Lantheus Holdings(LNTH) - 2020 Q4 - Annual Report

PART I Item 1. Business Lantheus provides imaging diagnostics, targeted therapeutics, and AI solutions, expanding its oncology portfolio through the Progenics acquisition Overview and Progenics Acquisition Lantheus, a provider of innovative imaging diagnostics, targeted therapeutics, and AI solutions, expanded its portfolio with the June 19, 2020 acquisition of oncology-focused Progenics - Lantheus operates in two reportable segments: U.S. and International, utilizing direct sales in the U.S., Canada, and Puerto Rico, and third-party distributors elsewhere[22] - The June 19, 2020 acquisition of Progenics added therapeutic agents (AZEDRA, 1095), diagnostic agents (PyL, 1404), RELISTOR royalties, and AI imaging technologies to Lantheus' portfolio[20] Key Products/Candidates from Progenics Acquisition | Product/Candidate | Description | Status | Market Rights | | :--- | :--- | :--- | :--- | | AZEDRA | Ultra-Orphan Therapeutic for pheochromocytoma | Approved | Progenics (U.S.) | | PyL (18F-DCFPyL) | PSMA-targeted PET/CT imaging for prostate cancer | NDA accepted; PDUFA May 28, 2021 | Progenics (Worldwide ex. EU, AU, NZ) | | 1095 (I 131 1095) | PSMA-targeted therapeutic for metastatic prostate cancer | Phase 2 | Progenics (Worldwide) | | RELISTOR | Treatment for Opioid-Induced Constipation (OIC) | Approved | Bausch (Worldwide) | Commercial Product Portfolio The company's commercial portfolio is anchored by DEFINITY, a leading ultrasound enhancing agent, and TechneLite, a critical Technetium-99m generator, alongside radiotherapeutics and AI-driven tools - DEFINITY is the leading ultrasound enhancing agent in the U.S., used in echocardiography exams for patients with suboptimal images, with an estimated 6.3 million suboptimal echocardiograms in the U.S. in 2020[27][29] - TechneLite is a Technetium-99m (Tc-99m) generator, providing essential nuclear material for diagnostic procedures and holding approximately one-third of the U.S. generator market[25][37] - AZEDRA is the first and only FDA-approved therapy for adult and pediatric patients (12+) with iobenguane scan positive, unresectable, locally advanced or metastatic pheochromocytoma or paraganglioma[25] - The company receives royalties from Bausch on sales of RELISTOR, a treatment for opioid-induced constipation (OIC)[25] Clinical Development and Strategic Partnerships Lantheus invested $32.8 million in R&D in 2020, focusing on key clinical candidates like PyL and flurpiridaz F 18, supported by multiple strategic partnerships - The company's lead product candidate, PyL, a PSMA-targeted PET imaging agent for prostate cancer, received priority review with a PDUFA date of May 28, 2021, following its NDA filing in September 2020[41][43] - Lantheus has an exclusive collaboration with GE Healthcare for the Phase 3 development and worldwide commercialization of flurpiridaz F 18, a PET MPI agent, with GE Healthcare expecting to complete enrollment in H2 2021 and begin commercialization in early 2023[44] R&D Investment (2018-2020) | Year | R&D Investment (in millions) | | :--- | :--- | | 2020 | $32.8 | | 2019 | $20.0 | | 2018 | $17.1 | - The company is eligible for significant milestone payments and tiered royalties ranging from 15% to 19% on worldwide net sales from its partnership with Bausch for RELISTOR[46] Operations and Market Strategy Lantheus employs a specialized sales force in the U.S. and Canada, relies on third-party distributors internationally, and faces critical supply chain dependencies for Molybdenum-99 - In the U.S., the majority of radiopharmaceutical products are sold to five key radiopharmacy groups: Cardinal, RLS, UPPI, Jubilant Radiopharma, and PharmaLogic, under multi-year supply agreements[52][53] - The company relies on a limited number of international suppliers (IRE, NTP, ANSTO) for Molybdenum-99 (Mo-99), a critical raw material for TechneLite, which has experienced periodic outages creating supply chain challenges[63][64][67] - A substantial portion of products are manufactured by third-party CMOs, with JHS being the sole source for DEFINITY, NEUROLITE, and Cardiolite, and SBL for DEFINITY RT[73][76] - The company is expanding its strategic focus into oncology and pharma services, including collaborations for a PD-L1 imaging biomarker and clinical supply agreements for PyL with pharmaceutical companies developing PSMA-targeted therapies[78] Intellectual Property and Regulatory Environment Lantheus maintains a robust intellectual property portfolio with patents extending into the 2030s for key products, operating within a highly regulated environment subject to extensive oversight from health and safety agencies - As of December 31, 2020, the company's patent portfolio included 107 issued U.S. patents and 804 issued foreign patents[83] Key Product Patent Expirations (U.S.) | Product | Key Patent Expiration(s) | | :--- | :--- | | DEFINITY | Method of use patents expire in 2035 and 2037 | | DEFINITY RT | Composition of matter patent expires in 2035 | | TechneLite | Component technology patents expire in 2029 | | PyL | Composition of matter patents expire in 2029 and 2030 | | flurpiridaz F 18 | Composition of matter patent expires in 2026; formulation patent expires in 2032 | - The company is subject to comprehensive regulation by the FDA, NRC, and other domestic and foreign agencies, covering drug development, manufacturing (cGMP), marketing, and post-market surveillance[103][104] - The business is affected by healthcare reform, including the Affordable Care Act, which influences reimbursement rates, and is subject to fraud and abuse laws like the Anti-Kickback Statute and the False Claims Act[125][130][131] Item 1A. Risk Factors The company faces significant risks including dependence on DEFINITY's growth, unstable Mo-99 supply, pipeline approval challenges, Progenics integration issues, reimbursement policy impacts, and substantial indebtedness - Key risks include dependence on DEFINITY's continued growth, instability of the global Mo-99 supply, reliance on third-party manufacturers, and challenges in obtaining regulatory approval and successful commercialization for pipeline products like PyL[169] - The integration of the Progenics acquisition involves risks such as unexpected costs, retention of key personnel, and the potential for CVRs to result in substantial future payments[172][235] - The COVID-19 pandemic poses a significant risk, potentially causing declines in procedure volumes, disruptions to supply chains and clinical trials, and adverse effects on global economies[174][260] - The company has substantial indebtedness ($185.0 million term loan as of December 31, 2020), which includes restrictive covenants that may limit financial and operating flexibility[308][312] Item 2. Properties The company's primary property is its owned 431,000 square foot corporate headquarters and manufacturing facility in North Billerica, Massachusetts, alongside leased spaces and a recently sold Puerto Rico facility - The company owns its main 431,000 sq. ft. facility in North Billerica, MA, which serves as its corporate headquarters and a manufacturing site[320] - Key leased properties include office space in New York, NY (26,000 sq. ft.) and a manufacturing facility in Somerset, NJ (11,400 sq. ft.)[320] - The company sold its Puerto Rico radiopharmacy and PET manufacturing facility to PharmaLogic in a transaction that closed on January 29, 2021[321] Item 3. Legal Proceedings The company is involved in various legal proceedings, with specific details incorporated by reference from Note 19 of the consolidated financial statements - Information regarding legal proceedings is located in Note 19, "Commitments and Contingencies," of the financial statements[322] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Lantheus' common stock trades on the NASDAQ Global Market under "LNTH," with 43 stockholders of record as of February 19, 2021, and the company does not currently pay dividends - The company's common stock (LNTH) trades on the NASDAQ Global Market, with 43 stockholders of record as of February 19, 2021[325][326] - The company does not pay dividends and does not intend to in the foreseeable future, retaining earnings for growth and debt repayment[332] Issuer Purchases of Equity Securities (Q4 2020) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | October 2020 | 1,957 | $13.23 | | November 2020 | 1,465 | $12.46 | | December 2020 | 243 | $14.26 | | Total | 3,665 | | Item 6. Selected Financial Data The company's selected financial data for the five years ended December 31, 2020, shows relatively stable revenues, a net loss of $13.5 million in 2020, and significant asset growth due to the Progenics acquisition Selected Financial Data (2018-2020) | (in millions, except per share data) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Revenues | $339.4 | $347.3 | $343.4 | | Operating (loss) income | $(4.2) | $51.7 | $64.5 | | Net (loss) income | $(13.5) | $31.7 | $40.5 | | Diluted (loss) income per share | $(0.25) | $0.79 | $1.03 | | Total assets | $869.8 | $405.9 | $439.8 | | Long-term debt, net | $197.7 | $183.9 | $263.7 | | Total stockholders' equity | $514.2 | $114.6 | $71.0 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion highlights the impact of the Progenics acquisition and COVID-19 on 2020 results, showing a 2.3% revenue decrease, a 20.6% gross profit decline, and an operating loss of $4.2 million, while maintaining sufficient liquidity Results of Operations For the year ended December 31, 2020, total revenues decreased 2.3% to $339.4 million, gross profit fell 20.6% to $138.8 million, and operating expenses rose, resulting in an operating loss of $4.2 million and a net loss of $13.5 million Consolidated Results of Operations (2018-2020) | (in millions) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Revenues | $339.4 | $347.3 | $343.4 | | Gross Profit | $138.8 | $174.8 | $174.9 | | Operating (loss) income | $(4.2) | $51.7 | $64.5 | | Net (loss) income | $(13.5) | $31.7 | $40.5 | - U.S. revenues decreased by 3.0% in 2020, primarily due to COVID-19 related business losses, including a $4.5 million decrease in DEFINITY revenue and a $2.8 million decrease in TechneLite revenue[375] - Gross profit in the U.S. segment decreased by 22.1% in 2020 due to lower volumes from COVID-19, amortization of assets from the Progenics acquisition, and a $7.3 million asset impairment loss on other nuclear products[381] - General and administrative expenses increased by 13.1% in 2020, driven by acquisition-related costs for the Progenics deal, with the Progenics business contributing approximately $5.9 million to G&A expenses post-acquisition[387][388][389] - Research and development expenses increased by 63.8% to $32.8 million in 2020, primarily due to the addition of the Progenics business, which contributed $18.5 million of R&D expense, including the PyL NDA filing fee and a $2.7 million IPR&D asset impairment loss[391][392][393] Liquidity and Capital Resources Net cash from operating activities decreased significantly to $16.4 million in 2020, with $79.6 million in cash and cash equivalents and total principal indebtedness of $217.6 million, supported by an undrawn $200.0 million revolving credit facility Cash Flow Summary (2018-2020) | (in millions) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $16.4 | $80.4 | $61.2 | | Net cash used in investing activities | $(4.9) | $(22.1) | $(19.1) | | Net cash used in financing activities | $(21.9) | $(78.9) | $(4.7) | - As of December 31, 2020, the company had $185.0 million outstanding under its 2019 Term Facility and $32.6 million on a royalty-backed loan assumed from Progenics, with full availability of its $200.0 million revolving credit facility[308][427] - In June 2020, the company amended its credit agreement to waive the Total Net Leverage Ratio covenant through December 31, 2020, and introduced a new minimum Consolidated Liquidity covenant of $150.0 million through March 31, 2021[415][416][417] Contractual Obligations as of December 31, 2020 | (in millions) | Total | Less than 1 Year | 1 - 3 Years | 3 - 5 Years | More than 5 Years | | :--- | :--- | :--- | :--- | :--- | :--- | | Debt obligations (principal) | $217.6 | $20.5 | $48.4 | $148.8 | $— | | Interest on debt obligations | $26.5 | $9.7 | $14.5 | $2.4 | $— | | Operating lease obligations | $23.2 | $2.0 | $4.5 | $4.6 | $12.2 | | Total | $274.8 | $36.6 | $70.0 | $156.0 | $12.2 | Critical Accounting Policies and Estimates The company's critical accounting policies involve significant management judgment and estimates, particularly in revenue recognition, business combinations, and the valuation and impairment testing of intangible and long-lived assets - Revenue recognition requires judgment in estimating variable consideration, such as discounts, returns, and rebates, based on historical experience, contractual requirements, and market trends[442] - For business combinations, the company uses the acquisition method, allocating the purchase price to assets and liabilities based on their fair values, which involves significant estimates, especially for intangible assets like IPR&D[444] - Intangible assets, including goodwill and IPR&D, are tested for impairment at least annually, with IPR&D treated as an indefinite-lived asset until the project is completed or abandoned[449] Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from changes in interest rates and foreign currency exchange rates, mitigating interest rate risk with swaps on $100.0 million notional debt, while foreign currency risk is primarily from the Canadian dollar - The company has substantial variable rate debt under its 2019 Term Facility ($185.0 million outstanding at year-end 2020), exposing it to interest rate risk[451] - To hedge interest rate risk, the company entered into interest rate swaps to fix the LIBOR rate on a notional amount of $100.0 million through May 2024 at an average fixed rate of approximately 0.82%[455] - A hypothetical 100 basis point adverse change in market interest rates would increase annual interest expense by approximately $1.9 million, excluding the impact of the interest rate swaps[456] - The primary foreign currency risk is from the Canadian dollar, with the net impact of foreign currency changes on transactions in 2020 resulting in a loss of $0.3 million[458][459] Item 8. Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for the fiscal year ended December 31, 2020, along with the independent auditor's report, highlighting the valuation of intangible assets from the Progenics acquisition as a critical audit matter Consolidated Financial Statements The consolidated financial statements present the company's financial position as of December 31, 2020, with total assets of $869.8 million and a net loss of $13.5 million, reflecting significant changes due to the Progenics acquisition Consolidated Balance Sheet Highlights (as of Dec 31, 2020) | (in millions) | Amount | | :--- | :--- | | Total Assets | $869.8 | | Cash and cash equivalents | $79.6 | | Intangibles, net | $376.0 | | Goodwill | $58.6 | | Total Liabilities | $355.6 | | Long-term debt, net | $197.7 | | Total Stockholders' Equity | $514.2 | Consolidated Statement of Operations Highlights (Year Ended Dec 31, 2020) | (in millions) | Amount | | :--- | :--- | | Revenues | $339.4 | | Gross Profit | $138.8 | | Operating (loss) income | $(4.2) | | Net (loss) income | $(13.5) | Notes to Consolidated Financial Statements The notes provide detailed information on the Progenics acquisition, including its $419.0 million purchase price allocation, revenue recognition policies, intangible assets, long-term debt, leases, and legal contingencies, such as RELISTOR patent litigation - The Progenics acquisition was completed on June 19, 2020, for a total consideration of $419.0 million, including common stock, replacement stock options, and contingent value rights (CVRs)[495][604] - As part of the Progenics acquisition, significant intangible assets were recognized, including IPR&D ($151.1 million), a currently marketed product ($142.9 million), and licenses ($85.8 million), along with goodwill of $42.9 million[607][609] - The company is involved in ongoing patent litigation concerning its RELISTOR products, with settlements reached with Mylan in December 2020 and Actavis in February 2021[681][684][688] - As of December 31, 2020, the company had $492.5 million in U.S. federal net operating loss carryforwards and $18.0 million in state net operating loss carryforwards (tax-effected)[591] Item 9A. Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2020, a conclusion affirmed by the independent auditor, Deloitte & Touche LLP - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[709] - Based on the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2020[711] - The independent auditor, Deloitte & Touche LLP, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2020[713] PART III Item 10. Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance, including the company's Code of Conduct, is incorporated by reference from the company's Definitive Proxy Statement for its 2021 Annual Meeting of Stockholders - The required information for this item will be incorporated by reference from the company's 2021 Proxy Statement[725] Item 11. Executive Compensation Information regarding executive compensation is incorporated by reference from the company's Definitive Proxy Statement for its 2021 Annual Meeting of Stockholders - The required information for this item will be incorporated by reference from the company's 2021 Proxy Statement[726] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership of certain beneficial owners, management, and related stockholder matters is incorporated by reference from the company's Definitive Proxy Statement for its 2021 Annual Meeting of Stockholders - The required information for this item will be incorporated by reference from the company's 2021 Proxy Statement[727] Item 13. Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's Definitive Proxy Statement for its 2021 Annual Meeting of Stockholders - The required information for this item will be incorporated by reference from the company's 2021 Proxy Statement[728] Item 14. Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's Definitive Proxy Statement for its 2021 Annual Meeting of Stockholders - The required information for this item will be incorporated by reference from the company's 2021 Proxy Statement[729] PART IV Item 15. Exhibits and Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed as part of the Form 10-K, with consolidated financial statements included in Item 8 and other schedules omitted as not applicable - This item contains the index of financial statements, schedules, and exhibits filed with the annual report[731][733] Item 16. Form 10-K Summary No Form 10-K summary is provided in this report - This item is not applicable as no summary is provided[737]