Lantheus Holdings, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. The company develops, manufactures and commercializes diagnostic and therapeutic products. Progenics has been consolidated since its acquisition on June 19, 2020, which affects year-over-year comparability.
Financial results
Amounts are in millions of dollars except per-share data and margins.
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $88.5 | $85.8 | $245.3 | $258.0 |
| Gross profit / margin | $36.3 / 40.9% | $41.6 / 48.5% | $100.1 / 40.8% | $130.2 / 50.5% |
| Operating income (loss) | $(5.3) | $8.5 | $(3.7) | $39.2 |
| Net income (loss) | $(6.4) | $4.9 | $(10.1) | $21.2 |
| Diluted EPS | $(0.10) | $0.12 | $(0.20) | $0.53 |
| Operating cash flow | Not separately reported | Not separately reported | $15.8 | $58.0 |
Q3 revenue increased 3.2%, while nine-month revenue declined 4.9%. Q3 U.S. revenue rose 3.8%, led by DEFINITY and Progenics-related products; international revenue was essentially flat. Nine-month revenue fell in both segments, with COVID-related volume declines cited as a principal factor. Worldwide DEFINITY revenue rose 5.8% in Q3 but declined 3.5% year to date.
Q3 gross profit fell 12.8% and nine-month gross profit fell 23.1%. Lower product volumes, higher rebate provisions and a $7.3 million noncash impairment of U.S. nuclear manufacturing assets weighed on gross profit. Operating expenses rose 25.5% in Q3, including increased R&D associated with Progenics and the PyL NDA filing. Nine-month G&A also included acquisition-related costs. Nine-month interest expense was $6.7 million, down from $11.5 million, primarily due to the 2019 refinancing.
Balance sheet, debt and liquidity
At September 30, 2020, cash and cash equivalents were $88.0 million, versus $92.9 million at year-end 2019. Current assets were $184.5 million and current liabilities $82.0 million. Total debt and other borrowings were $222.8 million carrying value, including $18.1 million current; principal outstanding was $221.8 million. The company reported $513.6 million of stockholders’ equity, up from $114.6 million, largely reflecting the acquisition-related issuance of shares.
Nine-month operating cash flow was $15.8 million; investing activities used $1.1 million and financing activities used $17.5 million. Cash flow from operations was lower than the prior-year period, reflecting the net loss and working-capital movements. The company amended its credit agreement in June: leverage covenant relief runs through December 31, 2020, and a minimum $150 million consolidated-liquidity covenant applies through delivery of the March 2021 quarter compliance certificate. The filing states that available cash, operations and revolver availability are expected to fund requirements for the foreseeable future, but also notes that revolver use may be constrained by covenants. It does not provide a clear amount of remaining revolver availability in the supplied text.
Material changes and unusual items
- Progenics acquisition: Completed June 19 for reported consideration of approximately $419.0 million, principally stock. Lantheus issued about 26.8 million shares and 86.6 million contingent value rights (CVRs). Progenics added commercial products and oncology candidates, including AZEDRA, PyL and 1095; its results are included only from the acquisition date.
- CVRs and acquired obligations: CVRs may pay holders 40% of PyL U.S. net sales above specified thresholds in 2022 and 2023, subject to an overall cap described in the filing. Lantheus also assumed Progenics’ royalty-backed RELISTOR loan, which carried a 9.5% rate and $40.2 million balance at acquisition.
- Acquisition accounting: Preliminary purchase accounting added $150.9 million of IPR&D and $42.1 million of goodwill. The purchase price allocation remains subject to change. Acquisition-related costs were $10.5 million for the nine months.
- Equity dilution: The acquisition increased shares outstanding substantially; weighted-average basic shares were 66.8 million in Q3 versus 39.1 million in Q3 2019.
Outlook, risks and contingencies
Management said COVID-19 materially affected and was expected to continue affecting procedures, product demand, operations and cash flows; it could not reliably forecast the full-year impact. Xenon ventilation studies were particularly affected. The company implemented cost reductions, including a four-day workweek and pay reductions for most of Q2. New enrollment in the 1095 Phase 2 trial resumed in October; flurpiridaz Phase 3 enrollment also resumed, at a slower pace.
No formal consolidated financial guidance is provided. The filing says PyL’s NDA was submitted to the FDA on September 29, 2020, requesting priority review, and identifies potential FDA approval in 2021 as an expectation subject to risk. Management described DEFINITY RT commercialization in early 2021 and in-house manufacturing capability in 2021 as possible timing, not assured outcomes. GE Healthcare expected flurpiridaz enrollment to finish by mid-2021 and, subject to approval, commercialization in early 2023.
Key risks include persistent pandemic effects, supplier concentration and Mo-99 supply interruptions, dependence on third-party manufacturing, competition and potential generic DEFINITY entry, product-development and regulatory uncertainty, integration of Progenics, debt and covenant compliance, and uncertain reimbursement and market acceptance. Litigation includes RELISTOR patent disputes and an appeal after dismissal of Progenics’ PSMA-617 ownership claims in Germany; the company says potential losses cannot be estimated. The filing also reports a pending whistleblower lawsuit and states that the company intends to defend it.
Important facts for investors to verify
- Whether procedure volumes and revenue recover, particularly for Xenon, TechneLite and DEFINITY, and whether COVID-related disruption returns.
- Progress and timing of PyL regulatory review, manufacturing readiness and commercial preparation; verify the terms and potential value of the CVRs.
- Progenics integration, final purchase accounting, acquired-asset impairment risk and the economics of the assumed RELISTOR-backed debt.
- Cash generation, actual revolver availability, compliance with the $150 million liquidity covenant and subsequent leverage-covenant tests.
- Developments in RELISTOR patent litigation, the PSMA-617 appeal and other contingencies, as well as Mo-99 and contract-manufacturer supply reliability.