Lannett (AMEX:LCI): A Generic Drug Value Stock
The following 12 companies are among the largest, US-listed generic drug makers included in the HavRx Global Generic Drug Index: Mylan Labs (NYSE:MYL), Caraco Pharma (AMEX:CPD), Lannett (AMEX:LCI), Hi-Tech Pharmacal (NASDAQ:HITK), Teva Pharma (NASDAQ:TEVA), Taro Pharma (OTC:TAROF.PK), Impax Labs (NASDAQ:IPXL), Dr. Reddy’s Lab (NYSE:RDY), Par Pharma (NYSE:PRX), Perrigo (NASDAQ:PRGO), Momenta Pharma (NASDAQ:MNTA), and Watson Pharma (NYSE:WPI).
The Generic Drug Index has been one of the best performing indexes within my 13 healthcare stock indexes, posting a gain of approximately 64% since last June. Among the 12 US-listed companies above; Philadelphia, PA-based Lannett presents a relatively unknown, small / micro-cap value play with a current market cap of approximately $111 million, an enterprise value (EV) of about $97 million, a trailing price/earnings (P/E) ratio of 16.5X, a price/sales ratio (PSR) of about 0.9X, an EV/EBITDA ratio of 4.7X, and a price / book ratio (PBR) of 1.3X.
LCI has posted revenue growth of 164% since fiscal year 2005 (FY-05) through FY-09, expanding the top-line from $45 million to $119 million. The Company has been in business since 1942 and acquired Cody Labs in 2006, which is one of only seven US companies with a license to import opiate raw materials used in the production of narcotic / controlled substance pain relievers such as morphine and provides LCI with a vertically integrated business model within the niche pain management segment of the generic drug industry that is expected to lower manufacturing costs and expand profit margins.
Key products for LCI include digoxin (87.9% market share) (Lanoxin, Digitek) (heart failure treatment) and levothyroxine (27.4% market share) (Synthroid, Levoxyl) (thyroid hormone replacement therapy), which have relatively few competitors within the generic drug industry as compared to other categories which may have more than 10 companies producing the same compound. It should also be noted that these two drugs are also subject to periodic shortages in the market, which I have experienced first-hand in my former life as a retail pharmacist. In addition, both of these drugs treat medical conditions in which it is crucial for patients to avoid missed doses
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