What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-04 compared with 2021-07-28 · 109 added, 91 removed, 311 unchanged (39% of the section changed)

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These forward-looking statements, including, in particular, statements about our plans, strategies, prospects and industry estimates are subject to risks and uncertainties.

These statements identify prospective information and include words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects,” “should,” “could,” “predicts,” “hopes” and similar expressions.

These statements identify prospective information and can generally be identified by words such as “anticipates,” “believes,” “can,” “could,” “estimates,” “expects,” “hopes,” “intends,” “launch,” “may,” “pipeline,” “plans,” “predicts,” “seeks,” “should,” “target,” “will,” “would” and similar expressions, or by express or implied discussions regarding potential marketing approvals or new indications for the collaborations, products candidates or approved products described in this Quarterly Report on Form 10-Q, or regarding potential future revenues from such collaborations, product candidates and products.

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

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

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

(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;

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(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”);

(v) our products manufactured at Jubilant HollisterStier (“JHS”) and our modified formulation of DEFINITY (“DEFINITY RT”) to be commercially manufactured at Samsung Biologics (“SBL”), including our ability to renew, modify or replace those agreements as may be necessary;

(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”).

(viii) our ability to successfully launch aPROMISE, otherwise known as PYLARIFY AI, as a commercial product;

(ix) the potential reclassification by the FDA of certain of our products and product candidates from drugs to devices with the expense, complexity and potentially more limited competitive protection such reclassification could cause;

(x) the efforts and timing for clinical development of our product candidates and new clinical applications for our products, in each case, that we or our strategic partners may develop, including 1095 and flurpiridaz F 18;

and (xi) 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, 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.

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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, 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 our Annual Report on Form 10-K for the year ended December 31, 2020, 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.

We are an established leader and fully integrated provider committed to 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.

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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.

Since its approval, PYLARIFY availability has expanded into additional regions, including six of the largest metropolitan areas in the U.S.

- New York, Los Angeles/San Diego, Chicago, Dallas, Houston, and Washington, D.C.

– as well as select locations in the Southeast, the Midwest, the Southwest, the Northeast and the Northwest.

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

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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.

During 2021, we hired 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.

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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.

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.

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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.

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.

Notwithstanding this change in March 2021, our Xenon sales through the third 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.

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

During the second quarter of 2020, Progenics also implemented certain cost reduction initiatives, and new enrollment in the Phase 2 trial of 1095 in mCRPC patients was paused to minimize the risk to subjects and healthcare providers during the pandemic.

During the second quarter of 2020, Progenics also implemented certain cost reduction initiatives, and new enrollment in the ARROW Phase 2 study of 1095 in mCRPC patients was paused to minimize the risk to subjects and healthcare providers during the pandemic.

New enrollment in that study restarted in October 2020.

GE Healthcare, our development and commercialization partner for flurpiridaz F 18, also delayed enrollment in the second Phase 3 clinical trial because of the pandemic and resumed enrollment in the third quarter of 2020.

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.

Although some of the restrictions, including stay-at-home mandates, imposed in response to the COVID-19 pandemic have been lifted in much of the United States, and there has been a rapid rollout and development of certain vaccines, the resurgence of COVID-19 infections did impact certain aspects of our business during the third quarter of 2021 and the pandemic could still have a future negative impact on our business, particularly if there are additional resurgences as a result of mutations or other variations to the virus that increase its communicability or its impact on certain populations, geographic regions and the healthcare system, including elective procedures and hospital access.

While we are currently unable to estimate the impact of COVID-19 on our overall 2021 operations and financial results, we ended the third 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.

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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 August 2021 and the full 30-month stay was obtained, then the ANDA applicant would be precluded from commercialization until at least February 2024.

Solely by way of example and not based on any knowledge we currently have, if we received a Notice from an ANDA applicant in November 2021 and the full 30-month stay was obtained, then the ANDA applicant would be precluded from commercialization until at least May 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 modified formulation provides clinicians an additional choice and allows for greater utility of this formulation in broader clinical settings.

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

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

We believe DEFINITY RT will become commercially available in the fourth quarter of 2021, although that timing cannot be assured.

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

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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.

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

We believe VIALMIX RFID will become available in the fourth quarter of 2021, although that timing cannot be assured.

• Additional 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.

Prior to 2021, we entered into the following collaborations:

(i) Cerevast Medical, Inc.

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

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

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

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

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

(ii) CarThera SAS (“CarThera”) for the use of our microbubbles in combination with SonoCloud, a proprietary implantable device in development for the treatment of recurrent glioblastoma;

and (iii) Insightec Ltd.

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

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

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

of xerostomia.

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

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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.

We have filed our sNDA with the FDA and currently expect to have DEFINITY manufactured at this facility commercially available in early 2022, although the approval of our sNDA and 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.

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Global Mo-99 Supply

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

We currently have Mo-99 supply agreements with Institute for Radioelements (“IRE”), running through December 31, 2022, with auto-renewal provisions subject to notice of non-renewal, and with NTP Radioisotopes (“NTP”) and the Australian Nuclear Science and Technology Organisation (“ANSTO”), running through December 31, 2021, and for which we are currently negotiating an extension.

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

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

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

In November 2014, we entered into a strategic arrangement with SHINE Medical Technologies LLC (“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 late 2022.

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

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, in each case, with auto-renewal provisions subject to notice of non-renewal.

On July 27, 2021, we received a letter from JHS that it was providing notice of non-renewal of our manufacturing agreement relating to DEFINITY, but that JHS remained interested in negotiating a new agreement.

We are actively negotiating a new manufacturing agreement with JHS for DEFINITY, although there is no assurance that we will be able to reach an agreement on mutually acceptable terms or at all.

In the event we are not able to enter into an agreement on mutually acceptable terms or at all, we expect that we would exercise our right under our current agreement with JHS to request a terminal supply of DEFINITY in an amount sufficient to meet our supply needs for DEFINITY until our in-house manufacturing facility is operational and producing enough DEFINITY to meet our supply needs, although there is no assurance that there would be no disruption.

We have completed construction of specialized, in-house manufacturing capabilities at our North Billerica, Massachusetts facility for DEFINITY and, potentially, other sterile vial products, which will also allow us to optimize our costs and reduce our supply chain risk, including in the event we cannot enter into a new agreement with JHS for DEFINITY as noted above.

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

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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:

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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.

The PYLARIFY 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.

In the fourth quarter of 2021, we completed an interim analysis of the ARROW Phase 2 study.

The Independent Data Monitoring Committee recommended the study continue without modifications.

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 has developed PSMA AI as described below under the heading “New Initiatives”.

In addition, the Company has developed aPROMISE, our artificial intelligence-based, deep learning-enabled, medical device software, which we also refer to as PYLARIFY AI, and which is further described below under the heading “Additional 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.

New Initiatives

Additional Initiatives

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.

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• 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.

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 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.

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• 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.

In September 2021, we entered into a development and commercialization collaboration with RefleXion Medical, Inc.

to evaluate the use of piflufolastat F 18 to enable real-time therapeutic guidance of biology-guided radiotherapy in prostate cancer using the RefleXion X1 TM platform.

• Our subsidiary, EXINI Diagnostics AB (“EXINI”), has developed PYLARIFY AI, which is designed to allow healthcare professionals and researchers to perform quantitative assessments of PSMA PET/CT in oncology.

Clinicians will have the option to utilize PYLARIFY AI with PYLARIFY to increase the efficiency and reproducibility of the PSMA PET/CT assessments.

Earlier this year, we announced that EXINI was granted 510(k) clearance by the FDA for PYLARIFY AI in the U.S.

and that EXINI received CE Mark clearance for PYLARIFY AI in Europe.

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

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

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

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

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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) %

Operating loss (14,328) (5,250) (9,078) 172.9 % (25,487) (3,670) (21,817) 594.5 %

Interest expense 1,569 2,808 (1,239) (44.1) % 6,224 6,668 (444) (6.7) %

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

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

Other loss (income) 3,940 (596) 4,536 (761.1) % 3,209 (1,702) 4,911 (288.5) %

Loss before income taxes (19,837) (7,462) (12,375) 165.8 % (34,031) (8,636) (25,395) 294.1 %

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Net loss $ (13,415) $ (6,386) $ (7,029) 110.1 % $ (31,064) $ (10,061) $ (21,003) 208.8 %

Comparison of the Periods Ended June 30, 2021 and 2020

Comparison of the Periods Ended September 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 primarily of AZEDRA and PYLARIFY.

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

Radiopharmaceutical oncology consists primarily of PYLARIFY and AZEDRA.

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

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

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2021 2020 (1)

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________________________________

(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.

(1) The Company reclassified rebates and allowances of $5.5 million and $13.8 million within each product category, which included $5.1 million and $12.6 million for DEFINITY, $0.3 million and $0.9 million for TechneLite and $0.1 million and $0.2 million for other precision diagnostics, for the three and nine months ended September 30, 2020, respectively.

The increase in revenues for the three months ended September 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 commercial launch of PYLARIFY, offset, in part, by the divestiture of our Puerto Rico business during the first quarter of 2021.

The increase in revenues for the nine months ended September 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, the addition of the Progenics product portfolio, including the commercial launch of PYLARIFY.

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 (19,361)

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.

Balance, September 30, 2021 $ 9,415

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

The increase in gross profit for the nine months ended September 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 $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.

Sales and marketing expenses increased $5.6 million and $21.0 million for the three and nine months ended September 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 and increased employee-related costs, as well as the reduced level of marketing promotional programs during the prior year due to the impact of the COVID-19 pandemic.

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 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.

General and administrative expenses increased $10.3 million for the three months ended September 30, 2021 compared to the prior period.

This was primarily driven by the $9.5 million sublease impairment charge and $2.6 million fair value adjustment to the contingent asset and liabilities in the third quarter of 2021 (an increase of $1.8 million from the prior year period) (refer to Note 4, “Fair Value of Financial Instruments”, for further details on contingent consideration liabilities, including CVRs), offset by acquisition-related costs associated with the Progenics Acquisition in the prior year.

General and administrative expenses increased $32.3 million for the nine months ended September 30, 2021 compared to the prior year period.

This was primarily driven by the $28.5 million fair value adjustment to the contingent asset and liabilities (an increase of $27.7 million from the prior year period), $9.5 million sublease impairment charge and higher headcount related costs following the Progenics Acquisition, offset by acquisition-related costs associated with the Progenics Acquisition in the prior year and synergy capture in the current 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 $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.

Research and development expenses decreased $0.4 million for the three months ended September 30, 2021 as compared to the prior year period.

This was primarily driven by the filing fee related to the PYLARIFY New Drug Application and preparation activities for the launch of PYLARIFY during the prior year period;

offset by phasing of the ARROW Phase 2 study of 1095 and higher overall headcount related costs.

Research and development expenses increased $13.5 million for the nine months ended September 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;

offset by the filing fee related to the PYLARIFY New Drug Application 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 six months ended June 30, 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 nine months ended September 30, 2021.

Interest Expense

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.

Interest expense decreased by approximately $0.4 million for the nine months ended September 30, 2021 as compared to the prior year period due to lower interest rates on our long-term debt.

Gain on Extinguishment of Debt

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.

For the nine months ended September 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.

The income tax benefit recorded for the three months ended September 30, 2021 was primarily due to the tax benefit of a release of uncertain tax position liability, and a pre-tax loss reported during the quarter partially offset by the accrual of interest associated with uncertain tax positions.

The income tax benefit recorded for the nine months ended September 30, 2021 was primarily due to the tax benefit of released of uncertain tax position liabilities and the pre-tax loss reported during the period, partially offset by the accrual of interest associated with uncertain tax positions and the impact of permanent item adjustments including the accrual of 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:

Six Months Ended

Nine Months Ended

September 30,

Effective tax rate 8.7% (16.5)%

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

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.

statutory rate of 21% principally due to releases of uncertain tax position liabilities and the impact of non-deductible contingency reserve expense.

The decrease in the effective income tax rate for the nine months ended September 30, 2021 is primarily due to the reduction in tax benefit resulting from the accrual of non-deductible contingency reserve expense.

Liquidity and Capital Resources

The following table provides information regarding our cash flows:

Six Months Ended

Nine Months Ended

September 30,

(in thousands) 2021 2020

Net cash provided by operating activities $ 40,027 $ 15,827

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

Net cash provided by (used in) investing activities $ 8,227 $ (1,127)

Net cash used in financing activities $ (37,232) $ (17,488)

Net Cash Provided by Operating Activities

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.

Net cash provided by operating activities of $40.0 million in the nine months ended September 30, 2021 was driven primarily by depreciation, amortization and accretion expense of $30.1 million, a change in fair value of contingent assets and liabilities of $28.5 million (refer to Note 4, “Fair Value of Financial Instruments”, for further details on contingent consideration liabilities, including CVRs), stock-based compensation expense of $11.8 million, impairment of long-lived assets of $9.5 million and a net increase of $2.4 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, and an increase in fees related to PYLARIFY sales.

These net sources of cash were offset by a net loss of $31.1 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.

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

These net sources of cash were offset by a net loss of $10.1 million and a net decrease of $11.7 million related to movements in our working capital accounts during the period.

The overall decreases in cash from our working capital accounts were primarily driven by the payment of prior year annual bonuses as well as change in inventory related to 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.

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

Net Cash Provided by (Used in) Investing Activities

Net cash provided by investing activities during the nine months ended September 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 $7.6 million of capital expenditures.

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

Net Cash Used in Financing Activities

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.

Net cash used in financing activities during the nine months ended September 30, 2021 is primarily attributable to the payments on long-term debt and other borrowings of $40.8 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 $1.9 million offset by proceeds of $4.6 million from stock option exercises.

Net cash used in financing activities during the nine months ended September 30, 2020 is primarily attributable to the payments on long-term debt and other borrowings of $11.2 million related to the 2019 Term Facility and Royalty-Backed Loan, equity issuance costs related to the acquisition of Progenics of $3.8 million, and payments for minimum statutory tax withholding related to net share settlement of equity awards of $2.1 million.

External Sources of Liquidity

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Period Total Net Leverage Ratio

Q2 2021 3.75 to 1.00

Thereafter 3.50 to 1.00

Q3 2021 and Thereafter 3.50 to 1.00

Period Interest Coverage Ratio

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.

As of September 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%.

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

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

The Royalty-Backed Loan bore interest at a per annum rate of 9.5% and was scheduled to mature on June 30, 2025.

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

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• The costs and timing of establishing manufacturing and supply arrangements for commercial supplies of our products and raw materials and components;

• Our ability to have product manufactured and released from JHS and other manufacturing sites in a timely manner in the future;

• Our ability to have product manufactured and released from JHS and other manufacturing sites in a timely manner in the future, including our ability to negotiate a new manufacturing agreement with JHS for DEFINITY, or to begin and ramp up our manufacturing of DEFINITY at our in-house manufacturing facility in an amount sufficient to meet our supply needs;

• The costs of further commercialization of our existing products, particularly in international markets, including product marketing, sales and distribution and whether we obtain local partners to help share such commercialization costs;

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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 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.

At September 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 September 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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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 six months ended June 30, 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 nine months ended September 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