What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-04 compared with 2020-11-05 · 207 added, 515 removed, 188 unchanged (79% of the section changed)

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Examples of forward-looking statements include statements we make relating to our outlook and expectations including, without limitation, in connection with:

(i) the impact of the global COVID-19 pandemic on our business, financial conditions or prospects, or on the timing and enrollment of our clinical trials;

(i) the impact of the global COVID-19 pandemic on our business, financial conditions and prospects, and on the timing and enrollment of our clinical trials;

(ii) continued market expansion and penetration for our commercial products, particularly DEFINITY, in the face of segment competition and potential generic competition as a result of patent and regulatory exclusivity expirations;

(iii) the global Molybdenum-99 (“Mo-99”) supply;

(iv) our products manufactured at Jubilant HollisterStier (“JHS”) and our plans to develop a modified formulation of DEFINITY (“DEFINITY RT”) with Samsung Biologics (“SBL”);

(v) our efforts in new product development, including for PyL, the Progenics prostate cancer diagnostic imaging agent, including our ability to obtain FDA approval of PyL in 2021, and new clinical applications for our products;

(vi) our dependence upon third parties for the manufacture and supply of PyL and the timing of that manufacturing capacity becoming available;

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

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

(ix) our ability to commercialize our products in new ex-U.S.

(x) the expected timing for commercialization of products we or our strategic partners may develop, including flurpiridaz F 18;

and (xi) our ability to develop highly contextualized assessments of disease burden using PSMA AI.

(iii) our efforts in new product development, including for PyL, our prostate cancer diagnostic imaging agent, including our ability to obtain U.S.

Food and Drug Administration (“FDA”) approval of PyL in 2021, and new clinical applications for our products;

(iv) our dependence upon third parties for the manufacture and supply of PyL and the timing of that manufacturing capacity becoming available;

(v) the global Molybdenum-99 (“Mo-99”) supply;

(vi) our products manufactured at Jubilant HollisterStier (“JHS”) and our recently-approved modified formulation of DEFINITY (“DEFINITY RT”) to be commercially manufactured at Samsung Biologics (“SBL”);

(vii) the continued integration of the Progenics product and product candidate portfolio into our business following the June 2020 consummation of the Progenics Acquisition;

(viii) our ability to use in-house manufacturing capacity;

(ix) the expected timing for commercialization of products we or our strategic partners may develop, including flurpiridaz F 18;

and (x) our ability to develop highly contextualized assessments of disease burden using artificial intelligence (“AI”).

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions.

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We caution you, therefore, against relying on any of these forward-looking statements.

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 on-going 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.

(“Bracco”), and potential generic competition as a result of patent and regulatory exclusivity expirations;

• The instability of the global Mo-99 supply, including (i) periodic outages at the NTP Radioisotopes (“NTP”) processing facility in South Africa in 2017, 2018 and 2019, and (ii) a recently resolved production volume limitations at the Australian Nuclear Science and Technology Organisation’s (“ANSTO”) new Mo-99 processing facility in Australia, in each case resulting in our inability to fill some or all of the demand for our TechneLite generators on certain manufacturing days during the outage periods;

• 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;

• Risks related to the continued 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;

• Risks associated with our lead agent in development, PyL, for which we filed a New Drug Application (“NDA”) with the U.S.

Food and Drug Administration (“FDA”) on September 29, 2020, including:

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

• Our ability to successfully gain post-approval market acceptance and adequate reimbursement for PyL in the U.S.

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);

• Our dependence upon third parties for the manufacture and supply of PyL and the timing of that manufacturing capacity becoming available;

• 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 FDA approval;

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

• Risks associated with our DEFINITY RT candidate, including our ability to obtain FDA approval and 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 metastatic castrate-resistant prostate cancer (“mCRPC”);

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

• Our ability to protect our intellectual property and the risk of claims that we have infringed on the intellectual property of others;

• Risks associated with the technology transfer programs to secure production of our products at additional contract manufacturer sites, including DEFINITY RT at Samsung BioLogics (“SBL”) in South Korea;

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

• The dependence of certain of our customers upon third-party healthcare payors and the uncertainty of third-party coverage and reimbursement rates;

• The existence and market success of competitor products;

• Uncertainties regarding the impact of U.S.

and state healthcare reform measures and proposals on our business, including measures and proposals related to reimbursement for our current and potential future products, controls over drug pricing, drug pricing transparency and generic drug competition;

• Our being subject to extensive government regulation and oversight, our ability to comply with those regulations and the costs of compliance;

• Potential liability associated with our marketing and sales practices;

• The occurrence of any serious or unanticipated side effects with our products;

• Our exposure to potential product liability claims and environmental, health and safety liability;

• Our ability to introduce new products and adapt to an evolving technology and medical practice landscape;

• Risks associated with prevailing economic or political conditions and events and financial, business and other factors beyond our control;

• Risks associated with our international operations, including potential global disruptions in air transport due to COVID-19, which could adversely affect our international supply chains for radioisotopes and other critical materials as well as international distribution channels for our commercial products;

• Our ability to adequately qualify, operate, maintain and protect our facilities, equipment and technology infrastructure;

• Our ability to hire or retain skilled employees and key personnel;

• Our ability to utilize, or limitations in our ability to utilize, net operating loss carryforwards to reduce our future tax liability;

• Risks related to our outstanding indebtedness and our ability to satisfy those obligations;

• Costs and other risks associated with the Sarbanes-Oxley Act and the Dodd-Frank Act, including in connection with becoming a large accelerated filer as of December 31, 2019;

• Risks related to the ownership of our common stock;

• 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, in Part II, Item 1A.

“Risk Factors” in our Quarterly Reports on Form 10-Q for the periods ended March 31, 2020 and June 30, 2020, and in Part II, Item 1A.

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

Factors that could cause or contribute to such differences include, but are not limited to, those that are discussed in other documents we file with the SEC.

These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2020.

Any forward-looking statement made by us in this Quarterly Report on Form 10-Q speaks only as of the date on which it is made.

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iXBRL is an electronic coding language used to create interactive financial statement data over the Internet.

The information on our website is neither part of nor incorporated by reference in this Quarterly Report on Form 10-Q.

The information on our website is neither part of nor incorporated by reference into this Quarterly Report on Form 10-Q.

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, in Part II, Item 1A.

“Risk Factors” in our Quarterly Reports on Form 10-Q for the periods ended March 31, 2020 and June 30, 2020, and in Part II, Item 1A.

“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.

“Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020.

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 agents and products in echocardiography, nuclear imaging, and oncologic therapeutics.

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 medicine 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 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 different products are marketed and sold in Europe, Canada, Australia, Asia-Pacific and Latin America.

Acquisition of Progenics

On June 19, 2020, we completed the acquisition of Progenics.

We produce and market our agents and products throughout the U.S., selling primarily to radiopharmacies, integrated delivery networks, hospitals, clinics and group practices.

We sell our agents and products outside the U.S.

through a combination of direct distribution in Canada and third-party distribution relationships in Europe, Canada, Australia, Asia-Pacific and Latin America.

In the first quarter of fiscal year 2021, we completed the evaluation of our operating and reporting structure, including the impact on our business of the acquisition of Progenics, and the sale of our Puerto Rico subsidiary in the current quarter, which resulted in a change in our operating segments to one reportable business segment.

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 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’ 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 opioid-induced constipation (“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 AZEDRA sales, and second, royalties, development and commercial milestones from strategic partnerships, in particular royalties from Bausch from sales of RELISTOR.

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 an exchange ratio of 0.31.

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

Product / Product Candidate

Ultra-Orphan Therapeutic

AZEDRA (iobenguane I 131) 555 MBq/mL injection

Unresectable, locally advanced or metastatic pheochromocytoma or paraganglioma

Prostate Cancer Diagnostics and Therapeutics

PyL (18F-DCFPyL)

PSMA-targeted PET/CT imaging agent for prostate cancer

NDA filed on September 29, 2020

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 Solutions

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.

Automated Bone Scan Index (BONENAVI)

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

Other Partnerships

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 is working to provide information required by the FDA in order to resubmit a 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 Reports on Form 10-Q for the periods ended March 31, 2020 and June 30, 2020 for information regarding certain risks associated with our 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.

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.

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.

• 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).

• 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.

• 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.

In September 2020, the FDA granted 510(k) clearance for the use of aBSI on a GE Healthcare system.

• 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.

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.

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 those 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.

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 primary tumors as well as bone and soft tissue metastases, with potential high clinical utility in the detection of recurrent and/or metastatic prostate cancer.

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.

We filed the PyL NDA with the FDA on September 29, 2020, requesting priority review.

• Flurpiridaz F 18 is a fluorine 18-based PET MPI agent designed 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 had been delayed and has now resumed at a slower recruiting pace.

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 mCRPC.

Because of the COVID-19 pandemic, Progenics new enrollment in the Phase 2 trial was paused 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.

New enrollment in the ARROW Phase 2 study restarted in October 2020.

• 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 platform 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 our 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 technology provides automated generation of lesion quantification, localization and staging.

We believe this leads 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.

On August 20, 2020, CytoDyn announced that the FDA recommended that CytoDyn conduct its Type A meeting in writing with the FDA.

In September 2020, CytoDyn submitted its questions to the FDA, received written responses from the FDA, and held a telephonic meeting with the FDA to obtain further clarity on what additional information was required by the FDA with respect to CytoDyn’s BLA filing.

CytoDyn reports that it is currently working to provide the information required by the FDA in order to resubmit its BLA, which it anticipates will occur by the end of calendar year 2020.

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 $40.0 million development milestone upon U.S.

marketing approval for subcutaneous RELISTOR in non-cancer pain patients in 2014, a $50.0 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 $100.0 million, 17% on the next $400.0 million in worldwide net sales, and 19% on worldwide net sales over $500.0 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 $5.0 million and are eligible to receive up to $60.0 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 platform, 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.

In addition, in October 2020, Progenics entered into a PyL Clinical Supply Agreement with Bayer to include PyL in their clinical trial for prostate cancer.

PyL will be used by Bayer to assess PSMA expression levels at baseline and during treatment.

• 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.

• Regeneron Agreement – In June 2020, Progenics entered into a PyL Clinical Supply Agreement with Regeneron Pharmaceuticals, Inc.

(“Regeneron”) under which Progenics will supply PyL to Regeneron as an imaging agent to evaluate and follow subjects for a Phase 1/2 clinical study of Regeneron’s PSMA-targeted mCRPC therapeutic candidate.

first, royalties and development and commercial milestones from strategic partnerships, including royalties from Bausch Health Companies, Inc.

(“Bausch”) from sales of RELISTOR;

and second, AZEDRA sales.

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

Lantheus 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 the prior year only incorporated results since the June 19, 2020 Progenics 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 substantial reduction in pulmonary ventilation studies in which our Xenon-133 gas is used because of institutional concerns and professional society guidelines relating to a hospital’s ability to adequately decontaminate examination rooms and related equipment used to administer those studies during the COVID-19 pandemic, thereby reducing Xenon-133 sales.

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

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

For example, there has been a substantial reduction in pulmonary ventilation studies in which our product, 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 significantly.

In March 2021, the Society of Nuclear Medicine and Medical Imaging (“SNMMI”), updated its guidance regarding in-hospital respiratory inhalation procedures administered (or performed) during the pandemic, modifying its previous position.

Based on advances in testing and procedural protocols since the onset of the pandemic as well as increasing vaccination rates, SNMMI now allows that under appropriate conditions for safe administration, pulmonary ventilation studies can be performed where necessary to reach a definitive diagnosis for a patient.

Even with this recent change, we expect Xenon sales to continue to be at reduced levels for at least as long as COVID-19 precautions remain in place, and we can give no assurance that Xenon sales will return to historic levels.

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

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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.

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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 third quarter of 2020 with $88.0 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.

While we are currently unable to estimate the impact of COVID-19 on our overall 2021 operations and financial results, we ended the first quarter of 2021 with $68.9 million of cash and cash equivalents.

With our available liquidity and prudent expense management, we currently believe that we have sufficient financial resources to operate our business, support our customers, launch PyL as a new commercial product, and support the continued development of our product candidate pipeline, although we can give no assurances that we will have sufficient liquidity for all of these items, as the future trajectory of the pandemic is unknown and may affect our liquidity.

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 over the longer term.

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., three of our recently issued method of use patents covering DEFINITY were listed in the Orange Book.

We now have 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.

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 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.

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.

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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 November 2020 and the full 30 month stay was obtained, then the ANDA applicant would be precluded from commercialization until at least May 2023.

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 2021 and the full 30 month stay was obtained, then the ANDA applicant would be precluded from commercialization until at least November 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.

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

We believe DEFINITY RT 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 have a composition of matter patent on DEFINITY RT which runs through 2035.

If DEFINITY RT 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, DEFINITY RT could become commercially available in early 2021, although that timing cannot be assured.

Given its physical characteristics, DEFINITY RT may also be 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 next paragraph).

• Vialmix RFID – In August 2020, the FDA approved a supplemental NDA for our next-generation activation device designed specifically for both DEFINITY and DEFINITY RT product candidate.

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.

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

issued patent on the use of the new Vialmix RFID with an expiration date of 2037 has been listed in the Orange Book, and additional patent applications have been submitted in major markets throughout the world.

• 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.

• 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.

• 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 target improving blood flow in occluded retinal veins in the eye.

(“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.

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

• In October 2020, we announced a strategic collaboration with Insightec Ltd., an Israeli company (“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 October 2020, we announced a strategic collaboration with Insightec Ltd.

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

• In April 2021, we announced a strategic collaboration with Allegheny Health Network (“AHN”) which will use our microbubbles in combination with AHN’s ultrasound-assisted non-viral gene transfer technology for the development of a proposed treatment of xerostomia.

Xerostomia is a lack of saliva production leading to dry mouth and has a variety of causes, including radiotherapy and chemotherapy, the chronic use of drugs and rheumatic and dysmetabolic diseases.

• 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 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 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.

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.

PyL FDA Approval and Commercial Launch

PyL (also known as 18F-DCFPyL) is a fluorine 18-based PET imaging agent that targets prostate specific membrane antigen (PSMA), enabling visualization of primary tumors as well as bone and soft tissue metastases, with potential high clinical utility in the detection of recurrent and/or metastatic prostate cancer.

We filed the PyL New Drug Application (“NDA”) with the FDA in September 2020 and received notice of priority review in December 2020 with a Prescription Drug User Fee Act (“PDUFA”) date of May 28, 2021.

If the FDA grants approval of the PyL NDA as of the PDUFA date, we could commence our commercial launch of PyL shortly thereafter, although there can be no assurances that the FDA will act by the PDUFA date or determine that the clinical study results we have presented are sufficient or convincing to obtain FDA approval.

The commercial launch of PyL will be complex and expensive.

We are in the process of hiring additional employees to assist us with the commercialization of PyL including in the areas of sales, marketing, reimbursement, quality and medical affairs.

To manufacture PyL, we are currently creating a field-based network of specialized PET manufacturing facilities (“PMFs”), with radioisotope-producing cyclotrons that produce fluorine-18 (“F 18”), which has a 110 minute half-life, requiring that PyL be manufactured and distributed rapidly to end-users.

After being made on a cyclotron at a PMF, the F 18 is then combined with certain chemical ingredients in specially designed chemistry synthesis boxes to manufacture PyL, which is next transferred to a radiopharmacist who prepares and dispenses patient-specific doses from the final product.

Because each of the PMFs manufacturing these products will be deemed by the FDA to be a separate manufacturing site, each will have to be approved by the FDA, and we can give no assurance that the FDA will do this in accordance with our planned roll-out schedule for the products.

In our PyL NDA, we included a limited number of PMFs for approval, and we intend to add in a sequenced manner, using FDA site approval processes, additional PMFs to our manufacturing network in the months following FDA product approval with the goal of having broad availability for the U.S.

population within six months of product approval.

If we are delayed in our PyL commercial launch by FDA approval of our manufacturing sites or other challenges, our future business, results of operations, financial condition and cash flows could be adversely affected.

In addition, obtaining adequate reimbursement for PyL will be critical, including not only coverage from Medicare, Medicaid, other government payors as well as private payors but also appropriate payment levels which adequately cover the manufacturing and distribution costs associated with an F 18-based agent.

We can give no assurance, even if PyL obtains regulatory approval, that adequate reimbursement can be secured to allow PyL to become successfully commercialized.

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 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.

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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 technical 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 until April 2020, ANSTO’s new Mo-99 processing facility had production volume limitations imposed on it by the Australian Radiation Protection and Nuclear Safety Agency which limited our ability to receive Mo-99 from ANSTO.

During that time we relied on IRE and NTP to limit the impact of those ANSTO outages and volume limitations.

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, 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 historically 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 Medical Technologies, Inc.

(“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

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

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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 DEFINITY RT with SBL, which is located in South Korea.

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

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.

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.

Radiopharmaceuticals are decaying radioisotopes with half-lives ranging from a few hours to several days.

These products cannot be kept in inventory because of their limited shelf lives and are subject to just-in-time manufacturing, processing and distribution, which takes place at our North Billerica, Massachusetts facility.

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 acquisition.

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 larger and significantly 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 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.

Research and Development Expenses

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 Transaction brings additional and substantial clinical development expense.

We filed the PyL NDA with the FDA on September 29, 2020, requesting priority review.

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.

We also are planning additional clinical development work for AZEDRA in two new potential therapeutic indications – neuroblastoma and gastroenteropancreatic neuroendocrine tumors – and LMI 1195 as a diagnostic agent for the management of neuroblastoma.

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

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New Initiatives

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 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 Transaction 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 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 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, which is housed within the strategic partnerships and other revenue category, 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 both Regeneron and Bayer for use of PyL in prostate cancer clinical trials.

• In March 2021, we acquired from Noria Therapeutics, Inc.

(“Noria”) rights to NTI-1309, an innovative imaging biomarker that targets fibroblast activation protein (“FAP”), an emerging target with broad potential imaging applicability and use in oncology.

Under the terms of this agreement, Noria will drive the early clinical development of NTI-1309.

Upon successful completion of the Phase 1 study which we believe will start later in 2021, NTI-1309 will be integrated into our portfolio of imaging biomarkers and included in our Pharma Services offering.

We will also then assess options to bring NTI-1309 to market through our own clinical trials, as a diagnostic or potentially a therapeutic agent.

• 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.

See “Anticipated Continued Growth of DEFINITY and Expansion of Our Ultrasound Microbubble Franchise–New Clinical Applications” for further details.

Results of Operations

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Three Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2020 2019 2020 2019

(in thousands) 2021 2020 Change $ Change %

Revenues $ 92,509 $ 90,704 $ 1,805 2.0 %

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Total operating expenses 40,671 30,877 9,794 31.7 %

Operating (loss) income (5,250) 8,517 (3,670) 39,223

Gain on sale of assets 15,263 — 15,263 N/A

Operating income 15,622 7,125 8,497 119.3 %

Interest expense 2,718 1,946 772 39.7 %

Loss on extinguishment of debt — — — 3,196

Other (income) loss (596) 804 (1,702) (1,695)

(Loss) income before income taxes (7,462) 5,357 (8,636) 26,231

Income tax (benefit) expense (1,076) 501 1,425 5,014

Net (loss) income $ (6,386) $ 4,856 $ (10,061) $ 21,217

Comparison of the Periods Ended September 30, 2020 and 2019

Segment revenues are summarized by product as follows:

Gain on extinguishment of debt (889) — (889) N/A

Other income (549) (350) (199) 56.9 %

Income before income taxes 14,342 5,529 8,813 159.4 %

Income tax expense 5,334 2,192 3,142 143.3 %

Net income $ 9,008 $ 3,337 $ 5,671 169.9 %

Comparison of the Periods Ended March 31, 2021 and 2020

We classify our revenues into three product categories:

precision diagnostics, radiopharmaceutical oncology, and strategic partnerships and other.

Precision diagnostics includes DEFINITY, TechneLite and other imaging diagnostic products.

Radiopharmaceutical oncology consists of AZEDRA and other oncologic therapeutics.

Strategic partnerships and other includes partnerships related to other products, such as RELISTOR, that improve patient outcomes and care.

Revenues are summarized by product category on a net basis as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2020 2019 Change

% 2020 2019 Change

DEFINITY $ 53,792 $ 50,917 $ 2,875 5.6 % $ 148,346 $ 154,099 $ (5,753) (3.7) %

TechneLite 17,652 18,281 (629) (3.4) % 52,599 55,204 (2,605) (4.7) %

Other nuclear 11,571 9,355 2,216 23.7 % 26,437 28,006 (1,569) (5.6) %

Rebates and allowances (5,540) (3,903) (1,637) 41.9 % (13,763) (12,035) (1,728) 14.4 %

revenues 77,475 74,650 2,825 3.8 % 213,619 225,274 (11,655) (5.2) %

International

DEFINITY 1,637 1,478 159 10.8 % 4,239 4,036 203 5.0 %

TechneLite 3,837 3,466 371 10.7 % 10,897 10,794 103 1.0 %

Other nuclear 5,596 6,186 (590) (9.5) % 16,507 17,901 (1,394) (7.8) %

Rebates and allowances (1) (4) 3 (75.0) % (4) (14) 10 (71.4) %

Total International revenues 11,069 11,126 (57) (0.5) % 31,639 32,717 (1,078) (3.3) %

(in thousands) 2021 2020 (1)

Change $ Change %

DEFINITY $ 55,971 $ 52,505 $ 3,466 6.6 %

TechneLite 22,800 22,779 21 0.1 %

Other nuclear 17,167 15,541 1,626 10.5 % 42,944 45,907 (2,963) (6.5) %

Rebates and allowances (5,541) (3,907) (1,634) 41.8 % (13,767) (12,049) (1,718) 14.3 %

Other precision diagnostics 6,984 13,057 (6,073) (46.5) %

Total precision diagnostics 85,755 88,341 (2,586) (2.9) %

Radiopharmaceutical oncology 1,500 1,968 (468) (23.8) %

Strategic partnerships and other 5,254 395 4,859 1,230.1 %

Total revenues $ 92,509 $ 90,704 $ 1,805 2.0 %

The increase in the U.S.

segment revenues for the three months ended September 30, 2020, as compared to the prior year period is primarily due to a $2.9 million increase in DEFINITY revenue as a result of higher unit volumes and a $2.2 million increase in Other nuclear revenue driven by the addition of the Progenics revenue portfolio, offset in part by lower Xenon volume as a result of COVID-19.

TechneLite revenue was $0.6 million lower driven by COVID-19 impact, partially offset by supplier disruptions in 2019.

Rebate and allowance provisions drove an additional decrease of $1.6 million.

The decrease in the U.S.

segment revenues for the nine months ended September 30, 2020, as compared to the prior year period is primarily due to a $5.8 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, in part, by third quarter performance.

TechneLite revenue was $2.6 million lower driven by COVID-19, 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, offset, in part, by the addition of Progenics revenue portfolio.

The decrease in the International segment revenues for the three months ended September 30, 2020, as compared to the prior year period is primarily due to $0.6 million lower revenue in Other nuclear product as a result of COVID-19, offset, in part, by $0.4 million higher TechneLite revenue driven by supplier disruptions in 2019 and $0.2 million higher DEFINITY revenue driven by increased volume.

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

Offsetting these decreases was an increase in DEFINITY revenue of $0.2 million driven by volume.

________________________________

(1) We reclassified rebates and allowances of $4.7 million for the three months ended March 31, 2020 within each product category, which included $4.3 million for DEFINITY, $0.3 million for TechneLite and $0.1 million for other precision diagnostics.

The increase in revenues for the three months ended March 31, 2021, as compared to the prior year period, is primarily driven by DEFINITY volume increases and the addition of the Progenics product portfolio.

This increase is partially offset by continued COVID-19 related reduced volumes in Xenon and the divestiture of our Puerto Rico business during the first quarter of fiscal year 2021.

Rebates and Allowances

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Payments or credits made during the period (5,756)

Balance, September 30, 2020 $ 7,486

Gross profit is summarized by segment as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2020 2019 Change

% 2020 2019 Change

$ 33,282 $ 38,614 $ (5,332) (13.8) % $ 93,042 $ 122,198 $ (29,156) (23.9) %

International 2,978 2,975 3 0.1 % 7,068 8,048 (980) (12.2) %

Total gross profit $ 36,260 $ 41,589 $ (5,329) (12.8) % $ 100,110 $ 130,246 $ (30,136) (23.1) %

The decrease in the U.S.

segment gross profit for the three months ended September 30, 2020, as compared to the prior year period is primarily due to lower Xenon, TechneLite and other nuclear product unit volumes due to COVID-19, along with a decrease driven by rebate and allowance provisions.

These decreases were offset, in part, by and increase in DEFINITY gross profit driven by an increase in volume over the prior year period.

The decrease in the U.S.

segment gross profit for the nine months ended September 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 nine months ended September 30, 2020, as compared to the prior year period is primarily due to lower other nuclear product unit volumes due to COVID-19.

Balance, March 31, 2021 $ 9,455

The increase in gross profit for the three months ended March 31, 2021, as compared to the prior year period is primarily due to an asset impairment loss of $7.3 million on other nuclear products that occurred in the prior year and DEFINITY volume increases.

This increase was offset, in part, by lower Xenon unit volumes and increased radioisotope transportation costs, both due to COVID-19, as well as amortization expense of assets acquired in the Progenics acquisition.

Sales and Marketing

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Other costs in sales and marketing expenses include the development and printing of advertising and promotional material, professional services, market research and sales meetings.

Sales and marketing expense is summarized by segment as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2020 2019 Change

% 2020 2019 Change

$ 11,176 $ 9,571 $ 1,605 16.8 % $ 26,613 $ 29,909 $ (3,296) (11.0) %

International 433 580 (147) (25.3) % 1,431 1,587 (156) (9.8) %

Total sales and marketing $ 11,609 $ 10,151 $ 1,458 14.4 % $ 28,044 $ 31,496 $ (3,452) (11.0) %

The increase in the U.S.

segment sales and marketing expenses for the three months ended September 30, 2020, as compared to the prior year period is primarily due to the addition of the Progenics business and increase in market research which was partially offset by reduced marketing promotional programs and travel due to COVID-19 and lower employee related costs.

The Progenics business contributed approximately $2.7 million of expense to the U.S.

segment for the three months ended September 30, 2020.

The decrease in the U.S.

segment sales and marketing expenses for the nine months ended September 30, 2020, as compared to the prior year period is primarily due to reduced marketing promotional programs and travel due to COVID-19, as well as lower employee-related costs offset by the addition of the Progenics business.

The Progenics business contributed approximately $3.0 million of expense to the U.S.

segment for the nine months ended September 30, 2020.

The decrease in the International segment sales and marketing expenses for the three and nine months ended September 30, 2020, as compared to the prior year period is primarily due to lower marketing promotional activities.

Sales and marketing expenses increased $4.0 million for the three months ended March 31, 2021 as compared to the prior year period.

This was primarily driven by the integration of the Progenics sales and marketing organization as well as preparation activities for the launch of PyL.

General and Administrative

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Other costs included in general and administrative expenses are professional fees for information technology services, external legal fees, consulting and accounting services as well as bad debt expense, certain facility and insurance costs, including director and officer liability insurance.

General and administrative expense is summarized by segment as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2020 2019 Change

% 2020 2019 Change

$ 17,873 $ 17,926 $ (53) (0.3) % $ 54,950 $ 43,597 $ 11,353 26.0 %

International 344 135 209 154.8 % 636 346 290 83.8 %

Total general and administrative $ 18,217 $ 18,061 $ 156 0.9 % $ 55,586 $ 43,943 $ 11,643 26.5 %

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

The primary driver in the current year was lower acquisition-related costs associated with the acquisition of Progenics offset by unrealized losses related to changes in fair value of contingent consideration liabilities and the addition of the Progenics business.

The Progenics business contributed approximately $3.4 million of expense to the U.S.

segment for the three months ended September 30, 2020.

segment general and administrative expenses increased for the nine months ended September 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 and the addition of the Progenics business offset by lower medical insurance costs.

The Progenics business contributed approximately $6.3 million of expense to the U.S.

segment for the nine months ended September 30, 2020.

The International segment general and administrative expenses increased for the three and nine months ended September 30, 2020 as compared to the prior year period 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 $0.2 million of expense to the International segment for each of the three and nine months ended September 30, 2020.

General and administrative expenses decreased $0.6 million for the three months ended March 31, 2021 as compared to the prior year period.

This was primarily driven by acquisition-related costs associated with the Progenics Acquisition in the prior year.

This decrease is partially offset by higher headcount related costs post-acquisition.

Research and Development

Research and development expenses relate primarily to the development of new products to add to our portfolio and costs related to our medical affairs, medical information and regulatory functions.

We do not allocate research and development expenses incurred in the U.S.

to our International segment.

Research and development expense is summarized by segment as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2020 2019 Change

% 2020 2019 Change

$ 10,856 $ 4,729 $ 6,127 129.6 % $ 19,114 $ 15,031 $ 4,083 27.2 %

International 828 131 697 532.1 % 1,036 553 483 87.3 %

Total research and development $ 11,684 $ 4,860 $ 6,824 140.4 % $ 20,150 $ 15,584 $ 4,566 29.3 %

The increase in the U.S.

segment research and development expenses for the three and nine months ended September 30, 2020, as compared to the prior year is primarily driven by the addition of the Progenics business, including the PyL NDA filing fee, partially offset by clinical research expenses related to DEFINITY studies completing and lower employee related expenses.

The Progenics business contributed approximately $7.6 million and $8.7 million of expense to the U.S.

segment for the three and nine months ended September 30, 2020, respectively.

The increase in the International segment research and development expenses for the three and nine months ended September 30, 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 $0.6 million of expense to the International segment for the three and nine months ended September 30, 2020.

Research and development expenses increased $6.3 million for the three months ended March 31, 2021 as compared to the prior year period.

This was primarily driven by the integration of the Progenics research and development organization now supporting our pipeline, which includes PyL and 1095.

Gain on Sale of Assets

We sold 100% of the stock of our Puerto Rico radiopharmacy subsidiary resulting in a pre-tax book gain of $15.3 million for the three months ended March 31, 2021.

Interest Expense

Interest expense decreased by approximately $4.8 million for the nine months ended September 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 (Benefit) Expense

Income tax (benefit) expense is summarized as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2020 2019 Change

% 2020 2019 Change

Income tax (benefit) expense $ (1,076) $ 501 $ (1,577) (314.8) % $ 1,425 $ 5,014 $ (3,589) (71.6) %

The income tax benefit recorded for the three months ended September 30, 2020 was primarily due to the pre-tax losses incurred during the quarter, partially offset by the accrual of interest associated with uncertain tax positions.

The income tax expense recorded for the nine months ended September 30, 2020 was primarily due to the recording of non-deductible transaction costs and the accrual of interest associated with uncertain tax positions, partially offset by the income tax benefit recorded due to the pre-tax losses incurred during the nine month period.

Interest expense increased by approximately $0.8 million for the three months ended March 31, 2021 as compared to the prior year period due to the Royalty-Backed loan we assumed as part of the Progenics Acquisition.

Gain on Extinguishment of Debt

For the three months ended March 31, 2021, we realized a $0.9 million gain on extinguishment of debt related to the voluntary repayment of the outstanding principal on the Royalty-Backed Loan.

Income Tax Expense

The income tax expense recorded for the three months ended March 31, 2021 was primarily due to the pre-tax income reported during the quarter, partially offset by 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.

As of September 30, 2020, we recorded valuation allowances of $3.2 million against the net deferred tax assets of certain foreign subsidiaries, as well as a valuation allowance of $0.7 million against net U.S.

deferred tax assets due to the potential expiration of certain tax losses and state 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 of Progenics’ 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.

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:

Nine Months Ended

September 30,

Three Months Ended

Effective tax rate 37.2% 39.6%

Our effective tax rate in fiscal 2021 differs from the U.S.

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

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 nine months ended September 30, 2020 as compared to the prior year period is primarily due to the lower amount of pre-tax income and a lower tax benefit of stock compensation deductions in the current nine month period.

statutory rate of 21% principally due to state income taxes and the accrual of interest on uncertain tax positions, offset by the benefit created by stock compensation expense and tax credits.

The decrease in the effective income tax rate for the three months ended March 31, 2021 as compared to the prior year period is primarily due to the increased amount of pre-tax income and a higher tax benefit of stock compensation deductions in the current three month period, offset by an increase in the effective tax rate due primarily to the impact of the Progenics Acquisition on the combined Company’s effective state tax rate.

Liquidity and Capital Resources

The following table provides information regarding our cash flows:

Nine Months Ended

September 30,

Three Months Ended

(in thousands) 2021 2020

Net cash provided by operating activities $ 9,818 $ 9,408

Net cash used in investing activities $ (1,127) $ (17,320)

Net cash provided by provided by (used in) investing activities $ 13,303 $ (2,698)

Net cash used in financing activities $ (34,791) $ (3,732)

Net Cash Provided by Operating Activities

Net cash provided by operating activities of $15.8 million in the nine months ended September 30, 2020 was driven primarily by $16.3 million of depreciation, amortization and accretion expense, stock-based compensation expense of $10.5 million, and impairment of long-lived assets of $7.3 million.

These net sources of cash were offset by a net loss of $10.1 million and a net decrease of $11.7 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 the COVID-19 impact on products and the timing of batch processes and accruals related to G&A expenses in connection with the acquisition of Progenics.

Net cash provided by operating activities of $58.0 million in the nine months ended September 30, 2019 was driven primarily by net income of $21.2 million plus $9.8 million of depreciation, amortization and accretion expense, stock-based compensation expense of $9.5 million, changes in deferred taxes of $3.8 million and debt extinguishment expense of $3.2 million.

These net sources of cash were further increased by a net increase of $7.3 million related to movements in our working capital accounts during the period.

The overall increases in cash from our working capital accounts were primarily driven by improved collections related to our accounts receivables and the timing of purchases.

Net Cash Used in Investing Activities

Net cash used in investing activities during the nine months ended September 30, 2020 reflected $10.0 million in lending on a note receivable to Progenics prior to the acquisition and $8.7 million in capital expenditures offset by $17.6 million of acquired cash related to the non-cash acquisition of Progenics.

Net cash used in investing activities during the nine months ended September 30, 2019 reflected $17.3 million in capital expenditures.

Net cash provided by operating activities of $9.8 million in the three months ended March 31, 2021 was driven primarily by net income of $9.0 million, depreciation, amortization and accretion expense of $8.1 million, stock-based compensation expense of $3.3 million, and deferred income taxes of $4.6 million.

These net sources of cash were offset by a gain on sale of assets of $15.3 million and a net decrease of $1.5 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 increased receivables from sales offset by a reduction in inventory due to obsolescence as well as the timing of inventory purchases.

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 (Used in) Investing Activities

Net cash provided by investing activities during the three months ended March 31, 2021 was primarily due to cash proceeds of $15.8 million received from the sale of our Puerto Rico subsidiary, which was offset by $2.5 million of capital expenditures.

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 Financing Activities

Net cash used in financing activities during the nine months ended September 30, 2020 is primarily attributable to the payments on long-term debt and other borrowings of $11.2 million related to the 2019 Term Facility and Royalty-Backed Loan, equity issuance costs related to the acquisition of Progenics 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 nine months ended September 30, 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 $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 $2.4 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 three months ended March 31, 2021 is primarily attributable to the payments on long-term debt and other borrowings of $35.6 million related to the 2019 Term Facility and Royalty-Backed Loan, including a voluntary repayment of the outstanding principal on the Royalty-Backed Loan and payments for minimum statutory tax withholding related to net share settlement of equity awards of $1.6 million offset by proceeds of $2.0 million from stock option exercises.

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 our common stock.

External Sources of Liquidity

In June 2019, we refinanced our 2017 $275.0 million five-year term loan facility with the 2019 Term Facility.

In addition, we replaced our $75.0 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 (the “2019 Credit Agreement”).

In addition, we replaced our $75.0 million revolving facility with our five-year revolving credit facility (the “2019 Revolving Facility” and, together with the 2019 Term Facility, the “2019 Facility”).

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 $100.0 million, plus additional amounts, in certain circumstances.

We are permitted to voluntarily prepay the 2019 Term Loans, in whole or in part, without premium or penalty.

We are permitted to voluntarily repay the 2019 Term Loans, in whole or in part, without premium or penalty.

The 2019 Term Facility requires us to make mandatory prepayments of the outstanding 2019 Term Loans in certain circumstances.

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Please refer to our Form 10-K for fiscal year ended December 31, 2020 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 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 covenant related to Total Net Leverage Ratio (as defined in the Amended Credit Agreement) was 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:

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Period Interest Coverage Ratio

Q3 2020 to Q1 2021 2.00 to 1.00

Q1 2021 2.00 to 1.00

Thereafter 3.00 to 1.00

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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 March 31, 2021, 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%.

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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.

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 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.

Under the terms of the Royalty-Backed Loan, the lenders had 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 were used to repay the principal and interest on the loan.

The Royalty-Backed Loan bore interest at a per annum rate of 9.5% and matured 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, were 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 were used to repay the principal of the loan, with the balance retained by us.

On March 31, 2021, we voluntarily repaid in full the entire

outstanding principal on the Royalty-Backed Loan in the amount of $30.9 million, which included a prepayment amount of $0.5 million, and terminated the agreement.

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

• 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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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 implement further 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 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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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 September 30, 2020, our only current committed external source of funds is our borrowing availability under our 2019 Revolving Facility.

We had $88.0 million of cash and cash equivalents at September 30, 2020.

At March 31, 2021, our only current committed external source of funds is our borrowing availability under our 2019 Revolving Facility.

We had $68.9 million of cash and cash equivalents at March 31, 2021.

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.

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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) $100.0 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 Transaction, exceed 19.9% (which we estimate could be approximately $100.0 million) of the total consideration we pay in the Progenics Transaction.

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.

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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 nine months ended September 30, 2020, except as set forth below.

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, 2021.

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, 2020.

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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Since inception, we have not engaged in any other off-balance sheet arrangements, including structured finance, special purpose entities or variable interest entities.

Quantitative and Qualitative Disclosures About Market Risk

For quantitative and qualitative disclosures about market risk, see Part II, Item 7A.

“Quantitative and Qualitative Disclosures About Market Risk,” of our Annual Report on Form 10-K for the year ended December 31, 2020.

Our exposures to market risk have not changed materially since December 31, 2020.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis