Lantheus Holdings, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing was signed February 25, 2020. It also provides unaudited quarterly results, including Q4 2019.
Business context
Lantheus develops, manufactures and sells diagnostic imaging agents and products, primarily for cardiovascular and other diseases. It reports U.S. and International segments. DEFINITY, its ultrasound contrast agent, represented 62.6% of 2019 revenue; TechneLite, a technetium generator, represented 24.9%.
Key financial metrics
| Metric | FY 2019 | FY 2018 | Change |
|---|---|---|---|
| Revenue | $347.3 million | $343.4 million | +1.2% |
| Gross profit / margin | $174.8 million / 50.3% | $174.9 million / 50.9% | Gross profit essentially flat |
| Operating income / margin | $51.7 million / 14.9% | $64.5 million / 18.8% | Down 19.9% |
| Net income | $31.7 million | $40.5 million | Down 21.8% |
| Diluted EPS | $0.79 | $1.03 | Down 23.3% |
| Operating cash flow | $80.4 million | $61.2 million | Up $19.2 million |
| Capital expenditures | $22.1 million | $20.1 million | Up $2.0 million |
At year-end, cash and cash equivalents were $92.9 million, versus $113.4 million a year earlier. Current assets were $172.9 million and current liabilities $66.1 million. Principal debt was $195.0 million; the company had $200 million of undrawn revolving-credit availability. The 2019 term loan carried a 3.55% rate at year-end and matures in June 2024.
Q4 2019: Revenue was $89.3 million versus $86.3 million in Q4 2018; gross profit was $44.6 million versus $43.8 million; net income was $10.5 million versus $13.3 million.
Material changes versus prior year
- Worldwide DEFINITY revenue rose 18.8% to $217.5 million, largely on higher U.S. volume. Management described DEFINITY as its fastest-growing and highest-margin commercial product.
- Worldwide TechneLite revenue declined 12.4% to $86.6 million, and other nuclear product revenue declined 19.5% to $59.8 million. The filing cites supplier disruptions, lower volumes and, in international markets, prior-year incremental demand.
- General and administrative expense increased 22.1% to $61.2 million, mainly due to Progenics acquisition costs and higher employee-related costs. R&D expense increased 17.3% to $20.0 million.
- Interest expense fell $3.8 million following refinancing, but the company recorded a $3.2 million debt-extinguishment loss. Other expense was $6.2 million, compared with $2.5 million of other income in 2018, primarily reflecting changes in tax-indemnification receivables.
- Operating cash flow improved, supported by net income adjustments and working-capital movements. Financing cash use was $78.9 million, primarily reflecting the refinancing and debt repayment.
Outlook, risks and unusual items
- Management expected DEFINITY sales and its share of product mix to continue growing in 2020; no specific numerical revenue or earnings guidance was provided. A room-temperature modified DEFINITY formulation and expanded in-house manufacturing were each targeted for early 2021, subject to regulatory and execution risks.
- Mo-99 supply was constrained by recurring NTP outages and ANSTO facility and transition problems. Lantheus said it could not fill some TechneLite demand on certain manufacturing days. Supply interruptions, air-transport disruption, supplier concentration and higher Mo-99 costs could affect sales, margins and cash flow.
- Jubilant HollisterStier was the sole-source manufacturer of DEFINITY, Cardiolite, Neurolite and evacuation vials. Lantheus was developing alternate supply and in-house capacity, but timing and success were not assured.
- On February 20, 2020, after year-end, Lantheus amended its proposed all-stock acquisition of Progenics. Progenics holders would receive 0.31 Lantheus shares per share and contingent value rights tied to PyL sales; they were expected to own about 40% of the combined company. Closing was expected in Q2 2020, subject to approvals and other conditions. The transaction could involve dilution, integration costs, appraisal claims and CVR payments.
- Clinical programs carry substantial uncertainty. Flurpiridaz F 18’s prior Phase 3 trial missed its specificity non-inferiority endpoint; a GE Healthcare-led Phase 3 trial was underway. In the first DEFINITY BENEFIT study, the primary LVEF accuracy endpoint and a secondary variability endpoint were not met. LMI 1195’s cardiac program was paused, with Phase 3 trials being designed for neuroendocrine tumors.
- Other notable items: Lantheus recorded a $3.5 million arbitration award from Pharmalucence in other income; a $3.0 million income tax benefit reflected, among other items, releases of uncertain tax positions and stock-compensation deductions. Management said the BMS tax indemnification receivable, if recoverable, offsets related tax liabilities without net income or cash-flow effect.
- The company identified DEFINITY generic competition after expiration of its composition-of-matter patent in June 2019 as a risk, though it had not received an ANDA notice as of filing. The filing also notes pricing and reimbursement pressure, regulation, product safety, and the proposed merger as risks. COVID-19-related transport disruption was identified as a potential risk, not a reported realized impact.
- Auditors issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Important facts for investors to verify
- Whether DEFINITY growth and margins can offset declining TechneLite and other nuclear-product revenue, including the effect of rebates and competitive or generic pressure.
- Whether Mo-99 supply normalizes and whether Lantheus can secure reliable alternative manufacturing and supplier capacity.
- Whether the amended Progenics transaction closes on expected terms and timing, and the eventual dilution, integration costs and PyL-linked CVR exposure.
- How refinancing, variable interest rates, debt covenants and planned investment affect liquidity and cash generation.
- Progress and results of the flurpiridaz, LMI 1195 and DEFINITY clinical programs, including regulatory approval and reimbursement prospects.