Lantheus Holdings, Inc. — FY2020 Form 10-K
Reporting period: Year ended December 31, 2020; filed February 25, 2021. This is an annual report, not a standalone fourth-quarter report, and the filing text does not provide a separate Q4 income statement. Results include Progenics only from its acquisition on June 19, 2020.
Business context
Lantheus develops, manufactures and commercializes diagnostic imaging agents, targeted therapeutics and artificial-intelligence products. It reports U.S. and International segments. DEFINITY and TechneLite were its largest products, representing 62.8% and 25.4% of FY2020 revenue, respectively. The Progenics acquisition added AZEDRA, RELISTOR royalties, PyL and other oncology and AI assets.
Financial results
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $339.4 million | $347.3 million |
| Gross profit / margin | $138.8 million / 40.9% | $174.8 million / 50.3% |
| Operating income (loss) / margin | $(4.2) million / (1.2)% | $51.7 million / 14.9% |
| Net income (loss) / diluted EPS | $(13.5) million / $(0.25) | $31.7 million / $0.79 |
| Cash from operations | $16.4 million | $80.4 million |
| Capital expenditures | $12.5 million | $22.1 million |
| Cash and cash equivalents at year-end | $79.6 million | $92.9 million |
Revenue declined 2.3%. Gross profit fell 20.6%, reflecting lower DEFINITY, TechneLite and Xenon volumes related to COVID-19, acquired-asset amortization, and unusual charges. Operating expenses rose 16.1% to $143.0 million, including higher R&D and acquisition-related costs. R&D was $32.8 million versus $20.0 million. The Progenics business contributed $12.4 million of revenue and a $27.1 million net loss from the acquisition date through year-end.
Cash from operations fell substantially year over year, including working-capital impacts from higher receivables and inventory. Operating cash flow less capital expenditures was approximately $3.9 million. Year-end principal debt was $217.6 million: approximately $185.0 million under the term facility and $32.6 million under the royalty-backed loan. The $200 million revolving facility was undrawn; availability is subject to credit agreement terms and covenants. The company reported compliance with its amended covenants at year-end.
Changes and unusual items
- U.S. revenue decreased 3.0% to $294.8 million; International revenue increased 2.9% to $44.6 million. Worldwide DEFINITY revenue declined 1.9% to $213.3 million, while TechneLite revenue was nearly flat at $86.2 million.
- COVID-19 reduced procedure volumes, including U.S. echocardiograms (about 31.5 million in 2020 versus 35.1 million in 2019) and Xenon ventilation studies. The company also reported Mo-99 supply disruptions and slower clinical-trial enrollment.
- FY2020 included a $7.3 million non-cash impairment of legacy manufacturing assets, a $2.7 million IPR&D impairment, and a $2.3 million loss on disposal of assets. The company recorded $11.9 million of Progenics acquisition-related costs and $10.8 million of intangible amortization.
- The Progenics acquisition was an all-stock transaction with $419.0 million of consideration transferred. Lantheus issued approximately 26.8 million shares and CVRs tied to PyL sales.
Outlook, risks and contingencies
- Management expected PyL FDA action by its May 28, 2021 PDUFA date and anticipated a possible 2021 launch, subject to approval, manufacturing-site clearances, supply and reimbursement. The filing provides expectations, not guaranteed outcomes.
- Management expected DEFINITY RT to become commercially available and new in-house sterile-vial manufacturing capacity to be used in late 2021; timing was not assured. GE Healthcare expected to complete flurpiridaz F 18 Phase 3 enrollment in the second half of 2021 and, if approved, begin commercialization in early 2023.
- COVID-19’s continuing effects on procedure volumes, supply chains, operations and clinical programs were uncertain. Mo-99 supply relies on a limited number of international processors; disruptions had at times constrained TechneLite production. Several products also rely on sole-source manufacturers.
- DEFINITY is a major revenue and margin driver and faces competition and potential generic challenges; its composition-of-matter patent expired in 2019. PyL approval, launch execution, competition, reimbursement and access to PET manufacturing facilities are significant risks.
- Debt covenants included a minimum consolidated-liquidity requirement of $150 million under the amended credit agreement during the specified covenant period. The filing states the company was compliant at December 31, 2020. Variable-rate debt creates interest-rate exposure; $100 million of term debt notional was covered by swaps through May 2024.
- Potential future cash obligations include up to approximately $100 million under the PyL CVRs, approximately $85 million of contingent consideration from a prior Progenics acquisition and up to approximately $90.6 million in contingent license payments. These amounts are contingent, not current scheduled payments.
- The Puerto Rico radiopharmacy sale closed January 29, 2021 for $18 million cash, subject to customary adjustments; management expected to record a gain. The auditor issued an unqualified opinion on the financial statements and internal controls, and identified Progenics intangible-asset valuation as a critical audit matter.
Important facts for investors to verify
- Whether procedure volumes and DEFINITY demand recovered, and the resulting effect on gross margin and operating cash flow.
- PyL FDA action, commercial launch progress, PMF approvals, reimbursement and sales relative to the CVR thresholds.
- Mo-99 availability and supplier reliability, plus qualification and utilization of alternative or in-house manufacturing capacity.
- Debt, covenant headroom and liquidity under the amended credit agreement, including the treatment of revolver availability.
- Progenics integration costs and performance, including AZEDRA commercialization and the timing or amount of contingent payments.