sandoz had failed to establish irreparable harm and failed to
establish that it is likely to succeed on the merits of its claim against Lannett. On October 5, 2020, the Company filed a
motion to dismiss the complaint. On December 28, 2020, the Court granted in part and denied in part the motion,
dismissing certain of the claims. The Company has filed a motion to stay the case pending the Arbitration of the
Sandoz/Cediprof dispute. On January 11, 2021, the Company filed an answer and counterclaim to the complaint. Upon the
conclusion of fact discovery, the Court entered an order on July 16, 2021 staying the remaining deadlines in the case
pending the outcome of the Arbitration between Sandoz and Cediprof. The Company denies that it tortiously interfered
with Sandoz’s contract or that it converted any of Sandoz’s alleged confidential information. Discovery is ongoing and the
Company cannot reasonably predict the outcome of this suit at this time.
Other Litigation Matters
The Company is also subject to various legal proceedings arising out of the normal course of its business including, but not
limited to, product liability, intellectual property, patent infringement claims and antitrust matters. It is not possible to
predict the outcome of these various proceedings. An adverse determination in any of these proceedings or in any of the
proceedings described above in the future could have a significant impact on the financial position, results of operations
and cash flows of the Company.
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Note 11. Commitments
Leases
At June 30, 2021 and 2020, the Company has a ROU lease asset of $10.6 million and $9.3 million, respectively, and a
ROU liability of $13.1 million and $10.9 million, respectively. The current balance of the ROU liability at June 30, 2021
and 2020 was $2.0 million and $1.1 million, respectively.
In February 2021, the Company extended our existing lease for the warehouse in Seymour, Indiana. The lease term is now
set to expire in March 2031. Accordingly, the Company recorded a ROU lease asset and liability totaling $2.3 million,
respectively, in the third quarter of Fiscal 2021.
Components of lease costs are as follows:
(In thousands)
Operating lease cost
Variable lease cost
Short-term lease cost (a)
Total
______________________
(a) Not recorded on the Consolidated Balance Sheet
Fiscal Year Ended
June 30,
2021
1,754
133
448
2,335
2020
2,246
153
579
2,978
$
$
$
$
Supplemental cash flow information and non-cash activity related to our operating leases are as follows:
(In thousands)
Cash paid for amounts included in the measurement of lease
liabilities:
Operating cash flows from operating leases
Non-cash activity:
ROU assets obtained in exchange for new operating lease liabilities $
$
Fiscal Year Ended
June 30,
2021
2020
1,916 $
2,086
2,275 $
4,317
Weighted average remaining lease term and discount rate for our operating leases are as follows:
Weighted-average remaining lease term
Weighted-average discount rate
Fiscal Year Ended
June 30,
2021
10 years
8.5 %
2020
9 years
7.9 %
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Maturities of lease liabilities by fiscal year for our operating leases are as follows:
(In thousands)
2022
2023
2024
2025
2026
Thereafter
Total lease payments
Less: Imputed interest
Present value of lease liabilities
Other Commitments
$
Amounts Due
2,051
2,064
2,083
2,104
2,124
8,513
18,939
5,847
13,092
$
During Fiscal 2017, the Company signed an agreement with a company operating in the pharmaceutical business, under
which the Company agreed to provide up to $15.0 million in revolving loans, which expires in seven years and bears
interest at 2.0%, for the purpose of expansion and other business needs. In Fiscal 2019, the Company sold 50% of the
outstanding loan to a third party for $5.6 million, in addition to assigning 50% of all rights, title and interest in the loan and
loan documents. As of June 30, 2021, $6.6 million was outstanding under the revolving loan and is included in other assets.
Based on the guidance set forth in ASC 810-10 Consolidation, the Company has concluded that it has a variable interest in
the entity. However, the Company is not the primary beneficiary to the entity and as such, is not required to consolidate the
entity’s results of operations.
In Fiscal 2020, the Company executed a License and Collaboration Agreement with North South Brother Pharmacy
Investment Co., Ltd. and HEC Group PTY, Ltd. (collectively, “HEC”) to develop an insulin glargine product that would be
biosimilar to Lantus Solostar. Under the terms of the deal, among other things, the Company shall fund up to the initial $32
million of the development costs and split 50/50 any development costs in excess thereof. As of June 30, 2021, the
Company has incurred approximately $4 million of development costs towards the $32 million commitment made by the
Company. Lannett shall receive an exclusive license to distribute and market the product in the United States upon FDA
approval under the 50/50 profit split for the first ten years following commercialization, followed by a 60/40 split in favor
of HEC for the following five years. To date, the COVID-19 pandemic has not had a material impact on the development
of the insulin glargine product. However, the timing of the product development and approval could be delayed as the
COVID-19 pandemic continues.
On February 8, 2021, the Company executed a License and Collaboration Agreement and a Supply Agreement with
Sunshine Lake Pharma Co., Ltd. an HEC Group company (“Sunshine”) with respect to the development of a biosimilar
insulin aspart product. Under the terms of the deal, among other things, the Company shall fund up to the initial $32
million of the development costs, provided that if total development and other costs paid by Lannett are less than $32
million then the difference will be paid to Sunshine over the first year of commercialization. As of June 30, 2021, the
Company has not yet incurred material costs towards the $32 million commitment made by the Company. The parties shall
negotiate the sharing of any development costs in excess of $32 million. Lannett shall receive an exclusive license to
distribute and market the product in the United States upon FDA approval under the 50/50 profit split for the first ten years
following commercialization, followed by a 60/40 split in favor of Sunshine for the following five years.
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Note 12. Accumulated Other Comprehensive Loss
The Company’s Accumulated Other Comprehensive Loss was comprised of the following components as of June 30, 2021
and 2020:
(In thousands)
Foreign Currency Translation
Beginning Balance, June 30
Net income (loss) on foreign currency translation (net of tax of $0 and $0)
Other comprehensive income (loss), net of tax
Total Accumulated Other Comprehensive Loss
Note 13. Warrants
June 30,
2021
2020
$
$
(627) $
79
79
(548) $
(615)
(12)
(12)
(627)
In connection with the Second Lien Facility, which is discussed further in Note 9 “Long-Term Debt” above, the Company
issued to the Participating Lenders warrants to purchase up to 8,280,000 shares of common stock of the Company (the
“Warrants”) at an exercise price of $6.88 per share. The Warrants were issued on April 22, 2021 with an eight-year term.
The Participating Lenders received registration rights with respect to the shares of common stock of the Company to be
received upon exercise of the Warrants. The Company concluded that the Warrants were indexed to its own stock and,
therefore, are classified as an equity instrument. In accordance with ASC 470, Debt, the Company allocated the proceeds of
the Second Lien Facility issuance based on the relative fair value of the debt instrument and the Warrants separately at the
time of issuance, which was determined using the Black-Scholes valuation model. Various assumptions were used in the
valuation model, including the expected volatility of 74.2%, the expected life of the Warrants of 8 years, and the risk-free
rate of 1.3%. The relative fair value allocated to the Warrants was $24.4 million at the issuance date.
The holders of the Warrants are entitled to receive dividends or distributions of any kind made to the common stockholders
to the same extent as if the holder had exercised the Warrant into common stock. Although the Company did not issue or
declare dividends during the period, the Warrants are considered participating securities under ASC 260, Earnings per
share, for purposes of calculating earnings (loss) per share under the two-class method. Refer to Note 14 “Loss Per
Common Share” for further details of the two-class method and the Company’s calculation of earnings (loss) per share.
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Note 14. Loss Per Common Share
A reconciliation of the Company’s basic and diluted earnings (loss) per common share was as follows:
(In thousands, except share and per share data)
Numerator:
Net loss
Net income allocated to participating securities for the Warrants
Interest expenses applicable to the Convertible Notes, net of tax
Amortization of debt issuance costs applicable to the Convertible
Notes, net of tax
Adjusted "if-converted" net loss
Denominator:
Basic weighted average common shares outstanding
Effect of potentially dilutive options and restricted stock awards
Effect of conversion of the Convertible Notes
Effect of participating securities for the Warrants
Diluted weighted average common shares outstanding
For Fiscal Year Ended June 30,
2020
2019
2021
$
$
(363,475)
—
—
$
(33,366)
—
—
(272,107)
—
—
—
—
—
$
(363,475)
$
(33,366)
$
(272,107)
39,391,589
38,592,618
—
—
—
39,391,589
—
—
—
38,592,618
37,779,812
—
—
—
37,779,812
Loss per common share:
Basic
Diluted
$
$
(9.23)
(9.23)
$
$
(0.86)
(0.86)
$
$
(7.20)
(7.20)
In accordance with ASC 260, Earnings per share, the Company computes earnings (loss) per share using the two-class
method, which requires an allocation of earnings between the holders of common stock and the Company’s participating
security holders. Basic earnings (loss) per share is calculated by dividing net income (loss) available to common
stockholders, which excludes the income allocated to participating security holders, by the basic weighted average
common shares outstanding. For purposes of determining diluted earnings per share, the Company further adjusts the basic
earnings per share to include the effect of potentially dilutive shares outstanding, including options and restricted stock
awards, the Convertible Notes, and the Warrants. In this calculation, the Company reallocates net income based on the
rights of each potentially dilutive share and will report the most dilutive earnings (loss) per share. Because the Warrants do
not participate in losses, the Company will allocate undistributed earnings when calculating basic and diluted earnings per
share in periods of net income only. The effect of the Warrants is excluded from the calculation of basic and diluted loss
per share in the fiscal year ended June 30, 2021.
The number of anti-dilutive shares that have been excluded in the computation of diluted earnings per share for the fiscal
years ended June 30, 2021, 2020 and 2019 were 8.0 million, 6.6 million and 1.9 million, respectively. The effect of
potentially dilutive shares was excluded from the calculation of diluted loss per share in the fiscal years ended June 30,
2021, 2020 and 2019 because the effect of including such securities would be anti-dilutive.
Note 15. Share-based Compensation
At June 30, 2021, the Company had two share-based employee compensation plans (the 2014 Long-Term Incentive Plan
(“LTIP”) and the 2021 LTIP). The 2021 LTIP, which authorized 3.0 million new shares of common stock for future
issuances, was approved by the stockholders of the Company in January 2021. Together these plans authorized an
aggregate total of 8.0 million shares to be issued. As of June 30, 2021, the plans have a total of 3.1 million shares available
for future issuances. No awards have been granted from the 2021 LTIP as of June 30, 2021.
Historically, the Company has issued share-based compensation awards with a vesting period ranging up to 3 years and a
maximum contractual term of 10 years. The Company issues new shares of stock when stock options are exercised. As
of June 30, 2021, there was $9.5 million of total unrecognized compensation cost related to non-vested share-based
compensation awards. That cost is expected to be recognized over a weighted average period of 2.0 years.
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Stock Options
The Company measures share-based compensation costs for options using the Black-Scholes option pricing model. The
following table presents the weighted average assumptions used to estimate fair values of the stock options granted, the
estimated annual forfeiture rates used to recognize the associated compensation expense and the weighted average fair
value of the options granted during the fiscal years ended June 30:
Risk-free interest rate
Expected volatility
Expected dividend yield
Forfeiture rate
Expected term
Weighted average fair value
2021
0.2 %
82.5 %
— %
— %
5.0 years
2020
1.9 %
73.7 %
— %
— %
5.1 years
2019
2.9 %
58.4 %
— %
6.5 %
5.3 years
$ 3.86
$ 4.00
$ 6.52
Expected volatility is based on the historical volatility of the price of our common shares during the historical period equal
to the expected term of the option. The Company uses historical information to estimate the expected term, which
represents the period of time that options granted are expected to be outstanding. The risk-free rate for the period equal to
the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The forfeiture rate
assumption is the estimated annual rate at which unvested awards are expected to be forfeited during the vesting period.
This assumption is based on our actual forfeiture rate on historical awards. Periodically, management will assess whether it
is necessary to adjust the estimated rate to reflect changes in actual forfeitures or changes in expectations. Additionally, the
expected dividend yield is equal to zero, as the Company has not historically issued and has no immediate plans to issue a
dividend.
A stock option summary as of June 30, 2021, 2020 and 2019 and changes during the years then ended, is presented below:
(In thousands, except for weighted average price and life data)
Awards
Weighted-
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life (yrs.)
Aggregate
Intrinsic
Value
Outstanding at June 30, 2018
Granted
Exercised
Forfeited, expired or repurchased
Outstanding at June 30, 2019
Granted
Exercised
Forfeited, expired or repurchased
Outstanding at June 30, 2020
Granted
Exercised
Forfeited, expired or repurchased
Outstanding at June 30, 2021
Vested and expected to vest at June 30, 2021
Exercisable at June 30, 2021
$ 22.46
1,057
$ 12.20
73
(94) $
4.06
(464) $ 30.61
$ 17.56
572
6.57
522
$
(56) $
5.42
(47) $ 24.73
12.11
991
$
5.95
$
309
(37) $
4.12
(217) $ 17.17
9.51
1,046
$
1,045
383
$
9.51
$ 14.82
$
$
$
$
$
$
$
$
$
2,584
5.4
311
273
237
678
61
25
25
25
5.0
5.6
7.2
7.2
4.9
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Table of Contents
Restricted Stock
The Company measures restricted stock compensation costs based on the stock price at the grant date less an estimate for
expected forfeitures. The annual forfeiture rate used to calculate compensation expense was 6.5% for fiscal years ended
June 30, 2021, 2020 and 2019.
A summary of restricted stock awards as of June 30, 2021, 2020 and 2019 and changes during the fiscal years then ended,
is presented below:
(In thousands, except for weighted average price data)
Non-vested at June 30, 2018
Granted
Vested
Forfeited
Non-vested at June 30, 2019
Granted
Vested
Forfeited
Non-vested at June 30, 2020
Granted
Vested
Forfeited
Non-vested at June 30, 2021
Performance-Based Shares
Weighted
Average Grant -
Awards date Fair Value Intrinsic Value
Aggregate
704
1,176
(434)
(158)
1,288
941
(773)
(112)
1,344
901
(805)
(90)
1,350
$
$
$
$
20.06
9.90
19.75
14.00
11.63
6.45
10.54
10.75
8.70
5.74
8.60
9.18
6.75
$
$
$
4,107
6,401
4,668
In September 2017, the Company approved a plan to begin granting performance-based awards to certain key executives.
The stock-settled awards will cliff vest based on relative Total Shareholder Return (“TSR”) over a three-year performance
period. The Company measures share-based compensation cost for TSR awards using a Monte-Carlo simulation model.
A summary of performance-based share awards as of June 30, 2021, 2020 and 2019 and changes during the current fiscal
years then ended, is presented below:
(In thousands, except for weighted average price and life data)
Non-vested at June 30, 2018
Granted
Vested
Forfeited
Non-vested at June 30, 2019
Granted
Vested
Forfeited
Non-vested at June 30, 2020
Granted
Performance adjustment (1)
Non-vested at June 30, 2021
________________________________________
148
Weighted
Average Grant -
date Fair Value
Awards
20
52
—
—
72
178
(46)
—
204
339
(12)
531
$
$
$
$
$
$
25.58
17.69
—
—
19.92
10.71
15.08
—
12.99
9.22
25.58
10.29
Table of Contents
(1)
Represents the adjustment based on the performance of the September 2017 awards, which was below the
Threshold goal level at the end of the three-year performance period.
Employee Stock Purchase Plan
In February 2003, the Company’s stockholders approved an Employee Stock Purchase Plan (“ESPP”). Employees eligible
to participate in the ESPP may purchase shares of the Company’s stock at 85% of the lower of the fair market value of the
common stock on the first day of the calendar quarter, or the last day of the calendar quarter. Under the ESPP, employees
can authorize the Company to withhold up to 10% of their compensation during any quarterly offering period, subject to
certain limitations. The ESPP was implemented on April 1, 2003 and is qualified under Section 423 of the Internal
Revenue Code. The Board of Directors authorized an aggregate total of 1.1 million shares of the Company’s common stock
for issuance under the ESPP. During the fiscal years ended June 30, 2021, 2020 and 2019, 109 thousand shares, 118
thousand shares and 185 thousand shares were issued under the ESPP, respectively. As of June 30, 2021, 1.0 million total
cumulative shares have been issued under the ESPP.
The following table presents the allocation of share-based compensation costs recognized in the Consolidated Statements
of Operations by financial statement line item:
(In thousands)
Selling, general and administrative expenses
Research and development expenses
Cost of sales
Total
Tax benefit at statutory rate
Note 16. Employee Benefit Plan
For Fiscal Year Ended June 30,
2020
2019
2021
$
$
$
7,016
538
1,483
9,037
2,033
$
$
$
7,087
801
2,328
10,216
2,299
$
$
$
5,715
750
2,562
9,027
2,031
The Company has a 401(k) defined contribution plan (the “Plan”) covering substantially all employees. Pursuant to the
Plan provisions, the Company is required to make matching contributions equal to 50% of each employee’s contribution,
not to exceed 4% of the employee’s compensation for the Plan year. Beginning January 1, 2021, the Company reduced the
matching contribution to 50% of each employee’s contribution, not to exceed 2% of the employee’s compensation for the
Plan year. Contributions to the Plan during the fiscal years ended June 30, 2021, 2020, and 2019 were $1.6 million, $2.2
million and $2.3 million, respectively.
In Fiscal 2020, the Company implemented a non-qualified deferred compensation plan for certain senior-level management
and executives. The non-qualified deferred compensation plan allows certain eligible employees to defer additional pre-tax
earnings for retirement, beyond the IRS limits in place under the Plan. Contributions to the non-qualified deferred
compensation plan during Fiscal 2020 were not material.
Note 17. Income Taxes
On March 27, 2020, in response to COVID-19 and its detrimental impact to the global economy, the Coronavirus Aid,
Relief, and Economic Security Act (“CARES Act”) was signed into law, which provided a stimulus to the U.S. economy in
the form of various individual and business assistance programs as well as temporary changes to existing tax law. Among
the changes to the provision in business tax laws include a five-year net operating loss carryback for the Fiscal 2019 - 2021
tax years, a deferral of the employer’s portion of certain payroll tax, and an increase in the interest expense deductibility
limitation for the Fiscal 2020 and 2021 tax years. ASC 740 requires the tax effects of changes in tax laws or rates to be
recorded in the period of enactment. As a result of the CARES Act, the Company will carry back its Fiscal 2021 taxable
loss into the Fiscal 2016 tax year, which resulted in an approximately $10.3 million tax rate benefit in the current year. In
Fiscal 2020, the Company carried back its taxable loss into the Fiscal 2015 tax year, which resulted in a an approximately
$2.8 million tax rate benefit in the fiscal year ended June 30, 2020.
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The following table summarizes the components of the provision for income taxes for the fiscal years ended June 30:
(In thousands)
Current Income Tax Expense (Benefit)
Federal
State and Local
Total Current Income Tax Expense (Benefit)
Deferred Income Tax Expense (Benefit)
Federal
State and Local
Total Deferred Income Tax Expense (Benefit)
Total Income Tax Expense (Benefit)
2021
2020
2019
$ (57,335) $
70
(57,265)
(7,082) $
405
(6,677)
13,185
(81)
13,104
112,414
5,476
117,890
60,625
$
(6,525)
(2,060)
(8,585)
(85,022)
(2,220)
(87,242)
$ (15,262) $ (74,138)
A reconciliation of the differences between the effective rates and federal statutory rates was as follows:
Federal income tax at statutory rate
State and local income tax, net
Nondeductible expenses
Nondeductible drug fee
Foreign rate differential
Income tax credits
Unrecognized tax benefits
Change in tax laws
Excess tax benefits on share-based compensation
Valuation allowance
Other
Effective income tax rate
150
June 30,
2021
June 30,
2020
June 30,
2019
21.0 %
(1.4)%
(0.1)%
(0.1)%
— %
0.2 %
— %
5.1 %
(0.3)%
(44.3)%
(0.1)%
(20.0)%
21.0 %
2.7 %
(1.1)%
(1.6)%
(0.1)%
2.5 %
(5.0)%
15.4 %
(0.8)%
— %
(1.6)%
31.4 %
21.0 %
0.5 %
(0.1)%
— %
(0.4)%
0.5 %
0.1 %
— %
(0.3)%
— %
0.1 %
21.4 %
Table of Contents
The principal types of differences between assets and liabilities for financial statement and tax return purposes are accruals,
reserves, impairment of intangibles, accumulated amortization, accumulated depreciation and share-based compensation
expense. A deferred tax asset is recorded for the future benefits created by the timing of accruals and reserves and the
application of different amortization lives for financial statement and tax return purposes. The Company’s deferred tax
liability is mainly attributable to different depreciation methods for financial statement and tax return purposes. A deferred
tax asset valuation allowance is established if it is more likely than not that the Company will be unable to realize certain of
the deferred tax assets. As of June 30, 2021 and 2020, temporary differences which give rise to deferred tax assets and
liabilities were as follows:
(In thousands)
Deferred tax assets:
Share-based compensation expense
Reserve for returns
Inventory
Federal net operating loss
State net operating loss
Impairment on Cody note receivable
Accumulated amortization on intangible assets
Foreign net operating loss
Interest carryforward
Operating lease
R&D carryforward
Other
Total deferred tax asset
Valuation allowance
Total deferred tax asset less valuation allowance
Deferred tax liabilities:
Prepaid expenses
Property, plant and equipment
Operating lease
Total deferred tax liability
Net deferred tax asset
June 30,
2021
June 30,
2020
$
$
1,779
8,213
6,047
273
9,415
1,157
112,548
1,792
21,111
2,890
1,334
849
167,408
(153,383)
14,025
239
11,525
2,261
14,025
$
— $
2,661
11,022
4,920
273
8,387
1,171
79,939
1,822
25,392
3,439
491
2,862
142,379
(14,622)
127,757
681
5,383
3,803
9,867
117,890
The federal and state and local tax deferred tax assets begin to expire in fiscal years 2026 and 2036, respectively. The
General Business Credit generated in fiscal year 2021 will expire in fiscal year 2041. The interest carryforward has an
indefinite life.
In the fourth quarter of Fiscal 2021, the Company recorded a full valuation allowance of its net deferred tax assets totaling
$153.4 million. In determining whether a valuation allowance was necessary, the Company reviewed all available positive
and negative evidence including forecasts of future taxable income, historical results of operations, statutory expirations
and available tax planning strategies, among other considerations. In accordance with ASC 740 Income Taxes, the weight
given to the evidence reviewed was commensurate with the extent each can be objectively verified. Based on our review,
the Company determined that the positive evidence related to longer-term projected profitability, when taking into
consideration the inherent uncertainty around the available data, was insufficient to overcome the significant negative
evidence attributed to recent historical losses incurred as well as the revised forecasts indicating continued competitive
pressures on our near-term outlook.
The Company may recognize the tax benefit from an uncertain tax position claimed on a tax return only if it is more likely
than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the
position. The tax benefits recognized in the financial statements from such a position should be measured based on the
largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.
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A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (exclusive of interest and
penalties) was as follows:
(In thousands)
Balance at June 30, 2019
Additions for tax positions of the current year
Additions for tax positions of prior years
Lapse of statute of limitations
Balance at June 30, 2020
Additions for tax positions of the current year
Additions for tax positions of prior years
Settlements
Balance at June 30, 2021
Balance
2,199
2,467
(51)
(24)
4,591
91
104
(240)
4,546
$
$
$
The amount of unrecognized tax benefits at June 30, 2021, 2020 and 2019 was $4.5 million, $4.6 million and $2.2 million,
respectively, of which $4.4 million, $4.5 million and $2.1 million would impact the Company’s effective tax rate,
respectively, if recognized.
The Company has not recorded any interest and penalties for the periods ended June 30, 2021, 2020 and 2019 in the
statement of operations and no cumulative interest and penalties have been recorded either in the Company’s Consolidated
Balance Sheet as of June 30, 2021 and 2020. The Company will recognize interest accrued on unrecognized tax benefits in
interest expense and any related penalties in operating expenses.
The Company files income tax returns in the United States federal jurisdiction and various states. The Company’s federal
tax returns for Fiscal Year 2014 and prior generally are no longer subject to review as such years are closed. The
Company’s Fiscal Year 2015 through 2017 federal returns are currently under examination by the Internal Revenue Service
(“IRS”). In March 2021, the Company was notified that its Fiscal Year 2020 federal return was also selected for
examination. The Company has received preliminary assessments from the IRS, which are not considered material to the
Company’s Consolidated Statements of Operations; however, we cannot reasonably predict the final outcome of the
examinations at this time. In October 2018, the Company was notified that the Commonwealth of Pennsylvania will
conduct a routine field audit of the Company’s Fiscal 2016 and Fiscal 2017 corporate tax returns. In March 2021, the
Company received a preliminary assessment from the Commonwealth of Pennsylvania, which is not considered material to
the Company’s Consolidated Statement of Operations. In December 2019, the Company was notified that the Florida
Department of Revenue will conduct a routine field audit of the Company’s Fiscal 2016, 2017 and 2018 corporate tax
returns. In December 2020, the Company settled the audit with the Florida Department of Revenue for an immaterial
amount.
Note 18. Related Party Transactions
The Company had sales of $2.6 million, $3.0 million and $3.8 million during the fiscal years ended June 30, 2021, 2020
and 2019, respectively, to a generic distributor, Auburn Pharmaceutical Company (“Auburn”), which is a member of the
Premier Buying Group. Jeffrey Farber, a current board member, is the owner of Auburn. Accounts receivable includes
amounts due from Auburn of $0.4 million and $0.7 million at June 30, 2021 and 2020, respectively.
Note 19. Assets Held for Sale
In the first quarter of Fiscal 2019, the Company approved a plan to sell the Cody API business, which includes the
manufacturing and distribution of active pharmaceutical ingredients for use in finished goods production. As a result of the
plan, the Company recorded the assets of the Cody API business at fair value less costs to sell. The Company performed a
fair value analysis which resulted in a $29.9 million impairment of the Cody Labs long-lived assets in Fiscal 2019.
152
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The Company was unable to sell the Cody API business as an ongoing operation and intended to sell the equipment
utilized by the Cody API business as well as the real estate upon receiving approval of the Company’s cocaine
hydrochloride solution Section 505(b)(2) NDA application and to have Cody Labs cease all operations. During Fiscal
2020, the Company completed the sale of the equipment associated with the Cody API business for approximately $3.0
million. In the second quarter of Fiscal 2020, the Company signed a two-year agreement to lease a portion of the real estate
to a third party.
In October 2020, the Company entered into an agreement for the sale of real estate associated with the Cody API business
for $3.8 million before fees and selling costs, subject to certain closing conditions. However, prior to closing, the buyer
terminated the transaction in December 2020. The Company continues to actively market the real estate. As of June 30,
2021, the remaining real estate associated with the Cody API business, totaling $2.7 million, is recorded in the assets held
for sale caption on the Consolidated Balance Sheets.
The following table summarizes the financial results of the Cody API business for the fiscal years ended June 30, 2021,
2020 and 2019:
(In thousands)
Net sales
Pretax loss attributable to Cody API business
Fiscal Year Ended
June 30,
2020
2021
$ — $ 1,067 $
(761)
(6,549)
2019
3,139
(51,509)
The pretax loss attributable to the Cody API business during the fiscal year ended June 30, 2020 includes a full impairment
of a $1.2 million ROU lease asset that was recorded upon adoption of ASU No. 2016-02 on July 1, 2019.
The pretax loss attributable to the Cody API business during the fiscal year ended June 30, 2019 includes impairment
charges totaling $32.8 million to adjust the long-lived assets to their fair value less costs to sell.
153
Exhibit 10.90
CERTAIN INFORMATION HAS BEEN EXCLUDED FROM THIS EXHIBIT BECAUSE
IT IS NOT MATERIAL AND WOULD LIKELY CAUSE COMPETITIVE HARM TO THE
REGISTRANT IF PUBLICLY DISCLOSED.
[***] INDICATES THAT INFORMATION HAS BEEN REDACTED.
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT (this “Agreement”) is made this 26th day of
September, 2019 (the “Effective Date”), by and between Respirent Pharmaceuticals Co. Ltd., a
Chinese company having an address of 5-190, Yunham Drive, High-Tech Industrial Park, Shuitu,
Beibei District, Chongqing 400714 China (“Supplier”), and LANNETT COMPANY, INC., a
Delaware corporation having an address of 9000 State Road, Philadelphia, PA 19136 and its
Affiliates (“Lannett”). Lannett and Supplier are separately referred to as “Party” or jointly as
“Parties.”
BACKGROUND
WHEREAS, Supplier is engaged in the business of developing, manufacturing and
supplying various pharmaceutical Products; and
WHEREAS, Lannett desires to purchase certain of those Products from Supplier for
purposes of marketing and distributing those Products, on the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the promises and the mutual covenants set forth
herein and for other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Parties hereby agree as follows:
1.
DEFINITIONS.
1.1. “Additional Distribution Fee” has the meaning set forth in Section 3.7.
1.2. “Adverse Event” means any untoward medical occurrence in a patient or clinical
investigation subject who is administered a Product, but which does not necessarily have a
causal relationship with the treatment for which a Product is used. An “Adverse Event” can
include any unfavorable and unintended sign (including an abnormal laboratory finding),
symptom or disease temporally associated with the use of a Product, whether or not related to a
Product. A pre-existing condition that worsened in severity after administration of a Product
would be considered an “Adverse Event”.
1.3. “Affiliate(s)” of a Party means any other person or legal entity directly or indirectly
controlling or controlled by or under direct or indirect common control with such Party. For the
purpose of this definition, “control” when used with respect to a specified person or legal entity
means the power to direct the management and policies of such person or legal entity directly or
indirectly, whether through the ownership of voting securities, by contract or otherwise.
Lannett Company, Inc. Distribution Agreement
1
1.4. “Agreement” has the meaning set forth in the Preamble of this Agreement.
1.5. “ANDA” means an Abbreviated New Drug Application (including any
amendments, submissions and supplements thereto) as defined in Section 505(j) of the FD&C
Act.
1.6. “Applicable Laws” means all applicable statutes, ordinances, regulations, codes,
rules, or orders of any kind whatsoever of any governmental authority in the Territory, including
the FD&C Act, the Generic Drug Enforcement Act of 1992 (21 U.S.C. § 335a et seq.), the
Prescription Drug Marketing Act, the Anti-Kickback Statute (42 U.S.C. § 1320a-7b et seq.), the
Health Insurance Portability and Accountability Act of 1996, the Federal False Claims Act (31
U.S.C. §3729-3733), the Code, the Department of Health and Human Services Office of
Inspector General Compliance Program Guidance for Pharmaceutical Manufacturers, released
April 2003, the Antifraud and Abuse Amendment to the Social Security Act, the AMA
guidelines on gifts to physicians, as well as any state laws impacting the promotion of
pharmaceutical products, including any state anti-kickback/fraud and abuse related laws, all as
amended from time to time.
1.7. “Business Day”
means any day other than a Saturday, a Sunday, or a day on
which banks in the State of Delaware or China are required or authorized to close.
1.8. “Commercial Launch” means with respect to each dosage strength of the Product,
the first sale of such dosage strength of the Product by Lannett, or a Lannett Affiliate, to an
unaffiliated third party for end use or consumption after the FDA has approved the ANDA for
such dosage strength of the Product.
1.9. “Competitor(s)”means any third party selling a generic, authorized generic or
brand at generic price levels of the same molecule, strength and dosage form.
1.10. “Confidential Information”
means all Intellectual Property Rights and
confidential facts relating to the business and affairs of a Party or any of its Affiliates, including
financial information, business opportunities, information relating to pharmaceutical products of
any nature whatsoever, know-how, and compilations of information in any form whatsoever;
provided, however, that “Confidential Information” shall not include any information that
(a) was already in the public domain at the time of disclosure; (b) becomes part of the public
domain through no action or omission of the receiving Party after disclosure to the receiving
Party; (c) was already lawfully known to the receiving Party, other than under an obligation of
confidentiality to the disclosing Party, at the time of the disclosure by the other Party, as shown
by documentary evidence; (d) was independently discovered or developed by the receiving
Party without the use of Confidential Information belonging to the disclosing Party as shown by
pre-existing proof; or (e) was disclosed to the receiving Party, other than under an obligation of
confidentiality to which a third party was subject, by a third party who had no obligation to the
disclosing Party not to disclose such information to others, as shown by independent proof.
1.11.“Cost of Goods Sold” means the fully burdened cost of manufacturing a Product,
which consists of the direct and indirect costs associated with acquiring the materials, the
manufacturing, testing and analysis of the finished dosage of a Product, quality control,
Lannett Company, Inc. Distribution Agreement
2
quality assurance, idle and stability costs, warehousing costs before shipment, labeling, and
packaging, labor (including benefits), depreciation and overhead, shipping to port of US entry
under CIP, all determined in accordance with GAAP.
1.12. “Distribution Fee” has the meaning set forth in Section 3.7.
1.13.“FDA”
means the United States Food and Drug Administration or any
successor agency which issues a Regulatory Approval for the marketing of a Product in the
United States.
1.14.“FD&C Act” has the meaning set forth in Section 11.1.
1.15.“Forecast”
has the meaning set forth in Section 5.1.
1.16.“Gross Profits” means an amount equal to (i) the Net Sales of a Product, minus the
sum of (ii) the Cost of Goods Sold, and (iii) shipping costs from port of US entry to Lannett’s
Place of Delivery.
1.17.“Initial Distribution Fee” has the meaning set forth in Section 3.7.
1.18.“Intellectual Property Rights” means all patents, copyrights, trademarks, service
marks, service names, trade names, internet domain names, e-mail addresses, applications or
registrations for any of the foregoing, or extensions, renewals, continuations or re-issues
thereof, or amendments or modifications thereto, brandmarks, brand names, trade dress, labels,
logos, know-how, show-how, technical and non-technical information, trade secrets, formulae,
techniques, sketches, drawings, models, inventions, designs, specifications, processes,
apparatus, equipment, databases, research, experimental work, development, pharmacology and
clinical data, software programs and applications, software source documents, Third-Party
licenses, and any similar type of proprietary Intellectual Property Right vesting in the owner
and/or licensee thereof pursuant to the Applicable Laws of any relevant jurisdiction or under
any applicable license or contract, whether now existing or hereafter created, together with all
modifications, enhancements and improvements thereto.
1.19. “Loss(es)” means any and all losses, costs, damages, interests, fees or
expenses, including but not limited to all reasonable attorneys’ fees, experts’ or
consultants’ fees, expenses and costs.
1.20.“Minimum Safety Stock Level”
has the meaning set forth in Section 5.8.
1.21.“Net Profit” means an amount equal to the Gross Profit of a Product, minus the
Sales, Marketing and Distribution Allowance.
1.22.“Net Profit Split” has the meaning set forth in Section 3.8.
1.23. “Net Sales” means the aggregate gross sales proceeds billed for a Product by
Lannett minus:
Lannett Company, Inc. Distribution Agreement
3
(a)
(b)
(c)
(d)
(e)
Any service and administrative fees charged to Lannett by third parties
related to the Product, such as contract administration fees, analytic fees, and
redistribution fees;
Any and all promotional allowances, including, but not limited to, credits,
chargebacks, rebates to government agencies or retailers, and quantity and
cash discounts, and other usual and customary discounts to customers;
Amounts refunded, repaid or credited to wholesalers and retailers for
rejections, returns, recall of goods, shelf stock adjustments or retroactive
price reductions;
Customary cash prompt pay discounts all calculated in accordance with
GAAP; and
Any sales, excise, turnover, inventory, value-added, and similar taxes and
duties assessed on applicable sales.
1.24.“Place of Delivery” means delivery at Lannett’s warehouse located at 1101 “C”
Avenue West, Seymour, IN 47274.
1.25.“Product”
has the meaning set forth in Section 2.1.
1.26.“Purchase Order” has the meaning set forth in Section 5.2.
1.27.“Quality Agreement” means the agreement related to quality assurance and
control, by and between Supplier and Lannett, as further detailed in Section 7.4 hereof.
1.28.“Regulatory Approval” means all approvals or authorizations granted by the FDA
for the marketing of a Product in the Territory.
1.29. “Regulatory Requirements” means all applicable Regulatory Approvals,
licenses, registrations, GMPs, and authorizations and all other requirements of the FDA in
relation to Product, including each of the foregoing which is necessary for, or otherwise
governs, the manufacture, marketing, packaging and testing of Product in the Territory.
1.30.“Safety Data Exchange Agreement (SDEA)” means the agreement related to
safety reporting, by and between Supplier and Lannett, as further detained in Section 7.3 hereof.
1.31.
Sales, Marketing and Distribution Allowance” has the meaning set forth
in Section 9.1.
1.32.“Territory” means the United States of America, and its territories and
possessions.
1.33.“Upfront Payment” has the meaning set forth in Section 3.7.
2.
APPOINTMENT; COMMITMENT BY SUPPLIER.
Lannett Company, Inc. Distribution Agreement
4
2.1. Appointment. Supplier hereby appoints Lannett as the authorized exclusive
distributor of record in the Territory for the products set forth on Exhibit A (“Product”).
Exhibit A may be amended by Supplier from time to time, upon mutual agreement of Lannett,
and upon the terms set forth herein. Lannett may exercise its rights and obligations hereunder
itself or through its Affiliates, local companies and wholesalers.
During the Term of this Agreement, neither Party will develop or commercialize any other
Fluticasone Propionate – Salmeterol Xinafoate Powder Inhaler formulations which would be an
AB rated product to Advair Diskus in the Territory.
If requested, during the Term of the Agreement Lannett shall provide long term office
space to Supplier within Lannett’s offices for two (2) or three (3) people at no cost. Additional
office space, as needed, can be negotiated as a pass through cost.
2.2. Sales to Lannett. Supplier will sell and supply Product to Lannett for distribution in
the Territory during the Term (as defined in Section 16.1), on the terms and conditions set forth
in this Agreement, as it may be amended as provided herein. Supplier shall be responsible for
the purchase of adequate supplies of all materials, including, without limitation, raw materials,
in accordance with the ANDA for the Product, and other filings with FDA for the Product, as
necessary to supply finished Product to Lannett in accordance with Applicable Laws.
2.3. Scope of Agreement. This Agreement will serve as the master agreement between
the Parties and, as such, sets forth all of the terms and conditions concerning, and will apply to
all purchases by Lannett of Product during the Term. The terms and conditions of this
Agreement will apply to all purchase orders issued hereunder. In no event will any terms or
conditions included on any purchase order, invoice or acknowledgement thereof or any other
document, whether paper, electronic or otherwise, relating thereto, apply to the relationship
between the Parties under this Agreement, unless such terms are expressly agreed to by the
Parties in writing. If there is a conflict between the terms of any purchase order or other
document and this Agreement, the terms of such purchase order or other document will control,
but only if it has been signed by both Parties and solely to the extent of the conflict. Otherwise,
this Agreement will control. The Parties further agree that no course of dealing between the
Parties will in any way modify, change or supersede the terms and conditions of this Agreement.
3.
PRODUCT PRICES; PAYMENTS.
3.1. Prices. Prices payable by Lannett for Product during the Term of this Agreement
(“Pricing”) will be set forth on Exhibit A, as agreed upon by Lannett and based upon [***]. All
sums will be expressed in and payable in U.S. Dollars and all prices are exclusive of VAT or
other taxes. Failure to comply with the provisions of this Section 3.1 will be a material breach
of this Agreement.
3.2. Pricing Modifications. Supplier shall use commercially reasonable efforts to reduce
its manufacturing expenses for the Product. At either Party’s written request, the Parties will
discuss in good faith the revision of the Pricing (and any subsequently agreed prices) to take
into account adverse market conditions resulting in unsatisfactory returns for
Lannett Company, Inc. Distribution Agreement
5
Lannett or changes in the manufacturing costs for the Products. The revised Pricing shall be laid
down in writing and inserted as an amended Exhibit A to this Agreement. Confirmed orders are
excluded from Pricing negotiations. [***]
3.3. Date of Price. Supplier agrees to accept Purchase Orders at the prices in effect on
the day the order is confirmed in writting. Under no circumstances will a Purchase Order be
cancelled by Supplier or Lannett without mutual agreement.
3.4. Last Buy. Upon early termination, Lannett shall be entitled to buy up to six (6)
months’ supply to address failure to supply provisions.
3.5. Modification of Orders. Purchase Orders may be modified upon mutual agreement
up to four (4) weeks prior to the earliest delivery date applicable to such Purchase Order.
3.6. Payment Terms. Unless otherwise set forth in this Agreement, Supplier will offer
Lannett payment terms of net [***] days; provided, however, that Lannett will not be obligated
to pay any disputed amounts until such dispute has been resolved. Payment terms for new
Product introductions will be [***] on the first two Purchase Orders submitted by Lannett
within [***] days after the date on which the new Product is available to be ordered by Lannett.
3.7. Distribution Fee.
(a) Within five (5) business days after Lannett’s receipt of a fully executed copy of
this Agreement, Lannett shall pay to Supplier the sum of [***] (the “Upfront Payment”).
(b) Within five (5) business days after Lannett’s receipt of the next successful BE
study report, Lannett shall pay to Supplier the sum of [***].
(b) Upon FDA filing acceptance of the Product, Lannett shall pay to Supplier the
sum of [***] (the “Initial Distribution Fee”).
(c) Upon FDA approval of the Product, Lannett shall pay to Supplier the sum of
[***] (the “Additional Distribution Fee” and together with the Upfront Payment and the Initial
Distribution Fee, the “Distribution Fee”).
3.8. Net Profit Split.
(a)
During the Term, Lannett shall pay to Supplier an amount equal to either (i)
[***] OR (ii) [***] (“Net Profit Split”). In no case shall the Net Profit Split for any calendar
quarter be negative; provided, however in the event of a loss in any calendar quarter, the amount of
that loss shall be carried forward to subsequent calendar quarters until the amount of such loss has
been fully absorbed. In the event that Net Profits for calendar quarter are negative, Lannett shall
carry over the Net Profit Split multiplied by the value by which the Net Profits are negative in such
calendar quarter and deduct this amount from the calculation of Net Sales for the following
calendar quarter. If Net Profits are negative in [***] or more consecutive calendar quarters, Lannett
shall invoice Supplier the Net Profit Split multiplied by the value by which the
Lannett Company, Inc. Distribution Agreement
6
Net Profits are negative for the previous calendar quarter and carry over the Net Profit Split
multiplied by the value by which Net Profits are negative for the current calendar quarter. For the
avoidance of doubt, if Net Profits are negative in subsequent calendar quarters, the amounts will be
similarly carried over or reimbursed as per the terms set forth in this Section 3.8 until Net Profits
are positive. Reimbursement of negative Net Profits owed by Supplier in this Section 3.8 shall be
payable to Lannett within forty-five (45) days after receipt of an invoice from Lannett. [***].
(b)
An example of the calculation of the sharing of Net Profits pursuant to this
Section 3.8, for illustration purposes only, follows:
[***]
(c)
An example of the calculation of Negative Net Profits pursuant to this
Section 3.8, for illustration purposes only is:
[***]
3.9. Reporting and Payment. Not later than thirty (30) days after the end of each
calendar quarter, through and including the calendar quarter in which all rebate and chargeback
amounts on Product sold during the Term are finally reconciled, Lannett shall deliver to
Supplier a written report that specifies the Cost of Goods Sold, shipping costs from Supplier to
Lannett’s Place of Delivery, the Net Sales and the Sales, Marketing and Distribution Allowance
that were used to calculate the Net Profit with respect to such calendar quarter, as well as the
Net Profit calculation pay to Supplier the amount owed with respect to such calendar quarter.
4.
SUPPLIER OBLIGATIONS.
4.1. Government Reporting. Supplier shall provide Lannett with necessary information
to the extent of supporting Lannett’s government reporting obligations.
4.2. Supplier Code of Conduct. Supplier will at all times comply with, and cause all of
its subcontractors and suppliers to comply with, the Supplier Code of Conduct on Lannett’s
website at https://www.lannett.com/supplier-code-of-conduct, as the same may be amended
from time to time at Lannett’s discretion.
4.3. Authorized Distributor Status. Within ten (10) business days after the execution of
this Agreement, Supplier will deliver to Lannett a letter designating Lannett as an Authorized
Distributor of Record.
5.
FORECASTS AND ORDERS; DELIVERY.
5.1.
Forecast. Lannett shall provide Supplier with a quarterly rolling forecast of its
estimated purchase requirements for the next twelve (12) months with the first six (6) months of
such forecast being binding on Lannett. It is understood that the remaining six (6) months of
said forecasts shall not be binding on Lannett and shall be provided to Supplier for planning
purposes only. Supplier shall use commercially reasonable efforts to fully meet
Lannett Company, Inc. Distribution Agreement
7
Lannett’s sales request above Lannett’s requirement forecast of Product for the applicable
period. Lannett’s minimum purchase requirement shall be [***] (the “Minimum Purchase
Requirement”). If in any twenty-four (24) month period, Lannett does not meet the
Minimum Purchase Requirement, or over any twelve (12) month period does not meet
fifty percent (50%) of the Minimum Purchase Requirement, Supplier may terminate with
six (6) months’ written notice.
5.2. Purchase Orders. Lannett will order Product by placing a firm purchase order with
Supplier at least four (4) months in advance of the proposed shipping date (“Purchase Order”).
Lannett will have the right to place orders for Product up through the last day of the Term of this
Agreement. Supplier will fill all orders even though Product may be shipped and paid for after
this Agreement has expired or terminated. Purchase Orders shall include the shipping
instructions in accordance with Exhibit B hereto. All Purchase Orders shall be in writing and
shall include:
-
-
-
-
the proposed quantity of the Products to be purchased;
the proposed shipping date;
any other information dictated by this Agreement or the circumstances
of the order; and
a description of the Products being ordered
5.3.
Confirmation of Purchase Order. Supplier shall, within five (5) Business Days of
receipt of a Purchase Order, confirm in writing whether a given Purchase Order has been
accepted. If such notification is not received by Lannett within five (5) Business Days of receipt
of such Purchase Order, the Purchase Order shall be deemed accepted. Supplier shall be
required to accept all Purchase Orders which are provided to Supplier in accordance with the
terms and conditions of this Agreement. All accepted Purchase Orders are construed as Firm
Orders.
5.4.
Shelf-Life. Unless otherwise agreed in writing by the Parties, shelf-life of the
Product at the shipping date shall be no more than [***] from the manufacture date of the
Product in the Territory, excluding initial launch batches.
5.5.
Packaging of Product. Supplier shall package the Product in a manner that will
protect the Product against damage or deterioration under normal conditions and shall advise
Lannett as to any special conditions which may be required during transit and storage thereof.
5.6.
Title; Delivery. Title to, all rights in and all risk of loss to the Product shall
remain with Supplier until the Product has been delivered to the carrier in accordance with the
agreed delivery terms. Supplier shall preserve and package all Product in a manner that will
afford adequate protection against corrosion, deterioration and physical damage during
shipment, and must conform to common carrier rules and regulations and Lannett’s directions
for shipment. Furthermore, all costs, risks of loss, and damages due to (i) holds or enforcement
actions by the U.S. Department of Agriculture or the FDA, and (ii) taxes and duties imposed
upon the delivery of the Product, shall be the responsibility of Supplier until receipt of the
Product by Lannett. Supplier agrees that Lannett may (but is not required to) accept delivery of
fewer than all of the items ordered hereunder. In the event Lannett accepts
Lannett Company, Inc. Distribution Agreement
8
one or more partial deliveries, Supplier agrees to present for payment a separate invoice for each
delivery.
5.7.
Serialization. All Product delivered by Supplier to Lannett shall meet serialization
requirements, as outlined in the Drug Supply Chain Security Act (Title II of the Drug Quality
and Security Act) signed into law on November 27, 2013. Requirements include, but are not
limited to, the addition of Product identifiers imprinted on each sellable unit, on each
homogeneous case and on each pallet intended to be introduced in the United States market.
Unique product identifiers will include a national drug code, serial identifier (provided by
Lannett), lot number, and expiration date. Serial numbers must be aggregated from item to case
and case to pallet.
5.8.
Safety Stock. Lannett shall use good faith efforts to maintain not less than three (3)
months of inventory of the Product based upon the forecast provided under Section 5.1 (the
“Minimum Safety Stock Level”). If Supplier is unable to meet its obligations to supply a
Product, Lannett shall draw upon its Minimum Safety Stock Level in an amount equal to
Supplier’s inability to supply a Product and, upon Lannett’s drawing upon its Minimum Safety
Stock Level, Lannett’s obligation to maintain the Minimum Safety Stock Level shall be reduced
by the amount of Product drawn down until Supplier has replenished the Minimum Safety Stock
Level to the agreed amount set forth above. At such time as Supplier is able to resume supply
of a Product pursuant to new Purchase Orders, the Parties shall enter into good faith discussions
to determine the timetable on which Supplier will replenish the Minimum Safety Stock Level.
Lannett shall place Purchase Orders pursuant to such schedule until Supplier has replenished
such Minimum Safety Stock Level.
5.9. Shipment. All orders will be shipped by Supplier to Lannett at the location
indicated on Lannett’s Purchase Order and in accordance with the shipping instructions set forth
on Exhibit B. Unless Lannett and Supplier agree otherwise in writing, all Product will be
shipped CIP Point of US Entry (Incoterms 2010) destination, freight prepaid. Title to and risk
of loss of Product sold to Lannett will pass to Lannett upon delivery of Product to the carrier,
free and clear of all third party liens, security interests, claims and/or encumbrances of any kind
or nature.
6.
DELAY IN DELIVERY; FAILURE TO SUPPLY.
6.1. Delay in Delivery. Supplier shall deliver the Product in accordance with Section
5.9 on the date stated in the confirmation of the Purchase Order. Supplier will notify Lannett
immediately if Supplier cannot deliver the Product on or before the stated delivery date or if
Supplier anticipates any failure to meet Lannett’s binding forecasted supply of the Product
(“Failure to Supply”), and Supplier shall provide Lannett, as soon as reasonably possible, with
a new date of delivery.
6.2. Failure to Supply. If a Failure to Supply event occurs based on binding forecast set
forth in Section 5.1, then Supplier shall be liable, upon reasonable proof by Lannett (redacted to
preserve confidentiality), for any and all costs, fees, penalties, charges or amounts, if any,
otherwise incurred by Lannett, resulting directly or indirectly from such Failure to Supply.
Lannett may, in its sole discretion, invoice Supplier for the amount of such
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Failure to Supply or offset such amount against the amounts otherwise payable to Supplier
pursuant to this Agreement.
7.
REGULATORY MATTERS.
7.1. Regulatory Responsibilities. Supplier will, at its own cost and expense, continue to
own and maintain the applicable Regulatory Approvals necessary to market the Product in the
Territory. Supplier shall be responsible for all regulatory and safety reporting requirements
associated with ownership of the Regulatory Approvals, including, without limitation, Periodic
Adverse Drug Experience Reports and Annual Reports mandated by the Applicable Laws in the
Territory. Additionally, Supplier shall be responsible for complying with Applicable Laws to
appropriately categorize and report changes to the FDA, including without limitation,
amendments, supplements, and Annual Reports. All communications by Supplier with the FDA
relating to the Product as marketed in the Territory shall be promptly provided in writing to
Lannett, and Supplier shall promptly provide Lannett copies of all documents sent to or received
from the FDA regarding the Product.
At Supplier’s request, Lannett will advise Supplier on all regulatory matters at no direct
charge. Also at Supplier’s request, Lannett will act as Supplier’s agent for the purpose of
coordinating with the FDA and the electronic publishing of submissions and FDA
correspondence as needed. Lannett shall be entitled to attend all meetings and participate in
conference calls with the FDA under Respirent’s supervision.
7.2. Labeling. Supplier shall be responsible for the creation, content, and printing of the
labeling for the Product under Lannett’s guidance for Lannett’s labeling specifications. Supplier
shall send Lannett all labeling materials for the Product (e.g., package insert, container label,
carton label, medication guide, patient labeling, etc.) in final format for Lannett’s review and
final written approval. Supplier is responsible for ensuring the most current labeling content,
consistent with the reference listed drug (“RLD”) labeling content and all requested FDA
updates, is used on Product supplied to Lannett. Supplier is responsible for notifying Lannett
within three (3) business days of any FDA communication requesting changes to labeling
materials, including Safety Change Notifications and changes requested per section 505(o)(4) of
the FD&C Act. Supplier will provide Lannett with a copy of all FDA communications related
to labeling. All changes to labeling materials for the Product require Lannett’s review and final
written approval. Labeling materials that have not been subject to Lannett’s review and written
approval are prohibited to be used on Product supplied to Lannett. Supplier is responsible for
submitting the content of labeling in Structured Product Labeling (“SPL”) format to the FDA
for Lannett’s NDC numbers within fourteen (14) days of ANDA approval to ensure proper drug
listing. Supplier is also responsible for submitting updated SPL files within fourteen (14) days
when labeling changes are made and approved and as required by Applicable Laws.
7.3. Monitoring Adverse Events
. Supplier shall be responsible for all safety reporting
requirements associated with ownership of the Regulatory Approvals mandated by the Laws in
the Territory. All activities associated with pharmacovigilance and safety monitoring will be
handled by Lannett outside of any regulatory filings which will be handled by Supplier. All
costs associated with those activities will be deducted from Supplier’s Net
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Profits. The Parties shall enter into a separate Safety Data Exchange Agreement (“SDEA”)
substantially in the form set forth in Exhibit C to this Agreement. The SDEA shall be executed
as early as possible but no later than the date of first commercial marketing of the Products
covered by the present Agreement. To the extent there are any inconsistencies or conflicts
between this Agreement and the SDEA, the terms and conditions of this Agreement shall
control unless specifically otherwise agreed to in writing by the Parties. Notwithstanding the
foregoing, in matters regarding safety reporting, the terms of the SDEA shall supersede those in
this Agreement. Supplier, as the owner of the ANDA for the Product, shall be solely responsible
for FDA reporting in relation to the Product.
7.4. Quality Agreement and Quality Complaints. The Parties shall negotiate in good
faith and use commercially reasonable efforts to enter into a Quality Agreement, substantially in
the form set forth in Exhibit D to this Agreement, within ninety (90) days after the Effective
Date, which Quality Agreement will set out the policies, procedures and standards by which the
Parties will coordinate and implement the operation and quality assurance activities and
regulatory compliance objectives contemplated under this Agreement with respect to the
Product. To the extent there are any inconsistencies or conflicts between this Agreement and
the Quality Agreement, the terms and conditions of this Agreement shall control unless
specifically otherwise agreed to in writing by the Parties. Notwithstanding the foregoing, in
matters regarding quality, the terms of the Quality Agreement shall supersede those in this
Agreement.
7.5. Cooperation
. Without limiting the foregoing, each of Supplier and Lannett shall
provide to each other in a timely manner with all information which the other Party reasonably
requests regarding the Product in order to enable the other Party to comply with all Applicable
Laws applicable to the Product in the Territory. Each of Supplier and Lannett shall provide to
the other or, if applicable, directly to the FDA, any assistance and all documents reasonably
necessary to enable the other to carry out its obligations under this Section 7. In general,
requests for cooperation should be responded to by the other Party within three (3) Business
Days and both should make responsible efforts to ensure that cooperation is maintained to
ensure completion of the given project.
8.
PRODUCT QUALITY AND PRODUCT RECALLS.
8.1. Product Testing. Supplier shall be responsible for Product test procedures for
quality assurance before any Product is delivered to Lannett. Supplier shall provide a certificate
of analysis and other documents (collectively, the “COA”) as set forth in the Quality
Agreement, in such forms as the Parties shall agree upon, for any Product batch delivered to
Lannett hereunder, certifying that such Product has been manufactured and packaged in
compliance with its specifications, GMPs and all other applicable Regulatory Requirements.
8.2. Damage. Lannett shall inspect all shipments of Product promptly after receipt. If
Lannett receives Product with visible damage, Lannett will reject the non-conforming Product
within thirty (30) days, note the damage on the delivery slip and promptly report the damage to
Supplier’s customer service department, requesting that Supplier accept prompt return of the
damaged Product (“Rejection Notice”). Supplier will promptly provide Lannett with
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disposition instructions in writing (including by email). Unless otherwise instructed by
Supplier, Lannett will hold damaged Product for inspection for fifteen (15) days after receipt.
Supplier will bear all freight and incidental costs incurred by Lannett in connection with
damaged Product. If Lannett does not issue the Rejection Notice to Supplier within thirty (30)
days, then all Product will be deemed accepted by Lannett.
(a)
If Supplier agrees with or is deemed to agree with the basis for Lannett’s
Rejection Notice, then Supplier shall promptly replace, at no cost to Lannett, such rejected
Product.
(b)
If Supplier disagrees with the basis for Lannett’s rejection specified in the
Rejection Notice, Supplier shall promptly replace such rejected Product. No payment shall be due
with respect to the replacement Product until it is determined which Party shall bear the burden of
such cost hereunder. The Parties shall submit samples of the rejected Product for testing and/or
resolution to a mutually acceptable third party laboratory approved by the FDA or a quality
consultant (if not a laboratory analysis issue) within convenient proximity to Supplier. The third
party laboratory or quality consultant shall determine whether such Product conforms to the
confirmed Purchase Order or in which way the Products are defective. The Parties agree that the
determination of the third party laboratory or quality consultant shall be final and determinative. If
the third party laboratory or quality consultant determines that the rejection by Lannett was
unjustified, then Lannett shall promptly pay Supplier for any replacement Product. If the third
party laboratory or quality consultant determines that the relevant shipment of Product does not
conform to the Purchase Order or other regulatory requirements, then Supplier shall not invoice
Lannett for the replacement Product. The Party against whom the third party laboratory or quality
consultant rules shall also bear all cost and fees charged by the third party laboratory or quality
consultant in connection with resolution of the disagreement, including all out-of-pocket costs.
8.3. Incorrect shipment. In the event of an incomplete shipment, a shortage in shipment,
the misdirection of any delivery, or any overshipment, Supplier, upon written notification from
Lannett, will immediately contact Lannett’s purchasing department and will comply with any
reasonable directions provided with respect to the delivered and undelivered portions of the
affected order(s). Supplier will be responsible for any related freight or incidental charges
caused by the incorrect shipment. Lannett will not have any obligation to accept overshipments.
8.4. Latent Defects and Recall. The Parties acknowledge that it is possible for Product
to have manufacturing defects that are not discoverable through industry standard physical
inspection or testing (“Latent Defects”). Latent Defects may include, by way of illustration
and not definition or limitation, loss of potency/stability, discoloration, contamination with
foreign matter or substances or other manufacturing defects. Supplier will remain responsible
for all Latent Defects except to the extent due to Lannett’s negligence or willful misconduct.
Lannett will maintain such traceability records as are necessary to permit a recall, market
withdrawal or field correction of a Product, including inventory withdrawal in connection with
any of the foregoing (each a “Recall”). If either Party discovers or becomes aware of a Latent
Defect, or any safety or regulatory concerns, or any order, request or directive of a court or the
FDA requesting or requiring a Recall, it will notify the other Party in writing in
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accordance with Section 8.5 below. Supplier will be responsible for any related freight or
incidental charges related to Latent Defects.
8.5. Notification of Recall. If any regulatory authority or other governmental agency
issues or requests a Recall or takes similar action in connection with a Product in the Territory,
or if Lannett reasonably determines after consultation with Supplier that an event has occurred
which may result in the need for a Recall, or if Supplier reasonably believes that a recall is
warranted, the Party notified of or wishing to implement such Recall shall, within forty-eight
(48) hours (regardless of weekday, weekend or holiday), advise the other Party thereof by
telephone, facsimile or e-mail, after which the Parties shall promptly discuss and work together
to effect an appropriate course of action. Supplier shall be responsible for notifying the
Regulatory Authorities in the Territory of any voluntary Recall and implementing any Recalls.
Supplier shall be responsible for coordinating all the necessary activities in connection with
such Recall; provided, however, if a Recall is implemented as a result of Lannett’s negligence,
gross negligence, or willful misconduct, Supplier shall either request Lannett to coordinate such
Recall or Supplier shall coordinate the Recall and seek reimbursement from Lannett for costs
directly related to such Recall. The Parties shall fully cooperate with one another to fully
implement any Recall. Supplier agrees to forward to Lannett a copy of any field
communication associated with the Products that it plans to issue before such communication is
issued or sent to any governmental agency. Supplier will maintain complete and accurate
records of any activities conducted with respect to any Recall for such period as may be
required by Applicable Laws. Following any Recall, Supplier will review all of its procedures
as impacted by the identified root cause in the associated investigation, and will revise such
procedures, as necessary, to correct the cause of such Recall subject to the change control
requirements set forth in the Quality Agreement. Supplier will provide Lannett with such
information regarding such review and revisions as Lannett may request and Supplier shall
provide Lannett the right to approve, reject or request modifications to the proposed changes.
For clarity, Supplier shall have the final decision making authority with respect to determining
the necessity and nature of the action to be taken.
8.6. Recall Expenses. Supplier shall pay all out-of-pocket expenses in connection with a
Recall, except that Lannett shall bear such direct out-of-pocket expenses to the extent that such
Recall is implemented as a result of Lannett’s negligence or willful misconduct under this
Agreement. For such purposes, recalled Product units shall include both units held by Lannett in
inventory and units shipped by Lannett to its customers, as applicable. Lannett shall utilize a
batch tracking and recall system which will enable Lannett to identify, on a reasonable prompt
basis, customers within the Territory who have been supplied with Product of any particular
batch, and to recall such Product from such customers. If a Recall is partially caused by the
actions or omissions of both Parties, then each Party shall be responsible for its proportionate
share of the Recall expenses based on its proportionate share of causation. Recall expenses
include the expenses of notification, shipping, return, replacement (if possible), customer fees
and penalties, and destruction of recalled Products (including Products which cannot be shipped
due to the condition causing the Recall). The Parties shall discuss in good faith and agree on the
scope and costs of Recall, if practicable, prior to enforcement of the Recall.
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8.7. Notice of Failure to Meet Specifications. If Supplier discovers that there is a
potential that any batch or lot of the Products already delivered to Lannett may fail to conform
to the Specifications, then Supplier shall notify Lannett within one (1) business day, of such
determination of failure to meet the Specifications and of the nature thereof in detail, including,
but not limited to, supplying Lannett with all investigatory reports, data and communications,
out-of-specification reports and data and the results of all outside laboratory testing and
conclusions, if any. Supplier shall investigate all such failures promptly, and at its sole expense,
cooperate with Lannett in determining the cause for the failure and a corrective action to prevent
future failures.
9.
SALES, MARKETING AND DISTRIBUTION ALLOWANCE; WEBSITE
9.1. Sales, Marketing and Distribution Allowance. During each year of the Term of this
Agreement, Supplier will provide Lannett with a Sales, Marketing and Distribution Allowance
(“Sales, Marketing and Distribution Allowance”) in the amount of [***], to compensate
Lannett for its direct costs associated with selling, marketing, and distributing the Product.
Such Sales, Marketing and Distribution Allowance will be deducted by Lannett from Gross
Profits on a quarterly basis.
9.2. Website. Supplier will list Lannett on a publicly-accessible portion of its website as
an authorized distributor of Supplier’s Product.
10.
RETURNS. If this Agreement expires without being renewed or is subject to early
termination, Lannett may sell through the Product in its inventory or, if Supplier and Lannett agree,
return its Product to Supplier for full credit and without any restocking fee or other administrative
charge of any kind.
11.
CONTINUING GUARANTY; WARRANTIES; COVENANTS.
11.1.
Continuing Guarantee. Supplier hereby guarantees to Lannett that: (a) each
shipment or other delivery of Product under this Agreement now or hereafter made by Supplier,
its subsidiaries, divisions or affiliated companies, to or on the order of Lannett will not be, at the
time of such shipment or delivery, adulterated, misbranded, or otherwise prohibited within the
meaning of the Federal Food, Drug and Cosmetic Act, 21 U.S.C.A. 301 et seq., as amended, and
in effect at the time of such shipment or delivery (the “FD&C Act”), or within the meaning of
any applicable state or local law in which the definition of adulteration or misbranding are
substantially the same as those contained in the FD&C Act; (b) such Product is not, at the time
of such shipment or delivery, merchandise which may not be introduced or delivered for
introduction into interstate commerce under the provisions of Sections 301, 404, or 505 of the
FD&C Act (21 U.S.C.A. 331, 334, and 355, respectively); and (c) such Product constitutes
merchandise that may be legally transported and sold under the provisions of applicable federal,
state and local laws in the Territory.
11.2.
Additional Warranties. Supplier represents and warrants to Lannett that:
(a)
It has full right and power to enter into this Agreement and perform its
obligations hereunder in accordance with its terms;
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14
(b)
All Product and all components and ingredients thereof will be
manufactured and delivered in strict compliance with: (i) the specifications therefor; (ii) the terms
of this Agreement and the Quality Agreement; (iii) all Applicable Laws, including, but not limited
to, the provisions of the FD&C Act, and current Good Manufacturing Practices (“cGMPs”); and
(iv) all of Supplier’s quality control procedures and associated test methods for such Product;
(c)
No Product will include any components or ingredients that would cause
such Product to degrade prior to the expiration of such Product’s designated shelf-life;
(d)
Supplier will not deviate from manufacturing any Product in accordance
with the terms of this Agreement without the prior written consent of a duly authorized
representative of Lannett;
(e)
All manufacturing, packaging and testing procedures utilized with respect to
Product have been or will be validated under the FD&C Act;
(f)
Neither the manufacture nor the sale of any Product will infringe or violate
any patents, trademarks, copyrights, trade secrets or other Intellectual Property Rights of any third
party; and
(g)
Neither Supplier, nor any of its Affiliates, nor, to the best of Supplier’s
knowledge, any of their respective employees, have been “debarred” or suspended by the FDA, or
subject to a similar sanction from any regulatory authority in the Territory or any jurisdiction
outside the Territory, nor have debarment proceedings against Supplier, any of its Affiliates, or any
of their respective employees been commenced. Supplier shall not, in the performance of its
obligations, under this Agreement use the services of any person so “debarred” or suspended.
11.3. Mutual Warranties. Each Party represents and warrants to the other Party that it
holds all necessary and required permits and authorizations, including, but not limited to, those
required by the FD&C Act, and will undertake throughout the Term of this Agreement to
maintain the same in full force and effect. Each Party further covenants that it will use
commercially reasonable efforts to obtain all such other permits and authorizations as may be
reasonably required from time to time in either case to operate their respective facilities and/or
businesses in order to manufacture, provide, distribute and/or sell Product hereunder.
11.4. Generic Drug Enforcement Act of 1992. Each party will comply at all times with
the provisions of the United States Generic Drug Enforcement Act of 1992, as amended, and
will upon request certify in writing to the other parties that none of its employees nor any person
providing services in connection with this Agreement and/or involved in the manufacture,
shipment, distribution or sale of any Product has been debarred under the provisions of such
Act.
12.
CONFIDENTIALITY; PUBLIC ANNOUNCEMENTS.
12.1.
Confidentiality. This Agreement and all documents and other information
provided to Supplier by Lannett pursuant to this Agreement, or any order placed hereunder,
including, but not limited to, any information concerning prices and quantities purchased by
Lannett Company, Inc. Distribution Agreement
15
Lannett, will be held by Supplier in strict confidence and not disclosed either directly or
indirectly to any third party during the Term of this Agreement and for seven (7) years
thereafter. Supplier acknowledges that, should it breach any of its covenants in this Section 12,
Lannett will be irreparably harmed thereby and will be entitled to an injunction preventing
Supplier from further breaching such covenant without any further or more particularized
showing of irreparable injury and without the need to post bond or other security. Such an
injunction may be applied for before any court having jurisdiction thereof. In any such
proceeding, Lannett will be entitled to recover any damages it suffers as a result of Supplier’s
breach, including the recovery of any costs and reasonable attorneys’ fees incurred in enforcing
its rights hereunder. The confidentiality of disclosed proprietary and confidential information
and the obligation of confidentiality hereunder will survive any expiration or termination of this
Agreement until such time as the information in question ceases to be confidential. The Parties
specifically agree that all terms of this Agreement, all sales and Product requirements, all costs,
and all purchase orders will be deemed to be confidential; provided, however, that this sentence
will not apply to any person or entity that desires to acquire or merge with or into either Party,
so long as such person or entity enters into a confidentiality agreement or non-disclosure
agreement on terms comparable to those set forth herein.
12.2.
Exceptions. Disclosed information will not be deemed confidential
hereunder if: (a) it is now or later becomes publicly known, other than through the fault of the
receiving Party; (b) it is rightfully known to the receiving Party at the time of disclosure; (c) it is
rightfully obtained by the receiving Party from a third party without restriction and without
breach of this Agreement or any similar agreement; (d) it is independently developed by the
receiving Party without use of or access to the disclosing Party’s information; and/or (e) it is
required to be disclosed by order of a court of competent jurisdiction, administrative agency or
governmental body, or by subpoena, summons or other legal process, or by law, rule or
regulation, or by applicable regulatory or professional standards, provided that, prior to such
disclosure, the disclosing Party is given reasonable advance notice of such order or obligation
and an opportunity to object to such disclosure.
12.3.
Separate Confidentiality Agreement. The Parties have entered into one or
more separate confidentiality agreements or non-disclosure agreements, including a
Confidential Disclosure Agreement dated October 24, 2018 (each, a “Confidentiality
Agreement”). Such Confidentiality Agreement(s) will be and remain in full force and effect as
provided therein. In the event of any conflict between the terms of this Agreement and the
terms of any such Confidentiality Agreement, the terms of such Confidentiality Agreement will
control.
12.4.
Public Announcements. During the Term of this Agreement, neither Party
hereto will issue or release, directly or indirectly, any press release, marketing material or other
communication to or for the media or the public that pertains to this Agreement, any Product, or
the transactions contemplated hereby (collectively, a “Press Release”) unless the content of
such Press Release has been approved by the other Party hereto, such approval not to be
unreasonably withheld or delayed; provided, however, that nothing contained in this Agreement
will prevent or preclude either Party from making such disclosures as may be
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16
required by Applicable Laws, including, but not limited to, any disclosures required by
applicable securities laws.
13.
INDEMNIFICATION.
13.1.
Supplier’s Indemnity. Supplier will indemnify, defend and hold harmless
Lannett, its Affiliates, its and their successors and assigns, and its and their officers, directors,
employees, agents and contractors (individually and collectively, the “Lannett Indemnitees”)
from and against any and all Losses resulting from third-party claims against any Lannett
Indemnitee, including, but not limited to, any prosecution or action whatsoever by any
governmental body or agency or by any private party, and will, at Supplier’s sole cost and
expense, including reasonable attorneys’ fees and court costs, defend each Lannett Indemnitee
against claims for Losses that may be asserted against any Lannett Indemnitee by any such third
party, relating to or arising out of, directly or indirectly from: (a) Supplier’s breach of any of its
representations, warranties, covenants or other obligations set forth in this Agreement; (b) the
negligence, gross negligence or willful misconduct of Supplier or any of its officers, directors,
employees, agents, contractors or Affiliates; (c) the condition of any Product sold, supplied or
delivered to Lannett under this Agreement, including any defect in material, workmanship,
design, manufacturing or formulary; (d) any warnings and instructions, or lack thereof, for any
Product; (e) the possession, distribution, sale and/or use of, or by reason of the seizure of, any
Product; (f) any actual or asserted violation(s) of the FD&C Act or any other federal, state or
local law, rule or regulation by virtue of which any Product sold, supplied or delivered to
Lannett under this Agreement is alleged or determined to be adulterated, misbranded,
mislabeled or otherwise not in full compliance with, or in contravention of, any federal, state or
local law, rule or regulation; (g) any actual or alleged infringement of the Product, the use of the
Product, the manufacture, processing and/or sale of the Product infringes upon any proprietary
or Intellectual Property Rights of any third party, including the infringement of any trademarks,
service marks, trade names, trade secrets, patents, or copyrights; and/or (h) any actual or
asserted violations of product liability with respect to the Product.
13.2.
Lannett’s Indemnity. Lannett will indemnify, defend and hold harmless
Supplier, its Affiliates, its and their successors and assigns, and its and their officers, directors,
employees, agents and contractors (individually and collectively, the “Supplier Indemnitees”)
from and against any and all Losses resulting from third-party claims against any Supplier
Indemnitee, including, but not limited to, any prosecution or action whatsoever by any
governmental body or agency or by any private party, and will, at Lannett’s cost and expense,
including reasonable attorneys’ fees and court costs, defend each Supplier Indemnitee against
claims for Losses that may be asserted against any Supplier Indemnitee by any such third party,
relating to or arising directly from: (a) the breach of any representation, warranty, covenant or
obligation by Lannett hereunder; (b) sale or use of a pharmaceutical product which is not
supplied by or on behalf of Supplier or any of its Affiliates or agents pursuant to this Agreement
and which is sold or combined by Lannett with Product; (c) improper handling, storage or
transport of Product by Lannett; and/or (d) the unauthorized alteration, modification, or
adulteration of Product by Lannett. Notwithstanding the above, in no event will Lannett be
liable under subsections (a) through (d) above to the extent that any
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17
such Loss results from the willful, grossly negligent or negligent act or omission of Supplier or
any Supplier Indemnitee.
13.3.
Procedure. Each Party will promptly notify the other Party of any actual or
threatened judicial or other proceedings which could involve a claim under this Section 13 and
shall include sufficient information to enable the other Party to assess the facts. The Parties will
cooperate with each other to the extent reasonably necessary in the defense of all actual or
potential liability claims and in any other litigation relating to any Product supplied under this
Agreement.
13.4.Indemnification Not Sole Remedy
. Each Party hereby acknowledges that the
indemnification provided under this Section 13 shall in no manner limit, restrict or prohibit
(unless liability is otherwise expressly limited by the terms of this Agreement) either Party from
seeking any recovery or remedy provided at law or in equity from the other Party in connection
with any breach or default by such other Party of any representation, warranty or covenant
hereunder, including injunctive relief.
14.
INSURANCE. Supplier will maintain and keep in full force and effect during the Term of
this Agreement and for five (5) years after full performance by Supplier under this Agreement and
any orders for Product by Lannett hereunder, primary and noncontributing Product Liability
Insurance in amounts not less than $10,000,000.00 per occurrence and $10,000,000 in the
aggregate, Combined Single Limit (Bodily Injury and Property Damage), including naming
Lannett as an additional insured thereon, including an ISO Broad Form Vendors Endorsement or
its equivalent, a waiver of subrogation rights against Lannett, include coverage for cross suits
liability, and a provision for at least thirty (30) days’ prior written notice in the event of any
cancellation or material reduction of coverage by Supplier’s insurer. Upon request by Lannett,
Supplier will promptly submit to Lannett satisfactory evidence of such insurance. All insurance
coverage must be with a carrier reasonably acceptable to Lannett. The provisions set forth in this
Section 14 are in addition to, and not in lieu of, any terms set forth in any other agreement between
Supplier and Lannett. In the event of any conflict between the provisions relating to insurance in
any such agreement and this Section 14, this Agreement will prevail and be controlling; except if
and to the extent that such other agreement provides greater insurance protection for Lannett.
Failure to comply with all insurance requirements set forth herein will be deemed a material breach
under this Agreement.
15.
CREDIT MATTERS.
15.1.
Discrepancies. Supplier will bring to Lannett’s attention in writing all
discrepancies affecting monies owed by either Supplier or Lannett to the other, including, but
not limited to, discrepancies with respect to accounting, invoicing, debit memos, and credit
memos, within six (6) months of the date of the invoice.
15.2.
Disputes; Audit Rights. Neither the acceptance of any fee nor the deposit of
any check will preclude Lannett from questioning the correctness of any payment at any time.
If Lannett disputes any charges or fees on any invoice, then Lannett and Supplier will diligently
proceed to work together in good faith to resolve the disputed amount. Each Party will keep
accurate and complete books and records of all transactions related to this
Lannett Company, Inc. Distribution Agreement
18
Agreement for twelve (12) months following each year during the Term of this Agreement. On
reasonable notice and during business hours, each Party and its representatives will have the
right to audit the books and records of the other Party and its Affiliates for compliance with
applicable Regulatory Requirements and to determine the accuracy of the amounts paid to
Supplier under this Agreement with respect to the period of time covered by the audit.
15.3.
Inspection of Facilities. Lannett shall have the right to inspect, at all
reasonable times, during normal business hours, upon ten (10) days’ advance notice or on less
notice if reasonably required in order to timely respond to or comply with inquiries from or
requirements imposed by any applicable regulatory authority, the operations and facilities
wherein any Product is manufactured, packaged, tested, labeled and/or stored for shipping. All
Products manufactured by Supplier shall be subject to approval by Lannett’s quality assurance
group or such other technical representatives as Lannett may select, with respect to whether or
not the Product complies with all warranties contained in this Agreement. Supplier warrants
that the plant(s) for manufacture of the Product is and shall be in compliance with all applicable
cGMPs and that such plant(s) is and shall continue to be available for FDA inspection if and
when the FDA so requests.
16.
TERM AND TERMINATION.
16.1.
Term. This Agreement will commence as of the Effective Date and will
continue in effect until the tenth (10th) anniversary of the date of the first Commercial Launch of
the Product in the Territory, unless earlier terminated as provided herein or renewed in
accordance with the provisions of this Section 16.1. If neither Party is in default, in any
material respect, of any of its obligations under this Agreement, then the Term of this
Agreement may be extended, upon mutual written agreement of the Parties, for renewal terms
of two (2) years (or such other period of time as the Parties may mutually agree) at the
expiration of the initial term or any renewal term unless and until this Agreement is terminated
by either Party in accordance with the terms hereof. Any reference to the Term of this
Agreement will include any renewal or extension of the Term hereof.
16.2.
Grounds for Termination.
(a)
Either Party will have the right to terminate this Agreement upon the
occurrence of any of the following events: (i) the failure of the other Party to comply with any of
the terms of this Agreement or otherwise discharge its duties hereunder in any material respect, or
the breach by the other Party of any of its representations or warranties herein in any material
respect, if such failure or breach is not cured within thirty (30) days of such breaching Party’s
receipt of written notice specifying the nature of such failure or breach with particularity; or (ii) the
admission by the other Party in writing of its inability to pay its debts generally as they become
due, the making by the other Party of an assignment for the benefit of its creditors, or the filing by
or against such other Party of any petition under any federal, state or local bankruptcy, insolvency
or similar laws, if such filing has not been stayed or dismissed within sixty (60) days after the date
thereof.
(b)
Lannett will also have the right to suspend further performance under this
Agreement and/or terminate this Agreement in its entirety, without liability except for unpaid
Lannett Company, Inc. Distribution Agreement
19
previously delivered Product, if: (i) Supplier loses any approval(s) from the FDA required to
perform its obligations under this Agreement; (ii) Supplier or its principals are involved in
felonious or fraudulent activities; or (iii) Supplier is unable to successfully address material
deficiencies identified by the FDA as a result of an inspection of Supplier’s facility within sixty
(60) days after Supplier’s receipt of a deficiency notice from the FDA; or (iv) more than three (3)
late shipments of the Products occur during any 12-month period during the Term. In any such
event, Lannett may terminate this Agreement immediately by written notice to Supplier. For
purposes of this Section, a late shipment shall mean failure by Supplier to ship to Lannett one
hundred percent (100%) of the Products ordered by Lannett for delivery within forty-five (45) days
of the date specified for such delivery in the applicable Purchase Order.
(c)
[***].
16.3.
Effect of Termination on Orders. Upon the expiration or earlier termination
of this Agreement, Supplier will fill all outstanding Purchase Orders in accordance with their
terms within four (4) months after the date of such expiration or termination.
16.4.
Continuing Obligations; Survival. In no event will any expiration or
termination of this Agreement excuse either Party from any breach or violation of this
Agreement and full legal and equitable remedies will remain available therefor, nor will it
excuse either Party from making any payment due under this Agreement with respect to any
period prior to the date of expiration or termination. Notwithstanding any provision of this
Agreement to the contrary, Sections 3.4, 3.5, 4, 5, 6, 7, 8, 9.2, 10, 11 and 12 hereof will survive
any termination or expiration of this Agreement.
17.
AGREEMENT TO CONSUMMATE; FURTHER ASSURANCES. Subject to the
terms and conditions of this Agreement, each of the Parties hereto agrees to use commercially
reasonable efforts to do all things necessary, proper or advisable under this Agreement, Applicable
Laws and regulations to consummate and make effective the transactions contemplated hereby. If,
at any time after the date hereof, any further action is necessary, proper or advisable to carry out
the purposes of this Agreement, then, as soon as is reasonably practicable, each Party to this
Agreement will take, or cause its proper officers to take, such action.
FORCE MAJEURE. Any delay in the performance of any of the duties or obligations of
18.
either Party hereto (except for the payment of money) caused by an event outside the affected
Party’s reasonable control will not be considered a breach of this Agreement and the time required
for performance will be extended for a period equal to the period of such delay. Such events will
include, but will not be limited to, acts of God, acts of a public enemy, acts of terrorism, war,
insurrections, riots, injunctions, embargoes, fires, explosions, floods, or any other unforeseeable
causes beyond the reasonable control and without the fault or negligence of the Party so affected.
The Party so affected will give prompt written notice to the other Party of such event, and will take
whatever reasonable steps are appropriate in that Party’s reasonable discretion to relieve the effect
of such event as rapidly as possible.
Lannett Company, Inc. Distribution Agreement
20
ANNUAL GDUFA FEES. GDUFA establishes certain provisions with respect to self-
19.
identification of facilities and payment of annual facility and program fees. GDUFA fees for the
manufacturing facilities of the Product supplied hereunder and program fees for the application are
the responsibility of Supplier. Supplier acknowledges that it is a violation of U.S. federal law to
ship Product in interstate commerce or to import Product into the United States if manufactured in
a facility that has not met its obligations to self-identity or to pay fees when they are due. Supplier
will indemnify and hold harmless Lannett for any and all costs, fees, fines or penalties paid by
Lannett associated with Supplier’s failure to self-identify or to pay GDUFA fees when due.
20.
GENERAL PROVISIONS.
20.1.
Assignment. Neither this Agreement nor any interest herein may be
assigned, in whole or in part, by either Party without the prior written consent of the other,
which consent will not be unreasonably withheld or delayed, except that either Party may assign
its rights and obligations under this Agreement: (a) to an affiliate, division or subsidiary of such
Party; and/or (b) to any third party that acquires all or substantially all of the stock or assets of
such Party, whether by asset sale, stock sale, merger or otherwise, and, in any such event such
assignee will assume the transferring Party’s obligations hereunder. However, notwithstanding
any such assignment, the transferring Party will remain liable under this Agreement (in addition
to the transferee) unless such liability is specifically waived in writing by the other Party hereto.
Subject to the foregoing, this Agreement will be binding upon and inure to the benefit of the
Parties hereto, and their respective successors and permitted assigns.
20.2.
Notice. Any notice or request required or permitted to be given under or in
connection with this Agreement will be deemed to have been sufficiently given if in writing and
sent by: (a) personal delivery against a signed receipt therefor, (b) certified mail, return receipt
requested, first class postage prepaid, (c) nationally recognized overnight delivery service
(signature required), (d) confirmed facsimile transmission, or (e) confirmed electronic mail
(with any notices sent by facsimile transmission or electronic mail to also be sent by one of the
other methods set forth in this Section), addressed as follows:
Lannett Company, Inc. Distribution Agreement
21
If to Supplier, then
to:
Respirent Pharmaceuticals Co.,Ltd. _
5 - 190, Yunhan Drive,
High-Tech Industrial Park, Shuitu,
Beibei District, 400714, Chongqing, China.
Attn: Legal
Facsimile: (___) ___-____
Email:Qichao.Wang@respirent.cn
with a copy, sent as
provided herein, to:
Respirent Pharmaceuticals Co.,Ltd.
5 - 190, Yunhan Drive,
High-Tech Industrial Park, Shuitu,
Beibei District, 400714, Chongqing, China.
If to Lannett, then to:
Attn: CEO
Facsimile: (___) ___-____
Email:robert.cao@respirent.cn
Lannett Company, Inc.
9000 State Road
Philadelphia, PA 19136
Attn: Legal Department
Facsimile: 215-464-1861
E-Mail: Samuel.Israel@lannett.com
Either Party may alter the address to which communications are to be sent by giving notice of such
change of address in conformity with the provisions of this Section providing for the giving of
notice. Notice will be deemed to be effective, if personally delivered, when delivered; if mailed, at
midnight on the third business day after being sent by certified mail; if sent by nationally
recognized overnight delivery service, on the next business day following delivery to such delivery
service; and if sent by confirmed facsimile transmission or confirmed electronic mail, upon receipt
(so long as any notices sent by facsimile transmission or electronic mail are also sent by one of the
other methods set forth in this Section).
20.3.
Entire Agreement. This Agreement sets forth the entire agreement and
understanding between the Parties as to the subject matter hereof and merges all prior
discussions and negotiations between them, and neither Party will be bound by any conditions,
definitions, warranties, understandings or representations with respect to such subject matter
other than as expressly provided herein or as duly set forth on or subsequent to the date hereof
in writing and signed by a proper and duly authorized officer or representative of the Parties to
be bound thereby, except that this Agreement will not supersede any separate confidentiality or
non-disclosure agreement that may have been, or that may be, entered into by the Parties.
Lannett Company, Inc. Distribution Agreement
22
20.4.
Amendment and Modification. This Agreement may be amended, modified
and supplemented only by written agreement duly executed and delivered by each of the Parties
hereto.
20.5.
Waiver. The failure of either Party to exercise any right or to demand the
performance by the other Party of duties required hereunder will not constitute a waiver of any
rights or obligations of the Parties under this Agreement. A waiver by either Party of a breach
of any of the terms of this Agreement by any other Party will not be deemed a waiver of any
subsequent breach of the terms of this Agreement.
20.6.
Dispute Resolution. In the event that a dispute, difference, claim, action,
demand, request, investigation, controversy, threat, or other question arises pertaining to any
matters which arise under, out of, in connection with, or in relation to this Agreement (a
“Dispute”) and either Party so requests in writing, prior to the initiation of any formal legal
action, the Dispute will be submitted to the designated senior management representatives. For
all Disputes referred to the designated senior management representatives, such designated
senior management representatives shall use their good faith efforts to meet in person and to
resolve the Dispute within ten (10) Business Days after such referral. The Parties hereby agree
that in the event the designated senior management representatives are unable to resolve a
Dispute within thirty (30) days of referral to such designated senior management
representatives, either Party may, at its sole discretion, seek resolution of such matter in
accordance with Section 20.7. Notwithstanding anything to the contrary in this Agreement,
either Party will have the right to seek temporary injunctive relief in any court of competent
jurisdiction as may be available to such Party under the Applicable Laws and rules applicable in
such jurisdiction with respect to any matters arising out of the other Party’s performance of its
obligations under this Agreement.
20.7.
Submission to Arbitration for Resolution. Subject to Section 20.6, any
Dispute arising out of or relating to this Agreement, including the existence, validity,
interpretation, performance, breach or termination thereof shall be referred to and finally
resolved by arbitration adminstrered by the Hong Kong International Arbitration Centre
(“HKIAC”) under the HKIAC Administered Arbitration Rules in force when the Notice of
Arbitration is submitted. The law of this arbitration clause shall be Hong Kong law. The seat of
arbitration shall be Hong Kong. The number of arbitrators shall be three (3). The arbitration
proceedings shall be conducted in the English language.
20.8.
Governing Law; Venue. This Agreement is to be governed by and construed
in accordance with the laws of Hong Kong, notwithstanding any conflict of law principles to the
contrary.
20.9.
Severability. Whenever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under Applicable Laws, but if any
provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under
any Applicable Laws or rule in any jurisdiction, such invalidity, illegality or unenforceability
will not affect any other provision of this Agreement or any action in any other jurisdiction, but
this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had not been contained herein.
Lannett Company, Inc. Distribution Agreement
23
20.10.
Construction. The Parties have participated jointly in the negotiation and
drafting of this Agreement. In the event of any ambiguity or question of intent or interpretation
arises, this Agreement will be construed as if drafted jointly by the Parties and no presumption
or burden of proof will arise favoring or disfavoring either Party by virtue of the authorship of
any of the provisions of this Agreement. As used in this Agreement, the singular will include
the plural and vice versa, and the terms “include” and “including” will be deemed to be
immediately followed by the phrase “but not limited to.” The terms “herein” and “hereunder”
and similar terms will be interpreted to refer to this entire Agreement, including any schedules
attached hereto. Unless otherwise specified herein, the term “affiliate” will include affiliates
that currently exist and those that may be created, formed or acquired in the future.
20.11.
Relationship of the Parties. Neither Party will hold itself out to third parties
as possessing any power or authority to enter into any contract or commitment on behalf of any
other Party. This Agreement is not intended to, and will not, create any agency, partnership or
joint venture relationship between or among the Parties. Each Party is an independent
contractor with respect to the other. Neither Party is granted any right or authority to assume or
create any obligation or responsibility, express or implied, on behalf of, or in the name of the
other Party hereto, or to bind the other Party hereto in any manner or with respect to anything,
whatsoever.
20.12.
Captions. The captions and headings in this Agreement are inserted for
convenience and reference only and in no way define or limit the scope or content of this
Agreement and will not affect the interpretation of its provisions.
20.13.
Counterparts. This Agreement may be executed in multiple counterparts,
each of which will be deemed an original and all of which together will constitute one and the
same instrument.
20.14.
Subcontractors. Any work that is to be done by either Party under this
Agreement may be subcontracted to a third party, with the prior written consent of the other
Party, which consent will not be unreasonably withheld or delayed, in accordance with the
approved ANDA, cGMPs and any applicable FDA guidelines which relate to the work to be
performed under the direction and supervision of such Party, as the case may be; provided,
however, that, as between the Parties hereto, the subcontracting Party will be and remain
responsible for all acts and omissions of any such subcontractor.
20.15.
Schedules and Exhibits. All Schedules and Exhibits referenced in this
Agreement, if any, are hereby incorporated by reference into, and made a part of, this
Agreement.
20.16.
Currency. All sums set forth in this Agreement and any appendices, exhibits
or schedules hereto are, and are intended to be, expressed in United States dollars.
Lannett Company, Inc. Distribution Agreement
24
[SIGNATURE PAGE FOLLOWS]
Lannett Company, Inc. Distribution Agreement
25
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first above
written.
RESPIRENT PHARMACEUTICALS CO. LTD.
/s/ Cao Yuan
By:
Name: Cao Yuan
Title: CEO
LANNETT COMPANY, INC.
/s/ Timothy C. Crew
By:
Name: Timothy C. Crew
Title: CEO
Lannett Company, Inc. Distribution Agreement
26
LIST OF EXHIBITS
Exhibit A+
Exhibit B+
Exhibit C+
Product and Price List
Shipping Instructions
Safety Data Exchange Agreement
_________________________________________
* This Exhibit have been redacted to preserve confidentiality. The registrant hereby undertakes
to provide further information regarding such redacted information to the Commission upon
request.
+ This Exhibit has been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant
undertakes to provide further information regarding such omitted materials to the Commission
upon request.
Lannett Company, Inc. Distribution Agreement
EXHIBIT A
Product and Price List
[***]
Lannett Company, Inc. Distribution Agreement
CERTAIN INFORMATION HAS BEEN EXCLUDED FROM THIS EXHIBIT
BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE
COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.
[***] INDICATES THAT INFORMATION HAS BEEN REDACTED.
Exhibit 10.91
AMENDMENT NO. 1 TO DISTRIBUTION AGREEMENT
BETWEEN
RESPIRENT PHARMACEUTICALS CO. LTD.
AND
LANNETT COMPANY, INC.
This Amendment No. 1 to the Distribution Agreement (the “Amendment No. 1”) between
Respirent Pharmaceuticals Co. Ltd., a Chinese company having an address of 5-190,
Yunham Drive, High-Tech Industrial Park, Shuitu, Beibei District, Chongqing 400714
China (”Supplier”), and LANNETT COMPANY, INC., a Delaware corporation having an
address of 9000 State Road, Philadelphia, PA 19136 and/or its Affiliates (“Lannett”), is
effective this 28th day of July 2020 (the “Amendment No.1 Effective Date”). Supplier and
Lannett are separately referred to as “Party” or jointly as “Parties.”
Background
WHEREAS, the Parties entered into that certain Distribution Agreement effective
September 26, 2019 (the “Agreement”), whereby Supplier granted Lannett the right to
distribute, market and sell the Product in the Territory;
WHEREAS, the Parties desire to amend the Distribution Fee and the Term of the
Agreement;
Agreement
NOW, THEREFORE, for and in consideration of the mutual covenants and
promises contained herein and in the Agreement, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the Parties agree as follows:
1.
Incorporation of Background; Capitalized Terms. The “Background” provision set
forth above, together with the defined terms therein, are incorporated herein by reference.
Capitalized terms not otherwise defined herein shall have the meanings given to such
terms in the Agreement.
2. Distribution Fee. Section 3.7 of the Agreement shall be deleted in its entirety and
replaced with the following language:
“3.7 Distribution Fee.
(a) Within five (5) business days after Lannett’s receipt of a fully executed copy of
the Agreement, Lannett paid to Supplier the sum of [***] (the “Upfront Payment”).
(b) Within five (5) business days after receipt of the next successful BE study report,
Lannett shall pay to Supplier the sum of [***] (the “2nd Upfront Payment”).
(c) Upon FDA filing acceptance of the Product, Lannett shall pay to Supplier the sum
of [***] (the “Initial Distribution Fee”).
(d) Upon FDA approval of the Product, Lannett shall pay to Supplier the sum of [***]
(the “Additional Distribution Fee” and together with the Upfront Payment, 2nd Upfront
Payment and the Initial Distribution Fee, the “Distribution Fee”).”
3. Term. Section 16.1 of the Agreement shall be in its entirety and replaced with the
following language:
“16.1
Term. This Agreement will commence as of the Effective Date and will
continue in effect until [***], unless earlier terminated as provided herein or renewed in
accordance with the provisions of this Section 16.1. If neither Party is in default, in any
material respect, of any of its obligations under this Agreement, then the Term of this
Agreement may be extended, upon mutual written agreement of the Parties, for renewal
terms of [***] (or such other period of time as the Parties may mutually agree) at the
expiration of the initial term or any renewal term unless and until this Agreement is
terminated by either Party in accordance with the terms hereof. Any reference to the Term
of this Agreement will include any renewal or extension of the Term hereof.”
4. Inconsistencies; Disputes. To the extent of any inconsistency between the Agreement
and this Amendment No. 1, the terms and conditions of this Amendment No.1 shall
prevail. Except as amended and/or modified by this Amendment No.1, the Agreement is
hereby ratified and confirmed and all other terms of the Agreement shall remain in full
force and effect, unaltered and unchanged by this Amendment No. 1.
5. Counterparts. This Amendment No. 1 may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which when taken together shall
constitute one and the same instrument.
[Signature Page Immediately Follows]
IN WITNESS WHEREOF, the Parties each hereby execute this Amendment No. 1 by
its duly authorized representative intending to be bound as of the Amendment No. 1
Effective Date set forth above.
RESPIRENT PHARMACEUTICALS CO. LTD.
/s/ Cao Yuan
By:
Name: Cao Yuan
CEO
Title:
Date: August 4, 2020
LANNETT COMPANY, INC.
/s/ Timothy C. Crew
By:
Name: Timothy C. Crew
Title: CEO
Date: August 3, 2020
Exhibit 21.1
The following list identifies the subsidiaries of the Company:
Subsidiaries of the Company
Subsidiary Name
State of Incorporation
Lannett Holdings, Inc.
Cody Laboratories, Inc.
Silarx Pharmaceuticals, Inc.
Kremers Urban Pharmaceuticals, Inc.
Delaware
Wyoming
New York
Indiana
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our reports dated August 26, 2021, with respect to the consolidated financial statements and internal control over
financial reporting included in the Annual Report of Lannett Company, Inc. on Form 10-K for the fiscal year ended June 30, 2021. We
consent to the incorporation by reference of said reports in the Registration Statements of Lannett Company, Inc. on Forms S-3 (File No.
333-235640 and File No. 333-255866) and on Forms S-8 (File No. 333-103236, File No. 333-147410, File No. 333-172304, File No.
333-193509, File No. 333-103235, File No. 333-230461, and File No. 333-253361).
Exhibit 23.1
/s/ GRANT THORNTON LLP
Philadelphia, Pennsylvania
August 26, 2021
1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Timothy C. Crew, certify that:
1.
I have reviewed this report on Form 10-K of Lannett Company, Inc.;
Exhibit 31.1
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of and for, the periods
presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: August 26, 2021
/s/ Timothy C. Crew
Chief Executive Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John Kozlowski, certify that:
1.
I have reviewed this report on Form 10-K of Lannett Company, Inc.;
Exhibit 31.2
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of and for, the periods
presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: August 26, 2021
/s/ John Kozlowski
Vice President of Finance, Chief Financial Officer and Principal
Accounting Officer
Certification Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32
In connection with the Annual Report of Lannett Company, Inc. (the “Company”) on Form 10-K for the year ended June 30, 2021 as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Timothy C. Crew, the Chief Executive Officer of
the Company and I, John Kozlowski, the Vice President of Finance, Chief Financial Officer and Principal Accounting Officer of the
Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
1.
2.
The Report complies with the requirements of Section13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company.
Dated: August 26, 2021
Dated: August 26, 2021
/s/ Timothy C. Crew
Timothy C. Crew,
Chief Executive Officer
/s/ John Kozlowski
John Kozlowski,
Vice President of Finance, Chief Financial Officer and
Principal Accounting Officer