Lantheus Holdings, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; compared with the three months ended March 31, 2019. Balance-sheet comparisons are to December 31, 2019. Unless noted otherwise, amounts are in millions.
Business context and financial results
Lantheus develops, manufactures and commercializes diagnostic medical imaging products, primarily cardiovascular imaging agents. It reports U.S. and International segments. Its principal products include DEFINITY and TechneLite.
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Revenue | $90.7 | $86.5 | +4.8% |
| Gross profit / margin | $38.0 / 41.9% | $44.1 / 51.0% | Profit down 13.8% |
| Operating income / margin | $7.1 / 7.9% | $16.2 / 18.7% | Income down 55.9% |
| Net income | $3.3 | $9.9 | Down 66.5% |
| Diluted EPS | $0.08 | $0.25 | — |
| Operating cash flow | $9.4 | $10.5 | Down $1.1 |
| Capital expenditures | $2.7 | $10.6 | Down $7.9 |
DEFINITY revenue increased 11.1% worldwide to $56.8 million, led by higher U.S. volume. Worldwide TechneLite revenue fell 4.3% to $23.1 million. U.S. revenue increased 4.4% to $78.7 million; International revenue increased 8.0% to $12.0 million.
Cash, debt and liquidity
- Cash and cash equivalents were $95.7 million at March 31, 2020, versus $92.9 million at year-end 2019. Current assets were $180.4 million and current liabilities $62.0 million.
- Net cash provided by operations was $9.4 million; after $2.7 million of capital expenditures, operating cash flow less capex was approximately $6.7 million.
- Debt principal outstanding was $192.5 million; the balance-sheet carrying amount of debt and other borrowings was $191.6 million, including finance lease liabilities. The term facility’s stated interest rate was 2.5% at quarter-end.
- In March, Lantheus entered into interest-rate swaps covering $100 million of notional debt through May 2024; the average fixed LIBOR rate was approximately 0.82%.
- On April 1, 2020, the company drew $100 million under its $200 million revolving facility and invested the proceeds in short-term interest-bearing instruments. Management said it intended to repay the draw upon completion of the Progenics transaction, in order to remain compliant with facility covenants.
Material changes, outlook and risks
- COVID-19: Late-quarter postponements of elective procedures and related restrictions reduced product use and disrupted operations. The company expected a more significant impact in Q2, said the pandemic’s impact on 2020 results and cash flows could be material, and could not reliably forecast its duration or financial effect.
- Cost actions: Q1 measures included reduced travel and promotional spending and a hiring freeze through 2020. Effective April 13, the company moved to a four-day workweek and temporarily reduced executive and employee compensation. It warned these pay measures could affect morale and retention.
- Unusual item: Lantheus recorded a $7.3 million non-cash impairment charge in cost of goods sold for U.S. nuclear legacy manufacturing assets, citing lower expected cash flows and COVID-19. This contributed to the decline in gross profit. General and administrative expense rose 32.6%, primarily from Progenics transaction costs and employee-related costs.
- Progenics acquisition: The amended agreement provides 0.31 Lantheus shares and a contingent value right per Progenics share, with potential CVR payments tied to PyL sales in 2022 and 2023, subject to a stated cap. The transaction, expected to close in June 2020 subject to approvals and other conditions, would give former Progenics holders approximately 40% of the combined company. The shareholder meetings were postponed to June 16. Lantheus also agreed to provide Progenics a secured bridge loan of up to $10 million at 9.5% interest.
- Products and development: DEFINITY remained the company’s fastest-growing and highest-margin commercial product; management estimated it held over 80% of the U.S. echocardiography contrast market at year-end 2019. Generic competition remains a risk. BENEFIT 1 and 2 did not meet their primary endpoints for improved LVEF accuracy; the company said it did not foresee further work to pursue a DEFINITY LVEF indication. COVID-19 was expected to delay enrollment in the flurpiridaz Phase 3 program.
- Supply and other risks: The company cited dependence on third-party manufacturers, global Mo-99 supply and transport, and the possibility of further supply interruptions. It warned that reduced sales alongside high fixed manufacturing costs could pressure liquidity and compliance with debt covenants. Other risks include product competition, reimbursement, regulatory requirements and execution of the Progenics transaction.
- Management outlook: No numerical revenue or earnings guidance was provided. Management said available cash, operating results and revolver availability were expected to fund requirements for the foreseeable future under current plans, while cautioning that prolonged pandemic effects could make liquidity insufficient. The filing reports no material ongoing litigation or material changes to other previously disclosed risk factors.
Most important facts for investors to verify
- How quickly elective procedures and demand for Lantheus products recover, and the resulting Q2 and full-year financial impact.
- Whether the $100 million revolver draw can be repaid as intended and whether covenant headroom remains adequate.
- Progenics transaction approval, timing, financing and integration costs, and potential future CVR obligations.
- Whether DEFINITY growth offsets generic-competition risk and whether manufacturing diversification plans meet their timelines.
- Whether Mo-99 and third-party manufacturing and transport constraints affect product availability, sales or costs.
- The persistence of the $7.3 million asset impairment’s underlying circumstances and any further impairment indicators.