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Aceto Corp. expects an annual loss of at least $240M; delays annual report

The Port Washington company said the loss stems in large part from writing down the value of its generic drug unit.

Aceto Corp. headquarters in Port Washington on Oct.

Aceto Corp. headquarters in Port Washington on Oct. 21, 2011. Photo Credit: Barry Sloan

Port Washington-based drug company Aceto said in a government filing that it expects to report a loss of at least $240 million in its fiscal year that ended June 30.

The company also said it has requested an extension on filing its annual report with the U.S. Securities and Exchange Commission.

The loss stems in large part from an impairment charge of $256.3 million, rather than an operating loss, the company said. The impairment charge was taken to reflect that the company's generic pharmaceutical unit, which was assembled via multimillion-dollar acquisitions, has declined in value from the level recorded in the company's books.

The impairment occurred during the nine-month period that ended March 31. It was related to Aceto Corp.’s Rising Pharmaceuticals Inc. segment, according to the company. It consisted of $235.1 million in goodwill impairment and a $21.2 million write-down of “other identifiable intangible assets,” the company said in a recent SEC filing.

Aceto is working with auditors to determine whether the company needs to change its accounting for $76.5 million net domestic deferred tax assets, which is why it requested a 15-day extension to file its annual report with the SEC.

The report will be filed Sept. 28.

In 2010, Aceto bought Rising Pharmaceuticals, which focused on commodity generics, for about $80 million. It also bought commoditized generic drugmaker Citron Pharma LLC and its affiliate, Lucid Pharma LLC, for $412 million in 2016.

More competition in the generic drugs industry, as well as a consolidation of generics buyers, such as drugstore chains, wholesalers and pharmacy benefit managers, have pushed prices down, decreasing company values across the industry, said Dewey Steadman, analyst in the Manhattan office of Canaccord Genuity Group LLC, an investment banking and financial services company headquartered in Toronto.

So pharmaceutical companies that have paid a lot of money for generic assets over the past several years are having to write-down a lot of value now, he said.

“It’s endemic to the industry,” Steadman said.

The issue of the deferred tax assets is related to recent changes in tax laws, and companies are asking for more time for analysis, he said.

The management team that Aceto has in place now, including William C. Kennally, III, a former executive at Pfizer who was named Aceto president and CEO in October, is well-suited to put the company in a better position, Steadman said.

“It’s just that the company was caught between a rock and hard place with its business model. They need a little more room to maneuver to position the company well going forward,” Steadman said.

While an impairment loss is important, “it’s less significant than an operating loss conceptually because an operating loss means there is something wrong with the business,” said Anthony Basile, an associate professor of accounting, taxation, and legal studies in business at Hofstra University in Hempstead.

An impairment loss is “usually a one-shot loss . . . a nonrecurring loss,” he said.

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