What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-07-28 compared with 2021-05-04 · 137 added, 130 removed, 265 unchanged (50% of the section changed)

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(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) 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”).

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

(iii) our ability to successfully launch PYLARIFY as a commercial product, including (A) our ability to obtain FDA approval for additional PET manufacturing facilities (“PMFs”) that could manufacture PYLARIFY, (B) the ability of those PMFs to supply PYLARIFY to customers, and (C) our ability to sell PYLARIFY to customers;

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

(v) 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”);

(vi) the continued integration of the Progenics products and product candidate portfolio into our business following the Progenics Acquisition;

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

(viii) the efforts and timing for commercialization of products or new clinical applications for our products that we or our strategic partners may develop, including flurpiridaz F 18;

and (ix) 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.

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.

“Risk Factors” in our Quarterly Report on Form 10-Q for the period ended March 31, 2021, and in Part II, Item 1A.

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

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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Our global Internet site is www.lantheus.com.

We routinely make available important information, including copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after those reports are electronically filed with, or furnished to, the SEC, free of charge on our website at www.investor.lantheus.com.

We recognize our website as a key channel of distribution to reach public investors and as a means of disclosing material non-public information to comply with our disclosure obligations under SEC Regulation FD.

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

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

“Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, in Part II, Item 1A.

“Risk Factors” in our Quarterly Report on Form 10-Q for the period ended March 31, 2021, and in Part II, Item 1A.

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

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 believe that the resulting improved diagnostic information enables healthcare providers to better detect and characterize, or rule out, disease, potentially achieving better 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, urologists, 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.

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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, 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, 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.

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 first quarter, which resulted in a change in our operating segments to one reportable business segment.

PYLARIFY Approval and Commercial Launch

On May 27, 2021, we announced that the FDA had approved PYLARIFY, an F 18-labeled positron emission tomography (“PET”) imaging agent targeting prostate-specific membrane antigen (“PSMA”).

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

The approval of PYLARIFY was based on data from two Company-sponsored pivotal studies (“OSPREY” and “CONDOR”) designed to establish the safety and diagnostic performance of PYLARIFY across the prostate cancer disease continuum.

Results from OSPREY (Cohort A) demonstrated improvement in specificity and positive predictive value of PYLARIFY PET imaging over conventional imaging in men at risk for metastatic prostate cancer prior to initial definitive therapy.

CONDOR studied men with biochemical recurrent prostate cancer.

In patients with biochemical recurrent prostate cancer and non-informative baseline imaging, PYLARIFY demonstrated high correct localization and detection rates, including in patients with low prostate-specific antigen (“PSA”) blood level values (median PSA 0.8 ng/mL).

Upon approval, PYLARIFY was immediately available in parts of the U.S., such as the mid-Atlantic and the South.

In July 2021, PYLARIFY availability expanded into additional regions, including the three largest metropolitan areas in the U.S.

- New York, Los Angeles/San Diego and Chicago – as well as select locations in the Southeast, the Midwest, the Southwest and the Northwest.

We expect PYLARIFY availability to continue to expand across the U.S.

over the remainder of the year, with broad nationwide availability anticipated by year end.

The commercial launch of PYLARIFY is complex and expensive.

We have hired and expect to continue to hire additional employees to assist us with the commercialization of PYLARIFY, including in sales, marketing, reimbursement, quality and medical affairs.

To manufacture PYLARIFY, we have assembled and are qualifying a nationwide network of PMFs with radioisotope-producing cyclotrons that make fluorine-18, which has a 110 minute half-life, so PYLARIFY is 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 PYLARIFY, which is then transferred to a radiopharmacist who prepares and dispenses patient-specific doses of the final product.

Because each of the PMFs manufacturing these products is deemed by the FDA to be a separate manufacturing site, each has to be approved by the FDA.

Although we are able to provide PYLARIFY in the regions listed above, we can give no assurance that the FDA will continue to approve PMFs in accordance with our planned roll-out schedule.

If FDA approval of manufacturing sites is delayed, our future business, results of operations, financial condition and cash flows could be adversely affected.

In addition, obtaining adequate reimbursement for PYLARIFY will be critical, including not only coverage from Medicare, Medicaid and 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 that pass-through status will be granted or that other adequate reimbursement can be secured to allow PYLARIFY to become successfully commercialized.

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 2021 financial performance will reflect full year results of the Progenics business, whereas the prior year only incorporated results since the Closing Date.

We also expect that the approval of PYLARIFY in May 2021 and subsequent launch will result in increased revenues.

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

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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.

Notwithstanding this change in March 2021, our Xenon sales during the second quarter of 2021 continued to be at reduced levels, and we expect these reduced levels to continue for at least as long as COVID-19 precautions remain in place.

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 our discretionary expenses.

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

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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 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.

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, which increase its communicability or its impact on certain populations.

While we are currently unable to estimate the impact of COVID-19 on our overall 2021 operations and financial results, we ended the second quarter of 2021 with $91.5 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 PYLARIFY 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

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

Solely by way of example and not based on any knowledge we currently have, if we received a Notice from an ANDA applicant in May 2021 and the full 30 month stay was obtained, then the ANDA applicant would be precluded from commercialization until at least November 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 August 2021 and the full 30-month stay was obtained, then the ANDA applicant would be precluded from commercialization until at least February 2024.

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

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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.

We believe VIALMIX RFID will become available later in 2021, although that timing cannot be assured.

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

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• 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 make use of this in-house manufacturing capability in late 2021, although that timing cannot be assured.

We believe this investment 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 have DEFINITY manufactured at this facility commercially available in early 2022, 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.

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.

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 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.

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.

Global Mo-99 Supply

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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.

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

Our manufacturing agreement with JHS relating to DEFINITY expires in February 2022, and our manufacturing agreements relating to NEUROLITE and Cardiolite expire in December 2023.

All these agreements are subject to further extension.

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.

We currently expect to have DEFINITY manufactured at this facility commercially available in early 2022, although that timing cannot be assured.

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

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Integration of the Progenics Acquisition

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

Progenics’ portfolio of products and product candidates included, among other things, therapeutic agents designed to target cancer (AZEDRA, 1095 and PSMA TTC), diagnostic imaging agents designed to target PSMA for prostate cancer (PYLARIFY and 1404), RELISTOR for opioid-induced constipation, AI imaging

technologies and leronlimab being developed for HIV infection.

Progenics’ revenue was generated from two principal sources:

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.

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.

In addition, the CVRs issued as partial consideration for the Progenics Acquisition create additional operational obligations and accounting complexity.

See Part II, Item 1A.

“Risk Factors - The CVRs we issued as part of the Progenics Acquisition may result in substantial future payments and could divert the attention of our management;

in addition, the actual payments made in connection with the CVRs, if any, may not be consistent with the estimated fair value of the CVRs that we are required to prepare for accounting purposes.” We can give no assurance that the actual amounts paid, if any, in connection with the CVRs will be consistent with any recurring fair value estimate of such CVRs.

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 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.

The Progenics Acquisition resulted in additional and substantial clinical development expense.

The PyL NDA filed with the FDA on September 29, 2020, was approved by the FDA in May 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.

In addition, the Company has developed PSMA AI as described below under the heading “New Initiatives”.

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

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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.

Consistent with the Progenics Acquisition, 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 resides in our strategic partnerships and other revenue product 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.

• 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.

• In March 2021, we acquired from Ratio Therapeutics LLC (“Ratio”) (previously Noria Therapeutics, Inc.) exclusive, worldwide 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, Ratio will drive the early clinical development of NTI-1309.

We are integrating NTI-1309 into our portfolio of imaging biomarkers as part of our Pharma Services offering.

Upon further clinical development, we will assess options to bring NTI-1309 to market as a diagnostic or potentially a therapeutic agent.

• We have also expanded our Pharma Services offering to include piflufolastat F 18 for pharmaceutical companies developing PSMA-targeted therapies and have entered into clinical supply agreements with each of Regeneron, Bayer and POINT BioPharma for use of piflufolastat F 18 in prostate cancer drug development programs.

• Our subsidiary, EXINI Diagnostics AB (“EXINI”), has developed aPROMISE, our artificial intelligence-based, deep learning-enabled, medical device software that is designed to allow healthcare professionals and researchers to perform quantitative assessments of PSMA PET/CT in oncology.

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

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Three Months Ended

(in thousands) 2021 2020 Change $ Change %

June 30, Six Months Ended

(in thousands) 2021 2020 Change $ Change % 2021 2020 Change $ Change %

Revenues $ 101,064 $ 66,010 $ 35,054 53.1 % $ 193,573 $ 156,714 $ 36,859 23.5 %

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Total operating expenses 72,869 31,393 41,476 132.1 % 113,540 62,270 51,270 82.3 %

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

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

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

Operating (loss) income (26,781) (5,545) (21,236) 383.0 % (11,159) 1,580 (12,739) (806.3) %

Interest expense 1,937 1,914 23 1.2 % 4,655 3,860 795 20.6 %

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

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

Other income (182) (756) 574 (75.9) % (731) (1,106) 375 (33.9) %

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

Loss before income taxes (28,536) (6,703) (21,833) 325.7 % (14,194) (1,174) (13,020) 1109.0 %

Income tax (benefit) expense (1,879) 309 (2,188) (708.1) % 3,455 2,501 954 38.1 %

Net loss $ (26,657) $ (7,012) $ (19,645) 280.2 % $ (17,649) $ (3,675) $ (13,974) 380.2 %

Comparison of the Periods Ended June 30, 2021 and 2020

We classify our 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)

Change $ Change %

Change $ Change % 2021 2020 Change $ Change %

DEFINITY $ 59,842 $ 37,125 $ 22,717 61.2 % $ 115,813 $ 89,630 $ 26,183 29.2 %

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________________________________

(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.

(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 increase in revenues for the three months ended June 30, 2021, as compared to the prior year period, is primarily driven by increases in DEFINITY and TechneLite volume period over period as a result of the COVID-19 pandemic in the prior year and the addition of the Progenics product portfolio, offset, in part, by the divestiture of our Puerto Rico business during the first quarter of 2021.

The increase in revenues for the six months ended June 30, 2021, as compared to the prior year period, is primarily driven by increases in DEFINITY and TechneLite volume period over period as a result of the COVID-19 pandemic in the prior year 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.

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Payments or credits made during the period (13,218)

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.

Balance, June 30, 2021 $ 9,180

The increase in gross profit for the three months ended June 30, 2021, as compared to the prior year period is primarily due to DEFINITY volume increases, which is partially offset by amortization expense of assets acquired in the Progenics Acquisition.

The increase in gross profit for the six months ended June 30, 2021, as compared to the prior year period is primarily due to DEFINITY volume increases and an asset impairment loss of $7.3 million on other nuclear products that occurred in the prior year.

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.

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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 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.

Sales and marketing expenses increased $11.3 million and $15.4 million for the three and six months ended June 30, 2021, respectively, as compared to the prior year period.

This was primarily driven by the integration of the Progenics sales and marketing organization, preparation activities for the launch of PYLARIFY, as well as increased employee-related costs and marketing promotional programs due to the impact of the COVID-19 pandemic during the prior year.

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 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.

General and administrative expenses increased $22.5 million and $21.9 million for the three and six months ended June 30, 2021, respectively, as compared to the prior year period.

This was primarily driven by the $25.6 million fair value adjustment to the contingent asset and liabilities in the second quarter of 2021 (refer to Note 4, “Fair Value of Financial Instruments”, for further details on contingent consideration liabilities, including CVRs) and higher headcount related costs following the Progenics Acquisition, offset by acquisition-related costs associated with the Progenics Acquisition in the prior year.

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.

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.

Research and development expenses increased $7.6 million for the three months ended June 30, 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 1095 and preparation activities for the launch of PYLARIFY.

Research and development expenses increased $14.0 million for the six months ended June 30, 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 1095, preparation activities for the launch of PYLARIFY and higher employee-related costs due to the impact of the COVID-19 pandemic during the prior year period.

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.

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 six months ended June 30, 2021.

Interest Expense

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.

Interest expense increased by approximately $0.8 million for the six months ended June 30, 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.

For the six months ended June 30, 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 on March 31, 2021.

Income Tax (Benefit) Expense

The income tax benefit recorded for the three months ended June 30, 2021 was primarily due to the tax benefit of a pre-tax loss reported during the quarter.

The income tax expense recorded for the six months ended June 30, 2021 was primarily due to the tax benefit of a pre-tax loss reported during the period, offset by the accrual of interest associated with uncertain tax positions and the impact of permanent item adjustments including the accrual of our contingent consideration liabilities.

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

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

Three Months Ended

Six Months Ended

Effective tax rate (24.3)% (213.0)%

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

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.

statutory rate of 21% principally due to state income taxes and the tax benefits created by stock compensation expense and tax credits.

The decrease in the effective income tax rate for the six months ended June 30, 2021 is primarily due to the increased amount of pre-tax earnings achieved through six months when compared to the prior period.

Liquidity and Capital Resources

The following table provides information regarding our cash flows:

Three Months Ended

Six Months Ended

(in thousands) 2021 2020

Net cash provided by operating activities $ 35,687 $ 7,252

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

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

Net cash used in financing activities $ (35,506) $ (10,218)

Net Cash Provided by Operating Activities

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 provided by operating activities of $35.7 million in the six months ended June 30, 2021 was driven primarily by a change in fair value of contingent assets and liabilities of $25.9 million (refer to Note 4, “Fair Value of Financial Instruments”, for further details on contingent consideration liabilities, including CVRs), depreciation, amortization and accretion expense of $17.7 million, stock-based compensation expense of $7.9 million, deferred income taxes of $2.7 million and a net increase of $11.5 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 an increase in sales collections, the timing of payments to large vendors, a reduction in inventory due to obsolescence as well as the timing of inventory purchases.

These net sources of cash were offset by a net loss of $17.6 million and a gain on sale of assets of $15.3 million.

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

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

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

Net Cash Provided by Investing Activities

Net cash provided by investing activities during the six months ended June 30, 2021 was primarily due to cash proceeds of $15.8 million received from the sale of our Puerto Rico subsidiary, which was offset by $5.2 million of capital expenditures.

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

Net Cash Used in Financing Activities

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.

Net cash used in financing activities during the six months ended June 30, 2021 is primarily attributable to the payments on long-term debt and other borrowings of $38.1 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 $1.8 million offset by proceeds of $4.1 million from stock option exercises.

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

External Sources of Liquidity

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Q2 2021 3.75 to 1.00

Thereafter 3.50 to 1.00

Period Interest Coverage Ratio

Q1 2021 2.00 to 1.00

Thereafter 3.00 to 1.00

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

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

As of March 31, 2021, we were in compliance with all financial and other covenants under the Amendment.

Q2 2021 and thereafter 3.00 to 1.00

As of June 30, 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%.

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

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

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

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

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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.

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

• The costs of the PYLARIFY commercial launch and our ability to successfully commercialize PYLARIFY;

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

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

• Our investment in the further clinical development and commercialization of products and development candidates, including AZEDRA, PYLARIFY, 1095, LMI 1195, aBSI and PSMA AI;

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

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

At March 31, 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.

At June 30, 2021, our only current committed external source of funds is our borrowing availability under our 2019 Revolving Facility.

We had $91.5 million of cash and cash equivalents at June 30, 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.

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.

The CVRs we issued in the Progenics Acquisition entitle holders thereof to future cash payments of 40% of PYLARIFY 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.

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The discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with U.S.

The preparation of these condensed consolidated financial statements require us to make estimates and judgments that affect our reported assets and liabilities, revenues and expenses, and other financial information.

The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect our reported assets and liabilities, revenues and expenses, and other financial information.

Actual results may differ materially from these estimates under different assumptions and conditions.

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

There have been no other significant changes to our critical accounting policies or in the underlying accounting assumptions and estimates used in such policies in the three months ended March 31, 2021.

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis