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Lantheus Holdings, Inc. - Quarter Report: 2019 June (Form 10-Q)

Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number 001-36569
 
 LANTHEUS HOLDINGS, INC.
(Exact name of registrant as specified in its charter)

 
Delaware
 
35-2318913
(State or other jurisdiction of incorporation or organization)
 
(IRS Employer Identification No.)
 
 
331 Treble Cove Road, North Billerica, MA
 
01862
(Address of principal executive offices)
 
(Zip Code)
(978) 671-8001

(Registrant’s telephone number, including area code)

 
Not Applicable

(Former name, former address and former fiscal year, if changed since last report
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common stock, par value $0.01 per share
LNTH
The Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  þ    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
 
Accelerated filer
 
þ
 
 
 
 
Non-accelerated filer
 
 
Smaller reporting company
 
 
 
 
 
 
 
 
 
Emerging Growth Company
 
þ


Table of Contents

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   þ
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act)    Yes  ☐    No  þ
The registrant had 39,079,418 shares of common stock, $0.01 par value, outstanding as of July 23, 2019.
 


Table of Contents

LANTHEUS HOLDINGS, INC.
TABLE OF CONTENTS
 
 
Page
 
 
 
 
 
 
 
 
 


Table of Contents

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Lantheus Holdings, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except par value)
 
June 30,
2019
 
December 31,
2018
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
56,885

 
$
113,401

Accounts receivable, net
45,527

 
43,753

Inventory
32,414

 
33,019

Other current assets
5,035

 
5,242

Total current assets
139,861

 
195,415

Property, plant and equipment, net
113,117

 
107,888

Intangibles, net
8,239

 
9,133

Goodwill
15,714

 
15,714

Deferred tax assets, net
79,170

 
81,449

Other long-term assets
34,149

 
30,232

Total assets
$
390,250

 
$
439,831

Liabilities and stockholders’ equity
 
 
 
Current liabilities
 
 
 
Current portion of long-term debt and other borrowings
$
10,136

 
$
2,750

Accounts payable
17,149

 
17,955

Accrued expenses and other liabilities
26,072

 
32,050

Total current liabilities
53,357

 
52,755

Asset retirement obligations
12,237

 
11,572

Long-term debt, net and other borrowings
188,706

 
263,709

Other long-term liabilities
43,703

 
40,793

Total liabilities
298,003

 
368,829

Commitments and contingencies (See Note 14)

 

Stockholders’ equity
 
 
 
Preferred stock ($0.01 par value, 25,000 shares authorized; no shares issued and outstanding)

 

Common stock ($0.01 par value, 250,000 shares authorized; 39,043 and 38,466 shares issued and outstanding, respectively)
390

 
385

Additional paid-in capital
244,600

 
239,865

Accumulated deficit
(151,779
)
 
(168,140
)
Accumulated other comprehensive loss
(964
)
 
(1,108
)
Total stockholders’ equity
92,247

 
71,002

Total liabilities and stockholders’ equity
$
390,250

 
$
439,831

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Lantheus Holdings, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(in thousands, except per share data)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Revenues
$
85,705

 
$
85,573

 
$
172,215

 
$
168,203

Cost of goods sold
41,132

 
41,727

 
83,558

 
82,048

Gross profit
44,573

 
43,846

 
88,657

 
86,155

Operating expenses
 
 
 
 
 
 
 
Sales and marketing
10,948

 
12,130

 
21,345

 
22,770

General and administrative
13,293

 
11,575

 
25,882

 
24,118

Research and development
5,795

 
4,215

 
10,724

 
8,204

Total operating expenses
30,036

 
27,920

 
57,951

 
55,092

Operating income
14,537

 
15,926

 
30,706

 
31,063

Interest expense
4,543

 
4,298

 
9,135

 
8,348

Loss on extinguishment of debt
3,196

 

 
3,196

 

Other income
(1,312
)
 
(336
)
 
(2,499
)
 
(1,256
)
Income before income taxes
8,110

 
11,964

 
20,874

 
23,971

Income tax expense
1,698

 
2,219

 
4,513

 
6,015

Net income
$
6,412

 
$
9,745

 
$
16,361

 
$
17,956

Net income per common share:
 
 
 
 
 
 
 
Basic
$
0.16

 
$
0.25

 
$
0.42

 
$
0.47

Diluted
$
0.16

 
$
0.25

 
$
0.41

 
$
0.45

Weighted-average common shares outstanding:
 
 
 
 
 
 
 
Basic
38,972

 
38,233

 
38,789

 
38,060

Diluted
40,239

 
39,398

 
40,064

 
39,468

The accompanying notes are an integral part of these condensed consolidated financial statements.

2

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Lantheus Holdings, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(in thousands)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Net income
$
6,412

 
$
9,745

 
$
16,361

 
$
17,956

Other comprehensive income:
 
 
 
 
 
 
 
Foreign currency translation
88

 
4

 
144

 
4

Total other comprehensive income
88

 
4

 
144

 
4

Comprehensive income
$
6,500

 
$
9,749

 
$
16,505

 
$
17,960

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Lantheus Holdings, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)
(in thousands)
 
 
Six Months Ended June 30, 2018
 
 
Common Stock
 
Additional
Paid-In
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Total
Stockholders’
Equity
 
 
Shares
 
Amount
 
Balance, January 1, 2018
 
37,765

 
$
378

 
$
232,960

 
$
(209,013
)
 
$
(1,034
)
 
$
23,291

Net income
 

 

 

 
8,211

 

 
8,211

Forfeiture of dividend equivalent right
 

 

 

 
355

 

 
355

Other comprehensive income
 

 

 

 

 

 

Stock option exercises and employee stock plan purchases
 
94

 
1

 
719

 

 

 
720

Vesting of restricted stock awards and units
 
174

 
2

 
(2
)
 

 

 

Shares withheld to cover taxes
 
(36
)
 
(1
)
 
(708
)
 

 

 
(709
)
Stock-based compensation
 

 

 
1,796

 

 

 
1,796

Balance, March 31, 2018
 
37,997

 
$
380

 
$
234,765

 
$
(200,447
)
 
$
(1,034
)
 
$
33,664

Net income
 

 

 

 
9,745

 

 
9,745

Other comprehensive income
 

 

 

 

 
4

 
4

Stock option exercises and employee stock plan purchases
 
111

 
1

 
625

 

 

 
626

Vesting of restricted stock awards and units
 
286

 
3

 
(3
)
 

 

 

Shares withheld to cover taxes
 
(96
)
 
(1
)
 
(1,721
)
 

 

 
(1,722
)
Stock-based compensation
 

 

 
2,216

 

 

 
2,216

Balance, June 30, 2018
 
38,298

 
$
383

 
$
235,882

 
$
(190,702
)
 
$
(1,030
)
 
$
44,533


 
 
Six Months Ended June 30, 2019
 
 
Common Stock
 
Additional
Paid-In
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Total
Stockholders’
Equity
 
 
Shares
 
Amount
 
Balance, January 1, 2019
 
38,466

 
$
385

 
$
239,865

 
$
(168,140
)
 
$
(1,108
)
 
$
71,002

Net income
 

 

 

 
9,949

 

 
9,949

Other comprehensive income
 

 

 

 

 
56

 
56

Stock option exercises and employee stock plan purchases
 
37

 

 
606

 

 

 
606

Vesting of restricted stock awards and units
 
365

 
4

 
(4
)
 

 

 

Shares withheld to cover taxes
 
(50
)
 
(1
)
 
(1,119
)
 

 

 
(1,120
)
Stock-based compensation
 

 

 
2,720

 

 

 
2,720

Balance, March 31, 2019
 
38,818

 
$
388

 
$
242,068

 
$
(158,191
)
 
$
(1,052
)
 
$
83,213

Net income
 

 

 

 
6,412

 

 
6,412

Other comprehensive income
 

 

 

 

 
88

 
88

Stock option exercises and employee stock plan purchases
 
9

 

 
120

 

 

 
120

Vesting of restricted stock awards and units
 
253

 
3

 
(3
)
 

 

 

Shares withheld to cover taxes
 
(37
)
 
(1
)
 
(943
)
 

 

 
(944
)
Stock-based compensation
 

 

 
3,358

 

 

 
3,358

Balance, June 30, 2019
 
39,043

 
$
390

 
$
244,600

 
$
(151,779
)
 
$
(964
)
 
$
92,247


The accompanying notes are an integral part of these condensed consolidated financial statements.


4

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Lantheus Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
 
Six Months Ended
June 30,
 
2019
 
2018
Operating activities
 
 
 
Net income
$
16,361

 
$
17,956

Adjustments to reconcile net income to net cash flows from operating activities:
 
 
 
Depreciation, amortization and accretion
6,577

 
7,089

Amortization of debt related costs
639

 
639

Loss on extinguishment of debt
3,196

 

Provision for bad debt
57

 
166

Provision for excess and obsolete inventory
977

 
1,959

Stock-based compensation
6,078

 
4,012

Deferred taxes
2,387

 
4,539

Long-term income tax receivable
(1,604
)
 
(1,528
)
Long-term income tax payable and other long-term liabilities
2,036

 
1,517

Other
(10
)
 
346

Increases (decreases) in cash from operating assets and liabilities:
 
 
 
Accounts receivable
(1,755
)
 
(4,223
)
Inventory
(365
)
 
(6,714
)
Other current assets
(118
)
 
(581
)
Accounts payable
2,881

 
(2,900
)
Accrued expenses and other liabilities
(5,816
)
 
(2,667
)
Net cash provided by operating activities
31,521

 
19,610

Investing activities
 
 
 
Capital expenditures
(13,984
)
 
(7,761
)
Proceeds from sale of assets

 
1,000

Net cash used in investing activities
(13,984
)
 
(6,761
)
Financing activities
 
 
 
Proceeds from issuance of long-term debt
199,461

 

Payments on long-term debt and other borrowings
(270,247
)
 
(1,431
)
Deferred financing costs
(2,034
)
 

Proceeds from stock option exercises
444

 
1,140

Proceeds from issuance of common stock
282

 
206

Payments for minimum statutory tax withholding related to net share settlement of equity awards
(2,064
)
 
(2,432
)
Net cash used in financing activities
(74,158
)
 
(2,517
)
Effect of foreign exchange rates on cash and cash equivalents
105

 
(158
)
Net (decrease) increase in cash and cash equivalents
(56,516
)
 
10,174

Cash and cash equivalents, beginning of period
113,401

 
76,290

Cash and cash equivalents, end of period
$
56,885

 
$
86,464

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Table of Contents

Lantheus Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note Regarding Company References and Trademarks
Unless the context otherwise requires, references to the “Company” and “Lantheus” refer to Lantheus Holdings, Inc. and its direct and indirect wholly-owned subsidiaries, references to “Holdings” refer to Lantheus Holdings, Inc. and not to any of its subsidiaries, and references to “LMI” refer to Lantheus Medical Imaging, Inc., the direct subsidiary of Holdings. Solely for convenience, the Company refers to trademarks, service marks and trade names without the TM, SM and ® symbols. Those references are not intended to indicate, in any way, that the Company will not assert, to the fullest extent permitted under applicable law, its rights to its trademarks, service marks and trade names.
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Lantheus Holdings, Inc. and its direct and indirect wholly-owned subsidiaries and have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these condensed consolidated financial statements do not include all of the information and notes required by generally accepted accounting principles in the United States of America (“U.S. GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal and recurring adjustments) considered necessary for a fair statement have been included. The results of operations for the three and six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ended December 31, 2019 or any future period.
The condensed consolidated balance sheet at December 31, 2018 has been derived from the audited consolidated financial statements at that date but does not include all of the information and notes required by U.S. GAAP for complete financial statements. These condensed consolidated financial statements and accompanying notes should be read in conjunction with the consolidated financial statements and notes thereto included in Item 8 of the Company’s most recent Annual Report on Form 10-K for the year ended December 31, 2018 filed with the Securities Exchange Commission (“SEC”) on February 20, 2019.
2. Summary of Significant Accounting Policies
Recent Accounting Pronouncements
Standard
Description
 
Effective Date
for Company
 
Effect on the Condensed Consolidated  Financial Statements
Recently Issued Accounting Standards Not Yet Adopted

ASU 2016-13, Financial Instruments-Credit Losses (Topic 326)

This ASU will require financial instruments measured at amortized cost and accounts receivable to be presented at the net amount expected to be collected. The new model requires an entity to estimate credit losses based on historical information, current information and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU 2016-13 is effective for annual reporting periods beginning after December 15, 2019.

January 1, 2020

The Company is currently evaluating the impact that this standard will have on its consolidated financial statements.

Accounting Standards Adopted During the Six Months Ended June 30, 2019
ASU 2016-02, Leases (Topic 842)
This ASU supersedes existing guidance on accounting for leases in “Leases (Topic 840)” and generally requires all leases to be recognized on the balance sheet. In July 2018, an amendment was made that allows companies the option of using the effective date of the new standard as the initial application date (at the beginning of the period in which it is adopted, rather than at the beginning of the earliest comparative period).
January 1, 2019
See Note 11, "Leases" for the required disclosures related to the impact of adopting this standard.

The adoption of this standard resulted in the recording of an additional lease asset and lease liability of approximately $1.1 million as of January 1, 2019. The standard did not have a material impact on the Company’s condensed consolidated statements of operations, equity or cash flows.

6

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3. Revenue from Contracts with Customers
The following table summarizes revenue by revenue source and reportable segment as follows:
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
Major Products/Service Lines by Segment (in thousands)
 
2019
 
2018
 
2019
 
2018
U.S.
 


 


 


 


    Product revenue, net(1)

 
$
75,190

 
$
74,086

 
$
150,624

 
$
145,574

    License and royalty revenues

 

 

 

 

Total U.S. revenues
 
75,190

 
74,086

 
150,624

 
145,574

International
 
 
 
 
 
 
 
 
    Product revenue, net(1)

 
9,987

 
10,918

 
20,536

 
21,498

    License and royalty revenues
 
528

 
569

 
1,055

 
1,131

Total International revenues
 
$
10,515

 
$
11,487

 
$
21,591

 
$
22,629

Total revenues
 
$
85,705

 
$
85,573

 
$
172,215

 
$
168,203

________________________________
(1)
The Company’s principal products include DEFINITY and TechneLite and are categorized within product revenue, net. The Company applies the
same revenue recognition policies and judgments for all of its principal products.
The Company’s performance obligations are typically part of contracts that have an original expected duration of one year or less. As such, under the optional exemption provided by ASC 606-10-50-14, the Company is not disclosing the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied (or partially satisfied) as of the end of the reporting period.
4. Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability of fair value measurements, financial instruments are categorized based on a hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:
Level 1 — Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 — Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.) and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3 — Unobservable inputs that reflect a Company’s estimates about the assumptions that market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available, including its own data.
The Company’s financial assets measured at fair value on a recurring basis consist of money market funds. The Company invests excess cash from its operating cash accounts in overnight investments and reflects these amounts in cash and cash equivalents in the condensed consolidated balance sheets at fair value using quoted prices in active markets for identical assets.
The tables below present information about the Company’s assets and liabilities measured at fair value on a recurring basis:
 
June 30, 2019
(in thousands)
Total Fair
Value
 
Level 1
 
Level 2
 
Level 3
Money market
$
16,813

 
$
16,813

 
$

 
$

Total
$
16,813

 
$
16,813

 
$

 
$


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December 31, 2018
(in thousands)
Total Fair
Value
 
Level 1
 
Level 2
 
Level 3
Money market
$
61,391

 
$
61,391

 
$

 
$

Total
$
61,391

 
$
61,391

 
$

 
$

5. Income Taxes
The Company provides for income taxes at the end of each interim period based on the estimated effective tax rate for the full year, adjusted for any discrete events which are recorded in the period they occur. The Company’s effective tax rate in fiscal 2019 differs from the U.S. federal statutory rate of 21% principally due to the impact of state taxes and the accrual of interest on uncertain tax positions, offset by tax benefits arising from stock compensation deductions. Cumulative adjustments to the tax provision are recorded in the interim period in which a change in the estimated annual effective tax rate is determined. The Company’s income tax expense is presented below:
                
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(in thousands)
2019
 
2018
 
2019
 
2018
Income tax expense
$
1,698

 
$
2,219

 
$
4,513

 
$
6,015

The Company regularly assesses its ability to realize its deferred tax assets. Assessing the realizability of deferred tax assets requires significant management judgment. In determining whether its deferred tax assets are more-likely-than-not realizable, the Company evaluates all available positive and negative evidence, and weighs the objective evidence and expected impact. The Company continues to record a valuation allowance against certain foreign deferred tax assets.
In connection with the Company’s acquisition of the medical imaging business from Bristol Myers Squibb (“BMS”) in 2008, the Company entered into a tax indemnification agreement with BMS. A long-term receivable is recorded to account for the expected value to the Company of future indemnification payments, net of actual tax benefits received. The tax indemnification receivable is recognized within other long-term assets. Changes in the tax indemnification asset are recognized within other income in the condensed consolidated statement of operations. In accordance with the Company’s accounting policy, the change in the tax liability, penalties and interest associated with these obligations (net of any offsetting federal or state benefit) is recognized within income tax expense. Accordingly, as these reserves change, adjustments are included in income tax expense while the offsetting adjustment is included in other income. Assuming that the receivable from BMS continues to be considered recoverable by the Company, there will be no effect on net income and no net cash outflows related to these liabilities.
6. Inventory
Inventory consisted of the following:
(in thousands)
June 30,
2019
 
December 31,
2018
Raw materials
$
11,647

 
$
11,100

Work in process
9,513

 
4,261

Finished goods
11,254

 
17,658

Total inventory
$
32,414

 
$
33,019


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7. Property, Plant and Equipment, Net
Property, plant and equipment, net, consisted of the following:
(in thousands)
June 30,
2019
 
December 31,
2018
Land
$
13,450

 
$
13,450

Buildings
65,042

 
64,444

Machinery, equipment and fixtures
70,615

 
69,298

Computer software
20,294

 
19,266

Construction in progress
31,393

 
24,169

 
200,794

 
190,627

Less: accumulated depreciation and amortization
(87,677
)
 
(82,739
)
Total property, plant and equipment, net
$
113,117

 
$
107,888

Depreciation and amortization expense related to property, plant and equipment, net, was $2.5 million for the three months ended June 30, 2019 and 2018, respectively, and $5.0 million and $5.1 million for the six months ended June 30, 2019 and 2018, respectively.
8. Asset Retirement Obligations
The Company considers its legal obligation to remediate its facilities upon a decommissioning of its radioactive-related operations as an asset retirement obligation. The Company has production facilities which manufacture and process radioactive materials at its North Billerica, Massachusetts and San Juan, Puerto Rico sites.
The Company is required to provide the U.S. Nuclear Regulatory Commission and Massachusetts Department of Public Health financial assurance demonstrating the Company’s ability to fund the decommissioning of its North Billerica, Massachusetts production facility upon closure, although the Company does not intend to close the facility. The Company has provided this financial assurance in the form of a $28.2 million surety bond.
The fair value of a liability for asset retirement obligations is recognized in the period in which the liability is incurred. As of June 30, 2019, the liability is measured at the present value of the obligation expected to be incurred, of approximately $26.9 million, and is adjusted in subsequent periods as accretion expense is recorded. The corresponding asset retirement costs are capitalized as part of the carrying values of the related long-lived assets and depreciated over the assets’ useful lives.
The following table provides a summary of the changes in the Company’s asset retirement obligations:
(in thousands)
Amount
Balance at January 1, 2019
$
11,572

Revisions in estimated cash flows
20

Accretion expense
645

Balance at June 30, 2019
$
12,237

9. Long-Term Debt, Net, and Other Borrowings
In June 2019, the Company refinanced its previous $275 million five-year term loan agreement (the “2017 Term Facility”) with a new five-year $200 million term loan facility (the “2019 Term Facility” and the loans thereunder, the “2019 Term Loans”). In addition, the Company replaced its previous $75 million five-year revolving credit facility (the “2017 Revolving Facility”) with a new $200 million five-year revolving credit facility (the “2019 Revolving Facility” and, together with the 2019 Term Facility, the “2019 Facility”). The terms of the 2019 Facility are set forth in the Credit Agreement, dated as of June 27, 2019 (the “2019 Credit Agreement”), by and among Holdings, the Company, the lenders from time to time party thereto and Wells Fargo Bank, N.A., as administrative agent and collateral agent. The Company has the right to request an increase to the 2019 Term Facility or request the establishment of one or more new incremental term loan facilities, in an aggregate principal amount of up to $100 million, plus additional amounts, in certain circumstances.
The net proceeds of the 2019 Term Facility, together with approximately $73 million of cash on hand, were used to refinance in full the aggregate remaining principal amount of the loans outstanding under the 2017 Term Facility and pay related interest, transaction fees and expenses. No amounts were outstanding under the 2017 Revolving Facility at that time. The Company accounted

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for the refinancing of the 2017 Term Facility as a debt extinguishment and the 2017 Revolving Facility as a debt modification by evaluating the refinancing on a creditor by creditor basis. The Company recorded a loss on extinguishment of debt of $3.2 million related to the write-off of unamortized debt issuance costs and debt discounts. In addition, the Company incurred and capitalized $2.8 million of new debt issuance costs and debt discounts related to the refinancing.
2019 Term Facility
The Term Loans under the 2019 Term Facility bear interest, with pricing based from time to time at the Company’s election at (i) LIBOR plus a spread ranging from 1.25% to 2.25% as determined by the Company’s total net leverage ratio (as defined in the 2019 Credit Agreement) or (ii) the Base Rate (as defined in the 2019 Credit Agreement) plus a spread ranging from 0.25% to 1.25% as determined by the Company’s total net leverage ratio. At June 30, 2019, the Company’s interest rate under the 2019 Term Facility was 4.2%.
The Company is permitted to voluntarily prepay the 2019 Term Loans, in whole or in part, without premium or penalty. The 2019 Term Facility requires the Company to make mandatory prepayments of the outstanding 2019 Term Loans in certain circumstances. The Term loan matures in June 2024.
As of June 30, 2019, the Company’s maturities of principal obligations under its long-term debt and other borrowings are as follows:
(in thousands)
Amount
Remainder of 2019
$
5,000

2020
10,000

2021
10,000

2022
11,250

2023
15,000

2024
148,750

Total principal outstanding
200,000

Unamortized debt discount
(539
)
Unamortized debt issuance costs
(859
)
Finance lease liabilities
240

Total
198,842

Less: current portion
(10,136
)
Total long-term debt, net and other borrowings
$
188,706

2019 Revolving Facility
Under the terms of the 2019 Revolving Facility, the lenders thereunder agreed to extend credit to the Company from time to time until June 27, 2024 consisting of revolving loans (the “Revolving Loans” and, together with the Term Loans, the “Loans”) in an aggregate principal amount not to exceed $200 million (the “Revolving Commitment”) at any time outstanding. The 2019 Revolving Facility includes a $20 million sub-facility for the issuance of letters of credit (the “Letters of Credit”). The 2019 Revolving Facility includes a $10 million sub-facility for swingline loans (the “Swingline Loans”). The Letters of Credit, Swingline Loans and the borrowings under the 2019 Revolving Facility are expected to be used for working capital and other general corporate purposes.
The Revolving Loans under the 2019 Revolving Facility bear interest, with pricing based from time to time at the Company’s election at (i) LIBOR plus a spread ranging from 1.25% to 2.25% as determined by the Company’s total net leverage ratio or (ii) the Base Rate plus a spread ranging from 0.25% to 1.25% as determined by the Company’s total net leverage ratio. The 2019 Revolving Facility also includes a commitment fee, which ranges from 0.15% to 0.30% as determined by the Company’s total net leverage ratio.
The Company is permitted to voluntarily prepay the Revolving Loans, in whole or in part, or reduce or terminate the Revolving Commitment, in each case, without premium or penalty. On any business day on which the total amount of outstanding Revolving Loans and Letters of Credit exceeds the total Revolving Commitment, the Company must prepay the Revolving Loans in an amount equal to such excess. As of June 30, 2019, there were no outstanding borrowings under the 2019 Revolving Facility.
2019 Facility Covenants
The 2019 Facility contains a number of affirmative, negative, reporting and financial covenants, in each case subject to certain exceptions and materiality thresholds. The 2019 Facility requires the Company to be in quarterly compliance, measured on a trailing four quarter basis, with two financial covenants. The minimum interest coverage ratio, commencing with the fiscal quarter ending

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September 30, 2019, must be at least 3.00 to 1.00. The maximum total net leverage ratio permitted by the financial covenant is displayed in the table below:
2019 Facility Financial Covenant
Period
Total Net Leverage Ratio
Q3 2019 to Q2 2020
4.00 to 1.00
Q3 2020 to Q2 2021
3.75 to 1.00
Thereafter
3.50 to 1.00
The Company may elect to increase the maximum total net leverage ratio by 0.50 to 1.00 (subject to a maximum of 4.25 to 1.00) up to two separate times during the term of the 2019 Facility in connection with any Material Acquisition (as defined in the Credit Agreement).
The 2019 Facility contains usual and customary restrictions on the ability of the Company and its subsidiaries to: (i) incur additional indebtedness (ii) create liens; (iii) consolidate, merge, sell or otherwise dispose of all or substantially all of its assets; (iv) sell certain assets; (v) pay dividends on, repurchase or make distributions in respect of capital stock or make other restricted payments; (vi) make certain investments; (vii) repay subordinated indebtedness prior to stated maturity; and (viii) enter into certain transactions with its affiliates.
Upon an event of default, the administrative agent under the Credit Agreement will have the right to declare the Loans and other obligations outstanding immediately due and payable and all commitments immediately terminated or reduced.
The 2019 Facility is guaranteed by Holdings and Lantheus MI Real Estate, LLC, and obligations under the 2019 Facility are generally secured by first priority liens over substantially all of the assets of each of LMI, Holdings and Lantheus MI Real Estate, LLC (subject to customary exclusions set forth in the transaction documents) owned as of June 27, 2019 or thereafter acquired.
10. Stock-Based Compensation
The following table presents stock-based compensation expense recognized in the Company’s accompanying condensed consolidated statements of operations:
    
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(in thousands)
2019
 
2018
 
2019
 
2018
Cost of goods sold
$
531

 
$
261

 
$
971

 
$
490

Sales and marketing
508

 
397

 
959

 
699

General and administrative
1,881

 
1,221

 
3,455

 
2,201

Research and development
438

 
337

 
693

 
622

Total stock-based compensation expense
$
3,358

 
$
2,216

 
$
6,078

 
$
4,012

11. Leases
Adoption of ASC Topic 842, “Leases”
The Company adopted ASC 842 on January 1, 2019, using the prospective approach which provides a method for recording existing leases at adoption using the effective date of the standard as its initial application date. ASC 842 generally requires all leases to be recognized on the balance sheet. In addition, the Company elected the relief package of practical expedients permitted under the transition guidance within the new standard, which, among other things, allowed the Company not to reassess whether any expired or existing contracts are or contain leases, the lease classification for any expired or existing leases and initial direct costs for any existing leases. The reported results for 2019 reflect the application of ASC 842 guidance while the reported results for 2018 were prepared under the guidance of ASC 840, Leases. The adoption of ASC 842 resulted in the recording of an additional lease asset and lease liability of approximately $1.1 million as of January 1, 2019. ASC 842 did not materially impact the Company’s condensed consolidated results of operations, equity or cash flows as of the adoption date or for the periods presented.
Leases
The Company determines if an arrangement is a lease at inception. The Company has operating and finance leases for vehicles, corporate offices and certain equipment.

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Operating lease right-of-use (“ROU”) assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. Lease agreements with lease and non-lease components are accounted for separately. As the Company’s leases do not provide an implicit rate, the Company used the incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
Leases with an initial term of 12 months or less are not recorded on the balance sheet as the Company has elected to apply the short-term lease exemption. The Company recognizes lease expense for these leases on a straight-line basis over the lease term.
Operating and finance lease assets and liabilities are as follows:
(in thousands)
Classification
June 30, 2019
Assets
 
 
Operating
Other long-term assets
$
1,021

Finance
Property, plant and equipment, net
237

Total leased assets
 
$
1,258

Liabilities
 
 
Current
 
                     

     Operating
Accrued expenses and other liabilities
$
185

     Finance
Current portion of long-term debt and other borrowings
136

Noncurrent
 
 
     Operating
Other long-term liabilities
910

     Finance
Long-term debt, net and other borrowings
104

Total leased liabilities
 
$
1,335

The components of lease expense were as follows: 
(in thousands)
Three Months Ended
June 30, 2019
 
Six Months Ended
June 30, 2019
Operating lease expense
$
56

 
$
112

Finance lease expense
 
 
 
      Amortization of ROU assets
30

 
59

      Interest on lease liabilities
1

 
3

Short-term lease expense
22

 
45

Total lease expense
$
109

 
$
219


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Other information related to leases were as follows:
 
June 30, 2019
Weighted average remaining lease term (Years):
 
      Operating leases
5.3
      Finance leases
2.2
Weighted average discount rate:
 
      Operating leases
5.1%
      Finance leases
6.2%
 
 
(in thousands)
Six Months Ended
June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
                   
      Operating cash flows from operating leases
114
      Operating cash flows from finance leases
3
      Financing cash flows from finance leases
60
ROU assets obtained in exchange for lease obligations:
 
      Operating leases
      Finance leases
160
Future minimum lease payments under non-cancellable leases as of June 30, 2019 were as follows:
(in thousands)
Operating Leases
 
Finance Leases
Remainder of 2019
$
116

 
$
91

2020
238

 
79

2021
238

 
58

2022
238

 
29

2023
238

 

Thereafter
178

 

  Total future minimum lease payments
1,246

 
257

Less: interest
151

 
17

  Total
$
1,095

 
$
240


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12. Net Income Per Common Share
A summary of net income per common share is presented below:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(in thousands, except per share amounts)
2019
 
2018
 
2019
 
2018
Net income
$
6,412

 
$
9,745

 
$
16,361

 
$
17,956

 
 
 
 
 
 
 
 
Basic weighted-average common shares outstanding
38,972

 
38,233

 
38,789

 
38,060

Effect of dilutive stock options
98

 
37

 
80

 
90

Effect of dilutive restricted stock
1,169

 
1,128

 
1,195

 
1,318

Diluted weighted-average common shares outstanding
40,239

 
39,398

 
40,064

 
39,468

 
 
 
 
 
 
 
 
Basic income per common share
$
0.16

 
$
0.25

 
$
0.42

 
$
0.47

Diluted income per common share
$
0.16

 
$
0.25

 
$
0.41

 
$
0.45

 
 
 
 
 
 
 
 
Antidilutive securities excluded from diluted net income per common share
31

 
327

 
55

 
300

13. Other Income
Other income consisted of the following:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(in thousands)
2019
 
2018
 
2019
 
2018
Foreign currency gains (losses)
$
47

 
$
(359
)
 
$
89

 
$
(287
)
Tax indemnification income
802

 
687

 
1,604

 
1,528

Interest income
276

 
8

 
559

 
15

Other
187

 

 
247

 

Total other income
$
1,312

 
$
336

 
$
2,499

 
$
1,256

14. Legal Proceedings and Contingencies
From time to time, the Company is a party to various legal proceedings arising in the ordinary course of business. In addition, the Company has in the past been, and may in the future be, subject to investigations by governmental and regulatory authorities, which expose it to greater risks associated with litigation, regulatory or other proceedings, as a result of which the Company could be required to pay significant fines or penalties. The costs and outcome of litigation, regulatory or other proceedings cannot be predicted with certainty, and some lawsuits, claims, actions or proceedings may be disposed of unfavorably to the Company. In addition, intellectual property disputes often have a risk of injunctive relief which, if imposed against the Company, could materially and adversely affect its financial condition or results of operations.
The Company is currently in arbitration with Pharmalucence in connection with a Manufacturing and Supply Agreement dated November 12, 2013, under which Pharmalucence agreed to manufacture and supply DEFINITY for the Company. The commercial arrangement contemplated by that agreement was repeatedly delayed and ultimately never successfully realized. After extended settlement discussions between Sun Pharma, the ultimate parent of Pharmalucence, and the Company, which did not lead to a mutually acceptable outcome, on November 10, 2017, the Company filed an arbitration demand (and later an amended arbitration demand) with the American Arbitration Association against Pharmalucence, alleging breach of contract, breach of the covenant of good faith and fair dealing, tortious misrepresentation and violation of the Massachusetts Consumer Protection Law, also known as Chapter 93A. The Company is seeking monetary damages but cannot predict the outcome of this dispute resolution proceeding and whether the Company will be able to obtain any financial recovery as a result of this proceeding.
As of June 30, 2019, except as disclosed above the Company had no material ongoing litigation in which the Company was a party. In addition, the Company had no material ongoing regulatory or other proceedings and no knowledge of any investigations by government or regulatory authorities in which the Company is a target, in either case, that the Company believes could have a material and adverse effect on its current business.

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15. Segment Information
The Company reports two operating segments, U.S. and International, based on geographic customer base. The results of these operating segments are regularly reviewed by the Company’s chief operating decision maker, the President and Chief Executive Officer. The Company’s segments derive revenues through the manufacture, marketing, selling and distribution of medical imaging products, focused primarily on cardiovascular diagnostic imaging. All goodwill has been allocated to the U.S. operating segment. The Company does not identify or allocate assets to its segments.
Selected information regarding the Company’s segments is provided as follows:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(in thousands)
2019
 
2018
 
2019
 
2018
Revenues from external customers
 
 
 
 
 
 
 
U.S.
$
75,190

 
$
74,086

 
$
150,624

 
$
145,574

International
10,515

 
11,487

 
21,591

 
22,629

Total revenues from external customers
$
85,705

 
$
85,573

 
$
172,215

 
$
168,203

Operating income
 
 
 
 
 
 
 
U.S.
$
12,689

 
$
14,292

 
$
27,273

 
$
28,448

International
1,848

 
1,634

 
3,433

 
2,615

Total operating income
14,537

 
15,926

 
30,706

 
31,063

Interest expense
4,543

 
4,298

 
9,135

 
8,348

Loss on extinguishment of debt
3,196

 

 
3,196

 

Other income
(1,312
)
 
(336
)
 
(2,499
)
 
(1,256
)
Income before income taxes
$
8,110

 
$
11,964

 
$
20,874

 
$
23,971


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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Note Regarding Forward-Looking Statements
Some of the statements contained in this Quarterly Report on Form 10-Q are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements, including, in particular, statements about our plans, strategies, prospects and industry estimates are subject to risks and uncertainties. These statements identify prospective information and include words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects,” “should,” “could,” “predicts,” “hopes” and similar expressions. Examples of forward-looking statements include statements we make relating to our outlook and expectations including, without limitation, in connection with: (i) continued market expansion and penetration for our commercial products, particularly DEFINITY, in the face of segment competition and potential generic competition as a result of patent and regulatory exclusivity expirations; (ii)  the global Molybdenum-99 (“Moly”) supply; (iii) our products manufactured at Jubilant HollisterStier (“JHS”); (iv) our efforts in new product development; and (v) the potential acquisition or in-licensing of additional products, businesses or technologies to drive our future growth. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, such statements are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. These statements are neither statements of historical fact nor guarantees or assurances of future performance. The matters referred to in the forward-looking statements contained in this Quarterly Report on Form 10-Q may not in fact occur. We caution you, therefore, against relying on any of these forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include regional, national or global political, economic, business, competitive, market and regulatory conditions and the following:
Our ability to continue to grow the appropriate use of DEFINITY in suboptimal echocardiograms in the face of segment competition from other echocardiography contrast agents, including Optison from GE Healthcare Limited (“GE Healthcare”) and Lumason from Bracco Diagnostics Inc. (“Bracco”), and potential generic competition as a result of patent and regulatory exclusivity expirations;
The instability of the global Moly supply, including (i) periodic outages at the NTP Radioisotopes (“NTP”) processing facility in South Africa in 2017, 2018 and 2019 and (ii) a recent outage at ANSTO’s new Moly processing facility in Australia, in each case resulting in our inability to fill some or all of the demand for our TechneLite generators on certain manufacturing days during the outage periods;
Our dependence upon third parties for the manufacture and supply of a substantial portion of our products, raw materials and components, including DEFINITY at JHS;
The extensive costs, time and uncertainty associated with new product development, including further product development relying on external development partners or potentially developed internally;
Our ability to identify and acquire or in-license additional products, businesses or technologies to drive our future growth;
Our ability to protect our intellectual property and the risk of claims that we have infringed on the intellectual property of others;
Risks associated with our on-going internal clinical development of: DEFINITY for a left ventricular ejection fraction (“LVEF”) indication;
Risks associated with the technology transfer programs to secure production of our products at additional contract manufacturer sites, including a modified formulation of DEFINITY at Samsung BioLogics (“SBL”) in South Korea;
Risks associated with our investment in, and construction of, additional specialized manufacturing capabilities at our North Billerica, Massachusetts facility, including our ability to bring the new capabilities online by 2021;
Our dependence on key customers for our medical imaging products, and our ability to maintain and profitably renew our contracts with those key customers, including Cardinal Health (“Cardinal”), United Pharmacy Partners (“UPPI”), GE Healthcare and Jubilant Radiopharma formerly known as Triad Isotopes, Inc. (“Jubilant Radiopharma”);
Risks associated with revenues and unit volumes for Xenon in pulmonary studies as a result of increased competition from Curium;
Risks associated with our lead agent in development, flurpiridaz F 18, which in 2017 we out-licensed to GE Healthcare, including:
The ability to successfully complete the Phase 3 development program;
The ability to obtain Food and Drug Administration (“FDA”) approval; and
The ability to gain post-approval market acceptance and adequate reimbursement;

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Risks associated with our development agent, LMI 1195, for patient populations that would benefit from molecular imaging of the norepinephrine pathway, including: (i) finalizing a Special Protocol Assessment (“SPA”) with the FDA in connection with our Phase 3 clinical program to demonstrate improved risk stratification of ischemic heart failure patients eligible for cardioverter defibrillator implantation, and (ii) designing two Phase 3 clinical trials for the diagnosis and management of neuroendocrine tumors in pediatric and adult populations, respectively;
Risks associated with the manufacturing and distribution of our products and the regulatory requirements related thereto;
The dependence of certain of our customers upon third-party healthcare payors and the uncertainty of third-party coverage and reimbursement rates;
Uncertainties regarding the impact of U.S. and state healthcare reform measures and proposals on our business, including measures and proposals related to reimbursement for our current and potential future products, controls over drug pricing, drug pricing transparency and generic drug competition;
Our being subject to extensive government regulation and oversight, our potential inability to comply with those regulations and the costs of compliance;
Potential liability associated with our marketing and sales practices;
The occurrence of any serious or unanticipated side effects with our products;
Our exposure to potential product liability claims and environmental, health and safety liability;
Our ability to introduce new products and adapt to an evolving technology and medical practice landscape;
Risks associated with prevailing economic or political conditions and events and financial, business and other factors beyond our control;
Risks associated with our international operations;
Our ability to adequately qualify, operate, maintain and protect our facilities, equipment and technology infrastructure;
Our ability to hire or retain skilled employees and key personnel;
Our ability to utilize, or limitations in our ability to utilize, net operating loss carryforwards to reduce our future tax liability;
Risks related to our outstanding indebtedness and our ability to satisfy those obligations;
Costs and other risks associated with the Sarbanes-Oxley Act and the Dodd-Frank Act, including in connection with becoming a large accelerated filer as of December 31, 2019;
Risks related to the ownership of our common stock; and
Other factors that are described in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018, in Part II, Item 1A. “Risk Factors” in our Quarterly Report on Form 10-Q for the period ended March 31, 2019, and in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q.
Factors that could cause or contribute to such differences include, but are not limited to, those that are discussed in other documents we file with the SEC. Any forward-looking statement made by us in this Quarterly Report on Form 10-Q speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.
Available Information
Our global Internet site is www.lantheus.com. We routinely make available important information, including copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after those reports are electronically filed with, or furnished to, the SEC, free of charge on our website at www.investor.lantheus.com. We recognize our website as a key channel of distribution to reach public investors and as a means of disclosing material non-public information to comply with our disclosure obligations under SEC Regulation FD. Information contained on our website shall not be deemed incorporated into, or to be part of this Quarterly Report on Form 10-Q, and any website references are not intended to be made through active hyperlinks.
Our reports filed with, or furnished to, the SEC are also available on the SEC’s website at www.sec.gov, and for Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, in an XBRL (Extensible Business Reporting Language) format. XBRL is an electronic coding language used to create interactive financial statement data over the Internet. The information on our website is neither part of nor incorporated by reference in this Quarterly Report on Form 10-Q.

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The following discussion and analysis of our financial condition and results of operations should be read together with the condensed consolidated financial statements and the related notes included in Item 1 of this Quarterly Report on Form 10-Q as well as the other factors described in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018, Part II, Item 1A. “Risk Factors” in our Quarterly Report on Form 10-Q for the period ended March 31, 2019, and Part II, Item IA. “Risk Factors” in this Quarterly Report on Form 10-Q.
Overview
Our Business
We are a global leader in the development, manufacture and commercialization of innovative diagnostic medical imaging agents and products that assist clinicians in the diagnosis and treatment of cardiovascular and other diseases. Clinicians use our imaging agents and products across a range of imaging modalities, including echocardiography and nuclear imaging. We believe that the resulting improved diagnostic information enables healthcare providers to better detect and characterize, or rule out, disease, potentially achieving improved patient outcomes, reducing patient risk and limiting overall costs for payers and the entire healthcare system.
Our commercial products are used by cardiologists, nuclear physicians, radiologists, internal medicine physicians, technologists and sonographers working in a variety of clinical settings. We sell our products to radiopharmacies, integrated delivery networks, hospitals, clinics and group practices.
We sell our products globally and operate our business in two reportable segments, which are further described below:
U.S. Segment produces and markets our medical imaging agents and products throughout the U.S. In the U.S., we primarily sell our products to radiopharmacies, integrated delivery networks, hospitals, clinics and group practices.
International Segment operations consist of production and distribution activities in Puerto Rico and some direct distribution activities in Canada. Additionally, within our International Segment, we have established and maintain third-party distribution relationships under which our products are marketed and sold in Europe, Canada, Australia, Asia-Pacific and Latin America.
Our Product Portfolio
Our product portfolio includes an ultrasound contrast agent and nuclear imaging products as well as a nuclear therapeutic product. Our principal products include the following:
DEFINITY is a microbubble contrast agent used in ultrasound exams of the heart, also known as echocardiography exams. DEFINITY contains perflutren-containing lipid microspheres and is indicated in the U.S. for use in patients with suboptimal echocardiograms to assist in imaging the left ventricular chamber and left endocardial border of the heart in ultrasound procedures.
TechneLite is a Technetium generator that provides the essential nuclear material used by radiopharmacies to radiolabel Cardiolite, Neurolite and other Technetium-based radiopharmaceuticals used in nuclear medicine procedures. TechneLite uses Moly as its active ingredient.
Sales of our microbubble contrast agent, DEFINITY, are made in the U.S. and Canada through a DEFINITY direct sales team. In the U.S., our nuclear imaging products, including TechneLite, Xenon, Neurolite and Cardiolite, are primarily distributed through commercial radiopharmacies, the majority of which are controlled by or associated with Cardinal, UPPI, GE Healthcare and Jubilant Radiopharma. A small portion of our nuclear imaging product sales in the U.S. are made through our direct sales force to hospitals and clinics that maintain their own in-house radiopharmaceutical preparation capabilities. We own one radiopharmacy in Puerto Rico where we sell our own products as well as products of third parties to end-users.
We also maintain our own direct sales force in Canada for certain of our products in Canada. In Europe, Australia, Asia-Pacific and Latin America, we generally rely on third-party distributors to market, sell and distribute our nuclear imaging and contrast agent products, either on a country-by-country basis or on a multi-country regional basis.

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The following table sets forth our revenues:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(in thousands)
2019
 
% of
Revenues
 
2018
 
% of
Revenues
 
2019
 
% of
Revenues
 
2018
 
% of
Revenues
DEFINITY
$
54,629

 
63.7
 %
 
$
46,098

 
53.9
 %
 
$
105,740

 
61.4
 %
 
$
90,753

 
54.0
 %
TechneLite
20,106

 
23.5
 %
 
23,478

 
27.4
 %
 
44,251

 
25.7
 %
 
44,873

 
26.7
 %
Other nuclear
15,246

 
17.8
 %
 
19,381

 
22.7
 %
 
30,366

 
17.6
 %
 
38,867

 
23.1
 %
Rebates and allowances
(4,276
)
 
(5.0
)%
 
(3,384
)
 
(4.0
)%
 
(8,142
)
 
(4.7
)%
 
(6,290
)
 
(3.7
)%
Total revenues
$
85,705

 
100.0
 %
 
$
85,573

 
100.0
 %
 
$
172,215

 
100.0
 %
 
$
168,203

 
100.0
 %
Key Factors Affecting Our Results
Our business and financial performance have been, and continue to be, affected by the following:
Anticipated Continued Growth of DEFINITY and Expansion of Our Ultrasound Microbubble Franchise
We believe the market opportunity for our ultrasound microbubble contrast agent, DEFINITY, continues to be significant. DEFINITY is our fastest growing and highest margin commercial product. We anticipate DEFINITY sales will continue to grow and that DEFINITY will constitute a greater share of our overall product mix in 2019 as compared to prior years. As we continue to educate the physician and healthcare provider community about the benefits and risks of DEFINITY, we believe we will be able to continue to grow the appropriate use of DEFINITY in suboptimal echocardiograms. In a U.S. market with three echocardiography contrast agents approved by the FDA, we estimate that DEFINITY had over 80% of the market as of December 31, 2018.
As we continue to pursue expanding our microbubble franchise, our activities include:
Patents - We continue to actively pursue additional patents in connection with DEFINITY, both in the U.S. and internationally. In the U.S., we have an Orange Book-listed method of use patent expiring in March 2037 and additional manufacturing patents that are not Orange Book-listed expiring in 2021, 2023 and 2037. Outside of the U.S., while our DEFINITY patent protection and regulatory exclusivity have generally expired, we are currently prosecuting additional patents to try to obtain similar method of use patent protection as granted in the U.S.
Hatch-Waxman Act - Even though our longest duration Orange Book-listed DEFINITY patent extends until March 2037, because our Orange Book-listed composition of matter patent expired in June 2019, we may face generic DEFINITY challengers in the near to intermediate term. Under the Hatch-Waxman Act, the FDA can approve Abbreviated New Drug Applications (“ANDAs”) for generic versions of drugs if the ANDA applicant demonstrates, among other things, that (i) its generic candidate is the same as the innovator product by establishing bioequivalence and providing relevant chemistry, manufacturing and product data, and (ii) the marketing of that generic candidate does not infringe an Orange Book-listed patent. With respect to any Orange Book-listed patent covering the innovator product, the ANDA applicant must give a notice to the innovator (a “Notice”) that the ANDA applicant certifies that its generic candidate will not infringe the innovator’s Orange Book-listed patent or that the Orange Book-listed patent is invalid. The innovator can then challenge the ANDA applicant in court within 45 days of receiving that Notice, and FDA approval to commercialize the generic candidate will be stayed (that is, delayed) for up to 30 months while the patent dispute between the innovator and the ANDA applicant is resolved in court. The 30 month stay could potentially expire sooner if the courts determine that no infringement had occurred or that the challenged Orange Book-listed patent is invalid or if the parties otherwise settle their dispute.
As of the date of filing of this Quarterly Report on Form 10-Q, we have not received any Notice from an ANDA applicant. If we were to (i) receive any such Notice in the future, (ii) bring a patent infringement suit against the ANDA applicant within 45 days of receiving that Notice, and (iii) successfully obtain the full 30 month stay, then the ANDA applicant would be precluded from commercializing a generic version of DEFINITY prior to the expiration of that 30 month stay period and, potentially, thereafter, depending on how the patent dispute is resolved. Solely by way of example and not based on any knowledge we currently have, if we received a Notice from an ANDA applicant in August 2019 and the full 30 month stay was obtained, then the ANDA applicant would be precluded from commercialization until at least February 2022. If we received a Notice some number of months in the future and the full 30 month stay was obtained, the commercialization date would roll forward in the future by the same calculation.
LVEF Indication - We are currently conducting two well-controlled Phase 3 studies designed to demonstrate improved accuracy of LVEF measurements with DEFINITY-enhanced echocardiography versus unenhanced echocardiography. The truth standard in these studies is cardiac magnetic resonance imaging. The studies are being conducted at 20 U.S. sites and will eventually enroll a total of approximately 300 subjects. We believe DEFINITY could improve the accuracy of LVEF calculations, giving clinicians greater confidence in patient management decisions. An LVEF indication could substantially

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increase the addressable market for contrast-enhanced echocardiography. We believe that DEFINITY, as the market leader, would benefit from the expanded addressable market.
Modified Formulation - We are developing at SBL a modified formulation of DEFINITY. We believe this modified formulation will provide an enhanced product profile enabling storage as well as shipment at room temperature (DEFINITY’s current formulation requires refrigerated storage), will give clinicians additional choice, and will allow for greater utility of this formulation in broader clinical settings. We were recently granted a composition of matter patent on the modified formulation which runs through December 2035. If the modified formulation is approved by the FDA, then this patent would be eligible to be listed in the Orange Book. We currently believe that, if approved by the FDA, the modified formulation could become commercially available in 2020, although that timing cannot be assured. Given its physical characteristics, the modified formulation may also be better suited for inclusion in kits requiring microbubbles for other indications and applications (including in kits developed by third parties of the type described in the next paragraph).
New Clinical Applications - As we continue to look for other opportunities to expand our microbubble franchise, we are evaluating new indications and clinical applications beyond echocardiography and contrast imaging generally. For example, we recently announced a strategic development and commercial collaboration with Cerevast Medical, Inc. in which our microbubble will be used in connection with Cerevast’s ocular ultrasound device to target improving blood flow in occluded retinal veins in the eye. Retinal vein occlusion is one of the most common causes of vision loss worldwide.
In-House Manufacturing - We are currently building specialized in-house manufacturing capabilities at our North Billerica, Massachusetts facility for DEFINITY and, potentially, other sterile vial products. We believe the investment in these efforts will allow us to better control DEFINITY manufacturing and inventory, reduce our costs in a potentially more price competitive environment, and provide us with supply chain redundancy. We currently expect to be in a position to use this in-house manufacturing capability by early 2021, although that timing cannot be assured.
See Part I, Item 1A. “Risk Factors—The growth of our business is substantially dependent on our ability to continue to grow the appropriate use of DEFINITY in suboptimal echocardiograms in the face of increased segment competition from other existing echocardiography agents and potential generic competitors as a result of future patent and regulatory exclusivity expirations,” “—If we are unable to protect our intellectual property, our competitors could develop and market products with features similar to our products, and demand for our products may decline,” “—Our dependence upon third parties for the manufacture and supply of a substantial portion of our products could prevent us from delivering our products to our customers in the required quantities, within the required timeframes, or at all, which could result in order cancellations and decreased revenues,” and “—Item 1. Business—Our Product Portfolio—DEFINITY and the Expansion of Our Ultrasound Microbubble Franchise,” of our Annual Report on Form 10-K for the year ended December 31, 2018.
Global Moly Supply
We currently have Moly supply agreements with Institute for Radioelements (“IRE”), running through December 31, 2019, and renewable by us on a year-to-year basis thereafter, and with ANSTO and NTP, running through December 31, 2020. We also have a Xenon supply agreement with IRE which runs through June 30, 2022, and which is subject to further extension.
Although we have a globally diverse Moly supply, including LEU-based Moly, with IRE in Belgium, ANSTO in Australia and NTP in South Africa, we still face challenges in our Moly supply chain. The NTP processing facility has had periodic outages in 2017, 2018 and 2019. When NTP was not producing, we relied on Moly supply from both IRE and ANSTO to limit the impact of the NTP outages.  In the second quarter of 2019, ANSTO experienced facility issues in its existing Moly processing facility which resulted in a decrease in Moly available to us.  In addition, as ANSTO transitioned from its existing Moly processing facility to its new Moly processing facility in the second quarter of 2019, ANSTO experienced start-up and transition challenges, which also resulted in a decrease in Moly available to us.  Further, starting in late June 2019, ANSTO’s new Moly processing facility had an unscheduled production outage, and we are now relying on IRE and NTP to limit the impact of that ANSTO outage.  Because of these various supply chain constraints, depending on reactor and processor schedules and operations, we have not been able to fill some or all of the demand for our TechneLite generators on certain manufacturing days.
ANSTO’s new Moly processing facility, could eventually increase ANSTO’s Moly production capacity from approximately 2,000 curies per week to 3,500 curies per week with additional committed financial and operational resources. We recently received approval from both the FDA and Health Canada for our use of Moly supplied from ANSTO’s new Moly processing facility in manufacturing our TechneLite generators. At full ramp-up capacity, ANSTO’s new facility could provide incremental supply to our globally diversified Moly supply chain and therefore mitigate some risk among our Moly suppliers, although we can give no assurances to that effect. In addition, we also have a strategic arrangement with SHINE Medical Technologies, Inc. (“SHINE”), a Wisconsin-based company, for the future supply of Moly. Under the terms of that agreement, SHINE will provide us Moly once SHINE’s facility becomes operational and receives all necessary approvals, which SHINE now estimates will occur in 2022.

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See Part II, Item 1A. “Risk Factors—The global supply of Moly is fragile and not stable. Our dependence on a limited number of third party suppliers for Moly could prevent us from delivering some of our products to our customers in the required quantities, within the required timeframe, or at all, which could result in order cancellations and decreased revenues” of this Quarterly Report on Form 10-Q and Part 1, Item 1A. “Risk Factors—The instability of the global supply of Moly, including supply shortages, has resulted in increases in the cost of Moly, which has negatively affected our margins, and more restrictive agreements with suppliers, which could further increase our costs” of our Annual Report on Form 10-K for the year ended December 31, 2018.
Inventory Supply
We obtain a substantial portion of our imaging agents from third-party suppliers. JHS is currently our sole source manufacturer of DEFINITY, Neurolite, Cardiolite and evacuation vials, the latter being an ancillary component for our TechneLite generators. We are currently seeking approval from certain foreign regulatory authorities for JHS to manufacture certain of our products. Until we receive these approvals, we will face continued limitations on where we can sell those products outside of the U.S.
In addition to JHS, we are also currently working to secure additional alternative suppliers for our key products as part of our ongoing supply chain diversification strategy. We have ongoing development and technology transfer activities for a modified formulation of DEFINITY with SBL, which is located in South Korea. We currently believe that if approved by the FDA, the modified formulation could be commercially available in 2020, although that timing cannot be assured. We are also building in-house specialized manufacturing capabilities at our North Billerica, Massachusetts facility, as part of a larger strategy to create a competitive advantage in specialized manufacturing, which will also allow us to optimize our costs and reduce our supply chain risk. We can give no assurance as to when or if we will be successful in these efforts or that we will be able to successfully manufacture any additional commercial products at our North Billerica, Massachusetts facility. See Part I, Item 1A. “Risk Factors—Our dependence upon third parties for the manufacture and supply of a substantial portion of our products could prevent us from delivering our products to our customers in the required quantities, within the required timeframes, or at all, which could result in order cancellations and decreased revenues” of our Annual Report on Form 10-K for the year ended December 31, 2018.
Radiopharmaceuticals are decaying radioisotopes with half-lives ranging from a few hours to several days. These products cannot be kept in inventory because of their limited shelf lives and are subject to just-in-time manufacturing, processing and distribution, which takes place at our North Billerica, Massachusetts facility.
Research and Development Expenses
To remain a leader in the marketplace, we have historically made substantial investments in new product development. As a result, the positive contributions of those internally funded research and development programs have been a key factor in our historical results and success. On April 25, 2017, we announced entering into a definitive, exclusive Collaboration and License Agreement with GE Healthcare for the continued Phase 3 development and worldwide commercialization of flurpiridaz F 18. As part of our microbubble franchise strategy, for our proposed LVEF indication for DEFINITY, we are currently conducting two well-controlled Phase 3 studies designed to demonstrate improved accuracy of LVEF measurements with DEFINITY-enhanced echocardiography versus unenhanced echocardiography. For LMI 1195, our PET-based molecular imaging agent for the norepinephrine pathway, we are currently working with the FDA to finalize an SPA in connection with our Phase 3 clinical program to demonstrate improved risk stratification of ischemic heart failure patients eligible for cardioverter defibrillator implantation. We are also currently designing two Phase 3 clinical trials for the use of LMI 1195 for the diagnosis and management of neuroendocrine tumors in pediatric and adult populations, respectively. The FDA has already granted an Orphan Drug designation for the use of LMI 1195 in the management indication. Our investments in these additional clinical activities will increase our operating expenses and impact our results of operations and cash flow.
New Initiatives
We continue to evaluate a number of different opportunities to acquire or in-license additional products, businesses and technologies to drive our future growth. We are particularly interested in expanding our presence in oncology. We recently entered into a strategic collaboration and license agreement with NanoMab Technology Limited, a privately-held biopharmaceutical company focusing on the development of next generation radiopharmaceuticals for cancer precision medicine. We believe this collaboration will provide the first broadly-available imaging biomarker research tool to pharmaceutical companies and academic centers conducting research and development on PD-L1 immuno-oncology treatments, including combination therapies. We can give no assurance as to when or if this collaboration will be successful or accretive to earnings.

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See Part I, Item 1A. “Risk Factors-Our business depends on our ability to successfully introduce new products and adapt to a changing technology and medical practice landscape” and “-Our future growth may depend on our ability to identify and acquire or in-license additional products, businesses or technologies, and if we do not successfully do so, or otherwise fail to integrate any new products, lines of business or technologies into our operations, we may have limited growth opportunities and it could result in significant impairment charges or other adverse financial consequences” of our Annual Report on Form 10-K for the year ended December 31, 2018. See also Part II, Item 1A. “Risk Factors - The process of developing new drugs and obtaining regulatory approval is complex, time-consuming and costly, and the outcome is not certain” or our Quarterly Report on form 10-Q for the quarter ended March 31, 2019.
Results of Operations
The following is a summary of our consolidated results of operations:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(in thousands)
2019
 
2018
 
2019
 
2018
Revenues
$
85,705

 
$
85,573

 
$
172,215

 
$
168,203

Cost of goods sold
41,132

 
41,727

 
83,558

 
82,048

Gross profit
44,573

 
43,846

 
88,657

 
86,155

Operating expenses
 
 
 
 
 
 
 
Sales and marketing
10,948

 
12,130

 
21,345

 
22,770

General and administrative
13,293

 
11,575

 
25,882

 
24,118

Research and development
5,795

 
4,215

 
10,724

 
8,204

Total operating expenses
30,036

 
27,920

 
57,951

 
55,092

Operating income
14,537

 
15,926

 
30,706

 
31,063

Interest expense
4,543

 
4,298

 
9,135

 
8,348

Loss on extinguishment of debt
3,196

 

 
3,196

 

Other income
(1,312
)
 
(336
)
 
(2,499
)
 
(1,256
)
Income before income taxes
8,110

 
11,964

 
20,874

 
23,971

Income tax expense
1,698

 
2,219

 
4,513

 
6,015

Net income
$
6,412

 
$
9,745

 
$
16,361

 
$
17,956

Comparison of the Periods Ended June 30, 2019 and 2018
Revenues
Segment revenues are summarized by product as follows:
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(in thousands)
 
2019
 
2018
 
Change
$
 
Change
%
 
2019
 
2018
 
Change
$
 
Change
%
U.S.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DEFINITY
 
$
53,466

 
$
45,103

 
$
8,363

 
18.5
 %
 
$
103,182

 
$
88,609

 
$
14,573

 
16.4
 %
TechneLite
 
16,865

 
19,343

 
(2,478
)
 
(12.8
)%
 
36,923

 
37,406

 
(483
)
 
(1.3
)%
Other nuclear
 
9,127

 
13,031

 
(3,904
)
 
(30.0
)%
 
18,651

 
25,848

 
(7,197
)
 
(27.8
)%
Rebates and allowances
 
(4,268
)
 
(3,391
)
 
(877
)
 
25.9
 %
 
(8,132
)
 
(6,289
)
 
(1,843
)
 
29.3
 %
Total U.S. revenues
 
75,190

 
74,086

 
1,104

 
1.5
 %
 
150,624

 
145,574

 
5,050

 
3.5
 %
International
 
 
 
 
 
 
 


 
 
 
 
 
 
 
 
DEFINITY
 
1,163

 
995

 
168

 
16.9
 %
 
2,558

 
2,144

 
414

 
19.3
 %
TechneLite
 
3,241

 
4,135

 
(894
)
 
(21.6
)%
 
7,328

 
7,467

 
(139
)
 
(1.9
)%
Other nuclear
 
6,119

 
6,350

 
(231
)
 
(3.6
)%
 
11,715

 
13,019

 
(1,304
)
 
(10.0
)%
Rebates and allowances
 
(8
)
 
7

 
(15
)
 
(214.3
)%
 
(10
)
 
(1
)
 
(9
)
 
900.0
 %
Total International revenues
 
10,515

 
11,487

 
(972
)
 
(8.5
)%
 
21,591

 
22,629

 
(1,038
)
 
(4.6
)%
Total revenues
 
$
85,705

 
$
85,573

 
$
132

 
0.2
 %
 
$
172,215

 
$
168,203

 
$
4,012

 
2.4
 %

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The increase in the U.S. segment revenues for the three months ended June 30, 2019, as compared to the prior year period is primarily due to an $8.4 million increase in DEFINITY revenue as a result of higher unit volumes. This increase was offset, in part, by a $2.5 million decrease in TechneLite revenue driven by lower volume as a result of a temporary supplier disruption, lower Xenon and other nuclear product volume and an increase in rebate and allowance provisions.
The increase in the U.S. segment revenues for the six months ended June 30, 2019, as compared to the prior year period is primarily due to a $14.6 million increase in DEFINITY revenue as a result of higher unit volumes. This increase was offset, in part, by decreases primarily associated with lower Xenon and other nuclear product volume and an increase in rebate and allowance provisions.
The decrease in the International segment revenues for the three months ended June 30, 2019, as compared to the prior year period is primarily due to a decrease of $0.9 million in TechneLite revenue, largely related to incremental demand in the prior year period and temporary supplier disruptions in the current period, and a negative exchange rate impact of approximately $0.2 million.
The decrease in the International segment revenues for the six months ended June 30, 2019, as compared to the prior year period is primarily due to lower volumes of other nuclear products and a negative exchange rate impact of approximately $0.4 million, offset in part, by higher DEFINITY revenue driven by increased volume.
Rebates and Allowances
Estimates for rebates and allowances represent our estimated obligations under contractual arrangements with third parties. Rebate accruals and allowances are recorded in the same period the related revenue is recognized, resulting in a reduction to revenue and the establishment of a liability which is included in accrued expenses. These rebates and allowances result from performance-based offers that are primarily based on attaining contractually specified sales volumes and growth, Medicaid rebate programs for our products, administrative fees of group purchasing organizations and certain distributor related commissions. The calculation of the accrual for these rebates and allowances is based on an estimate of the third-party’s buying patterns and the resulting applicable contractual rebate or commission rate(s) to be earned over a contractual period.
An analysis of the amount of, and change in, reserves is summarized as follows:
(in thousands)
Rebates and
Allowances
Balance, January 1, 2019
$
4,654

Provision related to current period revenues
8,042

Adjustments relating to prior period revenues
100

Payments or credits made during the period
(7,385
)
Balance, June 30, 2019
$
5,411


Gross Profit
Gross profit is summarized by segment as follows:
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(in thousands)
 
2019
 
2018
 
Change
$
 
Change
%
 
2019
 
2018
 
Change
$
 
Change
%
U.S.
 
$
42,033

 
$
41,097

 
$
936

 
2.3
 %
 
$
83,584

 
$
80,970

 
$
2,614

 
3.2
 %
International
 
2,540

 
2,749

 
(209
)
 
(7.6
)%
 
5,073

 
5,185

 
(112
)
 
(2.2
)%
Total gross profit
 
$
44,573

 
$
43,846

 
$
727

 
1.7
 %
 
$
88,657

 
$
86,155

 
$
2,502

 
2.9
 %
The increase in the U.S. segment gross profit for the three and six months ended June 30, 2019, as compared to the prior year period is primarily due to higher DEFINITY volume. This was offset by lower Xenon and other nuclear product unit volumes, as well as an increase in rebate and allowance provisions.
The decrease in the International segment gross profit for the three and six months ended June 30, 2019, as compared to the prior year period is primarily due to lower volumes of other nuclear products and a negative exchange rate impact, offset in part, by higher DEFINITY gross profit driven by increased volume.

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Sales and Marketing
Sales and marketing expenses consist primarily of salaries and other related costs for personnel in field sales, marketing and customer service functions. Other costs in sales and marketing expenses include the development and printing of advertising and promotional material, professional services, market research and sales meetings.
Sales and marketing expense is summarized by segment as follows:
            
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(in thousands)
2019
 
2018
 
Change
$
 
Change
%
 
2019
 
2018
 
Change
$
 
Change
%
U.S.
$
10,369

 
$
11,494

 
$
(1,125
)
 
(9.8
)%
 
$
20,338

 
$
21,481

 
$
(1,143
)
 
(5.3
)%
International
579

 
636

 
(57
)
 
(9.0
)%
 
1,007

 
1,289

 
(282
)
 
(21.9
)%
Total sales and marketing
$
10,948

 
$
12,130

 
$
(1,182
)
 
(9.7
)%
 
$
21,345

 
$
22,770

 
$
(1,425
)
 
(6.3
)%
The decrease in the U.S. segment sales and marketing expenses for the three and six months ended June 30, 2019, as compared to the prior year period is primarily due to lower employee-related costs and market research activities.
The decrease in the International segment sales and marketing expenses for the three and six months ended June 30, 2019, as compared to the prior year period is primarily due to lower employee-related costs.
General and Administrative
General and administrative expenses consist of salaries and other related costs for personnel in executive, finance, legal, information technology and human resource functions. Other costs included in general and administrative expenses are professional fees for information technology services, external legal fees, consulting and accounting services as well as bad debt expense, certain facility and insurance costs, including director and officer liability insurance.
General and administrative expense is summarized by segment as follows:
            
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(in thousands)
2019
 
2018
 
Change
$
 
Change
%
 
2019
 
2018
 
Change
$
 
Change
%
U.S.
$
13,323

 
$
11,449

 
$
1,874

 
16.4
 %
 
$
25,671

 
$
23,836

 
$
1,835

 
7.7
 %
International
(30
)
 
126

 
(156
)
 
(123.8
)%
 
211

 
282

 
(71
)
 
(25.2
)%
Total general and administrative
$
13,293

 
$
11,575

 
$
1,718

 
14.8
 %
 
$
25,882

 
$
24,118

 
$
1,764

 
7.3
 %
The U.S. segment general and administrative expenses for the three months ended June 30, 2019 increased as compared to the prior year period primarily associated with employee-related costs and recruiting expenses which was offset, in part, by lower campus consolidation costs as a result of prior year efficiency projects.
The U.S. segment general and administrative expenses for the six months ended June 30, 2019 increased as compared to the prior year period. There was an increase associated with employee-related costs and recruiting expenses which was offset, in part, by lower campus consolidation and information technology costs as a result of prior year efficiency projects.
The International segment general and administrative expenses decreased for the three months ended June 30, 2019, as compared to the prior year period driven by an insurance benefit received in the current period.
The International segment general and administrative expenses were flat for the six months ended June 30, 2019, as compared to the prior year period.

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Research and Development
Research and development expenses relate primarily to the development of new products to add to our portfolio and costs related to our medical affairs, medical information and regulatory functions. We do not allocate research and development expenses incurred in the U.S. to our International segment.
Research and development expense is summarized by segment as follows:
            
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(in thousands)
2019
 
2018
 
Change
$
 
Change
%
 
2019
 
2018
 
Change
$
 
Change
%
U.S.
$
5,652

 
$
3,862

 
$
1,790

 
46.3
 %
 
$
10,302

 
$
7,205

 
$
3,097

 
43.0
 %
International
143

 
353

 
(210
)
 
(59.5
)%
 
422

 
999

 
(577
)
 
(57.8
)%
Total research and development
$
5,795

 
$
4,215

 
$
1,580

 
37.5
 %
 
$
10,724

 
$
8,204

 
$
2,520

 
(30.7
)%
The increase in the U.S. segment research and development expenses for the three months ended June 30, 2019, as compared to the prior year period is primarily due to clinical research expenses related to DEFINITY studies and a one-time payment relating to a collaboration and license agreement entered into in Q2 2019 with NanoMab Technology Limited.
The increase in the U.S. segment research and development expenses for the six months ended June 30, 2019, as compared to the prior year period is primarily due to clinical research expenses related to DEFINITY studies, a one-time payment relating to a collaboration and license agreement entered into in Q2 2019 and higher employee-related costs.
The decrease in the International segment research and development expenses for the three and six months ended June 30, 2019, as compared to the prior year period is driven by a European Phase 4 study for one of our products in the prior year.
Interest Expense
Interest expense increased by approximately $0.8 million for the six months ended June 30, 2019, respectively, as compared to the prior year periods due to higher interest rates on our long-term debt.
Income Tax Expense
Income tax expense is summarized as follows:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(in thousands)
2019
 
2018
 
Change
$
 
Change
%
 
2019
 
2018
 
Change
$
 
Change
%
Income tax expense
$
1,698

 
$
2,219

 
$
(521
)
 
(23.5
)%
 
$
4,513

 
$
6,015

 
$
(1,502
)
 
(25.0
)%
The income tax expense for the three and six months ended June 30, 2019 and 2018 was primarily due to the income generated in the period and the accrual of interest associated with uncertain tax positions offset by tax benefits arising from stock compensation deductions.
We regularly assess our ability to realize our deferred tax assets. Assessing the realizability of deferred tax assets requires significant management judgment. In determining whether our deferred tax assets are more-likely-than-not realizable, we evaluate all available positive and negative evidence, and weigh the objective evidence and expected impact. We continue to record a valuation allowance against certain of our foreign net deferred tax assets.
Our effective tax rate for each reporting period is presented as follows:
 
 
Six Months Ended
June 30,
 
 
2019
 
2018
Effective tax rate
 
21.6%
 
25.1%
Our effective tax rate in fiscal 2019 differs from the U.S. statutory rate of 21% principally due to the impact of U.S. state taxes and the accrual of interest on uncertain tax positions offset by tax benefits arising from stock compensation deductions.

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The decrease in effective income tax rate for the six months ended June 30, 2019 as compared to the prior year period is primarily due to increased tax benefits arising from stock compensation deductions.
Liquidity and Capital Resources
Cash Flows
The following table provides information regarding our cash flows:
 
Six Months Ended
June 30,
(in thousands)
2019
 
2018
Net cash provided by operating activities
$
31,521

 
$
19,610

Net cash used in investing activities
$
(13,984
)
 
$
(6,761
)
Net cash used in financing activities
$
(74,158
)
 
$
(2,517
)
Net Cash Provided by (Used in) Operating Activities
Net cash provided by operating activities of $31.5 million in the six months ended June 30, 2019 was driven primarily by net income of $16.4 million plus $6.6 million of depreciation, amortization and accretion expense, debt extinguishment expense of $3.2 million, stock-based compensation expense of $6.1 million and changes in deferred taxes of $2.4 million. These net sources of cash were offset by a net decrease of $5.2 million related to movements in our working capital accounts during the period. The overall decreases in cash from our working capital accounts were primarily driven by the payment of prior year annual bonuses.
Net cash provided by operating activities of $19.6 million in the six months ended June 30, 2018 was driven primarily by net income of $18.0 million plus $7.1 million of depreciation, amortization and accretion expense, changes in deferred taxes of $4.5 million and $4.0 million of stock-based compensation expense. These net sources of cash were offset by a net decrease of $17.1 million related to movements in our working capital accounts during the period. The overall decreases in cash from our working capital accounts were primarily driven by the timing of inventory purchases during the period.
Net Cash Used in Investing Activities
Net cash used in investing activities during the six months ended June 30, 2019 reflected $14.0 million in capital expenditures.
Net cash used in investing activities during the six months ended June 30, 2018 reflected $7.8 million in capital expenditures offset by the cash proceeds of $1.0 million received from the sale of land.
Net Cash Used in Financing Activities
Net cash used in financing activities during the six months ended June 30, 2019 is primarily attributable to the net cash outflow of approximately $73 million in connection with the refinancing of our previous 2017 Facility and payments for minimum statutory tax withholding related to net share settlement of equity awards of $2.1 million. Starting in 2019, we require certain senior executives to cover tax liabilities resulting from the vesting of their equity awards pursuant to sell-to-cover transactions under 10b5-1 plans.
Net cash used in financing activities during the six months ended June 30, 2018 reflected payments for minimum statutory tax withholding related to net share settlement of equity awards of $2.4 million, payments on long-term debt of $1.4 million, offset by proceeds of $1.1 million from the exercise of stock options.
External Sources of Liquidity
In June 2019, we refinanced our 2017 $275 million five-year term loan facility with a new five-year $200 million term loan facility (the “2019 Term Facility” and the loans thereunder, the “Term Loans”). In addition, we replaced our $75 million revolving facility with a new $200 million five-year revolving credit facility (the “2019 Revolving Facility” and, together with the 2019 Term Facility, the “2019 Facility”). The terms of the 2019 Facility are set forth in the Credit Agreement, dated as of June 27, 2019, by and among us, the lenders from time to time party thereto and Wells Fargo Bank, N.A., as administrative agent and collateral agent. We have the right to request an increase to the 2019 Term Facility or request the establishment of one or more new incremental term loan facilities, in an aggregate principal amount of up to $100 million, plus additional amounts, in certain circumstances.
We are permitted to voluntarily prepay the Term Loans, in whole or in part, without premium or penalty. The 2019 Term Facility requires us to make mandatory prepayments of the outstanding Term Loans in certain circumstances. The 2019 Term Facility amortizes at 5.00% per year through September 30, 2022 and 7.5% thereafter, until its June 27, 2024 maturity date.

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Under the terms of the 2019 Revolving Facility, the lenders thereunder agreed to extend credit to us from time to time until June 27, 2024 consisting of revolving loans in an aggregate principal amount not to exceed $200 million at any time outstanding. The 2019 Revolving Facility includes a $20 million sub-facility for the issuance of letters of credit (the “Letters of Credit”). The 2019 Revolving Facility includes a $10 million sub-facility for swingline loans (the “Swingline Loans”). The Letters of Credit, Swingline Loans and the borrowings under the 2019 Revolving Facility are expected to be used for working capital and other general corporate purposes.
Please refer to Note 9, Long-term debt, net and other borrowings, for further details on the 2019 Facility.
Our ability to fund our future capital needs will be affected by our ability to continue to generate cash from operations and may be affected by our ability to access the capital markets, money markets or other sources of funding, as well as the capacity and terms of our financing arrangements.
We may from time to time repurchase or otherwise retire our debt and take other steps to reduce our debt or otherwise improve our balance sheet. These actions may include prepayments of our term loans or other retirements or refinancing of outstanding debt, privately negotiated transactions or otherwise. The amount of debt that may be retired, if any, would be decided at the sole discretion of our Board of Directors and will depend on market conditions, our cash position and other considerations.
Funding Requirements
Our future capital requirements will depend on many factors, including:
The costs of acquiring or in-licensing, developing, obtaining regulatory approval for, and commercializing, new products, businesses or technologies, together with the costs of pursuing opportunities that are not eventually consummated;
The pricing environment and the level of product sales of our currently marketed products, particularly DEFINITY and any additional products that we may market in the future;
Revenue mix shifts and associated volume and selling price changes that could result from contractual status changes with key customers and additional competition;
Our investment in the further clinical development and commercialization of existing products and development candidates;
The costs of investing in our facilities, equipment and technology infrastructure;
The costs and timing of establishing manufacturing and supply arrangements for commercial supplies of our products and raw materials and components;
Our ability to have product manufactured and released from JHS and other manufacturing sites in a timely manner in the future;
The costs of further commercialization of our existing products, particularly in international markets, including product marketing, sales and distribution and whether we obtain local partners to help share such commercialization costs;
The extent to which we choose to establish collaboration, co-promotion, distribution or other similar arrangements for our marketed products;
The legal costs relating to maintaining, expanding and enforcing our intellectual property portfolio, pursuing insurance or other claims and defending against product liability, regulatory compliance or other claims; and
The cost of interest on any additional borrowings which we may incur under our financing arrangements.
Until we successfully become dual sourced for our principal products, we are vulnerable to future supply shortages. Disruption in our financial performance could also occur if we experience significant adverse changes in product or customer mix, broad economic downturns, adverse industry or company conditions or catastrophic external events, including natural disasters and political or military conflict. If we experience one or more of these events in the future, we may be required to implement expense reductions, such as a delay or elimination of discretionary spending in all functional areas, as well as scaling back select operating and strategic initiatives.
If our capital resources become insufficient to meet our future capital requirements, we would need to finance our cash needs through public or private equity offerings, debt financings, assets securitizations, sale-leasebacks or other financing or strategic alternatives, to the extent such transactions are permissible under the covenants of our Credit Agreement. Additional equity or debt financing, or other transactions, may not be available on acceptable terms, if at all. If any of these transactions require an amendment or waiver under the covenants in our Credit Agreement, which could result in additional expenses associated with obtaining the amendment or waiver, we will seek to obtain such a waiver to remain in compliance with those covenants. However, we cannot be assured that such an amendment or waiver would be granted, or that additional capital will be available on acceptable terms, if at all.

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At June 30, 2019, our only current committed external source of funds is our borrowing availability under our 2019 Revolving Facility. We had $56.9 million of cash and cash equivalents at June 30, 2019. Our 2019 Facility contains a number of affirmative, negative, reporting and financial covenants, in each case subject to certain exceptions and materiality thresholds. Incremental borrowings under the 2019 Revolving Facility may affect our ability to comply with the covenants in the 2019 Facility, including the financial covenants restricting consolidated net leverage and interest coverage. Accordingly, we may be limited in utilizing the full amount of our 2019 Revolving Facility as a source of liquidity.
Based on our current operating plans, we believe that our existing cash and cash equivalents, results of operations and availability under our 2019 Revolving Facility will be sufficient to continue to fund our liquidity requirements for the foreseeable future.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements require us to make estimates and judgments that affect our reported assets and liabilities, revenues and expenses, and other financial information. Actual results may differ materially from these estimates under different assumptions and conditions. In addition, our reported financial condition and results of operations could vary due to a change in the application of a particular accounting standard.
There have been no other significant changes to our critical accounting policies or in the underlying accounting assumptions and estimates used in such policies in the six months ended June 30, 2019. For further information, refer to our summary of significant accounting policies and estimates in our Annual Report on Form 10-K filed for the year ended December 31, 2018.
Off-Balance Sheet Arrangements
We are required to provide the U.S. Nuclear Regulatory Commission and Massachusetts Department of Public Health financial assurance demonstrating our ability to fund the decommissioning of our North Billerica, Massachusetts production facility upon closure, though we do not intend to close the facility. We have provided this financial assurance in the form of a $28.2 million surety bond.
Since inception, we have not engaged in any other off-balance sheet arrangements, including structured finance, special purpose entities or variable interest entities.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For quantitative and qualitative disclosures about market risk, except as set forth below, see Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of our Annual Report on Form 10-K for the year ended December 31, 2018. Our exposures to market risk have not changed materially since December 31, 2018.
Foreign Currency Risk
We entered into a foreign currency forward contract primarily to reduce the effects of fluctuating foreign currency exchange rates. We may enter into additional foreign currency forward contracts when deemed appropriate. We do not enter into foreign currency forward contracts for speculative or trading purposes.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), its principal executive officer and principal financial officer, respectively, has evaluated the effectiveness of the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act. Based on that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) were effective as of the period covered by this report.
Changes in Internal Controls Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended June 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we are a party to various legal proceedings arising in the ordinary course of business. In addition, we have in the past been, and may in the future be, subject to investigations by governmental and regulatory authorities which expose us to greater risks associated with litigation, regulatory or other proceedings, as a result of which we could be required to pay significant fines or penalties. The costs and outcome of litigation, regulatory or other proceedings cannot be predicted with certainty, and some lawsuits, claims, actions or proceedings may be disposed of unfavorably to us. In addition, intellectual property disputes often have a risk of injunctive relief which, if imposed against us, could materially and adversely affect our financial condition or results of operations.
We are currently in arbitration with Pharmalucence in connection with a Manufacturing and Supply Agreement, dated November 12, 2013, under which Pharmalucence agreed to manufacture and supply DEFINITY for us. The commercial arrangement contemplated by that agreement was repeatedly delayed and ultimately never successfully realized. After extended settlement discussions between Sun Pharma, the ultimate parent of Pharmalucence, and us, which did not lead to a mutually acceptable outcome, on November 10, 2017, we filed an arbitration demand (and later an amended arbitration demand) with the American Arbitration Association against Pharmalucence, alleging breach of contract, breach of the covenant of good faith and fair dealing, tortious misrepresentation and violation of the Massachusetts Consumer Protection Law, also known as Chapter 93A. We are seeking monetary damages but cannot predict the outcome of this dispute resolution proceeding and whether we will be able to obtain any financial recovery as a result of this proceeding.
As of June 30, 2019, except as disclosed above we had no material ongoing litigation in which we were a party. In addition, we had no material ongoing regulatory or other proceeding and no knowledge of any investigations by governmental or regulatory authorities in which we are a target, in either case that we believe could have a material and adverse effect on our current business.
Item 1A. Risk Factors
There have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2018, except as set forth below. For further information, refer to Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018.
The global supply of Moly is fragile and not stable. Our dependence on a limited number of third party suppliers for Moly could prevent us from delivering some of our products to our customers in the required quantities, within the required timeframe, or at all, which could result in order cancellations and decreased revenues.
A critical ingredient of TechneLite is Moly. We currently purchase finished Moly from three of the four main processing sites in the world, namely ANSTO in Australia, IRE in Belgium and NTP in South Africa. These processing sites provide us Moly from five of the six main Moly-producing reactors in the world, namely OPAL in Australia, BR2 in Belgium, LVR-15 in the Czech Republic, HFR in The Netherlands, and SAFARI in South Africa.
The NTP processing facility has had periodic outages in 2017, 2018 and 2019.  When NTP was not producing, we relied on Moly supply from both IRE and ANSTO to limit the impact of the NTP outages.  As ANSTO transitioned from its existing Moly processing facility to its new Moly processing facility in the second quarter of 2019, ANSTO Moly production volumes decreased.  In the second quarter of 2019, ANSTO experienced facility issues in its existing Moly processing facility which resulted in a decrease in Moly available to us.  In addition, as ANSTO transitioned from its existing Moly processing facility to its new Moly processing facility in the second quarter of 2019, ANSTO experienced start-up and transition challenges, which also resulted in a decrease in Moly available to us.  Further, starting in late June 2019, ANSTO’s new Moly processing facility had an unscheduled production outage, and we are now relying on IRE and NTP to limit the impact of that ANSTO outage. Because of these supply chain constraints, depending on reactor and processor schedules and operations, we have not been able to fill some or all of the demand for our TechneLite generators on certain manufacturing days, consequently decreasing revenue and cash flow from this product line during the outage periods as compared to prior periods.
ANSTO’s new Moly processing facility, could eventually increase ANSTO’s production capacity from approximately 2,000 curies per week to 3,500 curies per week with additional committed financial and operational resources. We recently received approval from both the FDA and Health Canada for our use of Moly supplied from ANSTO’s new Moly processing facility in manufacturing our TechneLite generators. At full ramp-up capacity, ANSTO’s new facility could provide incremental supply to our globally diversified Moly supply chain and therefore mitigate some risk among our Moly suppliers, although we can give no assurances to that effect and a prolonged disruption of service from one of our three Moly processing sites or one of their main Moly-producing reactors could have a substantial negative effect on our business, results of operations, financial condition and cash flows.

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We are also pursuing additional sources of Moly from potential new producers around the world to further augment our current supply. In November 2014, we entered into a strategic arrangement with SHINE for the future supply of Moly. Under the terms of the supply agreement, SHINE will provide Moly produced using its proprietary LEU-solution technology for use in our TechneLite generators once SHINE’s facility becomes operational and receives all necessary regulatory approvals, which SHINE now estimates will occur in 2022. However, we cannot assure you that SHINE or any other possible additional sources of Moly will result in commercial quantities of Moly for our business, or that these new suppliers together with our current suppliers will be able to deliver a sufficient quantity of Moly to meet our needs.
U.S., Canadian and international governments have encouraged the development of a number of alternative Moly production projects with existing reactors and technologies as well as new technologies. However, we cannot say when, or if, the Moly produced from these projects will become available. As a result, there is a limited amount of Moly available which could limit the quantity of TechneLite that we could manufacture, sell and distribute, resulting in a further substantial negative effect on our business, results of operations, financial condition and cash flows.
Most of the global suppliers of Moly rely on Framatone-CERCA in France to fabricate uranium targets and in some cases fuel for research reactors from which Moly is produced. Absent a new supplier, a supply disruption relating to uranium targets or fuel could have a substantial negative effect on our business, results of operations, financial condition and cash flows.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Repurchases
The following table presents information with respect to purchases of common stock we made during the quarter ended June 30, 2019. The Company does not currently have a share repurchase program in effect. The 2015 Equity Incentive Plan, adopted by the Company on June 24, 2015, as amended on April 26, 2016 and as further amended on April 27, 2017 and April 24, 2019 (the “2015 Plan”), provides for the withholding of shares to satisfy minimum statutory tax withholding obligations. It does not specify a maximum number of shares that can be withheld for this purpose. The shares of common stock withheld to satisfy minimum tax withholding obligations may be deemed to be “issuer purchases” of shares that are required to be disclosed pursuant to this Item 2.
Period
 
Total Number of 
Shares Purchased
 
Average Price Paid 
per Share
 
Total Number of 
Shares Purchased as
Part of Publicly
Announced Programs
 
Approximate Dollar
Value of Shares that 
May Yet Be Purchased Under
the Program
April 2019**
 
31,516

 
$
25.16

 
*
 
*
May 2019**
 
5,312

 
$
25.00

 
*
 
*
June 2019**
 
472

 
$
26.45

 
*
 
*
Total
 
37,300

 
 
 
*
 
 
________________________________
*
These amounts are not applicable as the Company does not have a share repurchase program in effect.
**
Reflects shares withheld to satisfy minimum statutory tax withholding amounts due from employees related to the receipt of stock which resulted from the exercise or vesting of equity awards.
Dividend Policy
We did not declare or pay any dividends, and we do not currently intend to pay dividends in the foreseeable future. We currently expect to retain future earnings, if any, for the foreseeable future, to repay indebtedness and to finance the growth and development of our business. Our ability to pay dividends is restricted by our financing arrangements. See Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources-External Sources of Liquidity” for further information.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.

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Item 6. Exhibits
 
 
 
 
INCORPORATED BY REFERENCE
EXHIBIT
NUMBER
 
DESCRIPTION OF EXHIBITS
 
FORM
 
FILE
NUMBER
 
EXHIBIT
 
FILING
DATE
10.1*+
 
 
 
 
 
 
 
 
 
10.2+
 
 
8-K
 
001-3656919772146
 
10.1

 
April 26, 2019
10.3*
 
 
 
 
 
 
 
 
 
31.1*
 
 
 
 
 
 
 
 
 
31.2*
 
 
 
 
 
 
 
 
 
32.1**
 
 
 
 
 
 
 
 
 
101.INS*
 
XBRL Instance Document
 
 
 
 
 
 
 
 
101.SCH*
 
XBRL Taxonomy Extension Schema Document
 
 
 
 
 
 
 
 
101.CAL*
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
 
 
 
 
 
101.DEF*
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
 
 
 
 
 
101.LAB*
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
 
 
 
 
 
101.PRE*
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
 
 
 
 
 
 
 
 
 
*
Filed herewith.
**
Furnished herewith.
+
Indicates management contract or compensatory plan or arrangement.




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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
LANTHEUS HOLDINGS, INC.
 
 
By:
 
/s/ MARY ANNE HEINO
Name:
 
Mary Anne Heino
Title:
 
President and Chief Executive Officer
(Principal Executive Officer)
Date:
 
July 25, 2019
 
LANTHEUS HOLDINGS, INC.
 
 
By:
 
/s/ ROBERT J. MARSHALL, JR.
Name:
 
Robert J. Marshall, Jr.
Title:
 
Chief Financial Officer and Treasurer
(Principal Financial Officer and Principal Accounting Officer)
Date:
 
July 25, 2019


33