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Inventories

12 Months Ended

Jun. 30, 2012

Note 3. Inventories

Inventories at June 30, 2012 and 2011 consist of the following:

(In thousands)	2012		2011
Raw Materials	$	11,351	$	11,811
Work-in-process	4,805		2,430
Finished Goods	9,130		11,637
Packaging Supplies	1,778		1,025
	$	27,064	$	26,903

The preceding amounts are net of excess and obsolete inventory reserves of $1,472 and $3,486 at June 30, 2012 and 2011, respectively.

Recently, the FDA increased its efforts to force companies to file and seek FDA approval for GRASE or Grandfathered products. GRASE products are those “old drugs that do not require prior approval from FDA in order to be marketed because they are generally recognized as safe and effective based on published scientific literature.” Similarly, Grandfathered products are those which “entered the market before the passage of the 1906 Act, the 1938 Act or the 1962 amendments to the Act.” Efforts have included issuing notices to discontinue marketing certain products to companies currently producing these products. Lannett currently manufactures and markets several products that are considered GRASE or Grandfathered products, including C-Topical Solution, Oxycodone HCl Oral Solution and Morphine Sulfate Oral Sulfate prior to its June 2011 approval. The FDA is currently undertaking activities to force all companies who manufacture such products to file applications and seek approval for these types of products or remove them from the market.

Although the Company received FDA approval to begin selling Morphine Sulfate Oral Solution in June 2011, the Company had approximately $2,063 of Morphine Sulfate Oral Solution finished goods inventory which was fully reserved as of June 30, 2011 based on its expiration dates and subsequently scrapped in the first quarter of fiscal year 2012. Lannett also has approximately $1,703 and $321 of net inventory value of other Grandfathered products at June 30, 2012 and June 30, 2011, respectively, which would also be at risk if the FDA were to pursue enforcement actions on these products similar to their actions on Morphine Sulfate Oral Solution and Oxycodone HCl Oral Solution.

- Definition

The entire disclosure for inventory. This may include, but is not limited to, the basis of stating inventory, the method of determining inventory cost, the major classes of inventory, and the nature of the cost elements included in inventory. If inventory is stated above cost, accrued net losses on firm purchase commitments for inventory and losses resulting from valuing inventory at the lower-of-cost-or-market may also be included. For LIFO inventory, may disclose the amount and basis for determining the excess of replacement or current cost over stated LIFO value and the effects of a LIFO quantities liquidation that impacts net income.

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