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 can
generally be identified by words such as "anticipates," "believes," "can,"
"could," "designed," "estimates," "expects," "hopes," "intends," "launch,"
"may," "pipeline," "plans," "predicts," "seeks," "should," "target," "will,"
"would" and similar expressions, or by express or implied discussions regarding
potential marketing approvals or new indications for the collaborations,
products candidates or approved products described in this Quarterly Report on
Form 10-Q, or regarding potential future revenues from such collaborations,
product candidates and products. Examples of forward-looking statements include
statements we make relating to our outlook and expectations including, without
limitation, in connection with: (i) our ability to continue to grow PYLARIFY as
a commercial product, including (A) our ability to obtain FDA approval for
additional positron emission tomography ("PET") manufacturing facilities
("PMFs") to manufacture PYLARIFY, (B) the ability of PMFs to manufacture
PYLARIFY to meet product demand, (C) our ability to sell PYLARIFY to customers,
(D) our ability to obtain and maintain adequate coding, coverage and payment for
PYLARIFY, and (E) our ability to establish PYLARIFY as a leading PSMA PET
imaging agent in an increasingly competitive environment in which other PSMA PET
imaging agents have been approved and additional ones are in development; (ii)
continued market expansion and penetration for our established commercial
products, particularly DEFINITY, in the face of segment competition and
potential generic competition, including as a result of patent and regulatory
exclusivity expirations and challenges; (iii) the global Molybdenum-99 ("Mo-99")
supply; (iv) our ability to have third party manufacturers manufacture our
products and our ability to manufacture DEFINITY in our in-house manufacturing
facility; (v) our ability to successfully launch PYLARIFY AI as a commercial
product; (vi) the continuing impact of the global COVID-19 pandemic on our
business, supply chain, financial condition and prospects; (vii) the efforts and
timing for clinical development and regulatory approval of our product
candidates and new clinical applications and territories for our products, in
each case, that we may develop, including 1095 and NM-01, or that our strategic
partners may develop, including piflufolastat F 18 in Europe and flurpiridaz
fluorine-18 ("F 18"); (viii) our ability to identify and acquire or in-license
additional diagnostic and therapeutic product opportunities in oncology and
other strategic areas; and (ix) the potential reclassification by the FDA of
certain of our products and product candidates from drugs to devices with the
expense, complexity and potentially more limited competitive protection such
reclassification could cause. 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. These forward-looking statements are subject to a
number of risks, uncertainties and assumptions, including those described in
Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the year
ended December 31, 2021 , and in Part II, Item 1A. "Risk Factors" in this
Quarterly Report on Form 10-Q.
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, theSEC , free of charge on our website at 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 underSEC 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, theSEC are also available on theSEC'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 into this Quarterly Report on Form 10-Q. 21
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The following discussion and analysis of our financial condition and results of operations should be read together with the condensed consolidated financial statements and the related notes included in Item 1 of this Quarterly Report on Form 10-Q as well as the other factors described in Part I, Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , and in Part II, Item 1A. "Risk Factors" in this Quarterly Report on Form 10-Q. Overview Our Business We are an established leader and fully integrated provider committed to improving patient outcomes through diagnostics, radiotherapeutics and artificial intelligence solutions that enable clinicians to Find, Fight and Follow disease. We classify our products in three categories: precision diagnostics, radiopharmaceutical oncology, and strategic partnerships and other revenue. Our leading precision diagnostic products assist healthcare professionals ("HCPs") Find and Follow diseases in non-oncologic conditions. Our radiopharmaceutical oncology diagnostics and therapeutics help HCPs Find, Fight and Follow cancer. Our strategic partnerships and other revenue category focuses on facilitating precision medicine through the use of biomarkers, artificial intelligence solutions and radiotherapeutic platforms, and also includes royalty revenue from our license of RELISTOR. Our commercial products are used by cardiologists, urologists, oncologists, internal medicine physicians, nuclear medicine physicians, radiologists, sonographers and technologists working in a variety of clinical settings. We believe that our diagnostic products provide improved diagnostic information that enables HCPs to better detect and characterize, or rule out, disease, with the potential to achieve better patient outcomes, reduce patient risk and limit overall costs for payors and throughout the healthcare system. We produce and market our products throughoutthe United States (the "U.S."), selling primarily to clinics, group practices, hospitals, integrated delivery networks, and radiopharmacies. We sell our products outside theU.S. through a combination of direct distribution inCanada and third party distribution relationships inEurope ,Canada ,Australia ,Asia-Pacific ,Central America andSouth America .
Our headquarters are located in
Key Factors Affecting Our Results
Our business and financial performance have been, and continue to be, affected by the following:
PYLARIFY, Ongoing Commercial Launch and Revenue Growth
On
PYLARIFY is a radioactive diagnostic agent indicated for PET imaging of
PSMA-positive lesions in men with prostate cancer with suspected metastasis who
are candidates for initial definitive therapy and with suspected recurrence
based on elevated serum prostate-specific antigen ("PSA") levels. PYLARIFY works
by binding to PSMA, a protein that is overexpressed on the surface of more than
90% of primary and metastatic prostate cancer cells. PYLARIFY works with
PET/computed tomography ("CT") technology to produce a combined PET/CT scan that
enables the reader of the PET/CT scan to detect and locate the disease.
According to the American Cancer Society , prostate cancer is the second most
common cancer in American men -- one in eight American men will be diagnosed
with prostate cancer in their lifetimes and over 3.0 million American men are
living with prostate cancer today. Based on estimates from third party sources
regarding the incidence of prostate cancer in men in the U.S. , we believe the
market potential for all PSMA PET imaging agents in the U.S. could be up to
250,000 annual scans, comprised of 90,000 scans for patients with intermediate
unfavorable or high/very high risk of suspected metastases of prostate cancer;
130,000 scans for patients with suspected recurrence of prostate cancer; and
30,000 scans for patients with metastatic castration-resistant prostate cancer
("mCRPC") who may be under consideration for PSMA-targeted therapy for the
treatment of adult patients with PSMA-positive mCRPC who have already been
treated with other anticancer treatments (androgen receptor pathway inhibition
and taxane-based chemotherapy). However, because we are still early in the
commercialization of PYLARIFY, we can give no assurance as to how clinical
practice may evolve or our ultimate market penetration.
In March 2022 , we announced a strategic collaboration with Novartis to include
PYLARIFY in prostate cancer trials with Pluvicto, Novartis' recently approved
PSMA-targeted therapeutic. As part of the agreement with Novartis, we will
supply PYLARIFY
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for the selection of patients with prostate cancer for the trials, and Novartis will provide all PYLARIFY-related clinical imaging data to us. In addition, theNational Comprehensive Cancer Center updated its guidelines and theSociety for Nuclear Medicine and Molecular Imaging updated its appropriate use criteria earlier this year, both noting that PSMA PET imaging agents, including PYLARIFY, can be used for patient selection for PSMA-targeted radioligand therapy. Upon commercial launch inJune 2021 , PYLARIFY was immediately available in select parts of theU.S. Over the course of the remainder of 2021 and into 2022, PYLARIFY availability expanded into additional regions and is now broadly available nationwide. We continue to expand theU.S. footprint for PYLARIFY with new PMFs, increased capacity at existing PMFs and added redundancy in key geographic areas, while broadening our customer base and market access coverage to serve our customers and theU.S. prostate cancer community. The commercial launch of PYLARIFY has been complex and expensive. Throughout 2021, we hired additional employees to assist us with the commercialization of PYLARIFY, including in sales, marketing, reimbursement, quality and medical affairs. To manufacture PYLARIFY, we assembled and qualified a nationwide network of PMFs with radioisotope-producing cyclotrons that make F 18, which has a 110-minute half-life, so PYLARIFY is manufactured and distributed rapidly to end-users. After being made on a cyclotron at a PMF, the F 18 is then combined with certain chemical ingredients in specially designed chemistry synthesis boxes to manufacture PYLARIFY. The finished PYLARIFY is then quality control tested and transferred to a radiopharmacist who prepares and dispenses patient-specific doses of the final product. Because each of the PMFs manufacturing these products is deemed by the FDA to be a separate manufacturing site, each has to be separately approved by the FDA. Although PYLARIFY is now broadly available nationwide and we continue to seek qualification for additional PMFs, we can give no assurance that the FDA will continue to approve PMFs in accordance with our planned roll-out schedule. If FDA approval of manufacturing sites is delayed or withdrawn, our future business, results of operations, financial condition and cash flows could be adversely affected. In addition to the network of PMFs, we have also been working with academic medical centers in theU.S. that have radioisotope-producing cyclotrons and which have expressed an interest in manufacturing PYLARIFY. For this initiative, we enter into a fee-for-service arrangement under which the academic medical center's PMF manufactures and supplies batches of PYLARIFY, and its radiopharmacy prepares patient-ready unit doses, in each case for and on behalf of us. We then sell those unit doses to the academic medical center's hospitals and clinics, and in some instances, to additional customers in the academic medical center's geographic area, in each case, under separate purchase agreements. The academic medical center's PMF's ability to manufacture and supply batches of PYLARIFY is subject to FDA approval, and we can give no assurance that the FDA will approve such PMFs in accordance with our planned roll-out schedule. Our commercial launch also required obtaining adequate coding, coverage and payment for PYLARIFY, including not only coverage from Medicare, Medicaid and other government payors, as well as private payors, but also appropriate payment levels, to adequately cover our customers' costs of using PYLARIFY in PSMA PET/CT imaging procedures. We received notification that our Healthcare Procedure Coding System ("HCPCS") code, which enables streamlined billing, went into effect as ofJanuary 1, 2022 . In addition, effectiveJanuary 1, 2022 , theCenters for Medicare and Medicaid Services ("CMS") granted Transitional Pass-Through Payment Status in the hospital outpatient setting ("TPT Status") for PYLARIFY, enabling traditional Medicare to provide an incremental payment for PET/CT scans performed with PYLARIFY in that setting. TPT Status for PYLARIFY is expected to expire onDecember 31, 2024 . After TPT Status expires, under current Medicare rules, PYLARIFY, similar to other diagnostic radiopharmaceuticals, would not be separately reimbursed in the hospital outpatient setting, but rather would be included as part of the facility fee a hospital otherwise receives for a PET/CT imaging procedure, and the facility fee does not always adequately cover the total cost of the procedure. We can give no assurance that any CMS reimbursement in the hospital outpatient setting that follows the expiration of TPT Status will be adequate to cover the cost of a PYLARIFY PET/CT imaging procedure. The successful growth of PYLARIFY is also dependent on our ability to establish PYLARIFY as a leading PSMA PET imaging agent in an increasingly competitive environment in which other PSMA PET imaging agents have been approved and additional ones are in development. PYLARIFY's competition is primarily two commercially available gallium-68-based PSMA imaging agents, as well as other non-PSMA-based imaging agents. We also could face potential competition from an F 18 PSMA PET imaging agent currently under review by the FDA. To the extent we lose market share to existing or future competitors, such loss of market share could have an adverse impact on our future business, results of operations, financial condition and cash flows. Moreover, because we are still early in the commercialization of PYLARIFY, we can give no assurance as to how clinical practice may evolve or our ultimate market penetration or market share. We actively pursue patents in connection with PYLARIFY, both in theU.S. and internationally. In theU.S. for PYLARIFY, we have four Orange Book-listed patents, including composition of matter patents, the last of which expires in 2037. Outside of theU.S. , we have and are currently pursuing additional PYLARIFY patents to obtain similar patent protection as in theU.S.
In connection with the Progenics Acquisition in
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generated by PYLARIFY in 2022 and 2023 in excess of$100.0 million and$150.0 million , respectively. In no event will our aggregate payment obligations in respect of the CVRs, together with any other non-stock consideration treated as paid in connection with the Progenics Acquisition, exceed 19.9% of the total consideration we paid in the Progenics Acquisition. Based on our 2022 PYLARIFY net sales, we believe that all of our aggregate payment obligations under the CVRs (which we currently estimate will be approximately$99.7 million ) will become payable in the first half of 2023.
PYLARIFY AI Clearance and Use
During 2021, we also announced that our subsidiary, EXINI, was granted 510(k) clearance by the FDA in theU.S. and received CE marking inEurope for aPROMISE. We commercially launched aPROMISE under the name PYLARIFY AI in theU.S. inNovember 2021 . During the second quarter of 2022, we received a new 510(k) clearance for an updated version of our PYLARIFY AI platform. PYLARIFY AI is artificial intelligence medical device software developed to assist with the reading and quantification of PYLARIFY scans. The technology automatically analyzes a PSMA PET/CT image to segment anatomical regions - 51 bones and 12 soft tissue organs. This image segmentation enables automated localization, detection and quantification of potential PSMA-avid lesions in a PSMA PET/CT image, which data is then incorporated into the reporting system used by physicians.
Anticipated Continued Growth of DEFINITY and Expansion of Our Ultrasound Microbubble Franchise
We believe the market opportunity for our microbubble ultrasound enhancing agent, DEFINITY, continues to be significant and that DEFINITY sales will continue to grow in the future, subject to the challenges discussed in "COVID-19 Pandemic and Other Challenges" below. 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 ultrasound enhancing agents approved by the FDA, we estimate that DEFINITY continues to hold over 80% of the market.
As we continue to pursue expanding our microbubble franchise, our activities include:
•Patents - We continue to actively pursue additional patents in connection with DEFINITY and DEFINITY RT, both in theU.S. and internationally. In theU.S. for DEFINITY, we have five Orange Book-listed method of use patents, one of which expires in 2035 and four of which expire in 2037, as well as additional manufacturing patents that are not Orange Book-listed expiring in 2023 and 2037. In theU.S. for DEFINITY RT, we have six Orange Book-listed patents, including a composition of matter patent which expires in 2035. Outside of theU.S. , we have and are currently pursuing additional DEFINITY and DEFINITY RT patents to obtain similar patent protection as in theU.S. The Orange Book-listed patents include a patent on the use of VIALMIX RFID which expires in 2037; we have submitted additional VIALMIX RFID patent applications in major markets throughout the world. Hatch-Waxman Act - Even though our longest duration Orange Book-listed DEFINITY patent extends untilMarch 2037 , because our Orange Book-listed composition of matter patent expired inJune 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) either the marketing of that generic candidate does not infringe the Orange Book-listed patent(s) or the Orange Book-listed patent(s) is invalid. Similarly, the FDA can approve a Section 505(b)(2) New Drug Application ("505(b)(2)") from an applicant that relies on some of the information required for marketing approval to come from studies which the applicant does not own or have a legal right of reference. With respect to the Orange Book-listed patent(s) covering an innovator product, the ANDA applicant or the Section 505(b)(2) applicant (if relying on studies related to the innovator product) (together, the "Applicant") must give a notice (a "Notice") to the innovator of its certification that its generic candidate will not infringe the innovator's Orange Book-listed patent(s) or that the Orange Book-listed patent(s) is invalid. The innovator can then file suit against the Applicant within 45 days of receiving the 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 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 Applicant. If we were to (i) receive any such Notice in the future, (ii) bring a patent infringement suit against the Applicant within 45 days of receiving that Notice, and (iii) successfully obtain the full 30-month stay, then the Applicant would be precluded from commercializing a generic version of DEFINITY prior to the expiration of that 30-month stay 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 Applicant inNovember 2022 and the full 30-month stay were obtained, then the 24
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Applicant would be precluded from commercialization until at leastMay 2025 . If we received a Notice some number of months in the future and the full 30-month stay were obtained, the commercialization date would roll forward in the future by the same number of months. In the event a 505(b)(2) applicant does not rely on studies related to the innovator product, the 30-month stay would not apply, but additional clinical studies may be required. •DEFINITY RT - DEFINITY RT became commercially available in the fourth quarter of 2021. A modified formulation of DEFINITY that allows both storage and shipment at room temperature, DEFINITY RT provides clinicians an additional choice and allows for greater utility of this formulation in broader clinical settings. Given its physical characteristics, we believe DEFINITY RT is also well-suited for inclusion in kits requiring microbubbles for other indications and applications (including in kits developed by third parties of the type described in the paragraph entitled Microbubble Franchise below). •VIALMIX RFID - VIALMIX RFID, our next-generation activation device designed specifically for both DEFINITY and DEFINITY RT, became commercially available in the fourth quarter of 2021. The activation rate and time are controlled by VIALMIX RFID through the use of radio-frequency identification technology ("RFID") to ensure reproducible activation of DEFINITY and DEFINITY RT. The RFID tag, which is affixed to the vial label, enables the DEFINITY or DEFINITY RT vial to be appropriately activated with the VIALMIX RFID activation device.
Global Mo-99 Supply
We currently have Mo-99 supply agreements withInstitute for Radioelements ("IRE"), running throughDecember 31, 2023 , with auto-renewal provisions that are terminable upon notice of non-renewal, and withNTP Radioisotopes ("NTP"), acting for itself and on behalf of its subcontractor, theAustralian Nuclear Science and Technology Organisation ("ANSTO"), running throughDecember 31, 2024 . Although we have a globally diverse Mo-99 supply with IRE inBelgium , NTP inSouth Africa , and ANSTO inAustralia , we still face supplier and logistical challenges in our Mo-99 supply chain. When one supplier experiences outages, we generally rely on Mo-99 supply from the other suppliers to limit the impact of the outages. We believe we effectively manage these various supply chain challenges, but depending on reactor and processor schedules and operations, at times we have not been able to fill some or all of the demand for our TechneLite generators on certain manufacturing days. A prolonged disruption of service from one of our three Mo-99 processing sites or one of their main Mo-99-producing reactors could have a substantial negative effect on our business, results of operations, financial condition and cash flows. To augment our current supply of Mo-99, we have a strategic arrangement withSHINE Medical Technologies LLC ("SHINE") for the future supply of Mo-99. Under the terms of the supply agreement, entered into inNovember 2014 , SHINE will provide Mo-99 produced using its proprietary LEU-solution technology for use in our TechneLite generators once SHINE's facility becomes operational and receives all necessary regulatory approvals, which SHINE now estimates will occur in 2024. The term of this arrangement provides for three years of supply of Mo-99. However, we cannot assure you that SHINE will be able to produce commercial quantities of Mo-99 for our business, or that SHINE, together with our current suppliers, will be able to deliver a sufficient quantity of Mo-99 to meet our needs. Inventory Supply We obtain a substantial portion of our imaging agents from a third party supplier.Jubilant HollisterStier ("JHS") is currently a significant supplier of DEFINITY and our sole source manufacturer of NEUROLITE, Cardiolite and evacuation vials, the latter being an ancillary component for our TechneLite generators. OnFebruary 23, 2022 , our wholly-owned subsidiary, LMI, entered into a Manufacturing and Supply Agreement (the "MSA") with JHS, effective as ofFebruary 23, 2022 , pursuant to which JHS will manufacture, and LMI will purchase, DEFINITY, NEUROLITE, Cardiolite and evacuation vial products. The new MSA supersedes all of the prior agreements of the parties. The initial term of the MSA runs throughDecember 31, 2027 and can be further extended by mutual agreement of the parties. The MSA requires LMI to purchase from JHS specified percentages of its total requirements for DEFINITY, as well as specified quantities of NEUROLITE, Cardiolite and evacuation vial products, each year during the contract term. Either party can terminate the MSA upon the occurrence of certain events, including the material breach or bankruptcy of the other party. In addition to JHS, we rely on Samsung BioLogics as our sole source manufacturer of DEFINITY RT. In 2021, we completed the construction of a specialized in-house manufacturing facility at ourNorth Billerica campus to produce DEFINITY and, potentially, other sterile vial products. OnFebruary 22, 2022 , we received FDA approval of our supplemental new drug application authorizing commercial manufacturing of DEFINITY at our new facility, and inventory that we had previously manufactured at this facility became commercially saleable. We believe this facility will allow us to better manage DEFINITY manufacturing and inventory, reduce our costs in a potentially more price competitive environment, and provide us with supply chain redundancy. Radiopharmaceuticals are decaying radioisotopes with half-lives ranging from a few hours to several days. Radiopharmaceutical finished goods cannot be kept in inventory because of their limited shelf lives and are subject to just-in-time manufacturing, 25
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processing and distribution, which takes place at our facilities in
COVID-19 Pandemic and Other Challenges
The global COVID-19 pandemic has had, and could still have, a future negative impact on our business, particularly if there are additional resurgences as a result of new variants of the virus that further increase its communicability or its impact on certain populations, geographic regions and the healthcare system, including elective procedures and hospital access. In addition, our business has been impacted by hospital staffing challenges and a decline in the volume of certain procedures and treatments using our products. For example, we believe sales of DEFINITY during the third quarter of 2022 were impacted by ongoing staffing challenges for nurses atU.S. healthcare institutions, as well as there being fewer in-personU.S. cardiology visits during the quarter as compared to the third quarter of 2021.
Research and Development Expenses
To remain a leader in the marketplace, we have historically made and will continue to make substantial investments in new product development and lifecycle management for existing products, including:
•For PYLARIFY, our development of PYLARIFY resulted in approval by the FDA in
•For PYLARIFY AI, our development of PYLARIFY AI resulted in a 510(k) clearance granted by the FDA in the third quarter of 2021 and an additional 510(k) clearance granted during the second quarter of 2022.
•For 1095, we completed an interim analysis of the ARROW Phase 2 study in mCRPC patients in the fourth quarter of 2021 and continued that study without modifications. During the second quarter of 2022, we enrolled the last patient in this study. In total, 120 patients have been randomized -- 80 in the 1095 plus enzalutamide combination group and 40 in the enzalutamide alone group. This study is a multicenter, randomized, open-label, controlled Phase 2 clinical study evaluating the efficacy and safety of 1095, ourPSMA-targeted I-131 therapeutic, in combination with enzalutamide compared to enzalutamide alone in patients with metastatic castration resistant prostate cancer who are PSMA-avid, chemotherapy naïve, and have progressed on abiraterone. The primary endpoint in this study is PSA response rate. Key secondary endpoints include time to radiographic free progression, progression free survival, and overall survival. Patients in this study will be followed for one year after their first treatment for all efficacy endpoints and survival and safety data will be collected for an additional year. •For LMI 1195, we have decided not to make any further investment at this time based on recent feedback from the FDA that we would not be granted a pediatric voucher upon successful approval of the product. We are currently exploring alternative options for this asset.
•We are also exploring additional lifecycle management opportunities for some of our current products, including AZEDRA.
Our investments in these additional clinical activities and lifecycle management opportunities 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 our clinical development candidates or lifecycle management opportunities will be successful.
Strategic Partnerships, Collaborations, and other Initiatives
We continue to seek ways to further increase the overall value of our portfolio of products and product candidates. We are evaluating a number of different opportunities to collaborate, in-license or acquire additional products, product candidates, businesses and technologies to drive our future growth. In particular, we are focused on late-stage diagnostic and therapeutic product opportunities in oncology and other strategic areas that will complement our existing portfolio. Oncology
As we continue to pursue expanding our strategic partnerships, our Pharma Services activities and strategic partnerships in oncology include:
•Prostate Cancer - We collaborate with pharmaceutical companies developing therapies and diagnostics in prostate cancer.
•InMarch 2022 , we announced a collaboration with Novartis to include PYLARIFY in prostate cancer trials with Pluvicto. As part of the agreement with Novartis, we will provide PYLARIFY for the selection of patients with prostate cancer for the trials, and Novartis will provide all PYLARIFY related clinical imaging data to us. •InJanuary 2022 , we announced a collaboration with theProstate Cancer Clinical Trial Consortium ("PCCTC"), a premier multicenter clinical research organization that specializes in prostate cancer research. The intent of the strategic collaboration is to integrate our AI platform into PCCTC studies to advance the development and validation of novel AI-enabled biomarkers. 26
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•InSeptember 2021 , we entered into a development and commercialization collaboration withRefleXion Medical, Inc. to evaluate the use of piflufolastat F 18 to enable real-time therapeutic guidance of biology-guided radiotherapy in prostate cancer using the RefleXion X1TM platform. •Prior to 2021, we also entered into several other separate agreements, including withPOINT Biopharma US Inc. ("POINT Biopharma") and Regeneron Pharmaceuticals, Inc., under which we supply piflufolastat F 18 in connection with their clinical studies, and Curium, under which we licensed exclusive rights to Curium to develop and commercialize piflufolastat F 18 inEurope . InJune 2022 , Curium announced that it had submitted its marketing authorization application to theEuropean Medicines Agency seeking approval for piflufolastat F 18 inEurope . In addition, in 2022, we entered into an agreement with Curium to add PYLARIFY to itsU.S. Eclipse trial, a multi-center, open-label, randomized Phase 3 trial comparing the safety and efficacy of Curium's PSMA-targeted therapeutic versus hormone therapy in patients with metastatic castration-resistant prostate cancer. PYLARIFY will be used to determine PSMA-avidity as part of patient selection. •Immuno-Oncology - InMay 2019 , we entered into a strategic collaboration and license agreement withNanoMab Technology Limited ("NanoMab"), a privately-held biopharmaceutical company focused on the development of next generation radiopharmaceuticals for cancer precision medicine. InMay 2022 , we announced that the first patient had been dosed in a Phase 2 clinical trial of NM-01, a novel technetium-99m SPECT imaging agent that we are developing to assess PD-L1 expression in cancer cells. The Phase 2 clinical trial is an open-label, single-arm trial in non-small cell lung cancer patients. The primary endpoint is the assessment of PD-L1 expression in primary tumor and metastatic lesions by NM-01 compared to immunohistochemistry. Other objectives are aimed at quantifying intra- and inter-tumoral heterogeneity of PD-L1 expression by NM-01, as well as establishing correlations with other diagnostic procedures. The trial is being conducted by NanoMab atKing's College London and is expected to complete enrollment later in 2022. •Pan-Oncology - InMarch 2021 , we acquired fromRatio Therapeutics LLC (previouslyNoria Therapeutics, Inc. ) exclusive, worldwide rights to NTI-1309, an innovative imaging biomarker that targets fibroblast activation protein, an emerging target with broad potential imaging applicability and use in oncology. Upon further clinical development, we will assess options to bring NTI-1309 to market as a diagnostic or potentially a therapeutic product.
Microbubble Franchise
In addition, we continue to expand our microbubble franchise. InApril 2021 , we announced a strategic collaboration withAllegheny Health Network ("AHN"), which will use our microbubbles in combination with AHN's ultrasound-assisted non-viral gene transfer technology for the development of a proposed treatment of xerostomia. Xerostomia is a lack of saliva production leading to dry mouth and has a variety of causes, including radiotherapy and chemotherapy, the chronic use of drugs and rheumatic and dysmetabolic diseases. Prior to 2021, we entered into microbubble collaborations with the following parties: (i)Cerevast Medical, Inc. ("Cerevast"), in which our microbubbles will be used in connection withCerevast's ocular ultrasound device to improve blood flow in occluded retinal veins in the eye; (ii) CarThera SAS, for the use of our microbubbles in combination with SonoCloud, a proprietary implantable device in development for the treatment of recurrent glioblastoma; and (iii)Insightec Ltd. ("Insightec"), which will use our microbubbles in connection with the development ofInsightec's transcranial guided focused ultrasound device for the treatment of glioblastoma as well as other neurodegenerative conditions.
Flurpiridaz F 18
InSeptember 2022 , we announced with our strategic partnerGE Healthcare Limited ("GE Healthcare ") that the recent Phase III clinical trial of our investigational radiotracer, flurpiridaz F 18, had met its co-primary endpoints of exceeding a 60% threshold for both sensitivity and specificity for detecting coronary artery disease ("CAD"). The findings, shared at anAmerican Society of Nuclear Cardiology conference, also demonstrated that cardiac PET imaging with flurpiridaz F 18 has higher diagnostic efficacy and image quality in patients with suspected CAD, compared with single photon emission computed tomography ("SPECT") Myocardial Perfusion Imaging ("MPI"), the predominant procedure currently used in nuclear cardiology. We believe SPECT MPI represents approximately 6 million procedures per year in theU.S. Under a Collaboration and License Agreement we entered into withGE Healthcare in 2017,GE Healthcare has led the funding and development of flurpiridaz F 18, and, if the imaging agent is approved, will have the global commercialization rights for it. We have collaborated on the development and will also collaborate on potential commercialization through a joint steering committee. If flurpiridaz F 18 receives regulatory approval and is commercially successful, we will receive:
• up to
• tiered double-digit royalties on
• mid-single digit royalties on sales outside of the
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Generally, our costs in connection with the strategic partnerships relate to the supply of drug and other ancillary expenses and the benefits can include possible supply, milestone and royalty payments, additional intellectual property rights and strategic relationships. For flurpiridaz F 18, under the Collaboration and License Agreement, we retained ownership of all of the licensed intellectual property and bear the cost of patent prosecution and maintenance. We can give no assurance as to if or when or if any of these collaborations and other new initiatives, including our collaboration for flurpiridaz F 18, will be successful or accretive to earnings.
Results of Operations
The following is a summary of our consolidated results of operations:
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 2022 2021 Change $ Change % 2022 2021 Change $ Change %
Revenues $ 239,292 $ 102,073 $ 137,219 134.4 % $ 671,895 $ 295,646 $ 376,249 127.3 %
Cost of goods sold 91,859 59,404 32,455 54.6 % 257,363 165,859 91,504 55.2 %
Gross profit 147,433 42,669 104,764 245.5 % 414,532 129,787 284,745 219.4 %
Operating expenses
Sales and marketing 25,414 17,195 8,219 47.8 % 73,260 48,999 24,261 49.5 %
General and administrative 23,759 28,550 (4,791) (16.8) % 93,945 87,865 6,080 6.9 %
Research and development 12,517 11,252 1,265 11.2 % 39,455 33,673 5,782 17.2 %
Total operating expenses 61,690 56,997 4,693 8.2 % 206,660 170,537 36,123 21.2 %
Gain on sale of assets - - - N/A - 15,263 (15,263) N/A
Operating income (loss) 85,743 (14,328) 100,071 (698.4) % 207,872 (25,487) 233,359 (915.6) %
Interest expense 1,626 1,569 57 3.6 % 4,604 6,224 (1,620) (26.0) %
Gain on extinguishment of debt - - - N/A - (889) 889 N/A
Other income 1,101 3,940 (2,839) (72.1) % 306 3,209 (2,903) (90.5) %
Income (loss) before income
taxes 83,016 (19,837) 102,853 (518.5) % 202,962 (34,031) 236,993 (696.4) %
Income tax expense (benefit) 21,784 (6,422) 28,206 (439.2) % 55,710 (2,967) 58,677 (1,977.7) %
Net income (loss) $ 61,232 $ (13,415) $ 74,647 (556.4) % $ 147,252 $ (31,064) $ 178,316 (574.0) %
Comparison of the Periods Ended
Revenues
We classify our revenues into three product categories: precision diagnostics, radiopharmaceutical oncology, and strategic partnerships and other revenue. Precision diagnostics includes DEFINITY, TechneLite and other diagnostic imaging products. Radiopharmaceutical oncology consists primarily of PYLARIFY and AZEDRA. Strategic partnerships and other revenue includes out-licensing arrangements, which includes$24.0 million of revenue recognized pursuant to the Novartis Agreement, partnerships that focus on facilitating precision medicine through the use of biomarkers, digital solutions and radiotherapeutic platforms, and on our other products, such as RELISTOR. 28
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Revenues are summarized by product category on a net basis as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 2022 2021 Change $ Change % 2022 2021 Change $ Change %
DEFINITY $ 60,740 $ 57,636 $ 3,104 5.4 % $ 181,374 $ 173,448 $ 7,926 4.6 %
TechneLite 22,094 22,680 (586) (2.6) % 64,139 69,252 (5,113) (7.4) %
Other precision diagnostics 6,175 7,563 (1,388) (18.4) % 16,803 21,289 (4,486) (21.1) %
Total precision diagnostics 89,009 87,879 1,130 1.3 % 262,316 263,989 (1,673) (0.6) %
PYLARIFY 143,754 7,724 136,030 N/A 366,763 7,997 358,766 N/A
Other radiopharmaceutical oncology 928 1,166 (238) (20.4) % 3,183 5,206 (2,023) (38.9) %
Total radiopharmaceutical oncology 144,682 8,890 135,792 1,527.5 % 369,946 13,203 356,743 2,702.0 %
Strategic partnerships and other
revenue 5,601 5,304 297 5.6 % 39,633 18,454 21,179 114.8 %
Total revenues $ 239,292 $ 102,073 $ 137,219 134.4 % $ 671,895 $ 295,646 $ 376,249 127.3 %
The increase in revenues for the three months ended September 30, 2022 , as
compared to the prior year period, is primarily driven by the commercial launch
of PYLARIFY, an increase in DEFINITY sales volume and higher strategic
partnership revenue from the RELISTOR royalty stream. The increase is offset, in
part, by lower sales volumes from TechneLite driven by opportunistic sales in
the prior year and lower volumes of other precision diagnostics.
The increase in revenues for the nine months ended September 30, 2022 , as
compared to the prior year period, is primarily driven by the commercial launch
of PYLARIFY and $24.0 million of revenue recognized pursuant to the Novartis
Agreement, and an increase in DEFINITY sales volume. The increase is offset, in
part, by lower sales volumes from TechneLite driven by the strategic decisions
to exit a customer contract and opportunistic sales in the prior year, lower
volumes of other precision diagnostics, lower volume of other
radiopharmaceutical oncology products and lower strategic partnerships and other
revenue due primarily to a sale of cREPO in the prior period.
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 expected purchases 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, 2022 $ 10,977
Provision related to current period revenues 20,334
Adjustments relating to prior period revenues 70
Payments or credits made during the period (18,134)
Balance, September 30, 2022 $ 13,247 Gross Profit
The increase in gross profit for the three months endedSeptember 30, 2022 , as compared to the prior year period, is primarily due to PYLARIFY sales volume, as well as an increase in DEFINITY sales volume. 29
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The increase in gross profit for the nine months endedSeptember 30, 2022 , as compared to the prior year period, is primarily due to PYLARIFY sales volume, the$24.0 million pursuant to the Novartis Agreement, and an increase in DEFINITY sales volume, which is partially offset by amortization expense of acquired intangible assets in the Progenics Acquisition.
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 expenses increased$8.2 million and$24.3 million for the three and nine months endedSeptember 30, 2022 as compared to the prior year period. This was primarily driven by the continued commercialization activities following the launch of PYLARIFY and increased employee-related costs (including the hiring of new employees throughout 2021 in connection with the commercialization activities for PYLARIFY), as well as an increase in the level of marketing promotional programs and travel during this period which was reduced during the prior year due to the impact of the COVID-19 pandemic.
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 expenses decreased$4.8 million for the three months endedSeptember 30, 2022 compared to the prior period. This was primarily driven by a$9.5 million sublease impairment charge in the prior year. In addition, there was a$1.5 million net reduction for the fair value adjustments to the contingent asset and liabilities in the third quarter of 2022 (a decrease of$4.1 million from the prior year period) (refer to Note 4, "Fair Value of Financial Instruments", for further details on contingent consideration liabilities, including CVRs). These decreases are partially offset by increased employee-related costs and professional fees. General and administrative expenses increased$6.1 million for the nine months endedSeptember 30, 2022 compared to the prior period. This was primarily driven by increased employee-related costs and professional fees. This amount was offset by a$3.1 million net reduction for the fair value adjustments to the contingent asset and liabilities. (refer to Note 4, "Fair Value of Financial Instruments", for further details on contingent consideration liabilities, including CVRs).
Research and Development
Research and development expenses relate primarily to the development of new products to add to our portfolio and costs related to our medical affairs, medical information and regulatory functions.
Research and development expenses increased$1.3 million for the three months endedSeptember 30, 2022 as compared to the prior year period. This was primarily driven by higher overall headcount related costs and the investment in medical affairs related to PYLARIFY, offset, in part, by the expenses related to the preparation activities for the launch of PYLARIFY during the prior year period. Research and development expenses increased$5.8 million for the nine months endedSeptember 30, 2022 as compared to the prior year period. This was primarily driven by the level of activity of the ARROW Phase 2 study of 1095, investment in medical affairs related to PYLARIFY and higher overall headcount related costs, offset by the expenses related to filing fees for the PYLARIFY New Drug Application and preparation activities for the launch of PYLARIFY during the prior year period.
Interest Expense
Interest expense decreased by approximately
Income Tax Expense
The income tax expense recorded for the three and nine months ended
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
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available positive and negative evidence, and weigh the objective evidence and expected impact. We continue to record a valuation allowance against certain of our foreign net deferred tax assets and a small component of our domestic deferred tax assets.
Our effective tax rate for each reporting period is presented as follows:
Nine Months Ended
September 30,
2022 2021
Effective tax rate 27.4% 8.7%
Our effective tax rate in fiscal 2022 differs from the
The increase in the effective income tax rate for the nine months ended
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Liquidity and Capital Resources
Cash Flows
The following table provides information regarding our cash flows:
Nine Months Ended
September 30,
(in thousands) 2022 2021
Net cash provided by operating activities $ 176,429 $40,027
Net cash (used in) provided by investing activities
8,227
Net cash used in financing activities $ (6,149) $(37,232)
Net Cash Provided by Operating Activities
Net cash provided by operating activities of$176.4 million in the nine months endedSeptember 30, 2022 was primarily comprised of net income adjusted for the net effect of non-cash items such as depreciation, amortization and accretion expense, the change in fair value of contingent assets and liabilities of$25.4 million (refer to Note 4, "Fair Value of Financial Instruments", for further details on contingent consideration liabilities, including CVRs), and stock-based compensation expense. The primary working capital sources of cash were the increase in billings associated with PYLARIFY sales and the timing of payments to large vendors. The primary working capital uses of cash were an increase in trade receivables associated primarily with the increase in PYLARIFY revenues. Net cash provided by operating activities of$40.0 million in the nine months endedSeptember 30, 2021 was driven primarily by depreciation, amortization and accretion expense of$30.1 million , a change in fair value of contingent assets and liabilities of$28.5 million (refer to Note 4, "Fair Value of Financial Instruments", for further details on contingent consideration liabilities, including CVRs), stock-based compensation expense of$11.8 million , impairment of long-lived assets of$9.5 million and a net increase of$2.4 million related to movements in our working capital accounts during the period. The overall increases in cash from our working capital accounts were primarily driven by an increase in sales collections, the timing of payments to large vendors, and an increase in fees related to PYLARIFY sales. These net sources of cash were offset by a net loss of$31.1 million and a gain on sale of assets of$15.3 million .
Net cash used in investing activities during the nine months endedSeptember 30, 2022 was primarily due to$13.6 million of capital expenditures offset by cash proceeds of$1.8 million received from the sale of ourPuerto Rico subsidiary. Net cash provided by investing activities during the nine months endedSeptember 30, 2021 was primarily due to cash proceeds of$15.8 million received from the sale of ourPuerto Rico subsidiary, which was offset by$7.6 million of capital expenditures.
Net cash used in financing activities during the nine months endedSeptember 30, 2022 is primarily attributable to the payments on long-term debt and other borrowings of$7.9 million related to the 2019 Term Facility and payments for minimum statutory tax withholding related to net share settlement of equity awards of$7.2 million offset by proceeds of$7.5 million from stock option exercises. Net cash used in financing activities during the nine months endedSeptember 30, 2021 is primarily attributable to the payments on long-term debt and other borrowings of$40.8 million related to the 2019 Term Facility and Royalty-Backed Loan, including a voluntary repayment of the outstanding principal on the Royalty-Backed Loan and payments for minimum statutory tax withholding related to net share settlement of equity awards of$1.9 million offset by proceeds of$4.6 million from stock option exercises.
External Sources of Liquidity
InJune 2019 , we refinanced our 2017$275.0 million five-year term loan facility with the 2019 Term Facility. In addition, we replaced our$75.0 million revolving facility with our current five-year revolving credit facility (the "2019 Revolving Facility" and together with the 2019 Term Facility, the "2019 Facility"). The terms of the 2019 Term 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, which was amended onJune 19, 2020 (as amended, 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$100.0 million , plus additional amounts, in certain circumstances. 32
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We are permitted to voluntarily repay 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 5.0% 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$200.0 million at any time outstanding. The 2019 Revolving Facility includes a$20.0 million sub-facility for the issuance of letters of credit (the "Letters of Credit"). The 2019 Revolving Facility includes a$10.0 million sub-facility for swingline loans (the "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. Under the 2019 Credit Agreement, loans bear interest at LIBOR plus a spread that ranges from 1.50% to 3.00% or the Base Rate (as defined in the 2019 Credit Agreement) plus a spread that ranges from 0.50% to 2.00%, and the commitment fee ranges from 0.15% to 0.40%, in each case based on our Total Net Leverage Ratio (as defined in the 2019 Credit Agreement). The maximum total net leverage ratio and interest coverage ratio permitted by the financial covenant in our 2019 Credit Agreement is displayed in the table below: 2019 Credit Agreement Period Total Net Leverage Ratio Q3 2021 and thereafter 3.50 to 1.00 Period Interest Coverage Ratio Q2 2021 and thereafter 3.00 to 1.00
As of
Please refer to our Annual Report on Form 10-K for fiscal year ended
OnJune 19, 2020 , as a result of the Progenics Acquisition, we assumed Progenics outstanding debt as of such date in the amount of$40.2 million . OnNovember 4, 2016 , Progenics, through its wholly-owned subsidiary,MNTX Royalties Sub LLC , entered into the Royalty-Backed Loan. The Royalty-Backed Loan bore interest at an annual rate of 9.5% and was scheduled to mature onJune 30, 2025 .
On
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 amount and timing of the expected cash payment related to the CVRs;
•The level of product sales and the pricing environment of our currently marketed products, particularly PYLARIFY and DEFINITY, as well as 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 continued costs of the ongoing commercialization of PYLARIFY and PYLARIFY AI;
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•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 AZEDRA, 1095 and NM-01;
•The costs of investing in our facilities, equipment and technology infrastructure;
•The costs and timing of establishing or amending manufacturing and supply arrangements for commercial supplies of our products and raw materials and components;
•Our ability to have products manufactured and released from manufacturing sites in a timely manner in the future, or to manufacture products at our in-house manufacturing facilities in amounts sufficient to meet our supply needs; •The costs of further commercialization of our existing products, 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, intellectual property or other claims;
•The cost of interest on any additional borrowings which we may incur under our financing arrangements; and
•The impact of sustained inflation on our costs of goods sold and operating expenses.
We are vulnerable to future supply chain shortages, disruptions or delays, especially for our single sourced products, raw materials and components. Disruption in our financial performance could also occur if we experience significant adverse changes in product or customer mix, broad economic downturns, sustained inflation, 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 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 2019 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 2019 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. AtSeptember 30, 2022 , our only current committed external source of funds is our borrowing availability under our 2019 Revolving Facility. We had$257.3 million of cash and cash equivalents atSeptember 30, 2022 . 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. The CVRs we issued in the Progenics Acquisition entitle holders thereof to future cash payments of 40% of PYLARIFY net sales over (i)$100.0 million in 2022 and (ii)$150.0 million in 2023, which 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 Acquisition, exceed 19.9% of the total consideration we pay in the Progenics Acquisition. Refer to Note 4, "Fair Value of Financial Instruments", for further details on contingent consideration liabilities. Based on our current operating plans, we believe our balance of cash and cash equivalents, which totaled$257.3 million as ofSeptember 30, 2022 , along with cash generated by ongoing operations and continued access to our 2019 Revolving Facility, will be sufficient to satisfy our cash requirements over the next twelve months and beyond. 34
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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 requires 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 significant changes to our critical accounting policies or in the underlying accounting assumptions and estimates used in such policies in the nine months endedSeptember 30, 2022 . 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, 2021 .
Off-Balance Sheet Arrangements
We are required to provide theMassachusetts Department of Public Health and New Jersey Department of Environmental Protection financial assurance demonstrating our ability to fund the decommissioning of ourNorth Billerica, Massachusetts andSomerset, New Jersey production facilities upon closure, though we do not intend to close the facilities. We have provided this financial assurance in the form of a$30.3 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.
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