Q3 2019 Earnings Call

Ladies and gentlemen, today's conference is scheduled to begin shortly please continue to standby. Thank you for your patience.

Good morning, ladies and gentlemen, welcome to the Lantheus Holdings third quarter 2019 earnings Conference call. This is your operator for today's call. Please note that all lines have been placed on mute to prevent any background noise.

This call is being recorded for replay purposes, a replay of the audio webcast will be available in the investor section of the company's website approximately two hours. After the completion of the call and will be archived for 30 days I'll now turn the call over to your host for today, Mark can Arnie director of Investor Relations Mark.

Thank you and good morning, welcome to Lantheus Holdings third quarter 2019 earnings Conference call. Joining me today is our president and CEO , Marianne Hey, now and our CFO Bob Marshall.

This morning, we issued a press release, which was furnished to the Securities and Exchange Commission under form 8-K reporting our third quarter 2019 results you can find or at least in the investor section of our web site at Lantheus Dot com.

Before we get started I'd like to remind you that our comments. During this call will include forward looking statements actual results may differ materially from those indicated by forward looking statements due to a variety of risks and uncertainties. Please note that we assume no obligation to update these forward looking statements except as required by applicable.

Or even if actual results or future expectations change materially. Please refer to our FCC filings for a detailed discussion of these risks and uncertainties.

Also discussions during this call will include certain non-GAAP financial measures reconciliation of these measures to the most directly comparable GAAP financial measures is also included in the Investor section of our website.

With that I'll now turn over the call to Marianne Marianne. Thank you Mark Good morning, everyone. We delivered strong third quarter results driven by nearly 20% sales growth for DEFINITY and better than expected Technelite performance, despite a challenging molybdenum 99 or Molly supply environment.

Before detailing our strong earnings performance for the third quarter, Oh first speak to the announcement. We made earlier this month about proposed acquisition of Progenics Pharmaceuticals, and oncology company, what a portfolio of Radiopharmaceuticals and AI products focused on diagnostic and therapeutic solutions to find fight.

And follow cancer.

This is an exciting transaction and I'd like to walk through some of the key strategic and financial rationale why we believe strongly in the combination and the value. It will create for stockholders of both companies as mentioned on the transaction announcement. This acquisition is the result of a long and careful evaluation of the opportunity.

The benefits of the combination and evaluation that started with our initial conversations with the Progenics team in early 2018.

As we learn more about progenics and their innovative portfolio, especially over the past nine months during extensive due diligence with professional advisors. It became increasingly clear, but the good between our companies is incredibly strong and that the business in operations of Progenics will benefit from Lantheus. This strength.

Lantheus has a proven track record of creating long term shareholder value as demonstrated by total shareholder returns since our IPO in 2000 to team up 232%.

We've accomplished this door commercial and operational excellence backed by financial discipline.

With these capabilities and our expertise in Nanjing Global complex isotope supply chains. We believe lantheus is uniquely positioned to optimize progenics radiopharmaceutical operations and maximize the value of the combined companies portfolios.

Lantheus today is recognized as a leader in two areas like the bubbles anchored by DEFINITY and nuclear medical imaging with a long history of product innovation.

We sustained strong revenue growth and aren't investing in lifecycle management to maintain our leadership position. We have built in ultrasound contrast, and emerging uses of micro bubbles, we remain positive about the future of this business.

Morning, Radiopharmaceuticals Lantheus has always been a pioneer in this field introducing the first plane aren't and then spec products to the market.

We have to pet candidates in our pipeline appeared at 18, and Illinois 11, 95 on your Ronald diagnostic agent for the management of neuroendocrine tumors. These represent the next generation a precision diagnostics the acquisition of Progenics enhances our radiopharmaceutical offerings in the oncology space.

Specifically what are the most importantly, this transaction plays directly to our strings isn't progenics azedra, the first and only at the approved product used to treat certain rare neuroendocrine tumors, specifically pheochromocytoma and paraganglioma.

We're glad he says core capabilities in just in time manufacturing and distribution of Radiopharmaceuticals to maximize available supply for its customers. We are best positioned to enhance azedra launch and deliver substantial revenue growth.

We looked extensively I progenics manufacturing infrastructure as part of our robust due diligence process, including spending time I progenics facilities.

We are confident that we can apply best practices from our existing radiopharmaceutical manufacturing capabilities as well as leverage our experienced launching and scaling up manufacturing for new launches. In addition, we dark commercial demonstrated history of excellence. We believe we will be able to position is edra.

For enhanced long term success I.

Additionally, this acquisition brings an integrated oncology platform, including a suite of products that provide clinicians a more complete offering for the management of prostate cancer patients.

Products range from initial diagnosis through treatment, including <unk> algorithm to assist in interpreting images.

Diagnostic and therapeutic target prostate specific membrane antigen or P.S. M&A is a critical market marker for prostate cancer and area with significant unmet patient need and what are the most promising areas in radiopharmaceuticals today.

That said with this transaction Lantheus will not transformed into a biotech company with a typical cash burn profile first the acquisition brings three FDIC approved and commercialized products.

Second well Progenics comes with a robust pipeline several of those products already license to partners, who will bear the development costs necessary to advance those product candidate to market.

Finally for the assets, we will advance to market, we will apply lantheus. This disciplined financial approach to R&D across the portfolio to prioritize projects and execute efficient development.

Earlier, I referenced the Intergraded oncology platform of products within Progenics pipeline.

Within that he has to make platform p., while represents a near term growth driver and as a radiopharmaceutical diagnostic agent fits squarely in Lantheus is core portfolio and expertise.

He y O isn't at 18 diagnostic agent that enables visualization of both Boeing and soft tissue metastasized to determine the presence or absence of locally advanced recurrent indoor metastatic prostate cancer. We believe it has the potential to be a meaningful advancement for the prostate oncology.

Market as it is highly specific to prostate cancer cells and knock on sounded like degenerative or inflammatory conditions.

The while studies have illustrated the impressive clarity and detail of a p. whale image as well as demonstrated early detection of disease, including in men with very low P.S. any levels.

B Y O has the opportunity to be an important too in the management of patients with Biochemically recurring prostate cancer and importantly could represent a significant advancement in the management of prostate cancer patients overall.

Progenics pipeline also includes a prostate cancer therapeutic I won 30 110 95. This product recently began enrolling patients in its phase two clinical trial the Aero study.

The Arrow study is designed to yield interim data, which will further died development decisions of this important product.

Finally, this integrated prostate suite of products is rounded out within artificial intelligence product, which is in late stage development and will be a P. S. I made based imaging technology.

As we continued to work to bring these two companies together, we're even more confident that progenics product portfolio is an ideal fit within lantheus. His vision for growth both in the near and long term, we see great opportunity to drive success immediately over the next year and a half by capturing the near term opportunities that I just want.

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Part of the process going forward will include among other materials the filing of our form S. Four with the FCC. This filing will contain additional information about the strategic rationale for the transaction select financial data for the pro forma company and our operating strategy for the combined company.

With that I'll turn the call over to Bob who will walk through some of the financial aspects of the deal and then moved in Lantheus. This third quarter results later I'll speak more about our performance and highlights from the third quarter, Bob Dickey Mariana and good morning, everyone.

Anyway, the Progenics acquisition the business model, we envision for the combined company is grounded in financial discipline and accountability consistent with the way we operate Atlanta.

We see a clear well defined path to accretion and enhanced cash flows near term dilution over the next 24 months will be the result of needed investments to bolster commercial manufacturing and clinical pathways for certain of the combined companies developmental pipeline ahead of the strong revenue growth that we expect to generate from these products as we ramp there come.

Virtualization, we plan to be diligent in our pursuit of accretion and you're realizing the value. We've seen this transaction for stockholders for example, where the combined focus on capturing manufacturing efficiencies as well as favorable product mix with a growing diversified revenue stream, we expect gross margins expand by nearly 800 basis points over.

The legacy Lantheus run rate by the end of year three further as I mentioned on the announcement call. We will employ a fully dedicated integration project management office in an effort to capture between 15 to 20 million of gene a synergies from the Progenics 2019 baseline expenses.

Also as we studied a third party models Progenics appears to have a much higher expense and capex profile than it would under Lantus is management, our existing infrastructure, notably from a customer service and commercial operations perspective will allow the combined company to avoid significant assumed expenses in future operating periods that bridge.

Clinics as a standalone entity would have had had to build.

Finally, as we mentioned at the time is transaction nothing that we structured the deal wasn't all stock transaction to maintain and protect our financial flexibility going forward. This will provide the company with access to capital in the future and preserve our ability to evaluate discipline strategies to both create and return value to stockholders.

Turning now to our third quarter financial results I'll focus on adjusted results unless otherwise noted and then provide full year 2019 revenue in updated earnings guidance.

Revenue for the third quarter totaled $85.8 million decrease of 3.5% from the prior year impact from foreign currency was not material in the quarter.

40 sales a DEFINITY continued with strong growth at 52.4 million were 19.7% higher as compared to the prior year quarter. Technelite revenue was 21.7 million decrease of 29% from the prior year quarter due mainly to previously communicated supply shortages and TPN Enzo.

Further and it's also worth noting that the prior year comparable performance included $7.5 million of and so generator sales not repeated in this years results other nuclear revenues, which exclude Technelite were 15.5 million decreased 11.5% total revenue was offset by rebates and allowances of 3.9.

Million adjusted gross profit profit margin for the third quarter was 49.7% of net revenue a decrease of 200 basis points from the third quarter.

2018 on a similar basis. This quarter's results are in line with our forecast reflective of unfavorable delivery day and supplier mix for moly 99, offset in part with a favorable product mix led by the synergies outperform.

Adjusted operating expenses were 11 basis points favorable to prior year at 29.2% of net revenue driven primarily by the phasing of certain SGN, a expenses, which drove incremental favorability in the quarter offset by planned research and development investment at 5.2% of net revenue in support of our left ventricular ejection fraction or.

Clinical studies.

<unk> adjustments in the quarter totaled 9 million before taxes of this about 3.4 million is associated with noncash stock incentive plans also in the quarter. We recorded 5.2 million of expenses related to the announced Progenics acquisition. The balance relates to acquired intangible amortization operating profit for the quarter was 17.6.

Brian .

A decrease of 11.7% over the same period prior year.

Net interest expense in other income amounted to $3.2 million.

The reported effective tax rate in the quarter was 9.4% our adjusted effective tax rate was 21.9% during the quarter. The company really certain of its reserves related to an identified state tax liability.

The resulting GAAP net income for the third quarter.

Was $4.9 million or a decrease of 47.6%.

Adjusted net income was 11.3 million or a decrease of 2.4% GAAP fully diluted earnings per share were 12 cents a decrease of 48.8% from the same quarter last year, while adjusted fully diluted earnings per share were 28 cents a decrease of 4.5% from the same period prior year Lastly.

Third quarter operating cash flow totaled $26.4 million as compared to 24.3 in the third quarter 2018 capital expenditures totaled 3.3 million, which was largely in line with the prior year include ongoing investment in our own strategic manufacturing capabilities on our Bill recur campus free cash flow, which we defined as operating.

Cash flow less capital expenditures was 23 point.

1 million for the quarter, Accordingly, cash and cash equivalents totaled $78.1 million at quarter's end.

Turning now to our guidance for the balance of year, you're narrowing our expected full year revenue targets being a range of $347 million to $349 million revenue guidance for Q4 is therefore, a range of 89 to 91 million.

Molly supply continues to make progress with NTP now returned to production level sufficient to meet our demand while and still continues to work towards returned to service as you looked at 2020, we remain confident in a return to supply normalcy for the full year and their ability to satisfy customer demand to meet patient procedures moving.

Moving now to earnings we're raising our full year adjusted fully diluted earnings per share guidance to be in a range of $1.10 cents to $1.13 cents. Previously we had projected a range of one dollar and nine cents $1.12 cents.

Our Q4 guidance is therefore, a range of 27 to 30 cents with that let me turn the call back over to Marianne Marianne you Bob now let me provide some additional color on our business performance and progress on our strategic programs, let's start with our micro bubble franchise. DEFINITY continued strong growth is the result of an increasing approach.

She Asian of the benefits of echocardiography as well as our ability to continue to grow the appropriate use of DEFINITY in sub optimal ethical echocardiograms.

The strength fuels, our confidence in the long term growth of the existing business as well as our commitment to key pipeline and infrastructure initiatives, which we believe will support the sustained growth and profitability of our micro bubble franchise.

The first of these initiatives is our investment in our DEFINITY Ob E. F. Clinical program, we remain on track with our two parallel phase three studies benefit one into with patient enrollment complete preventative one in over 80% for benefit too with total enrollment set for completion later this year.

Upon successful completion of the trials, we will use the results to file a supplemental NDA that if approved would enable us to commercialize soon thereafter.

Our on campus manufacturing project for DEFINITY and other sterile vial products remains on time and on budget. After having completed the construction phase earlier. This summer we have moved onto validation.

These steps keep us on track to produce commercial product by early 2020 one.

Finally regarding the status of the potential generic filer today, we have not received notice of an anda application, we remain confident independent these future.

Moving onto our nuclear business I'd like to provide an update on our Molly supply for the third quarter and what we expect for the balance of the year and 2020 .

Well, we experienced limited supply throughout the third quarter, we had been before informed by our supply partner and TP that they had been able to increase production of Molly.

This positive news provides increased flexibility and supply that will allow us to meet our requirements.

However, another of our Molly suppliers and Stow continues to experience issues related to their transition to their new processing facility, Australia nuclear medicine or a nm.

During the third quarter and still experienced mechanical issue on the production line at a NN, causing you to shut down.

It's a timeline to address that mechanical issue stays on track and necessary regulatory approval is granted and still expects that Molly production could resume ended November to support its own generator production.

Irene has been a consistent Molly supplier for the entire year, partially offsetting shortages from and TPN and still highlighting the strategic importance of having a diversified supply chain.

He also note that I or we will continue operations on interrupted during its ongoing plan conversion to offering Molly derived from low enriched uranium or l. you.

I'm pleased to announce that we've extended our supply contracts with our radiopharmaceutical channel partners Cardinal Health and you PPI and now have supply contracts in place with all five major U.S. radio pharmacy chains through 2020 .

Turning to our radiopharmaceutical pipeline into Ela, My 11, 95, our pet base molecular diagnostic agent for the nor FNF and pathway as we mentioned on our last call. We're designing two phase three clinical trials for the diagnosis and management of neuroendocrine tumors in pediatric and adult population respectively.

In August the FDA granted orphan drug designation for the use of Illinois, 11, 95 in the management of neuroendocrine tumors.

We also received notice the village ability for a rare pediatric disease priority review voucher for a subsequent human drug application should Illinois, 11, 95 be approved by the FDA bridge rare pediatric disease indication in accordance with the programs requirements.

Last quarter, we announced our oncology diagnostic licensing agreement with Nanomabs technology limited.

Privately held biopharmaceutical company focusing on the development of next generation Radiopharmaceuticals for cancer precision medicine.

Under the collaboration agreement Lantheus license Nanomabs Nm, Oh, one a development stage imaging biomarker, which identifies tumors expressing PD L. One.

And then Oh, one maybe used to optimize clinical trial design of early developmental stage PDL, one immuno oncology agents by identifying patients most likely to benefit from these therapies. We are excited by the opportunity as we believe that molecular imaging and analytics could uniquely address hurt unmet needs in honor.

Going drug development of PD, one based therapies, especially in patient selection stratification as well is predicting drug response.

Our agreements with Progenics and none of that allow us to leverage our core competencies, namely our commercialization capabilities in nuclear isotopes.

Overall, our third quarter results and operational achievements reflects strength across our business I remain optimistic about the future and delivering on our strategic vision in the quarters and years to come.

We are encouraged by our financial performance and business results as we move towards the close of another strong year for Lantheus and the close of the Progenics transaction in the first quarter of 2020 .

With that Bob and I are now ready to take your questions. Operator. Please go ahead.

Ladies and gentlemen ask a question.

Your question.

Please standby.

Sure.

Our first question comes from Larry.

Securities. Please proceed with your question.

Good morning, and thank you I'm just going ahead.

Questions on DEFINITY, obviously continues the strong growth, 19% really rough but.

I think over time, you know, we all bring our models down to sort of down low to mid teens growth rate, but but but can you just speak to you know.

What did that continue to grow at this rapid return that's grown at the last three years or the reasons why we should perhaps for being a little too conservative most for models out there.

Well, so Larry I think that's a fair question. This is obviously marrying up of I don't I guess your question when we when we look at the growth and where we see when it's where it's coming from it really is coming from continued contrast penetration rate. So it is really as I said in my remarks.

The continued increased appreciation for use a contrast.

As me within studies and so it's not growth that we would need to depend upon from the underlying market. Just you know overall growth of use of echocardiography.

That really reflects on the effort that we put into the market because that is what we point all of our sales and commercial effort at his medical education on how to recognize suboptimal echoes as of now covers are performing their exams, we do that would not only the technicians, but that's where we point to our medical education with physician so.

I would say that it it is really the result of where we are we point to our efforts at both at the society levels and then at the day to day levels with our interactions with us and entrepreneurs and physicians I can't I can't tell you. How do you run your models. It may be that we are somewhat conservative as as we plan forward, we know where contrast.

Still sit theres a lot of headroom left in that market. If you compare to where medical literature would suggest contrasts pen should be it would suggest that up to 20% of all studies should be done a using a contrast agent I would also say you know looking forward you heard me also mentioned that our El <unk> E. S study should complete patient enrollment by the.

Ended this year will then put together or Sn D.A. file that in D.A. with the PDUFA date due to timing and it could do the date that would bring us into the market up fairly shortly but going back into that same market that we're already addressing and that also then expands the patient population that would be addressable with these contracts. So.

Another growth driver right back into that the market.

So and.

Of course, though.

Certainly had Hansen and give more reason to continue to maintain and if not potentially creases growth. What's just in terms of the left ventricular the timeline there so.

The trials the enrollment completes.

A couple of months and then I assumed the once enrollment patients come through that to one Tom visit rights is no follow up so that Charles basically after the data is analyze pretty much gone right. So when we get anywhere there'd be any notification or that are we'll just here that you filed or held up you know.

<unk> play itself out if you happen to no work in sharing those details.

I I haven't shared any of those details yet I will say just based on the trial design. There are three different study read that have that are done as part of each patient.

Because there we studied without contrast, the the echo study without contracts. There's the study with contracts and then these there's even more study which is the truth standards for the trial. So you're right. There's no. There's no follow on in as you see is the kind of former trials, where you're looking at it Bob follow on for other reasons, but there are three read the studies for each patient in the trial so.

I haven't decided yet well announce as far as you know last page now data locks or whether we'll we'll announce with the SMB a filing but you can be sure there will be announcements related to kind of the reg pathway with that.

Okay, and then lastly, I turn the call colitis bouncing between a couple other ones, but gross margin was a little bit less than I thought was there anything in there.

One time reason there other than I guess the ramp we don't know the manufacturer expense, but [noise].

Anything else.

Hi.

Yeah.

Well, that's a little bit more in line with what we had expected I think if you recall back to our July call I did mention that we would be witnessing a gross margin below the run rate that we saw the first half which was around right around 52.5%.

That's actually a couple of things because when we get into these supply shortages. If you will you know what we do is what we do best in terms of managing our way through that complex radiopharmaceutical market and in doing so what that effectively does is that we're buying Molly you know throughout the week, which is not necessary.

I always the most optimal way to do it and do that a bit of a hedged to make sure what you're doing is creating.

An opportunity to take advantage of demand. So what you do get is some excess decay on that does cost a little bit more and then of course the margin mix. This year. If you remember last year in the third quarter. The Technelite, we were selling to Australia was at a higher margin that one what we typically sell a generator.

I've generators here in United States, So that was a little bit an unfavorable product mix, but again, a little bit offset by DEFINITY outperformance, but again, it really was driven mainly by the technelite.

Okay, Great excellent I know you shared some additional stuff on the on the Progenics stuff I just missed part of that so I will review that and then.

Questions, We'll certainly circle back thank you very much.

Thanks Blair here welcome.

Thank you.

Ladies and gentlemen.

Ask a question.

Thank you ladies and gentlemen, this concludes today's conference. Thank you for participating.

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