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Lannett enlists advisors to evaluate strategic alternatives

Lannett [NYSE: LCI] is working with restructuring advisors from Guggenheim Partners and Kirkland & Ellis for help in exploring balance sheet options, according to two sources familiar with the matter.

Meanwhile, a group of crossholders in the generic drugmaker's first and second lien debt has organized and engaged Houlihan Lokey and Sullivan & Cromwell for assistance, the sources added.

Lannett has previously retained Kirkland on numerous occasions, including in 2018 as restructuring counsel after the company lost a major contract with Jerome Stevens Pharmaceuticals that accounted for roughly 37% of total net sales in FY18 ended on 30 June of that year. Lazard acted as financial advisor at the time.

"There has been no new engagement with Kirkland, as they are and have been outside counsel to the company on a wide variety of matters for many years," said Robert Jaffe, a spokesperson for Lannett.

For its fiscal 2Q23 ended 31 December, the drug manufacturer booked USD 80.9m in net sales, compared with USD 86.5m reported year-over-year, while its adjusted EBITDA came in at positive USD 1m during the quarter, versus negative adjusted EBITDA of USD 1m recorded YoY, according to SEC filings.

Contributing to the declines, Lannett continues to face pressure amid high competition in the industry, the sources said. Amid the challenges, the company recorded a net sales decline of 23.5% in the infectious disease medical indication during the quarter and a 29.7% drop in the endocrinology medical indication as Lannett lowered prices in those drug segments by 37% and 56%, respectively.

On a positive note, in its last earnings report the company raised its net sales target for FY23 to USD 285m–USD 305m, from USD 275m–USD 300m. Its outlook for gross margin also improved to roughly 17%–9%, versus prior expectations of approximately 15%–17% and projections for EBITDA now hover at negative USD 5m to positive USD 1m,  versus negative USD 12m to zero.

As of 31 December, Lannett had USD 55.9m of cash and access to USD 43.2m under its ABL credit facility, according to SEC filings. Its net loss in fiscal 2Q23 amounted to USD 36.3m, versus a USD 81.1m net loss YoY.

The drugmaker authorized a restructuring and cost savings plan in December that once fully implemented is expected to help Lannett save USD 11m a year. 

The borrower's USD 350m 7.75% first lien senior secured notes due 2026 last traded in size on 26 January at 25.75, according to MarketAxess. Its 10% (5% cash/5% PIK) second lien term loan due 2026, which had USD 223.2m outstanding as of 31 December is not actively quoted.

Lannett's stock traded at USD 2.65 with a USD 28.5m market cap on 9 February, versus a 52-week range of USD 1.54–USD 4.04.

Representatives from Guggenheim, Kirkland, Houlihan and Sullivan did not respond to requests for comment.