Lantheus Holdings, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Amounts below are in U.S. dollars; financial figures are rounded to millions unless noted.
Business context and reporting period
Lantheus develops, manufactures and sells diagnostic and therapeutic products used in imaging and treatment of heart disease, cancer and other conditions. It reported one consolidated operating segment. The Progenics acquisition is included for the full first nine months of 2021, compared with only the period after its June 2020 acquisition in the prior-year results.
PYLARIFY, the company’s prostate cancer imaging agent, received FDA approval in May 2021 and began its commercial launch. Availability was expanding across U.S. regions; broad nationwide availability was anticipated by year-end 2021, subject to manufacturing-site approvals and other launch requirements.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $102.1 | $88.5 | $295.6 | $245.3 |
| Gross profit | $42.7 | $36.3 | $129.8 | $100.1 |
| Gross margin | 41.8% | 40.9% | 43.9% | 40.8% |
| Operating loss | $(14.3) | $(5.3) | $(25.5) | $(3.7) |
| Net loss | $(13.4) | $(6.4) | $(31.1) | $(10.1) |
| Basic and diluted loss per share | $(0.20) | $(0.10) | $(0.46) | $(0.20) |
- Q3 revenue rose 15.3%; nine-month revenue rose 20.5%. DEFINITY and TechneLite growth and PYLARIFY’s launch contributed, while reduced Xenon volumes and the Puerto Rico divestiture were offsets.
- Nine-month operating cash flow was $40.0 million, versus $15.8 million in 2020. Investing activities provided $8.2 million, including $15.8 million of net proceeds from the Puerto Rico sale, offset partly by $7.6 million of capital expenditures. Financing activities used $37.2 million, primarily for debt repayment.
- At September 30, cash and cash equivalents were $91.5 million; current assets were $201.5 million and current liabilities $76.9 million. Long-term debt and other borrowings, net, were $166.7 million, with $177.5 million of principal outstanding. The company had repaid its $30.9 million Royalty-Backed Loan in March. It reported compliance with its debt covenants.
- Management said current cash, operating results and revolving-facility availability were expected to fund liquidity needs for the foreseeable future, while cautioning that pandemic impacts and other uncertainties could affect liquidity.
Material changes and unusual items
- Operating expenses increased 37.3% in Q3 and 64.3% over nine months, reflecting commercial-launch and integration costs, higher headcount, and other items. Q3 general and administrative expense included a $9.5 million non-cash impairment related to a New York office lease sublease.
- The nine-month results included a $15.3 million pre-tax gain on the Puerto Rico radiopharmacy sale and a $0.9 million gain on extinguishment of debt. These gains partly offset operating losses.
- A $28.5 million nine-month expense from fair-value changes in contingent assets and liabilities was primarily associated with updated forecasts and assumptions, including the Progenics acquisition CVRs. The contingent consideration liability was $46.8 million at quarter-end, up from $15.8 million at December 2020; the estimate is sensitive to sales forecasts, market assumptions and discount rates.
- DEFINITY revenue increased 14.5% in Q3 and 23.9% over nine months. Radiopharmaceutical oncology revenue increased 167.5% in Q3, primarily reflecting PYLARIFY’s launch and AZEDRA. Other precision diagnostics revenue declined 11.9% in Q3 and 26.0% over nine months.
Outlook, commentary and risks
- The filing provides no numerical financial guidance. Management expected continued PYLARIFY rollout, but noted that FDA approval of each PET manufacturing facility, supply, and adequate reimbursement are important and not assured.
- COVID-19 resurgence affected certain business activities in Q3. Xenon sales remained reduced, and the company said it could not reliably predict the pandemic’s overall effect on 2021 results or cash flows.
- Jubilant HollisterStier (JHS), the sole-source manufacturer of DEFINITY and several other products, gave notice that it would not renew the DEFINITY manufacturing agreement, while remaining open to negotiations. Lantheus was negotiating a new agreement and expected to seek terminal supply if needed while its in-house facility awaited FDA approval and ramp-up.
- Other key exposures include reliance on third-party manufacturers and suppliers, global Mo-99 supply and logistics, customer concentration, pricing pressure, possible DEFINITY generic competition, and uncertainty over FDA classification of imaging agents.
- Contingencies include European patent opposition proceedings involving RELISTOR and litigation and patent proceedings involving PSMA-related intellectual property. The filing states outcomes are uncertain and does not provide a clear estimate of potential losses.
Important facts for investors to verify
- Whether PYLARIFY’s manufacturing network expanded as planned, and whether reimbursement and sales met expectations.
- Progress and timing of a renewed DEFINITY supply agreement with JHS, FDA approval of in-house manufacturing, and any resulting supply disruption.
- Subsequent changes in DEFINITY and TechneLite demand, Xenon recovery, and COVID-19 effects.
- Cash generation, debt repayment, revolver availability and covenant headroom, particularly as the business funds the PYLARIFY launch and potential CVR payments.
- Changes in the CVR fair value estimate and actual PYLARIFY net sales relative to the CVR thresholds for 2022 and 2023.