What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-07-31 compared with 2020-04-30 · 399 added, 160 removed, 277 unchanged (67% of the section changed)

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(iv) our products manufactured at Jubilant HollisterStier (“JHS”);

(v) our efforts in new product development and new clinical applications for our products;

(vi) the Progenics Transaction;

(v) our efforts in new product development, including for PyL, the Progenics prostate cancer diagnostic imaging agent, and new clinical applications for our products;

(vi) the integration of the Progenics product and product candidate portfolio following the consummation of the Progenics transaction (the “Progenics Transaction”);

(vii) our capacity to use in-house manufacturing;

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Important factors that could cause actual results to differ materially from those in the forward-looking statements include regional, national or global political, economic, business, competitive, market and regulatory conditions and the following:

The impact of the global COVID-19 pandemic on our business, financial condition or prospects, including a decline in the volume of procedures using our products, potential delays and disruptions to global supply chains, manufacturing activities, logistics, operations, employees and contractors, the business activities of our suppliers, distributors, customers and other business partners, as well as the effects on worldwide economies, financial markets, social institutions, labor markets and healthcare systems;

• The impact of the global COVID-19 pandemic on our business, financial condition or prospects, including a decline in the volume of procedures and treatments using our products, potential delays and disruptions to global supply chains, manufacturing activities, logistics, operations, clinical development programs, employees and contractors, the business activities of our suppliers, distributors, customers and other business partners, as well as the effects on worldwide economies, financial markets, social institutions, labor markets and healthcare systems;

• Our ability to continue to grow the appropriate use of DEFINITY in suboptimal echocardiograms in the face of segment competition from other echocardiography contrast agents, including Optison from GE Healthcare Limited (“GE Healthcare”) and Lumason from Bracco Diagnostics Inc.

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• Our dependence upon third parties for the manufacture and supply of a substantial portion of our products, raw materials and components, including DEFINITY at JHS;

The extensive costs, time and uncertainty associated with new product development, including further product development relying on external development partners or developing internally;

• Risks related to the integration of the Progenics Transaction, including:

• The integration of the Progenics Transaction may involve unexpected costs, liabilities or delays;

• The ability of our combined business to retain and hire key personnel and maintain relationships with customers, suppliers and others with whom we or Progenics do business,

• Unanticipated risks to our integration plan including in connection with timing, talent, and the potential need for additional resources;

• New or previously unidentified manufacturing, regulatory, or research and development issues in the Progenics business;

• Risks that the anticipated benefits of the Progenics Transaction or other commercial opportunities may otherwise not be fully realized or may take longer to realize than expected;

• Risks that contractual contingent value rights (“CVRs”) we issued as part of the Progenics Transaction may result in substantial future payments and could divert the attention of our management;

• The impact of legislative, regulatory, competitive and technological changes on the combined business;

• Risks related to the commercialization of AZEDRA, including in connection with market acceptance and reimbursement, that may cause the product not to meet revenue or operating income expectations;

• Risks related to RELISTOR, commercialized by Bausch, and that the revenues generated for us thereby may not meet expectations;

• The extensive costs, time and uncertainty associated with the development of new products, such as PyL, including further product development relying on external development partners or developing internally;

• Our ability to identify and acquire or in-license additional products, businesses or technologies to drive our future growth;

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• Risks associated with our investment in, and construction of, additional specialized manufacturing capabilities at our North Billerica, Massachusetts facility, including our ability to bring the new capabilities online by 2021;

Our dependence on key customers for our medical imaging products, and our ability to maintain and profitably renew our contracts with those key customers, including GE Healthcare, Cardinal Health (“Cardinal”), United Pharmacy Partners (“UPPI”), Jubilant Radiopharma formerly known as Triad Isotopes, Inc.

• Our dependence on key customers for certain of our products, and our ability to maintain and profitably renew our contracts with those key customers, including GE Healthcare, Cardinal Health (“Cardinal”), United Pharmacy Partners (“UPPI”), Jubilant Radiopharma formerly known as Triad Isotopes, Inc.

(“Jubilant Radiopharma”) and PharmaLogic Holdings Corp (“PharmaLogic”);

Risks associated with our lead agent in development, flurpiridaz F 18, which in 2017 we out-licensed to GE Healthcare, including:

The ability to successfully complete the Phase 3 development program, including delays in enrollment that will result from the COVID-19 pandemic;

The ability to obtain Food and Drug Administration (“FDA”) approval;

The ability to gain post-approval market acceptance and adequate reimbursement;

Risks associated with our development agent, LMI 1195, for patient populations that would benefit from molecular imaging of the norepinephrine pathway, including designing and timely completing two Phase 3 clinical trials for the diagnosis and management of neuroendocrine tumors in pediatric and adult populations, respectively;

• Risks associated with our lead agent in development, PyL, including:

• Our ability to file our New Drug Application (“NDA”) with the U.S.

Food and Drug Administration (“FDA”) later in 2020;

• Our ability to obtain FDA approval of PyL in 2021;

• Our ability to successfully commercialize PyL in North America and on a global basis (other than Europe, where the agent has been previously out-licensed to Curium, and in Australia and New Zealand, where we do not have commercialization rights).

• Risks associated with flurpiridaz F 18, which in 2017 we out-licensed to GE Healthcare, including:

• GE Healthcare’s ability to successfully complete the Phase 3 development program, including delays in enrollment that have resulted from the COVID-19 pandemic;

• GE Healthcare’s ability to obtain Food and Drug Administration (“FDA”) approval;

• GE Healthcare’s ability to gain post-approval market acceptance and adequate reimbursement;

• Risks associated with 1095, including delays in enrollment that have resulted from the COVID-19 pandemic and our ability to successfully complete the Phase 2 study in mCRPC;

• Risks associated with the manufacturing and distribution of our products and the regulatory requirements related thereto;

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• Risks related to the ownership of our common stock;

Risks related to the Progenics Transaction, including:

We or Progenics may be unable to obtain stockholder approval as required;

Conditions to the closing of the Progenics Transaction may not be satisfied;

The Progenics Transaction may involve unexpected costs, liabilities or delays;

The ability of our or Progenics’ business to retain and hire key personnel and maintain relationships with customers, suppliers and others with whom we or Progenics do business, or on our or Progenics’ operating results and business generally;

Our or Progenics’ respective businesses may suffer as a result of uncertainty surrounding the Progenics Transaction and disruption of management’s attention due to the Progenics Transaction;

The occurrence of any event, change or other circumstances that could give rise to the termination of our agreement with Progenics;

Unanticipated risks to our integration plan including in connection with timing, talent, and the potential need for additional resources;

New or previously unidentified manufacturing, regulatory, or research and development issues in the Progenics business;

Risks that the anticipated benefits of the Progenics Transaction or other commercial opportunities may otherwise not be fully realized or may take longer to realize than expected;

Risks relating to the COVID-19 pandemic and its effect on each company’s business and on the combined entity;

Risks that contractual contingent value rights (“CVRs”) we will issue as part of the Progenics Transaction may result in substantial future payments and could divert the attention of our management;

Risks that in connection with the Progenics Transaction, the exercise of appraisal rights by dissenting stockholders could increase the aggregate amount we have to pay for Progenics;

We or Progenics may be adversely affected by other economic, business, and/or competitive factors;

The impact of legislative, regulatory, competitive and technological changes;

Other risks to the consummation of the Progenics Transaction, including the risk that the Progenics Transaction will not be consummated within the expected time period or at all;

• Other factors that are described in Part I, Item 1A.

“Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019 and in Part II, Item 1A.

“Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019, in Part II, Item 1A.

“Risk Factors” in our Quarterly Report on Form 10-Q for the period ended March 31, 2020, and in Part II, Item 1A.

“Risk Factors” in this Quarterly Report on Form 10-Q.

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The following discussion and analysis of our financial condition and results of operations should be read together with the condensed consolidated financial statements and the related notes included in Item 1 of this Quarterly Report on Form 10-Q as well as the other factors described in Part I, Item 1A.

“Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019.

We are a global leader in the development, manufacture and commercialization of innovative diagnostic medical imaging agents and products that assist clinicians in the diagnosis and treatment of cardiovascular and other diseases.

Clinicians use our imaging agents and products across a range of imaging modalities, including echocardiography and nuclear imaging.

We believe that the resulting improved diagnostic information enables healthcare providers to better detect and characterize, or rule out, disease, potentially achieving improved patient outcomes, reducing patient risk and limiting overall costs for payers and the entire healthcare system.

Our commercial products are used by cardiologists, nuclear physicians, radiologists, internal medicine physicians, technologists and sonographers working in a variety of clinical settings.

“Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019, and Part II, Item IA.

“Risk Factors” in our Quarterly Report on Form 10-Q for the period ended March 31, 2020, and Part II, Item IA.

“Risk Factors” in this Quarterly Report on Form 10-Q.

We are a global leader in the development, manufacture and commercialization of innovative diagnostic and therapeutic agents and products that assist clinicians in the diagnosis and treatment of heart disease, cancer and other diseases.

For our diagnostic agents, we believe that the resulting improved diagnostic information enables healthcare providers to better detect and characterize, or rule out, disease, potentially achieving improved patient outcomes, reducing patient risk and limiting overall costs for payers and the entire healthcare system.

Our commercial products are used by cardiologists, nuclear physicians, radiologists, oncologists, internal medicine physicians, technologists and sonographers working in a variety of clinical settings.

We sell our products to radiopharmacies, integrated delivery networks, hospitals, clinics and group practices.

We sell our products globally and operate our business in two reportable segments, which are further described below:

Segment produces and markets our medical imaging agents and products throughout the U.S.

In the U.S., we primarily sell our products to radiopharmacies, integrated delivery networks, hospitals, clinics and group practices.

Segment produces and markets our agents and products throughout the U.S.

In the U.S., we primarily sell to radiopharmacies, integrated delivery networks, hospitals, clinics and group practices.

• International Segment operations consist of production and distribution activities in Puerto Rico and some direct distribution activities in Canada.

Additionally, within our International Segment, we have established and maintain third-party distribution relationships under which our products are marketed and sold in Europe, Canada, Australia, Asia-Pacific and Latin America.

Our Product Portfolio

Our product portfolio includes an ultrasound contrast agent, nuclear imaging products and a radiotherapeutic product.

Our principal products include the following:

Additionally, within our International Segment, we have established and maintain third-party distribution relationships under which different products are marketed and sold in Europe, Canada, Australia, Asia-Pacific and Latin America.

Acquisition of Progenics

On June 19, 2020, pursuant to the Merger Agreement among Holdings, Merger Sub and Progenics, we completed the acquisition of Progenics, by means of a merger of Merger Sub with and into Progenics, with Progenics surviving the merger as a wholly-owned subsidiary of Holdings.

Immediately thereafter, Holdings contributed the shares of Progenics to LMI so that Progenics is now a wholly-owned subsidiary of LMI.

Progenics is an oncology company focused on the development and commercialization of innovative targeted medicines and artificial intelligence to find, fight and follow cancer.

Progenics’ portfolio of products and product candidates includes therapeutic agents designed to target cancer (AZEDRA, 1095 and PSMA TTC), as well as imaging agents designed to target PSMA for prostate cancer (PyL and 1404).

Progenics’ current revenue is generated from two principal sources:

first AZEDRA sales, and second, royalties, development and commercial milestones from strategic partnerships, in particular royalties from Bausch from sales of RELISTOR.

In accordance with the Merger Agreement, each share of Progenics common stock, par value $0.0013 per share, issued and outstanding immediately prior to the transaction was automatically cancelled and converted into the right to receive (i) 0.31 (the “Exchange Ratio”) of a share of Holdings common stock, par value $0.01 per share, and (ii) one CVR.

Former Progenics stockholders received cash in lieu of any fractional shares of Holdings common stock.

In addition, in accordance with the Merger Agreement, each Progenics stock option with a per share exercise price less than or equal to $4.42 (an “in-the-money Progenics stock option”) received (i) an option to purchase Holdings common stock (each, a “Lantheus Stock Option”) converted based on the Exchange Ratio, and (ii) a vested or unvested CVR depending on whether the underlying in-the-money Progenics stock option was vested at the time of the transaction.

Each Progenics stock option with a per share exercise price greater than $4.42 (an “out-of-the-money Progenics stock option”) received a Lantheus Stock Option converted on an exchange ratio determined based on the average of the volume weighted average price per share of common stock of Progenics and Holdings prior to the transaction, which exchange ratio was 0.31.

Holdings issued 26,844,877 shares of Holdings common stock and 86,630,633 CVRs to former Progenics stockholders in connection with the Merger.

Holdings also assumed 34,000 in-the-money Progenics stock options and 6,507,342 out-of-the-money Progenics stock options, each converted into Lantheus Stock Options at the exchange ratios noted above.

As a result of the Progenics Transaction, Lantheus added the following products and product candidates to its portfolio:

Product / Product Candidate

Ultra-Orphan Theranostic

AZEDRA (iobenguane I 131) 555 MBq/mL injection

Unresectable, locally advanced or metastatic pheochromocytoma or paraganglioma

Prostate Cancer Theranostics

PyL (18F-DCFPyL)

PSMA-targeted PET/CT imaging agent for prostate cancer

Preparing NDA

Worldwide (ex.

EU, AU, & NZ)

PyL (18F-DCFPyL)

PSMA-targeted PET/CT imaging agent for prostate cancer

Discussions with European Medicines Agency (EMA)

1095 (I 131 1095)

PSMA-targeted small molecule therapeutic for treatment of metastatic prostate cancer

PSMA TTC (BAY 2315497)

PSMA-targeted antibody conjugate therapeutic for treatment of metastatic prostate cancer

Technetium-99m PSMA-targeted SPECT/CT imaging agent for prostate cancer

Discussions with EMA

Digital Technology

Imaging analysis technology that uses artificial intelligence and machine learning to assist readers in the quantification and standardized reporting of PSMA-targeted imaging

Investigational Use Only

Automated Bone Scan Index (aBSI)

Automated reading and quantification of bone scans of prostate cancer patients using artificial intelligence and deep learning

Approved in the U.S.

510(k) cleared in the U.S.

CE marked (E.U.

Worldwide (ex.

Automated Bone Scan Index (BONENAVI)

Automated reading and quantification of bone scans of prostate cancer patients using artificial intelligence and deep learning

Other Programs

RELISTOR Subcutaneous Injection (methylnaltrexone bromide)

OIC in adults with chronic non-cancer pain or advanced-illness adult patients

RELISTOR Tablets (methylnaltrexone bromide)

OIC in adults with chronic non-cancer pain

Leronlimab (PRO 140)

HIV Infection

CytoDyn intends to request Type A meeting with FDA to discuss BLA

See Part I, Item 1A.

“Risk Factors” in our Annual Report on form 10-K for the year ended December 31, 2019, and Part II, Item 1A.

“Risk Factors” in our Quarterly Report on Form 10-Q for the period ended March 31, 2020 for information regarding certain risks associated with our proposed acquisition of Progenics.

Our Expanded Portfolio

Our commercial products now include the following:

• DEFINITY is a microbubble contrast agent used in ultrasound exams of the heart, also known as echocardiography exams.

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for use in patients with suboptimal echocardiograms to assist in imaging the left ventricular chamber and left endocardial border of the heart in ultrasound procedures.

We believe we are currently the leading provider of ultrasound microbubble contrast agents in the world.

• TechneLite is a Technetium (“Tc-99m”) generator that provides the essential nuclear material used by radiopharmacies to radiolabel Cardiolite, Neurolite and other Tc-99m-based radiopharmaceuticals used in nuclear medicine procedures.

TechneLite uses Mo-99 as its active ingredient.

• Neurolite is an injectable, Tc-99m-labeled imaging agent used with SPECT technology to identify the area within the brain where blood flow has been blocked or reduced due to stroke.

• Xenon Xe 133 Gas (“Xenon”) is a radiopharmaceutical gas that is inhaled and used to assess pulmonary function and also to image cerebral blood flow.

Our Xenon is manufactured by a third party as a bi-product of Mo-99 production and is processed and finished by us.

We believe we are currently the leading provider of Xenon in the U.S.

• FDG is an injectable, fluorine-18-radiolabeled imaging agent used with PET technology to identify and characterize tumors in patients undergoing oncologic diagnostic procedures.

We manufacture and distribute FDG from our Puerto Rico radiopharmacy.

• Cardiolite, also known by its generic name sestamibi, is an injectable, Tc-99m-labeled imaging agent used in myocardial perfusion imaging (“MPI”) procedures to assess blood flow to the muscle of the heart using SPECT.

Cardiolite was approved by the FDA in 1990 and its market exclusivity expired in July 2008.

Included in Cardiolite revenues are branded Cardiolite and generic sestamibi revenues.

• Thallium TI 201 is an injectable radiopharmaceutical imaging agent used in MPI studies to detect cardiovascular disease.

We manufacture Thallium using cyclotron technology.

• Gallium (Ga 67) is an injectable radiopharmaceutical imaging agent used to detect certain infections and cancerous tumors, especially lymphoma.

We manufacture Gallium using cyclotron technology.

• AZEDRA (iobenguane I 131) is a radiotherapeutic, approved for the treatment of adult and pediatric patients 12 years and older with iobenguane scan positive, unresectable, locally advanced or metastatic pheochromocytoma or paraganglioma who require systemic anticancer therapy.

AZEDRA is the first and only FDA-approved therapy for this indication.

• RELISTOR (methylnaltrexone bromide) is a treatment for opioid-induced constipation (“OIC”) that decreases the constipating side effects induced by opioid pain medications such as morphine and codeine without diminishing their ability to relieve pain.

RELISTOR is approved in two forms:

a subcutaneous injection (12 mg and 8 mg) and an oral tablet (450 mg once daily).

• Quadramet is an injectable radiopharmaceutical used to treat severe bone pain associated with osteoblastic metastatic bone lesions.

We serve as the direct manufacturer and supplier of Quadramet in the U.S.

• Automated Bone Scan Index (“aBSI”) calculates the disease burden of prostate cancer by quantifying the hotspots on bone scans and automatically calculating the bone scan index value, representing the disease burden of prostate cancer shown on the bone scan.

This quantifiable and reproducible calculation of the bone scan index value is intended to aid in the diagnosis and treatment of men with prostate cancer and may have utility in monitoring the course of the disease.

The Japanese rights to the stand-alone aBSI have been transferred and sold to FUJIFILM Toyama Chemical Co.

(“FUJIFILM”) under the name BONENAVI®.

The cloud based aBSI was cleared by the FDA for clinical use in the U.S.

on August 5, 2019.

In February 2020, Progenics received CE marking for the standalone workstation model of aBSI, meeting the quality standards set by the European Economic Area.

• Cobalt (Co 57) is a non-pharmaceutical radiochemical used in the manufacture of sources for the calibration and maintenance of SPECT imaging cameras.

Sales of our microbubble contrast agent, DEFINITY, are made in the U.S.

and Canada through a DEFINITY direct sales team.

In the U.S., our nuclear imaging products, including TechneLite, Xenon, Neurolite and Cardiolite, are primarily distributed through commercial radiopharmacies, the majority of which are controlled by or associated with GE Healthcare, Cardinal, UPPI, Jubilant

Radiopharma and PharmaLogic.

A small portion of our nuclear imaging product sales in the U.S.

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We own one radiopharmacy in Puerto Rico where we sell our own products as well as products of third parties to end-users.

AZEDRA is also sold in the U.S.

through an AZEDRA direct sales team.

RELISTOR was licensed to Bausch, and we collect quarterly royalties based on their sales.

We also maintain our own direct sales force in Canada for certain of our products.

In Europe, Australia, Asia-Pacific and Latin America, we generally rely on third-party distributors to market, sell and distribute our nuclear imaging and contrast agent products, either on a country-by-country basis or on a multi-country regional basis.

Progenics Transaction

On October 1, 2019, we entered into the Initial Merger Agreement to acquire all of the issued and outstanding shares of Progenics common stock by means of a merger of a wholly-owned subsidiary of the Company with and into Progenics in which Progenics stockholders would have received 0.2502 shares of our common stock for each share of Progenics common stock, representing an approximately 35% aggregate ownership stake in the combined company.

The transaction contemplated by the Initial Merger Agreement was unanimously approved by the Boards of Directors of both companies and was subject to the terms and conditions set forth in the Initial Merger Agreement, including, among other things, the affirmative vote of a majority of the outstanding shares of common stock of Progenics and a majority of votes cast by the holders of the common stock of the Company.

On February 20, 2020, we entered into the Amended Merger Agreement with Progenics, which amends and restates the Initial Merger Agreement.

Under the terms of the Amended Merger Agreement, the Company will acquire all of the issued and outstanding shares of Progenics common stock by means of a merger of a wholly-owned subsidiary of the Company with and into Progenics in which Progenics stockholders will receive, for each share of Progenics stock held at the time of the closing of the Progenics Transaction, merger consideration consisting of 0.31 of a share of our common stock and a non-tradeable CVR tied to the financial performance of PyL.

Each CVR will entitle its holder to receive a pro rata share of aggregate cash payments equal to 40% of U.S.

net sales generated by PyL in 2022 and 2023 in excess of $100 million and $150 million, respectively.

In no event will our aggregate payments in respect of the CVRs, together with any other non-stock consideration treated as paid in connection with the Progenics Transaction, exceed 19.9% of the total consideration we pay in the Progenics Transaction.

Following the closing of the Progenics Transaction, the aggregate ownership stake of the former Progenics stockholders will be approximately 40% of the combined company.

Progenics’ stockholders will also be entitled to appraisal rights as provided under Delaware law.

In addition, pursuant to the Amended Merger Agreement, the holder of each in-the-money Progenics Stock Option will be entitled to receive in exchange for each such in-the-money option (i) a Company Stock Option converted based on the 0.31 exchange ratio and (ii) a vested or unvested CVR depending on whether the underlying option is vested.

Holders of out-of-the-money Progenics Stock Options will receive Company Stock Options converted on an exchange ratio adjusted based on actual trading prices of common stock of Progenics and the Company prior to the closing of the Progenics Transaction.

The Progenics Transaction was unanimously approved by the Boards of Directors of both companies and requires, among other things, the affirmative vote of a majority of the outstanding shares of common stock of Progenics and a majority of votes cast by the holders of the common stock of the Company.

The Progenics Transaction is currently expected to close in June 2020, subject to the satisfaction or waiver of certain closing conditions.

Following the closing of the Progenics Transaction, which the parties intend to report as tax-deferred to Progenics’ stockholders with respect to the stock component of the merger consideration for U.S.

federal income tax purposes, the combined company will continue to be headquartered in North Billerica, Massachusetts and will trade on the NASDAQ under the ticker symbol LNTH.

On March 15, 2020, Progenics and LMI entered into a bridge loan agreement, pursuant to which LMI agreed to provide for a secured short-term loan to Progenics on or after May 1, 2020 in an aggregate principal amount of up to $10.0 million.

The bridge loan matures on the earlier to occur of (a) September 30, 2020 and (b) the date on which Progenics enters into a debt financing or similar arrangements or any amendment to, or replacement of, its existing debt provided by one or more third parties following the termination date of the merger agreement, in either case, having aggregate net cash proceeds that exceed the amount then required to repay all obligations under the bridge loan agreement in full in cash.

The bridge loan bears interest at a rate per annum of 9.5% and is secured through the pledge to LMI of all of the issued and outstanding shares of capital stock of MIPI and any debt of MIPI owed to Progenics.

On April 14, 2020, the Company entered into the Support Agreement with the Velan Stockholders pursuant to which, among other things and subject to the terms and conditions set forth in the Support Agreement, the Velan Stockholders agreed to vote (or cause to be voted) their respective shares of Company and Progenics common stock in favor of certain matters relating to the Progenics Transaction, and that the Velan Stockholders will abide by certain customary standstill provisions, in each case, subject to the terms and conditions set forth in the Support Agreement.

The transaction is now expected to close in June 2020, subject to certain closing conditions.

Upon completion of the acquisition, which the parties intend to report as tax-deferred to Progenics’ stockholders with respect to the stock component of the merger consideration for U.S.

federal income tax purposes, the combined company will continue to be headquartered in North Billerica, Massachusetts and will trade on the NASDAQ under the ticker symbol LNTH.

See Part I, Item 1A.

“Risk Factors” in our Annual Report on form 10-K for the year ended December 31, 2019, for information regarding certain risks associated with our proposed acquisition of Progenics.

Our headquarters are located in North Billerica, MA with offices in New York, NY, Somerset, NJ, San Juan, PR, Montreal, Canada and Lund, Sweden.

Product Candidates

In addition to our commercial products, we now have an extensive portfolio of product candidates in clinical development, including:

• PyL (also known as 18F-DCFPyL) is a fluorine 18-based PSMA-targeted PET imaging agent that enables visualization of both bone and soft tissue metastases, with potential high clinical utility in the detection of recurrent and/or metastatic prostate

cancer, as well as staging of high risk disease.

Progenics has completed a clinical development program that consisted of two pivotal clinical studies, which were designed to provide robust, prospective, well-controlled, and pathology- or composite truth standard-verified data to establish the safety and diagnostic performance of PyL across the disease continuum of prostate cancer.

The results from these studies provide data in support of the potential of PyL to reliably detect and localize disease, including in patients with low PSA values, and may help enable appropriate disease management, thus supporting the potential use for detection of recurrent or metastatic prostate cancer.

Progenics completed two successful pre-NDA meetings with the FDA in the first quarter of 2020, and we intend to submit the PyL NDA to the FDA later in 2020.

• Flurpiridaz F 18 is a fluorine 18-based PET MPI agent to assess blood flow to the heart.

On April 25, 2017, we announced entering into a definitive, exclusive Collaboration and License Agreement with GE Healthcare for the agent’s continued Phase 3 development and worldwide commercialization.

The second Phase 3 trial is now underway;

however, because of the COVID-19 pandemic, enrollment in the global clinical development program has been delayed.

GE Healthcare now expects to complete enrollment by mid-2021 and, assuming regulatory approval, begin commercialization in early 2023.

• LMI 1195 is a fluorine 18-based PET imaging agent for the norepinephrine pathway.

We are currently designing two Phase 3 clinical trials for the use of LMI 1195 for the diagnosis and management of neuroendocrine tumors in pediatric and adult populations, respectively.

The FDA has granted an Orphan Drug designation for the use of LMI 1195 in the management indication.

We have also received notice of eligibility for a rare pediatric disease priority review voucher for a subsequent human drug application so long as LMI 1195 is approved by the FDA for its rare pediatric disease indication prior to September 30, 2022.

• 1095 (also known as I-131-1095) is a PSMA-targeted iodine-131 labeled small molecule that is designed to deliver a dose of beta radiation directly to prostate cancer cells with minimal impact on the surrounding healthy tissues.

Following the removal of the import alert on Centre for Probe Development & Commercialization (“CPDC”), Progenics initiated eleven clinical sites in the U.S along with the six active sites in Canada to support enrollment in the Company’s multicenter, randomized, controlled, ARROW Phase 2 study in metastatic castration-resistant prostate cancer (“mCRPC”).

Because of the COVID-19 pandemic, Progenics paused new enrollment in the Phase 2 trial to minimize the risk to subjects and healthcare providers during the pandemic.

For subjects who are active and have been randomized for the study, they continue to receive treatment doses and are being monitored for safety and efficacy in a manner that is permissible by each clinical site.

• PSMA TTC is a thorium-227 labeled PSMA-targeted antibody therapeutic.

PSMA TTC is designed to deliver a dose of alpha radiation directly to prostate cancer cells with minimal impact on the surrounding healthy tissues.

Bayer AG (“Bayer”) has exclusive worldwide rights to develop and commercialize products using our PSMA antibody technology in combination with Bayer’s alpha-emitting radionuclides.

Bayer is conducting a Phase 1 trial of PSMA TTC in subjects with mCRPC.

• 1404 is a Tc-99m labeled small molecule which binds to PSMA and is used as a SPECT/CT imaging agent to diagnose and detect localized prostate cancer as well as soft tissue and bone metastases.

ROTOP has exclusive rights to develop, manufacture and commercialize 1404 in Europe.

• PSMA AI is an imaging analysis technology that uses artificial intelligence and machine learning to assist readers in the quantification and standardized reporting of PSMA-targeted imaging.

Progenics recently completed a performance study of automated segmentation algorithms with PyL/CT images from the PyL research access initiative.

The study demonstrated the efficiency and effectiveness of a fully automated segmentation algorithm of the 49 bones and 12 soft tissue regions of the whole body from PyL-PSMA PET/CT images.

This work provides automated generation of lesion quantification, localization and staging, leading to highly contextualized assessments of disease burden.

• Leronlimab (PRO 140) is an investigational humanized IgG4 mAb that blocks CCR5, a cellular receptor that is important in HIV infection, tumor metastases, and other diseases including certain liver diseases.

It is owned by CytoDyn Inc.

(“CytoDyn”) pursuant to our agreement with CytoDyn, as described below.

In May 2020, CytoDyn announced it submitted a Biologics License Application (“BLA”) to the FDA for approval of Leronlimab in combination therapy for HIV infection.

On July 13, 2020, CytoDyn announced that it had received a refusal to file letter from the FDA for the BLA and that CytoDyn intends to request a Type A meeting with the FDA to discuss the FDA’s request for additional information.

Strategic Partnerships

In connection with our commercial products and product candidates, we now have a number of strategic partnerships, including:

• Bausch Agreement -- Under its agreement with Salix Pharmaceuticals, Inc., a wholly-owned subsidiary of Bausch, Progenics received a $40 million development milestone upon U.S.

marketing approval for subcutaneous RELISTOR in non-cancer pain patients in 2014, a $50 million development milestone for the U.S.

marketing approval of an oral formulation of RELISTOR in July 2016, and a $10.0 million sales milestone for RELISTOR achieving U.S.

net sales in excess of $100.0 million in 2019.

We are also eligible to receive additional one-time sales milestone payments upon achievement of specified U.S.

net sales targets, including:

Net Sales Levels in any Single Calendar Year

(In thousands)

In excess of $150 million

In excess of $200 million

In excess of $300 million

In excess of $750 million

In excess of $1 billion

Each sales milestone payment is payable one time only, regardless of the number of times the condition is satisfied, and all six payments could be made within the same calendar year.

We are also eligible to receive royalties from Bausch and its affiliates based on the following royalty scale:

15% on worldwide net sales up to $100 million, 17% on the next $400 million in worldwide net sales, and 19% on worldwide net sales over $500 million each calendar year, and 60% of any upfront, milestone, reimbursement or other revenue (net of costs of goods sold, as defined, and territory-specific research and development expense reimbursement) Bausch receives from sublicensees outside the U.S.

• GE Healthcare Agreement – Under our April 2017 Collaboration and License Agreement, GE Healthcare will complete the worldwide development of flurpiridaz F 18, pursue worldwide regulatory approvals, and, if successful, lead a worldwide launch and commercialization of the agent, with us collaborating on both development and commercialization through a joint steering committee.

We also have the right to co-promote the agent in the U.S.

GE Healthcare’s development plan initially focuses on obtaining regulatory approval in the U.S., Japan, Europe and Canada.

Under the agreement, we received an upfront cash payment of $5 million and are eligible to receive up to $60 million in regulatory and sales milestone payments, tiered double-digit royalties on U.S.

sales, and mid-single digit royalties on sales outside of the U.S.

• Curium Agreement – Curium has licensed exclusive rights to develop and commercialize PyL in Europe.

Under the terms of the collaboration, Curium is responsible for the development, regulatory approvals and commercialization of PyL in Europe, and we are entitled to royalties on net sales of PyL.

Curium is in discussions with EMA regarding the development path in Europe.

• Bayer Agreement – Under Progenics’ April 2016 agreement with a subsidiary of Bayer granting Bayer exclusive worldwide rights to develop and commercialize products using our PSMA antibody technology, in combination with Bayer’s alpha-emitting radionuclides, Progenics received an upfront payment of $4.0 million and milestone payments totaling $5.0 million.

We could receive up to an additional $44.0 million in potential clinical and development milestones.

We are also entitled to single-digit royalties on net sales, and potential net sales milestone payments up to an aggregate of $130.0 million.

• CytoDyn Agreement -- Leronlimab (PRO 140) is an investigational humanized IgG4 mAb that blocks CCR5, a cellular receptor that is important in HIV infection, tumor metastases, and other diseases including certain liver diseases.

Progenics sold Leronlimab to CytoDyn in 2012, which sale included milestone and royalty payment obligations to Progenics.

Under the 2012 agreement, CytoDyn is responsible for all development, manufacturing and commercialization efforts.

Pursuant to such agreement, Progenics received $5.0 million in upfront and milestone payments, and we have the right to receive an additional $5.0 million upon the first U.S.

approval for the sale of the drug, and a 5% royalty on the net sales of approved products.

• ROTOP Agreement -- In May 2019, Progenics entered into an exclusive license agreement with ROTOP, a Germany-based developer of radiopharmaceuticals for nuclear medicine diagnostics, to develop, manufacture and commercialize 1404 in Europe.

Under the terms of the collaboration, ROTOP is responsible for the development, regulatory approvals and commercialization of 1404 in Europe while we are entitled to double-digit, tiered royalties on net sales of 1404 in Europe.

ROTOP is in discussions with EMA regarding the development path in Europe.

• FUJIFILM Agreement -- In June 2019, Progenics entered into a transfer agreement with FUJIFILM for the rights to the aBSI product in Japan for use under the name BONENAVI.

Under the terms of the transfer agreement, FUJIFILM acquired, by a combination of purchase and license, the Japanese software, source code, supporting data and all Japanese patents associated with the aBSI product from Progenics for use in Japan.

In exchange, Progenics received $4.0 million in an upfront payment and FUJIFILM agreed to pay Progenics support and service fees for aBSI and other AI products over the next three years in Japan.

BONENAVI has been licensed to FUJIFILM for use in Japan since 2011.

Key Factors Affecting Our Results

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COVID-19 Pandemic

The global COVID-19 pandemic will have a material impact on our business.

Towards the end of the first quarter of 2020 we began to experience, and through the date of this filing we are continuing to experience, impacts to our business and operations related to the COVID-19 pandemic, including the impact of stay-at-home mandates and related safety measures such as the delay of elective medical procedures, resulting in a decline in the volume of procedures using our products.

The global COVID-19 pandemic has had, and will continue to have, a material impact on our business.

Towards the end of the first quarter of 2020 we began to experience, and through the date of this filing we are continuing to experience, impacts to our business and operations related to the COVID-19 pandemic, including the impact of stay-at-home mandates and advisories, and a decline in the volume of procedures and treatments using our products.

We cannot predict the magnitude or duration of the pandemic’s impact on our business.

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In the first quarter of 2020 we implemented certain cost reduction initiatives, including, among other things, reducing travel and promotional expenses and implementing a hiring freeze through the balance of 2020.

In addition, effective April 13, 2020 for the balance of the second quarter of 2020, we reduced our work week from five days to four days in order to better align manufacturing, supply, distribution and other activities with reduced product demand.

In addition, effective April 13, 2020, we reduced our work week from five days to four days in order to better align manufacturing, supply, distribution and other activities with reduced product demand.

We also reduced pay for our personnel, including a 75% reduction for Mary Anne Heino, our President and Chief Executive Officer, a 35% reduction for members of our executive team, a 25% reduction for our vice presidents, and across-the-board reductions of 20% of salaries for our other salaried employees and 20% of hours for our hourly employees for that same time period.

In addition, our Board of Directors has also reduced director and committee member compensation by 35% for the second half of the year and has elected to receive all remaining compensation payable in 2020 in the form of time-based restricted stock units that will vest on the first anniversary of the grant date, rather than in cash.

These pay reduction measures may impact our ability to maintain employee morale and motivate and retain management personnel and other key employees.

We intend to reevaluate the executive and employee pay reduction measures at the end of the second quarter.

We can give no assurances that we will not have to take additional cost reduction measures if the pandemic continues to adversely affect the volume of procedures using our products.

While we are currently unable to estimate the impact of COVID-19 on our overall 2020 operations and financial results, we ended the first quarter of 2020 with $95.7 million of cash and cash equivalents.

In addition, as a precaution, in early April 2020 we drew $100 million on our existing $200 million revolving line of credit, which draw we intend to repay upon consummation of the Progenics Transaction in order to remain in compliance with the applicable financial covenants in our 2019 Facility.

With our available liquidity and prudent expense management, we believe we will be able to maintain a state of preparedness to resume full business activities to support our customers as external conditions allow, although we can give no assurances that we will have sufficient liquidity if the pandemic continues to adversely affect the volume of procedures using our products for an extended period of time.

In the latter half of June 2020, we restored our work week back to five days and restored most salaries back to 100% (other than executive team members whose salaries were restored in early July and directors whose compensation will remain at reduced levels for the balance of the calendar year).

We can give no assurances that we will not have to take additional cost reduction measures if the pandemic continues to adversely affect the volume of procedures and treatments using our products.

During the second quarter of 2020, Progenics also implemented certain cost reduction initiatives, including reducing promotional spending and furloughing a portion of its field-based AZEDRA commercial operations and medical employees.

Progenics also furloughed several of its clinical employees.

The commercial and medical employees were returned to full service with Progenics as of June 22, 2020.

In addition, Progenics paused new enrollment in the Phase 2 trial of 1095 in mCRPC patients to minimize the risk to subjects and healthcare providers during the pandemic.

GE Healthcare, our development and commercialization partner for flurpiridaz F 18, also delayed enrollment in the second Phase 3 clinical trial because of the pandemic and has informed us that it now intends to resume enrollment in the third quarter of 2020.

While we are currently unable to estimate the impact of COVID-19 on our overall 2020 operations and financial results, we ended the second quarter of 2020 with $90.3 million of cash and cash equivalents.

Anticipated Continued Growth of DEFINITY and Expansion of Our Ultrasound Microbubble Franchise

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If we were to (i) receive any such Notice in the future, (ii) bring a patent infringement suit against the ANDA applicant within 45 days of receiving that Notice, and (iii) successfully obtain the full 30 month stay, then the ANDA applicant would be precluded from commercializing a generic version of DEFINITY prior to the expiration of that 30 month stay period and, potentially, thereafter, depending on how the patent dispute is resolved.

Solely by way of example and not based on any knowledge we currently have, if we received a Notice from an ANDA applicant in May 2020 and the full 30 month stay was obtained, then the ANDA applicant would be precluded from commercialization until at least November 2022.

Solely by way of example and not based on any knowledge we currently have, if we received a Notice from an ANDA applicant in August 2020 and the full 30 month stay was obtained, then the ANDA applicant would be precluded from commercialization until at least January 2023.

If we received a Notice some number of months in the future and the full 30 month stay was obtained, the commercialization date would roll forward in the future by the same calculation.

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We believe this modified formulation will provide an enhanced product profile enabling storage as well as shipment at room temperature (DEFINITY’s current formulation requires refrigerated storage), will give clinicians additional choice, and will allow for greater utility of this formulation in broader clinical settings.

We were recently granted a composition of matter patent on the modified formulation which runs through 2035.

We have a composition of matter patent on the modified formulation which runs through 2035.

If the modified formulation is approved by the FDA, then this patent would be eligible to be listed in the Orange Book.

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Glioblastoma is a lethal and devastating form of brain cancer with median survival of 15 months after diagnosis.

In-House Manufacturing - We are currently building specialized in-house manufacturing capabilities at our North Billerica, Massachusetts facility for DEFINITY and, potentially, other sterile vial products.

• In-House Manufacturing - We have completed construction of specialized, in-house manufacturing capabilities at our North Billerica, Massachusetts facility for DEFINITY and, potentially, other sterile vial products.

We believe the investment in these efforts will allow us to better control DEFINITY manufacturing and inventory, reduce our costs in a potentially more price competitive environment, and provide us with supply chain redundancy.

We currently expect to be in a position to use this in-house manufacturing capability by early 2021, although that timing cannot be assured.

DEFINITY in China - On March 19, 2020 in connection with our Chinese development and distribution arrangement with Double Crane Pharmaceutical Company, we filed an Import Drug License application with the NMPA, or National Medical Products Administration, for the use of DEFINITY for the echocardiography indication.

Our application is now undergoing initial review by the NMPA.

We currently expect to be in a position to use this in-house manufacturing capability in 2021, although that timing cannot be assured.

• DEFINITY in China - On March 19, 2020 in connection with our Chinese development and distribution arrangement with Double Crane Pharmaceutical Company, we filed an Import Drug License application with the National Medical Products Administration, or the NMPA, for the use of DEFINITY for the echocardiography indication.

We believe this is an important milestone in our efforts to commercialize DEFINITY in China.

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Global Mo-99 Supply

We currently have Mo-99 supply agreements with Institute for Radioelements (“IRE”), running through December 31, 2022, and renewable by us on a year-to-year basis thereafter, and with NTP and ANTSO, running through December 31, 2021.

We also have a Xenon supply agreement with IRE which runs through June 30, 2022, and which is subject to further extension.

Although we have a globally diverse Mo-99 supply with IRE in Belgium, NTP in South Africa and ANSTO in Australia, we still face supplier and logistical challenges in our Mo-99 supply chain.

The NTP processing facility has had periodic outages in 2017, 2018 and 2019.

The NTP processing facility had periodic outages in 2017, 2018 and 2019.

When NTP was not producing, we relied on Mo-99 supply from both IRE and ANSTO to limit the impact of the NTP outages.

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As ANSTO increases its production volume over the course of 2020, we expect to receive increasing supply from ANSTO.

Because of the COVID-19 pandemic, we have recently experienced challenges receiving regularly scheduled orders of Mo-99 from our global suppliers due to the partial or complete delay or cancellation of international flights by our airfreight carriers.

Because of the COVID-19 pandemic, in the second quarter of 2020 we experienced challenges receiving regularly scheduled orders of Mo-99 from our global suppliers due to the partial or complete delay or cancellation of international flights by our airfreight carriers.

As of the filing of this report, these COVID-19-related transportation challenges have been largely eliminated.

Because of these various supply chain constraints, depending on reactor and processor schedules and operations, we have not been able to fill some or all of the demand for our TechneLite generators on certain manufacturing days.

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We currently believe that if approved by the FDA, the modified formulation could be commercially available in 2021, although that timing cannot be assured.

We are also building in-house specialized manufacturing capabilities at our North Billerica, Massachusetts facility, as part of a larger strategy to create a competitive advantage in specialized manufacturing, which will also allow us to optimize our costs and reduce our supply chain risk.

We have also completed construction of specialized, in-house manufacturing capabilities at our North Billerica, Massachusetts facility, as part of a larger strategy to create a competitive advantage in specialized manufacturing, which will also allow us to optimize our costs and reduce our supply chain risk.

We can give no assurance as to when or if we will be successful in these efforts or that we will be able to successfully manufacture any additional commercial products at our North Billerica, Massachusetts facility.

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To remain a leader in the marketplace, we have historically made substantial investments in new product development.

For flurpiridaz F 18, our positron emission tomography (“PET”)-based myocardial perfusion imaging agent, on April 25, 2017, we announced entering into a definitive, exclusive Collaboration and License Agreement with GE Healthcare for the agent’s continued Phase 3 development and worldwide commercialization.

Because of the COVID-19 pandemic, GE Healthcare believes enrollment in that global clinical development program will be delayed.

For LMI 1195, our PET-based molecular imaging agent for the norepinephrine pathway, we are currently designing two Phase 3 clinical trials for the use of LMI 1195 for the diagnosis and management of neuroendocrine tumors in pediatric and adult populations, respectively.

The FDA has granted an Orphan Drug designation for the use of LMI 1195 in the management indication.

Our investments in these additional clinical activities will increase our operating expenses and impact our results of operations and cash flow and we can give no assurances as to whether or when LMI 1195 would be approved.

As part of our microbubble franchise strategy, we also conducted two Phase 3, open-label, multicenter studies (which we refer to as BENEFIT 1 and BENEFIT 2) to evaluate LVEF measurement accuracy and reproducibility of DEFINITY contrast-enhanced and unenhanced echocardiography as compared to non-contrast cardiac magnetic resonance imaging (“CMRI”), used as the truth standard.

In February 2020, we announced the results of BENEFIT 1.

After reviewing the BENEFIT 1 study results, we concluded that there was no statistically significant improvement in the accuracy of LVEF values for contrast-enhanced echocardiography versus unenhanced echocardiography as compared to CMRI.

In addition, analyses of the secondary endpoints revealed no improvement in inter-reader variability between the contrast-enhanced and unenhanced echocardiograms for LVEF assessments.

We have recently completed our review of the BENEFIT 2 study results, and those results are similar to the previously reported BENEFIT 1 results, namely that the BENEFIT 2 study results also did not meet its primary endpoint.

Among the secondary endpoints in BENEFIT 2, inter-reader variability for left ventricular volume measurements improved when using DEFINITY versus unenhanced ultrasound, while there was no improvement in the LVEF inter-reader variability.

In both studies, a post-hoc analysis did show statistically significant improvements in left ventricular diastolic and systolic volume measurements with contrast-enhanced versus unenhanced echocardiography when compared to CMRI.

Although we very much see the continued value of the use of contrast in suboptimal echocardiograms to opacify the left ventricular chamber and improve the delineation of the left ventricular endocardial border, at this point, we do not foresee spending additional time or effort pursuing an LVEF indication for DEFINITY.

In addition to our flurpiridaz F 18 clinical development program, the expenses of which are now being borne by GE Healthcare, and our proposed LMI 1195 Phase 3 clinical program for the diagnosis and management of neuroendocrine tumors in pediatric and adult populations, the final plans for which are still being developed, the Progenics Transaction brings additional and substantial clinical development expense.

Progenics completed two successful pre-NDA meetings with the FDA in the first quarter of 2020, and we intend to submit the PyL NDA to the FDA later in 2020.

For 1095, the ARROW Phase 2 study in mCRPC patients has been paused to minimize risk to subjects and healthcare providers during the pandemic.

In addition, the Company’s development activities for PSMA AI are on-going.

Our investments in these additional clinical activities will increase our operating expenses and impact our results of operations and cash flow, and we can give no assurances as to whether any of these clinical development candidates will be approved.

New Initiatives

We continue to seek ways to expand our product portfolio, evaluating a number of different opportunities to acquire or in-license additional products, businesses and technologies to drive our future growth.

We are particularly interested in expanding our presence in oncology, in radiotherapeutics as well as diagnostics.

In addition to the Progenics Transaction described above, in May 2019 we entered into a strategic collaboration and license agreement with NanoMab Technology Limited, a privately-held biopharmaceutical company focusing on the development of next generation radiopharmaceuticals for cancer precision medicine.

In addition to integrating the new assets and programs resulting from the Progenics Transaction, we continue to seek ways to further expand our portfolio of products and product candidates, evaluating a number of different opportunities to acquire or in-license additional products, product candidates, businesses and technologies to drive our future growth.

As the Progenics Transaction indicates, we are particularly interested in expanding our presence in oncology, in radiotherapeutics as well as diagnostics.

In May 2019 we entered into a strategic collaboration and license agreement with NanoMab Technology Limited, a privately-held biopharmaceutical company focusing on the development of next generation radiopharmaceuticals for cancer precision medicine.

We believe this collaboration will provide the first broadly-available imaging biomarker research tool to pharmaceutical companies and academic centers conducting research and development on PD-L1 immuno-oncology treatments, including combination therapies.

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Three Months Ended

June 30, Six Months Ended

(in thousands) 2020 2019 2020 2019

Revenues $ 66,010 $ 85,705 $ 156,714 $ 172,215

Cost of goods sold 40,162 41,132 92,864 83,558

Gross profit 25,848 44,573 63,850 88,657

Operating expenses

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Total operating expenses 31,393 30,036 62,270 57,951

Operating income

Operating (loss) income (5,545) 14,537 1,580 30,706

Interest expense 1,914 4,543 3,860 9,135

Income before income taxes

Loss on extinguishment of debt — 3,196 — 3,196

Other income (756) (1,312) (1,106) (2,499)

(Loss) income before income taxes (6,703) 8,110 (1,174) 20,874

Income tax expense 309 1,698 2,501 4,513

Comparison of the Periods Ended March 31, 2020 and 2019

Net (loss) income $ (7,012) $ 6,412 $ (3,675) $ 16,361

Comparison of the Periods Ended June 30, 2020 and 2019

Segment revenues are summarized by product as follows:

Three Months Ended

(in thousands)

June 30, Six Months Ended

(in thousands) 2020 2019 Change

% 2020 2019 Change

DEFINITY $ 39,544 $ 53,466 $ (13,922) (26.0) % $ 94,554 $ 103,182 $ (8,628) (8.4) %

TechneLite 15,591 16,865 (1,274) (7.6) % 34,947 36,923 (1,976) (5.4) %

Other nuclear 5,804 9,127 (3,323) (36.4) % 14,866 18,651 (3,785) (20.3) %

Rebates and allowances (3,540) (4,268) 728 (17.1) % (8,223) (8,132) (91) 1.1 %

revenues 57,399 75,190 (17,791) (23.7) % 136,144 150,624 (14,480) (9.6) %

International

DEFINITY 821 1,163 (342) (29.4) % 2,602 2,558 44 1.7 %

TechneLite 3,318 3,241 77 2.4 % 7,060 7,328 (268) (3.7) %

Other nuclear 4,473 6,119 (1,646) (26.9) % 10,911 11,715 (804) (6.9) %

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Total International revenues 8,611 10,515 (1,904) (18.1) % 20,570 21,591 (1,021) (4.7) %

DEFINITY 40,365 54,629 (14,264) (26.1) % 97,156 105,740 (8,584) (8.1) %

TechneLite 18,909 20,106 (1,197) (6.0) % 42,007 44,251 (2,244) (5.1) %

Other nuclear 10,277 15,246 (4,969) (32.6) % 25,777 30,366 (4,589) (15.1) %

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Total revenues $ 66,010 $ 85,705 $ (19,695) (23.0) % $ 156,714 $ 172,215 $ (15,501) (9.0) %

The increase in the U.S.

segment revenues for the three months ended March 31, 2020 , as compared to the prior year period is primarily due to a $5.3 million increase in DEFINITY revenue as a result of higher unit volumes.

This increase was offset, in part, by an increase in rebate and allowance provisions of $0.8 million, lower TechneLite revenue driven by supplier disruptions and COVID-19 impact on international logistics and a decrease in Other Nuclear revenue primarily associated with lower Xenon volume as a result of COVID-19.

The increase in the International segment revenues for the three months ended March 31, 2020 , as compared to the prior year period is primarily due to a $0.8 million increase in Other Nuclear revenue driven by an increase in Neurolite volume and $0.4 million increase in DEFINITY revenue driven by increased volume.

This increase was offset, in part, by TechneLite revenue due primarily to opportunistic incremental demand in the prior year period.

The decrease in the U.S.

segment revenues for the three months ended June 30, 2020, as compared to the prior year period is primarily due to a $13.9 million decrease in DEFINITY revenue as a result of lower unit volumes as a result of COVID-19.

TechneLite revenue was $1.3 million lower driven by COVID-19 impact, partially offset by supplier disruptions in 2019.

Other Nuclear revenue was lower than the prior year primarily associated with lower Xenon volume as a result of COVID-19, which was offset, in part, by reduced rebate and allowance provisions of $0.7 million.

The decrease in the U.S.

segment revenues for the six months ended June 30, 2020, as compared to the prior year period is primarily due to an $8.6 million decrease in DEFINITY revenue as a result of lower unit volumes as a result of COVID-19 that was concentrated in the second quarter, offset by first quarter performance.

TechneLite revenue was $2.0 million lower driven by COVID-19 impact, partially offset by supplier disruptions in 2019.

Other Nuclear revenue was lower than the prior year primarily associated with $4.1 million lower Xenon revenue with lower volume as a result of COVID-19.

The Progenics business contributed approximately $1.0 million of revenue to the U.S.

segment for the three and six months ended June 30, 2020.

The decrease in the International segment revenues for the three months ended June 30, 2020, as compared to the prior year period is primarily due to lower volume as a result of COVID-19.

The decrease in the International segment revenues for the six months ended June 30, 2020, as compared to the prior year period is primarily due to lower volume as a result of COVID-19 as well as opportunistic incremental demand of TechneLite in the prior year period.

Rebates and Allowances

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An analysis of the amount of, and change in, reserves is summarized as follows:

(in thousands)

(in thousands) Rebates and

Balance, January 1, 2020 $ 6,985

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Payments or credits made during the period (8,266)

Balance, March 31, 2020

Balance, June 30, 2020 $ 6,945

Gross profit is summarized by segment as follows:

Three Months Ended

(in thousands)

June 30, Six Months Ended

(in thousands) 2020 2019 Change

% 2020 2019 Change

$ 24,697 $ 42,033 $ (17,336) (41.2) % $ 59,760 $ 83,584 $ (23,824) (28.5) %

International 1,151 2,540 (1,389) (54.7) % 4,090 5,073 (983) (19.4) %

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The decrease in the U.S.

segment gross profit for the three months ended March 31, 2020 , as compared to the prior year period is primarily due to an asset impairment loss on other nuclear products, and lower TechneLite unit volumes, as well as an increase in rebate and allowance provisions.

This was offset by higher DEFINITY volume.

The increase in the International segment gross profit for the three months ended March 31, 2020 , as compared to the prior year period is primarily due to higher DEFINITY gross profit driven by increased volume.

segment gross profit for the three months ended June 30, 2020, as compared to the prior year period is primarily due to lower DEFINITY, TechneLite, Xenon and other nuclear product unit volumes due to COVID-19.

This was offset by a decrease in rebate and allowance provisions.

The decrease in the U.S.

segment gross profit for the six months ended June 30, 2020, as compared to the prior year period is primarily due to lower DEFINITY, TechneLite, and Xenon unit volumes due to COVID-19 and an asset impairment loss on other nuclear products.

The decrease in the International segment gross profit for the three and six months ended June 30, 2020, as compared to the prior year period is primarily due to lower DEFINITY and other nuclear product unit volumes due to COVID-19.

Sales and Marketing

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Three Months Ended

(in thousands)

June 30, Six Months Ended

(in thousands) 2020 2019 Change

% 2020 2019 Change

$ 5,830 $ 10,369 $ (4,539) (43.8) % $ 15,437 $ 20,338 $ (4,901) (24.1) %

International 475 579 (104) (18.0) % 998 1,007 (9) (0.9) %

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The decrease in the U.S.

segment sales and marketing expenses for the three months ended March 31, 2020 , as compared to the prior year period is primarily due to reduced marketing promotional programs and travel due to COVID-19 impact, as well as lower employee-related costs.

The increase in the International segment sales and marketing expenses for the three months ended March 31, 2020 , as compared to the prior year period is primarily due to higher employee-related costs.

segment sales and marketing expenses for the three and six months ended June 30, 2020, as compared to the prior year period is primarily due to reduced marketing promotional programs and travel due to COVID-19 impact, as well as lower employee-related costs.

The Progenics business contributed approximately $0.3 million of expense to the U.S.

segment for the three and six months ended June 30, 2020.

The decrease in the International segment sales and marketing expenses for the three months ended June 30, 2020, as compared to the prior year period is primarily due to lower employee-related costs.

The International segment sales and marketing expenses for the six months ended June 30, 2020 is flat as compared to the prior year.

General and Administrative

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Three Months Ended

(in thousands)

June 30, Six Months Ended

(in thousands) 2020 2019 Change

% 2020 2019 Change

$ 20,522 $ 13,323 $ 7,199 54.0 % $ 37,077 $ 25,671 $ 11,406 44.4 %

International 148 (30) 178 (593.3) % 292 211 81 38.4 %

Total general and administrative $ 20,670 $ 13,293 $ 7,377 55.5 % $ 37,369 $ 25,882 $ 11,487 44.4 %

segment general and administrative expenses for the three months ended March 31, 2020 increased as compared to the prior year period.

The primary driver was an increase in acquisition-related costs associated with the pending acquisition of Progenics and higher employee-related costs.

The International segment general and administrative expenses for the three months ended March 31, 2020 decreased as compared to the prior year period driven primarily by favorable employee-related costs.

segment general and administrative expenses increased for the three and six months ended June 30, 2020 as compared to the prior year period.

The primary driver was an increase in acquisition-related costs associated with the acquisition of Progenics offset by lower employee-related costs driven by COVID related measures.

In addition, the Progenics business contributed approximately $2.9 million of expense to the U.S.

segment for the three and six months ended June 30, 2020.

The International segment general and administrative expenses increased for the three and six months ended June 30, 2020 as compared to the prior year period driven primarily by an insurance benefit received in 2019 which was partly offset by lower employee related costs in 2020.

Research and Development

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Three Months Ended

(in thousands)

June 30, Six Months Ended

(in thousands) 2020 2019 Change

% 2020 2019 Change

$ 4,345 $ 5,652 $ (1,307) (23.1) % $ 8,258 $ 10,302 $ (2,044) (19.8) %

International 73 143 (70) (49.0) % 208 422 (214) (50.7) %

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The decrease in the U.S.

segment research and development expenses for the three months ended March 31, 2020 , as compared to the prior year is primarily related to clinical research expenses related to DEFINITY studies phasing.

The decrease in the International segment research and development expenses for the three months ended March 31, 2020 , as compared to the prior year period is primarily driven by regulatory costs relating to Brexit matters.

segment research and development expenses for the three and six months ended June 30, 2020, as compared to the prior year is primarily driven by clinical research expenses related to DEFINITY studies completing and lower employee related expenses.

The Progenics business contributed approximately $1.2 million of expense to the U.S.

segment for the three and six months ended June 30, 2020.

The decrease in the International segment research and development expenses for the three and six months ended June 30, 2020, as compared to the prior year period is primarily driven by regulatory costs related to Brexit matters.

Interest Expense

Interest expense decreased by approximately $2.6 million for the three months ended March 31, 2020 as compared to the prior year period due to the refinancing of our existing indebtedness in the second quarter of 2019 which reduced our underlying principal amount and decreased interest rates on our long-term debt.

Interest expense decreased by approximately $5.3 million for the six months ended June 30, 2020 as compared to the prior year period due to the refinancing of our existing indebtedness in the second quarter of 2019 which reduced our underlying principal amount and decreased interest rates on our long-term debt.

Income Tax Expense

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Three Months Ended

(in thousands)

June 30, Six Months Ended

(in thousands) 2020 2019 Change

% 2020 2019 Change

Income tax expense $ 309 $ 1,698 $ (1,389) (81.8) % $ 2,501 $ 4,513 $ (2,012) (44.6) %

The income tax expense for the three months ended March 31, 2020 was primarily due to the income generated in the period and the accrual of interest associated with uncertain tax positions.

The income tax expense for the three months ended March 31, 2019 was primarily due to the income generated in the period and the accrual of interest associated with uncertain tax positions offset by tax benefits arising from stock compensation deductions.

The income tax expense for the three and six months ended June 30, 2020 was primarily due to the recording of non-deductible transaction costs and the accrual of interest associated with uncertain tax positions.

We regularly assess our ability to realize our deferred tax assets.

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In determining whether our deferred tax assets are more-likely-than-not realizable, we evaluate all available positive and negative evidence, and weigh the objective evidence and expected impact.

We continue to record a valuation allowance against certain of our foreign net deferred tax assets.

As of June 30, 2020, we recorded valuation allowances of $ 3.0 million against the net deferred tax assets of certain foreign subsidiaries, as well as a valuation allowance of $ 0.7 million against net state deferred tax assets due to the potential expiration of certain state tax losses and tax credits prior to utilization.

On June 19, 2020, we acquired the stock of Progenics Pharmaceuticals, Inc.

in a transaction that is expected to qualify as a tax-deferred reorganization under Section 368 of the Internal Revenue Code of 1986, as amended.

The transaction resulted in an ownership change of Progenics under Section 382 and a limitation on the utilization of Progenics’ pre-transaction tax attributes.

All pre-transaction research credits and Orphan drug credits have been removed from the balance sheet, and the gross carrying value of the tax loss carryforwards reduced to their realizable value on the opening balance sheet, in accordance with the Section 382 limitation.

Significant deferred tax liabilities arising from the purchase accounting basis step-up in identified intangibles were also recorded as part of the purchase accounting, resulting in a small net overall deferred tax liability for Progenics after the application of purchase accounting.

Our effective tax rate for each reporting period is presented as follows:

Three Months Ended

Six Months Ended

Effective tax rate (213.0)% 21.6%

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statutory rate of 21% principally due to the impact of U.S.

state taxes and the accrual of interest on uncertain tax positions.

The increase in the effective income tax rate for the three months ended March 31, 2020 as compared to the prior year period is primarily due to the increased tax rate impact from the accrual of interest on uncertain tax positions in the current period and the benefit from stock compensation which was recorded in the comparative period.

state taxes, non-deductible transaction costs, and the accrual of interest on uncertain tax positions.

The decrease in the effective income tax rate for the six months ended June 30, 2020 as compared to the prior year period is primarily due to the lower amount of pre-tax income driving an increased tax rate impact from the accrual of interest on uncertain tax positions in the current period and non-deductible transaction costs.

Liquidity and Capital Resources

The following table provides information regarding our cash flows:

Three Months Ended

Six Months Ended

(in thousands) 2020 2019

Net cash provided by operating activities $ 7,252 $ 31,521

Net cash used in investing activities

Net cash provided by (used in) investing activities $ 2,609 $ (13,984)

Net cash used in financing activities $ (10,218) $ (74,158)

Net Cash Provided by Operating Activities

Net cash provided by operating activities of $9.4 million in the three months ended March 31, 2020 was driven primarily by net income of $3.3 million plus $3.7 million of depreciation, amortization and accretion expense, impairment of long-lived assets of $7.3 million, stock-based compensation expense of $3.1 million, and changes in deferred taxes of $1.5 million.

These net sources of cash were offset by a net decrease of $10.9 million related to movements in our working capital accounts during the period.

The overall decreases in cash from our working capital accounts were primarily driven by the payment of prior year annual bonuses.

Net cash provided by operating activities of $10.5 million in the three months ended March 31, 2019 was driven primarily by net income of $9.9 million plus $3.3 million of depreciation, amortization and accretion expense, stock-based compensation expense of $2.7 million and changes in deferred taxes of $1.7 million.

Net cash provided by operating activities of $7.3 million in the six months ended June 30, 2020 was driven primarily by $7.8 million of depreciation, amortization and accretion expense, impairment of long-lived assets of $7.3 million, stock-based compensation expense of $6.5 million, and changes in deferred taxes of $1.1 million.

These net sources of cash were offset by a net loss of $3.7 million and a net decrease of $14.4 million related to movements in our working capital accounts during the period.

The overall decreases in cash from our working capital accounts were primarily driven by the payment of prior year annual bonuses as well as change in inventory related to COVID-19 impact on products and the timing of batch processes.

Net cash provided by operating activities of $31.5 million in the six months ended June 30, 2019 was driven primarily by net income of $16.4 million plus $6.6 million of depreciation, amortization and accretion expense, debt extinguishment expense of $3.2 million, stock-based compensation expense of $6.1 million and changes in deferred taxes of $2.4 million.

These net sources of cash were offset by a net decrease of $5.2 million related to movements in our working capital accounts during the period.

The overall decreases in cash from our working capital accounts were primarily driven by the payment of prior year annual bonuses.

Net Cash Used in Investing Activities

Net cash used in investing activities during the three months ended March 31, 2020 reflected $2.7 million in capital expenditures.

Net cash used in investing activities during the three months ended March 31, 2019 reflected $10.6 million in capital expenditures.

Net Cash Provided by Investing Activities

Net cash used in investing activities during the six months ended June 30, 2020 reflected $17.6 million of acquired cash related to the non-cash acquisition of Progenics offset by $10.0 million in lending on a note receivable to Progenics prior to the acquisition and $5.0 million in capital expenditures.

Net cash used in investing activities during the six months ended June 30, 2019 reflected $14.0 million in capital expenditures.

Net Cash Used in Financing Activities

Net cash used in financing activities during the three months ended March 31, 2020 is primarily attributable to the payments on long-term debt and other borrowings of $2.5 million related to the 2019 Term Facility and payments for minimum statutory tax withholding related to net share settlement of equity awards of $1.5 million, offset by proceeds of $0.4 million from the issuance of common stock.

Net cash used in financing activities during the three months ended March 31, 2019 reflected payments for minimum statutory tax withholding related to net share settlement of equity awards of $1.1 million, payments on long-term debt and other borrowings of $0.7 million, offset by proceeds of $0.6 million from the exercise of stock options and the issuance of common stock.

Starting in 2019, we require certain senior executives to cover tax liabilities resulting from the vesting of their equity awards pursuant to sell-to-cover transactions under Rule 10b5-1 programs.

Net cash used in financing activities during the six months ended June 30, 2020 is primarily attributable to the payments on long-term debt and other borrowings of $7.0 million related to the 2019 Term Facility and Royalty-Backed Loan and payments for minimum statutory tax withholding related to net share settlement of equity awards of $2.0 million.

Net cash used in financing activities during the six months ended June 30, 2019 is primarily attributable to the net cash outflow of approximately $73 million in connection with the refinancing of our previous 2017 Facility and payments for minimum statutory tax withholding related to net share settlement of equity awards of $2.1 million.

Starting in 2019, we require certain senior executives to cover tax liabilities resulting from the vesting of their equity awards pursuant to sell-to-cover transactions under 10b5-1 plans.

External Sources of Liquidity

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In addition, we replaced our $75 million revolving facility with the 2019 Revolving Facility.

The terms of the 2019 Facility are set forth in the Credit Agreement, dated as of June 27, 2019, by and among us, the lenders from time to time party thereto and Wells Fargo Bank, N.A., as administrative agent and collateral agent.

We have the right to request an increase to the 2019 Term Facility or request the establishment of one or more new incremental term loan facilities, in an aggregate principal amount of up to $100 million, plus additional amounts, in certain circumstances.

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The 2019 Revolving Facility includes a $20 million sub-facility for the issuance of Letters of Credit.

The 2019 Revolving Facility includes a $10 million sub-facility for Swingline Loans.

The 2019 Revolving Facility includes

a $10 million sub-facility for Swingline Loans.

The Letters of Credit, Swingline Loans and the borrowings under the 2019 Revolving Facility are expected to be used for working capital and other general corporate purposes.

Please refer to our Form 10-K for fiscal year ended December 31, 2019 for further details on the 2019 Facility.

On April 6, 2020, the Company drew down $100.0 million under its 2019 Revolving Facility, and subsequently repaid such amounts on June 9, 2020.

On June 19, 2020, we amended our 2019 Credit Agreement (“the Amendment”) as a result of the impact of the COVID-19 pandemic on our business and operations and the near-term higher level of indebtedness resulting from our decision not to immediately repay the Progenics debt secured by the RELISTOR royalties following our acquisition of Progenics.

The Amendment provides for, among other things, modifications to our financial maintenance covenants.

The covenant related to Total Net Leverage Ratio (as defined in the Amended Credit Agreement) has been waived from the date of the Amendment through December 31, 2020.

The maximum total net leverage ratio and interest coverage ratio permitted by the financial covenant is displayed in the table below:

2020 Amended Credit Agreement

Period Total Net Leverage Ratio

Q1 2021 5.50 to 1.00

Q2 2021 3.75 to 1.00

Thereafter 3.50 to 1.00

Period Interest Coverage Ratio

Q2 2020 to Q1 2021 2.00 to 1.00

Thereafter 3.00 to 1.00

The Amendment also introduces a new financial covenant requiring Consolidated Liquidity (as defined in the Amended Credit Agreement) to be no less than $150.0 million.

The Consolidated Liquidity covenant is tested on a continuing basis beginning on the date of the Amendment and ending on the date on which we deliver a compliance certificate for the fiscal quarter ending March 31, 2021.

For the period beginning on the date of the Amendment and ending on the Adjustment Date (as defined in the Amended Credit Agreement) for the fiscal quarter ending March 31, 2021, loans under the Amended Credit Agreement bear interest at LIBOR plus 3.25% or the Base Rate plus 2.25%.

On and after the Adjustment Date for the fiscal quarter ending on March 31, 2021, loans bear interest at LIBOR plus a spread that ranges from 1.50% to 3.00% or the Base Rate plus a spread that ranges from 0.50% to 2.00%, in each case based on our Total Net Leverage Ratio.

The commitment fee applicable to the Revolving Facility is 0.50% until the Adjustment Date for the fiscal quarter ending March 31, 2021.

On and after the Adjustment Date for the fiscal quarter ending on March 31, 2021, the commitment fee ranges from 0.15% to 0.40% based on our Total Net Leverage Ratio.

On June 19, 2020, as a result of the Progenics Transaction, we assumed Progenics outstanding debt as of such date in the amount of $ 40.2 million.

Progenics, through a wholly-owned subsidiary MNTX Royalties Sub LLC (“MNTX Royalties”), entered into a $50.0 million loan agreement (the “Royalty-Backed Loan”) with a fund managed by HealthCare Royalty Partners III, L.P.

(“HCRP”) on November 4, 2016.

Under the terms of the Royalty-Backed Loan, the lenders have no recourse to Progenics or any of its assets other than the right to receive royalty payments from the commercial sales of RELISTOR products owed under Progenics’ license agreement with Salix Pharmaceuticals, Inc., a wholly-owned subsidiary of Bausch.

The RELISTOR royalty payments will be used to repay the principal and interest on the loan.

The Royalty-Backed Loan bears interest at a per annum rate of 9.5% and matures on June 30, 2025.

On June 22, 2020, HCRP waived the automatic acceleration of the Royalty-Backed Loan that otherwise would have been triggered by the consummation of the Progenics Transaction and MNTX Royalties agreed not to prepay the loan until after December 31, 2020.

Under the terms of the loan agreement, payments of interest and principal, if any, are made on the last day of each calendar quarter out of RELISTOR royalty payments received since the immediately-preceding payment date.

On each payment date, 50% of RELISTOR royalty payments received since the immediately-preceding payment date in excess of accrued interest on the loan are used to repay the principal of the loan, with the balance retained by us.

Starting on September 30, 2021, all of the RELISTOR royalties

received since the immediately-preceding payment date will be used to repay the interest and outstanding principal balance until the balance is fully repaid.

Our ability to fund our future capital needs will be affected by our ability to continue to generate cash from operations and may be affected by our ability to access the capital markets, money markets or other sources of funding, as well as the capacity and terms of our financing arrangements.

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• The costs of acquiring or in-licensing, developing, obtaining regulatory approval for, and commercializing, new products, businesses or technologies, together with the costs of pursuing opportunities that are not eventually consummated;

Our investment in the further clinical development and commercialization of existing products and development candidates;

• Our investment in the further clinical development and commercialization of products and development candidates, including the newly acquired Progenics assets AZEDRA, PyL, 1095 and PSMA AI;

• The costs of investing in our facilities, equipment and technology infrastructure;

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However, we cannot be assured that such an amendment or waiver would be granted, or that additional capital will be available on acceptable terms, if at all.

At March 31, 2020 , our only current committed external source of funds is our borrowing availability under our 2019 Revolving Facility.

We had $95.7 million of cash and cash equivalents at March 31, 2020 .

Our 2019 Facility contains a number of affirmative, negative, reporting and financial covenants, in each case subject to certain exceptions and materiality thresholds.

Incremental borrowings under the 2019 Revolving Facility may affect our ability to comply with the covenants in the 2019 Facility, including the financial covenants restricting consolidated net leverage and interest coverage.

Accordingly, we may be limited in utilizing the full amount of our 2019 Revolving Facility as a source of liquidity.

On April 1, 2020, we drew down $100 million under our 2019 Revolving Facility, the proceeds of which we have currently invested in short-term, interest bearing instruments.

In addition, in connection with the Progenics Transaction, which we now expect to close in June 2020, although the merger is structured as a stock-for-stock exchange, we will incur legal, accounting, financial advisory, consulting and printing fees, and transition, integration and other costs which we intend to fund from our available cash and the available cash of Progenics.

The CVRs we will issue in the Progenics Transaction will entitle holders thereof to future cash payments of 40% of PyL net sales over $100 million in 2022 and $150 million in 2023, which, if payable, we currently intend to fund from our then-available cash.

In no event will our aggregate payments under the CVRs, together with any other non-stock consideration treated as paid in connection with the Progenics Transaction, exceed 19.9% of the total consideration we pay in the Progenics Transaction.

Based on our current operating plans, including our prudent expense management in response to the COVID-19 pandemic, we believe that our existing cash and cash equivalents, results of operations and availability under our 2019 Revolving Facility will be sufficient to continue to fund our liquidity requirements for the foreseeable future.

At June 30, 2020, our only current committed external source of funds is our borrowing availability under our 2019 Revolving Facility.

We had $90.3 million of cash and cash equivalents at June 30, 2020.

Our 2019 Facility, as amended, contains a number of affirmative, negative, reporting and financial covenants, in each case subject to certain exceptions and materiality thresholds.

Incremental borrowings under the 2019 Revolving Facility, as amended, may affect our ability to comply with the covenants in the 2019 Facility, as amended, including the financial covenants restricting consolidated net leverage and interest coverage.

Accordingly, we may be limited in utilizing the full amount of our 2019 Revolving Facility, as amended, as a source of liquidity.

In addition, in connection with the Progenics Transaction, which we closed in June 2020, we incurred legal, accounting, financial advisory, consulting and printing fees, and transition, integration and other costs which we funded from our available cash and the available cash of Progenics.

The CVRs we issued in the Progenics Transaction entitle holders thereof to future cash payments of 40% of PyL net sales over (i) $100 million in 2022 and (ii) $150 million in 2023, which, if payable, we currently intend to fund from our then-available cash.

In no event will our aggregate payments under the CVRs, together with any other non-stock consideration treated as paid in connection with the Progenics Transaction, exceed 19.9% (which we estimate could be approximately $100 million) of the total consideration we pay in the Progenics Transaction.

Refer to Note 4, “Fair Value of Financial Instruments”, for further details on contingent consideration liabilities.

Based on our current operating plans, including our prudent expense management in response to the COVID-19 pandemic, we believe that our existing cash and cash equivalents, results of operations and availability under our 2019 Revolving Facility, as amended, will be sufficient to continue to fund our liquidity requirements for the foreseeable future.

Critical Accounting Policies and Estimates

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In addition, our reported financial condition and results of operations could vary due to a change in the application of a particular accounting standard.

There have been no other significant changes to our critical accounting policies or in the underlying accounting assumptions and estimates used in such policies in the three months ended March 31, 2020 .

There have been no other significant changes to our critical accounting policies or in the underlying accounting assumptions and estimates used in such policies in the six months ended June 30, 2020, except as set forth below.

For further information, refer to our summary of significant accounting policies and estimates in our Annual Report on Form 10-K filed for the year ended December 31, 2019.

Business Combinations

We account for business combinations using the acquisition method of accounting.

We recognize the assets acquired and liabilities assumed in business combinations on the basis of their fair values at the date of acquisition.

We assess the fair value of assets acquired, including intangible assets, and liabilities assumed using a variety of methods.

Each asset acquired and liability assumed is measured at fair value from the perspective of a market participant.

The method used to estimate the fair values of intangible assets incorporates significant assumptions regarding the estimates a market participant would make in order to evaluate an asset, including a market participant’s use of the asset and the appropriate discount rates.

Acquired in-process research and development (“IPR&D”) is recognized at fair value and initially characterized as an indefinite-lived intangible asset, irrespective of whether the acquired IPR&D has an alternative future use.

Any excess purchase price over the fair value of the net tangible and intangible assets acquired is allocated to goodwill.

Transaction costs and restructuring costs associated with a business combination are expensed as incurred.

The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based on our estimates and assumptions, as well as other information we have compiled, including valuations that utilize customary valuation procedures and techniques.

If the actual results differ from the estimates and assumptions used in these estimates, it could result in a possible impairment of the intangible assets and goodwill, a required acceleration of the amortization expense of finite-lived intangible assets or the recognition of additional consideration, which would be expensed.

During the measurement period, which extends no later than one year from the acquisition date, we may record certain adjustments to the carrying value of the assets acquired and liabilities assumed with the corresponding offset to goodwill.

After the measurement period, all adjustments are recorded in the condensed consolidated statements of operations as operating expenses or income.

Intangible and Long-Lived Assets

We test intangible and long-lived assets for recoverability whenever events or changes in circumstances suggest that the carrying value of an asset or group of assets may not be recoverable.

We measure the recoverability of assets to be held and used by comparing the carrying amount of the asset to future undiscounted net cash flows expected to be generated by the asset.

If those assets are considered to be impaired, the impairment equals the amount by which the carrying amount of the assets exceeds the fair value of the assets.

Any impairments are recorded as permanent reductions in the carrying amount of the assets.

Long-lived assets, other than goodwill and other intangible assets, that are held for sale are recorded at the lower of the carrying value or the fair market value less the estimated cost to sell.

Intangible assets, consisting of trademarks, customer relationships, currently marketed products, licenses and developed technology are amortized in a method equivalent to the estimated utilization of the economic benefit of the asset.

Our IPR&D represents intangible assets acquired in a business combination that are used in research and development activities but have not yet reached technological feasibility, regardless of whether they have alternative future use.

The primary basis for determining the technological feasibility or completion of these projects is whether we have obtained regulatory approval to market the underlying products in an applicable geographic region.

Because obtaining regulatory approval can include significant risks and uncertainties, the eventual realized value of the acquired IPR&D projects may vary from their fair value at the date of acquisition.

We classify IPR&D acquired in a business combination as an indefinite-lived intangible asset until the completion or abandonment of the associated research and development efforts.

Upon completion of the associated research and development efforts, we will determine the useful life and begin amortizing the assets to reflect their use over their remaining lives.

Upon permanent abandonment, we write-off the remaining carrying amount of the associated IPR&D intangible asset.

We test our IPR&D assets at least annually or when a triggering event occurs that could indicate a potential impairment and we recognize any impairment loss in our condensed consolidated statements of operations.

Off-Balance Sheet Arrangements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis