Generic Gains for Lannett

02/12/2014 8:00 am EST

Focus: STOCKS

Tom Bishop

Founder, BI Research

Over the years I have recommended a number of generic companies; companies that can make products cheaper and save people money are catnip for me, jests Tom Bishop, small-cap expert and editor of BI Research.

Did you know that 83% of prescriptions filled in the US are filled with generics, which are often priced at 80% to 85% of the branded product.

As of June 2013, $86 billion of brand drugs were scheduled to come off patent through 2017. This is where Lannett (LCI) rolls. The firm has 43 marketed products, 15 ANDA's awaiting FDA approval and 58 more in development.

Its biggest category is Thyroid Deficiency, accounting for 38% of fiscal year ending June, 2013 sales. Here its big product is Levothyroxine, based on the second most prescribed molecule in the US.

Cardio-vascular drugs grew 43% last year and accounted for 17% of sales. In this market, Digoxin, for congestive heart failure, was the biggest product.

Pain management is a key growth focus for the future; the company is one of only seven US companies with a DEA license to import controlled substances for use in pharmaceuticals (such as Oxycontin and Vicodin). This is a $15 billion market with a generic portion of $3.5 billion.

Yet another source of future growth could come from acquisitions of generic products or companies. Having completed a secondary of 4.3 million new shares in October, the company currently has about $120 million to fund its growth strategies and go shopping.

For the second quarter, Lannett kicked analysts' estimates to the curb, reporting $0.46, versus expectations of $0.38, for a pleasant upside surprise of 21%. This is multiples above last year's $0.10. Revenues soared 84% to $67.3 million, also way ahead of estimates.

IBD gives Lannett its highest composite rating of 99. Our proprietary BI Rank is a strong buy.

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