Commitments

9 Months Ended

Mar. 31, 2023

Commitments

Commitments

Note 12. Commitments

Leases

At March 31, 2023 and June 30, 2022, the Company had a ROU lease asset of $9.1 million and $9.6 million, respectively, and an operating lease liability of $11.2 million and $12.1 million, respectively. The current balance of the operating lease liability at March 31, 2023 was $2.1 million.

Components of lease costs are as follows:

	Three Months Ended				Nine Months Ended
	March 31,				March 31,
(In thousands)	2023		2022		2023		2022
Operating lease cost	$	456	$	456	$	1,388	$	1,361
Variable lease cost		61		63		140		120
Short-term lease cost (a)		95		101		323		253
Total	$	612	$	620	$	1,851	$	1,734

______________________

(a) Not recorded on the Consolidated Balance Sheet

Supplemental cash flow information and non-cash activity related to our operating leases are as follows:

	Nine Months Ended
	March 31,
(In thousands)	2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	1,608	$	1,606

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

	Nine Months Ended
	March 31,
	2023		2022
Weighted-average remaining lease term	8	years	9	years
Weighted-average discount rate	8.5	%	8.5	%

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

(In thousands)	Amounts Due
2023	$	537
2024		2,083
2025		2,103
2026		2,124
2027		2,145
Thereafter		6,368
Total lease payments		15,360
Less: Imputed interest		4,123
Present value of lease liabilities	$	11,237

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 $32.0 million of the development costs and split 50/50 any development costs in excess thereof. As of March 31, 2023, the Company has incurred approximately $10.2 million of development costs towards the $32.0 million commitment made by the Company. As we have completed dosing of subjects in the clinical trial at this time, we expect development funding will be well less than $32.0 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 HEC for the following five years.

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 $32.0 million of the development costs, provided that if total development and other costs paid by Lannett are less than $32.0 million then the difference will be paid to Sunshine over the first year of commercialization. As of March 31, 2023, the Company has incurred approximately $2.9 million towards the $32.0 million commitment made by the Company. The parties shall negotiate the sharing of any development costs in excess of $32.0 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.

In conjunction with the HEC collaboration efforts to develop biosimilar insulin glargine and aspart, the Company also separately entered into two Customization and Supply Agreements with Ypsomed AG (“Ypsomed”) in October 2020 and July 2021 to develop, manufacture and supply an injection device to be used with both insulin products. In April 2022, the Company executed an amendment to the Customization and Supply Agreements to allow Ypsomed to expand their production capacity to meet the anticipated demand. Under the terms of the deal, the Company is required to pay 14 million Swiss Francs (“CHF”) to Ypsomed over various future milestone dates to fund the capacity expansion in exchange for a predetermined discount on future purchases of the injection device. As of March 31, 2023, the Company has paid Ypsomed 4.6 million CHF, the equivalent of approximately $4.9 million, which is recorded in the other assets caption of the Consolidated Balance Sheet. The remaining 3.4 million and 6.0 million CHF payments are to be paid in installments in calendar years 2023 and 2024, respectively.

In Fiscal 2017, the Company signed an agreement with a third-party company operating in the online pharmaceutical business, under which the Company agreed to provide up to $15.0 million in revolving loans for the purpose of expansion and other business needs. Any outstanding balance under the loan would bear interest at 2.0% and be due seven years from the date of the agreement. As of December 31, 2022, after a review of the third-party’s current financial condition as well as their projected liquidity levels, the Company determined that it is more likely than not that the third party will be unable to repay the outstanding loan. Therefore, the Company recorded a full write-off of the loan receivable of $6.8 million during the second quarter of Fiscal 2023.