Citron On Lannett: Price Gouging At Its Worst, Will Be First To Go Bankrupt

Lannett Company, Inc. LCI was trading lower by more than 5 percent Tuesday after Citron Research slammed the distributor of generic drugs in a new report.

According to Citron, Lannett will become the first pharmaceutical company to go bankrupt and its equity is worth $13 to $15 a share in the near term, but "worthless" over the long term.

Citron's thesis is based mostly on the answer to the pressing question: "Which companies will collapse under their debt load from levered acquisitions, based on the assumption of endless unrestrained drug price increases?"

Lannett, being heavily leveraged and dependent on the profit of three drugs, stands out as the most likely company to collapse. The three drugs -- Levothyroxine, Fluphenazine and Digoxin -- account for 43 percent of its total gross revenue.

Lawsuits Going Ignored

Lannett has been hit with multiple lawsuits over the past few months that have been noticed by investors but then ignored. For instance, the company received a subpoena from the U.S. Department of Justice in early November 2016. By late December, the Rochester Drug Co-operative, one of the fastest growing healthcare distributors, filed a similar lawsuit alleging the company of fixing the price of Levothyroxine.

"Both of these lawsuits (especially the Rochester Drug Co-op suit) do an amazing job detailing the roadmap of what the Department of Justice is undoubtedly finding while investigating Lannett," the Citron report argued. "Collusion on price hikes is beyond question. These lawsuits are better than a smoking gun: they are DNA evidence and nothing short of a confession."