LANTHEUS HOLDINGS, INC.
Cautionary Note Regarding Forward-Looking Statements
Some of the statements contained in this Quarterly Report on Form 10-Q are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). These
forward-looking statements, including, in particular, statements about our
plans, strategies, prospects and industry estimates are subject to risks and
uncertainties. These statements identify prospective information and include
words such as "anticipates," "intends," "plans," "seeks," "believes,"
"estimates," "expects," "should," "could," "predicts," "hopes" and similar
expressions. Examples of forward-looking statements include statements we make
relating to our outlook and expectations including, without limitation, in
connection with: (i) the impact of the global COVID-19 pandemic on our business,
financial conditions or prospects; (ii) continued market expansion and
penetration for our commercial products, particularly DEFINITY, in the face of
segment competition and potential generic competition as a result of patent and
regulatory exclusivity expirations; (iii) the global Molybdenum-99 ("Mo-99")
supply; (iv) our products manufactured at Jubilant HollisterStier ("JHS"); (v)
our efforts in new product development, including for PyL, the Progenics
prostate cancer diagnostic imaging agent, and new clinical applications for our
products; (vi) the integration of the Progenics product and product candidate
portfolio following the consummation of the Progenics transaction (the
"Progenics Transaction"); (vii) our capacity to use in-house manufacturing; and
(viii) our ability to commercialize our products in new ex-U.S. markets.
Forward-looking statements are based on our current expectations and assumptions
regarding our business, the economy and other future conditions. Because
forward-looking statements relate to the future, such statements are subject to
inherent uncertainties, risks and changes in circumstances that are difficult to
predict. Our actual results may differ materially from those contemplated by the
forward-looking statements. These statements are neither statements of
historical fact nor guarantees or assurances of future performance. The matters
referred to in the forward-looking statements contained in this Quarterly Report
on Form 10-Q may not in fact occur. We caution you, therefore, against relying
on any of these forward-looking statements. Important factors that could cause
actual results to differ materially from those in the forward-looking statements
include regional, national or global political, economic, business, competitive,
market and regulatory conditions and the following:
•The impact of the global COVID-19 pandemic on our business, financial condition
or prospects, including a decline in the volume of procedures and treatments
using our products, potential delays and disruptions to global supply chains,
manufacturing activities, logistics, operations, clinical development programs,
employees and contractors, the business activities of our suppliers,
distributors, customers and other business partners, as well as the effects on
worldwide economies, financial markets, social institutions, labor markets and
healthcare systems;
•Our ability to continue to grow the appropriate use of DEFINITY in suboptimal
echocardiograms in the face of segment competition from other echocardiography
contrast agents, including Optison from GE Healthcare Limited ("GE Healthcare ")
and Lumason from Bracco Diagnostics Inc. ("Bracco"), and potential generic
competition as a result of patent and regulatory exclusivity expirations;
•The instability of the global Mo-99 supply, including (i) periodic outages at
the NTP Radioisotopes ("NTP") processing facility in South Africa in 2017, 2018
and 2019, and (ii) a recently resolved production volume limitations at the
Australian Nuclear Science and Technology Organisation's ("ANSTO") new Mo-99
processing facility in Australia , in each case resulting in our inability to
fill some or all of the demand for our TechneLite generators on certain
manufacturing days during the outage periods;
•Our dependence upon third parties for the manufacture and supply of a
substantial portion of our products, raw materials and components, including
DEFINITY at JHS;
•Risks related to the integration of the Progenics Transaction, including:
•The integration of the Progenics Transaction may involve unexpected costs,
liabilities or delays;
•The ability of our combined business to retain and hire key personnel and
maintain relationships with customers, suppliers and others with whom we or
Progenics do business,
•Unanticipated risks to our integration plan including in connection with
timing, talent, and the potential need for additional resources;
•New or previously unidentified manufacturing, regulatory, or research and
development issues in the Progenics business;
•Risks that the anticipated benefits of the Progenics Transaction or other
commercial opportunities may otherwise not be fully realized or may take longer
to realize than expected;
•Risks that contractual contingent value rights ("CVRs") we issued as part of
the Progenics Transaction may result in substantial future payments and could
divert the attention of our management; and
•The impact of legislative, regulatory, competitive and technological changes on
the combined business;
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•Risks related to the commercialization of AZEDRA, including in connection with
market acceptance and reimbursement, that may cause the product not to meet
revenue or operating income expectations;
•Risks related to RELISTOR, commercialized by Bausch, and that the revenues
generated for us thereby may not meet expectations;
•The extensive costs, time and uncertainty associated with the development of
new products, such as PyL, including further product development relying on
external development partners or developing internally;
•Our ability to identify and acquire or in-license additional products,
businesses or technologies to drive our future growth;
•Our ability to protect our intellectual property and the risk of claims that we
have infringed on the intellectual property of others;
•Risks associated with the technology transfer programs to secure production of
our products at additional contract manufacturer sites, including a modified
formulation of DEFINITY at Samsung BioLogics ("SBL") in South Korea ;
•Risks associated with our investment in, and construction of, additional
specialized manufacturing capabilities at our North Billerica, Massachusetts
facility, including our ability to bring the new capabilities online by 2021;
•Our dependence on key customers for certain of our products, and our ability to
maintain and profitably renew our contracts with those key customers, including
GE Healthcare , Cardinal Health ("Cardinal"), United Pharmacy Partners ("UPPI"),
Jubilant Radiopharma formerly known as Triad Isotopes, Inc. ("Jubilant
Radiopharma") and PharmaLogic Holdings Corp ("PharmaLogic");
•Risks associated with our lead agent in development, PyL, including:
•Our ability to file our New Drug Application ("NDA") with the U.S. Food and
Drug Administration ("FDA") later in 2020;
•Our ability to obtain FDA approval of PyL in 2021; and
•Our ability to successfully commercialize PyL in North America and on a global
basis (other than Europe , where the agent has been previously out-licensed to
Curium, and in Australia and New Zealand , where we do not have commercialization
rights).
•Risks associated with flurpiridaz F 18, which in 2017 we out-licensed to GE
Healthcare , including:
•GE Healthcare's ability to successfully complete the Phase 3 development
program, including delays in enrollment that have resulted from the COVID-19
pandemic;
•GE Healthcare's ability to obtain Food and Drug Administration ("FDA")
approval; and
•GE Healthcare's ability to gain post-approval market acceptance and adequate
reimbursement;
•Risks associated with 1095, including delays in enrollment that have resulted
from the COVID-19 pandemic and our ability to successfully complete the Phase 2
study in mCRPC;
•Risks associated with the manufacturing and distribution of our products and
the regulatory requirements related thereto;
•The dependence of certain of our customers upon third-party healthcare payors
and the uncertainty of third-party coverage and reimbursement rates;
•The existence and market success of competitor products;
•Uncertainties regarding the impact of U.S. and state healthcare reform measures
and proposals on our business, including measures and proposals related to
reimbursement for our current and potential future products, controls over drug
pricing, drug pricing transparency and generic drug competition;
•Our being subject to extensive government regulation and oversight, our ability
to comply with those regulations and the costs of compliance;
•Potential liability associated with our marketing and sales practices;
•The occurrence of any serious or unanticipated side effects with our products;
•Our exposure to potential product liability claims and environmental, health
and safety liability;
•Our ability to introduce new products and adapt to an evolving technology and
medical practice landscape;
•Risks associated with prevailing economic or political conditions and events
and financial, business and other factors beyond our control;
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•Risks associated with our international operations, including potential global
disruptions in air transport due to COVID-19, which could adversely affect our
international supply chains for radioisotopes and other critical materials as
well as international distribution channels for our commercial products;
•Our ability to adequately qualify, operate, maintain and protect our
facilities, equipment and technology infrastructure;
•Our ability to hire or retain skilled employees and key personnel;
•Our ability to utilize, or limitations in our ability to utilize, net operating
loss carryforwards to reduce our future tax liability;
•Risks related to our outstanding indebtedness and our ability to satisfy those
obligations;
•Costs and other risks associated with the Sarbanes-Oxley Act and the Dodd-Frank
Act, including in connection with becoming a large accelerated filer as of
December 31, 2019 ;
•Risks related to the ownership of our common stock; and
•Other factors that are described in Part I, Item 1A. "Risk Factors" in our
Annual Report on Form 10-K for the year ended December 31, 2019 , in Part II,
Item 1A. "Risk Factors" in our Quarterly Report on Form 10-Q for the period
ended March 31, 2020 , and in Part II, Item 1A. "Risk Factors" in this Quarterly
Report on Form 10-Q.
Factors that could cause or contribute to such differences include, but are not
limited to, those that are discussed in other documents we file with the SEC .
Any forward-looking statement made by us in this Quarterly Report on Form 10-Q
speaks only as of the date on which it is made. Factors or events that could
cause our actual results to differ may emerge from time to time, and it is not
possible for us to predict all of them. We undertake no obligation to publicly
update any forward-looking statement, whether as a result of new information,
future developments or otherwise, except as may be required by law.
Available Information
Our global Internet site is www.lantheus.com. We routinely make available
important information, including copies of our Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to
those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Exchange Act, as soon as reasonably practicable after those reports are
electronically filed with, or furnished to, the SEC , free of charge on our
website at www.investor.lantheus.com. We recognize our website as a key channel
of distribution to reach public investors and as a means of disclosing material
non-public information to comply with our disclosure obligations under SEC
Regulation FD. Information contained on our website shall not be deemed
incorporated into, or to be part of this Quarterly Report on Form 10-Q, and any
website references are not intended to be made through active hyperlinks.
Our reports filed with, or furnished to, the SEC are also available on the SEC's
website at www.sec.gov, and for Annual Reports on Form 10-K and Quarterly
Reports on Form 10-Q, in an iXBRL (Inline Extensible Business Reporting
Language) format. iXBRL is an electronic coding language used to create
interactive financial statement data over the Internet. The information on our
website is neither part of nor incorporated by reference in this Quarterly
Report on Form 10-Q.
The following discussion and analysis of our financial condition and results of
operations should be read together with the condensed consolidated financial
statements and the related notes included in Item 1 of this Quarterly Report on
Form 10-Q as well as the other factors described in Part I, Item 1A. "Risk
Factors" in our Annual Report on Form 10-K for the year ended December 31, 2019 ,
and Part II, Item IA. "Risk Factors" in our Quarterly Report on Form 10-Q for
the period ended March 31, 2020 , and Part II, Item IA. "Risk Factors" in this
Quarterly Report on Form 10-Q.
Overview
Our Business
We are a global leader in the development, manufacture and commercialization of
innovative diagnostic and therapeutic agents and products that assist clinicians
in the diagnosis and treatment of heart disease, cancer and other diseases. For
our diagnostic agents, we believe that the resulting improved diagnostic
information enables healthcare providers to better detect and characterize, or
rule out, disease, potentially achieving improved patient outcomes, reducing
patient risk and limiting overall costs for payers and the entire healthcare
system.
Our commercial products are used by cardiologists, nuclear physicians,
radiologists, oncologists, internal medicine physicians, technologists and
sonographers working in a variety of clinical settings. We sell our products to
radiopharmacies, integrated delivery networks, hospitals, clinics and group
practices.
We sell our products globally and operate our business in two reportable
segments, which are further described below:
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•U.S. Segment produces and markets our agents and products throughout the U.S.
In the U.S. , we primarily sell to radiopharmacies, integrated delivery networks,
hospitals, clinics and group practices.
•International Segment operations consist of production and distribution
activities in Puerto Rico and some direct distribution activities in Canada .
Additionally, within our International Segment, we have established and maintain
third-party distribution relationships under which different products are
marketed and sold in Europe , Canada , Australia , Asia-Pacific and Latin America .
Acquisition of Progenics
On June 19, 2020 , pursuant to the Merger Agreement among Holdings, Merger Sub
and Progenics, we completed the acquisition of Progenics, by means of a merger
of Merger Sub with and into Progenics, with Progenics surviving the merger as a
wholly-owned subsidiary of Holdings. Immediately thereafter, Holdings
contributed the shares of Progenics to LMI so that Progenics is now a
wholly-owned subsidiary of LMI.
Progenics is an oncology company focused on the development and
commercialization of innovative targeted medicines and artificial intelligence
to find, fight and follow cancer. Progenics' portfolio of products and product
candidates includes therapeutic agents designed to target cancer (AZEDRA, 1095
and PSMA TTC), as well as imaging agents designed to target PSMA for prostate
cancer (PyL and 1404). Progenics' current revenue is generated from two
principal sources: first AZEDRA sales, and second, royalties, development and
commercial milestones from strategic partnerships, in particular royalties from
Bausch from sales of RELISTOR.
In accordance with the Merger Agreement, each share of Progenics common stock,
par value $0.0013 per share, issued and outstanding immediately prior to the
transaction 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 CVR. Former Progenics stockholders received cash
in lieu of any fractional shares of Holdings common stock.
In addition, in accordance with the Merger Agreement, each Progenics stock
option with a per share exercise price less than or equal to $4.42 (an
"in-the-money Progenics stock option") received (i) an option to purchase
Holdings common stock (each, a "Lantheus Stock Option") converted based on the
Exchange Ratio, and (ii) a vested or unvested CVR depending on whether the
underlying in-the-money Progenics stock option was vested at the time of the
transaction. Each Progenics stock option with a per share exercise price greater
than $4.42 (an "out-of-the-money Progenics stock option") received a Lantheus
Stock Option converted on an exchange ratio determined based on the average of
the volume weighted average price per share of common stock of Progenics and
Holdings prior to the transaction, which exchange ratio was 0.31.
Holdings issued 26,844,877 shares of Holdings common stock and 86,630,633 CVRs
to former Progenics stockholders in connection with the Merger. Holdings also
assumed 34,000 in-the-money Progenics stock options and 6,507,342
out-of-the-money Progenics stock options, each converted into Lantheus Stock
Options at the exchange ratios noted above.
As a result of the Progenics Transaction, Lantheus added the following products
and product candidates to its portfolio:
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Product / Product Candidate Description Status Market Rights
Ultra-Orphan Theranostic
AZEDRA (iobenguane I 131) 555 Unresectable, locally advanced or Approved U.S Progenics
MBq/mL injection metastatic pheochromocytoma or
paraganglioma
Prostate Cancer Theranostics
PyL (18F-DCFPyL) PSMA-targeted PET/CT imaging agent Preparing NDA Worldwide (ex. EU, Progenics
for prostate cancer AU, & NZ)
PyL (18F-DCFPyL) PSMA-targeted PET/CT imaging agent Discussions with European Europe Curium
for prostate cancer Medicines Agency (EMA)
1095 (I 131 1095) PSMA-targeted small molecule Phase 2 Worldwide Progenics
therapeutic for treatment of
metastatic prostate cancer
PSMA TTC (BAY 2315497) PSMA-targeted antibody conjugate Phase 1 Worldwide Bayer
therapeutic for treatment of
metastatic prostate cancer
1404 Technetium-99m PSMA-targeted Discussions with EMA Europe ROTOP
SPECT/CT imaging agent for prostate
cancer
Digital Technology
PSMA AI Imaging analysis technology that Investigational Use Only Worldwide Progenics
uses artificial intelligence and
machine learning to assist readers
in the quantification and
standardized reporting of
PSMA-targeted imaging
Automated Bone Scan Index (aBSI) Automated reading and Approved in the U.S. and Worldwide (ex. Progenics
quantification of bone scans of E.U. 510(k) cleared in Japan)
prostate cancer patients using the U.S. CE marked (E.U.
artificial intelligence and deep countries)
learning
Automated Bone Scan Index Automated reading and Approved Japan FUJIFILM
(BONENAVI) quantification of bone scans of
prostate cancer patients using
artificial intelligence and deep
learning
Other Programs
RELISTOR Subcutaneous Injection OIC in adults with chronic Approved Worldwide Bausch
(methylnaltrexone bromide) non-cancer pain or advanced-illness
adult patients
RELISTOR Tablets (methylnaltrexone OIC in adults with chronic Approved U.S. Bausch
bromide) non-cancer pain
Leronlimab (PRO 140) HIV Infection CytoDyn intends to U.S. CytoDyn
request Type A meeting
with FDA to discuss BLA
See Part I, Item 1A. "Risk Factors" in our Annual Report on form 10-K for the
year ended December 31, 2019 , and Part II, Item 1A. "Risk Factors" in our
Quarterly Report on Form 10-Q for the period ended March 31, 2020 for
information regarding certain risks associated with our proposed acquisition of
Progenics.
Our Expanded Portfolio
Our commercial products now include the following:
•DEFINITY is a microbubble contrast agent used in ultrasound exams of the heart,
also known as echocardiography exams. DEFINITY contains perflutren-containing
lipid microspheres and is indicated in the U.S. for use in patients with
suboptimal echocardiograms to assist in imaging the left ventricular chamber and
left endocardial border of the heart in ultrasound procedures. We believe we are
currently the leading provider of ultrasound microbubble contrast agents in the
world.
•TechneLite is a Technetium ("Tc-99m") generator that provides the essential
nuclear material used by radiopharmacies to radiolabel Cardiolite, Neurolite and
other Tc-99m-based radiopharmaceuticals used in nuclear medicine procedures.
TechneLite uses Mo-99 as its active ingredient.
•Neurolite is an injectable, Tc-99m-labeled imaging agent used with SPECT
technology to identify the area within the brain where blood flow has been
blocked or reduced due to stroke.
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•Xenon Xe 133 Gas ("Xenon") is a radiopharmaceutical gas that is inhaled and
used to assess pulmonary function and also to image cerebral blood flow. Our
Xenon is manufactured by a third party as a bi-product of Mo-99 production and
is processed and finished by us. We believe we are currently the leading
provider of Xenon in the U.S.
•FDG is an injectable, fluorine-18-radiolabeled imaging agent used with PET
technology to identify and characterize tumors in patients undergoing oncologic
diagnostic procedures. We manufacture and distribute FDG from our Puerto Rico
radiopharmacy.
•Cardiolite, also known by its generic name sestamibi, is an injectable,
Tc-99m-labeled imaging agent used in myocardial perfusion imaging ("MPI")
procedures to assess blood flow to the muscle of the heart using SPECT.
Cardiolite was approved by the FDA in 1990 and its market exclusivity expired in
July 2008 . Included in Cardiolite revenues are branded Cardiolite and generic
sestamibi revenues.
•Thallium TI 201 is an injectable radiopharmaceutical imaging agent used in MPI
studies to detect cardiovascular disease. We manufacture Thallium using
cyclotron technology.
•Gallium (Ga 67) is an injectable radiopharmaceutical imaging agent used to
detect certain infections and cancerous tumors, especially lymphoma. We
manufacture Gallium using cyclotron technology.
•AZEDRA (iobenguane I 131) is a radiotherapeutic, approved for the treatment of
adult and pediatric patients 12 years and older with iobenguane scan positive,
unresectable, locally advanced or metastatic pheochromocytoma or paraganglioma
who require systemic anticancer therapy. AZEDRA is the first and only
FDA-approved therapy for this indication.
•RELISTOR (methylnaltrexone bromide) is a treatment for opioid-induced
constipation ("OIC") that decreases the constipating side effects induced by
opioid pain medications such as morphine and codeine without diminishing their
ability to relieve pain. RELISTOR is approved in two forms: a subcutaneous
injection (12 mg and 8 mg) and an oral tablet (450 mg once daily).
•Quadramet is an injectable radiopharmaceutical used to treat severe bone pain
associated with osteoblastic metastatic bone lesions. We serve as the direct
manufacturer and supplier of Quadramet in the U.S.
•Automated Bone Scan Index ("aBSI") calculates the disease burden of prostate
cancer by quantifying the hotspots on bone scans and automatically calculating
the bone scan index value, representing the disease burden of prostate cancer
shown on the bone scan. This quantifiable and reproducible calculation of the
bone scan index value is intended to aid in the diagnosis and treatment of men
with prostate cancer and may have utility in monitoring the course of the
disease. The Japanese rights to the stand-alone aBSI have been transferred and
sold to FUJIFILM Toyama Chemical Co. Ltd. ("FUJIFILM") under the name BONENAVI®.
The cloud based aBSI was cleared by the FDA for clinical use in the U.S. on
August 5, 2019 . In February 2020 , Progenics received CE marking for the
standalone workstation model of aBSI, meeting the quality standards set by the
European Economic Area.
•Cobalt (Co 57) is a non-pharmaceutical radiochemical used in the manufacture of
sources for the calibration and maintenance of SPECT imaging cameras.
Sales of our microbubble contrast agent, DEFINITY, are made in the U.S. and
Canada through a DEFINITY direct sales team. In the U.S. , our nuclear imaging
products, including TechneLite, Xenon, Neurolite and Cardiolite, are primarily
distributed through commercial radiopharmacies, the majority of which are
controlled by or associated with GE Healthcare , Cardinal, UPPI, Jubilant
Radiopharma and PharmaLogic. A small portion of our nuclear imaging product
sales in the U.S. are made through our direct sales force to hospitals and
clinics that maintain their own in-house radiopharmaceutical preparation
capabilities. We own one radiopharmacy in Puerto Rico where we sell our own
products as well as products of third parties to end-users. AZEDRA is also sold
in the U.S. through an AZEDRA direct sales team. RELISTOR was licensed to
Bausch, and we collect quarterly royalties based on their sales.
We also maintain our own direct sales force in Canada for certain of our
products. In Europe , Australia , Asia-Pacific and Latin America , we generally
rely on third-party distributors to market, sell and distribute our nuclear
imaging and contrast agent products, either on a country-by-country basis or on
a multi-country regional basis. Our headquarters are located in North Billerica,
MA with offices in New York, NY , Somerset, NJ , San Juan, PR, Montreal, Canada
and Lund, Sweden .
Product Candidates
In addition to our commercial products, we now have an extensive portfolio of
product candidates in clinical development, including:
•PyL (also known as 18F-DCFPyL) is a fluorine 18-based PSMA-targeted PET imaging
agent that enables visualization of both bone and soft tissue metastases, with
potential high clinical utility in the detection of recurrent and/or metastatic
prostate
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cancer, as well as staging of high risk disease. Progenics has completed a
clinical development program that consisted of two pivotal clinical studies,
which were designed to provide robust, prospective, well-controlled, and
pathology- or composite truth standard-verified data to establish the safety and
diagnostic performance of PyL across the disease continuum of prostate cancer.
The results from these studies provide data in support of the potential of PyL
to reliably detect and localize disease, including in patients with low PSA
values, and may help enable appropriate disease management, thus supporting the
potential use for detection of recurrent or metastatic prostate cancer.
Progenics completed two successful pre-NDA meetings with the FDA in the first
quarter of 2020, and we intend to submit the PyL NDA to the FDA later in 2020.
•Flurpiridaz F 18 is a fluorine 18-based PET MPI agent to assess blood flow to
the heart. On April 25, 2017 , we announced entering into a definitive, exclusive
Collaboration and License Agreement with GE Healthcare for the agent's continued
Phase 3 development and worldwide commercialization. The second Phase 3 trial is
now underway; however, because of the COVID-19 pandemic, enrollment in the
global clinical development program has been delayed. GE Healthcare now expects
to complete enrollment by mid-2021 and, assuming regulatory approval, begin
commercialization in early 2023.
•LMI 1195 is a fluorine 18-based PET imaging agent for the norepinephrine
pathway. We are currently designing two Phase 3 clinical trials for the use of
LMI 1195 for the diagnosis and management of neuroendocrine tumors in pediatric
and adult populations, respectively. The FDA has granted an Orphan Drug
designation for the use of LMI 1195 in the management indication. We have also
received notice of eligibility for a rare pediatric disease priority review
voucher for a subsequent human drug application so long as LMI 1195 is approved
by the FDA for its rare pediatric disease indication prior to September 30,
2022 .
•1095 (also known as I-131 -1095) is a PSMA-targeted iodine-131 labeled small
molecule that is designed to deliver a dose of beta radiation directly to
prostate cancer cells with minimal impact on the surrounding healthy tissues.
Following the removal of the import alert on Centre for Probe Development &
Commercialization ("CPDC"), Progenics initiated eleven clinical sites in the U.S
along with the six active sites in Canada to support enrollment in the Company's
multicenter, randomized, controlled, ARROW Phase 2 study in metastatic
castration-resistant prostate cancer ("mCRPC"). Because of the COVID-19
pandemic, Progenics paused new enrollment in the Phase 2 trial to minimize the
risk to subjects and healthcare providers during the pandemic. For subjects who
are active and have been randomized for the study, they continue to receive
treatment doses and are being monitored for safety and efficacy in a manner that
is permissible by each clinical site.
•PSMA TTC is a thorium-227 labeled PSMA-targeted antibody therapeutic. PSMA TTC
is designed to deliver a dose of alpha radiation directly to prostate cancer
cells with minimal impact on the surrounding healthy tissues. Bayer AG ("Bayer")
has exclusive worldwide rights to develop and commercialize products using our
PSMA antibody technology in combination with Bayer's alpha-emitting
radionuclides. Bayer is conducting a Phase 1 trial of PSMA TTC in subjects with
mCRPC.
•1404 is a Tc-99m labeled small molecule which binds to PSMA and is used as a
SPECT/CT imaging agent to diagnose and detect localized prostate cancer as well
as soft tissue and bone metastases. ROTOP has exclusive rights to develop,
manufacture and commercialize 1404 in Europe .
•PSMA AI is an imaging analysis technology that uses artificial intelligence and
machine learning to assist readers in the quantification and standardized
reporting of PSMA-targeted imaging. Progenics recently completed a performance
study of automated segmentation algorithms with PyL/CT images from the PyL
research access initiative. The study demonstrated the efficiency and
effectiveness of a fully automated segmentation algorithm of the 49 bones and 12
soft tissue regions of the whole body from PyL-PSMA PET/CT images. This work
provides automated generation of lesion quantification, localization and
staging, leading to highly contextualized assessments of disease burden.
•Leronlimab (PRO 140) is an investigational humanized IgG4 mAb that blocks CCR5,
a cellular receptor that is important in HIV infection, tumor metastases, and
other diseases including certain liver diseases. It is owned by CytoDyn Inc.
("CytoDyn") pursuant to our agreement with CytoDyn, as described below. In May
2020 , CytoDyn announced it submitted a Biologics License Application ("BLA") to
the FDA for approval of Leronlimab in combination therapy for HIV infection. On
July 13, 2020 , CytoDyn announced that it had received a refusal to file letter
from the FDA for the BLA and that CytoDyn intends to request a Type A meeting
with the FDA to discuss the FDA's request for additional information.
Strategic Partnerships
In connection with our commercial products and product candidates, we now have a
number of strategic partnerships, including:
•Bausch Agreement -- Under its agreement with Salix Pharmaceuticals, Inc. , a
wholly-owned subsidiary of Bausch, Progenics received a $40 million development
milestone upon U.S. marketing approval for subcutaneous RELISTOR in non-cancer
pain patients in 2014, a $50 million development milestone for the U.S.
marketing approval of an oral formulation of RELISTOR in July 2016 , and a $10.0
million sales milestone for RELISTOR achieving U.S. net sales in excess of
$100.0 million in 2019. We are also eligible to receive additional one-time
sales milestone payments upon achievement of specified U.S. net sales targets,
including:
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(In thousands)
In excess of $150 million 15,000
In excess of $200 million 20,000
In excess of $300 million 30,000
In excess of $750 million 50,000
In excess of $1 billion 75,000
Each sales milestone payment is payable one time only, regardless of the number
of times the condition is satisfied, and all six payments could be made within
the same calendar year. We are also eligible to receive royalties from Bausch
and its affiliates based on the following royalty scale: 15% on worldwide net
sales up to $100 million , 17% on the next $400 million in worldwide net sales,
and 19% on worldwide net sales over $500 million each calendar year, and 60% of
any upfront, milestone, reimbursement or other revenue (net of costs of goods
sold, as defined, and territory-specific research and development expense
reimbursement) Bausch receives from sublicensees outside the U.S.
•GE Healthcare Agreement - Under our April 2017 Collaboration and License
Agreement, GE Healthcare will complete the worldwide development of flurpiridaz
F 18, pursue worldwide regulatory approvals, and, if successful, lead a
worldwide launch and commercialization of the agent, with us collaborating on
both development and commercialization through a joint steering committee. We
also have the right to co-promote the agent in the U.S. GE Healthcare's
development plan initially focuses on obtaining regulatory approval in the U.S. ,
Japan , Europe and Canada . Under the agreement, we received an upfront cash
payment of $5 million and are eligible to receive up to $60 million in
regulatory and sales milestone payments, tiered double-digit royalties on U.S.
sales, and mid-single digit royalties on sales outside of the U.S.
•Curium Agreement - Curium has licensed exclusive rights to develop and
commercialize PyL in Europe . Under the terms of the collaboration, Curium is
responsible for the development, regulatory approvals and commercialization of
PyL in Europe , and we are entitled to royalties on net sales of PyL. Curium is
in discussions with EMA regarding the development path in Europe .
•Bayer Agreement - Under Progenics' April 2016 agreement with a subsidiary of
Bayer granting Bayer exclusive worldwide rights to develop and commercialize
products using our PSMA antibody technology, in combination with Bayer's
alpha-emitting radionuclides, Progenics received an upfront payment of $4.0
million and milestone payments totaling $5.0 million . We could receive up to an
additional $44.0 million in potential clinical and development milestones. We
are also entitled to single-digit royalties on net sales, and potential net
sales milestone payments up to an aggregate of $130.0 million .
•CytoDyn Agreement -- Leronlimab (PRO 140) is an investigational humanized IgG4
mAb that blocks CCR5, a cellular receptor that is important in HIV infection,
tumor metastases, and other diseases including certain liver diseases. Progenics
sold Leronlimab to CytoDyn in 2012, which sale included milestone and royalty
payment obligations to Progenics. Under the 2012 agreement, CytoDyn is
responsible for all development, manufacturing and commercialization efforts.
Pursuant to such agreement, Progenics received $5.0 million in upfront and
milestone payments, and we have the right to receive an additional $5.0 million
upon the first U.S. or E.U. approval for the sale of the drug, and a 5% royalty
on the net sales of approved products.
•ROTOP Agreement -- In May 2019 , Progenics entered into an exclusive license
agreement with ROTOP, a Germany -based developer of radiopharmaceuticals for
nuclear medicine diagnostics, to develop, manufacture and commercialize 1404 in
Europe . Under the terms of the collaboration, ROTOP is responsible for the
development, regulatory approvals and commercialization of 1404 in Europe while
we are entitled to double-digit, tiered royalties on net sales of 1404 in
Europe . ROTOP is in discussions with EMA regarding the development path in
Europe .
•FUJIFILM Agreement -- In June 2019 , Progenics entered into a transfer agreement
with FUJIFILM for the rights to the aBSI product in Japan for use under the name
BONENAVI. Under the terms of the transfer agreement, FUJIFILM acquired, by a
combination of purchase and license, the Japanese software, source code,
supporting data and all Japanese patents associated with the aBSI product from
Progenics for use in Japan . In exchange, Progenics received $4.0 million in an
upfront payment and FUJIFILM agreed to pay Progenics support and service fees
for aBSI and other AI products over the next three years in Japan . BONENAVI has
been licensed to FUJIFILM for use in Japan since 2011.
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Key Factors Affecting Our Results
Our business and financial performance have been, and continue to be, affected
by the following:
COVID-19 Pandemic
The global COVID-19 pandemic has had, and will continue to have, a material
impact on our business. Towards the end of the first quarter of 2020 we began to
experience, and through the date of this filing we are continuing to experience,
impacts to our business and operations related to the COVID-19 pandemic,
including the impact of stay-at-home mandates and advisories, and a decline in
the volume of procedures and treatments using our products. We cannot predict
the magnitude or duration of the pandemic's impact on our business.
As a result of the COVID-19 pandemic, we undertook a thorough analysis of all of
our discretionary expenses. In the first quarter of 2020 we implemented certain
cost reduction initiatives, including, among other things, reducing travel and
promotional expenses and implementing a hiring freeze through the balance of
2020. In addition, effective April 13, 2020 , we reduced our work week from five
days to four days in order to better align manufacturing, supply, distribution
and other activities with reduced product demand. We also reduced pay for our
personnel, including a 75% reduction for Mary Anne Heino , our President and
Chief Executive Officer, a 35% reduction for members of our executive team, a
25% reduction for our vice presidents, and across-the-board reductions of 20% of
salaries for our other salaried employees and 20% of hours for our hourly
employees for that same time period. In addition, our Board of Directors has
also reduced director and committee member compensation by 35% for the second
half of the year and has elected to receive all remaining compensation payable
in 2020 in the form of time-based restricted stock units that will vest on the
first anniversary of the grant date, rather than in cash. In the latter half of
June 2020 , we restored our work week back to five days and restored most
salaries back to 100% (other than executive team members whose salaries were
restored in early July and directors whose compensation will remain at reduced
levels for the balance of the calendar year).
We can give no assurances that we will not have to take additional cost
reduction measures if the pandemic continues to adversely affect the volume of
procedures and treatments using our products.
During the second quarter of 2020, Progenics also implemented certain cost
reduction initiatives, including reducing promotional spending and furloughing a
portion of its field-based AZEDRA commercial operations and medical employees.
Progenics also furloughed several of its clinical employees. The commercial and
medical employees were returned to full service with Progenics as of June 22,
2020 . In addition, Progenics paused new enrollment in the Phase 2 trial of 1095
in mCRPC patients to minimize the risk to subjects and healthcare providers
during the pandemic.
GE Healthcare , our development and commercialization partner for flurpiridaz F
18, also delayed enrollment in the second Phase 3 clinical trial because of the
pandemic and has informed us that it now intends to resume enrollment in the
third quarter of 2020.
While we are currently unable to estimate the impact of COVID-19 on our overall
2020 operations and financial results, we ended the second quarter of 2020 with
$90.3 million of cash and cash equivalents. With our available liquidity and
prudent expense management, we believe we will be able to maintain a state of
preparedness to resume full business activities to support our customers as
external conditions allow, although we can give no assurances that we will have
sufficient liquidity if the pandemic continues to adversely affect the volume of
procedures and treatments using our products for an extended period of time.
Anticipated Continued Growth of DEFINITY and Expansion of Our Ultrasound
Microbubble Franchise
We believe the market opportunity for our ultrasound microbubble contrast agent,
DEFINITY, continues to be significant. DEFINITY is our fastest growing and
highest margin commercial product. We anticipate DEFINITY sales will continue to
grow over the longer term. As we continue to educate the physician and
healthcare provider community about the benefits and risks of DEFINITY, we
believe we will be able to continue to grow the appropriate use of DEFINITY in
suboptimal echocardiograms. In a U.S. market with three echocardiography
contrast agents approved by the FDA, we estimate that DEFINITY had over 80% of
the market as of December 31, 2019 .
As we continue to pursue expanding our microbubble franchise, our activities
include:
•Patents - We continue to actively pursue additional patents in connection with
DEFINITY, both in the U.S. and internationally. In the U.S. , three of our
recently issued method of use patents covering DEFINITY were listed in the
Orange Book. We now have a total of four Orange Book-listed method of use
patents, one of which expires in 2035 and three of which expire in 2037, as well
as additional manufacturing patents that are not Orange Book-listed expiring in
2021, 2023 and 2037. Outside of the U.S. , while our DEFINITY patent protection
and regulatory exclusivity have generally expired, we are currently prosecuting
additional patents to try to obtain similar method of use and manufacturing
patent protection as granted in the U.S.
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Hatch-Waxman Act - Even though our longest duration Orange Book-listed DEFINITY
patent extends until March 2037 , because our Orange Book-listed composition of
matter patent expired in June 2019 , we may face generic DEFINITY challengers in
the near to intermediate term. Under the Hatch-Waxman Act, the FDA can approve
Abbreviated New Drug Applications ("ANDAs") for generic versions of drugs if the
ANDA applicant demonstrates, among other things, that (i) its generic candidate
is the same as the innovator product by establishing bioequivalence and
providing relevant chemistry, manufacturing and product data, and (ii) the
marketing of that generic candidate does not infringe an Orange Book-listed
patent. With respect to any Orange Book-listed patent covering the innovator
product, the ANDA applicant must give a notice to the innovator (a "Notice")
that the ANDA applicant certifies that its generic candidate will not infringe
the innovator's Orange Book-listed patent or that the Orange Book-listed patent
is invalid. The innovator can then challenge the ANDA applicant in court within
45 days of receiving that Notice, and FDA approval to commercialize the generic
candidate will be stayed (that is, delayed) for up to 30 months (measured from
the date on which a Notice is received) while the patent dispute between the
innovator and the ANDA applicant is resolved in court. The 30 month stay could
potentially expire sooner if the courts determine that no infringement had
occurred or that the challenged Orange Book-listed patent is invalid or if the
parties otherwise settle their dispute.
As of the date of filing of this Quarterly Report on Form 10-Q, we have not
received any Notice from an ANDA applicant. If we were to (i) receive any such
Notice in the future, (ii) bring a patent infringement suit against the ANDA
applicant within 45 days of receiving that Notice, and (iii) successfully obtain
the full 30 month stay, then the ANDA applicant would be precluded from
commercializing a generic version of DEFINITY prior to the expiration of that 30
month stay period and, potentially, thereafter, depending on how the patent
dispute is resolved. Solely by way of example and not based on any knowledge we
currently have, if we received a Notice from an ANDA applicant in August 2020
and the full 30 month stay was obtained, then the ANDA applicant would be
precluded from commercialization until at least January 2023 . If we received a
Notice some number of months in the future and the full 30 month stay was
obtained, the commercialization date would roll forward in the future by the
same calculation.
•Modified Formulation - We are developing at SBL a modified formulation of
DEFINITY. We believe this modified formulation will provide an enhanced product
profile enabling storage as well as shipment at room temperature (DEFINITY's
current formulation requires refrigerated storage), will give clinicians
additional choice, and will allow for greater utility of this formulation in
broader clinical settings. We have a composition of matter patent on the
modified formulation which runs through 2035. If the modified formulation is
approved by the FDA, then this patent would be eligible to be listed in the
Orange Book. We currently believe that, if approved by the FDA, the modified
formulation could become commercially available in early 2021, although that
timing cannot be assured. Given its physical characteristics, the modified
formulation may also be 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 next paragraph).
•New Clinical Applications - As we continue to look for other opportunities to
expand our microbubble franchise, we are evaluating new indications and clinical
applications beyond echocardiography and contrast imaging generally. For
example, in April 2019 , we announced a strategic development and commercial
collaboration with Cerevast Medical, Inc. ("Cerevast") in which our microbubble
will be used in connection with Cerevast's ocular ultrasound device to target
improving blood flow in occluded retinal veins in the eye. Retinal vein
occlusion is one of the most common causes of vision loss worldwide. In December
2019 , we announced a strategic commercial supply agreement with CarThera for the
use of our microbubbles in combination with SonoCloud, a proprietary implantable
device in development for the treatment of recurrent glioblastoma. Glioblastoma
is a lethal and devastating form of brain cancer with median survival of 15
months after diagnosis.
•In-House Manufacturing - We have completed construction of specialized,
in-house manufacturing capabilities at our North Billerica, Massachusetts
facility for DEFINITY and, potentially, other sterile vial products. We believe
the investment in these efforts will allow us to better control DEFINITY
manufacturing and inventory, reduce our costs in a potentially more price
competitive environment, and provide us with supply chain redundancy. We
currently expect to be in a position to use this in-house manufacturing
capability in 2021, although that timing cannot be assured.
•DEFINITY in China - On March 19, 2020 in connection with our Chinese
development and distribution arrangement with Double Crane Pharmaceutical
Company , we filed an Import Drug License application with the National Medical
Products Administration , or the NMPA, for the use of DEFINITY for the
echocardiography indication. We believe this is an important milestone in our
efforts to commercialize DEFINITY in China . Double Crane is also in the process
of analyzing the clinical results relating to the liver and kidney indications
and will also work with us to prepare an Import Drug License application for
those indications.
Global Mo-99 Supply
We currently have Mo-99 supply agreements with Institute for Radioelements
("IRE"), running through December 31, 2022 , and renewable by us on a
year-to-year basis thereafter, and with NTP and ANSTO, running through December
31, 2021 . We also have a Xenon supply agreement with IRE which runs through
June 30, 2022 , and which is subject to further extension.
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Although we have a globally diverse Mo-99 supply 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. The NTP processing facility had periodic
outages in 2017, 2018 and 2019. When NTP was not producing, we relied on Mo-99
supply from both IRE and ANSTO to limit the impact of the NTP outages. In the
second quarter of 2019, ANSTO experienced technical issues in its existing Mo-99
processing facility which resulted in a decrease in Mo-99 available to us. In
addition, as ANSTO transitioned from its existing Mo-99 processing facility to
its new Mo-99 processing facility in the second quarter of 2019, ANSTO
experienced start-up and transition challenges, which also resulted in a
decrease in Mo-99 available to us. Further, starting in late June 2019 until
April 2020 , ANSTO's new Mo-99 processing facility had production volume
limitations imposed on it by the Australian Radiation Protection and Nuclear
Safety Agency which limited our ability to receive Mo-99 from ANSTO. During that
time we relied on IRE and NTP to limit the impact of those ANSTO outages and
volume limitations. As ANSTO increases its production volume over the course of
2020, we expect to receive increasing supply from ANSTO. Because of the COVID-19
pandemic, in the second quarter of 2020 we experienced challenges receiving
regularly scheduled orders of Mo-99 from our global suppliers due to the partial
or complete delay or cancellation of international flights by our airfreight
carriers. As of the filing of this report, these COVID-19-related transportation
challenges have been largely eliminated. Because of these various supply chain
constraints, depending on reactor and processor schedules and operations, we
have not been able to fill some or all of the demand for our TechneLite
generators on certain manufacturing days.
ANSTO's new Mo-99 processing facility could eventually increase ANSTO's Mo-99
production capacity from approximately 2,000 curies per week to 3,500 curies per
week with additional committed financial and operational resources. At full
ramp-up capacity, ANSTO's new facility could provide incremental supply to our
globally diversified Mo-99 supply chain and therefore mitigate some risk among
our Mo-99 suppliers, although we can give no assurances to that effect. In
addition, we also have a strategic arrangement with SHINE Medical Technologies,
Inc. ("SHINE"), a Wisconsin -based company, for the future supply of Mo-99. Under
the terms of that agreement, SHINE will provide us Mo-99 once SHINE's facility
becomes operational and receives all necessary approvals, which SHINE now
estimates will occur in 2022.
Inventory Supply
We obtain a substantial portion of our imaging agents from a third-party
supplier. JHS is currently our sole source manufacturer of DEFINITY, Neurolite,
Cardiolite and evacuation vials, the latter being an ancillary component for our
TechneLite generators. We are currently seeking approval from certain foreign
regulatory authorities for JHS to manufacture certain of our products. Until we
receive these approvals, we will face continued limitations on where we can sell
those products outside of the U.S.
In addition to JHS, we are also currently working to secure additional
alternative suppliers for our key products as part of our ongoing supply chain
diversification strategy. We have ongoing development and technology transfer
activities for a modified formulation of DEFINITY with SBL, which is located in
South Korea . We currently believe that if approved by the FDA, the modified
formulation could be commercially available in 2021, although that timing cannot
be assured. We have also completed construction of specialized, in-house
manufacturing capabilities at our North Billerica, Massachusetts facility, as
part of a larger strategy to create a competitive advantage in specialized
manufacturing, which will also allow us to optimize our costs and reduce our
supply chain risk. We can give no assurance as to when or if we will be
successful in these efforts or that we will be able to successfully manufacture
any additional commercial products at our North Billerica, Massachusetts
facility.
Radiopharmaceuticals are decaying radioisotopes with half-lives ranging from a
few hours to several days. These products cannot be kept in inventory because of
their limited shelf lives and are subject to just-in-time manufacturing,
processing and distribution, which takes place at our North Billerica,
Massachusetts facility.
Research and Development Expenses
To remain a leader in the marketplace, we have historically made substantial
investments in new product development. In addition to our flurpiridaz F 18
clinical development program, the expenses of which are now being borne by GE
Healthcare , and our proposed LMI 1195 Phase 3 clinical program for the diagnosis
and management of neuroendocrine tumors in pediatric and adult populations, the
final plans for which are still being developed, the Progenics Transaction
brings additional and substantial clinical development expense. Progenics
completed two successful pre-NDA meetings with the FDA in the first quarter of
2020, and we intend to submit the PyL NDA to the FDA later in 2020. For 1095,
the ARROW Phase 2 study in mCRPC patients has been paused to minimize risk to
subjects and healthcare providers during the pandemic. In addition, the
Company's development activities for PSMA AI are on-going. Our investments in
these additional clinical activities will increase our operating expenses and
impact our results of operations and cash flow, and we can give no assurances as
to whether any of these clinical development candidates will be approved.
New Initiatives
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In addition to integrating the new assets and programs resulting from the
Progenics Transaction, we continue to seek ways to further expand our portfolio
of products and product candidates, evaluating a number of different
opportunities to acquire or in-license additional products, product candidates,
businesses and technologies to drive our future growth. As the Progenics
Transaction indicates, we are particularly interested in expanding our presence
in oncology, in radiotherapeutics as well as diagnostics. In May 2019 we entered
into a strategic collaboration and license agreement with NanoMab Technology
Limited , a privately-held biopharmaceutical company focusing on the development
of next generation radiopharmaceuticals for cancer precision medicine. We
believe this collaboration will provide the first broadly-available imaging
biomarker research tool to pharmaceutical companies and academic centers
conducting research and development on PD-L1 immuno-oncology treatments,
including combination therapies. We can give no assurance as to when or if this
collaboration will be successful or accretive to earnings.
Results of Operations
The following is a summary of our consolidated results of operations:
Three Months Ended Six Months Ended
June 30, June 30,
(in thousands) 2020 2019 2020 2019
Revenues $ 66,010 $ 85,705 $ 156,714 $ 172,215
Cost of goods sold 40,162 41,132 92,864 83,558
Gross profit 25,848 44,573 63,850 88,657
Operating expenses
Sales and marketing 6,305 10,948 16,435 21,345
General and administrative 20,670 13,293 37,369 25,882
Research and development 4,418 5,795 8,466 10,724
Total operating expenses 31,393 30,036 62,270 57,951
Operating (loss) income (5,545) 14,537 1,580 30,706
Interest expense 1,914 4,543 3,860 9,135
Loss on extinguishment of debt - 3,196 - 3,196
Other income (756) (1,312) (1,106) (2,499)
(Loss) income before income taxes (6,703) 8,110 (1,174) 20,874
Income tax expense 309 1,698 2,501 4,513
Net (loss) income $ (7,012) $ 6,412 $ (3,675) $ 16,361
35-------------------------------------------------------------------------------- Table of Contents Comparison of the Periods EndedJune 30, 2020 and 2019 Revenues Segment revenues are summarized by product as follows: Three Months Ended Six Months Ended June 30, June 30, Change Change Change Change (in thousands) 2020 2019 $ % 2020 2019 $ %U.S. DEFINITY$ 39,544 $ 53,466 $ (13,922) (26.0) %$ 94,554 $ 103,182 $ (8,628) (8.4) % TechneLite 15,591 16,865 (1,274) (7.6) % 34,947 36,923 (1,976) (5.4) % Other nuclear 5,804 9,127 (3,323) (36.4) % 14,866 18,651 (3,785) (20.3) % Rebates and allowances (3,540) (4,268) 728 (17.1) % (8,223) (8,132) (91) 1.1 % Total U.S. revenues 57,399 75,190 (17,791) (23.7) % 136,144 150,624 (14,480) (9.6) % International DEFINITY 821 1,163 (342) (29.4) % 2,602 2,558 44 1.7 % TechneLite 3,318 3,241 77 2.4 % 7,060 7,328 (268) (3.7) % Other nuclear 4,473 6,119 (1,646) (26.9) % 10,911 11,715 (804) (6.9) % Rebates and allowances (1) (8) 7 (87.5) % (3) (10) 7 (70.0) %Total International revenues 8,611 10,515 (1,904) (18.1) % 20,570 21,591 (1,021) (4.7) % Worldwide DEFINITY 40,365 54,629 (14,264) (26.1) % 97,156 105,740 (8,584) (8.1) % TechneLite 18,909 20,106 (1,197) (6.0) % 42,007 44,251 (2,244) (5.1) % Other nuclear 10,277 15,246 (4,969) (32.6) % 25,777 30,366 (4,589) (15.1) % Rebates and allowances (3,541) (4,276) 735 (17.2) % (8,226) (8,142) (84) 1.0 % Total revenues$ 66,010 $ 85,705 $ (19,695) (23.0) %$ 156,714 $ 172,215 $ (15,501) (9.0) % The decrease in theU.S. segment revenues for the three months endedJune 30, 2020 , as compared to the prior year period is primarily due to a$13.9 million decrease in DEFINITY revenue as a result of lower unit volumes as a result of COVID-19. TechneLite revenue was$1.3 million lower driven by COVID-19 impact, partially offset by supplier disruptions in 2019. Other Nuclear revenue was lower than the prior year primarily associated with lower Xenon volume as a result of COVID-19, which was offset, in part, by reduced rebate and allowance provisions of$0.7 million . The decrease in theU.S. segment revenues for the six months endedJune 30, 2020 , as compared to the prior year period is primarily due to an$8.6 million decrease in DEFINITY revenue as a result of lower unit volumes as a result of COVID-19 that was concentrated in the second quarter, offset by first quarter performance. TechneLite revenue was$2.0 million lower driven by COVID-19 impact, partially offset by supplier disruptions in 2019. Other Nuclear revenue was lower than the prior year primarily associated with$4.1 million lower Xenon revenue with lower volume as a result of COVID-19. The Progenics business contributed approximately$1.0 million of revenue to theU.S. segment for the three and six months endedJune 30, 2020 . The decrease in the International segment revenues for the three months endedJune 30, 2020 , as compared to the prior year period is primarily due to lower volume as a result of COVID-19. The decrease in the International segment revenues for the six months endedJune 30, 2020 , as compared to the prior year period is primarily due to lower volume as a result of COVID-19 as well as opportunistic incremental demand of TechneLite in the prior year period. 36 -------------------------------------------------------------------------------- Table of Contents Rebates and Allowances Estimates for rebates and allowances represent our estimated obligations under contractual arrangements with third parties. Rebate accruals and allowances are recorded in the same period the related revenue is recognized, resulting in a reduction to revenue and the establishment of a liability which is included in accrued expenses. These rebates and allowances result from performance-based offers that are primarily based on attaining contractually specified sales volumes and growth, Medicaid rebate programs for our products, administrative fees of group purchasing organizations and certain distributor related commissions. The calculation of the accrual for these rebates and allowances is based on an estimate of the third-party's buying patterns and the resulting applicable contractual rebate to be earned over a contractual period. An analysis of the amount of, and change in, reserves is summarized as follows: Rebates and (in thousands) Allowances Balance, January 1, 2020$ 6,985 Provision related to current period revenues 8,216 Adjustments relating to prior period revenues 10 Payments or credits made during the period (8,266) Balance, June 30, 2020$ 6,945 Gross Profit Gross profit is summarized by segment as follows: Three Months Ended Six Months Ended June 30, June 30, Change Change Change Change
(in thousands) 2020 2019 $ % 2020 2019 $ % U.S.$ 24,697 $ 42,033 $ (17,336) (41.2) %$ 59,760 $ 83,584 $ (23,824) (28.5) % International 1,151 2,540 (1,389) (54.7) % 4,090 5,073 (983) (19.4) % Total gross profit$ 25,848 $ 44,573 $ (18,725) (42.0) %$ 63,850 $ 88,657 $ (24,807) (28.0) % The decrease in theU.S. segment gross profit for the three months endedJune 30, 2020 , as compared to the prior year period is primarily due to lower DEFINITY, TechneLite, Xenon and other nuclear product unit volumes due to COVID-19. This was offset by a decrease in rebate and allowance provisions. The decrease in theU.S. segment gross profit for the six months endedJune 30, 2020 , as compared to the prior year period is primarily due to lower DEFINITY, TechneLite, and Xenon unit volumes due to COVID-19 and an asset impairment loss on other nuclear products. The decrease in the International segment gross profit for the three and six months endedJune 30, 2020 , as compared to the prior year period is primarily due to lower DEFINITY and other nuclear product unit volumes due to COVID-19. Sales and Marketing Sales and marketing expenses consist primarily of salaries and other related costs for personnel in field sales, marketing and customer service functions. 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 expense is summarized by segment as follows: Three Months Ended Six Months Ended June 30, June 30, Change Change Change Change (in thousands) 2020 2019 $ % 2020 2019 $ % U.S.$ 5,830 $ 10,369 $ (4,539) (43.8) %$ 15,437 $ 20,338 $ (4,901) (24.1) % International 475 579 (104) (18.0) % 998 1,007 (9) (0.9) % Total sales and marketing$ 6,305 $ 10,948 $ (4,643) (42.4) %$ 16,435 $ 21,345 $ (4,910) (23.0) % 37
-------------------------------------------------------------------------------- Table of Contents The decrease in theU.S. segment sales and marketing expenses for the three and six months endedJune 30, 2020 , as compared to the prior year period is primarily due to reduced marketing promotional programs and travel due to COVID-19 impact, as well as lower employee-related costs. The Progenics business contributed approximately$0.3 million of expense to theU.S. segment for the three and six months endedJune 30, 2020 . The decrease in the International segment sales and marketing expenses for the three months endedJune 30, 2020 , as compared to the prior year period is primarily due to lower employee-related costs. The International segment sales and marketing expenses for the six months endedJune 30, 2020 is flat as compared to the prior year. General and Administrative General and administrative expenses consist of salaries and other related costs for personnel in executive, finance, legal, information technology and human resource functions. 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 expense is summarized by segment as follows: Three Months Ended Six Months Ended June 30, June 30, Change Change Change Change (in thousands) 2020 2019 $ % 2020 2019 $ % U.S.$ 20,522 $ 13,323 $ 7,199 54.0 %$ 37,077 $ 25,671 $ 11,406 44.4 % International 148 (30) 178 (593.3) % 292 211 81 38.4 %
Total general and administrative
55.5 % $ 37,369 $ 25,882 $ 11,487 44.4 %
The U.S. segment general and administrative expenses increased for the three and
six months ended June 30, 2020 as compared to the prior year period. The primary
driver was an increase in acquisition-related costs associated with the
acquisition of Progenics offset by lower employee-related costs driven by COVID
related measures. In addition, the Progenics business contributed approximately
$2.9 million of expense to the U.S. segment for the three and six months ended
June 30, 2020 .
The International segment general and administrative expenses increased for the
three and six months ended June 30, 2020 as compared to the prior year period
driven primarily by an insurance benefit received in 2019 which was partly
offset by lower employee related costs in 2020.
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. We do not allocate research and
development expenses incurred in the U.S. to our International segment.
Research and development expense is summarized by segment as follows:
Three Months Ended Six Months Ended
June 30, June 30,
Change Change Change Change(in thousands) 2020 2019 $ % 2020 2019 $ % U.S.$ 4,345 $ 5,652 $ (1,307) (23.1) %$ 8,258 $ 10,302 $ (2,044) (19.8) % International 73 143 (70) (49.0) % 208 422 (214) (50.7) %
Total research and development
(23.8) % $ 8,466 $ 10,724 $ (2,258) 21.1 %
The decrease in the U.S. segment research and development expenses for the three
and six months ended June 30, 2020 , as compared to the prior year is primarily
driven by clinical research expenses related to DEFINITY studies completing and
lower employee related expenses. The Progenics business contributed
approximately $1.2 million of expense to the U.S. segment for the three and six
months ended June 30, 2020 .
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The decrease in the International segment research and development expenses for
the three and six months ended June 30, 2020 , as compared to the prior year
period is primarily driven by regulatory costs related to Brexit matters.
Interest Expense
Interest expense decreased by approximately $5.3 million for the six months
ended June 30, 2020 as compared to the prior year period due to the refinancing
of our existing indebtedness in the second quarter of 2019 which reduced our
underlying principal amount and decreased interest rates on our long-term debt.
Income Tax Expense
Income tax expense is summarized as follows:
Three Months Ended Six Months Ended
June 30, June 30,
Change Change Change Change
(in thousands) 2020 2019 $ % 2020 2019 $ %
Income tax expense $ 309 $ 1,698 $ (1,389) (81.8) % $ 2,501 $ 4,513 $ (2,012) (44.6) %
The income tax expense for the three and six months ended June 30, 2020 was
primarily due to the recording of non-deductible transaction costs and the
accrual of interest associated with uncertain tax positions.
We regularly assess our ability to realize our deferred tax assets. Assessing
the realizability of deferred tax assets requires significant management
judgment. In determining whether our deferred tax assets are
more-likely-than-not realizable, we evaluate all available positive and negative
evidence, and weigh the objective evidence and expected impact. As of June 30,
2020 , we recorded valuation allowances of $3.0 million against the net deferred
tax assets of certain foreign subsidiaries, as well as a valuation allowance of
$0.7 million against net state deferred tax assets due to the potential
expiration of certain state tax losses and tax credits prior to utilization.
On June 19, 2020 , we acquired the stock of Progenics Pharmaceuticals, Inc. in a
transaction that is expected to qualify as a tax-deferred reorganization under
Section 368 of the Internal Revenue Code of 1986, as amended. The transaction
resulted in an ownership change of Progenics under Section 382 and a limitation
on the utilization of Progenics' pre-transaction tax attributes. All
pre-transaction research credits and Orphan drug credits have been removed from
the balance sheet, and the gross carrying value of the tax loss carryforwards
reduced to their realizable value on the opening balance sheet, in accordance
with the Section 382 limitation. Significant deferred tax liabilities arising
from the purchase accounting basis step-up in identified intangibles were also
recorded as part of the purchase accounting, resulting in a small net overall
deferred tax liability for Progenics after the application of purchase
accounting.
Our effective tax rate for each reporting period is presented as follows:
Six Months Ended
June 30,
2020 2019
Effective tax rate (213.0)% 21.6%
Our effective tax rate in fiscal 2020 differs from the U.S. statutory rate of
21% principally due to the impact of U.S. state taxes, non-deductible
transaction costs, and the accrual of interest on uncertain tax positions.
The decrease in the effective income tax rate for the six months ended June 30,
2020 as compared to the prior year period is primarily due to the lower amount
of pre-tax income driving an increased tax rate impact from the accrual of
interest on uncertain tax positions in the current period and non-deductible
transaction costs.
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Liquidity and Capital Resources
Cash Flows
The following table provides information regarding our cash flows:
Six Months Ended
June 30,
(in thousands) 2020 2019
Net cash provided by operating activities $ 7,252 $31,521
Net cash provided by (used in) investing activities
Net cash used in financing activities $ (10,218) $(74,158)
Net Cash Provided by Operating Activities Net cash provided by operating activities of$7.3 million in the six months endedJune 30, 2020 was driven primarily by$7.8 million of depreciation, amortization and accretion expense, impairment of long-lived assets of$7.3 million , stock-based compensation expense of$6.5 million , and changes in deferred taxes of$1.1 million . These net sources of cash were offset by a net loss of$3.7 million and a net decrease of$14.4 million related to movements in our working capital accounts during the period. The overall decreases in cash from our working capital accounts were primarily driven by the payment of prior year annual bonuses as well as change in inventory related to COVID-19 impact on products and the timing of batch processes. Net cash provided by operating activities of$31.5 million in the six months endedJune 30, 2019 was driven primarily by net income of$16.4 million plus$6.6 million of depreciation, amortization and accretion expense, debt extinguishment expense of$3.2 million , stock-based compensation expense of$6.1 million and changes in deferred taxes of$2.4 million . These net sources of cash were offset by a net decrease of$5.2 million related to movements in our working capital accounts during the period. The overall decreases in cash from our working capital accounts were primarily driven by the payment of prior year annual bonuses. Net Cash Provided by Investing Activities Net cash used in investing activities during the six months endedJune 30, 2020 reflected$17.6 million of acquired cash related to the non-cash acquisition of Progenics offset by$10.0 million in lending on a note receivable to Progenics prior to the acquisition and$5.0 million in capital expenditures. Net cash used in investing activities during the six months endedJune 30, 2019 reflected$14.0 million in capital expenditures.Net Cash Used in Financing Activities Net cash used in financing activities during the six months endedJune 30, 2020 is primarily attributable to the payments on long-term debt and other borrowings of$7.0 million related to the 2019 Term Facility and Royalty-Backed Loan and payments for minimum statutory tax withholding related to net share settlement of equity awards of$2.0 million . Net cash used in financing activities during the six months endedJune 30, 2019 is primarily attributable to the net cash outflow of approximately$73 million in connection with the refinancing of our previous 2017 Facility and payments for minimum statutory tax withholding related to net share settlement of equity awards of$2.1 million . Starting in 2019, we require certain senior executives to cover tax liabilities resulting from the vesting of their equity awards pursuant to sell-to-cover transactions under 10b5-1 plans. External Sources of Liquidity InJune 2019 , we refinanced our 2017$275 million five-year term loan facility with the 2019 Term Facility. In addition, we replaced our$75 million revolving facility with the 2019 Revolving Facility. The terms of the 2019 Facility are set forth in the Credit Agreement, dated as ofJune 27, 2019 , by and among us, the lenders from time to time party thereto andWells Fargo Bank, N.A ., as administrative agent and collateral agent (the "2019 Credit Agreement"). We have the right to request an increase to the 2019 Term Facility or request the establishment of one or more new incremental term loan facilities, in an aggregate principal amount of up to$100 million , plus additional amounts, in certain circumstances. We are permitted to voluntarily prepay the 2019 Term Loans, in whole or in part, without premium or penalty. The 2019 Term Facility requires us to make mandatory prepayments of the outstanding 2019 Term Loans in certain circumstances. The 2019 Term Facility amortizes at 5.00% per year throughSeptember 30, 2022 and 7.5% thereafter, until itsJune 27, 2024 maturity date. Under the terms of the 2019 Revolving Facility, the lenders thereunder agreed to extend credit to us from time to time untilJune 27, 2024 consisting of revolving loans in an aggregate principal amount not to exceed$200 million at any time outstanding. The 2019 Revolving Facility includes a$20 million sub-facility for the issuance of Letters of Credit. The 2019 Revolving Facility includes 40 -------------------------------------------------------------------------------- Table of Contents a$10 million sub-facility for Swingline Loans. The Letters of Credit, Swingline Loans and the borrowings under the 2019 Revolving Facility are expected to be used for working capital and other general corporate purposes. Please refer to our Form 10-K for fiscal year endedDecember 31, 2019 for further details on the 2019 Facility. OnApril 6, 2020 , the Company drew down$100.0 million under its 2019 Revolving Facility, and subsequently repaid such amounts onJune 9, 2020 . OnJune 19, 2020 , we amended our 2019 Credit Agreement ("the Amendment") as a result of the impact of the COVID-19 pandemic on our business and operations and the near-term higher level of indebtedness resulting from our decision not to immediately repay the Progenics debt secured by the RELISTOR royalties following our acquisition of Progenics. The Amendment provides for, among other things, modifications to our financial maintenance covenants. The covenant related to Total Net Leverage Ratio (as defined in the Amended Credit Agreement) has been waived from the date of the Amendment throughDecember 31, 2020 . The maximum total net leverage ratio and interest coverage ratio permitted by the financial covenant is displayed in the table below: 2020 Amended Credit Agreement Period Total Net Leverage Ratio Q1 2021 5.50 to 1.00 Q2 2021 3.75 to 1.00 Thereafter 3.50 to 1.00 Period Interest Coverage Ratio Q2 2020 to Q1 2021 2.00 to 1.00 Thereafter 3.00 to 1.00 The Amendment also introduces a new financial covenant requiring Consolidated Liquidity (as defined in the Amended Credit Agreement) to be no less than$150.0 million . The Consolidated Liquidity covenant is tested on a continuing basis beginning on the date of the Amendment and ending on the date on which we deliver a compliance certificate for the fiscal quarter endingMarch 31, 2021 . For the period beginning on the date of the Amendment and ending on the Adjustment Date (as defined in the Amended Credit Agreement) for the fiscal quarter endingMarch 31, 2021 , loans under the Amended Credit Agreement bear interest at LIBOR plus 3.25% or the Base Rate plus 2.25%. On and after the Adjustment Date for the fiscal quarter ending onMarch 31, 2021 , loans bear interest at LIBOR plus a spread that ranges from 1.50% to 3.00% or the Base Rate plus a spread that ranges from 0.50% to 2.00%, in each case based on our Total Net Leverage Ratio. The commitment fee applicable to the Revolving Facility is 0.50% until the Adjustment Date for the fiscal quarter endingMarch 31, 2021 . On and after the Adjustment Date for the fiscal quarter ending onMarch 31, 2021 , the commitment fee ranges from 0.15% to 0.40% based on our Total Net Leverage Ratio. OnJune 19, 2020 , as a result of the Progenics Transaction, we assumed Progenics outstanding debt as of such date in the amount of$40.2 million . Progenics, through a wholly-owned subsidiaryMNTX Royalties Sub LLC ("MNTX Royalties"), entered into a$50.0 million loan agreement (the "Royalty-Backed Loan") with a fund managed byHealthCare Royalty Partners III, L.P. ("HCRP") onNovember 4, 2016 . Under the terms of the Royalty-Backed Loan, the lenders have no recourse to Progenics or any of its assets other than the right to receive royalty payments from the commercial sales of RELISTOR products owed under Progenics' license agreement withSalix Pharmaceuticals, Inc. , a wholly-owned subsidiary of Bausch. The RELISTOR royalty payments will be used to repay the principal and interest on the loan. The Royalty-Backed Loan bears interest at a per annum rate of 9.5% and matures onJune 30, 2025 . OnJune 22, 2020 , HCRP waived the automatic acceleration of the Royalty-Backed Loan that otherwise would have been triggered by the consummation of the Progenics Transaction and MNTX Royalties agreed not to prepay the loan until afterDecember 31, 2020 . Under the terms of the loan agreement, payments of interest and principal, if any, are made on the last day of each calendar quarter out of RELISTOR royalty payments received since the immediately-preceding payment date. On each payment date, 50% of RELISTOR royalty payments received since the immediately-preceding payment date in excess of accrued interest on the loan are used to repay the principal of the loan, with the balance retained by us. Starting onSeptember 30, 2021 , all of the RELISTOR royalties 41 -------------------------------------------------------------------------------- Table of Contents received since the immediately-preceding payment date will be used to repay the interest and outstanding principal balance until the balance is fully repaid. 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. We may from time to time repurchase or otherwise retire our debt and take other steps to reduce our debt or otherwise improve our balance sheet. These actions may include prepayments of our term loans or other retirements or refinancing of outstanding debt, privately negotiated transactions or otherwise. The amount of debt that may be retired, if any, could be material and would be decided at the sole discretion of our Board of Directors and will depend on market conditions, our cash position and other considerations. Funding Requirements Our future capital requirements will depend on many factors, including: •The level of product sales and the pricing environment of our currently marketed products, particularly DEFINITY and any additional products that we may market in the future, including decreased product sales resulting from the COVID-19 pandemic; •Revenue mix shifts and associated volume and selling price changes that could result from contractual status changes with key customers and additional competition; •The costs of acquiring or in-licensing, developing, obtaining regulatory approval for, and commercializing, new products, businesses or technologies, together with the costs of pursuing opportunities that are not eventually consummated; •Our investment in the further clinical development and commercialization of products and development candidates, including the newly acquired Progenics assets AZEDRA, PyL, 1095 and PSMA AI; •The costs of investing in our facilities, equipment and technology infrastructure; •The costs and timing of establishing manufacturing and supply arrangements for commercial supplies of our products and raw materials and components; •Our ability to have product manufactured and released from JHS and other manufacturing sites in a timely manner in the future; •The costs of further commercialization of our existing products, particularly in international markets, including product marketing, sales and distribution and whether we obtain local partners to help share such commercialization costs; •The extent to which we choose to establish collaboration, co-promotion, distribution or other similar arrangements for our marketed products; •The legal costs relating to maintaining, expanding and enforcing our intellectual property portfolio, pursuing insurance or other claims and defending against product liability, regulatory compliance or other claims; and •The cost of interest on any additional borrowings which we may incur under our financing arrangements. Until we successfully become dual sourced for our principal products, we are vulnerable to future supply shortages. Disruption in our financial performance could also occur if we experience significant adverse changes in product or customer mix, broad economic downturns, adverse industry or company conditions or catastrophic external events, including pandemics such as COVID-19, natural disasters and political or military conflict. If we experience one or more of these events in the future, we may be required to implement further expense reductions, such as a delay or elimination of discretionary spending in all functional areas, as well as scaling back select operating and strategic initiatives. If our capital resources become insufficient to meet our future capital requirements, we would need to finance our cash needs through public or private equity offerings, debt financings, assets securitizations, sale-leasebacks or other financing or strategic alternatives, to the extent such transactions are permissible under the covenants of our Credit Agreement. Additional equity or debt financing, or other transactions, may not be available on acceptable terms, if at all. If any of these transactions require an amendment or waiver under the covenants in our Credit Agreement, which could result in additional expenses associated with obtaining the amendment or waiver, we will seek to obtain such a waiver to remain in compliance with those covenants. However, we cannot be assured that such an amendment or waiver would be granted, or that additional capital will be available on acceptable terms, if at all. 42 -------------------------------------------------------------------------------- Table of Contents AtJune 30, 2020 , our only current committed external source of funds is our borrowing availability under our 2019 Revolving Facility. We had$90.3 million of cash and cash equivalents atJune 30, 2020 . Our 2019 Facility, as amended, contains a number of affirmative, negative, reporting and financial covenants, in each case subject to certain exceptions and materiality thresholds. Incremental borrowings under the 2019 Revolving Facility, as amended, may affect our ability to comply with the covenants in the 2019 Facility, as amended, including the financial covenants restricting consolidated net leverage and interest coverage. Accordingly, we may be limited in utilizing the full amount of our 2019 Revolving Facility, as amended, as a source of liquidity. In addition, in connection with the Progenics Transaction, which we closed inJune 2020 , we incurred legal, accounting, financial advisory, consulting and printing fees, and transition, integration and other costs which we funded from our available cash and the available cash of Progenics. The CVRs we issued in the Progenics Transaction entitle holders thereof to future cash payments of 40% of PyL net sales over (i)$100 million in 2022 and (ii)$150 million in 2023, which, if payable, we currently intend to fund from our then-available cash. In no event will our aggregate payments under the CVRs, together with any other non-stock consideration treated as paid in connection with the Progenics Transaction, exceed 19.9% (which we estimate could be approximately$100 million ) of the total consideration we pay in the Progenics Transaction. Refer to Note 4, "Fair Value of Financial Instruments", for further details on contingent consideration liabilities. Based on our current operating plans, including our prudent expense management in response to the COVID-19 pandemic, we believe that our existing cash and cash equivalents, results of operations and availability under our 2019 Revolving Facility, as amended, will be sufficient to continue to fund our liquidity requirements for the foreseeable future. Critical Accounting Policies and Estimates The discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance withU.S. GAAP. The preparation of these condensed consolidated financial statements require us to make estimates and judgments that affect our reported assets and liabilities, revenues and expenses, and other financial information. Actual results may differ materially from these estimates under different assumptions and conditions. In addition, our reported financial condition and results of operations could vary due to a change in the application of a particular accounting standard. There have been no other significant changes to our critical accounting policies or in the underlying accounting assumptions and estimates used in such policies in the six months endedJune 30, 2020 , except as set forth below. 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 endedDecember 31, 2019 . Business Combinations We account for business combinations using the acquisition method of accounting. We recognize the assets acquired and liabilities assumed in business combinations on the basis of their fair values at the date of acquisition. We assess the fair value of assets acquired, including intangible assets, and liabilities assumed using a variety of methods. Each asset acquired and liability assumed is measured at fair value from the perspective of a market participant. The method used to estimate the fair values of intangible assets incorporates significant assumptions regarding the estimates a market participant would make in order to evaluate an asset, including a market participant's use of the asset and the appropriate discount rates. Acquired in-process research and development ("IPR&D") is recognized at fair value and initially characterized as an indefinite-lived intangible asset, irrespective of whether the acquired IPR&D has an alternative future use. Any excess purchase price over the fair value of the net tangible and intangible assets acquired is allocated to goodwill. Transaction costs and restructuring costs associated with a business combination are expensed as incurred. The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based on our estimates and assumptions, as well as other information we have compiled, including valuations that utilize customary valuation procedures and techniques. If the actual results differ from the estimates and assumptions used in these estimates, it could result in a possible impairment of the intangible assets and goodwill, a required acceleration of the amortization expense of finite-lived intangible assets or the recognition of additional consideration, which would be expensed. During the measurement period, which extends no later than one year from the acquisition date, we may record certain adjustments to the carrying value of the assets acquired and liabilities assumed with the corresponding offset to goodwill. After the measurement period, all adjustments are recorded in the condensed consolidated statements of operations as operating expenses or income. Intangible and Long-Lived Assets 43 -------------------------------------------------------------------------------- Table of Contents We test intangible and long-lived assets for recoverability whenever events or changes in circumstances suggest that the carrying value of an asset or group of assets may not be recoverable. We measure the recoverability of assets to be held and used by comparing the carrying amount of the asset to future undiscounted net cash flows expected to be generated by the asset. If those assets are considered to be impaired, the impairment equals the amount by which the carrying amount of the assets exceeds the fair value of the assets. Any impairments are recorded as permanent reductions in the carrying amount of the assets. Long-lived assets, other than goodwill and other intangible assets, that are held for sale are recorded at the lower of the carrying value or the fair market value less the estimated cost to sell. Intangible assets, consisting of trademarks, customer relationships, currently marketed products, licenses and developed technology are amortized in a method equivalent to the estimated utilization of the economic benefit of the asset. Our IPR&D represents intangible assets acquired in a business combination that are used in research and development activities but have not yet reached technological feasibility, regardless of whether they have alternative future use. The primary basis for determining the technological feasibility or completion of these projects is whether we have obtained regulatory approval to market the underlying products in an applicable geographic region. Because obtaining regulatory approval can include significant risks and uncertainties, the eventual realized value of the acquired IPR&D projects may vary from their fair value at the date of acquisition. We classify IPR&D acquired in a business combination as an indefinite-lived intangible asset until the completion or abandonment of the associated research and development efforts. Upon completion of the associated research and development efforts, we will determine the useful life and begin amortizing the assets to reflect their use over their remaining lives. Upon permanent abandonment, we write-off the remaining carrying amount of the associated IPR&D intangible asset. We test our IPR&D assets at least annually or when a triggering event occurs that could indicate a potential impairment and we recognize any impairment loss in our condensed consolidated statements of operations. Off-Balance Sheet Arrangements We are required to provide theU.S. Nuclear Regulatory Commission andMassachusetts Department of Public Health financial assurance demonstrating our ability to fund the decommissioning of ourNorth Billerica, Massachusetts production facility upon closure, though we do not intend to close the facility. We have provided this financial assurance in the form of a$28.2 million surety bond. Since inception, we have not engaged in any other off-balance sheet arrangements, including structured finance, special purpose entities or variable interest entities. Item 3. Quantitative and Qualitative Disclosures About Market Risk For quantitative and qualitative disclosures about market risk, except as set forth below, see Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," of our Annual Report on Form 10-K for the year endedDecember 31, 2019 . Our exposures to market risk have not changed materially sinceDecember 31, 2019 . Interest Rate Risk 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. As ofJune 30, 2020 , the Company had entered into interest rate swap contracts to fix the LIBOR rate on a notional amount of$100.0 million throughMay 31, 2024 . The average fixed LIBOR rate on the interest rate swaps as ofJune 30, 2020 was 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. Please refer to Note 12, "Derivative Instruments", for further details on the interest rate swaps. Item 4. Controls and Procedures Disclosure Controls and Procedures The Company's management, with the participation of the Company's Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), its principal executive officer and principal financial officer, respectively, has evaluated the effectiveness of the Company's disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act. Based on that evaluation, the Company's CEO and CFO concluded that the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) were effective as of the period covered by this report. Changes in Internal Controls Over Financial Reporting As ofJune 30, 2020 , management is in the process of evaluating and integrating the internal controls of the acquired Progenics business into the Company's existing operations. During the quarter, the Company implemented controls over the accounting and disclosures related to the business combination and integration of the Progenics business. There were no other material changes in the 44 -------------------------------------------------------------------------------- Table of Contents Company's internal control over financial reporting during the quarter endedJune 30, 2020 , that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. Additionally, as a result of the COVID-19 pandemic, certain employees began working remotely in March. Notwithstanding these changes to the working environment, we have not identified any material changes in our internal control over financial reporting due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation to determine any potential impact on the design and operating effectiveness of our internal controls over financial reporting. 45
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