Lantheus Holdings, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Unaudited consolidated results. Dollar amounts are in millions unless stated otherwise.
Business context and reporting period
Lantheus develops, manufactures and sells diagnostic imaging and therapeutic products, including DEFINITY, TechneLite and oncology products. Following its 2020 acquisition of Progenics and the 2021 sale of its Puerto Rico radiopharmacy subsidiary, the company reports one operating segment.
The FDA approved PYLARIFY, a prostate cancer PET imaging agent, in May 2021; commercial launch began in parts of the U.S. The 2021 comparison with 2020 is affected by COVID-19 disruptions in the prior-year period and by Progenics being included for only part of the 2020 comparison period.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $101.1 | $66.0 | $193.6 | $156.7 |
| Gross profit | $46.1 | $25.8 | $87.1 | $63.9 |
| Gross margin | 45.6% | 39.2% | 45.0% | 40.7% |
| Operating income (loss) | $(26.8) | $(5.5) | $(11.2) | $1.6 |
| Net income (loss) | $(26.7) | $(7.0) | $(17.6) | $(3.7) |
| Basic and diluted loss per share | $(0.39) | $(0.16) | $(0.26) | $(0.09) |
| Operating cash flow | Not separately presented for Q2 | $35.7 | $7.3 |
Q2 revenue rose 53.1% year over year; first-half revenue rose 23.5%. DEFINITY revenue increased 61.2% in Q2 and 29.2% for the half year; TechneLite increased 27.3% and 12.4%, respectively. First-half strategic partnerships and other revenue rose to $13.2 million from $1.3 million. The filing attributes growth mainly to stronger DEFINITY and TechneLite volumes versus pandemic-affected 2020 and the addition of Progenics products.
Operating expenses increased substantially: first-half sales and marketing was $31.8 million, general and administrative $59.3 million, and research and development $22.4 million. G&A included a $25.9 million first-half noncash expense from fair-value changes in contingent assets and liabilities, primarily associated with PYLARIFY CVRs. For the first half, a $15.3 million gain on the Puerto Rico subsidiary sale and a $0.9 million debt-extinguishment gain partly offset operating costs.
Cash and cash equivalents were $91.5 million at June 30, 2021, versus $79.6 million at year-end 2020; restricted cash was an additional $2.1 million. Current assets were $186.2 million and current liabilities $73.8 million. Debt principal outstanding was $180.0 million; carrying value of debt and other borrowings was $179.6 million, implying net debt of about $88.1 million against cash and cash equivalents. The company reported compliance with its debt covenants.
First-half investing cash flow was positive $10.6 million, including $15.8 million of net sale proceeds, while financing cash flow was negative $35.5 million, including $38.1 million of debt repayments. Capital expenditures were $5.2 million. Operating cash flow benefited from noncash adjustments and working-capital movements; it should not be read as equivalent to net earnings.
Material changes versus the prior comparable period
- Revenue and gross margin improved, while reported net losses widened in both Q2 and the first half as operating expenses rose.
- PYLARIFY received FDA approval and began launching; the company expected broader U.S. availability by year-end, subject to manufacturing-site approvals and supply.
- First-half results included the $15.3 million Puerto Rico sale gain. The sale generated $18.0 million of cash consideration, including a $1.8 million holdback due in January 2022, plus a working-capital adjustment.
- The company repaid the $30.9 million Royalty-Backed Loan in March 2021. The remaining term debt matures in 2024; its stated interest rate at June 30 was 2.4%.
- PYLARIFY-related CVR fair value rose, contributing to a $25.9 million first-half expense from fair-value changes; the CVR liability was $30.4 million at June 30, versus $4.2 million at year-end.
Outlook, risks and unusual items
No quantitative revenue or earnings guidance is provided. Management said it expected PYLARIFY availability to expand across the U.S., with broad nationwide availability anticipated by year-end, and believed existing cash, operating results and revolving-facility availability would fund requirements for the foreseeable future. It also cautioned that the launch is complex and expensive and that liquidity needs and results remain uncertain.
- COVID-19: The company could not reliably forecast the pandemic’s effect on 2021 results or cash flow. Xenon sales remained depressed because of reduced pulmonary ventilation studies, and management could not assure a return to historical levels.
- Launch and reimbursement: PYLARIFY growth depends on FDA approval and operational readiness of individual PET manufacturing facilities, adequate supply, customer adoption and reimbursement. Delays or inadequate reimbursement could impair commercialization.
- Supply and concentration: Mo-99 supply is dependent on a limited group of global suppliers and logistics; outages could constrain TechneLite supply. JHS is a sole-source manufacturer for several products, and DEFINITY manufacturing agreements and the company’s transition to in-house production are important execution factors. Major radiopharmacy customers and international distributors also create concentration risk.
- Competition and product safety: DEFINITY faces pricing and potential generic competition. The FDA and manufacturers added a contraindication concerning prior polyethylene glycol hypersensitivity; further safety concerns could restrict sales or labeling.
- CVRs and contingencies: CVRs require payments equal to 40% of PYLARIFY net sales above specified thresholds for 2022 and 2023, subject to an aggregate cap described in the filing. Their fair value depends on uncertain sales forecasts and assumptions. Disclosed proceedings include RELISTOR patent opposition matters, a German PSMA-617 ownership appeal and a U.S. patent post-grant review petition; outcomes are uncertain.
- Other unusual items: First-half cash flow and earnings include the Puerto Rico sale, noncash contingent-consideration remeasurement, and a debt-extinguishment gain. A $28.2 million surety bond provides required financial assurance for facility decommissioning.
Important facts for investors to verify
- Whether PYLARIFY manufacturing-site approvals, supply capacity, reimbursement and geographic expansion proceed as planned, and how sales compare with the CVR thresholds.
- Whether reported operating cash flow is sustained after separating noncash fair-value adjustments, the asset-sale proceeds and working-capital timing effects.
- Debt and liquidity headroom, including actual availability under the $200 million revolving facility and covenant constraints; the filing does not state a clear undrawn amount.
- Whether DEFINITY and TechneLite growth persists, and the extent to which Xenon volumes, Mo-99 supply and key-customer relationships affect sales.
- Potential changes in contingent-consideration estimates, legal proceedings, product-safety requirements and other disclosed contingencies.