Lantheus Holdings, Inc. — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015; quarterly information is unaudited. The company develops, manufactures and sells diagnostic imaging agents and radiopharmaceuticals. Its leading products include DEFINITY, TechneLite and Xenon.
Financial performance
| Metric | 2015 | 2014 | Change or context |
|---|---|---|---|
| Revenue | $293.5 million | $301.6 million | Down 2.7% |
| Gross profit / margin | $135.5 million / 46.2% | $125.5 million / 41.6% | Margin improved 4.6 percentage points |
| Operating income | $42.5 million | $39.4 million | Up 7.9% |
| Net loss | $14.7 million | $3.6 million | Includes $15.5 million loss on debt extinguishment |
| Operating cash flow | $21.8 million | $11.6 million | Improved by $10.2 million |
| Capital expenditures | $13.2 million | $8.1 million | Investing cash outflow was $13.2 million |
| Cash and cash equivalents | $28.6 million | $19.7 million | At year-end |
| Debt principal | $363.2 million | — | Variable-rate term facility; 7.0% rate at year-end |
Adjusted EBITDA, a non-GAAP measure, was $76.3 million versus $70.8 million in 2014. The company cautions that this measure is not a substitute for GAAP results or operating cash flow.
Fourth quarter: Revenue was $71.2 million, gross profit $33.4 million, and net income $3.9 million, compared with revenue of $77.0 million, gross profit of $32.8 million, and net income of $0.2 million in Q4 2014. Reported Q4 2015 diluted EPS was $0.13.
Material changes versus 2014
- DEFINITY revenue rose 16.8% to $111.9 million, supported by higher unit volumes; it represented 38.1% of revenue. The company estimated a 78% U.S. share of the echocardiography contrast-agent market.
- TechneLite revenue fell 22.5% to $72.6 million, primarily on lower volumes. Xenon revenue increased 33.8% to $48.9 million, mainly from higher selling prices.
- International revenue decreased 11.4% to $57.6 million; management cited $6.8 million of unfavorable foreign exchange and competitive pressure on Cardiolite.
- Gross margin improved as cost of goods sold declined 10.3%. General and administrative expense rose 17.6%, including a $6.5 million fee to terminate the Avista advisory and monitoring agreement.
- Research and development expense was $14.4 million, broadly flat year over year and substantially below 2013, reflecting the company’s shift toward seeking partners to fund further development.
Outlook, risks and unusual items
- Management said existing cash, expected operating results and revolving-facility availability should fund liquidity needs for at least 12 months. This outlook is subject to performance, borrowing-base availability and debt-covenant limits.
- At year-end, net availability under the $50 million revolving facility was $39.3 million, after an $8.8 million standby letter of credit and accrued interest. The $363.2 million term loan matures in 2022; scheduled principal payments are modest before maturity, when most principal is due.
- The company refinanced $400 million of 9.75% senior notes in June 2015 with a $365 million term facility and IPO proceeds. The refinancing generated a $15.5 million accounting loss, including a $9.7 million redemption premium and $5.8 million write-off of financing costs. The June 2015 IPO raised approximately $67.2 million net.
- Cardinal’s new distribution agreement runs through 2017. Management expected broader product mix and lower contracted pricing to increase Cardinal-related revenue in 2016 but reduce gross margins. Xenon volume was expected to be more predictable in 2016, but at substantially lower revenue and gross-margin contribution than in 2015.
- Supply continuity is a central risk: the NRU reactor was expected to stop routine medical-isotope supply in October 2016. Replacement Moly capacity from ANSTO and IRE was planned for 2016, while IRE Xenon supply remained subject to development and regulatory approval. TechneLite, Cardiolite and Neurolite depend on Moly; Nordion was the sole Xenon supplier at year-end.
- DEFINITY relied on JHS as its sole manufacturer while a second source at Pharmalucence was still in technology transfer. Cardiolite manufacturing at JHS also required transfer work and regulatory approval. Ablavar manufacturing arrangements had ended, and existing inventory was expected to expire in Q3 2016.
- Flurpiridaz F 18’s first Phase 3 study missed its specificity co-primary endpoint despite favorable sensitivity, image-quality and radiation-exposure results. The company was discussing partnerships; a second Phase 3 trial was contingent on a partnership and was expected to take two to three years.
- In January 2016, the company sold its Canadian radiopharmacies and related business for $9.0 million, subject to working-capital adjustments, and entered a long-term product-supply agreement with the buyer.
- The company’s appeal of a court ruling dismissing its insurance recovery claim over the 2009–2010 Moly disruption remained pending; recovery and amount, if any, were uncertain. Management reported no other material ongoing litigation or known material regulatory investigation as of year-end.
Most important facts for investors to verify
- Whether DEFINITY can continue gaining volume amid competition from Lumason and Optison, and whether manufacturing diversification is completed.
- Whether replacement Moly supply and alternative Xenon supply become available on schedule and in adequate quantities.
- Actual 2016 pricing, volume and margin effects under the Cardinal agreement and in the Xenon business.
- Debt covenant compliance, revolving borrowing-base availability, variable-rate interest exposure and cash generation relative to debt service.
- Progress on a flurpiridaz partnership and second Phase 3 trial, and any implications for the other development programs.
- The final proceeds and operating impact of the Canadian asset sale, and any resulting changes to reported revenue or segment mix.