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OFFON

LANTHEUS HOLDINGS, INC.

(LNTH)
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LANTHEUS : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

02/25/2021 | 05:30pm EDT
The following discussion and analysis of our financial condition and results of
operations should be read together with Item 6, "Selected Financial Data" and
the consolidated financial statements and the related notes included in Item 8
of this Annual Report on Form 10-K. This discussion contains forward-looking
statements related to future events and our future financial performance that
are based on current expectations and subject to risks and uncertainties. Our
actual results may differ materially from those anticipated in these
forward-looking statements as a result of many factors, including those set
forth in Part I-Item 1A. "Risk Factors" and "Cautionary Note Regarding Forward
Looking Statements." included in this Annual Report on Form 10-K.
Overview
Our Business
We are an established leader and fully integrated provider of innovative imaging
diagnostics, targeted therapeutics, and artificial intelligence solutions to
Find, Fight and Follow serious medical conditions. Clinicians use our imaging
agents and products across a range of imaging modalities, including
echocardiography and nuclear imaging. 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, internal medicine physicians, technologists and sonographers
working in a variety of clinical settings. We sell our products to
radiopharmacies, PMFs, 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:
•U.S. Segment produces and markets our medical imaging agents and products
throughout the U.S. In the U.S., we primarily sell our products to
radiopharmacies, PMFs, integrated delivery networks, hospitals, clinics and
group practices.
•International Segment operations consist of direct distribution in Canada and
Puerto Rico, as well as third-party distribution relationships in Europe,
Canada, Australia, Asia-Pacific and Latin America and our EXINI business in
Sweden.
We are in the process of evaluating our operating and reporting structure. We
anticipate this evaluation, which we expect to complete during 2021, may result
in a change to our existing operating segment reporting structure.
Progenics Acquisition
On June 19, 2020, we completed the Progenics Acquisition. Progenics is an
oncology company focused on developing and commercializing innovative targeted
medicines and artificial intelligence to Find, Fight and Follow cancer.
Progenics' portfolio of products and product candidates includes, among other
things, therapeutic agents designed to target cancer (AZEDRA, 1095 and PSMA
TTC), diagnostic imaging agents designed to target PSMA for prostate cancer (PyL
and 1404), RELISTOR for OIC, AI imaging technologies and leronlimab being
developed for HIV infection and COVID-19 applications. Progenics' current
revenue is generated from two principal sources: first, royalties, development
and commercial milestones from strategic partnerships, including royalties from
Bausch from sales of RELISTOR; and second, AZEDRA sales.
Holdings issued 26,844,877 shares of Holdings common stock and 86,630,633 CVRs
to former Progenics stockholders in connection with the Progenics Acquisition.
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 Replacement Stock
Options at an exchange ratio of 0.31.

Key Factors Affecting Our Results
Our 2021 financial performance will reflect full year results of the Progenics
business, whereas current year only incorporated results since the June 19, 2020
acquisition date. We also expect that the anticipated approval and launch of PyL
during fiscal year 2021 may result in increased revenues.
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. For example, there
has been a reduction in the number of
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echocardiograms performed in 2020 (approximately 31.5 million) as compared to
the number performed in 2019 (approximately 35.1 million), in each case,
according to a third party source. In addition, there has been a substantial
reduction in pulmonary ventilation studies in which our Xenon is used because of
institutional concerns and professional society guidelines relating to the
possible spread of COVID-19 to technicians and other patients, given that Xenon
is both inhaled and exhaled by the patient. As a result, Xenon sales have
decreased. We expect Xenon sales to continue to be at reduced levels so long as
COVID-19 precautions remain in place. 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. For most of the second quarter of 2020, we reduced
our work week from five days to four days and reduced the pay for our personnel
by varying amounts, depending on level of seniority.
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, and new enrollment in the Phase 2 trial of 1095 in mCRPC
patients was paused to minimize the risk to subjects and healthcare providers
during the pandemic. New enrollment in that study restarted in October 2020.
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 resumed 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 fourth quarter of 2020 with
$79.6 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 enhancing
agent, DEFINITY, continues to be significant. DEFINITY has been our fastest
growing and highest margin commercial product. We anticipate DEFINITY sales will
continue to grow in the future. 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 had
over 80% of the market as of December 31, 2020.
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 the U.S. and internationally. In the U.S. for
DEFINITY we now own 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. In the U.S. for DEFINITY RT, we now own a total of five
Orange Book-listed patents, including a composition of matter patent which
expires in 2035. Outside of the U.S., while our original DEFINITY patent
protection and regulatory exclusivity have generally expired, we are currently
prosecuting additional DEFINITY and DEFINITY RT patents to obtain similar patent
protection as in the U.S. The Orange Book-listed patents include a patent on the
use of VIALMIX RFID which expires in 2037; additional VIALMIX RFID patent
applications have been submitted in major markets throughout the world.
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 or that an Orange Book-listed patent is invalid. 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
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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 Annual Report on Form 10-K, 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 March 2021 and
the full 30 month stay was obtained, then the ANDA applicant would be precluded
from commercialization until at least September 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.
•DEFINITY RT - In November 2020, the FDA approved our supplemental new drug
application (sNDA) for DEFINITY RT. DEFINITY RT is a modified formulation of
DEFINITY that allows both storage and shipment at room temperature (DEFINITY's
previously approved formulation requires refrigerated storage). The modified
formulation provides clinicians an additional choice and allows for greater
utility of this formulation in broader clinical settings. We believe DEFINITY RT
will become commercially available later in 2021, although that timing cannot be
assured. 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 New Clinical Applications below).
•VIALMIX RFID - In August 2020, we announced the FDA approved our sNDA for our
next-generation activation device designed specifically for both DEFINITY and
DEFINITY RT. 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 when utilized with the VIALMIX RFID activation device.
•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 ultrasound enhancing agent imaging
generally.
•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 improve
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 October 2020, we announced a strategic collaboration with Insightec Ltd.
("Insightec") which will use our microbubbles in connection with Insightec's
transcranial guided focused ultrasound device for the treatment of glioblastoma
as well as other neurodegenerative conditions.
•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 make use of this in-house manufacturing capability in late
2021, although that timing cannot be assured.
•DEFINITY in China - In March 2020 in connection with our Chinese development
and distribution arrangement with Double-Crane Pharmaceutical Company
("Double-Crane"), 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.
Integration of the Progenics Acquisition
The ultimate success of the Progenics Acquisition will depend on our ability to
successfully combine the business of Progenics with our own and realize the
anticipated benefits, including synergies, cost savings, innovation and
operational efficiencies and revenue growth from the combination. If we are
unable to achieve these objectives within the anticipated time frame, or at all,
the
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anticipated benefits may not be realized fully or at all, or may take longer to
realize than expected, and the value of our common stock may suffer.
Our combined business is now significantly larger and more complex than our
business was immediately prior to the consummation of the Progenics Acquisition.
Our ability to successfully manage this combined business will depend upon our
ability to continue to integrate the two separate businesses and manage the
combined business with its increased scale and scope, and increased costs and
complexity.
We have incurred, and expect to continue to incur, substantial expenses in
connection with the integration of the Progenics business with our own. There
are a large number of processes, policies, procedures, operations, technologies
and systems that have been, or must be, integrated, including purchasing,
accounting and finance, sales, payroll, pricing, revenue management, marketing
and benefits. The substantial majority of these costs have been, and will
continue to be, non-recurring expenses related to the Progenics Acquisition,
facilities and systems consolidation costs. We may also incur additional costs
to maintain employee morale and to attract, motivate or retain management
personnel or key employees.
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.
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 2019
and 2020, ANSTO experienced multiple facility issues that resulted in ANSTO
outages and volume limitations, during which time we relied on IRE and NTP to
limit the impact of those outages and limitations. Because of the COVID-19
pandemic, we experienced challenges receiving regularly scheduled orders of
Mo-99 from our global suppliers, particularly in the second quarter of 2020. We
continue to 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.
We are also pursuing additional sources of Mo-99 from potential new producers to
further augment our current supply. In November 2014, we entered into a
strategic arrangement with SHINE for the future supply of Mo-99. Under the terms
of the supply agreement, 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 2022. However, we cannot assure you that
SHINE or any other possible additional sources of Mo-99 will result in
commercial quantities of Mo-99 for our business, or that these new suppliers
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. 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 rely on SBL as our sole source manufacturer of DEFINITY
RT. We have also completed construction of specialized, in-house manufacturing
capabilities at our North Billerica, Massachusetts facility, 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, including, among other things, our
flurpiridaz F 18 clinical development program, the expenses of which are now
being borne by GE Healthcare. The Progenics Acquisition brings additional and
substantial clinical development expense. The PyL NDA filed with the
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FDA on September 29, 2020, was accepted and granted priority review with PDUFA
action date of May 28, 2021. For 1095, the ARROW Phase 2 study in mCRPC patients
had been paused to minimize risk to subjects and healthcare providers during the
pandemic, and new enrollment in that study restarted in October 2020. 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
In addition to integrating the new assets and programs resulting from the
Progenics Acquisition, we continue to seek ways to further expand our portfolio
of products and product candidates and how best to optimize the value of our
current assets, evaluating a number of different opportunities to collaborate
with others or to acquire or in-license additional products, product candidates,
businesses and technologies to drive our future growth. As the Progenics
Acquisition indicates, we are particularly interested in expanding our presence
in oncology, in both radiotherapeutics and diagnostics. In May 2019, we
commenced an initiative to build out our Pharma Services capabilities by
entering into a strategic collaboration and license agreement with NanoMab, 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 PD-L1 imaging biomarker
research tool to pharmaceutical companies and academic centers conducting
clinical trials on immuno-oncology treatments, including combination therapies.
We have also expanded our Pharma Services offering to include PyL for
pharmaceutical companies developing PSMA-targeted therapies and have entered
into PyL clinical supply agreements with each of Regeneron, Bayer and POINT
BioPharma for use of PyL in prostate cancer drug development programs. We can
give no assurance as to when or if any of these Pharma Services collaborations
will be successful or accretive to earnings.
In addition, as described above, we continue to expand our microbubble
franchise. In October 2020, we announced a strategic collaboration with
Insightec which will use our microbubbles in connection with Insightec's
transcranial guided focused ultrasound device for the treatment of glioblastoma
as well as other neurodegenerative conditions. Glioblastoma is a lethal and
devastating form of brain cancer with median survival of 15 months after
diagnosis. Previously, 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. We also previously announced a strategic development and
commercial collaboration with Cerevast in which our microbubbles will be used in
connection with Cerevast's ocular ultrasound device to improve blood flow in
occluded retinal veins in the eye. Retinal vein occlusion is one of the most
common causes of vision loss worldwide.
Results of Operations
The following is a summary of our consolidated results of operations:
                                                             Year Ended
                                                            December 31,
          (in thousands)                         2020           2019           2018
          Revenues                            $ 339,410$ 347,337$ 343,374
          Cost of goods sold                    200,649        172,526      

168,489

          Gross profit                          138,761        174,811      

174,885

Operating expenses

          Sales and marketing                    40,901         41,888      

43,159

          General and administrative             69,270         61,244      

50,167

          Research and development               32,788         20,018      

17,071

          Total operating expenses              142,959        123,150      

110,397


             Operating (loss) income             (4,198)        51,661      

64,488

          Interest expense                        9,479         13,617      

17,405


          Loss on extinguishment of debt              -          3,196      

-

          Other (income) loss                    (2,198)         6,221      

(2,465)

(Loss) income before income taxes (11,479) 28,627

49,548

          Income tax expense (benefit)            1,994         (3,040)         9,030
          Net (loss) income                   $ (13,473)$  31,667$  40,518



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Comparison of the Periods Ended December 31, 2020 and 2019 Revenues Segment revenues are summarized by product as follows:

                                                         Year Ended
                                                        December 31,                                      2020 vs. 2019                               2019 vs. 2018
                                                                                                   Change                Change                Change                Change
(in thousands)                           2020               2019               2018                  $                     %                     $                     %
U.S.
DEFINITY                             $ 207,270$ 211,777$ 178,440$      (4,507)                (2.1) %       $      33,337                 18.7  %
TechneLite                              69,729             72,534             74,042                 (2,805)                (3.9) %              (1,508)                (2.0) %
Other nuclear                           36,864             36,231             48,935                    633                  1.7  %             (12,704)               (26.0) %
Rebates and allowances                 (19,067)           (16,553)           (12,837)                (2,514)                15.2  %              (3,716)                28.9  %
Total U.S. Revenues                    294,796            303,989            288,580                 (9,193)                (3.0) %              15,409                  5.3  %
International
DEFINITY                                 6,046              5,731              4,633                    315                  5.5  %               1,098                 23.7  %
TechneLite                              16,512             14,058             24,816                  2,454                 17.5  %             (10,758)               (43.4) %
Other nuclear                           22,060             23,574             25,349                 (1,514)                (6.4) %              (1,775)                (7.0) %
Rebates and allowances                      (4)               (15)                (4)                    11                (73.3) %                 (11)               275.0  %
Total International Revenues            44,614             43,348             54,794                  1,266                  2.9  %             (11,446)               (20.9) %
Worldwide
DEFINITY                               213,316            217,508            183,073                 (4,192)                (1.9) %              34,435                 18.8  %
TechneLite                              86,241             86,592             98,858                   (351)                (0.4) %             (12,266)               (12.4) %
Other nuclear                           58,924             59,805             74,284                   (881)                (1.5) %             (14,479)               (19.5) %
Rebates and allowances                 (19,071)           (16,568)           (12,841)                (2,503)                15.1  %              (3,727)                29.0  %
Total Revenues                       $ 339,410$ 347,337$ 343,374$      (7,927)                (2.3) %       $       3,963                  1.2  %


2020 vs. 2019
The decrease in U.S. segment revenues during the year ended December 31, 2020,
as compared to the prior year is primarily due to COVID-19 related business
losses which include a $4.5 million decrease in DEFINITY revenue and a $2.8
million decrease in TechneLite revenue. Additionally, rebates and allowances
increased $2.5 million. Other nuclear revenue increased $0.6 million driven by
the addition of Progenics revenue portfolio, which was nearly offset by a
reduction in Xenon volume.
The increase in International segment revenues during the year ended December
31, 2020, as compared to the prior year is primarily due to a $2.5 million
higher TechneLite revenue as a result of resolution of supplier disruptions and
opportunistic incremental demand, partially offset by a decrease in revenue in
other nuclear products driven by COVID-19 demand losses.
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          19,675
           Adjustments relating to prior period revenues           (604)
           Payments or credits made during the period           (16,706)
           Balance, December 31, 2020                      $      9,350



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Gross Profit
Gross profit is summarized by segment as follows:
                                                        Year Ended
                                                       December 31,                                      2020 vs. 2019                                2019 vs. 2018
                                                                                                  Change                Change                Change                Change
(in thousands)                          2020               2019               2018                  $                      %                     $                     %
U.S.                                $ 127,778$ 164,051$ 161,760$     (36,273)                (22.1) %       $      2,291
                 1.4  %
International                          10,983             10,760             13,125                    223                   2.1  %             (2,365)                (18.0) %
Total Gross profit                  $ 138,761$ 174,811          $
174,885          $     (36,050)                (20.6) %       $        (74)                    -  %


2020 vs. 2019
The decrease in the U.S. segment gross profit for the year ended December 31,
2020, as compared to the prior year is primarily due to lower DEFINITY,
TechneLite, and Xenon unit volumes due to COVID-19, amortization expense of
assets acquired in the Progenics acquisition, a contract termination including a
loss on disposal of assets and an asset impairment loss of $7.3 million on other
nuclear products.
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:
                                                  Year Ended
                                                 December 31,                                    2020 vs. 2019                               2019 vs. 2018
                                                                                          Change                Change                Change                Change
(in thousands)                     2020              2019              2018                  $                    %                     $                     %
U.S.                            $ 38,992$ 39,672$ 40,579$       (680)                (1.7) %       $        (907)                (2.2) %
International                      1,909             2,216             2,580                  (307)               (13.9) %                (364)               (14.1) %
Total Sales and marketing       $ 40,901$ 41,888$ 43,159$       (987)                (2.4) %       $      (1,271)                (2.9) %


2020 vs. 2019
The decrease in the U.S. segment sales and marketing expenses for the year ended
December 31, 2020, as compared to the prior year period is primarily due to
reduced marketing promotional programs, reduced travel due to COVID-19 impact
and reduced hiring and lower employee related costs offset by market research
and the addition of the Progenics business. The Progenics business contributed
approximately $6.4 million of expense to the U.S. segment for the year ended
December 31, 2020.
The decrease in the International segment sales and marketing expenses for the
for the year ended December 31, 2020, as compared to the prior year period is
primarily due to lower marketing promotional activities.
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:
                                                      Year Ended
                                                     December 31,                                    2020 vs. 2019                               2019 vs. 2018
                                                                                              Change                Change                Change                Change
(in thousands)                         2020              2019              2018                  $                    %                     $                     %
U.S.                                $ 68,283$ 60,752$ 49,149$      7,531                 12.4  %       $      11,603                 23.6  %
International                            987               492             1,018                   495                100.6  %                (526)               (51.7) %
Total General and administrative    $ 69,270$ 61,244$ 50,167$      8,026                 13.1  %       $      11,077                 22.1  %


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2020 vs. 2019
The increase in U.S. segment general and administrative expenses for the year
ended December 31, 2020, as compared to the prior year is driven primarily by an
increase in acquisition-related costs associated with the Progenics Acquisition
and the addition of the Progenics business offset by lower medical insurance
costs, travel with COVID-19 limitations and a gain on changes in fair value of
contingent assets and liabilities. The Progenics business contributed
approximately $5.5 million of expense to the U.S. segment for the year ended
December 31, 2020.
The International segment general and administrative expenses increased for the
year ended December 31, 2020, as compared to the prior year, driven primarily by
the addition of the Progenics business and an insurance benefit received in 2019
which was partially offset by lower employee related costs in 2020. The
Progenics business contributed approximately $0.4 million of expense to the
International segment for the year ended December 31, 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:
                                                    Year Ended
                                                   December 31,                                     2020 vs. 2019                              2019 vs. 2018
                                                                                             Change                Change               Change                Change
(in thousands)                       2020              2019              2018                  $                     %                     $                    %
U.S.                              $ 30,866$ 19,352$ 15,705$      11,514                 59.5  %       $      3,647                 23.2  %
International                        1,922               666             1,366                  1,256                188.6  %               (700)               (51.2) %
Total Research and development    $ 32,788$ 20,018$ 17,071$      12,770                 63.8  %       $      2,947                 17.3  %


2020 vs. 2019
The increase in U.S. segment research and development expenses for the year
ended December 31, 2020, as compared to the prior year is primarily driven by
the addition of the Progenics business, including the PyL NDA filing fee, an
in-process research and development ("IPR&D") asset impairment loss of $2.7
million partially offset by clinical research expenses related to DEFINITY
studies completing and lower employee related expenses. The Progenics business
contributed approximately $17.2 million of expense to the U.S. segment for the
year ended December 31, 2020.
The increase in the International segment research and development expenses for
the year ended December 31, 2020, as compared to the prior year period is
primarily driven by the addition of the Progenics business partially offset by
regulatory costs related to Brexit matters. The Progenics business contributed
approximately $1.3 million of expense to the International segment for the year
ended December 31, 2020.
Interest Expense
Interest expense for the year ended December 31, 2020 decreased $4.1 million 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 offset by
debt we assumed as part of the Progenics acquisition.
Loss on Extinguishment of Debt
During the year ended December 31, 2019, we incurred a $3.2 million loss on
extinguishment of debt in connection with the refinancing of our existing
indebtedness.
Other (Income) Loss
Other (income) loss changed by $8.4 million for the year ended December 31, 2020
as compared to the prior year, due to an increase in tax indemnification income
primarily due to the reduction of indemnified receivables related to the release
of our uncertain tax positions in the prior year offset by an arbitration award
that occurred in the prior year.
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Income Tax Expense (Benefit)
Income tax expense (benefit) is summarized as follows:
                                          Year Ended
                                         December 31,                                    2020 vs. 2019                                 2019 vs. 2018
                                                                                 Change                 Change                 Change                 Change
(in thousands)              2020             2019              2018                 $                     %                      $                      %
Income tax expense
(benefit)                $ 1,994$ (3,040)$ 9,030$      5,034                 (165.6) %       $     (12,070)                (133.7) %


The income tax expense for the year ended December 31, 2020 was primarily due to
the accrual of interest associated with uncertain tax positions and the impact
of non-deductible acquisition costs, offset by the tax benefits on losses
generated in the period, the recognition of the deferred tax asset on held for
sale assets, and tax credits. In accordance with the Company's accounting
policy, the change in the tax liability, penalties and interest associated with
these uncertain tax positions (net of any offsetting federal or state benefit)
is recognized within income tax (benefit) expense. Contemporaneously, changes in
the tax indemnification receivable are recognized within other loss (income) in
the consolidated statement of operations. Accordingly, as these reserves change,
adjustments are included in income tax (benefit) expense with an offsetting
adjustment included in other loss (income). Assuming that the receivable from
BMS continues to be considered recoverable by the Company, there will be no
effect on net income and no net cash outflows related to these liabilities.
Refer to Note 5, Income Taxes.
The income tax benefit for the year ended December 31, 2019 was primarily due to
the release of tax contingency reserves as well as the release of the valuation
allowance against our Canada deferred tax assets and tax benefits arising from
stock compensation deductions, offset by tax expense on income generated in the
period 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. We released the
full valuation allowance recorded against our Canada deferred tax assets during
the year ended December 31, 2018. 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:
                                                     Year Ended
                                                    December 31,
                                         2020            2019           2018
                  Effective tax rate    (17.4)%         (10.6)%         18.2%


Our effective tax rate in fiscal 2020 differs from the U.S. statutory rate of
21% principally due to non-deductible acquisition costs and the accrual of
interest on uncertain tax positions, offset by the benefit created by the
recognition of the deferred tax asset on held for sale assets and tax credits.
The decrease in the effective income tax rate for the year ended December 31,
2020 as compared to the prior year period is primarily due to the large
non-recurring benefit recorded in 2019 associated with the release of tax
contingency reserves, non-deductible acquisition costs offset by the benefit
created by the recognition of the deferred tax asset on held for sale assets.
The 2020 effective tax rate is a tax expense recorded against a pre-tax loss,
whereas the 2019 effective tax rate is a tax benefit recorded against pre-tax
income.
Comparison of the Periods Ended December 31, 2019 and 2018
For a comparison of our results of operations for the fiscal years ended
December 31, 2019 and December 31, 2018, see "Part II, Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" of our
Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed
with the SEC on February 25, 2020.
Liquidity and Capital Resources
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Cash Flows
The following table provides information regarding our cash flows:
                                                                    Year Ended
                                                                   December 31,
     (in thousands)                                     2020           2019           2018

Net cash provided by operating activities $ 16,396$ 80,384$ 61,193

     Net cash used in investing activities           $  (4,912)     $ 

(22,061) $ (19,132)

     Net cash used in financing activities           $ (21,861)     $ 

(78,881) $ (4,668)



For a discussion of our liquidity and capital resources related to our cash flow
activities for the fiscal year ended December 31, 2018, see "Part II, Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" of our annual report on Form 10-K for the fiscal year ended December
31, 2019, filed with the SEC on February 25, 2020.
Net Cash Provided by Operating Activities
Net cash provided by operating activities of $16.4 million in the year ended
December 31, 2020 was driven primarily by a net loss of $13.5 million, a net
decrease of $22.4 million related to movements in our working capital accounts
during the period and a net decrease of $2.0 million in the fair value of
contingent assets and liabilities offset by $24.7 million of depreciation,
amortization and accretion expense, stock-based compensation expense of $14.1
million, impairment of long-lived assets of $9.9 million and a loss on disposal
of assets of $2.3 million. The overall decreases in cash from our working
capital accounts were primarily driven by the increase in accounts receivable
due to the Progenics Acquisition and increase in collection period as well as
change in inventory related to the COVID-19 impact on products and the timing of
payments and payments of accruals related to G&A expenses in connection with the
Progenics Acquisition.
Net cash provided by operating activities of $80.4 million in the year ended
December 31, 2019 was driven primarily by net income of $31.7 million plus $13.4
million of depreciation, amortization and accretion expense, changes in
long-term income tax payable and other long-term liabilities of $13.2 million,
stock-based compensation expense of $12.5 million, changes in long-term income
tax receivable of $10.6 million, changes in deferred taxes of $9.7 million and
debt extinguishment expense of $3.2 million. These net sources of cash were
further increased by a net increase of $9.0 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 accrued expenses and the
timing of purchases.
Net Cash Used in Investing Activities
Net cash used in investing activities during the year ended December 31, 2020
reflected $10.0 million in lending on a note receivable to Progenics prior to
the acquisition and $12.5 million in capital expenditures offset by $17.6
million of acquired cash related to the Progenics Acquisition.
Net cash used in investing activities during the year ended December 31, 2019
reflected $22.1 million in capital expenditures.
Net Cash Used in Financing Activities
Net cash used in financing activities during the year ended December 31, 2020 is
primarily attributable to the payments on long-term debt and other borrowings of
$15.5 million related to the 2019 Term Facility and Royalty-Backed Loan (defined
below), equity issuance costs related to the Progenics Acquisition of $3.8
million, and payments for minimum statutory tax withholding related to net share
settlement of equity awards of $2.1 million.
Net cash used in financing activities during the year ended December 31, 2019 is
primarily attributable to the net cash outflow of approximately $73.0 million in
connection with the refinancing of our previous 2017 Facility, payments on
long-term debt of $5.0 million related to the 2019 Term Facility and payments
for minimum statutory tax withholding related to net share settlement of equity
awards of $2.5 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
In June 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 the 2019 Revolving Facility. The terms of the 2019
Facility are set forth in the Credit Agreement, dated as of June 27, 2019, by
and among us, the lenders from time to time party thereto and Wells Fargo Bank,
N.A., as administrative agent and collateral agent. 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.
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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 5.0% per year through September 30, 2022 and
7.5% thereafter, until its June 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 until June 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 2019 Revolving Facility
includes a $10.0 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 Note 13, "Long-Term Debt, Net, and Other Borrowings" for further
details on the 2019 Facility.
On June 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 Progenics Acquisition.
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 through December 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
                   Q4 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 ending March 31, 2021.
As of December 31, 2020, we were in compliance with all financial and other
covenants under the Amendment.
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 ending March 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 on March 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 ending March 31, 2021. On and after the
Adjustment Date for the fiscal quarter ending on March 31, 2021, the commitment
fee ranges from 0.15% to 0.40% based on our Total Net Leverage Ratio.
On June 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. Progenics,
through a wholly-owned subsidiary MNTX Royalties Sub LLC ("MNTX Royalties"),
entered into a $50.0 million loan agreement (the "Royalty-Backed Loan") with a
fund managed by HealthCare Royalty Partners III, L.P. ("HCRP") on November 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 with Salix 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 on June 30, 2025. On June 22, 2020, HCRP waived the
automatic acceleration of the Royalty-Backed Loan that otherwise would have been
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triggered by the consummation of the Progenics Acquisition and MNTX Royalties
agreed not to prepay the loan until after December 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 on September
30, 2021, all of the RELISTOR royalties 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, aBSI 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 further 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.
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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.
At December 31, 2020, our only current committed external source of funds is our
borrowing availability under our 2019 Revolving Facility. We had $79.6 million
of cash and cash equivalents at December 31, 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 Acquisition, which we closed in
June 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 Acquisition entitle holders thereof to future cash payments of 40%
of PyL net sales over (i) $100.0 million in 2022 and (ii) $150.0 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
Acquisition, exceed 19.9% (which we estimate could be approximately $100.0
million) 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, 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.
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Contractual Obligations
Contractual obligations represent future cash commitments and liabilities under
agreements with third parties and exclude contingent contractual liabilities for
which we cannot reasonably predict future payment, including contingencies
related to potential future development, financing, certain suppliers,
contingent royalty payments and/or scientific, regulatory, or commercial
milestone payments under development agreements. The following table summarizes
our contractual obligations as of December 31, 2020:
                                                                            

Payments Due by Period

                                                                 Less than                                                    More than
(in thousands)                                  Total              1 Year            1 - 3 Years          3 -5 Years           5 Years
Debt obligations (principal)                 $ 217,553$  20,452

$ 48,351$ 148,750 $ - Interest on debt obligations(a)

                 26,537              9,697                14,454               2,386                  -
Operating lease obligations(b)                  23,239              1,964                 4,468               4,637             12,170
Purchase obligations(c)                          6,198              4,132                 2,066                   -                  -
Finance lease obligations                          525                231                   294                   -                  -
Fixed payments under license agreements (d)        733                164                   328                 203                 38
Other long-term liabilities(e)(f)                    -                  -                     -                   -                  -
Asset retirement obligations(g)                      -                  -                     -                   -                  -
Total contractual obligations                $ 274,785$  36,640

$ 69,961$ 155,976$ 12,208

________________________________

(a)Amounts relate to the estimated interest under our 2019 Term Facility and
interest rate swaps based on interest rates in effect as of December 31, 2020 as
well as future principal and interest, based upon estimated sales projections,
under our Royalty-Backed Loan.
(b)Operating leases include minimum payments under leases for our facilities.
Amounts exclude lease payments of $0.9 million associated with the Puerto Rico
subsidiary that is classified as held for sale.
(c)Excludes purchase orders for inventory in the normal course of business.
(d)Does not include potential milestone or contractual payment obligations
contingent upon the achievement or occurrence of future milestones or events
under our license agreements, because they are contingent and the amounts and
timing of such potential obligations are unknown or uncertain. We may be
required to pay additional amounts up to approximately $90.6 million in
contingent payments under our license agreements.
(e)Our other long-term liabilities in the consolidated balance sheet include
unrecognized tax benefits and related interest and penalties. As of December 31,
2020, we had unrecognized tax benefits of $29.9 million, which included interest
and penalties, classified as noncurrent liabilities. At this time, we are unable
to make a reasonably reliable estimate of the timing of payments in individual
years in connection with these tax liabilities; therefore, such amounts are not
included in the above contractual obligation table.
(f)Our other long-term liabilities in the consolidated balance sheet also
include the fair values of contingent consideration liabilities including CVRs
and contingent consideration liabilities related to a previous acquisition
completed by Progenics in 2013. We may be required to pay up to approximately
$100.0 million related to the CVRs and approximately $85.0 million related to
the contingent consideration. These contingent payments have been excluded from
the above table due to uncertainty around the timing of the future cash
outflows.
(g)We have excluded asset retirement obligations from the table above due to the
uncertainty of the timing of the future cash outflows related to the
decommissioning of our radioactive operations. As of December 31, 2020, the
liability, which was approximately $14.3 million, including amounts recorded in
liabilities held for sale was measured at the present value of the obligation
expected to be incurred of approximately $26.9 million.
Off-Balance Sheet Arrangements
We are required to provide the U.S. Nuclear Regulatory Commission and
Massachusetts Department of Public Health financial assurance demonstrating our
ability to fund the decommissioning of our North 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.
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Effects of Inflation
We do not believe that inflation has had a significant impact on our revenues or
results of operations since inception. We expect our cost of product sales and
other operating expenses will change in the future in line with periodic
inflationary changes in price levels. Because we intend to retain and continue
to use our property and equipment, we believe that the incremental inflation
related to the replacement costs of those items will not materially affect our
operations. However, the rate of inflation affects our expenses, such as those
for employee compensation and contract services, which could increase our level
of expenses and the rate at which we use our resources. While we generally
believe that we will be able to offset the effect of price-level changes by
adjusting our product prices and implementing operating efficiencies, any
material unfavorable changes in price levels could have a material adverse
effect on our financial condition, results of operations and cash flows.
Recent Accounting Standards
Refer to Note 2, "Summary of Significant Accounting Policies," in the
accompanying consolidated financial statements located under Item 8 of this
Annual Report on Form 10-K for information regarding recently issued accounting
standards that may have a significant impact on our business.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations
are based on our consolidated financial statements, which have been prepared in
accordance with U.S. GAAP. The preparation of these 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.
We believe the following represent our critical accounting policies and
estimates used in the preparation of our financial statements.
Revenue from Contracts with Customers
Revenue is measured based on a consideration specified in a contract with a
customer, and excludes any sales incentives and amounts collected on behalf of
third parties. We recognize revenue when we satisfy our performance obligations
by transferring control over products or services to our customers. The amount
of revenue we recognize reflects the consideration to which we expect to be
entitled to receive in exchange for these goods or services. To achieve this
core principle, we apply the following five steps: (1) identify the contracts
with a customer; (2) identify the performance obligations in the contract; (3)
determine the transaction price; (4) allocate the transaction price to the
performance obligations in the contract; and (5) recognize revenue when (or as)
we satisfy performance obligations.
We derive our revenues through arrangements with customers for product sales as
well as licensing and royalty arrangements. We sell our products principally to
hospitals and clinics, radiopharmacies, and distributors and we consider
customer purchase orders, which in some cases are governed by master sales or
group purchasing organization agreements, to be contracts with our customers. In
addition to these arrangements, we also enter into licensing agreements under
which we license certain rights to third parties. The terms of these
arrangements typically include payment to us of one or more of the following:
non-refundable, up-front license fees; development, regulatory and commercial
milestone payments; and royalties on net sales of licensed products. We analyze
various factors requiring management judgment when applying the five-step model
to our contracts with customers.
Our product revenues are recorded at the net sales price (transaction price),
which represents our sales price less estimates related to reserves which are
established for items such as discounts, returns, rebates and allowances that
may be provided for in certain contracts with our customers. Judgment is used in
determining and updating our reserves on an on-going basis, and where
appropriate, these estimates take into consideration a range of possible
outcomes which are probability-weighted for relevant factors such as our
historical experience, current contractual and statutory requirements, specific
known market events and trends, industry data and forecasted customer buying and
payment patterns. Overall, these reserves reflect the Company's best estimates
of the amount of consideration to which it is entitled based on the terms of the
contract. Actual amounts of consideration ultimately received may differ from
the Company's estimates.
For our licensing and royalty arrangements, we use judgment in determining the
number of performance obligations in a license agreement by assessing whether
the license is distinct or should be combined with another performance
obligation as well as the nature of the license. As part of the accounting for
these arrangements, we develop assumptions that require judgment to determine
the stand-alone selling price for each performance obligation identified in a
contract. These key assumptions may include market conditions, reimbursement
rates for personnel costs, development timelines and probabilities of regulatory
success.
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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
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
consolidated statements of operations as operating expenses or income.
Intangible and Long-Lived Assets
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 consolidated statements
of operations.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk from changes in interest rates and foreign
currency exchange rates. We may from time to time use derivative financial
instruments or other financial instruments to hedge these economic exposures
related to foreign currencies. We do not hold or issue financial instruments for
trading purposes.
Interest Rate Risk
Under our 2019 Facility, as amended, we have substantial variable rate debt.
Fluctuations in interest rates may affect our business, financial condition,
results of operations and cash flows. As of December 31, 2020, we had $185.0
million outstanding principal under our 2019 Term Facility with variable
interest rates.
Furthermore, we are subject to interest rate risk in connection with our 2019
Revolving Facility, which is variable rate indebtedness. Interest rate changes
could increase the amount of our interest payments and thus negatively impact
our future earnings and cash flows. As of December 31, 2020, there was
availability of $200.0 million on the 2019 Revolving Facility. Any increase in
the
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interest rate under the 2019 Revolving Facility may have a negative impact on
our future earnings to the extent we have outstanding borrowings under the 2019
Revolving Facility.
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 of December 31, 2020, the Company had entered into
interest rate swap contracts to fix the LIBOR rate on a notional amount of
$100.0 million through May 31, 2024. The average fixed LIBOR rate on the
interest rate swaps as of December 31, 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 14, "Derivative Instruments",
for further details on the interest rate swaps.
The effect of a 100 basis points adverse change in market interest rates on our
2019 Term Facility, in excess of applicable minimum floors, on our interest
expense would be approximately $1.9 million excluding the impact of our interest
rate swaps.
Foreign Currency Risk
We face exposure to movements in foreign currency exchange rates whenever we, or
any of our subsidiaries, enter into transactions with third parties that are
denominated in currencies other than ours, or that subsidiary's, functional
currency. Intercompany transactions between entities that use different
functional currencies also expose us to foreign currency risk.
During the years ended December 31, 2020, 2019 and 2018, the net impact of
foreign currency changes on transactions was a loss of $0.3 million, a gain of
less than $0.1 million and a loss of $0.6 million, respectively. From time to
time, we enter into foreign currency forward contracts primarily to reduce the
effects of fluctuating foreign currency exchange rates. We may enter into
additional foreign currency forward contracts when deemed appropriate. We do not
enter into foreign currency forward contracts for speculative or trading
purposes.
The Canadian dollar presents the primary currency risk on our earnings.
At December 31, 2020, a hypothetical 10% change in value of the U.S. dollar
relative to the Canadian dollar would not have materially affected our financial
instruments.
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