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Item 7. Management’s Discussion and Analysis

2021-02-25 compared with 2020-02-25 · 278 added, 220 removed, 220 unchanged (69% of the section changed)

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“Risk Factors” and “Cautionary Note Regarding Forward Looking Statements.” included in this Annual Report on Form 10-K.

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.

We are an established leader and fully integrated provider of innovative imaging diagnostics, targeted therapeutics, and artificial intelligence solutions to Find, Fight and Follow serious medical conditions.

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

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Our commercial products are used by cardiologists, nuclear physicians, radiologists, 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 to radiopharmacies, PMFs, 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.

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:

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

DEFINITY contains perflutren-containing lipid microspheres and is indicated in the U.S.

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.

TechneLite is a 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.

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.

are made through our direct sales force to hospitals and clinics that maintain their own in-house radiopharmaceutical preparation capabilities.

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

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 Progenics in an all-stock transaction.

Under the terms of the Initial Merger Agreement, we agreed to acquire all of the issued and outstanding shares of Progenics common stock at a fixed exchange ratio.

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, Lantheus will acquire all of the issued and outstanding shares of Progenics common stock at a fixed exchange ratio whereby Progenics stockholders will receive, for each share of Progenics stock held at the time of the closing of the merger, 0.31 of a share of our common stock, increased from 0.2502 under the Initial Merger Agreement, together with a non-tradeable CVR tied to the financial performance of PyL, such that 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 under the CVRs exceed 19.9% of the total consideration we pay in the transaction.

As a result of the increase in the exchange ratio, following the completion of the merger, former Progenics stockholders’ aggregate ownership stake will increase to approximately 40% of the combined company from approximately 35% under the Initial Merger Agreement.

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

The transaction contemplated by the Amended Merger Agreement 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.

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 Lantheus Stock Option converted based on the 0.31exchange 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 Lantheus Stock Options converted on an exchange ratio adjusted based on actual trading prices of common stock of Progenics and Lantheus Holdings prior to the effective time of the merger.

The Amended Merger Agreement also provides that on closing our board of directors will appoint Dr.

Gerard Ber and Mr.

Heinz Mausli, who are currently members of the board of directors of Progenics, to serve on our board of directors.

In addition, our board of directors, subject to complying with applicable fiduciary duties, will use commercially reasonable efforts to cause Dr.

Mausli to be nominated for reelection following the closing through 2023.

Our board of directors will be reduced in size from ten to nine members at our annual meeting of stockholders on April 23, 2020 (or sooner if the transaction closes before then) and will be further reduced in size from nine to eight members prior to the date of our 2021 annual meeting of stockholders.

Except as described above, the material terms of the Amended Merger Agreement are substantially the same as the terms of the Initial Merger Agreement.

The transaction is currently expected to close in the second quarter of 2020.

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” for information regarding certain risks associated with our proposed acquisition of Progenics.

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

• International Segment operations consist of direct distribution in Canada and Puerto Rico, as well as third-party distribution relationships in Europe, Canada, Australia, Asia-Pacific and Latin America and our EXINI business in Sweden.

We are in the process of evaluating our operating and reporting structure.

We anticipate this evaluation, which we expect to complete during 2021, may result in a change to our existing operating segment reporting structure.

Progenics Acquisition

On June 19, 2020, we completed the Progenics Acquisition.

Progenics is an oncology company focused on developing and commercializing innovative targeted medicines and artificial intelligence to Find, Fight and Follow cancer.

Progenics’ portfolio of products and product candidates includes, among other things, therapeutic agents designed to target cancer (AZEDRA, 1095 and PSMA TTC), diagnostic imaging agents designed to target PSMA for prostate cancer (PyL and 1404), RELISTOR for OIC, AI imaging technologies and leronlimab being developed for HIV infection and COVID-19 applications.

Progenics’ current revenue is generated from two principal sources:

first, royalties, development and commercial milestones from strategic partnerships, including royalties from Bausch from sales of RELISTOR;

and second, AZEDRA sales.

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

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 Replacement Stock Options at an exchange ratio of 0.31.

Key Factors Affecting Our Results

Our 2021 financial performance will reflect full year results of the Progenics business, whereas current year only incorporated results since the June 19, 2020 acquisition date.

We also expect that the anticipated approval and launch of PyL during fiscal year 2021 may result in increased revenues.

Our business and financial performance have been, and continue to be, affected by the following:

COVID-19 Pandemic

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.

For example, there has been a reduction in the number of

echocardiograms performed in 2020 (approximately 31.5 million) as compared to the number performed in 2019 (approximately 35.1 million), in each case, according to a third party source.

In addition, there has been a substantial reduction in pulmonary ventilation studies in which our Xenon is used because of institutional concerns and professional society guidelines relating to the possible spread of COVID-19 to technicians and other patients, given that Xenon is both inhaled and exhaled by the patient.

As a result, Xenon sales have decreased.

We expect Xenon sales to continue to be at reduced levels so long as COVID-19 precautions remain in place.

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

As a result of the COVID-19 pandemic, we undertook a thorough analysis of all of our discretionary expenses.

In the first quarter of 2020 we implemented certain cost reduction initiatives.

For most of the second quarter of 2020, we reduced our work week from five days to four days and reduced the pay for our personnel by varying amounts, depending on level of seniority.

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

New enrollment in that study restarted in October 2020.

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 resumed 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 fourth quarter of 2020 with $79.6 million of cash and cash equivalents.

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 and treatments using our products for an extended period of time.

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

We believe the market opportunity for our ultrasound microbubble contrast agent, DEFINITY, continues to be significant.

DEFINITY is our fastest growing and highest margin commercial product.

We anticipate DEFINITY sales will continue to grow and that DEFINITY will constitute a greater share of our overall product mix in 2020 as compared to prior years.

We believe the market opportunity for our ultrasound microbubble enhancing agent, DEFINITY, continues to be significant.

DEFINITY has been our fastest growing and highest margin commercial product.

We anticipate DEFINITY sales will continue to grow in the future.

As we continue to educate the physician and healthcare provider community about the benefits and risks of DEFINITY, we believe we will be able to continue to grow the appropriate use of DEFINITY in suboptimal echocardiograms.

market with three echocardiography contrast agents approved by the FDA, we estimate that DEFINITY had over 80% of the market as of December 31, 2019 .

market with three echocardiography ultrasound enhancing agents approved by the FDA, we estimate that DEFINITY had over 80% of the market as of December 31, 2020.

As we continue to pursue expanding our microbubble franchise, our activities include:

Patents - We continue to actively pursue additional patents in connection with DEFINITY, both in the U.S.

• Patents - We continue to actively pursue additional patents in connection with DEFINITY and DEFINITY RT, both in the U.S.

and internationally.

In the U.S., we have an Orange Book-listed method of use patent expiring in March 2037 and additional manufacturing patents that are not Orange Book-listed expiring in 2021, 2023 and 2037.

Outside of the U.S., while our

DEFINITY patent protection and regulatory exclusivity have generally expired, we are currently prosecuting additional patents to try to obtain similar method of use and manufacturing patent protection as granted in the U.S.

for DEFINITY we now own a total of four Orange Book-listed method of use patents, one of which expires in 2035 and three of which expire in 2037, as well as additional manufacturing patents that are not Orange Book-listed expiring in 2021, 2023 and 2037.

for DEFINITY RT, we now own a total of five Orange Book-listed patents, including a composition of matter patent which expires in 2035.

Outside of the U.S., while our original DEFINITY patent protection and regulatory exclusivity have generally expired, we are currently prosecuting additional DEFINITY and DEFINITY RT patents to obtain similar patent protection as in the U.S.

The Orange Book-listed patents include a patent on the use of VIALMIX RFID which expires in 2037;

additional VIALMIX RFID patent applications have been submitted in major markets throughout the world.

Hatch-Waxman Act - Even though our longest duration Orange Book-listed DEFINITY patent extends until March 2037, because our Orange Book-listed composition of matter patent expired in June 2019, we may face generic DEFINITY challengers in the near to intermediate term.

Under the Hatch-Waxman Act, the FDA can approve ANDAs for generic versions of drugs if the ANDA applicant demonstrates, among other things, that (i) its generic candidate is the same as the innovator product by establishing bioequivalence and providing relevant chemistry, manufacturing and product data, and (ii) the marketing of that generic candidate does not infringe an Orange Book-listed patent.

With respect to any Orange Book-listed patent covering the innovator product, the ANDA applicant must give Notice to the innovator that the ANDA applicant certifies that its generic candidate will not infringe the innovator’s Orange Book-listed patent or that the Orange Book-listed patent is invalid.

Under the Hatch-Waxman Act, the FDA can approve Abbreviated New Drug Applications (“ANDAs”) for generic versions of drugs if the ANDA applicant demonstrates, among other things, that (i) its generic candidate is the same as the innovator product by establishing bioequivalence and providing relevant chemistry, manufacturing and product data, and (ii) the marketing of that generic candidate does not infringe an Orange Book-listed patent or that an Orange Book-listed patent is invalid.

With respect to any Orange Book-listed patent covering the innovator product, the ANDA applicant must give a notice to the innovator (a “Notice”) that the ANDA applicant certifies that its generic candidate will not infringe the innovator’s Orange Book-listed patent or that the Orange Book-listed patent is invalid.

The innovator can then challenge the ANDA applicant in court within 45 days of receiving that Notice, and FDA approval to commercialize the generic candidate will be stayed (that is, delayed) for up to 30 months (measured from the date on which a Notice is received) while the patent dispute between the innovator and the ANDA applicant is resolved in court.

The 30 month stay could potentially expire sooner if the courts determine that no infringement had occurred or that the challenged Orange Book-listed patent is invalid or if the parties otherwise settle their dispute.

month stay could potentially expire sooner if the courts determine that no infringement had occurred or that the challenged Orange Book-listed patent is invalid or if the parties otherwise settle their dispute.

As of the date of filing of this Annual Report on Form 10-K, we have not received any Notice from an ANDA applicant.

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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.

Modified Formulation - We are developing at SBL a modified formulation of DEFINITY.

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 December 2035.

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

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

Given its physical characteristics, the modified formulation may also be better suited for inclusion in kits requiring microbubbles for other indications and applications (including in kits developed by third parties of the type described in the next paragraph).

New Clinical Applications - As we continue to look for other opportunities to expand our microbubble franchise, we are evaluating new indications and clinical applications beyond echocardiography and contrast imaging generally.

For example, we recently announced a strategic development and commercial collaboration with Cerevast in which our microbubble will be used in connection with Cerevast’s ocular ultrasound device to target improving blood flow in occluded retinal veins in the eye.

• DEFINITY RT - In November 2020, the FDA approved our supplemental new drug application (sNDA) for DEFINITY RT.

DEFINITY RT is a modified formulation of DEFINITY that allows both storage and shipment at room temperature (DEFINITY’s previously approved formulation requires refrigerated storage).

The modified formulation provides clinicians an additional choice and allows for greater utility of this formulation in broader clinical settings.

We believe DEFINITY RT will become commercially available later in 2021, although that timing cannot be assured.

Given its physical characteristics, we believe DEFINITY RT is also well-suited for inclusion in kits requiring microbubbles for other indications and applications (including in kits developed by third parties of the type described in the paragraph entitled New Clinical Applications below).

• VIALMIX RFID – In August 2020, we announced the FDA approved our sNDA for our next-generation activation device designed specifically for both DEFINITY and DEFINITY RT.

The activation rate and time are controlled by VIALMIX RFID through the use of radio-frequency identification technology (“RFID”) to ensure reproducible activation of DEFINITY and DEFINITY RT.

The RFID tag, which is affixed to the vial label, enables the DEFINITY or DEFINITY RT vial to be appropriately activated when utilized with the VIALMIX RFID activation device.

• New Clinical Applications - As we continue to look for other opportunities to expand our microbubble franchise, we are evaluating new indications and clinical applications beyond echocardiography and ultrasound enhancing agent imaging generally.

• In April 2019, we announced a strategic development and commercial collaboration with Cerevast Medical, Inc.

(“Cerevast”) in which our microbubble will be used in connection with Cerevast’s ocular ultrasound device to improve blood flow in occluded retinal veins in the eye.

Retinal vein occlusion is one of the most common causes of vision loss worldwide.

We also recently announced a strategic commercial supply agreement with CarThera for the use of our microbubbles in combination with SonoCloud, a proprietary implantable device in development for the treatment of recurrent glioblastoma.

• In December 2019, we announced a strategic commercial supply agreement with CarThera for the use of our microbubbles in combination with SonoCloud, a proprietary implantable device in development for the treatment of recurrent glioblastoma.

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 October 2020, we announced a strategic collaboration with Insightec Ltd.

(“Insightec”) which will use our microbubbles in connection with Insightec’s transcranial guided focused ultrasound device for the treatment of glioblastoma as well as other neurodegenerative conditions.

• 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.

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

• DEFINITY in China - In March 2020 in connection with our Chinese development and distribution arrangement with Double-Crane Pharmaceutical Company (“Double-Crane”), 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.

Double-Crane is also in the process of analyzing the clinical results relating to the liver and kidney indications and will also work with us to prepare an Import Drug License application for those indications.

Integration of the Progenics Acquisition

The ultimate success of the Progenics Acquisition will depend on our ability to successfully combine the business of Progenics with our own and realize the anticipated benefits, including synergies, cost savings, innovation and operational efficiencies and revenue growth from the combination.

If we are unable to achieve these objectives within the anticipated time frame, or at all, the

anticipated benefits may not be realized fully or at all, or may take longer to realize than expected, and the value of our common stock may suffer.

Our combined business is now significantly larger and more complex than our business was immediately prior to the consummation of the Progenics Acquisition.

Our ability to successfully manage this combined business will depend upon our ability to continue to integrate the two separate businesses and manage the combined business with its increased scale and scope, and increased costs and complexity.

We have incurred, and expect to continue to incur, substantial expenses in connection with the integration of the Progenics business with our own.

There are a large number of processes, policies, procedures, operations, technologies and systems that have been, or must be, integrated, including purchasing, accounting and finance, sales, payroll, pricing, revenue management, marketing and benefits.

The substantial majority of these costs have been, and will continue to be, non-recurring expenses related to the Progenics Acquisition, facilities and systems consolidation costs.

We may also incur additional costs to maintain employee morale and to attract, motivate or retain management personnel or key employees.

Global Mo-99 Supply

We currently have Mo-99 supply agreements with IRE, running through December 31, 2022, and renewable by us on a year-to-year basis thereafter, and with NTP and ANSTO, running through December 31, 2021.

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 ANSTO, 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 challenges in our Mo-99 supply chain.

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

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 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.

In the second quarter of 2019, ANSTO experienced facility issues in its existing Mo-99 processing facility which resulted in a decrease in Mo-99 available to us.

In addition, as ANSTO transitioned from its existing Mo-99 processing facility to its new Mo-99 processing facility in

the second quarter of 2019, ANSTO experienced start-up and transition challenges, which also resulted in a decrease in Mo-99 available to us.

Further, starting in late June 2019 and through the date of this filing, ANSTO’s new Mo-99 processing facility has experienced unscheduled production outages, and we are now relying on IRE and NTP to limit the impact of those ANSTO outages.

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.

ANSTO’s new Mo-99 processing facility, could eventually increase ANSTO’s Mo-99 production capacity from approximately 2,000 curies per week to 3,500 curies per week with additional committed financial and operational resources.

At full ramp-up capacity, ANSTO’s new facility could provide incremental supply to our globally diversified Mo-99 supply chain and therefore mitigate some risk among our Mo-99 suppliers, although we can give no assurances to that effect.

In addition, we also have a strategic arrangement with SHINE, a Wisconsin-based company, for the future supply of Mo-99.

Under the terms of that agreement, SHINE will provide us Mo-99 once SHINE’s facility becomes operational and receives all necessary approvals, which SHINE now estimates will occur in 2022.

In 2019 and 2020, ANSTO experienced multiple facility issues that resulted in ANSTO outages and volume limitations, during which time we relied on IRE and NTP to limit the impact of those outages and limitations.

Because of the COVID-19 pandemic, we experienced challenges receiving regularly scheduled orders of Mo-99 from our global suppliers, particularly in the second quarter of 2020.

We continue to manage these various supply chain challenges, but depending on reactor and processor schedules and operations, at times we have not been able to fill some or all of the demand for our TechneLite generators on certain manufacturing days.

A prolonged disruption of service from one of our three Mo-99 processing sites or one of their main Mo-99-producing reactors could have a substantial negative effect on our business, results of operations, financial condition and cash flows.

We are also pursuing additional sources of Mo-99 from potential new producers to further augment our current supply.

In November 2014, we entered into a strategic arrangement with SHINE for the future supply of Mo-99.

Under the terms of the supply agreement, SHINE will provide Mo-99 produced using its proprietary LEU-solution technology for use in our TechneLite generators once SHINE’s facility becomes operational and receives all necessary regulatory approvals, which SHINE now estimates will occur in 2022.

However, we cannot assure you that SHINE or any other possible additional sources of Mo-99 will result in commercial quantities of Mo-99 for our business, or that these new suppliers together with our current suppliers will be able to deliver a sufficient quantity of Mo-99 to meet our needs.

Inventory Supply

We obtain a substantial portion of our imaging agents from third-party suppliers, JHS is currently our sole source manufacturer of DEFINITY, Neurolite, Cardiolite and evacuation vials, the latter being an ancillary component for our TechneLite generators.

We obtain a substantial portion of our imaging agents from a third-party supplier.

JHS is currently our sole source manufacturer of DEFINITY, NEUROLITE, Cardiolite and evacuation vials, the latter being an ancillary component for our TechneLite generators.

We are currently seeking approval from certain foreign regulatory authorities for JHS to manufacture certain of our products.

Until we receive these approvals, we will face continued limitations on where we can sell those products outside of the U.S.

In addition to JHS, we are also currently working to secure additional alternative suppliers for our key products as part of our ongoing supply chain diversification strategy.

We have ongoing development and technology transfer activities for a modified formulation of DEFINITY with SBL, which is located in South Korea.

We currently believe that if approved by the FDA, the modified formulation could be commercially available in early 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.

In addition to JHS, we rely on SBL as our sole source manufacturer of DEFINITY RT.

We have also completed construction of specialized, in-house manufacturing capabilities at our North Billerica, Massachusetts facility, 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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Research and Development Expenses

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

As a result, the positive contributions of those internally funded research and development programs have been a key factor in our historical results and success.

On April 25, 2017, we announced entering into a definitive, exclusive Collaboration and License Agreement with GE Healthcare for the continued Phase 3 development and worldwide commercialization of flurpiridaz F 18.

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.

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.

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 to evaluate LVEF measurement accuracy and reproducibility of DEFINITY contrast-enhanced and unenhanced echocardiography as compared to non-contrast CMRI used as the truth standard.

The first of the two trials, BENEFIT 1, enrolled 145 subjects.

After reviewing the study results from BENEFIT 1, we concluded 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.

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

We will continue to analyze the BENEFIT 1 data, and when the data from BENEFIT 2 are available, we will compile the data sets to analyze the full results of the trials.

To remain a leader in the marketplace, we have historically made substantial investments in new product development, including, among other things, our flurpiridaz F 18 clinical development program, the expenses of which are now being borne by GE Healthcare.

The Progenics Acquisition brings additional and substantial clinical development expense.

The PyL NDA filed with the

FDA on September 29, 2020, was accepted and granted priority review with PDUFA action date of May 28, 2021.

For 1095, the ARROW Phase 2 study in mCRPC patients had been paused to minimize risk to subjects and healthcare providers during the pandemic, and new enrollment in that study restarted in October 2020.

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

New Initiatives

We continue to evaluate 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, we recently 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.

We can give no assurance as to when or if this collaboration will be successful or accretive to earnings.

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

As the Progenics Acquisition indicates, we are particularly interested in expanding our presence in oncology, in both radiotherapeutics and diagnostics.

In May 2019, we commenced an initiative to build out our Pharma Services capabilities by entering into a strategic collaboration and license agreement with NanoMab, 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 PD-L1 imaging biomarker research tool to pharmaceutical companies and academic centers conducting clinical trials on immuno-oncology treatments, including combination therapies.

We have also expanded our Pharma Services offering to include PyL for pharmaceutical companies developing PSMA-targeted therapies and have entered into PyL clinical supply agreements with each of Regeneron, Bayer and POINT BioPharma for use of PyL in prostate cancer drug development programs.

We can give no assurance as to when or if any of these Pharma Services collaborations will be successful or accretive to earnings.

In addition, as described above, we continue to expand our microbubble franchise.

We recently announced a strategic development and commercial collaboration with Cerevast in which our microbubble will be used in connection with Cerevast’s ocular ultrasound device to target improving blood flow in occluded retinal veins in the eye.

In October 2020, we announced a strategic collaboration with Insightec which will use our microbubbles in connection with Insightec’s transcranial guided focused ultrasound device for the treatment of glioblastoma as well as other neurodegenerative conditions.

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

Previously, we announced a strategic commercial supply agreement with CarThera for the use of our microbubbles in combination with SonoCloud, a proprietary implantable device in development for the treatment of recurrent glioblastoma.

We also previously announced a strategic development and commercial collaboration with Cerevast in which our microbubbles will be used in connection with Cerevast’s ocular ultrasound device to improve blood flow in occluded retinal veins in the eye.

Retinal vein occlusion is one of the most common causes of vision loss worldwide.

Results of Operations

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(in thousands) 2020 2019 2018

Revenues $ 339,410 $ 347,337 $ 343,374

Cost of goods sold 200,649 172,526 168,489

Gross profit 138,761 174,811 174,885

Operating expenses

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Total operating expenses 142,959 123,150 110,397

Operating income

Operating (loss) income (4,198) 51,661 64,488

Interest expense 9,479 13,617 17,405

Loss on extinguishment of debt — 3,196 —

Other expense (income)

Income before income taxes

Income tax (benefit) expense

Other (income) loss (2,198) 6,221 (2,465)

(Loss) income before income taxes (11,479) 28,627 49,548

Income tax expense (benefit) 1,994 (3,040) 9,030

Net (loss) income $ (13,473) $ 31,667 $ 40,518

Comparison of the Periods Ended December 31, 2020 and 2019

Segment revenues are summarized by product as follows:

(in thousands)

December 31, 2020 vs.

2019 2019 vs.

(in thousands) 2020 2019 2018 Change

DEFINITY $ 207,270 $ 211,777 $ 178,440 $ (4,507) (2.1) % $ 33,337 18.7 %

TechneLite 69,729 72,534 74,042 (2,805) (3.9) % (1,508) (2.0) %

Other nuclear 36,864 36,231 48,935 633 1.7 % (12,704) (26.0) %

Rebates and allowances (19,067) (16,553) (12,837) (2,514) 15.2 % (3,716) 28.9 %

Revenues 294,796 303,989 288,580 (9,193) (3.0) % 15,409 5.3 %

International

DEFINITY 6,046 5,731 4,633 315 5.5 % 1,098 23.7 %

TechneLite 16,512 14,058 24,816 2,454 17.5 % (10,758) (43.4) %

Other nuclear 22,060 23,574 25,349 (1,514) (6.4) % (1,775) (7.0) %

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Total International Revenues 44,614 43,348 54,794 1,266 2.9 % (11,446) (20.9) %

DEFINITY 213,316 217,508 183,073 (4,192) (1.9) % 34,435 18.8 %

TechneLite 86,241 86,592 98,858 (351) (0.4) % (12,266) (12.4) %

Other nuclear 58,924 59,805 74,284 (881) (1.5) % (14,479) (19.5) %

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Total Revenues $ 339,410 $ 347,337 $ 343,374 $ (7,927) (2.3) % $ 3,963 1.2 %

The increase in U.S.

segment revenues during the year ended December 31, 2019, as compared to the prior year is primarily due to a $33.3 million increase in DEFINITY revenue as a result of higher unit volume.

This increase was offset, in part, by decreases primarily associated with lower Xenon and other nuclear product volume, an increase in rebate and allowance provisions and lower TechneLite revenue driven by temporary supplier disruptions.

The decrease in International segment revenues during the year ended December 31, 2019, as compared to the prior year is primarily due to a decrease of $10.8 million in TechneLite revenue primarily driven by opportunistic incremental demand in the prior year period and temporary supplier disruptions in the current period, lower volumes of other nuclear products and a negative exchange rate impact of approximately $0.4 million, offset in part, by higher DEFINITY revenue driven by increased volume.

The decrease in U.S.

segment revenues during the year ended December 31, 2020, as compared to the prior year is primarily due to COVID-19 related business losses which include a $4.5 million decrease in DEFINITY revenue and a $2.8 million decrease in TechneLite revenue.

Additionally, rebates and allowances increased $2.5 million.

Other nuclear revenue increased $0.6 million driven by the addition of Progenics revenue portfolio, which was nearly offset by a reduction in Xenon volume.

The increase in International segment revenues during the year ended December 31, 2020, as compared to the prior year is primarily due to a $2.5 million higher TechneLite revenue as a result of resolution of supplier disruptions and opportunistic incremental demand, partially offset by a decrease in revenue in other nuclear products driven by COVID-19 demand losses.

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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Gross profit is summarized by segment as follows:

(in thousands)

December 31, 2020 vs.

2019 2019 vs.

(in thousands) 2020 2019 2018 Change

$ 127,778 $ 164,051 $ 161,760 $ (36,273) (22.1) % $ 2,291 1.4 %

International 10,983 10,760 13,125 223 2.1 % (2,365) (18.0) %

Total Gross profit $ 138,761 $ 174,811 $ 174,885 $ (36,050) (20.6) % $ (74) — %

The increase in U.S.

segment gross profit for the year ended December 31, 2019, as compared to the prior year is primarily attributable to higher DEFINITY unit volume.

This was offset by lower TechneLite, Xenon and other nuclear product unit volume, as well as an increase in rebate and allowance provisions.

The decrease in International segment gross profit for the year ended December 31, 2019, as compared to the prior year is primarily attributable to lower volume of TechneLite and other nuclear products, offset in part, by higher DEFINITY gross profit driven by increased volume.

The decrease in the U.S.

segment gross profit for the year ended December 31, 2020, as compared to the prior year is primarily due to lower DEFINITY, TechneLite, and Xenon unit volumes due to COVID-19, amortization expense of assets acquired in the Progenics acquisition, a contract termination including a loss on disposal of assets and an asset impairment loss of $7.3 million on other nuclear products.

Sales and Marketing

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Sales and marketing expense is summarized by segment as follows:

(in thousands)

December 31, 2020 vs.

2019 2019 vs.

(in thousands) 2020 2019 2018 Change

$ 38,992 $ 39,672 $ 40,579 $ (680) (1.7) % $ (907) (2.2) %

International 1,909 2,216 2,580 (307) (13.9) % (364) (14.1) %

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The decrease in the U.S.

segment sales and marketing expenses for the year ended December 31, 2019, as compared to the prior year period is primarily due to lower market research activities and employee-related costs.

The decrease in the International segment sales and marketing expenses for the for the year ended December 31, 2019, as compared to the prior year period is primarily due to lower employee-related costs.

segment sales and marketing expenses for the year ended December 31, 2020, as compared to the prior year period is primarily due to reduced marketing promotional programs, reduced travel due to COVID-19 impact and reduced hiring and lower employee related costs offset by market research and the addition of the Progenics business.

The Progenics business contributed approximately $6.4 million of expense to the U.S.

segment for the year ended December 31, 2020.

The decrease in the International segment sales and marketing expenses for the for the year ended December 31, 2020, as compared to the prior year period is primarily due to lower marketing promotional activities.

General and Administrative

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General and administrative expense is summarized by segment as follows:

(in thousands)

December 31, 2020 vs.

2019 2019 vs.

(in thousands) 2020 2019 2018 Change

$ 68,283 $ 60,752 $ 49,149 $ 7,531 12.4 % $ 11,603 23.6 %

International 987 492 1,018 495 100.6 % (526) (51.7) %

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The increase in U.S.

segment general and administrative expenses for the year ended December 31, 2019, as compared to the prior year is driven primarily by an increase in acquisition-related costs associated with the pending acquisition of Progenics and higher employee-related costs.

This increase was offset, in part, by lower campus consolidation and information technology costs as a result of prior year efficiency projects.

The International segment general and administrative expenses decreased for the year ended December 31, 2019, as compared to the prior year, driven primarily by an insurance benefit received in the current period.

segment general and administrative expenses for the year ended December 31, 2020, as compared to the prior year is driven primarily by an increase in acquisition-related costs associated with the Progenics Acquisition and the addition of the Progenics business offset by lower medical insurance costs, travel with COVID-19 limitations and a gain on changes in fair value of contingent assets and liabilities.

The Progenics business contributed approximately $5.5 million of expense to the U.S.

segment for the year ended December 31, 2020.

The International segment general and administrative expenses increased for the year ended December 31, 2020, as compared to the prior year, driven primarily by the addition of the Progenics business and an insurance benefit received in 2019 which was partially offset by lower employee related costs in 2020.

The Progenics business contributed approximately $0.4 million of expense to the International segment for the year ended December 31, 2020.

Research and Development

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Research and development expense is summarized by segment as follows:

(in thousands)

December 31, 2020 vs.

2019 2019 vs.

(in thousands) 2020 2019 2018 Change

$ 30,866 $ 19,352 $ 15,705 $ 11,514 59.5 % $ 3,647 23.2 %

International 1,922 666 1,366 1,256 188.6 % (700) (51.2) %

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The increase in U.S.

segment research and development expenses for the year ended December 31, 2019, as compared to the prior year is primarily attributable to clinical research expenses related to DEFINITY studies, a one-time payment relating to a collaboration and license agreement entered into in Q2 2019, and higher employee-related costs.

The decrease in the International segment research and development expenses for the year ended December 31, 2019, as compared to the prior year period is driven by a European Phase 4 study for one of our products in the prior year.

segment research and development expenses for the year ended December 31, 2020, as compared to the prior year is primarily driven by the addition of the Progenics business, including the PyL NDA filing fee, an in-process research and development (“IPR&D”) asset impairment loss of $2.7 million partially offset by clinical research expenses related to DEFINITY studies completing and lower employee related expenses.

The Progenics business contributed approximately $17.2 million of expense to the U.S.

segment for the year ended December 31, 2020.

The increase in the International segment research and development expenses for the year ended December 31, 2020, as compared to the prior year period is primarily driven by the addition of the Progenics business partially offset by regulatory costs related to Brexit matters.

The Progenics business contributed approximately $1.3 million of expense to the International segment for the year ended December 31, 2020.

Interest Expense

Interest expense for the year ended December 31, 2019 decreased $3.8 million as compared to the prior year period due to the refinancing of our existing indebtedness.

Interest expense for the year ended December 31, 2020 decreased $4.1 million 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 offset by debt we assumed as part of the Progenics acquisition.

Loss on Extinguishment of Debt

During the year ended December 31, 2019, we incurred a $3.2 million loss on extinguishment of debt in connection with the refinancing of our existing indebtedness.

Other Expense (Income)

Other expense (income) changed by $8.7 million for the year ended December 31, 2019 as compared to the prior year, due to the reduction of indemnified receivables related to the release of our uncertain tax positions.

The offset was recorded in income tax (benefit) expense.

Refer to Note 5, Income Taxes.

This expense, in part, was offset by the impact of proceeds received related to an arbitration award and an increase in interest income.

Income Tax (Benefit) Expense

Income tax (benefit) expense is summarized as follows:

(in thousands)

Income tax (benefit) expense

The income tax benefit for the year ended December 31, 2019 was primarily due to the benefits arising from the release of uncertain tax positions and stock compensation deductions, netted with the tax effect on income generated in the period and the accrual of interest associated with uncertain tax positions.

Other (Income) Loss

Other (income) loss changed by $8.4 million for the year ended December 31, 2020 as compared to the prior year, due to an increase in tax indemnification income primarily due to the reduction of indemnified receivables related to the release of our uncertain tax positions in the prior year offset by an arbitration award that occurred in the prior year.

Income Tax Expense (Benefit)

Income tax expense (benefit) is summarized as follows:

December 31, 2020 vs.

2019 2019 vs.

(in thousands) 2020 2019 2018 Change

Income tax expense (benefit) $ 1,994 $ (3,040) $ 9,030 $ 5,034 (165.6) % $ (12,070) (133.7) %

The income tax expense for the year ended December 31, 2020 was primarily due to the accrual of interest associated with uncertain tax positions and the impact of non-deductible acquisition costs, offset by the tax benefits on losses generated in the period, the recognition of the deferred tax asset on held for sale assets, and tax credits.

In accordance with the Company’s accounting policy, the change in the tax liability, penalties and interest associated with these uncertain tax positions (net of any offsetting federal or state benefit) is recognized within income tax (benefit) expense.

Contemporaneously, changes in the tax indemnification receivable are recognized within other expense (income) in the consolidated statement of operations.

Accordingly, as these reserves change, adjustments are included in income tax (benefit) expense with an offsetting adjustment included in other expense (income).

Contemporaneously, changes in the tax indemnification receivable are recognized within other loss (income) in the consolidated statement of operations.

Accordingly, as these reserves change, adjustments are included in income tax (benefit) expense with an offsetting adjustment included in other loss (income).

Assuming that the receivable from BMS continues to be considered recoverable by the Company, there will be no effect on net income and no net cash outflows related to these liabilities.

Refer to Note 5, Income Taxes.

The income tax expense for the year ended December 31, 2018 was primarily due to the income generated in the period and the accrual of interest associated with uncertain tax positions, offset by the release of the valuation allowance against our Canada deferred tax assets and tax benefits arising from stock compensation deductions.

The income tax benefit for the year ended December 31, 2019 was primarily due to the release of tax contingency reserves as well as the release of the valuation allowance against our Canada deferred tax assets and tax benefits arising from stock compensation deductions, offset by tax expense on income generated in the period 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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We released the full valuation allowance recorded against our Canada deferred tax assets during the year ended December 31, 2018.

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

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

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

2020 2019 2018

Effective tax rate (17.4)% (10.6)% 18.2%

Our effective tax rate in fiscal 2020 differs from the U.S.

statutory rate of 21% principally due to the release of uncertain tax positions and stock compensation deductions, offset by the impact of U.S.

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

The decrease in the effective income tax rate for the year ended December 31, 2019 as compared to the prior year period is primarily due to the release of uncertain tax positions in the current period.

statutory rate of 21% principally due to non-deductible acquisition costs and the accrual of interest on uncertain tax positions, offset by the benefit created by the recognition of the deferred tax asset on held for sale assets and tax credits.

The decrease in the effective income tax rate for the year ended December 31, 2020 as compared to the prior year period is primarily due to the large non-recurring benefit recorded in 2019 associated with the release of tax contingency reserves, non-deductible acquisition costs offset by the benefit created by the recognition of the deferred tax asset on held for sale assets.

The 2020 effective tax rate is a tax expense recorded against a pre-tax loss, whereas the 2019 effective tax rate is a tax benefit recorded against pre-tax income.

Comparison of the Periods Ended December 31, 2019 and 2018

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Net Cash Provided by Operating Activities

Net cash provided by operating activities of $16.4 million in the year ended December 31, 2020 was driven primarily by a net loss of $13.5 million, a net decrease of $22.4 million related to movements in our working capital accounts during the period and a net decrease of $2.0 million in the fair value of contingent assets and liabilities offset by $24.7 million of depreciation, amortization and accretion expense, stock-based compensation expense of $14.1 million, impairment of long-lived assets of $9.9 million and a loss on disposal of assets of $2.3 million.

The overall decreases in cash from our working capital accounts were primarily driven by the increase in accounts receivable due to the Progenics Acquisition and increase in collection period as well as change in inventory related to the COVID-19 impact on products and the timing of payments and payments of accruals related to G&A expenses in connection with the Progenics Acquisition.

Net cash provided by operating activities of $80.4 million in the year ended December 31, 2019 was driven primarily by net income of $31.7 million plus $13.4 million of depreciation, amortization and accretion expense, changes in long-term income tax payable and other long-term liabilities of $13.2 million, stock-based compensation expense of $12.5 million, changes in long-term income tax receivable of $10.6 million, changes in deferred taxes of $9.7 million and debt extinguishment expense of $3.2 million.

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The overall increases in cash from our working capital accounts were primarily driven by accrued expenses and the timing of purchases.

Net cash provided by operating activities of $61.2 million in the year ended December 31, 2018 was driven primarily by net income of $40.5 million plus $13.9 million of depreciation, amortization and accretion expense, $8.7 million of stock-based compensation expense and changes in deferred taxes of $5.8 million.

These net sources of cash were offset by a net decrease of $14.0 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 strategic inventory build during the period to mitigate sole supplier risk as well as higher accounts receivable due to increased sales.

Net Cash Used in Investing Activities

Net cash used in investing activities during the year ended December 31, 2020 reflected $10.0 million in lending on a note receivable to Progenics prior to the acquisition and $12.5 million in capital expenditures offset by $17.6 million of acquired cash related to the Progenics Acquisition.

Net cash used in investing activities during the year ended December 31, 2019 reflected $22.1 million in capital expenditures.

Net cash used in investing activities during the year ended December 31, 2018 reflected $20.1 million in capital expenditures offset by the cash proceeds of $1.0 million received from the sale of land.

Net Cash Used in Financing Activities

Net cash used in financing activities during the year ended December 31, 2020 is primarily attributable to the payments on long-term debt and other borrowings of $15.5 million related to the 2019 Term Facility and Royalty-Backed Loan (defined below), equity issuance costs related to the Progenics Acquisition of $3.8 million, and payments for minimum statutory tax withholding related to net share settlement of equity awards of $2.1 million.

Net cash used in financing activities during the year ended December 31, 2019 is primarily attributable to the net cash outflow of approximately $73.0 million in connection with the refinancing of our previous 2017 Facility, payments on long-term debt of $5.0 million related to the 2019 Term Facility and payments for minimum statutory tax withholding related to net share settlement of equity awards of $2.5 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.

Net cash used in financing activities during the year ended December 31, 2018 reflected payments for minimum statutory tax withholding related to net share settlement of equity awards of $3.4 million, payments on long-term debt of $2.9 million, offset by proceeds of $1.2 million from the exercise of stock options.

External Sources of Liquidity

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Please refer to Note 13, “Long-Term Debt, Net, and Other Borrowings” for further details on the 2019 Facility.

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 Progenics Acquisition.

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

Q4 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.

As of December 31, 2020, we were in compliance with all financial and other covenants under the Amendment.

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 Acquisition, 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 Acquisition 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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Our future capital requirements will depend on many factors, including:

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;

The pricing environment and the level of product sales of our currently marketed products, particularly DEFINITY and any additional products that we may market in the future;

• The level of product sales and the pricing environment of our currently marketed products, particularly DEFINITY and any additional products that we may market in the future, including decreased product sales resulting from the COVID-19 pandemic;

• Revenue mix shifts and associated volume and selling price changes that could result from contractual status changes with key customers and additional competition;

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

• 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 products and development candidates, including the newly acquired Progenics assets AZEDRA, PyL, 1095, aBSI and PSMA AI;

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

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Until we successfully become dual sourced for our principal products, we are vulnerable to future supply shortages.

Disruption in our financial performance could also occur if we experience significant adverse changes in product or customer mix, broad economic downturns, adverse industry or company conditions or catastrophic external events, including natural disasters and political or military conflict.

If we experience one or more of these events in the future, we may be required to implement expense reductions, such as a delay or elimination of discretionary spending in all functional areas, as well as scaling back select operating and strategic initiatives.

Disruption in our financial performance could also occur if we experience significant adverse changes in product or customer mix, broad economic downturns, adverse industry or company conditions or catastrophic external events, including pandemics such as COVID-19, natural disasters and political or military conflict.

If we experience one or more of these events in the future, we may be required to further implement expense reductions, such as a delay or elimination of discretionary spending in all functional areas, as well as scaling back select operating and strategic initiatives.

If our capital resources become insufficient to meet our future capital requirements, we would need to finance our cash needs through public or private equity offerings, debt financings, assets securitizations, sale-leasebacks or other financing or strategic alternatives, to the extent such transactions are permissible under the covenants of our Credit Agreement.

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We had $79.6 million of cash and cash equivalents at December 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.

In addition, in connection with the Progenics Transaction, which we expect to close in the second quarter of 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.

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.

Based on our current operating plans, 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.

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 Acquisition, 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 Acquisition entitle holders thereof to future cash payments of 40% of PyL net sales over (i) $100.0 million in 2022 and (ii) $150.0 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 Acquisition, exceed 19.9% (which we estimate could be approximately $100.0 million) of the total consideration we pay in the Progenics Acquisition.

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.

Contractual Obligations

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Payments Due by Period

(in thousands)

(in thousands) Total Less than

1 Year 1 - 3 Years 3 -5 Years More than

Debt obligations (principal) $ 217,553 $ 20,452 $ 48,351 $ 148,750 $ —

Interest on debt obligations (a)

26,537 9,697 14,454 2,386 —

Operating lease obligations (b)

23,239 1,964 4,468 4,637 12,170

Purchase obligations (c)

6,198 4,132 2,066 — —

Finance lease obligations 525 231 294 — —

Other long-term liabilities (d)

Asset retirement obligations (e)

Fixed payments under license agreements (d)

733 164 328 203 38

Other long-term liabilities (e)(f)

Asset retirement obligations (g)

Total contractual obligations $ 274,785 $ 36,640 $ 69,961 $ 155,976 $ 12,208

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Amounts relate to the estimated interest under our 2019 Term Facility based on interest rates in effect as of December 31, 2019.

Operating leases include minimum payments under leases for our facilities.

Excludes purchase orders for inventory in the normal course of business.

Our other long-term liabilities in the consolidated balance sheet include unrecognized tax benefits and related interest and penalties.

(a) Amounts relate to the estimated interest under our 2019 Term Facility and interest rate swaps based on interest rates in effect as of December 31, 2020 as well as future principal and interest, based upon estimated sales projections, under our Royalty-Backed Loan.

(b) Operating leases include minimum payments under leases for our facilities.

Amounts exclude lease payments of $0.9 million associated with the Puerto Rico subsidiary that is classified as held for sale.

(d) Does not include potential milestone or contractual payment obligations contingent upon the achievement or occurrence of future milestones or events under our license agreements, because they are contingent and the amounts and timing of such potential obligations are unknown or uncertain.

We may be required to pay additional amounts up to approximately $90.6 million in contingent payments under our license agreements.

(e) Our other long-term liabilities in the consolidated balance sheet include unrecognized tax benefits and related interest and penalties.

As of December 31, 2020, we had unrecognized tax benefits of $29.9 million, which included interest and penalties, classified as noncurrent liabilities.

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therefore, such amounts are not included in the above contractual obligation table.

We have excluded asset retirement obligations from the table above due to the uncertainty of the timing of the future cash outflows related to the decommissioning of our radioactive operations.

As of December 31, 2019 , the liability, which was approximately $12.9 million , was measured at the present value of the obligation expected to be incurred of approximately $26.9 million .

(f) Our other long-term liabilities in the consolidated balance sheet also include the fair values of contingent consideration liabilities including CVRs and contingent consideration liabilities related to a previous acquisition completed by Progenics in 2013.

We may be required to pay up to approximately $100.0 million related to the CVRs and approximately $85.0 million related to the contingent consideration.

These contingent payments have been excluded from the above table due to uncertainty around the timing of the future cash outflows.

(g) We have excluded asset retirement obligations from the table above due to the uncertainty of the timing of the future cash outflows related to the decommissioning of our radioactive operations.

As of December 31, 2020, the liability, which was approximately $14.3 million, including amounts recorded in liabilities held for sale was measured at the present value of the obligation expected to be incurred of approximately $26.9 million.

Off-Balance Sheet Arrangements

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Revenue from Contracts with Customers

We adopted ASC 606 on January 1, 2018 using the modified retrospective method for all contracts not completed as of the date of adoption.

The reported results for 2019 and 2018 reflect the application of ASC 606 guidance while the reported results for 2017 were prepared under the guidance of ASC 605, Revenue Recognition (“ASC 605”).

For our accounting policy for revenue recognition under ASC 605, refer to Item 8 of the Annual Report on Form 10-K for the year ended December 31, 2017.

The adoption of ASC 606 did not have a material impact on our consolidated balance sheet, results of operations, equity or cash flows as of the adoption date or for the periods presented.

Revenue is measured based on a consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties.

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These key assumptions may include market conditions, reimbursement rates for personnel costs, development timelines and probabilities of regulatory success.

We account for income taxes using an asset and liability approach.

Income tax (benefit) expense represents income taxes paid or payable for the current year plus the change in deferred taxes during the year.

Deferred taxes result from differences between the financial and tax bases of our assets and liabilities.

Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax attributes are expected to be recovered or paid, and are adjusted for changes in tax rates and tax laws when such changes are enacted.

On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act of 2017 (the “Act”).

The Act is significant and has wide-ranging effects.

The primary material impact to the Company was on our net U.S.

deferred tax assets, which were reduced as a result of the reduction in U.S.

corporate tax rates from 35% to 21% for years beginning on or after January 1, 2018.

We recorded tax expense of $45.1 million during the year ended December 31, 2017, to reflect the impact of the Act on our net deferred tax assets carrying value.

We have reviewed the guidance issued by the U.S.

Treasury concerning the repatriation transition tax.

The repatriation transition tax impacted U.S.

entities with accumulated yet unrepatriated or 'untaxed' foreign earnings.

As of December 31, 2017, we had no accumulated unrepatriated foreign earnings, and therefore were not affected by the new provisions of the Act concerning the repatriation transition tax.

We regularly assess our ability to realize our deferred tax assets, and that assessment requires significant management judgment.

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

During the fourth quarter of 2017, we determined, based on our consideration of the weight of positive and negative evidence, that there was sufficient positive evidence that our U.S.

federal and state deferred tax assets were more-likely-than-not realizable as of December 31, 2017.

Our conclusion was primarily driven by the achievement of a sustained level of profitability, the expectation of sustained future profitability, and mitigating factors related to external supplier and customer risk sufficient to outweigh the available negative evidence.

Accordingly, we released the valuation allowance previously recorded against our U.S.

net deferred tax assets resulting in an income tax benefit of $141.1 million.

We have continued to assess the level of the valuation allowance required and if the weight of negative evidence exists in future periods to again support the recording of a partial or full valuation allowance against our U.S.

deferred tax assets, that would likely have a material negative impact on our results of operations in that future period.

During the fourth quarter of 2018, we further determined that there was sufficient positive evidence that our Canada deferred tax assets were more-likely-than-not realizable as of December 31, 2018.

Our conclusion was primarily driven by the achievement of a sustained level of profitability and the expectation of sustained future profitability.

Accordingly, we released the valuation allowance previously recorded against our Canada net deferred tax assets resulting in an income tax benefit of $4.0 million.

We continue to maintain a valuation allowance of $1.2 million on foreign net deferred tax assets generated where there is still an insufficient history of cumulative profitability in the relevant jurisdiction.

We account for uncertain tax positions using a recognition threshold and measurement analysis method for determining the financial statement impact of uncertain tax positions taken or expected to be taken in a tax return.

Differences between tax positions taken in a tax return and amounts recognized in the financial statements are recorded as adjustments to income taxes payable or receivable, or adjustments to deferred taxes, or both.

We record the related interest and penalties to income tax (benefit) expense.

We have a tax indemnification agreement with BMS related to certain uncertain tax positions that arose prior to the acquisition of the business from BMS.

The uncertain tax positions are recognized as long-term liabilities, and a tax indemnification receivable is recognized within other long-term assets.

Changes in the tax indemnification receivable are recognized within other expense (income) in the consolidated statements of operations, and changes in the liabilities are recorded within the tax provision.

Accordingly, as these reserves change, adjustments are included in income tax (benefit) expense with an offsetting adjustment included in other expense (income).

Assuming that we continue to consider the receivable from BMS to be fully recoverable, there is no net effect on net income related to these liabilities and no net cash outflows.

During the fourth quarter of 2019, we reassessed the indemnified uncertain tax positions and obtained, with the assistance of third-party tax experts, additional technical insights with respect to the indemnified uncertain tax positions.

On the basis of new information, we changed our estimate with respect to some of the indemnified uncertain tax positions.

For the year ended December 31, 2019, we released $17.1 million of the liability for uncertain tax positions, including $12.7 million of accrued interest and penalties, recorded to income tax (benefit) expense, offset by a reduction in deferred tax assets of $3.3 million and a $13.8 million reduction of the indemnification receivable recorded in other expense (income).

The calculation of our uncertain tax positions involves certain estimates, assumptions and the application of complex tax regulations in multiple jurisdictions worldwide.

Any material change in our estimates or assumptions, or the tax regulations, may have a material impact on our results of operations.

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 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 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 consolidated statements of operations.

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-K

Item 7. Management’s Discussion and Analysis