Lantheus Holdings, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Unaudited consolidated results; dollar amounts below are in millions unless stated otherwise.
Business context
Lantheus develops, manufactures and sells diagnostic imaging products, radiopharmaceutical oncology products and related services. Its principal products include PYLARIFY, DEFINITY and TechneLite. PYLARIFY, its recently launched PSMA PET imaging agent for prostate cancer, was the leading driver of growth. The company reports one operating segment.
Financial highlights
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $223.7 | $101.1 | $432.6 | $193.6 |
| Gross profit | $138.0 | $46.1 | $267.1 | $87.1 |
| Gross margin | 61.7% | 45.6% | 61.7% | 45.0% |
| Operating income (loss) | $63.2 | $(26.8) | $122.1 | $(11.2) |
| Net income (loss) | $43.1 | $(26.7) | $86.0 | $(17.6) |
| Diluted EPS | $0.61 | $(0.39) | $1.22 | $(0.26) |
| Operating cash flow | Not separately provided | Not separately provided | $82.9 | $35.7 |
Q2 revenue rose 121.4%; first-half revenue increased 123.5%. PYLARIFY revenue was $130.2 million in Q2 and $223.0 million for the first half, versus $0.3 million in each comparable 2021 period. DEFINITY sales rose 4.1% in Q2 to $62.3 million; TechneLite fell 18.2% to $19.4 million. First-half strategic partnerships and other revenue included a $24.0 million Novartis license payment recognized in Q1 and received in April.
Operating expenses were $74.8 million in Q2, up 2.7%; first-half expenses were $145.0 million, up 27.7%. First-half G&A included a $26.9 million net expense from fair-value changes in contingent assets and liabilities, primarily associated with the PYLARIFY CVRs. Income tax expense was $19.0 million in Q2 and $33.9 million for the first half; the first-half effective tax rate was 28.3%.
Liquidity, cash flow and debt
- Cash and cash equivalents were $171.4 million at June 30, 2022, up from $98.5 million at year-end 2021. Cash, cash equivalents and restricted cash totaled $173.6 million.
- First-half operating cash flow was $82.9 million, versus $35.7 million. The increase came amid higher earnings and non-cash adjustments, partly offset by a $101.0 million increase in accounts receivable, primarily related to PYLARIFY growth.
- First-half capital expenditures were $7.5 million. Investing cash outflow was $5.7 million; financing cash outflow was $4.2 million, including $5.2 million of debt payments and $6.3 million of tax withholding on equity awards.
- Debt principal outstanding was $170.0 million; balance-sheet debt and other borrowings, including finance leases and net of discounts and issuance costs, were $169.7 million. The term facility carried a 2.6% interest rate and matures in June 2024. The company reported compliance with its credit agreement covenants.
- The company had a $200 million revolving credit facility maturing in June 2024. The filing does not state a clear dollar amount of undrawn availability. Management said cash, operating cash generation and continued facility access should be sufficient for requirements over the next twelve months and beyond.
Material changes and notable items
- PYLARIFY commercialization drove most of the revenue increase, with product revenue broadening as nationwide availability expanded. The company reported 21 qualified manufacturing sites in 2021 and continued qualifying additional sites in 2022.
- Precision diagnostics revenue declined 3.6% in Q2, as DEFINITY growth was outweighed by lower TechneLite and other product sales. Management cited staffing challenges at healthcare institutions and fewer in-person cardiology visits as factors affecting DEFINITY.
- CMS transitional pass-through payment status for PYLARIFY began January 1, 2022, and is expected to expire December 31, 2024. The filing cautions that reimbursement after expiration may not adequately cover procedure costs.
- The estimated PYLARIFY CVR obligation was $99.7 million at June 30, recorded as a current liability. Payments are tied to U.S. sales thresholds and are expected by management in the first half of 2023; actual amount and timing are not assured.
- The company entered a new JHS manufacturing and supply agreement through December 2027 and received FDA approval in February 2022 to manufacture DEFINITY at its own facility.
Outlook, risks and contingencies
The filing provides no specific financial guidance. Management describes continued PYLARIFY growth and expansion, but emphasizes uncertainty around manufacturing capacity, FDA approval of individual PET manufacturing facilities, customer contracting, reimbursement and competition. Risks also include Mo-99 and other supplier disruptions, single-source manufacturing dependencies, inflation, COVID-19-related healthcare staffing and procedure impacts, and potential generic competition for DEFINITY. The company cites competing PSMA imaging agents and a potential additional competitor entering the market.
Research and development priorities include the 1095 Phase 2 ARROW study, which enrolled its last patient in Q2, and NM-01 clinical development. Lantheus said it would make no further investment in LMI 1195 at this time following FDA feedback regarding a pediatric voucher. No material ongoing litigation was reported at June 30. The company has a $28.2 million surety bond for facility decommissioning financial assurance and reported no other off-balance-sheet arrangements.
Investor facts to verify
- Whether PYLARIFY revenue growth, manufacturing capacity and market access remain sustainable, including competitive share and reimbursement developments.
- The eventual CVR payment amount and timing compared with the $99.7 million accrued estimate and first-half 2023 expectation.
- Cash conversion as receivables scale with sales; first-half accounts receivable increased by $101.0 million.
- Debt repayment and refinancing plans ahead of the June 2024 term-loan and revolver maturities, along with covenant headroom and actual revolver availability.
- Progress on the 1095 study, NM-01 and other development programs, and supply continuity for Mo-99 and sole-source products.