What changed in this filing

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Item 1. Financial Statements

2021-07-28 compared with 2021-05-04 · 151 added, 90 removed, 561 unchanged (30% of the section changed)

44 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2021 2020 2021 2020

Revenues $ 101,064 $ 66,010 $ 193,573 $ 156,714

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Gain on sale of assets — — 15,263 —

Operating income 15,622 7,125

Operating (loss) income ( 26,781 ) ( 5,545 ) ( 11,159 ) 1,580

Interest expense 1,937 1,914 4,655 3,860

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Other income ( 182 ) ( 756 ) ( 731 ) ( 1,106 )

Income before income taxes 14,342 5,529

Income tax expense 5,334 2,192

Net income $ 9,008 $ 3,337

Net income per common share:

Loss before income taxes ( 28,536 ) ( 6,703 ) ( 14,194 ) ( 1,174 )

Income tax (benefit) expense ( 1,879 ) 309 3,455 2,501

Net loss $ ( 26,657 ) $ ( 7,012 ) $ ( 17,649 ) $ ( 3,675 )

Net loss per common share:

Basic $ ( 0.39 ) $ ( 0.16 ) $ ( 0.26 ) $ ( 0.09 )

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Three Months Ended

Net income $ 9,008 $ 3,337

June 30, Six Months Ended

2021 2020 2021 2020

Net loss $ ( 26,657 ) $ ( 7,012 ) $ ( 17,649 ) $ ( 3,675 )

Other comprehensive income (loss):

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Total other comprehensive income (loss) 240 ( 212 ) 1,048 ( 1,646 )

Comprehensive income $ 9,816 $ 1,903

Comprehensive loss $ ( 26,417 ) $ ( 7,224 ) $ ( 16,601 ) $ ( 5,321 )

The accompanying notes are an integral part of these condensed consolidated financial statements.

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(in thousands)

Three Months Ended March 31, 2021

Six Months Ended June 30, 2021

Common Stock Additional

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Balance, March 31, 2021 67,434 $ 674 $ 669,623 $ ( 140,938 ) $ ( 1,240 ) $ 528,119

Three Months Ended March 31, 2020

Net loss — — — ( 26,657 ) — ( 26,657 )

Other comprehensive income — — — — 240 240

Stock option exercises and employee stock plan purchases 116 1 2,042 — — 2,043

Vesting of restricted stock awards and units 51 1 ( 1 ) — — —

Shares withheld to cover taxes ( 9 ) — ( 193 ) — — ( 193 )

Stock-based compensation — — 4,588 — — 4,588

Balance, June 30, 2021 67,592 $ 676 $ 676,059 $ ( 167,595 ) $ ( 1,000 ) $ 508,140

Six Months Ended June 30, 2020

Common Stock Additional

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Balance, March 31, 2020 39,750 $ 398 $ 253,530 $ ( 133,136 ) $ ( 2,394 ) $ 118,398

Net loss — — — ( 7,012 ) — ( 7,012 )

Other comprehensive loss — — — — ( 212 ) ( 212 )

Stock option exercises and employee stock plan purchases 7 — 50 — — 50

Vesting of restricted stock awards and units 242 2 ( 2 ) — — —

Shares withheld to cover taxes ( 36 ) ( 1 ) ( 484 ) — — ( 485 )

Issuance of common stock, net of $ 3,776 issuance costs

26,845 269 394,065 — — 394,334

Fair value of replacement options related to pre-acquisition services — — 7,125 — — 7,125

Stock-based compensation — — 3,385 — — 3,385

Balance, June 30, 2020 66,808 $ 668 $ 657,669 $ ( 140,148 ) $ ( 2,606 ) $ 515,583

The accompanying notes are an integral part of these condensed consolidated financial statements.

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(in thousands)

Three Months Ended

Six Months Ended

Operating activities

Net income $ 9,008 $ 3,337

Adjustments to reconcile net income to net cash flows from operating activities:

Net loss $ ( 17,649 ) $ ( 3,675 )

Adjustments to reconcile net loss to net cash flows from operating activities:

Depreciation, amortization and accretion 17,749 7,764

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Proceeds from sale of assets, net 15,823 —

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

Lending on bridge loan — ( 10,000 )

Cash acquired in acquisition of business — 17,562

Net cash provided by investing activities 10,647 2,609

Financing activities

Payments on long-term debt and other borrowings ( 38,137 ) ( 7,032 )

Equity issuance costs — ( 345 )

Deferred financing costs — ( 1,225 )

Proceeds from stock option exercises 4,086 50

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Effect of foreign exchange rates on cash, cash equivalents and restricted cash 120 ( 112 )

Net (decrease) increase in cash, cash equivalents and restricted cash ( 11,691 ) 2,794

Net increase (decrease) in cash, cash equivalents and restricted cash 10,948 ( 469 )

Cash, cash equivalents and restricted cash, beginning of period 82,694 92,919

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(in thousands)

Three Months Ended

Six Months Ended

Reconciliation to amounts within the condensed consolidated balance sheets

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Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Holdings and its direct and indirect wholly-owned subsidiaries, including Progenics (as of the closing date, June 19, 2020), and have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.

The accompanying unaudited condensed consolidated financial statements include the accounts of Holdings and its direct and indirect wholly-owned subsidiaries, including Progenics (as of the Closing Date, as defined below), and have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.

Accordingly, these condensed consolidated financial statements do not include all of the information and notes required by generally accepted accounting principles in the United States of America (“U.S.

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In the opinion of management, all adjustments (consisting of normal and recurring adjustments) considered necessary for a fair statement have been included.

The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ended December 31, 2021 or any future period.

The results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ended December 31, 2021 or any future period.

In the first quarter of fiscal year 2021, the Company completed the evaluation of its operating and reporting structure, which resulted in a change in operating segments.

Please refer to Note 19, “Segment Information”, for further details.

The condensed consolidated balance sheet at December 31, 2020 has been derived from the audited consolidated financial statements at that date but does not include all of the information and notes required by U.S.

The condensed consolidated balance sheet at December 31, 2020 has been derived from the audited consolidated financial statements at that date but does not include all the information and notes required by U.S.

GAAP for complete financial statements.

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On June 19, 2020 (the “Closing Date”), pursuant to the Amended and Restated Agreement and Plan of Merger, dated as of February 20, 2020 (the “Merger Agreement”), by and among Holdings, Plato Merger Sub, Inc., a wholly-owned subsidiary of Holdings (“Merger Sub”), and Progenics, Holdings completed the previously announced acquisition of Progenics by means of a merger of Merger Sub with and into Progenics, with Progenics surviving such merger as a wholly-owned subsidiary of Holdings (the “Progenics Acquisition”).

In accordance with the Merger Agreement, at the effective time of the Progenics Acquisition (the “Effective Time”), each share of Progenics common stock, par value $ 0.0013 per share, issued and outstanding immediately prior to the Effective Time (other than shares of Progenics common stock owned by Holdings, Progenics or any of their wholly-owned subsidiaries) was automatically cancelled and converted into the right to receive (i) 0.31 (the “Exchange Ratio”) of a share of Holdings common stock, par value $ 0.01 per share, and (ii) one contingent value right (a “CVR”) tied to the financial performance of PyL (18F-DCFPyL), Progenics’ prostate-specific membrane antigen (“PSMA”) targeted imaging agent designed to visualize prostate cancer, currently a late stage clinical candidate (“PyL”).

This agent was approved by the U.S.

Food and Drug Administration (“FDA”) on May 26, 2021 under the name PYLARIFY (piflufolastat F 18), and the commercial launch of this agent has begun.

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

net sales generated by PyL in 2022 and 2023 in excess of $ 100.0 million and $ 150.0 million, respectively.

net sales generated by PYLARIFY in 2022 and 2023 in excess of $ 100.0 million and $ 150.0 million, respectively.

In no event will the Company’s aggregate payments in respect of the CVRs, together with any other non-stock consideration treated as paid in connection with the Progenics Acquisition, exceed 19.9 % (which the Company estimates could be approximately $ 100.0 million) of the total consideration the Company pays in the Progenics Acquisition.

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The Company experienced operational and financial impacts from the COVID-19 pandemic beginning late in the first quarter of 2020 and through the date of this filing, including the impact of stay-at-home mandates and advisories, and a decline in the volume of certain procedures and treatments using the Company’s products.

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

For example, there has been a substantial reduction in pulmonary ventilation studies in which the Company’s product, Xenon, is used.

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

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

For most of the second quarter, the Company reduced the Company’s work week from five days to four days and reduced the pay for employees by varying amounts depending on level of seniority.

For most of the second quarter of 2020, the Company reduced the Company’s work week from five days to four days and reduced the pay for employees by varying amounts depending on level of seniority.

During the second quarter of 2020, Progenics also implemented certain cost reduction initiatives and paused new enrollment in the Phase 2 trial of 1095 in metastatic castrate-resistant prostate cancer (“mCRPC”) patients to minimize the risk to subjects and healthcare providers during the pandemic.

New enrollment in that study restarted in October 2020.

GE Healthcare Limited (“GE Healthcare”), the Company’s development and commercialization partner for flurpiridaz F 18, also delayed enrollment in the second Phase 3 clinical trial of flurpiridaz F 18 because of the pandemic and resumed enrollment in the third quarter of 2020.

The on-going impact of the COVID-19 pandemic on the Company's business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic, and the extent and severity of the impact on the Company's customers and suppliers, all of which remain uncertain and cannot be predicted.

While the impact of COVID-19 on the Company’s results of operations and cash flows has been, and is expected to continue to be, material, given the continually evolving nature of the pandemic, the Company remains unable to accurately predict the impact of COVID-19 on its overall 2021 operations and financial results or cash flows and whether the on-going impact of COVID-19 could lead to potential future impairments.

GE Healthcare Limited (“GE Healthcare”), the Company’s development and commercialization partner for flurpiridaz fluorine-18 (“F 18”), also delayed enrollment in the second Phase 3 clinical trial of flurpiridaz F 18 because of the pandemic and resumed enrollment in the third quarter of 2020.

Although the COVID-19 pandemic appears to have begun to recede in much of the United States, the pandemic could still have a future negative impact on the Company's business, particularly if there is a resurgence as a result of mutations or other variations to the virus that increase its communicability or its impact on certain populations.

While the impact of COVID-19 on the Company’s results of operations and cash flows has been material, given continued uncertainty about the future trajectory of the pandemic, the Company remains unable to accurately predict the impact of COVID-19 on its overall 2021 operations and financial results or cash flows and whether the on-going impact of COVID-19 could lead to potential future impairments.

Summary of Significant Accounting Policies

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Certain immaterial reclassifications in the prior period consolidated statement of cash flows have been reclassified to conform to the current year period financial statement presentation.

Reclassifications include $ 0.2 million from provision for bad debt to other at March 31, 2020.

Reclassifications include $ 0.2 million from provision for bad debt to other at June 30, 2020.

The Company had a reclassification in presentation related to rebates and allowances within product revenue.

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Effect on the Condensed Consolidated Financial Statements

Accounting Standards Adopted During the Three Months Ended March 31, 2021

Accounting Standards Adopted During the Six Months Ended June 30, 2021

ASU 2020-06, “Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40)” This ASU provides guidance to simplify the complexity associated with accounting for convertible instruments and derivatives.

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Three Months Ended

June 30, Six Months Ended

Major Products/Service Lines (in thousands) 2021 2020 2021 2020

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The Company applies the

same revenue recognition policies and judgments for all of its principal products.

same revenue recognition policies and judgments for all its principal products.

The Company classifies its revenues into three product categories:

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

Radiopharmaceutical oncology consists of AZEDRA and other oncologic therapeutics.

Radiopharmaceutical oncology consists primarily of AZEDRA and PYLARIFY.

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

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Three Months Ended

June 30, Six Months Ended

(in thousands) 2021 2020 (1)

2021 2020 (1)

DEFINITY $ 59,842 $ 37,125 $ 115,813 $ 89,630

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________________________________

(1) The Company 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.

(1) The Company reclassified rebates and allowances of $ 3.5 million and $ 8.2 million within each product category, which included $ 3.2 million and $ 7.5 million for DEFINITY, $ 0.3 million and $ 0.6 million for TechneLite and zero and $ 0.1 million for other precision diagnostics, for the three and six months ended June 30, 2020, respectively.

The Company’s performance obligations are typically part of contracts that have an original expected duration of one year or less.

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The Company invests excess cash from its operating cash accounts in overnight investments and reflects these amounts in cash and cash equivalents in the condensed consolidated balance sheets at fair value using quoted prices in active markets for identical assets.

The fair value of the interest rate swaps are determined based on observable market-based inputs, including interest rate curves and reflects the contractual terms of these instruments, including the period to maturity.

The fair value of the interest rate swaps is determined based on observable market-based inputs, including interest rate curves and reflects the contractual terms of these instruments, including the period to maturity.

Please refer to Note 13, “Derivative Instruments”, for further details on the interest rate swaps.

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The tables below present information about the Company’s assets and liabilities measured at fair value on a recurring basis:

March 31, 2021

June 30, 2021

(in thousands) Total Fair

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Total liabilities $ 17,708 $ — $ 1,908 $ 15,800

During the three months ended March 31, 2021, there were no transfers into or out of Level 3.

During the three and six months ended June 30, 2021, there were no transfers into or out of Level 3.

As part of the Progenics Acquisition, the Company acquired the right to receive certain future milestone and royalty payments due to Progenics from CytoDyn Inc.

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The Company’s total potential payments related to the 2013 Acquisition are approximately $ 85.0 million.

The Company considers the contingent consideration liabilities a Level 3 instrument (one with significant unobservable inputs) in the fair value hierarchy.

The estimated fair value was determined based on probability adjusted discounted cash flows and Monte Carlo simulation models that included significant estimates and assumptions pertaining to commercialization events and sales targets.

The Company considers the contingent consideration liabilities relating to the CVRs and the 2013 Acquisition, each a Level 3 instrument (one with significant unobservable inputs) in the fair value hierarchy.

The estimated fair value of these was determined based on probability adjusted discounted cash flows and Monte Carlo simulation models that included significant estimates and assumptions pertaining to commercialization events and sales targets.

The most significant unobservable inputs are the probabilities of achieving regulatory approval of the development projects and subsequent commercial success.

Significant changes in any of the probabilities of success or the probabilities as to the periods in which milestones will be achieved would result in a significantly higher or lower fair value measurement.

Significant changes in any of the probabilities of success, the probabilities as to the periods in which milestones will be achieved, discount rates or underlying revenue forecasts would result in a significantly higher or lower fair value measurement.

The Company records the contingent consideration liability at fair value with changes in estimated fair values recorded in general and administrative expenses in the condensed consolidated statements of operations.

The following tables summarize quantitative information and assumptions pertaining to the fair value measurement of assets and liabilities using Level 3 inputs at March 31, 2021.

The Company can give no assurance that the actual amounts paid, if any, in connection with the contingent consideration liabilities, including the CVRs, will be consistent with any recurring fair value estimate of such contingent consideration liabilities.

The following tables summarize quantitative information and assumptions pertaining to the fair value measurement of assets and liabilities using Level 3 inputs at June 30, 2021.

Fair Value at Assumptions

(in thousands) March 31, 2021 December 31, 2020 Valuation Technique Unobservable Input March 31, 2021 December 31, 2020

(in thousands) June 30, 2021 December 31, 2020 Valuation Technique Unobservable Input June 30, 2021 December 31, 2020

Contingent receivable:

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Fair Value at Assumptions

(in thousands) March 31, 2021 December 31, 2020 Valuation Technique Unobservable Input March 31, 2021 December 31, 2020

(in thousands) June 30, 2021 December 31, 2020 Valuation Technique Unobservable Input June 30, 2021 December 31, 2020

Contingent consideration liability:

Net sales targets - PyL (CVRs) $ 4,600 $ 4,200 Monte-Carlo simulation Period of expected milestone achievement 2022 - 2023 2022 - 2023

Net sales targets - PYLARIFY (CVRs) $ 30,400 $ 4,200 Monte-Carlo simulation Period of expected milestone achievement 2022 - 2023 2022 - 2023

Discount rate 18 % 24 %

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Financial Assets Financial Liabilities

(in thousands) Three Months Ended

March 31, 2021 Three Months Ended

March 31, 2021

(in thousands) Six Months Ended

June 30, Six Months Ended

2021 2020 2021 2020

Fair value, beginning of period $ 11,300 $ — $ 15,800 $ —

Changes in fair value included in net income 900 1,200

Progenics acquisition — 10,100 — 16,300

Changes in fair value included in net loss 2,100 — 28,000 —

Fair value, end of period $ 13,400 $ 10,100 $ 43,800 $ 16,300

The change in fair value of the contingent financial asset and contingent financial liabilities resulted in a loss of $ 0.3 million for the three months ended March 31, 2021 and was primarily due to changes in market conditions and the passage of time.

The change in fair value of the contingent financial asset and contingent financial liabilities, including the CVRs, resulted in an expense of $ 25.9 million for the six months ended June 30, 2021 and was primarily due to changes in revenue forecasts, changes in market conditions, a decrease in discount rates and the passage of time.

The Company provides for income taxes at the end of each interim period based on the estimated effective tax rate for the full year, adjusted for any discrete events which are recorded in the period they occur.

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Three Months Ended

June 30, Six Months Ended

(in thousands) 2021 2020 2021 2020

Income tax expense $ 5,334 $ 2,192

Income tax (benefit) expense $ ( 1,879 ) $ 309 $ 3,455 $ 2,501

The Company regularly assesses its ability to realize its deferred tax assets.

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In determining whether its deferred tax assets are more-likely-than-not realizable, the Company evaluated all available positive and negative evidence, and weighed the objective evidence and expected impact.

The Company assessed the need for a valuation allowance against certain deferred state tax credits added through the Progenics Acquisition.

The Company assessed the need for a valuation allowance against certain state tax credit carryforwards added through the Progenics Acquisition.

The Company continues to record other valuation allowances of $ 1.2 million against the net deferred tax assets of its U.K.

subsidiary, and $ 2.2 million against the net deferred tax assets of its Sweden subsidiary.

In connection with the Company’s acquisition of the medical imaging business from Bristol-Myers Squibb (“BMS”) in 2008, the Company recorded a liability for uncertain tax positions related to the acquired business and simultaneously entered into a tax indemnification agreement with BMS under which BMS agreed to indemnify the Company for any payments made to settle those uncertain tax positions with the taxing authorities.

Accordingly, a long-term receivable is recorded to account for the expected value to the Company of future indemnification payments, net of actual tax benefits received, to be paid on behalf of the Company by BMS.

In connection with the Company’s acquisition of the medical imaging business from Bristol-Myers Squibb (“BMS”) in 2008, the Company recorded a liability for uncertain state tax positions related to the acquired business and simultaneously entered into a tax indemnification agreement with BMS under which BMS agreed to indemnify the Company for any payments made to settle those uncertain tax positions with the state taxing authorities.

Accordingly, a long-term receivable is recorded to account for the expected value to the Company of future indemnification payments to be paid on behalf of the Company by BMS, net of actual tax benefits received by the Company.

The tax indemnification receivable is recorded within other long-term assets.

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

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

As these reserves change, adjustments are included in income tax expense while the offsetting adjustment is included in other income.

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

For the three and six months ended June 30, 2021, the Company released $ 0.7 million of liabilities for uncertain tax positions, including interest and penalties of $ 0.5 million.

This included a release of liabilities of $ 0.5 million, including interest and penalties of $ 0.4 million, due to a change in estimate with respect to the Company’s indemnified uncertain tax positions arising from an effective settlement during the year.

The remaining release of $ 0.2 million of liability was due to the lapse of a statute of limitations.

On June 19, 2020, the Company completed the Progenics Acquisition in a transaction that is expected to qualify as a tax-deferred reorganization under Section 368 of the Internal Revenue Code.

The transaction resulted in an ownership change of Progenics under Section 382 of the Internal Revenue Code and a limitation on the utilization of Progenics’ precombination tax attributes.

All of Progenics’ precombination 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.

Deferred tax liabilities arising from the purchase accounting basis step-up in identified intangibles were recorded at acquisition, resulting in a net overall deferred tax liability for Progenics after the application of acquisition accounting.

During the current period, the Company finalized the acquisition accounting for income taxes resulting in a reduction of deferred tax assets, primarily related to state research credits and an increase to goodwill of $ 2.6 million.

All of Progenics’ precombination federal research 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.

Deferred tax liabilities arising from the purchase accounting basis step-up in identified intangibles were recorded at acquisition, resulting in an initial net overall deferred tax liability for Progenics after the application of acquisition accounting.

The Company finalized the acquisition accounting for income taxes in the first quarter of 2021 resulting in a reduction of deferred tax assets, primarily related to state research credit carryforwards and an increase to goodwill of $ 2.6 million.

Inventory consisted of the following:

(in thousands) March 31,

(in thousands) June 30,

2021 December 31,

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Total inventory $ 31,719 $ 35,744

Inventory costs associated with products that have not yet received regulatory approval are capitalized if the Company believes there is probable future commercial use of the product and future economic benefit of the asset.

If future commercial use of the product is not probable, then inventory costs associated with such product are expensed during the period the costs are incurred.

As of June 30, 2021, the Company had $ 2.6 million of such product costs included in inventories related to DEFINITY that have been manufactured through the Company’s in-house manufacturing capabilities, which is awaiting regulatory approval.

Property, Plant and Equipment, Net

Property, plant and equipment, net, consisted of the following:

(in thousands) March 31,

(in thousands) June 30,

2021 December 31,

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Total property, plant and equipment, net $ 118,493 $ 120,171

Depreciation and amortization expense related to property, plant and equipment, net, was $ 3.0 million for the three months ended March 31, 2021 and 2020.

Depreciation and amortization expense related to property, plant and equipment, net, was $ 3.2 million and $ 2.7 million for the three months ended June 30, 2021 and 2020, respectively, and $ 6.2 million and $ 5.7 million for the six months ended June 30, 2021 and 2020, respectively.

The Company tests 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.

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The Company then estimated the fair values of the asset group based on their discounted cash flows.

The carrying value exceeded the fair value and as a result, the Company recorded a non-cash impairment of $ 7.3 million for the three months ended March 31, 2020 in cost of goods sold in the condensed consolidated statement of operations.

The carrying value exceeded the fair value and as a result, the Company recorded a non-cash impairment of $ 7.3 million for the six months ended June 30, 2020 in cost of goods sold in the condensed consolidated statement of operations.

Business Combinations

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

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

The acquisition combined the commercialization, supply chain and manufacturing expertise of the Company with the currently commercialized products and research and development (“R&D”) pipeline of Progenics.

Progenics brings to the Company several commercial products and a pipeline of product candidates that will further diversify the Company’s commercial and clinical development portfolios.

Under the terms of the Merger Agreement, the Company acquired all of the issued and outstanding shares of Progenics common stock for a purchase price of $ 419.0 million by means of an all-stock transaction, which includes options to purchase Holdings common stock (“Replacement Stock Options”) for precombination services as well as CVRs.

Progenics brought to the Company several commercial products and a pipeline of product candidates that further diversify the Company’s commercial and clinical development portfolios.

Under the terms of the Merger Agreement, the Company acquired all the issued and outstanding shares of Progenics common stock for a purchase price of $ 419.0 million by means of an all-stock transaction, which includes options to purchase Holdings common stock (“Replacement Stock Options”) for precombination services as well as CVRs.

The CVRs were accounted for as contingent consideration, the fair value of which was determined using a Monte-Carlo simulation.

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Goodwill of $ 45.5 million recognized in connection with the acquisition is not deductible for tax purposes.

The Company recognized $ 7.5 million and $ 8.9 million of acquisition-related costs, including legal, accounting, compensation arrangements and other related fees that were expensed when incurred in the three and six months ended June 30, 2020, respectively.

These costs are recorded in general and administrative expenses in the condensed consolidated statements of operations.

Progenics Pro Forma Financial Information

Progenics has been included in the Company’s consolidated financial statements since the Closing Date.

Progenics contributed revenues of $ 1.0 million and a net loss of $ 3.2 million to the Company’s condensed consolidated statement of operations for the three and six months ended June 30, 2020.

The following unaudited pro forma financial information presents the Company’s results as if the Progenics Acquisition had occurred on January 1, 2019:

Six Months Ended

June 30, 2020

(in thousands) Amount

Pro forma revenue $ 167,619

Pro forma net loss 18,115

The unaudited pro forma financial information for all periods presented adjusts for the effects of material business combination items, including amortization of acquired intangible assets, transaction-related costs, adjustments to interest expense related to the assumption of long-term debt, retention and severance bonuses and the corresponding income tax effects of each.

These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the operating results of the Company that would have been achieved had the Progenics Acquisition actually taken place on January 1, 2019.

In addition, these results are not intended to be a projection of future results and do not reflect events that may occur after the Progenics Acquisition, including, but not limited to, revenue enhancements, cost savings or operating synergies that the combined company may achieve as a result of the Progenics Acquisition.

Sale of Puerto Rico Subsidiary

During the fourth quarter of 2020, the Company entered into a stock purchase agreement (the “SPA”) with one of its existing radiopharmacy customers to sell all of the stock of its Puerto Rico radiopharmacy subsidiary.

During the fourth quarter of 2020, the Company entered into a stock purchase agreement (the “SPA”) with one of its existing radiopharmacy customers to sell all the stock of its Puerto Rico radiopharmacy subsidiary.

The assets were classified as held for sale and the Company determined that the fair value of the net assets being sold significantly exceeded the carrying value as of December 31, 2020.

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As part of the transaction, the Company and the buyer also entered into a customary transition services agreement and a long-term supply contract under which the Company will supply the buyer with certain of the Company’s products on commercial terms and under which the buyer has agreed to certain product minimum purchase commitments.

The Company does not believe this sale of certain net assets, reported as held for sale in the international segment prior to the change in segments in Q1 2021, constituted a strategic shift that would have a major effect on its operations or financial results.

The Company does not believe this sale of certain net assets, reported as held for sale in the international segment prior to the change in segments in the first quarter of 2021, constituted a strategic shift that would have a major effect on its operations or financial results.

As a result, this transaction is not classified as discontinued operations in the Company’s accompanying consolidated financial statements.

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$ 1,448 $ 1,793

The sale resulted in a pre-tax book gain of $ 15.3 million, which was recorded within operating income in the condensed consolidated statement of operations for the three months ended March 31, 2021.

The sale resulted in a pre-tax book gain of $ 15.3 million, which was recorded within operating income in the condensed consolidated statement of operations for the six months ended June 30, 2021.

Asset Retirement Obligations

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The Company has production facilities which manufacture and process radioactive materials at its North Billerica, Massachusetts site.

As of March 31, 2021, the liability is measured at the present value of the obligation expected to be incurred, of approximately $ 26.4 million.

As of June 30, 2021, the liability is measured at the present value of the obligation expected to be incurred, of approximately $ 26.4 million.

The Company previously operated a production facility which manufactured and processed radioactive materials at its San Juan, Puerto Rico site.

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Accretion expense 777

Balance at March 31, 2021 $ 14,408

Balance at June 30, 2021 $ 14,797

The Company is required to provide the U.S.

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Intangibles, net, consisted of the following:

March 31, 2021

June 30, 2021

(in thousands) Amortization Method Cost Accumulated Amortization Net

1 unchanged sentence

Customer relationships Accelerated 97,022 ( 94,346 ) 2,676

Currently marketed product Straight-Line 142,900 ( 7,434 ) 135,466

Currently marketed products Straight-Line 275,700 ( 11,205 ) 264,495

Licenses Straight-Line 85,800 ( 7,781 ) 78,019

11 unchanged sentences

Total $ 489,945 $ ( 113,933 ) $ 376,012

The Company recorded amortization expense for its intangible assets of $ 4.7 million and $ 0.4 million for the three months ended March 31, 2021 and 2020, respectively.

The Company recorded amortization expense for its intangible assets of $ 6.1 million and $ 0.9 million for the three months ended June 30, 2021 and 2020, respectively, and $ 10.8 million and $ 1.3 million for the six months ended June 30, 2021 and 2020, respectively.

In May 2021, PyL (18F-DCFPyL) was approved by the FDA under the name PYLARIFY.

Accordingly, the Company reclassified the associated asset of $ 132.8 million from IPR&D to currently marketed products and commenced amortization of the asset.

The below table summarizes the estimated aggregate amortization expense expected to be recognized on the above intangible assets:

4 unchanged sentences

Long-Term Debt, Net, and Other Borrowings

As of March 31, 2021, the Company’s maturities of principal obligations under its long-term debt and other borrowings are as follows:

As of June 30, 2021, the Company’s maturities of principal obligations under its long-term debt and other borrowings are as follows:

(in thousands) Amount

7 unchanged sentences

Total long-term debt, net and other borrowings $ 169,249

At March 31, 2021, the Company’s interest rate under the five-year secured term loan facility, which matures on June 30, 2024 (the “2019 Term Facility”) was 3.4 %.

At June 30, 2021, the Company’s interest rate under the five-year secured term loan facility, which matures on June 30, 2024 (the “2019 Term Facility”) was 2.4 %.

On March 31, 2021, the Company voluntarily repaid in full the entire outstanding principal on the original $ 50.0 million loan agreement (the “Royalty-Backed Loan”) with a fund managed by HealthCare Royalty Partners III, L.P.

8 unchanged sentences

In accordance with hedge accounting, the interest rate swaps are recorded on the Company’s condensed consolidated balance sheets at fair value, and changes in the fair value of the swap agreements are recorded to other comprehensive loss and reclassified to interest expense in the period during which the hedged transaction affected earnings or it will become probable that the forecasted transaction would not occur.

At March 31, 2021, accumulated other comprehensive loss included $ 0.6 million of pre-tax deferred losses that are expected to be reclassified to earnings during the next 12 months.

At June 30, 2021, accumulated other comprehensive loss included $ 0.7 million of pre-tax deferred losses that are expected to be reclassified to earnings during the next 12 months.

The following table presents the location and fair value amounts of derivative instruments reported in the condensed consolidated balance sheet:

(in thousands) March 31, 2021 December 31, 2020

(in thousands) June 30, 2021 December 31, 2020

Derivatives type Classification

1 unchanged sentence

Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss, net of tax of $ 0.2 million and $ 0.3 million for the three months ended March 31, 2021 and 2020, respectively, consisted of the following:

The components of accumulated other comprehensive loss, net of tax of $ 0.2 million and $ 0.5 million for the six months ended June 30, 2021 and 2020, respectively, consisted of the following:

(in thousands) Foreign currency translation Unrealized loss on cash flow hedges Accumulated other comprehensive loss

2 unchanged sentences

Amounts reclassified to earnings — 353 353

Balance at March 31, 2021 $ ( 528 ) $ ( 712 ) $ ( 1,240 )

Balance at June 30, 2021 $ ( 334 ) $ ( 666 ) $ ( 1,000 )

Balance at January 1, 2020 $ ( 960 ) $ — $ ( 960 )

1 unchanged sentence

Amounts reclassified to earnings — 76 76

Balance at March 31, 2020 $ ( 1,406 ) $ ( 988 ) $ ( 2,394 )

Balance at June 30, 2020 $ ( 1,154 ) $ ( 1,452 ) $ ( 2,606 )

Stock-Based Compensation

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

(in thousands) 2021 2020 2021 2020

4 unchanged sentences

Total stock-based compensation expense $ 4,588 $ 3,385 $ 7,905 $ 6,460

Net Income Per Common Share

A summary of net income per common share is presented below:

Net (Loss) Income Per Common Share

A summary of net (loss) income per common share is presented below:

Three Months Ended

June 30, Six Months Ended

(in thousands, except per share amounts) 2021 2020 2021 2020

Net income $ 9,008 $ 3,337

Net loss $ ( 26,657 ) $ ( 7,012 ) $ ( 17,649 ) $ ( 3,675 )

Basic weighted-average common shares outstanding 67,505 43,135 67,300 41,284

2 unchanged sentences

Diluted weighted-average common shares outstanding 67,505 43,135 67,300 41,284

Basic income per common share $ 0.13 $ 0.08

Diluted income per common share $ 0.13 $ 0.08

Basic loss per common share $ ( 0.39 ) $ ( 0.16 ) $ ( 0.26 ) $ ( 0.09 )

Diluted loss per common share $ ( 0.39 ) $ ( 0.16 ) $ ( 0.26 ) $ ( 0.09 )

Antidilutive securities excluded from diluted net income per common share 3,173 1,649 3,173 1,517

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

(in thousands) 2021 2020 2021 2020

Foreign currency losses $ 42 $ 314

Foreign currency (gains) losses $ ( 13 ) $ ( 94 ) $ 29 $ 220

Tax indemnification income, net ( 158 ) ( 554 ) ( 731 ) ( 1,109 )

10 unchanged sentences

If such loss is not probable or cannot be reasonably estimated, a liability is not recorded in its condensed consolidated financial statements.

As of March 31, 2021, the Company had the following material ongoing litigation in which the Company was a party:

As of June 30, 2021, the Company had the following material ongoing litigation in which the Company was a party:

RELISTOR European Opposition Proceedings

8 unchanged sentences

The decision under appeal was set aside and the case was remitted to the opposition division for further prosecution.

The deadline for

written submissions prior to an oral hearing is July 27, 2021.

The deadline for written submissions prior to an oral hearing is July 27, 2021.

The oral hearing is set for September 27, 2021.

6 unchanged sentences

Endocyte is the exclusive licensee of the patent rights that are the subject of the German proceedings.

On November 27, 2018, MIP requested that the European Patent Office (“EPO”) stay the examination of a certain European Patent (EP) and related Divisional Applications, pending a decision from the German District Court on MIP’s Complaint.

On November 27, 2018, MIP requested that the European Patent Office (“EPO”) stay the examination of a certain European Patent and related Divisional Applications, pending a decision from the German District Court on MIP’s Complaint.

On December 10, 2018, the EPO granted MIP’s request and stayed the examination of the patent and patent applications effective November 27, 2018.

5 unchanged sentences

16/510,495, 16/551,198).

On March 6, 2020, MIP filed with the USPTO a notice stating that the Power of Attorney in certain pending U.S.

On March 6, 2020, MIP filed with the

USPTO a notice stating that the Power of Attorney in certain pending U.S.

patent applications was signed by less than all applicants or owners of the applications.

8 unchanged sentences

If MIP is not successful in its appeal, it will be responsible for the German court fees and fees and disbursements of defendant’s and intervenor’s counsel, both at first instance and on appeal.

Most of such fees and disbursements at first instance are covered by the aforementioned cash security deposited with the German District Court.

Most of such fees and disbursements at first instance are covered by a cash security deposited with the German District Court.

Because the outcome of litigation is uncertain, the Company cannot predict how or when this matter will ultimately be resolved.

8 unchanged sentences

The PTAB set a three month deadline for MIP to file a preliminary response.

The filing of a preliminary response to the petition is optional for the patent owner (MIP).

The filing of a preliminary response to the petition is optional for MIP as the patent owner.

Should the PTAB decide to institute post-grant review, a schedule will be set, and MIP will be afforded three months from the date of institution to formally respond to the petition.

1 unchanged sentence

Segment Information

In the first quarter of fiscal year 2021, the Company completed the evaluation of its operating and reporting structure, including the impact on the Company’s business of the acquisition of Progenics described in Note 8, and the sale of the Puerto Rico subsidiary in the current quarter, which resulted in a change in operating and reportable segments.

As of the first quarter of fiscal year 2021, the Company operates as one business segment:

In the first quarter of fiscal year 2021, the Company completed the evaluation of its operating and reporting structure, including the impact on the Company’s business of the acquisition of Progenics described in Notes 1 and 8, and the sale of the Puerto Rico subsidiary in the first quarter, which resulted in a change in operating and reportable segments.

The Company now operates as one business segment:

the development, manufacture and sale of innovative diagnostic and therapeutic agents and products that assist clinicians in the diagnosis and treatment of heart disease, cancer and other diseases.

2 unchanged sentences

The Company’s chief operating decision maker does not manage any part of the Company separately, and the allocation of resources and assessment of performance are based on the Company’s consolidated operating results.

Subsequent Events

In the third quarter of 2021, the Company concluded its assessment of eligibility related to first quarter 2021 qualified wages for the Coronavirus Aid, Relief and Economic Security Act Employee Retention Credit (“ERTC”).

The Company plans to file an amended tax return for the first quarter of 2021 to claim the ERTC and continues to evaluate eligibility as related to the second quarter 2021 qualified wages.

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

What changed 10-Q

Item 1. Financial Statements