Lannett Company has announced a number of restructuring actions to streamline operations, improve efficiencies and significantly reduce costs. The initiatives are part of the company's efforts to integrate the recently completed acquisition of Kremers Urban Pharmaceuticals Inc. (KU). Actions have already begun and include the closing of KU's corporate offices in Princeton, New Jersey, an immediate workforce reduction of approximately 10% and a total staff reduction of approximately 20% over the next three years.
The plan is expected to result in approximately $40 million of cost reductions during the 12 months following the close of the acquisition, including $27 million in fiscal 2016, and is currently estimated to generate annualized synergies of approximately $50 million by the end of fiscal 2018 and achieve an ultimate run rate of approximately $65 million by the end of fiscal 2020.
"A thorough strategic review of our business revealed opportunities to optimize our operations, improve our profitability and implement accelerated and increased cost reduction measures," said Arthur Bedrosian, chief executive officer of Lannett Company. "Our efforts, which include consolidating our research and product development functions and streamlining our manufacturing, packaging and distribution operations, are designed to build a sustainable, strong foundation for future growth, leverage the combined company's size and scale, and enhance our competitive position."
The company currently estimates that it will incur aggregate costs to implement the plan of approximately $20 million to $22 million. The costs associated with the plan, the majority of which are expected to be incurred between fiscal years 2016 and 2018, will primarily consist of (i) a reduction in headcount through reorganization and integration, including severance and termination benefits for employees, expected to be approximately $11 million to $13 million, (ii) other costs primarily relating to the rationalization, consolidation and relocation of certain portions of our research and product development, manufacturing and distribution centers, as well as other facilities, expected to be approximately $8 million and (iii) contract termination costs expected to be approximately $1 million.
The plan is being spearheaded by Michael Bogda, president of Lannett, and his team who have extensive experience integrating acquired companies and developing and implementing cost reduction initiatives.
The company expects to provide additional details regarding the Plan on its fiscal 2016 second quarter financial results conference call, scheduled for February 3, 2016, after market close.