Shares of Lannett Company (LCI -3.35%) fell over 14% today after rising 36.5% yesterday on an upbeat fiscal first-quarter 2019 operational update. Investors have become accustomed to extreme volatility following the August 2018 announcement that the generic drug manufacturer would lose its single most important customer -- responsible for $253 million, or 37%, of total revenue in fiscal 2018 -- in March 2019.
Yesterday's stock pop was driven by the optimistic tone struck by Lannett Company that it was well prepared to survive the lost contract in fiscal 2019 and beyond. Today's decline is simply investors using the massive surge as a great time to cut their losses and exit the stock altogether.
As of 2:08 p.m. EST, the stock had settled to a 11.8% loss.
Lannett Company will lose an agreement with Jerome Stevens Pharmaceuticals (JSP) in March 2019, or right around the end of the business' fiscal third-quarter 2019, that supplied the distributor with five different products. That included the thyroid deficiency medication levothyroxine sodium, which generated $245.9 million in revenue alone in fiscal 2018. It was also one of the most important growth products in the generic drug portfolio.
Given the importance of the drug, it shouldn't be surprising that shares were absolutely clobbered on the news that JSP was running into the arms of upstart Amneal Pharmaceuticals. JSP's former fling has seen its market cap fall from over $1 billion to just $200 million as a result.
But Lannett Company laid out an ambitious plan to begin picking up the pieces. Since the beginning of 2018 (the calendar year), the generic drug company launched 16 new products that are expected to contribute $75 million in revenue during its fiscal 2019 (which ends in July 2019). Meanwhile, the business expects to reap $66 million in annual cost savings by fiscal 2020. Half of that will be reinvested in new growth opportunities.
Should the company deliver on the goals laid out during its fiscal first-quarter 2019 operational update, then the business has a real shot at significantly blunting the blow received from the lost JSP supply contract -- eventually. The near term might be an entirely different story. Will investors be so cheery when Lannett Company reports its first full quarter (that would be the fiscal fourth-quarter of 2019) without the significant earnings contribution from levothyroxine sodium tablets? It's likely that the numbers will remind investors just how far the business has to go before it fully recovers, which promises to make this a volatile stock for the foreseeable future without any big developments.