Lantheus Holdings, Inc. (NASDAQ:LNTH) Q3 2023 Earnings Call Transcript

Lantheus Holdings, Inc. (NASDAQ:LNTH) Q3 2023 Earnings Call Transcript November 3, 2023

Operator: Good morning. Welcome to the Lantheus Third Quarter 2023 Financial Results Conference Call. This is your operator for today’s call. Please note that all lines have been placed in mute to prevent any background noise. 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 two 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 third quarter 2023 results. The release and today’s slide presentation are in the Investors section of our website at lantheus.com.

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 the 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 pleasure to now turn the call over to our CEO, Mary Anne.

Mary Anne Heino: Thank you, Mark, and good morning to everyone. This was another terrific quarter for Lantheus. We reported revenue of $319.9 million, up 33.7% year-over-year, and progressed our internal R&D and our business development efforts to expand our pipeline. I’m proud to report we have impacted the lives of more than 4.7 million patients year-to-date. We believe our market leading position in PSMA imaging and our advancing pipeline, combined with our unique capabilities, will continue to support our position as the leading radiopharmaceutical-focused company. PYLARIFY is the clear market leader in PSMA PET imaging. Growth during the quarter was driven by brand preference for PYLARIFY due to its clinical and commercial value proposition.

We believe PYLARIFY offers the best combination with our proprietary PSMA-targeted ligand and the F18 isotope. Turning to the total market opportunity, we estimate the current addressable market for the PSMA PET imaging agents to be $1.6 billion and believe this market potential will grow to more than $3 billion by 2028. As such, we remain encouraged by the current and future growth potential of PYLARIFY. PNT2002, our investigational PSMA-targeted radiotherapeutic asset, represents another significant opportunity for growth within our prostate cancer franchise. PNT2002 is designed to treat patients with metastatic castrate-resistant prostate cancer, or mCRPC, who have [indiscernible] following treatment with an androgen receptor pathway inhibitor, or ARPI.

We are excited about the progress we have made with our partner POINT Biopharma, and look forward to the topline data from the Phase 3 SPLASH trial in fourth quarter 2023. As we consider the radiopharmaceutical landscape, we view the proposed acquisition of POINT by Eli Lilly as further validation of the opportunity we see for PNT2002 and PNT2003 and the increasing role of radiopharmaceuticals in life sciences. In addition to prostate cancer, we have a number of exciting assets, including PNT2003, our late-stage radiotherapeutic product candidate for neuroendocrine tumors. Another asset is MK-6240, our investigational Tau imaging agent, intended to assist the diagnosis and staging of Alzheimer’s disease patients, which was recently granted Fast Track designation by the FDA.

And finally, our fibroblast activation protein, or FAP, targeted PET diagnostic imaging agent is being clinically investigated in multiple tumor types. To supplement our ongoing R&D efforts, we will continue to leverage our significant radiopharmaceutical expertise and resources to target business development opportunities. With that, I’ll now turn the call over to Paul.

Paul Blanchfield: Thank you, Mary Anne, and good morning, everyone. During the third quarter, PYLARIFY delivered sales of $215.4 million, representing almost 50% year-over-year growth. We attribute this strong performance to the prostate cancer community’s recognition of PYLARIFY’s clinical and commercial value. Year-over-year growth was driven by existing accounts, new accounts, and additional PMS activations. Sequentially, growth was again driven by our existing accounts, offset by seasonal trends consistent with those reported across the healthcare sector, as well as greater holiday impact, and one less selling day. This resulted in relatively consistent weekly dose demand in June, July and August, followed by more robust growth in September, which carried over to October.

We expect PYLARIFY, which has been used in more than 250,000 scans since launch, to maintain its position as the number one ordered PSMA PET imaging agent because of three main clinical attributes. First, PYLARIFY delivers reliable diagnostic performance with accurate detection rates without a high false positive rate. Second, our robust pivotal clinical data shows change in intended management in patients with biochemically recurrent prostate cancer. Third, PYLARIFY demonstrated consistently high reader agreement and reliability in our pivotal trial. We also believe the adoption and utilization of PYLARIFY are further supported by our commercial value proposition, including: PYLARIFY is the number one ordered PSMA PET imaging agent in the US and is a proven diagnostic backed by real-world experience, including in over 250,000 scans across 47 states; widespread availability with PYLARIFY being the only PSMA PET imaging agent that is available through a diverse, multi-partner, F18 network, which ensures convenient and reliable supply; and broad market access with more than 90% of covered lives having access to PSMA PET with PYLARIFY.

For these reasons, we believe PYLARIFY will continue to be the clear market leader in PSMA PET imaging. We are encouraged by the recent developments in the reimbursement landscape. In July, the Centers for Medicare & Medicaid Services, or CMS, put forth several proposals for comment regarding possible changes, including separate payment for diagnostic radiopharmaceuticals. Lantheus, along with numerous industry organizations submitted comments and we expect CMS to publish final 2024 regulations shortly. Simultaneously, we continue to collaborate with industry and advocacy organization to pass the FIND Act to ensure all prostate cancer patients continue to have access to innovative radiopharmaceuticals, including PYLARIFY. Regardless of the outcome of the CMS regulations and status of the FIND Act, we are confident in PYLARIFY’s future growth prospects.

We see a significant growth opportunity for PSMA PET imaging. While we believe the current addressable market remains about 350,000 scans, or $1.6 billion, we have updated our estimates for the total addressable market to be approximately 600,000 scans or more than $3 billion by 2028. To realize this potential, we anticipate radioligand therapeutics will move into earlier lines of therapy, including both pre-chemo mCRPC and hormone-sensitive prostate cancer, which would increase the need for PSMA PET imaging for both patient selection and monitoring. Additionally, we expect to see increased adoption of PSMA PET imaging in the intermediate favorable patient population as physicians realize its clinical benefits and additional data is generated.

Finally, we expect the incidents and prevalence of prostate cancer to grow approximately 2% to 3% per year. Due to these factors, we believe there is significant opportunity for PYLARIFY to grow in both the near and long term. Switching to our microbubble business, DEFINITY maintained its strong momentum with third quarter sales of $67.3 million, up almost 11% year-over-year. We expect increasing procedure volumes and our promotional efforts to enable sustainable growth. We continue to work closely with our partner POINT Biopharma to progress PNT2002 clinical and regulatory manufacturing and commercial readiness work streams, including establishing an expanded access program, otherwise known as a compassionate use program. We look forward to topline SPLASH study data in the fourth quarter of 2023.

We have also seen positive developments for MK-6240, our clinical stage PET Tau imaging agent intended to assist the diagnosis of Alzheimer’s disease. During the third quarter, we signed agreements with four prominent pharmaceutical companies to provide MK-6240 as a biomarker. With these additional agreements, MK-6240 is now being used in more than 90 active clinical trials. We believe that Tau imaging has the potential to play an important role in patient staging, selection, and monitoring for future treatments, and could be a surrogate endpoint for treatment efficacy. I will now turn the call over to Bob.

Bob Marshall: Thank you, Paul, and good morning. I will provide highlights for the third quarter financials, focusing on adjusted results unless otherwise noted. Revenue for the third quarter was $319.9 million, an increase of $80.7 million or 33.7% over the prior-year period. Earnings per share for the third quarter were $1.47, an increase of $0.48, or 48% over the prior year. Turning now to the details, beginning with radiopharmaceutical oncology. The category contributed revenue of $216.3 million, up 49.5% year-over-year with PYLARIFY at $215.4 million with consistent sequential quarterly growth when adjusting for seasonal and holiday impacts and one fewer billing day in the quarter, as was noted by Paul. Precision diagnostics recorded revenue of $96.3 million, up 8.2% from the prior-year quarter.

Sales of DEFINITY were $67.3 million, 10.9% higher as compared to the prior-year quarter. TechneLite revenue was $23.3 million, up 5.3% from the prior year, due mainly to opportunistic sales. Lastly, strategic partnerships and other revenue was $7.3 million, driven primarily by a milestone and dose revenue from MK-6240 within pharma solutions. As a reminder, we sold our rights to the RELISTOR licensed intangible asset associated with net sales royalties mid-year and don’t expect to be recording any further revenue with the exception of any potential future milestone payments. Gross profit margin for the third quarter was 67.2%, an increase of 100 basis points over the third quarter 2022 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, partially offset by the margin headwind of 93 basis points attributable to the RELISTOR royalty asset sale.

Operating expenses were 10 basis points unfavorable from the prior year at 23.5% of net revenue and $19.2 million higher on an absolute dollar basis, which is in line with previously guided expense levels. Commercial investment continues to focus on driving PYLARIFY branding, awareness and adoption, alongside ramping efforts to prepare for the launch of PNT2002, inclusive of market research in overall commercialization readiness. G&A expense increases year-over-year relate to our ERP implementation, which remains on track as well as investments in cyber, compliance, enterprise risk management analysis, and employee engagement. Adjusted operating profit for the quarter was $139.5 million, an increase of 36.5% over the same period prior year.

Total adjustments in the quarter totaled $24.6 million before taxes. Of this amount, $14 million and $11.7 million of expense are associated with non-cash stock and incentive plans, and acquired intangible amortization respectively. Also in the quarter, we recorded a gain of $51.8 million on the sale of RELISTOR royalty asset within other income and expense. The remainder is related to acquisition and other non-recurring expenses. Our effective tax rate was 23.8% in the quarter. The resulting reported net income for the third quarter was $132.0 million, and net income of $103.1 million on an adjusted basis, an increase of 45.9% over the prior year quarter. GAAP fully diluted earnings per share were $1.88 and earnings of $1.47 on an adjusted basis, an increase of 48% over the prior-year quarter.

Now turning to cash flow. Third quarter operating cash flow was $116.7 million as compared to $93.6 million in Q3 2022. Capital expenditures totaled $14.6 million, in line with expectations. Free cash flow, which we define as operating cash flow less capital expenditures, was $102.1 million, an increase of $14.6 million over the prior-year period. During the quarter, the company received net proceeds from the RELISTOR royalty asset sale in the amount of $97.8 million, which has been recorded in net cash flows from investing activities. Cash and cash equivalents, net of restricted cash, now stand at $614.1 million. We continue to have access to our $350 million undrawn bank revolver and are very comfortable with our strong liquidity position.

Turning now to our updated guidance for the full year. We are tightening our full year revenue estimate to be in a range of $1.255 billion to $1.27 billion from the prior range of $1.245 billion to $1.27 billion. In doing so, we are lifting the lower end of our prior PYLARIFY revenue range to $840 million to $860 million, from $835 million to $860 million. As was the case last year — excuse me, as was the case last quarter, we expect DIFINITY to continue its momentum and also expect MK-6240 to contribute $15 million to $20 million of revenue rather than the prior guidance of $15 million. Turning now to earnings. Adjusted EPS will be in a range of $5.80 to $5.85 versus the prior range of $5.60 to $5.70. With that let me turn the call back over to Mary Anne.

Mary Anne Heino: Thank you, Bob. Our third quarter results were driven by the commercial growth of our market-leading products. We believe our differentiated capabilities commitment to innovation and excellence and our significant capital resources position Lantheus to remain the leading radiopharmaceutical-focused company as we work to find, fight, and follow disease to deliver better patient outcomes. With that, Bob, Paul, and I are now ready to take your questions. Operator, please go ahead.

Operator: [Operator Instructions] For your next question — for your first question, it comes from the line of Roanna Ruiz from Leerink. Roanna, your line is open, please ask your question.

Roanna Ruiz: Great. Good morning, everyone.

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Q&A Session

Paul Blanchfield: Good morning.

Roanna Ruiz: So among the assumptions going into your new future total addressable market assumption of over $3 billion, I was curious what are the largest drivers in terms of how many scans would be added to build up to the 600,000 scans, I think you mentioned on the call. And just how are you considering new PSMA PET competition in there along with your strategies for PYLARIFY growth going forward?

Paul Blanchfield: Sure. Happy to take it, Roanna. Thank you for the question. So, yes, we raised — we had a current addressable market, as you noted, of about $350,000, and that’s the estimate of this year, which equates to about $1.6 billion. We’ve heard your and investors’ feedback you think about what the future potential could be. And so we’ve highlighted today the total addressable market, which we would estimate by 2028 to be about 600,000 scans. On the investor presentation this morning, you’ll see the largest driver of growth there is the expansion of radioligand therapy into earlier lines of treatment effectively from the post-chemo setting or third line into second line and first line otherwise known as pre-chemo, as well as the metastatic hormone sensitive prostate cancer group.

And, therefore, that would increase from potential 30,000 scans for patient selection and monitoring to approximately 210,000 scans. It’s a relatively consistent number of scans per patient, but more patients would be eligible for radioligand therapy. And so that’s naturally the largest driver of the expectation by 2028 based on our belief of radioligand therapeutic approvals in the coming years, including potentially PNT2002. The second biggest driver would be in the recurrent setting, and this is really driven by overall incidence and prevalence as men continue to live longer, as well as a slight uptick in the number of scans per patient over their lifetime assumptions. And then finally, the initial staging for suspected metastases, which is some incidence increases over time, which we expect to be about 2% to 3% per year.

But there, there’s also an assumption that we see greater penetration into the intermediate favorable population. And so that’s really where we’re looking out to 2028 to say this has the potential to have a $3 billion market in that timeframe, which overall makes us incredibly excited about the future of PSMA PET imaging and PYLARIFY in particular. And we believe with our continued commercial and clinical value proposition that we highlighted today and that we continue to promote in the marketplace, that we can and we’ll be the market leader for many years to come.

Mary Anne Heino: Roanna in many of the comments that Paul just shared are outlined on Slide 9 of the deck that we used with this call and which will be also on our website if you want to refer back for more of those data points.

Operator: Thank you. And for your next question, it comes from the line of Richard Newitter from Truist Securities. Richard, your line is open. Please ask your question.

Richard Newitter: Hi, thanks for taking the questions. Congrats on a solid quarter, and thanks for the increased detail on the addressable TAM. So, I guess, you highlighted a lot of expanders there to go from $1.6 billion to $3 billion over time, but not all of these, obviously, are going to be accessible, Paul, as you just pointed out overnight. So I guess just the question I had is, as we look at ’24, is there enough runway with the $1.6 billion TAM and the initial TAM expanders at the front end of that ’23 to ’28 timeframe to grow PYLARIFY next year? I think the consensus is, looking for high single-digit growth, about $940 million. I’m just looking to see, is that a reasonable starting point? And can we expect growth next year in PYLARIFY? Thanks.