Item 1. Financial Statements
Item 1. Financial Statements (Unaudited)
Lantheus Holdings, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except par value)
March 31,
2022 December 31,
2021
Assets
Current assets
Cash and cash equivalents $ 105,355 $ 98,508
Accounts receivable, net 172,283 89,336
Inventory 34,249 35,129
Other current assets 12,860 12,818
Total current assets 324,747 235,791
Property, plant and equipment, net 116,959 116,772
Intangibles, net 340,204 348,510
Goodwill 61,189 61,189
Deferred tax assets, net 47,868 62,764
Other long-term assets 42,199 38,758
Total assets $ 933,166 $ 863,784
Liabilities and stockholders’ equity
Current liabilities
Current portion of long-term debt and other borrowings $ 12,878 $ 11,642
Accounts payable 22,383 20,787
Accrued expenses and other liabilities 142,396 58,068
Total current liabilities 177,657 90,497
Asset retirement obligations 21,514 20,833
Long-term debt, net and other borrowings 159,369 163,121
Other long-term liabilities 58,776 124,894
Total liabilities 417,316 399,345
Commitments and contingencies (See Note 19)
Stockholders’ equity
Preferred stock ($ 0.01 par value, 25,000 shares authorized; no shares issued and outstanding)
— —
Common stock ($ 0.01 par value, 250,000 shares authorized; 68,570 and 67,739 shares issued and outstanding, respectively)
686 677
Additional paid-in capital 691,516 685,472
Accumulated deficit ( 178,263 ) ( 221,225 )
Accumulated other comprehensive income (loss) 1,911 ( 485 )
Total stockholders’ equity 515,850 464,439
Total liabilities and stockholders’ equity $ 933,166 $ 863,784
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
Table of Contents
Lantheus Holdings, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(in thousands, except per share data)
Three Months Ended
March 31,
2022 2021
Revenues $ 208,880 $ 92,509
Cost of goods sold 79,810 51,479
Gross profit 129,070 41,030
Operating expenses
Sales and marketing 20,354 14,173
General and administrative 37,588 16,138
Research and development 12,203 10,360
Total operating expenses 70,145 40,671
Gain on sale of assets — 15,263
Operating income 58,925 15,622
Interest expense 1,509 2,718
Gain on extinguishment of debt — ( 889 )
Other income ( 485 ) ( 549 )
Income before income taxes 57,901 14,342
Income tax expense 14,939 5,334
Net income $ 42,962 $ 9,008
Net income per common share:
Basic $ 0.63 $ 0.13
Diluted $ 0.61 $ 0.13
Weighted-average common shares outstanding:
Basic 68,008 67,094
Diluted 70,051 67,714
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
Table of Contents
Lantheus Holdings, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(in thousands)
Three Months Ended
March 31,
2022 2021
Net income $ 42,962 $ 9,008
Other comprehensive income:
Foreign currency translation 140 102
Unrealized gain on cash flow hedges, net of tax 2,256 706
Total other comprehensive income 2,396 808
Comprehensive income $ 45,358 $ 9,816
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Table of Contents
Lantheus Holdings, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)
(in thousands)
Three Months Ended March 31, 2022
Common Stock Additional
Paid-In
Capital Accumulated
Deficit Accumulated
Other
Comprehensive
Income Total
Stockholders’
Equity
Shares Amount
Balance, January 1, 2022 67,739 $ 677 $ 685,472 $ ( 221,225 ) $ ( 485 ) $ 464,439
Net income — — — 42,962 — 42,962
Other comprehensive income — — — — 2,396 2,396
Stock option exercises and employee stock plan purchases 296 3 5,931 — — 5,934
Vesting of restricted stock awards and units 645 7 ( 7 ) — — —
Shares withheld to cover taxes ( 110 ) ( 1 ) ( 5,503 ) — — ( 5,504 )
Stock-based compensation — — 5,623 — — 5,623
Balance, March 31, 2022 68,570 $ 686 $ 691,516 $ ( 178,263 ) $ 1,911 $ 515,850
Three Months Ended March 31, 2021
Common Stock Additional
Paid-In
Capital Accumulated
Deficit Accumulated
Other
Comprehensive
Loss Total
Stockholders’
Equity
Shares Amount
Balance, January 1, 2021 66,875 $ 669 $ 665,530 $ ( 149,946 ) $ ( 2,048 ) $ 514,205
Net income — — — 9,008 — 9,008
Other comprehensive income — — — — 808 808
Stock option exercises and employee stock plan purchases 155 1 2,379 — — 2,380
Vesting of restricted stock awards and units 489 5 ( 5 ) — — —
Shares withheld to cover taxes ( 85 ) ( 1 ) ( 1,598 ) — — ( 1,599 )
Stock-based compensation — — 3,317 — — 3,317
Balance, March 31, 2021 67,434 $ 674 $ 669,623 $ ( 140,938 ) $ ( 1,240 ) $ 528,119
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Table of Contents
Lantheus Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Three Months Ended
March 31,
2022 2021
Operating activities
Net income $ 42,962 $ 9,008
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation, amortization and accretion 11,786 8,123
ARO acceleration 293 —
Amortization of debt related costs 246 ( 61 )
Changes in fair value of contingent assets and liabilities 18,400 300
Gain on extinguishment of debt — ( 889 )
Provision for excess and obsolete inventory 2,519 1,395
Stock-based compensation 5,623 3,317
Gain on sale of assets — ( 15,263 )
Deferred taxes 14,180 4,581
Long-term income tax receivable ( 396 ) ( 573 )
Long-term income tax payable and other long-term liabilities 779 728
Other 829 655
(Decreases) increases in cash from operating assets and liabilities:
Accounts receivable ( 85,155 ) ( 2,346 )
Inventory ( 1,634 ) 3,889
Other current assets ( 104 ) ( 536 )
Other long-term assets ( 533 ) —
Accounts payable 1,506 4,110
Accrued expenses and other liabilities ( 1,037 ) ( 6,620 )
Net cash provided by operating activities 10,264 9,818
Investing activities
Capital expenditures ( 3,190 ) ( 2,520 )
Proceeds from sale of assets, net 1,800 15,823
Net cash (used in) provided by investing activities ( 1,390 ) 13,303
Financing activities
Payments on long-term debt and other borrowings ( 2,609 ) ( 35,572 )
Proceeds from stock option exercises 5,357 2,043
Proceeds from issuance of common stock 577 337
Payments for minimum statutory tax withholding related to net share settlement of equity awards ( 5,504 ) ( 1,599 )
Net cash used in financing activities ( 2,179 ) ( 34,791 )
Effect of foreign exchange rates on cash, cash equivalents and restricted cash 151 ( 21 )
Net increase (decrease) in cash, cash equivalents and restricted cash 6,846 ( 11,691 )
Cash, cash equivalents and restricted cash, beginning of period 100,651 82,694
Cash, cash equivalents and restricted cash, end of period $ 107,497 $ 71,003
5
Table of Contents
Lantheus Holdings, Inc.
Condensed Consolidated Statements of Cash Flows (Continued)
(Unaudited)
(in thousands)
Three Months Ended
March 31,
2022 2021
Reconciliation to amounts within the condensed consolidated balance sheets
Cash and cash equivalents $ 105,355 $ 68,861
Restricted cash included in other long-term assets 2,142 2,142
Cash, cash equivalents and restricted cash at end of period $ 107,497 $ 71,003
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
Table of Contents
Lantheus Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note Regarding Company References and Trademarks
Unless the context otherwise requires, references to the “Company” and “Lantheus” refer to Lantheus Holdings, Inc. and its direct and indirect wholly-owned subsidiaries, references to “Holdings” refer to Lantheus Holdings, Inc. and not to any of its subsidiaries, references to “LMI” refer to Lantheus Medical Imaging, Inc., the direct subsidiary of Holdings, references to “Progenics” refer to Progenics Pharmaceuticals, Inc., a wholly-owned subsidiary of LMI, and references to “EXINI” refer to EXINI Diagnostics AB, a wholly-owned subsidiary of Progenics. Solely for convenience, the Company refers to trademarks, service marks and trade names without the TM, SM and ® symbols. Those references are not intended to indicate, in any way, that the Company will not assert, to the fullest extent permitted under applicable law, its rights to its trademarks, service marks and trade names.
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Holdings and its direct and indirect wholly-owned subsidiaries, including Progenics (as of the Closing Date, as defined below), and have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these condensed consolidated financial statements do not include all of the information and notes required by generally accepted accounting principles in the United States of America (“U.S. GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal and recurring adjustments) considered necessary for a fair statement have been included. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ended December 31, 2022 or any future period.
The condensed consolidated balance sheet at December 31, 2021 has been derived from the audited consolidated financial statements at that date but does not include all the information and notes required by U.S. GAAP for complete financial statements. These condensed consolidated financial statements and accompanying notes should be read in conjunction with the consolidated financial statements and notes thereto included in Item 8 of the Company’s most recent Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities Exchange Commission (“SEC”) on February 24, 2022.
Progenics Acquisition
On June 19, 2020 (the “Closing Date”), pursuant to the Amended and Restated Agreement and Plan of Merger, dated as of February 20, 2020 (the “Merger Agreement”), by and among Holdings, Plato Merger Sub, Inc., a wholly-owned subsidiary of Holdings (“Merger Sub”), and Progenics, Holdings completed the acquisition of Progenics by means of a merger of Merger Sub with and into Progenics, with Progenics surviving such merger as a wholly-owned subsidiary of Holdings (the “Progenics Acquisition”). Subsequently, on June 22, 2020, Holdings contributed all of the capital stock of Progenics to LMI, thereby making Progenics an indirect subsidiary of Holdings.
In accordance with the Merger Agreement, at the effective time of the Progenics Acquisition (the “Effective Time”), each share of Progenics common stock, par value $ 0.0013 per share, issued and outstanding immediately prior to the Effective Time (other than shares of Progenics common stock owned by Holdings, Progenics or any of their wholly-owned subsidiaries) was automatically cancelled and converted into the right to receive (i) 0.31 (the “Exchange Ratio”) of a share of Holdings common stock, par value $ 0.01 per share, and (ii) one contingent value right (a “CVR”) tied to the financial performance of PyL (18F-DCFPyL), Progenics’ prostate-specific membrane antigen (“PSMA”) targeted imaging agent designed to visualize prostate cancer. This agent was approved by the U.S. Food and Drug Administration (“FDA”) on May 26, 2021 under the name PYLARIFY (piflufolastat F 18), and the commercial launch of this agent began in June 2021. Each CVR entitles its holder to receive a pro rata share of aggregate cash payments equal to 40 % of U.S. net sales generated by PYLARIFY in 2022 and 2023 in excess of $ 100.0 million and $ 150.0 million, respectively. In no event will the Company’s aggregate payments in respect of the CVRs, together with any other non-stock consideration treated as paid in connection with the Progenics Acquisition, exceed 19.9 % of the total consideration the Company pays in the Progenics Acquisition (which the Company currently estimates could be approximately $ 100.0 million). The Company expects to issue any applicable cash payments related to the CVRs as early as the first quarter of 2023 and the first quarter of 2024. No fractional shares of Holdings common stock were issued in the Progenics Acquisition, and Progenics’ former stockholders have received cash in lieu of any fractional shares of Holdings common stock. In addition, in accordance with the Merger Agreement, at the Effective Time, each Progenics stock option with a per share exercise price less than or equal to $ 4.42 (an “in-the-money Progenics stock option”) received in exchange for each such in-the money Progenics stock option: (i) an option to purchase Holdings common stock (each, a “Replacement Stock Option”) converted based on the Exchange Ratio, and (ii) a vested or unvested CVR depending on whether the underlying in-the-money Progenics stock option was vested or unvested at the Effective Time. Each Progenics stock option with a per share exercise price greater than $ 4.42 (an “out-of-the-money Progenics stock option”) received in exchange for such out-of-the-money Progenics stock options a Replacement Stock Option converted at an exchange ratio determined based on the average of the
7
Table of Contents
volume weighted average price per share of common stock of Progenics and Lantheus Holdings prior to the Effective Time, which exchange ratio was 0.31 , the same as the Exchange Ratio. As a result of the acquisition, Holdings issued 26,844,877 shares of Holdings common stock and 86,630,633 CVRs to former Progenics stockholders and option holders.
2. Summary of Significant Accounting Policies
Recent Accounting Pronouncements
The Company has not adopted any new accounting standards during the three months ended March 31, 2022 .
3. Revenue from Contracts with Customers
The following table summarizes revenue by revenue source as follows:
Three Months Ended
March 31,
Major Products/Service Lines (in thousands) 2022 2021
Product revenue, net (1)
$ 180,009 $ 87,319
License and royalty revenues (2)
28,871 5,190
Total revenues $ 208,880 $ 92,509
________________________________
(1) The Company’s principal products include PYLARIFY, DEFINITY and TechneLite and are categorized within product revenue, net. The Company applies the same revenue recognition policies and judgments for all its principal products.
(2) The Company recognized $ 24.0 million license revenue in the first quarter of 2022 related to an agreement with Novartis Pharma AG. Please refer to Note 19, “Commitments and Contingencies” for further details on the license agreement.
The Company classifies its revenues into three product categories: precision diagnostics, radiopharmaceutical oncology, and strategic partnerships and other revenue. Precision diagnostics includes DEFINITY, TechneLite and other imaging diagnostic products. Radiopharmaceutical oncology consists primarily of PYLARIFY and AZEDRA. Strategic partnerships and other revenue includes strategic partnerships and other arrangements related to other products of the Company, such as royalty revenue from our license of RELISTOR.
On January 31, 2022, the Company entered into a global settlement agreement with Novartis Pharma AG (“Novartis”), Advanced Accelerator Applications USA, Inc. (“AAA”), Endocyte, Inc. (“Endocyte”) and their affiliates (the “Novartis Agreement”) to settle certain disputes between the parties. Under the Novartis Agreement, Novartis agreed to make a lump sum payment to the Company, as well as to reimburse the Company for certain fees and expenses in connection with the German litigation (please refer to Note 19 “Commitments and Contingencies”) and the Company agreed to license certain intellectual property to Novartis. In addition, the Company agreed to supply PYLARIFY for clinical purposes at an arms-length value which will be recorded in the future as product is provided. In accordance with the Company's ASC 606, Revenue from Contracts with Customers , assessment, Novartis is considered to be a customer. The Company determined that the $ 24.0 million constituted a single element which was satisfied on the date of the execution of the Novartis Agreement. The Company determined that the license of intellectual property carried a fair value of $ 24.0 million. As such, the Company assigned the value to the fair value of the license, which constitutes the entire transaction price and does not require further allocation. The Company determined that the $ 24.0 million represented the point at which the licensee was able to use and benefit from the license and recognized revenue when the license was granted to Novartis upon execution of the Novartis Agreement. The Company recognized the $ 24.0 million fee as revenue on its consolidated statement of operations for the quarter ended March 31, 2022. The Company received the $ 24.0 million payment in April 2022.
Revenue by product category on a net basis is as follows:
8
Table of Contents
Three Months Ended
March 31,
(in thousands) 2022 2021
DEFINITY $ 58,328 $ 55,971
TechneLite 22,605 22,800
Other precision diagnostics 5,265 6,984
Total precision diagnostics 86,198 85,755
PYLARIFY 92,777 —
Other radiopharmaceutical oncology 1,327 1,500
Total radiopharmaceutical oncology 94,104 1,500
Strategic partnerships and other revenue 28,578 5,254
Total revenues $ 208,880 $ 92,509
The Company’s performance obligations are typically part of contracts that have an original expected duration of one year or less. As such, the Company is not disclosing the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied (or partially satisfied) as of the end of the reporting period.
4. Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability of fair value measurements, financial instruments are categorized based on a hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:
• Level 1 — Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
• Level 2 — Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.) and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
• Level 3 — Unobservable inputs that reflect a Company’s estimates about the assumptions that market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available, including its own data.
The Company’s financial assets and liabilities measured at fair value on a recurring basis consist of money market funds, interest rate swaps, a contingent receivable and contingent consideration liabilities. The Company invests excess cash from its operating cash accounts in overnight investments and reflects these amounts in cash and cash equivalents in the condensed consolidated balance sheets at fair value using quoted prices in active markets for identical assets. The fair value of the interest rate swaps is determined based on observable market-based inputs, including interest rate curves and reflects the contractual terms of these instruments, including the period to maturity. Please refer to Note 13, “Derivative Instruments”, for further details on the interest rate swaps. The Company recorded a contingent receivable and the contingent consideration liabilities resulting from the Progenics Acquisition at fair value based on inputs that are not observable in the market.
9
Table of Contents
The tables below present information about the Company’s assets and liabilities measured at fair value on a recurring basis:
March 31, 2022
(in thousands) Total Fair
Value Level 1 Level 2 Level 3
Assets:
Money market $ 38,986 $ 38,986 $ — $ —
Interest rate swaps 3,387 — 3,387 —
Contingent receivable 8,900 — — 8,900
Total assets $ 51,273 $ 38,986 $ 3,387 $ 8,900
Liabilities:
Contingent consideration liabilities $ 104,200 $ — $ — $ 104,200
Total liabilities $ 104,200 $ — $ — $ 104,200
December 31, 2021
(in thousands) Total Fair
Value Level 1 Level 2 Level 3
Assets:
Money market $ 40,140 $ 40,140 $ — $ —
Interest rate swaps 357 — 357 —
Contingent receivable 9,300 — — 9,300
Total assets $ 49,797 $ 40,140 $ 357 $ 9,300
Liabilities:
Contingent consideration liabilities $ 86,200 $ — $ — $ 86,200
Total liabilities $ 86,200 $ — $ — $ 86,200
During the three months ended March 31, 2022, there were no transfers into or out of Level 3.
As part of the Progenics Acquisition, the Company acquired the right to receive certain future milestone and royalty payments due to Progenics from CytoDyn Inc. related to a prior sale of certain intellectual property. The Company has the right to receive $ 5.0 million upon regulatory approval and a 5 % royalty on net sales of approved products. The Company considers the contingent receivable a Level 3 instrument (one with significant unobservable inputs) in the fair value hierarchy. The estimated fair value was determined based on probability adjusted discounted cash flows that included significant estimates and assumptions pertaining to regulatory events and sales targets. The most significant unobservable inputs are the probabilities of achieving regulatory approval of the development projects and subsequent commercial success.
As part of the Progenics Acquisition, the Company issued CVRs and recorded the fair value as part of consideration transferred. Each CVR entitles its holder to receive a pro rata share of aggregate cash payments equal to 40 % of U.S. net sales generated by PYLARIFY in 2022 and 2023 in excess of $ 100.0 million and $ 150.0 million, respectively, subject to a maximum cap (which the Company currently estimates could be approximately $ 100.0 million). Refer to Note 1, “Basis of Presentation” for further details on the CVRs. Additionally, the Company assumed contingent consideration liabilities related to a previous acquisition completed by Progenics in 2013 (“2013 Acquisition”). These contingent consideration liabilities include potential payments of up to $ 70.0 million if the Company attains certain net sales targets primarily for AZEDRA and 1095 and a $ 5.0 million 1095 commercialization milestone. Additionally, there is a potential payment of up to $ 10.0 million related to a 1404 commercialization milestone. The Company’s total potential payments related to the 2013 Acquisition are approximately $ 85.0 million. The Company considers the contingent consideration liabilities relating to the CVRs and the 2013 Acquisition, each a Level 3 instrument (one with significant unobservable inputs) in the fair value hierarchy. The estimated fair value of these was determined based on probability adjusted discounted cash flows and Monte Carlo simulation models that included significant estimates and assumptions pertaining to commercialization events and sales targets. The most significant unobservable inputs with respect to 1095 and 1404 are the probabilities of achieving regulatory approval of those development projects and subsequent commercial success.
Significant changes in any of the probabilities of success, the probabilities as to the periods in which sales targets and milestones will be achieved, discount rates or underlying revenue forecasts would result in a significantly higher or lower fair value measurement. The Company records the contingent consideration liability at fair value with changes in estimated fair values recorded in general and administrative expenses in the condensed consolidated statements of operations. The Company can give no assurance that the actual
10
Table of Contents
amounts paid, if any, in connection with the contingent consideration liabilities, including the CVRs, will be consistent with any recurring fair value estimate of such contingent consideration liabilities.
The following tables summarize quantitative information and assumptions pertaining to the fair value measurement of assets and liabilities using Level 3 inputs at March 31, 2022.
Fair Value at Assumptions
(in thousands) March 31, 2022 December 31, 2021 Valuation Technique Unobservable Input March 31, 2022 December 31, 2021
Contingent receivable:
Regulatory milestone $ 2,500 $ 2,500 Probability adjusted discounted cash flow model Period of expected milestone achievement 2022 2022
Probability of success 70 % 70 %
Discount rate 18 % 17 %
Royalties 6,400 6,800 Probability adjusted discounted cash flow model
Probability of success 10 % - 60 %
10 % - 60 %
Discount rate 18 % 17 %
Total $ 8,900 $ 9,300
Fair Value at Assumptions
(in thousands) March 31, 2022 December 31, 2021 Valuation Technique Unobservable Input March 31, 2022 December 31, 2021
Contingent consideration liability:
Net sales targets - PYLARIFY (CVRs) $ 91,700 $ 73,200 Monte Carlo simulation Period of expected milestone achievement and sales targets 2022 - 2023 2022 - 2023
Discount rate 18 % 17 %
1095 commercialization milestone 1,800 1,900 Probability adjusted discounted cash flow model
Period of expected milestone achievement 2026 2026
Probability of success 40 % 40 %
Discount rate 2.1 % 1.3 %
Net sales targets - AZEDRA and 1095 10,700 11,100 Monte Carlo simulation
Probability of success and sales targets 40 % - 100 %
40 % - 100 %
Discount rate 17 % - 18 %
16 % - 17 %
Total $ 104,200 $ 86,200
For those financial instruments with significant Level 3 inputs, the following table summarizes the activities for the periods indicated:
11
Table of Contents
Financial Assets Financial Liabilities
(in thousands) Three Months Ended
March 31, Three Months Ended
March 31,
2022 2021 2022 2021
Fair value, beginning of period $ 9,300 $ 11,300 $ 86,200 $ 15,800
Changes in fair value included in net income ( 400 ) 900 18,000 1,200
Fair value, end of period $ 8,900 $ 12,200 $ 104,200 $ 17,000
The change in fair value of the contingent financial asset and contingent financial liabilities, including the CVRs, resulted in an expense of $ 18.4 million for the three months ended March 31, 2022 and was primarily due to changes in revenue forecasts, changes in market conditions, an increase in discount rates and the passage of time. The Company expects to issue any applicable cash payments related to the CVRs as early as the first quarter of 2023 and the first quarter of 2024. As of March 31, 2022, the Company has $ 83.3 million in current liabilities and $ 8.4 million in long term liabilities to account for the expected payments related to the CVRs.
5. Income Taxes
The Company calculates income taxes at the end of each reporting period based on the estimated effective tax rate for the full year, adjusted for any discrete events which are recorded in the period they occur. Cumulative adjustments to the tax provision are recorded in the reporting period in which a change in the estimated annual effective tax rate is determined. The Company’s income tax expense is presented below:
Three Months Ended
March 31,
(in thousands) 2022 2021
Income tax expense $ 14,939 $ 5,334
The Company regularly assesses its ability to realize its deferred tax assets. Assessing the realizability of deferred tax assets requires significant management judgment. In determining whether its deferred tax assets are more-likely-than-not realizable, the Company evaluated all available positive and negative evidence, and weighed the objective evidence and expected impact. The Company assessed the need for a valuation allowance against certain state tax credit carryforwards added through the Progenics Acquisition. The Company continues to retain other valuation allowances of $ 1.2 million against the net deferred tax assets of its U.K. subsidiary, and $ 2.0 million against the net deferred tax assets of its Sweden subsidiary.
In connection with the Company’s acquisition of the medical imaging business from Bristol-Myers Squibb (“BMS”) in 2008, the Company recorded a liability for uncertain tax positions related to the acquired business and simultaneously entered into a tax indemnification agreement with BMS under which BMS agreed to indemnify the Company for any payments made to settle those uncertain tax positions with the state taxing authorities. Accordingly, a long-term receivable is recorded to account for the expected value to the Company of future indemnification payments to be paid on behalf of the Company by BMS, net of actual tax benefits received by the Company. The tax indemnification receivable is recorded within other long-term assets.
In accordance with the Company’s accounting policy, the change in the tax liabilities, penalties and interest associated with these obligations (net of any offsetting federal or state benefit) is recognized within income tax expense. As these reserves change adjustments are included in income tax expense while the offsetting adjustment is included in other income. Assuming that the remaining receivable from BMS continues to be considered recoverable by the Company, there will be no effect on net income and no net cash outflows related to these liabilities.
The Company finalized the accounting for the Progenics Acquisition for income taxes in the first quarter of 2021 resulting in a reduction of deferred tax assets, primarily related to state research credit carryforwards and an increase to goodwill of $ 2.6 million.
6. Inventory
Inventory consisted of the following:
12
Table of Contents
(in thousands) March 31,
2022 December 31,
2021
Raw materials $ 13,861 $ 15,505
Work in process 13,071 13,042
Finished goods 7,317 6,582
Total inventory $ 34,249 $ 35,129
Inventory costs associated with products that have not yet received regulatory approval are capitalized if the Company believes there is probable future commercial use of the product and future economic benefit of the asset. If future commercial use of the product is not probable, then inventory costs associated with such product are expensed during the period the costs are incurred. As of December 31, 2021, the Company had $ 6.1 million of such product costs included in inventories related to DEFINITY that had been manufactured through the Company’s in-house manufacturing capabilities. The Company received regulatory approval for the manufacture of DEFINITY at its new in-house manufacturing facility during the first quarter of 2022 and has no inventory pending regulatory approval as of March 31, 2022.
7. Property, Plant and Equipment, Net
Property, plant and equipment, net, consisted of the following:
(in thousands) March 31,
2022 December 31,
2021
Land $ 13,450 $ 13,450
Buildings 73,560 73,559
Machinery, equipment and fixtures 84,983 83,608
Computer software 24,766 24,384
Construction in progress 12,186 10,686
208,945 205,687
Less: accumulated depreciation and amortization ( 91,986 ) ( 88,915 )
Total property, plant and equipment, net $ 116,959 $ 116,772
Depreciation and amortization expense related to property, plant and equipment, net, was $ 3.1 million and $ 3.0 million for the three months ended March 31, 2022 and 2021, respectively.
8. Accrued Expenses and Other Liabilities and Other Long-Term Liabilities
Accrued expenses and other liabilities and other long-term liabilities are comprised of the following:
(in thousands) March 31,
2022 December 31,
2021
Compensation and benefits $ 10,629 $ 22,730
Freight, distribution and operations 26,581 16,157
Accrued rebates, discounts and chargebacks 10,793 10,977
Accrued professional fees 3,596 2,850
Short-term contingent liability (Note 4) 83,300 —
Other 7,497 5,354
Total accrued expenses and other liabilities $ 142,396 $ 58,068
Operating lease liabilities (Note 16) $ 16,207 $ 16,546
Long-term contingent liability (Note 4) 20,900 86,200
Other long-term liabilities 21,669 22,148
Total other long-term liabilities $ 58,776 $ 124,894
9. Sale of Puerto Rico Subsidiary
During the fourth quarter of 2020, the Company entered into a stock purchase agreement (the “SPA”) with one of its existing radiopharmacy customers to sell all the stock of its Puerto Rico radiopharmacy subsidiary. The assets were classified as held for sale
13
Table of Contents
and the Company determined that the fair value of the net assets being sold significantly exceeded the carrying value as of December 31, 2020. The transaction was consummated on January 29, 2021.
The purchase price for the stock sale was $ 18.0 million in cash, including a holdback amount of $ 1.8 million which the Company received during the first quarter of 2022; the purchase price also included a working capital adjustment. The SPA contains customary representations, warranties and covenants by each of the parties. Subject to certain limitations, the buyer will be indemnified for damages resulting from breaches or inaccuracies of the Company’s representations, warranties and covenants in the SPA.
The Company determined that this sale of certain net assets did not constitute a strategic shift that had a major effect on the Company’s operations or financial results. As a result, this transaction was not classified as discontinued operations in the Company’s accompanying condensed consolidated financial statements.
The following table summarizes the major classes of assets and liabilities sold as of January 29, 2021 (date of sale):
(in thousands)
January 29, 2021
Current Assets:
Cash and cash equivalents
$ 540
Accounts receivable, net
1,959
Inventory
530
Other current assets
65
Total current assets
3,094
Non-Current Assets:
Property, plant & equipment, net
780
Intangibles, net
96
Other long-term assets
774
Total assets held for sale
$ 4,744
Current Liabilities:
Accounts payable
$ 185
Accrued expense and other liabilities
369
Total current liabilities
554
Non-Current Liabilities:
Asset retirement obligations
306
Other long-term liabilities
588
Total liabilities held for sale
$ 1,448
The sale resulted in a pre-tax book gain of $ 15.3 million, which was recorded within operating income in the condensed consolidated statements of operations for the three months ended March 31, 2021.
10. Asset Retirement Obligations
The Company considers its legal obligation to remediate its facilities upon a decommissioning of its radioactive-related operations as an asset retirement obligation. The Company has production facilities which manufacture and process radioactive materials at its North Billerica, Massachusetts and Somerset, New Jersey sites. As of March 31, 2022, the liability is measured at the present value of the obligation expected to be incurred, of approximately $ 26.4 million.
The following table provides a summary of the changes in the Company’s asset retirement obligations:
14
Table of Contents
(in thousands) Amount
Balance at January 1, 2022 $ 20,833
Accretion expense 388
Accelerated Costs 293
Balance at March 31, 2022 $ 21,514
In December 2021, the Company evaluated the accretion timeline of an asset group due to a revision in the planned period of use at the North Billerica site. As a result of the accelerated timeline, the Company determined the asset group’s present value exceeded the current value recorded as of December 31, 2021. Accordingly, the Company recorded a non-cash adjustment of $ 5.3 million to anticipate a revision in the end of useful life by the end of 2022.
The Company is required to provide the Massachusetts Department of Public Health and New Jersey Department of Environmental Protection financial assurance demonstrating the Company’s ability to fund the decommissioning of its North Billerica, Massachusetts and Somerset, New Jersey production facilities upon closure, although the Company has no current plans to close the facilities. The Company has provided this financial assurance in the form of a $ 28.2 million surety bond.
11. Intangibles, Net
Intangibles, net, consisted of the following:
March 31, 2022
(in thousands) Useful Lives
(in years) Amortization Method Cost Accumulated Amortization Net
Trademarks 15 - 25
Straight-Line $ 13,540 $ ( 11,648 ) $ 1,892
Customer relationships 15 - 25
Accelerated 96,962 ( 94,856 ) 2,106
Currently marketed products 9 - 15
Straight-Line 275,700 ( 29,416 ) 246,284
Licenses 11 - 16
Straight-Line 85,800 ( 13,441 ) 72,359
Developed technology 9 Straight-Line 2,400 ( 477 ) 1,923
IPR&D N/A N/A 15,640 — 15,640
Total $ 490,042 $ ( 149,838 ) $ 340,204
December 31, 2021
(in thousands) Useful Lives
(in years) Amortization Method Cost Accumulated Amortization Net
Trademarks 15 - 25
Straight-Line $ 13,540 $ ( 11,510 ) $ 2,030
Customer relationships 15 - 25
Accelerated 96,880 ( 94,630 ) 2,250
Currently marketed product 9 - 15
Straight-Line 275,700 ( 23,345 ) 252,355
Licenses 11 - 16
Straight-Line 85,800 ( 11,555 ) 74,245
Developed technology 9 Straight-Line 2,400 ( 410 ) 1,990
IPR&D N/A N/A 15,640 — 15,640
Total $ 489,960 $ ( 141,450 ) $ 348,510
The Company recorded amortization expense for its intangible assets of $ 8.3 million and $ 4.7 million for the three months ended March 31, 2022 and 2021, respectively.
In May 2021, PyL (18F-DCFPyL) was approved by the FDA under the name PYLARIFY. Accordingly, the Company reclassified the associated asset of $ 132.8 million from IPR&D to currently marketed products and commenced amortization of the asset.
15
Table of Contents
The below table summarizes the estimated aggregate amortization expense expected to be recognized on the above intangible assets:
(in thousands) Amount
Remainder of 2022 $ 24,923
2023 32,634
2024 32,563
2025 32,508
2026 32,497
2027 and thereafter 169,439
Total $ 324,564
12. Long-Term Debt, Net, and Other Borrowings
As of March 31, 2022, the Company’s maturities of principal obligations under its long-term debt and other borrowings are as follows:
(in thousands) Amount
Remainder of 2022 $ 8,750
2023 15,000
2024 148,750
Total principal outstanding 172,500
Unamortized debt discount ( 448 )
Unamortized debt issuance costs ( 387 )
Finance lease liabilities 582
Total 172,247
Less: current portion ( 12,878 )
Total long-term debt, net and other borrowings $ 159,369
At March 31, 2022, the Company’s interest rate under the five-year secured term loan facility, which matures on June 30, 2024 (the “2019 Term Facility” and the loans thereunder, the “2019 Term Loans”) was 2.2 %.
On March 31, 2021, the Company voluntarily repaid in full the entire outstanding principal on the original $ 50.0 million loan agreement (the “Royalty-Backed Loan”) with a fund managed by HealthCare Royalty Partners III, L.P. in the amount of $ 30.9 million, which included a prepayment amount of $ 0.5 million, and terminated the agreement governing the Royalty-Backed Loan. The Company recorded a gain on extinguishment of debt of $ 0.9 million related to the write-off of an unamortized debt premium offset by the prepayment amount.
13. Derivative Instruments
The Company uses interest rate swaps to reduce the variability in cash flows associated with a portion of the Company’s forecasted interest payments on its variable rate debt. In March 2020, the Company entered into interest rate swap contracts to fix the LIBOR rate on a notional amount of $ 100.0 million through May 31, 2024. The average fixed LIBOR rate on the interest rate swaps is approximately 0.82 %. This agreement involves the receipt of floating rate amounts in exchange for fixed rate interest payments over the life of the agreement without an exchange of the underlying principal amount. The interest rate swaps were designated as cash flow hedges. In accordance with hedge accounting, the interest rate swaps are recorded on the Company’s condensed consolidated balance sheets at fair value, and changes in the fair value of the swap agreements are recorded to other comprehensive loss and reclassified to interest expense in the period during which the hedged transaction affected earnings or it will become probable that the forecasted transaction would not occur. At March 31, 2022, accumulated other comprehensive income included $ 1.0 million of pre-tax deferred gains that are expected to be reclassified to earnings during the next 12 months.
The following table presents the location and fair value amounts of derivative instruments reported in the condensed consolidated balance sheets:
16
Table of Contents
(in thousands) March 31, 2022 December 31, 2021
Derivatives type Classification
Assets:
Interest rate swap Other long-term assets $ 3,387 $ 357
14. Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss), net of tax of $ 0.9 million and $ 0.2 million for the three months ended March 31, 2022 and 2021, respectively, consisted of the following:
(in thousands) Foreign currency translation Unrealized loss on cash flow hedges Accumulated other comprehensive loss
Balance at January 1, 2022 $ ( 754 ) $ 269 $ ( 485 )
Other comprehensive income before reclassifications 140 2,086 2,226
Amounts reclassified to earnings — 170 170
Balance at March 31, 2022 $ ( 614 ) $ 2,525 $ 1,911
Balance at January 1, 2021 $ ( 630 ) $ ( 1,418 ) $ ( 2,048 )
Other comprehensive loss before reclassifications 102 533 635
Amounts reclassified to earnings — 173 173
Balance at March 31, 2021 $ ( 528 ) $ ( 712 ) $ ( 1,240 )
15. Stock-Based Compensation
The following table presents stock-based compensation expense recognized in the Company’s accompanying condensed consolidated statements of operations:
Three Months Ended
March 31,
(in thousands) 2022 2021
Cost of goods sold $ 912 $ 622
Sales and marketing 1,013 350
General and administrative 3,002 1,920
Research and development 696 425
Total stock-based compensation expense $ 5,623 $ 3,317
17
Table of Contents
16. Leases
Operating and finance lease assets and liabilities are as follows:
(in thousands) Classification March 31,
2022 December 31,
2021
Assets
Operating Other long-term assets $ 8,675 $ 8,788
Finance Property, plant and equipment, net 602 556
Total leased assets $ 9,277 $ 9,344
Liabilities
Current
Operating Accrued expenses and other liabilities $ 1,619 $ 1,599
Finance Current portion of long-term debt and other borrowings 378 392
Noncurrent
Operating Other long-term liabilities 16,207 16,546
Finance Long-term debt, net and other borrowings 204 299
Total leased liabilities $ 18,408 $ 18,836
17. Net Income Per Common Share
A summary of net income per common share is presented below:
Three Months Ended
March 31,
(in thousands, except per share amounts) 2022 2021
Net income $ 42,962 $ 9,008
Basic weighted-average common shares outstanding 68,008 67,094
Effect of dilutive stock options 406 82
Effect of dilutive restricted stock 1,637 538
Diluted weighted-average common shares outstanding 70,051 67,714
Basic income per common share $ 0.63 $ 0.13
Diluted income per common share $ 0.61 $ 0.13
Antidilutive securities excluded from diluted net income per common share 377 1,349
18. Other Income
Other income consisted of the following:
Three Months Ended
March 31,
(in thousands) 2022 2021
Foreign currency (gains) losses $ ( 81 ) $ 42
Tax indemnification income, net ( 396 ) ( 573 )
Interest income ( 8 ) ( 17 )
Other — ( 1 )
Total other income $ ( 485 ) $ ( 549 )
18
Table of Contents
19. Commitments and Contingencies
Legal Proceedings
From time to time, the Company is a party to various legal proceedings arising in the ordinary course of business. In addition, the Company has in the past been, and may in the future be, subject to investigations by governmental and regulatory authorities, which expose it to greater risks associated with litigation, regulatory or other proceedings, as a result of which the Company could be required to pay significant fines or penalties. The costs and outcome of litigation, regulatory or other proceedings cannot be predicted with certainty, and some lawsuits, claims, actions or proceedings may be disposed of unfavorably to the Company and could have a material adverse effect on the Company’s results of operations or financial condition. In addition, intellectual property disputes often have a risk of injunctive relief which, if imposed against the Company, could materially and adversely affect its financial condition or results of operations. If a matter is both probable to result in material liability and the amount of loss can be reasonably estimated, the Company estimates and discloses the possible material loss or range of loss. If such loss is not probable or cannot be reasonably estimated, a liability is not recorded in its condensed consolidated financial statements.
As of March 31, 2022, the Company did not have any material ongoing litigation in which the Company was a party. During the first quarter of 2022, the Company was able to resolve certain litigation matters as set forth below:
On January 31, 2022, the Company entered into a global settlement agreement with Novartis, AAA, Endocyte and certain of their affiliates to settle certain disputes between the parties, as further described below:
German PSMA-617 Litigation
On November 8, 2018, Molecular Insight Pharmaceuticals, Inc., a subsidiary of Progenics (“MIP”), filed a complaint against the University of Heidelberg (the “University”) in the District Court in Mannheim, Germany (the “German District Court” and, such litigation, the “German Litigation”). In this Complaint, MIP claimed that the discovery and development of PSMA-617 was related to work performed under a research collaboration sponsored by MIP. MIP alleged that the University breached certain contracts with MIP and that MIP is the co-owner of inventions embodied in certain worldwide patent filings related to PSMA-617 that were filed by the University. On February 27, 2019, Endocyte, a wholly owned subsidiary of Novartis, filed a motion to intervene in the German Litigation. Endocyte is the exclusive licensee of the patent rights that are the subject of the German proceedings.
In connection with this dispute, MIP filed a Confirmation of Ownership with the United States Patent and Trademark Office (“USPTO”) for certain U.S. patent applications filed by the University to support MIPs claim that it is the co-owner of these pending U.S. patent applications (the “Ownership Claim”).
On February 27, 2019, the German District Court set € 0.4 million as the amount MIP must deposit with the German District Court as security in the event of an unfavorable final decision on the merits of the dispute. On August 24, 2020, the German District Court issued its decision dismissing MIP’s claims, stating that MIP failed to discharge its burden of proof in the matter.
MIP filed a Notice of Appeal of the German District Court’s decision on September 24, 2020 and filed its appeal brief on November 26, 2020. The University and Endocyte each filed oppositions to MIP’s Notice of Appeal on March 12, 2021 and an oral hearing for the appeal was scheduled for September 28, 2022, at the Higher Regional Court Karlsruhe.
Pursuant to the terms of the Novartis Agreement, the German Litigation was dismissed and the Ownership Claim withdrawn.
Post-Grant Review Proceeding
On February 4, 2021, AAA, a wholly-owned subsidiary of Novartis and parent of Endocyte, filed a petition for post-grant review of U.S. Patent No. 10,640,461 (the “’461 patent”) with the Patent Trial and Appeal Board (“PTAB”) of the USPTO. The ’461 patent is owned by MIP. In the petition, AAA challenged the patentability of certain claims of the ’461 patent. The PTAB instituted Post-Grant Review proceedings (the “PGR Proceeding”) on July 29, 2021. Pursuant to the terms of the Novartis Agreement, the PGR Proceeding was terminated.
Global Settlement Agreement
In addition to the dismissal of the German Litigation, the withdrawal of the Ownership Claim and the termination of the PGR Proceeding, under the Novartis Agreement, the parties, among other things, cross-licensed certain patent rights to one another, and Novartis made a $ 24.0 million lump sum payment to the Company and also reimbursed the Company for certain fees and expenses the Company is required to pay to the University in connection with the German Litigation. The Company received the $ 24.0 million payment in April 2022.
RELISTOR European Opposition Proceedings
19
Table of Contents
In October 2015, Progenics received notices of opposition to three European patents relating to methylnaltrexone: EP1615646, EP2368553 and EP2368554. Notices of opposition were filed separately at the European Patent Office (the “EPO”) by each of Actavis Group PTC ehf and Fresenius Kabi Deutschland GmbH. Between May 11, 2017 and July 4, 2017, the Opposition Division of the EPO (the “Opposition Division”) provided notice that the three European patents would be revoked. Each of these matters was appealed to the Appeal Board of the EPO. On November 13, 2020, Progenics withdrew the appeal for EP2368553 and EP2368554. Notices of termination of the proceedings with revocation of the patent were issued on November 23, 2020 for both patents.
Progenics continued its appeal on the revocation of the third patent, EP1615646. Oral proceedings for EP1615646 were held at the Appeal Board of the EPO on September 22, 2020. The revocation decision under appeal was set aside and the case was remitted to the Opposition Division for further prosecution. An oral hearing was held before the Opposition Division on September 27, 2021. The Opposition Division issued its final written opinion on November 11, 2021, indicating that the patent will be maintained in amended form. The final written decision of the Opposition Division was appealable to the Appeal Board of the EPO by either party. Progenics appealed this decision on January 20, 2022 to hold open its option to file Grounds for Appeal. Given that neither opponent filed a Notice of Appeal, Progenics withdrew its Notice of Appeal on February 23, 2022. The Opposition Division communicated the Closure of Opposition Proceedings on March 7, 2022. The patent will proceed to issuance, in amended form, with the payment of publication fees and submission of translated claims by June 11, 2022.
20. Segment Information
In the first quarter of fiscal year 2021, the Company completed the evaluation of its operating and reporting structure, including the impact on the Company’s business of the acquisition of Progenics described in Note 1, and the sale of the Puerto Rico subsidiary in the first quarter, which resulted in a change in operating and reportable segments. The Company now operates as one business segment: the development, manufacture and sale of innovative imaging diagnostics, targeted therapeutics, and artificial intelligence solutions to Find, Fight and Follow serious medical conditions. This conclusion reflects the Company’s focus on the performance of the business on a consolidated worldwide basis. The results of this operating segment are regularly reviewed by the Company’s chief operating decision maker, the President and Chief Executive Officer. The Company’s chief operating decision maker does not manage any part of the Company separately, and the allocation of resources and assessment of performance are based on the Company’s consolidated operating results.
20
Table of Contents