Lantheus Holdings(LNTH) - 2019 Q1 - Quarterly Report

Financial Information This section presents the company's unaudited financial statements, management's discussion and analysis of financial condition, and internal controls Unaudited Financial Statements For the three months ended March 31, 2019, the company reported total revenues of $86.5 million, a 4.7% increase year-over-year, and net income of $9.9 million, a 21.2% increase; total assets grew slightly to $443.9 million from $439.8 million at year-end 2018, while total liabilities decreased, resulting in a stronger stockholders' equity position of $83.2 million; cash flow from operations was positive at $10.5 million, a significant improvement from a negative $0.7 million in the prior-year period Condensed Consolidated Balance Sheets The balance sheet highlights show slight asset growth, a decrease in total liabilities, and an increase in stockholders' equity as of March 31, 2019 Balance Sheet Highlights (in thousands) | | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total current assets | $195,498 | $195,415 | | Total assets | $443,908 | $439,831 | | Total current liabilities | $42,768 | $52,755 | | Total liabilities | $360,695 | $368,829 | | Total stockholders' equity | $83,213 | $71,002 | Condensed Consolidated Statements of Operations The statement of operations indicates increased revenues, gross profit, operating income, and net income for the three months ended March 31, 2019 Statement of Operations (in thousands, except per share data) | | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Revenues | $86,510 | $82,630 | | Gross profit | $44,084 | $42,309 | | Operating income | $16,169 | $15,137 | | Net income | $9,949 | $8,211 | | Diluted EPS | $0.25 | $0.21 | Condensed Consolidated Statements of Cash Flows The cash flow statement shows positive net cash from operating activities, increased cash used in investing, and a net decrease in cash and cash equivalents Cash Flow Summary (in thousands) | | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $10,468 | $(666) | | Net cash used in investing activities | $(10,550) | $(1,135) | | Net cash used in financing activities | $(1,231) | $(704) | | Net decrease in cash and cash equivalents | $(1,340) | $(2,551) | | Cash and cash equivalents, end of period | $112,061 | $73,739 | Notes to Financial Statements Key notes include the adoption of the new lease accounting standard (ASC 842), which resulted in recording a $1.1 million lease asset and liability; revenue is primarily driven by product sales in the U.S. segment, which accounts for the majority of revenue and operating income; the company also details its asset retirement obligations, primarily for its radioactive material facilities, which are secured by a $28.2 million surety bond - The company adopted the new lease standard ASC 842 on January 1, 2019, resulting in the recording of an additional lease asset and lease liability of approximately $1.1 million[22][41] Revenue by Segment (in thousands) | Segment | Q1 2019 Revenue | Q1 2018 Revenue | | :--- | :--- | :--- | | U.S. | $75,434 | $71,488 | | International | $11,076 | $11,142 | | Total | $86,510 | $82,630 | Operating Income by Segment (in thousands) | Segment | Q1 2019 Operating Income | Q1 2018 Operating Income | | :--- | :--- | :--- | | U.S. | $14,584 | $14,156 | | International | $1,585 | $981 | | Total | $16,169 | $15,137 | - The company has asset retirement obligations related to its radioactive material facilities, with a liability of $11.9 million as of March 31, 2019, and has provided financial assurance via a $28.2 million surety bond[34][35][37] Management's Discussion and Analysis (MD&A) Management attributes the 4.7% year-over-year revenue growth primarily to increased sales of DEFINITY and TechneLite in the U.S. market; key strategic focuses include expanding the DEFINITY franchise through new indications and formulations, managing the fragile global Molybdenum-99 (Moly) supply chain, and diversifying manufacturing capabilities; R&D expenses increased by 23.6% due to investments in clinical studies; the company believes its current liquidity, including a $75 million revolving credit facility, is sufficient to fund operations for the foreseeable future Business Overview and Product Portfolio The company is a global leader in diagnostic medical imaging agents, with principal products including DEFINITY and TechneLite - Lantheus is a global leader in diagnostic medical imaging agents, operating in two segments: U.S. and International; its principal products are DEFINITY (ultrasound contrast agent) and TechneLite (Technetium generator)[62][64][65] Revenue by Principal Product (in thousands) | Product | Q1 2019 Revenue | % of Total | Q1 2018 Revenue | % of Total | | :--- | :--- | :--- | :--- | :--- | | DEFINITY | $51,111 | 59.1% | $44,655 | 54.0% | | TechneLite | $24,145 | 27.9% | $21,395 | 25.9% | | Other nuclear | $15,120 | 17.5% | $19,486 | 23.6% | Key Factors Affecting Results Key factors influencing results include the company's reliance on DEFINITY, strategic expansion initiatives, and challenges in the global Molybdenum-99 supply chain - The company's growth is significantly dependent on its highest margin product, DEFINITY, which held over 80% of the U.S. market share as of December 31, 2018[67] - Strategic initiatives for the DEFINITY franchise include pursuing a new LVEF indication, developing a room-temperature stable formulation, and building in-house manufacturing capabilities expected to be operational by early 2021[69][75] - The global Molybdenum-99 (Moly) supply remains a challenge due to periodic outages at the NTP facility in South Africa; the company is mitigating this risk through supply from IRE and ANSTO, and expects ANSTO's new facility to provide incremental supply[74][75] - The company is investing in several R&D programs, including Phase 3 studies for a DEFINITY LVEF indication and development of LMI 1195 for neuroendocrine tumors[80] Results of Operations Analysis Analysis of operations reveals revenue growth driven by U.S. DEFINITY and TechneLite sales, alongside increased R&D expenses and a lower effective tax rate Revenue Change by Segment and Product (in thousands) | Category | Q1 2019 | Q1 2018 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $86,510 | $82,630 | $3,880 | 4.7% | | U.S. DEFINITY | $49,716 | $43,506 | $6,210 | 14.3% | | U.S. TechneLite | $20,058 | $18,063 | $1,995 | 11.0% | | U.S. Other nuclear | $9,524 | $12,817 | ($3,293) | (25.7)% | - Gross profit increased by 4.2% to $44.1 million, primarily due to higher DEFINITY and TechneLite unit volumes in the U.S., offset by lower Xenon volumes[87][88] - Research and development expenses increased 23.6% to $4.9 million, driven by clinical research expenses for DEFINITY studies[94] - The effective tax rate decreased to 22.1% for Q1 2019 from 31.6% in Q1 2018, primarily due to increased tax benefits from stock compensation deductions[100][101] Liquidity and Capital Resources The company's liquidity is supported by positive operating cash flow, a revolving credit facility, and sufficient cash to fund future operations - Net cash from operating activities was $10.5 million, a significant improvement from a $0.7 million use of cash in the prior year, driven by higher net income and non-cash charges[102][103][104] - Net cash used in investing activities increased to $10.6 million from $1.1 million YoY, due to higher capital expenditures[102][105] - The company has a $275 million term loan facility and a $75 million revolving credit facility as external sources of liquidity; as of March 31, 2019, cash and cash equivalents were $112.1 million[108][116] - Management believes existing cash, operating results, and availability under the revolving facility are sufficient to fund liquidity requirements for the foreseeable future[117] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of the end of the period; no material changes were made to internal controls over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2019[123] - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[124] Other Information This section details ongoing legal proceedings, significant risk factors, and the company's policies regarding equity and dividends Legal Proceedings The company is currently in arbitration with Pharmalucence concerning a Manufacturing and Supply Agreement for DEFINITY; the company is seeking monetary damages but cannot predict the outcome; no other material ongoing litigation was reported - The company is in an ongoing arbitration with Pharmalucence over a manufacturing and supply agreement for DEFINITY, seeking monetary damages[127][51] Risk Factors The company highlights two key risk areas: first, the global supply of Molybdenum-99 (Moly), a critical ingredient for TechneLite, is fragile and unstable, with recent outages at a key supplier (NTP) impacting production; second, the process of developing new drugs and obtaining regulatory approval for its pipeline candidates (DEFINITY for LVEF, flurpiridaz F 18, LMI 1195) is complex, costly, and uncertain, with potential for significant delays and failure - The global supply of Moly is fragile, with periodic outages at the NTP processing facility in South Africa impacting the company's ability to meet full demand for its TechneLite generators[130][131] - Mitigation efforts for Moly supply risk include relying on other suppliers (IRE, ANSTO) and the recent FDA approval of ANSTO's new, higher-capacity facility[132] - The company faces significant risk related to the complex, time-consuming, and costly process of obtaining regulatory approval for its three active clinical development programs[137] - The regulatory approval process for DEFINITY in China is experiencing further delays related to packaging components and clinical data assessment[141] Share Repurchases and Dividend Policy The company does not have a share repurchase program in effect but withheld 50,475 shares during the quarter to satisfy employee tax obligations on vested equity awards; the company did not pay dividends and does not intend to in the foreseeable future, retaining earnings to repay debt and fund growth - During Q1 2019, the company withheld 50,475 shares of common stock to satisfy minimum statutory tax withholding obligations for employees related to equity awards[146][147] - The company does not currently intend to pay dividends and expects to retain future earnings to repay debt and finance business growth[148]