Generic drugmaker Lannett has lost a major deal with one of its suppliers, forcing it to rethink its cost structure. The loss comes weeks after the company said it would reduce production at an API plant and cut 50 jobs.
Lannett was recently informed by Jerome Stevens Pharmaceuticals (JSP) that it will not renew its distribution agreement for butalbital, aspirin, caffeine with codeine phosphate capsules USP; digoxin tablets USP; and levothyroxine sodium tablets USP when its contract expires in March 2019.
Those products have been significant to Lannett, the company said. It is doing an analysis of the effect of the cancellation on its goodwill and said it thinks it will have a material impact on Q1 2019.
Lannett's shares plunged following the news.
"While we are disappointed, and intend to redouble our continuing efforts to explore options for addressing our capital structure, we have been preparing for this contingency, knowing that this outcome was a possibility," CEO Tim Crew said in an announcement. "Accordingly, we have been focused on improving our already strong base commercial business of more than 100 currently marketed products.”
RELATED: Wyoming API maker Cody Labs nabs $11M loan from state to expand operations
In June the Philadelphia, Pennsylvania-based company rolled out a restructuring and cost reduction plan at its Cody Laboratories subsidiary, where it develops and manufactures pain management APIs. It said it would lay off about 50 of the 135 employees at the Cody, Wyoming plant by year-end. Lannett is taking a $5 million charge for the restructuring but said it would ultimately save $10 million annually. It will invest the savings in its other operations.
Crew in the third-quarter earnings call said that the Cody operation was halting a $15 million expansion at the plant for which it received state funds.
“In recent years the regulatory and competitive landscape for pain management APIs has changed, extending Cody's timeline to profitability and causing us to revise our plan for this business,” Crew said when the cuts were announced.
The company on Tuesday reported non-GAAP adjusted net sales of $684.6 million compared with $637.3 million for fiscal 2017. Adjusted net income attributable to Lannett increased to $118.2 million, or $3.10 per diluted share, compared with $107.9 million, or $2.86 per diluted share, for fiscal 2017.