Lannett Company, Inc. Stock Gained 25.2% Last Month: Here's Why

By Markets Fool.com

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What: Shares of Lannett Company, Inc. (NYSE: LCI), a midsized generic drugmaker, packed on 25.2% last month, according to data from S&P Global Market Intelligence. A key approval for a popular antidepressant has investors feeling more optimistic about the company's recent acquisition.

LCI data by YCharts.

So what:The FDA approved Lannett's application for paroxetine extended-release tablets, a generic version of Paxil, an antidepressant that once contributed more than $3 billion annually to GlaxoSmithKline's revenue.Although the first generic versions of Paxil hit the market over a decade ago,Lannett claims there's only one other competitor for this drug, which will give the company more pricing power than generic drugs typically command.

Perhaps the most encouraging part of the approval, however, is its source. Lannett has been taking a lot of heat over its acquisition of Kremers, and this was the new subsidiary's first major approval since the acquisition was completed about eight months ago.

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Now what:Across the board, generic drugmakers have been complaining about price erosion. The CEO ofTeva Pharmaceutical's global generics unit, Sigurdur Olafsson, sums their troubles up as a lack of new product launches,and I'm inclined to agree with Olafsson. Lannett becoming one of two companies with a generic version of a popular antidepressant could go a long way toward bringing its bottom line back into positive territory.

LCI Net Income (Quarterly) data by YCharts.

Adding Kremers' operations has increased Lannett's top line, but taking on about $1 billion in high-interest debt to finance the purchase has investors justifiably nervous. A guidance revision in March predicts interest expense for the fiscal year ended June of about $53 million.That might be small potatoes to a company as big as Teva, but in fiscal 2014 Lannett recorded net income of just $57 million.

The good news is that Lannett has been growing by leaps and bounds; in fiscal 2015 its bottom line expanded to $149 million, or $4.04 per share.At present, trailing revenue of $472.9 million is higher than ever, and the company finished March with $424.7 million in working capital. Despite the high debt level, a current ratio of about 3.4 hardly suggests a near-term liquidity crunch.

Lannet is predicting adjusted gross margin of about 61% this year, far below the 75% it enjoyed in fiscal 2015. Revenue, however, is expected to rise to at least $555 million for fiscal 2016, a 36% increase over fiscal 2015.

At recent prices Lannett stock is trading at just 7.7 times fiscal 2015 earnings. Investors will want to keep an eye on Lannett's costly debt pile, but there's a good chance the stock is still in value territory, despite the recent run-up.

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Cory Renauerhas no position in any stocks mentioned. You can follow Cory on Twitter@TMFang4applesor connect with him onLinkedInfor more healthcare industry insight.The Motley Fool recommends Teva Pharmaceutical Industries. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.