What happened

Shares of Amneal Pharmaceuticals (NYSE:AMRX) rose over 13% today after the generic pharmaceutical specialist announced that it had signed a licensing and supply contract with Jerome Stevens Pharmaceuticals for levothyroxine sodium tablets. The thyroid treatment accounts for an estimated 122 million annual prescriptions in the United States, and generates approximately $2.6 billion in sales each year (over all brand name and generic formulations of the drug). It's the most-prescribed drug in the country.

Under the agreement, Jerome Stevens Pharmaceuticals will manufacture levothyroxine sodium tablets -- something it has done for over 25 years -- and supply them to Amneal Pharmaceuticals for a period of 10 years. However, the licensing and supply contract won't begin until March 2019.

As of 1:44 p.m. EDT, the stock had settled to a 11.5% gain.

A businessman pointing to the tallest bar in a bar chart

Image source: Getty Images.

So what

What's good news for Amneal Pharmaceuticals is awful news for Lannett (NYSE:LCI), the generic-drug company that owns the soon-to-be expiring contract for levothyroxine sodium tablets from Jerome Stevens Pharmaceuticals. The thyroid treatment generated $174 million in revenue for Lannett during its fiscal 2017, or 27% of the company's total sales. Lannett's shares fell by more than 50% on the news.

Amneal Pharmaceuticals reported $689 million in net revenue in the first half of 2018, so the addition of the generic thyroid medication in early 2019 will deliver a significant shot in the arm for the business. President and CEO Rob Stewart even thinks there's an opportunity to grow the market share represented by the supply contract, which hints that internal expectations are higher than $174 million in annual net revenue.

Now what

Jerome Stevens Pharmaceuticals' decision to shake up its supply contract for levothyroxine sodium tablets should turn out to be great news for shareholders of Amneal Pharmaceuticals -- to the detriment of owners of Lannett, unfortunately. While the supply stream consists of only one of several brand-name and generic formulations of the drug, the contract represented approximately 7% of the total market for the thyroid medication in 2017. If the new owner can successfully increase that slice of the pie in the future, then shareholders could stand to benefit beyond today's soaring stock price.

Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.