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 December 31, 2020

☐ 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.)

9000 State Road

Philadelphia, PA 19136

(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 January 31, 2021
Common stock, par value $0.001 per share	41,401,730

Table of Contents

			Page No.
PART I. FINANCIAL INFORMATION
	ITEM 1.	FINANCIAL STATEMENTS (UNAUDITED)
		Consolidated Balance Sheets as of December 31, 2020 and June 30, 2020	3
		Consolidated Statements of Operations for the three and six months ended December 31, 2020 and 2019	4
		Consolidated Statements of Comprehensive Income/Loss for the three and six months ended December 31, 2020 and 2019	5
		Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended December 31, 2020 and 2019	6
		Consolidated Statements of Cash Flows for the six months ended December 31, 2020 and 2019	7
		Notes to Consolidated Financial Statements	8
	ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	37
	ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	54
	ITEM 4.	CONTROLS AND PROCEDURES	54
PART II. OTHER INFORMATION
	ITEM 1.	LEGAL PROCEEDINGS	55
	ITEM 1A.	RISK FACTORS	55
	ITEM 6.	EXHIBITS	56

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

LANNETT COMPANY, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(In thousands, except share and per share data)

	December 31, 2020		June 30, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	34,224	$	144,329
Accounts receivable, net		160,131		125,688
Inventories		122,204		142,867
Income taxes receivable		64,570		14,419
Assets held for sale		2,678		2,678
Other current assets		23,993		13,227
Total current assets		407,800		443,208
Property, plant and equipment, net		173,157		179,518
Intangible assets, net		163,488		374,735
Operating lease right-of-use assets		8,650		9,343
Deferred tax assets		132,409		117,890
Other assets		14,767		11,861
TOTAL ASSETS	$	900,271	$	1,136,555
LIABILITIES
Current liabilities:
Accounts payable	$	42,670	$	32,535
Accrued expenses		4,092		14,962
Accrued payroll and payroll-related expenses		8,946		16,304
Rebates payable		43,791		38,175
Royalties payable		20,782		20,863
Restructuring liability		161		27
Current operating lease liabilities		2,115		1,097
Short-term borrowings and current portion of long-term debt		39,345		88,189
Other current liabilities		1,770		2,713
Total current liabilities		163,672		214,865
Long-term debt, net		578,483		592,940
Long-term operating lease liabilities		9,233		9,844
Other liabilities		19,625		16,010
TOTAL LIABILITIES		771,013		833,659
Commitments and contingencies (Notes 11 and 12)
STOCKHOLDERS’ EQUITY
Common stock ($0.001 par value, 100,000,000 shares authorized; 40,832,843 and 39,963,127 shares issued; 39,504,777 and 38,798,787 shares outstanding at December 31, 2020 and June 30, 2020, respectively)		41		40
Additional paid-in capital		326,939		321,164
Accumulated deficit		(179,738)		(1,291)
Accumulated other comprehensive loss		(595)		(627)
Treasury stock (1,328,066 and 1,164,340 shares at December 31, 2020 and June 30, 2020, respectively)		(17,389)		(16,390)
Total stockholders’ equity		129,258		302,896
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	900,271	$	1,136,555

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				Six Months Ended
	December 31,				December 31,
	2020		2019		2020		2019
Net sales	$	133,920	$	136,110	$	260,399	$	263,452
Cost of sales		124,488		86,663		216,675		164,319
Amortization of intangibles		8,657		8,153		17,246		15,181
Gross profit		775		41,294		26,478		83,952
Operating expenses:
Research and development expenses		5,644		6,906		12,183		15,846
Selling, general and administrative expenses		13,730		17,421		28,866		38,729
Restructuring expenses		—		192		4,043		1,580
Asset impairment charges		198,000		—		198,000		1,618
Total operating expenses		217,374		24,519		243,092		57,773
Operating income (loss)		(216,599)		16,775		(216,614)		26,179
Other income (loss):
Loss on extinguishment of debt		—		—		—		(2,145)
Investment income		43		430		88		1,159
Interest expense		(13,496)		(16,694)		(27,982)		(35,986)
Other		28		(735)		5		199
Total other loss		(13,425)		(16,999)		(27,889)		(36,773)
Loss before income tax		(230,024)		(224)		(244,503)		(10,594)
Income tax benefit		(58,076)		(5,308)		(66,056)		(3,521)
Net income (loss)	$	(171,948)	$	5,084	$	(178,447)	$	(7,073)
Earnings (loss) per common share:
Basic	$	(4.36)	$	0.13	$	(4.55)	$	(0.18)
Diluted (1)	$	(4.36)	$	0.13	$	(4.55)	$	(0.18)
Weighted average common shares outstanding:
Basic		39,443,441		38,605,052		39,257,211		38,457,159
Diluted (1)		39,443,441		40,557,503		39,257,211		38,457,159

(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				Six Months Ended
	December 31,				December 31,
	2020		2019		2020		2019
Net income (loss)	$	(171,948)	$	5,084	$	(178,447)	$	(7,073)
Other comprehensive income (loss):
Foreign currency translation gain (loss)		(47)		83		32		37
Total other comprehensive income (loss)		(47)		83		32		37
Comprehensive income (loss)	$	(171,995)	$	5,167	$	(178,415)	$	(7,036)

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

5

LANNETT COMPANY, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

(In thousands)

	Three months ended December 31, 2020
								Accumulated
	Common Stock			Additional				Other				Total
	Shares			Paid-In		Accumulated		Comprehensive		Treasury		Stockholders’
	Issued	Amount		Capital		Deficit		Loss		Stock		Equity
Balance, September 30, 2020	40,687	$	41	$	324,788	$	(7,790)	$	(548)	$	(17,176)	$	299,315
Shares issued in connection with share-based compensation plans	145		—		160		—		—		—		160
Share-based compensation	—		—		1,991		—		—		—		1,991
Purchase of treasury stock	—		—		—		—		—		(213)		(213)
Other comprehensive loss	—		—		—		—		(47)		—		(47)
Net loss	—		—		—		(171,948)		—		—		(171,948)
Balance, December 31, 2020	40,832	$	41	$	326,939	$	(179,738)	$	(595)	$	(17,389)	$	129,258

	Three months ended December 31, 2019
								Accumulated
	Common Stock			Additional				Other				Total
	Shares			Paid-In		Retained		Comprehensive		Treasury		Stockholders’
	Issued	Amount		Capital		Earnings		Loss		Stock		Equity
Balance, September 30, 2019	39,630	$	40	$	314,645	$	19,918	$	(661)	$	(15,838)	$	318,104
Shares issued in connection with share-based compensation plans	222		—		360		—		—		—		360
Share-based compensation	—		—		2,007		—		—		—		2,007
Purchase of treasury stock	—		—		—		—		—		(466)		(466)
Other comprehensive income	—		—		—		—		83		—		83
Net income	—		—		—		5,084		—		—		5,084
Balance, December 31, 2019	39,852	$	40	$	317,012	$	25,002	$	(578)	$	(16,304)	$	325,172

	Six months ended December 31, 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	869		1		442		—		—		—		443
Share-based compensation	—		—		5,333		—		—		—		5,333
Purchase of treasury stock	—		—		—		—		—		(999)		(999)
Other comprehensive income	—		—		—		—		32		—		32
Net loss	—		—		—		(178,447)		—		—		(178,447)
Balance, December 31, 2020	40,832	$	41	$	326,939	$	(179,738)	$	(595)	$	(17,389)	$	129,258

	Six months ended December 31, 2019
								Accumulated
	Common Stock			Additional				Other				Total
	Shares			Paid-In		Retained		Comprehensive		Treasury		Stockholders’
	Issued	Amount		Capital		Earnings		Loss		Stock		Equity
Balance, June 30, 2019	38,970	$	39	$	317,023	$	32,075	$	(615)	$	(14,481)	$	334,041
Shares issued in connection with share-based compensation plans	882		1		595		—		—		—		596
Share-based compensation	—		—		6,466		—		—		—		6,466
Purchase of treasury stock	—		—		—		—		—		(1,823)		(1,823)
Other comprehensive income	—		—		—		—		37		—		37
Purchase of capped call	—		—		(7,072)		—		—		—		(7,072)
Net loss	—		—		—		(7,073)		—		—		(7,073)
Balance, December 31, 2019	39,852	$	40	$	317,012	$	25,002	$	(578)	$	(16,304)	$	325,172

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

6

LANNETT COMPANY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)

	Six Months Ended
	December 31,
	2020		2019
OPERATING ACTIVITIES:
Net loss	$	(178,447)	$	(7,073)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		28,717		26,878
Deferred income tax benefit		(14,519)		(2,209)
Share-based compensation		5,333		6,466
Asset impairment charges		198,000		1,618
Gain on sale/disposal of assets		(24)		(1,195)
Loss on extinguishment of debt		—		2,145
Amortization of debt discount and other debt issuance costs		6,239		7,571
Provision for inventory write-downs		23,214		6,054
Other noncash expenses		635		829
Changes in assets and liabilities which provided (used) cash:
Accounts receivable, net		(34,443)		6,254
Inventories		(2,551)		(14,173)
Income taxes receivable/payable		(50,065)		(8,982)
Other assets		(7,248)		5,801
Rebates payable		5,616		2,272
Royalties payable		(81)		4,083
Restructuring liability		134		(1,800)
Operating lease liability		407		(716)
Accounts payable		10,135		17,390
Accrued expenses		(10,870)		4,988
Accrued payroll and payroll-related expenses		(7,358)		(7,686)
Other liabilities		2,586		(801)
Net cash provided by (used in) operating activities		(24,590)		47,714
INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(5,129)		(8,796)
Proceeds from sale of property, plant and equipment		44		6,288
Advance to VIE		—		(250)
Purchases of intangible assets		(4,000)		(27,250)
Net cash used in investing activities		(9,085)		(30,008)
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt		—		86,250
Purchase of capped call		—		(7,072)
Repayments of long-term debt		(68,516)		(113,278)
Proceeds from issuance of stock		443		596
Payment of debt issuance costs		(2,390)		(3,489)
Purchase of treasury stock		(999)		(1,823)
Net cash used in financing activities		(71,462)		(38,816)
Effect on cash and cash equivalents of changes in foreign exchange rates		32		37
NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		(105,105)		(21,073)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD		144,329		140,249
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD	$	39,224	$	119,176
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid	$	21,844	$	27,762
Income taxes paid (refunded)	$	(1,473)	$	7,670
Accrued purchases of property, plant and equipment	$	994	$	2,304

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 and six months ended December 31, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2021. 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, 2020. The Consolidated Balance Sheet as of June 30, 2020 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 December 31, 2020, 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 six months of Fiscal Year 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, subsequent to an initial stocking up of supplies at the start of the pandemic, the total volume of drug prescriptions being written in the country has decreased causing less demand for our products. 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, contingencies and share-based compensation.

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 Amendment No. 4 to the Term Loan B Facility, which is discussed in further detail in Note 10 “Long-Term Debt,” the Company is required to maintain at least $5 million in a deposit account at all times, subject to control by the administrative agent. At December 31, 2020, 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 December 31, 2020 and 2019.

	December 31, 2020		December 31, 2019
Cash and cash equivalents	$	34,224	$	119,176
Restricted cash, included in other assets		5,000		—
Cash, cash equivalents and restricted cash as presented on the Consolidated Statements of Cash Flows	$	39,224	$	119,176

Allowance for doubtful accounts

On July 1, 2020, the Company adopted guidance issued by the FASB in 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 adoption of ASU 2016-13 did not have a material impact on the Company’s Consolidated Financial Statements for the three and six months ended December 31, 2020. 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, generally for periods ranging from 5 to 15 years. 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.

In-Process Research and Development

Amounts allocated to in-process research and development in connection with a business combination are recorded at fair value and are considered indefinite-lived intangible assets subject to impairment testing in accordance with the Company’s impairment testing policy for indefinite-lived intangible assets. As products in development are approved for sale, amounts will be allocated to product rights and will be amortized over their estimated useful lives. Definite-lived intangible assets are amortized over the expected lives of the related assets. The judgments made in determining the estimated fair value of in-process research and development, as well as asset lives, can materially impact our results of operations. The Company’s fair value assessments 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 and six months ended December 31, 2020 and 2019.

	Three Months Ended				Six Months Ended
(In thousands)	December 31,				December 31,
Medical Indication	2020		2019		2020		2019
Analgesic	$	3,572	$	2,111	$	6,692	$	3,995
Anti-Psychosis		13,317		22,697		26,345		50,730
Cardiovascular		16,336		23,972		36,050		45,579
Central Nervous System		24,614		19,331		47,139		38,588
Endocrinology		9,496		—		12,729		—
Gastrointestinal		18,575		18,313		35,675		35,275
Infectious Disease		23,044		18,078		44,976		29,973
Migraine		6,083		10,878		15,773		20,021
Respiratory/Allergy/Cough/Cold		2,267		3,075		3,693		5,781
Urinary		1,361		1,233		2,819		1,668
Other		8,410		9,934		16,044		19,796
Contract manufacturing revenue		6,845		6,488		12,464		12,046
Total net sales	$	133,920	$	136,110	$	260,399	$	263,452

Customer, Supplier and Product Concentration

The following table presents the percentage of total net sales, for the three and six months ended December 31, 2020 and 2019, 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				Six Months Ended
	December 31,				December 31,
	2020		2019		2020		2019
Product 1	15	%	10	%	15	%	9	%
Product 2	8	%	15	%	8	%	18	%

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The following table presents the percentage of total net sales, for the three and six months ended December 31, 2020 and 2019, for certain of the Company’s customers which accounted for at least 10% of net sales in any of those periods:

	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2020		2019		2020		2019
Customer A	26	%	21	%	26	%	23	%
Customer B	21	%	26	%	22	%	26	%
Customer C	12	%	8	%	11	%	10	%

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 (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.

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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

On July 1, 2019, the Company adopted ASC Topic 842, Leases, which superseded ASC Topic 840, Leases. Under ASC 842, 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. For finance leases, amortization expense and interest expense are recognized separately in the Consolidated Statements of Operations, with amortization expense generally recorded on a straight-line basis and interest expense recorded using the effective interest method. Variable lease costs not initially included in the lease liability and ROU asset impairment charges are expensed as incurred.

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.

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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 Black-Scholes valuation model to determine the fair value of stock options, the stock price on the grant date to value restricted stock and the Monte-Carlo simulation model to determine the fair value of performance-based shares. 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 not material to the consolidated financial position of the Company as of December 31, 2020 and June 30, 2020.

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 continues to closely monitor the need for a valuation against its deferred tax assets in light of recent pre-tax losses while also giving consideration to our forecasted taxable income, which is inherently uncertain and subject to change based on market conditions. Further near-term losses along with significant changes to our forecasted income could affect the ultimate realization of our deferred tax assets and could result in an increase in the Company’s effective tax rate on future earnings.

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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On March 27, 2020, in response to COVID-19 and its detrimental impact to the global economy, former President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) into law, which provides a stimulus to the U.S. economy in the form of various individual and business assistance programs as well as temporary changes to existing tax law. Among the changes to the provision in business tax laws include a five-year net operating loss carryback for the Fiscal 2019 - 2021 tax years, a deferral of the employer’s portion of certain payroll tax, and an increase in the interest expense deductibility limitation for the Fiscal 2020 and 2021 tax years. ASC 740 requires the tax effects of changes in tax laws or rates to be recorded in the period of enactment. As a result of the CARES Act, the Company carried back its Fiscal 2020 taxable loss into the Fiscal 2015 tax year.

Earnings (Loss) Per Common Share

A dual 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. Basic earnings (loss) per common share excludes the dilutive impact of potentially dilutive securities and is computed by dividing net income (loss) by the weighted average number of shares outstanding during the period. Beginning in the first quarter of Fiscal 2020, the Company's diluted earnings (loss) per common share is computed using the "if-converted" method 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 Company’s 4.50% Convertible Senior Notes due 2026. The weighted average number of diluted shares is adjusted for the potential dilutive effect of the exercise of stock options, treats unvested restricted stock and performance-based shares as if it were vested, and assumes the conversion of the 4.50% Convertible Senior Notes. 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) includes all changes in equity during a period except those that resulted from investments by or distributions to the Company’s stockholders. 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 June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which changes the impairment model used to measure credit losses for most financial assets. We are required to recognize an allowance that reflects the Company’s current estimate of credit losses expected to be incurred over the life of the financial asset, including trade receivables. The Company adopted this guidance in the first quarter of Fiscal 2021. The adoption of ASU 2016-13 did not have a material impact on the Company’s Consolidated Financial Statements for the three and six months ended December 31, 2020.

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. Restructuring Charges

2020 Restructuring Plan

On July 10, 2020, the Board of Directors authorized a restructuring and cost savings plan (the “2020 Restructuring Plan”) to enhance manufacturing efficiencies, streamline operations and reduce the Company’s cost structure. The 2020 Restructuring Plan was implemented, in part, as a result of previously anticipated near-term competition and pricing pressure with respect to certain key products. The 2020 Restructuring Plan includes the consolidation of the Company’s R&D function into a single location in Philadelphia, PA, lowering operating costs and reducing the workforce by approximately 80 positions, equal to approximately 8.5% of the Company’s total number of employees. The 2020 Restructuring Plan was initiated on July 13, 2020 and is complete as of December 31, 2020.

The Company incurred $4.0 million in severance-related costs in the first six months of Fiscal 2021 in connection with the 2020 Restructuring Plan. The Company expects the 2020 Restructuring Plan to result in annual cost savings in excess of $15.0 million.

A reconciliation of the changes in restructuring liabilities associated with the 2020 Restructuring Plan from June 30, 2020 through December 31, 2020 is set forth in the following table:

	Employee
(In thousands)	Separation Costs
Balance at June 30, 2020	$	—
Restructuring Charges		4,043
Payments		(3,882)
Balance at December 31, 2020	$	161

Note 5. Accounts Receivable, net

Accounts receivable, net consisted of the following components at December 31, 2020 and June 30, 2020:

	December 31,		June 30,
(In thousands)	2020		2020
Gross accounts receivable	$	320,337	$	271,557
Less: Chargebacks reserve		(81,456)		(61,877)
Less: Rebates reserve		(19,041)		(24,536)
Less: Returns reserve		(39,267)		(40,796)
Less: Other deductions		(19,348)		(17,557)
Less: Allowance for doubtful accounts		(1,094)		(1,103)
Accounts receivable, net	$	160,131	$	125,688

For the three months ended December 31, 2020, the Company recorded a provision for chargebacks, rebates (including rebates presented as rebates payable), returns and other deductions of $191.5 million, $43.4 million, $5.2 million and $20.8 million, respectively. For the three months ended December 31, 2019, the Company recorded a provision for chargebacks, rebates (including rebates presented as rebates payable), returns and other deductions of $199.6 million, $58.3 million, $6.5 million and $28.7 million, respectively.

For the six months ended December 31, 2020, the Company recorded a provision for chargebacks, rebates (including rebates presented as rebates payable), returns and other deductions of $379.8 million, $77.7 million, $10.7 million and $36.6 million, respectively. For the six months ended December 31, 2019, the Company recorded a provision for chargebacks, rebates (including rebates presented as rebates payable), returns and other deductions of $407.5 million, $116.8 million, $10.2 million and $41.4 million, respectively.

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The following table identifies the activity and ending balances of each major category of revenue-related reserve for the six months ended December 31, 2020 and 2019:

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		379,821		77,657		10,652		36,624		504,754
Credits issued during the period		(360,242)		(77,536)		(12,181)		(34,833)		(484,792)
Balance at December 31, 2020	$	81,456	$	62,832	$	39,267	$	19,348	$	202,903

Reserve Category
(In thousands)	Chargebacks		Rebates		Returns		Other		Total
Balance at June 30, 2019	$	89,567	$	78,274	$	55,554	$	18,128	$	241,523
Current period provision		407,523		116,803		10,217		41,424		575,967
Credits issued during the period		(427,293)		(119,701)		(11,120)		(33,450)		(591,564)
Balance at December 31, 2019	$	69,797	$	75,376	$	54,651	$	26,102	$	225,926

For the three months ending December 31, 2020 and 2019, as a percentage of gross sales the provision for chargebacks was 49.3% and 47.2%, the provision for rebates was 11.2% and 13.8%, the provision for returns was 1.3% and 1.5% and the provision for other adjustments was 5.4% and 6.8%, respectively.

For the six months ending December 31, 2020 and 2019, as a percentage of gross sales the provision for chargebacks was 50.5% and 49.3%, the provision for rebates was 10.3% and 14.1%, the provision for returns was 1.4% and 1.2% and the provision for other adjustments was 4.9% and 5.0%, respectively.

The increase in the chargebacks reserve was primarily due to timing of sales and product mix. The rebates reserve also increased due to the timing of sales and product mix but was offset by lower sales of Fluphenazine in Fiscal 2021, which had higher than average government-related rebates. Historically, we have not recorded any material amounts in the current period related to reversals or additions of prior period reserves. If the Company were to record a material reversal or addition of any prior period reserve amount, it would be separately disclosed.

Note 6. Inventories

Inventories at December 31, 2020 and June 30, 2020 consisted of the following:

	December 31,		June 30,
(In thousands)	2020		2020
Raw Materials	$	49,539	$	59,703
Work-in-process		18,281		12,235
Finished Goods		54,384		70,929
Total	$	122,204	$	142,867

During the three months ended December 31, 2020 and 2019, the Company recorded write-downs to net realizable value for excess and obsolete inventory of $20.6 million and $2.5 million, respectively. During the six months ended December 31, 2020 and 2019, the Company recorded write-downs to net realizable value for excess and obsolete inventory of $23.2 million and $6.1 million, respectively. The increase in write-downs for excess and obsolete inventory was primarily related to the discontinuation of certain product lines during the second quarter of Fiscal 2021, which is discussed further in Note 9 “Intangible Assets.”

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Note 7. Property, Plant and Equipment, net

Property, plant and equipment, net at December 31, 2020 and June 30, 2020 consisted of the following:

		December 31,		June 30,
(In thousands)	Useful Lives	2020		2020
Land	—	$	1,783	$	1,783
Building and improvements	10 - 39 years		103,256		100,285
Machinery and equipment	5 - 10 years		168,036		164,704
Furniture and fixtures	5 - 7 years		3,402		3,116
Less accumulated depreciation			(114,359)		(102,983)
			162,118		166,905
Construction in progress			11,039		12,613
Property, plant and equipment, net		$	173,157	$	179,518

Depreciation expense for the three months ended December 31, 2020 and 2019 was $5.7 million and $5.9 million, respectively. Depreciation expense for the six months ended December 31, 2020 and 2019 was $11.5 million and $11.7 million, respectively.

Property, plant and equipment, net included amounts held in foreign countries in the amount of $0.6 million at December 31, 2020 and June 30, 2020.

Note 8. 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.

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Financial Instruments Disclosed, But Not Reported, at Fair Value

We estimate the fair value of our debt utilizing market quotations for debt that have quoted prices in active markets. Since our debt does not trade on a daily basis in an active market, the fair value estimates are 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 our term loan debt was approximately $541 million and $608 million as of December 31, 2020 and June 30, 2020, respectively. The estimated fair value of our 4.50% Convertible Senior Notes was approximately $54 million and $58 million as of December 31, 2020 and June 30, 2020, respectively. The fair value as of December 31, 2020 was lower than the carrying value primarily due to the Company’s stock price at December 31, 2020 as compared to the $15.29 conversion price.

Non-recurring Fair Value Measurements

The Company has certain assets that are measured at fair value on a non-recurring basis and are adjusted to fair value only when the carrying values are greater than the fair values. These assets are subject to fair value adjustments when there is evidence of impairment. The Company’s estimation of the fair value of intangible assets for impairment represents a Level 3 fair value measurement, due to the use of internal and external projections and unobservable measurement inputs. Based on an impairment analysis performed, the Company adjusted the KUPI product rights assets and the KUPI in-process research and development asset to its fair value, $84.0 million and $4.0 million respectively, as of December 31, 2020. Refer to Note 9 “Intangible Assets” for further information.

Note 9. Intangible Assets

Intangible assets, net as of December 31, 2020 and June 30, 2020 consisted of the following:

	Weighted	Gross Carrying Amount				Accumulated Amortization				Intangible Assets, Net
	Avg. Life	December 31,		June 30,		December 31,		June 30,		December 31,		June 30,
(In thousands)	(Yrs.)	2020		2020		2020		2020		2020		2020
Definite-lived:
KUPI product rights	15		83,955		416,154		—		(125,327)		83,955		290,827
KUPI trade name	2		2,920		2,920		(2,920)		(2,920)		—		—
KUPI other intangible assets	15		19,000		19,000		(6,462)		(5,828)		12,538		13,172
Silarx product rights	15		20,000		20,000		(4,223)		(3,556)		15,777		16,444
Other product rights	10		54,718		50,718		(7,500)		(5,426)		47,218		45,292
Total definite-lived		$	180,593	$	508,792	$	(21,105)	$	(143,057)	$	159,488	$	365,735
Indefinite-lived:
KUPI in-process research and development	—	$	4,000	$	9,000	$	—	$	—	$	4,000	$	9,000
Total indefinite-lived			4,000		9,000		—		—		4,000		9,000
Total intangible assets, net		$	184,593	$	517,792	$	(21,105)	$	(143,057)	$	163,488	$	374,735

For the three months ended December 31, 2020 and 2019, the Company recorded amortization expense of $8.7 million and $8.2 million, respectively. For the six months ended December 31, 2020 and 2019, the Company recorded amortization expense of $17.2 million and $15.2 million, respectively.

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In December 2020, the Company reviewed its product portfolio and decided to discontinue 23 lower gross margin product lines, including product lines that were acquired through various past business and product acquisitions. As a result of the discontinuance and the reduction in net sales and gross margin of certain other product lines, the Company determined that such decision represents a “triggering event” and, therefore, commenced an analysis to determine the potential for impairment of certain long-lived assets, primarily its intangible assets. Based on that analysis, the Company recorded an impairment charge of $193.0 million related to the KUPI product rights intangible assets during the second quarter of Fiscal 2021. The impairment charge is primarily a result of the decline in net sales and gross margin of certain product lines acquired in connection with the KUPI acquisition, including those product lines being discontinued.

In the second quarter of Fiscal 2021, the Company also recorded a $5.0 million impairment charge to its KUPI in-process research and development intangible asset due to delays in the expected launch of a product within the portfolio, which results in reduced projected cash flows.

In November 2020, the Company entered into Amendment No. 2 to License and Supply Agreement (the “2020 Amendment”) with Recro Gainesville LLC (“Recro”), which amended the Company’s agreement with Recro to exclusively distribute Verelan PM ®, Verelan SR ®, and Verapamil PM. In accordance with the Company’s policy to expense costs to renew or extend the term of a recognized intangible asset as incurred, the Company recorded $5.0 million in consideration to renew the Company’s distribution agreement during the second quarter of Fiscal Year 2021, which is included within cost of sales on the Consolidated Statements of Operations.

Future annual amortization expense consisted of the following as of December 31, 2020:

(In thousands)	Amortization
Fiscal Year Ending June 30,	Expense
2021	$	7,675
2022		16,950
2023		16,649
2024		16,349
2025		15,949
Thereafter		85,916
	$	159,488

Note 10. Long-Term Debt

Long-term debt, net consisted of the following:

	December 31,		June 30,
(In thousands)	2020		2020
Term Loan A	$	—	$	48,844
Unamortized discount and other debt issuance costs		—		(433)
Term Loan A, net		—		48,411
Term Loan B due 2022; 6.38% as of December 31, 2020		553,185		572,857
Unamortized discount and other debt issuance costs		(18,746)		(23,278)
Term Loan B, net		534,439		549,579
4.50% Convertible Senior Notes due 2026		86,250		86,250
Unamortized discount and other debt issuance costs		(2,861)		(3,111)
4.50% Convertible Senior Notes, net		83,389		83,139
$125 million Revolving Credit Facility		—		—
$30 million ABL Credit Facility		—		—
Total debt, net		617,828		681,129
Less short-term borrowings and current portion of long-term debt		(39,345)		(88,189)
Total long-term debt, net	$	578,483	$	592,940

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The weighted average interest rate for the three months ended December 31, 2020 and 2019 was 7.8% and 8.6%, respectively. The weighted average interest rate for the six months ended December 31, 2020 and 2019 was 7.9% and 9.2%, respectively. The Company paid off the outstanding balance of the Term Loan A of $42.0 million on November 25, 2020 with cash on hand. The Company’s undrawn $125 million Revolving Credit Facility also expired on November 25, 2020.

Long-term debt amounts due, for the twelve-month periods ending December 31 are as follows:

	Amounts Payable
(In thousands)	to Institutions
2021	$	39,345
2022		513,840
2023		—
2024		—
2025		—
Thereafter		86,250
Total	$	639,435

On December 7, 2020, the Company entered into a credit and guaranty agreement, which provides for an asset-based revolving credit facility (the “ABL Credit Facility”) of up to $30 million, subject to borrowing base availability, and includes letter of credit and swing line sub-facilities. Borrowing availability under the 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 ABL Credit Agreement. Availability is reduced by issuance of letters of credit as well as any borrowings. The final maturity of the ABL Credit Facility is December 7, 2023, unless the aggregate outstanding principal amount of any of the Term Loan B Facility (as defined below) or other material indebtedness exceeds $35,000,000 on the date that is 91 days prior to the maturity date with respect to such other indebtedness, in which case the final maturity shall instead be such earlier date. Loans outstanding under the ABL Credit Agreement bear interest at a floating rate measured by reference to an adjusted London Inter-Bank Offered Rate (“LIBOR”), subject to a floor of 0.75%, plus an applicable margin of 2.50% per annum. Unused commitments under the ABL Credit Facility are subject to a per annum fee of 0.50%. The obligations under the ABL Credit Agreement are guaranteed by the Company and all of the Company’s existing and future subsidiaries, subject to certain exceptions (collectively, the “Guarantors”), and such obligations and the obligations of the Guarantors are secured by:

● a perfected security interest in all present and after-acquired accounts receivable, payment intangibles, inventory, deposit accounts, securities accounts, and any cash, cash equivalents or other assets in such accounts and other related assets owned by each Guarantor and the proceeds of the foregoing, except to the extent such proceeds constitute Cash Flow Priority Collateral (as defined below), and subject to certain exceptions (the “ABL Priority Collateral”), which security interest is senior to the security interest in the ABL Priority Collateral securing the Company’s existing Term Loan B Facility; and

● a perfected security interest in substantially all present and after-acquired tangible and intangible assets of each Guarantor other than the ABL Priority Collateral (the “Cash Flow Priority Collateral”), which security interest is junior to the security interest in the Cash Flow Priority Collateral securing the Term Loan B Facility.

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The ABL Credit Agreement contains customary representations and warranties and customary affirmative covenants and negative covenants. The negative covenants include restrictions on, among other things: the incurrence of additional indebtedness; the incurrence of additional liens; dividends or other distributions on equity; the purchase, redemption or retirement of capital stock; the payment or redemption of certain indebtedness; the nature of the business activity of the Company and its subsidiaries; loans, guarantees and other investments; entering into other agreements that create restrictions on the ability to pay dividends or make other distributions on equity or create or incur certain liens; asset sales; consolidations or mergers; amendment of certain material documents; changes in fiscal year; and affiliate transactions. The negative covenants are subject to customary exceptions and also permit dividends and other distributions on equity, consolidations, mergers and asset sales, certain acquisitions and other investments, and payments or redemptions of certain indebtedness, in each case upon satisfaction of the “payment conditions”. The payment conditions are deemed satisfied upon Excess Availability (as defined in the ABL Credit Agreement) on the date of the designated action and Excess Availability for the prior 30-day period exceeding agreed-upon thresholds, the absence of the occurrence and continuance of any event of default and, in certain cases, pro forma compliance with a fixed charge coverage ratio of no less than 1.10 to 1.00.

The ABL Credit Agreement includes a minimum fixed charge coverage ratio of no less than 1.10 to 1.00, which is tested only when Excess Availability is less than 15.0% of the lesser of (A) the borrowing base and (B) the then effective commitments under the ABL Credit Facility for three consecutive business days, and continuing until the first day immediately succeeding the last day of 30 consecutive days on which Excess Availability is in excess of such threshold.

The ABL Credit Agreement provides for events of default, which, if any of them occurs, would permit or require the principal, premium, if any, and interest on all of the then outstanding obligations under the ABL Credit Facility to be due and payable immediately and the commitments under the ABL Credit Facility to be terminated.

The Company also entered into Amendment No. 4 to the Credit and Guaranty Agreement, which amends the Term Loan B Facility to permit the incurrence of the ABL Credit Facility and requires the Company to maintain at least $5 million in a deposit account at all times, subject to control by the administrative agent, and a minimum cash balance of $15 million as of the last day of each month. At December 31, 2020, the Company classified the $5 million required deposit account balance as restricted cash, which is included in other assets caption in the Consolidated Balance Sheet. The amendment also replaced Morgan Stanley Senior Funding, Inc. with Alter Domus (US) LLC as administrative agent and collateral agent under the Term Loan B Facility.

The outstanding Term Loan B and 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.

Note 11. 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.

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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

During the quarter ended December 31, 2016, the Company completed a contract compliance review, for the period January 1, 2012 through June 30, 2016, for one of KUPI’s government-entity customers. As a result of the review, the Company identified certain commercial customer prices and other terms that were not properly disclosed to the government-entity resulting in potential overcharges. For the period January 1, 2012 through November 24, 2015 (“the pre-acquisition period”), the Company is fully indemnified per the Stock Purchase Agreement.

On May 22, 2019, 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 for the period of January 1, 2012 through June 30, 2016. In August 2019, the Company remitted payment to the VA and received reimbursement from UCB for the indemnified portion of the payment in the amount of $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 overreaching conspiracy claims as to it.

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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, 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 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 Court 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.

The Company and the other defendants filed motions to dismiss the overarching conspiracy claims. In August 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. 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.

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Between January 2018 and December 2020, a number of opt-out parties have 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, along with a number of other generic pharmaceutical manufacturers, 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. 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 and regarding the potential effects on the Company of regulatory investigations and antitrust litigation. 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. On October 1, 2020, the plaintiff filed a motion for class certification. The Company believes it acted in compliance with all applicable laws and plans to vigorously defend itself from these claims. The Company cannot reasonably predict the outcome of the suit at this time.

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In May 2019, a shareholder derivative lawsuit was filed against certain of the Company’s current and former officers and certain of the current and former members of the Company’s Board of Directors in the federal court for the District of Delaware. The Company was also named as a nominal defendant in the suit. The suit alleges that the defendants breached their fiduciary duties as directors and/or officers of the Company, that certain of the defendants caused the Company to issue false and misleading proxy statements in violation of Section 14(a) of the Securities Exchange Act of 1934, that the defendants were unjustly enriched at the expense of the Company, and that the defendants wasted corporate assets belonging to the Company. On December 4, 2019 the court entered a stipulation consolidating the suit with a separate shareholder derivative suit filed in July 2019, as described below. On December 6, 2019, the Company filed a motion to dismiss the consolidated cases. On January 14, 2020, the parties reached an agreement in principle to resolve the consolidated cases, subject to the execution of a mutually acceptable settlement document and Court approval.

In July 2019, a shareholder derivative lawsuit was filed against certain of the Company’s current and former officers and directors in the federal court for the Eastern District of Pennsylvania. The Company was also named as a nominal defendant in the suit. The suit alleges that the defendants breached their fiduciary duties as directors and/or officers of the Company and that certain of the defendants caused the Company to violate Sections 10(b), 14(a), and 29(b) of the Securities Exchange Act of 1934. In October 2019, this suit was transferred to the federal court for the District of Delaware and is pending before the same judge presiding over the shareholder derivative suit that was filed in May 2019. On December 4, 2019, the Court entered a stipulation consolidating the suit with a separate shareholder derivative suit filed in May 2019, as described above. On December 6, 2019, the Company filed a motion to dismiss the consolidated cases. On January 14, 2020, the parties reached an agreement in principle to resolve the consolidated cases, subject to the execution of a mutually agreeable settlement document and Court approval.

The settlement of the two consolidated cases, which was preliminarily approved by the Court on August 7, 2020, requires the Company to implement certain new corporate policies and pay the plaintiffs’ counsel in the consolidated cases, collectively, the sum of $600,000 in exchange for a release of all liability with respect to both of the consolidated cases. A Settlement Hearing was held on October 7, 2020. At the settlement hearing, the Magistrate Judge issued an oral Report and Recommendation approving the Settlement and denying the objecting parties’ motion to intervene. The time period to object to the Report and Recommendation has expired. On October 22, 2020, the Court adopted the Report and Recommendation, granted the motion for final approval of the settlement, denied the objecting parties’ motion to intervene, and issued a final judgement dismissing the consolidated cases with prejudice. The Company considers these matters closed.

In September 2019, a shareholder derivative lawsuit was filed against certain of the Company’s current and former officers, directors, and employees in the federal court for the District of Delaware. The Company was also named as a nominal defendant in the suit. The suit alleges that the defendants breached their fiduciary duties as directors and/or officers of the Company, alleges waste of corporate assets and gross mismanagement, and alleges that certain of the defendants caused the Company to violate Section 14(a) of the Securities and Exchange Act of 1934. On November 22, 2019, the Company filed a motion to dismiss the complaint. On January 16, 2020, the Court entered the parties’ stipulation to stay the case pending the resolution of the defendants’ motion to dismiss the two earlier filed consolidated shareholder derivative cases referenced above. On February 18, 2020, the Court entered the parties’ stipulation to withdraw the Company’s motion to dismiss without prejudice to the Company’s ability to refile a renewed motion to dismiss after the stay is lifted. On March 11, 2020, following notice that Plaintiffs no longer consented to the stay, the Court lifted the stay. On April 6, 2020, certain of the defendants, including the Company, filed a renewed motion to dismiss or, in the alternative, to stay the account. On April 29, 2020, the Court entered the parties’ stipulation to stay the action, pending a decision from the Court regarding the settlement in the consolidated derivative actions discussed above. In light of the Final Order and Judgment entered in the two earlier filed consolidated shareholder derivative cases referenced above, the parties filed a stipulation and proposed order dismissing this Action, with prejudice. On October 29, 2020, the District Court Judge entered an Order approving the parties’ Stipulation of Dismissal, with prejudice. The Company considers this matter closed.

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In February 2020, a shareholder derivative lawsuit was filed against certain of the Company’s current and former officers, directors and employees in the Court of Chancery of the State of Delaware. The Company was also named as a nominal defendant in the suit. The suit alleges that the defendants breached their fiduciary duties as directors and/or officers of the Company, and were unjustly enriched. On March 16, 2020, the Company filed a motion to dismiss the complaint, and a motion to stay the proceedings. On March 27, 2020, the Company filed its opening brief in support of its motion to stay the proceedings. On April 6, 2020, the parties entered into a stipulation and proposed order to stay the action. The Court granted the stipulation and proposed order that same day. In light of the Final Order and Judgment entered in the two earlier filed consolidated shareholder derivative cases referenced above, the parties agreed to dismiss this action, with prejudice. The Court granted Stipulation of Dismissal with Prejudice on November 4, 2020. The Company considers this matter closed.

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 denies that it is falsely advertising its cocaine hydrochloride solution product and continues 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. 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. Discovery is ongoing and the Company cannot reasonably predict the outcome of this suit at this time.

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. 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.

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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 12. Commitments

Leases

At December 31, 2020 and June 30, 2020, the Company has a ROU lease asset of $8.7 million and $9.3 million, respectively, and a ROU liability of $11.3 million and $10.9 million, respectively. The current balance of the ROU liability at December 31, 2020 and June 30, 2020 was $2.1 million and $1.1 million, respectively.

Components of lease cost are as follows:

	Three Months Ended				Six Months Ended
	December 31,				December 31,
(In thousands)	2020		2019		2020		2019
Operating lease cost	$	477	$	590	$	879	$	1,071
Variable lease cost		43		32		82		61
Short-term lease cost (a)		108		124		226		279
Total	$	628	$	746	$	1,187	$	1,411

(a) Not recorded on the Consolidated Balance Sheet.

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

	Six Months Ended
	December 31,
(In thousands)	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	809	$	966
Non-cash activity:
ROU assets obtained in exchange for new operating lease liabilities	$	—	$	—

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

	Six Months Ended
	December 31,
	2020		2019
Weighted-average remaining lease term	8	years	9	years
Weighted-average discount rate	8.0	%	7.5	%

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

(In thousands)	Amounts Due
2021	$	1,062
2022		2,125
2023		2,144
2024		2,164
2025		2,183
Thereafter		5,749
Total lease payments		15,427
Less: Imputed interest		4,079
Present value of lease liabilities	$	11,348

Other Commitments

During Fiscal 2017, the Company signed an agreement with a company operating in the pharmaceutical business, under which the Company agreed to provide up to $15.0 million in revolving loans, which expires in seven years and bears interest at 2.0%, for the purpose of expansion and other business needs. In Fiscal 2019, the Company sold 50% of the outstanding loan to a third party for $5.6 million, in addition to assigning 50% of all rights, title and interest in the loan and loan documents. As of December 31, 2020, $6.5 million was outstanding under the revolving loan and is included in other assets. Based on the guidance set forth in ASC 810-10 Consolidation, the Company has concluded that it has a variable interest in the entity. However, the Company is not the primary beneficiary to the entity and as such, is not required to consolidate the entity’s results of operations.

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. 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. The longer that countries around the world remain on lockdown, the more likely it becomes that the timing of the product development and approval will be delayed. 

Note 13. Accumulated Other Comprehensive Loss

The Company’s Accumulated Other Comprehensive Loss was comprised of the following components as of December 31, 2020 and 2019:

	December 31,
(In thousands)	2020		2019
Foreign Currency Translation
Beginning Balance, June 30	$	(627)	$	(615)
Net income (loss) on foreign currency translation (net of tax of $0 and $0)		32		37
Other comprehensive income (loss), net of tax		32		37
Total Accumulated Other Comprehensive Loss	$	(595)	$	(578)

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Note 14. Earnings (Loss) Per Common Share

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

	Three Months Ended
	December 31,
(In thousands, except share and per share data)	2020		2019
Numerator:
Net income (loss)	$	(171,948)	$	5,084
Interest expense applicable to the Notes, net of tax		—		—
Amortization of debt issuance costs applicable to the Notes, net of tax		—		—
Adjusted “if-converted” net income (loss)	$	(171,948)	$	5,084
Denominator:
Basic weighted average common shares outstanding		39,443,441		38,605,052
Effect of potentially dilutive options and restricted stock awards		—		1,952,451
Effect of conversion of the Notes		—		—
Diluted weighted average common shares outstanding		39,443,441		40,557,503
Earnings (loss) per common share:
Basic	$	(4.36)	$	0.13
Diluted	$	(4.36)	$	0.13

	Six Months Ended
	December 31,
(In thousands, except share and per share data)	2020		2019
Numerator:
Net loss	$	(178,447)	$	(7,073)
Interest expense applicable to the Notes, net of tax		—		—
Amortization of debt issuance costs applicable to the Notes, net of tax		—		—
Adjusted “if-converted” net loss	$	(178,447)	$	(7,073)
Denominator:
Basic weighted average common shares outstanding		39,257,211		38,457,159
Effect of potentially dilutive options and restricted stock awards		—		—
Effect of conversion of the Notes		—		—
Diluted weighted average common shares outstanding		39,257,211		38,457,159
Loss per common share:
Basic	$	(4.55)	$	(0.18)
Diluted	$	(4.55)	$	(0.18)

The number of anti-dilutive shares that have been excluded in the computation of diluted loss and earnings per share for the three months ended December 31, 2020 and 2019 were 8.1 million and 6.0 million, respectively. The number of anti-dilutive shares that have been excluded in the computation of diluted loss and earnings per share for the six months ended December 31, 2020 and 2019 were 8.1 million and 6.7 million, respectively. The effect of potentially dilutive shares was excluded from the calculation of diluted loss per share in the three and six months ended December 31, 2020 and the six months ended December 31, 2019 because the effect of including such securities would be anti-dilutive.

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Note 15. Share-based Compensation

At December 31, 2020, the Company had two share-based employee compensation plans (the 2011 Long-Term Incentive Plan “LTIP” and the 2014 “LTIP”). Together these plans authorized an aggregate total of 6.5 million shares to be issued. As of December 31, 2020, the plans have a total of 70 thousand shares available for future issuances. Additionally, in January 2021, the stockholders of the Company approved a new stock award plan, the 2021 LTIP, which authorized 3.0 million new shares of common stock for future issuances under this plan.

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 December 31, 2020, there was $12.9 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 six months ended December 31, 2020 and 2019:

	Six Months Ended
	December 31, 2020			December 31, 2019
Risk-free interest rate		0.2	%		1.9	%
Expected volatility		82.5	%		73.7	%
Expected dividend yield		—	%		—	%
Forfeiture rate		—	%		—	%
Expected term		5.0	years		5.1	years
Weighted average fair value	$	3.86		$	4.04

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 December 31, 2020 and changes during the six 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, 2020	991	$	12.11	$	678	5.6
Granted	309	$	5.95
Exercised	(37)	$	4.12	$	61
Forfeited, expired or repurchased	(217)	$	17.14
Outstanding at December 31, 2020	1,046	$	9.52	$	313	7.7
Vested and expected to vest at December 31, 2020	1,045	$	9.52	$	313	7.7
Exercisable at December 31, 2020	373	$	14.59	$	137	5.3

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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 six months ended December 31, 2020 and 2019.

A summary of restricted stock awards as of December 31, 2020 and changes during the six 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, 2020	1,344	$	8.70
Granted	876		5.73
Vested	(778)		8.30	$	4,514
Forfeited	(70)		9.46
Non-vested at December 31, 2020	1,372	$	6.99

Performance-Based Shares

In September 2017, the Company began granting performance-based awards to certain key executives. The stock-settled awards will cliff vest based on relative Total Shareholder Return (“TSR”) over a three-year period. The Company measures share-based compensation cost for TSR awards using a Monte-Carlo simulation model.

A summary of performance-based share awards as of December 31, 2020 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, 2020	204	$	12.99
Granted	339	$	9.22
Performance adjustment (1)	(12)	$	25.58
Non-vested at December 31, 2020	531	$	10.29

(1) Represents the adjustment based on the performance of the September 2017 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 six months ended December 31, 2020 and 2019, 56 thousand shares and 52 thousand shares were issued under the ESPP, respectively. As of December 31, 2020, 966 thousand total cumulative shares have been issued under the ESPP.

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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				Six Months Ended
	December 31,				December 31,
(In thousands)	2020		2019		2020		2019
Selling, general and administrative expenses	$	1,507	$	1,205	$	4,221	$	4,840
Research and development expenses		132		214		287		438
Cost of sales		352		588		825		1,188
Total	$	1,991	$	2,007	$	5,333	$	6,466
Tax benefit at statutory rate	$	448	$	452	$	1,200	$	1,455

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 $0.5 million during each of the three months ended December 31, 2020 and 2019. Contributions to the Plan were $1.1 million during each of the six months ended December 31, 2020 and 2019.

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 and six months ended December 31, 2020 were not material.

Note 17. Income Taxes

The Company uses the liability method to account for 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 are expected to be in effect when these differences reverse. Deferred tax expense (benefit) is the result of changes in deferred tax assets and liabilities.

The federal, state and local income tax benefit for the three months ended December 31, 2020 was $58.1 million compared to $5.3 million for the three months ended December 31, 2019. The effective tax rates for the three months ended December 31, 2020 and 2019 were 25.2% and 2369.6%, respectively. The effective tax rate for the three months ended December 31, 2020 was lower compared to the three months ended December 31, 2019 primarily due to tax credits and deductions relative to a lower pre-tax loss in the three months ended December 31, 2019. The decrease was partially offset by the impact of the CARES Act, which increased the interest expense deductibility limitation in the current year and also allowed the Company to carry back its taxable loss into a prior fiscal year, where the statutory tax rate was 35%.

The federal, state and local income tax benefit for the six months ended December 31, 2020 was $66.1 million compared to $3.5 million for the six months ended December 31, 2019. The effective tax rates for the six months ended December 31, 2020 and 2019 were 27.0% and 33.2%, respectively. The effective tax rate for the six months ended December 31, 2020 was lower compared to the six months ended December 31, 2019 primarily due to tax credits and deductions relative to a lower pre-tax loss in the six months ended December 31, 2019. The decrease was partially offset by the impact of the CARES Act, which increased the interest expense deductibility limitation in the current year and also allowed the Company to carry back its taxable loss into a prior fiscal year, where the statutory tax rate was 35%.

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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 December 31, 2020 and June 30, 2020, the Company has total unrecognized tax benefits of $4.4 million and $4.6 million, respectively, of which $4.4 million and $4.5 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 December 31, 2020 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 December 31, 2020 and June 30, 2020. 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 Year 2014 and prior generally are no longer subject to review as such years are closed. The Company’s Fiscal Year 2015 through 2017 federal returns are currently under examination by the Internal Revenue Service (“IRS”). 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. 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 December 2019, the Company was notified that the Florida Department of Revenue will conduct a routine field audit of the Company’s Fiscal 2016, 2017 and 2018 corporate tax returns. In December 2020, the Company settled the audit with the Florida Department of Revenue for an immaterial amount.

Note 18. Related Party Transactions

The Company had sales of $0.8 million and $0.6 million during the three months ended December 31, 2020 and 2019, respectively, to a generic distributor, Auburn Pharmaceutical Company (“Auburn”), which is a member of the Premier Buying Group. Sales to Auburn for the six months ended December 31, 2020 and 2019 were $1.5 million and $1.3 million, respectively. Jeffrey Farber, a current board member, is the owner of Auburn. Accounts receivable includes amounts due from Auburn of $0.5 million and $0.7 million at December 31, 2020 and June 30, 2020, respectively.

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Note 19. Assets Held for Sale

In the first quarter of Fiscal 2019, the Company approved a plan to sell the Cody API business, which includes the manufacturing and distribution of active pharmaceutical ingredients for use in finished goods production. The Company was unable to sell the Cody API business as an ongoing operation and sold the equipment utilized by the Cody API business during 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 and is currently in negotiations with a prospective buyer. As of December 31, 2020, 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 following table summarizes the financial results of the Cody API business for the three and six months ended December 31, 2020 and 2019:

	Three Months Ended				Six Months Ended
	December 31,				December 31,
(In thousands)	2020		2019		2020		2019
Net sales	$	—	$	669	$	—	$	1,736
Pretax loss attributable to Cody API business		(115)		(644)		(617)		(5,061)

The pretax loss attributable to the Cody API business during the six months ended December 31, 2019 includes a full impairment of a $1.2 million ROU lease asset that was recorded upon adoption of ASU No. 2016-02 on July 1, 2019.

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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, 2020. All references to “Fiscal 2021” or “Fiscal Year 2021” shall mean the fiscal year ending June 30, 2021 and all references to “Fiscal 2020” or “Fiscal Year 2020” shall mean the fiscal year ended June 30, 2020.

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.

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, 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.

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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 entering its plants. 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 closed its facilities to outside persons that are not critical to continuing our operations. In cases where they are essential, visitors undergo a pre-admittance check to include a thermal screening and risk evaluation. The Company has recently seen an increase in absenteeism arising from the recent spike 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 spread over time, there is an increased 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 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. Additionally, subsequent to an initial stocking up of supplies at the start of the pandemic, the total volume of drug prescriptions written during the pandemic has 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.

As a result of the pandemic, certain clinical trials which were underway or scheduled to begin have been temporarily placed on hold. Such delays will impact 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. The Company currently markets an HIV product, Lopinavir-Ritonavir, which is the subject of clinical trials by various health organizations to combat the virus. Several of those clinical trials were subsequently halted when the product did not show any significant efficacy in treating the virus. Other trials remain ongoing. If those clinical trials show the product to be helpful in combating the virus, which some trials have not, the Company may see an increase in demand. There are other sources of the product including the original brand.

In light of the economic impacts of COVID-19, the Company reviewed the assets on our Consolidated Balance Sheet as of December 31, 2020, 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 six months of Fiscal Year 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.

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As of December 31, 2020, the Company’s outstanding debt balance was $639.5 million, of which $39.3 million represents the current portion. The Company paid off the outstanding balance of the Term Loan A of $42.0 million on November 25, 2020 with cash on hand. The Company’s undrawn $125 million Revolving Credit Facility also expired on November 25, 2020. On December 7, 2020, the Company entered into a credit and guaranty agreement, which provides for an asset-based revolving credit facility (the “ABL Credit Facility”) of up to $30 million, subject to borrowing base availability. The impacts of COVID-19 have adversely affected the capital markets and the ability for many companies to access capital and liquidity on favorable terms or at all. The Company believes it has sufficient liquidity and cash flows to meet its operating and debt service requirements for at least the next twelve months from the issuance of the December 31, 2020 Consolidated Financial Statements. However, the Company is currently unable to predict the precise impact that COVID-19 will have on its ability to access capital in the future. If the Company is unable to access additional capital and liquidity on acceptable terms, it could adversely impact the Company’s ability to meet its future obligations beyond the next twelve months subsequent to the issuance of the December 31, 2020 Consolidated Financial Statements as well as unfavorably impact our results of operations.

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.

2020 Restructuring Plan

On July 10, 2020, the Board of Directors authorized a restructuring and cost savings plan (the “2020 Restructuring Plan”) to enhance manufacturing efficiencies, streamline operations and reduce the Company’s cost structure. The 2020 Restructuring Plan was implemented, in part, as a result of previously anticipated near-term competition and pricing pressure with respect to certain key products. The 2020 Restructuring Plan includes the consolidation of the Company’s research and development (R&D) function into a single location in Philadelphia, PA, lowering operating costs and reducing the workforce by approximately 80 positions, equal to approximately 8.5% of the Company’s total number of employees. The 2020 Restructuring Plan was initiated on July 13, 2020 and is complete as of December 31, 2020.

The Company incurred approximately $4.0 million in severance-related costs in the first six months of Fiscal 2021, in connection with the 2020 Restructuring Plan. The Company expects the 2020 Restructuring Plan to result in annual cost savings in excess of $15.0 million.

Financial Summary

For the second quarter of Fiscal Year 2021, net sales decreased to $133.9 million as compared to $136.1 million in the same prior-year period. Gross profit decreased to $0.8 million compared to $41.3 million in the prior-year period and gross profit percentage decreased to 1% compared to 30% in the prior-year period. R&D expenses decreased 18% to $5.6 million compared to $6.9 million in the second quarter of Fiscal Year 2020 while SG&A expenses decreased 21% to $13.7 million from $17.4 million. Operating loss for the second quarter of Fiscal Year 2021, which included intangible asset impairment charges totaling $198.0 million, was $216.6 million compared to operating income of $16.8 million in the second quarter of Fiscal Year 2020. Net loss for the second quarter of Fiscal Year 2021 was $171.9 million, or $(4.36) per diluted share. Comparatively, net income in the prior-year period was $5.1 million, or $0.13 per diluted share.

For the first six months of Fiscal 2021, net sales decreased to $260.4 million compared to $263.5 million in the same prior-year period. Gross profit decreased to $26.5 million compared to $84.0 million in the prior-year period. Gross profit percentage decreased to 10% compared to 32% in the prior-year period. R&D expenses decreased 23% to $12.2 million compared to $15.8 million in the first six months of Fiscal 2020 while SG&A expenses decreased 25% to $28.9 million from $38.7 million in the prior-year period. Restructuring expenses increased to $4.0 million from $1.6 million in the prior-year period. Operating loss for the first six months of Fiscal 2021, which included intangible asset impairment charges totaling $198.0 million, was $216.6 million compared to operating income of $26.2 million in the prior-year period, which included asset impairment charges totaling $1.6 million. Net loss for the first six months of Fiscal 2021 was $178.4 million, or $(4.55) per diluted share compared to net loss of $7.1 million, or $(0.18) per diluted share in the prior-year period.

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A more detailed discussion of the Company’s financial results can be found below.

Results of Operations - Three months ended December 31, 2020 compared with the three months ended December 31, 2019

Net sales decreased 2% to $133.9 million for the three months ended December 31, 2020. The table below identifies the Company’s net product sales by medical indication for the three months ended December 31, 2020 and 2019.

(In thousands)	Three Months Ended December 31,
Medical Indication	2020		2019
Analgesic	$	3,572	$	2,111
Anti-Psychosis		13,317		22,697
Cardiovascular		16,336		23,972
Central Nervous System		24,614		19,331
Endocrinology		9,496		—
Gastrointestinal		18,575		18,313
Infectious Disease		23,044		18,078
Migraine		6,083		10,878
Respiratory/Allergy/Cough/Cold		2,267		3,075
Urinary		1,361		1,233
Other		8,410		9,934
Contract manufacturing revenue		6,845		6,488
Total net sales	$	133,920	$	136,110

The slight decrease in net sales was driven by a decrease in the selling price of products of $28.5 million partially offset by increased volumes of $26.3 million. The decrease in the selling price of products was primarily driven by lower sales prices of Fluphenazine, which is included within the Anti-Psychosis medical indication, due to a new competitor entering the market, as well as lower average selling price across the remaining medical indications. Overall volumes increased primarily due to new product launches, partially offset by lower volumes of Fluphenazine.

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 $4.6 million and $10.4 million during the three months ended December 31, 2020 and 2019, respectively.

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

	Sales volume		Sales price
Medical indication	change %		change %
Analgesic	130	%	(61)	%
Anti-Psychosis	(13)	%	(28)	%
Cardiovascular	(14)	%	(18)	%
Central Nervous System	73	%	(46)	%
Endocrinology	100	%	—	%
Gastrointestinal	10	%	(9)	%
Infectious Disease	31	%	(4)	%
Migraine	(12)	%	(32)	%
Respiratory/Allergy/Cough/Cold	(25)	%	(1)	%
Urinary	5	%	5	%

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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)	December 31,		December 31,
Customer Distribution Channel	2020		2019
Wholesaler/Distributor	$	108,115	$	103,728
Retail Chain		16,217		23,092
Mail-Order Pharmacy		2,743		2,802
Contract manufacturing revenue		6,845		6,488
Total net sales	$	133,920	$	136,110

The decrease in sales to retail chains was primarily driven by lower sales of Fluphenazine due to a new competitor entering the market.

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Cocaine Hydrochloride Solution

In December 2017, a competitor received approval from the FDA to market and sell a Cocaine Hydrochloride topical product. The approval affected the Company’s right to market and sell its unapproved cocaine hydrochloride solution product. According to FDA guidance, the FDA typically allows the marketing of unapproved products for up to one year following the approval of an NDA for the product. Upon the request of the FDA to 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. The Company also ceased manufacturing its unapproved cocaine hydrochloride 4% solution on June 15, 2019 and ceased distributing the product on August 15, 2019.

The competitor filed a Citizen Petition with the FDA in February 2019, claiming that the grant of the New Chemical Entity (“NCE”) exclusivity blocks the approval of the Company’s application for five years and requesting that the FDA refuse to accept any further submissions in furtherance of the Company’s Section 505(b)(2) NDA application, treat as withdrawn any submissions made by the Company after December 2017 and withdraw the Company’s Section 505(b)(2) application. On April 24, 2019, the Company filed an opposition to the Citizen Petition requesting that it be denied. On July 3, 2019, the FDA denied the competitor’s Citizen Petition. Thereafter, the competitor filed a second Citizen Petition claiming that the FDA should rescind the acceptance of the Company’s Section 505(b)(2) application and only permit the Company to re-submit the application as an ANDA after the expiration of the competitor’s five-year exclusivity. The Company filed an opposition to the second Citizen Petition asserting, among other things, that the FDA should summarily deny the second Citizen Petition as an improper attempt to delay competition. On January 10, 2020, the FDA denied the second Citizen Petition and the FDA approved the Company’s Section 505(b)(2) NDA application. On January 27, 2020, the competitor filed a complaint against the FDA seeking an order invalidating the approval of the Company’s 505(b)(2) NDA, claiming the approval violates the competitor’s five-year exclusivity. On February 14, 2020, the Company filed a motion to intervene in the competitor’s lawsuit in order to argue that the request for relief be denied. On April 15, 2020, the competitor filed a motion for summary judgment. The Company and FDA filed responses in opposition and cross motions for summary judgement requesting dismissal of the complaint. The parties submitted further reply briefs and are awaiting a decision by the Court. On September 15, 2020, the Court granted summary judgment in part to the competitor on one of the counts of the complaint. While the Court agreed with the FDA that the competitor’s NCE exclusivity did not block the approval of the Company’s 505(b)(2) application, the Court found that the FDA erred by not requiring the Company to submit a patent certification. The Court requested that the parties file a joint status report indicating the remedy the Court should order to correct the error. The FDA and the Company requested the Court order the case remanded to the FDA without vacating the Company’s 505(b)(2) approval. The competitor requested the Court remand the case to the FDA while also vacating the Company’s 505(b)(2) approval. On October 7, 2020, the Court held a status conference and ordered that the competitor file a motion to vacate on October 16, 2020, and the FDA and the Company to file an opposition and cross motion for reconsideration on October 30, 2020. On October 16, 2020, the competitor filed a motion to vacate the Company’s NDA approval and on October 30, 2020, the Company and FDA filed a response in opposition and a cross motion for reconsideration. On January 11, 2021, the law clerk to the Judge sent an email indicating that Court was inclined to deny the competitor’s motion to vacate, deny the motion for reconsideration and remand the case to the FDA to take appropriate action to cure any procedural defect with the Company’s NDA. On January 21, 2021, the Court held a conference and indicated that it would be issuing an Order remanding the case to FDA for either 45 or 60 days to address the error relating to the missing patent certification in the NDA. By Memorandum and Opinion dated January 27, 2021, the Court denied the FDA and Company’s motion for reconsideration, granted the competitor’s motion to vacate, but stayed the order for 60 days to permit the FDA to take any action necessary to address the Court’s ruling regarding the patent certification in connection with the Company’s 505(b)(2) NDA.

On November 12, 2020, the competitor filed a second lawsuit against the FDA in the United States District Court for the District of Maryland, seeking an order requiring the FDA to initiate proceedings to withdraw the Company’s NDA for alleged false statements in the NDA application. The Company denies that it made any false statements in the NDA application and filed a motion to intervene. Following the Court granting the motion to intervene, on January 15, 2021, both the Company and the FDA filed separate motions to dismiss the second lawsuit.

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On June 6, 2020, the competitor filed a patent infringement complaint in the United States District Court for the District of Delaware, asserting that the Company’s approved cocaine hydrochloride product infringes three patents issued to the competitor. On June 19, 2020, the Company filed an answer and counterclaim, alleging that the Company either does not infringe or the three asserted patents are invalid. In addition, the Company sought a declaration that, as to the competitor’s three additional patents not asserted against the Company, they are either not infringed or invalid. The competitor filed a motion to dismiss a portion of the counterclaim and the Company filed a response in opposition to the motion. The Company continues to market its approved cocaine hydrochloride product.

Thalomid®

The Company filed with the FDA an ANDA No. 206601, along with a paragraph IV certification, alleging that the fifteen patents associated with the Thalomid drug product are invalid, unenforceable and/or not infringed. On January 30, 2015, Celgene Corporation and Children’s Medical Center Corporation filed a patent infringement lawsuit in the United States District Court for the District of New Jersey, alleging that the Company’s filing of ANDA No. 206601 constitutes an act of patent infringement and seeking a declaration that the patents at issue are valid and infringed. A settlement agreement was reached, and the Court dismissed the lawsuit in October 2017. Pursuant to the settlement agreement, the Company entered into a license agreement that permitted Lannett to manufacture and market in the U.S. its generic thalidomide product as of August 1, 2019 or earlier under certain circumstances. In the second quarter of Fiscal 2019, the Company received a Major Complete Response Letter (“CRL”) related to issues at its API supplier. The Company filed a response to the CRL. The Company received a second Major CRL in the first quarter of Fiscal 2020 related to continued issues at the API supplier, as well as issues with the Risk Evaluation and Mitigation Strategy (“REMS”) program hosted by Celgene. The Company is working on addressing the FDA comments and expects its product launch could be delayed until Fiscal Year 2022.

Ranitidine Oral Solution, USP

As part of an industry-wide action, the Company issued a voluntary recall on all lots within expiry of Ranitidine Syrup (Ranitidine Oral Solution, USP), 15mg/mL to the consumer level due to levels of N-Nitrosodimethylamine (“NDMA”), a probable human carcinogen, above the levels recently established by the FDA. On September 17, 2019, the FDA notified the Company about the possible presence of NDMA in its Ranitidine Oral Solution product and the Company immediately commenced testing and analysis of the active pharmaceutical ingredient (“API”) and drug product and confirmed the presence of NDMA. The Company’s net sales of Ranitidine Oral Solution in the fourth quarter of fiscal year 2019 totaled $1.9 million. On April 1, 2020, the FDA ordered all Ranitidine products (including the Company’s product) withdrawn from the US market and provided guidance on the requirements for submitting additional information to the FDA in order to re-introduce the product to the market. Since initiating the voluntary recall, the Company has not been marketing its Ranitidine Oral Solution product and has no future plans to attempt to re-introduce the product at this time. The Company does not believe the recall will have a significant impact on our future expected financial position, results of operations and cash flows.

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 and has filed a motion to transfer the complaint filed in the New Mexico state court to the MDL. On December 31, 2020, the Court granted the Company’s motion to dismiss Master Personal Injury Complaint, Consolidated Consumer Class Action Complaint and Consolidated third Party Payor Class Complaint, all based on federal preemption. The Court dismissed some of the claims with prejudice and others with leave to amend. Separately, the New Mexico case was conditionally transferred to the MDL and the plaintiff filed a motion to vacate the conditional transfer, which the Company has opposed. The Company filed a notice to remove and transfer the Maryland case to the MDL which the plaintiff has opposed. 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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Cost of Sales, including amortization of intangibles. Cost of sales, including amortization of intangibles, for the second quarter of Fiscal Year 2021 increased 40% to $133.1 million from $95.0 million in the same prior-year period. The increase was primarily attributable to additional volumes from new product launches as well as an increase of $18.1 million in the write-downs for excess and obsolete inventory, which primarily relates to the Company’s decision to discontinue 23 lower margin product lines. The Company also recorded $5.0 million in consideration to renew the Company’s distribution agreement with Recro Gainesville, LLC (“Recro”) during the second quarter of Fiscal Year 2021. Product royalties expense included in cost of sales totaled $18.9 million for the second quarter of Fiscal Year 2021 and $20.0 million for the second quarter of Fiscal Year 2020. Amortization expense included in cost of sales totaled $8.7 million for the second quarter of Fiscal 2021 and $8.2 million for the second quarter of Fiscal 2020.

Gross Profit. Gross profit for the second quarter of Fiscal 2021 decreased 98% to $0.8 million or 1% of net sales. In comparison, gross profit for the second quarter of Fiscal 2020 was $41.3 million or 30% 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. The Company also recorded an increase in the write-downs for excess and obsolete inventory as well as consideration to renew the distribution agreement with Recro in the second quarter of Fiscal 2021.

Research and Development Expenses. Research and development expenses for the second quarter of Fiscal 2021 decreased 18% to $5.6 million from $6.9 million in Fiscal Year 2020. The decrease was primarily due to lower R&D expenses as a result of timing of certain milestones related to product development projects as well as employee headcount reductions related to the 2020 Restructuring Plan.

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased 21% to $13.7 million in the second quarter of Fiscal Year 2021 compared with $17.4 million in Fiscal Year 2020. The decrease was primarily driven by lower incentive-based compensation, lower legal expenses, lower expenses at the Company’s Cody Labs subsidiary and other cost reduction initiatives.

Asset impairment charges. In December 2020, the Company reviewed its product portfolio and decided to discontinue 23 lower gross margin product lines, including product lines that were acquired through various past business and product acquisitions. As a result of the discontinuance and the reduction in net sales and gross margin of certain other product lines, the Company recorded an impairment charge of $193.0 million related to the KUPI product rights intangible assets during the second quarter of Fiscal 2021. The impairment charge is primarily a result of the decline in net sales and gross margin of certain product lines acquired in connection with the KUPI acquisition, including those product lines being discontinued.

In the second quarter of Fiscal 2021, the Company also recorded a $5.0 million impairment charge to its KUPI in-process research and development intangible asset due to delays in the expected launch of a product within the portfolio, which results in reduced projected cash flows.

Other Income (Loss). Interest expense for the three months ended December 31, 2020 totaled $13.5 million compared to $16.7 million for the three months ended December 31, 2019. The decrease was due to a lower weighted-average debt balance in the second quarter of Fiscal 2021 as compared to the prior-year period as well as a lower weighted-average interest rate due to the full repayment of the outstanding Term Loan A balance. The weighted average interest rate for the second quarter of Fiscal 2021 and 2020 was 7.8% and 8.6%, respectively.

Income Tax. The Company recorded an income tax benefit of $58.1 million in the second quarter of Fiscal Year 2021 as compared to an income tax benefit of $5.3 million in the second quarter of Fiscal Year 2020. The effective tax rate for the three months ended December 31, 2020 was 25.2%, compared to 2369.6% for the three months ended December 31, 2019. The effective tax rate for the three months ended December 31, 2020 was lower compared to the three months ended December 31, 2019 primarily due to tax credits and deductions relative to a lower pre-tax loss in the three months ended December 31, 2019. The decrease was partially offset by the impact of the CARES Act, which increased the interest expense deductibility limitation in the current year and also allowed the Company to carry back its taxable loss into a prior fiscal year, where the statutory tax rate was 35%.

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Net Income (Loss). For the three months ended December 31, 2020, the Company reported net loss of $171.9 million, or $(4.36) per diluted share. Comparatively, net income in the corresponding prior-year period was $5.1 million, or $0.13 per diluted share.

Results of Operations - Six months ended December 31, 2020 compared with the six months ended December 31, 2019

Net sales decreased to $260.4 million for the six months ended December 31, 2020. The table below identifies the Company's net product sales by medical indication for the six months ended December 31, 2020 and 2019.

(In thousands)	Six Months Ended December 31,
Medical Indication	2020		2019
Analgesic	$	6,692	$	3,995
Anti-Psychosis		26,345		50,730
Cardiovascular		36,050		45,579
Central Nervous System		47,139		38,588
Endocrinology		12,729		—
Gastrointestinal		35,675		35,275
Infectious Disease		44,976		29,973
Migraine		15,773		20,021
Respiratory/Allergy/Cough/Cold		3,693		5,781
Urinary		2,819		1,668
Other		16,044		19,796
Contract manufacturing revenue		12,464		12,046
Total net sales	$	260,399	$	263,452

The slight decrease in net sales was driven by a decrease in the selling price of products of $56.0 million partially offset by increased volumes of $53.0 million. The decrease in the selling price of products was primarily driven by lower sales prices of Fluphenazine, which is included within the Anti-Psychosis medical indication, due to a new competitor entering the market, as well as lower average selling price across the remaining medical indications. Overall volumes increased primarily due to new product launches, partially offset by lower volumes of Fluphenazine.

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 $8.9 million and $22.6 million during the six months ended December 31, 2020 and 2019, respectively.

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

	Sales volume		Sales price
Medical indication	change %		change %
Analgesic	123	%	(55)	%
Anti-Psychosis	(23)	%	(25)	%
Cardiovascular	(7)	%	(14)	%
Central Nervous System	80	%	(58)	%
Endocrinology	100	%	—	%
Gastrointestinal	10	%	(9)	%
Infectious Disease	57	%	(7)	%
Migraine	2	%	(23)	%
Respiratory/Allergy/Cough/Cold	(33)	%	(3)	%
Urinary	54	%	15	%

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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 six months ended:

(In thousands)	December 31,		December 31,
Customer Distribution Channel	2020		2019
Wholesaler/Distributor	$	208,695	$	205,928
Retail Chain		33,362		40,181
Mail-Order Pharmacy		5,878		5,297
Contract manufacturing revenue		12,464		12,046
Total net sales	$	260,399	$	263,452

The decrease in sales to retail chains was primarily driven by lower sales of Fluphenazine due to a new competitor entering the market.

Cost of Sales, including amortization of intangibles. Cost of sales, including amortization of intangibles, for the first six months of Fiscal Year 2021 increased 30% to $233.9 million from $179.5 million in the same prior-year period. The increase was primarily attributable to additional volumes from new product launches as well as an increase of $17.2 million in write-downs for excess and obsolete inventory, which primarily relates to the Company’s decision to discontinue 23 lower margin product lines. The Company also recorded $5.0 million in consideration to renew the Company’s distribution agreement with Recro Gainesville, LLC (“Recro”) during the second quarter of Fiscal Year 2021. Product royalties expense included in cost of sales totaled $37.0 million for the first six months of Fiscal Year 2021 and $36.4 million for the first six months of Fiscal Year 2020. Amortization expense included in cost of sales totaled $17.2 million for the first six months of Fiscal 2021 and $15.2 million for the first six months of Fiscal 2020.

Gross Profit. Gross profit for the first six months of Fiscal 2021 decreased 68% to $26.5 million or 10% of net sales. In comparison, gross profit for the first six months of Fiscal 2020 was $84.0 million or 32% 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. The Company also recorded an increase in the write-downs for excess and obsolete inventory as well as consideration to renew the distribution agreement with Recro in the second quarter of Fiscal 2021.

Research and Development Expenses. Research and development expenses for the first six months of Fiscal 2021 decreased 23% to $12.2 million from $15.8 million in Fiscal Year 2020. The decrease was primarily due to lower R&D expenses as a result of timing of certain milestones related to product development projects as well as employee headcount reductions related to the 2020 Restructuring Plan.

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased 25% to $28.9 million in the first six months of Fiscal Year 2021 compared with $38.7 million in Fiscal Year 2020. The decrease was primarily driven by lower incentive-based compensation, lower legal expenses, lower expenses at the Company’s Cody Labs subsidiary and other cost reduction initiatives.

Asset impairment charges. In December 2020, the Company reviewed its product portfolio and decided to discontinue 23 lower gross margin product lines, including product lines that were acquired through various past business and product acquisitions. As a result of the discontinuance and the reduction in net sales and gross margin of certain other product lines, the Company recorded an impairment charge of $193.0 million related to the KUPI product rights intangible assets during the second quarter of Fiscal 2021. The impairment charge is primarily a result of the decline in net sales and gross margin of certain product lines acquired in connection with the KUPI acquisition, including those product lines being discontinued.

In the second quarter of Fiscal 2021, the Company also recorded a $5.0 million impairment charge to its KUPI in-process research and development intangible asset due to delays in the expected launch of a product within the portfolio, which results in reduced projected cash flows.

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Other Income (Loss). Interest expense for the six months ended December 31, 2020 totaled $28.0 million compared to $36.0 million for the six months ended December 31, 2019. The decrease was due to a lower weighted-average debt balance in the first six months of Fiscal 2021 as compared to the prior-year period as well as a lower weighted-average interest rate due to the full repayment of the outstanding Term Loan A. The weighted average interest rate for the first six months of Fiscal 2021 and 2020 was 7.9% and 9.2%, respectively. Investment income for the six months ended December 31, 2020 was $0.1 million as compared to $1.2 million in the same prior-year period.

Income Tax. The Company recorded an income tax benefit of $66.1 million in the first six months of Fiscal Year 2021 as compared to an income tax expense of $3.5 million in the first six months of Fiscal Year 2020. The effective tax rate for the six months ended December 31, 2020 was 27.0%, compared to 33.2% for the six months ended December 31, 2019. The effective tax rate for the six months ended December 31, 2020 was lower compared to the six months ended December 31, 2019 primarily due to tax credits and deductions relative to a lower pre-tax loss in the six months ended December 31, 2019. The decrease was partially offset by the impact of the CARES Act, which increased the interest expense deductibility limitation in the current year and also allowed the Company to carry back its taxable loss into a prior fiscal year, where the statutory tax rate was 35%.

Net Loss. For the six months ended December 31, 2020, the Company reported net loss of $178.4 million, or $(4.55) per diluted share. Comparatively, net loss in the corresponding prior-year period was $7.1 million, or $(0.18) per diluted share.

Liquidity and Capital Resources

Cash Flow

The Company has historically financed its operations with cash flow generated from operations supplemented with borrowings from various government agencies and financial institutions. At December 31, 2020, working capital was $244.1 million as compared to $228.3 million at June 30, 2020, an increase of $15.8 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 used in operating activities of $24.6 million for the six months ended December 31, 2020 reflected net loss of $178.4 million, adjustments for non-cash items of $247.6 million, as well as cash used through changes in operating assets and liabilities of $93.8 million. In comparison, net cash provided by operating activities of $47.7 million for the six months ended December 31, 2019 reflected net loss of $7.1 million, adjustments for non-cash items of $42.1 million, as well as cash provided through changes in operating assets and liabilities of $12.7 million.

Significant changes in operating assets and liabilities from June 30, 2020 to December 31, 2020 were comprised of:

● An increase in accounts receivable of $34.3 million mainly due to the timing of sales and cash receipts. The Company’s days sales outstanding (“DSO”) at December 31, 2020, based on gross sales for the six months ended December 31, 2020 and gross accounts receivable at December 31, 2020, was 76 days. The level of DSO at December 31, 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 $50.1 million primarily due to additional estimated tax refunds related to provisions of the CARES Act as well as an anticipated Fiscal 2021 taxable loss.

● A decrease in accrued expenses totaling $10.9 million primarily due to the payment of the branded prescription drug fee in October 2020.

● An increase in accounts payable totaling $10.1 million primarily due to the timing of vendor invoices and payments.

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● A decrease in accrued payroll and payroll-related costs of $7.4 million primarily related to payments made in August 2020 in connection with incentive-based compensation accrued in Fiscal Year 2020 as well as the timing of payroll payments.

Significant changes in operating assets and liabilities from June 30, 2019 to December 31, 2019 were comprised of:

● A decrease in accounts receivable of $6.3 million mainly due to the timing of receipts. The Company’s DSO at December 31, 2019, based on gross sales for the six months ended December 31, 2019 and gross accounts receivable at December 31, 2019, was 73 days. The level of DSO at December 31, 2019 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 totaling $17.4 million primarily due to the timing of payments.

● A decrease in accrued payroll and payroll-related costs of $7.7 million primarily related to payments made in August 2019 in connection with incentive compensation accrued in Fiscal Year 2019, partially offset by the timing of payroll payments.

● An increase in inventories totaling $8.1 million primarily due to the timing of customer order fulfillment.

● An increase in prepaid income taxes totaling $9.0 million primarily due to estimated tax payments made in the first six months of Fiscal 2020.

Net cash used in investing activities of $9.1 million for the six months ended December 31, 2020 was mainly the result of purchases of property, plant and equipment of $5.1 million and purchases of intangible assets of $4.0 million. Net cash used in investing activities of $30.0 million for the six months ended December 31, 2019 was mainly the result of purchases of intangible assets of $27.3 million and purchases of property, plant and equipment of $8.8 million, partially offset by proceeds from the sale of property, plant and equipment of $6.3 million.

Net cash used in financing activities of $71.5 million for the six months ended December 31, 2020 was due to debt repayments of $68.5 million, payment of debt issuance costs of $2.4 million, and purchases of treasury stock totaling $1.0 million, partially offset by proceeds from issuance of stock pursuant to stock compensation plans of $0.4 million. Net cash used in financing activities of $38.8 million for the six months ended December 31, 2019 was due to debt repayments of $113.3 million, purchase of a capped call in connection with the 4.50% Convertible Senior Notes offering totaling $7.1 million, payments of debt issuance costs totaling $3.5 million, and purchases of treasury stock totaling $1.8 million, partially offset by proceeds from the issuance of 4.50% Convertible Senior Notes of $86.3 million and proceeds from issuance of stock pursuant to stock compensation plans of $0.6 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 December 31, 2020 are as follows:

Amended Senior Secured Credit Facility

On November 25, 2015, in connection with its acquisition of KUPI, Lannett entered into a credit and guaranty agreement (the “Credit and Guaranty Agreement”) among certain of its wholly-owned domestic subsidiaries, as guarantors, Morgan Stanley Senior Funding, Inc., as administrative agent and collateral agent and other lenders providing for a senior secured credit facility (the “Senior Secured Credit Facility”). The Senior Secured Credit Facility consisted of Term Loan A in an aggregate principal amount of $275.0 million, Term Loan B in an aggregate principal amount of $635.0 million and a revolving credit facility providing for revolving loans in an aggregate principal amount of up to $125.0 million.

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On June 17, 2016, Lannett amended the Senior Secured Credit Facility and the Credit and Guaranty Agreement to raise an incremental term loan in the principal amount of $150.0 million (the “Incremental Term Loan”) and amended certain sections of the agreement (the “Amended Senior Secured Credit Facility”). The terms of this Incremental Term Loan are substantially the same as those applicable to the Term Loan B. The Company used the proceeds of the Incremental Term Loan and cash on hand to repurchase the outstanding $250.0 million aggregate principal amount of Lannett’s 12.0% Senior Notes due 2023 (the “Senior Notes”) issued in connection with the KUPI acquisition.

On December 10, 2018, the Company entered into a third amendment to the Senior Secured Credit Facility and the Credit and Guaranty Agreement. Pursuant to the amendment, the Secured Net Leverage Ratio applicable to the financial leverage ratio covenant was increased from 3.25:1.00 to 4.25:1.00 as of December 31, 2019 and prior to September 30, 2020, and then to 4.00:1.00 as of September 30, 2020. The Amended Senior Secured Credit Facility is also subject to a minimum liquidity covenant, which provides that the Company shall not permit its liquidity as of the last day of any fiscal quarter to be less than $75.0 million. On November 25, 2020, the Company repaid the remaining $42 million outstanding balance of its Term A Loans with cash on hand and, upon repayment, the Company is no longer obligated to comply with the financial leverage ratio and minimum liquidity covenants described above.

On December 7, 2020, the Company entered into Amendment No. 4 to the Credit and Guaranty Agreement, which amends the Term Loan B Facility to permit the incurrence of the ABL Credit Facility, which is discussed further below, and requires the Company to maintain at least $5 million in a deposit account at all times, subject to control by the administrative agent, and a minimum cash balance of $15 million as of the last day of each month. At December 31, 2020, the Company classified the $5 million required deposit account balance as restricted cash, which is included in other assets. The amendment also replaced Morgan Stanley Senior Funding, Inc. with Alter Domus (US) LLC as administrative agent and collateral agent under the Term Loan B Facility.

Refer to the Company’s Form 10-K for the fiscal year ended June 30, 2020 for further details on the Amended Senior Secured Credit Facility.

ABL Credit Facility

On December 7, 2020, the Company entered into a credit and guaranty agreement, which provides for an asset-based revolving credit facility (the “ABL Credit Facility”) of up to $30 million, subject to borrowing base availability, and includes letter of credit and swing line sub-facilities. Borrowing availability under the 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 ABL Credit Agreement. Availability is reduced by issuance of letters of credit as well as any borrowings. The ABL Credit Facility was undrawn as of December 31, 2020.

The final maturity of the ABL Credit Facility is December 7, 2023, unless the aggregate outstanding principal amount of any of the Term Loan B Facility (as defined above) or other material indebtedness exceeds $35,000,000 on the date that is 91 days prior to the maturity date with respect to such other indebtedness, in which case the final maturity shall instead be such earlier date. Loans outstanding under the ABL Credit Agreement bear interest at a floating rate measured by reference to an adjusted London Inter-Bank Offered Rate (“LIBOR”), subject to a floor of 0.75%, plus an applicable margin of 2.50% per annum. Unused commitments under the ABL Credit Facility are subject to a per annum fee of 0.50%. The obligations under the ABL Credit Agreement are guaranteed by the Company and all of the Company’s existing and future subsidiaries, subject to certain exceptions (collectively, the “Guarantors”), and such obligations and the obligations of the Guarantors are secured by:

● a perfected security interest in all present and after-acquired accounts receivable, payment intangibles, inventory, deposit accounts, securities accounts, and any cash, cash equivalents or other assets in such accounts and other related assets owned by each Guarantor and the proceeds of the foregoing, except to the extent such proceeds constitute Cash Flow Priority Collateral (as defined below), and subject to certain exceptions (the “ABL Priority Collateral”), which security interest is senior to the security interest in the ABL Priority Collateral securing the Company’s existing Term Loan B Facility; and

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● a perfected security interest in substantially all present and after-acquired tangible and intangible assets of each Guarantor other than the ABL Priority Collateral (the “Cash Flow Priority Collateral”), which security interest is junior to the security interest in the Cash Flow Priority Collateral securing the Term Loan B Facility.

The ABL Credit Agreement contains customary representations and warranties and customary affirmative covenants and negative covenants. The negative covenants include restrictions on, among other things: the incurrence of additional indebtedness; the incurrence of additional liens; dividends or other distributions on equity; the purchase, redemption or retirement of capital stock; the payment or redemption of certain indebtedness; the nature of the business activity of the Company and its subsidiaries; loans, guarantees and other investments; entering into other agreements that create restrictions on the ability to pay dividends or make other distributions on equity or create or incur certain liens; asset sales; consolidations or mergers; amendment of certain material documents; changes in fiscal year; and affiliate transactions. The negative covenants are subject to customary exceptions and also permit dividends and other distributions on equity, consolidations, mergers and asset sales, certain acquisitions and other investments, and payments or redemptions of certain indebtedness, in each case upon satisfaction of the “payment conditions”. The payment conditions are deemed satisfied upon Excess Availability (as defined in the ABL Credit Agreement) on the date of the designated action and Excess Availability for the prior 30-day period exceeding agreed-upon thresholds, the absence of the occurrence and continuance of any event of default and, in certain cases, pro forma compliance with a fixed charge coverage ratio of no less than 1.10 to 1.00.

The ABL Credit Agreement includes a minimum fixed charge coverage ratio of no less than 1.10 to 1.00, which is tested only when Excess Availability is less than 15.0% of the lesser of (A) the borrowing base and (B) the then effective commitments under the ABL Credit Facility for three consecutive business days, and continuing until the first day immediately succeeding the last day of 30 consecutive days on which Excess Availability is in excess of such threshold.

The ABL Credit Agreement provides for events of default, which, if any of them occurs, would permit or require the principal, premium, if any, and interest on all of the then outstanding obligations under the ABL Credit Facility to be due and payable immediately and the commitments under the ABL Credit Facility to be terminated.

4.50% Convertible Senior Notes due 2026

On September 27, 2019, the Company issued $86.3 million aggregate principal amount of the Notes in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended, and used the net proceeds to repay a portion of the outstanding Term Loan A balance. The Notes 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 Notes will mature on October 1, 2026, unless earlier repurchased, redeemed or converted in accordance with their terms. The 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 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 Notes on or after October 6, 2023 at a redemption price equal to 100% of the principal amount of the 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 Notes in connection with such corporate event or notice of redemption. The indenture covering the 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 Notes may declare 100% of the principal of, and accrued and unpaid interest on, all the Notes to be due and payable.

In connection with the offering of the 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 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 Notes with such reduction subject to a cap which is initially $19.46 per share.

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Management plans to attempt, at the appropriate time, to refinance a significant portion of its outstanding long-term debt to reduce principal repayment requirements, which we expect will increase related interest expense, but will positively impact short-term cash flows.

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.

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.” Critical accounting policies 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”: Revenue Recognition, Inventories, Income Taxes, Business Combinations, Valuation of Long-Lived Assets, including Intangible Assets, In-Process Research and Development and Share-based Compensation.

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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 (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 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.

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.

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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.

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, 2020 for a description of our remaining Critical Accounting Policies.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

On November 25, 2015, in connection with the acquisition of KUPI, the Company entered into a Senior Secured Credit Facility, which was subsequently amended in June 2016. Based on the variable-rate debt outstanding at December 31, 2020, each 1/8% increase in interest rates would yield $0.7 million of incremental annual interest expense. The Company’s variable-rate debt is subject to a 1.0% London Inter-bank Offered Rate (“LIBOR”) floor.

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 six months ended December 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Information pertaining to legal proceedings can be found in Note 11 “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, 2020 includes a detailed description of its risk factors. Refer to the Form 10-Q for the quarterly period ended September 30, 2020 for a detailed description of an additional risk factor identified by the Company since filing of the Form 10-K.

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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
10.76+*	License and Supply Agreement with Alkermes Pharma Ireland Limited and Kremers Urban Pharmaceuticals Inc.	Filed Herewith
10.77+*	Amendment No. 1 to License and Supply Agreement between Recro Gainesville LLC (as successor to Alkermes Pharma Ireland Limited) and Kremers Urban Pharmaceuticals, Inc.	Filed Herewith
10.78	Amendment No. 2 to License and Supply Agreement between Recro Gainesville LLC (as successor to Alkermes Pharma Ireland Limited) and Kremers Urban Pharmaceuticals, Inc.	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

* Certain portions of this Exhibit have been redacted to preserve confidentiality. The registrant hereby undertakes to provide further information regarding such redacted information to the Commission upon request.

+ Certain portions of this Exhibit have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant undertakes to provide further information regarding such omitted materials to the Commission upon request.

** Furnished Herewith

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

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EX-10.76

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***] HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

Exhibit 10.76

LICENSE AND SUPPLY AGREEMENT

by and between

ALKERMES PHARMA IRELAND LIMITED

and

KREMERS URBAN PHARMACEUTICALS INC.

Effective as of January 1,2014

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***] HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

SECTION 1DEFINITIONS‌1

SECTION 2GRANT OF LICENSES‌5

2.1.Grant of Marketing and Sales Licenses‌5

2.2.Sublicenses‌5

2.3.Alkermes Retained Rights‌5

2.4.Marketing Efforts‌5

2.5.Joint Marketing Committee‌6

2.6.Generic Products‌6

SECTION 3PAYMENT PROVISIONS‌7

3.1.Consideration‌7

3.2.Invoice and Payment‌7

3.3.Taxes‌7

3.4.Records and Audit‌7

3.5.Quarterly Reports‌8

3.6.Late Payments‌8

3.7.Withholding‌8

SECTION 4SUPPLY OF PRODUCTS‌9

4.1.Supply of Product‌9

4.2.Identification‌9

4.3.Forecasts, Delivery and Quality.‌10

4.4.Rejection and Replacement,‌10

SECTION 5ASSIGNED UCB STOCK‌11

5.1.Generic VPM Stock‌11

5.2.Branded Product Stock‌11

SECTION 6REPRESENTATIONS AND WARRANTIES OF ALKERMES‌12

6.1.Organization, Power and Authority‌12

6.2.Due Authority; No Breach‌12

6.3.NDAs‌12

6.4.Intellectual Property‌13

6.5.Litigation‌14

-i-

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***] HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

6.6.Governmental Approval‌14

6.7.Brokerage‌14

6.8.Compliance with Law‌14

6.9.Implied Warranties‌14

SECTION 7REPRESENTATIONS AND WARRANTIES OF KU‌14

7.1.Organization, Power and Authority‌14

7.2.Due Authority‌14

7.3.Brokerage‌15

7.4.Litigation‌15

7.5.Governmental Approval‌15

7.6.Compliance with Law‌15

SECTION 8COVENANTS ANDAGREEMENTS OF THE PARTIES‌17

8.1.Governmental Filings‌17

8.2.Responsibility for NDAs‌17

8.3.Compliance with Law‌18

8.4.Recall‌18

8.5.Confidentiality‌18

8.6.Expenses‌19

8.7.Reasonable Efforts‌19

8.8.Publicity‌19

8.9.Cooperation‌20

8.10.Competition; No Sale for Resale‌20

8.11.Conflicting Rights‌20

8.12.Trademark Maintenance‌20

8.13.Supply of Products‌21

8.14.Technology‌21

8.15.Liability Insurance‌22

8.16.Referral of Orders and Inquiries‌22

8.17.Deemed Breach of Covenant‌22

8.18.Net Sales Deductions for Generic VPM Product‌22

8.19.Net Sale Deductions for Branded Product‌22

8.20.Access to Information‌22

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CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***] HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

SECTION 9INDEMNIFICATION‌23

9.1.Indemnification‌23

9.2.Notice and Opportunity To Defen‌24

9.3.Indemnification Payment Obligation‌24

9.4.Indemnification Payment Adjustment‌24

9.5.Indemnification Payment‌25

9.6.Survival‌25

9.7.Consequential Damages‌25

SECTION 10TERMINATION‌25

10.1.Termination‌25

SECTION 11MISCELLANEOUS‌27

11.1.Assignment and Subcontracting‌27

11.2.Notices‌27

11.3.Waiver: Remedies‌28

11.4.Survival of Representations‌28

11.5.Ind ep eudent Contractors‌28

11.6.Entire Agreement‌28

11.7.Amendment‌28

11.8.Counterparts‌28

11.9.Governing Law‌29

11.10.Arbitration‌29

11.11.Captions‌29

11.12.No Third-Party Rights‌29

11.13.Severability‌29

11.14.Attachments‌29

Schedules

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CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***] HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

LICENSE AND SUPPLY AGREEMENT

This LICENSE AND SUPPLY AGREEMENT (“Agreement”), effective as of January 1, 2014 (the “Effective Date”) is by and between ALKERMES PHARMA IRELAND LIMITED, a limited liability company incorporated under the laws of Ireland (“Alkermes”). and KREMERS URBAN PHARMACEUTICALS INC., an Indiana corporation (“KU”).

W I T N E S E T H

WHEREAS, Alkermes is engaged, among other things, in the business of researching, development, manufacturing and commercialization of pharmaceutical products, inter alia, verapamil hydrochloride;

WHEREAS, KU is engaged, among other things, in the business of marketing and selling of pharmaceutical products;

WHEREAS UCB, Inc. (a KU Affiliate) currently maintains certain rights to market and sell certain branded and authorized generic Products (as defined below) under the UCB Agreement (defined below) which expires on December 31, 2013; and

WHEREAS, subject to the terms and conditions set forth in this Agreement, Alkermes wishes to (i) license KU certain rights to enable KU to market and sell Products (defined below) in the Territory (defined below) following the expiration of the UCB Agreement and (ii) manufacture and supply such Products to KU;

NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows:

section 1
DEFINITIONS

For purposes of this Agreement, the following terms shall have the meanings set forth below:

“Activities” shall mean the manufacturing, promoting, marketing, selling and distributing of the Products in the Territory as contemplated by this Agreement,

“Affiliates” shall mean, with respect to any Person, any Persons directly or indirectly controlling, controlled by, or under common control with, such other Person,

“Alkermes” shall have the meaning set forth in the preamble.

“Annual Net Sales” shall mean, for any Year, the Net Sales for such Year.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***] HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

“Authorized Generic” shall mean a drug sold, licensed or marked under an NDA (as opposed to an ANDA) approved by the FDA under section 505(c) of the Federal Food, Drug and Cosmetics Act and marketed and distributed under a different labeler code, product code, trade name, trademark or packaging than the corresponding brand drug,

“Branded-Product” shall mean the Branded V Product and/or the Branded VPM Product

“Branded V Product” shall mean the V Product that is sold under the Trademarks licensed to KU for Product pursuant to this Agreement.

“Branded VPM Product” shall mean the VPM Product that is sold under the Trademarks licensed to KU for Product pursuant to this Agreement.

“CFR” shall mean the U.S. Code of Federal Regulations, as amended from time to time.

“CMC Section” shall mean the chemistry, manufacturing, and controls section of the NDAs as defined in 21 CFR Section 314.50 (1).

“Damages” shall mean, subject to Section 9.7, any and all actions, costs, losses, claims, liabilities, fines, penalties, demands, damages and expenses, court costs, and reasonable fees and disbursements of counsel, consultants and expert witnesses incurred by a party hereto (including interest which may be imposed in connection therewith).

“Defective” shall mean, as to any Product supplied by Alkermes hereunder, the failure of such Product to conform to the Specifications and the applicable NDA, and, in all material respects, applicable law, including, without limitation, the PDMA.

“Effective Date” shall have the meaning set forth in the preamble.

“FDA” shall mean the United States Food and Drug Administration.

“Generic V Product” shall have the meaning set forth in Section 2.6.

“Generic VPM Product” shall have the meaning set forth in Section 2.6.

“Generic VPM Operating Profits” shall mean [***].

“Generic VPM Product Profits” shall mean, [***].

“GMP” shall mean current Good Manufacturing Practices, as determined from time to time by the FDA or any other successor agency thereto.

“HSR Act” shall mean the Hart-Scott-Rodino Antitrust Improvement Act.

“Indemnified Party” shall have the meaning set forth in Section 9.2 hereof.

“Indemnifying Party” shall have the meaning set forth in Section 9.2 hereof.

-2-

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***] HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

“Independent Third Party” shall mean any person other than Alkermes and KU and their respective Affiliates.

“Intellectual Property” shall mean the Trademarks. For the avoidance of doubt, Intellectual Property shall exclude any intellectual property of any nature that is owned, licensed or controlled by Affiliates or subsidiaries of Alkermes. In the event that Alkermes acquires or merges with a third party entity, Intellectual Property shall not include any Intellectual Property to the extent that such Intellectual Property relates to a product containing verapamil hydrochloride which has been approved for marketing or is in development by the said third party entity. For the avoidance of doubt, the occurrence of any such acquisition or merger shall not affect the license of the Intellectual Property granted to KU hereunder.

“Joint Marketing Committee” shall have the meaning set forth in Section 2.5.

“KU” shall have the meaning set forth in the preamble.

“Licensed Assets” shall have the meaning set forth in Section 2.1 hereof.

“NDAs” shall mean, collectively, the V NDA and the VPMNDA.

“Net Sales” shall mean, with respect to each Product, the dollar amount determined by deducting from the gross invoiced sales price billed for such Product sold by KU in the Territory to unaffiliated third parties in an arm’s length transaction, the following:

(a)trade and reasonable and customary cash discounts allowed;

(b)returns, credits, refunds, rebates, chargebacks, retroactive price adjustments, commissions and any other allowances which effectively reduce the net selling price;

(b)transportation charges or allowances, including freight pickup allowances; and

(d)any tax (excluding income tax), excise or other governmental charges upon or measured by the production, sale, transportation, delivery or use of such Product.

Such amounts shall be determined from books and records maintained in accordance with U.S. GAAP, consistently applied.

“Notice of Rejection” shall have the meaning set forth in Section 4.4(a).

“PDMA” shall mean the Prescription Drug Marketing Act of 1987, as amended from time to time, together with any rules or regulations promulgated thereunder.

“Person” shall mean a natural person, a corporation, a partnership, a trust, a joint venture, a limited liability company, any governmental authority or any other entity or organization.

“PPI” shall mean the Producer Price Index for Pharmaceutical Preparations published by the U.S. Department of Labor, Bureau of Labor Statistics for the twelve months ending on August 31^st in any Year.

-3-

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***] HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

“Products” shall mean, collectively, the Branded VPM Product, Branded V Product and/or Generic VPM Pro duct manufactured and supplied to KU by Alkermes under this Agreement.

“Promotional Materials” shall mean any tangible advertising and promotional labeling bearing a name (trade name or generic name) used in the promotion of the Products, including, without limitation, promotional materials produced by KU (examples include, but are not limited to, journal ads, brochures, service items, managed care pull through sheets, formulary presentations, price lists, monographs, Internet pages and telephone or television advertisements) and materials produced by outside sources (examples include, but are not limited to, medical reprints, textbooks and CME materials) to the extent funded by, created in cooperation with, reviewed, or distributed by KU. The definition of Promotional Materials shall also include press releases and other releases of information to the media regarding the Products.

“Quarter” shall mean, as the case may be, the three months ending on March 31, June 30, September 30 or December 31 in any Year.

“Specifications” shall mean, at any time and as to either Product, the specifications for such Products that are then approved by the FDA and contained in the NDA applicable to such Product, as in effect at that time.

“Technology” includes all of the intellectual property owned or controlled by Alkermes that is used in, claims or covers the manufacturing process used by Alkermes and its Affiliates to manufacture the Products supplied to KU hereunder, or any aspect of such manufacturing process.

“Territory” shall mean the fifty (50) states, the District of Columbia and the territories and possessions comprising the United States of America, including Puerto Rico.

“Trademarks” shall mean all of Alkermes’s right, title and interest in and to:

(a)those United States trademarks and trademark applications set forth on Schedule 6.4 hereto and any trademark application or trademark which constitutes an extension, registration, contribution, reissue, renewal, reexamination or continuation in part of any such trademark or trademark application; and

(b)all registrations thereof, all variations thereof and logos used in connection therewith, and all goodwill associated therewith.

“UCB Agreement” shall mean that that certain License and Supply Agreement dated 30 September 1998, as amended, relating to Products that currently exists between UCB and Alkermes (the “Agreement”) which is due to expire on December 31, 2013.

“UCB” shall mean KU’s affiliate company, UCB, Inc.

“U.S. GAAP” shall mean generally accepted accounting practices in the United States, as in effect from time to time.

-4-

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***] HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

“V Product” shall mean [***].

“V NDA” shall have the meaning set forth in Section 2.1(b).

“VPM Product” shall mean [***].

“VPM NDA” shall have the meaning set forth in Section 2.1(a).

“Year” shall mean a calendar year during the term of this Agreement.

section 2
GRANT OF LICENSES

2.1.  Grant of Marketing and Sales Licenses. Alkermes hereby grants to KU an exclusive, even as to Alkermes (except as set forth in Section 2.3), license under the following assets solely for the purpose of promoting, marketing, selling and distributing the Products in the Territory (such assets are referred to herein collectively as the “Licensed Assets”):

(a) all of Alkermes’s rights under the New Drug Applications filed by Alkermes with, the FDA for the VPM Product, and all subsequent submissions thereto (collectively, the “VPM NDA”), which VPM NDA is described in Schedule 2.1(a):

(b) all of Alkermes’s rights under the approved New Drug Applications filed by Alkermes with the FDA for the V Product, and all subsequent submissions thereto (collectively, the “V NDA”). which V NDA is described in Schedule 2.1(b); and

(c) the Intellectual Property;

2.2.  Sublicenses. The licenses granted herein shall not be sublicensed by KU without the prior written consent of Alkermes.

2.3.  Alkermes Retained Rights. Anything herein contained to the contrary notwithstanding, Alkermes shall retain at all times during the term of this Agreement, and shall bear all costs associated with, all rights necessary: (a) to manufacture, or to have manufactured, the Products for KU hereunder and otherwise fulfill its obligations under this Agreement, (b) to manufacture or have the products manufactured in the Territory, (c) to manufacture, have manufactured, use or sell the Products outside of the Territory, and (d) subject to Section 8.3, to make such changes as Alkermes may deem reasonably appropriate in connection with any differing approach to manufacturing it may adopt in a facility(ies) in which any of the components of the Products are produced.

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2.4.  Marketing Efforts.

(a) KU shall use efforts to market and promote each Product throughout the Territory that are commercially reasonable given the market in which the relevant Product is marketed and the branded or generic status of the relevant Product. At the first meeting of the Joint Marketing Committee (as hereinafter defined) following the Effective Date, KU will outline its intended activities with respect to each Product during the Term. KU shall not stock out on any Product (i.e., Branded V Product, Branded VPM Product or Generic VPM Product) or any strength of any Product except as discussed with the Joint Marketing Committee in accordance with Section 2.4(b) below . and shall conduct its promotional activities, including without limitation, its marketing and discount policies, in accordance with law and with normal business practice.

(b) If either party wishes to discontinue the manufacture and/or marketing of any particular Product or dosage strength of Product, then it shall notify the other party and the parties shall meet and discuss the reason for any such potential discontinuance. In circumstances where any Brand Product or dosage strength of any Brand Product is discontinued, then the financial provisions relating to the Generic VPM Product shall be altered in accordance with Section 3.1 below.

(c) KU (or a KU affiliate or permitted licensee) will not sell any Product together with other products to third parties by a method commonly known in the pharmaceutical industry as “bundling”.

2.5.  Joint Marketing Committee. Within thirty (30) days after the Effective Date, the parties will establish a joint marketing committee (“Joint Marketing Committee”) consisting of an equal number of representatives from each party. At meetings of the Joint Marketing Committee, the parties will discuss matters relating to the Products, including sales performance of the Products in the Territory, marketing approaches, educational campaigns, Promotional Materials and other advertising materials and campaigns, sales plans and results. Unless otherwise agreed by the parties, the Joint Marketing Committee shall meet at least twice each Year alternatively at the offices of Alkermes and KU, or as otherwise agreed by the parties. Each Party shall bear the cost of its own travel and other expenses incurred in connection with any meetings or activities of the Joint Marketing Committee. Meetings shall be chaired alternately by the respective representatives of the parties,

2.6.  Generic Products. The license pursuant to Section 2.1 includes the right of KU, in its sole discretion, to provide for, market and sell an Authorized Generic substitute for the VPM Product (“Generic VPM Product”). The license pursuant to Section 2.1 does not include the right of KU to provide for, market and sell an Authorized Generic or other generic substitute of the V Product (“Generic V Product”), which rights shall be exclusively held by Alkermes.

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section 3
PAYMENT PROVISIONS

3.1.  Consideration. KU shall payAlkermes for Product manufactured and supplied to KU under this Agreement in accordance with the terms set out in Schedule 3.1 of this Agreement.

3.2.  Invoice and Payment. Upon delivery of any Product shipment, Alkermes shall be entitled to submit invoices therefor to KU, and KU agrees to remit payment within thirty (30) days from receipt of the invoice.

3.3.  Taxes. All payments to Alkermes are exclusive of any applicable value added, sales or any other similar or substitute tax, for which KU shall be additionally liable, if applicable.

3.4.  Records and Audit.

(a) KU and its Affiliates shall keep full, true and accurate books of account containing all particulars that may be necessary for the purpose of showing the amounts payable to Alkermes hereunder. Such books of account shall be kept at KU’s principal place of business or the principal place of business of the appropriate Affiliate of KU to which this Agreement relates. Such books and the supporting data shall be open, at all reasonable times and upon reasonable notice during the term of this Agreement and for two (2) years after its termination, to the inspection of a firm of certified public accountants selected by Alkermes and reasonably acceptable to KU, for the limited purpose of verifying KU’s royalty statements; provided, however, that such examination shall not take place more often than once each Year and shall not cover more than the preceding 3 Years, with no right to audit any period previously audited. Except as otherwise provided in this Section, the cost of any such examination shall be paid by Alkermes. In the event that any such inspection reveals a deficiency (in accordance with U.S. GAAP) in excess of [***] of the reported royalty for the period covered by the inspection, KU shall promptly pay Alkermes the deficiency, plus interest, and shall reimburse Alkermes for the fees and expenses paid to such accountants in connection with their inspection. The parties agree that neither party shall be required to retain books and records with respect to the above other than books and records relating to the current Year and the immediately preceding three (3) Years.

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(b) Alkermes and its Affiliates shall keep full, true and accurate books of account containing all particulars that may be necessary for the purpose of showing the cost of manufacturing the Products and Product samples supplied hereunder. Such books of account shall be kept at Alkermes’s principal place of business or the principal place of business of the appropriate Affiliate of Alkermes to which this Agreement relates. Such books and the supporting data shall be open, at all reasonable times and upon reasonable notice during the term of this Agreement and for two (2) years after its termination, to the inspection of a firm of certified public accountants selected by KU and reasonably acceptable to Alkermes, for the limited purpose of verifying the cost of manufacturing the Products and Product samples supplied hereunder; provided, however, that such examination shall not take place more often than once each Year and shall not cover more than the preceding three (3) Years, with no right to audit any period previously audited. Except as otherwise provided in this Section 3.2, the cost of any such examination shall be paid by KU. In the event that any such inspection reveals that the amount charged or reported exceeds the actual amount by more than [***] during the period covered by the inspection, Alkermes shall promptly pay KU the excess, plus interest, and shall reimburse KU for the fees and expenses paid to such accountants in connection with their inspection. The parties agree that neither party shall be required to retain books and records with respect to the above other than books and records relating to the current Year and the immediately preceding three (3) Years.

3.5.  Quarterly Reports. In any Year, KU shall, within [***] after the end of each Quarter, deliver to Alkermes true and accurate reports, certified by an authorized official of KU, setting forth the actual Net Sales recorded during such Quarter and the total amounts due under Section 3.1 for such Quarter. If no monies shall be due, KU shall so report.

3.6.  Late Payments. Any amounts not paid by KU to Alkermes when due under this Agreement shall be subject to interest from and including the date payment is due through and including the date upon which Alkermes has collected immediately available funds in an account designated by KU at a rate equal to the sum of [***].

3.7.  Withholding. Any income or other taxes which KU is required by law to pay or withhold on behalf of Alkermes with respect to monies payable to Alkermes under this Agreement shall be deducted from the amount of such monies due. KU shall provide Alkermes with proof of such payments. Any such tax required to be paid or withheld shall be an expense of and be borne solely by Alkermes. KU shall promptly provide Alkermes with a certificate or other documentary evidence to enable Alkermes to support a claim for a refund or a foreign tax credit with respect to any such tax so withheld or deducted by KU. The parties shall reasonably cooperate in completing and filing documents required under the provisions of any applicable tax treaty or under any other applicable law in order to enable KU to make such payments to Alkermes without any deduction or withholding.

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section 4
SUPPLY OF PRODUCTS

4.1.  Supply of Product.

(a) During the term of this Agreement, KU agrees to order and purchase Products exclusively from Alkermes in accordance the batch sizes and minimum order quantities set forth in Schedule 4.1 and Alkermes agrees to supply Products exclusively to KU.

Alkermes will supply KXJ with all of its requirements for Products and the Products samples for their subsequent use, sale, lease or transfer by KU.

(b) KU agrees to initiate purchases of Products and samples of the Products hereunder by issuing Alkermes purchase orders in accordance with the requirements set forth in Schedule 4.1 not less than [***]. Subject to Section 4.1(c), Alkermes agrees to accept any order issued in accordance with this Section 4.1(b) which specifies quantities reasonably consistent with those set forth in the purchase forecasts for such Quarter and to meet the delivery dates specified thereon. All purchase orders hereunder shall be on KU’s standard purchase order form (a copy of which has been delivered to Alkermes) and shall be directed to Alkermes at the address set forth below. KU shall maintain at all times inventory of the Product in the ordinary course.

(c) The Parties shall reasonably cooperate with respect to Product production schedules. In particular, the parties will routinely review through then supply teams the 18 month forecast provided by KU in accordance in Section 4.3 below and Alkermes shall advise KU of any scheduling conflicts. If KU submits any purchase order for Branded V Product with a delivery date or dates that are not aligned with Alkermes’ overall production schedule as discussed by the supply teams with respect to the 18 month forecast, then Alkermes shall have the right to reject such purchase order. Alkermes shall not, however, reject any purchase order for Branded V Product submitted by KU with a delivery date or dates that are aligned with such production schedule, as discussed by the Parties’ supply teams.

(d) Alkermes shall use commercially reasonable efforts to maximize the life of the Products supplied to KU pursuant to this Agreement; provided that such Products shall have at least a [***]. If any Product that is to be delivered to KU will have a shelf life of less than [***], then Alkermes shall notify KU prior to shipment of such Product, and Alkermes and KU shall discuss in good faith the disposition of such Product. If Alkermes and KU are not able to reach agreement on the disposition of such Product, then such Product shall not be shipped to KU.

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4.2.  Identification. KU may market the Products under its name and NDC number, with its packaging and logo; KU will, however, identify Alkermes as the manufacturer in a fair manner, reasonably acceptable to Alkermes. Alkermes will retain title to its own product names, which will be displayed in an appropriate manner on the Products. Alkermes and KU shall share equally all costs of labeling the Products so as to appropriately display the KU name provided KU supplies all the appropriate graphics, designs, logos and related and appropriate artwork. KU may use Alkermes’s name and derivations thereof in promoting, marketing and selling the Products in the Territory; provided, however, that the particular formulation of any reference to Alkermes’s name in any Promotional Material shall be subject to Alkermes’s review and consent; and provided, further, that once the formulation of any such reference has been reviewed and consented to by Alkermes, any subsequent reference to Alkermes’s name using such formulation or a substantially similar formulation shall not be subject to the review or consent of Alkermes. All samples shall be clearly marked “for sample use only” or comparable mutually agreed language on the sample package labeling.

4.3.  Forecasts, Delivery and Quality.

(a) Subject to Section 4.1(c), KU shall provide Alkermes with [***]. These forecasts will be revised and extended in each succeeding Quarter.

(b) Delivery of Products shall be in accordance with the destination and dates set forth in KU’s purchase order. Delivery shall be F.O.B. point of shipment, and identification and delivery of the Products shall be deemed to have occurred when they have been packed for shipment and delivered to a common or contract carrier, at which time title and risk of loss shall pass to KU. KU shall fully insure all Products from the time when risk of loss for such Products passes as aforesaid and shall produce evidence of such insurance at the request of Alkermes.

(c) All deliveries of Products hereunder shall include a certificate of analysis provided by the quality assurance manager of Alkermes attesting to the fact that such Products (i) have been manufactured and packaged by a process which complies with GMP and (ii) are of quality which is in accordance with criteria established in the Specifications and all requirements of the FDA and applicable law. All Products, when delivered, shall be packaged and ready for commercial sale or distribution.

(d) The Products supplied hereunder shall have been manufactured by a process which complies with the quality agreement that is agreed in writing between the parties.

4.4.  Rejection and Replacement.

(a) In the event KU determines that any Product as manufactured is Defective, then, [***], KU shall provide to Alkermes a written notice of rejection, specifying in reasonable detail the manner in which such Product is Defective (the “Notice of Rejection”). If in the event that KU discovers any latent defects as to any Product, KU shall provide Alkermes a Notice of Rejection [***]. If no written Notice of Rejection is given to Alkermes by KU [***], such Product shall be deemed to have been accepted by KU, provided, however, that nothing contained in this Section 4.4(a) shall be deemed to relieve Alkermes of its obligations under the warranties set forth in SECTION 6 below.

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(b) Upon receipt of a Notice of Rejection from KU and in order to minimize any hardship to KU’s customers, Alkermes shall either (i) supply to KU a quantity of replacement Products meeting the Specifications equal to the size of the lot which KU claims was Defective so that such replacement Products are received by KU [***] following Alkermes’s receipt of KU’s Notice of Rejection or (ii) notify KU that it protests such Notice of Rejection and submit the Products subject to such Notice of Rejection to a mutually agreeable independent laboratory for testing [***] of its sending the notice of protest. Such independent laboratory shall evaluate the Products subject to such Notice of Rejection within 30 days. The evaluation of such independent laboratory shall, absent manifest error, be binding. The costs and expenses relating to any rejection, testing and replacement of Products pursuant to this Section 4.4 shall be paid by Alkermes, or, if submitted to an independent laboratory, by the non-prevailing party.

section 5
ASSIGNED UCB STOCK

5.1.  Generic VPM Stock. As of the Effective Date of this Agreement, KU accepts and assumes full responsibility for any Generic VPM Product stock that has been fully transferred and assigned by UCB to KU under the UCB Agreement. Alkermes and KU hereby agree that as of the Effective Date of this Agreement, such Generic VPM Product stock shall be deemed and treated solely as Product falling within the scope of this Agreement as though such Generic VPM Product was supplied hereunder, and any rights, obligations, liabilities and/or remedies with respect to any such Generic VPM Product shall be governed solely by the terms of this Agreement, it being acknowledged and agreed, however, that all such Generic VPM Product was paid for or will be paid for by UCB pursuant to the UCB Agreement and KU shall have no obligation to Alkermes in respect of the Supply Price of such Generic VPM Product but will remain responsible for compensating Alkermes for any Generic VPM Operating Profits or Generic VPM Product Profits for such Product at the time that such Product is sold. Within thirty (30) days of the Effective Date of this Agreement, KU shall provide Alkermes with a complete inventory of all such Generic VPM Product.

5.2.  Branded Product Stock. On or after the Effective Date, KU shall not sell or supply any Branded Product that was manufactured and supplied under the UCB Agreement.

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section 6
REPRESENTATIONS AND WARRANTIES OF ALKERMES

Alkermes hereby represents and warrants to KU that:

6.1.  Organization, Power and Authority. Alkermes is a company duly organized and validly existing under the laws of Ireland. As of the Effective Date, Alkermes has all necessary corporate power and authority to enter into, and be bound by the terms and conditions of, this Agreement, and to license the Licensed Assets to KU pursuant hereto.

6.2.  Due Authority; No Breach. The execution, delivery and performance by Alkermes of this Agreement and each agreement or instrument contemplated by this Agreement, and the performance of the transactions contemplated hereby and thereby, have been duly authorized by all necessary corporate action by Alkermes. This Agreement is, and each agreement or instrument contemplated by this Agreement, when executed and delivered by Alkermes in accordance with the provisions hereof, will be (assuming the due execution and delivery hereof and thereof by KU) the legal, valid and binding obligation of Alkermes, in each case enforceable against Alkermes in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium, reorganization, or similar laws from time to time in effect which affect the enforcement of creditors’ rights generally and by legal and equitable limitations on the availability of specific performance and other equitable remedies against Alkermes. All persons who have executed this Agreement on behalf of Alkermes, or who will execute on behalf of Alkermes any agreement or instrument contemplated by this Agreement, have been duly authorized to do so by all necessary corporate action. Neither the execution and delivery of this Agreement or any such other agreement or instrument by Alkermes, nor the performance of the obligations contemplated hereby and thereby, will (i) conflict with or result in any violation of or constitute a breach of any of the terms or provisions of, or result in the acceleration of any obligation under, or constitute a default under any provision of the organizational documents or By-laws of Alkermes or any material contract or any other material obligation to which Alkermes is a party or to which it is subject or bound, or (ii) violate any judgment, order, injunction, decree or award of any court, administrative agency, arbitrator or governmental body against, or affecting or binding upon, Alkermes or upon the securities, property or business of Alkermes, or (iii) constitute a violation by Alkermes of any applicable law or regulation of any jurisdiction as such law or regulation relates to Alkermes, or to the property or business of Alkermes except for such conflict, acceleration, default, breach or violation that is not reasonably likely to have a material adverse effect on Alkermes’s ability to perform its obligations under this Agreement or under any agreement or instrument contemplated hereby.

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6.3.  NDAs.

(a) Upon reasonable request and with sufficient notice, Alkermes will allow KU to visit its facilities and review the VPM NDA (other than the CMC Section), including all material amendments and supplements thereto. Alkermes or an Affiliate of Alkermes is the lawful holder of all rights under the VIM NDA. As of the Effective Date, Alkermes has complied in all material respects with all applicable laws and regulations with respect to the VPM NDA, and nothing has come to the attention of Alkermes which has, or reasonably should have, led Alkermes to believe that the VPM NDA will not be approved by the FDA. Other than pursuant to this Agreement, Alkermes has neither independently marketed, nor has it made arrangements for others to market the VPM Product in the Territory.

(b) Upon reasonable request and with sufficient notice, Alkermes will allow KU to visit its facilities and review the V NDA (other than the CMC Section), including all material amendments and supplements thereto. As of the Effective Date, Alkermes is the lawful holder of all rights under the V NDA and has the authority to grant the licenses under this Agreement, including licenses held by any of its affiliates under any other NDA. As of the Effective Date, Alkermes has complied in all material respects with all applicable laws and regulations in connection with the preparation and submission to the FDA of the V NDA, and the V NDA has been approved by and nothing has come to the attention of Alkermes which has, or reasonably should have, led Alkermes to believe that the V NDA is not in good standing with the FDA. As of the Effective Date, Alkermes has filed with the FDA all required notices, supplemental applications and annual or other reports, including adverse experience reports, with respect to the V NDA which are material to the ability of KU to conduct the Activities and no future action is required by the FDA to lawfully market the V Product in the Territory.

6.4.  Intellectual Property.

(a) Set forth on Schedule 6.4 hereto is a list of all Trademarks. Except as set forth on Schedule 6.4 hereto, (i) Alkermes is the lawful owner of the Trademarks, (ii) Alkermes can license the Trademarks without the consent of any third party, (iii) there is no pending or overtly threatened claim against Alkermes asserting that any of the Trademarks infringe or violate the lights of third parties, and (iv) nothing has come to the attention of Alkermes which has led Alkermes to believe that any of the Trademarks infringe or violate the light of third parties. Alkermes has not given any notice to any third parties asserting infringement by such third parties upon any of the Licensed Assets. Alkermes is not aware of and has not received any communications challenging the ownership, validity or effectiveness of any of the Trademarks. Nothing has come to the attention of Alkermes which has led Alkermes to believe that the Activities infringe or violate the patent or trademark rights of third parties. Alkermes has not granted any right to any third party relating to the Activities which would violate the terms of or conflict with the rights granted to KU pursuant to this Agreement.

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(b) Nothing has come to the attention of Alkermes, without any special search, which has led Alkermes to believe that the practice of the Technology in the manufacture of Product under this Agreement infringes or violates the rights of any Third Party.

6.5.  Litigation. There are no pending or, to Alkermes’s knowledge without having carried out any special search, threatened judicial, administrative or arbitral actions, claims, suits or proceedings pending as of the date hereof against Alkermes which, either individually or together with any other, would have a material adverse effect on the ability of Alkermes to perform its obligations under this Agreement or any agreement or instrument contemplated hereby. To Alkermes’s knowledge without having carried out any special search, there are no pending or threatened actions or suits relating to the Activities or the Licensed Assets.

6.6.  Governmental Approval. As of the Effective Date, other than the NDAs licensed to KU hereunder, no consent, approval, waiver, order or authorization of, or registration, declaration or filing with, any governmental authority is required in connection with the execution, delivery and performance of this Agreement, or any agreement or instrument contemplated by this Agreement, by Alkermes or the performance by Alkermes of its obligations contemplated hereby and thereby.

6.7.  Brokerage. No broker, finder or similar agent has been employed by or on behalf of Alkermes, and no Person with which Alkermes has had any dealings or communications of any kind is entitled to any brokerage commission, finder’s fee or any similar compensation, in connection with this Agreement or the transactions contemplated hereby.

6.8.  Compliance with Law. Alkermes will comply with the provisions of this Agreement, all FDA and other approvals, all applicable state and local regulatory approvals and requirements and all applicable laws, ordinances and regulations, the noncompliance with which reasonably could have a material adverse effect on KU or the transactions contemplated hereby.

6.9.  Implied Warranties. EXCEPT AS EXPRESSLY PROVIDED IN THIS Section 6, ALKERMES MAKES NO REPRESENTATION OR WARRANTY AS TO THE LICENSED ASSETS, THE TECHNOLOGY OR THE ACTIVITIES, EITHER IN FACT OR BY OPERATION OF LAW, AND ALKERMES SPECIFICALLY DISCLAIMS ANY AND ALL IMPLIED OR STATUTORY WARRANTIES.

section 7
REPRESENTATIONS AND WARRANTIES OF KU

KU represents and warrants to Alkermes that:

7.1.  Organization, Power and Authority. KU is a corporation duly organized, validly existing and in good standing under the laws of the State of Indiana. As of the Effective Date, KU has all necessary corporate power and authority to enter into, and be bound by the terms and conditions of, this Agreement, and to license the Licensed Assets from Alkermes pursuant hereto.

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7.2.  Due Authority; No Breach. The execution, delivery and performance by KU of this Agreement, and each agreement or instrument contemplated by this Agreement, and the performance of the transactions contemplated hereby and thereby, have been duly authorized by all necessary corporate action by KU. This Agreement is, and each agreement or instrument contemplated by this Agreement, when executed and delivered by KU in accordance with the provisions hereof, will be (assuming due execution and delivery hereof and thereof by Alkermes) the legal, valid and binding obligation of KU, in each case enforceable against KU in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium, reorganization, or similar laws from time to time in effect which affect the enforcement of creditors’ rights generally and by legal and equitable limitations on the availability of specific performance and other equitable remedies against KU. All persons who have executed this Agreement on behalf of KU, or who will execute on behalf of KU any agreement or instrument contemplated by this Agreement, have been duly authorized to do so by all necessary corporate action. Neither the execution and delivery of this Agreement by KU, or any such other agreement or instrument by KU, nor the performance of the obligations contemplated hereby and thereby, will (i) conflict with or result in any violation of or constitute a breach of any of the terms or provisions of or result in the acceleration of any obligation under, or constitute a default under any provision of the Articles of Incorporation or By-laws of KU or any material contract or any other material obligation to which KU is a party or to which it is subject or bound, or (ii) violate any judgment, order, injunction, decree or award of any court, administrative agency, arbitrator or government body against, or affecting or binding upon, KU or upon the securities, property or business of KU, or (iii) constitute a violation by KU of any applicable law or regulation of any jurisdiction as such law or regulation relates to KU or to the property or business of KU, except for such conflict, acceleration, default, breach or violation that is not reasonably likely to have a material adverse effect on KU’s ability to perform its obligations under this Agreement or any agreement or instrument contemplated hereby.

7.3.  Brokerage. No broker, finder or similar agent has been employed by or on behalf of KU, and no Person with which KU has had any dealings or communications of any kind is entitled to any brokerage commission, finder’s fee or any similar compensation in connection with this Agreement or the transactions contemplated hereby.

7.4.  Litigation. There are no pending or, to KU’s knowledge, threatened judicial, administrative or arbitral actions, claims, suits or proceedings pending as of the date hereof against KU which, either individually or together with any other, will have a material adverse effect on the ability of KU to perform its obligations under this Agreement or any agreement or instrument contemplated hereby.

7.5.  Governmental Approval. No consent, approval, waiver, order or authorization of, or registration, declaration or filing with, any governmental authority is required in connection with the execution, delivery and performance of this Agreement, or any agreement or instrument contemplated by this Agreement, by KU or the performance by KU of its obligations contemplated hereby and thereby.

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7.6.  Compliance with Law. KU will comply with the provisions of this Agreement, all FDA and other approvals, all applicable state and local regulatory approvals and requirements and all applicable laws, ordinances and regulations, the noncompliance with which reasonably could have a material adverse effect on Alkermes or the transactions contemplated hereby.

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section 8
COVENANTS ANDAGREEMENTS OF THE PARTIES

8.1.  Governmental Filings. Alkermes and KU each agree to prepare and file whatever filings, requests or applications are required to be filed with any governmental authority in connection with this Agreement and to cooperate with one another as reasonably necessary to accomplish the foregoing.

8.2.  Responsibility for NDAs.

(a) Alkermes shall, or shall cause its applicable Affiliate to, maintain the existing NDAs.

(b) Alkermes shall remain responsible for fulfilling all regulatory requirements with respect to the Products that are imposed upon Alkermes as the owner of the NDAs; provided, however, Alkermes shall provide KU, upon reasonable request and with sufficient notice, with access to it facilities where KU may review filings submitted by Alkermes to the FDA (other than the CMC Section thereof) and the application summary, which provides a comprehensive summary of all clinical trials conducted under the NDAs. KU shall, on a timely basis, provide to Alkermes all information that KU has that Alkermes does not have that is reasonably necessary and relevant to Alkermes’s obligations hereunder to fulfill such requirements including, but not limited to, sales distribution information concerning the Products, and shall otherwise cooperate with Alkermes as reasonably necessary in connection therewith. Without limiting the generality of the foregoing sentence, in the event that any supplements to the NDAs or any other regulatory requirements are necessitated as a result of transferring manufacturing of the Products from Alkermes to any other manufacturer or as a result of any action by KU (including, but not limited to, acquisition by a third party of substantially all of the assets or outstanding shares of KU, or merger with KU) or such other manufacturer, KU shall, on a timely basis and at KU’s expense, develop and provide to Alkermes all information that is reasonably necessary and relevant to Alkermes’s obligation hereunder to file such supplements or to fulfill such requirements and shall otherwise cooperate with Alkermes as reasonably necessary in connection therewith. Alkermes shall have the final decision-making authority in every case on whether and how to supplement, amend or otherwise alter the NDAs and any other issues in connection with the NDAs and on whether and how to communicate with the FDA in connection therewith. KU shall submit to Alkermes for Alkermes’s prior review and approval any request by KU to pursue approval of any new indication for the Products, to conduct any studies with respect to the Products, and to make any submissions to the FDA with respect to the Products; provided, however, that Alkermes shall have the right, in its reasonable judgment and based solely on the scientific merit of the request, to refuse any such request. If Alkermes elects to undertake such an obligation, such election shall be subject to Alkermes and KU mutually agreeing upon the terms and conditions of any such obligation.

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(c) KU and Alkermes shall jointly agree written procedures and define responsibilities for (i) the reporting of adverse drag experiences, (ii) the submission by KU to Alkermes and by Alkermes to FDA of labeling and Promotional Materials related to the Products, (iii) the administration of and response to medical inquiries concerning the Products by consumers, physicians, pharmacists and other health care professionals, (iv) the administration and analysis of and response to complaints concerning the Products, and (v) the development of training materials related to the Products. KU and Alkermes shall each comply with the provisions of such written procedures.

8.3.  Compliance with Law. KU and Alkermes shall each comply with all federal, state and local laws and regulations applicable to manufacturing, marketing and selling the Products in the Territory, the Licensed Assets and the Technology or the performance of their respective obligations hereunder. Alkermes and KU each shall keep all records and reports required to be kept by applicable laws and regulations, and each shall make its facilities available at reasonable times during business hours for inspection by representatives of governmental agencies. Alkermes and KU each shall notify the other within [***] of receipt of any notice or any other indication whatsoever of any FDA or other governmental agency inspection, investigation or other inquiry, or other material notice or communication of any type, involving the Products. KU and Alkermes shall cooperate with each other during any such inspection, investigation or other inquiry. KU and Alkermes shall notify each other of any response to observations or notifications received in connection with any such inspection, investigation or other inquiry. In the event of disagreement concerning the form or content of such response, however, Alkermes shall be responsible for deciding the appropriate form and content of any response with respect to any of its cited activities and KU shall be responsible for deciding the appropriate form and content of any response with respect to any of its cited activities.

8.4.  Recall. KU shall notify Alkermes of all material information of which KU becomes aware concerning side effects, injury, toxicity or sensitivity reactions including incidence and severity thereof associated with commercial or clinical uses, studies, investigations or tests with the Products, whether or not determined to be attributable to the Products, which may constitute an adverse drug experience with respect to the Products under 21 C.F.R. 310.305 or 314.80. KU and Alkermes shall consult with one another as to all decisions concerning recall or withdrawal of any Product from the market, including, but not limited to, determining whether or not to make any such recall or withdrawal, the timing and scope thereof, and the means of conducting any recall or withdrawal. The party requesting any recall or withdrawal must receive the prior written consent of the other party, such consent not to be unreasonably withheld, prior to initiating such recall or withdrawal. No consent shall be necessary if the recall or withdrawal is required by the FDA or other governmental authority. Alkermes shall bear the costs (including but not limited to, shipping and product credits) for any recall or withdrawal primarily due to the failure of any Product to comply with, or be manufactured in accordance with, the Specifications, GMP, the NDA or applicable law. The costs for any other recall or withdrawal shall be the responsibility of KU. Each party will cooperate fully with the other in connection with any recall or withdrawal,

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8.5.  Confidentiality. KU shall treat as confidential the Licensed Assets, the Technology, and all other information of Alkermes of which KU becomes aware in connection with this Agreement (collectively, “Alkermes Proprietary Information”). KU shall neither disclose Alkermes Proprietary Information to any third party nor use Alkermes Proprietary Information for any purpose other than as set forth in this Agreement. Alkermes shall treat as confidential all information of KU of which Alkermes becomes aware in connection with this Agreement (collectively, “KU Proprietary Information”). Alkermes shall neither disclose KU Proprietary Information to any third party nor use KU Proprietary Information for any purpose other than as set forth in this Agreement.

Nothing contained herein will in any way restrict or impair either party’s (the “Using Party’s”) right to use, disclose or otherwise deal with any Proprietary Information of the other party which:

(a) at the time of disclosure is known to the public or thereafter becomes known to the public by publication or otherwise through no fault of the Using Party;

(b) the Using Party can establish was in its possession prior to the time of the disclosure and was not obtained directly or indirectly from the other party;

(c) is independently made available as a matter of right to the Using Party by a third party who is not thereby in violation of a confidential relationship with the other party;

(d) is developed by the Using Party independently of the Proprietary Information received from the other party and the Using Party can establish such development; or

(e) is information required to be disclosed by legal or regulatory process; provided, in each case the Using Party timely informs the other party and uses reasonable efforts to limit the disclosure and maintain confidentiality to the extent possible and permits the other party to intervene and contest or attempt to limit the disclosure. KU shall obtain no right or license of any kind under the Alkermes Proprietary Information except as set forth in this Agreement. Alkermes shall obtain no right or license of any kind under the KU Proprietary Information except as set forth in this Agreement

8.6.  Expenses. Alkermes and KU shall each bear their own direct and indirect expenses incurred in connection with the negotiation and preparation of this Agreement and, except as set forth in this Agreement, the performance of the obligations contemplated hereby.

8.7.  Reasonable Efforts. Alkermes and KU each hereby agrees to use all commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary and proper to make effective the transactions contemplated by this Agreement.

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8.8.  Publicity. The parties agree that no publicity release or announcement concerning the transactions contemplated hereby shall be issued without the advance written consent of the other, except as such release or announcement may be required by law, in which case the party making the release or announcement shall, before making any such release or announcement, afford the other party a reasonable opportunity to review and comment upon such release or announcement,

8.9.  Cooperation. If either party shall become engaged in or participate in any investigation, claim, litigation or other proceeding with any third-party, including the PDA, relating in any way to the Products or any of the Licensed Assets, or the Technology, the other party shall cooperate in all reasonable respects with such party in connection therewith, including, without limitation, using its reasonable efforts to make available to the other such employees who may be helpful with respect to such investigation, claim, litigation or other proceeding, provided that, for purposes of this provision, reasonable efforts to make available any employee shall be deemed to mean providing a party with reasonable access to any such employee at no cost for a period of time not to exceed twenty-four (24) hours (e.g., three 8-hour business days). Thereafter, any such employee shall be made available for such time and upon such terms and conditions (including, but not limited to, compensation) as the parties may mutually agree.

8.10.  Competition; No Sale for Resale.

(a) Except for the Generic V Product and as otherwise contemplated hereby, each of Alkermes and KU shall not directly or indirectly, develop, manufacture, market or sell any chronotherapeutic dosage formulations of sustained release verapamil hydrochloride. It is understood that the remedies at law are inadequate in the case of any breach of this covenant and that each of KU and Alkermes shall be entitled to equitable relief, including the remedy of specific performance, with respect to any breach of such covenant by the other.

(b) Neither KU nor any sublicensee of KU shall knowingly sell any Product to anyone in the Territory for subsequent distribution or resale outside the Territory and each shall take all reasonable precautions to prevent such distribution or resale outside the Territory. Alkermes shall not knowingly sell any Product to anyone in the Territory or outside the Territory for subsequent distribution or resale in the Territory, and Alkermes shall take all reasonable precautions to prevent such distribution or resale in the Territory.

8.11.  Conflicting Rights. Alkermes shall not grant any right to any third party relating to the Activities which would violate the terms of or conflict with the rights granted to KU pursuant to this Agreement.

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8.12.  Trademark Maintenance.

(a) Alkermes shall be solely responsible for filing, prosecuting, and maintaining all of the Trademarks, and Alkermes shall pay the costs associated therewith, Alkermes shall file, prosecute, and maintain all Trademarks so as to fully continue the benefits under the licenses granted to KU hereunder. In the event that any extension, registration, confirmation, renewal or reexamination is to be filed with respect to a Trademark, Alkermes shall provide KU with the opportunity to review such extension, registration, confirmation, renewal or reexamination and provide input thereto.

(b) KU shall not use the Trademarks in any way which might prejudice its distinctiveness or validity or the goodwill of Alkermes therein. KU shall not use, in relation to the Products, any trademarks other than the Trademarks without obtaining the prior consent in writing of Alkermes, such consent not to be unreasonably withheld or delayed. KU shall not use in the Territory any trademarks or trade names so resembling the Trademarks as to be likely to cause confusion or deception. KU shall promptly notify Alkermes in writing of any alleged infringement of which it becomes aware by a third party of the Trademarks and provide Alkermes with any applicable evidence of infringement.

(c) Alkermes will be entitled to conduct all proceedings relating to the Trademarks and shall at its sole discretion decide what action, if any, to take in respect of any infringement or alleged infringement of the Trademarks or passing-off or any other claim or counterclaim brought or threatened in respect of the use or registration of the Trademarks. Any such proceedings shall be conducted at Alkermes’s expense and for its own benefit. In the event that Alkermes fails to take action in respect of any infringement or alleged infringement of the Trademarks or passing-off or any other claim or counterclaim brought or threatened in respect of the use or registration of the Trademarks, KU may, in its sole discretion, take such action on behalf of Alkermes, at the expense of KU and for the benefit of KU.

(d) Use of the Trademark under this license shall be restricted to the Pre-Approved Form depicted in Schedule 6.4 or any other form approved in advance in writing by Alkermes from time to time in respect of Product offered for sale and sold in the Territory. KU undertakes to use the Trademark only in the aforementioned manner, observing any directions as may be provided by Alkermes from time to time.

(e) KU shall promote and properly use the trademark in accordance with the terms of this license agreement and will also accompany every permitted reference to the trademark with the following statement: “Verelan® is a registered trademark of Alkermes Pharma Ireland Limited”, or any other statement prescribed by the licensor from time to time, unless Alkermes reasonably decides that due to space limitations on packaging or labeling or other factors such statement can appear solely on product package inserts.

8.13.  Supply of Products. Alkermes shall maintain the capacity throughout the term of this Agreement to meet the requirements of KU for Products hereunder.

8.14.  Technology. Alkermes shall be solely responsible for maintaining the Technology

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in accordance with the terms set forth in this Agreement.

8.15.  Liability Insurance. Alkermes shall obtain and carry in full force and effect product liability insurance in respect of the Products in the amount of [***]. KU shall obtain and carry in full force and effect product liability insurance in respect of the Products in the amount of [***].

8.16.  Referral of Orders and Inquiries. Alkermes shall refer all Persons sending orders or making inquiries regarding the Products within the Territory to KU and shall promptly notify KU of the name of each such Person and the nature of the inquiry of such Person.

8.17.  Deemed Breach of Covenant. Neither Alkermes nor KU shall be deemed to be in breach of any covenant contained in this SECTION 8 if such party’s deemed breach is the result of any action or inaction on the part of the other party.

8.18.  Net Sales Deductions for Generic VPM Product. KU may apply any Generic VPM allowances set out in items (a) through (d) of the Net Sales definition as a deduction in the Quarter in which they arise under this Agreement, irrespective of whether they related to Generic VPM Product that was supplied by Alkermes to KU under this Agreement or to UCB under the UCB Agreement.

8.19.  Net Sale Deductions for Branded Product.

(a) Any Branded Products that are returned that can be identified by a code of UCB or KU shall be for such party’s account.

(b) KU’s affiliate, UCB, is responsible for all rebates owing to the Government or pursuant to managed care agreements and similar arrangements (“Rebates”) with respect to prescriptions for the Branded Products written on or prior to the Effective Date. With respect to prescriptions written on the Branded Product on or after the Effective Date of this Agreement, but prior to [***] after the Effective Date of this Agreement, KU shall not be entitled to apply as a Net Sales deduction under this Agreement.

(c) With respect to any chargebacks relating to Branded Products that were supplied to UCB under the UCB Agreement, UCB shall be responsible for all items submitted and KU shall not apply any such chargebacks to any Net Sales calculations under this Agreement. KU shall be responsible for, and may be entitled to apply as a Net Sales deduction to, all chargebacks submitted to KU which related to Branded Product supplied by Alkermes to KU under this Agreement.

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8.20.  Access to Information. Anything to the contrary herein notwithstanding, Alkermes shall (i) permit representatives of KU, upon reasonable notice and request, to inspect such materials at Alkermes’ facilities during normal business hours and (ii) permit reasonable access to Alkermes personnel for the purpose of effectuating the requirements of this Section 8.20 and facilitating KU’s review of the materials to be provided hereunder. Notwithstanding the foregoing, nothing in this paragraph shall be construed to require Alkermes to provide to KU information or documents protected by the attorney-client privilege and/or work product immunity.

section 9
INDEMNIFICATION

9.1.  Indemnification.

(a) Alkermes shall indemnify, defend and hold KU (and its directors, officers, employees, and Affiliates) harmless from and against any and all Damages incurred or suffered by KU (and its directors, officers, employees, and Affiliates) as a consequence of:

(i)any breach of any representation or warranty made by Alkermes in this Agreement or any agreement, instrument or document delivered by Alkermes pursuant to the terms of this Agreement;

(ii)any failure to perform duly and punctually any covenant, agreement or undertaking on the part of Alkermes contained in this Agreement;

(iii)any act or omission of Alkermes with respect to the handling, manufacturing, sale, consumption or use of the Products by Alkermes; or

(iv)any infringement or violation of any third party patents, trademarks or other intellectual property resulting from the practice of the Licensed Assets or of the Technology or that relates to the manufacturing process used by Alkermes to manufacture Product under this Agreement.

(b) KU shall indemnify, defend and hold Alkermes (and its directors, officers, employees, and Affiliates) harmless from and against any and all Damages incurred or suffered by Alkermes (and its directors, officers, employees, and Affiliates) as a consequence of:

(i)any breach of any representation or warranty made by KU in this Agreement or any agreement, instrument or document delivered by KU pursuant to the terms of this Agreement;

(ii)any failure to perform duly and punctually any covenant, agreement or undertaking on the p art of KU contained in this Agreement; or

(iii)any act or omission of K.U with respect to the handling, manufacturing, sale, consumption or use of the Products by KU.

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9.2.  Notice and Opportunity To Defend. Promptly after receipt by a party hereto of notice of any claim which, could give rise to a right to indemnification pursuant to Section 9.1. such party (the “Indemnified Party”) shall give the other party (the “Indemnifying Party”) written notice describing the claim in reasonable detail. The failure of an Indemnified Party to give notice in the manner provided herein shall not relieve the Indemnifying Party of its obligations under this SECTION 9, except to the extent that such failure to give notice materially prejudices the Indemnifying Party’s ability to defend such claim. The Indemnifying Party shall have the right, at its option, to compromise or defend, at its own expense and by its own counsel, any such matter involving the asserted liability of the party seeking such indemnification. If the Indemnifying Party shall undertake to compromise or defend any such asserted liability, it shall promptly (and in any event not less than ten (10) days after receipt of the Indemnified Party’s original notice) notify the Indemnified Party in writing of its intention to do so, and the Indemnified Party agrees to cooperate fully with the Indemnifying Party and its counsel in the compromise or defense against any such asserted liability. All reasonable costs and expenses incurred in connection with such cooperation shall be borne by the Indemnifying Party. If the Indemnifying Party elects not to compromise or defend the asserted liability, fails to notify the Indemnified Party of its election to compromise or defend as herein provided, fails to admit its obligation to indemnify under this Agreement with respect to the claim, or, if in the reasonable opinion of the Indemnified Party, the claim could result in the Indemnified Party becoming subject to injunctive relief or relief other than the payment of money damages that could materially adversely affect the ongoing business of the Indemnified Party in any manner, the Indemnified Party shall have the right, at its option, to pay, compromise or defend such asserted liability by its own counsel and its reasonable costs and expenses shall be included as part of the indemnification obligation of the Indemnifying Party hereunder. Notwithstanding the foregoing, neither the Indemnifying Party nor the Indemnified Party may settle or compromise any claim over the objection of the other; provided, however, that consent to settlement or compromise shall not be unreasonably withheld. In any event, the Indemnified Party and the Indemnifying Party may participate, at their own expense, in the defense of such asserted liability. If the Indemnifying Party chooses to defend any claim, the Indemnified Party shall make available to the Indemnifying Party any books, records or other documents within its control that are necessary or appropriate for such defense. Notwithstanding anything to the contrary in this Section 9.2, (i) the party conducting the defense of a claim shall (A) keep the other party informed on a reasonable and timely basis as to the status of the defense of such claim (but only to the extent such other party is not participating jointly in the defense of such claim), and (B) conduct the defense of such claim in a prudent manner, and (ii) the Indemnifying Party shall not cease to defend, settle or otherwise dispose of any claim without the prior written consent of the Indemnified Party (which consent shall not be unreasonably withheld).

9.3.  Indemnification Payment Obligation. No Indemnifying Party will have any obligations under Sections 9.1(a) or 9.1(b) until the cumulative aggregate amount of Damages incurred or suffered by the Indemnified Party which the Indemnifying Party is otherwise subject to under this Agreement exceeds [***] at which time the entire cumulative aggregate amount of such Damages shall be covered. No Indemnifying Party will have any obligations under Sections 9.11(a) or 9.1(b) beyond [***]. The provisions of this Section 9.3 shall not limit or otherwise affect the obligations of any Indemnifying Patty under any other Section of this Agreement.

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9.4.  Indemnification Payment Adjustment. The amount of any Damages for which indemnification is provided under this SECTION 9 shall be reduced to take account of any net tax benefit and shall be increased to take account of any net tax detriment arising from the incurrence or payment of any such Damages or from the receipt of any such indemnification payment and shall be reduced by the insurance proceeds received and any other amount recovered, if any, by the Indemnified Party with respect to any Damages; provided, however, that an Indemnified Party shall not be subject to an obligation to pursue an insurance claim relating to any Damages for which indemnification is sought hereunder. If any Indemnified Party shall have received any payment pursuant to this SECTI0N 9 with respect to any Damages and shall subsequently have received insurance proceeds or other amounts with respect to such Damages, then such Indemnified Party shall pay to the Indemnifying Party an amount equal to the difference (if any) between (i) the sum of the amount of those insurance proceeds or other amounts received and the amount of the payment by such Indemnifying Party pursuant to this SECTION 9 with respect to such Damages and (ii) the amount necessary to fully and completely indemnify and hold harmless such Indemnified Party from and against such Damages; provided, however, in no event will such Indemnified Party have any obligation pursuant to this sentence to pay to such Indemnifying Party an amount greater than the amount of the payment by such Indemnifying Party pursuant to this SECTION 9 with respect to such Damages.

9.5.  Indemnification Payment. Upon the final determination of liability and the amount of the indemnification payment under this SECTION 9, the appropriate party shall pay to the other, as the case may be, within [***], the amount of any claim for indemnification made hereunder,

9.6.  Survival. The provisions of SECTION 9 shall survive any termination of this Agreement. Each Indemnified Party’s rights under SECTION 9 shall not be deemed to have been waived or otherwise affected by such Indemnified Party’s waiver of the breach of any representation, warranty, agreement or covenant contained in or made pursuant this Agreement, unless such waiver expressly and in writing also waives any or all of the Indemnified Party’s rights under SECTION 9.

9.7.  Consequential Damages. Notwithstanding anything to the contrary in this Agreement, neither Alkermes nor KU shall be liable to the other by reason of any representation or warranty, condition or other term or any other duty of common law for any consequential or incidental or punitive loss or damage, whether occasioned by the negligence of the respective parties, their employees or agents or otherwise; provided, however that the parties have explicitly agreed that direct damages shall not be subject to the foregoing limitation.

section 10

TERMINATION

10.1.  Termination. The term of this Agreement shall begin upon the Effective Date and, unless sooner terminated as hereinafter provided, shall end upon the second anniversary of the Effective Date. This Agreement may be renewed for successive two (2)-year terms by mutual agreement of the parties in writing. Notwithstanding the foregoing, this Agreement may be terminated as follows:

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(a) Early Termination. Either party may terminate this Agreement at any time by providing six (6) months’ prior written notice to the other party.

(b) Termination for Insolvency. If either KU or Alkermes (i) makes a general assignment for the benefit of creditors or becomes insolvent; (ii) files an insolvency petition in bankruptcy, (iii) petitions for or acquiesces in the appointment of any receiver, trustee or similar officer to liquidate or conserve its business or any substantial part of its assets; (iv) commences under the laws of any jurisdiction any proceeding involving its insolvency, bankruptcy, reorganization, adjustment of debt, dissolution, liquidation or any other similar proceeding for the release of financially distressed debtors; or (v) becomes a party to any proceeding or action of the type described above in (iii) or (iv) and such proceeding or action remains undismissed or unstayed for a period of more than 60 days, then the other party may by written notice terminate this Agreement in its entirety with immediate effect.

(c) Termination for Default.

(i)KU and Alkermes each shall have the right to terminate this Agreement for default upon the other’s failure to comply in any material respect with the terms and conditions of this Agreement. At least thirty (30) days prior to any such termination for default, the party seeking to so terminate shall give the other written notice of its intention to terminate this Agreement in accordance with the provisions of this Section 10.1(c), which notice shall set forth the default(s) which form the basis for such termination. If the defaulting party fails to correct such default(s) within thirty (30) days after receipt of notification, or if the same cannot reasonably be corrected or remedied within thirty (30) days, then if the defaulting party has not commenced curing said default(s) within said thirty (30) days and be diligently pursuing completion of same, then such party immediately may terminate this Agreement.

(ii)This Section 10.1(c) shall not be exclusive and shall not be in lieu of any other remedies available to a party hereto for any default hereunder on the part of the other party.

(d) Continuing Obligations. Termination of this Agreement for any reason shall not relieve the parties of any obligation accruing prior thereto with respect to the Products and any ongoing obligations hereunder with respect to the remaining Products and shall be without prejudice to the rights and remedies of either party with respect to any antecedent breach of the provisions of this Agreement. Without limiting the generality of the foregoing, no termination of this Agreement, whether by lapse of time or otherwise, shall serve to terminate the obligations of the parties hereto under Sections 8.4, 8.5, 8.6, 8.8, 8.15, SECTION 9, Section 10.1(c) and SECTION 11 hereof, and such obligations shall survive any such termination.

(e) Net Sales Allowances after file Termination Date. In reference to returns or other Net Sales allowances which arise after the termination of this Agreement in respect of any Product supplied and sold under this Agreement prior to such termination, the parties agree that KU shall not be entitled to seek any reimbursement, Net Sales deductions or other form of compensation from Alkermes.

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section 11

MISCELLANEOUS

11.1.  Assignment and Subcontracting.

(a) No party shall assign its rights or delegate its duties or obligations under this Agreement without the prior written consent of the other party hereto, except that (i) any party may assign its rights or delegate its duties under this Agreement to any of its Affiliates and (ii) KU agrees that it shall execute and deliver any documents as may reasonably be requested to consent to Alkermes’ assignment of all of its rights and obligations arising from and under this Agreement to any company that may acquire the Alkermes’s Gainesville, Georgia facility. Absent the prior written consent of the other party hereto, no affiliate assignment permitted under clause (i) of this Section 11.1 shall relieve the party making such assignment of its obligations hereunder. Any attempted assignment in contravention of this Section 11.1 shall be null and void.

(b) KU hereby acknowledges and agrees that Alkermes shall be entitled to subcontract its rights and obligations in this Agreement to its Affiliate, Alkermes Gainesville LLC, the legal entity which owns and operates the Gainesville Facility.

11.2.  Notices. All notices or other communications required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand or facsimile and confirmed in writing, or mailed first class, postage prepaid, by registered or certified mail, return receipt requested (mailed notices and notices sent by facsimile shall be deemed to have been given on the date received) as follows:

If to Alkermes, as follows:

Alkermes Pharma Ireland Limited
Connaught House, 1 Burlington Road
Dublin 4
Ireland
Telephone: +353 1 772 8000
Facsimile: +353 1 772 8001
Attention: Company Secretary

With a copy to:

VP, Alliance Management
at the same address and contact details as set out above

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If to KU, as follows:

Kremers Urban Pharmaceuticals Inc.
902 Carnegie Center, Suite 360
Princeton, NJ 08540
Facsimile: (609) 275-5352
Attention: Vice President, Sales & Marketing

or in any case to such other address or addresses as hereafter shall be furnished as provided in this Section 11.2 by any party hereto to the other party,

11.3.  Waiver: Remedies. Any term or provision of this Agreement may be waived at any time by the party entitled to the benefit thereof by a written instrument executed by such party. No delay on the part of Alkermes or KU in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of either Alkermes or KU of any right, power or privilege hereunder operate as a waiver of any other right, power or privilege hereunder nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder. The indemnification provided in SECTION 9 shall be the sole remedy available for any Damages arising out of or in connection with this Agreement except for any rights or remedies which the parties hereto may otherwise have in equity.

11.4.  Survival of Representations. Each of the representations and warranties made in this Agreement shall continue for the term of this Agreement and shall thereafter be. extinguished.

11.5.  Independent Contractors. The parties hereto are independent contractors, and nothing contained in this Agreement shall be deemed to create the relationship of partners, joint venturers, or of principal and agent, franchisor and franchisee, or of any association or relationship between the parties other than as expressly provided in this Agreement. KU acknowledges that it does not have, and KU shall not make representations to any third party, either directly or indirectly, indicating that KU has, any authority to act for or on behalf of Alkermes or to obligate Alkermes in any way whatsoever. Alkermes acknowledges that it does not have, and it shall not make any representations to any third party, either directly or indirectly, indicating that it has, any authority to act for or on behalf of KU or to obligate KU in any way whatsoever.

11.6.  Entire Agreement. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements or understandings of the parties relating thereto.

11.7.  Amendment. This Agreement may be modified or amended only by written agreement of the parties hereto.

11.8.  Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original but all of which together shall constitute a single instrument.

-28-

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***] HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

11.9.  Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of New York excluding any choice of law rules which may direct the application of the law of another state.

11.10.  Arbitration. Any dispute, controversy or claim arising out of or in connection with this Agreement shall be determined and settled by arbitration in New York, New York, pursuant to the commercial arbitration rules then in effect of the American Arbitration Association. Any award rendered shall be final and conclusive upon the parties and a judgment thereon may be entered in a court having competent jurisdiction. Any arbitration hereunder shall be (i) submitted to an arbitration tribunal comprised of three (3) independent members knowledgeable in the pharmaceutical industry, one of whom shall be selected by KU, one of whom shall be selected by Alkermes, and one of whom shall be selected by the other two arbitrators; (ii) allow for the parties to request discovery pursuant to the rules then in effect under the Federal Rules of Civil Procedure for a period not to exceed ninety (90) days; and (iii) require the award to be accompanied by findings of fact and a statement of reasons for the decision. Each party shall bear its own costs and expenses, including attorney’s fees incurred in any dispute which is determined and/or settled by arbitration pursuant to this Section 11.10. Except where clearly prevented by the area in dispute, both parties agree to continue performing their respective obligations under this Agreement while the dispute is being resolved. Arbitration shall not prevent any party from seeking injunctive relief where such remedy is an appropriate form of remedy under the circumstances.

11.11.  Captions. All section titles or captions contained in this Agreement, in any Schedule referred to herein or in any Exhibit annexed hereto, and the table of contents, if any, to this Agreement are for convenience only, shall not be deemed a part of this Agreement and shall not affect the meaning or interpretation of this Agreement.

11.12.  No Third-Party Rights. No provision of this Agreement shall be deemed or construed in any way to result in the creation of any rights or obligation in any Person not a party or not affiliated with a party to this Agreement.

11.13.  Severability. If any provision of this Agreement is found or declared to be invalid or unenforceable by any court or other competent authority having jurisdiction, such finding or declaration shall not invalidate any other provision hereof, and this Agreement shall thereafter continue in full force and effect.

11.14.  Attachments. All Schedules, Exhibits and other attachments to this Agreement are by this reference incorporated herein and made a part of this Agreement.

[Signature page follows]

-29-

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***] HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered on the day and year first above written.

ALKERMES PHARMA IRELAND LIMITED

By:/s/ Shane Cooke​ ​​ ​​ ​

Name: Shane Cooke

Title: Director

KREMERS URBAN PHARMACEUTICALS INC.

By:/s/ George Stevenson​ ​​ ​​ ​

Name: George Stevenson

Title: President and CEO

By:/s/ Mary Ellen Campion​ ​​ ​

Name: Mary Ellen Campion

Title: Vice President and CEO

[License and Supply Agreement]

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***] HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

Schedule 2.1(a)
to License and
Supply Agreement

NDAs

[***]

[***]

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***] HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

Schedule 3.1
to License and
Supply Agreement

Product Pricing and Payment Terms

1. Defined Terms. As used in this Schedule 3.1, the following terms shall have the respective meaning ascribed to them below.

“Actual NSP” for a particular Product and in respect of a particular Quarter, means the [***].

“National NSP” or “NNSP” for a particular Product and in respect of a particular Year, means KU’s estimate of the Actual NSP for such Product for such Year, as determined pursuant to Section 2 of this Schedule 3.1.

“Supply Price” means Supply Price for Branded Product or Supply Price for Generic VPM Product, as the context requires.

“Supply Price for Branded Product” for a particular Branded Product and in respect of a particular Year, means [***].

“Supply Price for Generic VPM Product” for the Generic VPM Product shall [***].

2. Determination of Notional NSP and Cost.

(a) Not later than [***], KU shall notify Alkermes of its proposed National NSP for each of the Branded VPM Product and the Branded V Product for the next subsequent Year. Such proposed Notional NSPs shall be discussed in good faith by the Parties, and the Parties shall agree upon the final Notional NSP for each Branded Product for such next subsequent Year not later than [***]. For example, KU shall provide its proposed Notional NSP for each Branded Product to Alkermes by [***] and the Parties shall agree upon the Notional NSP for the Branded Products for 2015 not later than [***].

(b) Notwithstanding the foregoing, the Parties shall, by no later than [***], confer and agree upon the Notional NSP for 2014.

3. Branded VPM Product Terms.

(a) Subject to Section 3(c), below, each invoice submitted to KU upon delivery of an order of Branded VPM Product shall [***].

(b) Each Quarterly report delivered to Alkermes pursuant to Section 3.5 of the Agreement shall set forth the Actual NSP for all Branded VPM Product sold during the Quarter to which such report relates. Based upon such Actual NSP:

(i) [***].

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***] HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

(ii) [***].

(c) Anything to the contrary notwithstanding samples of Branded VPM Product shall be supplied to KU [***].

(d) For the avoidance of doubt the parties agree that if for whatever reason the Branded VPM Product supplied by Alkermes to KU is not sold by KU, Alkermes shall retain the Supply Price paid for such Branded VPM Product (or if such Supply Price has not been paid, KU shall remain obligated to pay and shall pay such Supply Price to Alkermes).

4. Branded V Product Terms.

(a) Subject to Section 4(c), below, each invoice submitted to KU upon delivery of an order of Branded V Product shall reflect a price per unit equal to the then-current supply Price for the Branded V Product.

(b) Each Quarterly report delivered to Alkermes pursuant to Section 3.5 of the Agreement shall set forth the Actual NSP for all Branded V Product sold during the Quarter to which such report relates, Based upon such Actual NSP:

(i) [***].

(ii) [***].

(c) Anything to the contrary notwithstanding samples of Branded V Product shall be supplied to KU [***].

(d) For the avoidance of doubt, the parties agree that if for whatever reason the Branded V Product supplied by Alkermes is not sold by KU, Alkermes shall retain the Supply Price paid for such Branded V Product (or if such Supply Price has not been paid, KU shall remain obligated to pay and shall pay such Supply Price to Alkermes).

5. Generic VPM Product Terms.

(a) In every Quarter during which every Branded Product in all dosages strengths is sold by KU, KU shall pay Alkermes [***].

(b) In any Quarter where KU does not sell each dosage strength of each Branded Product, KU shall pay Alkermes [***].

(c) Notwithstanding anything to the contrary the amount payable to Alkermes during any Quarter pursuant to Clause 5(a) or (b) above shall [***].

-2-

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***] HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

Schedule 4.1
to License and
Supply Agreement

Batch Sizes and Minimum Volumes

(a)Branded V Product

Subject to Section 4.1(c), the minimum order for Branded V Product shall be:

Strength	Order Quantity
[***]	[***] bottles per SKU, delivery dates need to coincide with Generic V Product.
[***]	[***] bottles per SKU, delivery dates need to coincide with Generic V Product.
[***]	[***] bottles per SKU, delivery dates need to coincide with Generic V Product.
[***]	[***] bottles per SKU, delivery dates need to coincide with Generic V Product.

(b)Branded and Generic VPM Product

If both the Branded VPM Product and the Generic VPM Product are ordered, then the minimum order shall be:

Strength	Order Quantity
[***]	[***] bottles of Branded VPM Product, combined with [***] bottles of Generic VPM Product
[***]	[***] bottles of Branded VPM Product, combined with [***] bottles of Generic VPM Product
[***]	[***] bottles of Branded VPM Product, combined with [***] bottles of Generic VPM Product

If only Branded VPM Product or Generic VPM Product is ordered, then the minimum order for whichever Product is ordered shall be:

Strength	Order Quantity
[***]	[***] bottles of VPM Product or [***] bottles of Generic VPM Product
[***]	[***] bottles of VPM Product or [***] bottles of Generic VPM Product
[***]	[***] bottles of VPM Product or [***] bottles of Generic VPM Product

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***] HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

Schedule 6.4
to License and
Supply Agreement

Intellectual Property

TRADEMARKS

VERELAN - U.S. Registration No.: 1,551,582

The Pre-Approved Forms in which this Trademark may be used by KU hereunder is as follows:

Verelan®

Verelan® capsules

Verelan® (verapamil hydrochloride capsules)

EX-10.77

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***] HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

Exhibit 10.77

AMENDMENT NO. 1 TO LICENSE AND SUPPLY AGREEMENT

THIS AMENDMENT NO. 1 TO LICENSE AND SUPPLY AGREEMENT (this “Amendment”) is
made as of September 6, 2018 by and between Recro Gainesville LLC (as successor to Alkermes Pharma Ireland Limited) (“Recro”), and Kremers Urban Pharmaceuticals, Inc. (“Kremers Urban”).

Background

WHEREAS, Recro and Kremers Urban are parties to that certain License and Supply Agreement,
effective as of January 1, 2014 (the “Agreement”).

WHEREAS, the parties now desire to enter into this Amendment to set forth certain changes to and modifications of the terms and conditions contained in the Agreement.

NOW, THEREFORE, in consideration of the mutual agreement of the parties contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged and agreed, and intending to be legally bound hereby, the parties agree as follows:

1.Incorporation of Background; Capitalized Terms. The “Background” provision set forth above, together with the defined terms therein, are incorporated herein by reference. Capitalized terms not otherwise defined herein shall have the meanings given to such terms in the Agreement.

2.SECTION 1 DEFINITIONS. The definition of “Generic VPM Operating Profits” is deleted in its entirety and replaced with the following language:

““Generic VPM Operating Profits” shall mean the [***].

3.SECTION 10 TERMINATION. Section 10.1 Termination is deleted in its entirety and replaced with the following language:

“10.1 Termination. The term of this Agreement shall begin upon the Effective Date and, unless sooner terminated as hereinafter provided, shall end on December 31, 2021. This Agreement may be renewed for successive two (2)-year terms by mutual agreement of the parties in writing. Notwithstanding the foregoing, this Agreement may be terminated as follows:

(a)Early Termination. At any time after March 31, 2019, either party may terminate this Agreement at any time by providing six (6) months’ prior written notice to the other party if Net Sales for the trailing twelve (12) month period prior to delivery of such written notice are less than [***].

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***] HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

(b)Termination for Insolvency. If either Kremers Urban (or its parent company), or Recro (i) makes a general assignment for the benefit of creditors or becomes insolvent; (ii) files an
insolvency petition in bankruptcy; (iii) petitions for or acquiesces in the appointment of any receiver, trustee or similar officer to liquidate or conserve its business or any substantial part of its assets; (iv) commences under the laws of any jurisdiction any proceeding involving its insolvency, bankruptcy, reorganization, adjustment of debt, dissolution, liquidation or any other similar proceeding for the release of financially distressed debtors; or (v) becomes a party to any proceeding or action of the type described above in (iii) or (iv) and such proceeding or action remains undismissed or unstayed for a period of more than 60 days, then the other party may by written notice terminate this Agreement in its entirety with immediate effect.

(c)Termination for Default.

(i)Kremers Urban and Recro each shall have the right to terminate this Agreement for default upon the other’s failure to comply in any material respect with the terms and conditions of this Agreement. At least thirty (30) days prior to any such termination for default, the party seeking to so terminate shall give the other written notice of its intention to terminate this Agreement in accordance with the provisions of this Section 10.1(c), which notice shall set forth the default(s) which form the basis for such termination. If the defaulting party fails to correct such default(s) within thirty (30) days after receipt of notification, or if the same cannot reasonably be corrected or remedied within thirty (30) days, then if the defaulting party has not commenced curing said default(s) within said thirty (30) days and be diligently pursuing completion of same, then such party immediately may terminate this Agreement.

(ii)This Section 10.1(c) shall not be exclusive and shall not be in lieu of any other remedies available to a party hereto for any default hereunder on the part of the other party.

(d)Continuing Obligations. Termination of this Agreement for any reason shall not relieve the parties of any obligation accruing prior thereto with respect to the Products and any ongoing obligations hereunder with respect to the remaining Products and shall be without prejudice to the rights and remedies of either party with respect to any antecedent breach of the provisions of this Agreement. Without limiting the generality of the foregoing, no termination of this Agreement, whether by lapse of time or otherwise, shall serve to terminate the obligations of the parties hereto under Sections 8.4, 8.5, 8.6. 8.8, 8.15, SECTION 9, Section 10.1(c) and SECTION 11 hereof, and such obligations shall survive any such termination.

(e)Net Sales Allowances after the Termination Date. In reference to returns or other Net Sales allowances which arise after the termination of this Agreement in respect of any Product supplied and sold under this Agreement prior to such termination, the parties agree that Kremers Urban shall not be entitled to seek any reimbursement, Net Sales deductions or other form of compensation from Recro.”

4.SCHEDULE 3.1 GENERIC VPM PRODUCT TERMS. Section 5(a) to Schedule 3.1 of the Agreement is deleted in its entirety and replaced with the following language:

“In every Quarter during which every Branded Product in all dosage strengths is sold by KU, KU shall pay Recro [***] of the Generic VPM Operating Profit for the Generic VPM Product for such Quarter.”

5.Inconsistencies; Disputes. To the extent of any inconsistency between the Agreement and this Amendment, the terms and conditions of this Amendment shall prevail.

6.No Other Amendments. All provisions of the Agreement not expressly amended by this Amendment shall remain in full force and effect, and are ratified and confirmed.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***] HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

7.Counterparts. This Amendment may be executed in counterparts, each of which shall be deemed an original and all of which, taken together, shall constitute one and the same instrument. An electronic or faxed signed copy of this Amendment shall have the same force and effect as an original signed copy.

[signature page follows]

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***] HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

IN WITNESS WHEREOF, Recro and Kremers Urban have duly executed this Amendment as of the date first written above.

RECRO GAINESVILLE LLC

By:/s/ Scott Rizzo​ ​​ ​​ ​​ ​

Nam:Scott Rizzo
Title: Vice President and General Manager

KREMERS URBAN PHARMACEUTICALS, INC.

By:/s/ Ricardo Ortiz​ ​​ ​​ ​​ ​

Nam:Ricardo Ortiz
Title: Executive Vice President

EX-10.78

Exhibit 10.78

AMENDMENT nO. 2 TO LICENSE AND SUPPLY AGREEMENT

THIS AMENDMENT NO. 2 TO LICENSE AND SUPPLY AGREEMENT (this “Amendment”) is made as of November 5, 2020 by and between Recro Gainesville LLC (as successor to Alkermes Pharma Ireland Limited) (“Recro”), Kremers Urban Pharmaceuticals, Inc. (“Kremers Urban”) and Lannett Company, Inc. (“Lannett”).

Background

WHEREAS, Recro and Kremers Urban are parties to that certain License and Supply Agreement, effective as of January 1, 2014 as amended in September 2018, as amended by Amendment No.1 to License and Supply Agreement, effective as of September 6, 2018 ( as amended, the “Agreement”);

WHEREAS, on or about November 25, 2015, Lannett acquired Kremers Urban and, as a result of that acquisition, Kremers Urban is a wholly-owned subsidiary of Lannett; and

WHEREAS, the parties now desire to enter into this Amendment to set forth certain changes to and modifications of the terms and conditions contained in the Agreement.

Agreement

NOW, THEREFORE, in consideration of the mutual agreement of the parties contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged and agreed, and intending to be legally bound hereby, the parties agree as follows:

1.Incorporation of Background; Capitalized Terms. The “Background” provision set forth above, together with the defined terms therein, are incorporated herein by reference. Capitalized terms not otherwise defined herein shall have the meanings given to such terms in the Agreement.

2.Assignment and Assumption. Pursuant to Section 11.1(a) of the Agreement, Kremers Urban hereby assigns, and Lannett hereby assumes, all rights and obligations of Kremers Urban under the Agreement. All references to Kremers Urban in the Agreement shall be references to Lannett.

3.One-Time Payment. Within thirty (30) days of execution of this Amendment, Lannett shall pay Recro a one-time payment in the amount of One Million Eight Hundred and Sixty Thousand Dollars ($1,860,000).

4.SECTION 3.1 CONSIDERATION. The following language is inserted at the end of Section 3.1 of the Agreement:

“Beginning on January 1, 2022 and on every subsequent January 1 for the Term of the Agreement, Lannett shall pay Recro an annual license fee of Five Hundred Thousand Dollars ($500,000).”

5.SECTION 8.2 RESPONSIBILITY FOR NDAs. The following new subsection (d) is inserted at the end of Section 8.2 of the Agreement:

“(d) ANNUAL PDUFA PROGRAM FEES. PDUFA program fees are assessed annually for eligible products. The program fees are assessed for each prescription drug product that is identified in such a human drug application approved as of October 1st of such fiscal year. PDUFA fees for the Products supplied hereunder are the responsibility of Recro. Lannett shall reimburse Recro fifty percent (50%) of PDUFA program fees associated with the Products within sixty (60) days of receipt of an invoice from Recro accompanied by a copy of the original program fee invoice starting in 2021.”

6.SECTION 10TERMINATION. Section 10.1 of the Agreement is deleted in its entirety and replaced with the following language:

“10.1 Termination. The term of this Agreement shall begin upon the Effective Date and, unless sooner terminated as hereinafter provided, shall end on December 31, 2024. This Agreement may be renewed for successive two (2)-year terms by mutual agreement of the parties in writing. Notwithstanding the foregoing, this Agreement may be terminated as follows:

(a)Termination for Insolvency. If either Lannett or Recro (i) makes a general assignment for the benefit of creditors or becomes insolvent; (ii) files an insolvency petition in bankruptcy; (iii) petitions for or acquiesces in the appointment of any receiver, trustee or similar officer to liquidate or conserve its business or any substantial part of its assets; (iv) commences under the laws of any jurisdiction any proceeding involving its insolvency, bankruptcy, reorganization, adjustment of debt, dissolution, liquidation or any other similar proceeding for the release of financially distressed debtors; or (v) becomes a party to any proceeding or action of the type described above in (iii) or (iv) and such proceeding or action remains undismissed or unstayed for a period of more than 60 days, then the other party may by written notice terminate this Agreement in its entirety with immediate effect.

(b)Termination for Default.

(i)Lannett and Recro each shall have the right to terminate this Agreement for default upon the other’s failure to comply in any material respect with the terms and conditions of this Agreement. At least thirty (30) days prior to any such termination for default, the party seeking to so terminate shall give the other written notice of its intention to terminate this Agreement in accordance with the provisions of this Section 10.1(b), which notice shall set forth the default(s) which form the basis for such termination. If the defaulting party fails to correct such default(s) within thirty (30) days after receipt of notification, or if the same cannot reasonably be corrected or remedied within thirty (30) days, then if the defaulting party has not commenced curing said default(s) within said thirty (30) days and be diligently pursuing completion of same, then such party immediately may terminate this Agreement.

(ii)This Section 10.1(b) shall not be exclusive and shall not be in lieu of any other remedies available to a party hereto for any default hereunder on the part of the other party.

(c)Continuing Obligations. Termination of this Agreement for any reason shall not relieve the parties of any obligation accruing prior thereto with respect to the Products and any ongoing obligations hereunder with respect to the remaining Products and shall be without prejudice to the rights and remedies of either party with respect to any antecedent breach of the provisions of this Agreement. Without limiting the generality of the foregoing, no termination of this Agreement, whether by lapse of time or otherwise, shall serve to terminate the obligations of the parties hereto under Sections 8.4, 8.5, 8.6, 8.8, 8.15, SECTION 9, Section 10.1(b) and SECTION 11 hereof, and such obligations shall survive any such termination.

(d)Net Sales Allowances after the Termination Date. In reference to returns or other Net Sales allowances which arise after the termination of this Agreement in respect of any Product supplied and sold under this Agreement prior to such termination, the parties agree that Lannett shall not be entitled to seek any reimbursement, Net Sales deductions or other form of compensation from Recro.”

4.SECTION 11.2NOTICES. All notices or other communications required or permitted to be given pursuant to the Agreement if to Lannett, as follows:

Lannett Company, Inc.

11500 Northbrook Drive, Suite 155

Trevose, PA 19053

Attention: Legal Department

5.Inconsistencies; Disputes. To the extent of any inconsistency between the Agreement and this Amendment, the terms and conditions of this Amendment shall prevail.

6No Other Amendments. All provisions of the Agreement not expressly amended by this Amendment shall remain in full force and effect, and are ratified and confirmed.

7Counterparts. This Amendment may be executed in counterparts, each of which shall be deemed an original and all of which, taken together, shall constitute one and the same instrument. An electronic or faxed signed copy of this Amendment shall have the same force and effect as an original signed copy.

[signature page follows]

IN WITNESS WHEREOF, Recro, Lannett and Kremers Urban have duly executed this Amendment as of the date first written above.

RECRO GAINESVILLE LLC
By:	/s/ Scott Rizzo
	Name:Scott Rizzo
	Title: Executive Vice President and General Manager

LANNETT COMPANY, INC.
By:	/s/ Timothy Crew
	Name:Timothy Crew
	Title: CEO

KREMERS URBAN PHARMACEUTICALS, INC.
By:	/s/ Timothy Crew
	Name:Timothy Crew
	Title: Chairman of the Board

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: February 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: February 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 December 31, 2020 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: February 4, 2021	/s/ Timothy Crew
	Timothy Crew,
	Chief Executive Officer
Dated: February 4, 2021	/s/ John Kozlowski
	John Kozlowski,
	Vice President of Finance, Chief Financial Officer and Principal Accounting Officer

XML

Document and Entity Information - shares	6 Months Ended
	Dec. 31, 2020	Jan. 31, 2021
Document and Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Transition Report	false
Document Period End Date	Dec. 31, 2020
Entity File Number	001-31298
Entity Registrant Name	LANNETT CO INC
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	23-0787699
Entity Address, Address Line One	9000 State Road
Entity Address, City or Town	Philadelphia
Entity Address, State or Province	PA
Entity Address, Postal Zip Code	19136
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		41,401,730
Entity Central Index Key	0000057725
Current Fiscal Year End Date	--06-30
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	Q2
Amendment Flag	false

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Dec. 31, 2020	Jun. 30, 2020
Current assets:
Cash and cash equivalents	$ 34,224	$ 144,329
Accounts receivable, net	160,131	125,688
Inventories	122,204	142,867
Income taxes receivable	64,570	14,419
Assets held for sale	2,678	2,678
Other current assets	23,993	13,227
Total current assets	407,800	443,208
Property, plant and equipment, net	173,157	179,518
Intangible assets, net	163,488	374,735
Operating lease right-of-use assets	8,650	9,343
Deferred tax assets	132,409	117,890
Other assets	14,767	11,861
TOTAL ASSETS	900,271	1,136,555
Current liabilities:
Accounts payable	42,670	32,535
Accrued expenses	4,092	14,962
Accrued payroll and payroll-related expenses	8,946	16,304
Rebates payable	43,791	38,175
Royalties payable	20,782	20,863
Restructuring liability	161	27
Current operating lease liabilities	2,115	1,097
Short-term borrowings and current portion of long-term debt	39,345	88,189
Other current liabilities	1,770	2,713
Total current liabilities	163,672	214,865
Long-term debt, net	578,483	592,940
Long-term operating lease liabilities	9,233	9,844
Other liabilities	19,625	16,010
TOTAL LIABILITIES	771,013	833,659
Commitments and contingencies (Notes 11 and 12)
STOCKHOLDERS' EQUITY
Common stock ($0.001 par value, 100,000,000 shares authorized; 40,832,843 and 39,963,127 shares issued; 39,504,777 and 38,798,787 shares outstanding at December 31, 2020 and June 30, 2020, respectively)	41	40
Additional paid-in capital	326,939	321,164
Accumulated deficit	(179,738)	(1,291)
Accumulated other comprehensive loss	(595)	(627)
Treasury stock (1,328,066 and 1,164,340 shares at December 31, 2020 and June 30, 2020, respectively)	(17,389)	(16,390)
Total stockholders' equity	129,258	302,896
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 900,271	$ 1,136,555

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CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Dec. 31, 2020	Jun. 30, 2020
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	40,832,843	39,963,127
Common stock, outstanding shares	39,504,777	38,798,787
Treasury stock, shares	1,328,066	1,164,340

XML

CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2020	Dec. 31, 2019
CONSOLIDATED STATEMENTS OF OPERATIONS
Net sales	$ 133,920	$ 136,110	$ 260,399	$ 263,452
Cost of sales	124,488	86,663	216,675	164,319
Amortization of intangibles	8,657	8,153	17,246	15,181
Gross profit	775	41,294	26,478	83,952
Operating expenses:
Research and development expenses	5,644	6,906	12,183	15,846
Selling, general and administrative expenses	13,730	17,421	28,866	38,729
Restructuring expenses		192	4,043	1,580
Asset impairment charges	198,000		198,000	1,618
Total operating expenses	217,374	24,519	243,092	57,773
Operating income (loss)	(216,599)	16,775	(216,614)	26,179
Other income (loss):
Loss on extinguishment of debt				(2,145)
Investment income	43	430	88	1,159
Interest expense	(13,496)	(16,694)	(27,982)	(35,986)
Other	28	(735)	5	199
Total other loss	(13,425)	(16,999)	(27,889)	(36,773)
Loss before income tax	(230,024)	(224)	(244,503)	(10,594)
Income tax benefit	(58,076)	(5,308)	(66,056)	(3,521)
Net income (loss)	$ (171,948)	$ 5,084	$ (178,447)	$ (7,073)
Earnings (loss) per common share:
Basic (in dollars per share)	$ (4.36)	$ 0.13	$ (4.55)	$ (0.18)
Diluted (in dollars per share)	$ (4.36)	$ 0.13	$ (4.55)	$ (0.18)
Weighted average common shares outstanding:
Basic (in shares)	39,443,441	38,605,052	39,257,211	38,457,159
Diluted (in shares)	39,443,441	40,557,503	39,257,211	38,457,159

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2020	Dec. 31, 2019
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Net income (loss)	$ (171,948)	$ 5,084	$ (178,447)	$ (7,073)
Other comprehensive income (loss):
Foreign currency translation gain (loss)	(47)	83	32	37
Total other comprehensive income (loss)	(47)	83	32	37
Comprehensive income (loss)	$ (171,995)	$ 5,167	$ (178,415)	$ (7,036)

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - 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, 2019	$ 39	$ 317,023	$ 32,075	$ (615)	$ (14,481)	$ 334,041
Balance, beginning (in shares) at Jun. 30, 2019	38,970
Increase (Decrease) in Shareholders' Equity
Shares issued in connection with share-based compensation plans	$ 1	595				596
Shares issued in connection with share-based compensation plans (in shares)	882
Share-based compensation		6,466				6,466
Purchase of treasury stock					(1,823)	(1,823)
Other comprehensive income (Loss)				37		37
Purchase of capped call		(7,072)				(7,072)
Net loss			(7,073)			(7,073)
Balance, ending at Dec. 31, 2019	$ 40	317,012	25,002	(578)	(16,304)	325,172
Balance, ending (in shares) at Dec. 31, 2019	39,852
Balance, beginning at Sep. 30, 2019	$ 40	314,645	19,918	(661)	(15,838)	318,104
Balance, beginning (in shares) at Sep. 30, 2019	39,630
Increase (Decrease) in Shareholders' Equity
Shares issued in connection with share-based compensation plans		360				360
Shares issued in connection with share-based compensation plans (in shares)	222
Share-based compensation		2,007				2,007
Purchase of treasury stock					(466)	(466)
Other comprehensive income (Loss)				83		83
Net loss			5,084			5,084
Balance, ending at Dec. 31, 2019	$ 40	317,012	25,002	(578)	(16,304)	325,172
Balance, ending (in shares) at Dec. 31, 2019	39,852
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	442				443
Shares issued in connection with share-based compensation plans (in shares)	869
Share-based compensation		5,333				5,333
Purchase of treasury stock					(999)	(999)
Other comprehensive income (Loss)				32		32
Net loss			(178,447)			(178,447)
Balance, ending at Dec. 31, 2020	$ 41	326,939	(179,738)	(595)	(17,389)	129,258
Balance, ending (in shares) at Dec. 31, 2020	40,832
Balance, beginning at Sep. 30, 2020	$ 41	324,788	(7,790)	(548)	(17,176)	299,315
Balance, beginning (in shares) at Sep. 30, 2020	40,687
Increase (Decrease) in Shareholders' Equity
Shares issued in connection with share-based compensation plans		160				160
Shares issued in connection with share-based compensation plans (in shares)	145
Share-based compensation		1,991				1,991
Purchase of treasury stock					(213)	(213)
Other comprehensive income (Loss)				(47)		(47)
Net loss			(171,948)			(171,948)
Balance, ending at Dec. 31, 2020	$ 41	$ 326,939	$ (179,738)	$ (595)	$ (17,389)	$ 129,258
Balance, ending (in shares) at Dec. 31, 2020	40,832

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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	6 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
OPERATING ACTIVITIES:
Net loss	$ (178,447)	$ (7,073)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	28,717	26,878
Deferred income tax benefit	(14,519)	(2,209)
Share-based compensation	5,333	6,466
Asset impairment charges	198,000	1,618
Gain on sale/disposal of assets	(24)	(1,195)
Loss on extinguishment of debt		2,145
Amortization of debt discount and other debt issuance costs	6,239	7,571
Provision for inventory write-downs	23,214	6,054
Other noncash expenses	635	829
Changes in assets and liabilities which provided (used) cash:
Accounts receivable, net	(34,443)	6,254
Inventories	(2,551)	(14,173)
Income taxes receivable/payable	(50,065)	(8,982)
Other assets	(7,248)	5,801
Rebates payable	5,616	2,272
Royalties payable	(81)	4,083
Restructuring liability	134	(1,800)
Operating lease liability	407	(716)
Accounts payable	10,135	17,390
Accrued expenses	(10,870)	4,988
Accrued payroll and payroll-related expenses	(7,358)	(7,686)
Other liabilities	2,586	(801)
Net cash provided by (used in) operating activities	(24,590)	47,714
INVESTING ACTIVITIES:
Purchases of property, plant and equipment	(5,129)	(8,796)
Proceeds from sale of property, plant and equipment	44	6,288
Advance to VIE		(250)
Purchases of intangible assets	(4,000)	(27,250)
Net cash used in investing activities	(9,085)	(30,008)
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt		86,250
Purchase of capped call		(7,072)
Repayments of long-term debt	(68,516)	(113,278)
Proceeds from issuance of stock	443	596
Payment of debt issuance costs	(2,390)	(3,489)
Purchase of treasury stock	(999)	(1,823)
Net cash used in financing activities	(71,462)	(38,816)
Effect on cash and cash equivalents of changes in foreign exchange rates	32	37
NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	(105,105)	(21,073)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD	144,329	140,249
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD	39,224	119,176
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid	21,844	27,762
Income taxes paid (refunded)	(1,473)	7,670
Accrued purchases of property, plant and equipment	$ 994	$ 2,304

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Interim Financial Information

6 Months Ended

Dec. 31, 2020

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 and six months ended December 31, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2021. 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, 2020. The Consolidated Balance Sheet as of June 30, 2020 was derived from audited financial statements.

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The Business and Nature of Operations

6 Months Ended

Dec. 31, 2020

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 December 31, 2020, 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 six months of Fiscal Year 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, subsequent to an initial stocking up of supplies at the start of the pandemic, the total volume of drug prescriptions being written in the country has decreased causing less demand for our products. 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

6 Months Ended

Dec. 31, 2020

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, contingencies and share-based compensation.

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 Amendment No. 4 to the Term Loan B Facility, which is discussed in further detail in Note 10 “Long-Term Debt,” the Company is required to maintain at least $5 million in a deposit account at all times, subject to control by the administrative agent. At December 31, 2020, 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 December 31, 2020 and 2019.

	December 31, 2020		December 31, 2019
Cash and cash equivalents	$	34,224	$	119,176
Restricted cash, included in other assets		5,000		—
Cash, cash equivalents and restricted cash as presented on the Consolidated Statements of Cash Flows	$	39,224	$	119,176

Allowance for doubtful accounts

On July 1, 2020, the Company adopted guidance issued by the FASB in 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 adoption of ASU 2016-13 did not have a material impact on the Company’s Consolidated Financial Statements for the three and six months ended December 31, 2020. 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, generally for periods ranging from 5 to 15 years. 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.

In-Process Research and Development

Amounts allocated to in-process research and development in connection with a business combination are recorded at fair value and are considered indefinite-lived intangible assets subject to impairment testing in accordance with the Company’s impairment testing policy for indefinite-lived intangible assets. As products in development are approved for sale, amounts will be allocated to product rights and will be amortized over their estimated useful lives. Definite-lived intangible assets are amortized over the expected lives of the related assets. The judgments made in determining the estimated fair value of in-process research and development, as well as asset lives, can materially impact our results of operations. The Company’s fair value assessments 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 and six months ended December 31, 2020 and 2019.

	Three Months Ended				Six Months Ended
(In thousands)	December 31,				December 31,
Medical Indication	2020		2019		2020		2019
Analgesic	$	3,572	$	2,111	$	6,692	$	3,995
Anti-Psychosis		13,317		22,697		26,345		50,730
Cardiovascular		16,336		23,972		36,050		45,579
Central Nervous System		24,614		19,331		47,139		38,588
Endocrinology		9,496		—		12,729		—
Gastrointestinal		18,575		18,313		35,675		35,275
Infectious Disease		23,044		18,078		44,976		29,973
Migraine		6,083		10,878		15,773		20,021
Respiratory/Allergy/Cough/Cold		2,267		3,075		3,693		5,781
Urinary		1,361		1,233		2,819		1,668
Other		8,410		9,934		16,044		19,796
Contract manufacturing revenue		6,845		6,488		12,464		12,046
Total net sales	$	133,920	$	136,110	$	260,399	$	263,452

Customer, Supplier and Product Concentration

The following table presents the percentage of total net sales, for the three and six months ended December 31, 2020 and 2019, 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				Six Months Ended
	December 31,				December 31,
	2020		2019		2020		2019
Product 1	15	%	10	%	15	%	9	%
Product 2	8	%	15	%	8	%	18	%

The following table presents the percentage of total net sales, for the three and six months ended December 31, 2020 and 2019, for certain of the Company’s customers which accounted for at least 10% of net sales in any of those periods:

	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2020		2019		2020		2019
Customer A	26	%	21	%	26	%	23	%
Customer B	21	%	26	%	22	%	26	%
Customer C	12	%	8	%	11	%	10	%

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 (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

On July 1, 2019, the Company adopted ASC Topic 842, Leases, which superseded ASC Topic 840, Leases. Under ASC 842, 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. For finance leases, amortization expense and interest expense are recognized separately in the Consolidated Statements of Operations, with amortization expense generally recorded on a straight-line basis and interest expense recorded using the effective interest method. Variable lease costs not initially included in the lease liability and ROU asset impairment charges are expensed as incurred.

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 Black-Scholes valuation model to determine the fair value of stock options, the stock price on the grant date to value restricted stock and the Monte-Carlo simulation model to determine the fair value of performance-based shares. 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 not material to the consolidated financial position of the Company as of December 31, 2020 and June 30, 2020.

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 continues to closely monitor the need for a valuation against its deferred tax assets in light of recent pre-tax losses while also giving consideration to our forecasted taxable income, which is inherently uncertain and subject to change based on market conditions. Further near-term losses along with significant changes to our forecasted income could affect the ultimate realization of our deferred tax assets and could result in an increase in the Company’s effective tax rate on future earnings.

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.

On March 27, 2020, in response to COVID-19 and its detrimental impact to the global economy, former President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) into law, which provides a stimulus to the U.S. economy in the form of various individual and business assistance programs as well as temporary changes to existing tax law. Among the changes to the provision in business tax laws include a five-year net operating loss carryback for the Fiscal 2019 - 2021 tax years, a deferral of the employer’s portion of certain payroll tax, and an increase in the interest expense deductibility limitation for the Fiscal 2020 and 2021 tax years. ASC 740 requires the tax effects of changes in tax laws or rates to be recorded in the period of enactment. As a result of the CARES Act, the Company carried back its Fiscal 2020 taxable loss into the Fiscal 2015 tax year.

Earnings (Loss) Per Common Share

A dual 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. Basic earnings (loss) per common share excludes the dilutive impact of potentially dilutive securities and is computed by dividing net income (loss) by the weighted average number of shares outstanding during the period. Beginning in the first quarter of Fiscal 2020, the Company's diluted earnings (loss) per common share is computed using the "if-converted" method 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 Company’s 4.50% Convertible Senior Notes due 2026. The weighted average number of diluted shares is adjusted for the potential dilutive effect of the exercise of stock options, treats unvested restricted stock and performance-based shares as if it were vested, and assumes the conversion of the 4.50% Convertible Senior Notes. 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) includes all changes in equity during a period except those that resulted from investments by or distributions to the Company’s stockholders. 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 June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which changes the impairment model used to measure credit losses for most financial assets. We are required to recognize an allowance that reflects the Company’s current estimate of credit losses expected to be incurred over the life of the financial asset, including trade receivables. The Company adopted this guidance in the first quarter of Fiscal 2021. The adoption of ASU 2016-13 did not have a material impact on the Company’s Consolidated Financial Statements for the three and six months ended December 31, 2020.

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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Restructuring Charges

6 Months Ended

Dec. 31, 2020

Restructuring Charges

Restructuring Charges

Note 4. Restructuring Charges

2020 Restructuring Plan

On July 10, 2020, the Board of Directors authorized a restructuring and cost savings plan (the “2020 Restructuring Plan”) to enhance manufacturing efficiencies, streamline operations and reduce the Company’s cost structure. The 2020 Restructuring Plan was implemented, in part, as a result of previously anticipated near-term competition and pricing pressure with respect to certain key products. The 2020 Restructuring Plan includes the consolidation of the Company’s R&D function into a single location in Philadelphia, PA, lowering operating costs and reducing the workforce by approximately 80 positions, equal to approximately 8.5% of the Company’s total number of employees. The 2020 Restructuring Plan was initiated on July 13, 2020 and is complete as of December 31, 2020.

The Company incurred $4.0 million in severance-related costs in the first six months of Fiscal 2021 in connection with the 2020 Restructuring Plan. The Company expects the 2020 Restructuring Plan to result in annual cost savings in excess of $15.0 million.

A reconciliation of the changes in restructuring liabilities associated with the 2020 Restructuring Plan from June 30, 2020 through December 31, 2020 is set forth in the following table:

	Employee
(In thousands)	Separation Costs
Balance at June 30, 2020	$	—
Restructuring Charges		4,043
Payments		(3,882)
Balance at December 31, 2020	$	161

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Accounts Receivable, net

6 Months Ended

Dec. 31, 2020

Accounts Receivable, net

Accounts Receivable, net

Note 5. Accounts Receivable, net

Accounts receivable, net consisted of the following components at December 31, 2020 and June 30, 2020:

	December 31,		June 30,
(In thousands)	2020		2020
Gross accounts receivable	$	320,337	$	271,557
Less: Chargebacks reserve		(81,456)		(61,877)
Less: Rebates reserve		(19,041)		(24,536)
Less: Returns reserve		(39,267)		(40,796)
Less: Other deductions		(19,348)		(17,557)
Less: Allowance for doubtful accounts		(1,094)		(1,103)
Accounts receivable, net	$	160,131	$	125,688

For the three months ended December 31, 2020, the Company recorded a provision for chargebacks, rebates (including rebates presented as rebates payable), returns and other deductions of $191.5 million, $43.4 million, $5.2 million and $20.8 million, respectively. For the three months ended December 31, 2019, the Company recorded a provision for chargebacks, rebates (including rebates presented as rebates payable), returns and other deductions of $199.6 million, $58.3 million, $6.5 million and $28.7 million, respectively.

For the six months ended December 31, 2020, the Company recorded a provision for chargebacks, rebates (including rebates presented as rebates payable), returns and other deductions of $379.8 million, $77.7 million, $10.7 million and $36.6 million, respectively. For the six months ended December 31, 2019, the Company recorded a provision for chargebacks, rebates (including rebates presented as rebates payable), returns and other deductions of $407.5 million, $116.8 million, $10.2 million and $41.4 million, respectively.

The following table identifies the activity and ending balances of each major category of revenue-related reserve for the six months ended December 31, 2020 and 2019:

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		379,821		77,657		10,652		36,624		504,754
Credits issued during the period		(360,242)		(77,536)		(12,181)		(34,833)		(484,792)
Balance at December 31, 2020	$	81,456	$	62,832	$	39,267	$	19,348	$	202,903

Reserve Category
(In thousands)	Chargebacks		Rebates		Returns		Other		Total
Balance at June 30, 2019	$	89,567	$	78,274	$	55,554	$	18,128	$	241,523
Current period provision		407,523		116,803		10,217		41,424		575,967
Credits issued during the period		(427,293)		(119,701)		(11,120)		(33,450)		(591,564)
Balance at December 31, 2019	$	69,797	$	75,376	$	54,651	$	26,102	$	225,926

For the three months ending December 31, 2020 and 2019, as a percentage of gross sales the provision for chargebacks was 49.3% and 47.2%, the provision for rebates was 11.2% and 13.8%, the provision for returns was 1.3% and 1.5% and the provision for other adjustments was 5.4% and 6.8%, respectively.

For the six months ending December 31, 2020 and 2019, as a percentage of gross sales the provision for chargebacks was 50.5% and 49.3%, the provision for rebates was 10.3% and 14.1%, the provision for returns was 1.4% and 1.2% and the provision for other adjustments was 4.9% and 5.0%, respectively.

The increase in the chargebacks reserve was primarily due to timing of sales and product mix. The rebates reserve also increased due to the timing of sales and product mix but was offset by lower sales of Fluphenazine in Fiscal 2021, which had higher than average government-related rebates. Historically, we have not recorded any material amounts in the current period related to reversals or additions of prior period reserves. If the Company were to record a material reversal or addition of any prior period reserve amount, it would be separately disclosed.

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Inventories

6 Months Ended

Dec. 31, 2020

Inventories

Inventories

Note 6. Inventories

Inventories at December 31, 2020 and June 30, 2020 consisted of the following:

	December 31,		June 30,
(In thousands)	2020		2020
Raw Materials	$	49,539	$	59,703
Work-in-process		18,281		12,235
Finished Goods		54,384		70,929
Total	$	122,204	$	142,867

During the three months ended December 31, 2020 and 2019, the Company recorded write-downs to net realizable value for excess and obsolete inventory of $20.6 million and $2.5 million, respectively. During the six months ended December 31, 2020 and 2019, the Company recorded write-downs to net realizable value for excess and obsolete inventory of $23.2 million and $6.1 million, respectively. The increase in write-downs for excess and obsolete inventory was primarily related to the discontinuation of certain product lines during the second quarter of Fiscal 2021, which is discussed further in Note 9 “Intangible Assets.”

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Property, Plant and Equipment, net

6 Months Ended

Dec. 31, 2020

Property, Plant and Equipment, net

Property, Plant and Equipment, net

Note 7. Property, Plant and Equipment, net

Property, plant and equipment, net at December 31, 2020 and June 30, 2020 consisted of the following:

		December 31,		June 30,
(In thousands)	Useful Lives	2020		2020
Land	—	$	1,783	$	1,783
Building and improvements	10 - 39 years		103,256		100,285
Machinery and equipment	5 - 10 years		168,036		164,704
Furniture and fixtures	5 - 7 years		3,402		3,116
Less accumulated depreciation			(114,359)		(102,983)
			162,118		166,905
Construction in progress			11,039		12,613
Property, plant and equipment, net		$	173,157	$	179,518

Depreciation expense for the three months ended December 31, 2020 and 2019 was $5.7 million and $5.9 million, respectively. Depreciation expense for the six months ended December 31, 2020 and 2019 was $11.5 million and $11.7 million, respectively.

Property, plant and equipment, net included amounts held in foreign countries in the amount of $0.6 million at December 31, 2020 and June 30, 2020.

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Fair Value Measurements

6 Months Ended

Dec. 31, 2020

Fair Value Measurements

Fair Value Measurements

Note 8. 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 our debt utilizing market quotations for debt that have quoted prices in active markets. Since our debt does not trade on a daily basis in an active market, the fair value estimates are 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 our term loan debt was approximately $541 million and $608 million as of December 31, 2020 and June 30, 2020, respectively. The estimated fair value of our 4.50% Convertible Senior Notes was approximately $54 million and $58 million as of December 31, 2020 and June 30, 2020, respectively. The fair value as of December 31, 2020 was lower than the carrying value primarily due to the Company’s stock price at December 31, 2020 as compared to the $15.29 conversion price.

Non-recurring Fair Value Measurements

The Company has certain assets that are measured at fair value on a non-recurring basis and are adjusted to fair value only when the carrying values are greater than the fair values. These assets are subject to fair value adjustments when there is evidence of impairment. The Company’s estimation of the fair value of intangible assets for impairment represents a Level 3 fair value measurement, due to the use of internal and external projections and unobservable measurement inputs. Based on an impairment analysis performed, the Company adjusted the KUPI product rights assets and the KUPI in-process research and development asset to its fair value, $84.0 million and $4.0 million respectively, as of December 31, 2020. Refer to Note 9 “Intangible Assets” for further information.

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Intangible Assets

6 Months Ended

Dec. 31, 2020

Intangible Assets

Intangible Assets

Note 9. Intangible Assets

Intangible assets, net as of December 31, 2020 and June 30, 2020 consisted of the following:

	Weighted	Gross Carrying Amount				Accumulated Amortization				Intangible Assets, Net
	Avg. Life	December 31,		June 30,		December 31,		June 30,		December 31,		June 30,
(In thousands)	(Yrs.)	2020		2020		2020		2020		2020		2020
Definite-lived:
KUPI product rights	15		83,955		416,154		—		(125,327)		83,955		290,827
KUPI trade name	2		2,920		2,920		(2,920)		(2,920)		—		—
KUPI other intangible assets	15		19,000		19,000		(6,462)		(5,828)		12,538		13,172
Silarx product rights	15		20,000		20,000		(4,223)		(3,556)		15,777		16,444
Other product rights	10		54,718		50,718		(7,500)		(5,426)		47,218		45,292
Total definite-lived		$	180,593	$	508,792	$	(21,105)	$	(143,057)	$	159,488	$	365,735
Indefinite-lived:
KUPI in-process research and development	—	$	4,000	$	9,000	$	—	$	—	$	4,000	$	9,000
Total indefinite-lived			4,000		9,000		—		—		4,000		9,000
Total intangible assets, net		$	184,593	$	517,792	$	(21,105)	$	(143,057)	$	163,488	$	374,735

For the three months ended December 31, 2020 and 2019, the Company recorded amortization expense of $8.7 million and $8.2 million, respectively. For the six months ended December 31, 2020 and 2019, the Company recorded amortization expense of $17.2 million and $15.2 million, respectively.

In December 2020, the Company reviewed its product portfolio and decided to discontinue 23 lower gross margin product lines, including product lines that were acquired through various past business and product acquisitions. As a result of the discontinuance and the reduction in net sales and gross margin of certain other product lines, the Company determined that such decision represents a “triggering event” and, therefore, commenced an analysis to determine the potential for impairment of certain long-lived assets, primarily its intangible assets. Based on that analysis, the Company recorded an impairment charge of $193.0 million related to the KUPI product rights intangible assets during the second quarter of Fiscal 2021. The impairment charge is primarily a result of the decline in net sales and gross margin of certain product lines acquired in connection with the KUPI acquisition, including those product lines being discontinued.

In the second quarter of Fiscal 2021, the Company also recorded a $5.0 million impairment charge to its KUPI in-process research and development intangible asset due to delays in the expected launch of a product within the portfolio, which results in reduced projected cash flows.

In November 2020, the Company entered into Amendment No. 2 to License and Supply Agreement (the “2020 Amendment”) with Recro Gainesville LLC (“Recro”), which amended the Company’s agreement with Recro to exclusively distribute Verelan PM ®, Verelan SR ®, and Verapamil PM. In accordance with the Company’s policy to expense costs to renew or extend the term of a recognized intangible asset as incurred, the Company recorded $5.0 million in consideration to renew the Company’s distribution agreement during the second quarter of Fiscal Year 2021, which is included within cost of sales on the Consolidated Statements of Operations.

Future annual amortization expense consisted of the following as of December 31, 2020:

(In thousands)	Amortization
Fiscal Year Ending June 30,	Expense
2021	$	7,675
2022		16,950
2023		16,649
2024		16,349
2025		15,949
Thereafter		85,916
	$	159,488

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Long-Term Debt

6 Months Ended

Dec. 31, 2020

Long-Term Debt

Long-Term Debt

Note 10. Long-Term Debt

Long-term debt, net consisted of the following:

	December 31,		June 30,
(In thousands)	2020		2020
Term Loan A	$	—	$	48,844
Unamortized discount and other debt issuance costs		—		(433)
Term Loan A, net		—		48,411
Term Loan B due 2022; 6.38% as of December 31, 2020		553,185		572,857
Unamortized discount and other debt issuance costs		(18,746)		(23,278)
Term Loan B, net		534,439		549,579
4.50% Convertible Senior Notes due 2026		86,250		86,250
Unamortized discount and other debt issuance costs		(2,861)		(3,111)
4.50% Convertible Senior Notes, net		83,389		83,139
$125 million Revolving Credit Facility		—		—
$30 million ABL Credit Facility		—		—
Total debt, net		617,828		681,129
Less short-term borrowings and current portion of long-term debt		(39,345)		(88,189)
Total long-term debt, net	$	578,483	$	592,940

The weighted average interest rate for the three months ended December 31, 2020 and 2019 was 7.8% and 8.6%, respectively. The weighted average interest rate for the six months ended December 31, 2020 and 2019 was 7.9% and 9.2%, respectively. The Company paid off the outstanding balance of the Term Loan A of $42.0 million on November 25, 2020 with cash on hand. The Company’s undrawn $125 million Revolving Credit Facility also expired on November 25, 2020.

Long-term debt amounts due, for the twelve-month periods ending December 31 are as follows:

	Amounts Payable
(In thousands)	to Institutions
2021	$	39,345
2022		513,840
2023		—
2024		—
2025		—
Thereafter		86,250
Total	$	639,435

On December 7, 2020, the Company entered into a credit and guaranty agreement, which provides for an asset-based revolving credit facility (the “ABL Credit Facility”) of up to $30 million, subject to borrowing base availability, and includes letter of credit and swing line sub-facilities. Borrowing availability under the 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 ABL Credit Agreement. Availability is reduced by issuance of letters of credit as well as any borrowings. The final maturity of the ABL Credit Facility is December 7, 2023, unless the aggregate outstanding principal amount of any of the Term Loan B Facility (as defined below) or other material indebtedness exceeds $35,000,000 on the date that is 91 days prior to the maturity date with respect to such other indebtedness, in which case the final maturity shall instead be such earlier date. Loans outstanding under the ABL Credit Agreement bear interest at a floating rate measured by reference to an adjusted London Inter-Bank Offered Rate (“LIBOR”), subject to a floor of 0.75%, plus an applicable margin of 2.50% per annum. Unused commitments under the ABL Credit Facility are subject to a per annum fee of 0.50%. The obligations under the ABL Credit Agreement are guaranteed by the Company and all of the Company’s existing and future subsidiaries, subject to certain exceptions (collectively, the “Guarantors”), and such obligations and the obligations of the Guarantors are secured by:

● a perfected security interest in all present and after-acquired accounts receivable, payment intangibles, inventory, deposit accounts, securities accounts, and any cash, cash equivalents or other assets in such accounts and other related assets owned by each Guarantor and the proceeds of the foregoing, except to the extent such proceeds constitute Cash Flow Priority Collateral (as defined below), and subject to certain exceptions (the “ABL Priority Collateral”), which security interest is senior to the security interest in the ABL Priority Collateral securing the Company’s existing Term Loan B Facility; and

● a perfected security interest in substantially all present and after-acquired tangible and intangible assets of each Guarantor other than the ABL Priority Collateral (the “Cash Flow Priority Collateral”), which security interest is junior to the security interest in the Cash Flow Priority Collateral securing the Term Loan B Facility.

The ABL Credit Agreement contains customary representations and warranties and customary affirmative covenants and negative covenants. The negative covenants include restrictions on, among other things: the incurrence of additional indebtedness; the incurrence of additional liens; dividends or other distributions on equity; the purchase, redemption or retirement of capital stock; the payment or redemption of certain indebtedness; the nature of the business activity of the Company and its subsidiaries; loans, guarantees and other investments; entering into other agreements that create restrictions on the ability to pay dividends or make other distributions on equity or create or incur certain liens; asset sales; consolidations or mergers; amendment of certain material documents; changes in fiscal year; and affiliate transactions. The negative covenants are subject to customary exceptions and also permit dividends and other distributions on equity, consolidations, mergers and asset sales, certain acquisitions and other investments, and payments or redemptions of certain indebtedness, in each case upon satisfaction of the “payment conditions”. The payment conditions are deemed satisfied upon Excess Availability (as defined in the ABL Credit Agreement) on the date of the designated action and Excess Availability for the prior 30-day period exceeding agreed-upon thresholds, the absence of the occurrence and continuance of any event of default and, in certain cases, pro forma compliance with a fixed charge coverage ratio of no less than 1.10 to 1.00.

The ABL Credit Agreement includes a minimum fixed charge coverage ratio of no less than 1.10 to 1.00, which is tested only when Excess Availability is less than 15.0% of the lesser of (A) the borrowing base and (B) the then effective commitments under the ABL Credit Facility for three consecutive business days, and continuing until the first day immediately succeeding the last day of 30 consecutive days on which Excess Availability is in excess of such threshold.

The ABL Credit Agreement provides for events of default, which, if any of them occurs, would permit or require the principal, premium, if any, and interest on all of the then outstanding obligations under the ABL Credit Facility to be due and payable immediately and the commitments under the ABL Credit Facility to be terminated.

The Company also entered into Amendment No. 4 to the Credit and Guaranty Agreement, which amends the Term Loan B Facility to permit the incurrence of the ABL Credit Facility and requires the Company to maintain at least $5 million in a deposit account at all times, subject to control by the administrative agent, and a minimum cash balance of $15 million as of the last day of each month. At December 31, 2020, the Company classified the $5 million required deposit account balance as restricted cash, which is included in other assets caption in the Consolidated Balance Sheet. The amendment also replaced Morgan Stanley Senior Funding, Inc. with Alter Domus (US) LLC as administrative agent and collateral agent under the Term Loan B Facility.

The outstanding Term Loan B and 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

6 Months Ended

Dec. 31, 2020

Legal, Regulatory Matters and Contingencies

Legal, Regulatory Matters and Contingencies

Note 11. 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

During the quarter ended December 31, 2016, the Company completed a contract compliance review, for the period January 1, 2012 through June 30, 2016, for one of KUPI’s government-entity customers. As a result of the review, the Company identified certain commercial customer prices and other terms that were not properly disclosed to the government-entity resulting in potential overcharges. For the period January 1, 2012 through November 24, 2015 (“the pre-acquisition period”), the Company is fully indemnified per the Stock Purchase Agreement.

On May 22, 2019, 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 for the period of January 1, 2012 through June 30, 2016. In August 2019, the Company remitted payment to the VA and received reimbursement from UCB for the indemnified portion of the payment in the amount of $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 overreaching 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, 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 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 Court 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.

The Company and the other defendants filed motions to dismiss the overarching conspiracy claims. In August 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. 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 have 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, along with a number of other generic pharmaceutical manufacturers, 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. 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 and regarding the potential effects on the Company of regulatory investigations and antitrust litigation. 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. On October 1, 2020, the plaintiff filed a motion for class certification. The Company believes it acted in compliance with all applicable laws and plans to vigorously defend itself from these claims. The Company cannot reasonably predict the outcome of the suit at this time.

In May 2019, a shareholder derivative lawsuit was filed against certain of the Company’s current and former officers and certain of the current and former members of the Company’s Board of Directors in the federal court for the District of Delaware. The Company was also named as a nominal defendant in the suit. The suit alleges that the defendants breached their fiduciary duties as directors and/or officers of the Company, that certain of the defendants caused the Company to issue false and misleading proxy statements in violation of Section 14(a) of the Securities Exchange Act of 1934, that the defendants were unjustly enriched at the expense of the Company, and that the defendants wasted corporate assets belonging to the Company. On December 4, 2019 the court entered a stipulation consolidating the suit with a separate shareholder derivative suit filed in July 2019, as described below. On December 6, 2019, the Company filed a motion to dismiss the consolidated cases. On January 14, 2020, the parties reached an agreement in principle to resolve the consolidated cases, subject to the execution of a mutually acceptable settlement document and Court approval.

In July 2019, a shareholder derivative lawsuit was filed against certain of the Company’s current and former officers and directors in the federal court for the Eastern District of Pennsylvania. The Company was also named as a nominal defendant in the suit. The suit alleges that the defendants breached their fiduciary duties as directors and/or officers of the Company and that certain of the defendants caused the Company to violate Sections 10(b), 14(a), and 29(b) of the Securities Exchange Act of 1934. In October 2019, this suit was transferred to the federal court for the District of Delaware and is pending before the same judge presiding over the shareholder derivative suit that was filed in May 2019. On December 4, 2019, the Court entered a stipulation consolidating the suit with a separate shareholder derivative suit filed in May 2019, as described above. On December 6, 2019, the Company filed a motion to dismiss the consolidated cases. On January 14, 2020, the parties reached an agreement in principle to resolve the consolidated cases, subject to the execution of a mutually agreeable settlement document and Court approval.

The settlement of the two consolidated cases, which was preliminarily approved by the Court on August 7, 2020, requires the Company to implement certain new corporate policies and pay the plaintiffs’ counsel in the consolidated cases, collectively, the sum of $600,000 in exchange for a release of all liability with respect to both of the consolidated cases. A Settlement Hearing was held on October 7, 2020. At the settlement hearing, the Magistrate Judge issued an oral Report and Recommendation approving the Settlement and denying the objecting parties’ motion to intervene. The time period to object to the Report and Recommendation has expired. On October 22, 2020, the Court adopted the Report and Recommendation, granted the motion for final approval of the settlement, denied the objecting parties’ motion to intervene, and issued a final judgement dismissing the consolidated cases with prejudice. The Company considers these matters closed.

In September 2019, a shareholder derivative lawsuit was filed against certain of the Company’s current and former officers, directors, and employees in the federal court for the District of Delaware. The Company was also named as a nominal defendant in the suit. The suit alleges that the defendants breached their fiduciary duties as directors and/or officers of the Company, alleges waste of corporate assets and gross mismanagement, and alleges that certain of the defendants caused the Company to violate Section 14(a) of the Securities and Exchange Act of 1934. On November 22, 2019, the Company filed a motion to dismiss the complaint. On January 16, 2020, the Court entered the parties’ stipulation to stay the case pending the resolution of the defendants’ motion to dismiss the two earlier filed consolidated shareholder derivative cases referenced above. On February 18, 2020, the Court entered the parties’ stipulation to withdraw the Company’s motion to dismiss without prejudice to the Company’s ability to refile a renewed motion to dismiss after the stay is lifted. On March 11, 2020, following notice that Plaintiffs no longer consented to the stay, the Court lifted the stay. On April 6, 2020, certain of the defendants, including the Company, filed a renewed motion to dismiss or, in the alternative, to stay the account. On April 29, 2020, the Court entered the parties’ stipulation to stay the action, pending a decision from the Court regarding the settlement in the consolidated derivative actions discussed above. In light of the Final Order and Judgment entered in the two earlier filed consolidated shareholder derivative cases referenced above, the parties filed a stipulation and proposed order dismissing this Action, with prejudice. On October 29, 2020, the District Court Judge entered an Order approving the parties’ Stipulation of Dismissal, with prejudice. The Company considers this matter closed.

In February 2020, a shareholder derivative lawsuit was filed against certain of the Company’s current and former officers, directors and employees in the Court of Chancery of the State of Delaware. The Company was also named as a nominal defendant in the suit. The suit alleges that the defendants breached their fiduciary duties as directors and/or officers of the Company, and were unjustly enriched. On March 16, 2020, the Company filed a motion to dismiss the complaint, and a motion to stay the proceedings. On March 27, 2020, the Company filed its opening brief in support of its motion to stay the proceedings. On April 6, 2020, the parties entered into a stipulation and proposed order to stay the action. The Court granted the stipulation and proposed order that same day. In light of the Final Order and Judgment entered in the two earlier filed consolidated shareholder derivative cases referenced above, the parties agreed to dismiss this action, with prejudice. The Court granted Stipulation of Dismissal with Prejudice on November 4, 2020. The Company considers this matter closed.

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 denies that it is falsely advertising its cocaine hydrochloride solution product and continues 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. 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. Discovery is ongoing and the Company cannot reasonably predict the outcome of this suit at this time.

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. 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.

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

6 Months Ended

Dec. 31, 2020

Commitments

Commitments

Note 12. Commitments

Leases

At December 31, 2020 and June 30, 2020, the Company has a ROU lease asset of $8.7 million and $9.3 million, respectively, and a ROU liability of $11.3 million and $10.9 million, respectively. The current balance of the ROU liability at December 31, 2020 and June 30, 2020 was $2.1 million and $1.1 million, respectively.

Components of lease cost are as follows:

	Three Months Ended				Six Months Ended
	December 31,				December 31,
(In thousands)	2020		2019		2020		2019
Operating lease cost	$	477	$	590	$	879	$	1,071
Variable lease cost		43		32		82		61
Short-term lease cost (a)		108		124		226		279
Total	$	628	$	746	$	1,187	$	1,411

(a) Not recorded on the Consolidated Balance Sheet.

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

	Six Months Ended
	December 31,
(In thousands)	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	809	$	966
Non-cash activity:
ROU assets obtained in exchange for new operating lease liabilities	$	—	$	—

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

	Six Months Ended
	December 31,
	2020		2019
Weighted-average remaining lease term	8	years	9	years
Weighted-average discount rate	8.0	%	7.5	%

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

(In thousands)	Amounts Due
2021	$	1,062
2022		2,125
2023		2,144
2024		2,164
2025		2,183
Thereafter		5,749
Total lease payments		15,427
Less: Imputed interest		4,079
Present value of lease liabilities	$	11,348

Other Commitments

During Fiscal 2017, the Company signed an agreement with a company operating in the pharmaceutical business, under which the Company agreed to provide up to $15.0 million in revolving loans, which expires in seven years and bears interest at 2.0%, for the purpose of expansion and other business needs. In Fiscal 2019, the Company sold 50% of the outstanding loan to a third party for $5.6 million, in addition to assigning 50% of all rights, title and interest in the loan and loan documents. As of December 31, 2020, $6.5 million was outstanding under the revolving loan and is included in other assets. Based on the guidance set forth in ASC 810-10 Consolidation, the Company has concluded that it has a variable interest in the entity. However, the Company is not the primary beneficiary to the entity and as such, is not required to consolidate the entity’s results of operations.

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. 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. The longer that countries around the world remain on lockdown, the more likely it becomes that the timing of the product development and approval will be delayed. 

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Accumulated Other Comprehensive Loss

6 Months Ended

Dec. 31, 2020

Accumulated Other Comprehensive Loss.

Accumulated Other Comprehensive Loss

Note 13. Accumulated Other Comprehensive Loss

The Company’s Accumulated Other Comprehensive Loss was comprised of the following components as of December 31, 2020 and 2019:

	December 31,
(In thousands)	2020		2019
Foreign Currency Translation
Beginning Balance, June 30	$	(627)	$	(615)
Net income (loss) on foreign currency translation (net of tax of $0 and $0)		32		37
Other comprehensive income (loss), net of tax		32		37
Total Accumulated Other Comprehensive Loss	$	(595)	$	(578)

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Earnings (Loss) Per Common Share

6 Months Ended

Dec. 31, 2020

Earnings (Loss) Per Common Share

Earnings (Loss) Per Common Share

Note 14. Earnings (Loss) Per Common Share

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

	Three Months Ended
	December 31,
(In thousands, except share and per share data)	2020		2019
Numerator:
Net income (loss)	$	(171,948)	$	5,084
Interest expense applicable to the Notes, net of tax		—		—
Amortization of debt issuance costs applicable to the Notes, net of tax		—		—
Adjusted “if-converted” net income (loss)	$	(171,948)	$	5,084
Denominator:
Basic weighted average common shares outstanding		39,443,441		38,605,052
Effect of potentially dilutive options and restricted stock awards		—		1,952,451
Effect of conversion of the Notes		—		—
Diluted weighted average common shares outstanding		39,443,441		40,557,503
Earnings (loss) per common share:
Basic	$	(4.36)	$	0.13
Diluted	$	(4.36)	$	0.13

	Six Months Ended
	December 31,
(In thousands, except share and per share data)	2020		2019
Numerator:
Net loss	$	(178,447)	$	(7,073)
Interest expense applicable to the Notes, net of tax		—		—
Amortization of debt issuance costs applicable to the Notes, net of tax		—		—
Adjusted “if-converted” net loss	$	(178,447)	$	(7,073)
Denominator:
Basic weighted average common shares outstanding		39,257,211		38,457,159
Effect of potentially dilutive options and restricted stock awards		—		—
Effect of conversion of the Notes		—		—
Diluted weighted average common shares outstanding		39,257,211		38,457,159
Loss per common share:
Basic	$	(4.55)	$	(0.18)
Diluted	$	(4.55)	$	(0.18)

The number of anti-dilutive shares that have been excluded in the computation of diluted loss and earnings per share for the three months ended December 31, 2020 and 2019 were 8.1 million and 6.0 million, respectively. The number of anti-dilutive shares that have been excluded in the computation of diluted loss and earnings per share for the six months ended December 31, 2020 and 2019 were 8.1 million and 6.7 million, respectively. The effect of potentially dilutive shares was excluded from the calculation of diluted loss per share in the three and six months ended December 31, 2020 and the six months ended December 31, 2019 because the effect of including such securities would be anti-dilutive.

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Share-based Compensation

6 Months Ended

Dec. 31, 2020

Share-based Compensation

Share-based Compensation

Note 15. Share-based Compensation

At December 31, 2020, the Company had two share-based employee compensation plans (the 2011 Long-Term Incentive Plan “LTIP” and the 2014 “LTIP”). Together these plans authorized an aggregate total of 6.5 million shares to be issued. As of December 31, 2020, the plans have a total of 70 thousand shares available for future issuances. Additionally, in January 2021, the stockholders of the Company approved a new stock award plan, the 2021 LTIP, which authorized 3.0 million new shares of common stock for future issuances under this plan.

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 December 31, 2020, there was $12.9 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 six months ended December 31, 2020 and 2019:

	Six Months Ended
	December 31, 2020			December 31, 2019
Risk-free interest rate		0.2	%		1.9	%
Expected volatility		82.5	%		73.7	%
Expected dividend yield		—	%		—	%
Forfeiture rate		—	%		—	%
Expected term		5.0	years		5.1	years
Weighted average fair value	$	3.86		$	4.04

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 December 31, 2020 and changes during the six 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, 2020	991	$	12.11	$	678	5.6
Granted	309	$	5.95
Exercised	(37)	$	4.12	$	61
Forfeited, expired or repurchased	(217)	$	17.14
Outstanding at December 31, 2020	1,046	$	9.52	$	313	7.7
Vested and expected to vest at December 31, 2020	1,045	$	9.52	$	313	7.7
Exercisable at December 31, 2020	373	$	14.59	$	137	5.3

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 six months ended December 31, 2020 and 2019.

A summary of restricted stock awards as of December 31, 2020 and changes during the six 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, 2020	1,344	$	8.70
Granted	876		5.73
Vested	(778)		8.30	$	4,514
Forfeited	(70)		9.46
Non-vested at December 31, 2020	1,372	$	6.99

Performance-Based Shares

In September 2017, the Company began granting performance-based awards to certain key executives. The stock-settled awards will cliff vest based on relative Total Shareholder Return (“TSR”) over a three-year period. The Company measures share-based compensation cost for TSR awards using a Monte-Carlo simulation model.

A summary of performance-based share awards as of December 31, 2020 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, 2020	204	$	12.99
Granted	339	$	9.22
Performance adjustment (1)	(12)	$	25.58
Non-vested at December 31, 2020	531	$	10.29

(1) Represents the adjustment based on the performance of the September 2017 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 six months ended December 31, 2020 and 2019, 56 thousand shares and 52 thousand shares were issued under the ESPP, respectively. As of December 31, 2020, 966 thousand 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				Six Months Ended
	December 31,				December 31,
(In thousands)	2020		2019		2020		2019
Selling, general and administrative expenses	$	1,507	$	1,205	$	4,221	$	4,840
Research and development expenses		132		214		287		438
Cost of sales		352		588		825		1,188
Total	$	1,991	$	2,007	$	5,333	$	6,466
Tax benefit at statutory rate	$	448	$	452	$	1,200	$	1,455

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Employee Benefit Plan

6 Months Ended

Dec. 31, 2020

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 $0.5 million during each of the three months ended December 31, 2020 and 2019. Contributions to the Plan were $1.1 million during each of the six months ended December 31, 2020 and 2019.

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 and six months ended December 31, 2020 were not material.

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Income Taxes

6 Months Ended

Dec. 31, 2020

Income Taxes

Income Taxes

Note 17. Income Taxes

The Company uses the liability method to account for 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 are expected to be in effect when these differences reverse. Deferred tax expense (benefit) is the result of changes in deferred tax assets and liabilities.

The federal, state and local income tax benefit for the three months ended December 31, 2020 was $58.1 million compared to $5.3 million for the three months ended December 31, 2019. The effective tax rates for the three months ended December 31, 2020 and 2019 were 25.2% and 2369.6%, respectively. The effective tax rate for the three months ended December 31, 2020 was lower compared to the three months ended December 31, 2019 primarily due to tax credits and deductions relative to a lower pre-tax loss in the three months ended December 31, 2019. The decrease was partially offset by the impact of the CARES Act, which increased the interest expense deductibility limitation in the current year and also allowed the Company to carry back its taxable loss into a prior fiscal year, where the statutory tax rate was 35%.

The federal, state and local income tax benefit for the six months ended December 31, 2020 was $66.1 million compared to $3.5 million for the six months ended December 31, 2019. The effective tax rates for the six months ended December 31, 2020 and 2019 were 27.0% and 33.2%, respectively. The effective tax rate for the six months ended December 31, 2020 was lower compared to the six months ended December 31, 2019 primarily due to tax credits and deductions relative to a lower pre-tax loss in the six months ended December 31, 2019. The decrease was partially offset by the impact of the CARES Act, which increased the interest expense deductibility limitation in the current year and also allowed the Company to carry back its taxable loss into a prior fiscal year, where the statutory tax rate was 35%.

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 December 31, 2020 and June 30, 2020, the Company has total unrecognized tax benefits of $4.4 million and $4.6 million, respectively, of which $4.4 million and $4.5 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 December 31, 2020 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 December 31, 2020 and June 30, 2020. 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 Year 2014 and prior generally are no longer subject to review as such years are closed. The Company’s Fiscal Year 2015 through 2017 federal returns are currently under examination by the Internal Revenue Service (“IRS”). 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. 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 December 2019, the Company was notified that the Florida Department of Revenue will conduct a routine field audit of the Company’s Fiscal 2016, 2017 and 2018 corporate tax returns. In December 2020, the Company settled the audit with the Florida Department of Revenue for an immaterial amount.

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Related Party Transactions

6 Months Ended

Dec. 31, 2020

Related Party Transactions

Related Party Transactions

Note 18. Related Party Transactions

The Company had sales of $0.8 million and $0.6 million during the three months ended December 31, 2020 and 2019, respectively, to a generic distributor, Auburn Pharmaceutical Company (“Auburn”), which is a member of the Premier Buying Group. Sales to Auburn for the six months ended December 31, 2020 and 2019 were $1.5 million and $1.3 million, respectively. Jeffrey Farber, a current board member, is the owner of Auburn. Accounts receivable includes amounts due from Auburn of $0.5 million and $0.7 million at December 31, 2020 and June 30, 2020, respectively.

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Assets Held for Sale

6 Months Ended

Dec. 31, 2020

Assets Held for Sale

Assets held for Sale

Note 19. Assets Held for Sale

In the first quarter of Fiscal 2019, the Company approved a plan to sell the Cody API business, which includes the manufacturing and distribution of active pharmaceutical ingredients for use in finished goods production. The Company was unable to sell the Cody API business as an ongoing operation and sold the equipment utilized by the Cody API business during 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 and is currently in negotiations with a prospective buyer. As of December 31, 2020, 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 following table summarizes the financial results of the Cody API business for the three and six months ended December 31, 2020 and 2019:

	Three Months Ended				Six Months Ended
	December 31,				December 31,
(In thousands)	2020		2019		2020		2019
Net sales	$	—	$	669	$	—	$	1,736
Pretax loss attributable to Cody API business		(115)		(644)		(617)		(5,061)

The pretax loss attributable to the Cody API business during the six months ended December 31, 2019 includes a full impairment of a $1.2 million ROU lease asset that was recorded upon adoption of ASU No. 2016-02 on July 1, 2019.

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Dec. 31, 2020

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, contingencies and share-based compensation.

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 Amendment No. 4 to the Term Loan B Facility, which is discussed in further detail in Note 10 “Long-Term Debt,” the Company is required to maintain at least $5 million in a deposit account at all times, subject to control by the administrative agent. At December 31, 2020, 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 December 31, 2020 and 2019.

	December 31, 2020		December 31, 2019
Cash and cash equivalents	$	34,224	$	119,176
Restricted cash, included in other assets		5,000		—
Cash, cash equivalents and restricted cash as presented on the Consolidated Statements of Cash Flows	$	39,224	$	119,176

Allowance for doubtful accounts

Allowance for doubtful accounts

On July 1, 2020, the Company adopted guidance issued by the FASB in 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 adoption of ASU 2016-13 did not have a material impact on the Company’s Consolidated Financial Statements for the three and six months ended December 31, 2020. 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, generally for periods ranging from 5 to 15 years. 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.

In-Process Research and Development

In-Process Research and Development

Amounts allocated to in-process research and development in connection with a business combination are recorded at fair value and are considered indefinite-lived intangible assets subject to impairment testing in accordance with the Company’s impairment testing policy for indefinite-lived intangible assets. As products in development are approved for sale, amounts will be allocated to product rights and will be amortized over their estimated useful lives. Definite-lived intangible assets are amortized over the expected lives of the related assets. The judgments made in determining the estimated fair value of in-process research and development, as well as asset lives, can materially impact our results of operations. The Company’s fair value assessments 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 and six months ended December 31, 2020 and 2019.

	Three Months Ended				Six Months Ended
(In thousands)	December 31,				December 31,
Medical Indication	2020		2019		2020		2019
Analgesic	$	3,572	$	2,111	$	6,692	$	3,995
Anti-Psychosis		13,317		22,697		26,345		50,730
Cardiovascular		16,336		23,972		36,050		45,579
Central Nervous System		24,614		19,331		47,139		38,588
Endocrinology		9,496		—		12,729		—
Gastrointestinal		18,575		18,313		35,675		35,275
Infectious Disease		23,044		18,078		44,976		29,973
Migraine		6,083		10,878		15,773		20,021
Respiratory/Allergy/Cough/Cold		2,267		3,075		3,693		5,781
Urinary		1,361		1,233		2,819		1,668
Other		8,410		9,934		16,044		19,796
Contract manufacturing revenue		6,845		6,488		12,464		12,046
Total net sales	$	133,920	$	136,110	$	260,399	$	263,452

Customer, Supplier and Product Concentration

Customer, Supplier and Product Concentration

The following table presents the percentage of total net sales, for the three and six months ended December 31, 2020 and 2019, 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				Six Months Ended
	December 31,				December 31,
	2020		2019		2020		2019
Product 1	15	%	10	%	15	%	9	%
Product 2	8	%	15	%	8	%	18	%

The following table presents the percentage of total net sales, for the three and six months ended December 31, 2020 and 2019, for certain of the Company’s customers which accounted for at least 10% of net sales in any of those periods:

	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2020		2019		2020		2019
Customer A	26	%	21	%	26	%	23	%
Customer B	21	%	26	%	22	%	26	%
Customer C	12	%	8	%	11	%	10	%

Revenue Recognition

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 (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

On July 1, 2019, the Company adopted ASC Topic 842, Leases, which superseded ASC Topic 840, Leases. Under ASC 842, 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. For finance leases, amortization expense and interest expense are recognized separately in the Consolidated Statements of Operations, with amortization expense generally recorded on a straight-line basis and interest expense recorded using the effective interest method. Variable lease costs not initially included in the lease liability and ROU asset impairment charges are expensed as incurred.

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 Black-Scholes valuation model to determine the fair value of stock options, the stock price on the grant date to value restricted stock and the Monte-Carlo simulation model to determine the fair value of performance-based shares. 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 not material to the consolidated financial position of the Company as of December 31, 2020 and June 30, 2020.

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 continues to closely monitor the need for a valuation against its deferred tax assets in light of recent pre-tax losses while also giving consideration to our forecasted taxable income, which is inherently uncertain and subject to change based on market conditions. Further near-term losses along with significant changes to our forecasted income could affect the ultimate realization of our deferred tax assets and could result in an increase in the Company’s effective tax rate on future earnings.

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.

On March 27, 2020, in response to COVID-19 and its detrimental impact to the global economy, former President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) into law, which provides a stimulus to the U.S. economy in the form of various individual and business assistance programs as well as temporary changes to existing tax law. Among the changes to the provision in business tax laws include a five-year net operating loss carryback for the Fiscal 2019 - 2021 tax years, a deferral of the employer’s portion of certain payroll tax, and an increase in the interest expense deductibility limitation for the Fiscal 2020 and 2021 tax years. ASC 740 requires the tax effects of changes in tax laws or rates to be recorded in the period of enactment. As a result of the CARES Act, the Company carried back its Fiscal 2020 taxable loss into the Fiscal 2015 tax year.

Earnings (Loss) Per Common Share

Earnings (Loss) Per Common Share

A dual 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. Basic earnings (loss) per common share excludes the dilutive impact of potentially dilutive securities and is computed by dividing net income (loss) by the weighted average number of shares outstanding during the period. Beginning in the first quarter of Fiscal 2020, the Company's diluted earnings (loss) per common share is computed using the "if-converted" method 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 Company’s 4.50% Convertible Senior Notes due 2026. The weighted average number of diluted shares is adjusted for the potential dilutive effect of the exercise of stock options, treats unvested restricted stock and performance-based shares as if it were vested, and assumes the conversion of the 4.50% Convertible Senior Notes. 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) includes all changes in equity during a period except those that resulted from investments by or distributions to the Company’s stockholders. 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 June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which changes the impairment model used to measure credit losses for most financial assets. We are required to recognize an allowance that reflects the Company’s current estimate of credit losses expected to be incurred over the life of the financial asset, including trade receivables. The Company adopted this guidance in the first quarter of Fiscal 2021. The adoption of ASU 2016-13 did not have a material impact on the Company’s Consolidated Financial Statements for the three and six months ended December 31, 2020.

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)

6 Months Ended

Dec. 31, 2020

Summary of Significant Accounting Policies

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

	December 31, 2020		December 31, 2019
Cash and cash equivalents	$	34,224	$	119,176
Restricted cash, included in other assets		5,000		—
Cash, cash equivalents and restricted cash as presented on the Consolidated Statements of Cash Flows	$	39,224	$	119,176

Schedule of the Company's net sales by medical indication

	Three Months Ended				Six Months Ended
(In thousands)	December 31,				December 31,
Medical Indication	2020		2019		2020		2019
Analgesic	$	3,572	$	2,111	$	6,692	$	3,995
Anti-Psychosis		13,317		22,697		26,345		50,730
Cardiovascular		16,336		23,972		36,050		45,579
Central Nervous System		24,614		19,331		47,139		38,588
Endocrinology		9,496		—		12,729		—
Gastrointestinal		18,575		18,313		35,675		35,275
Infectious Disease		23,044		18,078		44,976		29,973
Migraine		6,083		10,878		15,773		20,021
Respiratory/Allergy/Cough/Cold		2,267		3,075		3,693		5,781
Urinary		1,361		1,233		2,819		1,668
Other		8,410		9,934		16,044		19,796
Contract manufacturing revenue		6,845		6,488		12,464		12,046
Total net sales	$	133,920	$	136,110	$	260,399	$	263,452

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

	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2020		2019		2020		2019
Product 1	15	%	10	%	15	%	9	%
Product 2	8	%	15	%	8	%	18	%

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

	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2020		2019		2020		2019
Customer A	26	%	21	%	26	%	23	%
Customer B	21	%	26	%	22	%	26	%
Customer C	12	%	8	%	11	%	10	%

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Restructuring Charges (Tables)

6 Months Ended

Dec. 31, 2020

Restructuring Charges

Schedule of reconciliation of changes in restructuring liabilities associated with restructuring program

	Employee
(In thousands)	Separation Costs
Balance at June 30, 2020	$	—
Restructuring Charges		4,043
Payments		(3,882)
Balance at December 31, 2020	$	161

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Accounts Receivable, net (Tables)

6 Months Ended

Dec. 31, 2020

Accounts Receivable, net

Schedule of accounts receivable

	December 31,		June 30,
(In thousands)	2020		2020
Gross accounts receivable	$	320,337	$	271,557
Less: Chargebacks reserve		(81,456)		(61,877)
Less: Rebates reserve		(19,041)		(24,536)
Less: Returns reserve		(39,267)		(40,796)
Less: Other deductions		(19,348)		(17,557)
Less: Allowance for doubtful accounts		(1,094)		(1,103)
Accounts receivable, net	$	160,131	$	125,688

Schedule of major category of revenue-related reserves

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		379,821		77,657		10,652		36,624		504,754
Credits issued during the period		(360,242)		(77,536)		(12,181)		(34,833)		(484,792)
Balance at December 31, 2020	$	81,456	$	62,832	$	39,267	$	19,348	$	202,903

Reserve Category
(In thousands)	Chargebacks		Rebates		Returns		Other		Total
Balance at June 30, 2019	$	89,567	$	78,274	$	55,554	$	18,128	$	241,523
Current period provision		407,523		116,803		10,217		41,424		575,967
Credits issued during the period		(427,293)		(119,701)		(11,120)		(33,450)		(591,564)
Balance at December 31, 2019	$	69,797	$	75,376	$	54,651	$	26,102	$	225,926

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Inventories (Tables)

6 Months Ended

Dec. 31, 2020

Inventories

Schedule of Inventories

	December 31,		June 30,
(In thousands)	2020		2020
Raw Materials	$	49,539	$	59,703
Work-in-process		18,281		12,235
Finished Goods		54,384		70,929
Total	$	122,204	$	142,867

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Property, Plant and Equipment, net (Tables)

6 Months Ended

Dec. 31, 2020

Property, Plant and Equipment, net

Schedule of property, plant and equipment, net

		December 31,		June 30,
(In thousands)	Useful Lives	2020		2020
Land	—	$	1,783	$	1,783
Building and improvements	10 - 39 years		103,256		100,285
Machinery and equipment	5 - 10 years		168,036		164,704
Furniture and fixtures	5 - 7 years		3,402		3,116
Less accumulated depreciation			(114,359)		(102,983)
			162,118		166,905
Construction in progress			11,039		12,613
Property, plant and equipment, net		$	173,157	$	179,518

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Intangible Assets (Tables)

6 Months Ended

Dec. 31, 2020

Intangible Assets

Summary of intangible assets, net

	Weighted	Gross Carrying Amount				Accumulated Amortization				Intangible Assets, Net
	Avg. Life	December 31,		June 30,		December 31,		June 30,		December 31,		June 30,
(In thousands)	(Yrs.)	2020		2020		2020		2020		2020		2020
Definite-lived:
KUPI product rights	15		83,955		416,154		—		(125,327)		83,955		290,827
KUPI trade name	2		2,920		2,920		(2,920)		(2,920)		—		—
KUPI other intangible assets	15		19,000		19,000		(6,462)		(5,828)		12,538		13,172
Silarx product rights	15		20,000		20,000		(4,223)		(3,556)		15,777		16,444
Other product rights	10		54,718		50,718		(7,500)		(5,426)		47,218		45,292
Total definite-lived		$	180,593	$	508,792	$	(21,105)	$	(143,057)	$	159,488	$	365,735
Indefinite-lived:
KUPI in-process research and development	—	$	4,000	$	9,000	$	—	$	—	$	4,000	$	9,000
Total indefinite-lived			4,000		9,000		—		—		4,000		9,000
Total intangible assets, net		$	184,593	$	517,792	$	(21,105)	$	(143,057)	$	163,488	$	374,735

Summary of future annual amortization expense

(In thousands)	Amortization
Fiscal Year Ending June 30,	Expense
2021	$	7,675
2022		16,950
2023		16,649
2024		16,349
2025		15,949
Thereafter		85,916
	$	159,488

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Long-Term Debt (Tables)

6 Months Ended

Dec. 31, 2020

Long-Term Debt

Summary of long-term debt, net

	December 31,		June 30,
(In thousands)	2020		2020
Term Loan A	$	—	$	48,844
Unamortized discount and other debt issuance costs		—		(433)
Term Loan A, net		—		48,411
Term Loan B due 2022; 6.38% as of December 31, 2020		553,185		572,857
Unamortized discount and other debt issuance costs		(18,746)		(23,278)
Term Loan B, net		534,439		549,579
4.50% Convertible Senior Notes due 2026		86,250		86,250
Unamortized discount and other debt issuance costs		(2,861)		(3,111)
4.50% Convertible Senior Notes, net		83,389		83,139
$125 million Revolving Credit Facility		—		—
$30 million ABL Credit Facility		—		—
Total debt, net		617,828		681,129
Less short-term borrowings and current portion of long-term debt		(39,345)		(88,189)
Total long-term debt, net	$	578,483	$	592,940

Summary of long-term debt amounts due

	Amounts Payable
(In thousands)	to Institutions
2021	$	39,345
2022		513,840
2023		—
2024		—
2025		—
Thereafter		86,250
Total	$	639,435

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Commitments (Tables)

6 Months Ended

Dec. 31, 2020

Commitments

Schedule of components of lease cost

	Three Months Ended				Six Months Ended
	December 31,				December 31,
(In thousands)	2020		2019		2020		2019
Operating lease cost	$	477	$	590	$	879	$	1,071
Variable lease cost		43		32		82		61
Short-term lease cost (a)		108		124		226		279
Total	$	628	$	746	$	1,187	$	1,411

(a) Not recorded on the Consolidated Balance Sheet.

Schedule of supplemental cash flow information and non-cash activity

	Six Months Ended
	December 31,
(In thousands)	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	809	$	966
Non-cash activity:
ROU assets obtained in exchange for new operating lease liabilities	$	—	$	—

Schedule of weighted-average remaining lease term

	Six Months Ended
	December 31,
	2020		2019
Weighted-average remaining lease term	8	years	9	years
Weighted-average discount rate	8.0	%	7.5	%

Schedule of maturities of lease liabilities

(In thousands)	Amounts Due
2021	$	1,062
2022		2,125
2023		2,144
2024		2,164
2025		2,183
Thereafter		5,749
Total lease payments		15,427
Less: Imputed interest		4,079
Present value of lease liabilities	$	11,348

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Accumulated Other Comprehensive Loss (Tables)

6 Months Ended

Dec. 31, 2020

Accumulated Other Comprehensive Loss.

Schedule of Accumulated Other Comprehensive Loss

	December 31,
(In thousands)	2020		2019
Foreign Currency Translation
Beginning Balance, June 30	$	(627)	$	(615)
Net income (loss) on foreign currency translation (net of tax of $0 and $0)		32		37
Other comprehensive income (loss), net of tax		32		37
Total Accumulated Other Comprehensive Loss	$	(595)	$	(578)

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Earnings (Loss) Per Common Share (Tables)

6 Months Ended

Dec. 31, 2020

Earnings (Loss) Per Common Share

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

	Three Months Ended
	December 31,
(In thousands, except share and per share data)	2020		2019
Numerator:
Net income (loss)	$	(171,948)	$	5,084
Interest expense applicable to the Notes, net of tax		—		—
Amortization of debt issuance costs applicable to the Notes, net of tax		—		—
Adjusted “if-converted” net income (loss)	$	(171,948)	$	5,084
Denominator:
Basic weighted average common shares outstanding		39,443,441		38,605,052
Effect of potentially dilutive options and restricted stock awards		—		1,952,451
Effect of conversion of the Notes		—		—
Diluted weighted average common shares outstanding		39,443,441		40,557,503
Earnings (loss) per common share:
Basic	$	(4.36)	$	0.13
Diluted	$	(4.36)	$	0.13

	Six Months Ended
	December 31,
(In thousands, except share and per share data)	2020		2019
Numerator:
Net loss	$	(178,447)	$	(7,073)
Interest expense applicable to the Notes, net of tax		—		—
Amortization of debt issuance costs applicable to the Notes, net of tax		—		—
Adjusted “if-converted” net loss	$	(178,447)	$	(7,073)
Denominator:
Basic weighted average common shares outstanding		39,257,211		38,457,159
Effect of potentially dilutive options and restricted stock awards		—		—
Effect of conversion of the Notes		—		—
Diluted weighted average common shares outstanding		39,257,211		38,457,159
Loss per common share:
Basic	$	(4.55)	$	(0.18)
Diluted	$	(4.55)	$	(0.18)

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Share-based Compensation (Tables)

6 Months Ended

Dec. 31, 2020

Share-based Compensation

Schedule of weighted average assumptions

	Six Months Ended
	December 31, 2020			December 31, 2019
Risk-free interest rate		0.2	%		1.9	%
Expected volatility		82.5	%		73.7	%
Expected dividend yield		—	%		—	%
Forfeiture rate		—	%		—	%
Expected term		5.0	years		5.1	years
Weighted average fair value	$	3.86		$	4.04

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, 2020	991	$	12.11	$	678	5.6
Granted	309	$	5.95
Exercised	(37)	$	4.12	$	61
Forfeited, expired or repurchased	(217)	$	17.14
Outstanding at December 31, 2020	1,046	$	9.52	$	313	7.7
Vested and expected to vest at December 31, 2020	1,045	$	9.52	$	313	7.7
Exercisable at December 31, 2020	373	$	14.59	$	137	5.3

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, 2020	1,344	$	8.70
Granted	876		5.73
Vested	(778)		8.30	$	4,514
Forfeited	(70)		9.46
Non-vested at December 31, 2020	1,372	$	6.99

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, 2020	204	$	12.99
Granted	339	$	9.22
Performance adjustment (1)	(12)	$	25.58
Non-vested at December 31, 2020	531	$	10.29

(1) Represents the adjustment based on the performance of the September 2017 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				Six Months Ended
	December 31,				December 31,
(In thousands)	2020		2019		2020		2019
Selling, general and administrative expenses	$	1,507	$	1,205	$	4,221	$	4,840
Research and development expenses		132		214		287		438
Cost of sales		352		588		825		1,188
Total	$	1,991	$	2,007	$	5,333	$	6,466
Tax benefit at statutory rate	$	448	$	452	$	1,200	$	1,455

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Assets Held for Sale (Tables)

6 Months Ended

Dec. 31, 2020

Assets Held for Sale

Schedule of financial results of the Cody API business

	Three Months Ended				Six Months Ended
	December 31,				December 31,
(In thousands)	2020		2019		2020		2019
Net sales	$	—	$	669	$	—	$	1,736
Pretax loss attributable to Cody API business		(115)		(644)		(617)		(5,061)

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Summary of Significant Accounting Policies - Cash (Details) - USD ($) $ in Thousands	Dec. 31, 2020	Jun. 30, 2020	Dec. 31, 2019	Jun. 30, 2019
Summary of Significant Accounting Policies
Deposit account as restricted cash in other assets	$ 5,000
Cash and cash equivalents	34,224	$ 144,329	$ 119,176
Restricted cash, included in other assets	5,000
Cash, cash equivalents and restricted cash as presented on the Consolidated Statements of Cash Flows	$ 39,224	$ 144,329	$ 119,176	$ 140,249

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Summary of Significant Accounting Policies - Intangible Assets (Details)	6 Months Ended
	Dec. 31, 2020
Minimum
Intangible Assets
Estimated useful lives	5 years
Maximum
Intangible Assets
Estimated useful lives	15 years

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Summary of Significant Accounting Policies - Segments (Details) $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2020 USD ($)	Dec. 31, 2019 USD ($)	Dec. 31, 2020 USD ($) segment	Dec. 31, 2019 USD ($)
Medical Indication Information
Total net sales	$ 133,920	$ 136,110	$ 260,399	$ 263,452
Number of reportable segments | segment			1
Analgesic
Medical Indication Information
Total net sales	3,572	2,111	$ 6,692	3,995
Anti-Psychosis
Medical Indication Information
Total net sales	13,317	22,697	26,345	50,730
Cardiovascular
Medical Indication Information
Total net sales	16,336	23,972	36,050	45,579
Central Nervous System
Medical Indication Information
Total net sales	24,614	19,331	47,139	38,588
Endocrinology
Medical Indication Information
Total net sales	9,496		12,729
Gastrointestinal
Medical Indication Information
Total net sales	18,575	18,313	35,675	35,275
Infectious Disease
Medical Indication Information
Total net sales	23,044	18,078	44,976	29,973
Migraine
Medical Indication Information
Total net sales	6,083	10,878	15,773	20,021
Respiratory/Allergy/Cough/Cold
Medical Indication Information
Total net sales	2,267	3,075	3,693	5,781
Urinary
Medical Indication Information
Total net sales	1,361	1,233	2,819	1,668
Other
Medical Indication Information
Total net sales	8,410	9,934	16,044	19,796
Contract manufacturing revenue
Medical Indication Information
Total net sales	$ 6,845	$ 6,488	$ 12,464	$ 12,046

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Summary of Significant Accounting Policies - Concentrations (Details) - Net sales	3 Months Ended		6 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2020	Dec. 31, 2019
Products | Product 1
Concentration risk
Concentration risk (as a percent)	15.00%	10.00%	15.00%	9.00%
Products | Product 2
Concentration risk
Concentration risk (as a percent)	8.00%	15.00%	8.00%	18.00%
Customers | Customer A
Concentration risk
Concentration risk (as a percent)	26.00%	21.00%	26.00%	23.00%
Customers | Customer B
Concentration risk
Concentration risk (as a percent)	21.00%	26.00%	22.00%	26.00%
Customers | Customer C
Concentration risk
Concentration risk (as a percent)	12.00%	8.00%	11.00%	10.00%

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Summary of Significant Accounting Policies - Earnings (Loss) Per Share (Details)	Dec. 31, 2020
4.50% Convertible Senior Notes due 2026
Interest rate (as a percent)	4.50%

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Restructuring Charges - Restructuring Program (Details) $ in Thousands		3 Months Ended	6 Months Ended
	Jul. 10, 2020 employee	Dec. 31, 2019 USD ($)	Dec. 31, 2020 USD ($)	Dec. 31, 2019 USD ($)
Restructuring Charges
Restructuring expenses		$ 192	$ 4,043	$ 1,580
2020 Restructuring Plan
Restructuring Charges
Positions eliminated estimate | employee	80
Work force positions reduced (as a percent)	8.50%
Restructuring expenses			4,000
Expected cost savings			15,000
2020 Restructuring Plan | Employee Separation Costs
Restructuring Charges
Restructuring expenses			$ 4,043

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Restructuring Charges - Restructuring Program Change (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Dec. 31, 2019	Dec. 31, 2020	Dec. 31, 2019
Reconciliation of the changes in restructuring liabilities
Restructuring charges	$ 192	$ 4,043	$ 1,580
2020 Restructuring Plan
Reconciliation of the changes in restructuring liabilities
Restructuring charges		4,000
2020 Restructuring Plan | Employee Separation Costs
Reconciliation of the changes in restructuring liabilities
Restructuring charges		4,043
Payments		(3,882)
Ending balance for the period		$ 161

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Accounts Receivable, net (Details) - USD ($) $ in Thousands	Dec. 31, 2020	Jun. 30, 2020
Accounts receivable, net
Gross accounts receivable	$ 320,337	$ 271,557
Less: Allowance for doubtful accounts	(1,094)	(1,103)
Accounts receivable, net	160,131	125,688
Chargebacks
Accounts receivable, net
Less: reserve	(81,456)	(61,877)
Rebates
Accounts receivable, net
Less: reserve	(19,041)	(24,536)
Returns
Accounts receivable, net
Less: reserve	(39,267)	(40,796)
Other
Accounts receivable, net
Less: reserve	$ (19,348)	$ (17,557)

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Accounts Receivable, net - Revenue reserve (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2020	Dec. 31, 2019
Accounts receivable, net
Balance at the beginning of the period			$ 182,941	$ 241,523
Current period provision			504,754	575,967
Credits issued during the period			(484,792)	(591,564)
Balance at the end of the period	$ 202,903	$ 225,926	202,903	225,926
Chargebacks
Accounts receivable, net
Balance at the beginning of the period			61,877	89,567
Current period provision	191,500	199,600	379,821	407,523
Credits issued during the period			(360,242)	(427,293)
Balance at the end of the period	81,456	69,797	81,456	69,797
Rebates
Accounts receivable, net
Balance at the beginning of the period			62,711	78,274
Current period provision	43,400	58,300	77,657	116,803
Credits issued during the period			(77,536)	(119,701)
Balance at the end of the period	62,832	75,376	62,832	75,376
Returns
Accounts receivable, net
Balance at the beginning of the period			40,796	55,554
Current period provision	5,200	6,500	10,652	10,217
Credits issued during the period			(12,181)	(11,120)
Balance at the end of the period	39,267	54,651	39,267	54,651
Other
Accounts receivable, net
Balance at the beginning of the period			17,557	18,128
Current period provision	20,800	28,700	36,624	41,424
Credits issued during the period			(34,833)	(33,450)
Balance at the end of the period	$ 19,348	$ 26,102	$ 19,348	$ 26,102

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Accounts Receivable, net - Revenue reserve information (Details)	3 Months Ended		6 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2020	Dec. 31, 2019
Chargebacks
Accounts receivable, net
Percentage of provision for rebates, chargebacks, returns and other adjustments on gross sales	49.30%	47.20%	50.50%	49.30%
Rebates
Accounts receivable, net
Percentage of provision for rebates, chargebacks, returns and other adjustments on gross sales	11.20%	13.80%	10.30%	14.10%
Returns
Accounts receivable, net
Percentage of provision for rebates, chargebacks, returns and other adjustments on gross sales	1.30%	1.50%	1.40%	1.20%
Other
Accounts receivable, net
Percentage of provision for rebates, chargebacks, returns and other adjustments on gross sales	5.40%	6.80%	4.90%	5.00%

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Inventories (Details) - USD ($) $ in Thousands	Dec. 31, 2020	Jun. 30, 2020
Inventories:
Raw Materials	$ 49,539	$ 59,703
Work-in-process	18,281	12,235
Finished Goods	54,384	70,929
Net inventory	$ 122,204	$ 142,867

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Inventories - Additional information (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2020	Dec. 31, 2019
Inventories:
Provision for inventory write-downs	$ 20,600	$ 2,500	$ 23,214	$ 6,054

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Property, Plant and Equipment, net (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2020	Dec. 31, 2019	Jun. 30, 2020
Property, Plant and Equipment, net
Less: accumulated depreciation	$ (114,359)		$ (114,359)		$ (102,983)
Property, plant and equipment, net before construction in progress	162,118		162,118		166,905
Property, plant and equipment, net	173,157		173,157		179,518
Depreciation expense	5,700	$ 5,900	11,500	$ 11,700
Held in foreign countries
Property, Plant and Equipment, net
Property, plant and equipment, net	600		600		600
Land
Property, Plant and Equipment, net
Property, plant and equipment, gross	1,783		1,783		1,783
Building and improvements
Property, Plant and Equipment, net
Property, plant and equipment, gross	103,256		103,256		100,285
Machinery and equipment
Property, Plant and Equipment, net
Property, plant and equipment, gross	168,036		168,036		164,704
Furniture and fixtures
Property, Plant and Equipment, net
Property, plant and equipment, gross	3,402		3,402		3,116
Construction in progress
Property, Plant and Equipment, net
Property, plant and equipment, net	$ 11,039		$ 11,039		$ 12,613

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Property, Plant and Equipment, net - Useful Lives (Details)	6 Months Ended
	Dec. 31, 2020
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	Dec. 31, 2020	Jun. 30, 2020
KUPI | In-process research and development
Debt Instrument [Line Items]
Indefinite-lived intangible assets fair value	$ 4.0
KUPI | Product rights
Debt Instrument [Line Items]
Definite-lived intangible assets fair value	84.0
Term loan
Debt Instrument [Line Items]
Estimated fair value of loan	541.0	$ 608.0
4.50% Convertible Senior Notes due 2026
Debt Instrument [Line Items]
Estimated fair value of loan	$ 54.0	$ 58.0
Interest rate (as a percent)	4.50%
Initial conversion price	$ 15.29

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Intangible Assets - Definite-lived (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Dec. 31, 2020	Dec. 31, 2020	Jun. 30, 2020
Finite-Lived Intangible Assets
Gross Carrying Amount	$ 180,593	$ 180,593	$ 508,792
Accumulated Amortization	(21,105)	(21,105)	(143,057)
Intangible Assets, Net	159,488	$ 159,488	365,735
Product rights | KUPI
Finite-Lived Intangible Assets
Weighted Avg. Life		15 years
Gross Carrying Amount	83,955	$ 83,955	416,154
Accumulated Amortization			(125,327)
Intangible Assets, Net	83,955	$ 83,955	290,827
Definite-lived intangible assets impairment	193,000
Product rights | Silarx
Finite-Lived Intangible Assets
Weighted Avg. Life		15 years
Gross Carrying Amount	20,000	$ 20,000	20,000
Accumulated Amortization	(4,223)	(4,223)	(3,556)
Intangible Assets, Net	15,777	$ 15,777	16,444
Trade name | KUPI
Finite-Lived Intangible Assets
Weighted Avg. Life		2 years
Gross Carrying Amount	2,920	$ 2,920	2,920
Accumulated Amortization	(2,920)	$ (2,920)	(2,920)
Other intangible assets
Finite-Lived Intangible Assets
Weighted Avg. Life		10 years
Gross Carrying Amount	54,718	$ 54,718	50,718
Accumulated Amortization	(7,500)	(7,500)	(5,426)
Intangible Assets, Net	47,218	$ 47,218	45,292
Other intangible assets | KUPI
Finite-Lived Intangible Assets
Weighted Avg. Life		15 years
Gross Carrying Amount	19,000	$ 19,000	19,000
Accumulated Amortization	(6,462)	(6,462)	(5,828)
Intangible Assets, Net	$ 12,538	$ 12,538	$ 13,172

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Intangible Assets - Indefinite lived (Details) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2020	Jun. 30, 2020
Indefinite-lived
Indefinite-lived assets, net	$ 4,000	$ 9,000
Total intangible assets - Gross Carrying Amount	184,593	517,792
Accumulated Amortization	(21,105)	(143,057)
Total intangible assets, Net	163,488	374,735
In-process research and development | KUPI
Indefinite-lived
Indefinite-lived assets, net	4,000	$ 9,000
Indefinite-lived intangible assets impairment	$ 5,000

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Intangible Assets - Future Amortization (Details) - USD ($) $ in Thousands	1 Months Ended	3 Months Ended		6 Months Ended
	Nov. 30, 2020	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2020	Dec. 31, 2019	Jun. 30, 2020
Finite-Lived Intangible Assets
Amortization expense		$ 8,700	$ 8,200	$ 17,200	$ 15,200
Cost of sales		124,488	$ 86,663	216,675	$ 164,319
Future annual amortization expense:
2021		7,675		7,675
2022		16,950		16,950
2023		16,649		16,649
2024		16,349		16,349
2025		15,949		15,949
Thereafter		85,916		85,916
Intangible Assets, Net		$ 159,488		$ 159,488		$ 365,735
Recro [Member]
Finite-Lived Intangible Assets
Cost of sales	$ 5,000

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Long-Term Debt - Net (Details) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
	Nov. 25, 2020	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2020	Dec. 31, 2019	Dec. 07, 2020	Jun. 30, 2020
Long-term debt
Debt, gross		$ 639,435		$ 639,435
Total debt, net		617,828		617,828			$ 681,129
Less short-term borrowings and current portion of long-term debt		(39,345)		(39,345)			(88,189)
Long-term debt, net		$ 578,483		$ 578,483			592,940
Weighted average interest rate (as a percent)		7.80%	8.60%	7.90%	9.20%
Payment for extinguishment of debt				$ 68,516	$ 113,278
Term Loan A due 2020
Long-term debt
Debt, gross							48,844
Unamortized discount and other debt issuance costs							(433)
Total debt, net							48,411
Payment for extinguishment of debt	$ 42,000
Term Loan B due 2022
Long-term debt
Debt, gross		$ 553,185		553,185			572,857
Unamortized discount and other debt issuance costs		(18,746)		(18,746)			(23,278)
Total debt, net		$ 534,439		$ 534,439			549,579
Interest rate (as a percent)		6.38%		6.38%
4.50% Convertible Senior Notes due 2026
Long-term debt
Debt, gross		$ 86,250		$ 86,250			86,250
Unamortized discount and other debt issuance costs		(2,861)		(2,861)			(3,111)
Total debt, net		$ 83,389		$ 83,389			$ 83,139
Interest rate (as a percent)		4.50%		4.50%
Revolving Credit Facility due 2020
Long-term debt
Maximum borrowing capacity	$ 125,000	$ 125,000		$ 125,000
ABL Credit Facility
Long-term debt
Maximum borrowing capacity		$ 30,000		$ 30,000		$ 30,000

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Long-Term Debt - Maturity (Details) $ in Thousands	Dec. 31, 2020 USD ($)
Long-term Debt, Rolling Maturity
2021	$ 39,345
2022	513,840
Thereafter	86,250
Total	$ 639,435

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Long-Term Debt - Credit and Guaranty Agreement (Details)	Dec. 07, 2020 USD ($) D	Dec. 31, 2020 USD ($)
Debt Instrument [Line Items]
Deposit account as restricted cash in other assets		$ 5,000,000
ABL Credit Facility
Debt Instrument [Line Items]
Maximum borrowing capacity	$ 30,000,000	30,000,000
Threshold aggregate outstanding principal amount	$ 35,000,000
Term of indebtedness prior to maturity date	91 days
Applicate margin rate (as a percent)	2.50%
Unused capacity commitment fee (as a percent)	0.50%
Designated action and Excess Availability	30 days
Fixed charge coverage ratio	1.10
Minimum fixed charge coverage ratio percentage	15.00%
Consecutive business days | D	3
ABL Credit Facility | LIBOR
Debt Instrument [Line Items]
Variable interest rate (as a percent)	0.75%
Term Loan B due 2022
Debt Instrument [Line Items]
Minimum amount to be maintained in deposit account	$ 5,000,000
Minimum liquidity to be maintained as on last day of each month.	$ 15,000,000
Deposit account as restricted cash in other assets		$ 5,000,000

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Legal, Regulatory Matters and Contingencies (Details)			1 Months Ended		6 Months Ended
	Jan. 14, 2020 USD ($)	May 22, 2019 USD ($)	Aug. 31, 2019 USD ($) product	Nov. 30, 2016 item	Dec. 31, 2020 lawsuit tranche Distributor product	Jun. 30, 2018 product	Oct. 31, 2017 product
Government Pricing
Legal, Regulatory Matters and Contingencies
Settlement payment | $		$ 9,400,000
Reimbursement of overpayment | $			$ 8,100,000
Private Antitrust and Consumer Protection Litigation
Legal, Regulatory Matters and Contingencies
Number of drugs | product			135		18		6
Number of manufacturers and distributors | Distributor					30
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
Litigation settlement amount payable to other party | $	$ 600,000

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Commitments - Leases (Details) - USD ($) $ in Thousands	Dec. 31, 2020	Jun. 30, 2020
Commitments
Right-of-use asset	$ 8,650	$ 9,343
Present value of lease liabilities	11,348	10,900
ROU current liability	2,115	1,097
ROU non-current liability	$ 9,233	$ 9,844

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Commitments - Components of lease cost (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2020	Dec. 31, 2019
Commitments
Operating lease cost	$ 477	$ 590	$ 879	$ 1,071
Variable lease cost	43	32	82	61
Short-term lease cost	108	124	226	279
Total lease cost	$ 628	$ 746	$ 1,187	$ 1,411

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Commitments - Cash flow information (Details) - USD ($) $ in Thousands	6 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Lease cash flow
Operating cash flows from operating leases.	$ 809	$ 966
Weighted-average
Weighted-average remaining lease term	8 years	9 years
Weighted-average discount rate	8.00%	7.50%

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Commitments - Maturities of lease liabilities (Details) - USD ($) $ in Thousands	Dec. 31, 2020	Jun. 30, 2020
Maturities of lease liabilities
2021	$ 1,062
2022	2,125
2023	2,144
2024	2,164
2025	2,183
Thereafter	5,749
Total lease payments	15,427
Less: Imputed interest	4,079
Present value of lease liabilities	$ 11,348	$ 10,900

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Commitments - Other Commitment (Details) $ in Millions	12 Months Ended
	Jun. 30, 2020 USD ($)	Jun. 30, 2019 USD ($)	Jun. 30, 2017 USD ($)	Dec. 31, 2020 USD ($)
License and Collaboration Agreement With HEC
Commitments
Maximum amount to be loaned	$ 32.0
License and Collaboration Agreement, Excess Development Cost Split Ratio	1
License and Collaboration Agreement With HEC | First ten years
Commitments
License and Collaboration Agreement, Profit Split Ratio	1
License and Collaboration Agreement, Profit Split Period	10 years
License and Collaboration Agreement With HEC | Next five years
Commitments
License and Collaboration Agreement, Profit Split Ratio	1.5
License and Collaboration Agreement, Profit Split Period	5 years
Variable interest entity
Commitments
Maximum amount to be loaned			$ 15.0
Expiration period			7 years
Loans receivable fixed rate (as a percent)			2.00%
Percentage of outstanding loan		50.00%
Proceeds from sale of loan		$ 5.6
Loan receivable				$ 6.5

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Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Thousands	6 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Accumulated Other Comprehensive Loss.
Beginning Balance	$ (627)	$ (615)
Net income (loss) on foreign currency translation (net of tax of $0 and $0)	32	37
Other comprehensive income (loss), net of tax	32	37
Total Accumulated Other Comprehensive Loss	(595)	(578)
Net income (loss) on foreign currency translation, tax	$ 0	$ 0

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Earnings (Loss) Per Common Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2020	Dec. 31, 2019
Numerator:
Net income (loss)	$ (171,948)	$ 5,084	$ (178,447)	$ (7,073)
Adjusted "if-converted" net loss	$ (171,948)	$ 5,084	$ (178,447)	$ (7,073)
Denominator:
Basic weighted average common shares outstanding	39,443,441	38,605,052	39,257,211	38,457,159
Effect of potentially dilutive options and restricted stock awards		1,952,451
Diluted weighted average common shares outstanding	39,443,441	40,557,503	39,257,211	38,457,159
Earnings (loss) per common share:
Basic (in dollars per share)	$ (4.36)	$ 0.13	$ (4.55)	$ (0.18)
Diluted (in dollars per share)	$ (4.36)	$ 0.13	$ (4.55)	$ (0.18)
Anti-dilutive shares excluded in the computation of diluted earnings per share	8,100,000	6,000,000.0	8,100,000	6,700,000

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Share-based Compensation - Employee Compensation Plans (Details) shares in Thousands, $ in Millions	6 Months Ended
	Dec. 31, 2020 USD ($) ShareBasedCompensationPlan shares
Stock-based Compensation
Number of share-based employee compensation plans | ShareBasedCompensationPlan	2
Aggregate number of shares authorized for issuance	6,500
Additional shares for future issuances	3,000
Shares for future issuances	70
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 | $	$ 12.9
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	6 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Assumptions used to estimate fair values
Risk-free interest rate (as a percent)	0.20%	1.90%
Expected volatility (as a percent)	82.50%	73.70%
Expected dividend yield (as a percent)	0.00%
Expected term (in years)	5 years	5 years 1 month 6 days
Weighted average fair value (in dollars per share)	$ 3.86	$ 4.04

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Share-based Compensation - Options Rollforward (Details) - Stock options - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	6 Months Ended	12 Months Ended
	Dec. 31, 2020	Jun. 30, 2020
Awards
Outstanding at the beginning of the period (in shares)	991
Granted (in shares)	309
Exercised (in shares)	(37)
Forfeited, expired or repurchased (in shares)	(217)
Outstanding at the end of the period (in shares)	1,046	991
Vested and expected to vest, Awards (in shares)	1,045
Exercisable at the end of the period (in shares)	373
Weighted-Average Exercise Price
Outstanding at the beginning of the period (in dollars per share)	$ 12.11
Granted (in dollars per share)	5.95
Exercised (in dollars per share)	4.12
Forfeited, expired or repurchased (in dollars per share)	17.14
Outstanding at the end of the period (in dollars per share)	9.52	$ 12.11
Vested and expected to vest, Weighted-Average Exercise Price (in dollars per share)	9.52
Exercisable at the end of the period (in dollars per share)	$ 14.59
Aggregate Intrinsic Value
Outstanding at the beginning of the period (in dollars)	$ 678
Exercised (in dollars)	61
Outstanding at the end of the period (in dollars)	313	$ 678
Vested and expected to vest, Aggregate Intrinsic Value	313
Exercisable at the end of the period (in dollars)	$ 137
Weighted Average Remaining Contractual Life (yrs.)
Outstanding at the end of the period (in years)	7 years 8 months 12 days	5 years 7 months 6 days
Vested and expected to vest (in years)	7 years 8 months 12 days
Exercisable at the end of the period (in years)	5 years 3 months 18 days

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Share-based Compensation - Restricted Stock (Details) - Restricted stock - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	6 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
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)	1,344
Granted (in shares)	876
Vested (in shares)	(778)
Forfeited (in shares)	(70)
Non-vested at the end of the period (in shares)	1,372
Weighted Average Grant-date Fair Value
Non-vested at the beginning of the period (in dollars per share)	$ 8.70
Granted (in dollars per share)	5.73
Vested (in dollars per share)	8.30
Forfeited (in dollars per share)	9.46
Non-vested at the end of the period (in dollars per share)	$ 6.99
Aggregate Intrinsic Value
Vested	$ 4,514

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Share-based Compensation - Performance-Based Shares (Details) - Performance-Based Shares shares in Thousands	6 Months Ended
	Dec. 31, 2020 $ / 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	204
Granted (in shares) | shares	339
Performance adjustment (in shares) | shares	(12)
Non-vested at the end of the period (in shares) | shares	531
Weighted Average Grant-date Fair Value
Non-vested at the beginning of the period (in dollars per share) | $ / shares	$ 12.99
Granted (in dollars per share) | $ / shares	9.22
Performance adjustment (in dollars per share) | $ / shares	25.58
Non-vested at the end of the period (in dollars per share) | $ / shares	$ 10.29

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Share-based Compensation - Employee Stock Purchase Plan (Details) - shares shares in Thousands	6 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Apr. 01, 2003
Stock-based Compensation
Shares authorized for issuance (in shares)	6,500
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)	56	52
Cumulative shares issued (in shares)	966

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Share-based Compensation - Cost (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2020	Dec. 31, 2019
Share-based compensation costs
Share based compensation	$ 1,991	$ 2,007	$ 5,333	$ 6,466
Tax benefit at statutory rate	448	452	1,200	1,455
Selling, general and administrative
Share-based compensation costs
Share based compensation	1,507	1,205	4,221	4,840
Research and development
Share-based compensation costs
Share based compensation	132	214	287	438
Cost of sales
Share-based compensation costs
Share based compensation	$ 352	$ 588	$ 825	$ 1,188

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Employee Benefit Plan (Details) - USD ($) $ in Millions		3 Months Ended		6 Months Ended
	Jan. 01, 2021	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2020	Dec. 31, 2019
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		$ 0.5	$ 0.5	$ 1.1	$ 1.1

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Income Taxes - Quarter (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2017	Jun. 30, 2020
Reconciliation of federal statutory rate to effective rate
Income tax benefit	$ (58,076)	$ (5,308)	$ (66,056)	$ (3,521)
Effective income tax rate (as a percent)	25.20%	2369.60%	27.00%	33.20%
Federal income tax at statutory rate (as a percent)					35.00%
Unrecognized tax benefits	$ 4,400		$ 4,400			$ 4,600
Unrecognized tax benefits that would impact rate	4,400		4,400			4,500
Unrecognized tax benefits cumulative interest and penalties recorded	$ 0		$ 0			$ 0

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Related Party Transactions (Details) - Auburn - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2020	Dec. 31, 2019	Jun. 30, 2020
Related Party Transactions
Sales to related party	$ 0.8	$ 0.6	$ 1.5	$ 1.3
Accounts receivable related party	$ 0.5		$ 0.5		$ 0.7

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Assets Held for Sale (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2020	Dec. 31, 2019	Oct. 31, 2020	Jun. 30, 2020
Assets Held for Sale
Assets held for sale	$ 2,678		$ 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		2,700
Net sales		$ 669		$ 1,736
Pretax loss attributable to Cody API business	$ (115)	$ (644)	$ (617)	(5,061)
Impairment of the ROU lease asset				$ 1,200