LCI’s new distribution agreement for Sinotherapeutics’ Posaconazole 100mg tablets has the potential to generate $72 million in sales in the first year.
Despite being based in Shanghai, Sinotherapeutics’ manufacturing facilities have been routinely inspected by the FDA, with no Form 483(s) ever issued.
Combined with organic R&D growth, sales from LCI’s new distribution deal will more than offset the risk of Medicare reform.
A return to growth will allow the company to refinance, which will definitively steer the company away from bankruptcy.
Updated Company Thesis
Lannett Company’s (LCI) previous sell rating was issued on the basis of its debt and potential price fixing lawsuit settlements overwhelming the company’s assets. In addition, drug price erosion due to Medicare reform were projected to be en route to wiping out the company’s revenue CAGR from 2020 to 2022. The recent generic Noxafil deal with Sinotherapeutics, however, definitively tips the scale in favor of growth for LCI. Moreover, residual sales of Levothyroxine from a new distribution agreement commencing no later than 2022 certainly shines a light on the company’s cash flow situation. In all, the author is now confident in management’s guidance of 15% net revenue CAGR. Furthermore, growth from the company’s surprisingly profitable R&D program now places refinancing on the table. With bankruptcy now several leagues away from its pre-Q2 2019 earnings call, the stock’s distress discount should now dissipate to make way for a successful turnaround.
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