Lantheus Holdings, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Unaudited results are compared with the same 2019 periods. Financial amounts below are in U.S. dollars; “M” means millions. Progenics was acquired on June 19, 2020, so its results are included only from that date.
Business context
Lantheus develops, manufactures and commercializes diagnostic and therapeutic products, including DEFINITY and TechneLite, and reports U.S. and International segments. The June 19 all-stock acquisition of oncology company Progenics added AZEDRA, RELISTOR royalty interests, and a development portfolio including PyL and 1095. Lantheus issued approximately 26.8 million shares and 86.6 million contingent value rights (CVRs); the CVRs may pay holders 40% of PyL U.S. net sales above specified thresholds in 2022 and 2023.
Key financial results
| Metric | Q2 2020 | Q2 2019 | H1 2020 | H1 2019 |
|---|---|---|---|---|
| Revenue | $66.0M | $85.7M | $156.7M | $172.2M |
| Gross profit | $25.8M | $44.6M | $63.9M | $88.7M |
| Gross margin | 39.2% | 52.0% | 40.7% | 51.5% |
| Operating income (loss) | $(5.5)M | $14.5M | $1.6M | $30.7M |
| Net income (loss) | $(7.0)M | $6.4M | $(3.7)M | $16.4M |
| Diluted EPS | $(0.16) | $0.16 | $(0.09) | $0.41 |
| Operating cash flow | Not separately provided | Not separately provided | $7.3M | $31.5M |
Quarterly revenue fell 23.0%; H1 revenue fell 9.0%. U.S. revenue declined 23.7% in Q2 and 9.6% in H1, while International revenue declined 18.1% and 4.7%, respectively. Worldwide Q2 DEFINITY sales fell 26.1%, TechneLite fell 6.0%, and other nuclear product revenue fell 32.6%. Management primarily attributed the declines to lower procedure and treatment volumes during COVID-19 disruptions.
Q2 operating expenses were $31.4M versus $30.0M a year earlier; lower sales and marketing costs were more than offset by higher general and administrative costs, including Progenics acquisition costs. H1 cost of goods sold included a $7.3M non-cash impairment charge on legacy manufacturing assets. H1 acquisition-related expenses were $8.9M. Interest expense decreased to $3.9M in H1 from $9.1M, primarily reflecting the 2019 debt refinancing.
Cash, debt and liquidity
- At June 30, cash and cash equivalents were $90.3M, versus $92.9M at December 31, 2019. Cash, cash equivalents and restricted cash totaled $92.5M, including $2.1M restricted cash.
- H1 operating cash flow was $7.3M, down from $31.5M. Investing activities provided $2.6M, including cash acquired with Progenics, offset by the $10.0M bridge loan and $5.0M of capital expenditures. Financing activities used $10.2M.
- Long-term debt and other borrowings had a $227.2M carrying amount, including current debt and finance leases; principal outstanding was $225.9M. The $40.2M Progenics royalty-backed loan bears 9.5% interest and is secured by RELISTOR royalties.
- The amended credit agreement waived the total net leverage covenant through December 31, 2020 and introduced a minimum $150M consolidated-liquidity covenant, tested through the quarter ending March 31, 2021. The filing states management believed cash, operations and revolver availability would fund requirements for the foreseeable future, subject to pandemic uncertainty.
- Lantheus drew $100M on its revolving facility in April and repaid it in June. The facility provides up to $200M of revolving loans, subject to agreement terms and covenants. A $100M notional interest-rate swap hedges LIBOR exposure through May 2024.
Outlook, risks and unusual items
- COVID-19: The company said pandemic-related impacts had been and were expected to remain material, but it could not reliably forecast the effect on 2020 results or cash flows. It reported reduced procedure volumes and supply-chain and transportation risks. Cost actions included reduced travel and promotion, a hiring freeze, temporary work-week and salary reductions; most work weeks and salaries were restored in late June or early July.
- No quantified company-wide financial guidance is provided in the filing. Management stated that, with prudent expense management, it expected available resources to support liquidity for the foreseeable future, while cautioning that prolonged pandemic effects could undermine that assessment.
- Development programs: Management intended to submit PyL’s NDA to the FDA later in 2020 and cited potential FDA approval in 2021 as an objective, not a guarantee. Enrollment in the 1095 Phase 2 study was paused; flurpiridaz Phase 3 enrollment was delayed. The filing identifies clinical, regulatory, commercialization and integration uncertainty.
- Supply and competition: TechneLite depends on global Mo-99 suppliers, and the company relies on third parties for important products, including sole-source manufacturing of DEFINITY and several other products. DEFINITY may face generic competition despite listed method-of-use patents. The company also cited customer concentration and potential supply interruptions.
- Acquisition and valuation: Progenics purchase accounting was preliminary and could be revised during the measurement period. The acquisition added $389.5M of net intangible assets and $42.1M of goodwill at June 30. PyL CVR payments and assumed contingent obligations depend on future milestones, approvals and sales.
- Contingencies: Ongoing matters included RELISTOR patent litigation and European patent oppositions, a German PSMA-617 ownership dispute, and a former Progenics employee’s whistleblower lawsuit. The company said potential losses could not be reasonably estimated. Merger-related stockholder suits had been dismissed.
Most important facts for investors to verify
- Whether procedure volumes and revenue recover from COVID-19 disruption, especially DEFINITY and other U.S. products.
- Compliance with the amended $150M consolidated-liquidity covenant and availability under the revolving facility; confirm the covenant calculation and borrowing capacity.
- Progenics integration progress, final purchase-price allocation, acquired product performance, and the economics and potential payments of CVRs and the royalty-backed loan.
- PyL NDA timing and clinical/regulatory progress, alongside paused or delayed clinical programs and associated funding needs.
- Developments in RELISTOR patent disputes, Mo-99 supply reliability, key third-party manufacturing arrangements and the reported legal contingencies.