For the transition period from to
Commission File Number 001-36569
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LANTHEUS HOLDINGS, INC. |
(Exact name of registrant as specified in its charter)
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_______________________________________________________________ |
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Delaware | | 35-2318913 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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331 Treble Cove Road, North Billerica, MA | | 01862 |
(Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (978) 671-8001
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered |
Common Stock, $0.01 par value per share | LNTH | NASDAQ Global Market |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No þ
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 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, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | | þ | | Accelerated filer | | ☐ |
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Large accelerated filer | | þ
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Non-accelerated filer | | ☐ | | Smaller reporting company | | ☐ |
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| | | | Emerging growth company | | ☐ |
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. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act) Yes ☐ No þ
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant on June 30, 20192021 was approximately $1,090.9$1,849.9 million based on the last reported sale price of the registrant’s common stock on the NASDAQ Global Market on June 28, 201930, 2021 of $28.30$27.64 per share.
As of February 19, 202018, 2022 the registrant had 39,252,65167,753,459 shares of common stock, $0.01 par value, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Listed hereunder are the documents, portions of which are incorporated by reference, and the parts of this Form 10-K into which such portions are incorporated:
The Registrant’s Definitive Proxy Statement for use in connection with the Annual Meeting of Stockholders to be held on April 23, 2020,28, 2022, portions of which are incorporated by reference into Parts II and III of this Form 10-K. The 20202022 Proxy Statement will be filed with the Securities and Exchange Commission no later than 120 days after the close of our year ended December 31, 2019.
LANTHEUS HOLDINGS, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Unless the context requires otherwise, references to “Lantheus,” “the Company,” “our company,” “we,” “us” and “our” refer to Lantheus Holdings, Inc. and, as the context requires, its direct and indirect subsidiaries, references to “Lantheus Holdings” refer to Lantheus Holdings, Inc. and, references to “LMI” refer to Lantheus Medical Imaging, Inc., oura wholly-owned subsidiary.subsidiary, references to “Progenics” refer to Progenics Pharmaceuticals, Inc., a wholly-owned subsidiary of LMI, and references to “EXINI” refer to EXINI Diagnostics AB, a wholly-owned subsidiary of Progenics.
Some of the statements contained in this Annual Report on Form 10-K 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 includecan generally be identified by words such as “anticipates,” “intends,“believes,” “plans,“can,” “seeks,” “believes,“could,” “estimates,” “expects,” “should,“hopes,” “could,“intends,” “launch,” “may,” “pipeline,” “plans,” “predicts,” “hopes”“seeks,” “should,” “target,” “will,” “would” and similar expressions.expressions, or by express or implied discussions regarding potential marketing approvals or new indications for the collaborations, products candidates or approved products described in this Annual Report on Form 10-K, or regarding potential future revenues from such collaborations, product candidates and products. 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 established commercial products, particularly DEFINITY, in the face of segment competition and potential generic competition, including as a result of patent and regulatory exclusivity expirations; (ii) our ability to successfully launch PYLARIFY as a commercial product, including (A) our ability to obtain United States Food and Drug Administration (“FDA”) approval for additional positron emission tomography (“PET”) manufacturing facilities (“PMFs”) to manufacture PYLARIFY, (B) the ability of PMFs to manufacture PYLARIFY, (C) our ability to sell PYLARIFY to customers, and (D) our ability to obtain and maintain adequate coding, coverage and payment for PYLARIFY; (iii) the global Molybdenum-99 (“Mo-99”) supply; (iii)(iv) our ability to use in-house manufacturing capacity; (v) our ability to successfully launch PYLARIFY AI as a commercial product; (vi) our ability to have products manufactured at Jubilant HollisterStier (“JHS”) and our modified formulation of DEFINITY (“DEFINITY RT”) at Samsung Biologics (“SBL”); (iv)(vii) the continuing impact of the global COVID-19 pandemic on our business, financial conditions and prospects; (viii) the efforts and timing for clinical development of our product candidates and new clinical applications for our products, in neweach case, that we may develop, including 1095 and LMI 1195, or that our strategic partners may develop, including flurpiridaz fluorine-18 (“F 18”); and (ix) the potential reclassification by the FDA of certain of our products and product development;candidates from drugs to devices with the expense, complexity and (v) our proposed acquisition (the “Progenics Transaction”) of Progenics Pharmaceuticals, Inc. (“Progenics”).potentially more limited competitive protection such reclassification could cause. 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 Annual Report on Form 10-K 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 theThese 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 Mo-99 supply, including (i) periodic outages at the NTP Radioisotopes (“NTP”) processing facility in South Africa in 2017, 2018 and 2019 and (ii) a current on-going outage at the Australian Nuclear Science and Technology Organisation’s (“ANSTO”) new Mo-99 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 developing 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 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 GE Healthcare, Cardinal Health (“Cardinal”), United Pharmacy Partners (“UPPI”), Jubilant Radiopharma formerly known as Triad Isotopes, Inc. (“Jubilant Radiopharma”) and PharmaLogic Holdings Corp (“PharmaLogic”);
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;
Risks associated with our development agent, LMI 1195, for patient populations that would benefit from molecular imaging of the norepinephrine pathway, including designing and timely completing 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;
The existence and market success of competitor products;
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 beingare subject to extensive government regulationa number of risks, uncertainties and oversight, our ability to comply withassumptions, including 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, including potential global disruptions in air transport due to COVID-19 (coronavirus), which could adversely affect our international supply chains for radioisotopes and other critical materials as well as international distribution channels for our commercial products;
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;
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��� | Risks related to the Progenics Transaction, including: |
We or Progenics may be unable to obtain stockholder approval as required;
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▪ | Conditions to the closing of the Progenics Transaction may not be satisfied; |
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▪ | The Progenics Transaction may involve unexpected costs, liabilities or delays; |
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▪ | The ability of our or Progenics’ business to retain and hire key personnel and maintain relationships with customers, suppliers and others with whom we or Progenics do business, or on our or Progenics’ operating results and business generally; |
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▪ | Our or Progenics’ respective businesses may suffer as a result of uncertainty surrounding the Progenics Transaction and disruption of management’s attention due to the Progenics Transaction; |
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▪ | The occurrence of any event, change or other circumstances that could give rise to the termination of our agreement with Progenics; |
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▪ | Unanticipated risks to our integration plan including in connection with timing, talent, and the potential need for additional resources; |
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▪ | New or previously unidentified manufacturing, regulatory, or research and development issues in the Progenics business; |
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▪ | Risks that the anticipated benefits of the Progenics Transaction or other commercial opportunities may otherwise not be fully realized or may take longer to realize than expected; |
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▪ | Risks that contractual contingent value rights (“CVRs”) we will issue as part of the Progenics Transaction may result in substantial future payments and could divert the attention of our management; |
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▪ | Risks that in connection with the Progenics Transaction, the exercise of appraisal rights by dissenting stockholders could increase the aggregate amount we have to pay for Progenics; |
We or Progenics may be adversely affected by other economic, business, and/or competitive factors;
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▪ | The impact of legislative, regulatory, competitive and technological changes; |
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▪ | Other risks to the consummation of the Progenics Transaction, including the risk that the Progenics Transaction will not be consummated within the expected time period or at all; and |
Other factors that are described in Part I, Item 1A. “Risk Factors” of1A, "Risk Factors" in this Annual Report on Form 10-K.
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 Securities and Exchange Commission (“SEC”). Any forward-looking statement made by us in this Annual Report on Form 10-K 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.
Trademarks
We own or have the rights to various trademarks, service marks and trade names, including, among others, the following: DEFINITYAZEDRA®, TechneLiteAZEDRA Service Connection®, Cardiolite®, NeuroliteDEFINITY®, Vialmix®DEFINITY RTTM, QuadrametEXINI®, LuminityFind, Fight and Follow® and, Find > Fight > FollowTM, Lantheus®, Lantheus Medical Imaging®, LUMINITY®, Molecular Insight®, NEUROLITE®, Progenics®, Progenics Pharmaceuticals®, PYLARIFY®, PYLARIFY AITM, TechneLite®, VIALMIX®, and VIALMIX RFID® referred to in this Annual Report on Form 10-K. Solely for convenience, we refer to trademarks and service marks in this Annual Report on Form 10-K without the TM, SM and ® symbols. Those references are not intended to indicate, in any way, that we will not assert, to the fullest extent permitted under applicable law, our rights to our trademarks and service marks. Each trademark, trade name or service mark of any other company appearing in this Annual Report on Form 10-K such as Lumason®, OptisonTM, SonoVue®, Progenics®, Cerevast®, CarThera® and SonoCloud® are,is, to our knowledge, owned by that other company.
PART I
Item 1. Business
Overview
We are a globalan established leader and fully integrated provider committed to innovative imaging diagnostics, targeted therapeutics, and artificial intelligence solutions to Find, Fight and Follow serious medical conditions. We classify our products in the development, manufacturethree categories: precision diagnostics, radiopharmaceutical oncology, and commercialization of innovative diagnostic medical imaging agents and products that assist clinicians in the diagnosis and treatment of cardiovascularstrategic partnerships and other diseases. Cliniciansrevenue. Our leading precision diagnostic products assist healthcare professionals (“HCPs”) Find and Follow diseases in non-oncologic conditions. Our radiopharmaceutical oncology diagnostics and therapeutics help HCPs Find, Fight and Follow cancer. Our strategic partnerships focus on facilitating precision medicine through the use of biomarkers, digital solutions and radiotherapeutic platforms, and also includes our imaging agentslicense of RELISTOR to Bausch Health Companies, Inc. (“Bausch”).
Our commercial products are used by cardiologists, internal medicine physicians, nuclear medicine physicians, oncologists, radiologists, sonographers, technologists and products acrossurologists working in a rangevariety of imaging modalities, including echocardiography and nuclear imaging.clinical settings. We believe that the resultingour diagnostic products provide improved diagnostic information that enables healthcare providersHCPs to better detect and characterize, or rule out, disease, potentially achieving improvedwith the potential to achieve better patient outcomes, reducingreduce patient risk and limitinglimit overall costs for payerspayors and throughout the entire healthcare system.
Our commercialWe produce and market our products are used by cardiologists, nuclear physicians, radiologists, internal medicine physicians, technologiststhroughout the United States (the “United States” or the “U.S.”), selling primarily to clinics, group practices, hospitals, integrated delivery networks, and sonographers working in a variety of clinical settings.radiopharmacies. We sell our products to radiopharmacies, integrated delivery networks, hospitals, clinics and group practices.
We sell our products globally and currently operate our business in two reportable segments, which are further described below:
U.S. Segment produces and markets our medical imaging agents and products throughoutoutside 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 consistthrough a combination of production and distribution activities in Puerto Rico and some direct distribution activities in Canada. Additionally, within our International Segment, we have establishedCanada and maintain third-partythird party distribution relationships under which our products are marketed and sold in Europe, Canada, Australia, Asia-Pacific, Central America and LatinSouth America.
Our Product Portfolioheadquarters are located in North Billerica, MA, with additional offices in Somerset, NJ; Montreal, Canada and Lund, Sweden.
In the first quarter of 2021, we completed the evaluation of our operating and reporting structure, including the impact on our business of the acquisition of Progenics and the sale of our Puerto Rico subsidiary, which resulted in a change in our operating segments to one reportable business segment.
On May 27, 2021, we announced that the FDA had approved PYLARIFY, an F 18-labeled PET imaging agent targeting prostate-specific membrane antigen (“PSMA”). PYLARIFY is a product in our radiopharmaceutical oncology product category. We commercially launched PYLARIFY in the U.S. in June 2021.
During 2021, we announced that our subsidiary, EXINI, was granted 510(k) clearance by the FDA in the U.S. and a CE marking in Europe for aPROMISE. We commercially launched aPROMISE under the name PYLARIFY AI in the U.S. in November 2021.
Our current portfolioPortfolio of tenCommercial Products
Precision Diagnostics
Our commercial products in our precision diagnostics category include the following:
•DEFINITY is diversified across a range of imaging modalities. Our current products include an injectable microbubble ultrasound contrastenhancing agent and medical radiopharmaceuticals (including Technetium generators).
Ultrasound contrast agents are compoundswith perflutren-containing lipid microspheres that areis used in diagnostic procedures, suchultrasound exams of the heart, also known as cardiac ultrasounds orechocardiography exams. DEFINITY requires refrigerated storage and is indicated in the U.S. for use in patients with suboptimal echocardiograms to improveassist in imaging the clarityleft ventricular chamber and left endocardial border of the diagnostic image.heart in ultrasound procedures. DEFINITY RT is a modified formulation of DEFINITY that allows both storage and shipment at room temperature and provides clinicians an additional choice for greater utility of this formulation in broader clinical settings. We believe we are currently the leading worldwide provider of ultrasound microbubble enhancing agents.
Medical radiopharmaceuticals are radioactive pharmaceuticals•TechneLite is a Technetium (“Tc-99m”) generator that provides the essential nuclear material used by cliniciansradiopharmacies to performradiolabel NEUROLITE, Cardiolite and other Tc-99m-based radiopharmaceuticals used in nuclear medicine procedures. TechneLite uses Mo-99 as its active ingredient.
•NEUROLITE is an injectable, Tc-99m-labeled imaging procedures.
In certain circumstances, a radioactive element, or radioisotope, is attached to a chemical compound to form the radiopharmaceutical. This act of attaching the radioisotope to the chemical compound is called radiolabeling, or labeling.
In other circumstances, a radioisotope can beagent used as a radiopharmaceutical without attaching any additional chemical compound.
Radioisotopes are most commonly manufactured in a nuclear research reactor, where a target is bombarded with subatomic particles, or in a cyclotron, which is a type of particle accelerator that also creates radioisotopes.
Two common forms of nuclear imaging procedures are single-photon emission computed tomography (“SPECT”) which measures gamma rays emittedtechnology to identify the area within the brain where blood flow has been blocked or reduced due to stroke. Although NEUROLITE’s patents and market exclusivity have expired, we are not currently aware of any generic competitors.
•Xenon-133 (“Xenon”) is a radiopharmaceutical gas that is inhaled and used to assess pulmonary function and also to image cerebral blood flow. Our Xenon is manufactured by a SPECT radiopharmaceutical,third party as a bi-product of Mo-99 production and positron emission tomography (“PET”) which measures positrons emittedis processed and finished by a PET radiopharmaceutical.us.
As•Cardiolite, also known by its generic name sestamibi, is an example of the procedures in which our products may beinjectable, Tc-99m-labeled imaging agent used in the diagnosis of cardiovascular disease, a typical diagnostic progression could include an electrocardiogram, followed by an echocardiogram (possibly using our agent DEFINITY) which delineates cardiac structure and function, and then a nuclear myocardial perfusion imaging (“MPI”) study using either SPECT or PET imaging (possibly using our Technetium generator and our Cardiolite SPECT-based MPI agent). An MPI study assessesprocedures to assess blood flow distribution to the heart. MPI is also used for diagnosing the presence of coronary artery disease.
Progenics Transaction
On October 1, 2019, we entered into an Agreement and Plan of Merger (the “Initial Merger Agreement”) to acquire Progenics Pharmaceuticals, Inc. (NASDAQ: PGNX) in an all-stock transaction. Progenics is an oncology company developing innovative medicines and artificial intelligence to find, fight and follow cancer. Under the termsmuscle of the Initial Merger Agreement, we agreed to acquire all of the issued and outstanding shares of Progenics common stock at a fixed exchange ratio. Progenics stockholders would have received 0.2502 shares of our common stock for each share of Progenics common stock, representing an approximately 35% aggregate ownership stake in the combined company. The transaction contemplated by the Initial Merger Agreementheart using SPECT. Cardiolite was
unanimously approved by the BoardsFDA in 1990 and its market exclusivity expired in July 2008. Included in Cardiolite revenues are branded Cardiolite and generic sestamibi revenues.
•Gallium-67 (“Gallium”) is an injectable radiopharmaceutical imaging agent used to detect certain infections and cancerous tumors, especially lymphoma. We manufacture Gallium using cyclotron technology.
•Thallium-201 (“Thallium”) is an injectable radiopharmaceutical imaging agent used in MPI studies to detect cardiovascular disease. We manufacture Thallium using cyclotron technology.
Radiopharmaceutical Oncology
Our commercial products in our radiopharmaceutical oncology category include the following:
•PYLARIFY (also known as piflufolastat F 18, 18F-DCFPyL or PyL) is an F 18-labelled PSMA-targeted PET imaging agent used with PET/computed tomography (“CT”) technology that enables visualization of Directorslymph nodes, bone and soft tissue metastases to determine the presence or absence of both companiesrecurrent and/or metastatic prostate cancer. PYLARIFY is indicated in the U.S. for PET imaging of PSMA-positive lesions in men with prostate cancer with suspected metastasis who are candidates for initial definitive therapy and was subjectin men with suspected recurrence based on elevated serum prostate-specific antigen (“PSA”) levels.
•AZEDRA (iobenguane I 131) is a radiotherapeutic, approved for the treatment of adult and pediatric patients 12 years and older with iobenguane scan positive, unresectable, locally advanced or metastatic pheochromocytoma or paraganglioma who require systemic anticancer therapy. AZEDRA is the first and only FDA-approved therapy for this indication.
Strategic Partnerships and Other Revenue
Our commercial products in our strategic partnerships and other revenue product category include the following:
•RELISTOR (methylnaltrexone bromide) is a treatment for opioid-induced constipation (“OIC”) that decreases the constipating side effects induced by opioid pain medications such as morphine and codeine without diminishing their ability to relieve pain. RELISTOR is approved in two forms: a subcutaneous injection and an oral tablet. We have licensed RELISTOR to Bausch, and we collect quarterly royalties based on RELISTOR sales.
•Automated Bone Scan Index (“aBSI”) calculates the disease burden of prostate cancer by quantifying the hotspots on bone scans and automatically calculating the bone scan index value, representing the disease burden of prostate cancer shown on the bone scan. The Japanese rights to the termsstand-alone aBSI have been transferred and conditions set forth in the Initial Merger Agreement, including, among other things, the affirmative vote of a majority of the outstanding shares of common stock of Progenics and a majority of votes cast by the holders of the common stock of the Company.
On February 20, 2020, we entered into an Amended and Restated Agreement and Plan of Merger (the “Amended Merger Agreement”sold to FUJIFILM Toyama Chemical Co. Ltd. (“FUJIFILM”) with Progenics, which amends and restates the Initial Merger Agreement. Under the terms of the Amended Merger Agreement, we will acquire all of the issued and outstanding shares of Progenics common stock at a fixed exchange ratio whereby Progenics stockholders will receive, for each share of Progenics stock held at the time of the closing of the merger, 0.31 of a share of our common stock, increased from 0.2502 under the Initial Merger Agreement, together with a non-tradeable CVR tiedname BONENAVI®.
•PYLARIFY AI, which we also refer to the financial performance of PyLTM (18F-DCFPyL), Progenics’ prostate-specific membrane antigen targeted imaging agentas aPROMISE, is an artificial intelligence medical device software designed to visualizeallow healthcare professionals and researchers to perform standardized quantitative assessment of PSMA PET/CT images in prostate cancer, currently in late stage clinical development (“PyL”). Each CVR will entitle its holder to receive a pro rata shareincluding those images obtained by using PYLARIFY.
Additional Information about our Product Categories
Precision Diagnostics
Anticipated Continued Growth of aggregate cash payments equal to 40% of U.S. net sales generated by PyL in 2022 and 2023 in excess of $100 million and $150 million, respectively. In no event will our aggregate payments under the CVRs exceed 19.9% of the total consideration we pay in the transaction. As a result of the increase in the exchange ratio, following the completion of the merger, former Progenics stockholders’ aggregate ownership stake will increase to approximately 40% of the combined company from approximately 35% under the Initial Merger Agreement. Progenics’ stockholders will also now be entitled to appraisal rights as provided under Delaware law. The transaction contemplated by the Amended Merger Agreement was unanimously approved by the Boards of Directors of both companies and requires, among other things, the affirmative vote of a majority of the outstanding shares of common stock of Progenics and a majority of votes cast by the holders of the common stock of the Company.
In addition, pursuant to the Amended Merger Agreement, the holder of each in-the-money option to purchase shares of Progenics common stock under any equity based compensation plan of Progenics (“Progenics Stock Option”) will be entitled to receive in exchange for each such in-the-money option (i) an option to purchase Lantheus Common Stock (each, a “Lantheus Stock Option”) converted based on the 0.31 exchange ratio, and (ii) a vested or unvested CVR depending on whether the underlying option is vested. Holders of out-of-the-money Progenics Stock Options will receive Lantheus Stock Options converted on an exchange ratio adjusted based on actual trading prices of common stock of Progenics and Lantheus Holdings prior to the effective time of the merger.
The Amended Merger Agreement also provides that on closing our board of directors will appoint Dr. Gerard Ber and Mr. Heinz Mausli, who are currently members of the board of directors of Progenics, to serve on our board of directors. In addition, our board of directors, subject to complying with applicable fiduciary duties, will use commercially reasonable efforts to cause Dr. Ber and Mr. Mausli to be nominated for reelection following the closing through 2023. Our board of directors will be reduced in size from ten to nine members at our annual meeting of stockholders on April 23, 2020 (or sooner if the transaction closes before then) and will be further reduced in size from nine to eight members prior to the date of our 2021 annual meeting of stockholders.
Except as described above, the material terms of the Amended Merger Agreement are substantially the same as the terms of the Initial Merger Agreement.
The transaction is currently expected to close in the second quarter of 2020. Upon completion of the acquisition, which the parties intend to report as tax-deferred to Progenics’ stockholders with respect to the stock component of the merger consideration for U.S. federal income tax purposes, the combined company will continue to be headquartered in North Billerica, Massachusetts and will trade on the NASDAQ under the ticker symbol LNTH. See our Current Reports on Form 8-K dated October 1, 2019 and February 20, 2020 for further information regarding the Initial Merger Agreement, the Amended Merger Agreement and the proposed Progenics acquisition.
See Part I, Item 1A. “Risk Factors” for information regarding certain risks associated with our proposed acquisition of Progenics.
DEFINITY and the Expansion of Our Ultrasound Microbubble Franchise
DEFINITY is the leading ultrasound contrast imagingenhancing agent based on revenue and usage in the U.S., and is indicated for use in patients with suboptimal echocardiograms. Numerous patient conditions can decrease the quality of images of the left ventricle, the primary pumping chamber of the heart. The term DEFINITY includes its activated and non-activated forms.
DEFINITY is a clear, colorless, sterile liquid that requires refrigerated storage, and which, upon activation in a VialmixVIALMIX apparatus, a medical device specifically designed for DEFINITY, becomes a homogenous, opaque, milky white injectable suspension of perflutren-containing lipid microspheres. After activation and intravenous injection, DEFINITY opacifies the left ventricular chamber and improves the delineation of the left ventricular endocardial border, or innermost layer of tissue that lines the chamber of the left ventricle. Better visualization of the left ventricle allows clinicians to make more informed decisions about disease status.
DEFINITY offers flexible dosing and administration through an IV bolus or diluted bolus injection or continuous IV infusion. We
Based on estimates from third party sources, we believe DEFINITY’s synthetic lipid-cased coating gives the agent a distinct competitive advantage, because it provides a strong ultrasound signal and is the only perflutren-based echo contrast agent made without albumin.
Therethere were approximately 35.125 to 32 million echocardiograms performed in the U.S. in 2019 according to a third party source.2020 (the latest time period for which full year data is available and which also included the estimated impacts of COVID-19 on procedure volumes). Assuming that between 20% and 30% of echocardiograms produce suboptimal images, as stated in the clinical literature, we estimate that approximately 7.05 to 10 million echocardiograms in 20192020 produced suboptimal images. The use of DEFINITY during echocardiography allows physicians to significantly improve their assessment of the function of the left ventricle.
Since its launch in 2001, DEFINITY has been used in imaging procedures in more than 13.818.0 million studies throughout the world. We estimate that DEFINITY had over 80% share of the U.S. segment for contrastultrasound enhancing agents in echocardiography procedures as of December 2019.2021. DEFINITY currently competes with Optison, a GE Healthcare product, Lumason, a Bracco Diagnostics Inc. (“Bracco”) product, (known as SonoVue outside the U.S.) as well as echocardiography without contrastultrasound enhancing agents and non-echocardiography imaging modalities. DEFINITY, Optison and Lumason all carry an FDA-required boxed warning, which has been modified over time, to notify physicians and patients about potentially serious safety concerns or risks posed by the products. See Part I, Item 1A. “Risk Factors-Ultrasound contrastenhancing agents may cause side effects which could limit our ability to sell DEFINITY.”
As we continue to pursue expanding our microbubblemicrobubble franchise, our activities include:
•Patents - We continue to actively pursue additional patents in connection with DEFINITY and DEFINITY RT, both in the U.S. and internationally. In the U.S., for DEFINITY, we have anfour Orange Book-listed method of use patent expiringpatents, one of which expires in March2035 and three of which expire in 2037, andas well as additional manufacturing patents that are not Orange Book-listed expiring in 2021, 2023 and 2037. In the U.S. for DEFINITY RT, we have five Orange Book-listed patents, including a composition of matter patent which expires in 2035. Outside of the U.S., while our DEFINITY patent protection and regulatory exclusivity have generally expired, we are currently prosecutingpursuing additional patent applications to tryDEFINITY and DEFINITY RT patents to obtain similar method of use and manufacturing patent protection as granted in the U.S.
The Orange Book-listed patents include a patent on the use of VIALMIX RFID (see below) which expires in 2037; we have submitted additional VIALMIX RFID patent applications in major markets throughout the world.•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) either the marketing of that generic candidate does not infringe anthe Orange Book-listed patent.patent(s) or the Orange Book-listed patent(s) is invalid. Similarly, the FDA can approve a Section 505(b)(2) NDA from an applicant that relies on some of the information required for marketing approval from studies which the applicant does not own or have a legal right of reference. With respect to anythe Orange Book-listed patentpatent(s) covering thean innovator product, the ANDA or Section 505(b)(2) applicant (if relying on studies related to the innovator product) (each, the “Applicant”) must give a notice (a “Notice”) to the innovator (a “Notice”) that the ANDA applicant certifiesof its certification that its generic candidate will not infringe the innovator’s Orange Book-listed patentpatent(s) or that the Orange Book-listed patentpatent(s) is invalid. The innovator can then challengefile suit against the ANDA applicant in courtApplicant within 45 days of receiving thatthe Notice, and FDA approval to commercialize the generic candidate will be stayed (that is, delayed) for up to 30 months (measured from the date on which a Notice is received) while the patent dispute between the innovator and the ANDA applicantApplicant is resolved in court. The 30 month30-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 Annual Report on Form 10-K, we have not received any Notice from an ANDA applicant.Applicant. If we were to (i) receive any such Notice in the future, (ii) bring a patent infringement suit against the ANDA applicantApplicant within 45 days of receiving that Notice, and (iii) successfully obtain the full 30 month30-month stay, then the ANDA applicantApplicant would be precluded from commercializing a generic version of DEFINITY prior to the expiration of that 30 month30-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 applicantApplicant in March 20202022 and the full 30 month30-month stay waswere obtained, then the ANDA applicantApplicant would be precluded from commercialization until at least September 2022.2024. If we received a Notice some number of months in the future and the full 30 month30-month stay waswere obtained, the commercialization date would roll forward in the future by the same calculation.number of months. In the event a 505(b)(2) applicant does not rely on studies related to the innovator product, the 30-month stay would not apply, but additional clinical studies may be required.
Modified Formulation - We are developing at SBL a2021. A modified formulation of DEFINITY. We believe this modified formulation will provide an enhanced product profile enablingDEFINITY that allows both storage as well asand shipment at room temperature, (DEFINITY’s current formulation requires refrigerated storage), will giveDEFINITY RT provides clinicians an additional choice and will allowallows for greater utility of this formulation in broader clinical settings. We have 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 early 2021, although that timing cannot be assured. Given its physical characteristics, the modified formulation maywe believe DEFINITY RT is also be better suitedwell-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)paragraph entitled Microbubble Franchise below).
New Clinical Applications•VIALMIX RFID - As we continue to lookVIALMIX RFID, our next-generation activation device designed specifically for other opportunities to expand our microbubble franchise, we are evaluating new indicationsboth DEFINITY and clinical applications beyond echocardiography and contrast imaging generally. For example, we recently announced a strategic development and commercial collaboration with Cerevast Medical, Inc. (“Cerevast”) in which our microbubble will be used in connection with Cerevast’s ocular ultrasound device to target improving blood flow in occluded retinal veinsDEFINITY RT, became commercially available in the eye. Retinal vein occlusion is onefourth quarter of the most common causes of vision loss worldwide. We also recently announced a strategic commercial supply agreement with CarThera for2021. The activation rate and time are controlled by VIALMIX RFID through the use of our microbubbles in combinationradio-frequency identification technology (“RFID”) to ensure reproducible activation of
DEFINITY and DEFINITY RT. The RFID tag, which is affixed to the vial label, enables the DEFINITY or DEFINITY RT vial to be appropriately activated with SonoCloud, a proprietary implantable device in development for the treatment of recurrent glioblastoma. Glioblastoma is a lethal and devasting from of brain cancer with median survival of 15 months after diagnosis.
VIALMIX RFID activation device.•In-House Manufacturing- We are currently buildinghave constructed a specialized in-house manufacturing capabilitiesfacility at our North Billerica Massachusetts facilitycampus for purposes of producing DEFINITY and, potentially, other sterile vial products. On February 22, 2022, we received FDA approval of our supplemental new drug application (“sNDA”), authorizing commercial manufacturing of DEFINITY at our new facility. As of February 23, 2022, DEFINITY manufactured at this facility is commercially available. We believe thethis investment in these efforts will allow us to better controlmanage 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.
As part of our microbubble franchise strategy, we also conducted two Phase 3, open-label, multicenter studies to evaluate left ventricular ejection fraction (“LVEF”) measurement accuracy and reproducibility of DEFINITYcontrast-enhanced and unenhanced echocardiography as compared to non-contrast cardiac magnetic resonance imaging (“CMRI”) used as the truth standard. The first of the two trials, BENEFIT 1, enrolled 145 subjects. After reviewing the study results from BENEFIT 1, we concluded there was no statistically significant improvement in the accuracy of LVEF values for contrast-enhanced echocardiography versus unenhanced echocardiography as compared to CMRI. In addition, analyses of the secondary endpoints revealed no improvement in inter-reader variability between the contrast-enhanced and unenhanced echocardiograms for LVEF assessments. A post-hoc analysis, however, did show statistically significant improvements in left ventricular diastolic, systolic and stroke volume measurements with contrast-enhanced versus unenhanced echocardiography when compared to CMRI. We will continue to analyze the BENEFIT 1 data, and when the data from BENEFIT 2 are available, we will compile the data sets to analyze the full results of the trials.
See Part I, Item 1A. “Risk Factors” for information regarding certain risks associated with DEFINITY and see Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations-ComparisonOperations - Comparison of the Periods Ended December 31, 2021 and 2020 and Comparison of the Periods Ended December 31, 2020 and 2019 and 2018-Revenues”- Revenues” for further information on total revenue contributed by DEFINITY in each of our last three fiscal years.
TechneLite
TechneLite is a self-contained system or generator of Technetium (“Tc-99m”),Tc-99m, a radioactive isotope with a six hour half-life, used by radiopharmacies to prepare various nuclear imaging agents. Tc-99m results from the radioactive decay of Mo-99, itself a radioisotope with a 66-hour half-life produced in nuclear research reactors around the world from enriched uranium. The TechneLite generator is a little larger than a coffee can in size, and the self-contained system houses a vertical glass column at its core that contains Mo-99. During our manufacturing process, Mo-99 is added to the column within the generator where it is adsorbed onto alumina powder. The column is sterilized, enclosed in a lead shield and further sealed in a cylindrical plastic container, which is then immediately shipped to our radiopharmacy customers. Because of the short half-lives of Mo-99 and Tc-99m, radiopharmacies typically purchase TechneLite generators on a weekly basis pursuant to standing orders.
The Tc-99m produced by our TechneLite generator is the medical radioisotope that can be attached to a number of imaging agents, including our own NEUROLITE and Cardiolite products, and Neurolite, during the radiolabeling process. To radiolabel a Tc-99m-based radiopharmaceutical, a vial of sterile saline and a vacuum vial are each affixed to the top of a TechneLite generator. The sterile saline is pulled through the generator where it attracts Tc-99m resulting from the radioactive decay of Mo-99 within the generator column. The Tc-99m-containing radioactive saline is then pulled into the vacuum vial and subsequently combined by a radiopharmacist with the applicable imaging agent, and individual patient-specific radiolabeled imaging agent doses are then prepared. When administered, the imaging agent binds to specific tissues or organs for a period of time, enabling the Tc-99m to illuminate the functional health of the imaged tissues or organs in a diagnostic image. Our ability to produce and market TechneLite is highly dependent on our supply of Mo-99. See “Raw Materials and Supply Relationships—Molybdenum-99” below.
TechneLite is produced in 13 sizes (based on amount of radioactivity) and is currently marketed primarily in North America, Central America and LatinSouth America, largely to radiopharmacies that prepare unit doses of radiopharmaceutical imaging agents and ship these preparations directly to hospitals for administration to patients. In the U.S., we have supply contracts with the significantlarge radiopharmacy groups, including Cardinal Health (“Cardinal”), PharmaLogic Holdings Corp (“PharmaLogic”), RLS (USA) Inc. (previously GE Healthcare, Cardinal, UPPI, Jubilant RadiopharmaHealthcare) (“RLS”) and PharmaLogic.United Pharmacy Partners (“UPPI”). We also supply generators on a purchase order basis to other customers. We estimate that TechneLite had approximately one third of the U.S. generator market as of December 31, 2019,2021, competing primarily with Tc-99m-based generators produced by Curium. In Puerto Rico,Curium and NorthStar Medical Radioisotopes, LLC (“Northstar”). Outside of the U.S., we alsosell generators through supply TechneLiteagreements with radiopharmacy chains, through distributors or to our wholly-owned radiopharmacy to prepare radiopharmaceutical imaging agent unit doses.
In Canada, we have a supply agreement (the “Isologic Supply Agreement”) with Isologic Innovative Radiopharmaceuticals Ltd. (“Isologic”). Under the Isologic Supply Agreement, we supply Isologic with certain of our products on commercial terms, including certain product purchase commitments by Isologic. The agreement expires in January 2021 and may be terminated upon the occurrence of specified events, including a material breach by the other party, bankruptcy by either party or certain force majeure events. In Australia, we have a supply agreement (the “GMS Supply Agreement”) with Global Medical Solutions (“GMS”). Under the GMS Supply Agreement, we supply GMS with certain of our products on commercial terms, including certain minimum product purchase commitments by GMS. The agreement expires in August 2020 and may be terminated in whole or in part on a product-by-product basis upon the occurrence of specified events, including a material breach by the other party, bankruptcy by either party or certain force majeure events.separate customers.
The Mo-99 used in our TechneLite generators can be produced using targets made of either highly-enriched uranium (“HEU”) or low-enriched uranium (“LEU”). LEU consists of uranium that contains less than 20% of the uranium-235 isotope. HEU is often considered weapons grade material, with 20% or more of uranium-235. The American Medical Isotopes Production Act of 2012 encourages the domestic production of LEU Mo-99 and provides for the eventual prohibition of the export of HEU from the U.S. Although Medicare generally does not provide separate payment to hospitals for the use of diagnostic radiopharmaceuticals administered in an outpatient setting, since 2013, the Centers for Medicare and Medicaid Services (“CMS”), the federal agency responsible for administering the Medicare program, has provided an add-on payment (of $10)of $10 under the hospital outpatient prospective payment system for every Tc-99m diagnostic dose produced from non-HEU sourced Mo-99, to cover the marginal cost for radioisotopes produced from non-HEU sources. Our LEU TechneLite generator satisfies the reimbursement requirements under the applicable CMS rules.
We believe that our substantial capital investments in our highly automated TechneLite has patent protectionproduction line, which we have made over the years, and our extensive experience in complying with the U.S.stringent regulatory requirements for the handling of nuclear materials, create significant and various foreign countries on certain component technology currently expiringsustainable competitive advantages for us in 2029. In addition, given thegenerator manufacturing and distribution. Given our significant know-how and trade secrets associated with the methods of manufacturing and assembling the TechneLite generator, we believe we have a substantial amount of valuable and defensible proprietary intellectual property associated with the product. We believeIn addition, TechneLite has patent protection in the U.S. and various foreign countries on certain component technology currently expiring in 2029, and we are pursuing additional patent protection in the U.S. and world-wide on other component technology that, our substantial capital investmentsif granted, would expire in our highly automated TechneLite production line and our extensive experience in complying with the stringent regulatory requirements for the handling of nuclear materials create significant and sustainable competitive advantages for us in generator manufacturing and distribution.2040.
See Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations-ComparisonOperations - Comparison of the Periods Ended December 31, 2021 and 2020 and Comparison of the Periods Ended December 31, 2020 and 2019 and 2018-Revenues”- Revenues” for further information on total revenue contributed by TechneLite in each of our last three fiscal years.
Other
Radiopharmaceutical Oncology
PYLARIFY Approval and Commercial ProductsLaunch
PYLARIFY is a radioactive diagnostic agent indicated for PET imaging of PSMA-positive lesions in men with prostate cancer with suspected metastasis who are candidates for initial definitive therapy and in men with suspected recurrence based on elevated PSA levels. PYLARIFY works by binding to PSMA, a protein that is overexpressed on the surface of more than 90% of primary and metastatic prostate cancer cells. PYLARIFY works with PET/CT technology to produce a combined PET/CT scan that enables the reader of the PET/CT scan to detect and locate the disease.
According to the American Cancer Society, prostate cancer is the second most common cancer in American men - one in eight American men will be diagnosed with prostate cancer in their lifetimes and over 3.1 million American men are living with prostate cancer today. Based on estimates from third party sources regarding the incidence of prostate cancer in men in the U.S., we believe the potential market size for PSMA PET imaging agents could be up to 220,000 annual scans, comprised of 90,000 scans for patients with intermediate, unfavorable or high/very high risk of suspected metastases of prostate cancer and 130,000 scans for patients with suspected recurrence of prostate cancer. Because we are in the process of launching this imaging agent, we can give no assurance as to how clinical practice may evolve or what our ultimate market penetration may be.
The approval of PYLARIFY was based on data from two Company-sponsored pivotal studies (“OSPREY” and “CONDOR”) designed to establish the safety and diagnostic performance of PYLARIFY across the prostate cancer disease continuum. Results from OSPREY (Cohort A) demonstrated improvement in specificity and positive predictive value of PYLARIFY PET imaging over conventional imaging in men at risk for metastatic prostate cancer prior to initial definitive therapy. CONDOR studied men with biochemical recurrent prostate cancer. In patients with biochemical recurrent prostate cancer and non-informative baseline imaging, PYLARIFY demonstrated high correct localization and detection rates, including in patients with early recurrent disease with low but rising PSA blood levels (median PSA 0.8 ng/mL).
Upon commercial launch in June 2021, PYLARIFY was immediately available in select parts of the U.S. Over the course of the remainder of 2021, PYLARIFY availability expanded into additional regions and is now broadly available nationwide. We continue to expand our geographic coverage, customer contracting and market access coverage to serve our customers and the U.S. prostate cancer community.
The commercial launch of PYLARIFY is complex and expensive. During 2021, we hired additional employees to assist us with the commercialization of PYLARIFY, including in sales, marketing, reimbursement, quality and medical affairs. To manufacture PYLARIFY, we assembled and are qualifying a nationwide network of PMFs with radioisotope-producing cyclotrons that make F 18, which has a 110-minute half-life, so PYLARIFY is manufactured and distributed rapidly to end-users. After being made on a cyclotron at a PMF, the F 18 is then combined with certain chemical ingredients in specially designed chemistry synthesis boxes to manufacture PYLARIFY. The finished PYLARIFY is then quality control tested and transferred to a radiopharmacist who prepares and dispenses patient-specific doses of the final product. Because each of the PMFs manufacturing these products is deemed by the FDA to be a separate manufacturing site, each has to be approved by the FDA. Although PYLARIFY is now broadly available nationwide and we continue to qualify additional PMFs, we can give no assurance that the FDA will continue to approve PMFs in accordance with our planned roll-out schedule. If FDA approval of manufacturing sites is delayed or withdrawn, our future business, results of operations, financial condition and cash flows could be adversely affected.
In addition to the products listed above, our portfolionetwork of commercial products also includes important imaging agents in specific segments, which provide a stable base of recurring revenue. Most of these products have a favorable industry position as a result of our substantial infrastructure investment, specialized workforce, technical know-how and supplier and customer relationships.
Xenon Xe 133 Gas (“Xenon”) is a radiopharmaceutical gas that is inhaled and used to assess pulmonary function and also to image cerebral blood flow. Our Xenon is manufactured by a third party as a bi-product of Mo-99 production and is processed and finished by us. We are currently the leading provider of Xenon in the U.S.
Neurolite is an injectable, Tc-99m-labeled imaging agent used with SPECT technology to identify the area within the brain where blood flow has been blocked or reduced due to stroke. We launched Neurolite in 1995.
Cardiolite, also known by its generic name sestamibi, is an injectable, Tc-99m-labeled imaging agent used in MPI procedures to assess blood flow to the muscle of the heart using SPECT. Cardiolite was approved by the FDA in 1990 and its market exclusivity expired in July 2008. Included in Cardiolite revenues are branded Cardiolite and generic sestamibi revenues.
Thallium TI 201 is an injectable radiopharmaceutical imaging agent used in MPI studies to detect cardiovascular disease. We have marketed Thallium since 1977 and manufacture the agent using cyclotron technology.
FDG is an injectable, fluorine-18-radiolabeled imaging agent used with PET technology to identify and characterize tumors in patients undergoing oncologic diagnostic procedures. We manufacture and distribute FDG from our Puerto Rico radiopharmacy.
Gallium (Ga 67) is an injectable radiopharmaceutical imaging agent used to detect certain infections and cancerous tumors, especially lymphoma. We manufacture Gallium using cyclotron technology.
Quadramet, currently our only therapeutic product, is an injectable radiopharmaceutical used to treat severe bone pain associated with osteoblastic metastatic bone lesions. We serve as the direct manufacturer and supplier of Quadramet in the U.S.
Cobalt (Co 57) is a non-pharmaceutical radiochemical used in the manufacture of sources for the calibration and maintenance of SPECT imaging cameras.
Distribution, Marketing and Sales
The following table sets forth certain key market information for each of our commercial pharmaceutical products:
|
| |
Product | Approved Markets |
DEFINITY | Australia, Canada, European Union, European Economic Area, India, Israel, Mexico, New Zealand, Singapore, South Korea, Taiwan, United States |
TechneLite | Australia, Brazil, Canada, China, Colombia, Costa Rica, New Zealand, Panama, South Korea, Taiwan, United States |
Xenon | Canada, United States |
Cardiolite | Australia, Canada, Costa Rica, Hong Kong, Israel, Japan, New Zealand, Panama, Philippines, South Korea, Taiwan, Thailand, United States |
Neurolite | Australia, Austria, Belgium, Canada, Costa Rica, Denmark, France, Germany, Hong Kong, Italy, Japan, Luxembourg, New Zealand, Philippines, Slovenia, South Korea, Spain, Taiwan, Thailand, United States |
Thallium Tl 201 | Australia, Canada, Colombia, New Zealand, Pakistan, Panama, South Korea, Taiwan, United States |
Gallium Ga 67 | Australia, Canada, Colombia, Costa Rica, New Zealand, Pakistan, Panama, South Korea, Taiwan, United States |
FDG | United States |
Quadramet | United States |
In the U.S. and Canada,PMFs, we have a sales team of approximately 80 employees that call on healthcare providers in the echocardiography space, as well as radiopharmacy chains, integrated delivery networks and group purchasing organizations.
Our radiopharmaceutical products are sold in the U.S. through a subset of our sales team, primarily to radiopharmacies. We sell a majority of our radiopharmaceutical products in the U.S. to five radiopharmacy groups—namely GE Healthcare, Cardinal, UPPI, Jubilant Radiopharma and PharmaLogic. Our contractual distribution and other arrangementsalso been working with these radiopharmacy groups are as follows:
GE Healthcare maintains approximately 31 radiopharmaciesacademic medical centers in the U.S. that purchase our TechneLite generators.have radioisotope-producing cyclotrons and which have expressed an interest in manufacturing PYLARIFY. Under this initiative, we would enter into a fee-for-service arrangement under which the academic medical center’s PMF would manufacture and supply batches of PYLARIFY, and its radiopharmacy would prepare patient-ready unit doses, in each case for and on behalf of us. We estimate that GE Healthcare distributed approximately 9%would then sell
those unit doses to the aggregate U.S. SPECT doses soldacademic medical center’s hospitals and clinics, and in some instances, to additional customers in the first halfacademic medical center’s geographic area, in each case, under separate purchase agreements. The academic medical center’s PMF’s ability to manufacture and supply batches of 2019. We currently have an agreementPYLARIFY will be subject to FDA approval, and we can give no assurance that the FDA will approve such PMFs in accordance with GE Healthcareour planned roll-out schedule.
Our commercial launch also required us to obtain adequate coding, coverage and payment for the distribution of TechneLite, XenonPYLARIFY, including not only coverage from Medicare, Medicaid and other products. The agreement provides that GE Healthcare will purchase a minimum percentage of TechneLite generatorsgovernment payors, as well as certain other products from us. Our agreement,private payors, but also appropriate payment levels to adequately cover our customers’ costs of using PYLARIFY in PET/CT imaging procedures. We received notification that our Healthcare Procedure Coding System (“HCPCS”) code, which expires onenables streamlined billing, went into effect as of January 1, 2022. In addition, effective January 1, 2022, CMS granted Transitional Pass-Through Payment Status in the hospital outpatient setting (“TPT Status”) for PYLARIFY, enabling traditional Medicare to provide an incremental payment to our customers for PET/CT scans performed with PYLARIFY in that setting. TPT Status for PYLARIFY is expected to expire December 31, 2020, may2024. After TPT Status expires, under current Medicare rules, PYLARIFY, similar to other diagnostic radiopharmaceuticals, would not be terminated by either party uponseparately reimbursed in the occurrencehospital outpatient setting but rather would be included as part of specified events includingthe facility fee a material breach by either party, bankruptcy by either party, certain irresolvable regulatory changes or economic circumstances, or force majeure events.
hospital otherwise receives for a PET/CT imaging procedure, and the facility fee does not always cover the cost of a drug used in the procedure. We can give no assurance that any CMS reimbursement in the hospital outpatient setting that follows the expiration of TPT Status will be adequate to cover the cost of PYLARIFY used in a PET/CT imaging procedure.Cardinal maintains approximately 131 radiopharmacies that are typically locatedWe actively pursue patents in large, densely populated urban areasconnection with PYLARIFY, both in the U.S. We estimate that Cardinal’s radiopharmacies distributed approximately 44%and internationally. In the U.S. for PYLARIFY, we have four Orange Book-listed patents, including composition of matter patents, which expire in 2030 and 2037. Outside of the aggregate U.S. SPECT doses sold, we are currently pursuing additional PYLARIFY patents to obtain similar patent protection as in the first halfU.S.
See Part I, Item 1A. “Risk Factors” for information regarding certain risks associated with PYLARIFY and see Part II, Item 7. “Management’s Discussion and Analysis of 2019 (the latest information currently available to us). Our written supply agreement with Cardinal relating to TechneLite, Xenon, NeuroliteFinancial Condition and other products expires onResults of Operations - Comparison of the Periods Ended December 31, 2020. The agreement specifies pricing levels2021 and requirements to purchase minimum percentages of certain products during certain periods. The agreement may be terminated upon the occurrence of specified events, including a material breach by the other party2020 and certain force majeure events.
UPPI is a cooperative purchasing group (roughly analogous to a group purchasing organization) of approximately 60 independently owned or smaller chain radiopharmacies located in the U.S. UPPI’s radiopharmacies are typically broadly dispersed geographically, with some urban presence and a substantial number of radiopharmacies located in suburban and rural areasComparison of the country. We estimate that these independent radiopharmacies, together with approximately 9 unaffiliated, independent radiopharmacies, distributed approximately 19% of the aggregate U.S. SPECT doses sold in the first half of 2019. We currently have an agreement with UPPI for the distribution of TechneLite, Xenon and certain other products to radiopharmacies or families of radiopharmacies within the UPPI cooperative purchasing group. The agreement contains specified pricing levels based upon specified purchase amounts for UPPI. We are entitled to terminate the UPPI agreement upon 60 days written notice. The UPPI agreement expires on December 31, 2020.
Jubilant Radiopharma maintains approximately 56 radiopharmacies in the U.S. that purchase a range of our products. We estimate that Jubilant Radiopharma distributed approximately 14% of the aggregate U.S. SPECT doses sold in the first half of 2019. We currently have an agreement with Jubilant Radiopharma for the distribution of TechneLite, Xenon, Neurolite and other products. The agreement specifies pricing levels and volume and percentage purchase requirements. The agreement will expire onPeriods Ended December 31, 2020 and may be terminated upon2019 - Revenues” for further information on total revenue contributed by PYLARIFY since its approval.
Strategic Partnerships and Other Revenue
We continue to seek ways to further expand our portfolio of products and product candidates and how best to optimize the occurrence of specified events, including a material breach by the other party.
PharmaLogic maintains approximately 23 radiopharmacies in the U.S. that purchase a rangevalue of our products.current assets, evaluating a number of different opportunities to collaborate with others or acquire or in-license additional products, product candidates, businesses and technologies to drive our future growth. To the extent a strategic partnership relates to an approved product or potential new indication of an approved product, we report our revenue generated by that strategic partnership under the applicable product category.
Oncology
As we continue to pursue expanding our strategic partnerships, our Pharma Services activities and strategic partnerships in oncology include:
•Prostate Cancer – We estimate that PharmaLogic distributed approximately 4%collaborate with pharmaceutical companies developing therapies and diagnostics in prostate cancer.
▪Bayer Agreements – Under Progenics’ April 2016 agreement with a subsidiary of theBayer HealthCare Pharmaceuticals Inc. (“Bayer”) granting Bayer exclusive worldwide rights to develop and commercialize products using our PSMA antibody platform, in combination with Bayer’s alpha-emitting radionuclides, Progenics received an upfront payment of $4.0 million and milestone payments totaling $5.0 million. We could receive up to an additional $44.0 million in potential clinical and development milestones under this agreement. We are also entitled to single-digit royalties on net sales, and potential net sales milestone payments up to an aggregate U.S. SPECT doses soldof $130.0 million. In addition, in the first half of 2019. Our writtenOctober 2020, we entered into a clinical supply agreement with PharmaLogic relatingBayer to TechneLite, Xenon, Cardioliteinclude piflufolastat F 18 in Bayer’s clinical trial for prostate cancer. Bayer will use piflufolastat F 18 to assess PSMA expression levels at baseline and during treatment.
▪Curium Agreement – We have licensed exclusive rights to Curium to develop and commercialize piflufolastat F 18 in Europe. Under the terms of the collaboration, Curium is responsible for the development, regulatory approvals and commercialization of piflufolastat F 18 in Europe, and we are entitled to double-digit royalties on net sales of piflufolastat F 18. Curium is currently conducting a Phase 3 registration trial in Europe for piflufolastat F 18.
▪FUJIFILM Agreements – In June 2019, EXINI entered into a transfer agreement with FUJIFILM for the rights to aBSI in Japan for use under the name BONENAVI. Under the terms of the transfer agreement, FUJIFILM acquired, by a combination of purchase and license, the Japanese software, source code, supporting data and all Japanese patents associated with aBSI from EXINI for use in Japan. In exchange, EXINI received $4.0 million in an upfront payment and FUJIFILM agreed to pay EXINI support and service fees for aBSI and other AI products expiresover the next three years in Japan. BONENAVI had been licensed to FUJIFILM for use in Japan since 2011. In addition, in
February 2021, EXINI entered into a transfer agreement with FUJIFILM for the heart myocardial perfusion analysis software, cREPO, in Japan.
▪POINT Biopharma Agreement – In December 2020, we entered into a clinical supply agreement with POINT Biopharma US Inc. (“POINT Biopharma”) under which we will supply piflufolastat F 18 to POINT Biopharma as an imaging agent to evaluate and follow subjects for a Phase 3 clinical study of POINT Biopharma’s PSMA-targeted metastatic castrate-resistant prostate cancer (“mCRPC”) therapeutic candidate.
▪Prostate Cancer Clinical Trial Consortium Agreement – In January 2022, we announced a collaboration with the Prostate Cancer Clinical Trial Consortium (“PCCTC”), a premier multicenter clinical research organization that specializes in prostate cancer research. The intent of the strategic collaboration is to integrate our AI platform into PCCTC studies to advance the development and validation of novel AI-enabled biomarkers.
▪RefleXion Agreement – In September 2021, we entered into a development and commercialization collaboration with RefleXion Medical, Inc. to evaluate the use of piflufolastat F 18 to enable real-time therapeutic guidance of biology-guided radiotherapy in prostate cancer using the RefleXion X1TM platform. Under the terms of the agreement, we will contribute to the cost of RefleXion’s registrational program and will share in any upside created by this collaboration.
▪Regeneron Agreement – In June 2020, we entered into a clinical supply agreement with Regeneron Pharmaceuticals, Inc. (“Regeneron”) under which we will supply piflufolastat F 18 to Regeneron as an imaging agent to evaluate and follow subjects for a Phase 1/2 clinical study of Regeneron’s anti-PSMAxCD28-targeted mCRPC therapeutic candidate. In July 2021, we entered into a second agreement with Regeneron under which we will supply piflufolastat F 18 to Regeneron as an imaging agent to evaluate and follow subjects for a Phase 1/2 clinical study of Regeneron’s anti-PSMAxCD3 Bispecific Antibody in mCRPC patients.
▪ROTOP Agreement – In May 2019, Progenics entered into an exclusive license agreement with ROTOP Pharmaka GmbH (“ROTOP”), a Germany-based developer of radiopharmaceuticals for nuclear medicine diagnostics, to develop, manufacture and commercialize 1404 in Europe. Under the terms of the license, ROTOP is responsible for the development, regulatory approvals and commercialization of 1404 in Europe while we are entitled to double-digit, tiered royalties on December 31, 2020. Thenet sales of 1404 in Europe.
◦Immuno-Oncology - In May 2019, we commenced an initiative to build out our Pharma Services capabilities, which reside in our strategic partnerships and other revenue product category, by entering into a strategic collaboration and license agreement specifies pricing levelswith NanoMab Technology Limited (“NanoMab”), a privately-held biopharmaceutical company focused on the development of next generation radiopharmaceuticals for cancer precision medicine.
◦Pan-Oncology - In March 2021, we acquired from Ratio Therapeutics LLC (“Ratio”) (previously Noria Therapeutics, Inc.) exclusive, worldwide rights to NTI-1309, an innovative imaging biomarker that targets fibroblast activation protein, an emerging target with broad potential imaging applicability and requirementsuse in oncology. Under the terms of this agreement, Ratio will drive the early clinical development of NTI-1309. We are integrating NTI-1309 into our portfolio of imaging biomarkers as part of our Pharma Services offering. Upon further clinical development, we will assess options to purchase minimum percentages of certain products during certain periods. The agreement may be terminated upon the occurrence of specified events, includingbring NTI-1309 to market as a material breach by the other party and certain force majeure events.diagnostic or potentially a therapeutic agent.
Microbubble Franchise
In addition, we continue to seek to optimize our microbubble platform through new collaborations. In April 2021, we announced a strategic collaboration with Allegheny Health Network (“AHN”) which will use our microbubbles in combination with AHN’s ultrasound-assisted non-viral gene transfer technology for the distribution arrangementsdevelopment of a proposed treatment of xerostomia. Xerostomia is a lack of saliva production leading to dry mouth and has a variety of causes, including radiotherapy and chemotherapy, the chronic use of drugs and rheumatic and dysmetabolic diseases. Prior to 2021, we entered into microbubble collaborations with the following parties: (i) Cerevast Medical, Inc. (“Cerevast”), in which our microbubbles will be used in connection with Cerevast’s ocular ultrasound device to improve blood flow in occluded retinal veins in the eye; (ii) CarThera SAS (“CarThera”), for our radiopharmaceutical products described above, we also sell certainthe use of our radiopharmaceutical products to independent radiopharmaciesmicrobubbles in combination with SonoCloud, a proprietary implantable device in development for the treatment of recurrent glioblastoma; and directly to hospitals and clinics that maintain in-house radiopharmaceutical capabilities and operations. In(iii) Insightec Ltd. (“Insightec”), which will use our microbubbles in connection with the latter case, this represents a small percentagedevelopment of overall sales becauseInsightec’s transcranial guided focused ultrasound device for the majoritytreatment of hospitals and clinics do not maintain these in-house capabilities.
In Puerto Rico, we own and operate one of the two radiopharmacies on the island, where we sell our own productsglioblastoma as well as products of third parties to end-users. In Canada, we operate some direct distribution activities.
In Europe, Canada, Australia, Asia-Pacific and Latin America, we utilize third party distributor relationships to market, sell and distribute our products, either on a country-by-country basis or on a multi-country regional basis.other neurodegenerative conditions.
In March 2012, we entered into a development and distribution arrangement with China Resources Double-Crane (“Double-Crane”) for DEFINITY in China, Hong Kong and Macau with Double-Crane Pharmaceutical Company (“Double-Crane”). With Double-Crane’s support, we are currently pursuing the Chinese regulatory approval required to commercialize DEFINITY. In July 2013, we submitted a clinical trial application to the Chinese Food and Drug Administration (“CFDA”) seeking an Import Drug License. After a very extensive waiting period caused by a large number of drugs seeking CFDA regulatory approval, in February 2016, the CFDA approved our clinical trial application.Macau. Double-Crane has conducted on our behalf three confirmatory clinical trials in pursuit of cardiac, liver and kidney imaging indications, as well as one small pharmacokinetic study. Double Crane is preparing an application to the CFDA forIn March 2020, we filed an Import Drug License application with the National Medical Products Administration (“NMPA”) for the cardiacuse of DEFINITY for the echocardiography indication. Double CraneDouble-Crane is also in the process of analyzing the clinical results relating to the liver and kidney indications and will also work with us to prepare a CFDAan Import Drug License application for those indications, as appropriate.
RELISTOR
•Bausch Agreement -- Under its agreement with Salix Pharmaceuticals, Inc., a wholly-owned subsidiary of Bausch, Progenics received a $40.0 million development milestone upon U.S. marketing approval for subcutaneous RELISTOR in non-cancer pain patients in 2014, a $50.0 million development milestone for the U.S. marketing approval of an oral formulation of RELISTOR in July 2016, and a $10.0 million sales milestone for RELISTOR achieving U.S. net sales in excess of $100.0 million in 2019. We are also eligible to receive additional one-time sales milestone payments upon achievement of specified U.S. net sales targets, including:
| | | | | | | | |
U.S. Net Sales Levels in any Single Calendar Year | | Payment ($) |
| | (In thousands) |
In excess of $150 million | | 15,000 |
In excess of $200 million | | 20,000 |
In excess of $300 million | | 30,000 |
In excess of $750 million | | 50,000 |
In excess of $1 billion | | 75,000 |
Each sales milestone payment is payable one time only, regardless of the number of times the condition is satisfied, and all five remaining payments could be made within the same calendar year. We are also eligible to receive royalties from Bausch and its affiliates based on the following royalty scale: 15% on worldwide net sales up to $100.0 million, 17% on the next $400.0 million in worldwide net sales, and 19% on worldwide net sales over $500.0 million each calendar year, and 60% of any upfront, milestone, reimbursement or other revenue (net of costs of goods sold, as defined, and territory-specific research and development expense reimbursement) Bausch receives from sublicensees outside the U.S.
aBSI
•aBSI calculates the disease burden of prostate cancer by quantifying the hotspots on bone scans and automatically calculating the bone scan index value, representing the disease burden of prostate cancer shown on the bone scan. The Japanese rights to the stand-alone aBSI have been transferred and sold to FUJIFILM Toyama Chemical Co. Ltd. (“FUJIFILM”) under the name BONENAVI®. The cloud based aBSI was made available for clinical use in the U.S. on August 5, 2019. In February 2020, Progenics received CE marking for the standalone workstation model of aBSI, meeting the quality standards set by the European Economic Area. In September 2020, the FDA granted 510(k) clearance for the use of aBSI as software-as-a-medical device on a GE Healthcare imaging system.
PYLARIFY AI
•PYLARIFY AI, which we also refer to as aPROMISE, is an artificial intelligence medical device software designed to allow healthcare professionals and researchers to perform standardized quantitative assessment of PSMA PET/CT images in prostate cancer, including those images obtained by using PYLARIFY. PYLARIFY AI has demonstrated improved consistency, accuracy and efficiency in quantitative assessment of PSMA PET/CT. The technology automatically analyzes the PET/CT image to segment anatomical regions – 51 bones and 12 soft tissue organs. This image segmentation enables automated localization, detection and quantification of potential PSMA-avid lesions in the PET/CT image, which is incorporated into a standardized report for physicians. PYLARIFY AI can be deployed either as a secure web cloud application or within the secure firewall of the institution on a local server. Once deployed, the adaptive application can be integrated into an institution’s existing clinical workflow, delivering a unique combination of clinical utility and technical flexibility. We believe that PYLARIFY AI when used with PYLARIFY will provide us an important competitive advantage in what we expect will be a highly competitive PET PSMA diagnostic imaging agent market, although we can give no assurances to that effect. Our subsidiary, EXINI, was granted 510(k) clearance by the FDA in the U.S. and received a CE marking in Europe for aPROMISE. We commercially launched aPROMISE under the name PYLARIFY AI in the U.S. in November 2021.
FLURPIRIDAZ F 18
•GE Healthcare Agreement – In April 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, a fluorine 18-based PET MPI agent designed to assess blood flow to the heart in patients suspected of coronary artery disease. Under our agreement, GE Healthcare will complete the development of flurpiridaz F 18, pursue worldwide regulatory approvals, and, if successful, lead a worldwide launch and commercialization of the agent, with us collaborating on both development and commercialization through a joint steering committee. We also have the right to co-promote the
agent in the U.S. GE Healthcare’s development plan initially focuses on obtaining regulatory approval in the U.S., Japan, Europe and Canada. Under the agreement, we received an upfront cash payment of $5.0 million and are eligible to receive up to $60.0 million in regulatory and sales milestone payments, tiered double-digit royalties on U.S. sales, and mid-single digit royalties on sales outside of the U.S. GE Healthcare is conducting a second Phase 3 trial and expects to complete enrollment in 2022 and, assuming completion of the Phase 3 trial and regulatory approval, begin commercialization in 2024, although completion, approval and that timing cannot be assured.
LERONLIMAB
• CytoDyn Agreement– Progenics entered into an agreement with CytoDyn Inc. (“CytoDyn”) in 2012 to sell Progenics’ rights in leronlimab (PRO 140), an investigational humanized monoclonal antibody targeting the CCR5 receptor. CCR5 appears to act as a human immunodeficiency virus (“HIV”) entry inhibitor and may play a broader role in tumor metastasis and immune-mediated illnesses. The sale included milestone and royalty payment obligations to Progenics. Under the agreement, CytoDyn is responsible for all development, manufacturing and commercialization efforts. Pursuant to such agreement, Progenics received $5.0 million in upfront and milestone payments, and has the right to receive an additional $5.0 million upon the first U.S. or E.U. approval for the sale of the drug, and a 5% royalty on the net sales of approved products.
See Part I, Item 1A. “Risk Factors” for information regarding certain risks associated with our strategic activities.
Our Clinical Development Candidates
In addition to our commercial products and strategic partnerships with third parties, we also have ongoing clinical development programs that we are currently funding and managing ourselves:
•1095 (also known as I-131-1095) is a PSMA-targeted iodine-131 labeled small molecule that is designed to deliver a dose of beta radiation directly to prostate cancer cells with minimal impact on the surrounding healthy tissues. Progenics initiated eleven clinical sites in the U.S. along with the six active sites in Canada to support enrollment in our multicenter, randomized, controlled, ARROW Phase 2 study in mCRPC. During 2020, the study was paused to minimize risk to subjects and healthcare providers during the COVID-19 pandemic, and new enrollment in that study restarted in October 2020. In the fourth quarter of 2021, we completed an interim analysis of the ARROW Phase 2 study. The Independent Data Monitoring Committee recommended the study continue without modifications. We currently expect to complete enrollment in the ARROW Phase 2 study later in 2022.
•LMI 1195 is a fluorine 18-based PET imaging agent for the norepinephrine pathway. We have commenced a Phase 3 clinical trial for the use of LMI 1195 for the diagnosis and management of neuroblastoma tumors in pediatric and adult populations. We expect to initiate approximately 20 clinical sites in the U.S. to enroll approximately 100 patients with known or suspected neuroblastoma. The FDA has granted an Orphan Drug designation for the use of LMI 1195 in the management indication. We have also received notice of eligibility for a rare pediatric disease priority review voucher for a subsequent human drug application so long as LMI 1195 is approved by the FDA for its rare pediatric disease indication. Pursuant to federal legislation passed and signed into law in late 2020, the expiration date of the rare pediatric disease priority review voucher program was extended from September 30, 2022 to September 30, 2026.
For the years ended December 31, 2021, 2020 and 2019, we invested $45.0 million, $32.8 million and $20.0 million in research and development (“R&D”), respectively, primarily related to our clinical development candidates. In addition to our clinical development group, our R&D team also includes our Medical Affairs and Medical Information functions, which educate physicians on the scientific aspects of our commercial products and the approved indications.
See Part I, Item 1A. “Risk Factors” for information regarding certain risks associated with our strategic partnerships and clinical development programs.
Distribution, Marketing and Sales
The following table sets forth certain key market information for each of our commercial pharmaceutical products within each product category:
| | | | | |
Product | Approved Markets |
Precision Diagnostics | |
DEFINITY (or LUMINITY) | Australia, Canada, European Union, European Economic Area, India, Israel, Mexico, New Zealand, Singapore, South Korea, Taiwan, United States |
TechneLite | Australia, Brazil, Canada, Colombia, Costa Rica, New Zealand, Panama, South Korea, Taiwan, United States |
NEUROLITE | Australia, Austria, Belgium, Canada, Costa Rica, Denmark, France, Germany, Hong Kong, Italy, Japan, Luxembourg, New Zealand, Philippines, Slovenia, South Korea, Spain, Taiwan, Thailand, United States |
Xenon | Canada, United States |
Cardiolite | Australia, Canada, Costa Rica, Hong Kong, Israel, Japan, New Zealand, Panama, Philippines, South Korea, Taiwan, Thailand, United States |
Gallium | Australia, Canada, Colombia, Costa Rica, New Zealand, Pakistan, Panama, South Korea, Taiwan, United States |
Thallium | Australia, Canada, Colombia, New Zealand, Pakistan, Panama, South Korea, Taiwan, United States |
Radiopharmaceutical Oncology | |
PYLARIFY | United States |
AZEDRA | United States |
Strategic Partnerships and Other Revenue | |
RELISTOR (Solution for Injection 12 mg/0.6 mL vial) | Austria, Belgium, Bulgaria, Canada, Switzerland, Cypress, Czechia, Germany, Denmark, Estonia, Greece, Spain, Finland, France, Croatia, Hungary, Ireland, Iceland, Italy, Liechtenstein, Lithuania, Luxembourg, Latvia, Malta, Netherlands, Norway, Poland, Portugal, Romania, Sweden, Slovenia, Slovakia, United Kingdom, United States |
RELISTOR (Solution for Injection in pre-filled syringe 8mg and pre-filled syringe 12 mg) | Austria, Belgium, Bulgaria, Canada, Cypress, Czechia, Germany, Denmark, Estonia, Greece, Spain, Finland, France, Croatia, Hungary, Ireland, Iceland, Italy, Liechtenstein, Lithuania, Luxembourg, Latvia, Malta, Netherlands, Norway, Poland, Portugal, Romania, Sweden, Slovenia, Slovakia, United Kingdom, United States |
RELISTOR (methylnaltrexone bromide) Oral Tablet 140 mg | United States |
With respect to our other products:
•Progenics received CE marking for the standalone workstation model of aBSI, meeting the quality standards set by the European Economic Area. In September 2020, the FDA granted 510(k) clearance for the use of aBSI as software-as-a-medical device on a GE Healthcare imaging system.
•EXINI was granted 510(k) clearance by the FDA in the U.S. and received CE marking in Europe for aPROMISE. We launched aPROMISE under the name PYLARIFY AI in the U.S.
Sales of our microbubble ultrasound enhancing agent, DEFINITY, are generated in the U.S. through a DEFINITY direct sales team. While a small portion of our nuclear imaging product sales in the U.S. are generated through our direct sales force to hospitals and clinics that maintain their own in-house radiopharmaceutical preparation capabilities, we primarily sell our nuclear imaging products, including TechneLite, NEUROLITE, Xenon, and Cardiolite, to commercial radiopharmacies as described below. PYLARIFY sales are generated in the U.S. through a PYLARIFY direct sales team and a sales team at some of our PMF partners. PYLARIFY AI sales leads are generated in the U.S. through a direct sales team with sales generated through distributors and other strategic partners. AZEDRA sales are generated in the U.S. through an AZEDRA direct sales team. We have licensed RELISTOR to Bausch, and we collect quarterly royalties based on sales generated by Bausch.
As noted above, in the U.S., we have supply contracts with large radiopharmacy groups, and we sell a majority of our radiopharmaceutical products in our precision diagnostics category to five of these groups—namely Cardinal, Jubilant Radiopharma, formerly known as Triad Isotopes, Inc. (“Jubilant Radiopharma”), PharmaLogic, RLS and UPPI. Our contractual arrangements with these radiopharmacy customers generally specify pricing levels and requirements to purchase minimum percentages of certain products during certain periods. The agreements are generally multi-year arrangements that may be terminated upon the occurrence of specified events, including a material breach by the other party and certain force majeure events.
Seasonality
Our business hasWe have some modest seasonality for our products as patients may seek to schedule non-urgent diagnostic imaging and other procedures less frequently during the summer vacation months and over the year-end holidays.
Customers
No customer accounted for greater than 10% of revenues for the year ended December 31, 2019.2021.
Backlog
Our backlog consists of orders for which a delivery schedule within the next twelve months has been specified. Orders included in backlog may be canceled or rescheduled by customers at any time with the exception of TechneLite orders. For TechneLite, customers must provide us with four weeks advanced notice to cancel an order. We do not believe that our backlog at any particular time is meaningful because it has historically been immaterial relative to our consolidated revenues and is not necessarily indicative of future revenues for any given period.
Competition
We believe that our key product characteristics, such as proven efficacy, reliability and safety, coupled with our core competencies, such as our efficient manufacturing processes, our established distribution network, our experienced field sales organization and our customer service focus, are important factors that distinguish us from our competitors.
The marketmarkets for diagnostic medical imaging agents isour products are highly competitive and continually evolving. Our principal competitors in existing diagnostic modalitiesfor our current commercial products and leading clinical development candidates include large, global companies that are more diversified than we are and that have substantial financial, manufacturing, sales and marketing, distribution and other resources. These
•For DEFINITY, our competitors currently include GE Healthcare and Bracco.
•For a number of our SPECT radiopharmaceutical commercial products, our competitors currently include Curium, GE Healthcare, Bracco and Jubilant Life Sciences, an affiliate of JHS and Jubilant Radiopharma, as well as other competitors, including NorthStar Medical Radioisotopes. and potentially BWXT Medical.
•For PYLARIFY, our competitors currently include Telix Pharmaceuticals Limited’s Illuccix (gallium-68 PSMA-11 injection), a PSMA PET imaging agent approved by the FDA for commercialization in December 2021, and Bracco’s Axumin (fluciclovine F 18), a PET imaging agent. In addition, the University of California, San Francisco and the University of California, Los Angeles have approved NDAs for a gallium-68 PSMA-11 injection for PSMA PET imaging, which we believe will primarily be used within their hospital systems. We also face potential competition from Novartis AG, which has a gallium-68 PSMA-11 kit for PET imaging currently under review with the FDA, and Bracco, which has an F 18 PSMA PET imaging agent in late stage clinical development; we believe that one or both of the Novartis and Bracco PSMA agents could be approved by the FDA for commercialization later in 2022 or in 2023.
•For RELISTOR, our principal competitors include RedHill Biopharma Inc.; Cubist Pharmaceuticals, a subsidiary of Merck & Co., Inc.; Mallinckrodt plc, in collaboration with Takeda Pharmaceutical Company Limited; and BioDelivery Sciences International, Inc.; together with other prescription, as well as over-the-counter, laxatives used as first line therapy for OIC.
•For AZEDRA, there are currently no other FDA approved anticancer treatments in the U.S. for malignant, recurrent, and/or unresectable pheochromocytoma and paraganglioma.
The markets into which any of our product candidates would be launched, if approved, are also highly competitive and continually evolving.
•For 1095, our principal competitors in the field of mCRPC for radiopharmaceutical therapeutics may include Novartis AG; POINT Biopharma; Telix Pharmaceuticals Limited; and Bayer HealthCare Pharmaceuticals Inc., each of which have product candidates in development.
•For LMI 1195, our principal competitors may include GE Healthcare’s iobenguane 123 injection.
•For flurpiridaz, our principal competitors may include rubidium generators from Bracco and Jubilant Radiopharma.
We cannot anticipate their competitivethe actions of our current or future competitors in the same or competing diagnostic modalities, such as significant price reductions on products that are comparable to our own, development of new products or other technologies that are more cost-effective or have superior performance than our current products or the introduction of generic versions after our proprietary products lose their current patent protection. In addition, distributors of our products could attempt to shift end-users to competing diagnostic
modalities and products, or bundle the sale of a portfolio of products, to the detriment of our specific products. Our current or future products could be rendered obsolete or uneconomical as a result of these activities.
Further, the radiopharmaceutical and biopharmaceutical industry continues to evolve strategically, with several market participants either recently sold or for sale. In addition, the supply-demand dynamics of the industry are complex because of large market positions of some participants, legacy businesses, government subsidies (in particular, relating to the manufacture of radioisotopes), and group purchasing arrangements. We cannot predict what impact new owners and new operators may have on the strategic decision-making of our competitors, customers and suppliers.
Raw Materials and Supply Relationships
We rely on certain raw materials and supplies to produce our products. Due to the specialized nature of our products and the limited, and sometimes intermittent, supply of raw materials available in the market, we have established relationships with several key suppliers. For the year ended December 31, 2019,2021, our largest suppliers of raw materials and supplies were Institute for Radioelements (“IRE”), ANSTOthe Australian Nuclear Science and Technology Organisation (“ANSTO”) and NTP Radioisotopes (“NTP”), which, in the aggregate, accounted for approximately 26%21% of our total purchases.
Molybdenum-99
Our TechneLite, Cardiolite and NeuroliteNEUROLITE products all rely on Mo-99, the radioisotope which is produced by bombarding uranium with neutrons in research reactors. With a 66-hour half-life, Mo-99 decays into, among other things, Tc-99m, another radioisotope with a half-life of six hours. Tc-99m is the isotope that is attached to radiopharmaceuticals, including our own CardioliteNEUROLITE and Neurolite,Cardiolite, during the labeling process and is the most common radioisotope used for medical diagnostic imaging purposes.
We currently purchase finished Mo-99 from three of the four main processing sites in the world, namely IRE in Belgium, NTP in South Africa and ANSTO in Australia. These processing sites provide us Mo-99 from five of the six main Mo-99-producing reactors in the world, namely BR2 in Belgium, LVR-15 in the Czech Republic, HFR in The Netherlands, SAFARI in South Africa and OPAL in Australia.
Our agreement with IRE (the “IRE Agreement”) contains minimum percentage volume requirements and unit pricing. The IRE Agreement also requires IRE to provide certain favorable allocations of Mo-99 during periods of supply shortage or failure. The IRE Agreement also provides for an increased supply of Mo-99 derived from LEU targets upon IRE’s completion of its ongoing conversion program to modify its facilities and processes in accordance with Belgian nuclear security commitments. The IRE Agreement allows for termination upon the occurrence of certain events, including failure by IRE to provide our required amount of Mo-99, material breach of any provision by either party, bankruptcy by either party or force majeure events. The IRE Agreement expires on December 31, 2020,2023, and is renewableautomatically renews on an annual basis thereafter, subject to prior notice of non-renewal by LMI on a year-to-year basis thereafter.either party.
Our agreement with NTP (the “NTP Agreement”), with NTP acting for itself and on behalf of its subcontractor ANSTO, specifies LMI’sour percentage purchase requirements and unit pricing, and provides for the supply of Mo-99 derived from LEU targets from NTP and ANSTO. ANSTO’s newThe NTP Agreement allows for termination upon the occurrence of certain events, including failure by NTP to provide our required amount of Mo-99, material breach of any provision by either party, bankruptcy by either party or force majeure events. The NTP Agreement expires on March 31, 2022, and we are actively negotiating an extension.
Despite our globally diverse Mo-99 suppliers, we still face supplier and logistical challenges in our Mo-99 supply chain. The NTP 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 financialhad periodic outages in 2017, 2018 and operational resources. At full ramp-up capacity, ANSTO’s new facility could provide incremental supply to our globally diversified2019. When NTP was not producing, we relied on Mo-99 supply from both IRE and ANSTO to limit the impact of the NTP outages. In 2019 and 2020, ANSTO experienced multiple facility issues that resulted in ANSTO outages and volume limitations, during which time we relied on IRE and NTP to limit the impact of those outages and limitations. Because of the COVID-19 pandemic, we experienced challenges receiving regularly scheduled orders of Mo-99 from our global suppliers, particularly in the second quarter of 2020. We continue to manage these various supply chain challenges. Depending on reactor and therefore mitigateprocessor schedules and operations, at times we have not been able to fill some risk amongor all of the demand for our Mo-99 suppliers, although we can give no assurances to that effect and aTechneLite generators on certain manufacturing days. A prolonged disruption of service from one of our three Mo-99 processing sites or one of their main Mo-99-producing reactors could have a substantial negative effect on our business, results of operations, financial condition and cash flows.
Despite our globally diverse Mo-99 suppliers, we still face challenges in our Mo-99 supply chain. The NTP processing facility had periodic outages in 2017, 2018 and 2019. When NTP was not producing, we relied on Mo-99 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 Mo-99 processing facility which resulted in a decrease in Mo-99 available to us. In addition, as ANSTO transitioned from its existing Mo-99 processing facility to its new Mo-99 processing facility in the second quarter of 2019, ANSTO experienced start-up and transition challenges, which also resulted in a decrease in Mo-99 available to us. Further, starting in late June 2019 and through the date of this filing, ANSTO’s new Mo-99 processing facility has experienced unscheduled production outages, and we are now relying on IRE and NTP to limit the impact of those ANSTO outages. 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.
We are also pursuing additional sources of Mo-99 from potential new producers around the world to furtherTo augment our current supply. In November 2014,supply of Mo-99, we entered into a strategic arrangement with SHINE Medical Technologies LLC (“SHINE”) for the future supply of Mo-99. Under the terms of the supply agreement, entered into in November 2014, SHINE will provide Mo-99 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 2022.2023. The term of this arrangement provides for three years of supply of Mo-99. However, we cannot assure you that our arrangement with SHINE or any other possible additional sourceswill
result in commercial quantities of Mo-99 for our business, or that these new suppliersSHINE together with our current suppliers will be able to deliver a sufficient quantity of Mo-99 to meet our needs.
Xenon
Xenon is a by-product of the Mo-99 production process. Under a strategic agreement we entered into in 2015,2021, we receive from IRE bulk unprocessed Xenon, which we process and finish for our customers at our North Billerica, Massachusetts manufacturing facility. That contract runs through June 30, 2022,December 31, 2023, with auto-renewal provisions and is subject to further extension.terminable upon notice of non-renewal. Until we can qualify an additional source of bulk unprocessed Xenon, we will rely on IRE as a sole source provider.
Iodine 131
Iodine 131 is also a by-product of the Mo-99 production process, and it is the active radioisotope ingredient in both AZEDRA and 1095. We receive Iodine 131 from IRE in Belgium and we are in the process of securing a secondary source. We use Iodine 131 at our Somerset facility to manufacture and produce AZEDRA. We also rely on Center for Probe Development and Commercialization (“CPDC”) in Canada for our clinical supply requirements for 1095. CPDC sources Iodine 131 from IRE in Belgium and NTP in South Africa.
Other Materials
We have additional supply arrangements for active pharmaceutical ingredients, excipients, packaging materials and other materials and components, none of which are exclusive, but a number of which are sole source, and all of which we currently believe are either in good standing or replaceable without any material disruption to our business.
See Part I, Item 1A. “Risk Factors” for information regarding certain risks associated with our raw materials and supply arrangements.
Manufacturing
We maintain manufacturing operations at our North Billerica, Massachusetts facility. We manufacture TechneLite on a highly automated production line, Thallium and Gallium and certain radiochemicals using our cyclotron technology, and we process and finish Xenon and Quadramet using ouron a hot cell infrastructure.line. We also maintainoperate a manufacturing operationsfacility at Somerset, NJ, using a hot cell line for AZEDRA. During 2021, we increased the manufacturing staff at our San Juan, Puerto Rico radiopharmacy and PETSomerset facility to help maintain an adequate supply of AZEDRA. We also began constructing an additional manufacturing suite at Somerset which, if approved by the FDA, could provide redundancy for AZEDRA manufacturing as well as increased overall future capacity for 1095, if approved by the FDA or other iodine-based products.
We have constructed a specialized in-house manufacturing facility whereat our North Billerica campus for purposes of producing DEFINITY and, potentially, other sterile vial products. On February 22, 2022, we manufacture FDG using cyclotron technology. received FDA approval of our sNDA, authorizing commercial manufacturing of DEFINITY at our new facility. DEFINITY manufactured at this facility became commercially available on February 23, 2022. We believe this investment will allow us to better manage DEFINITY manufacturing and inventory, reduce our costs in a potentially more price competitive environment, and provide us with supply chain redundancy.
We manufacture, finish and distribute our radiopharmaceutical products on a just-in-time basis, and supply our customers with these products either by next day delivery services or by either ground or air custom logistics. We believe that our substantial capital investments in our highly automated generator production line, our cyclotrons and our other manufacturing assets, which we have made over the years, and our extensive experience in complying with the stringent regulatory requirements for the handling of nuclear materials and operations in a highly regulated environment, create significant and sustainable competitive advantages for us.
In addition to our in-house manufacturing capabilities, a substantial portion of our products are manufactured by third party contract manufacturing organizations, and in certain instances, we rely on them for sole source manufacturing. To ensure the quality of the products that are manufactured by third parties, the key raw materials used in those products are first sent to our North Billerica, Massachusetts facility, where we test them prior to the third party manufacturing of the final product. After the final products are manufactured, they are sent back to us for final quality control testing, and then we ship them to our customers. We have expertise in the design, development and validation of complex manufacturing systems and processes, and our strong execution and quality control culture supports the just-in-time manufacturing model at our North Billerica, Massachusetts facility.manufacturing facilities.
We are also in the final stages
The commercial manufacture of a larger corporate growth strategyPYLARIFY required us to create a competitive advantagefield-based network of specialized PMFs with radioisotope-producing cyclotrons. The radioisotope used in specialized manufacturing. This project should not only deliver efficienciesPYLARIFY is F 18, which has a 110 minute half-life, requiring that this agent be manufactured and supply chain redundancy for our current portfolio but should also afford us increased flexibility as we consider external opportunities. We currently expectdistributed rapidly to end-users. After being made on a cyclotron at a PMF, the F 18 is then combined with certain chemical ingredients in specially designed chemistry synthesis boxes to manufacture PYLARIFY. The finished PYLARIFY is then quality control tested and transferred to a radiopharmacist who prepares and dispenses patient-specific doses from the final product. Because each of the PMFs manufacturing PYLARIFY is deemed by the FDA to be in a position to use this in-houseseparate manufacturing capability by early 2021. However,site, each requires separate FDA approval, and we can give no assurance that wethe FDA will be successfulcontinue to approve PMFs in these efforts or that weaccordance with our planned roll-out schedule for PYLARIFY, particularly given ongoing challenges of the COVID-19 pandemic. Flurpiridaz F 18, if approved by the FDA, will be ablehave a manufacturing and PMF approval process similar to successfully manufacture any additional commercial products at our North Billerica, Massachusetts facility.
PYLARIFY.
Manufacturing and Supply Arrangements
We currently have the following technology transfer and manufacturing and supply agreements in place for some of our major products:
•DEFINITY, Cardiolite and NEUROLITE—In February 2012,2022, we entered into a new Manufacturing and Supply Agreement with JHS, for the manufacture of DEFINITY. Under theDEFINITY, Cardiolite, NEUROLITE and evacuation vials. The new agreement, which superseded all of our prior agreements with JHS manufactured DEFINITY for us for an initial term of five years. In September 2016, we extended the agreement through January 2022. The agreement contains automatic renewals for additional one-year periods thereafter.those products, expires on December 31, 2027 and can be renewed upon mutual consent. The agreement allows for termination upon the occurrence of certain events such as a material breach or default by either party, or bankruptcy by either party. The agreement also requires us to place orders fororder from JHS a specified minimum percentage of our requirements for DEFINITY with JHS.and fixed quantities of Cardiolite and NEUROLITE each year during the contract term. Based on our current projections, we believe that we will have sufficient supply of DEFINITY from JHS and our in-house manufacturing facility and sufficient supply of Cardiolite and NEUROLITE products from JHS to meet expected demand.
On May 3, 2016,•PYLARIFY—The commercial manufacture of PYLARIFY required us to create a field-based network of specialized PMFs with radioisotope-producing cyclotrons. In preparation for our commercial launch, we entered into commercial supply agreements with different radiopharmacy networks. Under our supply agreements, the PMF manufactures the radioisotope F 18 on a Manufacturingcyclotron, and Supply Agreementthen combines the F 18 with SBL to perform technology transfer and process development servicescertain chemical ingredients in specially designed chemistry synthesis boxes to manufacture PYLARIFY. The finished PYLARIFY is then quality control tested and supply a modified formulation of DEFINITY. There are no minimum purchase requirements under this agreement, which has an initial term of five yearstransferred to the PMF’s radiopharmacist who prepares and dispenses patient-specific doses from the date of first commercial sale and is renewable atfinal product. Our agreements with our optionPMF networks allow for an additional five years. This agreement allows for termination upon the occurrence of certain events, including material breach or bankruptcy of either party. We cannot give any assurances as to when those technology transfer activities will be completed and when we will begin to receive supply of a modified formulation of DEFINITY from SBL.
Cardiolite—In May 2012, we entered into a Manufacturing and Supply Agreement with JHS for the manufacture of Cardiolite products. In the third quarter of 2016, we completed the technology transfer process and received FDA approval to manufacture Cardiolite at JHS. Under the agreement, JHS has agreed to manufacture products for an initial term of five years from the effective date. On November 9, 2017, we extended the term until December 31, 2020, and the agreement can be further extended for three additional one-year periods thereafter so long as the parties, using good faith, reasonable efforts, agree to new pricing for the upcoming additional term. The agreement allows for termination upon the occurrence of specified events, including material breach or bankruptcy by either party. The agreement requires usparty, and have various termination dates generally terminating in 2025 and subject to place orders for 100% of our requirements for Cardiolite products with JHS during such term. Based on our current projections, we believe that we will have sufficient supply of Cardiolite products from JHS to meet expected demand.
Neurolite—In May 2012, we entered into a Manufacturing and Supply Agreement with JHS for the manufacture of Neurolite, and in January 2015, the FDA granted approval to manufacture Neurolite at JHS. Under the agreement, JHS agreed to manufacture Neurolite for an initial term of five years from the effective date. On November 9, 2017, we extended the term of the agreement until December 31, 2020, and the agreement can be further extended for three additional one-year periods thereafter so long as the parties, using good faith, reasonable efforts, agree to new pricing for the upcoming additional term. The agreement allows for termination upon the occurrence of specified events, including material breach or bankruptcy by either party. The agreement also requires us to place orders for 100% of our requirements for Neurolite during such term. Based on our current projections, we believe that we will have sufficient supply of Neurolite from JHS to meet expected demand.
Although we are pursuing additional third party manufacturing relationships to establish and secure additional long-term or alternative suppliers as described above, we are uncertain of the timing as to when these arrangements could provide meaningful quantities of our products.renewal provisions.
See Part I, Item 1A. “Risk Factors” for information regarding certain risks associated with our manufacturing and supply relationships.
Clinical Development
For the years ended December 31, 2019, 2018 and 2017, we invested $20.0 million, $17.1 million and $18.1 million in research and development (“R&D”), respectively. Our R&D team includes our Medical Affairs and Medical Information functions, which educate physicians on the scientific aspects of our commercial products and the approved indications. In addition to the DEFINITY clinical trials in China described above, we currently have three active clinical development programs.
Flurpiridaz F 18—PET Myocardial Perfusion
We have developed flurpiridaz F 18, an internally discovered small molecule radiolabeled with fluorine-18, as an imaging agent used in PET MPI to assess blood flow to the heart.
Today, most MPI procedures use SPECT technology. Although SPECT imaging used in conjunction with a radiopharmaceutical imaging agent, such as Cardiolite, is most commonly used for MPI studies, PET imaging has gained considerable support in the field of cardiovascular imaging as it offers many advantages to SPECT imaging, including: higher image quality, increased diagnostic certainty, more accurate risk stratification and reduced patient radiation exposure. PET imaging has demonstrated broad utility for diagnosis, prognosis, disease staging and therapeutic response. When used in combination with an appropriate radiopharmaceutical imaging agent, PET imaging can provide important insights into physiologic and metabolic processes in the body and be useful in evaluating a variety of conditions including heart disease, neurological disease and cancer. In addition, PET MPI imaging could be particularly useful in difficult-to-image patients, including women and obese patients. The use of PET technology in MPI tests represents a broad emerging application for a technology more commonly associated with oncology and neurology. We anticipate that the adoption of PET technology in MPI tests will increase significantly in the future.
Flurpiridaz F 18 Clinical Overview and Phase 3 Program
We submitted an Investigational New Drug Application (“IND”) for flurpiridaz F 18 to the FDA in August 2006. Our clinical program to date has consisted of three Phase 1 studies, a Phase 2 clinical trial, conducted from 2007 to 2010, involving 176 subjects who received PET MPI performed with flurpiridaz F 18 and completed the trial, and a Phase 3 clinical trial (“301 Trial”) conducted from 2011 to 2013.
The 301 Trial was an open-label, multicenter, international study with 755 subjects with known or suspected coronary artery disease (“CAD”) and scheduled for coronary angiography and SPECT imaging who completed the trial and were included in the efficacy analysis. Subjects underwent flurpiridaz F 18 PET MPI and SPECT MPI studies with coronary angiography used as the truth standard for each. The study then compared MPI imaging using flurpiridaz F 18 versus SPECT imaging with primary endpoints of superiority for sensitivity (identifying disease) and non-inferiority for specificity (ruling out disease).
In the fourth quarter of 2013, we announced preliminary results from the 301 Trial, and in May 2015, after a re-read of the 301 Trial results, we announced the complete results from the 301 Trial. Flurpiridaz F 18 appeared to be well-tolerated from a safety perspective, and PET MPI with flurpiridaz F 18 consistently showed a balanced performance in sensitivity and specificity, when compared to coronary angiography, while SPECT imaging results were skewed with low sensitivity and high specificity when compared to coronary angiography. When results were compared to one another, flurpiridaz F 18 imaging substantially outperformed SPECT imaging in sensitivity but did not meet the non-inferiority endpoint in specificity, implying a substantial and unexpected under-diagnosis of CAD with SPECT imaging in the trial.
In subgroup analyses, the risk-benefit profile of flurpiridaz F 18 appeared to be favorable in women, obese patients, patients with multi-vessel disease and diabetics. A significantly higher percentage of images were rated as either excellent or good with flurpiridaz F 18 imaging as compared to SPECT imaging, leading to a greater diagnostic certainty of interpretation. Importantly, radiation exposure associated with flurpiridaz F 18 imaging was reduced to approximately 50% of SPECT imaging. In addition, no drug-related serious adverse events were observed.
GE Healthcare Collaboration
In April 2017, we announced that we entered into a definitive, exclusive Collaboration and License Agreement (the “License Agreement”) with GE Healthcare for the continued Phase 3 development and worldwide commercialization of flurpiridaz F 18. Under the License Agreement, GE Healthcare will complete the worldwide development of flurpiridaz F 18, pursue worldwide regulatory approvals and, if successful, lead a worldwide launch and commercialization of the agent, with us collaborating on both development and commercialization through a joint steering committee.
The second Phase 3 clinical trial is underway, as a prospective, open-label, international, multi-center trial of flurpiridaz F 18 for PET MPI in patients referred for invasive coronary angiography because of suspected CAD. The trial will enroll up to 650 participants, with a target completion date in the second half of 2020, although that timing cannot be assured. The primary outcome measure for the trial is the diagnostic efficacy of flurpiridaz F 18 PET MPI in the detection of significant CAD, with secondary outcome measures of diagnostic efficacy of flurpiridaz F 18 PET MPI compared with SPECT MPI in the detection of CAD in all patients. Secondary analysis will be performed in patients of special clinical interest, such as female, obese and diabetic patients, where current SPECT MPI technologies have shown certain limitations in the diagnostic performance.
LMI 1195 (flubrobenguan F18)
We have developed LMI 1195, an internally discovered small molecule imaging agent for the norepinephrine pathway. We originally pursued developing LMI 1195 for the diagnostic assessment of ischemic heart failure patients at risk of sudden cardiac death who may benefit from an implantable cardioverter defibrillator (ICD). However, after multiple interactions with the FDA, we have concluded that the cardiac clinical development program for this indication would be longer and more expensive than we had
initially envisioned. As a result, we have paused in pursuing this particular indication but may consider other possible cardiac indications in the future.
We are now 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 granted an Orphan Drug designation for the use of LMI 1195 in the management indication. We have also received notice of eligibility for a rare pediatric disease priority review voucher for a subsequent human drug application so long as LMI 1195 is approved by the FDA for its rare pediatric disease indication prior to September 30, 2022.
DEFINITY - LVEF
As part of our microbubble franchise strategy, we conducted two Phase 3, open-label, multicenter studies to evaluate LVEF measurement accuracy and reproducibility of DEFINITY contrast-enhanced and unenhanced echocardiography as compared to non-contrast CMRI used as the truth standard. The first of the two trials, BENEFIT 1, enrolled 145 subjects. After reviewing the study results from BENEFIT 1, we concluded there was no statistically significant improvement in the accuracy of LVEF values for contrast-enhanced echocardiography versus unenhanced echocardiography as compared to CMRI. In addition, analyses of the secondary endpoints revealed no improvement in inter-reader variability between the contrast-enhanced and unenhanced echocardiograms for LVEF assessments. A post-hoc analysis, however, did show statistically significant improvements in left ventricular diastolic, systolic and stroke volume measurements with contrast-enhanced versus unenhanced echocardiography when compared to CMRI. We will continue to analyze the BENEFIT 1 data, and when the data from BENEFIT 2 are available, we will compile the data sets to analyze the full results of the trials.
See Part I, Item 1A. “Risk Factors” for information regarding certain risks associated with our clinical development programs.
Strategic Activities
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, in radiotherapeutics as well as diagnostics. In addition to the Progenics Transaction described above, 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.
In addition, as described above, we continue to expand our microbubble franchise. We recently announced a strategic development and commercial collaboration with Cerevast 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. We also recently announced a strategic commercial supply agreement with CarThera for the use of our microbubbles in combination with SonoCloud, a proprietary implantable device in development for the treatment of recurrent glioblastoma, Glioblastoma is a lethal and devasting from of brain cancer with median survival of 15 months after diagnosis.
See Part I, Item 1A. “Risk Factors” for information regarding certain risks associated with our strategic activities.
Intellectual Property
Patents, trademarks and other intellectual property rights, both in the U.S. and foreign countries, are very important to our business. We also rely on trade secrets, manufacturing know-how, technological innovations, licensing agreements and confidentiality agreements to maintain and improve our competitive position. We review third party proprietary rights, including patents and patent applications, as available, in an effort to develop an effective intellectual property strategy, avoid infringement of third party proprietary rights, identify licensing opportunities and monitor the intellectual property owned by others. Our ability to enforce, defend and protect our intellectual property rights may be limited in certain countries outside the U.S., which could make it easier for competitors to capture market position in those countries by utilizing technologies that are similar to those developed or licensed by us. Competitors also may harm our sales by designing products that mirror the capabilities of our products or technology without infringing our intellectual property rights. If we do not obtain sufficient protection for our intellectual property, or if we are unable to effectively enforce or defend our intellectual property rights, our competitiveness could be impaired, which would limit our growth and future revenue.
Trademarks, Service Marks and Trade Names
We own various trademarks, service marks and trade names, including, among others, AZEDRA, AZEDRA Service Connection, Cardiolite, DEFINITY, TechneLite, Cardiolite, Neurolite, Vialmix, Quadramet, LuminityDEFINITY RT, EXINI, Find, Fight and Follow, Find > Fight > Follow, Lantheus, Lantheus Medical Imaging.Imaging, LUMINITY, Molecular Insight, NEUROLITE, Progenics, Progenics Pharmaceuticals, PYLARIFY, PYLARIFY AI, TechneLite, VIALMIX and VIALMIX RFID. We have registered these trademarks, as well as others, in the U.S. and/or numerous foreign jurisdictions.
Patents
We actively seek to protect the proprietary technology that we consider important to our business, including chemical species, compositions and formulations, their methods of use and processes for their manufacture, as new intellectual property is developed. In addition to seeking patent protection in the U.S., we file patent applications in numerous foreign countries in order to further protect the inventions that we consider important to the development of our international business. We also rely upon trade secrets and contracts to protect our proprietary information. As of December 31, 2019, our patent portfolio included a total of 43 issued U.S. patents, 284 issued foreign patents, 22 pending U.S. patent applications and 160 pending foreign applications. These patents and patent applications include claims covering the composition of matter and methods of use for all of our preclinical and clinical stage agents.information.
We have patent protection on certain of our commercial products and on all of our clinical development candidates. We typically seek patent protection in major markets around the world, including, among others, the U.S., Canada, Western Europe, Asia, Central America and LatinSouth America. All patent terms described below are presented without giving effect to any applicable patent term adjustments or regulatory extensions.
DEFINITY - We continue to actively pursue additional patents in connection with DEFINITY and DEFINITY RT, both in the U.S. and internationally. In the U.S., for DEFINITY, we have anfour Orange Book-listed method of use patent expiringpatents, one of which expires in March2035 and three of which expire in 2037, andas well as additional manufacturing patents that are not Orange Book-listed expiring in 2021, 2023 and 2037. In the U.S. for DEFINITY RT, we have five Orange Book-listed patents, including a composition of matter patent which expires in 2035. Outside of the U.S., while our DEFINITY patent protection and regulatory exclusivity have generally expired, we are currently prosecutingpursuing additional DEFINITY and DEFINITY RT patents to try to obtain similar method of use patent protection as granted in the U.S. The Orange Book-listed patents include a patent on the use of VIALMIX RFID which expires in 2037; additional VIALMIX RFID patent applications have been submitted in major markets throughout the world.
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) either the marketing of that generic candidate does not infringe anthe Orange Book-listed patent.patent(s) or the Orange Book-listed patent(s) is invalid. Similarly, the FDA can approve a Section 505(b)(2) NDA from an applicant that relies on some of the information required for marketing approval to come from studies which the applicant does not own or have a legal right of reference. With respect to anythe Orange Book-listed patentpatent(s) covering thean innovator product, the ANDA applicant or the Section 505(b)(2) applicant (if relying on studies related to the innovator product) (together, the “Applicant”) must give a notice (a “Notice”) to the innovator (a “Notice”) that the ANDA applicant certifiesof its certification that its generic candidate will not infringe the innovator’s Orange Book-listed patentpatent(s) or that the Orange Book-listed patentpatent(s) is invalid. The innovator can then challengefile suit against the ANDA applicant in courtApplicant within 45 days of receiving thatthe Notice, and FDA approval to commercialize the generic candidate will be stayed (that is, delayed) for up to 30 months (measured from the date on which a Notice is received) while the patent dispute between the innovator and the ANDA applicantApplicant is resolved in court. The 30 month30-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. We can give no assurance that we would have grounds to file a patent infringement suit, that we would obtain the full 30 month stay, that we would be successful on the merits asserting that an Applicant infringes our Orange Book-listed patent, or that we would be successful defending the validity or enforceability of our Orange Book-listed patent in court or in a USPTO adversarial proceeding.
As of the date of filing of this Annual Report on Form 10-K, we have not received any Notice from an ANDA applicant.Applicant. If we were to (i) receive any such Notice in the future, (ii) bring a patent infringement suit against the ANDA applicantApplicant within 45 days of receiving suchthat Notice, and (iii) successfully obtain the full 30 month30-month stay, then the ANDA applicantApplicant would be precluded from commercializing a generic candidateversion of DEFINITY prior to the expiration of such 30 monththat 30-month stay period and, potentially, thereafter, depending on how athe 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 applicantApplicant in March 20202022 and the full 30 month30-month stay waswere obtained, then the ANDA applicantApplicant would be precluded from commercialization until at least September 2022.2024. If we received a Notice some number of months in the future and the full 30 month30-month stay waswere obtained, the commercialization date would roll forward in the future by the same calculation.number of months. In the event a 505(b)(2) applicant does not rely on studies related to the innovator product, the 30-month stay would not apply, but additional clinical studies may be required.
TechneLite - We currently have patent protectionown patents in the U.S. and various foreign countries on certain component technology expiring in 2029.2029, and we are pursuing additional patent protection in the U.S. and world-wide on other component technology that, if granted, would expire in 2040. In addition, given the significant know-how and trade secrets associated with the methods of manufacturing and assembling the TechneLite generator, we believe we have a substantial amount of valuable and defensible proprietary intellectual property associated with the product.
PYLARIFY- We actively pursue patents in connection with PYLARIFY, both in the U.S. and internationally. In the U.S. for PYLARIFY, we have four Orange Book-listed patents, including composition of matter patents which expire in 2030 and 2037. Outside of the U.S., we are currently pursuing additional PYLARIFY patents to obtain similar patent protection as in the U.S.
PYLARIFY AI- U.S. Patents and pending patent applications worldwide relating to automated medical image analysis, have expiration ranges from 2037 to 2041.
Other Nuclear Products - Neither Cardiolite nor NeuroliteNEUROLITE is covered any longer by patent protection in either the U.S. or the rest of the world. Xenon, Thallium and Gallium have no patent protection; however, we have patent protection in the U.S. that expires in October 2035 for an improved container for Xenon, and are pursuing similar patent protection outside the U.S.
Clinical Development Candidates - We havematter patent for the active ingredient, methylnaltrexone, has expired, there are additional patents and pending patent applications covering various inventions relating to the product. There are eight Orange Book listed patents that cover the subcutaneous RELISTOR product, which have expiration dates ranging from 2024 to 2030, and there are nine Orange Book listed patents that cover the RELISTOR tablet product, which have expiration dates ranging from 2029 to 2031.
Progenics has entered into three separate settlement agreements that have granted non-exclusive limited licenses with respect to certain RELISTOR subcutaneous injection applications. The non-exclusive limited licenses with two parties are currently effective on January 1, 2028 and the third non-exclusive limited license is currently effective on July 1, 2028, in numerous jurisdictions covering composition, use, formulationeach case, subject to potential acceleration clauses in those agreements. Four Canadian patents (two expiring in 2024, one in 2027 and one in 2029) have been listed with Health Canada relating to subcutaneous RELISTOR.
AZEDRA - The AZEDRA technology patent family was licensed from the University of Western Ontario (“UWO”). While certain of those patents, and associated license, have already expired, a patent relating to alternative approaches for preparing AZEDRA (not currently implemented) expires worldwide in 2022 and 2024. In addition, we own pending applications worldwide for manufacturing improvements, and the resulting compositions which, if issued, would expire in 2035.
aBSI - We own patents relating to automated detection of flurpiridaz F 18, includingbone cancer metastases. The patents on this technology expire in the U.S. a composition patent expiring in 2026, a method2032 and outside of use patent expiringthe U.S. in 2028 and a method of manufacturing patent expiring in 2031,2028. Patent applications are pending in the absence of any regulatory extension,U.S. and various patent applications, one ofworldwide relating to aBSI improvements which, if granted,issued, will expire in 20332040.
1095 - We own patents relating to 1095 that expire from 2027 to 2031, with the composition of matter as well as radiolabeled forms in the absence of any patent term adjustment or regulatory extensions.U.S. and Europe expiring in 2027. Additional U.S. patents for stable compositions and radiolabeling processes expire, respectively, in 2030 and 2031.
LMI 1195 - We also haveown patents and patent applications in numerous jurisdictions covering composition, use, and manufacture of LMI 1195,manufacturing, including in the U.S. a composition of matter patent expiring in 2030, a method of use patent expiring in 2027, and manufacturing-related patents expiring in 2031 and 2032, in the absence of any regulatory extension, and patent applications which, if granted, will expire in 2027 and in 20312031.
flurpiridaz F 18 - We own patents and patent applications in numerous jurisdictions covering composition, use, formulation and manufacturing, including in the absenceU.S. a composition of anymatter patent term adjustment or regulatory extensions.expiring in 2026, a formulation patent expiring in 2032, a method of use patent expiring in 2028, and manufacturing-related patents expiring in 2031 and 2033, and various patent applications, some of which, if granted, will expire in 2033.
1404 - We own patents relating to composition of matter, as well as technetium-99 labeled forms of 1404 expiring in the U.S. from 2029 to 2030, and expiring worldwide in 2029. In-licensed patents relating to reagents for radiolabeling expire in the U.S. in 2022.
PSMA TTC - We own and in-license composition of matter patents on PSMA antibodies expiring in the U.S. in 2022 and 2023 and outside of the U.S. in 2022.
In addition to patents, we rely, where necessary, upon unpatented trade secrets and know-how, proprietary information and continuing technological innovation to develop and maintain our competitive position. We seek to protect our proprietary information, in part, using confidentiality agreements with our collaborators, employees, consultants and other third parties and invention assignment agreements with our employees. These confidentiality agreements may not prevent unauthorized disclosure of trade secrets and other proprietary information, and we cannot provide assurances that an employee or an outside party will not make an unauthorized disclosure of our trade secrets, other technical know-how or proprietary information. We may not have adequate monitoring abilities to discover, or adequate remedies for, any unauthorized disclosure. This might happen intentionally or inadvertently. It is possible that a competitor will make use of such information, and that our competitive position will be compromised, in spite of any legal action we might take against persons making such unauthorized disclosures. In addition, our trade secrets may otherwise become known or be independently discovered by competitors. To the extent that our collaborators, employees and consultants use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.
In addition, we license a limited number of third party technologies and other intellectual property rights that are incorporated into some elements of our drug discovery and development efforts. TheseSome of these licenses are not material to our business – for example, the licenses on the PYLARIFY patent family from Johns Hopkins University (“JHU”) and on the technologies can be obtainedpatent rights on RELISTOR from multiple sources. We are currently party to separate royalty-free, non-exclusive, cross-licenses with eachWyeth LLC.
See Part I, Item 1A. “Risk Factors” for information regarding certain risks associated with our intellectual property.
Regulatory Matters
Food and Drug Laws
The development, manufacture and commercialization of our agents and products are subject to comprehensive governmental regulation both within and outside the U.S. A number of factors substantially increase the time, difficulty and costs incurred in obtaining and maintaining the approval to market newly developed and existing products. These factors include governmental regulation, such as detailed inspection of and controls over research and laboratory procedures, clinical investigations, manufacturing, marketing, sampling, distribution, import and export, record keeping and storage and disposal practices, together with various post-marketing requirements. Governmental regulatory actions can result in the seizure or recall of products, suspension or revocation of the authority necessary for their production and sale as well as other civil or criminal sanctions.
Our activities related to the development, manufacture, packaging or repackaging of our pharmaceutical and medical device products subject us to a wide variety of laws and regulations. We are required to register for permits and/or licenses with, seek approvals from and comply with operating and security standards of, the FDA, the U.S. Nuclear Regulatory Commission (“NRC”), the U.S. Department of Health and Human Services (“HHS”), Health Canada, the European Medicines Agency (“EMA”), the U.K. Medicines and Healthcare Products Regulatory Agency (“MHRA”), the CFDANMPA and various state and provincial boards of pharmacy, state and provincial controlled substance agencies, state and provincial health departments and/or comparable state and provincial agencies, as well as foreign agencies, and certain accrediting bodies depending upon the type of operations and location of product distribution, manufacturing and sale.
The FDA and various state regulatory authorities regulate the research, testing, manufacture, safety, labeling, storage, recordkeeping, premarket approval, marketing, advertising and promotion, import and export, and sales and distribution of pharmaceutical products in the U.S. Prior to marketing a pharmaceutical product, we must first receive FDA approval. In the U.S., the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act (“FDCA”) and implementing regulations. The process of obtaining regulatory approvals and compliance with appropriate federal, state, local, and foreign statutes and regulations requires the expenditure of substantial time and financial resources. Currently, the process required by the FDA before a drug product may be marketed in the U.S. generally involves the following:
•Completion of preclinical laboratory tests, animal studies and formulation studies according to current Good Laboratory Practices regulations;
•Submission to the FDA of an INDinvestigational new drug application (“IND”) which must become effective before human clinical studies may begin, including review and approval by any individualinstitutional review board (“IRB”), serving any of the institutions participating in the clinical studies;
•Performance of adequate and well-controlled human clinical studies according to current Good Clinical Practices and other requirements, to establish the safety and efficacy of the proposed drug product for its intended use;
•Submission to the FDA of a new drug application or NDA,(“NDA”) for a new drug;
•Satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug product is produced to assess compliance with current Good Manufacturing Practices (“cGMPs”) regulations; and
•FDA review and approval of the NDA.
The testing and approval process requires substantial time, effort, and financial resources, and we cannot be certain that any approvals for our agents in development will be granted on a timely basis, if at all. Once a pharmaceutical agent is identified for development, it enters the preclinical testing stage. Preclinical tests include laboratory evaluations of product chemistry, toxicity, formulation, and stability, as well as animal studies to assess its potential safety and efficacy. This testing culminates in the submission of the IND to the FDA.
Once the IND becomes effective, including review and approval by any IRB serving any of the institutions participating in the clinical trial, the clinical trial program may begin. Each new clinical trial protocol must be submitted to the FDA before the study may begin. Human clinical studies are typically conducted in three sequential phases that may overlap or be combined:
•Phase 1. The agent is initially introduced into healthy human subjects and tested for safety, dosage tolerance, absorption, metabolism, distribution and excretion. In the case of some products for severe or life-threatening diseases, especially when the agent may be too inherently toxic to ethically administer to healthy volunteers, the initial human testing is often conducted in patients with those diseases.
•Phase 2. Involves studies in a limited patient population to identify possible adverse effects and safety risks, to evaluate preliminarily the efficacy of the agent for specific targeted diseases and to determine dosage tolerance and optimal dosage and schedule.
•Phase 3. Clinical studies are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population at geographically dispersed clinical study sites. These studies are intended to collect sufficient safety and efficacy data to support the NDA for FDA approval.
Clinical trial sponsors may request a Special Protocol Assessment (“SPA”) from the FDA. The FDA’s SPA process creates a written agreement between the sponsoring company and the FDA regarding the clinical trial design and other clinical trial issues that can be used to support approval of an agent. The SPA is intended to provide assurance that, if the agreed-upon clinical trial protocols are followed and the trial endpoints are achieved, then the data may serve as the primary basis for an efficacy claim in support of an NDA. However, the SPA agreement is not a guarantee of an approval of an agent or any permissible claims about the agent. In particular, the SPA is not binding on the FDA if public health concerns become evident that are unrecognized at the time that the SPA agreement is entered into, other new scientific concerns regarding product safety or efficacy arise, or if the clinical trial sponsor fails to comply with the agreed upon clinical trial protocols.
Progress reports detailing the results of the clinical studies must be submitted at least annually to the FDA and safety reports must be submitted to the FDA and the investigators for serious and unexpected adverse events. Submissions must also be made to inform the FDA of certain changes to the clinical trial protocol. Federal law also requires the sponsor to register the trials on public databases when they are initiated, and to disclose the results of the trials on public databases upon completion. Phase 1, Phase 2 and Phase 3 testing may not be completed successfully within any specified period, if at all. The FDA or the clinical trial sponsor may suspend or terminate a clinical study at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, any IRB serving any of the institutions participating in the clinical trial can suspend or terminate approval of a clinical study at a relevant institution if the clinical study is not being conducted in accordance with the IRB’s requirements or if the agent has been associated with unexpected serious harm to patients. Failure to register a clinical trial or disclose study results within the required time periods could result in penalties, including civil monetary penalties.
Concurrent with clinical studies, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the product and finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the agent and, among other things, the manufacturer must develop methods for testing the identity, strength, quality and purity of the final product. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the agent does not undergo unacceptable deterioration over its shelf life.
The results of product development, preclinical studies and clinical studies, along with descriptions of the manufacturing process, analytical tests conducted on the drug product, proposed labeling, and other relevant information, are submitted to the FDA as part of an NDA for a new drug, requesting approval to market the agent. The submission of an NDA is subject to the payment of a substantial user fee. A waiver of that fee may be obtained under certain limited circumstances. The approval process is lengthy and difficult, and the FDA may refuse to approve an NDA if the applicable regulatory criteria are not satisfied. The FDA has substantial discretion in the product approval process, and it is impossible to predict whether and when the FDA will grant marketing approval. The FDA may on occasion require the sponsor of an NDA to conduct additional clinical studies or to provide other scientific or technical information about the product, and these additional requirements may lead to unanticipated delay or expense. Even if such data and information are submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. Data obtained from clinical studies are not always conclusive, and the FDA may interpret data differently than we interpret the same data.
If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling. In addition, the FDA may require Phase 4 testing which involves clinical studies designed to further assess a drug product’s safety and effectiveness after NDA approval. The FDA also may impose aone or more Risk Evaluation and Mitigation StrategyStrategies (“REMS”) to ensure that the benefits of a product outweigh its risks. A REMS could add training requirements for healthcare professionals, safety communications efforts and limits on channels of distribution, among other things. The sponsor would be required to evaluate and monitor the various REMS activities and adjust them if need be. Whether a REMS would be imposed on any of our products and any resulting financial impact is uncertain at this time.
Under the Orphan Drug Act, the FDA may designate a product as an Orphan Drug if it is a drug intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals annually in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. AZEDRA currently has the Orphan Drug designation in the United States.
In the United States, Orphan Drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers. In addition, if a product that has Orphan Drug designation subsequently receives the first FDA approval for the disease for which it has such designation, the product is entitled to Orphan Drug exclusivity, which means the FDA may not approve any other application to market the same drug for the same indication for a period of seven years, except in limited circumstances, such as a showing of clinical superiority over the product with orphan exclusivity or where the manufacturer is unable to assure sufficient product quantity.
Under Section 529 of the FDCA, companies that develop new drugs for the prevention and treatment of certain rare pediatric diseases may be eligible for a rare pediatric disease priority review voucher for a subsequent human drug application. The voucher is only granted if the drug is approved for the rare pediatric disease, but once granted, the voucher can either be used by the recipient or sold to a third party, typically a large pharmaceutical or related company that seeks priority review for an unrelated drug it expects will generate substantial revenue. Pursuant to federal legislation passed and signed into law in late 2020, the expiration date of the rare pediatric disease priority review voucher program was extended from September 30, 2022 to September 30, 2026.
Any drug products for which we receive FDA approvals are subject to continuing regulation by the FDA, including, among other things, record-keeping requirements, reporting of adverse experiences with the product, providing the FDA with updated safety and efficacy information, product sampling and distribution requirements, complying with certain electronic records and signature requirements, and complying with FDA promotion and advertising requirements. The FDA strictly regulates labeling, advertising, promotion and other types of information on drug products that are placed on the market. Drugs may be promoted only for the approved indications and consistent with the provisions of the approved label and promotional claims must be appropriately balanced with important safety information and otherwise be adequately substantiated. Further, manufacturers of drugs must continue to comply with cGMP requirements, which are extensive and require considerable time, resources and ongoing investment to ensure compliance. In addition, changes to the manufacturing process generally require prior FDA approval before being implemented, and other types of changes to the approved product, such as adding new indications and additional labeling claims, are also subject to further FDA review and approval.
Drug product manufacturers and other entities involved in the manufacturing and distribution of approved drugs products are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain other agencies for compliance with cGMP and other laws. The cGMP requirements apply to all stages of the manufacturing process, including the production, processing, sterilization, packaging, labeling, storage and shipment of the drug product. Manufacturers must establish validated systems to ensure that products meet specifications and regulatory standards, and test each product batch or lot prior to its release. In addition, manufacturers of commercial PET products such as PYLARIFY, including radiopharmacies, hospitals and academic medical centers, are required to submit either an NDA or ANDA in order to produce PET drugs for clinical use, or produce the drugs under an IND.
The FDA also regulates the preclinical and clinical testing, design, manufacture, safety, efficacy, labeling, storage, record keeping, sales and distribution, post-market adverse event reporting, import/export and advertising and promotion of any medical devices that we distribute pursuant to the FDCA and FDA’s implementing regulations. The Federal Trade Commission shares jurisdiction with the FDA over the promotion and advertising of certain medical devices. The FDA can also impose restrictions on the sale, distribution or use of medical devices at the time of their clearance or approval, or subsequent to marketing. Currently, medical devices comprise only a small portion of our revenues.
The FDA may withdraw marketing authorization for a pharmaceutical or medical device product if compliance with regulatory standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknownpreviously-unknown problems with a product may result in restrictions on the product or even complete withdrawal of the product from the market. Further, the failure to maintain compliance with regulatory requirements may result in administrative or judicial actions, such as fines, civil monetary penalties, warning letters, holds on clinical studies, product recalls or seizures, product detention or refusal to permit the import or export of pharmaceuticals or medical device products, refusal to approve pending applications or supplements, restrictions on marketing or manufacturing, injunctions, or civil or criminal penalties.
Regulations are subject to change as a result of legislative, administrative or judicial action, which may also increase our costs or reduce sales or otherwise adversely impact our products. For example, on April 16, 2021 in the case Genus Medical Technologies LLC v. Food and Drug Administration, the U.S. Court of Appeals for the D.C. Circuit held that a product (other than a combination product) that meets the definitions of both “drug” and “device” under the FDCA must be regulated as a device. On August 9, 2021, the FDA announced that, as part of its implementation of this court decision, the FDA intended to regulate products that meet both the device and drug definition as devices, except where Congress intended a different classification. The FDA further indicated that it intended to bring previously classified products into line with the court decision and would reexamine whether individual imaging agents meet the device definition. In connection with its announcement, the FDA requested comments from the industry on five topics: categories of products implicated by the court decision; the transition process; the transition timing; user fee transitions; and determining drug or device status. We submitted comments to the FDA in response to its request for comments. While we question whether the FDA has authority to make this change, we believe that pre-existing law already establishes that a broad spectrum of imaging agents have already been established by Congress to be “drugs”, and do not believe that any of our imaging agents meets the definition of a “device” under the FDCA. We can give no assurance that the FDA will agree with our position. In addition, if the FDA determines that one or more of our imaging agents meet the definition of a “device”, we do not know when such reclassification would be effective, how any transition rules would be formulated or applied, and whether or not the legal framework provided by the Hatch-Waxman Act described below would be preserved for some time after such reclassification. A reclassification of one or more of our imaging agents as a “device” could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Because our operations include the manufacture and distribution of medical radioisotopes and other medical products, we are subject to regulation by the NRC and the departments of health of each state in which we operate and the applicable state boards of pharmacy. In addition, the FDA is also involved in the regulation of cyclotron facilities where PET products are produced in compliance with cGMP requirements and U.S. Pharmacopeia requirements for PET drug compounding.
Drug laws also are in effect in many of the non-U.S. markets in which we or our partners conduct business. These laws range from comprehensive drug approval requirements to requests for product data or certifications. In addition, inspection of and controls over manufacturing, as well as monitoring of adverse events, are components of most of these regulatory systems. Most of our business is subject to varying degrees of governmental regulation in the countries in which we or our partners operate, and the general trend is toward increasingly stringent regulation. The exercise of broad regulatory powers by the FDA continues to result in increases in the amount of testing and documentation required for approval or clearance of new drugs and devices, all of which add to the expense of product introduction. Similar trends also are evident in major non-U.S. markets, including Canada, the European Union, Australia and Japan.
To assess and facilitate compliance with applicable FDA, NRC and other state, federal and foreign regulatory requirements, we regularly review our quality systems to assess their effectiveness and identify areas for improvement. As part of our quality review, we perform assessments of our suppliers of the raw materials that are incorporated into products and conduct quality management reviews designed to inform management of key issues that may affect the quality of our products. From time to time, we may determine that products we manufactured or marketed do not meet our specifications, published standards, such as those issued by the International Standards Organization, or regulatory requirements. When a quality or regulatory issue is identified, we investigate the issue and take appropriate corrective action, such as withdrawal of the product from the market, correction of the product at the customer location, notice to the customer of revised labeling and other actions.
Hatch-Waxman Act
The Hatch-Waxman Act added two pathways for FDA drug approval. First, the Hatch-Waxman Act permits the FDA to approve ANDAs for generic versions of drugs if the ANDA applicant demonstrates, among other things, that its product is bioequivalent to the innovator product and provides relevant chemistry, manufacturing and product data. See “Item 1. Business - Patents.” Second, the Hatch-Waxman Act created what is known as a Section 505(b)(2) NDA, which requires the same information as a full NDA (known as a Section 505(b)(1) NDA), including full reports of clinical and preclinical studies but allows some of the information from the reports required for marketing approval to come from studies which the applicant does not own or have a legal right of reference. A Section 505(b)(2) NDA permits a manufacturer to obtain marketing approval for a drug without needing to conduct or obtain a right of reference for all of the required studies. The Hatch-Waxman Act also provides for: (1) restoration of a portion of a product’s patent term that was lost during clinical development and application review by the FDA; and (2) statutory protection, known as exclusivity, against the FDA’s acceptance or approval of certain competitor applications.
PatentUnder U.S. law, patent term extension can compensate for time lost during product development and the regulatory review process by returning up to five years of patent life for a patent that covers a new product or its use. This period is generally one-half the time between the effective date of an IND and the submission date of an NDA, plus the time between the submission date of an NDA and the approval of that application. Patent term extensions, however, are subject to a maximum extension of five years, and the patent term extension cannot extend the remaining term of a patent beyond a total of 14 years. The application for patent term extension is subject to approval by the U.S. Patent and Trademark Office in conjunction with the FDA.
The Hatch-Waxman Act also provides for a period of statutory protection for new drugs that receive NDA approval from the FDA. If the FDA approves a Section 505(b)(1) NDA for a new drug that is a new chemical entity, meaning that the FDA has not previously approved any other new drug containing the same active moiety, then the Hatch-Waxman Act prohibits the submission or approval of an ANDA or a Section 505(b)(2) NDA for a period of five years from the date of approval of the NDA, except that the FDA may accept an application for review after four years under certain circumstances.circumstances, specifically a patent challenge for one or more patents listed by the NDA holder in FDA’s publication, Approved Drug Products with Therapeutic Equivalence Evaluations (the “Orange Book”), submitted in a “Paragraph IV” Certification. The Hatch-Waxman Act will not prevent the filing or approval of a full NDA, as opposed to an ANDA or Section 505(b)(2) NDA, for any drug, but the competitor would be required to conduct its own clinical trials, and any use of the drug for which marketing approval is sought could not violate another NDA holder’s patent claims. The Hatch-Waxman Act provides for a three-year period of exclusivity for an NDA for a new drug containing an active moiety that was previously approved by the FDA, but also includes new clinical data (other than bioavailability and bioequivalence studies) to support an innovation over the previously approvedpreviously-approved drug and those studies were conducted or sponsored by the applicant and were essential to approval of the application. This three-year exclusivity period does not prohibit the FDA from accepting an application from a third party for a drug with that same innovation, but it does prohibit the FDA from approving that application for the three-year period. The three-year exclusivity does not prohibit the FDA, with limited exceptions, from approving generic drugs containing the same active ingredient but without the new innovation.
Reimbursement
The successful commercialization of our products is also subject to the availability of appropriate third-party coding, coverage and payment for our customers. Third-party payors in the U.S. include commercial payors, including managed care providers, and State and Federal healthcare programs, such as Medicare and Medicaid. The process for determining whether a payor will provide coverage for a product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the product. Coverage of a product does not ensure there will be an appropriate reimbursement amount for such product and the process to ensure appropriate reimbursement is outside our control. For commercial payors, coverage and reimbursement of our products vary from commercial payor to commercial payor. Many commercial payors, such as managed care providers, manage access to products, and may use medical policies (which may include specific coverage requirements such as prior authorization, re-authorization and achieving performance metrics under value-based contracts) to control utilization. Exclusion from or restriction in coverage can reduce product use. For government payors, we participate, as required, in the Federal Supply Schedule (FSS) and the PHS 340b program, which each require discounts for participation and may be subject to change. For Medicare, reimbursement to customers for our products is generally established through the rulemaking process or in discussion with Medicare Administrative Contractors (MACs). We have ongoing conversations with third-party payors to advocate for appropriate coding, coverage and payment for our portfolio of products, but we can give no assurance that adequate coding, coverage and payment can be obtained from such commercial or government payors.
Medicare Outpatient Pass-Through Payment Status
Part B of the Medicare program generally reimburses medical services and supplies, including drugs, provided to beneficiaries by physicians and other qualified healthcare professionals. Generally, drugs furnished “incident to” a physician’s service in the hospital outpatient setting of care are reimbursed at Average Sales Price (“ASP”) plus a certain additional percent, unless the product is treated as a “supply” in the performance of the procedure and “packaged” and paid as part of bundled payment for the procedure. Novel drugs, however, may apply for “pass-through status” in which case they are provided a separate payment at ASP plus a certain additional percent for two to three years, regardless of whether they would ordinarily be packaged.
PYLARIFY has received pass-through status effective January 1, 2022 through December 31, 2024, thereby providing separate reimbursement to customers using PYLARIFY in the hospital outpatient setting during this specified period. The reimbursement rate for PYLARIFY is based on the wholesale acquisition cost (WAC) plus three percent until CMS can establish an ASP for the product, which could take six months. Once CMS establishes an ASP, the add-on percentage applicable to PYLARIFY will likely vary.
PYLARIFY has been assigned Healthcare Common Procedure Coding System code A9595 (piflufolastat F 18, diagnostic, 1 millicurie) for identification in claims and can be used by both public and commercial payors. Under existing Medicare Part B payment policy, non-pass-through diagnostic radiopharmaceuticals are not separately paid and are instead packaged into payment for the underlying procedure. Therapeutic radiopharmaceuticals, however, continue to be eligible for separate payment even after expiration of pass-through status. We plan to continue our advocacy efforts with CMS and private insurers so that PYLARIFY customers will have appropriate and adequate reimbursement following the expiration of pass-through status, although we can give no assurances that we will be successful in those efforts.
Healthcare Reform and Other Laws Affecting Payment
We operate in a highly-regulated industry. The U.S. and state governments continue to propose and pass legislation that may affect the availability and cost of healthcare. For example, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act or collectively,(collectively, the Healthcare“Healthcare Reform Act,Act”), substantially changes the way in which healthcare is financed by both governmental and private insurers and has a significant impact on the pharmaceutical industry. The Healthcare Reform Act contains a number of provisions that affect coverage, reimbursement and/or delivery of drug products and the medical imaging procedures in which our drug products are used. Key provisions that currently affect our business include the following:
•increasing the presumed utilization rate for imaging equipment costing $1$1.0 million or more in the physician office and free-standing imaging facility setting which reduces the Medicare per procedure medical imaging reimbursement; which rate was further increased by subsequent legislation effective January 1, 2014;
•increasing drug rebates paid to state Medicaid programs under the Medicaid Drug Rebate Program for brand name prescription drugs and extending those rebates to Medicaid managed care organizations;
•expanding access to the 340B program by allowing additional covered entities to participate in the program; and
•imposing a non-deductible annual fee on pharmaceutical manufacturers or importers who sell brand name prescription drugs to specified federal government programs; andprograms.
amending the federal self-referral laws to require referring physicians ordering certain diagnostic imaging services to inform patients under certain circumstances that the patients may obtain the services from other local and unaffiliated suppliers (which may affect the setting in which a patient obtains services).
The Healthcare Reform Act also amended the federal self-referral laws, requiring referring physicians to inform patients under certain circumstances that the patients may obtain services, including PET, CT, MRI computed tomography (“CT”), PET and certain other diagnostic imaging services, from a provider other than that physician, another physician in his or her group practice, or another individual under direct supervision of the physician or another physician in the group practice. The referring physician must provide each patient with a written list of other suppliers who furnish those services in the area in which the patient resides. These new requirements could have the effect of shifting where certain diagnostic medical imaging procedures are performed.
The Healthcare Reform Act has been subject to political and judicial challenges. For example, tax reform legislation was enacted atchallenges, but it has generally withstood such challenges, and the end of 2017 that effectively eliminated the “individual mandate” to maintain health insurance coverage by eliminating the tax penalty for individuals who do not maintain sufficient health insurance coverage beginning in 2019. In December 2018, a federal district court judge, in a challenge brought by a number of state attorneys general, found the Healthcare Reform Act unconstitutional in its entirety because once Congress repealed the “individual mandate” provision, there was no longer a basis to rely on Congressional taxing authority to support enactment of the law. In December 2019, a federal appeals court agreed that the individual mandate provision was unconstitutional, but remanded the case back to the district court to assess more carefully whether anymain provisions of the Healthcare Reform Act were severable and could survive. Pending action by the district court and resolution of any appeals, which could take some time, the Healthcare Reform Act is still operationalremain in all respects.effect.
Recently, there has been considerable public and government scrutiny of pharmaceutical pricing and proposals to address the perceived high cost of pharmaceuticals. For example, in May 2018, President Trump and the Secretary of the Department of Health and Human Services released a “blueprint” to lower prescription drug prices and out-of-pocket costs. Certain proposals in the blueprint, and related drug pricing measures proposed since the blueprint, could cause significant operational and reimbursement changes for the pharmaceutical industry. As another example, in October 2018, CMS solicited public comments on potential changes to payment for certain Medicare Part B drugs, including reducing the Medicare payment amount for selected Medicare Part B drugs to more closely align with international drug prices. As another example, legislation passed in 2019 revised how certain prices reported by manufacturers under the Medicaid Drug Rebate Program are calculated, a revision that the Congressional Budget Office has estimated will savepharmaceuticals at both the federal government approximately $3 billion in the next ten years.and state levels. Efforts by government officials or legislators to implement measures to regulate prices or payment for pharmaceutical products could limit our flexibility in establishing prices for our products or otherwise adversely affect our business if implemented. ChangesFor instance, Congress is currently considering the Build Back Better Act, which contains many drug pricing provisions that could adversely affect our business, including but not limited to authorization for Medicare to directly negotiate pricing for high-cost drugs, and inflation penalties for Part B and D drugs with price increases greater than the rate of inflation. To be clear, changes could occur at the federal level or state level and may be adopted by statute, rule, or sub-regulatory policies. Recent state legislative efforts seek to address drug costs and generally have focused on increasing transparency around drug costs or limiting drug prices. Some of those efforts have been subject to legal challenge.
General legislative cost control measures may also affect reimbursement for our products or services provided with our products. The Budget Control Act, as amended by the Bipartisan Budget Act of 2019, resulted in the imposition of 2% reductions in Medicare (but not Medicaid) payments to providers beginning in 2013 and will remain in effect through 2029fiscal year 2030 unless additional Congressional action is taken. The Coronavirus Aid, Relief, and Economic Security (CARES) Act suspended the 2% payment adjustment for dates of service from May 1 through December 31, 2020, the Consolidated Appropriations Act 2021 subsequently extended this suspension until March 31, 2021, and Congress further extended the suspension through March 31, 2022. Any significant spending reductions affecting Medicare, Medicaid or other publicly funded or subsidized health programs that may be implemented and/or any significant taxes or fees that may be imposed on us could have an adverse impact on our business results of operations, financial condition and cash flows.
Healthcare Fraud and Abuse Laws
We are subject to various federal, state and local laws targeting fraud and abuse in the healthcare industry, including anti-kickback and false claims laws. Patient assistance programs, if not properly implemented, can implicate these laws. Violations of fraud and abuse laws may be punishable by criminal or civil sanctions, including fines and civil monetary penalties, and/or exclusion from federal health care programs (including Medicare and Medicaid). Federal and state authorities are paying increased attention to enforcement of these laws within the pharmaceutical industry, and private individuals have been active in alleging violations of the laws and bringing suits on behalf of the government under the federal False Claims Act (“FCA”). Violations of international fraud and abuse laws could result in similar penalties, including exclusion from participation in health programs outside the U.S. If we were subject to allegations concerning, or were convicted of violating, these laws, our business could be harmed.
The federal Anti-Kickback Statute generally prohibits, among other things, a pharmaceutical manufacturer from directly or indirectly soliciting, offering, receiving, or paying any remuneration in cash or in kind where one purpose is either to induce the referral of an individual for, or the purchase or prescription of a particular drug that is payable by a federal health care program, including Medicare or Medicaid. The Healthcare Reform Act clarifies the intent requirements of the federal Anti-Kickback Statute, providing that a person or entity does not need to have actual knowledge of the statute or a specific intent to violate the statute. Violations of the federal Anti-Kickback Statute can result in exclusion from Medicare, Medicaid or other governmental programs as well as civil and criminal fines and penalties of up to $102,522$104,330 per violation and three times the amount of the unlawful remuneration. In addition, the Healthcare Reform Act revised the FCA to provide that a claim arising from a violation of the Federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the FCA. The majority of states also have anti-kickback, false claims, and similar fraud and abuse laws and although the specific provisions of these laws vary, their scope is generally broad, and there may not be regulations, guidance or court decisions that apply the laws to particular industry practices. There is, therefore, a possibility that our practices might be challenged under the anti-kickback statutes or similar laws.
Federal and state false claims laws generally prohibit anyone from knowingly and willfully, among other activities, presenting, or causing to be presented for payment to third party payors (including Medicare and Medicaid) claims for drugs or services that are false or fraudulent (which may include claims for services not provided as claimed or claims for medically unnecessary services). As discussed, a claim arising from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the FCA. False or fraudulent claims for purposes of the FCA carry fines and civil penalties for violations ranging from $11,181$11,665 to $22,363$23,331 for each false claim, plus up to three times the amount of damages sustained by the federal government and, most critically, may provide the basis for exclusion from federally funded healthcare programs. There is also a criminal FCA statute by which individuals or entities that submit false claims can face criminal penalties. In addition, under the federal Civil Monetary Penalty Law, the Department of Health and Human Services Office of Inspector General has the authority to exclude from participation in federal health care programs or to impose civil penalties against any person who, among other things, knowingly presents, or causes to be presented, certain false or otherwise improper claims. Our activities relating to the sale and marketing of our products may be subject to scrutiny under these laws.
Laws and regulations have also been enacted by the U.S. federal government and various states, as well as by countries outside of the U.S., to regulate the sales and marketing practices of certain entities including pharmaceutical and device manufacturers. The laws and regulations generally limit financial interactions between manufacturers and health care providers; require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the U.S. federal government; and/or require disclosure by pharmaceutical and device manufacturers to the government and/or public of financial interactions or other financial relationships with health care providers and other entities such as teaching hospitals (so-called “sunshine laws”). The Healthcare Reform Act requires manufacturers to submit information to the FDA on the identity and quantity of drug samples requested and distributed by a manufacturer during each year. Many of these laws and regulations contain ambiguous requirements or require administrative guidance for implementation. Given the lack of clarity inThe laws and regulations include requirements that can be unclear in their scope, nature, and required implementation our activitiesby regulated entities. If we fail to comply with such laws and regulations, we could be subject to the penalty provisions of the pertinent federalpenalties and stateadministrative actions under such laws and regulations.
Data Privacy, Security and SecurityBreach Notification
We are subject to data protection laws and regulations that addressset forth data privacy, security, and data security.breach notification requirements. The legislative and regulatory landscape for data protection continues to evolve, and in recent years there has been an increasing focus on data protection and other data privacy and data security issues. In the United States, numerous federal and state laws and regulations, including state data breach notification laws, state health information privacy laws and federal and state consumer protection laws govern the collection, use, disclosure and protection of health-related and other personal information. In addition to establishing restrictions on how personal information may be collected, used, and disclosed, these laws and regulations provide various rights to data subjects with respect to their personal information and establish requirements for how personal information must be secured. In addition, every state in the United States now has a data breach notification law that requires regulated entities to report certain security breaches to affected data subjects, regulators, or other entities. Failure to comply with data protection laws and regulations could result in government enforcement actions which(which could include civil or criminal penalties and requirements to take corrective actions), private litigation (which may result in the award of damages against us), and/or adverse publicity, and could negatively affect our operating results, business, and business.reputation. In addition, we may obtain health information from third parties (e.g., healthcare providers who prescribe our products) that are themselves subject to privacy, security, and securitybreach notification requirements under the Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act (collectively, “HIPAA”). While we believe that we are neither a “covered entity” nor “business associate” subject directly to regulation under HIPAA, HIPAA’s criminal provisions can apply to entities other than “covered entities” or “business associates” in certain
circumstances. Accordingly, we could be subject to criminal penalties if we knowingly obtain or disclose individually identifiable health information from a HIPAA-covered entity in a manner that is not authorized or permitted.
The collection and useIn addition, a growing number of jurisdictions outside of the United States have enacted robust data protection laws. Certain of these laws have extraterritorial application. For example, the processing of personal health data in the European Union is governed by the provisions of the General Data Protection Regulation, or GDPR, which came into effect on May 25, 2018. The GDPR applies to an entity established in May 2018.the EU and extraterritorially to an entity outside of the EU that offers goods or services to, or monitors the behavior of, individuals located in the EU. Certain “special categories” of personal data, including data concerning health, are subject to enhanced protections under the GDPR. This regulation imposes several requirements relating toon the consentcontrollers and processors of the individuals to whom the personal data, relates,including the information providedobligation to comply with various rights that individuals have with respect to their personal data and restrictions on the individuals, notificationprocessing of personal data, and to provide notice of data processing obligations to the competent national data protection authorities and the security and confidentiality of the personal data.authorities. The GDPR also imposes strict rules on the transfer of personal data out of the European Union to the United States. Failure to comply with the requirements of the GDPR and the related national data protection laws of the European Union Member States may result in significant fines and other administrative penalties.
In the United States, several state legislatures are considering enacting new data privacy legislation. One example of such legislation that has already been passed is the California Consumer Privacy Act (“CCPA”), which took effect on January 1, 2020 and imposed
imposes many requirements on certain for-profit businesses that process the personal information of California residents. Many of the CCPA’s requirements are similar to those found in the GDPR, including requiring businesses to provide notice to data subjects regarding the information collected about them and how such information is used and shared, and providing data subjects various rights, such as the right to request access to suchtheir personal information and, in certain cases, request the erasure of such personal information. The CCPA also affords California residents the right to opt-out of “sales”the “sale” of their personal information. In addition, the CCPA requires regulated businesses to implement reasonable security procedures and practices to protect personal information. The CCPA contains significant penalties for companies that violate its requirements. It also provides California residents a private right of action, including the ability to seek statutory damages, in the event of a breach involving their personal information.information resulting from a business’s failure to implement and maintain reasonable security procedures and practices. Compliance with the CCPA is a rigorous and time-intensive process that may increase the cost of doing business or require companies to change their business practices to ensure full compliance.
On November 3, 2020, California passed the California Privacy Rights Act (“CPRA”) through a ballot initiative. The CPRA amends the CCPA and expands its protections for personal information, including by establishing a new California Privacy Protection Agency to enforce the CPRA and by providing California consumers various rights such as the right to restrict the processing of their “sensitive personal information.” The CPRA’s amendments to the CCPA take effect on January 1, 2023, and generally will apply to personal information collected by regulated businesses on or after January 1, 2022. The California Attorney General will have authority to begin enforcing the CPRA’s amendments to the CCPA beginning on July 1, 2022. Antitrust and Competition Laws
The federal government and most states have enacted antitrust laws that prohibit specific types of anti-competitive conduct, including price fixing, wage fixing, concerted refusals to deal, price discrimination and tying arrangements, as well as monopolization and acquisitions of competitors that have, or may have, a substantial adverse effect on competition. Violations of federal or state antitrust laws can result in various sanctions, including criminal and civil penalties. We believe we are in compliance with such federal and state laws, but courts or regulatory authorities may reach a determination in the future that could adversely affect our business, results of operations, financial condition and cash flows. In addition, we are subject to similar antitrust and anti-competition laws in foreign countries. We believe we are in compliance with such laws, however, any violation could create a substantial liability for us and also cause a loss of reputation in both foreign and domestic markets.
Laws Relating to Foreign Trade
We are subject to various federal and foreign laws that govern our international business practices with respect to payments to government officials. Those laws include the Foreign Corrupt Practices Act (“FCPA”) which prohibits U.S. companies and their representatives from paying, offering to pay, promising, or authorizing the payment of anything of value to any foreign government official, government staff member, political party, or political candidate for the purpose of obtaining or retaining business or to otherwise obtain favorable treatment or influence a person working in an official capacity. In many countries, the healthcare professionals we regularly interact with may meet the FCPA’s definition of a foreign government official. The FCPA also requires public companies to make and keep books and records that accurately and fairly reflect their transactions and to devise and maintain an adequate system of internal accounting controls.
Those laws also include the U.K. Bribery Act (“Bribery Act”) which proscribes giving and receiving bribes in the public and private sectors, bribing a foreign public official, and failing to have adequate procedures to prevent employees and other agents from giving bribes. U.S. companies that conduct business in the United Kingdom generally will be subject to the Bribery Act. Penalties under the Bribery Act include potentially unlimited fines for companies and criminal sanctions for corporate officers under certain circumstances.
Our policies mandate compliance with these anti-bribery laws. Our operations reach many parts of the world that have experienced governmental corruption to some degree, and in certain circumstances strict compliance with anti-bribery laws may conflict with local customs and practices. Despite our training and compliance programs, our internal control policies and procedures may not always protect us from reckless or criminal acts committed by our employees or agents.
We are also subject to trade control regulations and trade sanctions laws that restrict the movement of certain goods, currency, products, materials, services and technology to, and certain operations in, various countries or with certain persons. Our ability to transfer people and products among certain countries may be subjected to these laws and regulations.
Health and Safety Laws
We are also subject to various federal, state and local laws, regulations and recommendations, both in the U.S. and abroad, relating to safe working conditions, laboratory and manufacturing practices and the use, transportation and disposal of hazardous or potentially hazardous substances.
See Part I, Item 1A. “Risk Factors” for information regarding certain risks related to regulatory matters.reimbursement and regulation.
Environmental Matters
We are subject to various federal, state and local laws and regulations relating to the protection of the environment, human health and safety in the U.S. and in other jurisdictions in which we operate. Our operations, like those of other medical product companies, involve the transport, use, handling, storage, exposure to and disposal of materials and wastes regulated under environmental laws, including hazardous and radioactive materials and wastes. If we violate these laws and regulations, we could be fined, criminally charged or otherwise sanctioned by regulators. We believe that our operations currently comply in all material respects with applicable environmental laws and regulations.
Certain environmental laws and regulations assess liability on current or previous owners or operators of real property for the cost of investigation, removal or remediation of hazardous materials or wastes at those formerly owned or operated properties or at third-partythird party properties at which they have disposed of hazardous materials or wastes. In addition to cleanup actions brought by governmental authorities, private parties could bring personal injury, property damage or other claims due to the presence of, or exposure to, hazardous materials or wastes. We currently are not party to any claims or any obligations to investigate or remediate any material contamination at any of our facilities.
We are required to maintain a number of environmental permits and nuclear licenses for our North Billerica, Massachusetts facility, which is our primary manufacturing, packaging and distribution facility. In particular, we must maintain a nuclear byproducts materials license issued by the Commonwealth of Massachusetts. This license requires that we provide financial assurance demonstrating our ability to cover the cost of decommissioning and decontaminating (“D&D”) the Billerica site at the end of its use as a nuclear facility. In addition, we have a radioactive production facility in San Juan, Puerto Rico,Somerset, NJ where we must also maintain a number of environmental permits and nuclear licenses. As of December 31, 2019, we currently estimate the D&D cost of both sites to be approximately $26.9 million. As of December 31, 2019 and 2018, we have a liability recorded associated with the fair value of the asset retirement obligations of $12.9 million and $11.6 million, respectively. We currently provide this financial assurance in the form of surety bonds. We generally contract with third parties for the disposal of wastes generated by our operations. Prior to disposal, we store any low level radioactive waste at our facilities until the materials are below regulatory limits, as allowed by our licenses and permits. As of December 31, 2021, we currently estimate the D&D cost of all of our manufacturing sites (excluding our Puerto Rico radiopharmacy, which we sold on January 29, 2021) to be approximately $26.4 million. As of December 31, 2021 and 2020, we have a liability recorded associated with the fair value of the asset retirement obligations of $20.8 million and $14.0 million, respectively. We currently provide this financial assurance in the form of surety bonds.
We also actively monitor and seek to reduce our solid waste, energy and water usage, waste water discharge and greenhouse gas emissions. We generally contract with third parties for the disposal of wastes generated by our operations. In 2020, we developed a stormwater management operations and maintenance plan to minimize stormwater pollution from high impact activities. Improvements we made include (i) the regular inspection and cleaning of catch basins and piping to reduce sediment and debris wash out to adjacent wetlands; (ii) increasing street and parking lot cleaning to reduce pollutant run off; (iii) updating our snow removal plan at our North Billerica site to reduce the impact to adjacent wetlands; and (iv) using salt brine as a pretreatment for winter storms to reduce the amount of salt use and run off.
With respect to sustainability, in 2020, we developed a mechanism to track and monitor our energy use, water use and waste generation. We use an Energy Star Portfolio Manager to track energy and water use that we believe will help us calculate associated greenhouse gas emissions and compare the performance of our North Billerica buildings against a yearly baseline, national medians, and other similar buildings.
Environmental laws and regulations are complex, change frequently and have become more stringent over time. While we have budgeted for future capital and operating expenditures to maintain compliance with these laws and regulations, we cannot assure you that our costs of complying with current or future environmental protection, health and safety laws and regulations will not exceed our estimates or adversely affect our results of operations and financial condition. Further, we cannot assure you that we will not be subject to additional environmental claims for personal injury or cleanup in the future based on our past, present or future business activities. While it is not feasible to predict the future costs of ongoing environmental compliance, it is possible that there will be a need for future provisions for environmental costs that, in management’s opinion, are not likely to have a material effect on our financial condition, but could be material to the results of operations in any one accounting period.
See Part I, Item 1A. “Risk Factors” for information regarding certain risks associated with environmental matters.
EmployeesHuman Capital Management
As of December 31, 2019,2021, we had 508612 employees, of which 464588 were located in the U.S. and 4424 were located internationally. None of our employees are represented by a collective bargaining agreement, and we believe that our relationship with our employees is good. During 2021, we hired additional employees to assist us with the commercialization of PYLARIFY, including in sales, marketing, reimbursement, quality and medical affairs. In addition, we hired a Chief Human Resources Officer to help us attract, develop and retain leading and diverse talent in business-critical roles.
Diversity, Inclusion, Ethics and Compliance
We believe that supporting our local community and instilling a diverse, inclusive, ethical and compliant culture makes us an employer of choice, allows us to maintain good standing with the regulatory authorities and our customers, and benefits our stockholders in the long run.
We have a female Chief Executive Officer, over half of our Vice Presidents and above are women, and approximately 46% of our employees are women. We continue to strive to improve our diversity and inclusion with a strategic emphasis beyond gender, and we require recruiters working with us to present diversity candidates.
We are committed to promoting a culture of ethics and compliance. Our Code of Conduct and Ethics reflects our commitment to corporate integrity and the underlying business practices and principles of behavior that support this commitment. Each year our employees complete mandatory training that includes anti-bribery/anti-corruption rules, insider trading prohibitions, confidentiality obligations, as well as specialized training in healthcare industry marketing practices. We have a formal Ethics and Compliance Committee that develops, implements and oversees our ethics and compliance programs. We also have a Supplier Code of Conduct, and we seek to do business with minority-owned, female-owned and other diverse businesses and organizations (including those owned or operated by veterans and disabled veterans) that appropriately reflect the communities in which we operate and the customer base we serve.
Compensation and Benefits
We seek to provide pay, benefits, and services that are competitive to market and create incentives to attract and retain employees. Our compensation package includes, among other things, market-competitive pay, cash bonuses, healthcare and defined contribution plan benefits, paid time off and family leave, and restricted stock and other equity grants to certain levels of employees. We are focused on pay equity and regularly assess pay among similar roles and responsibilities throughout our organization and in comparison to our peer group.
Communication and Engagement
We believe that our success depends on employees understanding how their work contributes to our overall strategy. To this end, we utilize a variety of channels to facilitate open and direct communication, including: (i) quarterly town hall meetings for our entire company; (ii) regular ongoing update communications; and (iii) an externally administered whistleblower hotline and website that is prominently advertised to our employees, and a whistleblower’s anonymity is protected, if so requested. We also established various employee recognition award programs to recognize and reward employees for specific outstanding accomplishments and to foster a positive employee relations climate.
Health, Wellness and Safety
We are committed to the health and safety of our employees, patients and other partners in the healthcare community. We work to promote an environment of awareness and shared responsibility for safety and regulatory compliance throughout the Company, in order to minimize risks of injury, exposure, or business impact.
With respect to the COVID-19 pandemic, we operated a “Pandemic Response Team” to implement and oversee appropriate precautions to minimize the spread of COVID-19 in our teams and communities. We continue to have all non-critical employees and contractors work-remotely and avoid non-essential work-related travel. Further, we established a “Return to Office” team to develop plans for employees to safely return to all our facilities.
Corporate History
Founded in 1956 as New England Nuclear Corporation, our medical imaging diagnostic business was purchased by E.I. du Pont de Nemours and Company (“DuPont”) in 1981. Bristol Myers Squibb (“BMS”) subsequently acquired our diagnostic medical imaging business as part of its acquisition of DuPont Pharmaceuticals in 2001. In January 2008, Avista Capital Partners, L.P., Avista Capital Partners (Offshore), L.P. and ACP-Lantern Co-Invest, LLC (collectively “Avista”) formed Lantheus Holdings and acquired our medical imaging business from BMS. On June 30, 2015, we completed an initial public offering (“IPO”) of our common stock. We completed our acquisition of Progenics on June 19, 2020 (the “Progenics Acquisition”). Our common stock is traded on the NASDAQ Global Market under the symbol “LNTH”.
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.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 Annual Report on Form 10-K, 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 (ExtensibleInline Extensible Business Reporting Language)Language (“iXBRL”) format. XBRLiXBRL 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 Annual Report on Form 10-K.
Item 1A. Risk Factors
You should carefully consider the following risks. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. These risks could materially affect our business, results of operations or financial condition, cause the trading price of our outstanding common stock to decline materially or cause our actual results to differ materially from those expected or those expressed in any forward-looking statements made by us or on our behalf. See “Cautionary Note Regarding Forward-Looking Statements” and the risks of our businesses described elsewhere in this Annual Report on Form 10‑K.
Risk Factor Summary
Our business is subject to a number of risks, including risks that may adversely affect our business, results of operations, cash flows, and prospects. These risks are discussed more fully below and include, but are not limited to, risks related to:
Risks Related to Our CurrentPortfolio of Commercial Products
•Our ability to continue to grow the appropriate use of DEFINITY in suboptimal echocardiograms in the face of segment competition from other echocardiography ultrasound enhancing agents and Revenuespotential generic competition as a result of patent and regulatory exclusivity expirations.
•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 and DEFINITY RT at SBL.
•The instability of the global Mo-99 supply, including periodic supply outages and limitations at the NTP Radioisotopes (“NTP”) processing facility in South Africa and the Australian Nuclear Science and Technology Organisation’s (“ANSTO”) 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 or limitation periods.
•Our ability to successfully launch PYLARIFY as a commercial product, including (A) our ability to obtain FDA approval for additional PMFs that could manufacture PYLARIFY, (B) the ability of those PMFs to supply PYLARIFY to customers, (C) our ability to sell PYLARIFY to customers, and (D) our ability to obtain and maintain adequate coding, coverage and payment for PYLARIFY.
•Our ability to successfully launch PYLARIFY AI as a commercial product.
•Risks related to RELISTOR, commercialized by Bausch, and that the revenues generated for us thereby may not meet expectations.
•Risks related to the commercialization of AZEDRA, including in connection with market acceptance and reimbursement, that may cause the product not to meet revenue or operating income expectations.
•Risks associated with our DEFINITY RT formulation, approved by the FDA in November 2020, including our ability to gain post-approval market acceptance and adequate coding, coverage and payment.
Risks Related to Reimbursement and Regulation
•The dependence of many 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 ability to comply with those regulations and the costs of compliance.
Risks Related to our Business Operations and Financial Results
•The impact of the ongoing global COVID-19 pandemic on our business, financial condition or prospects, including: a decline in the volume of procedures and treatments using our products; potential delays and disruptions to global supply chains, manufacturing activities, logistics, operations, and clinical development programs; the business activities of our suppliers, distributors, customers and other business partners; the difficulty in recruiting and retaining employees and contractors; and the effects on worldwide economies, financial markets, social institutions, labor markets and healthcare systems.
•Our ability to hire or retain the number of qualified personnel, particularly scientific, medical and sales personnel, required for our business.
•Our ability to introduce new products and adapt to an evolving technology and medical practice landscape.
•Risks associated with our investment in and operation of our specialized manufacturing facility at our North Billerica, Massachusetts campus.
Risks Related to Our Portfolio of Clinical Development Candidates
•Risks associated with flurpiridaz F 18, which we out-licensed to GE Healthcare in 2017, including GE Healthcare’s ability to (A) successfully complete the Phase 3 development program, including delays in enrollment that have resulted from the COVID-19 pandemic, (B) obtain FDA approval, and (C) gain post-approval market acceptance and adequate coding, coverage and payment.
•Risks associated with 1095, including delays in enrollment that have resulted from the COVID-19 pandemic and our ability to successfully complete the Phase 2 study in mCRPC.
•Risks associated with our clinical development candidate LMI 1195
Risks Related to our Capital Structure
•Risks related to our outstanding indebtedness and our ability to satisfy those obligations.
•Risks related to the ownership of our common stock.
•The contractual contingent value rights (“CVRs”) we issued as part of the Progenics Acquisition may result in substantial future payments to holders of the CVRs.
Risks Related to Our Portfolio of Commercial Products
The near-term 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.competitors.
The growth of our business is substantially dependent on our ability to continue to grow the appropriate use of DEFINITY in suboptimal echocardiograms. There were approximately 35.1 million echocardiograms in 2019 according to a third-party source. Assuming 20% of echocardiograms produce suboptimal images, as stated in the clinical literature, we estimate that approximately 7.0 million echocardiograms in 2019 produced suboptimal images. We estimate that DEFINITY held over 80% of the U.S. market for contrast agents in echocardiography procedures as of December 31, 2019. DEFINITY currently competes with Optison, a GE Healthcare product, Lumason, a Bracco product, (known as SonoVue outside the U.S.), as well as echocardiography without contrastultrasound enhancing agents and other non-echocardiography agents.
We launched DEFINITY in 2001, and we continue to actively pursue additional patents in connection with DEFINITY and DEFINITY RT, both in the U.S. and internationally. In the U.S., for DEFINITY we have anfour Orange Book-listed method of use patent expiringpatents, one of which expires in March2035 and three of which expire in 2037, andas well as additional manufacturing patents that are not Orange Book-listed expiring in 2021, 2023 and 2037. Outside ofIn the U.S., while our for DEFINITY patent protection and regulatory exclusivity have generally expired, we are currently prosecuting additional patents to try to obtain similar method of use and manufacturing patent protection as grantedRT, which became commercially available in the U.S. We were also recently grantedfourth quarter of 2021, we have five Orange Book-listed patents, including a composition of matter patent which expires in 2035. Outside of the U.S., we are currently pursuing additional DEFINITY and DEFINITY RT patents to obtain similar patent protection as in the U.S. The Orange Book-listed patents include a patent on the modified formulationuse of DEFINITYVIALMIX RFID, which runs through December 2035. Ifexpires in 2037; additional VIALMIX RFID patent applications have been submitted in major markets throughout the modified formulation is approved by the FDA, then this patent would be eligible to be listed in the Orange Book.world.
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 ANDAs for generic versions of drugs before the expiration of an Orange Book-listed patent covering the innovator product 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) either the marketing of that generic candidate does not infringe anthe Orange Book-listed patentpatent(s) or the Orange Book-listed patentpatent(s) is invalid. With respectSimilarly, the FDA can approve a Section 505(b)(2) NDA from an applicant that relies on some of the information required for marketing approval to any Orange Book-listed patent coveringcome from studies which the applicant does not own or have a legal right of reference. The ANDA applicant or the Section 505(b)(2) applicant (if relying on studies related to the innovator product that expires afterproduct) (together, the ANDA applicant intends to begin commercialization, the ANDA applicant must certify that its generic candidate will not infringe the innovator’s Orange Book-listed patents or that the Orange Book-listed patents are invalid. The ANDA applicant“Applicant”) must also give Notice to the innovator, which would then enable the innovator to challengefile suit against the ANDA applicant in courtApplicant within 45 days of receiving suchthe Notice. If the innovator challenges the ANDA applicantApplicant in court in a timely manner, then FDA approval to commercialize the generic candidate will be stayed (that is, delayed) for up to 30 months while the dispute between the innovator and the ANDA applicantApplicant is resolved in court. The 30 month stay can be shortened if the patent infringement suit is resolved in the ANDA applicant’sApplicant’s favor before the 30 month stay expires, and this may involve a successful challenge of the patent’s validity in U.S. Patent and Trademark Office or USPTO,(“USPTO”) proceedings and appeals process.
our Orange Book-listed patent in court or in a USPTO adversarial proceeding.
As of the date of filing of this Annual Report on Form 10-K, we have not received any such Notice from any ANDA applicantApplicant, but we can give no assurance that we will not receive a Notice in the future. If we were to receive any such Notice in the future, we would review the Notice, evaluate the strength of any potential patent infringement claims, and be prepared to challenge the ANDA applicantApplicant in a timely fashion, which would thereby trigger the stay of up to 30 months. We can give no assurance that we would have grounds to file a patent infringement suit, that we would obtain the full 30 month stay, that we would be successful on the merits asserting that a generic candidatean Applicant infringes our Orange Book-listed patent, or that we would be successful defending the validity of our Orange Book-listed patent in court or in a USPTO adversarial proceeding. In addition, as discussed in our risk factor “Our business and industry are subject to complex and costly regulations. If government regulations are interpreted or enforced in a manner adverse to us or our business, we may be subject to enforcement actions, penalties, exclusion and other material limitations on our operations.” set forth below, if the FDA reclassified one or more of our imaging agents, such as DEFINITY, as a “device” rather than a “drug”, we do not know when such reclassification would become effective, how any transition rules would be formulated or applied, and whether or not the legal framework provided by the Hatch-Waxman Act would be preserved for some time after such reclassification.
As part of our microbubble franchise strategy, (i) we are developinghave developed and received FDA approval for DEFINITY RT, a modified formulation of DEFINITY, (ii) we look for other opportunities to expand our microbubble franchise, including new applications beyond echocardiography and contrastultrasound enhancing agent imaging generally such as our strategic arrangements with Cerevast, CarThera, Insightec and CarThera,AHN, and (iii) we continue to buildhave constructed a specialized in-house manufacturing capabilitiesfacility at our North Billerica facilitycampus for purposes of producing DEFINITY and, potentially, other sterile vial products. On February 22, 2022, we received FDA approval of our sNDA, authorizing commerical manufacturing of DEFINITY at our new facility. However, we can give no assurance that our microbubble franchise strategy will be successful or that the modified formulation, new applications or new manufacturing capabilities a new indication, a modified formulation or new applications will grow our microbubble franchise.
We have on-going development and technology transfer activities for our modified formulation with SBL located in South Korea but can give no assurances as to when or if those development and technology transfer activities will be completed and when we will begin to receive a supply of our modified formulation from SBL. In addition, potential global disruptions in air transport due to COVID-19 (coronavirus) could adversely affect our ability to receive a supply of our modified formulation from SBL, which, depending upon the magnitude and duration of such disruptions, could delay the commercial launch of our modified formulation.
If we are not able to continue to (i) grow DEFINITY and DEFINITY RT sales, which depend on one or more of the growth of echocardiograms, the growth in the appropriate use of contrastultrasound enhancing agents in suboptimal echocardiograms, and our ability to sustain and grow our leading position in the U.S. echocardiography contrastultrasound enhancing agent market, or (ii) be successful with our microbubble franchise strategy, we may not be able to continue to grow the revenue and cash flow of our business, which could have a negative effect on our business, results of operations and financial condition.
Our dependence upon third parties for the manufacture and supply of a substantial portion of our products and certain key components and raw materials 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.
We obtain a substantial portion of our products from third party manufacturers and suppliers. We rely on JHS as a substantial supplier of DEFINITY, as well as our sole source manufacturer of NEUROLITE, Cardiolite and evacuation vials. We rely on SBL as our sole source manufacturer of DEFINITY RT. We rely on various other sole source suppliers for some of our key components and raw materials.
Based on our current estimates, we believe that we will have sufficient supply of DEFINITY, NEUROLITE, Cardiolite and evacuation vials from JHS (together with DEFINITY from our in-house manufacturing facility), and sufficient supply of saline from our sole manufacturer, to meet expected demand. However, we can give no assurances that JHS or our other manufacturing partner will be able to manufacture and distribute our products in a high quality and timely manner and in sufficient quantities to allow us to avoid product stock-outs and shortfalls.
PYLARIFY is manufactured by a nationwide network of PMFs with radioisotope-producing cyclotrons. The radioisotope in PYLARIFY is fluorine-18, which has a 110-minute half-life, so PYLARIFY is manufactured and distributed rapidly to end-users. Because each of the PMFs manufacturing PLYARIFY is deemed by the FDA to be a separate manufacturing site, each has to be separately approved by the FDA. Although we have qualified and continue to qualify additional PMFs, we can give no assurance that the FDA will continue to approve PMFs in accordance with our planned roll-out schedule or that the PMFs will not experience issues with their ability to manufacture and deliver PYLARIFY to our customers. If FDA approval of manufacturing sites is delayed or withdrawn or our PMF sites experience manufacturing issues, our future business, results of operations, financial condition and cash flows could be adversely affected.
Xenon is captured as a by-product of the Mo-99 production process. We receive bulk unprocessed Xenon from IRE resulting from highly-enriched uranium (“HEU”) Mo-99 production, which we process and finish for our customers. We do not yet receive Xenon resulting from low-enriched uranium (“LEU”) Mo-99 production at IRE and can give no assurances as to the timing of the availability of LEU Xenon. We believe we will have a sufficient supply of Xenon to meet our customers’ needs. However, until IRE converts to LEU Xenon production or we can qualify an additional source of bulk unprocessed Xenon, we will rely on IRE as a sole source provider of HEU Xenon.
1095 is currently manufactured only at the CPDC in Ontario, Canada. Until December 2019, the CPDC was subject to an Import Alert by the FDA, which restricted the CPDC’s ability to ship products to the U.S. Although the CPDC has since been cleared by the FDA to ship products to the U.S., there can be no guarantee that the CPDC, or any other ex-U.S. third party manufacturer that we may partner with in the future, will not be subject to similar restrictions in the future.
In addition to the products described above, for reasons of quality assurance or cost-effectiveness, we purchase certain components and raw materials from sole suppliers (including, for example, the lipid blend material and perflutren gas used in the manufacturing of DEFINITY, the specially designed chemistry synthesis boxes and consumables used in the manufacturing of PYLARIFY and the lead casing for our TechneLite generators). Because we do not control the actual production of many of the products we sell and many of the raw materials and components that make up the products we sell, we may be subject to delays caused by interruption in production based on events and conditions outside of our control.
If we or one of our manufacturing partners or suppliers experiences an event, including a supply chain disruption, shortage or delay, logistics issue, labor dispute, natural disaster, fire, power outage, machinery breakdown, security problem, failure to meet regulatory requirements, product quality issue, technology transfer issue, cybersecurity breach or other issue, we or one of our manufacturing partners or suppliers may be unable to manufacture the relevant products at previous levels or on the forecasted schedule, if at all. Due to the stringent regulations and requirements of the governing regulatory authorities regarding the manufacture of our products, we may not be able to quickly restart manufacturing at a third party or our own facility or establish additional or replacement sources for certain products, components or materials.
In addition to our existing manufacturing relationships, we are also pursuing new manufacturing relationships to establish and secure additional or alternative suppliers for our commercial products. We have also constructed a specialized in-house manufacturing facility at our North Billerica, Massachusetts campus for purposes of producing DEFINITY and, potentially, other sterile vial products. On February 22, 2022, we received FDA approval of our sNDA, authorizing commercial manufacturing of DEFINITY at our new facility. This project should deliver supply chain redundancy for our current portfolio and the opportunity for margin expansion. However, we cannot assure you that these activities or any of our additional supply activities will be successful or that we will be able to avoid or mitigate interim supply shortages before new sources of product are fully functional and qualified. In addition, we cannot assure you that our existing manufacturers or suppliers or any new manufacturers or suppliers can adequately maintain either their financial health, technical capabilities or regulatory compliance to allow continued production and supply. A reduction or interruption in manufacturing, or an inability to secure alternative sources of raw materials or components, could eventually have a material adverse effect on our business, results of operations, financial condition and cash flows.
The global supply of Mo-99 is fragile and not stable. Our dependence on a limited number of third party suppliers for Mo-99 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 Mo-99. We currently purchase finished Mo-99 from three of the four main processing sites in the world, namely IRE in Belgium, NTP in South Africa and ANSTO in Australia. These processing sites provide us Mo-99 from five of the six main Mo-99-producing reactors in the world, namely BR2 in Belgium, LVR-15 in the Czech Republic, HFR in The Netherlands, SAFARI in South Africa and OPAL in Australia.
Our agreement with NTP, acting for itself and on behalf of its subcontractor ANSTO, expires on March 31, 2022. We are actively negotiating a new supply agreement with NTP, although we can give no assurance that we will be able to reach an agreement on mutually acceptable terms or at all. In the event we are not able to enter into an agreement on mutually acceptable terms or at all,
we would expect to attempt to increase our purchases of Mo-99 from IRE and enter into a direct arrangement with ANSTO, but we can give no assurance that we would be able to increase our purchases from IRE or directly purchase from ANSTO or that there would be no disruption in our ability to fill some or all of the demand for our TechneLite generators on certain manufacturing days.
The NTP processing facility had periodic outages in 2017, 2018 and 2019. When NTP was not producing, we relied on Mo-99 supply from both IRE and ANSTO to limit the impact of the NTP outages. In the second quarter of 2019 and 2020, ANSTO experienced multiple facility issues in its existing Mo-99 processing facility whichthat resulted in a decrease in Mo-99 available to us. In addition, as ANSTO transitioned from its existing Mo-99 processing facility to its new Mo-99 processing facility in the second quarter of 2019, ANSTO experienced start-up and transition challenges, which also resulted in a decrease in Mo-99 available to us. Further, starting in late June 2019 and through the date of this filing, ANSTO’s new Mo-99 processing facility has experienced unscheduled production outages and volume limitations, during which time we are now relyingrelied on IRE and NTP to limit the impact of those ANSTO outages.outages and limitations. Because of the COVID-19 pandemic, we experienced challenges receiving regularly scheduled orders of Mo-99 from our global suppliers, particularly in the second quarter of 2020. We continue to manage these various supply chain constraints,challenges, but depending on reactor and processor schedules and operations, at times 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 Mo-99 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. At full ramp-up capacity, ANSTO’s new facility could provide incremental supply to our globally diversified Mo-99 supply chain and therefore mitigate some risk among our Mo-99 suppliers, although we can give no assurances to that effect, and adays. A prolonged disruption of service from one of our three Mo-99 processing sites or one of their main Mo-99-producing reactors could have a substantial negative effect on our business, results of operations, financial condition and cash flows.
We are also pursuing additional sources of Mo-99 from potential new producers around the world to furtherTo augment our current supply. In November 2014,supply of Mo-99, we entered into a strategic arrangement with SHINE for the future supply of Mo-99. Under the terms of the supply agreement, entered into in November 2014, SHINE will provide Mo-99 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 2022.2023. The term of this arrangement provides for three years of supply of Mo-99. However, we cannot assure you that our arrangement with SHINE or any other possible additional sources of Mo-99 will result in commercial quantities of Mo-99 for our business, or that these new suppliersSHINE together with our current suppliers will be able to deliver a sufficient quantity of Mo-99 to meet our needs.
U.S., Canadian and international governments have encouraged the development of a number of alternative Mo-99 production projects with existing reactors and technologies as well as new technologies. However, we cannot say when, or if, the Mo-99 produced from these projects will become available. As a result, there is a limited amount of Mo-99 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 Mo-99 rely on Framatone-CERCA in France to fabricate uranium targets and in some cases fuel for research reactors from which Mo-99 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.
In addition, becauseOur ability to successfully launch PYLARIFY as a commercial product is dependent on (A) our ability to obtain FDA approval for additional PMFs that could manufacture PYLARIFY, (B) the ability of those PMFs to supply PYLARIFY to customers, (C) our ability to sell PYLARIFY to customers, and (D) our ability to obtain and maintain adequate coding, coverage and payment for PYLARIFY.
The commercial launch of PYLARIFY is complex and expensive. To manufacture PYLARIFY, we sourceassembled and qualified a nationwide network of PMFs with radioisotope-producing cyclotrons that make F 18, which has a 110-minute half-life, so PYLARIFY is manufactured and distributed rapidly to end-users. Because each of the PMFs manufacturing these products is deemed by the FDA to be a separate manufacturing site, each has to be separately approved by the FDA. Although we successfully qualified 21 PMFs in 2021 and continue to qualify additional PMFs in 2022, such that PYLARIFY is broadly available across the U.S. (including through our radioisotopes almost exclusively from international suppliers, potential global disruptionsefforts to fly doses to certain markets ahead of PMF activation), we can give no assurance that the FDA will continue to approve PMFs in air transport dueaccordance with our planned roll-out schedule. If FDA approval of manufacturing sites is delayed or withdrawn, our future business, results of operations, financial condition and cash flows could be adversely affected.
PYLARIFY is sold in the U.S. to COVID-19 (coronavirus) could adversely affecthospitals, independent imaging centers and government facilities and are generated through a PYLARIFY direct sales team and a sales team at some of our international supply chain for radioisotopes which, depending uponPMF partners. We generally do not use group purchasing arrangements to sell PYLARIFY and require contracts to be entered into directly with each customer. During 2021, we hired additional employees to assist us with this commercialization of PYLARIFY. Our ability to continue to successfully launch PYLARIFY depends, in part, on our ability to continue to enter into arrangements directly with the magnitudehospitals, independent imaging centers and duration of such disruptions,government facilities that we serve. Any delay or inability to enter into these arrangements could have a substantial negative effectan adverse impact on our future business, results of operations, financial condition and cash flows.
In addition, obtaining adequate coding, coverage and payment for PYLARIFY is critical, including not only coverage from Medicare, Medicaid and other government payors, as well as private payors, but also appropriate payment levels to adequately cover our customers’ costs of using PYLARIFY in PET/CT imaging procedures. We received notification that our HCPCS code, which enables streamlined billing, went into effect as of January 1, 2022. In addition, effective January 1, 2022, CMS granted Transitional Pass-Through Payment Status for PYLARIFY, enabling traditional Medicare to provide an incremental payment for PET/CT scans performed with PYLARIFY in the hospital outpatient setting. If other government payors or private payors do not provide adequate
reimbursement for the use of PYLARIFY, our future business, results of operations, financial condition and cash flows could be adversely affected.
The instabilitysuccessful launch of PYLARIFY is also dependent on our ability to establish PYLARIFY as a leading PET diagnostic for men with prostate cancer in the approved indications. PYLARIFY currently competes with Telix Pharmaceuticals Limited’s recently-approved Illuccix (gallium-68 PSMA-11 injection) and Bracco’s Axumin (fluciclovine F 18). We also face potential competition from Novartis AG, which has a gallium-68 PSMA-11 kit for PET imaging currently under review with the FDA, and Bracco, which has an F 18 PSMA PET imaging agent in late stage clinical development. We believe that one or both of the global supplyNovartis and Bracco PSMA agents could be approved by the FDA for commercialization later in 2022 or in 2023. To the extent we are unsuccessful in establishing the use of Mo-99, including supply shortages, has resulted in increasesPYLARIFY for approved indications or we lose market share to existing or future competitors, such lack of success or loss of market share could have an adverse impact on our future business, results of operations, financial condition and cash flows. In addition, because we are in the costprocess of Mo-99, which has negatively affectedlaunching this imaging agent, we can give no assurance as to how clinical practice may evolve or what our margins, and more restrictive agreements with suppliers, which could further increaseultimate market penetration may be.
We may not be able to successfully launch PYLARIFY AI as a commercial product.
We announced in November 2021 that PYLARIFY AI, our costs.
With the general instabilityFDA-cleared medical device software, was commercially available in the global supplyUnited States. Our ability to successfully launch PYLARIFY AI as a commercial product depends in part on, among other things:
• the market receptivity to PYLARIFY AI as a new digital application for quantitative assessment of Mo-99,PSMA PET/CT images in prostate cancer;
•our ability, and our distributors’ abilities, to secure customers’ internal approvals and sell and deploy PYLARIFY AI at customer locations;
•interruptions or performance problems associated with our digital application, including a service outage; and
•a network or data security incident that allows unauthorized access to our network or data or our customers’ data.
Although we have faced substantial increasesbelieve that PYLARIFY AI when used with PYLARIFY will provide us an important competitive advantage in what we expect will be a highly competitive PET PSMA diagnostic imaging agent market, we can give no assurances to that effect.
We rely on Bausch to develop and commercialize RELISTOR, exposing us to significant risks.
We rely on Bausch to pursue and complete further development and obtain regulatory approvals for RELISTOR worldwide and to effectively commercialize the product and manage pricing, sales and marketing practices and inventory levels in the costdistribution channel. The revenue derived from royalty and milestone payments from our RELISTOR collaboration with Bausch can fluctuate significantly from period to period, and our past revenue is therefore not necessarily indicative of Mo-99 in comparison to historical costs.our future revenue. We expect these cost increases to continueare and will be dependent upon Bausch and any other business partners with which we may collaborate in the future as the Mo-99 suppliers move closer to a full cost recovery business model. The Organizationperform and fund development, including clinical testing of Economic CooperationRELISTOR, making related regulatory filings and Development (“OECD”) defines full cost recovery as the identification of all of the costs of productionmanufacturing and recovering these costsmarketing products, including for new indications and in new formulations, in their respective territories. Revenue from the market. While we are generally ablesale of RELISTOR depends entirely upon the efforts of Bausch and its sublicensees, which have significant discretion in determining the efforts and resources they apply to pass Mo-99 cost increases onsales of RELISTOR. Bausch may not be effective in obtaining approvals for new indications or formulations, marketing existing or future products or arranging for necessary sublicense or distribution relationships. Our business relationships with Bausch and other partners may not be scientifically, clinically or commercially successful. For example, Bausch has a variety of marketed products and its own corporate objectives, which may not be consistent with our best interests, and may change its strategic focus or pursue alternative technologies in a manner that results in reduced or delayed revenue to our customers in our customer contracts, if weus. Bausch may also have commercial and financial interests that are not ablefully aligned with ours in a given territory or territories, which may make it more difficult for us to do sofully realize the value of RELISTOR. We may have future disagreements with Bausch, which has significantly greater financial and managerial resources which it could draw upon in the future, our margins may decline further with respectevent of a dispute. Such disagreements could lead to our TechneLite generators, which couldlengthy and expensive litigation or other dispute-resolution proceedings as well as extensive financial and operational consequences to us and have a materialan adverse effect on our business, results of operations and financial conditioncondition. In addition, independent actions may be taken by Bausch concerning product development, marketing strategies, manufacturing and cash flows.supply issues, and rights relating to intellectual property.
We are also dependent on Bausch for compliance with regulatory requirements as they apply to RELISTOR.
The RELISTOR commercialization program continues to be subject to risk.
Future developments in the commercialization of RELISTOR may result in Bausch taking independent actions concerning product development, marketing strategies or other matters, including termination of its efforts to develop and commercialize the drug.
Under our license agreement with Bausch, Bausch is responsible for obtaining supplies of RELISTOR, including contracting with contract manufacturing organizations (“CMOs”) for supply of RELISTOR active pharmaceutical ingredient and subcutaneous and oral finished drug product. These arrangements may not be on terms that are advantageous and will subject us to risks that the counterparties may not perform optimally in terms of quality or reliability.
Bausch’s ability to optimally commercialize either oral or subcutaneous RELISTOR in a given jurisdiction may be impacted by applicable labeling and other regulatory requirements. If clinical trials indicate, or regulatory bodies are concerned about, actual or possible serious problems with the safety or efficacy of RELISTOR, Bausch may stop or significantly slow further development or commercialization of RELISTOR. In such an event, we could be faced with either further developing and commercializing the drug on our own or with one or more substitute collaborators, either of which paths would subject us to the development, commercialization, collaboration and/or financing risks.
There has been growing public concern regarding the use of opioid drugs. Any efforts by the FDA or other governmental authorities to restrict or limit the use of opioids may negatively impact the market for RELISTOR. In addition, there is a substantial risk that the revenue targets for receiving additional RELISTOR milestone payments will not be met. As a result, there is no assurance that we will realize the potential revenue represented by future RELISTOR milestone payments.
Any such significant action adverse to the further development and commercialization of RELISTOR could have an adverse impact on our business.
Our dependence upon third partiesAZEDRA commercialization program is subject to significant risk.
Progenics received FDA approval for AZEDRA in July 2018. Since then, the manufactureAZEDRA commercial program has faced numerous challenges, including, among other things:
•decisions by treating physicians and patients to defer treatment and by hospital facilities to limit access for our representatives until COVID-19 infection rates subside;
•challenges in securing I-131 supply and manufacturing patient-ready doses of AZEDRA;
•a small Orphan Drug patient population;
•reluctance by some potential hospital customers to invest in the necessary facility build-out to accommodate the administration of a substantial portionhighly radioactive therapeutic agent (including, among other things, the construction of our products could prevent uslead-lined rooms to accommodate inpatients following AZEDRA’s administration); and
•the high cost of the drug and reimbursement.
Because of these issues, we can give no assurance that AZEDRA will become a commercial success. After increased experience administering AZEDRA, clinicians may conclude that the complexity of administration and/or safety concerns with using a highly radioactive therapeutic agent may not justify AZEDRA’s perceived clinical benefits. AZEDRA became eligible for new technology add-on payments (NTAP) under the Medicare Hospital Inpatient Prospective Payment System (IPPS) effective October 1, 2019. As required by statute, NTAP eligibility under the IPPS can continue for a period of at least two years, but not more than three years. Under the fiscal year 2022 IPPS Final Rule, published in September 2021, CMS finalized continuation of AZEDRA’s NTAP for fiscal year 2022—i.e., from delivering our productsOctober 1, 2021 through September 30, 2022. AZEDRA’s NTAP will most likely expire September 30, 2022. If post-pass-through payment levels impact market acceptance for AZEDRA, the drug may not generate enough revenue to our customers inmake it economically viable. In addition, the required quantities, withinmarket may react negatively to the required timeframes, or at all,high cost of AZEDRA, which could result in order cancellationsnegative publicity and decreased revenues.potentially reputational harm to us. Further, to the extent new Federal restrictions relating to drug pricing are implemented and apply to AZEDRA, the additional pricing pressure could further limit AZEDRA’s economic viability.
We obtain a substantial portion of our products from third party manufacturers and suppliers. We rely on JHS as our sole source manufacturer of DEFINITY, Neurolite, Cardiolite and evacuation vials. We currently have additional on-going technology transfer activities for a modified formulation of DEFINITY with SBL. We currently believe that if approved by the FDA, the modified formulation could become commercially available in early 2021, although that timing cannotIf AZEDRA is determined to be assured. Currently, our DEFINITY, Neurolite, Cardiolite, evacuation vial and saline product supplieschallenging to administer, not economically viable or we are approved for manufacture by a single manufacturer.
Based on our current estimates, we believe that we will have sufficient supply of DEFINITY, Neurolite, Cardiolite and evacuation vials from JHS, and sufficient supply of saline from our sole manufacturer,unable to meet expected demand. However, we can give no assurances that JHS or our other manufacturing partner will be able to manufacture and distribute our products in a high quality and timely manner and in sufficient quantities to allow us to avoid product stock-outs and shortfalls. Currently, regulatory authorities in certain countries have not yet approved JHS as a manufacturer of certain of our products. Accordingly, until those regulatory approvals have been obtained,successfully commercialize it, our business, results of operations, financial condition and cash flows will continue tocould be adversely affected.
XenonWe may not be able to maintain Orphan Drug exclusivity for AZEDRA and, even if we do, that exclusivity may not prevent the FDA, from approving competing products.
Under the Orphan Drug Act, the FDA may designate a product as an Orphan Drug if it is captureda drug intended to treat a rare disease or condition, which is generally defined as a by-productpatient population of fewer than 200,000 individuals annually in the Mo-99 production process. We receive bulk unprocessed XenonUnited States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug will be recovered from IRE resulting from HEU Mo-99 production, which we processsales in the United States. AZEDRA currently has the Orphan Drug designation in the United States.
In the United States, Orphan Drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and finish for our customers. We do not yet receive Xenon resulting from LEU Mo-99 production at IRE and can give no assurances as to the timing of the availability of LEU Xenon. We believe we will haveuser-fee waivers. In addition, if a sufficient supply of HEU and LEU Xenon to meet our customers’ needs. However, until IRE converts to LEU Xenon production or we can qualify an additional source of bulk unprocessed Xenon, we will rely on IRE as a sole source provider of HEU Xenon.
product that has Orphan Drug designation
subsequently receives the first FDA approval for the disease for which it has such designation, the product is entitled to Orphan Drug exclusivity, which means the FDA may not approve any other application to market the same drug for the same indication for a period of seven years, except in limited circumstances, such as a showing of clinical superiority over the product with orphan exclusivity or where the manufacturer is unable to assure sufficient product quantity.
We may not be able to maintain Orphan Drug exclusivity for AZEDRA. In addition, exclusive marketing rights in the United States may be limited if we seek approval for an indication broader than the orphan-designated indication or may be lost if the FDA later determines that the request for designation was materially defective or if we are unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition. Even after an Orphan Drug is approved, the FDA can subsequently approve the same drug with the same active moiety for the same condition if the FDA concludes that the later drug is safer, more effective or makes a major contribution to patient care. A loss of the Orphan Drug exclusivity for AZEDRA may have an adverse impact on our ability to adequately commercialize AZEDRA.
Our just-in-time manufacturing of radiopharmaceutical products described above, for reasonsrelies on the reliability of quality assurance or cost-effectiveness, we purchase certain componentsour equipment and raw materials from sole suppliers (including, for example, the lead casing for our TechneLite generatorsprocesses and the lipid blend material used in the processingtimely receipt of DEFINITY). Because we do not control the actual production of many of the products we sell and many of theradioactive raw materials and components that make up the products we sell, we may be subject to delays caused by interruption in production based on eventstimely shipment of finished goods, and conditions outsideany disruption of our control. supply or distribution networks could have a negative effect on our business.
At our North Billerica, Massachusetts facility, we manufacture TechneLite on a highly automated production line, as well as Thallium and Gallium using our older cyclotron technology and Xenon and Quadramet using ouron a hot cell infrastructure.line. At our Somerset, New Jersey facility, we manufacture AZEDRA on a hot cell line. As with all manufacturing facilities, equipment and infrastructure age and become subject to increasing maintenance and repair. If we or one of our manufacturing partners experiencesexperience an event, including a labor dispute, natural disaster, fire, power outage, machinery breakdown, security problem, failure to meet regulatory requirements, product quality issue, technology transfer issue or other issue, we may be unable to manufacture the relevant products at previous levels or on the forecasted schedule, if at all. Due to the stringent regulations and requirements of the governing regulatory authorities regarding the manufacture of our products, we may not be able to quickly restart manufacturing at a third party or our own facilityfacilities or establish additional or replacement sources for certain products, components or materials.
In addition, to our existing manufacturing relationships, we are also pursuing new manufacturing relationships to establish and secure additional or alternative suppliers for our commercial products. We currently have additional on-going technology transfer activities for a modified formulation of DEFINITY with SBL. We are also in the final stages of an extensive, multi-year effort to add specialized manufacturing capabilities at our North Billerica, Massachusetts facility. This project is part of a larger corporate growth strategy to create a competitive advantage in specialized manufacturing. This project should not only deliver efficiencies and supply chain redundancy for our current portfolio but also should afford us increased flexibility as we consider external opportunities. However, we cannot assure you that these activities or any of our additional supply activities will be successful or that we will be able to avoid or mitigate interim supply shortages before new sources of product are fully functional and qualified. In addition, we cannot assure you that our existing manufacturers or suppliers or any new manufacturers or suppliers can adequately maintain either their financial health, technical capabilities or regulatory compliance to allow continued production and supply. A reduction or interruption in manufacturing, or an inability to secure alternative sources of raw materials or components, could eventually have a material adverse effect on our business, results of operations, financial condition and cash flows.
Our just-in-time manufacturing of radiopharmaceutical products relies on the timely receipt of radioactive raw materials and the timely shipment of finished goods, and any disruption of our supply or distribution networks could have a negative effect on our business.
Becausebecause a number of our radiopharmaceutical products, including our TechneLite generators, PYLARIFY and AZEDRA, rely on radioisotopes with limited half-lives, we or our partners must manufacture, finish and distribute these products on a just-in-time basis, because the underlying radioisotope is in a constant state of radio decay. For example, if we receive Mo-99 in the morning of a manufacturing day for TechneLite generators, then we will generally ship finished generators to customers by the end of that same business day. Shipment of generators may be by next day delivery services or by either ground or air custom logistics. Similarly, the radioisotope used in PYLARIFY is F 18, which has a 110 minute half-life, requiring that this product be manufactured and distributed within the same day to end-users. After being made on a cyclotron at a PMF, the F 18 is then combined with certain chemical ingredients in specially designed chemistry synthesis boxes to manufacture PYLARIFY. The finished PYLARIFY is then quality control tested and transferred to a radiopharmacist who prepares and dispenses patient-specific doses from the final product. Any delay in us receiving radioisotopes from suppliers or being able to have finished products delivered to customers because of weather or other unforeseen transportation issues could have a negative effect on our business, results of operations, financial condition and cash flows.
In the U.S., we are heavily dependent on a few large customers to generate a majority of our revenues for our nuclear medical imaging products in our precision diagnostic product category. Outside of the U.S., we rely primarily on distributors to generate a substantial portion of our revenue.
In the U.S., we have historically relied on a limited number of radiopharmacy customers, primarily Cardinal, Jubilant Radiopharma, PharmaLogic, RLS and UPPI, to purchase our current largest volume nuclear imaging products. Among the existing radiopharmacies in the U.S., continued consolidations, divestitures and reorganizations may have a negative effect on our business, results of operations, financial condition and cash flows. Our contractual arrangements with these radiopharmacy customers generally specify pricing levels and requirements to purchase minimum percentages of certain products during certain periods. The agreements generally are multi-year arrangements that may be terminated upon the occurrence of specified events, including a material breach by the other party and certain force majeure events. If these contracts are terminated prior to the expiration of their term, or are not renewed, or are renewed on terms that are less favorable to us, then such an event could have a material adverse effect on our business, results of operations, financial condition and cash flows.
For all of our medical imaging products, we continue to experience significant pricing pressures from our competitors, large customers and group purchasing organizations, and any significant, additional pricing pressures could lead to a reduction in revenue which could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Outside of the U.S. and Canada, we have no sales force and, consequently, rely on third party distributors, either on a country-by-country basis or on a multi-country, regional basis, to market, sell and distribute our products. In Canada, we maintain our own direct sales force to generate sales of DEFINITY. In certain circumstances, distributors may also sell competing products to our own or products for competing diagnostic modalities and may have incentives to shift sales towards those competing products. As a result, we cannot assure you that our international distributors will increase or maintain current levels of unit sales or that we will be able to increase or maintain our current unit pricing, which, in turn, could have a material adverse effect on our business, results of operations, financial condition and cash flows.
We face significant competition in our business and may not be able to compete effectively.
The markets for our products are highly competitive and continually evolving. Our principal competitors for our current commercial products and leading clinical development candidates include large, global companies that are more diversified than we are and that have substantial financial, manufacturing, sales and marketing, distribution and other resources:
•For DEFINITY, our competitors currently include GE Healthcare and Bracco.
•For a number of our radiopharmaceutical commercial products, our competitors currently include Curium, GE Healthcare, Bracco and Jubilant Life Sciences, an affiliate of JHS and Jubilant Radiopharma, as well as other competitors, including NorthStar and potentially BWXT Medical.
•For PYLARIFY, our competitors currently include Telix Pharmaceuticals Limited and Bracco, and may in the future include Novartis AG, which has a gallium-68 PSMA-11 kit for PET imaging currently under review with the FDA, and Bracco, which has an F 18 PSMA PET imaging agent in late stage clinical development; we believe that one or both of the Novartis and Bracco PSMA agents could be approved by the FDA for commercialization later in 2022 or in 2023. In addition, the University of California, San Francisco and the University of California, Los Angeles have approved NDAs for a gallium-68 PSMA-11 injection for PSMA PET imaging, which we believe will primarily be used within their hospital systems.
•For RELISTOR, our principal competitors include Nektar Therapeutics, in collaboration with AstraZeneca PLC; Cubist Pharmaceuticals, a subsidiary of Merck & Co., Inc.; Mallinckrodt plc, in collaboration with Takeda Pharmaceutical Company Limited; and BioDelivery Sciences International, Inc.; together with other prescription, as well as over-the-counter, laxatives used as first line therapy for OIC.
•For AZEDRA, there are currently no approved anticancer treatments in the U.S. for malignant, recurrent, and/or unresectable pheochromocytoma and paraganglioma.
•For 1095, our principal competitors in the field of radiopharmaceutical therapeutics for mCRPC may include Novartis AG; POINT Biopharma; Telix Pharmaceuticals Limited; and Bayer HealthCare Pharmaceuticals Inc., each of which have product candidates in development.
•For LMI 1195, our principal competitors may include GE Healthcare’s iobenguane 123 injection.
•For flurpiridaz, our principal competitors may include rubidium generators from Bracco and Jubilant Radiopharma.
We cannot anticipate the actions of our current or future competitors in the same or competing diagnostic modalities, such as significant price reductions on products that are comparable to our own, development of new products that are more cost-effective or have superior performance than our current products or the introduction of generic versions after our proprietary products lose their patent protection. In addition, distributors of our products could attempt to shift end-users to competing diagnostic modalities and products, or bundle the sale of a portfolio of products, in either case to the detriment of our specific products. Our current or future products could be rendered obsolete or uneconomical as a result of these activities.
Further, the radiopharmaceutical industry continues to evolve strategically, with several market participants either recently sold or for sale. In addition, the supply-demand dynamics of the industry are complex because of large market positions of some participants, legacy businesses, government subsidies (in particular, relating to the manufacture of radioisotopes), and group purchasing arrangements. We cannot predict what impact new owners and new operators may have on the strategic decision-making of our competitors, customers and suppliers, and such decision-making could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Ultrasound enhancing agents may cause side effects which could limit our ability to sell DEFINITY.
DEFINITY is an ultrasound enhancing agent based on perflutren lipid microspheres. In 2007, the FDA received reports of deaths and serious cardiopulmonary reactions following the administration of ultrasound micro-bubble enhancing agents used in echocardiography. Four of the 11 reported deaths were caused by cardiac arrest occurring either during or within 30 minutes following the administration of the ultrasound enhancing agent; most of the serious but non-fatal reactions also occurred in this time frame. As a result, in October 2007, the FDA requested that we and GE Healthcare, which distributes Optison, a competitor to DEFINITY, add a boxed warning to these products emphasizing the risk for serious cardiopulmonary reactions and that the use of these products was
contraindicated in certain patients. In a strong reaction by the cardiology community to the FDA’s new position, a letter was sent to the FDA, signed by 161 doctors, stating that the benefit of these ultrasound enhancing agents outweighed the risks and urging that the boxed warning be removed. In May 2008, the FDA substantially modified the boxed warning. On May 2, 2011, the FDA held an advisory committee meeting to consider the status of ultrasound micro-bubble contrast agents and the boxed warning. In October 2011, we received FDA approval of further modifications to the DEFINITY label, including: further relaxing the boxed warning; eliminating the sentence in the Indication and Use section “The safety and efficacy of DEFINITY with exercise stress or pharmacologic stress testing have not been established” (previously added in October 2007 in connection with the imposition of the box warning); and including summary data from the post-approval CaRES (Contrast echocardiography Registry for Safety Surveillance) safety registry and the post-approval pulmonary hypertension study. Further, in January 2017, the FDA approved an additional modification to the DEFINITY label, removing the contraindication statement related to use in patients with a known or suspected cardiac shunt. Bracco’s ultrasound enhancing agent, Lumason, has substantially similar safety labeling as DEFINITY and Optison. In April 2021, after reviewing certain adverse events that occurred in patients with a prior history of allergic reactions to polyethylene glycol (“PEG”), an inactive excipient in both DEFINITY and Lumason, the FDA and the marketing authorization holders of these products agreed to an additional contraindication for use of these products, including advising clinicians to assess patients for prior PEG hypersensitivity before administering these products. If additional safety issues arise (not only with DEFINITY but also potentially with Optison and Lumason), this may result in unfavorable changes in labeling or result in restrictions on the approval of our product, including removal of the product from the market. Lingering safety concerns about DEFINITY among some healthcare providers or future unanticipated side effects or safety concerns associated with DEFINITY could limit expanded use of DEFINITY and have a material adverse effect on the unit sales of this product and our financial condition and results of operations.
Risks Related to Reimbursement and Regulation
Many of our customers are highly dependent on payments from third party payors, including government sponsored programs, particularly Medicare, in the U.S. and other countries in which we operate, and reductions in third party coverage and reimbursement rates for our products (or services provided with our products) could adversely affect our business and results of operations.
A substantial portion of our revenue depends on the extent to which the costs of our products purchased by our customers (or services provided with our products) are reimbursed by third party payors, including Medicare, Medicaid, other U.S. government sponsored programs, non-U.S. governmental payors and private payors. These third party payors exercise significant control over patient access and increasingly use their enhanced bargaining power to secure discounted rates and impose other requirements that may reduce demand for our products. Our customers’ ability to obtain adequate reimbursement for products and services from these third party payors affects the selection of products they purchase and the prices they are willing to pay. If Medicare and other third party payors do not provide adequate reimbursement for the costs of our products (or services provided using our products), deny the coverage of the products (or those services), or reduce current levels of reimbursement, healthcare professionals may not prescribe our products and providers and suppliers may not purchase our products.
In addition, demand for new products may be limited unless we obtain favorable reimbursement (including coding, coverage and payment) from governmental and private third party payors at the time of the product’s introduction, which will depend, in part, on our ability to demonstrate that a new agent has a positive impact on clinical outcomes. Third party payors continually review their coverage policies for existing and new products and procedures and can deny coverage for procedures that include the use of our products or revise payment policies such that payments do not adequately cover the cost of our products. Even if third party payors make coverage and reimbursement available, that reimbursement may not be adequate or these payors’ reimbursement policies may have an adverse effect on our business, results of operations, financial condition and cash flows.
For example, effective January 1, 2022, the CMS granted TPT Status in the hospital outpatient setting for PYLARIFY, enabling traditional Medicare to provide an incremental payment for PET/CT scans performed with PYLARIFY in that setting. TPT Status for PYLARIFY is expected to expire December 31, 2024. After TPT Status expires, under current Medicare rules, PYLARIFY, similar to other diagnostic radiopharmaceuticals, would not be separately reimbursed in the hospital outpatient setting but rather would be included as part of the facility fee a hospital otherwise receives for a PET/CT imaging procedure, and the facility fee does not always cover the cost of a drug used in the procedure. The Company can give no assurance that any CMS reimbursement in the hospital outpatient setting that follows the expiration of TPT Status will be adequate to cover the cost of PYLARIFY used in a PET/CT imaging procedure.
Over the past several years, Medicare has implemented numerous changes to payment policies for imaging procedures in both the hospital setting and non-hospital settings (which include physician offices and freestanding imaging facilities). Some of these changes have had a negative impact on utilization of imaging services. Examples of these changes include:
•Limiting payments for imaging services in physician offices and free-standing imaging facility settings based upon rates paid to hospital outpatient departments;
•Reducing payments for certain imaging procedures when performed together with other imaging procedures in the same family of procedures on the same patient on the same day in the physician office and free-standing imaging facility setting;
•Making significant revisions to the methodology for determining the practice expense component of the Medicare payment applicable to the physician office and free-standing imaging facility settings which results in a reduction in payment;
•Revising payment policies and reducing payment amounts for imaging procedures performed in the hospital outpatient settings; and
•Reducing prospective payment levels for applicable diagnosis-related groups in the hospital inpatient setting.
In the physician office and free-standing imaging facility setting, services provided using our products are reimbursed under the Medicare physician fee schedule. Payment rates under the Medicare physician fee schedule are regularly subject to updates to effectuate various policy goals. For example, since 2019, fee schedule payments have been adjusted for certain physicians based on their performance under a consolidated measurement system (that measures performance with respect to quality, resource utilization, meaningful use of certified electronic health records technology, and clinical practice improvement activities). From 2019 through payment year 2024, physicians may be eligible for a bonus based on the use of certain alternative payment models designated as “advanced” by CMS. The ongoing and future impact of these changes cannot be determined at this time.
We believe that Medicare changes to payment policies for imaging procedures applicable to non-hospital settings will continue to result in certain physician practices ceasing to provide these services and a further shifting of where certain medical imaging procedures are performed, from the physician office and free-standing imaging facility settings to the hospital outpatient setting. Changes applicable to Medicare payment in the hospital outpatient setting could also influence the decisions by hospital outpatient physicians to perform procedures that involve our products. Within the hospital outpatient setting, CMS payment policy is such that the use of many of our products are not separately payable by Medicare, although certain new drug products are eligible for separate (incremental) payment for the first three years after approval. Although Medicare generally does not provide separate payment to hospitals for the use of diagnostic radiopharmaceuticals administered in an outpatient setting, since 2013, CMS has had a policy to make a nominal additional payment ($10) to hospitals that utilize products with non-HEU, meaning the product is 95% derived from non-HEU sources. This payment policy continues in 2022. Although some of our TechneLite generators are manufactured using non-HEU, not all of our TechneLite generators currently meet CMS’s definition of non-HEU, and therefore this payment is not available for doses produced by the latter category of TechneLite generators used by our customers. Changes to the Medicare hospital outpatient prospective payment system payment rates, including reductions implemented for certain hospital outpatient sites, could influence the decisions by hospital outpatient physicians to perform procedures that involve our products.
We also believe that all these changes and their resulting pressures may incrementally reduce the overall number of diagnostic medical imaging procedures performed. These changes overall could slow the acceptance and introduction of next-generation imaging equipment into the marketplace, which, in turn, could adversely impact the future market adoption of certain of our imaging agents already in the market or currently in development. We expect that there will continue to be proposals to reduce or limit Medicare and Medicaid payment for diagnostic services.
We also expect increased regulation and oversight of advanced diagnostic testing in which our products are used. Under section 218(b) of the Protecting Access to Medicare Act, beginning January 1, 2020, a professional who is ordering advanced diagnostic imaging services (which include MRI, CT, nuclear medicine (including PET) and other advanced diagnostic imaging services that the Secretary of HHS may specify, but not currently including echocardiography) must consult a qualified clinical decision support mechanism, as identified by HHS, to determine whether the ordered service adheres to specified appropriate use criteria (“AUC”) developed or endorsed by CMS-qualified “provider led entities”. Medicare claims for such services must include information indicating whether services ordered would adhere to specified applicable AUC. Denial of claims for failure to include AUC consultation information on the claim form was set to begin on January 1, 2022. In the CY 2022 Physician Fee Schedule Final Rule, CMS delayed the start of these claims denials until the later of January 1, 2023, or the January 1st that follows the declared end of the Public Health Emergency for COVID–19. To the extent that these types of changes have the effect of reducing the aggregate number of diagnostic medical imaging procedures performed in the U.S., our business, results of operations, financial condition and cash flows would be adversely affected.
Medicare coverage of PET radiopharmaceuticals has been the subject of a large number of National Coverage Determinations (“NCDs”) by CMS since 2000. Specific indications for PET imaging were covered, some through Coverage with Evidence Development. CMS’s longtime policy, however, was that a particular use of PET scans is not covered unless an NCD specifically provided that such use was covered. Effective March 7, 2013, CMS revised its policy through an NCD to allow local Medicare Administrative Contractors (“MACs”) to determine coverage within their respective jurisdictions for PET using radiopharmaceuticals for their FDA-approved labeled indications for oncologic imaging. Effective January 1, 2022, non-coverage in the absence of an NCD has also been removed for non-oncologic indications of PET radiopharmaceuticals, allowing MACs to determine coverage for these indications within their respective jurisdictions. To the extent that CMS or the MACs impose more restrictive coverage, our business, results of operations, financial condition and cash flows would be adversely affected.
Reforms to the U.S. healthcare system may adversely affect our business.
A significant portion of our patient volume is derived from U.S. government healthcare programs, principally Medicare, which are highly regulated and subject to frequent and substantial changes. The Healthcare Reform Act substantially changed the way healthcare is financed by both governmental and private insurers. The law contains a number of provisions that affect coverage and reimbursement of drug products and medical imaging procedures in which our drug products are used and/or that could potentially reduce the aggregate number of diagnostic medical imaging procedures performed in the U.S. Subsequently, the Medicare Access and CHIP Reauthorization Act of 2015 significantly revised the methodology for updating the Medicare physician fee schedule. And more recently, Congress enacted legislation in 2017 that effectively eliminated the Healthcare Reform Act’s “individual mandate” beginning in 2019. Congress continues to consider other healthcare reform legislation. There is no assurance that the Healthcare Reform Act, as currently enacted or as amended in the future, will not adversely affect our business and financial results, and we cannot predict how future federal or state legislative, judicial or administrative changes relating to healthcare reform will affect our business.
In addition, other legislative changes have been proposed and adopted since the Healthcare Reform Act was enacted. The Budget Control Act of 2011 and subsequent Congressional actions includes provisions to reduce the federal deficit. These provisions have resulted in the imposition of 2% reductions in Medicare payments to providers, which went into effect on April 1, 2013 and will remain in effect through fiscal year 2030. The CARES Act temporarily suspended the 2% payment adjustment for dates of service from May 1 through December 31, 2020, the Consolidated Appropriations Act 2021 subsequently extended this suspension until March 31, 2021, and Congress further extended the suspension through March 31, 2022. Any significant spending reductions affecting Medicare, Medicaid or other publicly funded or subsidized health programs that may be implemented and/or any significant taxes or fees that may be imposed on us, as part of any broader deficit reduction effort or legislative replacement to the Budget Control Act, could have an adverse impact on our business, results of operations, financial condition and cash flows.
Further, changes in payor mix and reimbursement by private third party payors may also affect our business. Rates paid by some private third party payors are based, in part, on established physician, clinic and hospital charges and are generally higher than Medicare payment rates. Reductions in the amount of reimbursement paid for diagnostic medical imaging procedures and changes in the mix of our patients between non-governmental payors and government sponsored healthcare programs and among different types of non-government payor sources, could have a material adverse effect on our business, results of operations, financial condition and cash flows.
The full impact on our business of healthcare reforms and other new laws, or changes in existing laws, is uncertain. Nor is it clear whether additional legislative changes will be adopted or how those changes would affect our industry in general or our ability to successfully commercialize our products or develop new products.
Our business and industry are subject to complex and costly regulations. If government regulations are interpreted or enforced in a manner adverse to us or our business, we may be subject to enforcement actions, penalties, exclusion and other material limitations on our operations.
Both before and after the approval of our products and agents in development, we, our products, development agents, operations, facilities, suppliers, distributors, contract manufacturers, contract research organizations and contract testing laboratories are subject to extensive and, in certain circumstances, expanding regulation by federal, state and local government agencies in the U.S. as well as non-U.S. and transnational laws and regulations, with regulations differing from country to country, including, among other things, anti-trust and competition laws and regulations, and the General Data Protection Regulation in the European Union. In the U.S., the FDA regulates, among other things, the pre-clinical testing, clinical trials, manufacturing, safety, efficacy, potency, labeling, storage, record keeping, quality systems, advertising, promotion, sale, distribution, and import and export of drug products. We are required to register our business for permits and/or licenses with, and comply with the stringent requirements of the FDA, the NRC, the HHS, Health Canada, the EMA, the MHRA, the NMPA, state and provincial boards of pharmacy, state and provincial health departments and other federal, state and provincial agencies. Violation of any of these regulatory schemes, individually or collectively, could disrupt our business and have a material adverse effect on our business, results of operations, financial condition and cash flows.
Under U.S. law, for example, we are required to report certain adverse events and production problems, if any, to the FDA. We also have similar adverse event and production reporting obligations outside of the U.S., including to the EMA and MHRA. Additionally, we must comply with requirements concerning advertising and promotion for our products, including the prohibition on the promotion of our products for indications that have not been approved by the FDA or a so-called “off-label use” or promotion that is inconsistent with the approved labeling. If the FDA determines that our promotional materials constitute unlawful promotion, it could request that we modify our promotional materials or subject us to regulatory or enforcement actions. Also, quality control and manufacturing procedures at our own facility and at third party suppliers must conform to cGMP regulations and other applicable law after approval, and the FDA periodically inspects manufacturing facilities to assess compliance with cGMPs and other applicable law, and, from time to time, makes those cGMPs more stringent. Accordingly, we and others with whom we work must expend time, money, and effort in all areas of regulatory compliance, including manufacturing, production and quality control. If in the future issues arise at a third party manufacturer, the FDA could take regulatory action which could limit or suspend the ability of that third party to manufacture our products or have any additional products approved at the relevant facility for manufacture until the issues are resolved and remediated. Such a limitation or suspension could have a material adverse effect on our business, results of operations, financial condition and cash flows.
We are also subject to laws and regulations that govern financial and other arrangements between pharmaceutical manufacturers and healthcare providers, including federal and state anti-kickback statutes, federal and state false claims laws and regulations, federal and state “sunshine” laws and regulations and other fraud and abuse laws and regulations.
We must offer discounted pricing or rebates on purchases of pharmaceutical products under various federal and state healthcare programs, such as the Medicaid drug rebate program, the “federal ceiling price” drug pricing program, the 340B drug pricing program and the Medicare Part D Program. We must also report specific prices to government agencies under healthcare programs, such as the Medicaid drug rebate program and Medicare Part B. Our Medicaid Drug Rebate agreements require us to report certain price information to the federal government. Determination of the rebate amount that we pay to state Medicaid programs for our products, of prices charged to government and certain private payors for our products, or of amounts paid for our products under government healthcare programs, depends upon information reported by us to the government. If we provide customers or government officials with inaccurate information about the products’ pricing or eligibility for coverage, or the products fail to satisfy coverage requirements, we could be terminated from the rebate program, be excluded from participation in government healthcare programs, or be subject to potential liability under the False Claims Act or other laws and regulations.
Failure to comply with other requirements and restrictions placed upon us or our third party manufacturers or suppliers by laws and regulations can result in fines, civil and criminal penalties, exclusion from federal healthcare programs and debarment. Possible consequences of those actions could include:
•Substantial modifications to our business practices and operations;
•Significantly reduced demand for our products (if products become ineligible for reimbursement under federal and state healthcare programs);
•A total or partial shutdown of production in one or more of the facilities where our products are produced while the alleged violation is being remediated;
•Delays in or the inability to obtain future pre-market clearances or approvals; and
•Withdrawals or suspensions of our current products from the market.
Regulations are subject to change as a result of legislative, administrative or judicial action, which may also increase our costs or reduce sales or otherwise adversely impact our products. For example, on April 16, 2021 in the case Genus Medical Technologies LLC v. Food and Drug Administration, the U.S. Court of Appeals for the D.C. Circuit held that a product (other than a combination product) that meets the definitions of both “drug” and “device” in the FDCA must be regulated as a device. On August 9, 2021, the FDA announced that, as part of its implementation of this court decision, the FDA intended to regulate products that meet both the device and drug definition as devices, except where Congress intended a different classification. The FDA further indicated that it intended to bring previously classified products into line with the court decision and would reexamine whether individual imaging agents meet the device definition. In connection with its announcement, the FDA requested comments from the industry on five topics: categories of products implicated by the court decision; the transition process; the transition timing; user fee transitions; and determining drug or device status. We submitted comments to the FDA in response to its request for comments. While we question whether the FDA has authority to make this change, we believe that pre-existing law already establishes that a broad spectrum of imaging agents have already been established by Congress to be “drugs”, and do not believe that any of our imaging agents meets the definition of a “device” under the FDCA. We can give no assurance that the FDA will agree with our position. In addition, if the FDA determines that one or more of our imaging agents meet the definition of a “device”, we do not know when such reclassification would be effective, how any transition rules would be formulated or applied, and whether or not the legal framework provided by the Hatch-Waxman Act would be preserved for some time after such reclassification. A reclassification of one or more of our imaging agents as a “device” could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Our marketing and sales practices may contain risks that could result in significant liability, require us to change our business practices, and restrict our operations in the future.
We are subject to numerous domestic (federal, state and local) and foreign laws addressing fraud and abuse in the healthcare industry, including the FCA and federal Anti-Kickback Statute, self-referral laws, the FCPA, the Bribery Act, FDA promotional restrictions, the federal disclosure (sunshine) law and state marketing and disclosure (sunshine) laws. Violations of these laws are punishable by criminal or civil sanctions, including substantial fines, imprisonment and exclusion from participation in healthcare programs such as Medicare and Medicaid as well as health programs outside the U.S., and even settlement of alleged violations can result in the imposition of corporate integrity agreements that could subject us to additional compliance and reporting requirements and impact our business practices. These laws and regulations are complex and subject to changing interpretation and application, which could restrict our sales or marketing practices. Even minor and inadvertent irregularities could potentially give rise to a charge that the law has been violated. Although we believe we maintain an appropriate compliance program, we cannot be certain that the program will adequately detect or prevent violations and/or the relevant regulatory authorities may disagree with our interpretation. Additionally, if there is a change in law, regulation or administrative or judicial interpretations, we may have to change one or more of our business practices to be in compliance with these laws. Required changes could be costly and time consuming.
If our operations are found to be in violation of these laws or any other government regulations that apply to us, we may be subject to penalties, including, without limitation, civil and criminal penalties, damages, fines, imprisonment, the curtailment or restructuring of our operations, or exclusion from state and federal healthcare programs including Medicare and Medicaid, any of which could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Risks Related to Our Business Operations and Financial Results
The COVID-19 pandemic has had, and could continue to have, a material impact on our business, results of operation and financial condition, operating results, cash flows and prospects.
Towards the end of the first quarter of 2020 we began to experience, and through the date of this filing we are continuing to experience, impacts to our business and operations related to the COVID-19 pandemic, including the impact of hospital staffing challenges, vaccination mandates, employee absences due to illness, and a decline in the volume of procedures and treatments using our products. In response to the pandemic, healthcare providers have, and may need to further, reallocate resources, such as physicians, staff and facilities, as they prioritize limited resources and personnel capacity to focus on the treatment of patients with COVID-19 and implement limitations on access to hospitals and other medical institutions due to concerns about the potential spread of COVID-19 in such settings. Vaccination mandates may also create additional personnel and capacity constraints.
For example, we believe that during the fourth quarter of 2021 sales of DEFINITY were impacted by hospital nursing and sonographer shortages, and sales of AZEDRA were impacted by treatment capacity constraints in hospitals, treatment deferrals and cancellations by patients, and access restrictions by hospitals. There has also been a reduction in pulmonary ventilation studies in which our Xenon is used because of institutional concerns and professional society guidelines relating to the possible spread of COVID-19 to technicians and other patients, given that Xenon is both inhaled and exhaled by the patient. As a result, Xenon sales have decreased. We expect Xenon sales to continue to be at reduced levels so long as COVID-19 precautions remain in place. Similarly, with respect to AZEDRA, the resurgence of COVID-19 infection rates impacted sales by creating treatment capacity constraints in hospitals, treatment deferrals and cancellations by patients and access restrictions by hospitals.
These actions have significantly delayed the provision of other medical care including procedures involving our products, having an adverse effect on our revenue. These measures and challenges may continue for the duration of the COVID-19 pandemic, and such duration is uncertain and may significantly reduce our revenue and cash flows while the pandemic continues and thereafter until we and our customers are able to resume normal business operations. We cannot predict the magnitude or duration of the pandemic’s impact on our business.
In connection with the COVID-19 pandemic, the following risks could have a material effect on our business, financial condition, results of operations and prospects:
•The delay or cancellation by hospitals and clinics of the procedures in which our products are used as a result of their COVID-19 response efforts and the duration of such effects, thereby reducing sales of our products for an unknown period of time;
•The inability or unwillingness of some patients to visit hospitals or clinics in order to undergo procedures in which our products are used, thereby reducing sales of our products for an unknown period of time;
•The inability of some patients to pay for procedures and/or the co-pay associated with those procedures in which our products are used due to job loss or lack of insurance, thereby reducing sales of our products for an unknown period of time;
•The inability of our distributors, radiopharmacy customers, PET manufacturing partners, hospitals, clinics and other customers to conduct their normal operations, including supplying or conducting procedures in which our products are used, because of their COVID-19 response efforts, or the reduced capacity or productivity of their employees and contractors as a result of possible illness, quarantine or other inability to work, thereby reducing sales of our products for an unknown period of time;
•The financial challenges experienced by certain of our customers due to the COVID-19 pandemic resulting in increased pressure from those customers on the pricing of our commercial products;
•The inability of global suppliers of raw materials or components used in the manufacture of our products, or contract manufacturers of our products, to supply and/or transport those raw materials, components and products to us in a timely and cost effective manner due to shutdowns, interruptions or delays, limiting and potentially precluding the production of our finished products, impacting our ability to supply customers, reducing our sales, increasing our costs of goods sold, and reducing our absorption of overhead;
•The partial or complete delay or cancellation of international or domestic flights by our airfreight carriers, resulting in our inability to receive raw materials, components and products from our global suppliers or to ship and deliver our finished products to our domestic and international customers in a timely or cost effective manner, thereby potentially increasing our freight costs as we seek alternate, potentially more expensive, methods to ship raw materials, components or products, and negatively impacting our sales;
•The reduced capacity or productivity of our complex, on-campus operations as a result of possible illness, quarantine or other inability of our employees and contractors to work, despite all of the preventative measures we continue to undertake to protect the health and safety of our workforce;
•The illiquidity or insolvency of our suppliers, contract manufacturers (including our PET manufacturing partners) or freight carriers whose business activities could be shut down, interrupted or delayed;
•The illiquidity or insolvency of our distributors or customers, or their inability to pay our invoices in full or in a timely manner, due to the reduction in their revenues caused by the cancellation or delay of procedures and other factors, which could potentially reduce our cash flow, reduce our liquidity and increase our bad debt reserves;
•A portion of our raw materials or finished product inventory may expire due to reduced demand for our drugs;
•Delays in our ability, and the ability of our contract research organizations and development partners to conduct, enroll and complete clinical development programs such as our ARROW Phase 2 study in mCRPC or the flurpiridaz F 18 Phase 3 clinical development program currently being conducted by GE Healthcare;
•Delays of regulatory reviews and approvals, including with respect to our product candidates and manufacturing facilities, by the FDA or other health or regulatory authorities;
•Decreased sales of those of our products that are promotionally sensitive, like DEFINITY and AZEDRA, due to the reduction of in-person sales and marketing activities and training caused by travel restrictions, quarantines, other similar social distancing measures and more restrictive hospital access policies;
•Our ability to maintain employee morale and motivate and retain management personnel and other key employees as a result of our previous work week and salary reductions;
•A disruption in the operation of our new on-site manufacturing facility, which would delay implementation of our supply diversification strategy for DEFINITY and impact our ability to benefit from a lower cost of goods for that product;
•A reduction in revenue with continued incurrence of high fixed costs relating to our already-existing, complex and expensive radiopharmaceutical manufacturing facility could adversely affect our cash flows, liquidity and ability to comply with the financial covenants in our 2019 Facility;
•The increased reliance on our personnel working from home, which may negatively impact employee engagement, loyalty and productivity, or disrupt, delay or otherwise adversely impact our business, including through the increased employee resignations and retirements;
•The instability in worldwide economies, financial markets, social institutions, labor markets and the healthcare systems as a result of the COVID-19 pandemic, which could result in an economic downturn that could adversely impact our business, results of operations and financial condition, as well as that of our suppliers, distributors, customers or other business partners; and
•A recurrence of the COVID-19 pandemic, or the development and spread of new strains of COVID-19 after social distancing and other similar measures have been relaxed.
The extent to which the COVID-19 pandemic impacts our business and our results of operations and financial condition will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge in connection with the severity of the virus, the ability to treat and ultimately prevent it with vaccines, its potential recurrence or transformation into new or more contagious or virulent strains, and further actions that federal, state, local, or foreign governments may take to contain its impact.
We may not be able to hire or retain the number of qualified personnel, particularly scientific, medical and sales personnel, required for our business, which would harm the development and sales of our products and limit our ability to grow.
Competition in our industry for highly skilled scientific, healthcare and sales personnel is intense. During 2021, we hired additional employees to assist us with the commercialization of PYLARIFY, including in sales, marketing, reimbursement, quality and medical affairs. Although we were successful in hiring and onboarding those employees and we have not had any material difficulty in the past in hiring or retaining qualified personnel, if we are unable to retain our existing personnel, or attract and train additional qualified personnel, either because of competition in our industry for these personnel, prolonged remote working conditions due to the COVID-19 pandemic, or insufficient financial resources, then our growth may be limited and it could have a material adverse effect on our business.
If we lose the services of our key personnel, our business could be adversely affected.
Our success is substantially dependent upon the performance, contributions and expertise of our chief executive officer, executive leadership and senior management team. Mary Anne Heino, our Chief Executive Officer and President, and other members of our executive leadership and senior management team play a significant role in formulating and executing on our long-term strategy, generating business and overseeing operations. We have an employment agreement with Ms. Heino and a limited number of other individuals on our executive leadership team, although we cannot prevent them from terminating their employment with us. We do not maintain key person life insurance policies on any of our executive officers. While we have experienced some turnover on our executive leadership team, we have generally been able to fill positions by either promoting existing employees or attracting new, qualified individuals to lead key functional areas. Our inability to retain our existing executive leadership and senior management team, maintain an appropriate internal succession program or attract and retain additional qualified personnel could have a material adverse effect on our business.
Our business depends on our ability to successfully introduce new products and adapt to a changing technology and medical practice landscape.
The healthcare industry is characterized by continuous technological development resulting in changing customer preferences and requirements. The success of new product development depends on many factors, including our ability to fund development of new agents or new indications for existing agents, anticipate and satisfy customer needs, obtain timely regulatory approval based on performance of our agents in development versus their clinical study comparators, develop and manufacture products in a cost-effective and timely manner, maintain advantageous positions with respect to intellectual property and differentiate our products from our competitors. To compete successfully in the marketplace, we must make substantial investments in new product development, whether internally or externally through licensing or acquisitions. Our failure to introduce new and innovative products in a timely manner would have an adverse effect on our business, results of operations, financial condition and cash flows.
Even if we are able to develop, manufacture and obtain regulatory approvals for our new products, the success of these products would depend upon market acceptance and adequate coding, coverage and payment. Levels of market acceptance for our new products could be affected by a number of factors, including:
•The availability of alternative products from our competitors;
•The breadth of indications in which alternative products from our competitors can be marketed;
•The price of our products relative to those of our competitors;
•The timing of our market entry;
•Our ability to enter into commercial contracts to sell our products;
•Our ability to market and distribute our products effectively;
•Market acceptance of our products; and
•Our ability to obtain adequate coding, coverage and payment.
The field of diagnostic medical imaging is dynamic, with new products, including equipment, software and products, continually being developed and existing products continually being refined. Our own diagnostic imaging agents compete not only with other similarly administered imaging agents but also with imaging agents employed in different and often competing diagnostic modalities, and in the case of DEFINITY, echocardiography procedures without ultrasound enhancing agents. New hardware, software or agents in a given diagnostic modality may be developed that provide benefits superior to the then-dominant hardware, software and agents in that modality, resulting in commercial displacement of the agents. Similarly, changing perceptions about comparative efficacy and safety including, among other things, comparative radiation exposure, as well as changing availability of supply may favor one agent over another or one modality over another. In addition, new or revised appropriate use criteria developed by professional societies, to assist physicians and other health care providers in making appropriate imaging decisions for specific clinical conditions, can and have reduced the frequency of and demand for certain imaging modalities and imaging agents. To the extent there is technological obsolescence in any of our products that we manufacture, resulting in lower unit sales or decreased unit sales prices, we will have increased unit overhead allocable to the remaining market share, which could have a material adverse effect on our business, results of operations, financial condition and cash flows.
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.
Even after giving effect to the Progenics Acquisition, we are continuing to seek to acquire or in-license products, businesses or technologies that we believe are a strategic fit with our business strategy. Future acquisitions or in-licenses, however, may entail numerous operational and financial risks, including:
•A reduction of our current financial resources;
•Incurrence of substantial debt or dilutive issuances of securities to pay for acquisitions;
•Difficulty or inability to secure financing to fund development activities for those acquired or in-licensed technologies;
•Higher than expected acquisition and integration costs;
•Disruption of our business, customer base and diversion of our management’s time and attention to develop acquired products or technologies; and
•Exposure to unknown liabilities.
We may not have sufficient resources to identify and execute the acquisition or in-licensing of third party products, businesses and technologies and integrate them into our current infrastructure. In particular, we may compete with larger pharmaceutical companies and other competitors in our efforts to establish new collaborations and in-licensing opportunities. These competitors likely will have access to greater financial resources than we do and may have greater expertise in identifying and evaluating new opportunities. Furthermore, there may be an overlap between our products or customers and the companies which we acquire that may create conflicts in relationships or other commitments detrimental to the integrated businesses. Additionally, the time between our expenditures to acquire or in-license new products, technologies or businesses and the subsequent generation of revenues from those acquired products, technologies or businesses (or the timing of revenue recognition related to licensing agreements and/or strategic collaborations) could cause fluctuations in our financial performance from period to period. Finally, if we devote resources to potential acquisitions or in-licensing opportunities that are never completed, or if we fail to realize the anticipated benefits of those efforts, we could incur significant impairment charges or other adverse financial consequences.
Challenges with product quality or product performance, including defects, caused by us or our suppliers could result in a decrease in customers and revenues, unexpected expenses and loss of market share.
The manufacture of our products is highly exacting and complex and must meet stringent quality requirements, due in part to strict regulatory requirements, including the FDA’s cGMPs. Problems may be identified or arise during manufacturing, quality review, packaging or shipment for a variety of reasons including equipment malfunction, failure to follow specific protocols and procedures, defective raw materials and environmental factors. Additionally, manufacturing flaws, component failures, design defects, off-label uses or inadequate disclosure of product-related information could result in an unsafe condition or the injury or death of a patient. Those events could lead to a recall of, or issuance of a safety alert relating to, our products. We also may undertake voluntarily to recall products or temporarily shut down production lines based on internal safety and quality monitoring and testing data.
Quality, regulatory and recall challenges could cause us to incur significant costs, including costs to replace products, lost revenue, damage to customer relationships, time and expense spent investigating the cause and costs of any possible settlements or judgments related thereto and potentially cause similar losses with respect to other products. These challenges could also divert the attention of our management and employees from operational, commercial or other business efforts. If we deliver products with defects, or if there is a perception that our products or the processes related to our products contain errors or defects, we could incur additional recall and product liability costs, and our credibility and the market acceptance and sales of our products could be materially adversely affected. Due to the strong name recognition of our brands, an adverse event involving one of our products could result in reduced market acceptance and demand for all products within that brand, and could harm our reputation and our ability to market our products in the future. In some circumstances, adverse events arising from or associated with the design, manufacture or marketing of our products could result in the suspension or delay of regulatory reviews of our applications for new product approvals. These challenges could have a material adverse effect on our business, results of operations, financial condition and cash flows.
In the U.S., we are heavily dependent on a few large customers and group purchasing organization arrangements to generate a majority of our revenues for our nuclear medical imaging products and our other products. Outside of the U.S., we rely primarily on distributors to generate a substantial portion of our revenue.
In the U.S., we have historically relied on a limited number of radiopharmacy customers, primarily GE Healthcare, Cardinal, UPPI, Jubilant Radiopharma and PharmaLogic, to distribute our current largest volume nuclear imaging products. Among the existing radiopharmacies in the U.S., continued consolidations, divestitures and reorganizations may have a negative effect on our business, results of operations, financial condition and cash flows. We generally have distribution arrangements with our major radiopharmacy customers pursuant to multi-year contracts, each of which is subject to renewal. If these contracts are terminated prior to expiration of their term, or are not renewed, or are renewed on terms that are less favorable to us, then such an event could have a material adverse effect on our business, results of operations, financial condition and cash flows.
For all of our medical imaging products, we continue to experience significant pricing pressures from our competitors, large customers and group purchasing organizations, and any significant, additional pricing pressures could lead to a reduction in revenue which could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Outside of the U.S., Canada and Puerto Rico, we have no sales force and, consequently, rely on third-party distributors, either on a country-by-country basis or on a multi-country, regional basis, to market, sell and distribute our products. In Canada, we maintain our own direct sales force to sell DEFINITY. We formerly owned or operated radiopharmacies and we now sell radiopharmaceutical products under the Isologic Supply Agreement. In Australia, we also formerly owned or operated radiopharmacies, and we now sell DEFINITY and radiopharmaceutical products under the GMS Supply Agreement. In certain circumstances, distributors may also sell competing products to our own or products for competing diagnostic modalities and may have incentives to shift sales towards those competing products. As a result, we cannot assure you that our international distributors will increase or maintain current levels of unit sales or that we will be able to increase or maintain our current unit pricing, which, in turn, could have a material adverse effect on our business, results of operations, financial condition and cash flows.
We face significant competition in our business and may not be able to compete effectively.
The market for diagnostic medical imaging agents is highly competitive and continually evolving. Our principal competitors in existing diagnostic modalities include large, global companies with substantial financial, manufacturing, sales and marketing and logistics resources that are more diversified than ours, such as GE Healthcare, Bracco, Curium and Jubilant Life Sciences, as well as other competitors, including NorthStar Medical Radioisotopes. We cannot anticipate their actions in the same or competing diagnostic modalities, such as significant price reductions on products that are comparable to our own, development or introduction of new products that are more cost-effective or have superior performance than our current products, the introduction of generic versions when our proprietary products lose their patent protection or the new entry into a generic market in which we are already a participant. In addition, distributors of our products could attempt to shift end-users to competing diagnostic modalities and products. Our current or future products could be rendered obsolete or uneconomical as a result of these activities. Our failure to compete effectively could cause us to lose market share to our competitors and have a material adverse effect on our business, results of operations, financial condition and cash flows.
Further, the radiopharmaceutical industry continues to evolve strategically, with several market participants either recently sold or for sale. In addition, the supply-demand dynamics of the industry are complex because of large market positions of some participants, legacy businesses, government subsidies (in particular, relating to the manufacture of radioisotopes), and group purchasing arrangements. We cannot predict what impact new owners and new operators may have on the strategic decision-making of our competitors, customers and suppliers, and such decision-making could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Risks Related to Reimbursement and Regulation
Certain of our customers are highly dependent on payments from third party payors, including government sponsored programs, particularly Medicare, in the U.S. and other countries in which we operate, and reductions in third party coverage and reimbursement rates for our products (or services provided with our products) could adversely affect our business and results of operations.
A substantial portion of our revenue depends, in part, on the extent to which the costs of our products purchased by our customers (or services provided with our products) are reimbursed by third party payors, including Medicare, Medicaid, other U.S. government sponsored programs, non-U.S. governmental payors and private payors. These third party payors exercise significant control over patient access and increasingly use their enhanced bargaining power to secure discounted rates and impose other requirements that may reduce demand for our products. Our potential customers’ ability to obtain adequate reimbursement for products and services from these third party payors affects the selection of products they purchase and the prices they are willing to pay. For example, certain radiopharmaceuticals, when used for non-invasive imaging of the perfusion of the heart for the diagnosis and management of patients with known or suspected coronary artery disease, are currently subject to a Medicare National Coverage Determination (“NCD”). The NCD permits the coverage of such radiopharmaceuticals only when certain criteria are met. Our PET pipeline product flurpiridaz F 18, if approved, may become subject to this NCD, and may not be covered at all. If Medicare and other third party payors do not provide adequate reimbursement for the costs of our products (or services provided using our products), deny the coverage of the products (or those services), or reduce current levels of reimbursement, healthcare professionals may not prescribe our products and providers and suppliers may not purchase our products. In addition, demand for new products may be limited unless we obtain favorable reimbursement policies (including coverage, coding and payment) from governmental and private third party payors at the time of the product’s introduction, which will depend, in part, on our ability to demonstrate that a new agent has a positive impact on clinical outcomes. Third party payors continually review their coverage policies for existing and new products and procedures and can deny coverage for procedures that include the use of our products or revise payment policies such that payments do not adequately cover the cost of our products. Even if third party payors make coverage and reimbursement available, that reimbursement may not be adequate or these payors’ reimbursement policies may have an adverse effect on our business, results of operations, financial condition and cash flows.
Over the past several years, Medicare has implemented numerous changes to payment policies for imaging procedures in both the hospital setting and non-hospital settings (which include physician offices and freestanding imaging facilities). Some of these changes have had a negative impact on utilization of imaging services. Examples of these changes include:
Limiting payments for imaging services in physician offices and free-standing imaging facility settings based upon rates paid to hospital outpatient departments;
Reducing payments for certain imaging procedures when performed together with other imaging procedures in the same family of procedures on the same patient on the same day in the physician office and free-standing imaging facility setting;
Making significant revisions to the methodology for determining the practice expense component of the Medicare payment applicable to the physician office and free-standing imaging facility setting which results in a reduction in payment;
Revising payment policies and reducing payment amounts for imaging procedures performed in the hospital outpatient setting; and
Reducing prospective payment levels for applicable diagnosis-related groups in the hospital inpatient setting.
In the physician office and free-standing imaging facility setting, services provided using our products are reimbursed under the Medicare physician fee schedule. Since 2015, payments under the Medicare physician fee schedule have been subject to specific annual updates: a 0.5% update through 2018; a 0.25% update in 2019; no updates from 2020 to 2025; and, beginning in 2026, differential updates based on whether the physician participates in advanced alternative payment models (with 0.75% updates for qualifying participants and 0.25% updates for non-qualifying participants) (which may be subject to budget neutrality adjustments). Since 2019, fee schedule payments have been adjusted for certain physicians based on their performance under a consolidated measurement system (that measures performance with respect to quality, resource utilization, meaningful use of certified electronic health records technology, and clinical practice improvement activities). From 2019 through payment year 2024, physicians may be eligible for a bonus based on the use of certain alternative payment models designated as “advanced” by CMS. The ongoing and future impact of these changes cannot be determined at this time.
We believe that Medicare changes to payment policies for imaging procedures applicable to non-hospital settings will continue to result in certain physician practices ceasing to provide these services and a further shifting of where certain medical imaging procedures are performed, from the physician office and free-standing imaging facility settings to the hospital outpatient setting. Changes applicable to Medicare payment in the hospital outpatient setting could also influence the decisions by hospital outpatient physicians to perform procedures that involve our products. Within the hospital outpatient setting, CMS payment policy is such that the use of many of our products are not separately payable by Medicare, although certain new drug products are eligible for separate (incremental) payment for the first three years after approval. Since 2013, although Medicare generally does not provide separate payment to hospitals for the use of diagnostic radiopharmaceuticals administered in an outpatient setting, CMS has had a policy to make a nominal additional payment ($10) to hospitals that utilize products with non-HEU, meaning the product is 95% derived from non-HEU sources. This payment policy continues in 2020. Although some of our TechneLite generators are manufactured using non-HEU, not all of our TechneLite generators currently meet CMS’s definition of non-HEU, and therefore this payment is not available for doses produced by the latter category of TechneLite generators used by our customers. Changes to the Medicare hospital outpatient prospective payment system payment rates, including reductions implemented for certain hospital outpatient sites, could influence the decisions by hospital outpatient physicians to perform procedures that involve our products.
We also believe that all these changes and their resulting pressures may incrementally reduce the overall number of diagnostic medical imaging procedures performed. These changes overall could slow the acceptance and introduction of next-generation imaging equipment into the marketplace, which, in turn, could adversely impact the future market adoption of certain of our imaging agents already in the market or currently in development. We expect that there will continue to be proposals to reduce or limit Medicare and Medicaid payment for diagnostic services.
We also expect increased regulation and oversight of advanced diagnostic testing in which our products are used. Beginning January 1, 2020, a professional who is ordering advanced diagnostic imaging services (which include MRI, CT, nuclear medicine (including PET) and other advanced diagnostic imaging services that the Secretary of HHS may specify) must consult a qualified clinical decision support mechanism, as identified by HHS, to determine whether the ordered service adheres to specified appropriate use criteria (“AUC”). Reimbursement penalties will apply in 2021 if this requirement is not met (and documented on the claim). To the extent that these types of changes have the effect of reducing the aggregate number of diagnostic medical imaging procedures performed in the U.S., our business, results of operations, financial condition and cash flows would be adversely affected.
Reforms to the U.S. healthcare system may adversely affect our business.
A significant portion of our patient volume is derived from U.S. government healthcare programs, principally Medicare, which are highly regulated and subject to frequent and substantial changes. The Healthcare Reform Act substantially changed the way healthcare is financed by both governmental and private insurers. The law contains a number of provisions that affect coverage and reimbursement of drug products and medical imaging procedures in which our drug products are used and/or that could potentially reduce the aggregate number of diagnostic medical imaging procedures performed in the U.S. Subsequently, the Medicare Access and CHIP Reauthorization Act of 2015 significantly revised the methodology for updating the Medicare physician fee schedule. And more recently, Congress enacted legislation in 2017 that eliminated the Healthcare Reform Act’s “individual mandate” beginning in 2019 Congress continues to consider other healthcare reform legislation. There is no assurance that the Healthcare Reform Act, as currently enacted or as amended in the future, will not adversely affect our business and financial results, and we cannot predict how future federal or state legislative, judicial or administrative changes relating to healthcare reform will affect our business.
In addition, other legislative changes have been proposed and adopted since the Healthcare Reform Act was enacted. The Budget Control Act of 2011 and subsequent Congressional actions includes provisions to reduce the federal deficit. These provisions have resulted in the imposition of 2% reductions in Medicare payments to providers, which went into effect on April 1, 2013 and will remain in effect through 2029. Any significant spending reductions affecting Medicare, Medicaid or other publicly funded or subsidized health programs that may be implemented and/or any significant taxes or fees that may be imposed on us, as part of any broader deficit reduction effort or legislative replacement to the Budget Control Act, could have an adverse impact on our business, results of operations, financial condition and cash flows.
Further, changes in payor mix and reimbursement by private third party payors may also affect our business. Rates paid by some private third party payors are based, in part, on established physician, clinic and hospital charges and are generally higher than Medicare payment rates. Reductions in the amount of reimbursement paid for diagnostic medical imaging procedures and changes in the mix of our patients between non-governmental payors and government sponsored healthcare programs and among different types of non-government payor sources, could have a material adverse effect on our business, results of operations, financial condition and cash flows.
The full impact on our business of healthcare reforms and other new laws, or changes in existing laws, is uncertain. Nor is it clear whether additional legislative changes will be adopted or how those changes would affect our industry in general or our ability to successfully commercialize our products or develop new products.
Our business and industry are subject to complex and costly regulations. If government regulations are interpreted or enforced in a manner adverse to us or our business, we may be subject to enforcement actions, penalties, exclusion and other material limitations on our operations.
Both before and after the approval of our products and agents in development, we, our products, development agents, operations, facilities, suppliers, distributors, contract manufacturers, contract research organizations and contract testing laboratories are subject to extensive and, in certain circumstances, expanding regulation by federal, state and local government agencies in the U.S. as well as non-U.S. and transnational laws and regulations, with regulations differing from country to country, including, among other things, anti-trust and competition laws and regulations and the recently enacted General Data Protection Regulation (GDPR) in the European Union (the “EU”). In the U.S., the FDA regulates, among other things, the pre-clinical testing, clinical trials, manufacturing, safety, efficacy, potency, labeling, storage, record keeping, quality systems, advertising, promotion, sale, distribution, and import and export of drug products. We are required to register our business for permits and/or licenses with, and comply with the stringent requirements of the FDA, the NRC, the HHS, Health Canada, the EMA, the MHRA, the CFDA, state and provincial boards of pharmacy, state and provincial health departments and other federal, state and provincial agencies.
Under U.S. law, for example, we are required to report certain adverse events and production problems, if any, to the FDA. We also have similar adverse event and production reporting obligations outside of the U.S., including to the EMA and MHRA. Additionally, we must comply with requirements concerning advertising and promotion for our products, including the prohibition on the promotion of our products for indications that have not been approved by the FDA or a so-called “off-label use” or promotion that is inconsistent with the approved labeling. If the FDA determines that our promotional materials constitute unlawful promotion, it could request that we modify our promotional materials or subject us to regulatory or enforcement actions. Also, quality control and manufacturing procedures at our own facility and at third party suppliers must conform to cGMP regulations and other applicable law after approval, and the FDA periodically inspects manufacturing facilities to assess compliance with cGMPs and other applicable law, and, from time to time, makes those cGMPs more stringent. Accordingly, we and others with whom we work must expend time, money, and effort in all areas of regulatory compliance, including manufacturing, production and quality control. If in the future issues arise at a third party manufacturer, the FDA could take regulatory action which could limit or suspend the ability of that third party to manufacture our products or have any additional products approved at the relevant facility for manufacture until the issues are resolved and remediated. Such a limitation or suspension could have a material adverse effect on our business, results of operations, financial condition and cash flows.
We are also subject to laws and regulations that govern financial and other arrangements between pharmaceutical manufacturers and healthcare providers, including federal and state anti-kickback statutes, federal and state false claims laws and regulations and other fraud and abuse laws and regulations.
We must offer discounted pricing or rebates on purchases of pharmaceutical products under various federal and state healthcare programs, such as the Medicaid drug rebate program, the “federal ceiling price” drug pricing program, the 340B drug pricing program and the Medicare Part D Program. We must also report specific prices to government agencies under healthcare programs, such as the Medicaid drug rebate program and Medicare Part B. As a specific example, in 2010, we entered into a Medicaid Drug Rebate Agreement with the federal government for some but not all of our products, and in 2016 entered into a separate Medicaid Drug Rebate Agreement for the balance of our products. These agreements require us to report certain price information to the federal government. Determination of the rebate amount that we pay to state Medicaid programs for our products, of prices charged to government and certain private payors for our products, or of amounts paid for our products under government healthcare programs, depends upon information reported by us to the government. If we provide customers or government officials with inaccurate information about the products’ pricing or eligibility for coverage, or the products fail to satisfy coverage requirements, we could be terminated from the rebate program, be excluded from participation in government healthcare programs, or be subject to potential liability under the False Claims Act or other laws and regulations.
Failure to comply with other requirements and restrictions placed upon us or our third party manufacturers or suppliers by laws and regulations can result in fines, civil and criminal penalties, exclusion from federal healthcare programs and debarment. Possible consequences of those actions could include:
Substantial modifications to our business practices and operations;
Significantly reduced demand for our products (if products become ineligible for reimbursement under federal and state healthcare programs);
A total or partial shutdown of production in one or more of the facilities where our products are produced while the alleged violation is being remediated;
Delays in or the inability to obtain future pre-market clearances or approvals; and
Withdrawals or suspensions of our current products from the market.
Regulations are subject to change as a result of legislative, administrative or judicial action, which may also increase our costs or reduce sales. Violation of any of these regulatory schemes, individually or collectively, could disrupt our business and have a material adverse effect on our business, results of operations, financial condition and cash flows.
Our marketing and sales practices may contain risks that could result in significant liability, require us to change our business practices and restrict our operations in the future.
We are subject to numerous domestic (federal, state and local) and foreign laws addressing fraud and abuse in the healthcare industry, including the FCA and federal Anti-Kickback Statute, self-referral laws, the FCPA, the Bribery Act, FDA promotional restrictions, the federal disclosure (sunshine) law and state marketing and disclosure (sunshine) laws. Violations of these laws are punishable by criminal or civil sanctions, including substantial fines, imprisonment and exclusion from participation in healthcare programs such as Medicare and Medicaid as well as health programs outside the U.S., and even settlement of alleged violations can result in the imposition of corporate integrity agreements that could subject us to additional compliance and reporting requirements and impact our business practices. These laws and regulations are complex and subject to changing interpretation and application, which could restrict our sales or marketing practices. Even minor and inadvertent irregularities could potentially give rise to a charge that the law has been violated. Although we believe we maintain an appropriate compliance program, we cannot be certain that the program will adequately detect or prevent violations and/or the relevant regulatory authorities may disagree with our interpretation. Additionally, if there is a change in law, regulation or administrative or judicial interpretations, we may have to change one or more of our business practices to be in compliance with these laws. Required changes could be costly and time consuming.
If our operations are found to be in violation of these laws or any other government regulations that apply to us, we may be subject to penalties, including, without limitation, civil and criminal penalties, damages, fines, imprisonment, the curtailment or restructuring of our operations, or exclusion from state and federal healthcare programs including Medicare and Medicaid, any of which could have a material adverse effect on our business, results of operations, financial condition and cash flows.
We no longer qualify as an “emerging growth company” as of December 31, 2019, and as a result, we will have to comply with increased disclosure and compliance requirements.
Based on the market value of our common stock held by non-affiliates which exceeded $700 million as of the last business day of June 2019, we no longer qualify as an “emerging growth company” but will instead be deemed to be a “large accelerated filer” as of December 31, 2019.
As a large accelerated filer, we will be subject to certain disclosure and compliance requirements that apply to other public companies but that did not previously apply to us due to our status as an emerging growth company. These requirements include, but are not limited to:
The requirement that our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act of 2002;
Compliance with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements;
The requirement that we provide full and more detailed disclosures regarding executive compensation; and
The requirement that we hold a non-binding advisory vote on executive compensation and obtain stockholder approval of any golden parachute payments not previously approved.
We expect that the loss of emerging growth company status and compliance with the additional requirements of being a large accelerated filer will increase our legal, accounting and financial compliance costs and costs associated with investor relations activities, and cause management and other personnel to divert attention from operational and other business matters to devote substantial time to public company reporting requirements. In addition, if we are not able to comply with changing requirements in a timely manner, the market price of our stock could decline and we could be subject to sanctions or investigations by the stock exchange on which our common stock is listed, the SEC or other regulatory authorities, which would require additional financial and management resources.
As of the end of fiscal 2019, we are required to implement additional procedures and practices related to internal control over financial reporting, and we may identify deficiencies that we may not be able to remediate in time to meet the necessary deadline.
Pursuant to Section 404 of the Sarbanes-Oxley Act, our management is required to report upon the effectiveness of our internal control over financial reporting. Since we are deemed a large accelerated filer, our independent registered public accounting firm is required to attest to the effectiveness of our internal controls on an annual basis beginning with our Annual Report on Form 10-K for the year ended December 31, 2019. The rules governing the standards that must be met for our management and independent
registered public accounting firm to assess our internal controls are complex and require significant documentation, testing and possible remediation of our existing controls and the incurrence of significant additional expenditures. In connection with our evaluation of our internal controls, we may need to upgrade systems, including information technology; implement additional financial and management controls, reporting systems, and procedures; and hire additional accounting and finance staff.
Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations. In addition, any testing by us or our independent registered public accounting firm conducted in connection with Section 404 of the Sarbanes-Oxley Act may reveal deficiencies in our internal controls that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement. Internal control deficiencies could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock. Internal control deficiencies could also result in a restatement of our financial results in the future. We could become subject to stockholder or other third party litigation, as well as investigations by the SEC or other regulatory authorities, which could require additional financial and management resources and could result in fines, trading suspensions, payment of damages or other remedies. Further, any delay in compliance with the auditor attestation provisions of Section 404 could subject us to a variety of administrative sanctions, including ineligibility for short-form resale registration, action by the SEC and the suspension or delisting of our common stock, which could reduce the trading price of our common stock and could harm our business.
Risks Related to Safety
Ultrasound contrast agents may cause side effects which could limit our ability to sell DEFINITY.
DEFINITY is an ultrasound contrast agent based on perflutren lipid microspheres. In 2007, the FDA received reports of deaths and serious cardiopulmonary reactions following the administration of ultrasound micro-bubble contrast agents used in echocardiography. Four of the 11 reported deaths were caused by cardiac arrest occurring either during or within 30 minutes following the administration of the contrast agent; most of the serious but non-fatal reactions also occurred in this time frame. As a result, in October 2007, the FDA requested that we and GE Healthcare, which distributes Optison, a competitor to DEFINITY, add a boxed warning to these products emphasizing the risk for serious cardiopulmonary reactions and that the use of these products was contraindicated in certain patients. In a strong reaction by the cardiology community to the FDA’s new position, a letter was sent to the FDA, signed by 161 doctors, stating that the benefit of these ultrasound contrast agents outweighed the risks and urging that the boxed warning be removed. In May 2008, the FDA substantially modified the boxed warning. On May 2, 2011, the FDA held an advisory committee meeting to consider the status of ultrasound micro-bubble contrast agents and the boxed warning. In October 2011, we received FDA approval of further modifications to the DEFINITY label, including: further relaxing the boxed warning; eliminating the sentence in the Indication and Use section “The safety and efficacy of DEFINITY with exercise stress or pharmacologic stress testing have not been established” (previously added in October 2007 in connection with the imposition of the box warning); and including summary data from the post-approval CaRES (Contrast echocardiography Registry for Safety Surveillance) safety registry and the post-approval pulmonary hypertension study. Further, in January 2017, the FDA approved an additional modification to the DEFINITY label, removing the contraindication statement related to use in patients with a known or suspected cardiac shunt. Bracco’s ultrasound contrast agent, Lumason, has substantially similar safety labeling as DEFINITY and Optison. If additional safety issues arise (not only with DEFINITY but also potentially with Optison and Lumason), this may result in unfavorable changes in labeling or result in restrictions on the approval of our product, including removal of the product from the market. Lingering safety concerns about DEFINITY among some healthcare providers or future unanticipated side effects or safety concerns associated with DEFINITY could limit expanded use of DEFINITY and have a material adverse effect on the unit sales of this product and our financial condition and results of operations.
A heightened public or regulatory focus on the radiation risks of diagnostic imaging could have an adverse effect on our business.
We believe that there has been heightened public and regulatory focus on radiation exposure, including the concern that repeated doses of radiation used in diagnostic imaging procedures pose the potential risk of long-term cell damage, cancer and other diseases. For example, starting in January 2012, CMS required the accreditation of facilities providing the technical component of advanced imaging services, including CT, MRI, PET and nuclear medicine, in non-hospital freestanding settings. In August 2011, The Joint Commission (an independent, not-for-profit organization that accredits and certifies more than 20,500 healthcare organizations and programs in the U.S.) issued an alert on the radiation risks of diagnostic imaging and recommended specific actions for providing “the right test and the right dose through effective processes, safe technology and a culture of safety.” The Joint Commission has revised accreditation standards for diagnostic imaging in recent years, including standards related to dose optimization.
Heightened regulatory focus on risks caused by the radiation exposure received by diagnostic imaging patients could lead to increased regulation of radiopharmaceutical manufacturers or healthcare providers who perform procedures that use our imaging agents, which could make the procedures more costly, reduce the number of providers who perform procedures and/or decrease the demand for our products. In addition, heightened public focus on or fear of radiation exposure could lead to decreased demand for our products by patients or by healthcare providers who order the procedures in which our agents are used. Although we believe that our diagnostic imaging agents when properly used do not expose patients and healthcare providers to unsafe levels of radiation, any of the foregoing risks could have an adverse effect on our business, results of operations, financial condition and cash flows.
In the ordinary course of business, we may be subject to product liability claims and lawsuits, including potential class actions, alleging that our products have resulted or could result in an unsafe condition or injury.
Any product liability claim brought against us, with or without merit, could be time consuming and costly to defend and could result in an increase of our insurance premiums. Although we have not had any such claims to date, claims that could be brought against us might not be covered by our insurance policies. Furthermore, although we currently have product liability insurance coverage with policy limits that we believe are customary for pharmaceutical companies in the diagnostic medical imaging industry and adequate to provide us with insurance coverage for foreseeable risks, even where the claim is covered by our insurance, our insurance coverage might be inadequate and we would have to pay the amount of any settlement or judgment that is in excess of our policy limits. We may not be able to obtain insurance on terms acceptable to us or at all, since insurance varies in cost and can be difficult to obtain. Our failure to maintain adequate insurance coverage or successfully defend against product liability claims could have a material adverse effect on our business, results of operations, financial condition and cash flows.
We use hazardous materials in our business and must comply with environmental laws and regulations, which can be expensive.
Our operations use hazardous materials and produce hazardous wastes, including radioactive, chemical and, in certain circumstances, biological materials and wastes. We are subject to a variety of federal, state and local laws and regulations as well as non-U.S. laws and regulations relating to the transport, use, handling, storage, exposure to and disposal of these materials and wastes. Environmental laws and regulations are complex, change frequently and have generally become more stringent over time. We are required to obtain, maintain and renew various environmental permits and nuclear licenses. Although we believe that our safety procedures for transporting, using, handling, storing and disposing of, and limiting exposure to, these materials and wastes comply in all material respects with the standards prescribed by applicable laws and regulations, the risk of accidental contamination or injury cannot be eliminated. We place a high priority on these safety procedures and seek to limit any inherent risks. We generally contract with third parties for the disposal of wastes generated by our operations. Prior to disposal, we store any low level radioactive waste at our facilities to decay until the materials are no longer considered radioactive. Although we believe we have complied in all material respects with all applicable environmental, health and safety laws and regulations, we cannot assure you that we have been or will be in compliance with all such laws at all times. If we violate these laws, we could be fined, criminally charged or otherwise sanctioned by regulators. We may be required to incur further costs to comply with current or future environmental and safety laws and regulations. In addition, in the event of accidental contamination or injury from these materials, we could be held liable for any damages that result and any such liability could exceed our resources.
We leasepreviously leased a small portion of our North Billerica, Massachusetts facility to PerkinElmer for the manufacturing, finishing and packaging of certain radioisotopes, including Strontium-90, which has physical characteristics that make it more challenging to work with and dispose of than our own commercial radioisotopes, including a much longer half-life. PerkinElmer decommissioned its space and vacated the premises as of December 30, 2021. We are fully indemnified by PerkinElmer under our lease for any property damage or personal injury resulting from their activities in our facility. If any release or excursion of radioactive materials took place from their leased space that resulted in property damage or personal injury, the indemnification obligations were
not honored, and we were forced to cover any related remediation, clean-up or other expenses, depending on the magnitude, the cost of such remediation, clean-up or other expenses could have a material adverse effect on our business, results of operations, financial condition and cash flows.
While we have budgeted for current and future capital and operating expenditures to maintain compliance with these laws and regulations, we cannot assure you that our costs of complying with current or future environmental, health and safety laws and regulations will not exceed our estimates or adversely affect our results of operations and financial condition. Further, we cannot assure you that we will not be subject to additional environmental claims for personal injury, investigation or cleanup in the future based on our past, present or future business activities.
Risks Related to Our Business
Our business depends on our ability to successfully introduce new products and adapt to a changing technology and medical practice landscape.
The healthcare industry is characterized by continuous technological development resulting in changing customer preferences and requirements. The success of new product development depends on many factors, including our ability to fund development of new agents or new indications for existing agents, anticipate and satisfy customer needs, obtain regulatory approval on a timely basis based on performance of our agents in development versus their clinical study comparators, develop and manufacture products in a cost-effective and timely manner, maintain advantageous positions with respect to intellectual property and differentiate our products from our competitors. To compete successfully in the marketplace, we must make substantial investments in new product development, whether internally or externally through licensing or acquisitions. Our failure to introduce new and innovative products in a timely manner would have an adverse effect on our business, results of operations, financial condition and cash flows.
Even if we are able to develop, manufacture and obtain regulatory approvals for our new products, the success of these products would depend upon market acceptance and adequate reimbursement. Levels of market acceptance for our new products could be affected by a number of factors, including:
The availability of alternative products from our competitors;
The breadth of indications in which alternative products from our competitors can be marketed;
The price of our products relative to those of our competitors;
The timing of our market entry;
Our ability to market and distribute our products effectively;
Market acceptance of our products; and
Our ability to obtain adequate reimbursement.
The field of diagnostic medical imaging is dynamic, with new products, including hardware, software and agents, continually being developed and existing products continually being refined. Our own diagnostic imaging agents compete not only with other similarly administered imaging agents but also with imaging agents employed in different and often competing diagnostic modalities, and in the case of DEFINITY, echocardiography procedures without contrast. New hardware, software or agents in a given diagnostic modality may be developed that provide benefits superior to the then-dominant hardware, software and agents in that modality, resulting in commercial displacement of the agents. Similarly, changing perceptions about comparative efficacy and safety including, among other things, comparative radiation exposure, as well as changing availability of supply may favor one agent over another or one modality over another. In addition, new or revised appropriate use criteria developed by professional societies, to assist physicians and other health care providers in making appropriate imaging decisions for specific clinical conditions, can and have reduced the frequency of and demand for certain imaging modalities and imaging agents. To the extent there is technological obsolescence in any of our products that we manufacture, resulting in lower unit sales or decreased unit sales prices, we will have increased unit overhead allocable to the remaining market share, which could have a material adverse effect on our business, results of operations, financial condition and cash flows.
The process of developing new drugs and obtaining regulatory approval is complex, time-consuming and costly, and the outcome is not certain.
We currently have three active clinical development programs in the U.S. - flurpiridaz F 18, LMI 1195 and DEFINITY for LVEF. To obtain regulatory approval for these agents in the indications being pursued, we must conduct extensive human tests, which are referred to as clinical trials, as well as meet other rigorous regulatory requirements, as further described in Part I, Item 1. “Business—Regulatory Matters.” Satisfaction of all regulatory requirements typically takes many years and requires the expenditure of substantial resources. A number of other factors may cause significant delays in the completion of our clinical trials, including unexpected delays in the initiation of clinical sites, slower than projected enrollment, competition with ongoing clinical trials and scheduling conflicts with participating clinicians, regulatory requirements, limits on manufacturing capacity and failure of an agent to meet required standards for administration to humans. In addition, it may take longer than we project to achieve study endpoints and complete data analysis for a trial or we may decide to slow down the enrollment in a trial in order to conserve financial resources.
Our agents in development are also subject to the risks of failure inherent in drug development and testing. The results of preliminary studies do not necessarily predict clinical success, and larger and later stage clinical trials may not produce the same results as earlier stage trials. Sometimes, agents that have shown promising results in early clinical trials have subsequently suffered significant setbacks in later clinical trials. Agents in later stage clinical trials may fail to show desired safety and efficacy traits, despite having progressed through initial clinical testing. In addition, the data collected from clinical trials of our agents in development may not be sufficient to support regulatory approval, or regulators could interpret the data differently and less favorably than we do. Further, the design of a clinical trial can determine whether its results will support approval of a product, and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. Clinical trials of potential products often reveal that it is not practical or feasible to continue development efforts. Regulatory authorities may require us or our partners to conduct additional clinical testing, in which case we would have to expend additional time and resources. The approval process may also be delayed by changes in government regulation, future legislation or administrative action or changes in regulatory policy that occur prior to or during regulatory review. The failure to provide clinical and preclinical data that are adequate to demonstrate to the satisfaction of the regulatory authorities that our agents in development are safe and effective for their proposed use will delay or preclude approval and will prevent us from marketing those products.
We are not permitted to market our agents in development in the U.S. or other countries until we have received requisite regulatory approvals. For example, securing FDA approval for a new drug requires the submission of an NDA to the FDA for our agents in development. The NDA must include extensive nonclinical and clinical data and supporting information to establish the agent’s safety and effectiveness for each indication. The NDA must also include significant information regarding the chemistry, manufacturing and controls for the product. The FDA review process can take many years to complete, and approval is never guaranteed. If a product is approved, the FDA may limit the indications for which the product may be marketed, require extensive warnings on the product labeling, impose restricted distribution programs, require expedited reporting of certain adverse events, or require costly ongoing requirements for post-marketing clinical studies and surveillance or other risk management measures to monitor the safety or efficacy of the agent. Markets outside of the U.S. also have requirements for approval of agents with which we must comply prior to marketing. Obtaining regulatory approval for marketing of an agent in one country does not ensure we will be able to obtain regulatory approval in other countries, but a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in other countries. Also, any regulatory approval of any of our products or agents in development, once obtained, may be withdrawn. Approvals might not be granted on a timely basis, if at all.
In our flurpiridaz F 18 Phase 3 program, in May 2015, we announced complete results from the 301 trial. Although flurpiridaz F 18 appeared to be well-tolerated from a safety perspective and outperformed SPECT in a highly statistically significant manner in the co-primary endpoint of sensitivity and in the secondary endpoints of image quality and diagnostic certainty, the agent did not meet its other co-primary endpoint of non-inferiority for identifying subjects without disease. In April 2017, we entered into the License Agreement with GE Healthcare for the continued Phase 3 development and worldwide commercialization of flurpiridaz F 18. Under the License Agreement, GE Healthcare will, among other things, complete the worldwide development of flurpiridaz F 18 by conducting a second Phase 3 trial and pursue worldwide regulatory approvals. We cannot assure any particular outcome from GE Healthcare’s continued Phase 3 development of the agent or from regulatory review of either our or their Phase 3 study of the agent, that any of the data generated in either our or their sponsored Phase 3 study will be sufficient to support an NDA approval, that GE Healthcare will only have to conduct the one additional Phase 3 clinical study prior to filing an NDA, or that flurpiridaz F 18 will ever be approved as a PET MPI imaging agent by the FDA. Similarly, we can give no assurance that we will be successful in our clinical development program for LMI 1195 in the diagnosis and management of neuroendocrine tumors in pediatric and adult populations. For our DEFINITY for LVEF study, we did not achieve our primary or secondary endpoints in the first of two Phase 3 studies. Any failure or significant delay in completing clinical trials for our product candidates or in receiving regulatory approval for the sale of our product candidates may harm our business and delay or prevent us from being able to generate additional future revenue from product sales.
Even if our agents in development proceed successfully through clinical trials and receive regulatory approval, there is no guarantee that an approved product can be manufactured in commercial quantities at a reasonable cost or that such a product will be successfully marketed or distributed. The burden associated with the marketing and distribution of products like ours is substantial. For example, rather than being manufactured at our own facilities, both flurpiridaz F 18 and LMI 1195 would require the creation of a complex, field-based network involving PET cyclotrons located at radiopharmacies where the agent would need to be manufactured and distributed rapidly to end-users, given the agent’s 110-minute half-life. In addition, in the case of both flurpiridaz F 18 and LMI 1195, obtaining adequate reimbursement is critical, including not only coverage from Medicare, Medicaid, other government payors as well as private payors but also appropriate payment levels which adequately cover the substantially higher manufacturing and distribution costs associated with a PET agent in comparison to a Tc-99m-based agent. We can give no assurance even if either flurpiridaz F 18 or LMI 1195 obtains regulatory approval that a network of PET cyclotrons can be established or that adequate reimbursement can be secured to allow the approved agent or agents to become commercially successful.
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.
We are continuing to seek to acquire or in-license products, businesses or technologies that we believe are a strategic fit with our business strategy. Future acquisitions or in-licenses, however, may entail numerous operational and financial risks, including:
A reduction of our current financial resources;
Incurrence of substantial debt or dilutive issuances of securities to pay for acquisitions;
Difficulty or inability to secure financing to fund development activities for those acquired or in-licensed technologies;
Higher than expected acquisition and integration costs;
Disruption of our business, customer base and diversion of our management’s time and attention to develop acquired products or technologies; and
Exposure to unknown liabilities.
We may not have sufficient resources to identify and execute the acquisition or in-licensing of third party products, businesses and technologies and integrate them into our current infrastructure. In particular, we may compete with larger pharmaceutical companies and other competitors in our efforts to establish new collaborations and in-licensing opportunities. These competitors likely will have access to greater financial resources than we do and may have greater expertise in identifying and evaluating new opportunities. Furthermore, there may be overlap between our products or customers and the companies which we acquire that may create conflicts in relationships or other commitments detrimental to the integrated businesses. Additionally, the time between our expenditures to acquire or in-license new products, technologies or businesses and the subsequent generation of revenues from those acquired products, technologies or businesses (or the timing of revenue recognition related to licensing agreements and/or strategic collaborations) could cause fluctuations in our financial performance from period to period. Finally, if we devote resources to potential acquisitions or in-licensing opportunities that are never completed, or if we fail to realize the anticipated benefits of those efforts, we could incur significant impairment charges or other adverse financial consequences.
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 commercial success will depend in part on obtaining and maintaining patent and trade secret protection of our commercial products and technologies and agents in development as well as successfully enforcing and defending these patents and trade secrets against third parties and their challenges, both in the U.S. and in foreign countries. We will only be able to protect our intellectual property from unauthorized use by third parties to the extent that we maintain the secrecy of our trade secrets and can enforce our valid patents and trademarks.
The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. In addition, changes in either the patent laws or in interpretations of patent laws in the U.S. or other countries may diminish the value of our intellectual property and we may not receive the same degree of protection in every jurisdiction. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in our patents or in third party patents.
The degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage. For example:
•We might not have been the first to make the inventions covered by each of our pending patent applications and issued patents, and we could lose our patent rights as a result;
•We might not have been the first to file patent applications for these inventions or our patent applications may not have been timely filed, and we could lose our patent rights as a result;
•Others may independently develop similar or alternative technologies or duplicate any of our technologies;
•It is possible that none of our pending patent applications will result in any further issued patents;
•Our issued patents may not provide a basis for commercially viable drugs, may not provide us with any protection from unauthorized use of our intellectual property by third parties, and may not provide us with any competitive advantages;
Our•The validity or enforceability of our patent applications or patents may be subject to challenge through interferences, oppositions, post-grant review, ex-parte re-examinations, inter partes review or similar administrative proceedings;
•While we generally apply for patents in those countries where we intend to make, have made, use or sell patented products, we may not be able to accurately predict all of the countries where patent protection will ultimately be desirable and may be precluded from doing so at a later date;
•We may choose not to seek patent protection in certain countries where the actual cost outweighs the perceived benefit at a certain time;
•Patents issued in foreign jurisdictions may have different scopes of coverage than our U.S. patents and so our products may not receive the same degree of protection in foreign countries as they would in the U.S.;
•We may not develop additional proprietary technologies that are patentable; or
•The patents of others may have an adverse effect on our business.
Moreover, the issuance of a patent is not conclusive as to its validity or enforceability. A third party may challenge the validity or enforceability of a patent even after its issuance by the USPTO or the applicable foreign patent office. It is also uncertain how much protection, if any, will be afforded by our patents if we attempt to enforce them and they are challenged in court or in other proceedings, which may be brought in U.S. or non-U.S. jurisdictions to challenge the validity of a patent.
The initiation, defense and prosecution of intellectual property suits (including Hatch-Waxman related litigation), interferences, oppositions and related legal and administrative proceedings are costly, time consuming to pursue and result in a diversion of resources, including a significant amount of management time. The outcome of these proceedings is uncertain and could significantly harm our business. If we are not able to enforce and defend the patents of our technologies and products, then we will not be able to exclude competitors from marketing products that directly compete with our products, which could have a material and adverse effect on our business, results of operations, financial condition and cash flows.
For DEFINITY, our fastest growing and highest margin commercial product in 2019, we continue to actively pursue patents in both the U.S. and internationally. In the U.S., for DEFINITY we now have anfour Orange Book-listed method of use patent expiringpatents, one of which expires in March2035 and three of which expire in 2037, andas well as additional manufacturing patents that are not Orange Book-listed expiring in 2021, 2023 and 2037. In the U.S. for DEFINITY RT, we have five Orange Book-listed patents, including a composition of matter patent which expires in 2035. Outside of the U.S., while our DEFINITY patent protection and regulatory exclusivity have generally expired, we are currently prosecutingpursuing additional DEFINITY and DEFINITY RT patents to try to obtain similar method of use and manufacturing patent protection as granted in the U.S. We were also recently grantedThe Orange Book-listed patents include a composition of matter patent on the modified formulationuse of DEFINITYVIALMIX RFID, which runs through December 2035. Ifexpires in 2037; additional VIALMIX RFID patent applications have been submitted in major markets throughout the modified formulation is approved by the FDA, then this patent would be eligible to be listed in the Orange Book.world.
We will also rely on trade secrets and other know-how and proprietary information to protect our technology, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. We use reasonable efforts to protect our trade secrets, but our employees, consultants, contractors, outside scientific partners and other advisors may unintentionally or willfully disclose our confidential information to competitors or other third parties. Enforcing a claim that a third party improperly obtained and is using our trade secrets is expensive, time consuming and resource intensive, and the outcome is unpredictable. In addition, courts outside the U.S. are sometimes less willing to protect trade secrets. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how. We rely on confidentiality agreements with our collaborators, employees, consultants and other third parties and invention assignment agreements with our employees to protect our trade secrets and other know-how and proprietary information concerning our business. These confidentiality agreements may not prevent unauthorized disclosure of trade secrets and other know-how and proprietary information, and there can be no guarantee that an employee or an outside party will not make an unauthorized disclosure of our trade secrets, other technical know-how or proprietary information, or that we can detect such an unauthorized disclosure. We may not have adequate remedies for any unauthorized disclosure. This might happen intentionally or inadvertently. It is possible that a competitor will make use of that information, and that our competitive position will be compromised, in spite of any legal action we might take against persons making those unauthorized disclosures, which could have a material and adverse effect on our business, results of operations, financial condition and cash flows.
We rely on our trademarks, trade names and brand names to distinguish our products from the products of our competitors, and have registered or applied to register many of these trademarks, including, among others, AZEDRA®, AZEDRA Service Connection®, Cardiolite®, DEFINITY®, DEFINITY Cardiolite, TechneLite, Neurolite, Quadramet, LuminityRTTM, EXINI®, Find, Fight and Follow®, Find > Fight > FollowTM, Lantheus®, Lantheus Medical Imaging.Imaging®, LUMINITY®, Molecular Insight®, NEUROLITE®, Progenics®, Progenics Pharmaceuticals®, PYLARIFY®, TechneLite®, VIALMIX®, and VIALMIX RFID®. We cannot assure you that any pending trademark applications will be approved. Third parties may also oppose our trademark applications, or otherwise challenge our use of the trademarks. If our trademarks are successfully challenged, we could be forced to re-brand our products, which could result in loss of brand recognition, and could require us to devote resources to advertising and marketing new brands. Further, we cannot assure you that competitors will not infringe our trademarks, or that we will have adequate resources to enforce our trademarks.
Our patents are subject to generic challenge, and the validity, enforceability and commercial value of these patents are highly uncertain.
Our ability to obtain and defend our patents impacts the commercial value of our products and product candidates. Third parties have challenged and are likely to continue challenging the patents that have been issued or licensed to us. Patent protection involves complex legal and factual questions and, therefore, enforceability is uncertain. Our patents may be challenged, invalidated, held to be unenforceable, or circumvented, which could negatively impact their commercial value. Furthermore, patent applications filed outside the United States may be challenged by other parties, for example, by filing third party observations that argue against patentability or an opposition. Such opposition proceedings are increasingly common in the EU and are costly to defend. For example, we received notices of opposition to three European patents relating to RELISTOR.
Pursuant to the RELISTOR license agreement between us and Bausch, Bausch has the first right to enforce the intellectual property rights at issue and is responsible for the costs of such enforcement. At the same time, we may incur substantial further costs in supporting the effort to uphold the validity of patents or to prevent infringement. Patent disputes are frequent, costly and can preclude, delay or increase the cost of commercialization of products. Progenics has previously been and is currently involved in patent litigation, and we expect to be subject to patent litigation in the future.
We may be subject to claims that we have infringed, misappropriated or otherwise violated the patent or other intellectual property rights of a third party. The outcome of any of these claims is uncertain and any unfavorable result could adversely affect our business, financial condition and results of operations.
We may be subject to claims by third parties that we have infringed, misappropriated or otherwise violated their intellectual property rights. WhileWe are aware of intellectual property rights held by third parties that relate to products or technologies we believe that the products thatare developing. For example, we currently manufacture using our proprietary technology do not infringe upon or otherwise violate proprietary rightsare aware of other partiesgroups investigating PSMA or that meritorious defenses would exist with respectrelated compounds and monoclonal antibodies directed at PSMA, PSMA-targeted imaging agents and therapeutics, and methylnaltrexone and other peripheral opioid antagonists, and of patents held, and patent applications filed, by these groups in those areas. While the validity of these issued patents, the patentability of pending patent applications and the applicability of any of them to our products and programs are uncertain, if asserted against us, any assertionsrelated patent or other intellectual property rights could adversely affect our ability to the contrary, we cannot assure you that we would not be found to infringe on or otherwise violate the proprietary rights of others.commercialize our products.
We may be subject to litigation over infringement claims regarding the products we manufacture or distribute. This type of litigation can be costly and time consuming and could divert management’s attention and resources, generate significant expenses, damage payments (potentially including treble damages) or restrictions or prohibitions on our use of our technology, which could adversely affect our business, results of operations, financial condition and cash flows. In addition, if we are found to be infringing on proprietary rights of others, we may be required to develop non-infringing technology, obtain a license (which may not be available on reasonable terms, or at all), make substantial one-time or ongoing royalty payments, or cease making, using and/or selling the infringing products, any of which could have a material adverse effect on our business, results of operations, financial condition and cash flows.
We may be adversely affected by prevailing economic conditions and financial, business and other factors beyond our control.
Our ability to attract and retain customers, invest in and grow our business and meet our financial obligations depends on our operating and financial performance, which, in turn, is subject to numerous factors, including the prevailing economic conditions and financial, business and other factors beyond our control, such as the rate of unemployment, the number of uninsured persons in the U.S. and inflationary pressures. We cannot anticipate all the ways in which the current or future economic climate and financial market conditions could adversely impact our business. We are exposed to risks associated with reduced profitability and the potential financial instability of our customers, many of which may be adversely affected by volatile conditions in the financial markets. For example, unemployment and underemployment, and the resultant loss of insurance, may decrease the demand for healthcare services and pharmaceuticals. If fewer patients are seeking medical care because they do not have insurance coverage, our customers may experience reductions in revenues, profitability and/or cash flow that could lead them to modify, delay or cancel orders for our products. If customers are not successful in generating sufficient revenue or are precluded from securing financing, they may not be able to pay, or may delay payment of, accounts receivable that are owed to us. This, in turn, could adversely affect our financial condition and liquidity. To the extent prevailing economic conditions result in fewer procedures being performed, our business, results of operations, financial condition and cash flows could be adversely affected.
Our business is subject to international economic, political and other risks that could negatively affect our results of operations or financial position.
For the year ended December 31, 2019,2021, we derived approximately 12%10% of our revenues fromand expended approximately 25% of our costs of goods sold outside of the fifty United States. Accordingly, our business is subject to risks associated with doing business internationally, including:
•Less stable political and economic environmentsenvironment and changes in a specific country’s or region’s political or economic conditions;
•Changes in trade policies, regulatory requirements and other barriers, including, for example, U.S. trade sanctions against Iran and those countries and entities doing business with Iran, which could adversely impact international isotope production and, indirectly, our global supply chain;
•Potential global disruptions in air transport due to COVID-19, (coronavirus), which could adversely affect our international supply chains for radioisotopes and our modified formulation of DEFINITY RT as well as international distribution channels for our commercial products;
•Entering into, renewing or enforcing commercial agreements with international governments or provincial authorities or entities directly or indirectly owned or controlled by such governments or authorities, such as our Belgian, Australian and South African isotope suppliers, IRE, ANSTO and NTP, and our Chinese development and commercialization partner, Double-Crane Pharmaceutical Company;Double-Crane;
•International customers which are agencies or institutions owned or controlled by foreign governments;
•Local business practices which may be in conflict with the U.S. Foreign Corrupt Practices Act and U.K. Bribery Act;
•Currency fluctuations;
Unfavorable labor regulations;
•Unfavorable labor regulations;
•Greater difficulties in relying on non-U.S. courts to enforce either local or U.S. laws, particularly with respect to intellectual property;
•Greater potential for intellectual property piracy;
•Greater difficulties in managing and staffing non-U.S. operations;operations, including our EXINI operations in Sweden;
•The need to ensure compliance with the numerous in-country and international regulatory and legal requirements applicable to our business in each of these jurisdictions and to maintain an effective compliance program to ensure compliance with these requirements, including in connection with the recently enacted GDPR in the EU;
•Changes in public attitudes about the perceived safety of nuclear facilities;
•Civil unrest or other catastrophic events; and
•Longer payment cycles of non-U.S. customers and difficulty collecting receivables in non-U.S. jurisdictions.
These factors are beyond our control. The realization of any of these or other risks associated with operating outside the fifty United States could have a material adverse effect on our business, results of operations, financial condition and cash flows. As our international exposure increases and as we execute our strategy of international expansion, these risks may intensify.
We face currency and other risks associated with international sales.
We generate revenue from export sales, as well as from operations conducted outside the fifty United States. Operations outside the U.S. expose us to risks including fluctuations in currency values, trade restrictions, tariff and trade regulations, U.S. export controls, U.S. and non‑U.S. tax laws, shipping delays and economic and political instability. For example, violations of U.S. export controls, including those administered by the U.S. Treasury Department’s Office of Foreign Assets Control, could result in fines, other civil or criminal penalties and the suspension or loss of export privileges which could have a material adverse effect on our business, results of operations, financial conditions and cash flows.
Many of our customer relationships outside of the U.S. are, either directly or indirectly, with governmental entities, and we could be adversely affected by violations of the FCPA and similar worldwide anti-bribery laws outside the U.S.
The FCPA, the Bribery Act and similar worldwide anti-bribery laws in non-U.S. jurisdictions generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business.
The FCPA prohibits us from providing anything of value to foreign officials for the purposes of obtaining or retaining business or securing any improper business advantage. It also requires us to keep books and records that accurately and fairly reflect our transactions. Because of the predominance of government-sponsored healthcare systems around the world, many of our customer relationships outside of the U.S. are, either directly or indirectly, with governmental entities and are therefore subject to the FCPA and similar anti-bribery laws in non-U.S. jurisdictions. In addition, the provisions of the Bribery Act extend beyond bribery of foreign public officials and are more onerous than the FCPA in a number of other respects, including jurisdiction, non-exemption of facilitation payments and penalties.
Our policies mandate compliance with these anti-bribery laws. We operate in many parts of the world that have experienced governmental corruption to some degree, and in certain circumstances strict compliance with anti-bribery laws may conflict with local customs and practices. Despite our training and compliance programs, our internal control policies and procedures may not always protect us from reckless or criminal acts committed by our employees or agents. Violations of these laws, or allegations of those violations, could disrupt our business and result in a material adverse effect on our results of operations, financial condition and cash flows.
Our business depends on the continued effectiveness and availability of our information technology infrastructure, and failures of this infrastructure could harm our operations.
To remain competitive in our industry, we must employ information technologies to support manufacturing processes, quality processes, distribution, R&D and regulatory applications and that capture, manage and analyze large streams of data in compliance with applicable regulatory requirements. We rely extensively on technology, some of which is managed by third-partythird party service providers, to allow the concurrent conduct of work sharing around the world. As with all information technology, our equipment and infrastructure age and become subject to increasing maintenance and repair and our systems generally are vulnerable to potential damage or interruptions from fires, natural disasters, power outages, blackouts, machinery breakdown, telecommunications failures and other unexpected events, as well as to break-ins, sabotage, increasingly sophisticated intentional acts of vandalism or cybersecurity threats which, due to the nature of such attacks, may remain undetected for a period of time. As these threats continue to evolve, we may be required to expend additional resources to enhance our information security measures or to investigate and remediate any information security vulnerabilities. Given the extensive reliance of our business on technology, any substantial disruption or resulting loss of data that is not avoided or corrected by our backup measures could harm our business, reputation, operations and financial condition.
A disruption in our computer networks, including those related to cybersecurity, could adversely affect our operations or financial position.
We rely on our computer networks and systems, some of which are managed by third parties, to manage and store electronic information (including sensitive data such as confidential business information, and personally identifiable data relating to employees)and personal health information), and to manage or support a variety of critical business processes and activities. We may face threats to our networks from unauthorized access, security breaches and other system disruptions. Despite our security measures, our infrastructure may be vulnerable to external or internal attacks. Any such security breach may compromise information stored on our networks and may result in significant data losses or theft of sensitive or proprietary information. A cybersecurity breach could hurt our reputation by adversely affecting the perception of customers and potential customers of the security of their orders and personal information, as well as the perception of our manufacturing partners of the security of their proprietary information. In addition, a cybersecurity attack could result in other negative consequences, including disruption of our internal operations, increased cybersecurity protection costs, lost revenue, regulatory actions or litigation. Any disruption of internal operations could also have a material adverse impact on our results of operations, financial condition and cash flows. To date, we have not experienced any material cybersecurity attacks.
We may be limited in our ability to utilize, or may not be able to utilize, net operating loss carryforwards to reduce our future tax liability.
As of December 31, 2019,2021, we had U.S. federal income tax loss carryforwards of approximately $174.0$476.2 million,, $338.1 million of which will begin to expire in 2032between 2022 and will completely expire in 2037.2037, $138.0 million of which can be carried forward indefinitely, and state income tax loss carryforwards of $17.4 million, tax-effected. We may be limited in our ability to use these tax loss carryforwards to reduce our future U.S. federal and state income tax liabilities if our future income is not sufficient to absorb the losses, or if we were to experience another “ownership change” as specified in Section 382 of the Internal Revenue Code including if we were to issue a certain amount of equity securities, certain of our stockholders were to sell shares of our common stock, or we were to enter into certain strategic transactions.
We may not be able to hire or retain the number of qualified personnel, particularly scientific, medicalare involved in various legal proceedings that are uncertain, costly and sales personnel, required fortime-consuming and could have a material adverse impact on our business, which would harmfinancial condition and results of operations.
From time to time we are involved in legal proceedings and disputes and may be involved in litigation in the developmentfuture. These proceedings are complex and salesextended and occupy the resources of our productsmanagement and limit our abilityemployees. These proceedings are also costly to grow.
Competitionprosecute and defend and may involve substantial awards or damages payable by us if not found in our industry for highly skilled scientific, healthcarefavor. We may also be required to pay substantial amounts or grant certain rights on unfavorable terms in order to settle such proceedings. Defending against or settling such claims and sales personnel is intense. Although we have not had any material difficulty in the past in hiringunfavorable legal decisions, settlements or retaining qualified personnel, if we are unable to retain our existing personnel, or attract and train additional qualified personnel, either because of competition in our industry for these personnel or because of insufficient financial resources, then our growth may be limited and itorders could have a material adverse effect on our business.business, financial condition and results of operations and could cause the market value of our common stock to decline.
In particular, the pharmaceutical and medical device industries historically have generated substantial litigation concerning the manufacture, use and sale of products, and we expect this litigation activity to continue. As a result, we expect that patents related to our products will routinely be challenged, and our patents may not be upheld. In order to protect or enforce patent rights, we may initiate litigation against third parties. If we lose the servicesare not successful in defending an attack on our patents and maintaining exclusive rights to market one or more of our key personnel,products still under patent protection, we could lose a significant portion of sales in a very short period. We may also become subject to infringement claims by third parties and may have to defend against charges that we violated patents or the proprietary rights of third parties. If we infringe the intellectual property rights of others, we could lose our businessright to develop, manufacture or sell products, or could be adversely affected.required to pay monetary damages or royalties to license proprietary rights from third parties.
Our success is substantially dependent uponIn addition, in the performance, contributions U.S., it has become increasingly common for patent infringement actions to prompt claims that antitrust laws have been violated during the prosecution of the patent or during litigation involving the defense of that patent. Such claims by direct
and expertise of our chief executive officer, executive leadership and senior management team. Mary Anne Heino, our Chief Executive Officer and President,indirect purchasers and other memberspayors are typically filed as class actions. The relief sought may include treble damages and restitution claims. Similarly, antitrust claims may be brought by government entities or private parties following settlement of our executive leadershippatent litigation, alleging that such settlements are anti-competitive and senior management team playin violation of antitrust laws. In the U.S. and Europe, regulatory authorities have continued to challenge as anti-competitive so-called “reverse payment” settlements between branded and generic drug manufacturers. We may also be subject to other antitrust litigation involving competition claims unrelated to patent infringement and prosecution. A successful antitrust claim by a significant role in generating new business and retaining existing customers. We have an employment agreement with Ms. Heino and a limited number of other individuals on our executive leadership team, although we cannot prevent them from terminating their employment with us. We do not maintain key person life insurance policies on any of our executive officers. While we have experienced both voluntary and involuntary turnover on our executive leadership team, to date we have been able to attract new, qualified individuals to lead our company and key functional areas. Our inability to retain our existing executive leadership and senior management team, maintain an appropriate internal succession programprivate party or attract and retain additional qualified personnelgovernment entity against us could have a material adverse effect on our business.business, financial condition and results of operations and could cause the market value of our common stock to decline.
Risks Related to our Portfolio of Clinical Development Candidates
The process of developing new drugs and obtaining regulatory approval is complex, time-consuming and costly, and the outcome is not certain.
We currently have two clinical development programs in the U.S. – 1095 and LMI 1195, and are exploring additional lifecycle management opportunities for some of our current products, including AZEDRA. We also have a number of strategic partnerships relating to obtaining additional indications for existing commercial products or regulatory approval for clinical development candidates. To obtain regulatory approval for these agents in the indications being pursued, we must conduct extensive human tests, which are referred to as clinical trials, as well as meet other rigorous regulatory requirements, as further described in Part I, Item 1. “Business—Regulatory Matters.” Satisfaction of all regulatory requirements typically takes many years and requires the expenditure of substantial resources. A number of other factors may cause significant delays in the completion of our clinical trials, including unexpected delays in the initiation of clinical sites, slower than projected enrollment, competition with ongoing clinical trials and scheduling conflicts with participating clinicians, regulatory requirements, limits on manufacturing capacity and failure of an agent to meet required standards for administration to humans. In addition, it may take longer than we project to achieve study endpoints and complete data analysis for a clinical trial or we may decide to slow down the enrollment in a trial in order to conserve financial resources.
Our products in development are also subject to the risks of failure inherent in drug development and testing. The results of preliminary studies do not necessarily predict clinical success, and larger and later stage clinical trials may not produce the same results as earlier stage trials. Sometimes, products that have shown promising results in early clinical trials have subsequently suffered significant setbacks in later clinical trials. Agents in later stage clinical trials may fail to show desired safety and efficacy traits, despite having progressed through initial clinical testing. In addition, the data collected from clinical trials of our products in development may not be sufficient to support regulatory approval, or regulators could interpret the data differently and less favorably than we do. Further, the design of a clinical trial can determine whether its results will support approval of a product, and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. Clinical trials of potential products often reveal that it is not practical or feasible to continue development efforts. Regulatory authorities may require us or our partners to conduct additional clinical testing, in which case we would have to expend additional time and resources. The approval process may also be delayed by changes in government regulation, future legislation or administrative action or changes in regulatory policy that occur prior to or during regulatory review. The failure to provide clinical and preclinical data that are adequate to demonstrate to the satisfaction of the regulatory authorities that our products in development are safe and effective for their proposed use will delay or preclude approval and will prevent us from marketing those products.
We are not permitted to market our products in development in the U.S. or other countries until we have received requisite regulatory approvals. For example, securing FDA approval for a new drug requires the submission of an NDA to the FDA for our products in development. The NDA must include extensive nonclinical and clinical data and supporting information to establish the product’s safety and effectiveness for each indication. The NDA must also include significant information regarding the chemistry, manufacturing and controls for the product. The FDA review process can take many years to complete, and approval is never guaranteed. If a product is approved, the FDA may limit the indications for which the product may be marketed, require extensive warnings on the product labeling, impose restricted distribution programs, require expedited reporting of certain adverse events, or require costly ongoing requirements for post-marketing clinical studies and surveillance or other risk management measures to monitor the safety or efficacy of the product. Markets outside of the U.S. also have requirements for approval of products with which we must comply prior to marketing. Obtaining regulatory approval for marketing of a product in one country does not ensure we will be able to obtain regulatory approval in other countries, but a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in other countries. Also, any regulatory approval of any of our products in development, once obtained, may be withdrawn. Approvals might not be granted on a timely basis, if at all.
We can give no assurance that GE Healthcare will be successful with the further clinical development of flurpiridaz F 18.
In May 2015, we announced complete results from the first of two planned Phase 3 clinical trials for flurpiridaz F 18. Although the development candidate appeared to be well-tolerated from a safety perspective and outperformed SPECT in a highly statistically significant manner in the co-primary endpoint of sensitivity and in the secondary endpoints of image quality and diagnostic certainty, flurpiridaz F 18 did not meet its other co-primary endpoint of non-inferiority for identifying subjects without disease. In April 2017,
we entered into the License Agreement with GE Healthcare for the continued Phase 3 development and worldwide commercialization of flurpiridaz F 18. Under the License Agreement, GE Healthcare will, among other things, complete the worldwide development of flurpiridaz F 18 by conducting a second Phase 3 trial and pursue worldwide regulatory approvals. We cannot assure any particular outcome from GE Healthcare’s continued Phase 3 development of the agent or from regulatory review of either our or their Phase 3 study of the agent, that any of the data generated in either our or their sponsored Phase 3 study will be sufficient to support an NDA approval, that GE Healthcare will only have to conduct the one additional Phase 3 clinical study prior to filing an NDA, or that flurpiridaz F 18 will ever be approved as a PET MPI imaging agent by the FDA. Any failure or significant delay in completing clinical trials for our product candidates or in receiving regulatory approval for the sale of our product candidates may harm our business and delay or prevent us from being able to generate additional future revenue from product sales.
Even if clinical development candidates receive regulatory approval, we can give no assurance that they can be successfully commercialized.
Even if our clinical development candidates proceed through their clinical trials and ultimately receive regulatory approval, there is no guarantee that an approved product can be manufactured in commercial quantities at a reasonable cost or that such a product will be successfully marketed or distributed. For example, the manufacturing, marketing and distribution of a radiopharmaceutical like flurpiridaz F 18 will require the creation of a field-based network of specialized PET manufacturing facilities, or PMFs, with radioisotope-producing cyclotrons, similar to what we created for PYLARIFY, and will need to be manufactured and distributed rapidly to end-users.
In addition, obtaining adequate coding, coverage and payment at appropriate payment levels for any clinical development candidate will be critical, including not only coverage from Medicare, Medicaid, and other government payors, but also from private payors. We can give no assurance, even if a clinical development candidate were to obtain regulatory approval, that adequate coding, coverage and payment could be secured to allow the approved products to become successfully commercialized.
We have been and expect to continue to be dependent on partners for the development of certain product candidates, which expose us to the risk of reliance on these partners.
In connection with our ongoing development activities, we currently depend, and expect to continue to depend, on numerous collaborators. For example, in addition to our collaboration with GE Healthcare on flurpiridaz F 18, we have collaborations with Bayer to develop and commercialize products using our PSMA antibody technology, with Curium for the development and commercialization of PYLARIFY in Europe, and with ROTOP for the development and commercialization of 1404 in Europe. In addition, certain clinical trials for our product candidates may be conducted by government-sponsored agencies, and consequently will be dependent on governmental participation and funding. These arrangements expose us to the same considerations we face when contracting with third parties for our own trials.
If any of our collaborators breach or terminate its agreement with us or otherwise fail to conduct successfully and in a timely manner the collaborative activities for which they are responsible, the preclinical or clinical development or commercialization of the affected product candidate or research program could be delayed or terminated. We generally do not control the amount and timing of resources that our collaborators devote to our programs or product candidates. We also do not know whether current or future collaboration partners, if any, might pursue alternative technologies or develop alternative products either on their own or in collaboration with others, including our competitors, as a means for developing treatments for the diseases or conditions targeted by our collaborative arrangements. Our collaborators are also subject to similar development, regulatory, manufacturing, cyber-security and competitive risks as us, which may further impede their ability to successfully perform the collaborative activities for which they are responsible. Setbacks of these types to our collaborators could have a material adverse effect on our business, results of operations and financial condition.
We depend on licenses from third parties for our rights to develop and commercialize certain product candidates. If we fail to achieve milestone requirements or to satisfy other conditions, we may lose those rights under those license agreements, and our business, results of operations and financial condition could be adversely affected.
Many of our products or product candidates incorporate rights licensed by third parties -- for example, we license patent rights on PYLARIFY from JHU and on RELISTOR from Wyeth LLC. We could lose the rights to develop or commercialize these products and product candidates if the related license agreement is terminated due to a breach by us or otherwise. In addition, we are required to make substantial cash payments, achieve milestones and satisfy other conditions, including filing for and obtaining marketing approvals and introducing products, to maintain rights under our license agreements. Due to the nature of these agreements and the uncertainties of development, we may not be able to achieve milestones or satisfy conditions to which we have contractually committed, and as a result may be unable to maintain our rights under these licenses. If we do not comply with our license agreements, the licensors may terminate them, which could result in our losing our rights to, and therefore being unable to commercialize, related products. This loss could have a material adverse effect on our business, results of operations and financial condition.
Risks Related to Our Capital Structure
We have a substantial amount of indebtedness which may limit our financial and operating activities and may adversely affect our ability to incur additional debt to fund future needs.
As of December 31, 2019,2021, we had approximately $195.0$175.0 million of total principal indebtedness remaining under our five‑year secured term loan facility, which matures on June 30, 2024 (the “2019 Term Facility” and the loans thereunder, the “2019 Term Loans”) and availability of $200.0 million under our five-year revolving credit facility (the “2019 Revolving Facility” and, together with the 2019 Term Facility, the “2019 Facility”). Our substantial indebtedness and any future indebtedness we incur could:
•Require us to dedicate a substantial portion of cash flow from operations to the payment of interest on and principal of our indebtedness, thereby reducing the funds available for other purposes;purposes, including for working capital, capital expenditures and acquisitions;
•Make it more difficult for us to satisfy and comply with our obligations with respect to our outstanding indebtedness, namely the payment of interest and principal;
•Make it more difficult to refinance the outstanding indebtedness;
•Subject us to increased sensitivity to interest rate increases;
•Make us more vulnerable to economic downturns, adverse industry or company conditions or catastrophic external events;
•Limit our ability to withstand competitive pressures;
•Reduce our flexibility in planning for or responding to changing business, industry and economic conditions; and
•Place us at a competitive disadvantage to competitors that have relatively less debt than we have.
In addition, our substantial level of indebtedness could limit our ability to obtain additional financing on acceptable terms, or at all, for working capital, capital expenditures and general corporate purposes. Our liquidity needs could vary significantly and may be affected by general economic conditions, industry trends, performance and many other factors not withinoutside our control.
We may not be able to generate sufficient cash flow to meet our debt service obligations.
Our ability to generate sufficient cash flow from operations to make scheduled payments on our debt obligations will depend on our future financial performance, which will be affected by a range of economic, competitive and business factors, many of which are outside of our control. If we do not generate sufficient cash flow from operations to satisfy our debt obligations, including interest and principal payments, our credit ratings could be downgraded, and we may have to undertake alternative financing plans, such as refinancing or restructuring our debt, selling assets, entering into additional corporate collaborations or licensing arrangements for one or more of our products or agents in development, reducing or delaying capital investments or seeking to raise additional capital. We cannot assure you that any refinancing would be possible, that any assets could be sold, licensed or partnered, or, if sold, licensed or partnered, of the timing of the transactions and the amount of proceeds realized from those transactions, that additional financing could be obtained on acceptable terms, if at all, or that additional financing would be permitted under the terms of our various debt instruments then in effect. Furthermore, our ability to refinance would depend upon the condition of the financial and credit markets. Our inability to generate sufficient cash flow to satisfy our debt obligations, or to refinance our obligations on commercially reasonable terms or on a timely basis, would have an adverse effect on our business, results of operations and financial condition.
Despite our substantial indebtedness, we may incur more debt, which could exacerbate the risks described above.
We and our subsidiaries may be able to incur substantial additional indebtedness in the future subject to the limitations contained in the agreements governing our debt, including the 2019 Facility. Although these agreements restrict us and our restricted subsidiaries from incurring additional indebtedness, these restrictions are subject to important exceptions and qualifications. For example, we are generally permitted to incur certain indebtedness, including indebtedness arising in the ordinary course of business, indebtedness among restricted subsidiaries and us and indebtedness relating to hedging obligations. If we or our subsidiaries incur additional debt, the risks that we and they now face as a result of our leverage could intensify. In addition, the 2019 Facility will not prevent us from incurring obligations that do not constitute indebtedness under the agreements.
Our 2019 Facility contains restrictions that will limit our flexibility in operating our business.
Our 2019 Facility contains various covenants that limit our ability to engage in specified types of transactions. These covenants limit our and our restricted subsidiaries’ ability to, among other things:
•Maintain net leverage above certain specified levels;
•Maintain interest coverage below certain specified levels;
•Incur additional debt;
•Pay dividends or make other distributions;
•Redeem stock;
•Issue stock of subsidiaries;
•Make certain investments;
•Create liens;
•Enter into transactions with affiliates; and
•Merge, consolidate or transfer all or substantially all of our assets.
A breach of any of these covenants could result in a default under the 2019 Facility. We may also be unable to take advantage of business opportunities that arise because of the limitations imposed on us by the restrictive covenants under our indebtedness.
As LIBOR is phased out, as anticipated, we will need to agree to a replacement index rate to be used under our 2019 Facility, which may have an adverse effect on our financial condition.
The use of LIBOR, as it relates to the Company’s 2019 Term Facility, is expected to be phased out by the end of June 2023. The 2019 Facility does not specify a particular “hard-wired” replacement index rate (or related margin) when LIBOR becomes unavailable, but relies on the administrative agent and the Company reaching agreement on such a replacement rate (and related margin) that gives due consideration to the then prevailing market convention for determining rates of interest for syndicated loans denominated in U.S. dollars in the United States. We expect to amend our credit facilities to provide a market-based replacement index rate and margin prior to the time when LIBOR is no longer available. Any replacement rate will be based on a negotiation between us and the administrative agent and could result in an increase in our interest expense.
U.S. credit markets may impact our ability to obtain financing or increase the cost of future financing, including interest rate fluctuations based on macroeconomic conditions that are beyond our control.
During periods of volatility and disruption in the U.S., European, or global credit markets, obtaining additional or replacement financing may be more difficult and the cost of issuing new debt or replacing our 2019 Facility could be higher than under our current 2019 Facility. Higher cost of new debt may limit our ability to have cash on hand for working capital, capital expenditures and acquisitions on terms that are acceptable to us. Additionally, our 2019 Facility has variable interest rates. By its nature, a variable interest rate will move up or down based on changes in the economy and other factors, all of which are beyond our control. If interest rates increase, our interest expense could increase, affecting earnings and reducing cash flows available for working capital, capital expenditures and acquisitions.
The CVRs we issued as part of the Progenics Acquisition may result in substantial future payments to the holders of the CVRs; in addition, the actual payments made in connection with the CVRs, if any, may not be consistent with the estimated fair value of the CVRs that we are required to prepare for accounting purposes.
As part of the consideration for the Progenics Acquisition, we issued CVRs to the stockholders of Progenics and holders of in-the-money Progenics equity awards entitling them to future cash payments of 40% of PYLARIFY net sales over $100.0 million in 2022 and over $150.0 million in 2023, subject to an aggregate cap. These payments could be substantial. In addition, we are obligated to exercise a level of effort, expertise and resources consistent with those normally used in a medical diagnostics business similar to our size and resources with respect to commercializing a product of similar market potential at a similar stage in its product life to PYLARIFY. We are also required to produce net sales statements for PYLARIFY that may be reviewed and challenged by CVR holders, with any disagreement to be resolved by an independent accountant.
Because the CVRs are considered contingent consideration liabilities, for accounting purposes we are required by accounting principles generally accepted in the U.S. to estimate their fair value on a recurring basis. Adjustments in the estimated fair value of the CVRs can impact our consolidated financial statements on a quarterly or annual basis. The estimated fair value of the CVRs is determined based on a Monte Carlo simulation model that includes significant estimates and assumptions pertaining to commercialization events, sales targets, market conditions and discount rates. These estimates and assumptions are subject to the judgment of our management team and are not prepared with a view towards public disclosure of projected sales. Our sales targets are also subject to significant economic, competitive, industry and other uncertainties and contingencies, which are difficult to predict and in many cases are beyond our control. We can give no assurance that the actual amounts paid, if any, in connection with the CVRs will be consistent with any recurring fair value estimate for such CVRs.
Our stock price could fluctuate significantly, which could cause the value of your investment to decline, and you may not be able to resell your shares at or above your purchase price.
Securities markets worldwide have experienced, and may continue to experience, significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could reduce the market price of our common stock regardless of our operating performance. The trading price of our common stock is likely to be volatile and subject to wide price fluctuations in response to various factors, including:
•Market conditions in the broader stock market;
•Actual or anticipated fluctuations in our quarterly financial and operating results;
•Issuance of new or changed securities analysts’ reports or recommendations;
•Investor perceptions of us and the pharmaceutical and medical technology and pharmaceuticaldevice industries;
•Sales, or anticipated sales, of large blocks of our stock;
•Acquisitions or introductions of new products or services by us or our competitors;competitors, including our ongoing commercial launch of PYLARIFY;
•Positive or negative results from our clinical development programs;
•Additions or departures of key personnel;
•Regulatory or political developments;
•Loss of intellectual property protections;
•Litigation and governmental investigations;
•Geopolitical events; and
•Changing economic conditions.
These and other factors may cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of common stock and may otherwise negatively affect the liquidity of our common stock. In addition, in the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the company that issued the stock. If any of our stockholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management from our business, which could significantly harm our profitability and reputation.
If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our stock, or if our results of operations do not meet their expectations, our stock price and trading volume could decline.
The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of these analysts ceaseceases coverage of our company or failfails to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. Moreover, if one or more of the analysts who cover us downgradedowngrades our stock, or if our results of operations do not meet their expectations, our stock price could also decline.
We do not anticipate paying any cash dividends for the foreseeable future.
We currently intend to retain our future earnings, if any, for the foreseeable future, to repay indebtedness and to fund the development and growth of our business. We do not intend to pay any dividends to holders of our common stock and the agreements governing our senior secured credit facilities limit our ability to pay dividends. As a result, capital appreciation in the price of our common stock, if any, will be your only source of gain on an investment in our common stock.
Risks Related to the Progenics Transaction
The Progenics Transaction may not occur, and if it does, it may not be accretive and may cause dilution to our earnings per share, which may negatively affect the market price of our common stock.
Although we currently anticipate that the Progenics Transaction will occur and will be accretive to adjusted earnings per share by 2022 and GAAP-reported earnings per share by 2023, these expectations are based on assumptions about our and Progenics’ business and preliminary forecasts, which may change materially. Certain other expenses to be paid in connection with the Progenics Transaction may cause dilution to our earnings per share or decrease or delay the expected accretive effect of the Progenics Transaction and could cause a decrease in the market price of our common stock. In addition, the Progenics Transaction may not occur or we could encounter additional transaction-related costs or other factors such as the failure to realize all of the benefits anticipated in the Progenics Transaction, including synergies, cost savings, innovation and operational efficiencies and revenue growth from the combination. All of these factors could cause dilution to our earnings per share or decrease or delay the expected accretive effect of the Progenics Transaction and cause a decrease in the market price of our common stock.
The Progenics Transaction is subject to conditions, some or all of which may not be satisfied, or completed on a timely basis, if at all. Failure to complete the Progenics Transaction could have material adverse effects on our business.
The completion of the Progenics Transaction is subject to a number of conditions, including, among others, the approval of the Merger Agreement by a majority of votes cast by the holders of the common stock of the Company and a majority of the outstanding shares of Progenics common stock, the absence of any law or order prohibiting the consummation of the Progenics Transaction or the issuance of the shares of our common stock as deal consideration, the effectiveness of a registration statement covering the issuance of shares of our common stock to the stockholders of Progenics, the absence of a material adverse effect on us or Progenics, and other conditions customary for a transaction of this type, which make the completion of the Progenics Transaction and timing thereof uncertain. In addition, the Merger Agreement contains certain termination rights for both us and Progenics, including, among other things (i) if the Progenics Transaction is not consummated on or before the “outside date” of July 1, 2020, (ii) if the required approval of our stockholders or the Progenics stockholders is not obtained, (iii) if the other party willfully breaches its non-solicitation obligations in the Merger Agreement, (v) if the other party materially breaches its representations, warranties or covenants and fails to cure such breach, (vi) if any law or order prohibiting the Progenics Transaction or the issuance of the shares of our common stock forming part of the merger consideration has become final and non-appealable, or (vii) if the board of directors of the other party fails to include such party’s recommendation in favor of the Progenics Transaction in the joint proxy statement/prospectus or changes its recommendation in connection with the Progenics Transaction. If the Progenics Transaction is not completed, our ongoing business may be materially adversely affected and, without realizing any of the benefits that we could have realized had the Progenics Transaction been completed, we will be subject to a number of risks, including the following:
The market price of our common stock could decline;
We could owe substantial termination fees to Progenics under certain circumstances;
Time and resources committed by our management to matters relating to the Progenics Transaction could otherwise have been devoted to pursuing other beneficial opportunities;
We may experience negative reactions from the financial markets or from our customers, suppliers or employees; and
We will be required to pay our costs relating to the Progenics Transaction, such as legal, accounting, certain financial advisory, consulting and printing fees, whether or not the Progenics Transaction is completed.
Upon termination of the Merger Agreement, we will be required to pay to Progenics a termination fee of $18.34 million if: (i) we willfully breach our nonsolicitation obligations in the Merger Agreement; (ii) our Board changes its recommendation in support of the merger as a result of a superior proposal or intervening event; or (iii) our stockholders do not approve the issuance of common stock in connection with the merger (if at such time Progenics has the right to terminate the Merger Agreement because we willfully breached our nonsolicitation obligations in the Merger Agreement or our board changed its recommendation in support of the merger as a result of a superior proposal or intervening event). In addition, we will be required to pay to Progenics the termination fee if we receive an acquisition proposal, the Merger Agreement is later terminated under certain circumstances and within twelve months after termination we enter into an agreement with respect to (or consummate) an acquisition proposal for 50% or more of our stock or assets.
In addition, if the Progenics Transaction is not completed, we could be subject to litigation related to any failure to complete the Progenics Transaction or related to any enforcement proceeding commenced against us to perform our obligations under the Merger Agreement. If any such risk materializes, it could adversely impact our ongoing business. Similarly, delays in the completion of the Progenics Transaction could, among other things, result in additional transaction costs, loss of revenue or other negative effects associated with uncertainty about completion of the Progenics Transaction and cause us not to realize some or all of the benefits that we expect to achieve if the Progenics Transaction is successfully completed within its expected timeframe. We cannot assure you that the conditions to the closing of the Progenics Transaction will be satisfied or waived or that the Progenics Transaction will be consummated.
We and Progenics are each subject to business uncertainties and contractual restrictions while the Progenics Transaction is pending, which could adversely affect the business and operations of us or the combined company.
In connection with the pendency of the Progenics Transaction, it is possible that some customers, suppliers and other persons with whom we or Progenics has a business relationship may delay or defer certain business decisions or might decide to seek to terminate, change or renegotiate their relationships with us or Progenics, as the case may be, as a result of the Progenics Transaction, which could negatively affect our current or the combined company’s future revenues, earnings and cash flows, as well as the market price of our common stock, regardless of whether the Progenics Transaction is completed. Under the terms of the Merger Agreement, we and Progenics are each subject to certain restrictions on the conduct of our businesses prior to completing the Progenics Transaction, which could adversely affect each party’s ability to execute certain of its business strategies. Such limitations could adversely affect each party’s business and operations prior to the completion of the Progenics Transaction. Each of the risks described above may be exacerbated by delays or other adverse developments with respect to the completion of the Progenics Transaction.
Uncertainties associated with the Progenics Transaction may cause a loss of management personnel and other key employees, and we and Progenics may have difficulty attracting and motivating management personnel and other key employees, which could adversely affect the future business and operations of the combined company.
We and Progenics are each dependent on the experience and industry knowledge of our respective management personnel and other key employees to execute our business plans. The combined company’s success after the completion of the Progenics Transaction will depend in part upon the ability of each of us and Progenics to attract, motivate and retain key management personnel and other key employees. Prior to completion of the Progenics Transaction, current and prospective employees of each of us and Progenics may experience uncertainty about their roles within the combined company following the completion of the Progenics Transaction, which may have an adverse effect on the ability of each of us and Progenics to attract, motivate or retain management personnel and other key employees. In addition, no assurance can be given that the combined company will be able to attract, motivate or retain management personnel and other key employees of each of us and Progenics to the same extent that we and Progenics have previously been able to attract or retain their own employees.
The Progenics Transaction is subject to the expiration or termination of applicable waiting periods and the receipt of approvals, consents or clearances from regulatory authorities that may impose conditions that could have an adverse effect on us or the combined company or, if not obtained, could prevent completion of the Progenics Transaction.
Before the Progenics Transaction may be completed, any approvals, consents or clearances required in connection with the Progenics Transaction must have been obtained, in each case, under applicable law. Consummation of the Progenics Transaction is conditioned upon, among other things, the expiration or termination of the waiting period (and any extensions thereof) applicable to the Progenics Transaction under the HSR Act, which has been obtained by grant of early termination of the HSR Act waiting period on October 25, 2019. Notwithstanding the grant of early termination, at any time before or after the Progenics Transaction is consummated, the Antitrust Division of the United States Department of Justice, the Federal Trade Commission or U.S. state attorneys general could take action under the antitrust laws in opposition to the Progenics Transaction, including seeking to enjoin completion of the Progenics Transaction, condition completion of the Progenics Transaction upon the divestiture of assets, or impose restrictions on post-merger operations. Any such requirements or restrictions may prevent or delay completion of the Progenics Transaction or may reduce the anticipated benefits of the Progenics Transaction.
The Merger Agreement limits our ability to pursue alternatives to the merger and may discourage other companies from trying to acquire us.
The Merger Agreement contains a “no solicitation” covenant that restricts our ability to solicit, initiate, seek or support, or knowingly encourage or facilitate, any inquiries or proposals with respect to certain acquisition proposal relating to the Company; engage or participate in negotiations with respect to any acquisition proposal; provide a third party confidential information with respect to, or have or participate in any discussions with, any person relating to any acquisition proposals; or enter into any acquisition agreement with respect to certain unsolicited proposals relating to an acquisition proposal. In the event we receive an unsolicited acquisition proposal, we must promptly communicate the receipt of such proposal and provide copies of material communications and information, including the terms and conditions of such proposal, to the other party. If, in response to such proposals and subject to certain conditions, we intend to effect a change in our board of directors’ recommendation to stockholders, we must provide Progenics an opportunity to offer to modify the terms of the Merger Agreement in response to such competing acquisition proposal before our board may withdraw or qualify its respective recommendation. The Merger Agreement further provides that in the event of a termination of the Merger Agreement under certain specified circumstances, including a termination by Progenics following a change in recommendation by our board or a willful and material breach of the no-solicitation provision applicable to us, we may be required to pay Progenics a termination fee equal to $18,340,000.
These provisions could discourage a potential third-party acquirer that might have an interest in acquiring all or a significant portion of the Company from considering or proposing that acquisition, even if it were prepared to pay consideration with a higher per share cash or total value than the total value proposed to be paid in the merger. These provisions might also result in a potential third-party acquirer proposing to pay a lower price in an acquisition proposal than it might otherwise have proposed to pay because of the added expense of the termination fee and other fees and expenses that may become payable in certain circumstances.
Current stockholders will have a reduced ownership and voting interest in the Company after the Progenics Transaction and will exercise less influence over the management of the combined company.
Upon completion of the Progenics Transaction, we expect to issue approximately 26.9 million shares of our common stock to Progenics stockholders. As a result, it is expected that, immediately after completion of the Progenics Transaction, former Progenics stockholders will own approximately 40% of our outstanding shares of common stock. In addition, shares of our common stock may be issued from time to time following the Progenics Transaction to holders of Progenics equity awards on the terms set forth in the Merger Agreement. Consequently, our current stockholders in the aggregate will have less influence over the management and policies of the Company than they currently have.
We and Progenics may be targets of securities class action and derivative lawsuits that could result in substantial costs and may delay or prevent the Progenics Transaction from being completed.
Securities class action lawsuits and derivative lawsuits are often brought against public companies that have entered into merger agreements. As of the date of filing of this report, six securities class action lawsuits have been filed against Progenics and its board of directors alleging inadequate disclosure by Progenics under the Registration Statement on Form S-4 related to the Progenics Transaction (which registration statement will be revised to describe, among other things, the revised terms in the Amended Merger Agreement). Two of those lawsuits against Progenics also name us or one of our affiliates as defendants, although we do not believe that those lawsuits have merit or will result in any material monetary damages payable by us. Even if lawsuits are without merit, defending against any legal claims can result in substantial costs and divert management time and resources. An adverse judgment in a securities class action lawsuit or derivative lawsuit alleging significant monetary loss by the plaintiffs could result in monetary damages for us and Progenics, which could have a negative impact on our and Progenics’ respective liquidity and financial condition. Additionally, if a plaintiff is successful in obtaining an injunction prohibiting completion of the Progenics Transaction, then that injunction may delay or prevent the Progenics Transaction from being completed, or from being completed within the expected timeframe, which may adversely affect our business, financial position and results of operation.
Completion of the Progenics Transaction may trigger change in control or other provisions in certain agreements to which Progenics or its subsidiaries are a party, which may have an adverse impact on the combined company’s business and results of operations.
The completion of the Progenics Transaction may trigger change in control and other provisions in certain agreements to which Progenics or its subsidiaries are a party. If we and Progenics are unable to negotiate waivers of those provisions, the counterparties may exercise their rights and remedies under the agreements, potentially terminating the agreements or seeking monetary damages. Even if we and Progenics are able to negotiate waivers, the counterparties may require a fee for such waivers or seek to renegotiate the agreements on terms less favorable to Progenics or the combined company. Any of the foregoing or similar developments may have an adverse impact on the combined company’s business and results of operations.
Progenics stockholders have appraisal rights under Delaware law.
Under Delaware law, Progenics stockholders who do not vote in favor of adoption of the Amended Merger Agreement and who otherwise properly perfect their rights will be entitled to “appraisal rights” in connection with the Progenics Transaction, which generally entitle stockholders to receive, in lieu of the merger consideration, a cash payment of an amount determined by the Delaware Court of Chancery to be equal to the fair value of their Progenics common stock as of the effective time of the merger. The appraised value would be determined by the Court of Chancery and could be less than, the same as, or more than the merger consideration. Under Delaware law, stockholders are generally entitled to statutory interest on an appraisal award at a rate equal to 5% above the Federal Reserve discount rate compounded quarterly from the closing date of the merger until the award is actually paid. Stockholders who have properly demanded appraisal rights must file a petition for appraisal with the Court of Chancery within 120 days after the effective date of the merger. Should a material number of Progenics stockholders exercise appraisal rights and should the Court determine that the fair value of such shares of Progenics common stock is materially greater than the merger consideration, we will be required to pay significantly more than anticipated in connection with the Progenics Transaction, which could adversely affect the liquidity and financial condition of the combined company.
The combined company may be unable to successfully integrate the Progenics business into our business and realize the anticipated benefits of the Progenics Transaction.
The success of the Progenics Transaction will depend, in part, on the combined company’s ability to successfully combine the business of Progenics with our business, which currently operate as independent public companies, and realize the anticipated benefits, including synergies, cost savings, innovation and operational efficiencies and revenue growth from the combination. If the combined company is unable to achieve these objectives within the anticipated time frame, or at all, the anticipated benefits may not be realized fully or at all, or may take longer to realize than expected and the value of its common stock may be harmed. Additionally, as a result of the Progenics Transaction, rating agencies may take negative actions against the combined company's credit ratings, which may increase the combined company’s financing costs.
The Progenics Transaction involves the integration of Progenics’ business into our existing business, which is expected to be a complex, costly and time-consuming process. We and Progenics have not previously completed a transaction comparable in size or scope to the Progenics Transaction. The integration may result in material challenges, including, without limitation:
The diversion of management’s attention from ongoing business concerns and performance shortfalls at one or both of the companies as a result of the devotion of management’s attention to the Progenics Transaction;
Managing a larger combined company;
Maintaining employee morale and attracting, motivating and retaining management personnel and other key employees;
Unanticipated risks to our integration plan including in connection with timing, talent, and the potential need for additional resources;
New or previously unidentified manufacturing, regulatory, or research and development issues in the Progenics business;
Retaining existing business and operational relationships and attracting new business and operational relationships;
Integrating corporate and administrative infrastructures in geographically separate organizations and eliminating duplicative expenses;
Unanticipated issues in integrating information technology, communications and other systems;
Unanticipated changes in federal or state laws or regulations; and
Unforeseen expenses or delays associated with the Progenics Transaction.
Many of these factors will be outside of the combined company’s control and any one of them could result in delays, increased costs, decreases in the amount of expected revenues and diversion of management’s time and energy, which could materially affect the combined company’s financial position, results of operations and cash flows. We and Progenics have operated, and until completion of the Progenics Transaction will continue to operate, independently. We and Progenics are currently permitted to conduct only limited planning for the integration of the two companies following the Progenics Transaction and have not yet determined the exact nature of how the businesses and operations of the two companies will be combined after the combination. The actual integration of Progenics with our business may result in additional or unforeseen expenses, and the anticipated benefits of the integration plan may not be realized. These integration matters could have an adverse effect on (i) each of us and Progenics during this transition period and (ii) the combined company for an undetermined period after completion of the Progenics Transaction. In addition, any actual cost savings of the Progenics Transaction could be less than anticipated.
The future results of the combined company may be adversely impacted if the combined company does not effectively manage its expanded operations following the completion of the Progenics Transaction.
Following the completion of the Progenics Transaction, the size of the combined company’s business will be significantly larger than the current size of our business. The combined company’s ability to successfully manage this expanded business will depend, in part, upon management’s ability to design and implement strategic initiatives that address not only the integration of two independent stand-alone companies, but also the increased scale and scope of the combined business with its associated increased costs and complexity. The combined company may not be successful or may not realize the expected operating efficiencies, cost savings and other benefits currently anticipated from the Progenics Transaction.
The CVRs we will issue as part of the Progenics Transaction may result in substantial future payments and could divert the attention of our management.
As part of the consideration for the Progenics Transaction, we will issue CVRs to the stockholders of Progenics and holders of in-the-money Progenics equity awards entitling them to future cash payments of 40% of PyL net sales over $100 million in 2022 and over $150 million in 2023. These payments could be substantial and could adversely impact our liquidity. In addition, we are obligated to exercise a level of effort, expertise and resources consistent with those normally used in a medical diagnostics business similar to our size and resources with respect to developing, seeking regulatory approval for and commercializing a product of similar market potential at a similar stage in its development or product life to PyL. We are also required to produce net sales statements for PyL that may be reviewed and challenged by CVR holders, with any disagreement to be resolved by an independent accountant. These requirements could divert management time and resources and result in additional costs.
The financial analyses and forecasts considered by Lantheus Holdings and Progenics and their respective financial advisors may not be realized, which may adversely affect the market price of Lantheus Holdings common stock following the completion of the merger.
In performing their financial analyses and rendering their opinions related to the merger, each of the respective financial advisors to Lantheus Holdings and Progenics relied on, among other things, internal stand-alone financial analyses and forecasts as separately provided by Lantheus Holdings and Progenics. These analyses and forecasts were prepared by, or as directed by, the management of Lantheus Holdings or the management of Progenics, as applicable. None of these analyses or forecasts were prepared with a view towards public disclosure or compliance with the published guidelines of the SEC, the U.S. Generally Accepted Accounting Principles. These projections are inherently based on various estimates and assumptions that are subject to the judgment of those preparing them. These projections are also subject to significant economic, competitive, industry and other uncertainties and contingencies, all of which are difficult or impossible to predict and many of which are beyond the control of Lantheus Holdings and Progenics. There can be no assurance that Lantheus Holdings’ or Progenics’ financial condition or results of operations will be consistent with those set forth in such analyses and forecasts, which could have an adverse impact on the market price of Lantheus Holdings common stock or the financial position of the combined company following the merger.
The combined company is expected to incur substantial expenses related to the completion of the Progenics Transaction and the integration of the Progenics business with our business.
The combined company is expected to incur substantial expenses in connection with the completion of the Progenics Transaction, including seeking approval from our stockholders, and the integration of the Progenics business with our business. There are a large number of processes, policies, procedures, operations, technologies and systems that must be integrated, including purchasing, accounting and finance, sales, payroll, pricing, revenue management, marketing and benefits. The substantial majority of these costs will be non-recurring expenses related to the Progenics Transaction, facilities and systems consolidation costs. The combined company may incur additional costs to maintain employee morale and to attract, motivate or retain management personnel or key employees. We will also incur transaction fees and costs related to formulating integration plans for the combined business, and the execution of these plans may lead to additional unanticipated costs. Additionally, as a result of the Progenics Transaction, rating agencies may take negative actions with regard to the combined company’s credit ratings, which may increase the combined company’s financing costs. These incremental transaction and acquisition-related costs may exceed the savings the combined company expects to achieve from the elimination of duplicative costs and the realization of other efficiencies related to the integration of the businesses, particularly in the near term and in the event there are material unanticipated costs.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
The following table summarizes information regarding our significant leased and owned properties, as of December 31, 2019:
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
Location | | Purpose | | SegmentSquare Footage | | Square
Footage Ownership | | Ownership | | Lease Term End
|
U.S. | | | | | | | | | | |
North Billerica, Massachusetts | | Corporate Headquarters, Manufacturing, Laboratory, Mixed Use and Other Office Space | | U.S. Segment431,000 | | 431,000 | Owned | | Owned | | N/A |
CanadaNew York, New York | | Progenics Headquarters, Office Space | | 26,000 | | | Leased* | | | September 2030 |
QuebecSomerset, New Jersey | | Manufacturing, Mixed Use and Office Space | | International
Segment11,400 | | 1,106 | Leased | | Leased | | April 2020November 2028 |
QuebecSomerset, New Jersey | | Office Space | | 8,249 | | | Leased | | March 2027 |
| | | | | | | | |
Canada | | | | | | | | |
Quebec | | Mixed Use and Office Space | | 1,106 | | | Leased | | May 2022 |
Quebec | | Distribution Center and Office Space | | International
Segment1,433 | | 1,433 | Leased | | Leased | | May 2022 |
Puerto RicoSweden | | | | | | | | | | |
San JuanLund | | Manufacturing, Laboratory, Mixed Use and Office Space | | International
Segment4,000 | | 9,550 | Leased | | Leased | | OctoberDecember 2024 |
* On October 11, 2021, we entered into an agreement to sublease our office space at the World Trade Center in New York City to an unrelated third party. Please refer to Note 17, “Leases” for further details.
We believe all of these facilities are well-maintained and suitable for the office, radiopharmacy, manufacturing or warehouse operations conducted in them and provide adequate capacity for current and foreseeable future needs.
Item 3. Legal Proceedings
From timeInformation with respect to time, we are a party to variouscertain legal proceedings arisingis included in the ordinary course of business. In addition, we have in the past been,Note 20, “Commitments and may in the future be, subjectContingencies”, 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.
In October 2019, we were awarded a total of approximately $3.5 million, consisting of damages, pre-judgment interest, and certain arbitration fees, compensation and expenses in our 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. In November 2019, we received proceeds of approximately $3.5 million, which we recorded in other expense (income) in the consolidated statement of operations.financial statements contained in Item 8. Financial Statements and Supplementary Data, and is incorporated herein by reference.
As of December 31, 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 4. Mine Safety Disclosures
Not applicable
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
The Company’sOur common stock began tradingtrades on the NASDAQ Global Market under the symbol “LNTH” on June 25, 2015. Prior to that time, there was no established public trading market for our common stock..
Holders of Record
On February 19, 2020,18, 2021, there were approximately 835 stockholders of record of our common stock. This number does not include stockholders for whom shares are held in “nominee” or “street” name.
Performance Graph
The performance graph set forth below shall not be deemed “soliciting material” or to be “filed” with the SEC. This graph will not be deemed “incorporated by reference” into any filing under the Securities Act or the Exchange Act, whether such filing occurs before or after the date hereof, except to the extent that the Companywe explicitly incorporatesincorporate it by reference into in such filing.
The following graph provides a comparison of the cumulative total shareholder return on our common shares with that of the cumulative total shareholder return on the (i) Russell 2000 Index and (ii) the NASDAQ US Small Cap Index, commencing on June 25, 2015December 31, 2016 and ending December 31, 2019.2021. The graph assumes a hypothetical $100 investment in our common stock and in each of the comparative indices on June 25, 2015.December 31, 2016. Our historic share price performance is not necessarily indicative of future share price performance.
* Assumes hypothetical investment of $100 in our common stock and each of the indices on June 25, 2015, the date of our IPO,December 31, 2016, including reinvestment of dividends.