What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-02 compared with 2023-08-03 · 127 added, 95 removed, 255 unchanged (47% of the section changed)

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

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

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

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

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(vi) our ability to successfully continue existing clinical development partnerships using MK-6240 as a research tool and to further develop and commercialize such research tool;

and (vii) our ability to identify and acquire or in-license additional diagnostic and therapeutic product opportunities in oncology and other strategic areas.

and (vii) our ability to identify and acquire or in-license additional diagnostic and therapeutic product opportunities in oncology and other strategic areas and continue to grow our pipeline of products.

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions.

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

With more than 65 years of experience in delivering life-changing science, we are committed to delivering better patient outcomes and improving lives through diagnostics, radiotherapeutics and artificial intelligence solutions that enable clinicians to Find, Fight and Follow disease.

We are the leading radiopharmaceutical-focused company, delivering life-changing science to enable clinicians to Find, Fight and Follow disease.

We classify our products in three categories:

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Our leading Precision Diagnostic products assist HCPs to Find and Follow diseases, with a focus in cardiology.

Our Strategic Partnerships focus on enabling precision medicine through the use of biomarkers, digital solutions and pharma services platforms, and includes our license of RELISTOR to Bausch Health Companies, Inc.

Our Strategic Partnerships focus on enabling precision medicine through the use of biomarkers, digital solutions and pharma solutions platforms.

Our commercial products are used by oncologists, urologists, nuclear medicine physicians, cardiologists, sonographers, technologists, radiologists, and internal medicine physicians working in a variety of clinical settings.

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Fast Track is a process designed to facilitate the development and expedite the review of drugs to treat serious conditions and address unmet needs.

With respect to PNT2003, POINT is responsible for curating all data, analysis and other information necessary for regulatory approval, and supporting us in the preparation of regulatory filings, and we are responsible for preparing for and seeking regulatory approval of all such applications, as well as performing and funding all future development and commercialization following such approval.

We expect to read out topline data from SPLASH, the phase 3 registrational trial for PNT2002, during the fourth quarter of 2023.

SPLASH is designed to evaluate the efficacy and safety of PNT2002 in patients with metastatic castration-resistant prostate cancer who have progressed following treatment with an androgen receptor pathway inhibitor or ARPI.

The study has three phases:

randomized treatment;

and long term follow up.

SPLASH commenced with a 27-patient safety and dosimetry lead-in, after which patients were randomized two to one to receive either PNT2002, or the alternate ARPI therapies like abiraterone or enzalutamide.

In total, 412 patients were randomized.

The primary endpoint is radiographic or imaging-based progression-free survival, as assessed by blinded independent central review.

At the time of primary endpoint analysis, we will also perform an interim analysis on overall survival which could provide important information for our future discussions with the FDA.

As is custom in long-term oncology studies, final overall survival analysis will be performed when data have matured sufficiently.

During the third quarter of 2023, we worked on establishing an Expanded Access Program, or EAP, for PNT2002.

EAP programs, which are also referred to as compassionate use programs, provide a potential pathway for patients with serious or life-threatening conditions to gain access to an investigational drug for treatment outside of a clinical trial.

We expect to open the EAP for PNT2002 during the fourth quarter of 2023.

POINT will be responsible for all manufacturing of PNT2003, subject to certain exceptions described in the PNT2003 License Agreement.

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Pursuant to the terms of the stock purchase agreement for Cerveau, certain members of the Selling Stockholders will also provide transition and clinical development services for a prescribed time following the closing of the transaction.

In September 2023, MK-6240 was granted Fast Track designation by the FDA.

For more information, see Note 19, “Acquisition of Assets” in our consolidated financial statements included herein.

Sale of RELISTOR Licensed Intangible Asset Associated with Net Sales Royalties

On August 2, 2023, we sold the right to our RELISTOR net sales royalties, which is classified as a licensed intangible asset (“RELISTOR royalty asset”), under our license agreement with Bausch;

we retained the rights to future sales-based milestone payments.

We received an initial payment of approximately $98.0 million in connection with the sale and we have the right to receive an additional payment from the buyer of $5.0 million if worldwide net sales of RELISTOR in 2025 exceed a specified threshold.

The additional payment would be recognized upon achievement of the specified threshold.

Decreases of $63.6 million of license assets and $17.5 million of associated accumulated amortization, as well as a gain of $51.8 million were recorded as a result of the sale.

For more information, see Note 10, “Intangibles, Net” in our consolidated financial statements included herein.

Discontinuation of AZEDRA

On August 15, 2023, we announced our decision to discontinue the production and promotion of AZEDRA and that we would be winding down our Somerset, New Jersey manufacturing site.

We currently intend to continue manufacturing AZEDRA into the first quarter of 2024, to the extent feasible, with the goal of providing doses of AZEDRA to current patients so they can complete their treatment regimen.

For more information, see Note 10, “Intangibles, Net” in our consolidated financial statements included herein.

Key Factors Affecting Our Results

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in June 2021.

In March 2022, we announced a strategic collaboration with Novartis to include PYLARIFY in prostate cancer trials with PLUVICTO, Novartis’ PSMA-targeted therapeutic.

In addition, in 2022, we entered into an agreement with Curium to add PYLARIFY to its PSMA-targeted therapeutic clinical trial referred to by Curium as ECLIPSE.

Both of these collaborations, as well as other collaborations using PYLARIFY are described further under Part I, Item 1.

“Business - Strategic Partnerships and Other Revenue – Oncology.” in our Annual Report on Form 10-K for the year ended December 31, 2022.

Also, during 2022, the National Comprehensive Cancer Center updated its guidelines and the Society for Nuclear Medicine and Molecular Imaging updated its appropriate use criteria, both noting that PSMA PET imaging agents, including PYLARIFY, can be used for patient selection for PSMA-targeted radioligand therapy.

During 2021, 2022 and the first half of 2023, we hired additional employees to assist us with the commercialization of PYLARIFY, including in Sales, Marketing, Reimbursement, Quality and Medical Affairs.

In addition to our network of PET manufacturing facilities (“PMFs”), we partnered with academic medical centers in the U.S.

that have radioisotope-producing cyclotrons who have expressed an interest in manufacturing PYLARIFY.

Our commercial launch required obtaining necessary market access which included, but was not limited to, adequate coding, coverage and payment for PYLARIFY, including coverage from Medicare, Medicaid and other government payors, as well as private payors.

PYLARIFY is indicated for PET imaging of PSMA-positive lesions in men with prostate cancer with suspected metastasis who are candidates for initial definitive therapy and in men with suspected recurrence based on elevated PSA levels.

Both the National Comprehensive Cancer Center guidelines and the Society for Nuclear Medicine and Molecular Imaging appropriate use criteria note that PSMA PET imaging agents, including PYLARIFY, can be used for patient selection for PSMA-targeted radioligand therapy.

PYLARIFY is available through a diverse, multi-partner network of PET manufacturing facilities (“PMFs”), including both commercial and academic partners.

The successful growth of PYLARIFY is dependent on our ability to sustain PYLARIFY as the leading PSMA PET imaging agent in an increasingly competitive marketplace.

PYLARIFY’s competition includes two commercially available gallium-68-based PSMA imaging agents, a recently approved fluorine-18-based PSMA imaging agent, and other non-PSMA-based imaging agents commonly referred to as conventional imaging.

We previously hired additional employees to assist us with the commercialization of PYLARIFY, including in Sales, Marketing, Reimbursement, Quality and Medical Affairs, and we will continue to make commercial investments necessary to drive PYLARIFY awareness and adoption.

We believe that PYLARIFY currently has the largest dedicated field-based commercial team in the PSMA PET imaging agent space.

We received notification that our Healthcare Procedure Coding System (“HCPCS”) code, which enables streamlined billing, went into effect as of January 1, 2022.

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TPT Status for PYLARIFY could expire on December 31, 2024.

The successful growth of PYLARIFY is dependent on our ability to sustain PYLARIFY as the leading PSMA PET imaging agent in an increasingly competitive marketplace.

In July 2023, CMS, proposed possible changes to its regulations covering payment for diagnostic radiopharmaceuticals.

This included, for the first time since 2008, options for separate payment for diagnostics instead of the current packaged payment following expiration of TPT Status.

We, along with numerous industry organizations, submitted comments and we expect CMS to publish final 2024 regulations in November 2023.

Our plan to successfully grow PYLARIFY has also included highlighting its commercial and clinical value, as well as through strategic partnerships and collaborations, both for the commercialization of our product outside of the United States as well as for the use of our product potentially for additional indications or in connection with the development of PSMA-targeted therapeutics.

With respect to commercializing PYLARIFY outside of the U.S., we previously licensed exclusive rights to Curium to develop and commercialize piflufolastat F 18 in Europe.

In July 2023, Curium announced that it received marketing authorization for PYLCLARI from the European Commission.

With respect to the use of PYLARIFY in connection with the development of PSMA-targeted therapeutics, we have entered into multiple strategic collaborations with pharmaceutical companies.

Additional information on collaborations using PYLARIFY are described further under Part I, Item 1.

“Business - Strategic Partnerships and Other Revenue – Oncology.” in our Annual Report on Form 10-K for the year ended December 31, 2022.

In connection with the acquisition of Progenics in June 2020, we issued CVRs tied to the financial performance of PYLARIFY.

Each CVR entitled 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, but not to exceed, in the aggregate, 19.9% of the total consideration we paid in the acquisition of Progenics.

Based on our 2022 PYLARIFY net sales, we determined that the aggregate payment obligation under the CVRs was $99.6 million, which was the maximum amount payable under the CVRs.

We paid $99.6 million to the CVR holders during May 2023 in full satisfaction of our obligations under the CVRs.

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This image segmentation enables automated localization, detection and quantification of potential PSMA-avid lesions in a PSMA PET/CT image, which data is then incorporated into the reporting system used by physicians.

During the third quarter of 2023, in collaboration with Curium, we customized and released our PYLARIFY AI platform for use in Europe.

At the European Association of Nuclear Medicine meeting in Vienna, the PYLARIFY AI presentation was awarded the Top Rated Oral Presentation for response evaluation of metastatic prostate cancer patients.

Also in the third quarter of 2023, we announced a data agreement with the Prostate Cancer Clinical Trial Consortium (PCCTC) on its IRONMAN Registry for development and validation of PSMA biomarkers with PYLARIFY AI.

The IRONMAN is the International Registry for Men with Advanced Prostate Cancer, the Registry is accumulating contextualized clinical and imaging data from more than 100 institutions across the globe.

Recently, we also entered into an agreement with PIONEER (Prostate Cancer DIagnOsis and TreatmeNt Enhancement through the Power of Big Data in EuRope), led by the European Association of Urology (project Coordinator) and Bayer AG (private leader) to use our AI technology to help validate the clinical utility of PYLARIFY AI enabled PSMA biomarker to diagnose, treat and monitor prostate cancer patients.

PIONEER is a European Network of Excellence for Big Data in Prostate Cancer, consisting of 34 private and public stakeholders in prostate cancer research and clinical care from across 9 countries.

Continued Growth of DEFINITY

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for DEFINITY, we have six Orange Book-listed method of use patents, one of which expires in 2035 and five of which expire in 2037, as well as additional manufacturing patents that are not Orange Book-listed expiring in 2037.

• DEFINITY RT - The formulation of DEFINITY that we have branded as DEFINITY RT became commercially available in the fourth quarter of 2021.

DEFINITY RT allows both storage and shipment at room temperature and provides clinicians an additional choice and allows for greater utility of this formulation in broader clinical settings.

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

• VIALMIX RFID – DEFINITY is activated through the use of medical devices branded as VIALMIX and VIALMIX RFID.

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The RFID tag, which is affixed to the vial label, enables the DEFINITY vial to be appropriately activated with the VIALMIX RFID activation device.

• DEFINITY RT - The formulation of DEFINITY that we have branded as DEFINITY RT became commercially available in the fourth quarter of 2021.

DEFINITY RT allows both storage and shipment at room temperature and provides clinicians an additional choice and allows for greater utility of this formulation in broader clinical settings.

Expansion of Strategic Partnerships and Other Revenue

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We are evaluating a number of different opportunities to collaborate, in-license or acquire additional products, product candidates, businesses and technologies to drive our future growth.

In particular, we are focused on late-stage radiopharmaceutical diagnostic and therapeutic product opportunities in oncology and other strategic areas that will complement our existing portfolio.

Our Strategic Partnerships and Other Revenue category includes our Strategic Partnerships, Pharma Services and Digital Solutions businesses and is focused on enabling precision medicine with biomarkers and digital solutions.

In particular, we are focused on late-stage radiopharmaceutical therapeutic and diagnostic product opportunities in oncology and other strategic areas that will complement our existing portfolio.

Our Strategic Partnerships and Other Revenue category includes our Strategic Partnerships, Pharma Solutions and Digital Solutions businesses and is focused on enabling precision medicine with biomarkers and digital solutions.

• Strategic Partnerships – We seek to monetize our assets through our Strategic Partnerships business, by optimizing core assets geographically and by driving value through non-core assets.

For example, with respect to PYLARIFY, we have licensed the development and commercialization rights of that imaging agent in Europe to Curium.

Similarly, we licensed the commercialization rights for RELISTOR to Bausch and the commercialization rights for flurpiridaz fluorine-18 to GE Healthcare Limited.

• Pharma Services – We use our Pharma Services business to offer our Biomarkers and Microbubble Platforms to pharmaceutical and start-up companies to support their research and development of therapeutic drugs and devices.

The strategic goal of our Pharma Services business is to gain early access to innovation, de-risk the development, data generation and co-funding of our pipeline through collaborations, embed our technologies in the clinical ecosystem and establish the clinical utility of product candidates and research tools in our pipeline.

Our Biomarkers are intended to support patient selection and the monitoring of disease progression, primarily with respect to different oncological diseases.

For example, piflufolastat F 18 is currently being used by Curium, Novartis, POINT and Regeneron in those companies’ prostate cancer therapeutic drug development programs.

Similarly, we licensed the commercialization rights for flurpiridaz fluorine-18 to GE Healthcare Limited.

• Pharma Solutions – We use our Pharma Solutions business to offer our Biomarkers and Microbubble Platforms to pharmaceutical and start-up companies to support their research and development of therapeutic drugs and devices.

The strategic goal of our Pharma Solutions business is to gain early access to innovation, de-risk the development, data generation and co-funding of our pipeline through collaborations, embed our technologies in the clinical ecosystem and establish the clinical utility of product candidates and research tools in our pipeline.

Our Biomarkers are intended to support patient selection and the monitoring of disease progression.

For example, piflufolastat F 18 is currently being used by Curium, POINT and Regeneron in those companies’ prostate cancer therapeutic drug development programs.

Our acquisition of Cerveau in February 2023 added MK-6240 to our biomarker portfolio.

MK-6240 is currently being used in more than sixty academic and industry clinical trials for several Alzheimer’s disease therapeutic candidates being developed by more than sixteen pharmaceutical companies.

MK-6240 is currently being used in more than ninety active clinical trials for several Alzheimer’s disease therapeutic candidates being developed.

Most recently, in collaboration with Ratio Therapeutics, we initiated a Phase I study for LNTH-1363S to evaluate the pharmokinetics, biodistribution and radiation dosimetry in adult health volunteers.

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• Digital Solutions – Our Digital Solutions are designed to enhance imaging value and the throughput, reproducibility and reliability of image analysis, as well as to inform treatment selection and response to therapy.

Our digital solutions include aPROMISE and aBSI (as defined below).

aPROMISE, which is currently sold as PYLARIFY AI in the U.S., is artificial intelligence medical device software that is designed to allow healthcare professionals and researchers to perform standardized quantitative assessment of PSMA PET/CT images in prostate cancer, including those images obtained by using

Our Digital Solutions include aPROMISE and aBSI (as defined below), both of which are FDA cleared and CE marked.

Automated Bone Scan Index (“aBSI”) automatically calculates the disease burden of prostate cancer by detecting and classifying bone scan tracer uptakes as metastatic or benign lesions using an artificial neural network.

aBSI is FDA cleared and CE marked.

The software is currently used as one of the correlative objectives of the DORA trial, an open-labeled, randomized, Phase III study of docetaxel versus docetaxel in combination with radium-223 (Ra-223) in subjects with metastatic castration-resistant prostate cancer.

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Although we have the most globally diverse Mo-99 supply chain with IRE in Belgium, NTP in South Africa, and ANSTO in Australia, we still face supplier and logistical challenges in our Mo-99 supply chain.

When one supplier experiences outages, we generally rely on Mo-99 supply from the other suppliers to limit the impact of the outages.

When one supplier experiences outages, we generally rely on Mo-99 supply from the other providers to limit the impact of the outages.

We believe we effectively manage these various supply chain challenges, but depending on reactor and processor schedules and operations, at times we have not been able to fill some or all of the demand for our TechneLite generators on certain manufacturing days.

A prolonged disruption of service from one of our three Mo-99 processing sites or one of their main Mo-99-producing reactors could have a negative effect on our business, results of operations, financial condition and cash flows.

To augment our current supply of Mo-99, we have a strategic arrangement with SHINE Medical Technologies LLC (“SHINE”) for the future supply of Mo-99.

Under the terms of the supply agreement, entered into in November 2014, SHINE will provide Mo-99 produced using its proprietary LEU-solution technology for use in our TechneLite generators once SHINE’s facility becomes operational and receives all necessary regulatory approvals, which SHINE now estimates will occur in 2024.

The term of this arrangement provides for three years of supply of Mo-99.

However, we cannot provide assurance that SHINE will be able to produce commercial quantities of Mo-99 for our business, or that SHINE, together with our current suppliers, will be able to deliver a sufficient quantity of Mo-99 to meet our needs.

Inventory Supply

We obtain a substantial portion of our Precision Diagnostics from a third party supplier.

Jubilant HollisterStier (“JHS”) is currently a significant supplier of DEFINITY and our sole source manufacturer of select other products.

We rely on a third party supplier, Jubilant HollisterStier (“JHS”), to supply a significant portion of DEFINITY as well as full supply of select other products.

On February 23, 2022, LMI entered into a Manufacturing and Supply Agreement (the “MSA”) with JHS, effective as of February 23, 2022, pursuant to which JHS will manufacture, and LMI will purchase, DEFINITY and select other products.

The new MSA supersedes all of the prior agreements of the parties.

The initial term of the MSA runs through December 31, 2027 and can be further extended by mutual agreement of the parties.

The initial term of the MSA runs through December 31, 2027 and can be further extended by mutual agreement.

The MSA requires LMI to purchase from JHS specified percentages of its total requirements for DEFINITY, as well as specified quantities of select other products, each year during the contract term, except to the extent that LMI has the right to withhold payment for defective product and cancel orders for untimely delivery without penalty.

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Patients in this study will be followed for one year after their first treatment for all efficacy endpoints and survival and safety data will be collected for an additional year.

• We are also developing additional lifecycle management opportunities for PYLARIFY, including preparing a clinical study in favorable intermediate-risk prostate cancer patients, and exploring other possibilities beyond prostate cancer.

Under the terms of the PNT2002 License Agreement, Lantheus Two, LLC paid POINT an upfront cash payment of $250.0 million, and could pay up to an additional $281.0 million in milestone payments upon the achievement of specified U.S.

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In addition, after Lantheus Two achieves $500.0 million in cumulative gross profit, POINT is eligible to receive royalty payments of twenty percent of net sales of PNT2002.

Prior to achieving that financial recoupment threshold, POINT is eligible to receive royalty payments of twenty percent on that portion of annual net sales of PNT2002 that generate annual gross profit in excess of specified levels.

Prior to achieving that financial

recoupment threshold, POINT is eligible to receive royalty payments of twenty percent on that portion of annual net sales of PNT2002 that generate annual gross profit in excess of specified levels.

Under the terms of the PNT2003 License Agreement, Lantheus Three, LLC paid POINT an upfront cash payment of $10.0 million, and could pay up to an additional $34.5 million in milestone payments upon the achievement of specified U.S.

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2023 2022 Change $ Change % 2023 2022 Change $ Change %

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Interest expense 5,054 1,626 3,428 210.8 % 14,978 4,604 10,374 225.3 %

Other income (4,482) (310) (4,172) 1345.8 % (7,713) (795) (6,918) 870.2 %

Other (income) expense (52,649) 1,101 (53,750) (4,881.9) % (60,362) 306 (60,668) (19,826.1) %

Income before income taxes 159,956 83,016 76,940 92.7 % 272,540 202,962 69,578 34.3 %

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Net income $ 131,957 $ 61,232 $ 70,725 115.5 % $ 223,281 $ 147,252 $ 76,029 51.6 %

Comparison of the Periods Ended June 30, 2023 and 2022

Comparison of the Periods Ended September 30, 2023 and 2022

We classify our revenues into three product categories:

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2023 2022 Change $ Change % 2023 2022 Change $ Change %

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Total revenues $ 319,946 $ 239,292 $ 80,654 33.7 % $ 942,430 $ 671,895 $ 270,535 40.3 %

The increase in revenues for the three months ended June 30, 2023, is primarily driven by an increase in PYLARIFY, DEFINITY and TechneLite sales volume, as well as revenue generated by Cerveau, as recorded in Strategic Partnerships and Other Revenue.

The increase in revenues for the six months ended June 30, 2023, is primarily driven by an increase in PYLARIFY and DEFINITY sales volume, as well as revenue generated by Cerveau, as recorded in Strategic Partnerships and Other Revenue.

The increase is offset, in part, by a decrease in Strategic Partnerships and Other Revenue due to the revenue recognized from the Novartis licensing agreement in the prior year.

The increase in revenues for the three months ended September 30, 2023, is primarily driven by an increase in PYLARIFY, DEFINITY and TechneLite sales volume, as well as revenue generated by Cerveau, offset by the sale of the RELISTOR royalty asset as recorded in Strategic Partnerships and Other Revenue.

The increase in revenues for the nine months ended September 30, 2023, is primarily driven by an increase in PYLARIFY and DEFINITY sales volume, as well as revenue generated by Cerveau, as recorded in Strategic Partnerships and Other Revenue.

The increase is offset, in part, by a decrease in Strategic Partnerships and Other Revenue due to the revenue recognized from the Novartis licensing agreement in the prior year and the sale of the RELISTOR royalty asset in the current quarter.

Rebates and Allowances

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Payments or credits made during the period (21,915)

Balance, June 30, 2023 $ 11,087

The increase in gross profit for the three months ended June 30, 2023, as compared to the prior year period, is primarily due to increased PYLARIFY and DEFINITY sales volumes, partially offset by the impairment related to a certain asset group.

The increase in gross profit for the six months ended June 30, 2023, as compared to the prior year period, is primarily due to the increased PYLARIFY and DEFINITY sales volumes, partially offset by the impairment of the AZEDRA currently marketed intangible asset, the Novartis licensing settlement in the prior year, amortization of Cerveau intangible assets and the impairment related to a certain asset group.

Balance, September 30, 2023 $ 11,699

The increase in gross profit for the three months ended September 30, 2023, as compared to the prior year period, is primarily due to increased PYLARIFY and DEFINITY sales volumes, partially offset by the decrease of RELISTOR royalty asset due to the sale of the asset.

The increase in gross profit for the nine months ended September 30, 2023, as compared to the prior year period, is primarily due to the increased PYLARIFY and DEFINITY sales volumes, partially offset by the impairment of the currently marketed intangible asset related to AZEDRA, the Novartis licensing payment in the prior year, amortization of Cerveau intangible assets, and the sale of the RELISTOR royalty asset.

Sales and Marketing

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Other costs in sales and marketing expenses include the development and printing of advertising and promotional material, professional services, market research and sales meetings.

Sales and marketing expenses increased $9.0 million and $21.2 million for the three and six months ended June 30, 2023, respectively, as compared to the prior year period.

This was primarily driven by the continued promotion activities of PYLARIFY and increased employee-related costs.

Sales and marketing expenses increased $12.0 million and $33.2 million for the three and nine months ended September 30, 2023, respectively, as compared to the prior year period.

This was primarily driven by our investment in sales and marketing efforts with an expansion of our PYLARIFY sales force intended to support and expand adoption of PYLARIFY and launch planning for PNT2002 and PNT2003.

General and Administrative

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Other costs included in general and administrative expenses are professional fees for information technology services, external legal fees, consulting and accounting services as well as bad debt expense, certain facility and insurance costs, including director and officer liability insurance.

General and administrative expenses decreased $6.4 million for the three months ended June 30, 2023 compared to the prior period.

This was primarily driven by a $16.0 million net reduction for the fair value adjustments to the contingent asset and liabilities in the second quarter of 2023 (refer to Note 4, “Fair Value of Financial Instruments”, for further details on contingent consideration liabilities, including CVRs).

This decrease is partially offset by increased employee-related costs, professional fees and investment in technology.

General and administrative expenses decreased $20.8 million for the six months ended June 30, 2023 compared to the prior period.

This was primarily driven by a $35.8 million net reduction for the fair value adjustments to the contingent asset and liabilities in the first half of 2023 (refer to Note 4, “Fair Value of Financial Instruments”, for further details on contingent consideration liabilities, including CVRs).

This decrease is partially offset by increased employee-related costs, professional fees and investment in technology.

General and administrative expenses increased $12.0 million for the three months ended September 30, 2023 compared to the prior period.

This was primarily driven by increased employee-related costs, investment in technology, net increase for the fair value adjustments to the contingent asset and liabilities, new lease expenses and higher professional fees.

General and administrative expenses decreased $8.8 million for the nine months ended September 30, 2023 compared to the prior period.

This was primarily driven by a $34.9 million net reduction for the fair value adjustments to the contingent asset and liabilities (refer to Note 4, “Fair Value of Financial Instruments”, for further details on contingent consideration liabilities, including CVRs).

This decrease is partially offset by increased employee-related costs, investment in technology, new lease expense and higher professional fees.

Research and Development

Research and development expenses relate primarily to the development of new products to add to our portfolio and costs related to our medical affairs, medical information and regulatory functions.

Research and development expenses increased $1.2 million for the three months ended June 30, 2023 as compared to the prior year period.

This was primarily driven by increased employee-related costs.

Research and development expenses increased $19.5 million for the six months ended June 30, 2023 as compared to the prior year period.

Research and development expenses increased $1.9 million for the three months ended September 30, 2023 as compared to the prior year period.

This was primarily driven by increased headcount and employee-related costs, as well as Cerveau research and development expenses.

These increases were offset, in part, by lower clinical expenses related to our ARROW Phase 2 study.

Research and development expenses increased $21.4 million for the nine months ended September 30, 2023 as compared to the prior year period.

This was primarily driven by the AZEDRA IPR&D asset impairment loss of $15.6 million and higher employee-related costs driven by an increased headcount.

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Interest Expense

Interest expense increased by approximately $6.9 million for the six months ended June 30, 2023 as compared to the prior year period due to the issuance of the Notes on December 8, 2022, which was partially offset by the interest rate swap agreements from the prior year.

Interest expense increased by approximately $10.4 million for the nine months ended September 30, 2023 as compared to the prior year period due to the issuance of the Notes on December 8, 2022, which was partially offset by the interest rate swap agreements from the prior year.

Income Tax Expense

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

Six Months Ended

Nine Months Ended

September 30,

Effective tax rate 18.1% 27.4%

Our effective tax rate for the six months ended June 30, 2023 differs from the U.S.

statutory rate of 21% primarily due to the income tax benefit associated with stock compensation deductions, partially offset by state income taxes.

The decrease in the effective income tax rate for the six months ended June 30, 2023 is primarily due to the decrease in non-deductible contingency reserve expense and the increase in our stock compensation deductions.

Our effective tax rate for the nine months ended September 30, 2023 differs from the U.S.

statutory rate of 21% primarily due to the income tax benefits associated with stock compensation deductions, additional net operating losses available for utilization under Internal Revenue Code Section 382 as a result of the sale of our RELISTOR royalty asset, and the release of uncertain tax positions, partially offset by state income taxes.

The decrease in the effective income tax rate for the nine months ended September 30, 2023 is primarily due to the decrease in non-deductible contingency reserve expense and the income tax benefit associated with the additional net operating losses available for utilization as a result of the sale of our RELISTOR royalty asset.

Liquidity and Capital Resources

The following table provides information regarding our cash flows:

Six Months Ended

Nine Months Ended

September 30,

(in thousands) 2023 2022

Net cash provided by operating activities $ 192,973 $ 176,429

Net cash used in investing activities $ (65,210) $ (5,733)

Net cash provided by (used in) investing activities $ 18,008 $ (11,823)

Net cash used in financing activities $ (12,612) $ (6,149)

Net Cash Provided by Operating Activities

Net cash provided by operating activities of $76.2 million in the six months ended June 30, 2023 was primarily comprised of net income adjusted for the net effect of non-cash items such as impairment of long-lived assets, depreciation, amortization and accretion expense and stock-based compensation expense.

Net cash provided by operating activities of $193.0 million in the nine months ended September 30, 2023 was primarily comprised of net income adjusted for the net effect of non-cash items such as impairment of long-lived assets, depreciation, amortization and accretion expense, gain on sale of RELISTOR royalty asset, and stock-based compensation expense.

The primary working capital sources of cash were the timing of payments to large vendors.

The primary working capital uses of cash were a decrease to accruals related to the CVR payment, an increase in trade receivables associated primarily with the increase in PYLARIFY revenues, and an increase in inventory related to the timing of batch processes.

Net cash provided by operating activities of $82.9 million in the six months ended June 30, 2022 was primarily comprised of net income adjusted for the net effect of non-cash items such as the change in fair value of contingent assets and liabilities of $26.9 million (refer to Note 4, “Fair Value of Financial Instruments”, for further details on contingent consideration liabilities, including CVRs).

The primary working capital sources of cash were the timing of payments to large vendors.

The primary working capital uses of cash were an increase in trade receivables associated primarily with the increase in PYLARIFY revenues as well as the timing of inventory purchases.

Net Cash Used in Investing Activities

Net cash used in investing activities during the six months ended June 30, 2023 was due to $45.3 million for our asset acquisition of Cerveau and $19.9 million of capital expenditures.

Net cash used in investing activities during the six months ended June 30, 2022 was primarily due to $7.5 million of capital expenditures offset by cash proceeds of $1.8 million received from the sale of our Puerto Rico subsidiary.

Net cash provided by operating activities of $176.4 million in the nine months ended September 30, 2022 was primarily comprised of net income adjusted for the net effect of non-cash items such as depreciation, amortization and accretion expense, the change in fair value of contingent assets and liabilities of $25.4 million (refer to Note 4, “Fair Value of Financial Instruments”, for further details on contingent consideration liabilities, including CVRs) and stock-based compensation expense.

The primary working capital sources of cash were the increase in billings associated with PYLARIFY sales and the timing of payments to large vendors.

The primary working capital uses of cash were an increase in trade receivables associated primarily with the increase in PYLARIFY revenues.

Net Cash Provided by (Used in) Investing Activities

Net cash provided by investing activities during the nine months ended September 30, 2023 was due to net cash proceeds of $98.0 million from the sale of RELISTOR royalty asset offset by $45.3 million for our asset acquisition of Cerveau and $34.5 million of capital expenditures.

Net cash used in investing activities during the nine months ended September 30, 2022 was primarily due to $13.6 million of capital expenditures offset by cash proceeds of $1.8 million received from the sale of our Puerto Rico subsidiary.

Net Cash Used in Financing Activities

Net cash used in financing activities during the six months ended June 30, 2023 is primarily attributable to the payments for minimum statutory tax withholding related to net share settlement of equity awards of $12.6 million and the CVR initial valuation as of June 30, 2020 of $3.7 million offset by proceeds of $3.2 million from stock option exercises.

Net cash used in financing activities during the six months ended June 30, 2022 is primarily attributable to the payments on long-term debt and other borrowings of $5.2 million related to the 2019 Term Facility and payments for minimum statutory tax withholding related to net share settlement of equity awards of $6.3 million offset by proceeds of $6.8 million from stock option exercises.

Net cash used in financing activities during the nine months ended September 30, 2023 is primarily attributable to the payments for minimum statutory tax withholding related to net share settlement of equity awards of $13.6 million and the CVR initial valuation as of June 30, 2020 of $3.7 million offset by proceeds of $3.5 million from stock option exercises.

Net cash used in financing activities during the nine months ended September 30, 2022 is primarily attributable to the payments on long-term debt and other borrowings of $7.9 million related to the 2019 Term Facility and payments for minimum statutory tax withholding related to net share settlement of equity awards of $7.2 million offset by proceeds of $7.5 million from stock option exercises.

External Sources of Liquidity

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The terms of the 2022 Revolving Facility are set forth in the Credit Agreement, dated as of December 2, 2022, by and among us, the lenders from time to time party thereto and Citizens Bank, N.A., as administrative agent and collateral agent (the “2022 Credit Agreement”).

We have the right to request an increase to the 2022 Revolver Facility or request the establishment of one or more new incremental term loan facilities, in an aggregate principal amount of up to $335 million or consolidated EBITDA for the four consecutive fiscal quarters most recently ended, plus additional amounts, in certain circumstances.

We have the right to request an increase to the 2022 Revolving Facility or request the establishment of one or more new incremental term loan facilities, in an aggregate principal amount of up to $335 million or consolidated EBITDA for the four consecutive fiscal quarters most recently ended, plus additional amounts, in certain circumstances.

Under the terms of the 2022 Revolving Facility, the lenders thereunder agreed to extend credit to us from time to time until December 2, 2027 consisting of revolving loans in an aggregate principal amount not to exceed $350.0 million at any time.

The 2022 Revolving Facility includes a $20.0 million sub-facility for the issuance of Letters of Credit.

The 2022 Revolving Facility includes a

$10.0 million sub-facility for Swingline Loans.

The 2022 Revolving Facility includes a $10.0 million sub-facility for Swingline Loans.

The Letters of Credit, Swingline Loans and the borrowings under the 2022 Revolving Facility are expected to be used for working capital and other general corporate purposes.

Please refer to Note 13, “Long-Term Debt, Net, and Other Borrowings” for further details on the 2022 Facility.

As of June 30, 2023, we were in compliance with all financial and other covenants under the 2022 Credit Agreement.

Please refer to Note 13, “Long-Term Debt, Net, and Other Borrowings” for further details on the 2022 Revolving Facility.

As of September 30, 2023, we were in compliance with all financial and other covenants under the 2022 Credit Agreement.

On December 8, 2022, we issued $575.0 million in aggregate principal amount of the Notes, which includes $75.0 million in aggregate principal amount of Notes sold pursuant to the full exercise of the initial purchasers’ option to purchase additional Notes.

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The net proceeds from the issuance of the Notes were approximately $557.8 million, after deducting the initial purchasers’ discounts and offering expenses payable by us.

On August 2, 2023, we sold the right to our RELISTOR royalty asset under our license agreement with Bausch;

we retained the rights to future sales-based milestone payments.

We received an initial payment of approximately $98.0 million in connection with the sale and have the right to receive an additional payment from the buyer of $5.0 million if worldwide net sales of RELISTOR in 2025 exceed a specified threshold.

The additional payment would be recognized upon achievement of the specified threshold.

Following such sale, we no longer receive tiered, sales-based royalties on worldwide net sales of RELISTOR related to the second quarter of 2023 and subsequent quarters.

Our ability to fund our future capital needs will be affected by our ability to continue to generate cash from operations and may be affected by our ability to access the capital markets, money markets or other sources of funding, as well as the capacity and terms of our financing arrangements.

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• Revenue mix shifts and associated volume and selling price changes that could result from additional competition or changes in customers’ product demand;

• The continued costs of the ongoing commercialization of PYLARIFY and PYLARIFY AI;

• The continued costs of the ongoing commercialization of our products;

• Our investment in the further clinical development and commercialization of products and development candidates, including PNT2002, PNT2003, 1095 and MK-6240;

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

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

• The costs of investing in our facilities, equipment and technology infrastructure, including with respect to the commencement of the Additional Premises;

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

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

At June 30, 2023, our only current committed external source of funds is our borrowing availability under our 2022 Revolving Facility.

We had $414.1 million of cash and cash equivalents as of June 30, 2023.

At September 30, 2023, our only current committed external source of funds is our borrowing availability under our 2022 Revolving Facility.

We had $614.1 million of cash and cash equivalents as of September 30, 2023.

Our 2022 Revolving Facility contains a number of affirmative, negative, reporting and financial covenants, in each case subject to certain exceptions and materiality thresholds.

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Accordingly, we may be limited in utilizing the full amount of our 2022 Revolving Facility as a source of liquidity.

Based on our current operating plans, we believe our balance of cash and cash equivalents, which totaled $414.1 million as of June 30, 2023, along with cash generated by ongoing operations and continued access to our 2022 Revolving Facility, will be sufficient to satisfy our cash requirements over the next twelve months and beyond.

Based on our current operating plans, we believe our balance of cash and cash equivalents, which totaled $614.1 million as of September 30, 2023, along with cash generated by ongoing operations and continued access to our 2022 Revolving Facility, will be sufficient to satisfy our cash requirements over the next twelve months and beyond.

Critical Accounting Policies and Estimates

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

There have been no significant changes to our critical accounting policies or in the underlying accounting assumptions and estimates used in such policies in the six months ended June 30, 2023.

There have been no significant changes to our critical accounting policies or in the underlying accounting assumptions and estimates used in such policies in the nine months ended September 30, 2023.

For further information, refer to our summary of significant accounting policies and estimates in our Annual Report on Form 10-K filed for the year ended December 31, 2022.

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Since inception, we have not engaged in any other off-balance sheet arrangements, including structured finance, special purpose entities or variable interest entities.

Quantitative and Qualitative Disclosures About Market Risk

For quantitative and qualitative disclosures about market risk, see Part II, Item 7A.

“Quantitative and Qualitative Disclosures About Market Risk,” of our Annual Report on Form 10-K for the year ended December 31, 2022.

Our exposures to market risk have not changed materially since December 31, 2022.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis