Lantheus Holdings, Inc. (NASDAQ:LNTH) Q2 2023 Earnings Call Transcript

Lantheus Holdings, Inc. (NASDAQ:LNTH) Q2 2023 Earnings Call Transcript August 3, 2023

Lantheus Holdings, Inc. beats earnings expectations. Reported EPS is $1.54, expectations were $1.33.

Operator: Good morning. Welcome to the Lantheus Second Quarter 2020 Financial Results Conference Call. This is your operator for today’s call. [Operator Instructions] This call is being recorded for replay purposes. A replay of the webcast will be available in the Investors section of the company’s website approximately 2 hours after the completion of the call and will be archived for at least 30 days. I will now turn the call over to your host for today, Mark Kinarney, Vice President of the Investor Relations. Mark?

Mark Kinarney: Thank you. Good morning, and welcome to today’s call. With me are Mary Anne Heino, our CEO; Paul Blanchfield, our President; and Bob Marshall, our Chief Financial Officer. Mary Anne will begin the call with introductory remarks and then turn the call over to Paul to provide a strategic and operational update. Bob will cover our financial results and provide updated guidance. Mary Anne will provide closing remarks, and then we will open the call for Q&A. This morning, we issued a press release, which was furnished to the Securities and Exchange Commission under Form 8-K reporting our second quarter 2023 results. The release and today’s slide presentation are in the Investors section of our website at lantheus.com.

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I would like to remind you that any comments made during our call today could include forward-looking statements. Actual results may differ materially from these statements due to a variety of risks and uncertainties. Please note that we assume no obligation to update our commentary or any forward-looking statements, except as required by applicable law even if actual results or future expectations change materially. Please refer to our SEC filings for a detailed discussion of these risks and uncertainties. Discussions during this call will also include certain non-GAAP financial measures. Reconciliation of these measures to the most directly comparable GAAP financial measures is also included on the Investors section of our website. It is my question to now turn the call over to our CEO, Mary Anne.

Mary Anne Heino : Thank you, Mark, and good morning to everyone. I am so pleased to share that Lantheus delivered yet another solid quarter. with reported revenue of $321.7 million, up 44% year-over-year. We continue to focus on our commitment to innovation and operational excellence and ultimately, to making a meaningful difference in patients’ lives. In fact, in the first half of 2023, we impacted a life of more than 3 million patients. Outside the U.S., we are pleased to note that our PSMA PET imaging agent will soon be available to prostate cancer patients in Europe. Curium, our European partner, announced last week that they have received marketing authorization for Phil Cary from the European Commission. Lantheus has been a recognized leader in nuclear medicine for more than 65 years — and we believe our differentiated capabilities uniquely support our position as the leading radiopharmaceutical focused company.

Our expertise and commitment to bringing unique products have differentiated clinical value or why we are the clear market leader with both PS&A with clarify and with our ultrasound-enhancing agent DEFINITY. It’s a defining time for our industry as the renaissance underway in radiopharmaceuticals was clearly evident at the recent Society of Nuclear Medicine and Molecular Imaging, or SNMMI, annual meeting. The breadth of attendees from across medical specialties and the increased focus on radiopharmaceuticals, including diagnostics, biomarkers and therapeutics speaks to the increased adoption and importance of these innovative products to the health care community. RD’s expertise in radiopharmaceuticals and our proven ability to successfully commercialize products have made us the partner of choice in this space and enabled us to expand our pipeline with late-stage radio therapeutic candidates.

This includes PNT2002 for prostate cancer and PNT2003 for neuroendocrine tumors. We also have earlier-stage assets, such as MK-6240, our F-18 labeled PET diagnostic imaging agent targeting tau-tangles for Alzheimer’s disease and our novel fibroblast activation protein alpha or fat imaging agent, which recently entered the clinic. It’s an exciting time to be in radiopharmaceuticals and as the leading radiopharmaceutical focused company, we are committed to advancing our portfolio of leading products and late-stage product candidates to deliver better patient outcomes for those we serve. Before I turn the call over to Paul, I would like to take a minute to note recent development in the PSMA PET imaging class, including the recent approval of an additional F-18 based agent.

We believe the health care community is well served to have a broad set of choices available. We’re also confident that PSMA PET with PYLARIFY offers clear clinical and commercial differentiation. Clinically, PYLARIFY offers the best combination of both isotope and F-18 and our unique and very PSMA targeting ligand. It’s important to note that each of the approved F-18 PSMA agents are new chemical entities with unique pharmacokinetics as well as corresponding pharmacodynamic profiles. We believe the clinical value of PYLARIFY was well demonstrated in our pivotal trial. These trials for PYLARIFY, CONDOR and OSPREY, both demonstrated high predictive value, positive predictive value which, by definition, part leads to a low rate of false positive.

Additionally, it is worth noting that the newly approved F-18 PSMA agent in the US includes an explicit warning and precaution in its label that recommends because of the associated risk of false positive interpretation that health care professionals should consider multidisciplinary consultation and histopathological confirmation or biopsy when clinical decision-making hinges on uptake only in the prostate and/or prostate bed region or only on uptake interpreted as borderline in patients with suspected recurrence. We believe the advantages of PSMA pet with PYLARIFY are clear, robust and well documented in scientific literature and/or package insert. With that, I’ll now turn the call over to Paul to provide a strategic and operational update.

Paul Blanchfield: Thank you, Mary Anne, and good morning, everyone. Leading the way for Lantheus is PYLARIFY, which delivered sales of $210.5 million, representing 61.7% year-over-year growth and approximately 8% sequential growth from the first quarter of 2023, with the vast majority of our sequential growth driven by our existing accounts. We believe PSMA with PYLARIFY offers sustainable competitive advantages that will enable it to remain the number one PSMA PET imaging agent, even with the approval of additional competing agents. PYLARIFY’s clinical differentiation includes being the only PSMA PET imaging agent to have measured change in intended patient management for 99% of enrolled patients in a registrational biochemical recurrence or BCR study with results having been published in a peer-reviewed scientific journal.

Our pivotal Phase III CONDOR study demonstrated that nearly two-thirds of BCR patients with negative or equivocal conventional imaging results at inclusion had a change in intended management after being scanned with PYLARIFY. PYLARIFY also demonstrated high to very high intern and intra-reader agreement which we believe provides confidence in the consistent interpretation of PSMA PET with PYLARIFY scans. Scientific literature broadly supports F18s image clarity advantages versus other isotopes used in PSMA PET imaging. Our pivotal studies scientific research, KOL feedback and guidelines, all demonstrates the differentiated clinical value of PSMA PET with PYLARIFY. PYLARIFY also has the largest dedicated commercial team and significant adoption as demonstrated by the more than 200,000 PYLARIFY scans performed since launch.

Broad payer access, including transitional pass-through status, a geographically diverse multi-partner PMF supply network, including both commercial and academic partners and sustain supply reliability. Finally, PYLARIFY has a nearly two-hour half-life versus 68 minutes for Gallium 68 products, which we believe offers more flexible dose administration advantages for imaging centers and the patients they serve. There have been promising developments in the reimbursement landscape as the Centers for Medicaid and Medicare Services, or CMS, recently requested public comments our proposed hospital outpatient prospective payment system. CMS put forth several proposals, including for radiopharmaceuticals for the first time since 2008, separate payment for radiopharmaceutical diagnostics, following expiration of transitional pass-through status.

We are working with our industry partners and other stakeholders to strongly advocate that CMS adopt this important proposal, while simultaneously working with Congress to pass the FIND Act to ensure that patients maintain access to innovative diagnostic radiopharmaceuticals, including PYLARIFY. We are positive about the future and the impact we continue to have on men living with prostate cancer. In our microbubble business, DEFINITY maintained its strong momentum with second quarter sales of $70.5 million, up 13.2% year-over-year, and remain the clear market leader in the U.S. ultrasound-enhancing agent market. Contributing to year-over-year growth was an increase in overall health system procedure volume as patients as visits continued to rebound in this post-pandemic environment.

We expect these trends, combined with our continued focus on educational programs and promotional efforts to help sustain our momentum in the second half of the year. As Mary Anne mentioned, we have continued to expand our portfolio and pipeline, including PSMA targeted radio therapeutics. To realize this potential, we continue to work closely with our partner, POINT Biopharma to progress PNT2002 across R&D, supply chain, manufacturing and commercial readiness. We received fast track designation from the FDA in April and expect to read out top line data from SPLASH, the Phase 3 registrational trial later this year. SPLASH is designed to evaluate the efficacy and safety of PNT2002 in patients with metastatic castrate-resistant prostate cancer who have progressed following treatment with an androgen receptor pathway inhibitor, or ARPI.

The study has three phases: dosimetry, randomized treatment and long-term follow-up. SPLASH commenced with a 27 patient safety and dosimetry leader, after which patients were randomized 2:1 to receive either PNT2002 or the alternate ARPI therapies like abiraterone or enzalutamide. In total, 412 patients were randomized. The primary endpoint is radiographic or imaging-based progression-free survival as assessed by blinded independent central review. At the time of primary endpoint analysis, we will also perform an interim analysis on overall survival, which could provide important information for our future discussions, with the FDA. As is custom in long-term oncology studies, final overall survival analysis will be performed when data have matured sufficiently.

When we announced our collaboration with Point in November, we estimated a US total addressable market for PSMA radiopharmaceuticals of $3.5 billion. With the approved PSMA radiotherapy set to exceed $1 billion in sales this year, even amidst supply disruptions, we believe this market could be larger. Needless to say, we look forward to progressing PNT2002 for men with prostate cancer and to sharing top line data in the second half of this year. I’m pleased to note that this quarter, we completed our integration of Servo Technologies and its asset MK6240, a clinical-stage pet imaging agent for Alzheimer’s disease which is already being used as a biomarker in more than 60 clinical trials. CAF imaging has the potential to play an important role in patient staging and patient selection for future treatments.

We are particularly encouraged by the proposed guidelines from the Alzheimer’s Association and the National Institute on Aging for diagnosis and staging of Alzheimer’s disease that incorporates how pet as well as the approval and regulatory submission of new therapies, such as lecanemab and donanemab. We look forward to sharing more progress on MK6240 and its potential in the future. We have also progressed our novel FAP alpha-targeted copper 64 label PET imaging agent. In collaboration with Ratio Therapeutics, we initiated a Phase I study evaluating the pharmacokinetics, biodistribution and radiation dosimetry in adult healthy volunteers. FAP is over expressed in the tumor micro environment specifically in cancer-associated fibroblasts, which are believed to modulate tumor progression and immune response.

The ubiquitous expression of fat across nearly all epithelial-derived cancers, paired with the low expression in normal tissues, makes it a unique target to focus on for tumor imaging for a wide variety of cancers, including breast, pancreatic, lung and stomach cancer. Following the completion of the healthy volunteer study, we plan to progress to a Phase I study in cancer patients. I will now turn the call over to Bob for a financial update.

Bob Marshall: Thank you, Paul, and good morning. I will provide highlights of the second quarter financials, focusing on adjusted results unless otherwise noted. Net revenue for the second quarter was $321.7 million, an increase of $98 million or 43.8% over the prior year period. Earnings per share for the second quarter were $1.54, an increase of $0.66 or 73.8% over the prior year. Turning now to the details, beginning with radiopharmaceutical oncology. The category contributed revenue of $211.3 million of sales, up 61.1% over the prior year with Polar delivering $210.5 million of sales, up 61.7% over the year-over-year. Precision Diagnostics recorded $97.6 million, up 12% from the prior year quarter. Sales of DEFINITY were $70.5 million, 13.2% higher as compared to the prior year quarter.

TechneLite revenue was $21.6 million, up 11.1% from the prior year due to mainly to the realization of opportunistic sales in the quarter. Lastly, strategic partnerships and other revenue was $12.8 million, driven primarily by MK-6240 and the RELISTOR royalty. As was noted in this morning’s RELISTOR press release, we sold our rights to the RELISTOR quarterly net sales royalty stream, though we have retained the rights to any future potential milestone payments. I will provide some additional details just ahead of our updated guidance discussion. Gross profit margin for the second quarter was 69.6% and an increase of 359 basis points over the second quarter 2022 results on a similar basis. As has been the case in recent quarters, the increase is due mainly to favorable volume and product mix led by PYLARIFY and DEFINITY, but also lower logistics expenses, partially offset by generally higher overhead costs.

Operating expenses were 345 basis points favorable over the prior year at 22.9% of revenue, which was in line with our previously guided expense levels. As was noted last quarter, we continue to invest in sales and marketing efforts with an expansion of our PYLARIFY sales force intended to support and expand adoption, which demonstrates our confidence in the underlying PSMA PET imaging market. Within G&A and R&D, while the ERP implementation and advancement of our pipeline continue, we are also investing in infrastructure to support PYLARIFY’s growth in addition to activities associated with the point and MK-6240 programs. Operating profit for the quarter was $150.1 million, an increase of 69.4% over the same period prior year. Total adjustments in the quarter totaled $25.9 million before taxes.

Of this amount, $12.7 million and $12.4 million of expense are associated with non-cash stock and incentive plans and acquired intangible amortization, respectively. Also during the quarter, we reduced our net contingent liability accrual by $7.6 million and recorded a fixed asset impairment of $6 million. The remainder is related to acquisition and other non-recurring expenses. Our effective tax rate was 26.7% in the quarter. The resulting reported net income for the second quarter was $94.1 million and net income of $19.6 million on an adjusted basis, an increase of 74.3% over the prior year quarter. GAAP fully diluted earnings per share were $1.33 and $1.54 on an adjusted basis, an increase of 73.8% over the prior year quarter. Now turning to cash flow.

Second quarter operating cash flow was a use of $32.3 million as compared to cash provided of $72.6 million in Q2 2022. Capital expenditures totaled $10.7 million, in line with expectations. Free cash flow, which we define as operating cash flow less capital expenditures, was a use of $43 million a decrease of $111.2 million from the prior year period. During the quarter, the company satisfied its obligation under the contingent value rights issued in the Progenics acquisition by paying $99.6 million, broken down between operating cash flows of $95.9 million and the balance within financing cash flows. Additionally, the company remitted both Q1 and Q2 tax payments in April and June, respectively, totaling $44.5 million. Cash and cash equivalents, net of restricted cash stood at $414.1 million at quarter end.

We continue to have access to our $350 million undrawn bank revolver and are comfortable with our very strong liquidity position. Before turning to guidance, I would like to provide some additional details regarding the sale of the RELISTOR royalty stream. lantheus retains the right to any future milestone payments and received an initial cash payment of approximately $98 million before tax in exchange for royalties. This action will result in a reduction of approximately $13 million of revenue and approximately $0.14 of earnings per share, both split equally between the third and fourth quarters of this year. Strategically, we believe this unlocks significant value today, as we focus on our core businesses defined Follow disease to deliver better patient outcomes.

Turning now to our guidance for the third quarter and updated guidance for the full year, which incorporates the financial impact of the RELISTOR divestiture. We forecast revenue to be in the range of $310 million to $315 million for the third quarter of 2023, an increase of approximately 30% and 32% over the third quarter of 2022. We are updating our full year view to take into consideration second quarter performance as well as the sale of RELISTOR royalty stream. Therefore, we now forecast full year revenue to be in a range of $1.245 billion to $1.27 billion from the prior range of $1.23 billion to $1.27 billion. The implied PYLARIFY full year rate is now $835 million to $860 million, up from the prior range of $820 million to $860 million.

We expect DEFINITY to continue its momentum and also expect MK-6240 to now contribute $15 million of full year revenues rather than the prior guide of $10 million. Turning now to earnings. Adjusted EPS should be in the range of $1.30 to $1.35 for the third quarter as we continue to invest in additional sales and marketing efforts as well as infrastructure to support company growth. We now expect adjusted full year EPS to be in the range of $5.60 to $5.70 per share versus the prior range of $5.45 to $5.70. With that, let me turn the call back over to Mary Anne.

Mary Anne Heino: Thank you, Bob. In closing, the second quarter was yet another solid quarter, anchored by our market-leading product, PYLARIFY and DEFINITY. Our commitment to execution and excellence are the cornerstones on which we operate. At Lantheus, we are driven by our purpose to Find, Fight and Follow disease to deliver better patient outcomes. We believe that radio pharmaceuticals present significant potential, both diagnostically and therapeutically in what has become a modernized approach to personalized medicine. You see if a patient is avid for the target, you treat the disease at the target, and then you monitor patient response via imaging. By investing in innovative diagnostics and therapeutics, we are positioning Lantheus to remain the leading radiopharmacy focused company.

Products with sustainable advantages, such as PYLARIFY and DEFINITY have been the key to our long-standing success, and we are proud to be able to equip healthcare professionals with the tools they need to make a significant difference in the lives of patients. With that, Bob, Paul and I are now ready to take your questions. Operator, please go ahead.

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Q&A Session

Operator: Thank you. [Operator Instructions] Your first question is comes from the line of Roanna Ruiz from Leerink Partners. Your line is open.

Roanna Ruiz: Hi, morning, everyone.

Mary Anne Heino: Good morning, Roanna.

Roanna Ruiz: Good morning. So I wanted to ask about your guidance raise first off. What are the main drivers behind that? And could you talk a bit about your level of confidence in reaching possibly the high end of that range?

Bob Marshall: So I’ll start and then people can contribute. So yes, you’ve noted the fact that, I guess, by removing the RELISTOR royalty stream out of the back half of the year, that — and keeping our top end from the prior guide, that is effectively the raise that we’re trying to point you to. Where it’s coming from, obviously, is an outperformance in Q2. We’re really pleased that it was broad-based across all three of the categories. And as we look to the future, we have a lot of confidence. And that was one of the reasons that we did raise the bottom end of the clarify range up more than double the — over the beat of what we had provided this guidance in the prior quarter. So from there, those are, I think, the main drivers of the revenue guidance performance.

And if you look at the EPS part of it, it’s similar. I mean the performance on EPS is also an accumulation of our outperformance in Q2, which then allows us to continue to invest in the business, which I think continues to demonstrate our confidence in driving growth.

Paul Blanchfield: Maybe I’ll just add. Bob, I’m very much agree with that. I think we’re pleased with the continued adoption, specifically of PYLARIFY including its position as the number one PSMA PET imaging agent. We believe it is clinically and commercially differentiated. Obviously, we are cognizant that we have new competition over the last couple of weeks. That’s been expected. And indeed, we believe that physicians in prostate cancer patients are well served to have a broad set of choices available. The additional voice and awareness will help promote the overall benefit of PSMA PET for prostate cancer patients. And as the clear market leader, we believe that we can benefit from that. We do believe our product is clinically and commercially differentiated. It is obviously a dynamic market, but we remain confident about the potential for PYLARIFY and the overall PSMA PET imaging category.

Mary Anne Heino: Roanna, I’ll just add one sort of two comments here that I’d like everyone to hear, and the first is our confidence. And as Bob said, effectively by having to remove RELISTOR revenue and the associated EPS in the back half of the year, that is an effect a raise to what our prime guidance was. And you also see our bottom guidance coming up. And this, I think, relates to my second point. First, we are incredibly confident in and what we are accomplishing in the market here. And we’re very also pleased to see the markets rebound, especially the return of significant patient volume to the DEFINITY market. But the second thing that we are really attending to as a team is trying to be tighter in the guidance that we offer you so that you have more — you have better line of sight to what we’re anticipating for the business and you can build your models about that.

So I’d say that’s the other concerted effort that you see with the guidance that we offered here.

Operator: All right. Thank you. And for your next question, it comes from the line of Yuan Zhi from B. Riley.

Yuan Zhi: Good morning, and thank you for taking my questions. So my first one is, we saw the commercial loan for another F 18 based PSMA PET imaging agent Posluma at SNMMI Conference and thank you for hosting me at your training session during the conference. Investors have been asking us about the difference between PYLARIFY and this new one Posluma. For these two molecules, can you please comment on the clinical data presented so far between these two? Is there any clinically meaningful difference, understand they are not compared in the same trial? Then I have a quick follow-up. Thank you.

Mary Anne Heino: No, thank you for the question. I guess, I’ll take this first. First, let me say, I know there’s been a lot of chatter from the market about the F-18 product being alike, and it’s interesting at this time, and I’ll comment. But I really wish the more of the chatter was about what we’re doing for patients and what PSMA had imaging represents an innovation to the prostate cancer treating community. It’s interesting about this feedback because it seems that the generation of it is from one of the gallium PSMA agent offers into the marketplace, and that makes it fairly ironic, and I’ll explain why. The two commercially available gallium PSMA agents in the US, both employed a 505(b)(2) regulatory approach to seek approval.