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Equity Research Report - Lanett

In: Business and Management

Submitted By aozorak
Words 8577
Pages 35
The Fund @ Sprott
Equity Research

Lannett
Buy, Current: $68.3, Target: $80.83

March , 18, 2015

5-Year Performance

Brian Baranowsky

$60

BCom Candidate 2019
Finance

$50

Sector Analyst

$40

5

Price per Share

4
4
3

$30

3
2

$20

2
1

$10

1

Daily Volume

Stock Price

Aug-14

Feb-14

Aug-13

Feb-13

Aug-12

Feb-12

Aug-11

Feb-11

Aug-10

Feb-10

0

Aug-09

$0

Feb-09

Brian.baranowsky@gmail.com http://fund.ssb.carleton.ca 5

Current Target Price

Source: Bloomberg

Investment Thesis
Past Exponential Growth Expected to Continue
Lannett has expanded at a CAGR of 22% over the last 12 years with an exponential increase in
FY 2014 where revenue growth amounted to 81.2% YOY. Growth continues to be a priority for management going forward as they have expanded on their generic pharma product line through product development, formed strategic partnerships, and entered into profitable new markets as patents expired on existing branded drugs. Favorable capital structure and huge increase in cash balance allows company to pursue acquisitions or reinvest back into business.
Macro economic trends such as aging population, increased access to healthcare and increased healthcare spending stand to increase revenues.

High barriers to entry, High Margins
Lannetts wholly owned subsidiary Cody Labs is one of only 7 companies in the United States that is licensed by the DEA to import raw commercial poppy straw for conversion into opioid based active pharmaceutical ingredients (API). This restriction on imports and barriers to entry allows Lannett to operate in a market with few competitors and as a result higher margins achieved through oligopolistic pricing.

Vertical integration leading to competitive advantage
High margins are achieved through vertical integration of wholly owned and contracted subsidiaries , Cody labs and Jerome Stevens Pharmaceuticals. Sales of products

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