Lantheus Holdings, Inc. 10-Q

Item 1. Financial Statements (Unaudited) Lantheus Holdings, Inc. Condensed Consolidated Balance Sheets (Unaudited) (in thousands, except par value) September 30, 2022 December 31, 2021 Assets Current assets Cash and cash equivalents $ 257,259 $ 98,508 Accounts receivable, net 197,276 89,336 Inventory 34,793 35,129 Other current assets 12,570 12,818 Total current assets 501,898 235,791 Property, plant and equipment, net 120,826 116,772 Intangibles, net 323,591 348,510 Goodwill 61,189 61,189 Deferred tax assets, net 46,806 62,764 Other long-term assets 41,628 38,758 Total assets $ 1,095,938 $ 863,784 Liabilities and stockholders’ equity Current liabilities Current portion of long-term debt and other borrowings $ 15,372 $ 11,642 Accounts payable 30,135 20,787 Accrued expenses and other liabilities 190,477 58,068 Total current liabilities 235,984 90,497 Asset retirement obligations 23,358 20,833 Long-term debt, net and other borrowings 152,057 163,121 Other long-term liabilities 46,489 124,894 Total liabilities 457,888 399,345 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; 68,809 and 67,739 shares issued and outstanding, respectively) 688 677 Additional paid-in capital 708,341 685,472 Accumulated deficit ( 73,973 ) ( 221,225 ) Accumulated other comprehensive income (loss) 2,994 ( 485 ) Total stockholders’ equity 638,050 464,439 Total liabilities and stockholders’ equity $ 1,095,938 $ 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 September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Revenues $ 239,292 $ 102,073 $ 671,895 $ 295,646 Cost of goods sold 91,859 59,404 257,363 165,859 Gross profit 147,433 42,669 414,532 129,787 Operating expenses Sales and marketing 25,414 17,195 73,260 48,999 General and administrative 23,759 28,550 93,945 87,865 Research and development 12,517 11,252 39,455 33,673 Total operating expenses 61,690 56,997 206,660 170,537 Gain on sale of assets — — — 15,263 Operating income (loss) 85,743 ( 14,328 ) 207,872 ( 25,487 ) Interest expense 1,626 1,569 4,604 6,224 Gain on extinguishment of debt — — — ( 889 ) Other income 1,101 3,940 306 3,209 Income (loss) before income taxes 83,016 ( 19,837 ) 202,962 ( 34,031 ) Income tax expense (benefit) 21,784 ( 6,422 ) 55,710 ( 2,967 ) Net income (loss) $ 61,232 $ ( 13,415 ) $ 147,252 $ ( 31,064 ) Net income (loss) per common share: Basic $ 0.89 $ ( 0.20 ) $ 2.15 $ ( 0.46 ) Diluted $ 0.86 $ ( 0.20 ) $ 2.08 $ ( 0.46 ) Weighted-average common shares outstanding: Basic 68,756 67,623 68,482 67,409 Diluted 71,075 67,623 70,669 67,409 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 September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Net income (loss) $ 61,232 $ ( 13,415 ) $ 147,252 $ ( 31,064 ) Other comprehensive income: Foreign currency translation ( 379 ) ( 240 ) ( 463 ) 55 Unrealized gain on cash flow hedges, net of tax 1,049 98 3,942 851 Total other comprehensive income (loss) 670 ( 142 ) 3,479 906 Comprehensive income (loss) $ 61,902 $ ( 13,557 ) $ 150,731 $ ( 30,158 ) 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) Nine Months Ended September 30, 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 Net income — — — 43,058 — 43,058 Other comprehensive income — — — — 413 413 Stock option exercises and employee stock plan purchases 61 1 1,422 — — 1,423 Vesting of restricted stock awards and units 108 1 ( 1 ) — — — Shares withheld to cover taxes ( 13 ) ( 1 ) ( 823 ) — — ( 824 ) Stock-based compensation — — 7,412 — — 7,412 Balance, June 30, 2022 68,726 $ 687 $ 699,526 $ ( 135,205 ) $ 2,324 $ 567,332 Net income — — — 61,232 — 61,232 Other comprehensive income — — — — 670 670 Stock option exercises and employee stock plan purchases 53 1 1,555 — — 1,556 Vesting of restricted stock awards and units 41 1 ( 1 ) — — — Shares withheld to cover taxes ( 11 ) ( 1 ) ( 842 ) — — ( 843 ) Stock-based compensation — — 8,103 — — 8,103 Balance, September 30, 2022 68,809 $ 688 $ 708,341 $ ( 73,973 ) $ 2,994 $ 638,050 4 Table of Contents Nine Months Ended September 30, 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 Net loss — — — ( 26,657 ) — ( 26,657 ) Other comprehensive income — — — — 240 240 Stock option exercises and employee stock plan purchases 116 1 2,042 — — 2,043 Vesting of restricted stock awards and units 51 1 ( 1 ) — — — Shares withheld to cover taxes ( 9 ) — ( 193 ) — — ( 193 ) Stock-based compensation — — 4,588 — — 4,588 Balance, June 30, 2021 67,592 $ 676 $ 676,059 $ ( 167,595 ) $ ( 1,000 ) $ 508,140 Net loss — — — ( 13,415 ) — ( 13,415 ) Other comprehensive loss — — — — ( 142 ) ( 142 ) Stock option exercises and employee stock plan purchases 48 1 960 — — 961 Vesting of restricted stock awards and units 23 — — — — — Shares withheld to cover taxes ( 4 ) — ( 67 ) — — ( 67 ) Stock-based compensation — — 3,867 — — 3,867 Balance, September 30, 2021 67,659 $ 677 $ 680,819 $ ( 181,010 ) $ ( 1,142 ) $ 499,344 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Table of Contents Lantheus Holdings, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) (in thousands) Nine Months Ended September 30, 2022 2021 Operating activities Net income (loss) $ 147,252 $ ( 31,064 ) Adjustments to reconcile net income to net cash flows from operating activities: Depreciation, amortization and accretion 36,048 30,088 Impairment of long-lived assets — 9,540 Asset retirement obligation acceleration 1,229 — Amortization of debt related costs 737 430 Changes in fair value of contingent assets and liabilities 25,400 28,500 Gain on extinguishment of debt — ( 889 ) Provision for excess and obsolete inventory 4,980 2,317 Stock-based compensation 21,138 11,772 Gain on sale of assets — ( 15,263 ) Deferred taxes 14,461 1,028 Long-term income tax receivable 668 3,092 Long-term income tax payable and other long-term liabilities ( 538 ) ( 3,617 ) Other 3,188 1,724 (Decreases) increases in cash from operating assets and liabilities: Accounts receivable ( 112,031 ) ( 7,721 ) Inventory ( 4,666 ) ( 625 ) Other current assets 314 1,998 Other long-term assets ( 533 ) — Accounts payable 8,409 4,776 Accrued expenses and other liabilities 30,374 3,941 Net cash provided by operating activities 176,429 40,027 Investing activities Capital expenditures ( 13,623 ) ( 7,596 ) Proceeds from sale of assets, net 1,800 15,823 Net cash (used in) provided by investing activities ( 11,823 ) 8,227 Financing activities Payments on long-term debt and other borrowings ( 7,891 ) ( 40,757 ) Proceeds from stock option exercises 7,538 4,616 Proceeds from issuance of common stock 1,375 768 Payments for minimum statutory tax withholding related to net share settlement of equity awards ( 7,171 ) ( 1,859 ) Net cash used in financing activities ( 6,149 ) ( 37,232 ) Effect of foreign exchange rates on cash, cash equivalents and restricted cash ( 266 ) ( 99 ) Net increase in cash, cash equivalents and restricted cash 158,191 10,923 Cash, cash equivalents and restricted cash, beginning of period 100,651 82,694 Cash, cash equivalents and restricted cash, end of period $ 258,842 $ 93,617 6 Table of Contents Lantheus Holdings, Inc. Condensed Consolidated Statements of Cash Flows (Continued) (Unaudited) (in thousands) Nine Months Ended September 30, 2022 2021 Reconciliation to amounts within the condensed consolidated balance sheets Cash and cash equivalents $ 257,259 $ 91,475 Restricted cash included in other long-term assets 1,583 2,142 Cash, cash equivalents and restricted cash at end of period $ 258,842 $ 93,617 The accompanying notes are an integral part of these condensed consolidated financial statements. 7 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, 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 and nine months ended September 30, 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. Based on the Company’s 2022 PYLARIFY net sales, the Company believes that all of its aggregate payment obligations under the CVRs (which the Company currently estimates to be approximately $ 99.7 million) will become payable in the first half of 2023. 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 nine months ended September 30, 2022. 8 Table of Contents 3. Revenue from Contracts with Customers The following table summarizes revenue by revenue source as follows: Three Months Ended September 30, Nine Months Ended September 30, Major Products/Service Lines (in thousands) 2022 2021 2022 2021 Product revenue, net (1) $ 233,366 $ 96,678 $ 631,157 $ 277,559 License and royalty revenues (2) 5,926 5,395 40,738 18,087 Total revenues $ 239,292 $ 102,073 $ 671,895 $ 295,646 ________________________________ (1) The Company’s principal products include PYLARIFY, DEFINITY and TechneLite and are primarily categorized within product revenue, net. This category represents the delivery of physical goods. 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. 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 diagnostic imaging 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 certain German litigation, 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 revenue 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: Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2022 2021 2022 2021 DEFINITY $ 60,740 $ 57,636 $ 181,374 $ 173,448 TechneLite 22,094 22,680 64,139 69,252 Other precision diagnostics 6,175 7,563 16,803 21,289 Total precision diagnostics 89,009 87,879 262,316 263,989 PYLARIFY 143,754 7,724 366,763 7,997 Other radiopharmaceutical oncology 928 1,166 3,183 5,206 Total radiopharmaceutical oncology 144,682 8,890 369,946 13,203 Strategic partnerships and other revenue 5,601 5,304 39,633 18,454 Total revenues $ 239,292 $ 102,073 $ 671,895 $ 295,646 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. 9 Table of Contents 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. The tables below present information about the Company’s assets and liabilities measured at fair value on a recurring basis: September 30, 2022 (in thousands) Total Fair Value Level 1 Level 2 Level 3 Assets: Money market $ 176,909 $ 176,909 $ — $ — Interest rate swaps 5,660 — 5,660 — Contingent receivable 8,200 — — 8,200 Total assets $ 190,769 $ 176,909 $ 5,660 $ 8,200 Liabilities: Contingent consideration liabilities $ 110,500 $ — $ — $ 110,500 Total liabilities $ 110,500 $ — $ — $ 110,500 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 and nine months ended September 30, 2022, there were no transfers into or out of Level 3. 10 Table of Contents 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. Refer to Note 1, “Basis of Presentation” for further details on the CVRs. The Company considers the contingent consideration liabilities relating to the CVRs a Level 3 instrument (one with significant unobservable inputs) in the fair value hierarchy. The estimated fair value of these had been determined based on Monte Carlo simulation models that included significant estimates and assumptions pertaining to commercialization events and sales targets. Because of revised revenue forecasts for the balance of 2022, the Company updated the valuation technique for the CVRs from the Monte Carlo simulation model to a probability adjusted discounted cash flow model as the Company currently expects to pay out the full amount of the CVRs from available cash in the first half of 2023 based on U.S. net sales generated by PYLARIFY in 2022 and, under either valuation technique, the estimated liability would be approximately the same. The Company also 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 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 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 September 30, 2022. Fair Value at Assumptions (in thousands) September 30, 2022 December 31, 2021 Valuation Technique Unobservable Input September 30, 2022 December 31, 2021 Contingent receivable: Regulatory milestone $ 2,400 $ 2,500 Probability adjusted discounted cash flow model Period of expected milestone achievement 2023 2022 Probability of success 70 % 70 % Discount rate 19 % 17 % Royalties 5,800 6,800 Probability adjusted discounted cash flow model Probability of success 10 % - 60 % 10 % - 60 % Discount rate 19 % 17 % Total $ 8,200 $ 9,300 11 Table of Contents Fair Value at Assumptions (in thousands) September 30, 2022 December 31, 2021 Valuation Technique Unobservable Input September 30, 2022 December 31, 2021 Contingent consideration liability: Net sales targets - PYLARIFY (CVRs) $ 99,700 $ 73,200 Probability adjusted discounted cash flow model (as of 9/30/2022) Monte Carlo simulation (as of 12/31/2021) Period of expected milestone achievement and sales targets 2022 - 2023 2022 - 2023 Probability of success 100 % N/A Discount rate N/A 17 % 1095 commercialization milestone 1,700 1,900 Probability adjusted discounted cash flow model Period of expected milestone achievement 2026 2026 Probability of success 40 % 40 % Discount rate 3.7 % 1.3 % Net sales targets - AZEDRA and 1095 9,100 11,100 Monte Carlo simulation Probability of success and sales targets 20 % - 100 % 40 % - 100 % Discount rate 18 % - 19 % 16 % - 17 % Total $ 110,500 $ 86,200 For those financial instruments with significant Level 3 inputs, the following table summarizes the activities for the periods indicated: Financial Assets Financial Liabilities (in thousands) Nine Months Ended September 30, Nine Months Ended September 30, 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 (loss) ( 1,100 ) 2,500 24,300 31,000 Fair value, end of period $ 8,200 $ 13,800 $ 110,500 $ 46,800 The change in fair value of the contingent financial asset and contingent financial liabilities, including the CVRs, resulted in an expense of $ 25.4 million for the nine months ended September 30, 2022 and was primarily due to changes in revenue forecasts, changes in market conditions, an increase in discount rates (excluding the CVRs) and the passage of time. The Company expects to make all applicable cash payments related to the CVRs in the first half of 2023. As of September 30, 2022, the Company had $ 99.7 million in current 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 12 Table of Contents 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 September 30, Nine Months Ended September 30, (in thousands) 2022 2021 2022 2021 Income tax expense (benefit) $ 21,784 $ ( 6,422 ) $ 55,710 $ ( 2,967 ) 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 immaterial valuation allowances against the net deferred tax assets of certain of its foreign subsidiaries. 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. During the third quarter of 2022, the Company entered into a settlement agreement with one state and accordingly reduced the amount of the uncertain tax positions by $ 2.2 million. The Company continues to accrue interest on the outstanding uncertain tax positions. 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: (in thousands) September 30, 2022 December 31, 2021 Raw materials $ 17,699 $ 15,505 Work in process 8,203 13,042 Finished goods 8,891 6,582 Total inventory $ 34,793 $ 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 September 30, 2022. 13 Table of Contents 7. Property, Plant and Equipment, Net Property, plant and equipment, net, consisted of the following: (in thousands) September 30, 2022 December 31, 2021 Land $ 13,450 $ 13,450 Buildings 72,497 73,559 Machinery, equipment and fixtures 88,507 83,608 Computer software 25,740 24,384 Construction in progress 17,918 10,686 218,112 205,687 Less: accumulated depreciation and amortization ( 97,286 ) ( 88,915 ) Total property, plant and equipment, net $ 120,826 $ 116,772 Depreciation and amortization expense related to property, plant and equipment, net, was $ 3.9 million and $ 3.6 million for the three months ended September 30, 2022 and 2021, respectively, and $ 10.3 million and $ 9.8 million for the nine months ended September 30, 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) September 30, 2022 December 31, 2021 Compensation and benefits $ 26,205 $ 22,730 Freight, distribution and operations 35,619 16,157 Accrued rebates, discounts and chargebacks 13,247 10,977 Accrued professional fees 4,562 2,850 Short-term contingent liability (Note 4) 99,700 — Other 11,144 5,354 Total accrued expenses and other liabilities $ 190,477 $ 58,068 Operating lease liabilities (Note 16) $ 15,354 $ 16,546 Long-term contingent liability (Note 4) 10,800 86,200 Other long-term liabilities 20,335 22,148 Total other long-term liabilities $ 46,489 $ 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 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, the date of sale: 14 Table of Contents (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 six months ended June 30, 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 September 30, 2022, the liability is measured at the present value of the obligation expected to be incurred, of approximately $ 25.5 million. The following table provides a summary of the changes in the Company’s asset retirement obligations: (in thousands) Amount Balance at January 1, 2022 $ 20,833 Accretion expense 1,296 Accelerated costs 1,229 Balance at September 30, 2022 $ 23,358 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 in December 2021 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 $ 30.3 million surety bond. 15 Table of Contents 11. Intangibles, Net Intangibles, net, consisted of the following: September 30, 2022 (in thousands) Useful Lives (in years) Amortization Method Cost Accumulated Amortization Net Trademarks 15 - 25 Straight-Line $ 13,540 $ ( 11,924 ) $ 1,616 Customer relationships 15 - 25 Accelerated 96,682 ( 94,866 ) 1,816 Currently marketed products 9 - 15 Straight-Line 275,700 ( 41,557 ) 234,143 Licenses 11 - 16 Straight-Line 85,800 ( 17,214 ) 68,586 Developed technology 9 Straight-Line 2,400 ( 610 ) 1,790 IPR&D N/A N/A 15,640 — 15,640 Total $ 489,762 $ ( 166,171 ) $ 323,591 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 $ 8.4 million for the three months ended September 30, 2022 and 2021, respectively, and $ 24.9 million and $ 19.1 million for the nine months ended September 30, 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. The below table summarizes the estimated aggregate amortization expense expected to be recognized on the above intangible assets: (in thousands) Amount Remainder of 2022 $ 8,310 2023 32,634 2024 32,563 2025 32,508 2026 32,497 2027 and thereafter 169,439 Total $ 307,951 16 Table of Contents 12. Long-Term Debt, Net, and Other Borrowings As of September 30, 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 $ 3,750 2023 15,000 2024 148,750 Total principal outstanding 167,500 Unamortized debt discount ( 348 ) Unamortized debt issuance costs ( 301 ) Finance lease liabilities 578 Total 167,429 Less: current portion ( 15,372 ) Total long-term debt, net and other borrowings $ 152,057 At September 30, 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 4.6 %. On March 31, 2021, the Company voluntarily repaid in full the entire outstanding principal on its $ 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 September 30, 2022, accumulated other comprehensive income included $ 3.5 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: (in thousands) September 30, 2022 December 31, 2021 Derivatives type Classification Assets: Interest rate swap Other long-term assets $ 5,660 $ 357 14. Accumulated Other Comprehensive Income (Loss) The components of accumulated other comprehensive income (loss), net of tax of $ 1.5 million and $ 0.2 million for the nine months ended September 30, 2022 and 2021, respectively, consisted of the following: 17 Table of Contents (in thousands) Foreign currency translation Unrealized loss on cash flow hedges Accumulated other comprehensive income (loss) Balance at January 1, 2022 $ ( 754 ) $ 269 $ ( 485 ) Other comprehensive (loss) income before reclassifications ( 463 ) 4,112 3,649 Amounts reclassified to earnings — ( 170 ) ( 170 ) Balance at September 30, 2022 $ ( 1,217 ) $ 4,211 $ 2,994 Balance at January 1, 2021 $ ( 630 ) $ ( 1,418 ) $ ( 2,048 ) Other comprehensive income before reclassifications 55 312 367 Amounts reclassified to earnings — 539 539 Balance at September 30, 2021 $ ( 575 ) $ ( 567 ) $ ( 1,142 ) 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 September 30, Nine Months Ended September 30, (in thousands) 2022 2021 2022 2021 Cost of goods sold $ 1,268 $ 144 $ 3,263 $ 1,672 Sales and marketing 1,745 684 4,433 1,726 General and administrative 3,991 2,330 10,777 6,641 Research and development 1,099 709 2,665 1,733 Total stock-based compensation expense $ 8,103 $ 3,867 $ 21,138 $ 11,772 16. Leases Operating and finance lease assets and liabilities are as follows: (in thousands) Classification September 30, 2022 December 31, 2021 Assets Operating Other long-term assets $ 8,293 $ 8,788 Finance Property, plant and equipment, net 679 556 Total leased assets $ 8,972 $ 9,344 Liabilities Current Operating Accrued expenses and other liabilities $ 1,677 $ 1,599 Finance Current portion of long-term debt and other borrowings 372 392 Noncurrent Operating Other long-term liabilities 15,354 16,546 Finance Long-term debt, net and other borrowings 206 299 Total leased liabilities $ 17,609 $ 18,836 The Company entered into an agreement in February 2022 to lease additional office space in Bedford, Massachusetts. The facility is currently being renovated and the associated right-of-use asset and liability will be recorded once renovations are substantially complete. The lease payments are expected to commence in the fourth quarter of 2022 when renovation of the facility is completed. 18 Table of Contents 17. Net Income (Loss) Per Common Share A summary of net income per common share is presented below: Three Months Ended September 30, Nine Months Ended September 30, (in thousands, except per share amounts) 2022 2021 2022 2021 Net income (loss) $ 61,232 $ ( 13,415 ) $ 147,252 $ ( 31,064 ) Basic weighted-average common shares outstanding 68,756 67,623 68,482 67,409 Effect of dilutive stock options 455 — 452 — Effect of dilutive restricted stock 1,864 — 1,735 — Diluted weighted-average common shares outstanding 71,075 67,623 70,669 67,409 Basic income (loss) per common share $ 0.89 $ ( 0.20 ) $ 2.15 $ ( 0.46 ) Diluted income (loss) per common share $ 0.86 $ ( 0.20 ) $ 2.08 $ ( 0.46 ) Antidilutive securities excluded from diluted net income (loss) per common share 52 3,051 226 3,051 18. Other Income Other income consisted of the following: Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2022 2021 2022 2021 Foreign currency losses $ 145 $ 127 $ 189 $ 156 Tax indemnification loss, net 1,460 3,823 668 3,092 Interest income ( 504 ) ( 11 ) ( 551 ) ( 39 ) Other — 1 — — Total other income $ 1,101 $ 3,940 $ 306 $ 3,209 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 September 30, 2022, the Company did not have any material ongoing litigation to which the Company was a party. 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 of fiscal year 2021, 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, radiotherapeutics, and artificial intelligence solutions designed to enable clinicians to Find, Fight and Follow disease to deliver better patient outcomes. 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 19 Table of Contents 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