10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED September 30, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

Commission File No. 001-31298

LANNETT COMPANY, INC.

(Exact Name of Registrant as Specified in its Charter)

State of Delaware	23-0787699
(State of Incorporation)	(I.R.S. Employer I.D. No.)

1150 Northbrook Drive, Suite 155

Trevose, PA 19053

(215) 333-9000

(Address of principal executive offices and telephone number)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value	LCI	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☒
Non-accelerated filer ☐	Smaller reporting company ☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12B-12 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each class of the registrant’s common stock, as of the latest practical date.

Class	Outstanding as of October 31, 2021
Common stock, par value $0.001 per share	43,004,072

Table of Contents

			Page No.
PART I. FINANCIAL INFORMATION
	ITEM 1.	FINANCIAL STATEMENTS (UNAUDITED)
		Consolidated Balance Sheets as of September 30, 2021 and June 30, 2021	3
		Consolidated Statements of Operations for the three months ended September 30, 2021 and 2020	4
		Consolidated Statements of Comprehensive Income/Loss for the three months ended September 30, 2021 and 2020	5
		Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the three months ended September 30, 2021 and 2020	6
		Consolidated Statements of Cash Flows for the three months ended September 30, 2021 and 2020	7
		Notes to Consolidated Financial Statements	8
	ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	35
	ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	46
	ITEM 4.	CONTROLS AND PROCEDURES	46
PART II. OTHER INFORMATION
	ITEM 1.	LEGAL PROCEEDINGS	47
	ITEM 1A.	RISK FACTORS	47
	ITEM 5.	OTHER INFORMATION	47
	ITEM 6.	EXHIBITS	48

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

LANNETT COMPANY, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(In thousands, except share and per share data)

	September 30, 2021		June 30, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	105,321	$	93,286
Accounts receivable, net		94,309		98,834
Inventories		112,637		109,545
Income taxes receivable		34,452		35,050
Assets held for sale		2,678		2,678
Other current assets		15,496		14,170
Total current assets		364,893		353,563
Property, plant and equipment, net		164,154		166,674
Intangible assets, net		135,338		137,835
Operating lease right-of-use assets		10,444		10,559
Other assets		16,039		15,106
TOTAL ASSETS	$	690,868	$	683,737
LIABILITIES
Current liabilities:
Accounts payable	$	36,990	$	29,585
Accrued expenses		19,771		13,077
Accrued payroll and payroll-related expenses		9,737		10,680
Rebates payable		25,825		19,025
Royalties payable		14,620		13,779
Current operating lease liabilities		2,049		2,045
Other current liabilities		3,285		2,278
Total current liabilities		112,277		90,469
Long-term debt, net		596,975		590,683
Long-term operating lease liabilities		10,800		11,047
Other liabilities		18,169		19,009
TOTAL LIABILITIES		738,221		711,208
Commitments and contingencies (Notes 10 and 11)
STOCKHOLDERS’ DEFICIT
Common stock ($0.001 par value, 100,000,000 shares authorized; 41,786,848 and 40,913,148 shares issued; 40,302,111 and 39,576,606 shares outstanding at September 30, 2021 and June 30, 2021, respectively)		42		41
Additional paid-in capital		358,361		355,239
Accumulated deficit		(387,108)		(364,766)
Accumulated other comprehensive loss		(524)		(548)
Treasury stock (1,484,737 and 1,336,542 shares at September 30, 2021 and June 30, 2021, respectively)		(18,124)		(17,437)
Total stockholders’ deficit		(47,353)		(27,471)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	690,868	$	683,737

The accompanying notes are an integral part of the Consolidated Financial Statements.

3

LANNETT COMPANY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(In thousands, except share and per share data)

	Three Months Ended
	September 30,
	2021		2020
Net sales	$	101,525	$	126,479
Cost of sales		81,008		92,187
Amortization of intangibles		3,996		8,589
Gross profit		16,521		25,703
Operating expenses:
Research and development expenses		5,764		6,539
Selling, general and administrative expenses		18,905		15,136
Restructuring expenses		—		4,043
Total operating expenses		24,669		25,718
Operating loss		(8,148)		(15)
Other income (expense):
Investment income		34		45
Interest expense		(14,224)		(14,486)
Other		(62)		(23)
Total other expense		(14,252)		(14,464)
Loss before income tax		(22,400)		(14,479)
Income tax benefit		(58)		(7,980)
Net loss	$	(22,342)	$	(6,499)
Loss per common share (1):
Basic	$	(0.56)	$	(0.17)
Diluted	$	(0.56)	$	(0.17)
Weighted average common shares outstanding (1):
Basic		39,927,822		39,070,982
Diluted		39,927,822		39,070,982

(1) See Note 14 “Earnings (Loss) Per Common Share” for details on calculation.

The accompanying notes are an integral part of the Consolidated Financial Statements.

4

LANNETT COMPANY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

(In thousands)

	Three Months Ended
	September 30,
	2021		2020
Net loss	$	(22,342)	$	(6,499)
Other comprehensive income:
Foreign currency translation gain		24		79
Total other comprehensive income		24		79
Comprehensive loss	$	(22,318)	$	(6,420)

The accompanying notes are an integral part of the Consolidated Financial Statements.

5

LANNETT COMPANY, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(UNAUDITED)

(In thousands)

	Three Months Ended September 30, 2021
								Accumulated
	Common Stock			Additional				Other				Total
	Shares			Paid-In		Accumulated		Comprehensive		Treasury		Stockholders’
	Issued	Amount		Capital		Deficit		Loss		Stock		Deficit
Balance, June 30, 2021	40,913	$	41	$	355,239	$	(364,766)	$	(548)	$	(17,437)	$	(27,471)
Shares issued in connection with share-based compensation plans	874		1		104		—		—		—		105
Share-based compensation	—		—		3,018		—		—		—		3,018
Purchase of treasury stock	—		—		—		—		—		(687)		(687)
Other comprehensive income	—		—		—		—		24		—		24
Net loss	—		—		—		(22,342)		—		—		(22,342)
Balance, September 30, 2021	41,787	$	42	$	358,361	$	(387,108)	$	(524)	$	(18,124)	$	(47,353)

	Three Months Ended September 30, 2020
								Accumulated
	Common Stock			Additional				Other				Total
	Shares			Paid-In		Accumulated		Comprehensive		Treasury		Stockholders’
	Issued	Amount		Capital		Deficit		Loss		Stock		Equity
Balance, June 30, 2020	39,963	$	40	$	321,164	$	(1,291)	$	(627)	$	(16,390)	$	302,896
Shares issued in connection with share-based compensation plans	724		1		282		—		—		—		283
Share-based compensation	—		—		3,342		—		—		—		3,342
Purchase of treasury stock	—		—		—		—		—		(786)		(786)
Other comprehensive income	—		—		—		—		79		—		79
Net loss	—		—		—		(6,499)		—		—		(6,499)
Balance, September 30, 2020	40,687	$	41	$	324,788	$	(7,790)	$	(548)	$	(17,176)	$	299,315

The accompanying notes are an integral part of the Consolidated Financial Statements.

6

LANNETT COMPANY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)

	Three Months Ended
	September 30,
	2021		2020
OPERATING ACTIVITIES:
Net loss	$	(22,342)	$	(6,499)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		9,585		14,342
Deferred income tax benefit		—		(2,572)
Share-based compensation		3,018		3,342
Loss (gain) on sale/disposal of assets		56		(6)
Accrual of payment-in-kind interest on Second Lien Credit Facility		4,949		—
Amortization of debt discount and other debt issuance costs		1,440		3,277
Provision for inventory write-downs		2,839		2,605
Other noncash expenses		206		242
Changes in assets and liabilities which provided (used) cash:
Accounts receivable, net		4,525		(13,108)
Inventories		(5,931)		(16,216)
Income taxes receivable/payable		535		(5,106)
Other assets		(2,360)		(4,821)
Rebates payable		6,800		5,072
Royalties payable		841		(2,497)
Operating lease assets/liabilities		(330)		623
Accounts payable		7,405		15,004
Accrued expenses		6,694		647
Accrued payroll and payroll-related expenses		(943)		(6,723)
Other liabilities		230		187
Net cash provided by (used in) operating activities		17,217		(12,207)
INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(3,472)		(3,227)
Proceeds from sale of property, plant and equipment		348		14
Purchases of intangible assets		(1,500)		(3,000)
Net cash used in investing activities		(4,624)		(6,213)
FINANCING ACTIVITIES:
Repayments of long-term debt		—		(16,711)
Proceeds from issuance of stock		105		283
Purchase of treasury stock		(687)		(786)
Net cash used in financing activities		(582)		(17,214)
Effect on cash and cash equivalents of changes in foreign exchange rates		24		79
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		12,035		(35,555)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD		98,286		144,329
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD	$	110,321	$	108,774
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid	$	100	$	10,241
Income taxes refunded	$	(592)	$	(303)
Accrued purchases of property, plant and equipment	$	1,624	$	1,981

The accompanying notes are an integral part of the Consolidated Financial Statements.

7

LANNETT COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1. Interim Financial Information

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for the presentation of interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the unaudited financial statements do not include all the information and footnotes necessary for a comprehensive presentation of the financial position, results of operations and cash flows for the periods presented. In the opinion of management, the unaudited financial statements include all the normal recurring adjustments that are necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. Operating results for the three months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2022. These unaudited financial statements should be read in combination with the other Notes in this section; “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing in Item 2; and the Consolidated Financial Statements, including the Notes to the Consolidated Financial Statements, included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021. The Consolidated Balance Sheet as of June 30, 2021 was derived from audited financial statements.

Note 2. The Business and Nature of Operations

Lannett Company, Inc. (a Delaware corporation) and its subsidiaries (collectively, the “Company” or “Lannett”) primarily develop, manufacture, package, market and distribute solid oral and extended release (tablets and capsules), topical, nasal and oral solution finished dosage forms of drugs that address a wide range of therapeutic areas. Certain of these products are manufactured by others and distributed by the Company.

The Company operates pharmaceutical manufacturing plants in Carmel, New York and Seymour, Indiana. The Company’s customers include generic pharmaceutical distributors, drug wholesalers, chain drug stores, private label distributors, mail-order pharmacies, other pharmaceutical manufacturers, managed care organizations, hospital buying groups, governmental entities and health maintenance organizations.

COVID-19 Update

In December 2019, the COVID-19 virus emerged in Wuhan, China and spread to other parts of the world. In March 2020, the World Health Organization (“WHO”) designated COVID-19 a global pandemic. Governments on the national, state and local level in the United States, and around the world, implemented lockdown and shelter-in-place orders, requiring many non-essential businesses to shut down operations. The Company’s business, however, is deemed “essential” and it has continued to operate, manufacture, and distribute its medicines to customers.

In light of the economic impacts of COVID-19, the Company reviewed the assets on our Consolidated Balance Sheet as of September 30, 2021, including intangible and other long-lived assets. Based on our review, the Company determined that no impairments or other write-downs specifically related to COVID-19 were necessary during the first three months of Fiscal 2022 and during Fiscal 2021. Our assessment is based on information currently available and is highly reliant on various assumptions. Changes in market conditions could impact the Company’s future outlook and may lead to impairments in the future.

While COVID-19 has thus far not had a material impact on the Company’s operations, the total volume of drug prescriptions written in the country decreased causing less demand for our products. Recently, prescription volumes have begun to increase back to pre-pandemic levels. However, we cannot reasonably predict the ultimate impact of COVID-19 on our future results of operations and cash flows due to the continued uncertainty around the duration and severity of the pandemic.

8

Note 3. Summary of Significant Accounting Policies

Basis of Presentation

The Consolidated Financial Statements have been prepared in conformity with U.S. GAAP.

Principles of consolidation

The Consolidated Financial Statements include the accounts of Lannett Company, Inc. and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year financial statement presentation.

Use of estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions are required in the determination of revenue recognition and sales deductions for estimated chargebacks, rebates, returns and other adjustments including a provision for the Company’s liability under the Medicare Part D program. Additionally, significant estimates and assumptions are required when determining the value of inventories and long-lived assets, including intangible assets, income taxes, and contingencies.

Because of the inherent subjectivity and complexity involved in these estimates and assumptions, actual results could differ from those estimates.

Foreign currency translation

The Consolidated Financial Statements are presented in U.S. dollars, the reporting currency of the Company. The financial statements of the Company’s foreign subsidiary are maintained in local currency and translated into U.S. dollars at the end of each reporting period. Assets and liabilities are translated at period-end exchange rates, while revenues and expenses are translated at average exchange rates during the period. The adjustments resulting from the use of differing exchange rates are recorded as part of stockholders’ equity in accumulated other comprehensive income (loss). Gains and losses resulting from transactions denominated in foreign currencies are recognized in the Consolidated Statements of Operations under other income (loss). Amounts recorded due to foreign currency fluctuations are immaterial to the Consolidated Financial Statements.

Cash, cash equivalents and restricted cash

The Company considers all highly liquid investments with original maturities less than or equal to three months at the date of purchase to be cash and cash equivalents. Cash and cash equivalents are stated at cost, which approximates fair value, and consist of bank deposits and money market funds. The Company maintains its cash deposits and cash equivalents at well-known, stable financial institutions. Such amounts frequently exceed insured limits. In connection with the Second Lien Secured Loan Facility (“Second Lien Facility”), the Company is required to maintain at least $5 million in a deposit account at all times, subject to control by the Second Lien Collateral Agent. At September 30, 2021, the Company classified this balance as restricted cash, which is included in other assets.

9

Presented in the table below is a reconciliation of the cash, cash equivalents and restricted cash amounts presented on the Consolidated Balance Sheets to the sum of such amounts presented on the Consolidated Statements of Cash Flows for the periods ended September 30, 2021 and 2020.

	September 30, 2021		September 30, 2020
Cash and cash equivalents	$	105,321	$	108,774
Restricted cash, included in other assets		5,000		—
Cash, cash equivalents and restricted cash as presented on the Consolidated Statements of Cash Flows	$	110,321	$	108,774

Allowance for doubtful accounts

The Company complies with ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which requires the Company to recognize an allowance that reflects a current estimate of credit losses expected to be incurred over the life of the financial asset, including trade receivables. The Company continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses. The Company determines its allowance for doubtful accounts by considering a number of factors, including the length of time balances are past due, the Company’s previous loss history, the customer’s current ability to pay its obligations to the Company and the expected condition of the general economy and the industry as a whole. The Company writes off accounts receivable when they are determined to be uncollectible.

Inventories

Inventories are stated at the lower of cost or net realizable value by the first-in, first-out method. Inventories are regularly reviewed and write-downs for excess and obsolete inventory are recorded based primarily on current inventory levels, expiration date and estimated sales forecasts.

Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed on a straight-line basis over the assets’ estimated useful lives. Repairs and maintenance costs that do not extend the useful life of the asset are expensed as incurred.

Intangible Assets

Definite-lived intangible assets are stated at cost less accumulated amortization. Amortization of definite-lived intangible assets is computed on a straight-line basis over the assets’ estimated useful lives, which commences upon shipment of the product. The Company continually evaluates the reasonableness of the useful lives of these assets. Indefinite-lived intangible assets are not amortized, but instead are tested at least annually for impairment. Costs to renew or extend the term of a recognized intangible asset are expensed as incurred.

Valuation of Long-Lived Assets, including Intangible Assets

The Company’s long-lived assets primarily consist of property, plant and equipment and definite and indefinite-lived intangible assets. Property, plant and equipment and definite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances (“triggering events”) indicate that the carrying amount of the asset may not be recoverable. If a triggering event is determined to have occurred, the asset’s carrying value is compared to the future undiscounted cash flows expected to be generated by the asset. If the carrying value exceeds the undiscounted cash flows of the asset, then impairment exists. Indefinite-lived intangible assets are tested for impairment at least annually during the fourth quarter of each fiscal year or more frequently if events or triggering events indicate that the asset might be impaired.

10

An impairment loss is measured as the excess of the asset’s carrying value over its fair value, which in most cases is calculated using a discounted cash flow model. Discounted cash flow models are highly reliant on various assumptions which are considered Level 3 inputs, including estimates of future cash flows (including long-term growth rates), discount rates and the probability of achieving the estimated cash flows.

Segment Information

The Company operates in one reportable segment, generic pharmaceuticals. As such, the Company aggregates its financial information for all products. The table below identifies the Company’s net sales by medical indication for the three months ended September 30, 2021 and 2020.

	Three Months Ended
(In thousands)	September 30,
Medical Indication	2021		2020
Analgesic	$	5,314	$	3,120
Anti-Psychosis		3,715		13,028
Cardiovascular		14,100		19,714
Central Nervous System		22,785		22,525
Endocrinology		7,845		3,233
Gastrointestinal		15,240		17,100
Infectious Disease		12,515		21,932
Migraine		4,685		9,690
Respiratory/Allergy/Cough/Cold		3,114		1,426
Urinary		1,176		1,458
Other		9,176		7,634
Contract manufacturing revenue		1,860		5,619
Total net sales	$	101,525	$	126,479

Customer, Supplier and Product Concentration

The following table presents the percentage of total net sales, for the three months ended September 30, 2021 and 2020, for certain of the Company’s products, defined as products containing the same active ingredient or combination of ingredients, which accounted for at least 10% of net sales in any of those periods:

	Three Months Ended
	September 30,
	2021		2020
Product 1	10	%	15	%

The following table presents the percentage of total net sales, for the three months ended September 30, 2021 and 2020, for certain of the Company’s customers which accounted for at least 10% of net sales in any of those periods:

	Three Months Ended
	September 30,
	2021		2020
Customer A	30	%	26	%
Customer B	20	%	22	%
Customer C	15	%	10	%

11

Revenue Recognition

The Company complies with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue when (or as) we satisfy our performance obligations by transferring a promised good or service to a customer at an amount that reflects the consideration the Company is expected to be entitled. Our revenue consists almost entirely of sales of our pharmaceutical products to customers, whereby we ship product to a customer pursuant to a purchase order. Revenue contracts such as these do not generally give rise to contract assets or contract liabilities because: (i) the underlying contracts generally have only a single performance obligation and (ii) we do not generally receive consideration until the performance obligation is fully satisfied. The revenue standard impacts the timing of the Company’s revenue recognition by requiring recognition of certain contract manufacturing arrangements to change from “upon shipment or delivery” to “over time.” However, the recognition of these arrangements over time does not currently have a material impact on the Company’s consolidated results of operations or financial position.

When revenue is recognized, a simultaneous adjustment to gross sales is made for estimated chargebacks, rebates, returns, promotional adjustments and other potential adjustments. These provisions are primarily estimated based on historical experience, future expectations, contractual arrangements with wholesalers and indirect customers and other factors known to management at the time of accrual. Accruals for provisions are presented in the Consolidated Financial Statements as a reduction to gross sales with the corresponding reserve presented as a reduction of accounts receivable or included as rebates payable, depending on the nature of the reserve.

Provisions for chargebacks, rebates, returns and other adjustments require varying degrees of subjectivity. While rebates generally are based on contractual terms and require minimal estimation, chargebacks and returns require management to make more subjective assumptions. Each major category is discussed in detail below:

Chargebacks

The provision for chargebacks is the most significant and complex estimate used in the recognition of revenue. The Company sells its products directly to wholesale distributors, generic distributors, retail pharmacy chains and mail-order pharmacies. The Company also sells its products indirectly to independent pharmacies, managed care organizations, hospitals, nursing homes and group purchasing organizations, collectively referred to as “indirect customers.” The Company enters into agreements with its indirect customers to establish pricing for certain products. The indirect customers then independently select a wholesaler from which to purchase the products. If the price paid by the indirect customers is lower than the price paid by the wholesaler, the Company will provide a credit, called a chargeback, to the wholesaler for the difference between the contractual price with the indirect customers and the wholesaler purchase price. The provision for chargebacks is based on expected sell-through levels by the Company’s wholesale customers to the indirect customers and estimated wholesaler inventory levels. As sales to the large wholesale customers, such as Cardinal Health, AmerisourceBergen and McKesson increase (decrease), the reserve for chargebacks will also generally increase (decrease). However, the size of the increase (decrease) depends on product mix and the amount of sales made to indirect customers with which the Company has specific chargeback agreements. The Company continually monitors the reserve for chargebacks and makes adjustments when management believes that expected chargebacks may differ from the actual chargeback reserve.

12

Rebates

Rebates are offered to the Company’s key chain drug store, distributor and wholesaler customers to promote customer loyalty and increase product sales. These rebate programs provide customers with credits upon attainment of pre-established volumes or attainment of net sales milestones for a specified period. Other promotional programs are incentive programs offered to the customers. Additionally, as a result of the Patient Protection and Affordable Care Act (“PPACA”) enacted in the U.S. in March 2010, the Company participates in a cost-sharing program for certain Medicare Part D beneficiaries designed primarily for the sale of brand drugs and certain generic drugs if their Food and Drug Administration (“FDA”) approval was granted under a New Drug Application (“NDA”) or 505(b) NDA versus an Abbreviated New Drug application ("ANDA’). Drugs purchased within the Medicare Part D coverage gap (commonly referred to as the “donut hole”) result in additional rebates. The Company estimates the reserve for rebates and other promotional credit programs based on the specific terms in each agreement when revenue is recognized. The reserve for rebates increases (decreases) as sales to certain wholesale and retail customers increase (decrease). However, since these rebate programs are not identical for all customers, the size of the reserve will depend on the mix of sales to customers that are eligible to receive rebates.

Returns

Consistent with industry practice, the Company has a product returns policy that allows customers to return product within a specified time period prior to and subsequent to the product’s expiration date in exchange for a credit to be applied to future purchases. The Company’s policy requires that the customer obtain pre-approval from the Company for any qualifying return. The Company estimates its provision for returns based on historical experience, changes to business practices, credit terms and any extenuating circumstances known to management. While historical experience has allowed for reasonable estimations in the past, future returns may or may not follow historical trends. The Company continually monitors the reserve for returns and makes adjustments when management believes that actual product returns may differ from the established reserve. Generally, the reserve for returns increases as net sales increase.

Other Adjustments

Other adjustments consist primarily of “price adjustments”, also known as “shelf-stock adjustments” and “price protections,” which are both credits issued to reflect increases or decreases in the invoice or contract prices of the Company’s products. In the case of a price decrease, a credit is given for product remaining in customer’s inventories at the time of the price reduction. Contractual price protection results in a similar credit when the invoice or contract prices of the Company’s products increase, effectively allowing customers to purchase products at previous prices for a specified period of time. Amounts recorded for estimated shelf-stock adjustments and price protections are based upon specified terms with direct customers, estimated changes in market prices and estimates of inventory held by customers. The Company regularly monitors these and other factors and evaluates the reserve as additional information becomes available. Other adjustments also include prompt payment discounts and “failure-to-supply” adjustments. If the Company is unable to fulfill certain customer orders, the customer can purchase products from our competitors at their prices and charge the Company for any difference in our contractually agreed upon prices.

Leases

The Company complies with ASC Topic 842, Leases, which states that when the Company enters into a new arrangement, it must determine, at the inception date, whether the arrangement is or contains a lease. This determination generally depends on whether the arrangement conveys to the Company the right to control the use of an explicitly or implicitly identified asset for a period of time in exchange for consideration. Control of an underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain substantially all of the economic benefits from using the underlying asset. Once a lease has been identified, the Company must determine the lease term, the present value of lease payments and the classification of the lease as either operating or financing.

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The lease term is determined to be the non-cancelable period including any lessee renewal options which are considered to be reasonably certain of exercise. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The present value of lease payments includes fixed and certain variable payments, less lease incentives, together with amounts probable of being owed by the Company under residual value guarantees and, if reasonably certain of being paid, the cost of certain renewal options and early termination penalties set forth in the lease arrangement. To calculate the present value of lease payments, we use our incremental borrowing rate based on the information available at commencement date, as the rate implicit in the lease is generally not readily available.

In making the determination of whether a lease is an operating lease or a finance lease, the Company considers the lease term in relation to the economic life of the leased asset, the present value of lease payments in relation to the fair value of the leased asset and certain other factors.

Upon the commencement of the lease, the Company will record a lease liability and right-of-use (“ROU”) asset based on the present value of the future minimum lease payments over the lease term at commencement date. The ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred.

For operating leases, a single lease cost is generally recognized in the Consolidated Statements of Operations on a straight-line basis over the lease term unless an impairment has been recorded with respect to a leased asset. Variable lease costs not initially included in the lease liability and ROU asset impairment charges are expensed as incurred.

The Company has elected, as an accounting policy, not to apply the recognition requirements in ASC 842 to short-term leases. Short-term leases are leases that have a term of 12 months or less and do not include an option to purchase the underlying asset that the Company is reasonably certain to exercise. The Company recognizes the lease payments for short-term leases on a straight-line basis over the lease term and the lease cost is not recorded on the Consolidated Balance Sheets.

Cost of Sales, including Amortization of Intangibles

Cost of sales includes all costs related to bringing products to their final selling destination, which includes direct and indirect costs, such as direct material, labor and overhead expenses. Additionally, cost of sales includes product royalties, depreciation, amortization and costs to renew or extend recognized intangible assets, freight charges and other shipping and handling expenses.

Research and Development

Research and development costs are expensed as incurred, including all production costs until a drug candidate is approved by the FDA. Research and development expenses include costs associated with internal projects as well as costs associated with third-party research and development contracts.

Contingencies

Loss contingencies, including litigation-related contingencies, are included in the Consolidated Statements of Operations when the Company concludes that a loss is both probable and reasonably estimable. Legal fees for litigation-related matters are expensed as incurred and included in the Consolidated Statements of Operations under the Selling, general and administrative expenses line item.

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Restructuring Costs

The Company records charges associated with approved restructuring plans to remove duplicative headcount and infrastructure associated with business acquisitions or to simplify business processes. Restructuring charges can include severance costs to eliminate a specified number of employees, infrastructure charges to vacate facilities and consolidate operations and contract cancellation costs. The Company records restructuring charges based on estimated employee terminations, site closure and consolidation plans. The Company accrues severance and other employee separation costs under these actions when it is probable that a liability exists, and the amount is reasonably estimable.

Share-based Compensation

Share-based compensation costs are recognized over the vesting period, using a straight-line method, based on the fair value of the instrument on the date of grant less an estimate for expected forfeitures. The Company uses the stock price on the grant date to value restricted stock and performance-based shares with vesting based on the satisfaction of a performance condition. The Company uses the Black-Scholes valuation model to determine the fair value of stock options and the Monte-Carlo simulation model to determine the fair value of performance-based shares with a market condition. The Black-Scholes valuation and Monte-Carlo simulation models include various assumptions, including the expected volatility, the expected life of the award, dividend yield and the risk-free interest rate as well as performance assumptions of peer companies. These assumptions involve inherent uncertainties based on market conditions which are generally outside the Company’s control. Changes in these assumptions could have a material impact on share-based compensation costs recognized in the Consolidated Financial Statements.

Self-Insurance

The Company self-insures for certain employee medical and prescription benefits. The Company also maintains stop loss coverage with third party insurers to limit its total liability exposure. The liability for self-insured risks is primarily calculated using independent third-party actuarial valuations which take into account actual claims, claims growth and claims incurred but not yet reported. Actual experience, including claim frequency and severity as well as health-care inflation, could result in different liabilities than the amounts currently recorded. The liability for self-insured risks under this plan was $1.3 million and $0.8 million as of September 30, 2021 and June 30, 2021, respectively, and is recorded in the accrued payroll and payroll-related expenses caption in the Consolidated Balance Sheets.

Income Taxes

The Company uses the liability method to account for income taxes as prescribed by ASC 740, Income Taxes. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. Deferred tax expense (benefit) is the result of changes in deferred tax assets and liabilities. Deferred income tax assets and liabilities are adjusted to recognize the effects of changes in tax laws or enacted tax rates in the period during which they are signed into law. The Company evaluates the need for a valuation allowance each reporting period weighing all positive and negative evidence. The factors used to assess the likelihood of realization include, but are not limited to, the Company’s forecast of future taxable income, historical results of operations, statutory expirations and available tax planning strategies and actions that could be implemented to realize the net deferred tax assets. Under ASC 740, Income Taxes, a valuation allowance is required when it is more likely than not that all or some portion of the deferred tax assets will not be realized.

The Company may recognize the tax benefit from an uncertain tax position claimed on a tax return only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The authoritative accounting standards also provide guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.

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Earnings (Loss) Per Common Share

The presentation of basic and diluted earnings (loss) per common share is required on the face of the Company's Consolidated Statements of Operations as well as a reconciliation of the computation of basic earnings (loss) per common share to diluted earnings (loss) per common share. In accordance with ASC 260, Earnings per share, the Company computes earnings (loss) per share using the two-class method, which requires an allocation of earnings between the holders of common stock and the Company’s participating security holders. The warrants issued in connection with the Second Lien Secured Loan Facility (the “Warrants”) are considered participating securities, as discussed further in Note 13 “Warrants.” Basic earnings (loss) per share is calculated by dividing net income (loss) available to common stockholders, which excludes the income allocated to participating security holders, by the basic weighted average common shares outstanding.

For purposes of determining diluted earnings per share, the Company further adjusts the basic earnings per share to include the effect of potentially dilutive shares outstanding, including options and restricted stock awards, the 4.50% Convertible Senior Notes (the “Convertible Notes”), and the Warrants. In this calculation, the Company reallocates net income based on the rights of each potentially dilutive share and will report the most dilutive earnings (loss) per share. The weighted average number of diluted shares is adjusted for the potential dilutive effect of the exercise of stock options, treats unvested restricted stock as if it were vested, includes performance-based shares that would be issued if the performance criteria were met as of the end of the reporting period, and assumes the conversion of the 4.50% Convertible Senior Notes. The Company uses the “if-converted" method to compute earnings (loss) per share when assuming the conversion of the Convertible Notes, which is calculated by dividing the adjusted "if-converted" net income by the adjusted weighted average number of shares of common stock outstanding during the period. The adjusted "if-converted" net income is adjusted for interest expense and amortization of debt issuance costs, both net of tax, associated with the Convertible Notes. Because the Warrants do not participate in losses, the Company will allocate undistributed earnings when calculating basic and diluted earnings per share in periods of net income only. Anti-dilutive securities are excluded from the calculation. Dilutive shares are also excluded in the calculation in periods of net loss because the effect of including such securities would be anti-dilutive.

Comprehensive Income (Loss)

Comprehensive income (loss) reflects all changes in equity during a period except those that resulted from investments by or distributions to the Company’s stockholders. This includes, but is not limited to, foreign currency translation gain (loss). Other comprehensive income (loss) refers to gains and losses that are included in comprehensive income (loss) but excluded from income (loss) for all amounts are recorded directly as an adjustment to stockholders’ equity.

Recent Accounting Pronouncements

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options and Derivatives and Hedging - Contracts in Entity’s Own Equity, with changes to modify and simplify the application of U.S. GAAP for certain financial instruments with characteristics of liabilities and equity. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years, with early adoption permitted. The ASU requires adoption using either the retrospective basis or the modified retrospective basis. The Company is currently evaluating the impact of ASU 2020-06 on its Consolidated Financial Statements.

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Note 4. Accounts Receivable, net

Accounts receivable, net consisted of the following components at September 30, 2021 and June 30, 2021:

	September 30,		June 30,
(In thousands)	2021		2021
Gross accounts receivable	$	239,211	$	239,271
Less: Chargebacks reserve		(71,807)		(69,564)
Less: Rebates reserve		(16,592)		(16,272)
Less: Returns reserve		(36,462)		(38,395)
Less: Other deductions		(18,968)		(15,505)
Less: Allowance for doubtful accounts		(1,073)		(701)
Accounts receivable, net	$	94,309	$	98,834

For the three months ended September 30, 2021, the Company recorded a provision for chargebacks, rebates (including rebates presented as rebates payable), returns and other deductions of $131.2 million, $28.8 million, $5.9 million and $19.0 million, respectively. For the three months ended September 30, 2020, the Company recorded a provision for chargebacks, rebates (including rebates presented as rebates payable), returns and other deductions of $188.3 million, $34.3 million, $5.5 million and $15.8 million, respectively.

The following table identifies the activity and ending balances of each major category of revenue-related reserve for the three months ended September 30, 2021 and 2020:

Reserve Category
(In thousands)	Chargebacks		Rebates		Returns		Other		Total
Balance at June 30, 2021	$	69,564	$	35,297	$	38,395	$	15,505	$	158,761
Current period provision		131,195		28,760		5,939		19,010		184,904
Credits issued during the period		(128,952)		(21,640)		(7,872)		(15,547)		(174,011)
Balance at September 30, 2021	$	71,807	$	42,417	$	36,462	$	18,968	$	169,654

Reserve Category
(In thousands)	Chargebacks		Rebates		Returns		Other		Total
Balance at June 30, 2020	$	61,877	$	62,711	$	40,796	$	17,557	$	182,941
Current period provision		188,297		34,280		5,526		15,781		243,884
Credits issued during the period		(179,737)		(42,269)		(5,787)		(16,741)		(244,534)
Balance at September 30, 2020	$	70,437	$	54,722	$	40,535	$	16,597	$	182,291

For the three months ended September 30, 2021 and 2020, as a percentage of gross sales the provision for chargebacks was 46.1% and 51.7%, the provision for rebates was 10.1% and 9.4%, the provision for returns was 2.1% and 1.5% and the provision for other adjustments was 6.7% and 4.3%, respectively.

We have not recorded any material amounts in the current period related to reversals or additions of prior period reserves.

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Note 5. Inventories

Inventories at September 30, 2021 and June 30, 2021 consisted of the following:

	September 30,		June 30,
(In thousands)	2021		2021
Raw Materials	$	47,203	$	45,370
Work-in-process		9,719		12,685
Finished Goods		55,715		51,490
Total	$	112,637	$	109,545

During the three months ended September 30, 2021 and 2020, the Company recorded write-downs to net realizable value for excess and obsolete inventory of $2.8 million and $2.6 million, respectively.

Note 6. Property, Plant and Equipment, net

Property, plant and equipment, net at September 30, 2021 and June 30, 2021 consisted of the following:

		September 30,		June 30,
(In thousands)	Useful Lives	2021		2021
Land	—	$	1,783	$	1,783
Building and improvements	10 - 39 years		105,187		103,082
Machinery and equipment	5 - 10 years		166,894		166,617
Furniture and fixtures	5 - 7 years		3,535		3,399
Less accumulated depreciation			(128,801)		(123,294)
			148,598		151,587
Construction in progress			15,556		15,087
Property, plant and equipment, net		$	164,154	$	166,674

Depreciation expense for the three months ended September 30, 2021 and 2020 was $5.6 million and $5.8 million, respectively.

Property, plant and equipment, net included amounts held in foreign countries in the amount of $0.6 million at September 30, 2021 and June 30, 2021.

Note 7. Fair Value Measurements

The Company’s financial instruments recorded in the Consolidated Balance Sheets include cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and debt obligations. The Company’s cash and cash equivalents include bank deposits and money market funds. The carrying value of certain financial instruments, primarily cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, approximate their estimated fair values based upon the short-term nature of their maturity dates.

The Company follows the authoritative guidance of ASC Topic 820, Fair Value Measurements and Disclosures.” Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The authoritative guidance also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Company’s financial assets and liabilities measured at fair value are entirely within Level 1 of the hierarchy as defined below:

Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.

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Level 2 — Directly or indirectly observable inputs, other than quoted prices, such as quoted prices for similar assets or liabilities; quoted prices for identical or similar instruments in markets that are not active; or model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are material to the fair value of the asset or liability. Financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation are examples of Level 3 assets and liabilities.

If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

Financial Instruments Disclosed, But Not Reported, at Fair Value

We estimate the fair value of 7.750% Senior Secured Notes due 2026 (the “Notes”) and the 4.50% Convertible Senior Notes (“Convertible Senior Notes”) using market quotations for debt that have quoted prices in active markets (Level 1). Since our Second Lien Secured Loan Facility (“Second Lien Facility”) does not trade on a daily basis in an active market, the fair value estimate is based on market observable inputs based on borrowing rates currently available for debt with similar terms and average maturities (Level 2). The estimated fair value of the Notes as of September 30, 2021 and June 30, 2021 was approximately $323 million and $347 million, respectively. The estimated fair value of the Second Lien Facility as of September 30, 2021 and June 30, 2021 was approximately $175 million and $189 million, respectively. The estimated fair value of the Convertible Senior Notes was approximately $40 million and $53 million as of September 30, 2021 and June 30, 2021, respectively. The fair value of the Convertible Senior Notes as of September 30, 2021 was lower than the carrying value primarily due to the Company’s stock price at September 30, 2021 as compared to the $15.29 conversion price.

Note 8. Intangible Assets

Intangible assets, net as of September 30, 2021 and June 30, 2021 consisted of the following:

	Weighted	Gross Carrying Amount				Accumulated Amortization				Intangible Assets, Net
	Avg. Life	September 30,		June 30,		September 30,		June 30,		September 30,		June 30,
(In thousands)	(Yrs.)	2021		2021		2021		2021		2021		2021
Definite-lived:
KUPI product rights	15	$	83,955	$	83,955	$	(6,297)	$	(4,198)	$	77,658	$	79,757
KUPI trade name	2		2,920		2,920		(2,920)		(2,920)		—		—
KUPI other intangible assets	15		19,000		19,000		(7,412)		(7,095)		11,588		11,905
Silarx product rights	15		20,000		20,000		(5,222)		(4,889)		14,778		15,111
Other product rights	10		37,417		35,918		(10,103)		(8,856)		27,314		27,062
Total definite-lived		$	163,292	$	161,793	$	(31,954)	$	(27,958)	$	131,338	$	133,835
Indefinite-lived:
KUPI in-process research and development	—	$	4,000	$	4,000	$	—	$	—	$	4,000	$	4,000
Total indefinite-lived			4,000		4,000		—		—		4,000		4,000
Total intangible assets, net		$	167,292	$	165,793	$	(31,954)	$	(27,958)	$	135,338	$	137,835

For the three months ended September 30, 2021 and 2020, the Company recorded amortization expense of $4.0 million and $8.6 million, respectively.

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Future annual amortization expense consisted of the following as of September 30, 2021:

(In thousands)	Amortization
Fiscal Year Ending June 30,	Expense
2022	$	11,188
2023		14,803
2024		14,528
2025		14,335
2026		13,680
Thereafter		62,804
	$	131,338

Note 9. Long-Term Debt

Long-term debt, net consisted of the following:

	September 30,		June 30,
(In thousands)	2021		2021
7.75% Senior Secured Notes due 2026	$	350,000	$	350,000
Unamortized discount and other debt issuance costs		(5,352)		(5,594)
7.75% Senior Secured Notes due 2026, net		344,648		344,406
Second Lien Secured Loan Facility due 2026 ($190.0M Principal, $5.7M Exit Fee, and $8.6M and $3.6M accrued PIK interest at September 30, 2021 and June 30, 2021 respectively)		204,291		199,342
Unamortized discount and other debt issuance costs		(35,726)		(36,701)
Second Lien Secured Loan Facility due 2026, net		168,565		162,641
4.50% Convertible Senior Notes due 2026		86,250		86,250
Unamortized discount and other debt issuance costs		(2,488)		(2,614)
4.50% Convertible Senior Notes, net		83,762		83,636
$45 million Amended ABL Credit Facility		—		—
Total debt, net		596,975		590,683
Less short-term borrowings and current portion of long-term debt		—		—
Total long-term debt, net	$	596,975	$	590,683

The weighted average interest rate for the three months ended September 30, 2021 and 2020 was 8.8% and 8.0%, respectively.

Long-term debt amounts due, for the twelve-month periods ending September 30 are as follows:

	Amounts Payable
(In thousands)	to Institutions
2022	$	—
2023		—
2024		—
2025		—
2026		640,541
Total	$	640,541

The long-term debt amounts due above include accrued PIK interest on the Second Lien Facility as of September 30, 2021. Following the one-year anniversary of the closing date of the Second Lien Facility, the Company may elect to pay in cash any interest required to be paid in the form of PIK interest.

The outstanding Notes, Second Lien Facility, and Amended ABL Credit Facility amounts above are guaranteed by all of Lannett’s significant wholly-owned domestic subsidiaries and are collateralized by substantially all present and future assets of the Company.

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Note 10. Legal, Regulatory Matters and Contingencies

State Attorneys General Inquiry into the Generic Pharmaceutical Industry

In July 2014, the Company received interrogatories and a subpoena from the State of Connecticut Office of the Attorney General concerning its investigation into the pricing of digoxin. According to the subpoena, the Connecticut Attorney General is investigating whether anyone engaged in any activities that resulted in (a) fixing, maintaining or controlling prices of digoxin or (b) allocating and dividing customers or territories relating to the sale of digoxin in violation of Connecticut antitrust law. In June 2016, the Connecticut Attorney General issued interrogatories and a subpoena to an employee of the Company in order to gain access to documents and responses previously supplied to the Department of Justice pursuant to the federal investigation described below. Beginning in December 2016, the Connecticut Attorney General and numerous other State Attorneys General have filed civil complaints against the Company and numerous other companies and individuals relating to alleged anti-competitive behavior as more fully described below.

Based on internal investigations performed to date, the Company currently believes that it has acted in compliance with all applicable laws and regulations.

Federal Investigation into the Generic Pharmaceutical Industry

In November and December 2014, the Company and certain affiliated individuals and customers were served with grand jury subpoenas relating to a federal investigation of the generic pharmaceutical industry into possible violations of the Sherman Act. The subpoenas requested corporate documents of the Company relating to corporate, financial and employee information, communications or correspondence with competitors regarding the sale of generic prescription medications and the marketing, sale, or pricing of certain products, generally for the period of 2005 through the dates of the subpoenas.

The Company received a Civil Investigative Demand (“CID”) from the Department of Justice on May 14, 2018. The CID requested information from 2009-present regarding allegations that the generic pharmaceutical industry engaged in market allocation, price fixing, payment of illegal remuneration and submission of false claims. The Company has responded to the CID.

Based on internal investigations performed to date, the Company believes that it has acted in compliance with all applicable laws and regulations.

Government Pricing

On May 22, 2019, following an audit conducted by the Company, the Department of Veterans Affairs issued a Contracting Officer’s Final Decision and Demand for Payment, assessing the sum of $9.4 million for overpayments by the Veteran’s Administration (“VA”) as a result of certain commercial customer prices that were not properly disclosed to the VA for the period of January 1, 2012 through June 30, 2016. In August 2019, the Company remitted payment to the VA and was indemnified from UCB for the portion of that related to the period prior to the acquisition of Kremers Urban Pharmaceuticals (January 1, 2012 to November 24, 2015) totaling $8.1 million. The VA requested additional information for the period of July 1, 2016 through March 2018. The Company is in the process of responding to the information request.

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State Attorneys General and Private Plaintiffs Antitrust and Consumer Protection Litigation

In December 2016, the Connecticut Attorney General and various other State Attorneys General filed a civil complaint alleging that six pharmaceutical companies engaged in anti-competitive behavior. The Company was not named in the action and does not compete on the products that formed the basis of the complaint. The complaint was later transferred for pretrial purposes to the United States District Court for the Eastern District of Pennsylvania as part of a multidistrict litigation captioned In re: Generic Pharmaceuticals Pricing Antitrust Litigation (the “MDL”). On October 31, 2017, the State Attorneys General filed a motion for leave to amend their complaint to add numerous additional defendants, including the Company, and claims relating to 13 additional drugs. The District Court granted that motion on June 5, 2018. The State Attorneys General filed their amended complaint on June 18, 2018. The claim relating to Lannett involves alleged price-fixing for one drug, doxycycline monohydrate, but does not involve the pricing for digoxin. The State Attorneys General also allege that all defendants were part of an overarching, industry-wide conspiracy to allocate markets and fix prices generally. On August 15, 2019, the Court denied the defendants' joint motion to dismiss the overarching conspiracy claims but has yet to decide an individual motion filed by the Company to dismiss the overarching conspiracy claims as to it.

On May 10, 2019, the State Attorneys General filed a new lawsuit naming the Company and one of its employees as defendants, along with 33 other companies and individuals. The complaint again alleges an overarching conspiracy and contains claims for price-fixing and market allocation under the Sherman Act and related state laws. The complaint focuses on the conduct of another generic pharmaceutical company, and the relationships that company had with other generic companies and their employees. The specific allegations in this complaint against Lannett relate to the Company’s sales of baclofen and levothyroxine. The complaint also names another current employee as a defendant, but the allegations pertain to conduct that occurred prior to their employment by Lannett. In June 2020, the State Attorneys General filed a third overarching conspiracy complaint involving scores of different drugs used primarily to treat dermatological conditions, including alleged price-fixing by the Company for acetazolamide. Both complaints have been added to the MDL.

In 2016 and 2017, the Company and certain competitors were named as defendants in a number of lawsuits filed by private plaintiffs alleging that the Company and certain generic pharmaceutical manufacturers have conspired to fix prices of generic digoxin, levothyroxine, ursodiol and baclofen. These cases are part of a larger group of more than 100 lawsuits generally alleging that over 30 generic pharmaceutical manufacturers and distributors conspired to fix prices for multiple different generic drugs in violation of the federal Sherman Act, various state antitrust laws, and various state consumer protection statutes. The United States also has been granted leave to intervene in the cases. On April 6, 2017, these cases were added to the MDL. The various plaintiffs are grouped into three categories - Direct Purchaser Plaintiffs, End Payer Plaintiffs, and Indirect Reseller Purchasers - and filed Consolidated Amended Complaints (“CACs”) against the Company and the other defendants in August 2017.

The CACs naming the Company as a defendant involve generic digoxin, levothyroxine, ursodiol and baclofen. Pursuant to a court-ordered schedule grouping the 18 different drug cases into three separate tranches, the Company and other generic pharmaceutical manufacturer defendants in October 2017 filed joint and individual motions to dismiss the CACs involving the six drugs in the first tranche, including digoxin. In October 2018, the Court (with one exception) denied defendants’ motions to dismiss plaintiffs’ Sherman Act claims with respect to the drugs in the first tranche. In March 2019, the Company and other defendants filed answers to the Sherman Act claims. In addition, in February 2019, the Court dismissed certain of the plaintiffs’ state law claims but denied the remainder of defendants’ motions to dismiss and set a deadline of April 1, 2019 for certain plaintiffs to amend their existing complaints. Those plaintiffs amended their complaints, but further motions to dismiss the state-law claims remain pending.

Following the lead of the state Attorneys General, the Direct Purchaser Plaintiffs, End Payer Plaintiffs and Indirect Reseller Plaintiffs filed their own complaints in June 2018 alleging an overarching conspiracy relating to 14 generic drugs in the End Payer complaint and 15 generic drugs in the Indirect Reseller complaint. Although the complaints allege an overarching conspiracy with respect to all of the drugs identified, the specific allegations related to drugs the Company manufactures involve acetazolamide and doxycycline monohydrate.

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In addition, between December 2019 and February 2020, the End Payer Plaintiffs, Indirect Reseller Purchasers, and Direct Purchaser Plaintiffs filed separate complaints alleging overarching, industry-wide price-fixing conspiracies modeled on the second one filed by the state Attorneys General. The new complaint involves 135 new drugs in addition to those named in previous complaints. As to the Company, the new drugs involved are pilocarpine HCL, triamterene HCTZ capsules, amantadine HCL, and oxycodone HCL. None of the defendants, including the Company, has responded yet to these new complaints.

Between January 2018 and December 2020, a number of opt-out parties filed individual complaints or otherwise commenced actions against the Company and dozens of other companies and individuals alleging an overarching conspiracy and individual conspiracies to fix the prices and allocate markets on scores of different drug products, including digoxin, doxycycline, levothyroxine, ursodiol and baclofen. The opt-out parties include various retailers, insurers and county governments, which have filed federal suits in Pennsylvania, New York, California, Minnesota and Texas. All of those complaints have been added to the MDL but none of the defendants, including the Company, has responded to any of the complaints. Other groups of insurers have commenced actions in Pennsylvania state court against the Company and other drug companies by filing writs of summons, which are not complaints but can serve to toll the running of statutes of limitations. Those state-court cases have not been added to the MDL, although the parties have agreed to stay those cases pending further developments in the MDL.

In June 2020, the Company and a number of other generic pharmaceutical manufacturers were named as defendants in a Statement of Claim in a proposed class proceeding in federal court in Toronto, Ontario, Canada. The case alleges a violation of Canada’s Competition Act. The allegations are similar to those in the MDL alleging an overarching, industry-wide conspiracy to allocate markets and fix the price of generic drugs. That alleged conspiracy reached Canada because these same manufacturers also allegedly sell the majority of generic drugs in Canada. The Statement of Claim alleges that the conspiracy extends to the entire generic pharmaceutical market. The specific drugs identified with respect to the Company are: acetazolamide, baclofen, digoxin, doxycycline monohydrate, levothyroxine, and ursodiol. The Company has not yet responded to the Statement of Claim.

On July 13, 2020, the District Court overseeing the MDL selected as “bellwether” cases the second overarching conspiracy case filed by the state Attorneys General in May 2019 as well as individual-conspiracy cases filed by the Direct Purchaser Plaintiffs, End Payer Plaintiffs, and Indirect Reseller Purchasers involving the drugs clobetasol, clomipramine and pravastatin. The Company is a defendant only in the overarching conspiracy case. On February 9, 2021, the District Court vacated the order selecting the bellwether cases. Thereafter, the District Court re-designated the clobetasol and clomipramine cases as individual-conspiracy bellwethers, and on May 7, 2021, selected the third complaint filed by the state Attorneys General in June 2020 as the new overarching conspiracy bellwether case. On September 9, 2021, the state Attorneys General amended their bellwether complaint. To date, none of the bellwether cases have been scheduled for trial.

The Company believes that it acted in compliance with all applicable laws and regulations. Accordingly, the Company disputes the allegations set forth in these class actions and plans to vigorously defend itself against these claims.

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Shareholder Litigation

In November 2016, a putative class action lawsuit was filed against the Company and two of its former officers in the federal district court for the Eastern District of Pennsylvania, alleging that the Company and two of its former officers damaged the purported class by making false and misleading statements regarding the Company’s drug pricing methodologies and internal controls. In December 2017, counsel for the putative class filed a second amended complaint. The Company filed a motion to dismiss the second amended complaint in February 2018. In July 2018, the court granted the Company’s motion to dismiss the second amended complaint. In September 2018, counsel for the putative class filed a third amended complaint alleging that the Company and two of its former officers made false and misleading statements regarding the impact of competition on prices and sales of certain of the Company’s products, regarding the potential effects on the Company of regulatory investigations and antitrust litigation, and regarding the defendants’ investigation of purported anticompetitive conduct. The Company filed a motion to dismiss the third amended complaint in November 2018. In May 2019, the court denied the Company’s motion to dismiss the third amended complaint. In July 2019, the Company filed an answer to the third amended complaint. In October 2020, counsel for the putative class filed a motion for class certification. In March 2021, the Company filed a brief in opposition to the motion to certify the putative class. In August 2021, the court granted the motion to certify the proposed class, to appoint class representatives, and to appoint class counsel. In August 2021, the Company filed a petition for permission to appeal the court’s class certification order. In September 2021, counsel for the class filed a response in opposition to the Company’s position. The Company believes it acted in compliance with all applicable laws and continues to vigorously defend itself from these claims. The Company cannot reasonably predict the outcome of the suit at this time.

Genus Life Sciences

In December 2018, Genus Lifesciences, Inc. (“Genus”) sued the Company, Cody Labs, and others in California federal court, alleging violations of the Lanham Act, Sherman Act, and California false advertising law. Genus received FDA approval for a cocaine hydrochloride product in December 2018, and its claims are premised in part on allegations that the Company falsely advertises its unapproved cocaine hydrochloride solution product. The Company denied that it is falsely advertising its cocaine hydrochloride solution product and continued to market its unapproved product relying on the Guidance for FDA Staff and Industry, Marketed Unapproved Drugs — Compliance Policy Guide, pending approval of its Section 505(b)(2) application (until August 15, 2019, when it agreed to a request by the FDA to cease marketing its unapproved product as a result of the approval of a competitor’s product). In January 2019, the Company filed a motion to dismiss the complaint. On May 3, 2019, the Court issued a written decision granting in part and denying in part the motion to dismiss. On June 6, 2019, Genus filed an Amended Complaint. On June 27, 2019, the Company filed a motion to dismiss the amended complaint. By Order dated September 3, 2019, the Court granted in part and denied in part the Company's motion to dismiss. On November 20, 2019, Genus filed a second amended complaint. On December 17, 2019, the Company filed an answer to the second amended complaint. The Company believes it acted in compliance with all applicable laws and regulations and plans to vigorously defend itself from these claims. On August 16, 2021, the Company and Genus reached an agreement in principle to amicably resolve this case, along with three other cases involving the Company’s approved cocaine hydrochloride product. The parties memorialized the settlement in a series of settlement documents which were signed on October 15, 2021. The terms of the settlement are confidential and include, among other things, a non-exclusive patent license granted by Genus, which allows the Company to continue marketing its approved cocaine hydrochloride product, a payment of $1.5 million by the Company and transfer by the Company of certain ANDAs and an NDA to Genus, and the stipulation that all cases shall be dismissed with prejudice.

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Sandoz, Inc.

On July 20, 2020, Sandoz, Inc. (“Sandoz”) filed a complaint in federal court in Philadelphia, alleging claims for tortious interference with contract, unfair competition and conversion of confidential information, arising out of Cediprof, Inc.’s (“Cediprof”) termination of Sandoz’s contract to distribute levothyroxine tablets in the United States and certain territories. Along with the complaint, Sandoz filed a motion for a temporary restraining order and preliminary injunction, seeking to enjoin the Company from commencing the distribution of levothyroxine tablets on August 3, 2020. On the same day, Sandoz filed a separate complaint and application for a temporary restraining order and preliminary injunction against Cediprof in federal court in New York, seeking to prevent Cediprof from selling its levothyroxine tablets in the United States and certain of its territories to anyone other than Sandoz. On July 27, 2020, the New York court held a hearing and denied Sandoz’s application for a temporary restraining order, ruling Sandoz had failed to establish irreparable harm. Sandoz subsequently dismissed the complaint and is proceeding against Cediprof in an Arbitration in New York, where the Company has agreed to indemnify Cediprof. On July 28, 2020, the Philadelphia court held a hearing and denied Sandoz’s application for a temporary restraining order, ruling that Sandoz had failed to establish irreparable harm and failed to establish that it is likely to succeed on the merits of its claim against Lannett. On October 5, 2020, the Company filed a motion to dismiss the complaint. On December 28, 2020, the Court granted in part and denied in part the motion, dismissing certain of the claims. The Company has filed a motion to stay the case pending the Arbitration of the Sandoz/Cediprof dispute. On January 11, 2021, the Company filed an answer and counterclaim to the complaint. Upon the conclusion of fact discovery, the Court entered an order on July 16, 2021 staying the remaining deadlines in the case pending the outcome of the Arbitration between Sandoz and Cediprof. The Company denies that it tortiously interfered with Sandoz’s contract or that it converted any of Sandoz’s alleged confidential information. Discovery is ongoing and the Company cannot reasonably predict the outcome of this suit at this time.

Ranitidine Oral Solution, USP

On June 1, 2020, a class action complaint was served upon the Company and approximately forty-five (45) other companies asserting claims for personal injury arising from the presence of NDMA in Ranitidine products. The complaint is consolidated in a multidistrict litigation (“MDL”) pending in the United States District Court for the Southern District of Florida. Similar complaints were filed in state court in New Mexico and state court in Maryland and served upon the Company. Subsequently, a number of similar complaints were served on the Company. The Company has filed a motion to dismiss the complaint filed in the MDL which, on December 31, 2020, was granted with leave to amend as to certain of the claims. The plaintiffs filed a First Amended complaint on February 9, 2021, to which the generic manufacturer defendants, including the Company, filed a renewed motion to dismiss all claims. On July 8, 2021, the Court issued an Order granting the motion and dismissing all claims with prejudice based on federal preemption. Separately, the New Mexico case was conditionally transferred to the MDL, but ultimately remanded back to the state court. Since the Company was not licensed to do business in New Mexico and, based upon the information received to date, did not sell Ranitidine in New Mexico, we plan to file a motion to dismiss based, among other things, federal preemption and lack of jurisdiction. The motion was denied without prejudice. The Company plans to renew the motion following some limited discovery and is currently evaluating options for interlocutory appeal. Separately, the Company filed a notice to remove and transfer the Maryland case to the MDL which the plaintiff has opposed. On April 1, 2021, the case was remanded back to the state court. Recently, two separate complaints were filed against the Company and others in Philadelphia Court of Common Pleas by parents on behalf of minor children alleging personal injury as a result of using the Company’s Ranitidine products. The Company has filed its preliminary objections to one of the complaints, seeking dismissal on the basis of preemption, legal insufficiency, learned intermediary defense and lack of specificity, and plans to file preliminary objections as to the other Common Pleas court complaint, seeking dismissal on similar grounds. The Company has placed its insurance carrier on notice of the claim and the carrier has appointed counsel to defend the Company.

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Other Litigation Matters

The Company is also subject to various legal proceedings arising out of the normal course of its business including, but not limited to, product liability, intellectual property, patent infringement claims and antitrust matters. It is not possible to predict the outcome of these various proceedings. An adverse determination in any of these proceedings or in any of the proceedings described above in the future could have a significant impact on the financial position, results of operations and cash flows of the Company.

Note 11. Commitments

Leases

At September 30, 2021 and June 30, 2021, the Company had a ROU lease asset of $10.4 million and $10.6 million, respectively, and an operating lease liability of $12.8 million and $13.1 million, respectively. The current balance of the operating lease liability was $2.0 million at September 30, 2021 and June 30, 2021.

Components of lease cost are as follows:

	Three Months Ended
	September 30,
(In thousands)	2021		2020
Operating lease cost	$	461	$	402
Variable lease cost		41		39
Short-term lease cost		69		118
Total	$	571	$	559

Supplemental cash flow information related to our operating leases is as follows:

	Three Months Ended
	September 30,
(In thousands)	2021		2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	593	$	303

Weighted-average remaining lease term and discount rate for our operating leases are as follows:

	Three Months Ended
	September 30,
	2021		2020
Weighted-average remaining lease term	10	years	8	years
Weighted-average discount rate	8.5	%	8.0	%

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Maturities of lease liabilities by fiscal year for our operating leases are as follows:

(In thousands)	Amounts Due
2022	$	1,545
2023		2,064
2024		2,083
2025		2,103
2026		2,124
Thereafter		8,513
Total lease payments		18,432
Less: Imputed interest		5,583
Present value of lease liabilities	$	12,849

Other Commitments

In Fiscal 2020, the Company executed a License and Collaboration Agreement with North South Brother Pharmacy Investment Co., Ltd. and HEC Group PTY, Ltd. (collectively, “HEC”) to develop an insulin glargine product that would be biosimilar to Lantus Solostar. Under the terms of the deal, among other things, the Company shall fund up to the initial $32 million of the development costs and split 50/50 any development costs in excess thereof. As of September 30, 2021, the Company has incurred approximately $4.5 million of development costs towards the $32 million commitment made by the Company. Lannett shall receive an exclusive license to distribute and market the product in the United States upon FDA approval under the 50/50 profit split for the first ten years following commercialization, followed by a 60/40 split in favor of HEC for the following five years. To date, the COVID-19 pandemic has not had a material impact on the development of the insulin glargine product. Although, as a result of stricter procedures required during the pandemic, there is expected to be a several month delay in completing our upcoming clinical trial. The timing of the product development and approval could be further delayed as the COVID-19 pandemic continues.

On February 8, 2021, the Company executed a License and Collaboration Agreement and a Supply Agreement with Sunshine Lake Pharma Co., Ltd. an HEC Group company (“Sunshine”) with respect to the development of a biosimilar insulin aspart product. Under the terms of the deal, among other things, the Company shall fund up to the initial $32 million of the development costs, provided that if total development and other costs paid by Lannett are less than $32 million then the difference will be paid to Sunshine over the first year of commercialization. As of September 30, 2021, the Company has not yet incurred material costs towards the $32 million commitment made by the Company. The parties shall negotiate the sharing of any development costs in excess of $32 million. Lannett shall receive an exclusive license to distribute and market the product in the United States upon FDA approval under the 50/50 profit split for the first ten years following commercialization, followed by a 60/40 split in favor of Sunshine for the following five years.

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Note 12. Accumulated Other Comprehensive Loss

The Company’s Accumulated Other Comprehensive Loss was comprised of the following components as of September 30, 2021 and 2020:

	September 30,
(In thousands)	2021		2020
Foreign Currency Translation
Beginning Balance, June 30	$	(548)	$	(627)
Net income (loss) on foreign currency translation (net of tax of $0 and $0)		24		79
Other comprehensive income (loss), net of tax		24		79
Total Accumulated Other Comprehensive Loss	$	(524)	$	(548)

Note 13. Warrants

In connection with the Second Lien Facility, the Company issued to the Participating Lenders warrants to purchase up to 8,280,000 shares of common stock of the Company (the “Warrants”) at an exercise price of $6.88 per share. The Warrants were issued on April 22, 2021 with an eight-year term. The Participating Lenders received registration rights with respect to the shares of common stock of the Company to be received upon exercise of the Warrants. The Company concluded that the Warrants were indexed to its own stock and, therefore, are classified as an equity instrument. In accordance with ASC 470, Debt, the Company allocated the proceeds of the Second Lien Facility issuance based on the relative fair value of the debt instrument and the Warrants separately at the time of issuance, which was determined using the Black-Scholes valuation model. The relative fair value allocated to the Warrants was $24.4 million at the issuance date.

The holders of the Warrants are entitled to receive dividends or distributions of any kind made to the common stockholders to the same extent as if the holder had exercised the Warrant into common stock. Although the Company did not issue or declare dividends during the period, the Warrants are considered participating securities under ASC 260, Earnings per share, for purposes of calculating earnings (loss) per share under the two-class method. Refer to Note 14 “Loss Per Common Share” for further details of the two-class method and the Company’s calculation of earnings (loss) per share.

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Note 14. Loss Per Common Share

A reconciliation of the Company’s basic and diluted loss per common share was as follows:

	Three Months Ended
	September 30,
(In thousands, except share and per share data)	2021		2020
Numerator:
Net loss	$	(22,342)	$	(6,499)
Net income allocated to participating securities for the Warrants		—		—
Interest expenses applicable to the Convertible Notes, net of tax		—		—
Amortization of debt issuance costs applicable to the Convertible Notes, net of tax		—		—
Adjusted "if-converted" net loss	$	(22,342)	$	(6,499)
Denominator:
Basic weighted average common shares outstanding		39,927,822		39,070,982
Effect of potentially dilutive options, restricted stock awards and performance-based shares		—		—
Effect of conversion of the Convertible Notes		—		—
Effect of participating securities for the Warrants		—		—
Diluted weighted average common shares outstanding		39,927,822		39,070,982
Loss per common share:
Basic	$	(0.56)	$	(0.17)
Diluted	$	(0.56)	$	(0.17)

In accordance with ASC 260, Earnings per share, the Company computes earnings (loss) per share using the two-class method, which requires an allocation of earnings between the holders of common stock and the Company’s participating security holders. Basic earnings (loss) per share is calculated by dividing net income (loss) available to common stockholders, which excludes the income allocated to participating security holders, by the basic weighted average common shares outstanding. For purposes of determining diluted earnings per share, the Company further adjusts the basic earnings per share to include the effect of potentially dilutive shares outstanding, including options, restricted stock awards, performance-based shares, the Convertible Notes, and the Warrants. In this calculation, the Company reallocates net income based on the rights of each potentially dilutive share and will report the most dilutive earnings (loss) per share. Because the Warrants do not participate in losses, the Company will allocate undistributed earnings when calculating basic and diluted earnings per share in periods of net income only. The effect of the Warrants is excluded from the calculation of basic and diluted loss per share for the three months ended September 30, 2021.

The number of anti-dilutive shares that have been excluded in the computation of diluted earnings per share for the three months ended September 30, 2021 and 2020 were 8.3 million and 8.2 million, respectively. The effect of potentially dilutive shares was excluded from the calculation of diluted loss per share in the three months ended September 30, 2021 and 2020 because the effect of including such securities would be anti-dilutive.

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Note 15. Share-based Compensation

At September 30, 2021, the Company had two share-based employee compensation plans (the 2014 Long-Term Incentive Plan (“LTIP”) and the 2021 LTIP). Together these plans authorized an aggregate total of 8.0 million shares to be issued. As of September 30, 2021, the plans have a total of 1.4 million shares available for future issuances.

Historically, the Company has issued share-based compensation awards with a vesting period ranging up to 3 years and a maximum contractual term of 10 years. The Company issues new shares of stock when stock options are exercised. As of September 30, 2021, there was $14.4 million of total unrecognized compensation cost related to non-vested share-based compensation awards. That cost is expected to be recognized over a weighted average period of 2.3 years.

Stock Options

The Company measures share-based compensation cost for options using the Black-Scholes option pricing model. The following table presents the weighted average assumptions used to estimate fair values of the stock options granted, the estimated annual forfeiture rates used to recognize the associated compensation expense and the weighted average fair value of the options granted during the three months ended September 30, 2020:

	September 30, 2020
Risk-free interest rate		0.2	%
Expected volatility		82.5	%
Expected dividend yield		—	%
Forfeiture rate		—	%
Expected term		5.0	years
Weighted average fair value	$	3.86

There were no options granted during the three months ended September 30, 2021.

Expected volatility is based on the historical volatility of the price of our common shares during the historical period equal to the expected term of the option. The Company uses historical information to estimate the expected term, which represents the period of time that options granted are expected to be outstanding. The risk-free rate for the period equal to the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The forfeiture rate assumption is the estimated annual rate at which unvested awards are expected to be forfeited during the vesting period. This assumption is based on our actual forfeiture rate on historical awards. Periodically, management will assess whether it is necessary to adjust the estimated rate to reflect changes in actual forfeitures or changes in expectations. Additionally, the expected dividend yield is equal to zero, as the Company has not historically issued and has no immediate plans to issue a dividend.

A stock option summary as of September 30, 2021 and changes during the three months then ended, is presented below:

						Weighted
		Weighted-				Average
		Average		Aggregate		Remaining
		Exercise		Intrinsic		Contractual
(In thousands, except for weighted average price and life data)	Awards	Price		Value		Life (yrs.)
Outstanding at June 30, 2021	1,046	$	9.51	$	25	7.2
Exercised	(3)	$	3.55	$	2
Forfeited, expired or repurchased	(10)	$	3.55
Outstanding at September 30, 2021	1,033	$	9.59	$	—	7.0
Vested and expected to vest at September 30, 2021	1,033	$	9.59	$	—	7.0
Exercisable at September 30, 2021	604	$	11.94	$	—	6.1

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Restricted Stock

The Company measures restricted stock compensation costs based on the stock price at the grant date less an estimate for expected forfeitures. The annual forfeiture rate used to calculate compensation expense was 6.5% for the three months ended September 30, 2021 and 2020.

A summary of restricted stock awards as of September 30, 2021 and changes during the three months then ended, is presented below:

		Weighted
		Average Grant -		Aggregate
(In thousands, except for weighted average price data)	Awards	date Fair Value		Intrinsic Value
Non-vested at June 30, 2021	1,350	$	6.75
Granted	1,110		4.14
Vested	(834)		6.07	$	3,487
Forfeited	(29)		6.67
Non-vested at September 30, 2021	1,597	$	5.29

Performance-Based Shares

The Company grants performance-based awards to certain key executives. The stock-settled awards will cliff vest based on a three-year performance measurement period. Awards issued prior to July 2021 are based on relative Total Shareholder Return (“TSR”) over a three-year period. Half of the performance shares granted in July 2021 will be tied to our relative TSR, consistent with awards granted in prior years, with the other half tied to a variety of strategic portfolio goals. The Company measures share-based compensation cost for TSR awards using a Monte-Carlo simulation model. Compensation cost for awards tied to strategic portfolio goals is measured using the stock price at the grant date and is recognized based on performance at target award levels. However, in accordance with ASC 718, Compensation – Stock Compensation, the Company will assess the probability that the strategic portfolio goals will be met and adjust the cumulative compensation cost recognized accordingly at each reporting period.

A summary of performance-based share awards as of September 30, 2021 and changes during the current fiscal year, is presented below:

		Weighted
		Average Grant -
(In thousands, except for weighted average price and life data)	Awards	date Fair Value
Non-vested at June 30, 2021	531	$	10.29
Granted	617	$	6.04
Performance adjustment (1)	(40)	$	17.69
Non-vested at September 30, 2021	1,108	$	7.65

(1) Represents the adjustment based on the performance of the July 2018 awards, which was below the Threshold goal level at the end of the three-year performance period.

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Employee Stock Purchase Plan

In February 2003, the Company’s stockholders approved an Employee Stock Purchase Plan (“ESPP”). Employees eligible to participate in the ESPP may purchase shares of the Company’s stock at 85% of the lower of the fair market value of the common stock on the first day of the calendar quarter, or the last day of the calendar quarter. Under the ESPP, employees can authorize the Company to withhold up to 10% of their compensation during any quarterly offering period, subject to certain limitations. The ESPP was implemented on April 1, 2003 and is qualified under Section 423 of the Internal Revenue Code. The Board of Directors authorized an aggregate total of 1.1 million shares of the Company’s common stock for issuance under the ESPP. During the three months ended September 30, 2021 and 2020, 38 thousand shares and 29 thousand shares were issued under the ESPP, respectively. As of September 30, 2021, 1.1 million total cumulative shares have been issued under the ESPP.

The following table presents the allocation of share-based compensation costs recognized in the Consolidated Statements of Operations by financial statement line item:

	Three Months Ended
	September 30,
(In thousands)	2021		2020
Selling, general and administrative expenses	$	2,697	$	2,714
Research and development expenses		95		155
Cost of sales		226		473
Total	$	3,018	$	3,342
Tax benefit at statutory rate	$	679	$	752

Note 16. Employee Benefit Plan

The Company has a 401k defined contribution plan (the “Plan”) covering substantially all employees. Pursuant to the Plan provisions, the Company was required to make matching contributions equal to 50% of each employee’s contribution, not to exceed 4% of the employee’s compensation for the Plan year. Beginning January 1, 2021, the Company reduced the matching contribution to 50% of each employee’s contribution, not to exceed 2% of the employee’s compensation for the Plan year. Contributions to the Plan were $0.3 million and $0.5 million during the three months ended September 30, 2021 and 2020, respectively.

In Fiscal 2020, the Company implemented a non-qualified deferred compensation plan for certain senior-level management and executives. The non-qualified deferred compensation plan allows certain eligible employees to defer additional pre-tax earnings for retirement, beyond the IRS limits in place under the Plan. Contributions to the non-qualified deferred compensation plan during the three months ended September 30, 2021 were not material.

Note 17. Income Taxes

The federal, state and local income tax benefit for the three months ended September 30, 2021 was $0.1 million compared to $8.0 million for the three months ended September 30, 2020. The effective tax rates for the three months ended September 30, 2021 and 2020 were 0.3% and 55.1%, respectively. The effective tax rate for the three months ended September 30, 2021 was lower compared to the three months ended September 30, 2020 primarily due to the valuation allowance recorded in Fiscal 2021.

The Company may recognize the tax benefit from an uncertain tax position claimed on a tax return only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

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As of both September 30, 2021 and June 30, 2021, the Company has total unrecognized tax benefits of $4.5 million, of which $4.4 million would impact the Company’s effective tax rate for each period, if recognized. As a result of the positions taken during the period, the Company has not recorded any material interest and penalties for the period ended September 30, 2021 in the statement of operations and no cumulative interest and penalties have been recorded either in the Company’s statement of financial position as of September 30, 2021 and June 30, 2021. The Company will recognize interest accrued on unrecognized tax benefits in interest expense and any related penalties in operating expenses.

The Company files income tax returns in the United States federal jurisdiction and various states. The Company’s federal tax returns for Fiscal 2014 and prior generally are no longer subject to review as such years are closed. The Company’s Fiscal 2015 through 2017 federal returns are currently under examination by the Internal Revenue Service (“IRS”). In March 2021, the Company was notified that its Fiscal 2020 federal return was also selected for examination. The Company has received preliminary assessments from the IRS, which are not considered material to Company’s Consolidated Statements of Operations; however, we cannot reasonably predict the final outcome of the examinations at this time. In October 2018, the Company was notified that the Commonwealth of Pennsylvania will conduct a routine field audit of the Company’s Fiscal 2016 and Fiscal 2017 corporate tax returns. In March 2021, the Company received a preliminary assessment from the Commonwealth of Pennsylvania, which is not considered material to the Company’s Consolidated Statement of Operations.

Note 18. Related Party Transactions

The Company had sales of $0.2 million and $0.7 million during the three months ended September 30, 2021 and 2020, respectively, to a generic distributor, Auburn Pharmaceutical Company (“Auburn”), which is a member of the Premier Buying Group. Jeffrey Farber, a current board member, is the owner of Auburn. Accounts receivable includes amounts due from Auburn of $0.2 million and $0.4 million at September 30, 2021and June 30, 2021, respectively.

Note 19. Assets Held for Sale

In Fiscal 2020, the Company ceased operations at Cody Labs, leased a portion of the real estate to a third party and intends to sell the remaining real estate. In October 2020, the Company entered into an agreement for the sale of real estate associated with the Cody API business for $3.8 million before fees and selling costs, subject to certain closing conditions. However, prior to closing, the buyer terminated the transaction in December 2020. The Company continues to actively market the real estate. As of September 30, 2021, the remaining real estate associated with the Cody API business, totaling $2.7 million, was recorded in the assets held for sale caption in the Consolidated Balance Sheet. The financial results of the Cody API business for the three months ended September 30, 2021 and 2020 were not material to the Company’s Consolidated Statements of Operations.

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Note 20. Subsequent Events

2021 Restructuring Plan

On November 1, 2021, the Board of Directors authorized a restructuring and cost savings plan (the “2021 Restructuring Plan”) to further optimize its operations, improve efficiencies and reduce costs. Under the 2021 Restructuring Plan, the Company will consolidate its manufacturing footprint by transferring certain liquid drug production from its Silarx Pharmaceuticals, Inc. (“Silarx”) facility in Carmel, New York to the Company’s main plant in Seymour, Indiana. The Company will then shut down operations at Silarx over a one to two-year period and pursue the sale of the facility. Several products manufactured by Silarx and Kremers Urban Pharmaceuticals, Inc. will be scaled back or discontinued over time. Particularly, the Company will scale back or phase out some small low-margin over-the-counter medicines from Carmel and two very low-margin prescription products as part of the restructuring program. During the transition of products from Carmel, New York to the Seymour, Indiana facility, the Company will continue to assess its portfolio and may introduce or discontinue additional products. As part of the 2021 Restructuring Plan, the Company will also scale back its research and development operations and eliminate certain administrative positions that primarily support the Silarx and research and development operations. The total reduction in headcount, and the basis of the estimated severance costs, for the 2021 Restructuring Plan is expected to be approximately 90 positions. Also, other existing and certain anticipated vacancies will not be filled. The Company initiated the plan on November 3, 2021 and expects that the actions contemplated under the 2021 Restructuring Plan will be substantially complete by June 30, 2023. Ultimately, the plan is expected to result in a leaner, more focused organization and generate cost savings of $20 million, annually.

The Company estimates that it will incur approximately $4.0 million to $5.0 million of total costs to implement the 2021 Restructuring Plan, comprised primarily of approximately $3.0 million of severance and employee-related costs and approximately $1.0 million to $2.0 million of tech transfer costs. The Company also expects to incur approximately $2.0 million to $3.0 million in capital expenditures to build out the liquid manufacturing business at the Kremers Urban Pharmaceuticals, Inc. facility. In addition, the Company may incur non-cash impairment charges in connection with the 2021 Restructuring Plan relating to certain long-lived assets, including, but not limited to, the facility, equipment and other plant-related assets currently utilized by the Company.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statement About Forward-Looking Statements

This Report on Form 10-Q and certain information incorporated herein by reference contains forward-looking statements which are not historical facts made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not promises or guarantees and investors are cautioned that all forward-looking statements involve risks and uncertainties, including but not limited to the impact of competitive products and pricing, product demand and market acceptance, new product development, acquisition-related challenges, the regulatory environment, interest rate fluctuations, reliance on key strategic alliances, availability of raw materials, fluctuations in operating results and other risks detailed from time to time in our filings with the Securities and Exchange Commission (“SEC”). These statements are based on management’s current expectations and are naturally subject to uncertainty and changes in circumstances. We caution you not to place undue reliance upon any such forward-looking statements which speak only as of the date made. Lannett is under no obligation to, and expressly disclaims any such obligation to, update or alter its forward-looking statements, whether as a result of new information, future events or otherwise and other events or factors, many of which are beyond our control, including those resulting from such events, or the prospect of such events, such as public health issues including health epidemics or pandemics, such as the recent outbreak of the novel coronavirus (“COVID-19”), whether occurring in the United States or elsewhere, which could disrupt our operations, disrupt the operations of our suppliers and business development and other strategic partners, disrupt the global financial markets or result in political or economic instability.

The following information should be read in conjunction with the consolidated financial statements and notes in Part I, Item 1 of this Quarterly Report and with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021. All references to “Fiscal 2022” shall mean the fiscal year ending June 30, 2022 and all references to “Fiscal 2021” shall mean the fiscal year ended June 30, 2021.

Company Overview

Lannett Company, Inc. (a Delaware corporation) and its subsidiaries (collectively, the “Company”, “Lannett”, “we” or “us”) primarily develop, manufacture, package, market and distribute solid oral and extended release (tablets and capsules), topical, liquids, nasal and oral solution finished dosage forms of drugs, generic forms of both small molecule and biologic medications, that address a wide range of therapeutic areas. Certain of these products are manufactured by others and distributed by the Company. Additionally, the Company is pursuing partnerships, research contracts and internal expansion for the development and production of other dosage forms including: ophthalmic, nasal, patch, foam, buccal, sublingual, suspensions, soft gel, injectable and oral dosages.

The Company operates pharmaceutical manufacturing plants in Carmel, New York and Seymour, Indiana. The Company’s customers include generic pharmaceutical distributors, drug wholesalers, chain drug stores, private label distributors, mail-order pharmacies, other pharmaceutical manufacturers, managed care organizations, hospital buying groups, governmental entities and health maintenance organizations.

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Impact of COVID-19 Pandemic

In December 2019, the COVID-19 virus emerged in Wuhan, China and spread to other parts of the world. In March 2020, the World Health Organization (“WHO”) designated COVID-19 a global pandemic. Governments on the national, state and local level in the United States, and around the world, have implemented lockdown and shelter-in-place orders, requiring many non-essential businesses to shut down operations for the time being. The Company’s business, however, is deemed “essential” and it has continued to operate and has continued to manufacture and distribute its medicines to customers. The Company has developed a comprehensive plan that enables it to maintain operational continuity with an emphasis on manufacturing, distribution and R&D facilities during this crisis, and to date, has not encountered any significant obstacles implementing its business continuity plans. However, the Company continually assesses COVID-19 related developments and adjusts its risk mitigation planning and business continuity activities as needed.

In mid-March, 2020, the Company instituted a work from home process for all employees, other than employees in our manufacturing plants, distribution center, and R&D facilities which support manufacturing. For employees who cannot perform their job remotely, the Company has implemented enhanced cleaning and sanitizing procedures, weekly fogging and provided additional personal hygiene supplies and personal protective equipment such as rubber gloves, N95 respirators and powered air-purifying respirator that are in line with Centers for Disease Control and Preventions (“CDC”) recommendations. The Company has also implemented thermal screening for all employees and visitors entering its facilities. Employees are required to adhere to the CDC guidelines, social distancing and any employee experiencing any symptoms of COVID-19 is required to stay home and seek medical attention. Any employee who tests positive for COVID-19 is required to quarantine and is not allowed to return to the facilities without a physician’s release. The Company has experienced an increase in absenteeism arising from intermittent spikes in cases across the country, which has caused an increase in overtime and cost to produce the products, but to date the rate of employee absenteeism has not had any material effect on the Company’s business or its ability to manufacture and distribute products and plants continue to operate at normal capacity. As the pandemic continues to linger due to variants or other causes, there is a continuing risk of employee absenteeism which could materially impact the Company’s operations. To date, the Company’s work from home process has not materially impacted the Company’s financial reporting systems or controls over financial reporting and disclosures nor do we expect that the ongoing remote work arrangement will have a material impact in the future.

Currently and as anticipated for the near future, the supply chain supporting the Company’s products remains intact, enabling the Company to receive sufficient inventory of the key materials needed across the Company’s network. The Company is experiencing some delays and allocations for certain API and other raw materials of higher demand, which, to date, have not had a material impact on its results of operations. However, the Company is regularly communicating with its suppliers, third-party partners, customers, healthcare providers and government officials in order to respond rapidly to any issues as they arise. The longer the current situation continues, it is more likely that the Company may experience some sort of interruption to its supply chain, and such an interruption could materially affect its business, including but not limited to, our ability to timely manufacture and distribute its products as well as unfavorably impact our results of operations. Subsequent to an initial stocking up of supplies at the start of the pandemic, the total volume of drug prescriptions written during the pandemic decreased causing less demand for our products. Specifically, the pandemic has resulted in fewer elective surgeries being performed, causing less demand for our Numbrino cocaine hydrochloride product. Recently, however, prescription volumes have begun to increase back to pre-pandemic levels.

As a result of the pandemic, certain clinical trials which were underway or scheduled to begin were temporarily placed on hold, although all such clinical trials were resumed and have been completed. Such delays impacted the Company’s timing for filing applications for product approvals with the FDA as well as related timing of FDA approval of such filings. Additionally, the pandemic has slowed down the Company’s efforts to expand its product portfolio through acquisitions and distribution opportunities, impacting the speed with which the Company is able to bring additional products to market. While there have been some efforts by some of our customers to increase their inventory levels for the Company’s products in the near term, the Company has not seen significant increases in demand. The Company does not anticipate any significant changes in demand for its products in the future, however, depending on the duration and severity of the outbreak, levels of demand may change.

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In light of the economic impacts of COVID-19, the Company reviewed the assets on our Consolidated Balance Sheet as of September 30, 2021, including intangible and other long-lived assets. Based on our review, the Company determined that no impairments or other write-downs specifically related to COVID-19 were necessary during the first three months of Fiscal 2022 and during Fiscal 2021. Our assessment is based on information currently available and is highly reliant on various assumptions. Changes in market conditions could impact the Company’s future outlook and may lead to impairments in the future.

Based on the foregoing, the Company cannot reasonably predict the ultimate impact of COVID-19 on our future results of operations and cash flows due to the continued uncertainty around the duration and severity of the pandemic.

Climate Change

The Company believes in a more sustainable future with a reduced environmental footprint, effective use of natural resources and a multi-pronged approach to reducing our effect on the climate while maintaining our focus on providing affordable medicines to our customers and ultimately the patients who depend on them. Commitment to this belief, however, may come at increased costs to the Company including, but not limited to, capital investments, additional management and compliance costs, and reduced output, all of which may be material. Costs incurred by our suppliers and vendors to comply with their own sustainability commitments may also be passed through the supply chain resulting in higher operational costs to the Company. Climate change and the associated risks continues to evolve over time and could materially impact the Company’s results of operations and cash flows in any given year. The Company monitors such changes and strives to address these risks in a timely manner.

Results of Operations - Three months ended September 30, 2021 compared with the three months ended September 30, 2020

Net sales decreased 20% to $101.5 million for the three months ended September 30, 2021. The table below identifies the Company’s net product sales by medical indication for the three months ended September 30, 2021 and 2020.

(In thousands)	September 30,
Medical Indication	2021		2020
Analgesic	$	5,314	$	3,120
Anti-Psychosis		3,715		13,028
Cardiovascular		14,100		19,714
Central Nervous System		22,785		22,525
Endocrinology		7,845		3,233
Gastrointestinal		15,240		17,100
Infectious Disease		12,515		21,932
Migraine		4,685		9,690
Respiratory/Allergy/Cough/Cold		3,114		1,426
Urinary		1,176		1,458
Other		9,176		7,634
Contract manufacturing revenue		1,860		5,619
Total net sales	$	101,525	$	126,479

The decrease in net sales was driven by a decrease in the selling price of products of $25.2 million partially offset by an increase in volume of $0.2 million. The decrease in the selling price of products was primarily driven by lower sales prices of Posaconazole, which is included within the Infectious Disease medical indication, Levothyroxine Tablets, which is included in the Endocrinology medical indication, and Fluphenazine, which is included within the Anti-Psychosis medical indication. The pressure on sales prices across our portfolio is a reflection of the competitive environment in the generic drug industry. Overall volumes, particularly volumes of Sumatriptan included within the Migraine medical indication, were negatively impacted by the competitive environment; however, the pressure was offset by increased volumes related to certain new product launches such as Levothyroxine Capsules, which is included in the Endocrinology medical indication.

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In January 2017, a provision in the Bipartisan Budget Act of 2015 required drug manufacturers to pay additional rebates to state Medicaid programs if the prices of their generic drugs rise at a rate faster than inflation. The provision negatively impacted the Company’s net sales by $3.3 million and $4.3 million during the three months ended September 30, 2021 and 2020, respectively.

The following chart details price and volume changes by medical indication:

	Sales volume		Sales price
Medical indication	change %		change %
Analgesic	100	%	(30)	%
Anti-Psychosis	(39)	%	(32)	%
Cardiovascular	(18)	%	(10)	%
Central Nervous System	2	%	(1)	%
Endocrinology	339	%	(196)	%
Gastrointestinal	(2)	%	(9)	%
Infectious Disease	—	%	(43)	%
Migraine	(36)	%	(16)	%
Respiratory/Allergy/Cough/Cold	134	%	(16)	%
Urinary	(7)	%	(12)	%

The Company sells its products to customers in various distribution channels. The table below presents the Company’s net sales to each distribution channel for the three months ended:

(In thousands)	September 30,		September 30,
Customer Distribution Channel	2021		2020
Wholesaler/Distributor	$	84,844	$	100,580
Retail Chain		12,726		17,145
Mail-Order Pharmacy		2,095		3,135
Contract manufacturing revenue		1,860		5,619
Total net sales	$	101,525	$	126,479

The overall decrease in sales was primarily driven by lower sales of Fluphenazine, Posaconazole and Sumatriptan due to new competitors entering the market partially offset by sales from new product launches. The Company has seen increased competitive market pressure in recent years, which has resulted in overall decrease in sales to the distribution channels above. We have partially offset these competitive pressures with new product launches and will continue to seek opportunities for additional launches.

Cocaine Hydrochloride Solution

In December 2017, a competitor received approval from the FDA to market and sell a Cocaine Hydrochloride topical product. In March 2018, in accordance with FDA guidance, the FDA requested the Company cease manufacturing and distributing our unapproved cocaine hydrochloride solution product as a result of an approved product on the market. The Company committed to not manufacture or distribute cocaine hydrochloride 10% solution, which was not sold during Fiscal 2019, and also ceased manufacturing its unapproved cocaine hydrochloride 4% solution on June 15, 2019 and ceased distributing the product on August 15, 2019.

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The competitor filed a series of Citizen Petitions beginning in 2019, seeking to block approval of the Company’s Section 505(b)(2) NDA for its cocaine hydrochloride solution product by claiming that the grant of the New Chemical Entity (“NCE”) exclusivity issued to the competitor blocks the approval of the Company’s application for five years. Following the FDA’s rejection of the competitor’s argument and approval of the Company’s Section 505(b)(2) NDA, the competitor filed two lawsuits against the FDA (one in federal court in the District of Columbia and one in federal court in the District of Maryland) seeking a court order in two different federal courts directing the FDA to withdraw approval of the Section 505(b)(2) NDA. To date, neither court has directed the FDA to withdraw the NDA. The Company has intervened in both lawsuits and there are currently cross motions for summary judgment pending in the case filed in federal court for the District of Columbia and a motion to dismiss the complaint filed in the federal court for the District of Maryland.

Separately, on June 6, 2020, the competitor filed a patent infringement complaint, since amended, in the United States District Court for the District of Delaware, asserting that the Company’s approved cocaine hydrochloride product infringes six patents issued to the competitor. The Company filed an answer and counterclaim, alleging that the Company either does not infringe or that the six asserted patents and three additional unasserted patents are invalid. The competitor filed a motion to partially dismiss a portion of the counterclaim as to the unasserted patents. The motion to dismiss is pending a determination by the court and discovery is ongoing. The Company continues to market its approved cocaine hydrochloride product.

On August 16, 2021, the Company and the competitor reached an agreement in principle to amicably resolve all pending cases, including the cases in the federal courts in the District of Columbia, District of Maryland and District of Delaware. The parties executed settlement documents on October 15, 2021 and are seeking dismissal of all cases with prejudice.

Cost of Sales, including amortization of intangibles. Cost of sales, including amortization of intangibles, for the first quarter of Fiscal 2022 decreased 16% to $85.0 million from $100.8 million in the same prior-year period. The decrease was primarily attributable to product mix as well as decreased product royalties expense related to various distribution agreements and lower amortization expense as a result of intangible asset impairment charges incurred in Fiscal 2021.

Gross Profit. Gross profit for the first quarter of Fiscal 2022 decreased 36% to $16.5 million or 16% of net sales. In comparison, gross profit for the first quarter of Fiscal 2021 was $25.7 million or 20% of net sales. The decrease in gross profit percentage was primarily attributable to lower volumes of Fluphenazine, which had higher than average gross profit margins, as well as overall lower average selling prices of our products.

Research and Development Expenses. Research and development expenses for the first quarter of Fiscal 2022 decreased 12% to $5.8 million from $6.5 million in Fiscal 2021. The decrease was primarily due to lower R&D expenses as a result of timing of certain milestones related to product development projects.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased 25% to $18.9 million in the first quarter of Fiscal 2022 compared with $15.1 million in Fiscal 2021. The increase was primarily driven by higher expenses related to the reimbursement of legal costs associated with a distribution agreement as well as a non-income tax credit received in the first quarter of Fiscal 2021.

Other Loss. Interest expense for the three months ended September 30, 2021 totaled $14.2 million compared to $14.5 million for the three months ended September 30, 2020. The weighted average interest rate for the first quarter of Fiscal 2022 and 2021 was 8.8% and 8.0%, respectively. The average debt balance was lower in the first quarter of Fiscal 2022 as compared to the prior-year due to the full repayment of the outstanding Term Loan A in November 2020. However, the interest expense was consistent between the two periods as a result of the higher weighted-average interest rate, which is attributable to higher interest rates on the Notes and the Second Lien Facility discussed further below.

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Income Tax. The Company recorded an income tax benefit of $0.1 million in the first quarter of Fiscal 2022 as compared to an income tax benefit of $8.0 million in the first quarter of Fiscal 2021. The effective tax rate for the three months ended September 30, 2021 was 0.3%, compared to 55.1% for the three months ended September 30, 2020. The effective tax rate for the three months ended September 30, 2021 was lower compared to the three months ended September 30, 2020 primarily due to the valuation allowance recorded in Fiscal 2021.

Net Loss. For the three months ended September 30, 2021, the Company reported net loss of $22.3 million, or $(0.56) per diluted share. Comparatively, net loss in the corresponding prior-year period was $6.5 million, or $(0.17) per diluted share.

Liquidity and Capital Resources

Cash Flow

The Company has historically financed its operations with cash flow generated from operations and has $45.0 million available to draw upon under the Amended ABL Credit Facility, which is discussed further below. At September 30, 2021, working capital was $252.6 million as compared to $263.1 million at June 30, 2021, a decrease of $10.5 million. Current product portfolio sales as well as sales related to future product approvals are anticipated to generate positive cash flow from operations.

Net cash provided by operating activities of $17.2 million for the three months ended September 30, 2021 reflected net loss of $22.3 million, adjustments for non-cash items of $22.1 million, as well as cash provided by through changes in operating assets and liabilities of $17.4 million. In comparison, net cash used in operating activities of $12.2 million for the three months ended September 30, 2020 reflected net loss of $6.5 million, adjustments for non-cash items of $18.6 million, as well as cash used through changes in operating assets and liabilities of $24.3 million.

Significant changes in operating assets and liabilities from June 30, 2021 to September 30, 2021 were comprised of:

● A decrease in accounts receivable of $4.5 million mainly due to the timing of sales and cash receipts. The Company’s days sales outstanding (“DSO”) at September 30, 2021, based on gross sales for the three months ended September 30, 2021 and gross accounts receivable at September 30, 2021, was 77 days. The level of DSO at September 30, 2021 was comparable to the Company’s expectation that DSO will be in the 70 to 85-day range based on customer payment terms.

● An increase in accounts payable of $7.4 million mainly due to the timing of vendor invoices and payments.

● An increase in accrued expenses of $6.7 million primarily attributable to the interest related to the 7.750% Senior Secured Notes, which was paid in October 2021.

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Significant changes in operating assets and liabilities from June 30, 2020 to September 30, 2020 were comprised of:

● An increase in accounts receivable of $13.1 million mainly due to the timing of sales and cash receipts. The Company’s days sales outstanding (“DSO”) at September 30, 2020, based on gross sales for the three months ended September 30, 2020 and gross accounts receivable at September 30, 2020, was 70 days. The level of DSO at September 30, 2020 was comparable to the Company’s expectation that DSO will be in the 70 to 85-day range based on customer payment terms.

● An increase in income taxes receivable totaling $5.1 million primarily due to additional estimated tax refunds related to provisions of the CARES Act.

● A decrease in accrued payroll and payroll-related costs of $6.7 million primarily related to payments made in August 2020 in connection with incentive-based compensation accrued in Fiscal 2020 as well as the timing of payroll payments.

● An increase in accounts payable totaling $15.0 million primarily due to the timing of vendor invoices and payments.

Net cash used in investing activities of $4.6 million for the three months ended September 30, 2021 was mainly the result of purchases of property, plant and equipment of $3.5 million and purchases of intangible assets of $1.5 million. Net cash used in investing activities of $6.2 million for the three months ended September 30, 2020 was mainly the result of purchases of property, plant and equipment of $3.2 million and purchases of intangible assets of $3.0 million.

Net cash used in financing activities of $0.6 million for the three months ended September 30, 2021 was due to purchases of treasury stock totaling $0.7 million, partially offset by proceeds from issuance of stock pursuant to stock compensation plans of $0.1 million. Net cash used in financing activities of $17.2 million for the three months ended September 30, 2020 was primarily due to debt repayments of $16.7 million.

Credit Facility and Other Indebtedness

The Company has previously entered into and may enter future agreements with various government agencies and financial institutions to provide additional cash to help finance the Company’s acquisitions, various capital investments and potential strategic opportunities. These borrowing arrangements as of September 30, 2021 are as follows:

7.750% Senior Secured Notes due 2026

On April 22, 2021, the Company issued $350.0 million aggregate principal amount of 7.750% Senior Secured Notes due 2026 (the “Notes”) in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”) and outside the United States to persons other than U.S. persons in reliance upon Regulation S under the Securities Act. The Notes bear interest semi-annually in arrears on April 15 and October 15 of each year, beginning on October 15, 2021, at a rate of 7.750% per annum in cash. The Notes will mature on April 15, 2026, unless earlier redeemed or repurchased in accordance with their terms.

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Second Lien Secured Loan Facility

On April 5, 2021, the Company entered into an Exchange Agreement with certain participating lenders to exchange a portion of their existing Term B Loans for Second Lien Loans pursuant to a new $190.0 million Second Lien Secured Loan Facility (“Second Lien Facility”). On April 22, 2021, in connection with the issuance of the Notes and the entrance into the Amended ABL Credit Facility, which is discussed further below, the exchange between the Company and the participating lenders was consummated. From the Closing Date until the one-year anniversary of the Closing Date, the Second Lien Loans bear 10.0% PIK interest. Thereafter, the Second Lien notes will bear 5.0% cash interest and 5.0% PIK interest until maturity, except to the extent the Company elects to pay all or portion of the PIK interest in cash. The Second Lien Loans will mature on July 21, 2026. In connection with the Second Lien Facility, the Company issued to the Participating Lenders warrants to purchase up to 8,280,000 shares of common stock of the Company (the “Warrants”) at an exercise price of $6.88 per share. The Warrants were issued on April 22, 2021 with an eight-year term. The Participating Lenders received registration rights with respect to the shares of common stock of the Company to be received upon exercise of the Warrants. The holders of the Warrants are entitled to receive dividends or distributions of any kind made to the common stockholders to the same extent as if the holder had exercised the Warrant into common stock. The Warrants are considered participating securities under ASC 260, Earnings per share.

In connection with the Second Lien Facility, the Company is required to maintain at least $5.0 million in a deposit account at all times subject to control by the Second Lien Collateral Agent, and a minimum cash balance of $15.0 million as of the last day of each month. At September 30, 2021, the Company classified the $5.0 million required deposit account balance as restricted cash, which is included in other assets caption in the Consolidated Balance Sheet.

Amended ABL Credit Facility

On December 7, 2020, the Company entered into a credit and guaranty agreement, which provided for an asset-based revolving credit facility (the “ABL Credit Facility”) of up to $30 million, subject to borrowing base availability, and included letter of credit and swing line sub-facilities. On April 22, 2021, the Company entered into an amendment to that certain Credit and Guaranty Agreement, dated as of December 7, 2020 (such agreement as so amended, the “Amended ABL Credit Agreement”), among the Company, certain of its wholly-owned domestic subsidiaries party thereto, as borrowers or as guarantors, Wells Fargo Bank, National Association, as administrative agent and as collateral agent, and the other lenders party thereto, for the purpose of, among other things, increasing the aggregate amount of the revolving credit facility from $30.0 million to $45.0 million and extending the maturity thereof to the fifth anniversary of the closing date of Notes Offering (subject to a springing maturity as set forth therein).

The Amended ABL Credit Agreement provides for a revolving credit facility (the “Amended ABL Credit Facility”) that includes letter of credit and swing line sub-facilities. Borrowing availability under the Amended ABL Credit Facility is determined by a monthly borrowing base collateral calculation that is based on specified percentages of eligible accounts receivable less certain reserves and subject to certain other adjustments as set forth in the Amended ABL Credit Agreement. Availability is reduced by issuance of letters of credit as well as any borrowings. Loans outstanding under the Amended ABL Credit Agreement bear interest at a floating rate measured by reference to, at the Company’s option, either an adjusted London Inter-Bank Offered Rate (“LIBOR”) (subject to a floor of 0.75%) plus an applicable margin of 2.50% per annum, or an alternate base rate plus an applicable margin of 1.50% per annum. Unused commitments under the Amended ABL Credit Facility are subject to a fee of 0.50% per annum, which fee increases to 0.75% per annum for any quarter during which the Company’s average usage under the Amended ABL Credit Facility is less than $5.0 million.

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4.50% Convertible Senior Notes due 2026

On September 27, 2019, the Company issued $86.3 million aggregate principal amount of the 4.50% Convertible Senior Notes (the “Convertible Notes”) in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. The Convertible Notes are senior unsecured obligations of the Company and bear interest at an annual rate of 4.50% payable semi-annually in arrears on April 1 and October 1 of each year, beginning on April 1, 2020. The Convertible Notes will mature on October 1, 2026, unless earlier repurchased, redeemed or converted in accordance with their terms. The Convertible Notes are convertible into shares of the Company’s common stock at an initial conversion rate of 65.4022 shares per $1,000 principal amount of Convertible Notes (which is equivalent to an initial conversion price of approximately $15.29 per share), subject to adjustments upon the occurrence of certain events (but will not be adjusted for any accrued and unpaid interest). The Company may redeem all or a part of the Convertible Notes on or after October 6, 2023 at a redemption price equal to 100% of the principal amount of the Convertible Notes redeemed, plus accrued and unpaid interest, if any, up to, but excluding, the redemption date, subject to certain conditions relating to the Company’s stock price having been met. Following certain corporate events that occur prior to the maturity date or if the Company delivers a notice of redemption, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its Convertible Notes in connection with such corporate event or notice of redemption. The indenture covering the Convertible Notes contains certain other customary terms and covenants, including that upon certain events of default occurring and continuing, either the trustee or holders of at least 25% in principal amount of the outstanding Convertible Notes may declare 100% of the principal of, and accrued and unpaid interest on, all the Convertible Notes to be due and payable.

In connection with the offering of the Convertible Notes, the Company also entered into privately negotiated “capped call” transactions with several counterparties. The capped call transaction will initially cover, subject to customary anti-dilution adjustments, the number of shares of common stock that initially underlie the Convertible Notes. The capped call transactions are expected to generally reduce the potential dilutive effect on the Company’s common stock upon any conversion of the Convertible Notes with such reduction subject to a cap which is initially $19.46 per share.

Other Liquidity Matters

Refer to the “Impact of COVID-19 Pandemic” section above for the impact on our future liquidity.

Future Acquisitions

We are continuously evaluating the potential for product and company acquisitions as a part of our future growth strategy. In conjunction with a potential acquisition, the Company may utilize current resources or seek additional sources of capital to finance any such acquisition, which could have an impact on future liquidity.

We may also from time to time depending on market conditions and prices, contractual restrictions, our financial liquidity and other factors, seek to prepay outstanding debt or repurchase our outstanding debt through open market purchases, privately negotiated purchases, or otherwise. The amounts involved in any such transactions, individually or in the aggregate, may be material and may be funded from available cash or from additional borrowings.

Research and Development Arrangements

In the normal course of business, the Company has entered into certain research and development and other arrangements. As part of these arrangements, the Company has agreed to certain contingent payments, which generally become due and payable only upon the achievement of certain developmental, regulatory, commercial and/or other milestones. In addition, under certain arrangements, we may be required to make royalty payments based on a percentage of future sales, or other metric, for products currently in development in the event that the Company begins to market and sell the product. Due to the inherent uncertainty related to these developmental, regulatory, commercial and/or other milestones, it is unclear if the Company will ever be required to make such payments.

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Critical Accounting Policies

The preparation of our Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States and the rules and regulations of the U.S. Securities & Exchange Commission requires the use of estimates and assumptions. A listing of the Company’s significant accounting policies is detailed in Note 3 “Summary of Significant Accounting Policies.” A subsection of these accounting policies has been identified by management as “Critical Accounting Policies and Estimates.” Critical accounting policies and estimates are those which require management to make estimates using assumptions that were uncertain at the time the estimates were made and for which the use of different assumptions, which reasonably could have been used, could have a material impact on the financial condition or results of operations.

Management has identified the following as “Critical Accounting Policies and Estimates”: Revenue Recognition, Inventories, Income Taxes, and Valuation of Long-Lived Assets, including Intangible Assets.

Revenue Recognition

The Company complies with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, which superseded ASC Topic 605, Revenue Recognition. Under ASC 606, the Company recognizes revenue when title and risk of loss of promised goods or services have transferred to the customer at an amount that reflects the consideration the Company is expected to be entitled. Our revenue consists almost entirely of sales of our pharmaceutical products to customers, whereby we ship product to a customer pursuant to a purchase order. Revenue contracts such as these do not generally give rise to contract assets or contract liabilities because: (i) the underlying contracts generally have only a single performance obligation and (ii) we do not generally receive consideration until the performance obligation is fully satisfied. The new revenue standard also impacts the timing of the Company’s revenue recognition by requiring recognition of certain contract manufacturing arrangements to change from “upon shipment or delivery” to “over time.” However, the recognition of these arrangements over time does not currently have a material impact on the Company’s consolidated results of operations or financial position. The Company adopted ASC 606 using the modified retrospective method.

When revenue is recognized, a simultaneous adjustment to gross sales is made for estimated chargebacks, rebates, returns, promotional adjustments and other potential adjustments. These provisions are primarily estimated based on historical experience, future expectations, contractual arrangements with wholesalers and indirect customers and other factors known to management at the time of accrual. Accruals for provisions are presented in the Consolidated Financial Statements as a reduction to gross sales with the corresponding reserve presented as a reduction of accounts receivable or included as rebates payable, depending on the nature of the reserve.

44

Provisions for chargebacks, rebates, returns and other adjustments require varying degrees of subjectivity. While rebates generally are based on contractual terms and require minimal estimation, chargebacks and returns require management to make more subjective assumptions. Each major category is discussed in detail below:

Chargebacks

The provision for chargebacks is the most significant and complex estimate used in the recognition of revenue. The Company sells its products directly to wholesale distributors, generic distributors, retail pharmacy chains and mail-order pharmacies. The Company also sells its products indirectly to independent pharmacies, managed care organizations, hospitals, nursing homes and group purchasing organizations, collectively referred to as “indirect customers.” The Company enters into agreements with its indirect customers to establish pricing for certain products. The indirect customers then independently select a wholesaler from which to purchase the products. If the price paid by the indirect customers is lower than the price paid by the wholesaler, the Company will provide a credit, called a chargeback, to the wholesaler for the difference between the contractual price with the indirect customers and the wholesaler purchase price. The provision for chargebacks is based on expected sell-through levels by the Company’s wholesale customers to the indirect customers and estimated wholesaler inventory levels. As sales to the large wholesale customers, such as Cardinal Health, AmerisourceBergen and McKesson increase (decrease), the reserve for chargebacks will also generally increase (decrease). However, the size of the increase (decrease) depends on product mix and the amount of sales made to indirect customers with which the Company has specific chargeback agreements. The Company continually monitors the reserve for chargebacks and makes adjustments when management believes that expected chargebacks may differ from the actual chargeback reserve.

Rebates

Rebates are offered to the Company’s key chain drug store, distributor and wholesaler customers to promote customer loyalty and increase product sales. These rebate programs provide customers with credits upon attainment of pre-established volumes or attainment of net sales milestones for a specified period. Other promotional programs are incentive programs offered to the customers. Additionally, as a result of the Patient Protection and Affordable Care Act (“PPACA”) enacted in the U.S. in March 2010, the Company participates in a new cost-sharing program for certain Medicare Part D beneficiaries designed primarily for the sale of brand drugs and certain generic drugs if their FDA approval was granted under a NDA or 505(b) NDA versus an ANDA. Drugs purchased within the Medicare Part D coverage gap (commonly referred to as the “donut hole”) result in additional rebates. The Company estimates the reserve for rebates and other promotional credit programs based on the specific terms in each agreement when revenue is recognized. The reserve for rebates increases (decreases) as sales to certain wholesale and retail customers increase (decrease). However, since these rebate programs are not identical for all customers, the size of the reserve will depend on the mix of sales to customers that are eligible to receive rebates.

Returns

Consistent with industry practice, the Company has a product returns policy that allows customers to return product within a specified time period prior to and subsequent to the product’s expiration date in exchange for a credit to be applied to future purchases. The Company’s policy requires that the customer obtain pre-approval from the Company for any qualifying return. The Company estimates its provision for returns based on historical experience, changes to business practices, credit terms and any extenuating circumstances known to management. While historical experience has allowed for reasonable estimations in the past, future returns may or may not follow historical trends. The Company continually monitors the reserve for returns and makes adjustments when management believes that actual product returns may differ from the established reserve. Generally, the reserve for returns increases as net sales increase.

45

Other Adjustments

Other adjustments consist primarily of price adjustments, also known as “shelf-stock adjustments” and “price protections,” which are both credits issued to reflect increases or decreases in the invoice or contract prices of the Company’s products. In the case of a price decrease, a credit is given for product remaining in customer’s inventories at the time of the price reduction. Contractual price protection results in a similar credit when the invoice or contract prices of the Company’s products increase, effectively allowing customers to purchase products at previous prices for a specified period of time. Amounts recorded for estimated shelf-stock adjustments and price protections are based upon specified terms with direct customers, estimated changes in market prices and estimates of inventory held by customers. The Company regularly monitors these and other factors and evaluates the reserve as additional information becomes available. Other adjustments also include prompt payment discounts and “failure-to-supply” adjustments. If the Company is unable to fulfill certain customer orders, the customer can purchase products from our competitors at their prices and charge the Company for any difference in our contractually agreed upon prices.

Refer to the Company’s Form 10-K for the fiscal year ended June 30, 2021 for a description of our remaining Critical Accounting Policies.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

During the fiscal year ended June 30, 2021, the Company paid off our outstanding, variable-rate Senior Secured Credit Facility with cash and the proceeds from new fixed-rate debt. The Company has historically invested in equity securities, U.S. government agency securities and corporate bonds, which are exposed to market and interest rate fluctuations. The market value, interest and dividends earned on these investments may vary based on fluctuations in interest rate and market conditions.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Form 10-Q, management performed, with the participation of our Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

Based upon the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that Lannett’s disclosure controls and procedures were effective as of the end of the period covered by this report.

Change in Internal Control Over Financial Reporting

There has been no change in Lannett’s internal control over financial reporting during the three months ended September 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

46

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Information pertaining to legal proceedings can be found in Note 10 “Legal, Regulatory Matters and Contingencies” of the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q and is incorporated by reference herein.

ITEM 1A. RISK FACTORS

Lannett Company, Inc’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021 includes a detailed description of its risk factors.

ITEM 5. OTHER INFORMATION

Item 2.05 Costs Associated with Exit or Disposal Activities.

On November 1, 2021, the Board of Directors authorized a restructuring and cost savings plan (the “2021 Restructuring Plan”) to further optimize its operations, improve efficiencies and reduce costs. Under the 2021 Restructuring Plan, the Company will consolidate its manufacturing footprint by transferring certain liquid drug production from its Silarx Pharmaceuticals, Inc. (“Silarx”) facility in Carmel, New York to the Company’s main plant in Seymour, Indiana. The Company will then shut down operations at Silarx over a one to two-year period and pursue the sale of the facility. Several products manufactured by Silarx and Kremers Urban Pharmaceuticals, Inc. will be scaled back or discontinued over time. Particularly, the Company will scale back or phase out some small low-margin over-the-counter medicines from Carmel and two very low-margin prescription products as part of the restructuring program. During the transition of products from Carmel, New York to the Seymour, Indiana facility, the Company will continue to assess its portfolio and may introduce or discontinue additional products. During the transition of products from Silarx to the Seymour, Indiana facility, the Company will continue to assess its portfolio and may introduce or discontinue additional products. As part of the 2021 Restructuring Plan, the Company will also scale back its R&D operations and eliminate certain SG&A positions that primarily support the Silarx and R&D operations. The total reduction in headcount, and the basis of the estimated severance costs, for the 2021 Restructuring Plan is expected to be approximately 90 positions. Also, other existing and certain anticipated vacancies will not be filled. The Company initiated the plan on November 3, 2021 and expects that the actions contemplated under the 2021 Restructuring Plan will be substantially complete by June 30, 2023. Ultimately, the plan is expected to result in a leaner, more focused organization and generate cost savings of $20 million, annually.

The Company estimates that it will incur approximately $4.0 million to $5.0 million of total costs to implement the 2021 Restructuring Plan, comprised primarily of approximately $3.0 million of severance and employee-related costs and approximately $1 million to $2 million of tech transfer costs. The Company also expects to incur approximately $2 million to $3 million in capital expenditures to build out the liquid manufacturing business at the Kremers Urban Pharmaceuticals, Inc. facility. In addition, the Company may incur non-cash impairment charges in connection with the 2021 Restructuring Plan relating to certain long-lived assets, including, but not limited to, the facility, equipment and other plant-related assets currently utilized by the Company, as more fully discussed in Item 2.06 below.

Item 2.06 Material Impairments

As a result of the 2021 Restructuring Plan, as more fully discussed in Item 2.05 above, the Company will perform an analysis with respect to certain long-lived assets, including the facility, equipment and other plant-related assets currently utilized by the Company. However, at this time the Company cannot estimate an amount or range of amounts for such impairment. Any non-cash impairment charges would be in addition to the restructuring costs referenced in Item 2.05 above.

47

ITEM 6. EXHIBITS

(a) A list of the exhibits required by Item 601 of Regulation S-K to be filed as a part of this Form 10-Q is shown on the Exhibit Index filed herewith.

Exhibit Index

31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed Herewith
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed Herewith
32**	Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed Herewith
101.INS	XBRL Instance Document – the instance document does not appear within the Interactive Data File because its XRBL tags are embedded within the Inline XRBL Document	Filed Herewith
101.SCH	XBRL Taxonomy Extension Schema Document	Filed Herewith
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	Filed Herewith
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	Filed Herewith
101.LAB	XBRL Taxonomy Extension Label Linkbase Document	Filed Herewith
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	Filed Herewith
104	Cover Page Interactive Data File – The cover page interactive data file does not appear in the Interactive Data File because its XRBL tags are embedded within the Inline XRBL document	Filed Herewith

** Furnished Herewith

48

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		LANNETT COMPANY, INC.
Dated: November 4, 2021	By:	/s/ Timothy Crew
		Timothy Crew
		Chief Executive Officer
Dated: November 4, 2021	By:	/s/ John Kozlowski
		John Kozlowski
		Vice President of Finance, Chief Financial Officer and Principal Accounting Officer

49

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Timothy Crew, certify that:

1. I have reviewed this report on Form 10-Q of the Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in shareholders’ equity and cash flows of the Company as of and for the periods presented in this report;

4. The Company’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting;

5. The Company’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors:

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date: November 4, 2021

/s/ Timothy Crew

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John Kozlowski, certify that:

1. I have reviewed this report on Form 10-Q of the Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in shareholders’ equity and cash flows of the Company as of and for the periods presented in this report;

4. The Company’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting;

5. The Company’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors:

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date: November 4, 2021

/s/ John Kozlowski

Vice President of Finance, Chief Financial Officer and Principal Accounting Officer

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Lannett Company, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Timothy Crew, the Chief Executive Officer of the Company, and I, John Kozlowski, the Vice President of Finance, Chief Financial Officer and Principal Accounting Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.       The Report complies with the requirements of Section13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.       The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 4, 2021	/s/ Timothy Crew
	Timothy Crew,
	Chief Executive Officer
Dated: November 4, 2021	/s/ John Kozlowski
	John Kozlowski,
	Vice President of Finance, Chief Financial Officer and Principal Accounting Officer

XML

Document and Entity Information - shares	3 Months Ended
	Sep. 30, 2021	Oct. 31, 2021
Document and Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2021
Document Transition Report	false
Entity File Number	001-31298
Entity Registrant Name	LANNETT COMPANY, INC
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	23-0787699
Entity Address, Address Line One	1150 Northbrook Drive, Suite 155
Entity Address, City or Town	Trevose
Entity Address, State or Province	PA
Entity Address, Postal Zip Code	19053
City Area Code	215
Local Phone Number	333-9000
Title of 12(b) Security	Common Stock
Trading Symbol	LCI
Security Exchange Name	NYSE
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		43,004,072
Entity Central Index Key	0000057725
Current Fiscal Year End Date	--06-30
Document Fiscal Year Focus	2022
Document Fiscal Period Focus	Q1
Amendment Flag	false

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Sep. 30, 2021	Jun. 30, 2021
Current assets:
Cash and cash equivalents	$ 105,321	$ 93,286
Accounts receivable, net	94,309	98,834
Inventories	112,637	109,545
Income taxes receivable	34,452	35,050
Assets held for sale	2,678	2,678
Other current assets	15,496	14,170
Total current assets	364,893	353,563
Property, plant and equipment, net	164,154	166,674
Intangible assets, net	135,338	137,835
Operating lease right-of-use assets	10,444	10,559
Other assets	16,039	15,106
TOTAL ASSETS	690,868	683,737
Current liabilities:
Accounts payable	36,990	29,585
Accrued expenses	19,771	13,077
Accrued payroll and payroll-related expenses	9,737	10,680
Rebates payable	25,825	19,025
Royalties payable	14,620	13,779
Current operating lease liabilities	2,049	2,045
Other current liabilities	3,285	2,278
Total current liabilities	112,277	90,469
Long-term debt, net	596,975	590,683
Long-term operating lease liabilities	10,800	11,047
Other liabilities	18,169	19,009
TOTAL LIABILITIES	738,221	711,208
Commitments and contingencies (Notes 10 and 11)
STOCKHOLDERS' DEFICIT
Common stock ($0.001 par value, 100,000,000 shares authorized; 41,786,848 and 40,913,148 shares issued; 40,302,111 and 39,576,606 shares outstanding at September 30, 2021 and June 30, 2021, respectively)	42	41
Additional paid-in capital	358,361	355,239
Accumulated deficit	(387,108)	(364,766)
Accumulated other comprehensive loss	(524)	(548)
Treasury stock (1,484,737 and 1,336,542 shares at September 30, 2021 and June 30, 2021, respectively)	(18,124)	(17,437)
Total stockholders' deficit	(47,353)	(27,471)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$ 690,868	$ 683,737

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Sep. 30, 2021	Jun. 30, 2021
CONSOLIDATED BALANCE SHEETS
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, authorized shares	100,000,000	100,000,000
Common stock, issued shares	41,786,848	40,913,148
Common stock, outstanding shares	40,302,111	39,576,606
Treasury stock, shares	1,484,737	1,336,542

XML

CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Thousands	3 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
CONSOLIDATED STATEMENTS OF OPERATIONS
Net sales	$ 101,525	$ 126,479
Cost of sales	81,008	92,187
Amortization of intangibles	3,996	8,589
Gross profit	16,521	25,703
Operating expenses:
Research and development expenses	5,764	6,539
Selling, general and administrative expenses	18,905	15,136
Restructuring expenses		4,043
Total operating expenses	24,669	25,718
Operating loss	(8,148)	(15)
Other income (expense):
Investment income	34	45
Interest expense	(14,224)	(14,486)
Other	(62)	(23)
Total other expense	(14,252)	(14,464)
Loss before income tax	(22,400)	(14,479)
Income tax benefit	(58)	(7,980)
Net loss	$ (22,342)	$ (6,499)
Loss per common share:
Basic (in dollars per share)	$ (0.56)	$ (0.17)
Diluted (in dollars per share)	$ (0.56)	$ (0.17)
Weighted average common shares outstanding:
Basic (in shares)	39,927,822	39,070,982
Diluted (in shares)	39,927,822	39,070,982

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS - USD ($) $ in Thousands	3 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Net loss	$ (22,342)	$ (6,499)
Other comprehensive income:
Foreign currency translation gain	24	79
Total other comprehensive income	24	79
Comprehensive loss	$ (22,318)	$ (6,420)

XML

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) - USD ($) shares in Thousands, $ in Thousands	Common Stock	Additional Paid-In Capital	Accumulated Deficit	Accumulated Other Comprehensive Income (Loss)	Treasury Stock	Total
Balance, beginning at Jun. 30, 2020	$ 40	$ 321,164	$ (1,291)	$ (627)	$ (16,390)	$ 302,896
Balance, beginning (in shares) at Jun. 30, 2020	39,963
Increase (Decrease) in Shareholders' Equity
Shares issued in connection with share-based compensation plans	$ 1	282				283
Shares issued in connection with share-based compensation plans (in shares)	724
Share-based compensation		3,342				3,342
Purchase of treasury stock					(786)	(786)
Other comprehensive income (Loss)				79		79
Net loss			(6,499)			(6,499)
Balance, ending at Sep. 30, 2020	$ 41	324,788	(7,790)	(548)	(17,176)	299,315
Balance, ending (in shares) at Sep. 30, 2020	40,687
Increase (Decrease) in Shareholders' Equity
Accumulated deficit						(364,766)
Balance, beginning at Jun. 30, 2021	$ 41	355,239	(364,766)	(548)	(17,437)	(27,471)
Balance, beginning (in shares) at Jun. 30, 2021	40,913
Increase (Decrease) in Shareholders' Equity
Shares issued in connection with share-based compensation plans	$ 1	104				105
Shares issued in connection with share-based compensation plans (in shares)	874
Share-based compensation		3,018				3,018
Purchase of treasury stock					(687)	(687)
Other comprehensive income (Loss)				24		24
Net loss			(22,342)			(22,342)
Balance, ending at Sep. 30, 2021	$ 42	$ 358,361	$ (387,108)	$ (524)	$ (18,124)	(47,353)
Balance, ending (in shares) at Sep. 30, 2021	41,787
Increase (Decrease) in Shareholders' Equity
Accumulated deficit						$ (387,108)

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	3 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
OPERATING ACTIVITIES:
Net loss	$ (22,342)	$ (6,499)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	9,585	14,342
Deferred income tax benefit		(2,572)
Share-based compensation	3,018	3,342
Loss (gain) on sale/disposal of assets	56	(6)
Accrual of payment-in-kind interest on Second Lien Credit Facility	4,949
Amortization of debt discount and other debt issuance costs	1,440	3,277
Provision for inventory write-downs	2,839	2,605
Other noncash expenses	206	242
Changes in assets and liabilities which provided (used) cash:
Accounts receivable, net	4,525	(13,108)
Inventories	(5,931)	(16,216)
Income taxes receivable/payable	535	(5,106)
Other assets	(2,360)	(4,821)
Rebates payable	6,800	5,072
Royalties payable	841	(2,497)
Operating lease assets/liabilities	(330)	623
Accounts payable	7,405	15,004
Accrued expenses	6,694	647
Accrued payroll and payroll-related expenses	(943)	(6,723)
Other liabilities	230	187
Net cash provided by (used in) operating activities	17,217	(12,207)
INVESTING ACTIVITIES:
Purchases of property, plant and equipment	(3,472)	(3,227)
Proceeds from sale of property, plant and equipment	348	14
Purchases of intangible assets	(1,500)	(3,000)
Net cash used in investing activities	(4,624)	(6,213)
FINANCING ACTIVITIES:
Repayments of long-term debt		(16,711)
Proceeds from issuance of stock	105	283
Purchase of treasury stock	(687)	(786)
Net cash used in financing activities	(582)	(17,214)
Effect on cash and cash equivalents of changes in foreign exchange rates	24	79
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	12,035	(35,555)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD	98,286	144,329
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD	110,321	108,774
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid	100	10,241
Income taxes refunded	(592)	(303)
Accrued purchases of property, plant and equipment	$ 1,624	$ 1,981

XML

Interim Financial Information

3 Months Ended

Sep. 30, 2021

Interim Financial Information

Interim Financial Information

Note 1. Interim Financial Information

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for the presentation of interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the unaudited financial statements do not include all the information and footnotes necessary for a comprehensive presentation of the financial position, results of operations and cash flows for the periods presented. In the opinion of management, the unaudited financial statements include all the normal recurring adjustments that are necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. Operating results for the three months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2022. These unaudited financial statements should be read in combination with the other Notes in this section; “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing in Item 2; and the Consolidated Financial Statements, including the Notes to the Consolidated Financial Statements, included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021. The Consolidated Balance Sheet as of June 30, 2021 was derived from audited financial statements.

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The Business and Nature of Operations

3 Months Ended

Sep. 30, 2021

The Business and Nature of Operations

The Business and Nature of Operations

Note 2. The Business and Nature of Operations

Lannett Company, Inc. (a Delaware corporation) and its subsidiaries (collectively, the “Company” or “Lannett”) primarily develop, manufacture, package, market and distribute solid oral and extended release (tablets and capsules), topical, nasal and oral solution finished dosage forms of drugs that address a wide range of therapeutic areas. Certain of these products are manufactured by others and distributed by the Company.

The Company operates pharmaceutical manufacturing plants in Carmel, New York and Seymour, Indiana. The Company’s customers include generic pharmaceutical distributors, drug wholesalers, chain drug stores, private label distributors, mail-order pharmacies, other pharmaceutical manufacturers, managed care organizations, hospital buying groups, governmental entities and health maintenance organizations.

COVID-19 Update

In December 2019, the COVID-19 virus emerged in Wuhan, China and spread to other parts of the world. In March 2020, the World Health Organization (“WHO”) designated COVID-19 a global pandemic. Governments on the national, state and local level in the United States, and around the world, implemented lockdown and shelter-in-place orders, requiring many non-essential businesses to shut down operations. The Company’s business, however, is deemed “essential” and it has continued to operate, manufacture, and distribute its medicines to customers.

In light of the economic impacts of COVID-19, the Company reviewed the assets on our Consolidated Balance Sheet as of September 30, 2021, including intangible and other long-lived assets. Based on our review, the Company determined that no impairments or other write-downs specifically related to COVID-19 were necessary during the first three months of Fiscal 2022 and during Fiscal 2021. Our assessment is based on information currently available and is highly reliant on various assumptions. Changes in market conditions could impact the Company’s future outlook and may lead to impairments in the future.

While COVID-19 has thus far not had a material impact on the Company’s operations, the total volume of drug prescriptions written in the country decreased causing less demand for our products. Recently, prescription volumes have begun to increase back to pre-pandemic levels. However, we cannot reasonably predict the ultimate impact of COVID-19 on our future results of operations and cash flows due to the continued uncertainty around the duration and severity of the pandemic.

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Summary of Significant Accounting Policies

3 Months Ended

Sep. 30, 2021

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

Note 3. Summary of Significant Accounting Policies

Basis of Presentation

The Consolidated Financial Statements have been prepared in conformity with U.S. GAAP.

Principles of consolidation

The Consolidated Financial Statements include the accounts of Lannett Company, Inc. and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year financial statement presentation.

Use of estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions are required in the determination of revenue recognition and sales deductions for estimated chargebacks, rebates, returns and other adjustments including a provision for the Company’s liability under the Medicare Part D program. Additionally, significant estimates and assumptions are required when determining the value of inventories and long-lived assets, including intangible assets, income taxes, and contingencies.

Because of the inherent subjectivity and complexity involved in these estimates and assumptions, actual results could differ from those estimates.

Foreign currency translation

The Consolidated Financial Statements are presented in U.S. dollars, the reporting currency of the Company. The financial statements of the Company’s foreign subsidiary are maintained in local currency and translated into U.S. dollars at the end of each reporting period. Assets and liabilities are translated at period-end exchange rates, while revenues and expenses are translated at average exchange rates during the period. The adjustments resulting from the use of differing exchange rates are recorded as part of stockholders’ equity in accumulated other comprehensive income (loss). Gains and losses resulting from transactions denominated in foreign currencies are recognized in the Consolidated Statements of Operations under other income (loss). Amounts recorded due to foreign currency fluctuations are immaterial to the Consolidated Financial Statements.

Cash, cash equivalents and restricted cash

The Company considers all highly liquid investments with original maturities less than or equal to three months at the date of purchase to be cash and cash equivalents. Cash and cash equivalents are stated at cost, which approximates fair value, and consist of bank deposits and money market funds. The Company maintains its cash deposits and cash equivalents at well-known, stable financial institutions. Such amounts frequently exceed insured limits. In connection with the Second Lien Secured Loan Facility (“Second Lien Facility”), the Company is required to maintain at least $5 million in a deposit account at all times, subject to control by the Second Lien Collateral Agent. At September 30, 2021, the Company classified this balance as restricted cash, which is included in other assets.

Presented in the table below is a reconciliation of the cash, cash equivalents and restricted cash amounts presented on the Consolidated Balance Sheets to the sum of such amounts presented on the Consolidated Statements of Cash Flows for the periods ended September 30, 2021 and 2020.

	September 30, 2021		September 30, 2020
Cash and cash equivalents	$	105,321	$	108,774
Restricted cash, included in other assets		5,000		—
Cash, cash equivalents and restricted cash as presented on the Consolidated Statements of Cash Flows	$	110,321	$	108,774

Allowance for doubtful accounts

The Company complies with ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which requires the Company to recognize an allowance that reflects a current estimate of credit losses expected to be incurred over the life of the financial asset, including trade receivables. The Company continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses. The Company determines its allowance for doubtful accounts by considering a number of factors, including the length of time balances are past due, the Company’s previous loss history, the customer’s current ability to pay its obligations to the Company and the expected condition of the general economy and the industry as a whole. The Company writes off accounts receivable when they are determined to be uncollectible.

Inventories

Inventories are stated at the lower of cost or net realizable value by the first-in, first-out method. Inventories are regularly reviewed and write-downs for excess and obsolete inventory are recorded based primarily on current inventory levels, expiration date and estimated sales forecasts.

Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed on a straight-line basis over the assets’ estimated useful lives. Repairs and maintenance costs that do not extend the useful life of the asset are expensed as incurred.

Intangible Assets

Definite-lived intangible assets are stated at cost less accumulated amortization. Amortization of definite-lived intangible assets is computed on a straight-line basis over the assets’ estimated useful lives, which commences upon shipment of the product. The Company continually evaluates the reasonableness of the useful lives of these assets. Indefinite-lived intangible assets are not amortized, but instead are tested at least annually for impairment. Costs to renew or extend the term of a recognized intangible asset are expensed as incurred.

Valuation of Long-Lived Assets, including Intangible Assets

The Company’s long-lived assets primarily consist of property, plant and equipment and definite and indefinite-lived intangible assets. Property, plant and equipment and definite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances (“triggering events”) indicate that the carrying amount of the asset may not be recoverable. If a triggering event is determined to have occurred, the asset’s carrying value is compared to the future undiscounted cash flows expected to be generated by the asset. If the carrying value exceeds the undiscounted cash flows of the asset, then impairment exists. Indefinite-lived intangible assets are tested for impairment at least annually during the fourth quarter of each fiscal year or more frequently if events or triggering events indicate that the asset might be impaired.

An impairment loss is measured as the excess of the asset’s carrying value over its fair value, which in most cases is calculated using a discounted cash flow model. Discounted cash flow models are highly reliant on various assumptions which are considered Level 3 inputs, including estimates of future cash flows (including long-term growth rates), discount rates and the probability of achieving the estimated cash flows.

Segment Information

The Company operates in one reportable segment, generic pharmaceuticals. As such, the Company aggregates its financial information for all products. The table below identifies the Company’s net sales by medical indication for the three months ended September 30, 2021 and 2020.

	Three Months Ended
(In thousands)	September 30,
Medical Indication	2021		2020
Analgesic	$	5,314	$	3,120
Anti-Psychosis		3,715		13,028
Cardiovascular		14,100		19,714
Central Nervous System		22,785		22,525
Endocrinology		7,845		3,233
Gastrointestinal		15,240		17,100
Infectious Disease		12,515		21,932
Migraine		4,685		9,690
Respiratory/Allergy/Cough/Cold		3,114		1,426
Urinary		1,176		1,458
Other		9,176		7,634
Contract manufacturing revenue		1,860		5,619
Total net sales	$	101,525	$	126,479

Customer, Supplier and Product Concentration

The following table presents the percentage of total net sales, for the three months ended September 30, 2021 and 2020, for certain of the Company’s products, defined as products containing the same active ingredient or combination of ingredients, which accounted for at least 10% of net sales in any of those periods:

	Three Months Ended
	September 30,
	2021		2020
Product 1	10	%	15	%

The following table presents the percentage of total net sales, for the three months ended September 30, 2021 and 2020, for certain of the Company’s customers which accounted for at least 10% of net sales in any of those periods:

	Three Months Ended
	September 30,
	2021		2020
Customer A	30	%	26	%
Customer B	20	%	22	%
Customer C	15	%	10	%

Revenue Recognition

The Company complies with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue when (or as) we satisfy our performance obligations by transferring a promised good or service to a customer at an amount that reflects the consideration the Company is expected to be entitled. Our revenue consists almost entirely of sales of our pharmaceutical products to customers, whereby we ship product to a customer pursuant to a purchase order. Revenue contracts such as these do not generally give rise to contract assets or contract liabilities because: (i) the underlying contracts generally have only a single performance obligation and (ii) we do not generally receive consideration until the performance obligation is fully satisfied. The revenue standard impacts the timing of the Company’s revenue recognition by requiring recognition of certain contract manufacturing arrangements to change from “upon shipment or delivery” to “over time.” However, the recognition of these arrangements over time does not currently have a material impact on the Company’s consolidated results of operations or financial position.

When revenue is recognized, a simultaneous adjustment to gross sales is made for estimated chargebacks, rebates, returns, promotional adjustments and other potential adjustments. These provisions are primarily estimated based on historical experience, future expectations, contractual arrangements with wholesalers and indirect customers and other factors known to management at the time of accrual. Accruals for provisions are presented in the Consolidated Financial Statements as a reduction to gross sales with the corresponding reserve presented as a reduction of accounts receivable or included as rebates payable, depending on the nature of the reserve.

Provisions for chargebacks, rebates, returns and other adjustments require varying degrees of subjectivity. While rebates generally are based on contractual terms and require minimal estimation, chargebacks and returns require management to make more subjective assumptions. Each major category is discussed in detail below:

Chargebacks

The provision for chargebacks is the most significant and complex estimate used in the recognition of revenue. The Company sells its products directly to wholesale distributors, generic distributors, retail pharmacy chains and mail-order pharmacies. The Company also sells its products indirectly to independent pharmacies, managed care organizations, hospitals, nursing homes and group purchasing organizations, collectively referred to as “indirect customers.” The Company enters into agreements with its indirect customers to establish pricing for certain products. The indirect customers then independently select a wholesaler from which to purchase the products. If the price paid by the indirect customers is lower than the price paid by the wholesaler, the Company will provide a credit, called a chargeback, to the wholesaler for the difference between the contractual price with the indirect customers and the wholesaler purchase price. The provision for chargebacks is based on expected sell-through levels by the Company’s wholesale customers to the indirect customers and estimated wholesaler inventory levels. As sales to the large wholesale customers, such as Cardinal Health, AmerisourceBergen and McKesson increase (decrease), the reserve for chargebacks will also generally increase (decrease). However, the size of the increase (decrease) depends on product mix and the amount of sales made to indirect customers with which the Company has specific chargeback agreements. The Company continually monitors the reserve for chargebacks and makes adjustments when management believes that expected chargebacks may differ from the actual chargeback reserve.

Rebates

Rebates are offered to the Company’s key chain drug store, distributor and wholesaler customers to promote customer loyalty and increase product sales. These rebate programs provide customers with credits upon attainment of pre-established volumes or attainment of net sales milestones for a specified period. Other promotional programs are incentive programs offered to the customers. Additionally, as a result of the Patient Protection and Affordable Care Act (“PPACA”) enacted in the U.S. in March 2010, the Company participates in a cost-sharing program for certain Medicare Part D beneficiaries designed primarily for the sale of brand drugs and certain generic drugs if their Food and Drug Administration (“FDA”) approval was granted under a New Drug Application (“NDA”) or 505(b) NDA versus an Abbreviated New Drug application ("ANDA’). Drugs purchased within the Medicare Part D coverage gap (commonly referred to as the “donut hole”) result in additional rebates. The Company estimates the reserve for rebates and other promotional credit programs based on the specific terms in each agreement when revenue is recognized. The reserve for rebates increases (decreases) as sales to certain wholesale and retail customers increase (decrease). However, since these rebate programs are not identical for all customers, the size of the reserve will depend on the mix of sales to customers that are eligible to receive rebates.

Returns

Consistent with industry practice, the Company has a product returns policy that allows customers to return product within a specified time period prior to and subsequent to the product’s expiration date in exchange for a credit to be applied to future purchases. The Company’s policy requires that the customer obtain pre-approval from the Company for any qualifying return. The Company estimates its provision for returns based on historical experience, changes to business practices, credit terms and any extenuating circumstances known to management. While historical experience has allowed for reasonable estimations in the past, future returns may or may not follow historical trends. The Company continually monitors the reserve for returns and makes adjustments when management believes that actual product returns may differ from the established reserve. Generally, the reserve for returns increases as net sales increase.

Other Adjustments

Other adjustments consist primarily of “price adjustments”, also known as “shelf-stock adjustments” and “price protections,” which are both credits issued to reflect increases or decreases in the invoice or contract prices of the Company’s products. In the case of a price decrease, a credit is given for product remaining in customer’s inventories at the time of the price reduction. Contractual price protection results in a similar credit when the invoice or contract prices of the Company’s products increase, effectively allowing customers to purchase products at previous prices for a specified period of time. Amounts recorded for estimated shelf-stock adjustments and price protections are based upon specified terms with direct customers, estimated changes in market prices and estimates of inventory held by customers. The Company regularly monitors these and other factors and evaluates the reserve as additional information becomes available. Other adjustments also include prompt payment discounts and “failure-to-supply” adjustments. If the Company is unable to fulfill certain customer orders, the customer can purchase products from our competitors at their prices and charge the Company for any difference in our contractually agreed upon prices.

Leases

The Company complies with ASC Topic 842, Leases, which states that when the Company enters into a new arrangement, it must determine, at the inception date, whether the arrangement is or contains a lease. This determination generally depends on whether the arrangement conveys to the Company the right to control the use of an explicitly or implicitly identified asset for a period of time in exchange for consideration. Control of an underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain substantially all of the economic benefits from using the underlying asset. Once a lease has been identified, the Company must determine the lease term, the present value of lease payments and the classification of the lease as either operating or financing.

The lease term is determined to be the non-cancelable period including any lessee renewal options which are considered to be reasonably certain of exercise. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The present value of lease payments includes fixed and certain variable payments, less lease incentives, together with amounts probable of being owed by the Company under residual value guarantees and, if reasonably certain of being paid, the cost of certain renewal options and early termination penalties set forth in the lease arrangement. To calculate the present value of lease payments, we use our incremental borrowing rate based on the information available at commencement date, as the rate implicit in the lease is generally not readily available.

In making the determination of whether a lease is an operating lease or a finance lease, the Company considers the lease term in relation to the economic life of the leased asset, the present value of lease payments in relation to the fair value of the leased asset and certain other factors.

Upon the commencement of the lease, the Company will record a lease liability and right-of-use (“ROU”) asset based on the present value of the future minimum lease payments over the lease term at commencement date. The ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred.

For operating leases, a single lease cost is generally recognized in the Consolidated Statements of Operations on a straight-line basis over the lease term unless an impairment has been recorded with respect to a leased asset. Variable lease costs not initially included in the lease liability and ROU asset impairment charges are expensed as incurred.

The Company has elected, as an accounting policy, not to apply the recognition requirements in ASC 842 to short-term leases. Short-term leases are leases that have a term of 12 months or less and do not include an option to purchase the underlying asset that the Company is reasonably certain to exercise. The Company recognizes the lease payments for short-term leases on a straight-line basis over the lease term and the lease cost is not recorded on the Consolidated Balance Sheets.

Cost of Sales, including Amortization of Intangibles

Cost of sales includes all costs related to bringing products to their final selling destination, which includes direct and indirect costs, such as direct material, labor and overhead expenses. Additionally, cost of sales includes product royalties, depreciation, amortization and costs to renew or extend recognized intangible assets, freight charges and other shipping and handling expenses.

Research and Development

Research and development costs are expensed as incurred, including all production costs until a drug candidate is approved by the FDA. Research and development expenses include costs associated with internal projects as well as costs associated with third-party research and development contracts.

Contingencies

Loss contingencies, including litigation-related contingencies, are included in the Consolidated Statements of Operations when the Company concludes that a loss is both probable and reasonably estimable. Legal fees for litigation-related matters are expensed as incurred and included in the Consolidated Statements of Operations under the Selling, general and administrative expenses line item.

Restructuring Costs

The Company records charges associated with approved restructuring plans to remove duplicative headcount and infrastructure associated with business acquisitions or to simplify business processes. Restructuring charges can include severance costs to eliminate a specified number of employees, infrastructure charges to vacate facilities and consolidate operations and contract cancellation costs. The Company records restructuring charges based on estimated employee terminations, site closure and consolidation plans. The Company accrues severance and other employee separation costs under these actions when it is probable that a liability exists, and the amount is reasonably estimable.

Share-based Compensation

Share-based compensation costs are recognized over the vesting period, using a straight-line method, based on the fair value of the instrument on the date of grant less an estimate for expected forfeitures. The Company uses the stock price on the grant date to value restricted stock and performance-based shares with vesting based on the satisfaction of a performance condition. The Company uses the Black-Scholes valuation model to determine the fair value of stock options and the Monte-Carlo simulation model to determine the fair value of performance-based shares with a market condition. The Black-Scholes valuation and Monte-Carlo simulation models include various assumptions, including the expected volatility, the expected life of the award, dividend yield and the risk-free interest rate as well as performance assumptions of peer companies. These assumptions involve inherent uncertainties based on market conditions which are generally outside the Company’s control. Changes in these assumptions could have a material impact on share-based compensation costs recognized in the Consolidated Financial Statements.

Self-Insurance

The Company self-insures for certain employee medical and prescription benefits. The Company also maintains stop loss coverage with third party insurers to limit its total liability exposure. The liability for self-insured risks is primarily calculated using independent third-party actuarial valuations which take into account actual claims, claims growth and claims incurred but not yet reported. Actual experience, including claim frequency and severity as well as health-care inflation, could result in different liabilities than the amounts currently recorded. The liability for self-insured risks under this plan was $1.3 million and $0.8 million as of September 30, 2021 and June 30, 2021, respectively, and is recorded in the accrued payroll and payroll-related expenses caption in the Consolidated Balance Sheets.

Income Taxes

The Company uses the liability method to account for income taxes as prescribed by ASC 740, Income Taxes. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. Deferred tax expense (benefit) is the result of changes in deferred tax assets and liabilities. Deferred income tax assets and liabilities are adjusted to recognize the effects of changes in tax laws or enacted tax rates in the period during which they are signed into law. The Company evaluates the need for a valuation allowance each reporting period weighing all positive and negative evidence. The factors used to assess the likelihood of realization include, but are not limited to, the Company’s forecast of future taxable income, historical results of operations, statutory expirations and available tax planning strategies and actions that could be implemented to realize the net deferred tax assets. Under ASC 740, Income Taxes, a valuation allowance is required when it is more likely than not that all or some portion of the deferred tax assets will not be realized.

The Company may recognize the tax benefit from an uncertain tax position claimed on a tax return only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The authoritative accounting standards also provide guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.

Earnings (Loss) Per Common Share

The presentation of basic and diluted earnings (loss) per common share is required on the face of the Company's Consolidated Statements of Operations as well as a reconciliation of the computation of basic earnings (loss) per common share to diluted earnings (loss) per common share. In accordance with ASC 260, Earnings per share, the Company computes earnings (loss) per share using the two-class method, which requires an allocation of earnings between the holders of common stock and the Company’s participating security holders. The warrants issued in connection with the Second Lien Secured Loan Facility (the “Warrants”) are considered participating securities, as discussed further in Note 13 “Warrants.” Basic earnings (loss) per share is calculated by dividing net income (loss) available to common stockholders, which excludes the income allocated to participating security holders, by the basic weighted average common shares outstanding.

For purposes of determining diluted earnings per share, the Company further adjusts the basic earnings per share to include the effect of potentially dilutive shares outstanding, including options and restricted stock awards, the 4.50% Convertible Senior Notes (the “Convertible Notes”), and the Warrants. In this calculation, the Company reallocates net income based on the rights of each potentially dilutive share and will report the most dilutive earnings (loss) per share. The weighted average number of diluted shares is adjusted for the potential dilutive effect of the exercise of stock options, treats unvested restricted stock as if it were vested, includes performance-based shares that would be issued if the performance criteria were met as of the end of the reporting period, and assumes the conversion of the 4.50% Convertible Senior Notes. The Company uses the “if-converted" method to compute earnings (loss) per share when assuming the conversion of the Convertible Notes, which is calculated by dividing the adjusted "if-converted" net income by the adjusted weighted average number of shares of common stock outstanding during the period. The adjusted "if-converted" net income is adjusted for interest expense and amortization of debt issuance costs, both net of tax, associated with the Convertible Notes. Because the Warrants do not participate in losses, the Company will allocate undistributed earnings when calculating basic and diluted earnings per share in periods of net income only. Anti-dilutive securities are excluded from the calculation. Dilutive shares are also excluded in the calculation in periods of net loss because the effect of including such securities would be anti-dilutive.

Comprehensive Income (Loss)

Comprehensive income (loss) reflects all changes in equity during a period except those that resulted from investments by or distributions to the Company’s stockholders. This includes, but is not limited to, foreign currency translation gain (loss). Other comprehensive income (loss) refers to gains and losses that are included in comprehensive income (loss) but excluded from income (loss) for all amounts are recorded directly as an adjustment to stockholders’ equity.

Recent Accounting Pronouncements

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options and Derivatives and Hedging - Contracts in Entity’s Own Equity, with changes to modify and simplify the application of U.S. GAAP for certain financial instruments with characteristics of liabilities and equity. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years, with early adoption permitted. The ASU requires adoption using either the retrospective basis or the modified retrospective basis. The Company is currently evaluating the impact of ASU 2020-06 on its Consolidated Financial Statements.

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Accounts Receivable, net

3 Months Ended

Sep. 30, 2021

Accounts Receivable, net

Accounts Receivable, net

Note 4. Accounts Receivable, net

Accounts receivable, net consisted of the following components at September 30, 2021 and June 30, 2021:

	September 30,		June 30,
(In thousands)	2021		2021
Gross accounts receivable	$	239,211	$	239,271
Less: Chargebacks reserve		(71,807)		(69,564)
Less: Rebates reserve		(16,592)		(16,272)
Less: Returns reserve		(36,462)		(38,395)
Less: Other deductions		(18,968)		(15,505)
Less: Allowance for doubtful accounts		(1,073)		(701)
Accounts receivable, net	$	94,309	$	98,834

For the three months ended September 30, 2021, the Company recorded a provision for chargebacks, rebates (including rebates presented as rebates payable), returns and other deductions of $131.2 million, $28.8 million, $5.9 million and $19.0 million, respectively. For the three months ended September 30, 2020, the Company recorded a provision for chargebacks, rebates (including rebates presented as rebates payable), returns and other deductions of $188.3 million, $34.3 million, $5.5 million and $15.8 million, respectively.

The following table identifies the activity and ending balances of each major category of revenue-related reserve for the three months ended September 30, 2021 and 2020:

Reserve Category
(In thousands)	Chargebacks		Rebates		Returns		Other		Total
Balance at June 30, 2021	$	69,564	$	35,297	$	38,395	$	15,505	$	158,761
Current period provision		131,195		28,760		5,939		19,010		184,904
Credits issued during the period		(128,952)		(21,640)		(7,872)		(15,547)		(174,011)
Balance at September 30, 2021	$	71,807	$	42,417	$	36,462	$	18,968	$	169,654

Reserve Category
(In thousands)	Chargebacks		Rebates		Returns		Other		Total
Balance at June 30, 2020	$	61,877	$	62,711	$	40,796	$	17,557	$	182,941
Current period provision		188,297		34,280		5,526		15,781		243,884
Credits issued during the period		(179,737)		(42,269)		(5,787)		(16,741)		(244,534)
Balance at September 30, 2020	$	70,437	$	54,722	$	40,535	$	16,597	$	182,291

For the three months ended September 30, 2021 and 2020, as a percentage of gross sales the provision for chargebacks was 46.1% and 51.7%, the provision for rebates was 10.1% and 9.4%, the provision for returns was 2.1% and 1.5% and the provision for other adjustments was 6.7% and 4.3%, respectively.

We have not recorded any material amounts in the current period related to reversals or additions of prior period reserves.

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Inventories

3 Months Ended

Sep. 30, 2021

Inventories

Inventories

Note 5. Inventories

Inventories at September 30, 2021 and June 30, 2021 consisted of the following:

	September 30,		June 30,
(In thousands)	2021		2021
Raw Materials	$	47,203	$	45,370
Work-in-process		9,719		12,685
Finished Goods		55,715		51,490
Total	$	112,637	$	109,545

During the three months ended September 30, 2021 and 2020, the Company recorded write-downs to net realizable value for excess and obsolete inventory of $2.8 million and $2.6 million, respectively.

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Property, Plant and Equipment, net

3 Months Ended

Sep. 30, 2021

Property, Plant and Equipment, net

Property, Plant and Equipment, net

Note 6. Property, Plant and Equipment, net

Property, plant and equipment, net at September 30, 2021 and June 30, 2021 consisted of the following:

		September 30,		June 30,
(In thousands)	Useful Lives	2021		2021
Land	—	$	1,783	$	1,783
Building and improvements	10 - 39 years		105,187		103,082
Machinery and equipment	5 - 10 years		166,894		166,617
Furniture and fixtures	5 - 7 years		3,535		3,399
Less accumulated depreciation			(128,801)		(123,294)
			148,598		151,587
Construction in progress			15,556		15,087
Property, plant and equipment, net		$	164,154	$	166,674

Depreciation expense for the three months ended September 30, 2021 and 2020 was $5.6 million and $5.8 million, respectively.

Property, plant and equipment, net included amounts held in foreign countries in the amount of $0.6 million at September 30, 2021 and June 30, 2021.

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Fair Value Measurements

3 Months Ended

Sep. 30, 2021

Fair Value Measurements

Fair Value Measurements

Note 7. Fair Value Measurements

The Company’s financial instruments recorded in the Consolidated Balance Sheets include cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and debt obligations. The Company’s cash and cash equivalents include bank deposits and money market funds. The carrying value of certain financial instruments, primarily cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, approximate their estimated fair values based upon the short-term nature of their maturity dates.

The Company follows the authoritative guidance of ASC Topic 820, Fair Value Measurements and Disclosures.” Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The authoritative guidance also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Company’s financial assets and liabilities measured at fair value are entirely within Level 1 of the hierarchy as defined below:

Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.

Level 2 — Directly or indirectly observable inputs, other than quoted prices, such as quoted prices for similar assets or liabilities; quoted prices for identical or similar instruments in markets that are not active; or model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are material to the fair value of the asset or liability. Financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation are examples of Level 3 assets and liabilities.

If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

Financial Instruments Disclosed, But Not Reported, at Fair Value

We estimate the fair value of 7.750% Senior Secured Notes due 2026 (the “Notes”) and the 4.50% Convertible Senior Notes (“Convertible Senior Notes”) using market quotations for debt that have quoted prices in active markets (Level 1). Since our Second Lien Secured Loan Facility (“Second Lien Facility”) does not trade on a daily basis in an active market, the fair value estimate is based on market observable inputs based on borrowing rates currently available for debt with similar terms and average maturities (Level 2). The estimated fair value of the Notes as of September 30, 2021 and June 30, 2021 was approximately $323 million and $347 million, respectively. The estimated fair value of the Second Lien Facility as of September 30, 2021 and June 30, 2021 was approximately $175 million and $189 million, respectively. The estimated fair value of the Convertible Senior Notes was approximately $40 million and $53 million as of September 30, 2021 and June 30, 2021, respectively. The fair value of the Convertible Senior Notes as of September 30, 2021 was lower than the carrying value primarily due to the Company’s stock price at September 30, 2021 as compared to the $15.29 conversion price.

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Intangible Assets

3 Months Ended

Sep. 30, 2021

Intangible Assets

Intangible Assets

Note 8. Intangible Assets

Intangible assets, net as of September 30, 2021 and June 30, 2021 consisted of the following:

	Weighted	Gross Carrying Amount				Accumulated Amortization				Intangible Assets, Net
	Avg. Life	September 30,		June 30,		September 30,		June 30,		September 30,		June 30,
(In thousands)	(Yrs.)	2021		2021		2021		2021		2021		2021
Definite-lived:
KUPI product rights	15	$	83,955	$	83,955	$	(6,297)	$	(4,198)	$	77,658	$	79,757
KUPI trade name	2		2,920		2,920		(2,920)		(2,920)		—		—
KUPI other intangible assets	15		19,000		19,000		(7,412)		(7,095)		11,588		11,905
Silarx product rights	15		20,000		20,000		(5,222)		(4,889)		14,778		15,111
Other product rights	10		37,417		35,918		(10,103)		(8,856)		27,314		27,062
Total definite-lived		$	163,292	$	161,793	$	(31,954)	$	(27,958)	$	131,338	$	133,835
Indefinite-lived:
KUPI in-process research and development	—	$	4,000	$	4,000	$	—	$	—	$	4,000	$	4,000
Total indefinite-lived			4,000		4,000		—		—		4,000		4,000
Total intangible assets, net		$	167,292	$	165,793	$	(31,954)	$	(27,958)	$	135,338	$	137,835

For the three months ended September 30, 2021 and 2020, the Company recorded amortization expense of $4.0 million and $8.6 million, respectively.

Future annual amortization expense consisted of the following as of September 30, 2021:

(In thousands)	Amortization
Fiscal Year Ending June 30,	Expense
2022	$	11,188
2023		14,803
2024		14,528
2025		14,335
2026		13,680
Thereafter		62,804
	$	131,338

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Long-Term Debt

3 Months Ended

Sep. 30, 2021

Long-Term Debt

Long-Term Debt

Note 9. Long-Term Debt

Long-term debt, net consisted of the following:

	September 30,		June 30,
(In thousands)	2021		2021
7.75% Senior Secured Notes due 2026	$	350,000	$	350,000
Unamortized discount and other debt issuance costs		(5,352)		(5,594)
7.75% Senior Secured Notes due 2026, net		344,648		344,406
Second Lien Secured Loan Facility due 2026 ($190.0M Principal, $5.7M Exit Fee, and $8.6M and $3.6M accrued PIK interest at September 30, 2021 and June 30, 2021 respectively)		204,291		199,342
Unamortized discount and other debt issuance costs		(35,726)		(36,701)
Second Lien Secured Loan Facility due 2026, net		168,565		162,641
4.50% Convertible Senior Notes due 2026		86,250		86,250
Unamortized discount and other debt issuance costs		(2,488)		(2,614)
4.50% Convertible Senior Notes, net		83,762		83,636
$45 million Amended ABL Credit Facility		—		—
Total debt, net		596,975		590,683
Less short-term borrowings and current portion of long-term debt		—		—
Total long-term debt, net	$	596,975	$	590,683

The weighted average interest rate for the three months ended September 30, 2021 and 2020 was 8.8% and 8.0%, respectively.

Long-term debt amounts due, for the twelve-month periods ending September 30 are as follows:

	Amounts Payable
(In thousands)	to Institutions
2022	$	—
2023		—
2024		—
2025		—
2026		640,541
Total	$	640,541

The long-term debt amounts due above include accrued PIK interest on the Second Lien Facility as of September 30, 2021. Following the one-year anniversary of the closing date of the Second Lien Facility, the Company may elect to pay in cash any interest required to be paid in the form of PIK interest.

The outstanding Notes, Second Lien Facility, and Amended ABL Credit Facility amounts above are guaranteed by all of Lannett’s significant wholly-owned domestic subsidiaries and are collateralized by substantially all present and future assets of the Company.

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Legal, Regulatory Matters and Contingencies

3 Months Ended

Sep. 30, 2021

Legal, Regulatory Matters and Contingencies

Legal, Regulatory Matters and Contingencies

Note 10. Legal, Regulatory Matters and Contingencies

State Attorneys General Inquiry into the Generic Pharmaceutical Industry

In July 2014, the Company received interrogatories and a subpoena from the State of Connecticut Office of the Attorney General concerning its investigation into the pricing of digoxin. According to the subpoena, the Connecticut Attorney General is investigating whether anyone engaged in any activities that resulted in (a) fixing, maintaining or controlling prices of digoxin or (b) allocating and dividing customers or territories relating to the sale of digoxin in violation of Connecticut antitrust law. In June 2016, the Connecticut Attorney General issued interrogatories and a subpoena to an employee of the Company in order to gain access to documents and responses previously supplied to the Department of Justice pursuant to the federal investigation described below. Beginning in December 2016, the Connecticut Attorney General and numerous other State Attorneys General have filed civil complaints against the Company and numerous other companies and individuals relating to alleged anti-competitive behavior as more fully described below.

Based on internal investigations performed to date, the Company currently believes that it has acted in compliance with all applicable laws and regulations.

Federal Investigation into the Generic Pharmaceutical Industry

In November and December 2014, the Company and certain affiliated individuals and customers were served with grand jury subpoenas relating to a federal investigation of the generic pharmaceutical industry into possible violations of the Sherman Act. The subpoenas requested corporate documents of the Company relating to corporate, financial and employee information, communications or correspondence with competitors regarding the sale of generic prescription medications and the marketing, sale, or pricing of certain products, generally for the period of 2005 through the dates of the subpoenas.

The Company received a Civil Investigative Demand (“CID”) from the Department of Justice on May 14, 2018. The CID requested information from 2009-present regarding allegations that the generic pharmaceutical industry engaged in market allocation, price fixing, payment of illegal remuneration and submission of false claims. The Company has responded to the CID.

Based on internal investigations performed to date, the Company believes that it has acted in compliance with all applicable laws and regulations.

Government Pricing

On May 22, 2019, following an audit conducted by the Company, the Department of Veterans Affairs issued a Contracting Officer’s Final Decision and Demand for Payment, assessing the sum of $9.4 million for overpayments by the Veteran’s Administration (“VA”) as a result of certain commercial customer prices that were not properly disclosed to the VA for the period of January 1, 2012 through June 30, 2016. In August 2019, the Company remitted payment to the VA and was indemnified from UCB for the portion of that related to the period prior to the acquisition of Kremers Urban Pharmaceuticals (January 1, 2012 to November 24, 2015) totaling $8.1 million. The VA requested additional information for the period of July 1, 2016 through March 2018. The Company is in the process of responding to the information request.

State Attorneys General and Private Plaintiffs Antitrust and Consumer Protection Litigation

In December 2016, the Connecticut Attorney General and various other State Attorneys General filed a civil complaint alleging that six pharmaceutical companies engaged in anti-competitive behavior. The Company was not named in the action and does not compete on the products that formed the basis of the complaint. The complaint was later transferred for pretrial purposes to the United States District Court for the Eastern District of Pennsylvania as part of a multidistrict litigation captioned In re: Generic Pharmaceuticals Pricing Antitrust Litigation (the “MDL”). On October 31, 2017, the State Attorneys General filed a motion for leave to amend their complaint to add numerous additional defendants, including the Company, and claims relating to 13 additional drugs. The District Court granted that motion on June 5, 2018. The State Attorneys General filed their amended complaint on June 18, 2018. The claim relating to Lannett involves alleged price-fixing for one drug, doxycycline monohydrate, but does not involve the pricing for digoxin. The State Attorneys General also allege that all defendants were part of an overarching, industry-wide conspiracy to allocate markets and fix prices generally. On August 15, 2019, the Court denied the defendants' joint motion to dismiss the overarching conspiracy claims but has yet to decide an individual motion filed by the Company to dismiss the overarching conspiracy claims as to it.

On May 10, 2019, the State Attorneys General filed a new lawsuit naming the Company and one of its employees as defendants, along with 33 other companies and individuals. The complaint again alleges an overarching conspiracy and contains claims for price-fixing and market allocation under the Sherman Act and related state laws. The complaint focuses on the conduct of another generic pharmaceutical company, and the relationships that company had with other generic companies and their employees. The specific allegations in this complaint against Lannett relate to the Company’s sales of baclofen and levothyroxine. The complaint also names another current employee as a defendant, but the allegations pertain to conduct that occurred prior to their employment by Lannett. In June 2020, the State Attorneys General filed a third overarching conspiracy complaint involving scores of different drugs used primarily to treat dermatological conditions, including alleged price-fixing by the Company for acetazolamide. Both complaints have been added to the MDL.

In 2016 and 2017, the Company and certain competitors were named as defendants in a number of lawsuits filed by private plaintiffs alleging that the Company and certain generic pharmaceutical manufacturers have conspired to fix prices of generic digoxin, levothyroxine, ursodiol and baclofen. These cases are part of a larger group of more than 100 lawsuits generally alleging that over 30 generic pharmaceutical manufacturers and distributors conspired to fix prices for multiple different generic drugs in violation of the federal Sherman Act, various state antitrust laws, and various state consumer protection statutes. The United States also has been granted leave to intervene in the cases. On April 6, 2017, these cases were added to the MDL. The various plaintiffs are grouped into three categories - Direct Purchaser Plaintiffs, End Payer Plaintiffs, and Indirect Reseller Purchasers - and filed Consolidated Amended Complaints (“CACs”) against the Company and the other defendants in August 2017.

The CACs naming the Company as a defendant involve generic digoxin, levothyroxine, ursodiol and baclofen. Pursuant to a court-ordered schedule grouping the 18 different drug cases into three separate tranches, the Company and other generic pharmaceutical manufacturer defendants in October 2017 filed joint and individual motions to dismiss the CACs involving the six drugs in the first tranche, including digoxin. In October 2018, the Court (with one exception) denied defendants’ motions to dismiss plaintiffs’ Sherman Act claims with respect to the drugs in the first tranche. In March 2019, the Company and other defendants filed answers to the Sherman Act claims. In addition, in February 2019, the Court dismissed certain of the plaintiffs’ state law claims but denied the remainder of defendants’ motions to dismiss and set a deadline of April 1, 2019 for certain plaintiffs to amend their existing complaints. Those plaintiffs amended their complaints, but further motions to dismiss the state-law claims remain pending.

Following the lead of the state Attorneys General, the Direct Purchaser Plaintiffs, End Payer Plaintiffs and Indirect Reseller Plaintiffs filed their own complaints in June 2018 alleging an overarching conspiracy relating to 14 generic drugs in the End Payer complaint and 15 generic drugs in the Indirect Reseller complaint. Although the complaints allege an overarching conspiracy with respect to all of the drugs identified, the specific allegations related to drugs the Company manufactures involve acetazolamide and doxycycline monohydrate.

In addition, between December 2019 and February 2020, the End Payer Plaintiffs, Indirect Reseller Purchasers, and Direct Purchaser Plaintiffs filed separate complaints alleging overarching, industry-wide price-fixing conspiracies modeled on the second one filed by the state Attorneys General. The new complaint involves 135 new drugs in addition to those named in previous complaints. As to the Company, the new drugs involved are pilocarpine HCL, triamterene HCTZ capsules, amantadine HCL, and oxycodone HCL. None of the defendants, including the Company, has responded yet to these new complaints.

Between January 2018 and December 2020, a number of opt-out parties filed individual complaints or otherwise commenced actions against the Company and dozens of other companies and individuals alleging an overarching conspiracy and individual conspiracies to fix the prices and allocate markets on scores of different drug products, including digoxin, doxycycline, levothyroxine, ursodiol and baclofen. The opt-out parties include various retailers, insurers and county governments, which have filed federal suits in Pennsylvania, New York, California, Minnesota and Texas. All of those complaints have been added to the MDL but none of the defendants, including the Company, has responded to any of the complaints. Other groups of insurers have commenced actions in Pennsylvania state court against the Company and other drug companies by filing writs of summons, which are not complaints but can serve to toll the running of statutes of limitations. Those state-court cases have not been added to the MDL, although the parties have agreed to stay those cases pending further developments in the MDL.

In June 2020, the Company and a number of other generic pharmaceutical manufacturers were named as defendants in a Statement of Claim in a proposed class proceeding in federal court in Toronto, Ontario, Canada. The case alleges a violation of Canada’s Competition Act. The allegations are similar to those in the MDL alleging an overarching, industry-wide conspiracy to allocate markets and fix the price of generic drugs. That alleged conspiracy reached Canada because these same manufacturers also allegedly sell the majority of generic drugs in Canada. The Statement of Claim alleges that the conspiracy extends to the entire generic pharmaceutical market. The specific drugs identified with respect to the Company are: acetazolamide, baclofen, digoxin, doxycycline monohydrate, levothyroxine, and ursodiol. The Company has not yet responded to the Statement of Claim.

On July 13, 2020, the District Court overseeing the MDL selected as “bellwether” cases the second overarching conspiracy case filed by the state Attorneys General in May 2019 as well as individual-conspiracy cases filed by the Direct Purchaser Plaintiffs, End Payer Plaintiffs, and Indirect Reseller Purchasers involving the drugs clobetasol, clomipramine and pravastatin. The Company is a defendant only in the overarching conspiracy case. On February 9, 2021, the District Court vacated the order selecting the bellwether cases. Thereafter, the District Court re-designated the clobetasol and clomipramine cases as individual-conspiracy bellwethers, and on May 7, 2021, selected the third complaint filed by the state Attorneys General in June 2020 as the new overarching conspiracy bellwether case. On September 9, 2021, the state Attorneys General amended their bellwether complaint. To date, none of the bellwether cases have been scheduled for trial.

The Company believes that it acted in compliance with all applicable laws and regulations. Accordingly, the Company disputes the allegations set forth in these class actions and plans to vigorously defend itself against these claims.

Shareholder Litigation

In November 2016, a putative class action lawsuit was filed against the Company and two of its former officers in the federal district court for the Eastern District of Pennsylvania, alleging that the Company and two of its former officers damaged the purported class by making false and misleading statements regarding the Company’s drug pricing methodologies and internal controls. In December 2017, counsel for the putative class filed a second amended complaint. The Company filed a motion to dismiss the second amended complaint in February 2018. In July 2018, the court granted the Company’s motion to dismiss the second amended complaint. In September 2018, counsel for the putative class filed a third amended complaint alleging that the Company and two of its former officers made false and misleading statements regarding the impact of competition on prices and sales of certain of the Company’s products, regarding the potential effects on the Company of regulatory investigations and antitrust litigation, and regarding the defendants’ investigation of purported anticompetitive conduct. The Company filed a motion to dismiss the third amended complaint in November 2018. In May 2019, the court denied the Company’s motion to dismiss the third amended complaint. In July 2019, the Company filed an answer to the third amended complaint. In October 2020, counsel for the putative class filed a motion for class certification. In March 2021, the Company filed a brief in opposition to the motion to certify the putative class. In August 2021, the court granted the motion to certify the proposed class, to appoint class representatives, and to appoint class counsel. In August 2021, the Company filed a petition for permission to appeal the court’s class certification order. In September 2021, counsel for the class filed a response in opposition to the Company’s position. The Company believes it acted in compliance with all applicable laws and continues to vigorously defend itself from these claims. The Company cannot reasonably predict the outcome of the suit at this time.

Genus Life Sciences

In December 2018, Genus Lifesciences, Inc. (“Genus”) sued the Company, Cody Labs, and others in California federal court, alleging violations of the Lanham Act, Sherman Act, and California false advertising law. Genus received FDA approval for a cocaine hydrochloride product in December 2018, and its claims are premised in part on allegations that the Company falsely advertises its unapproved cocaine hydrochloride solution product. The Company denied that it is falsely advertising its cocaine hydrochloride solution product and continued to market its unapproved product relying on the Guidance for FDA Staff and Industry, Marketed Unapproved Drugs — Compliance Policy Guide, pending approval of its Section 505(b)(2) application (until August 15, 2019, when it agreed to a request by the FDA to cease marketing its unapproved product as a result of the approval of a competitor’s product). In January 2019, the Company filed a motion to dismiss the complaint. On May 3, 2019, the Court issued a written decision granting in part and denying in part the motion to dismiss. On June 6, 2019, Genus filed an Amended Complaint. On June 27, 2019, the Company filed a motion to dismiss the amended complaint. By Order dated September 3, 2019, the Court granted in part and denied in part the Company's motion to dismiss. On November 20, 2019, Genus filed a second amended complaint. On December 17, 2019, the Company filed an answer to the second amended complaint. The Company believes it acted in compliance with all applicable laws and regulations and plans to vigorously defend itself from these claims. On August 16, 2021, the Company and Genus reached an agreement in principle to amicably resolve this case, along with three other cases involving the Company’s approved cocaine hydrochloride product. The parties memorialized the settlement in a series of settlement documents which were signed on October 15, 2021. The terms of the settlement are confidential and include, among other things, a non-exclusive patent license granted by Genus, which allows the Company to continue marketing its approved cocaine hydrochloride product, a payment of $1.5 million by the Company and transfer by the Company of certain ANDAs and an NDA to Genus, and the stipulation that all cases shall be dismissed with prejudice.

Sandoz, Inc.

On July 20, 2020, Sandoz, Inc. (“Sandoz”) filed a complaint in federal court in Philadelphia, alleging claims for tortious interference with contract, unfair competition and conversion of confidential information, arising out of Cediprof, Inc.’s (“Cediprof”) termination of Sandoz’s contract to distribute levothyroxine tablets in the United States and certain territories. Along with the complaint, Sandoz filed a motion for a temporary restraining order and preliminary injunction, seeking to enjoin the Company from commencing the distribution of levothyroxine tablets on August 3, 2020. On the same day, Sandoz filed a separate complaint and application for a temporary restraining order and preliminary injunction against Cediprof in federal court in New York, seeking to prevent Cediprof from selling its levothyroxine tablets in the United States and certain of its territories to anyone other than Sandoz. On July 27, 2020, the New York court held a hearing and denied Sandoz’s application for a temporary restraining order, ruling Sandoz had failed to establish irreparable harm. Sandoz subsequently dismissed the complaint and is proceeding against Cediprof in an Arbitration in New York, where the Company has agreed to indemnify Cediprof. On July 28, 2020, the Philadelphia court held a hearing and denied Sandoz’s application for a temporary restraining order, ruling that Sandoz had failed to establish irreparable harm and failed to establish that it is likely to succeed on the merits of its claim against Lannett. On October 5, 2020, the Company filed a motion to dismiss the complaint. On December 28, 2020, the Court granted in part and denied in part the motion, dismissing certain of the claims. The Company has filed a motion to stay the case pending the Arbitration of the Sandoz/Cediprof dispute. On January 11, 2021, the Company filed an answer and counterclaim to the complaint. Upon the conclusion of fact discovery, the Court entered an order on July 16, 2021 staying the remaining deadlines in the case pending the outcome of the Arbitration between Sandoz and Cediprof. The Company denies that it tortiously interfered with Sandoz’s contract or that it converted any of Sandoz’s alleged confidential information. Discovery is ongoing and the Company cannot reasonably predict the outcome of this suit at this time.

Ranitidine Oral Solution, USP

On June 1, 2020, a class action complaint was served upon the Company and approximately forty-five (45) other companies asserting claims for personal injury arising from the presence of NDMA in Ranitidine products. The complaint is consolidated in a multidistrict litigation (“MDL”) pending in the United States District Court for the Southern District of Florida. Similar complaints were filed in state court in New Mexico and state court in Maryland and served upon the Company. Subsequently, a number of similar complaints were served on the Company. The Company has filed a motion to dismiss the complaint filed in the MDL which, on December 31, 2020, was granted with leave to amend as to certain of the claims. The plaintiffs filed a First Amended complaint on February 9, 2021, to which the generic manufacturer defendants, including the Company, filed a renewed motion to dismiss all claims. On July 8, 2021, the Court issued an Order granting the motion and dismissing all claims with prejudice based on federal preemption. Separately, the New Mexico case was conditionally transferred to the MDL, but ultimately remanded back to the state court. Since the Company was not licensed to do business in New Mexico and, based upon the information received to date, did not sell Ranitidine in New Mexico, we plan to file a motion to dismiss based, among other things, federal preemption and lack of jurisdiction. The motion was denied without prejudice. The Company plans to renew the motion following some limited discovery and is currently evaluating options for interlocutory appeal. Separately, the Company filed a notice to remove and transfer the Maryland case to the MDL which the plaintiff has opposed. On April 1, 2021, the case was remanded back to the state court. Recently, two separate complaints were filed against the Company and others in Philadelphia Court of Common Pleas by parents on behalf of minor children alleging personal injury as a result of using the Company’s Ranitidine products. The Company has filed its preliminary objections to one of the complaints, seeking dismissal on the basis of preemption, legal insufficiency, learned intermediary defense and lack of specificity, and plans to file preliminary objections as to the other Common Pleas court complaint, seeking dismissal on similar grounds. The Company has placed its insurance carrier on notice of the claim and the carrier has appointed counsel to defend the Company.

Other Litigation Matters

The Company is also subject to various legal proceedings arising out of the normal course of its business including, but not limited to, product liability, intellectual property, patent infringement claims and antitrust matters. It is not possible to predict the outcome of these various proceedings. An adverse determination in any of these proceedings or in any of the proceedings described above in the future could have a significant impact on the financial position, results of operations and cash flows of the Company.

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Commitments

3 Months Ended

Sep. 30, 2021

Commitments

Commitments

Note 11. Commitments

Leases

At September 30, 2021 and June 30, 2021, the Company had a ROU lease asset of $10.4 million and $10.6 million, respectively, and an operating lease liability of $12.8 million and $13.1 million, respectively. The current balance of the operating lease liability was $2.0 million at September 30, 2021 and June 30, 2021.

Components of lease cost are as follows:

	Three Months Ended
	September 30,
(In thousands)	2021		2020
Operating lease cost	$	461	$	402
Variable lease cost		41		39
Short-term lease cost		69		118
Total	$	571	$	559

Supplemental cash flow information related to our operating leases is as follows:

	Three Months Ended
	September 30,
(In thousands)	2021		2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	593	$	303

Weighted-average remaining lease term and discount rate for our operating leases are as follows:

	Three Months Ended
	September 30,
	2021		2020
Weighted-average remaining lease term	10	years	8	years
Weighted-average discount rate	8.5	%	8.0	%

Maturities of lease liabilities by fiscal year for our operating leases are as follows:

(In thousands)	Amounts Due
2022	$	1,545
2023		2,064
2024		2,083
2025		2,103
2026		2,124
Thereafter		8,513
Total lease payments		18,432
Less: Imputed interest		5,583
Present value of lease liabilities	$	12,849

Other Commitments

In Fiscal 2020, the Company executed a License and Collaboration Agreement with North South Brother Pharmacy Investment Co., Ltd. and HEC Group PTY, Ltd. (collectively, “HEC”) to develop an insulin glargine product that would be biosimilar to Lantus Solostar. Under the terms of the deal, among other things, the Company shall fund up to the initial $32 million of the development costs and split 50/50 any development costs in excess thereof. As of September 30, 2021, the Company has incurred approximately $4.5 million of development costs towards the $32 million commitment made by the Company. Lannett shall receive an exclusive license to distribute and market the product in the United States upon FDA approval under the 50/50 profit split for the first ten years following commercialization, followed by a 60/40 split in favor of HEC for the following five years. To date, the COVID-19 pandemic has not had a material impact on the development of the insulin glargine product. Although, as a result of stricter procedures required during the pandemic, there is expected to be a several month delay in completing our upcoming clinical trial. The timing of the product development and approval could be further delayed as the COVID-19 pandemic continues.

On February 8, 2021, the Company executed a License and Collaboration Agreement and a Supply Agreement with Sunshine Lake Pharma Co., Ltd. an HEC Group company (“Sunshine”) with respect to the development of a biosimilar insulin aspart product. Under the terms of the deal, among other things, the Company shall fund up to the initial $32 million of the development costs, provided that if total development and other costs paid by Lannett are less than $32 million then the difference will be paid to Sunshine over the first year of commercialization. As of September 30, 2021, the Company has not yet incurred material costs towards the $32 million commitment made by the Company. The parties shall negotiate the sharing of any development costs in excess of $32 million. Lannett shall receive an exclusive license to distribute and market the product in the United States upon FDA approval under the 50/50 profit split for the first ten years following commercialization, followed by a 60/40 split in favor of Sunshine for the following five years.

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Accumulated Other Comprehensive Loss

3 Months Ended

Sep. 30, 2021

Accumulated Other Comprehensive Loss.

Accumulated Other Comprehensive Loss

Note 12. Accumulated Other Comprehensive Loss

The Company’s Accumulated Other Comprehensive Loss was comprised of the following components as of September 30, 2021 and 2020:

	September 30,
(In thousands)	2021		2020
Foreign Currency Translation
Beginning Balance, June 30	$	(548)	$	(627)
Net income (loss) on foreign currency translation (net of tax of $0 and $0)		24		79
Other comprehensive income (loss), net of tax		24		79
Total Accumulated Other Comprehensive Loss	$	(524)	$	(548)

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Warrants

3 Months Ended

Sep. 30, 2021

Warrants

Warrants

Note 13. Warrants

In connection with the Second Lien Facility, the Company issued to the Participating Lenders warrants to purchase up to 8,280,000 shares of common stock of the Company (the “Warrants”) at an exercise price of $6.88 per share. The Warrants were issued on April 22, 2021 with an eight-year term. The Participating Lenders received registration rights with respect to the shares of common stock of the Company to be received upon exercise of the Warrants. The Company concluded that the Warrants were indexed to its own stock and, therefore, are classified as an equity instrument. In accordance with ASC 470, Debt, the Company allocated the proceeds of the Second Lien Facility issuance based on the relative fair value of the debt instrument and the Warrants separately at the time of issuance, which was determined using the Black-Scholes valuation model. The relative fair value allocated to the Warrants was $24.4 million at the issuance date.

The holders of the Warrants are entitled to receive dividends or distributions of any kind made to the common stockholders to the same extent as if the holder had exercised the Warrant into common stock. Although the Company did not issue or declare dividends during the period, the Warrants are considered participating securities under ASC 260, Earnings per share, for purposes of calculating earnings (loss) per share under the two-class method. Refer to Note 14 “Loss Per Common Share” for further details of the two-class method and the Company’s calculation of earnings (loss) per share.

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Loss Per Common Share

3 Months Ended

Sep. 30, 2021

Loss Per Common Share

Loss Per Common Share

Note 14. Loss Per Common Share

A reconciliation of the Company’s basic and diluted loss per common share was as follows:

	Three Months Ended
	September 30,
(In thousands, except share and per share data)	2021		2020
Numerator:
Net loss	$	(22,342)	$	(6,499)
Net income allocated to participating securities for the Warrants		—		—
Interest expenses applicable to the Convertible Notes, net of tax		—		—
Amortization of debt issuance costs applicable to the Convertible Notes, net of tax		—		—
Adjusted "if-converted" net loss	$	(22,342)	$	(6,499)
Denominator:
Basic weighted average common shares outstanding		39,927,822		39,070,982
Effect of potentially dilutive options, restricted stock awards and performance-based shares		—		—
Effect of conversion of the Convertible Notes		—		—
Effect of participating securities for the Warrants		—		—
Diluted weighted average common shares outstanding		39,927,822		39,070,982
Loss per common share:
Basic	$	(0.56)	$	(0.17)
Diluted	$	(0.56)	$	(0.17)

In accordance with ASC 260, Earnings per share, the Company computes earnings (loss) per share using the two-class method, which requires an allocation of earnings between the holders of common stock and the Company’s participating security holders. Basic earnings (loss) per share is calculated by dividing net income (loss) available to common stockholders, which excludes the income allocated to participating security holders, by the basic weighted average common shares outstanding. For purposes of determining diluted earnings per share, the Company further adjusts the basic earnings per share to include the effect of potentially dilutive shares outstanding, including options, restricted stock awards, performance-based shares, the Convertible Notes, and the Warrants. In this calculation, the Company reallocates net income based on the rights of each potentially dilutive share and will report the most dilutive earnings (loss) per share. Because the Warrants do not participate in losses, the Company will allocate undistributed earnings when calculating basic and diluted earnings per share in periods of net income only. The effect of the Warrants is excluded from the calculation of basic and diluted loss per share for the three months ended September 30, 2021.

The number of anti-dilutive shares that have been excluded in the computation of diluted earnings per share for the three months ended September 30, 2021 and 2020 were 8.3 million and 8.2 million, respectively. The effect of potentially dilutive shares was excluded from the calculation of diluted loss per share in the three months ended September 30, 2021 and 2020 because the effect of including such securities would be anti-dilutive.

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Share-based Compensation

3 Months Ended

Sep. 30, 2021

Share-based Compensation

Share-based Compensation

Note 15. Share-based Compensation

At September 30, 2021, the Company had two share-based employee compensation plans (the 2014 Long-Term Incentive Plan (“LTIP”) and the 2021 LTIP). Together these plans authorized an aggregate total of 8.0 million shares to be issued. As of September 30, 2021, the plans have a total of 1.4 million shares available for future issuances.

Historically, the Company has issued share-based compensation awards with a vesting period ranging up to 3 years and a maximum contractual term of 10 years. The Company issues new shares of stock when stock options are exercised. As of September 30, 2021, there was $14.4 million of total unrecognized compensation cost related to non-vested share-based compensation awards. That cost is expected to be recognized over a weighted average period of 2.3 years.

Stock Options

The Company measures share-based compensation cost for options using the Black-Scholes option pricing model. The following table presents the weighted average assumptions used to estimate fair values of the stock options granted, the estimated annual forfeiture rates used to recognize the associated compensation expense and the weighted average fair value of the options granted during the three months ended September 30, 2020:

	September 30, 2020
Risk-free interest rate		0.2	%
Expected volatility		82.5	%
Expected dividend yield		—	%
Forfeiture rate		—	%
Expected term		5.0	years
Weighted average fair value	$	3.86

There were no options granted during the three months ended September 30, 2021.

Expected volatility is based on the historical volatility of the price of our common shares during the historical period equal to the expected term of the option. The Company uses historical information to estimate the expected term, which represents the period of time that options granted are expected to be outstanding. The risk-free rate for the period equal to the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The forfeiture rate assumption is the estimated annual rate at which unvested awards are expected to be forfeited during the vesting period. This assumption is based on our actual forfeiture rate on historical awards. Periodically, management will assess whether it is necessary to adjust the estimated rate to reflect changes in actual forfeitures or changes in expectations. Additionally, the expected dividend yield is equal to zero, as the Company has not historically issued and has no immediate plans to issue a dividend.

A stock option summary as of September 30, 2021 and changes during the three months then ended, is presented below:

						Weighted
		Weighted-				Average
		Average		Aggregate		Remaining
		Exercise		Intrinsic		Contractual
(In thousands, except for weighted average price and life data)	Awards	Price		Value		Life (yrs.)
Outstanding at June 30, 2021	1,046	$	9.51	$	25	7.2
Exercised	(3)	$	3.55	$	2
Forfeited, expired or repurchased	(10)	$	3.55
Outstanding at September 30, 2021	1,033	$	9.59	$	—	7.0
Vested and expected to vest at September 30, 2021	1,033	$	9.59	$	—	7.0
Exercisable at September 30, 2021	604	$	11.94	$	—	6.1

Restricted Stock

The Company measures restricted stock compensation costs based on the stock price at the grant date less an estimate for expected forfeitures. The annual forfeiture rate used to calculate compensation expense was 6.5% for the three months ended September 30, 2021 and 2020.

A summary of restricted stock awards as of September 30, 2021 and changes during the three months then ended, is presented below:

		Weighted
		Average Grant -		Aggregate
(In thousands, except for weighted average price data)	Awards	date Fair Value		Intrinsic Value
Non-vested at June 30, 2021	1,350	$	6.75
Granted	1,110		4.14
Vested	(834)		6.07	$	3,487
Forfeited	(29)		6.67
Non-vested at September 30, 2021	1,597	$	5.29

Performance-Based Shares

The Company grants performance-based awards to certain key executives. The stock-settled awards will cliff vest based on a three-year performance measurement period. Awards issued prior to July 2021 are based on relative Total Shareholder Return (“TSR”) over a three-year period. Half of the performance shares granted in July 2021 will be tied to our relative TSR, consistent with awards granted in prior years, with the other half tied to a variety of strategic portfolio goals. The Company measures share-based compensation cost for TSR awards using a Monte-Carlo simulation model. Compensation cost for awards tied to strategic portfolio goals is measured using the stock price at the grant date and is recognized based on performance at target award levels. However, in accordance with ASC 718, Compensation – Stock Compensation, the Company will assess the probability that the strategic portfolio goals will be met and adjust the cumulative compensation cost recognized accordingly at each reporting period.

A summary of performance-based share awards as of September 30, 2021 and changes during the current fiscal year, is presented below:

		Weighted
		Average Grant -
(In thousands, except for weighted average price and life data)	Awards	date Fair Value
Non-vested at June 30, 2021	531	$	10.29
Granted	617	$	6.04
Performance adjustment (1)	(40)	$	17.69
Non-vested at September 30, 2021	1,108	$	7.65

(1) Represents the adjustment based on the performance of the July 2018 awards, which was below the Threshold goal level at the end of the three-year performance period.

Employee Stock Purchase Plan

In February 2003, the Company’s stockholders approved an Employee Stock Purchase Plan (“ESPP”). Employees eligible to participate in the ESPP may purchase shares of the Company’s stock at 85% of the lower of the fair market value of the common stock on the first day of the calendar quarter, or the last day of the calendar quarter. Under the ESPP, employees can authorize the Company to withhold up to 10% of their compensation during any quarterly offering period, subject to certain limitations. The ESPP was implemented on April 1, 2003 and is qualified under Section 423 of the Internal Revenue Code. The Board of Directors authorized an aggregate total of 1.1 million shares of the Company’s common stock for issuance under the ESPP. During the three months ended September 30, 2021 and 2020, 38 thousand shares and 29 thousand shares were issued under the ESPP, respectively. As of September 30, 2021, 1.1 million total cumulative shares have been issued under the ESPP.

The following table presents the allocation of share-based compensation costs recognized in the Consolidated Statements of Operations by financial statement line item:

	Three Months Ended
	September 30,
(In thousands)	2021		2020
Selling, general and administrative expenses	$	2,697	$	2,714
Research and development expenses		95		155
Cost of sales		226		473
Total	$	3,018	$	3,342
Tax benefit at statutory rate	$	679	$	752

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Employee Benefit Plan

3 Months Ended

Sep. 30, 2021

Employee Benefit Plan

Employee Benefit Plan

Note 16. Employee Benefit Plan

The Company has a 401k defined contribution plan (the “Plan”) covering substantially all employees. Pursuant to the Plan provisions, the Company was required to make matching contributions equal to 50% of each employee’s contribution, not to exceed 4% of the employee’s compensation for the Plan year. Beginning January 1, 2021, the Company reduced the matching contribution to 50% of each employee’s contribution, not to exceed 2% of the employee’s compensation for the Plan year. Contributions to the Plan were $0.3 million and $0.5 million during the three months ended September 30, 2021 and 2020, respectively.

In Fiscal 2020, the Company implemented a non-qualified deferred compensation plan for certain senior-level management and executives. The non-qualified deferred compensation plan allows certain eligible employees to defer additional pre-tax earnings for retirement, beyond the IRS limits in place under the Plan. Contributions to the non-qualified deferred compensation plan during the three months ended September 30, 2021 were not material.

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Income Taxes

3 Months Ended

Sep. 30, 2021

Income Taxes

Income Taxes

Note 17. Income Taxes

The federal, state and local income tax benefit for the three months ended September 30, 2021 was $0.1 million compared to $8.0 million for the three months ended September 30, 2020. The effective tax rates for the three months ended September 30, 2021 and 2020 were 0.3% and 55.1%, respectively. The effective tax rate for the three months ended September 30, 2021 was lower compared to the three months ended September 30, 2020 primarily due to the valuation allowance recorded in Fiscal 2021.

The Company may recognize the tax benefit from an uncertain tax position claimed on a tax return only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

As of both September 30, 2021 and June 30, 2021, the Company has total unrecognized tax benefits of $4.5 million, of which $4.4 million would impact the Company’s effective tax rate for each period, if recognized. As a result of the positions taken during the period, the Company has not recorded any material interest and penalties for the period ended September 30, 2021 in the statement of operations and no cumulative interest and penalties have been recorded either in the Company’s statement of financial position as of September 30, 2021 and June 30, 2021. The Company will recognize interest accrued on unrecognized tax benefits in interest expense and any related penalties in operating expenses.

The Company files income tax returns in the United States federal jurisdiction and various states. The Company’s federal tax returns for Fiscal 2014 and prior generally are no longer subject to review as such years are closed. The Company’s Fiscal 2015 through 2017 federal returns are currently under examination by the Internal Revenue Service (“IRS”). In March 2021, the Company was notified that its Fiscal 2020 federal return was also selected for examination. The Company has received preliminary assessments from the IRS, which are not considered material to Company’s Consolidated Statements of Operations; however, we cannot reasonably predict the final outcome of the examinations at this time. In October 2018, the Company was notified that the Commonwealth of Pennsylvania will conduct a routine field audit of the Company’s Fiscal 2016 and Fiscal 2017 corporate tax returns. In March 2021, the Company received a preliminary assessment from the Commonwealth of Pennsylvania, which is not considered material to the Company’s Consolidated Statement of Operations.

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Related Party Transactions

3 Months Ended

Sep. 30, 2021

Related Party Transactions

Related Party Transactions

Note 18. Related Party Transactions

The Company had sales of $0.2 million and $0.7 million during the three months ended September 30, 2021 and 2020, respectively, to a generic distributor, Auburn Pharmaceutical Company (“Auburn”), which is a member of the Premier Buying Group. Jeffrey Farber, a current board member, is the owner of Auburn. Accounts receivable includes amounts due from Auburn of $0.2 million and $0.4 million at September 30, 2021and June 30, 2021, respectively.

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Assets Held for Sale

3 Months Ended

Sep. 30, 2021

Assets Held for Sale

Assets held for Sale

Note 19. Assets Held for Sale

In Fiscal 2020, the Company ceased operations at Cody Labs, leased a portion of the real estate to a third party and intends to sell the remaining real estate. In October 2020, the Company entered into an agreement for the sale of real estate associated with the Cody API business for $3.8 million before fees and selling costs, subject to certain closing conditions. However, prior to closing, the buyer terminated the transaction in December 2020. The Company continues to actively market the real estate. As of September 30, 2021, the remaining real estate associated with the Cody API business, totaling $2.7 million, was recorded in the assets held for sale caption in the Consolidated Balance Sheet. The financial results of the Cody API business for the three months ended September 30, 2021 and 2020 were not material to the Company’s Consolidated Statements of Operations.

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Subsequent Events

3 Months Ended

Sep. 30, 2021

Subsequent Events.

Subsequent Events

Note 20. Subsequent Events

2021 Restructuring Plan

On November 1, 2021, the Board of Directors authorized a restructuring and cost savings plan (the “2021 Restructuring Plan”) to further optimize its operations, improve efficiencies and reduce costs. Under the 2021 Restructuring Plan, the Company will consolidate its manufacturing footprint by transferring certain liquid drug production from its Silarx Pharmaceuticals, Inc. (“Silarx”) facility in Carmel, New York to the Company’s main plant in Seymour, Indiana. The Company will then shut down operations at Silarx over a one to two-year period and pursue the sale of the facility. Several products manufactured by Silarx and Kremers Urban Pharmaceuticals, Inc. will be scaled back or discontinued over time. Particularly, the Company will scale back or phase out some small low-margin over-the-counter medicines from Carmel and two very low-margin prescription products as part of the restructuring program. During the transition of products from Carmel, New York to the Seymour, Indiana facility, the Company will continue to assess its portfolio and may introduce or discontinue additional products. As part of the 2021 Restructuring Plan, the Company will also scale back its research and development operations and eliminate certain administrative positions that primarily support the Silarx and research and development operations. The total reduction in headcount, and the basis of the estimated severance costs, for the 2021 Restructuring Plan is expected to be approximately 90 positions. Also, other existing and certain anticipated vacancies will not be filled. The Company initiated the plan on November 3, 2021 and expects that the actions contemplated under the 2021 Restructuring Plan will be substantially complete by June 30, 2023. Ultimately, the plan is expected to result in a leaner, more focused organization and generate cost savings of $20 million, annually.

The Company estimates that it will incur approximately $4.0 million to $5.0 million of total costs to implement the 2021 Restructuring Plan, comprised primarily of approximately $3.0 million of severance and employee-related costs and approximately $1.0 million to $2.0 million of tech transfer costs. The Company also expects to incur approximately $2.0 million to $3.0 million in capital expenditures to build out the liquid manufacturing business at the Kremers Urban Pharmaceuticals, Inc. facility. In addition, the Company may incur non-cash impairment charges in connection with the 2021 Restructuring Plan relating to certain long-lived assets, including, but not limited to, the facility, equipment and other plant-related assets currently utilized by the Company.

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Summary of Significant Accounting Policies (Policies)

3 Months Ended

Sep. 30, 2021

Summary of Significant Accounting Policies

Basis of Presentation

Basis of Presentation

The Consolidated Financial Statements have been prepared in conformity with U.S. GAAP.

Principles of consolidation

Principles of consolidation

The Consolidated Financial Statements include the accounts of Lannett Company, Inc. and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.

Reclassifications

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year financial statement presentation.

Use of estimates

Use of estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions are required in the determination of revenue recognition and sales deductions for estimated chargebacks, rebates, returns and other adjustments including a provision for the Company’s liability under the Medicare Part D program. Additionally, significant estimates and assumptions are required when determining the value of inventories and long-lived assets, including intangible assets, income taxes, and contingencies.

Because of the inherent subjectivity and complexity involved in these estimates and assumptions, actual results could differ from those estimates.

Foreign currency translation

Foreign currency translation

The Consolidated Financial Statements are presented in U.S. dollars, the reporting currency of the Company. The financial statements of the Company’s foreign subsidiary are maintained in local currency and translated into U.S. dollars at the end of each reporting period. Assets and liabilities are translated at period-end exchange rates, while revenues and expenses are translated at average exchange rates during the period. The adjustments resulting from the use of differing exchange rates are recorded as part of stockholders’ equity in accumulated other comprehensive income (loss). Gains and losses resulting from transactions denominated in foreign currencies are recognized in the Consolidated Statements of Operations under other income (loss). Amounts recorded due to foreign currency fluctuations are immaterial to the Consolidated Financial Statements.

Cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash

The Company considers all highly liquid investments with original maturities less than or equal to three months at the date of purchase to be cash and cash equivalents. Cash and cash equivalents are stated at cost, which approximates fair value, and consist of bank deposits and money market funds. The Company maintains its cash deposits and cash equivalents at well-known, stable financial institutions. Such amounts frequently exceed insured limits. In connection with the Second Lien Secured Loan Facility (“Second Lien Facility”), the Company is required to maintain at least $5 million in a deposit account at all times, subject to control by the Second Lien Collateral Agent. At September 30, 2021, the Company classified this balance as restricted cash, which is included in other assets.

Presented in the table below is a reconciliation of the cash, cash equivalents and restricted cash amounts presented on the Consolidated Balance Sheets to the sum of such amounts presented on the Consolidated Statements of Cash Flows for the periods ended September 30, 2021 and 2020.

	September 30, 2021		September 30, 2020
Cash and cash equivalents	$	105,321	$	108,774
Restricted cash, included in other assets		5,000		—
Cash, cash equivalents and restricted cash as presented on the Consolidated Statements of Cash Flows	$	110,321	$	108,774

Allowance for doubtful accounts

Allowance for doubtful accounts

The Company complies with ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which requires the Company to recognize an allowance that reflects a current estimate of credit losses expected to be incurred over the life of the financial asset, including trade receivables. The Company continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses. The Company determines its allowance for doubtful accounts by considering a number of factors, including the length of time balances are past due, the Company’s previous loss history, the customer’s current ability to pay its obligations to the Company and the expected condition of the general economy and the industry as a whole. The Company writes off accounts receivable when they are determined to be uncollectible.

Inventories

Inventories

Inventories are stated at the lower of cost or net realizable value by the first-in, first-out method. Inventories are regularly reviewed and write-downs for excess and obsolete inventory are recorded based primarily on current inventory levels, expiration date and estimated sales forecasts.

Property, Plant and Equipment

Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed on a straight-line basis over the assets’ estimated useful lives. Repairs and maintenance costs that do not extend the useful life of the asset are expensed as incurred.

Intangible Assets

Intangible Assets

Definite-lived intangible assets are stated at cost less accumulated amortization. Amortization of definite-lived intangible assets is computed on a straight-line basis over the assets’ estimated useful lives, which commences upon shipment of the product. The Company continually evaluates the reasonableness of the useful lives of these assets. Indefinite-lived intangible assets are not amortized, but instead are tested at least annually for impairment. Costs to renew or extend the term of a recognized intangible asset are expensed as incurred.

Valuation of Long-Lived Assets, including Intangible Assets

Valuation of Long-Lived Assets, including Intangible Assets

The Company’s long-lived assets primarily consist of property, plant and equipment and definite and indefinite-lived intangible assets. Property, plant and equipment and definite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances (“triggering events”) indicate that the carrying amount of the asset may not be recoverable. If a triggering event is determined to have occurred, the asset’s carrying value is compared to the future undiscounted cash flows expected to be generated by the asset. If the carrying value exceeds the undiscounted cash flows of the asset, then impairment exists. Indefinite-lived intangible assets are tested for impairment at least annually during the fourth quarter of each fiscal year or more frequently if events or triggering events indicate that the asset might be impaired.

An impairment loss is measured as the excess of the asset’s carrying value over its fair value, which in most cases is calculated using a discounted cash flow model. Discounted cash flow models are highly reliant on various assumptions which are considered Level 3 inputs, including estimates of future cash flows (including long-term growth rates), discount rates and the probability of achieving the estimated cash flows.

Segment Information

Segment Information

The Company operates in one reportable segment, generic pharmaceuticals. As such, the Company aggregates its financial information for all products. The table below identifies the Company’s net sales by medical indication for the three months ended September 30, 2021 and 2020.

	Three Months Ended
(In thousands)	September 30,
Medical Indication	2021		2020
Analgesic	$	5,314	$	3,120
Anti-Psychosis		3,715		13,028
Cardiovascular		14,100		19,714
Central Nervous System		22,785		22,525
Endocrinology		7,845		3,233
Gastrointestinal		15,240		17,100
Infectious Disease		12,515		21,932
Migraine		4,685		9,690
Respiratory/Allergy/Cough/Cold		3,114		1,426
Urinary		1,176		1,458
Other		9,176		7,634
Contract manufacturing revenue		1,860		5,619
Total net sales	$	101,525	$	126,479

Customer, Supplier and Product Concentration

Customer, Supplier and Product Concentration

The following table presents the percentage of total net sales, for the three months ended September 30, 2021 and 2020, for certain of the Company’s products, defined as products containing the same active ingredient or combination of ingredients, which accounted for at least 10% of net sales in any of those periods:

	Three Months Ended
	September 30,
	2021		2020
Product 1	10	%	15	%

The following table presents the percentage of total net sales, for the three months ended September 30, 2021 and 2020, for certain of the Company’s customers which accounted for at least 10% of net sales in any of those periods:

	Three Months Ended
	September 30,
	2021		2020
Customer A	30	%	26	%
Customer B	20	%	22	%
Customer C	15	%	10	%

Revenue Recognition

Revenue Recognition

The Company complies with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue when (or as) we satisfy our performance obligations by transferring a promised good or service to a customer at an amount that reflects the consideration the Company is expected to be entitled. Our revenue consists almost entirely of sales of our pharmaceutical products to customers, whereby we ship product to a customer pursuant to a purchase order. Revenue contracts such as these do not generally give rise to contract assets or contract liabilities because: (i) the underlying contracts generally have only a single performance obligation and (ii) we do not generally receive consideration until the performance obligation is fully satisfied. The revenue standard impacts the timing of the Company’s revenue recognition by requiring recognition of certain contract manufacturing arrangements to change from “upon shipment or delivery” to “over time.” However, the recognition of these arrangements over time does not currently have a material impact on the Company’s consolidated results of operations or financial position.

When revenue is recognized, a simultaneous adjustment to gross sales is made for estimated chargebacks, rebates, returns, promotional adjustments and other potential adjustments. These provisions are primarily estimated based on historical experience, future expectations, contractual arrangements with wholesalers and indirect customers and other factors known to management at the time of accrual. Accruals for provisions are presented in the Consolidated Financial Statements as a reduction to gross sales with the corresponding reserve presented as a reduction of accounts receivable or included as rebates payable, depending on the nature of the reserve.

Provisions for chargebacks, rebates, returns and other adjustments require varying degrees of subjectivity. While rebates generally are based on contractual terms and require minimal estimation, chargebacks and returns require management to make more subjective assumptions. Each major category is discussed in detail below:

Chargebacks

The provision for chargebacks is the most significant and complex estimate used in the recognition of revenue. The Company sells its products directly to wholesale distributors, generic distributors, retail pharmacy chains and mail-order pharmacies. The Company also sells its products indirectly to independent pharmacies, managed care organizations, hospitals, nursing homes and group purchasing organizations, collectively referred to as “indirect customers.” The Company enters into agreements with its indirect customers to establish pricing for certain products. The indirect customers then independently select a wholesaler from which to purchase the products. If the price paid by the indirect customers is lower than the price paid by the wholesaler, the Company will provide a credit, called a chargeback, to the wholesaler for the difference between the contractual price with the indirect customers and the wholesaler purchase price. The provision for chargebacks is based on expected sell-through levels by the Company’s wholesale customers to the indirect customers and estimated wholesaler inventory levels. As sales to the large wholesale customers, such as Cardinal Health, AmerisourceBergen and McKesson increase (decrease), the reserve for chargebacks will also generally increase (decrease). However, the size of the increase (decrease) depends on product mix and the amount of sales made to indirect customers with which the Company has specific chargeback agreements. The Company continually monitors the reserve for chargebacks and makes adjustments when management believes that expected chargebacks may differ from the actual chargeback reserve.

Rebates

Rebates are offered to the Company’s key chain drug store, distributor and wholesaler customers to promote customer loyalty and increase product sales. These rebate programs provide customers with credits upon attainment of pre-established volumes or attainment of net sales milestones for a specified period. Other promotional programs are incentive programs offered to the customers. Additionally, as a result of the Patient Protection and Affordable Care Act (“PPACA”) enacted in the U.S. in March 2010, the Company participates in a cost-sharing program for certain Medicare Part D beneficiaries designed primarily for the sale of brand drugs and certain generic drugs if their Food and Drug Administration (“FDA”) approval was granted under a New Drug Application (“NDA”) or 505(b) NDA versus an Abbreviated New Drug application ("ANDA’). Drugs purchased within the Medicare Part D coverage gap (commonly referred to as the “donut hole”) result in additional rebates. The Company estimates the reserve for rebates and other promotional credit programs based on the specific terms in each agreement when revenue is recognized. The reserve for rebates increases (decreases) as sales to certain wholesale and retail customers increase (decrease). However, since these rebate programs are not identical for all customers, the size of the reserve will depend on the mix of sales to customers that are eligible to receive rebates.

Returns

Consistent with industry practice, the Company has a product returns policy that allows customers to return product within a specified time period prior to and subsequent to the product’s expiration date in exchange for a credit to be applied to future purchases. The Company’s policy requires that the customer obtain pre-approval from the Company for any qualifying return. The Company estimates its provision for returns based on historical experience, changes to business practices, credit terms and any extenuating circumstances known to management. While historical experience has allowed for reasonable estimations in the past, future returns may or may not follow historical trends. The Company continually monitors the reserve for returns and makes adjustments when management believes that actual product returns may differ from the established reserve. Generally, the reserve for returns increases as net sales increase.

Other Adjustments

Other adjustments consist primarily of “price adjustments”, also known as “shelf-stock adjustments” and “price protections,” which are both credits issued to reflect increases or decreases in the invoice or contract prices of the Company’s products. In the case of a price decrease, a credit is given for product remaining in customer’s inventories at the time of the price reduction. Contractual price protection results in a similar credit when the invoice or contract prices of the Company’s products increase, effectively allowing customers to purchase products at previous prices for a specified period of time. Amounts recorded for estimated shelf-stock adjustments and price protections are based upon specified terms with direct customers, estimated changes in market prices and estimates of inventory held by customers. The Company regularly monitors these and other factors and evaluates the reserve as additional information becomes available. Other adjustments also include prompt payment discounts and “failure-to-supply” adjustments. If the Company is unable to fulfill certain customer orders, the customer can purchase products from our competitors at their prices and charge the Company for any difference in our contractually agreed upon prices.

Leases

Leases

The Company complies with ASC Topic 842, Leases, which states that when the Company enters into a new arrangement, it must determine, at the inception date, whether the arrangement is or contains a lease. This determination generally depends on whether the arrangement conveys to the Company the right to control the use of an explicitly or implicitly identified asset for a period of time in exchange for consideration. Control of an underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain substantially all of the economic benefits from using the underlying asset. Once a lease has been identified, the Company must determine the lease term, the present value of lease payments and the classification of the lease as either operating or financing.

The lease term is determined to be the non-cancelable period including any lessee renewal options which are considered to be reasonably certain of exercise. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The present value of lease payments includes fixed and certain variable payments, less lease incentives, together with amounts probable of being owed by the Company under residual value guarantees and, if reasonably certain of being paid, the cost of certain renewal options and early termination penalties set forth in the lease arrangement. To calculate the present value of lease payments, we use our incremental borrowing rate based on the information available at commencement date, as the rate implicit in the lease is generally not readily available.

In making the determination of whether a lease is an operating lease or a finance lease, the Company considers the lease term in relation to the economic life of the leased asset, the present value of lease payments in relation to the fair value of the leased asset and certain other factors.

Upon the commencement of the lease, the Company will record a lease liability and right-of-use (“ROU”) asset based on the present value of the future minimum lease payments over the lease term at commencement date. The ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred.

For operating leases, a single lease cost is generally recognized in the Consolidated Statements of Operations on a straight-line basis over the lease term unless an impairment has been recorded with respect to a leased asset. Variable lease costs not initially included in the lease liability and ROU asset impairment charges are expensed as incurred.

The Company has elected, as an accounting policy, not to apply the recognition requirements in ASC 842 to short-term leases. Short-term leases are leases that have a term of 12 months or less and do not include an option to purchase the underlying asset that the Company is reasonably certain to exercise. The Company recognizes the lease payments for short-term leases on a straight-line basis over the lease term and the lease cost is not recorded on the Consolidated Balance Sheets.

Cost of Sales, including Amortization of Intangibles

Cost of Sales, including Amortization of Intangibles

Cost of sales includes all costs related to bringing products to their final selling destination, which includes direct and indirect costs, such as direct material, labor and overhead expenses. Additionally, cost of sales includes product royalties, depreciation, amortization and costs to renew or extend recognized intangible assets, freight charges and other shipping and handling expenses.

Research and Development

Research and Development

Research and development costs are expensed as incurred, including all production costs until a drug candidate is approved by the FDA. Research and development expenses include costs associated with internal projects as well as costs associated with third-party research and development contracts.

Contingencies

Contingencies

Loss contingencies, including litigation-related contingencies, are included in the Consolidated Statements of Operations when the Company concludes that a loss is both probable and reasonably estimable. Legal fees for litigation-related matters are expensed as incurred and included in the Consolidated Statements of Operations under the Selling, general and administrative expenses line item.

Restructuring Costs

Restructuring Costs

The Company records charges associated with approved restructuring plans to remove duplicative headcount and infrastructure associated with business acquisitions or to simplify business processes. Restructuring charges can include severance costs to eliminate a specified number of employees, infrastructure charges to vacate facilities and consolidate operations and contract cancellation costs. The Company records restructuring charges based on estimated employee terminations, site closure and consolidation plans. The Company accrues severance and other employee separation costs under these actions when it is probable that a liability exists, and the amount is reasonably estimable.

Share-based Compensation

Share-based Compensation

Share-based compensation costs are recognized over the vesting period, using a straight-line method, based on the fair value of the instrument on the date of grant less an estimate for expected forfeitures. The Company uses the stock price on the grant date to value restricted stock and performance-based shares with vesting based on the satisfaction of a performance condition. The Company uses the Black-Scholes valuation model to determine the fair value of stock options and the Monte-Carlo simulation model to determine the fair value of performance-based shares with a market condition. The Black-Scholes valuation and Monte-Carlo simulation models include various assumptions, including the expected volatility, the expected life of the award, dividend yield and the risk-free interest rate as well as performance assumptions of peer companies. These assumptions involve inherent uncertainties based on market conditions which are generally outside the Company’s control. Changes in these assumptions could have a material impact on share-based compensation costs recognized in the Consolidated Financial Statements.

Self-Insurance

Self-Insurance

The Company self-insures for certain employee medical and prescription benefits. The Company also maintains stop loss coverage with third party insurers to limit its total liability exposure. The liability for self-insured risks is primarily calculated using independent third-party actuarial valuations which take into account actual claims, claims growth and claims incurred but not yet reported. Actual experience, including claim frequency and severity as well as health-care inflation, could result in different liabilities than the amounts currently recorded. The liability for self-insured risks under this plan was $1.3 million and $0.8 million as of September 30, 2021 and June 30, 2021, respectively, and is recorded in the accrued payroll and payroll-related expenses caption in the Consolidated Balance Sheets.

Income Taxes

Income Taxes

The Company uses the liability method to account for income taxes as prescribed by ASC 740, Income Taxes. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. Deferred tax expense (benefit) is the result of changes in deferred tax assets and liabilities. Deferred income tax assets and liabilities are adjusted to recognize the effects of changes in tax laws or enacted tax rates in the period during which they are signed into law. The Company evaluates the need for a valuation allowance each reporting period weighing all positive and negative evidence. The factors used to assess the likelihood of realization include, but are not limited to, the Company’s forecast of future taxable income, historical results of operations, statutory expirations and available tax planning strategies and actions that could be implemented to realize the net deferred tax assets. Under ASC 740, Income Taxes, a valuation allowance is required when it is more likely than not that all or some portion of the deferred tax assets will not be realized.

The Company may recognize the tax benefit from an uncertain tax position claimed on a tax return only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The authoritative accounting standards also provide guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.

Earnings (Loss) Per Common Share

Earnings (Loss) Per Common Share

The presentation of basic and diluted earnings (loss) per common share is required on the face of the Company's Consolidated Statements of Operations as well as a reconciliation of the computation of basic earnings (loss) per common share to diluted earnings (loss) per common share. In accordance with ASC 260, Earnings per share, the Company computes earnings (loss) per share using the two-class method, which requires an allocation of earnings between the holders of common stock and the Company’s participating security holders. The warrants issued in connection with the Second Lien Secured Loan Facility (the “Warrants”) are considered participating securities, as discussed further in Note 13 “Warrants.” Basic earnings (loss) per share is calculated by dividing net income (loss) available to common stockholders, which excludes the income allocated to participating security holders, by the basic weighted average common shares outstanding.

For purposes of determining diluted earnings per share, the Company further adjusts the basic earnings per share to include the effect of potentially dilutive shares outstanding, including options and restricted stock awards, the 4.50% Convertible Senior Notes (the “Convertible Notes”), and the Warrants. In this calculation, the Company reallocates net income based on the rights of each potentially dilutive share and will report the most dilutive earnings (loss) per share. The weighted average number of diluted shares is adjusted for the potential dilutive effect of the exercise of stock options, treats unvested restricted stock as if it were vested, includes performance-based shares that would be issued if the performance criteria were met as of the end of the reporting period, and assumes the conversion of the 4.50% Convertible Senior Notes. The Company uses the “if-converted" method to compute earnings (loss) per share when assuming the conversion of the Convertible Notes, which is calculated by dividing the adjusted "if-converted" net income by the adjusted weighted average number of shares of common stock outstanding during the period. The adjusted "if-converted" net income is adjusted for interest expense and amortization of debt issuance costs, both net of tax, associated with the Convertible Notes. Because the Warrants do not participate in losses, the Company will allocate undistributed earnings when calculating basic and diluted earnings per share in periods of net income only. Anti-dilutive securities are excluded from the calculation. Dilutive shares are also excluded in the calculation in periods of net loss because the effect of including such securities would be anti-dilutive.

Comprehensive Income (Loss)

Comprehensive Income (Loss)

Comprehensive income (loss) reflects all changes in equity during a period except those that resulted from investments by or distributions to the Company’s stockholders. This includes, but is not limited to, foreign currency translation gain (loss). Other comprehensive income (loss) refers to gains and losses that are included in comprehensive income (loss) but excluded from income (loss) for all amounts are recorded directly as an adjustment to stockholders’ equity.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options and Derivatives and Hedging - Contracts in Entity’s Own Equity, with changes to modify and simplify the application of U.S. GAAP for certain financial instruments with characteristics of liabilities and equity. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years, with early adoption permitted. The ASU requires adoption using either the retrospective basis or the modified retrospective basis. The Company is currently evaluating the impact of ASU 2020-06 on its Consolidated Financial Statements.

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Summary of Significant Accounting Policies (Tables)

3 Months Ended

Sep. 30, 2021

Summary of Significant Accounting Policies

Schedule of reconciliation of the cash, cash equivalents and restricted cash amounts

	September 30, 2021		September 30, 2020
Cash and cash equivalents	$	105,321	$	108,774
Restricted cash, included in other assets		5,000		—
Cash, cash equivalents and restricted cash as presented on the Consolidated Statements of Cash Flows	$	110,321	$	108,774

Schedule of the Company's net sales by medical indication

	Three Months Ended
(In thousands)	September 30,
Medical Indication	2021		2020
Analgesic	$	5,314	$	3,120
Anti-Psychosis		3,715		13,028
Cardiovascular		14,100		19,714
Central Nervous System		22,785		22,525
Endocrinology		7,845		3,233
Gastrointestinal		15,240		17,100
Infectious Disease		12,515		21,932
Migraine		4,685		9,690
Respiratory/Allergy/Cough/Cold		3,114		1,426
Urinary		1,176		1,458
Other		9,176		7,634
Contract manufacturing revenue		1,860		5,619
Total net sales	$	101,525	$	126,479

Summary of products which accounted for at least 10% of total net sales

	Three Months Ended
	September 30,
	2021		2020
Product 1	10	%	15	%

Summary of customers which accounted for at least 10% of total net sales

	Three Months Ended
	September 30,
	2021		2020
Customer A	30	%	26	%
Customer B	20	%	22	%
Customer C	15	%	10	%

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Accounts Receivable, net (Tables)

3 Months Ended

Sep. 30, 2021

Accounts Receivable, net

Schedule of accounts receivable

	September 30,		June 30,
(In thousands)	2021		2021
Gross accounts receivable	$	239,211	$	239,271
Less: Chargebacks reserve		(71,807)		(69,564)
Less: Rebates reserve		(16,592)		(16,272)
Less: Returns reserve		(36,462)		(38,395)
Less: Other deductions		(18,968)		(15,505)
Less: Allowance for doubtful accounts		(1,073)		(701)
Accounts receivable, net	$	94,309	$	98,834

Schedule of major category of revenue-related reserves

Reserve Category
(In thousands)	Chargebacks		Rebates		Returns		Other		Total
Balance at June 30, 2021	$	69,564	$	35,297	$	38,395	$	15,505	$	158,761
Current period provision		131,195		28,760		5,939		19,010		184,904
Credits issued during the period		(128,952)		(21,640)		(7,872)		(15,547)		(174,011)
Balance at September 30, 2021	$	71,807	$	42,417	$	36,462	$	18,968	$	169,654

Reserve Category
(In thousands)	Chargebacks		Rebates		Returns		Other		Total
Balance at June 30, 2020	$	61,877	$	62,711	$	40,796	$	17,557	$	182,941
Current period provision		188,297		34,280		5,526		15,781		243,884
Credits issued during the period		(179,737)		(42,269)		(5,787)		(16,741)		(244,534)
Balance at September 30, 2020	$	70,437	$	54,722	$	40,535	$	16,597	$	182,291

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Inventories (Tables)

3 Months Ended

Sep. 30, 2021

Inventories

Schedule of Inventories

	September 30,		June 30,
(In thousands)	2021		2021
Raw Materials	$	47,203	$	45,370
Work-in-process		9,719		12,685
Finished Goods		55,715		51,490
Total	$	112,637	$	109,545

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Property, Plant and Equipment, net (Tables)

3 Months Ended

Sep. 30, 2021

Property, Plant and Equipment, net

Schedule of property, plant and equipment, net

		September 30,		June 30,
(In thousands)	Useful Lives	2021		2021
Land	—	$	1,783	$	1,783
Building and improvements	10 - 39 years		105,187		103,082
Machinery and equipment	5 - 10 years		166,894		166,617
Furniture and fixtures	5 - 7 years		3,535		3,399
Less accumulated depreciation			(128,801)		(123,294)
			148,598		151,587
Construction in progress			15,556		15,087
Property, plant and equipment, net		$	164,154	$	166,674

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Intangible Assets (Tables)

3 Months Ended

Sep. 30, 2021

Intangible Assets

Summary of intangible assets, net

	Weighted	Gross Carrying Amount				Accumulated Amortization				Intangible Assets, Net
	Avg. Life	September 30,		June 30,		September 30,		June 30,		September 30,		June 30,
(In thousands)	(Yrs.)	2021		2021		2021		2021		2021		2021
Definite-lived:
KUPI product rights	15	$	83,955	$	83,955	$	(6,297)	$	(4,198)	$	77,658	$	79,757
KUPI trade name	2		2,920		2,920		(2,920)		(2,920)		—		—
KUPI other intangible assets	15		19,000		19,000		(7,412)		(7,095)		11,588		11,905
Silarx product rights	15		20,000		20,000		(5,222)		(4,889)		14,778		15,111
Other product rights	10		37,417		35,918		(10,103)		(8,856)		27,314		27,062
Total definite-lived		$	163,292	$	161,793	$	(31,954)	$	(27,958)	$	131,338	$	133,835
Indefinite-lived:
KUPI in-process research and development	—	$	4,000	$	4,000	$	—	$	—	$	4,000	$	4,000
Total indefinite-lived			4,000		4,000		—		—		4,000		4,000
Total intangible assets, net		$	167,292	$	165,793	$	(31,954)	$	(27,958)	$	135,338	$	137,835

Summary of future annual amortization expense

(In thousands)	Amortization
Fiscal Year Ending June 30,	Expense
2022	$	11,188
2023		14,803
2024		14,528
2025		14,335
2026		13,680
Thereafter		62,804
	$	131,338

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Long-Term Debt (Tables)

3 Months Ended

Sep. 30, 2021

Long-Term Debt

Summary of long-term debt, net

	September 30,		June 30,
(In thousands)	2021		2021
7.75% Senior Secured Notes due 2026	$	350,000	$	350,000
Unamortized discount and other debt issuance costs		(5,352)		(5,594)
7.75% Senior Secured Notes due 2026, net		344,648		344,406
Second Lien Secured Loan Facility due 2026 ($190.0M Principal, $5.7M Exit Fee, and $8.6M and $3.6M accrued PIK interest at September 30, 2021 and June 30, 2021 respectively)		204,291		199,342
Unamortized discount and other debt issuance costs		(35,726)		(36,701)
Second Lien Secured Loan Facility due 2026, net		168,565		162,641
4.50% Convertible Senior Notes due 2026		86,250		86,250
Unamortized discount and other debt issuance costs		(2,488)		(2,614)
4.50% Convertible Senior Notes, net		83,762		83,636
$45 million Amended ABL Credit Facility		—		—
Total debt, net		596,975		590,683
Less short-term borrowings and current portion of long-term debt		—		—
Total long-term debt, net	$	596,975	$	590,683

Summary of long-term debt amounts due

	Amounts Payable
(In thousands)	to Institutions
2022	$	—
2023		—
2024		—
2025		—
2026		640,541
Total	$	640,541

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Commitments (Tables)

3 Months Ended

Sep. 30, 2021

Commitments

Schedule of components of lease cost and supplemental cash flow information

	Three Months Ended
	September 30,
(In thousands)	2021		2020
Operating lease cost	$	461	$	402
Variable lease cost		41		39
Short-term lease cost		69		118
Total	$	571	$	559

Supplemental cash flow information related to our operating leases is as follows:

	Three Months Ended
	September 30,
(In thousands)	2021		2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	593	$	303

Schedule of weighted-average remaining lease term

	Three Months Ended
	September 30,
	2021		2020
Weighted-average remaining lease term	10	years	8	years
Weighted-average discount rate	8.5	%	8.0	%

Schedule of maturities of lease liabilities

(In thousands)	Amounts Due
2022	$	1,545
2023		2,064
2024		2,083
2025		2,103
2026		2,124
Thereafter		8,513
Total lease payments		18,432
Less: Imputed interest		5,583
Present value of lease liabilities	$	12,849

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Accumulated Other Comprehensive Loss (Tables)

3 Months Ended

Sep. 30, 2021

Accumulated Other Comprehensive Loss.

Schedule of Accumulated Other Comprehensive Loss

	September 30,
(In thousands)	2021		2020
Foreign Currency Translation
Beginning Balance, June 30	$	(548)	$	(627)
Net income (loss) on foreign currency translation (net of tax of $0 and $0)		24		79
Other comprehensive income (loss), net of tax		24		79
Total Accumulated Other Comprehensive Loss	$	(524)	$	(548)

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Loss Per Common Share (Tables)

3 Months Ended

Sep. 30, 2021

Loss Per Common Share

Summary of reconciliation of the Company's basic and diluted (loss) per common share

	Three Months Ended
	September 30,
(In thousands, except share and per share data)	2021		2020
Numerator:
Net loss	$	(22,342)	$	(6,499)
Net income allocated to participating securities for the Warrants		—		—
Interest expenses applicable to the Convertible Notes, net of tax		—		—
Amortization of debt issuance costs applicable to the Convertible Notes, net of tax		—		—
Adjusted "if-converted" net loss	$	(22,342)	$	(6,499)
Denominator:
Basic weighted average common shares outstanding		39,927,822		39,070,982
Effect of potentially dilutive options, restricted stock awards and performance-based shares		—		—
Effect of conversion of the Convertible Notes		—		—
Effect of participating securities for the Warrants		—		—
Diluted weighted average common shares outstanding		39,927,822		39,070,982
Loss per common share:
Basic	$	(0.56)	$	(0.17)
Diluted	$	(0.56)	$	(0.17)

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Share-based Compensation (Tables)

3 Months Ended

Sep. 30, 2021

Share-based Compensation

Schedule of weighted average assumptions

	September 30, 2020
Risk-free interest rate		0.2	%
Expected volatility		82.5	%
Expected dividend yield		—	%
Forfeiture rate		—	%
Expected term		5.0	years
Weighted average fair value	$	3.86

Summary of stock option award activity

						Weighted
		Weighted-				Average
		Average		Aggregate		Remaining
		Exercise		Intrinsic		Contractual
(In thousands, except for weighted average price and life data)	Awards	Price		Value		Life (yrs.)
Outstanding at June 30, 2021	1,046	$	9.51	$	25	7.2
Exercised	(3)	$	3.55	$	2
Forfeited, expired or repurchased	(10)	$	3.55
Outstanding at September 30, 2021	1,033	$	9.59	$	—	7.0
Vested and expected to vest at September 30, 2021	1,033	$	9.59	$	—	7.0
Exercisable at September 30, 2021	604	$	11.94	$	—	6.1

Summary of non-vested restricted stock awards

		Weighted
		Average Grant -		Aggregate
(In thousands, except for weighted average price data)	Awards	date Fair Value		Intrinsic Value
Non-vested at June 30, 2021	1,350	$	6.75
Granted	1,110		4.14
Vested	(834)		6.07	$	3,487
Forfeited	(29)		6.67
Non-vested at September 30, 2021	1,597	$	5.29

Schedule of non-vested performance-based shares

		Weighted
		Average Grant -
(In thousands, except for weighted average price and life data)	Awards	date Fair Value
Non-vested at June 30, 2021	531	$	10.29
Granted	617	$	6.04
Performance adjustment (1)	(40)	$	17.69
Non-vested at September 30, 2021	1,108	$	7.65

(1) Represents the adjustment based on the performance of the July 2018 awards, which was below the Threshold goal level at the end of the three-year performance period.

Schedule of allocation of share-based compensation

	Three Months Ended
	September 30,
(In thousands)	2021		2020
Selling, general and administrative expenses	$	2,697	$	2,714
Research and development expenses		95		155
Cost of sales		226		473
Total	$	3,018	$	3,342
Tax benefit at statutory rate	$	679	$	752

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Summary of Significant Accounting Policies - Cash (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Jun. 30, 2021	Sep. 30, 2020	Jun. 30, 2020
Summary of Significant Accounting Policies
Deposit account as restricted cash in other assets	$ 5,000
Cash and cash equivalents	105,321	$ 93,286	$ 108,774
Restricted cash, included in other assets	5,000
Cash, cash equivalents and restricted cash as presented on the Consolidated Statements of Cash Flows	$ 110,321	$ 98,286	$ 108,774	$ 144,329

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Summary of Significant Accounting Policies - Segments (Details) $ in Thousands	3 Months Ended
	Sep. 30, 2021 USD ($) segment	Sep. 30, 2020 USD ($)
Medical Indication Information
Number of reportable segments | segment	1
Total net sales	$ 101,525	$ 126,479
Analgesic
Medical Indication Information
Total net sales	5,314	3,120
Anti-Psychosis
Medical Indication Information
Total net sales	3,715	13,028
Cardiovascular
Medical Indication Information
Total net sales	14,100	19,714
Central Nervous System
Medical Indication Information
Total net sales	22,785	22,525
Endocrinology
Medical Indication Information
Total net sales	7,845	3,233
Gastrointestinal
Medical Indication Information
Total net sales	15,240	17,100
Infectious Disease
Medical Indication Information
Total net sales	12,515	21,932
Migraine
Medical Indication Information
Total net sales	4,685	9,690
Respiratory/Allergy/Cough/Cold
Medical Indication Information
Total net sales	3,114	1,426
Urinary
Medical Indication Information
Total net sales	1,176	1,458
Other
Medical Indication Information
Total net sales	9,176	7,634
Contract manufacturing revenue
Medical Indication Information
Total net sales	$ 1,860	$ 5,619

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Summary of Significant Accounting Policies - Concentrations (Details) - Net sales	3 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
Products | Product 1
Concentration risk
Concentration risk (as a percent)	10.00%	15.00%
Customers | Customer A
Concentration risk
Concentration risk (as a percent)	30.00%	26.00%
Customers | Customer B
Concentration risk
Concentration risk (as a percent)	20.00%	22.00%
Customers | Customer C
Concentration risk
Concentration risk (as a percent)	15.00%	10.00%

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Summary of Significant Accounting Policies - Self Insurance (Details) - USD ($) $ in Millions	Sep. 30, 2021	Jun. 30, 2021
Summary of Significant Accounting Policies
Self-insured risks	$ 1.3	$ 0.8

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Summary of Significant Accounting Policies - Loss per Share (Details)	Sep. 30, 2021
4.50% Convertible Senior Notes due 2026
Interest rate (as a percent)	4.50%

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Accounts Receivable, net (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Jun. 30, 2021
Accounts receivable, net
Gross accounts receivable	$ 239,211	$ 239,271
Less: Allowance for doubtful accounts	(1,073)	(701)
Accounts receivable, net	94,309	98,834
Chargebacks
Accounts receivable, net
Less: reserve	(71,807)	(69,564)
Rebates
Accounts receivable, net
Less: reserve	(16,592)	(16,272)
Returns
Accounts receivable, net
Less: reserve	(36,462)	(38,395)
Other
Accounts receivable, net
Less: reserve	$ (18,968)	$ (15,505)

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Accounts Receivable, net - Revenue reserve (Details) - USD ($) $ in Thousands	3 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
Accounts receivable, net
Balance at the beginning of the period	$ 158,761	$ 182,941
Current period provision	184,904	243,884
Credits issued during the period	(174,011)	(244,534)
Balance at the end of the period	169,654	182,291
Chargebacks
Accounts receivable, net
Balance at the beginning of the period	69,564	61,877
Current period provision	131,195	188,297
Credits issued during the period	(128,952)	(179,737)
Balance at the end of the period	71,807	70,437
Rebates
Accounts receivable, net
Balance at the beginning of the period	35,297	62,711
Current period provision	28,760	34,280
Credits issued during the period	(21,640)	(42,269)
Balance at the end of the period	42,417	54,722
Returns
Accounts receivable, net
Balance at the beginning of the period	38,395	40,796
Current period provision	5,939	5,526
Credits issued during the period	(7,872)	(5,787)
Balance at the end of the period	36,462	40,535
Other
Accounts receivable, net
Balance at the beginning of the period	15,505	17,557
Current period provision	19,010	15,781
Credits issued during the period	(15,547)	(16,741)
Balance at the end of the period	$ 18,968	$ 16,597

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Accounts Receivable, net - Revenue reserve information (Details)	3 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
Chargebacks
Accounts receivable, net
Percentage of provision for rebates, chargebacks, returns and other adjustments on gross sales	46.10%	51.70%
Rebates
Accounts receivable, net
Percentage of provision for rebates, chargebacks, returns and other adjustments on gross sales	10.10%	9.40%
Returns
Accounts receivable, net
Percentage of provision for rebates, chargebacks, returns and other adjustments on gross sales	2.10%	1.50%
Other
Accounts receivable, net
Percentage of provision for rebates, chargebacks, returns and other adjustments on gross sales	6.70%	4.30%

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Inventories (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Jun. 30, 2021
Inventories:
Raw Materials	$ 47,203	$ 45,370
Work-in-process	9,719	12,685
Finished Goods	55,715	51,490
Net inventory	$ 112,637	$ 109,545

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Inventories - Additional information (Details) - USD ($) $ in Thousands	3 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
Inventories:
Provision for inventory write-downs	$ 2,839	$ 2,605

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Property, Plant and Equipment, net (Details) - USD ($) $ in Thousands	3 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Jun. 30, 2021
Property, Plant and Equipment, net
Less: accumulated depreciation	$ (128,801)		$ (123,294)
Property, plant and equipment, net before construction in progress	148,598		151,587
Property, plant and equipment, net	164,154		166,674
Depreciation expense	5,600	$ 5,800
Held in foreign countries
Property, Plant and Equipment, net
Property, plant and equipment, net	600		600
Land
Property, Plant and Equipment, net
Property, plant and equipment, gross	1,783		1,783
Building and improvements
Property, Plant and Equipment, net
Property, plant and equipment, gross	105,187		103,082
Machinery and equipment
Property, Plant and Equipment, net
Property, plant and equipment, gross	166,894		166,617
Furniture and fixtures
Property, Plant and Equipment, net
Property, plant and equipment, gross	3,535		3,399
Construction in progress
Property, Plant and Equipment, net
Property, plant and equipment, net	$ 15,556		$ 15,087

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Property, Plant and Equipment, net - Useful Lives (Details)	3 Months Ended
	Sep. 30, 2021
Building and improvements | Minimum
Property, Plant and Equipment, net
Useful Lives	10 years
Building and improvements | Maximum
Property, Plant and Equipment, net
Useful Lives	39 years
Machinery and equipment | Minimum
Property, Plant and Equipment, net
Useful Lives	5 years
Machinery and equipment | Maximum
Property, Plant and Equipment, net
Useful Lives	10 years
Furniture and fixtures | Minimum
Property, Plant and Equipment, net
Useful Lives	5 years
Furniture and fixtures | Maximum
Property, Plant and Equipment, net
Useful Lives	7 years

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Fair Value Measurements (Details) - USD ($) $ / shares in Units, $ in Millions	Sep. 30, 2021	Jun. 30, 2021
7.750% Senior Secured Notes due 2026
Debt Instrument [Line Items]
Interest rate (as a percent)	7.75%
Estimated fair value of loan	$ 323	$ 347
4.50% Convertible Senior Notes due 2026
Debt Instrument [Line Items]
Interest rate (as a percent)	4.50%
Estimated fair value of loan	$ 40	53
Initial conversion price	$ 15.29
Second Lien Facility
Debt Instrument [Line Items]
Estimated fair value of loan	$ 175	$ 189

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Intangible Assets - Definite-lived (Details) - USD ($) $ in Thousands	3 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Jun. 30, 2021
Finite-Lived Intangible Assets
Gross Carrying Amount	$ 163,292		$ 161,793
Accumulated Amortization	(31,954)		(27,958)
Intangible Assets, Net	131,338		133,835
Amortization expense	$ 4,000	$ 8,600
Product rights | KUPI
Finite-Lived Intangible Assets
Weighted Avg. Life	15 years
Gross Carrying Amount	$ 83,955		83,955
Accumulated Amortization	(6,297)		(4,198)
Intangible Assets, Net	$ 77,658		79,757
Product rights | Silarx
Finite-Lived Intangible Assets
Weighted Avg. Life	15 years
Gross Carrying Amount	$ 20,000		20,000
Accumulated Amortization	(5,222)		(4,889)
Intangible Assets, Net	$ 14,778		15,111
Trade name | KUPI
Finite-Lived Intangible Assets
Weighted Avg. Life	2 years
Gross Carrying Amount	$ 2,920		2,920
Accumulated Amortization	$ (2,920)		(2,920)
Other intangible assets | KUPI
Finite-Lived Intangible Assets
Weighted Avg. Life	15 years
Gross Carrying Amount	$ 19,000		19,000
Accumulated Amortization	(7,412)		(7,095)
Intangible Assets, Net	$ 11,588		11,905
Other product rights
Finite-Lived Intangible Assets
Weighted Avg. Life	10 years
Gross Carrying Amount	$ 37,417		35,918
Accumulated Amortization	(10,103)		(8,856)
Intangible Assets, Net	$ 27,314		$ 27,062

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Intangible Assets - Indefinite lived (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Jun. 30, 2021
Indefinite-lived
Indefinite-lived assets, net	$ 4,000	$ 4,000
Total intangible assets - Gross Carrying Amount	167,292	165,793
Accumulated Amortization	(31,954)	(27,958)
Total intangible assets, Net	135,338	137,835
In-process research and development | KUPI
Indefinite-lived
Indefinite-lived assets, net	$ 4,000	$ 4,000

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Intangible Assets - Future Amortization (Details) - USD ($) $ in Thousands	3 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Jun. 30, 2021
Intangible Assets
Cost of sales	$ 81,008	$ 92,187
Future annual amortization expense:
2022	11,188
2023	14,803
2024	14,528
2025	14,335
2026	13,680
Thereafter	62,804
Intangible Assets, Net	$ 131,338		$ 133,835

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Long-Term Debt - Summary (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Jun. 30, 2021
Long-term debt
Debt, gross	$ 640,541
Total debt, net	596,975		$ 590,683
Long-term debt, net	596,975		590,683
Accrual of payment-in-kind interest on Second Lien Credit Facility	$ 4,949
Weighted average interest rate (as a percent)	8.80%	8.00%
7.750% Senior Secured Notes due 2026
Long-term debt
Debt, gross	$ 350,000		350,000
Unamortized discount and other debt issuance costs	(5,352)		(5,594)
Total debt, net	$ 344,648		344,406
Interest rate (as a percent)	7.75%
Second Lien Facility
Long-term debt
Debt, gross	$ 204,291		199,342
Unamortized discount and other debt issuance costs	(35,726)		(36,701)
Total debt, net	168,565		162,641
Principal Amount	190,000
Exit fee	5,700
Accrual of payment-in-kind interest on Second Lien Credit Facility	8,600		3,600
4.50% Convertible Senior Notes due 2026
Long-term debt
Debt, gross	86,250		86,250
Unamortized discount and other debt issuance costs	(2,488)		(2,614)
Total debt, net	$ 83,762		$ 83,636
Interest rate (as a percent)	4.50%
ABL Credit Facility
Long-term debt
Maximum borrowing capacity	$ 45,000

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Long-Term Debt - Maturity (Details) $ in Thousands	Sep. 30, 2021 USD ($)
Long-term Debt, Rolling Maturity
2026	$ 640,541
Total	$ 640,541

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Legal, Regulatory Matters and Contingencies (Details) $ in Millions			1 Months Ended		3 Months Ended
	Oct. 15, 2021 USD ($)	May 22, 2019 USD ($)	Aug. 31, 2019 USD ($) product	Nov. 30, 2016 item	Sep. 30, 2021 tranche lawsuit product Distributor	Jun. 30, 2018 product	Oct. 31, 2017 product
Genus Life Sciences
Legal, Regulatory Matters and Contingencies
Litigation settlement payable to other party | $	$ 1.5
Government Pricing
Legal, Regulatory Matters and Contingencies
Damages sought, value | $		$ 9.4
Government Pricing | KUPI
Legal, Regulatory Matters and Contingencies
Damages sought, value | $			$ 8.1
Private Antitrust and Consumer Protection Litigation
Legal, Regulatory Matters and Contingencies
Number of manufacturers and distributors | Distributor					30
Number of drugs | product			135		18		6
Number of Tranches | tranche					3
Private Antitrust and Consumer Protection Litigation | Minimum
Legal, Regulatory Matters and Contingencies
Number of lawsuits | lawsuit					100
End Payer Plaintiffs
Legal, Regulatory Matters and Contingencies
Number of drugs | product						14
Indirect Reseller Plaintiffs
Legal, Regulatory Matters and Contingencies
Number of drugs | product						15
Shareholder Litigation
Legal, Regulatory Matters and Contingencies
Number of officers | item				2

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Commitments - Leases (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Jun. 30, 2021
Commitments
Right-of-use asset	$ 10,444	$ 10,559
Operating lease liability	12,849	13,100
Operating lease liability, current	$ 2,049	$ 2,045

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Commitments - Lease cost (Details) - USD ($) $ in Thousands	3 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
Commitments
Operating lease cost	$ 461	$ 402
Variable lease cost	41	39
Short-term lease cost	69	118
Total lease cost	$ 571	$ 559

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Commitments - Cash flow (Details) - USD ($) $ in Thousands	3 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
Lease cash flow
Operating cash flows from operating leases	$ 593	$ 303
Weighted-average
Weighted-average remaining lease term	10 years	8 years
Weighted-average discount rate	8.50%	8.00%

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Commitments - Maturity (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Jun. 30, 2021
Maturities of lease liabilities
2022	$ 1,545
2023	2,064
2024	2,083
2025	2,103
2026	2,124
Thereafter	8,513
Total lease payments	18,432
Less: Imputed interest	5,583
Present value of lease liabilities	$ 12,849	$ 13,100

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Commitments - Other (Details) $ in Millions		3 Months Ended	12 Months Ended
	Feb. 08, 2021 USD ($)	Sep. 30, 2021 USD ($)	Jun. 30, 2020 USD ($)
HEC Agreement
Commitments
Commitment amount			$ 32.0
Development costs		$ 4.5
Excess development cost split ratio			1
HEC Agreement | First ten years
Commitments
Profit split ratio			1
Profit split period			10 years
HEC Agreement | Next five years
Commitments
Profit split ratio			1.50
Profit split period			5 years
Sunshine Agreement
Commitments
Commitment amount	$ 32.0
Sunshine Agreement | First ten years
Commitments
Profit split ratio	1
Profit split period	10 years
Sunshine Agreement | Next five years
Commitments
Profit split ratio	1.50
Profit split period	5 years

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Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Thousands	3 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
Accumulated Other Comprehensive Loss.
Beginning Balance	$ (548)	$ (627)
Net income (loss) on foreign currency translation (net of tax of $0 and $0)	24	79
Other comprehensive income (loss), net of tax	24	79
Total Accumulated Other Comprehensive Loss	(524)	(548)
Net income (loss) on foreign currency translation, tax	$ 0	$ 0

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Warrants (Details) - Second Lien Facility $ / shares in Units, $ in Millions	Apr. 22, 2021 USD ($) $ / shares shares
Class of Warrant or Right
Common stock under the warrant (in shares) | shares	8,280,000
Warrants exercise price (in dollars per share) | $ / shares	$ 6.88
Warrants term	8 years
Issuance of warrant | $	$ 24.4

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Loss Per Common Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
Numerator:
Net loss	$ (22,342)	$ (6,499)
Adjusted "if-converted" net loss	$ (22,342)	$ (6,499)
Denominator:
Basic weighted average common shares outstanding	39,927,822	39,070,982
Diluted weighted average common shares outstanding	39,927,822	39,070,982
Loss per common share:
Basic (in dollars per share)	$ (0.56)	$ (0.17)
Diluted (in dollars per share)	$ (0.56)	$ (0.17)
Anti-dilutive shares excluded in the computation of diluted earnings per share	8,300,000	8,200,000

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Share-based Compensation - Compensation Plans (Details) shares in Millions, $ in Millions	3 Months Ended
	Sep. 30, 2021 USD ($) ShareBasedCompensationPlan shares
Stock-based Compensation
Number of share-based employee compensation plans | ShareBasedCompensationPlan	2
Aggregate number of shares authorized for issuance	8.0
Shares for future issuances	1.4
Share-based compensation awards maximum contractual term	10 years
Total unrecognized compensation cost related to non-vested share-based compensation awards granted under the Plans | $	$ 14.4
Maximum
Stock-based Compensation
Share-based compensation awards vesting period	3 years
Weighted average period during which the cost is expected to be recognized	2 years 3 months 18 days

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Share-based Compensation - Options Valuation (Details) - Stock options - $ / shares	3 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
Assumptions used to estimate fair values
Risk-free interest rate (as a percent)		0.20%
Expected volatility (as a percent)		82.50%
Expected dividend yield (as a percent)	0.00%	0.00%
Expected term (in years)		5 years
Weighted average fair value (in dollars per share)		$ 3.86
Granted (in shares)	0

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Share-based Compensation - Options Rollforward (Details) - Stock options - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended	12 Months Ended
	Sep. 30, 2021	Jun. 30, 2021
Awards
Outstanding at the beginning of the period (in shares)	1,046
Exercised (in shares)	(3)
Forfeited, expired or repurchased (in shares)	(10)
Outstanding at the end of the period (in shares)	1,033	1,046
Vested and expected to vest, Awards (in shares)	1,033
Exercisable at the end of the period (in shares)	604
Weighted-Average Exercise Price
Outstanding at the beginning of the period (in dollars per share)	$ 9.51
Exercised (in dollars per share)	3.55
Forfeited, expired or repurchased (in dollars per share)	3.55
Outstanding at the end of the period (in dollars per share)	9.59	$ 9.51
Vested and expected to vest, Weighted-Average Exercise Price (in dollars per share)	9.59
Exercisable at the end of the period (in dollars per share)	$ 11.94
Aggregate Intrinsic Value
Outstanding at the beginning of the period (in dollars)	$ 25
Exercised (in dollars)	$ 2
Outstanding at the end of the period (in dollars)		$ 25
Weighted Average Remaining Contractual Life
Weighted Average Remaining Contractual Life (yrs.)	7 years	7 years 2 months 12 days
Vested and expected to vest	7 years
Exercisable at the end of the period	6 years 1 month 6 days

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Share-based Compensation - Restricted Stock (Details) - Restricted stock - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
Stock-based Compensation
Annual forfeiture rate used to calculate compensation expense (as a percent)	6.50%	6.50%
Awards
Non-vested at the beginning of the period (in shares)	1,350
Granted (in shares)	1,110
Vested (in shares)	(834)
Forfeited (in shares)	(29)
Non-vested at the end of the period (in shares)	1,597
Weighted Average Grant-date Fair Value
Non-vested at the beginning of the period (in dollars per share)	$ 6.75
Granted (in dollars per share)	4.14
Vested (in dollars per share)	6.07
Forfeited (in dollars per share)	6.67
Non-vested at the end of the period (in dollars per share)	$ 5.29
Aggregate Intrinsic Value
Vested	$ 3,487

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Share-based Compensation - Performance-Based (Details) - Performance-Based Shares shares in Thousands	3 Months Ended
	Sep. 30, 2021 $ / shares shares
Stock-based Compensation
Share-based compensation awards vesting period	3 years
Awards
Non-vested at the beginning of the period (in shares) | shares	531
Granted (in shares) | shares	617
Performance adjustment (in shares) | shares	(40)
Non-vested at the end of the period (in shares) | shares	1,108
Weighted Average Grant-date Fair Value
Non-vested at the beginning of the period (in dollars per share) | $ / shares	$ 10.29
Granted (in dollars per share) | $ / shares	6.04
Performance adjustment (in dollars per share) | $ / shares	17.69
Non-vested at the end of the period (in dollars per share) | $ / shares	$ 7.65

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Share-based Compensation - Stock Purchase Plan (Details) - shares shares in Thousands	3 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Apr. 01, 2003
Stock-based Compensation
Shares authorized for issuance (in shares)	8,000
Employee Stock Purchase Plan
Stock-based Compensation
Purchase price of stock as percent of market fair value (in percent)	85.00%
Compensation authorized by the employee to be withheld for stock purchase (in percent)	10.00%
Shares authorized for issuance (in shares)			1,100
Shares issued (in shares)	38	29
Cumulative shares issued (in shares)	1,100

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Share-based Compensation - Cost (Details) - USD ($) $ in Thousands	3 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
Share-based compensation costs
Share based compensation	$ 3,018	$ 3,342
Tax benefit at statutory rate	679	752
Selling, general and administrative
Share-based compensation costs
Share based compensation	2,697	2,714
Research and development
Share-based compensation costs
Share based compensation	95	155
Cost of sales
Share-based compensation costs
Share based compensation	$ 226	$ 473

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Employee Benefit Plan (Details) - USD ($) $ in Millions			3 Months Ended
	Jan. 01, 2021	Dec. 31, 2020	Sep. 30, 2021	Sep. 30, 2020
Employee Benefit Plan
Company matching contributions (as a percent)	50.00%	50.00%
Maximum company contribution (as a percent)	2.00%	4.00%
Contributions to the plan			$ 0.3	$ 0.5

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Income Taxes - Quarter (Details) - USD ($) $ in Thousands	3 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Jun. 30, 2021
Reconciliation of federal statutory rate to effective rate
Income tax benefit	$ (58)	$ (7,980)
Effective income tax rate (as a percent)	0.30%	55.10%
Unrecognized tax benefits	$ 4,500		$ 4,500
Unrecognized tax benefits that would impact rate	4,400		4,400
Unrecognized tax benefits interest and penalties	$ 0		$ 0

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Related Party Transactions (Details) - Auburn - USD ($) $ in Millions	3 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Jun. 30, 2021
Related Party Transactions
Sales to related party	$ 0.2	$ 0.7
Accounts receivable related party	$ 0.2		$ 0.4

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Assets Held for Sale (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Jun. 30, 2021	Oct. 31, 2020
Assets Held for Sale
Assets held for sale	$ 2,678	$ 2,678
Disposal group held for sale | Cody API Restructuring Plan
Assets Held for Sale
Potential sales amount			$ 3,800
Assets held for sale	$ 2,700

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Subsequent Events (Details) $ in Thousands		3 Months Ended
	Nov. 01, 2021 USD ($) employee	Sep. 30, 2020 USD ($)
Subsequent Events
Restructuring expenses		$ 4,043
Subsequent Events | 2021 Restructuring Plan
Subsequent Events
Positions eliminated estimate | employee	90
Expected cost savings	$ 20,000
Severance costs	$ 3,000
Subsequent Events | 2021 Restructuring Plan | Minimum
Subsequent Events
Restructuring program duration	1 year
Restructuring expenses	$ 4,000
Tech transfer costs	1,000
Commitment estimate	$ 2,000
Subsequent Events | 2021 Restructuring Plan | Maximum
Subsequent Events
Restructuring program duration	2 years
Restructuring expenses	$ 5,000
Tech transfer costs	2,000
Commitment estimate	$ 3,000