Lantheus Holdings(LNTH) - 2019 Q4 - Annual Report

Part I Business Lantheus Holdings, Inc. is a global leader in developing, manufacturing, and commercializing diagnostic medical imaging agents, primarily for cardiovascular diseases, operating in U.S. and International segments with key products DEFINITY and TechneLite, pursuing growth through microbubble franchise expansion, strategic acquisitions, and new agent development while managing supply chain instability and generic competition risks - The company operates in two reportable segments: the U.S. Segment and the International Segment, selling products to radiopharmacies, hospitals, clinics, and group practices[23][25] - On February 20, 2020, Lantheus entered into an Amended Merger Agreement to acquire Progenics Pharmaceuticals, Inc. in an all-stock transaction expected to close in Q2 2020[27][31] - Progenics stockholders will receive 0.31 shares of Lantheus stock and a non-tradeable Contingent Value Right (CVR) for each Progenics share[27][31] - The company's growth strategy includes expanding its microbubble franchise through new patents, developing a modified room-temperature stable formulation of DEFINITY, exploring new clinical applications, and building in-house manufacturing capabilities expected to be operational by early 2021[38][44] Product Portfolio Lantheus's product portfolio is led by DEFINITY, the leading U.S. ultrasound contrast agent with over 80% market share, and TechneLite, a key Technetium-99m generator holding about one-third of the U.S. market, diversified across ultrasound and nuclear imaging modalities - DEFINITY is the leading ultrasound contrast imaging agent in the U.S. by revenue and usage, holding an estimated market share of over 80% as of December 2019[34][38] - TechneLite, a Technetium-99m generator, held approximately one-third of the U.S. generator market as of December 31, 2019 Its production is highly dependent on the global supply of Molybdenum-99 (Mo-99)[43][45] - The company's portfolio also includes established products such as Xenon (for pulmonary function), Cardiolite (for myocardial perfusion imaging), and Neurolite (for cerebral blood flow imaging)[50] Distribution, Marketing and Sales In the U.S. and Canada, Lantheus utilizes a sales team of approximately 80 employees, selling a majority of its U.S. radiopharmaceutical products to five major radiopharmacy groups with agreements expiring at the end of 2020, while relying on third-party distributors for most international markets - The company sells a majority of its U.S. radiopharmaceutical products to five key radiopharmacy groups: GE Healthcare, Cardinal, UPPI, Jubilant Radiopharma, and PharmaLogic[54] - Supply agreements with major customers like GE Healthcare, Cardinal, UPPI, Jubilant Radiopharma, and PharmaLogic are set to expire on December 31, 2020[55][62] - Outside the U.S., Canada, and Puerto Rico, the company uses third-party distributors for marketing, sales, and distribution[58] Raw Materials and Supply Relationships The company is highly dependent on a few key suppliers for critical raw materials, especially Molybdenum-99 (Mo-99) sourced from IRE, NTP, and ANSTO, facing supply chain instability due to recent outages, and is seeking to augment supply through a future agreement with SHINE expected in 2022 - The company purchases finished Mo-99 from three of the world's four main processing sites: IRE (Belgium), NTP (South Africa), and ANSTO (Australia)[68] - The Mo-99 supply chain has faced significant instability, including periodic outages at NTP's facility in 2017-2019 and production issues at ANSTO's new facility starting in June 2019, which have constrained TechneLite generator supply[71][72] - Lantheus has a strategic agreement with SHINE for a future supply of Mo-99, anticipated to commence in 2022, to help diversify its supply chain[73] Clinical Development Lantheus invested $20.0 million in R&D in 2019, with main clinical programs including flurpiridaz F 18 in Phase 3 collaboration with GE Healthcare, LMI 1195 for neuroendocrine tumors with Orphan Drug designation, and a Phase 3 program for DEFINITY where the first trial did not meet its primary endpoint R&D Investment (in millions) | Year | R&D Expense | | :--- | :--- | | 2019 | $20.0 | | 2018 | $17.1 | | 2017 | $18.1 | - The company has an exclusive collaboration with GE Healthcare for the Phase 3 development and worldwide commercialization of flurpiridaz F 18, a PET MPI agent The second Phase 3 trial is underway with a target completion in the second half of 2020[89][90] - The first of two Phase 3 trials for a new DEFINITY indication (LVEF measurement) did not show a statistically significant improvement in accuracy compared to the truth standard (CMRI)[94] Intellectual Property Lantheus relies on patents, trademarks, and trade secrets to protect its products, with DEFINITY's U.S. Orange Book-listed composition of matter patent expiring in June 2019 but a method of use patent extending to March 2037, and TechneLite protected by component technology patents expiring in 2029 and manufacturing know-how - As of December 31, 2019, the company's patent portfolio included 43 issued U.S. patents and 284 issued foreign patents[101] - DEFINITY's Orange Book-listed composition of matter patent expired in June 2019, but it has a method of use patent listed that expires in March 2037 The company may face generic challengers but has not received any ANDA notice as of the report filing date[103][104][105] - TechneLite has patent protection on certain component technology expiring in 2029, supplemented by significant trade secrets related to its manufacturing process[106] Risk Factors The company faces significant risks, including substantial dependence on its top product, DEFINITY, which faces potential generic competition following a patent expiration in June 2019, and the fragile global supply of Molybdenum-99 critical for TechneLite, along with reliance on third-party manufacturers, dependence on large customers, complex regulations, product liability, and uncertainties related to the proposed Progenics acquisition - The business is substantially dependent on DEFINITY, which faces potential generic competition as its Orange Book-listed composition of matter patent expired in June 2019[164][166] - The global supply of Mo-99 is fragile and unstable Recent outages at supplier facilities (NTP and ANSTO) have resulted in the company being unable to fill all demand for its TechneLite generators[171][172] - The company depends on third parties for manufacturing, relying on JHS as the sole source for DEFINITY, Neurolite, and Cardiolite[179] - The pending acquisition of Progenics is subject to conditions and may not occur If it does, risks include integration challenges, potential dilution to earnings, and failure to realize anticipated benefits[276][277][291] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - None[298] Properties The company's principal property is its owned 431,000 square foot corporate headquarters, manufacturing, and laboratory facility in North Billerica, Massachusetts, complemented by leased smaller facilities in Quebec, Canada, and San Juan, Puerto Rico, for office, distribution, and manufacturing purposes Significant Properties | Location | Purpose | Ownership | Square Footage | | :--- | :--- | :--- | :--- | | North Billerica, MA | Corp. HQ, Manufacturing, Lab | Owned | 431,000 | | San Juan, PR | Manufacturing, Lab, Office | Leased | 9,550 | | Quebec, Canada | Distribution & Office | Leased | ~2,539 (total) | Legal Proceedings The company reports no material ongoing litigation as of December 31, 2019, noting a successful arbitration with Pharmalucence concluded in October 2019, where Lantheus was awarded approximately $3.5 million in damages and fees related to a breached manufacturing and supply agreement for DEFINITY, with proceeds received in November 2019 - In October 2019, the company was awarded approximately $3.5 million in an arbitration against Pharmalucence concerning a breach of a manufacturing and supply agreement for DEFINITY The proceeds were received in November 2019[301] - As of December 31, 2019, the company had no other material ongoing litigation, regulatory proceedings, or known governmental investigations[302] Mine Safety Disclosures This item is not applicable to the company - Not applicable[303] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on the NASDAQ Global Market under the symbol "LNTH", with 8 stockholders of record as of February 19, 2020, and does not anticipate paying cash dividends, intending to retain earnings for business growth and debt repayment, having withheld 2,127 shares in Q4 2019 to satisfy employee tax obligations related to equity awards - The company's common stock trades on the NASDAQ Global Market under the symbol "LNTH"[305] - The company does not currently intend to pay dividends and expects to retain future earnings to finance growth and repay debt[313] - During Q4 2019, the company purchased 2,127 shares by withholding them to satisfy minimum statutory tax withholding obligations for employees related to equity awards[315][316][317] Selected Financial Data This section provides a five-year summary of the company's consolidated financial data, reporting total revenues of $347.3 million and net income of $31.7 million, or $0.79 per diluted share, with total assets of $405.9 million and total long-term debt, net of $183.9 million at year-end 2019 Selected Financial Data (Year Ended Dec 31, in thousands, except per share data) | Metric | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Revenues | $347,337 | $343,374 | $331,378 | | Operating Income | $51,661 | $64,488 | $51,853 | | Net Income (Loss) | $31,667 | $40,518 | $123,385 | | Diluted EPS | $0.79 | $1.03 | $3.17 | | Total Assets | $405,919 | $439,831 | $383,858 | | Long-term debt, net | $183,927 | $263,709 | $265,393 | Management's Discussion and Analysis of Financial Condition and Results of Operations In 2019, total revenues increased by 1.2% to $347.3 million, driven by an 18.8% growth in DEFINITY sales to $217.5 million, offsetting declines in TechneLite and other nuclear products due to Mo-99 supplier disruptions, resulting in flat gross profit at $174.8 million, decreased operating income to $51.7 million due to higher G&A expenses including Progenics acquisition costs, net income of $31.7 million, and strong operating cash flow of $80.4 million after debt refinancing Results of Operations (2019 vs. 2018) For 2019 compared to 2018, total revenues grew 1.2% to $347.3 million, driven by a $34.4 million (18.8%) increase in worldwide DEFINITY revenue, offset by declines in TechneLite and other nuclear products, resulting in nearly flat gross profit at $174.8 million, increased operating expenses due to Progenics transaction costs, and a decrease in operating income to $51.7 million and net income to $31.7 million Worldwide Revenue by Product (2019 vs 2018, in thousands) | Product | 2019 | 2018 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | DEFINITY | $217,508 | $183,073 | $34,435 | 18.8% | | TechneLite | $86,592 | $98,858 | ($12,266) | (12.4)% | | Other nuclear | $59,805 | $74,284 | ($14,479) | (19.5)% | | Total Revenues | $347,337 | $343,374 | $3,963 | 1.2% | - U.S. segment G&A expenses increased by $11.6 million (23.6%) in 2019, primarily due to acquisition-related costs for the pending Progenics acquisition and higher employee-related costs[375][376] - The company recorded a $3.2 million loss on extinguishment of debt in 2019 related to the refinancing of its credit facility[383] Liquidity and Capital Resources As of December 31, 2019, the company had $92.9 million in cash and cash equivalents, with net cash from operating activities of $80.4 million for the year, having refinanced its debt in June 2019 with a new $200 million term loan facility and a $200 million revolving credit facility maturing in June 2024, and believes existing cash, cash flow, and available credit will be sufficient for future liquidity needs Cash Flow Summary (Year ended Dec 31, in thousands) | Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $80,384 | $61,193 | | Net cash used in investing activities | ($22,061) | ($19,132) | | Net cash used in financing activities | ($78,881) | ($4,668) | - In June 2019, the company entered into a new credit agreement consisting of a $200 million term loan facility and a $200 million revolving credit facility, both maturing in June 2024[399][569] - As of December 31, 2019, total contractual obligations for the next five years amount to $234.1 million, primarily consisting of debt principal and interest[411] Critical Accounting Policies and Estimates The company's critical accounting policies involve significant estimates and judgments in revenue recognition, requiring estimation of variable consideration like rebates, and income taxes, which involves assessing deferred tax asset realizability and uncertain tax positions, with a tax indemnification agreement with BMS resulting in no net impact on net income - Revenue recognition requires estimating variable consideration for discounts, returns, and rebates, based on historical experience, contractual requirements, and market trends[424] - Accounting for income taxes involves significant judgment in assessing the realizability of deferred tax assets and determining uncertain tax positions[426][428] - A tax indemnification agreement with former parent BMS covers certain uncertain tax positions Changes in these liabilities are recorded in the tax provision, with an offsetting adjustment in other income/expense, resulting in no net impact on net income[432] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risk from changes in interest rates and foreign currency exchange rates, with its primary interest rate risk stemming from $195.0 million in variable-rate debt, where a hypothetical 100 basis point adverse change would impact interest expense by approximately $2.4 million, and began using foreign currency forward contracts in 2019 to hedge Canadian dollar exposure - The company has substantial variable rate debt ($195.0 million as of Dec 31, 2019) A hypothetical 100 basis point increase in interest rates would increase annual interest expense by approximately $2.4 million[436][437] - The primary foreign currency risk exposure is the Canadian dollar The company began using foreign currency forward contracts in 2019 to mitigate this risk[440][441] Financial Statements and Supplementary Data This section contains the company's audited consolidated financial statements for the fiscal year ended December 31, 2019, and the unqualified opinion report from the independent registered public accounting firm, Deloitte & Touche LLP, on both the financial statements and the effectiveness of internal control over financial reporting, including detailed notes Report of Independent Registered Public Accounting Firm Deloitte & Touche LLP issued an unqualified opinion, stating that the consolidated financial statements present fairly the financial position, results of operations, and cash flows of Lantheus Holdings, Inc. as of December 31, 2019 and 2018, and for the three years then ended, in conformity with U.S. GAAP, and also issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting, identifying Asset Retirement Obligations as a critical audit matter - The independent auditor, Deloitte & Touche LLP, issued an unqualified opinion on the company's financial statements and its internal control over financial reporting[446][447] - The audit identified Asset Retirement Obligations as a critical audit matter due to the significant management estimation involved in determining the expected decommissioning costs for certain facilities[451][452] Consolidated Financial Statements The consolidated financial statements detail the company's financial position and performance, with total assets of $405.9 million and total liabilities of $291.3 million as of December 31, 2019, and for the year, $347.3 million in revenue and $31.7 million in net income, with cash and cash equivalents decreasing from $113.4 million to $92.9 million largely due to debt refinancing Consolidated Balance Sheet Highlights (As of Dec 31, 2019, in thousands) | Account | Amount | | :--- | :--- | | Cash and cash equivalents | $92,919 | | Total current assets | $172,911 | | Total assets | $405,919 | | Total current liabilities | $66,111 | | Long-term debt, net | $183,927 | | Total liabilities | $291,318 | | Total stockholders' equity | $114,601 | Consolidated Statement of Operations Highlights (Year ended Dec 31, 2019, in thousands) | Account | Amount | | :--- | :--- | | Revenues | $347,337 | | Gross profit | $174,811 | | Operating income | $51,661 | | Net income | $31,667 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This item is not applicable to the company - Not applicable[628] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2019, and assessed its internal control over financial reporting using the COSO framework, concluding it was effective, with the independent auditor, Deloitte & Touche LLP, issuing an unqualified attestation report on its effectiveness, and no material changes to internal controls reported for Q4 2019 - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[629] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2019, based on the COSO (2013) framework[631] - The independent registered public accounting firm, Deloitte & Touche LLP, issued an unqualified attestation report on the effectiveness of the company's internal control over financial reporting[632][633] Other Information The company reports no other information for this item - None[640] Part III Directors, Executive Officers and Corporate Governance Information required for this item, including details on directors, executive officers, and corporate governance matters such as the Code of Conduct, will be incorporated by reference from the company's 2020 Proxy Statement - The required information for this item is incorporated by reference from the company's 2020 Proxy Statement[644] Executive Compensation Information required for this item regarding executive compensation will be incorporated by reference from the company's 2020 Proxy Statement - The required information for this item is incorporated by reference from the company's 2020 Proxy Statement[645] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information required for this item, including security ownership of certain beneficial owners and management, will be incorporated by reference from the company's 2020 Proxy Statement - The required information for this item is incorporated by reference from the company's 2020 Proxy Statement[646] Certain Relationships and Related Transactions, and Director Independence Information required for this item concerning related party transactions and director independence will be incorporated by reference from the company's 2020 Proxy Statement - The required information for this item is incorporated by reference from the company's 2020 Proxy Statement[647] Principal Accountant Fees and Services Information required for this item regarding principal accountant fees and services will be incorporated by reference from the company's 2020 Proxy Statement - The required information for this item is incorporated by reference from the company's 2020 Proxy Statement[648] Part IV Exhibits and Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed as part of the Annual Report on Form 10-K, with consolidated financial statements included in Part II, Item 8, and all financial statement schedules omitted as they are not applicable or the required information is included elsewhere, providing a detailed index of exhibits - The consolidated financial statements of Lantheus Holdings, Inc. are filed under Part II, Item 8[650] - All financial statement schedules are omitted because they are not applicable, not required, or the information is included in the financial statements or notes[651] Form 10-K Summary The company has not provided a summary for this item - None[658]