Post on 14-Oct-2020
INVESTOR PRESENTATION
TIM CREW, CEOJOHN KOZLOWSKI, CFO
March 2020
© 2020 Lannett Company, Inc. All Rights Reserved. For Discussion Purposes Only
1
This presentation contains forward-looking statements. All statements other than statements of historical fact contained in this presentation, including statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "expects," "plans," "anticipates," "could,“ “would,” "intends," "target," "projects," "contemplates," "believes," "estimates," "predicts," “pursues,” "potential" or "con tinue" or the negative of these terms, any variations thereof or other similar expressions.
Forward-looking statements are based on current perspectives of the Company’s business and current expectations of future events . We cannot guarantee that any forward-looking statement will be accurate, although we believe that we have been reasonable in our expectations and assumptions. Investors should realize that if underlying assumptions prove inaccurate or that known or unknown risks or uncertainties materialize, actual results could vary materially from the Company’s expectations and projections. Investors are therefore cautioned not to place undue reliance on any forward-looking statements. These forward-looking statements speak only as of the date of this presentation and, except as required by applicable law, we undertake no obligation to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events or otherwise.
Factors that could cause or contribute to differences in our future results include, but are not limited to: the potential impact of the current and ongoing coronavirus (COVID-19) pandemic, impact of the nonrenewal of the exclusive distribution agreement with Jerome Stevens Pharmaceuticals on the Company’s future business and prospects, the Company’s 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 (including successfully commercializing recently introduced products and launching an additional 10 products in the second half of fiscal 2020), business initiatives and product development activities, assessments related to clinical trial results, product performance and competitive environment, anticipated financial performance and integration of acquisitions. A further list and description of these risks, uncertainties and other factors can be found under Part I, Item 1A, Risk Factors in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2019 and the Company’s subsequent filings with the Securities and Exchange Commission, and in the offering memorandum for the offering to which this presentation relates. The Company qualifies all of its forward-looking statements by these cautionary statements. Market data information used in this presentation are based on management’s knowledge of the industry and the good faith estimates of management. Management has relied, to the extent available, upon their review of industry surveys and publications and other publicly available information prepared by a number of third party sources. The market data information included in this presentation involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such information. Although the Company believes that these sources are reliable as of their respective dates, it has not verified the accuracy or completeness of this information from independent sources. In addition, this information involves important risks, uncertainties and assumptions, including those discussed above, which could cause results to differ materially.
In addition to U.S. GAAP financials, this presentation includes certain non-GAAP financial measures. These non-GAAP measures are in addition to, not a substitute for or superior to, measures of financial performance prepared in accordance with U.S. GAAP. A reconciliation of non-GAAP measures to GAAPmeasures is contained in the Appendix to this presentation.
This presentation shall not constitute an offer to sell or the solicitation of an offer to buy any securities in any state or jurisdiction which such offer, solicitation or sale would be unlawful, nor shall there be any sale of these securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction.
Cautionary Statements
COMPANY OVERVIEW
$515mmRevenue ex-Levo
Pure play US-centric generic pharmaceutical company with a highly reliable, US manufacturing base
Diversified existing portfolio of 116 marketed products
Established track record of “bread and butter” product launches with pipeline of announced, higher value and more durable product opportunities
Committed to the ~$55bn US generics market where Lannett has a unique niche
− Large competitors suffer global fragmentation
• Rationalizing core generics portfolio
• Investing in more complex generics or specialty brands
• Distracted with legal and other issues
− Smaller competitors cannot replicate Lannett’s reliable supply chain, scale and commercialization capabilities
3
At a glance
116Marketed products
10Approved ANDAs planned for launch
5Late-stage BD negotiations
Bu
sin
es
s
$540mmRevenue(2)
Fin
an
cia
l
(1) Includes pending signed partner deals. (3) Amounts are approximations and as of March 3, 2020.(2) Based on the midpoint of guidance issued February 5, 2020.
$132mmDebt repayment
$153mmEBITDA(2)
Business and financial highlights(3)
Unique pure-play, US-based company with the scale and pipeline to deliver consistent and growing revenue and EBITDA
17Filed ANDAs pending
approval(1)
26BD deals signed since
Jan 2018
34Products launched since
Jan 2018 (19 owned / 15 BD)
LTM(ended 12/31/19)
FY 2020E Guidance(ended 6/30/20)
4
History and transformationRecent accomplishments
Successfully executed cost savings initiatives
Cost savings and reinvestment
$136 $112
$103 $33
$94
($66)
$239
$206
FY 2018A Savings Resource reallocation FY 2020E
Operating expenses COGS
Cody Labs restructuring, spending and headcount reduction, and facility closure
Philadelphia manufacturing and distribution facility closed and production transferred to Seymour
Reduced companywide headcount by 20+%
(3)
(1) $301mm of debt pay down excluding $77mm from the September 2019 Convertibles notes offering. (2) Excludes TLA pay down from September 2019 Convertibles notes offering. (3) Excludes credit related to pre-launch inventory of approximately $4 million.(4) This is just indicative to reflect target for cost savings and is not a projection. Actual cost casings could vary and operating expenses will differ from this.
(4)
January 2018 FY2019June 2020
(FYE 2020)
Since Jan 2018, cumulative debt reduction of ~$224mm(1)
including $87mm(2) of voluntary payments
Issued $86mm Unsecured Convertible Notes in Sep. 2019
Established total leverage target of less than 3.0x
Focus on deleveraging
10 ANDAs filed and 26 new products launched since FY 2019
$55mm+ and $70mm+ of annualized revenue from product launches in FY 2019 and FY 2020, respectively
Accelerated business development and creative commercialization partnerships
Executed 26 BD deals since Jan 2018 covering 49 new products
New product launches
Refocus on maximizing short- and long-term value of in-line portfolio to minimize erosion
Bolstered commercial organization and operational discipline
Portfolio management
5
Historical product launches
History and transformation (cont’d)Acceleration of recent product launches
3
1 1
7
10
8 8
10
1H 2017
(Jul-Dec 2016)
2H 2017
(Jan-Jun 2017)
1H 2018
(Jul-Dec 2017)
2H 2018
(Jan-Jun 2018)
1H 2019
(Jul-Dec 2018)
2H 2019
(Jan-Jun 2019)
1H 2020
(Jul-Dec 2019)
2H 2020E
(Jan-Jun 2020)
FY 2019 launches expected to generate ~$57mm in FY 2020E
FY 2020 launches expected to generate ~$71mm in FY 2020E
Tim Crew joinsas CEO
Total product launch contribution in FY 2020E of ~$128mm
(Jul-Dec 2016) (Jan-Jun 2017) (Jul-Dec 2017) (Jan-Jun 2018) (Jul-Dec 2018) (Jan-Jun 2019) (Jul-Dec 2019) (Jan-Jun 2020)
6
Key pipeline additions
(1) $95M is based on the Company’s estimate per the current market; only half of the brand market has been substituted to generics as of IQVIA data through February 2020.(2) IQVIA, moving annual total as of February 2020.(3) Based on the Company’s estimate per the current market and does not include anticipated market volume growth; assumes 25% price reduction compared to the current market price.(4) Assumes 20% market share for Advair, Levothyroxine and Insulin.
In Nov 2019, amended commercialization and distribution agreement with HEC
Announced first human clinical study of biosimilar Insulin Glargine achieved all primary endpoints in December 2019
Market opportunity: ~$7.6bn sales(2)
Target BLA submission in 2023
Insulin Glargine
Re-signed: FY 2020Exp. Launch: FY 2024
In Jul 2019, signed new commercialization agreement
− In August 2019, signed 3-year commercialization advisory agreement worth up to $9mm and potential access to oncology and injectable products
Levothyroxine
Signed: FY 2020Launch: Aug 2022 (at latest)
In Aug 2019, signed commercialization agreement and commenced shipping shortly thereafter
Total market opportunity: ~$295mm U.S. sales(2)
Posaconazole
Signed: FY 2020Launch: Completed
In Oct 2019, signed new commercialization agreement
Total market opportunity: ~$2.8bn U.S. sales(2)
Targeted filing in CY 2020
Advair Diskus
Signed: FY 2020Exp. Launch: CY 2021
Annual
revenue
opportunity(4)
(unless
otherwise noted)
~$39mm
(Through Q3 FY 2020)$95mm(1) $55mm $391mm(3)
INDUSTRY OVERVIEW
8
Generics industry expected to grow and pricing pressure has ameliorated
Source: IMS and IQVIA.(1) Unit defined as the number of standard dose units sold, determined by taking the # of counting units sold divided by the standard unit factor, which is the smallest common dose of a product
form as defined by IMS Health.(2) Generics include products categorized as branded generic, generic, and other defined by IMS.(3) 2015 data from May 2015 through December 2015.(4) IMS Nation Sales Perspective data and reflects prices outlets pay for products and does not include rebate discounts.
US generic industry market valueUS generic volume continues to grow at 4%...
(Projected US generic drug revenues, $ in billions)
…and price erosion has ameliorated
(US generic volume, units(1) in millions)
2,423 2,565 2,727
1,028 1,104 1,297
3,451 3,668 4,024
2014 2016 2018
Generics Branded generics
(US Generic YoY monthly price erosion)(4)
5%
(1%)
(20%)
(15%)
(10%)
(5%)
–
5%
10%
2015 2016 2017 2018 2019
2015(3) 2017 2018 2019
4% 1% (9%) (2%)(8%)
2016Period average:
Gx as % of TRx(2): 88% 90% 90%
$68
$76 $77
$71 $69
$73
$79
$83 $86
14 15 16 17 18 19 20 21 22
Only pure play, US generics player
9
Generic industry has become increasingly fragmented
Source: IMS data and latest company data.(1) 2019 IMS data.
.
Lannett uniquely positioned as pure-play, competitively scaled US-focused generics company
Teva17%
Mylan10%
Sandoz7%
Endo6%
Amneal4%Lannett
1%
Other54%
Teva10%
Mylan7%
Sandoz6%
Amneal4%
Endo4%
Lannett1%
Other67%
2016Top 5:
45% share
2019(1)
Top 5:
33% share
US generic industry market share of top players shrinking
Company Composition of Sales
100%US Generics
Highly Focused One Industry, One Market
• US Generics
• US Specialty
• International
• Branded
Multiple Risks and Increased
Complexity Profile
=
=
BUILDING FOR THE FUTURE
Diversified, mature portfolio with strong product market shares
11
Mature portfolio creates resilience and attracts less competitionStrong market position for the majority of the portfolio
Diversification across therapeutic areasBalanced portfolio with reduced revenue concentration
LTM Q2 2020 Revenue (ex-Levo): $515mm
(% by revenue) (% by revenue)
Cardiovascular19%
Anti-Psychosis19%
CNS15%
Gastrointestinal13%
Migraine8%
Other26%
Rank 129%
Rank 233%
Rank 37%
> Rank 331%
(% by # of products)
Average number of years since launch across the portfolio: 13 years
> 10 years52%
5-10 years21%
1-5 years17%
< 1 year10%
~70% of products are ranked 1, 2 or 3 in their respective markets
LTM Q2 2020 Revenue (ex-Levo): $515mm
Lannett is a more diversified portfolio now with no major partnership agreements coming up for renewal
Levo39%
Product B6%
Product C6%
Product D5%
Product E4%
Other40%
LTM Q2 2019 Revenue: $694mm
Top 5 = 60%
Product 118%
Product 2*7%
Product 3*6%
Product 4*5%
Product 54%
Other60%
Top 5 = 40%
Two ways to win in Gx:“Be first or stay last”
Enables Lannett to manage portfolio to maximize value and
minimize erosion
* Partnered productNote: Except where noted, data as of Q2 FY2020.
$104 $111
$101 $105
$118
$134 $127
$136
Q3 18(Mar 2018)
Q4 18(Jun 2018)
Q1 19(Sept 2018)
Q2 19(Dec 2018)
Q3 19(Mar 2019)
Q4 19(Jun 2019)
Q1 20(Sept 2019)
Q2 20(Dec 2019)
Recent track record of growth and strong margins
12
($ in millions)
Lannett continues to demonstrate strong revenue growth (excludes Levo for Q3 FY18-Q3 FY19)
# of new product
launches2 5 5 5 4 4 1 7
QoQ revenue
growth %(10%) 6% (9%) 4% 12% 14% (5%) 7%
YoY revenue
growth %(14%) 16% (6%) (9%) 13% 21% 26% 29%
Total company
gross margin(1) (%)44% 44% 44% 44% 45% 45% 41% 37%
(1) Denotes non-GAAP total gross margins as reported.
Strong gross margins without Levo contribution
(Mar 2018) (Jun 2018) (Sept 2018) (Dec 2018) (Mar 2019) (Jun 2019) (Sep 2019) (Dec 2019)
Strong track record of debt reduction
13
$1,160$1,147
$1,134
$1,021
$982$969
$956
$914$897
$881$864
$823
$768$758
$655
$741
4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20
Consistent focus on deleveraging (gross debt)
Tim Crew joins as
CEO
Nonrenewal of Levo contract with JSP
Cash: $225 $242 $247 $132 $118 $93 $140 $114 $99 $150 $164 $205 $101$140 $119
Senior Convertible Notes
Sustainable growth through new product launches and focused in-line execution
14
Internal development
New product launchesA
In-line executionB
Business developmentI II
Reinvigorated internal R&D
− 10 ANDAs filed since FY19*
− 25 projects in the pipeline*
Focused on dosage forms where LCI has expertise
~$35-$40mm annual spend
Proven BD team with a strong track record
26 BD deals since Jan 2018*
− 49 new products
Lower risk and cost effective launch strategy
Partner selectively on attractive ROI opportunities
Portfolio optimizationOpportunistic
demandIII IV
Continually optimize share and value
Capitalize on structural supply opportunities
− Competitor 483s
− Competitor exits
Consistent augmentation of production and API suppliers
Life cycle management
Opportunistic sales can evolve into longer term, sustainable opportunities
Balanced growth underpinned by foundation of operational excellence
Organizational agility
Ability to react quickly to day-to-day opportunities / challenges
Flexibility to adapt quickly to dynamic long-term market trends
Providing products customers need the most
Consistently top-ranked in customer service levels
Multi-layered relationship with customers
US-based mgmt. team
Direct and quick access to key decision makers across functions
Business, regulatory and manufacturing are all domestic
US-based operations
Efficient and reliable without global complexity
Same time zone
No travel time
Single corporate office
No language barriers
Accessible C -suite
Resource reallocation
Exited opioids
Nimble resource allocation strategy
Increased output
Strong R&D, commercial and operational teams
Minimize leakage by optimizing rebates / net price calculations
Consistently manage and modify contracts
Maximize working capital / cash flow
Gross-to-net sales efficiencies
Superior customer alignment
Fluphenazine:
Provided supply when needed
Gained 100% market share
* As of 12/31/19.
Internal R&D pipeline
15
Product Dosage form
Target FDA
submission date
Sales
opportunity(2)
Product A ER Capsules
FY2020 ~$45mm+
Product B IR Tablets
Product C IR Capsules
Product D Powder for Oral Suspension
Product E IR Capsules
Product F Oral Solution
FY 2021 ~$70mm+
Product G IR Capsules
Product H Powder for Oral Suspension
Product I Powder for Oral Suspension
Product J IR Tablets
Product K Oral Suspension
Product L Powder for Oral Solution
Product M ER Capsules
FY 2022 ~$40mm+
Product N Powder for Oral Suspension
Product O Powder for DR Oral Suspension
Product P Granules for Oral Solution
Product Q IR Tablets
Product R IR Tablets
Product S ER Capsules
Product T IR Tablets FY 2023 ~$2mm
(selected molecules in development)
* As of 12/31/19.(1) Products with <$1mm sales opportunity not shown in the table.(2) Based on Lannett’s current internal estimates based on existing market conditions, which are subject to change.
Lannett has 17 late stage ANDA assets … and maintains a strong pipeline of R&D projects
25(1) internally developed R&D projects (12/31/19)• 10 ANDAs approved pending launch*
• 17 ANDAs filed at FDA*
BD partner of choice
16
BD partner of choice
Transparency
Track record in driving share & value
Functional heads including Lannett CEO at
negotiating table
Leverage existing strong customer relationships
Reliable supplier of choice
Identify market Identify main seller of drug
Quickly negotiate terms
Sign deal Drug production Bring to market
1 2 3 4 5 6
Lack of global fragmentation
Proven BD team adept at identifying and executing on high value commercialization opportunities
Track record of BD execution
17
Recent BD track record: 26 deals executed covering 49 new products since Jan 2018
Product Deal type Date signed
Metadate CD Acquisition Feb 18
Metolazone Acquisition Feb 18
Fluvastatin ER Commercialization Feb 18
Diclofenac ER Commercialization Mar 18
Dronabinol Commercialization Apr 18
Various (20+ Products) Acquisition May 18
Various Repackaging Mar 18
Methylphenidate XR Commercialization Jul 18
Clarithromycin XL Commercialization Aug 18
Verapamil ER Renegotiation Sep 18
Dexmethylphenidate ER Commercialization Oct 18
Vardenafil Commercialization Oct 18
Entacapone Commercialization Nov 18
Lactulose OS Repackaging Nov 18
Trientine Commercialization Dec 18
Levothyroxine Transition Nov 18
Metoprolol XL Renegotiation Nov 18
Prednisone Commercialization Mar 19
Amphetamine ER Commercialization Mar 19
Dantrolene Commercialization Apr 19
Amphetamine Commercialization Feb 19
Lorazepam OS Acquisition Apr 19
Product X Commercialization Jun 19
Product Dosage form Launch timing Signed
Levothyroxine IR TabletAug 2022(at latest)
Posaconazole DR Tablets Sept 2020 Launched
Advair Diskus Inhalation Powder CY 2021
Insulin Glargine Injectable Pen FY 2024
BD Product Y Ophthalmic FY 2021 In process
BD Product Z Capsule FY 2021 In process
190 BD opportunities reviewed in CY2019
2 lost
10 closed
Disciplined approach to BD & prolific win rate in CY 2019…
…with increasing value and sustainable pipeline
83% success rate
1
2
3
4
5
6
7
9
8
133declined
45 ongoing
12 pursued
(70% declined)
10
Generics Industry
Uniquely positioned to take advantage of industry-wide disruption
18
Supply disruptions
Discontinuation of core generics products
Reprioritizing strategy to focus on complex generics /
specialty / international products
Distracted by M&A / divestitures
Ongoing organizational restructuring
Management turnover
Lower margin distribution deals
Significant opioid litigation exposure
Strong inspection history driving reliable supply and ability to
capitalize on opportunistic sales
New product launches and pipeline replenishment
Sharpened focus on US and core oral solids and liquids
Focused on executing strategy and operational excellence
Completed restructuring program
Continuity and buildout of management team since Jan 2018
Has ownership of external projects and focuses on deals
that provide expanded services and higher than industry-
average margins
De minimis opioid litigation exposure
Doses
Manufacturing footprint provides highly reliable supply and capacity for growth
19
Cost / 1000 doses at Seymour facility
Employees ~630 ~90
Dosage form Oral solids Liquids
Annual output
3.3B units
− 2.5B units as of FY 2018
− 1.8B units as of FY 2017; increase of ~1.5B capacity while reducing costs
5.5M bottles / 1.2M liters
− 5.8M bottles / 1.2M liters as of FY 2018
− 5.1M bottles / 1.1M liters as of FY 2017
Capabilities /
technology
IR and ER (tablets and capsules), OROS technology (laser drill), pellets, packaging and distribution center
Oral solutions, oral suspensions, packaging
Differentiation
Centralized manufacturing / distribution / quality centers
Co-located manufacturing and distribution center
24x7 operations
No significant liquid supplier outside US/Canada
Local manufacturer provides competitive advantage for domestic customers
(YoY% change)
Seymour, IN Carmel, NY
FY 2017 FY 2018 FY 2019
1.8B 2.5B 3.3B
Superior track record and clean inspection history
20
Agency Site/Topic Outcome
DEAPhiladelphia (2):
1. Manufacturers license
2. Analytical license
No citations or observations
DEA
Seymour (3):
1. Distributor
2. Importer
3. Exporter
No citations or observations
Closed 5/31/19
OSHA Seymour (1)
1. For cause inspection for employee that fell
One observation for improving ladder training (CAPA
implemented)
EPA Although not an inspection, we resolved/settled our Seymour EPA emissions violation for methylene chloride by changing our permit. The permit was
approved which should prevent reoccurrence.
FDA Philadelphia (1) No 483 issued
FY 2020 Inspection summary
Site FDA Inspection Outcome
Philadelphia Plant FDA GMP (9/16) 2 minor observations
Pennsylvania Corporate FDA Pharmacovigilance (6/17) No 483
Cody Wyoming FDA GMP and PAI (12/17) 1 moderate observation
Seymour Plant FDA GMP (2/18) 2 minor observations
Carmel Plant FDA GMP (3/18) 2 minor observations
Site DEA Inspection Outcome
All Sites Seven (7) DEA No regulatory action
2016-2018 FDA & DEA inspection summary
Agency Site/Topic Outcome
FDA New York (1)Received a 3 item 483 with 2 minor and 1 moderate
observation; site deemed VAI in the EIR
DEA SeymourNo citations or observations
Closed 8/2/19
DEA CarmelNo citations or observations
Closed 9/9/19
FY 2019 Inspection summary
Addition of first-class commercial and operations expertise complementing strong existing management team
Proven management team with deep generics experience
21
ExperienceName and Title ExperienceName and Title
Tim CrewCEO
30 years of experience in the industry, 2 at Lannett
Past work experience includes Teva, Cipla, Dr. Reddy’s, Bristol-Myers Squibb, US Army
Kristin ArnoldVP R&D
29 years of experience in the industry, 3 at Lannett
Past work experience includes Norwich Pharmaceuticals, FMC, Alpharma, Monsanto
Maureen CavanaughSVP and CCOO
30 years of experience in the industry, 2 at Lannett
Past work experience includes Teva, PAR, Sandoz, Bristol Myers
Samuel IsraelGeneral Counsel
20 years of experience in the industry, 2 at Lannett
Past work experience includes Fox Rothschild, with representation of Lannett
Robert EhlingerVP and CIO
24 years of experience in the industry, 11 at Lannett
Past work experience includes MedQuist, Kennedy Health Systems
Grant BrockVP Operations
18 years of experience in the industry, 2 at Lannett
Past work experience includes Aprecia, Teva, PMC
Alicia EvolgaVP Marketing
10 years of experience in the industry, 2 at Lannett
Past work experience includes Cipla, Lupin, Apotex, Impax
John KozlowskiCFO
20 years of experience, 10 at Lannett
Past work experience includes Optium, Finisar
Kristie StephensVP of Regulatory Affairs
20 years of experience in the industry, 20 at Lannett
John AbtVP and CQOO
32 years of experience in the industry, 4 at Lannett
Past work experience includes Teva, Alpharma,RP Scherer
Michael BlockVP of Business Development
12 years of experience in the industry, 8 at Lannett
Past work experience includes Universal Marine Medical Supply
22
Investment Highlights
Strong historical cash flow generation and track record of debt reduction
Attractive generic market dynamics for Lannett; critical scale and US footprint drives competitive advantage
Balanced and sustainable growth through strategic new product launches and focused in-line execution
Recent track record of growth and strong margins
Diversified, mature portfolio with strong product market shares
1
2
3
4
5
6 Proven management team with deep experience