Q4 2019 Earnings Call
Ladies and gentlemen, welcome to the Lantheus Holdings fourth quarter in full year 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 Janani.
Director of Investor Relations Mark.
Thank you and good morning, welcome to the Lantheus Holdings fourth quarter and full year 2019 earnings conference call. Joining today joining me today is our president and CEO Marianne pay now and our CFO Bob Marshall.
This morning, we issued a press release, which was furnished to the Securities Exchange Commission under form 8-K reporting our fourth quarter and full year 2019 results you can find a release any 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 law, even <unk> 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 any investor section of our website with that I'll now turn the call over to Marianne Marianne. Thank you Mark and good morning, everyone.
We delivered solid fourth quarter results with revenues within our guidance range, a robust possibility and free cash flow well be dealt with the particularly challenging molybdenum 99, or Molly supply environment throughout 2019, I am pleased to report we are in a more favorable Molly supply position as we enter twentytwenty without.
Will discuss in more detail later in this call.
Additionally, last week, we announced that we entered into an amended and restated merger agreement with Progenics.
Since we first announced the merger last October the compelling strategic rationale of combining our company has not changed.
You mean excited about the potential value that could be unlocked by combining our two businesses and a very encouraged by what we have continued to learn about the progenics business. During <unk> ongoing integration efforts. The most exciting sports teams as well as the patients and physicians has been the positive top line results Progenics achieved would it.
<unk> phase three Condor trial announced in late December.
As many of you know he while its progenics P. S. A need targeted pet imaging agent in phase three clinical development.
<unk> reality, but visualization of both boat and soft tissue metastasis <unk> in patients with locally advanced recurrent indoor metastatic prostate cancer.
The whale targets the extra cellular domain of prostate specific membrane antigen well P.S. than it would you the protein that is over expressed on the surface of greater than 95% of prostate cancer cells and is an emerging target for the detection and treatment of prostate cancer.
He while has demonstrated the potential to detect prostate cancer non invasively into important clinicians in the treatment of prostate cancer would be ultimate goal of improving disease management of one of the most prevalent forms of cancer in the U.S. for men.
Indeed last Friday, the American society of clinical oncology or ASKO published guidelines for optimum imaging strategies for advanced prostate cancer that recommence P. estimate imaging for patients with rising P.S.A. after prostatectomy or radiotherapy, who have negative conventional imaging.
The last these team was very pleased to see the positive topline results of the phase three Condor trial. We believe these results increased the likelihood of regulatory approval of the product and we're confident that our combined company to capitalize on P. why you feel strong potential.
We're also pleased with the progress we've made in our integration planning efforts are fully dedicated integration project management office continues to drive execution of planning activities that we can achieve the strategic and financial benefits inherent in this combination as soon as possible after closing.
As evidenced by the revised economic terms of the amended merger agreement Lantheus enthusiastically shares the view of Progenics stockholders in the long term growth potential of the Progenics product portfolio I believe both sets of stockholder should benefit from the strategic long term growth potential.
With that Virginia's acquisition, we believe we can leverage our existing infrastructure and longstanding expertise in complex manufacturing supply chain and commercial excellence to deliver on the untapped promise of progenics product portfolio and maximize value for all stockholders.
Before turning the call over to Bob to review, our financial performance I'd like to welcome to recent additions to our senior leadership team.
On January six Dr., Istanbul or was appointed our Chief Medical Officer is fun and oncologists by training has extensive experience in both pharmaceutical and radiopharmaceutical industry and has been involved in the development of early mid and late stage oncology drugs.
Most recently he served as Chief Medical Officer Fusion Pharmaceuticals, a clinical stage biopharmaceutical company developing targeted alpha particle radio therapeutics for the treatment of cancer.
Then on January 27 pull blanchfield joins Lantheus in the role of Chief Commercial Officer, Paul brings extensive operational experience and deep expertise in commercializing rare disease products.
Our year to Lantheus pollster head of Takedas U.S. immunology business unit.
And prior to his time educator bolstered in several senior executive roles in the field of immuno oncology.
With the addition of these two executives I complete the process I began about two years ago to build an executive team with the expertise needed.
Execute the strategic vision of Lantheus.
I'm confident this team will take us to work future as a leading company in precision diagnostics and oncology radio therapeutics.
With that I'll turn the call over to ball leader I'll speak more about our operating performance and business highlights from the fourth quarter Bob.
Marianne and good morning, everyone.
Provide highlights of the fourth quarter financial focusing on adjusted results unless otherwise noted.
Then provide additional details of 2020 full year and first quarter revenue and earnings guidance that was found in our earnings press release. This morning.
Net revenue for the fourth quarter was within our guidance range at $89.3 million, an increase of 3.6% over the prior year for the full year net revenues totaled 347.3 million an increase of 1.2% over 2018.
In the fourth quarter sales are DEFINITY posted robust growth at 59.4 million were 22.3% higher as compared to the prior year quarter.
Our sales efforts in execution continued to drive market demand at the affinity and in its current indications and has the opportunity to sustain a strong growth profile in future operating periods.
Excellent revenue was 20.6 million down 11.9% in the prior year quarter.
Customers work their way back contractual levels by the ended the quarter and we expect normal revenue run rates in 2020 as you will see later when I provide details of our guidance.
Additionally, thus far in 2020, we are running at our normalized annual run rate for Technelite lending to our covenants are there any color decreased 22.2% to 13.9 million rebates and allowances totaled 4.5 million.
Gross profit margin for the fourth quarter was 51% decreased 90 basis points from the fourth quarter 2018, well the difference from the prior years due to a relative contribution to certain of our wireline products. The current quarter's results reflects sequential improvement from Q3 due to supply chain efficiencies interview.
And fewer purchases of excess Molly.
Fine with favorable contribution from product mix with affinities performance.
Operating expenses for 32 basis points favorable prior year at 28.4% advising to.
Driven primarily by lower relative expenditures and Gionee and research and development offset by higher variable sales and marketing expense due to some DEFINITY strong performance.
Operating profit for the quarter was $20.2 million or an increase of 1% over the same period prior year.
Total operating adjustments to reporting yes in the quarter were 7.8 million before taxes.
This amount 3 million was associated with non cash stock and incentive plans also in the quarter, We reported 4.3 million of expenses relating to non recurring business development activities.
I never really related to our Progenics acquisition.
The balance relates to previously acquired intangible amortization.
During the quarter company released a portion of our uncertain tax positions relating to prior period Indemnified long lived liability reserves and the corresponding asset associated with an indemnification agreement with a former parent.
Impacted the release with less let's 12.2 million.
Got it to other expense and Conversely, subtracted from tax expense in combination to release had no impact on net income.
Similar equal one offs any entries were made to different laded balance sheet accounts.
Underlying net interest expense and other amounted to 1.3 million dollar expense in the quarter.
Underlying effective tax rate was approximately 28% for the quarter and the full year.
The resulting net.
Reported <unk>, resulting reported net income for the fourth quarter was 10.5 million and $13.6 million on an adjusted basis, the latter increase of 21% over the prior year.
GAAP fully diluted earnings per share were 26 cents and 34 cents on an adjusted basis again, the latter an increase over the prior year of 19%.
For the full year adjusted fully diluted earnings per share with $1.17 cents Werent increase of 3.5% over 2018.
Now turning to cash flow fourth quarter operating cash flow totaled $22.4 million as compared to 17.3 million in Q4, 2018 capital expenditures totaled 4.7 million down from the prior year as capital investment in our own strategic manufacturing capabilities winds down.
Working capital metrics continue to be strong and contribute to cash generation.
Free cash flow, which we defined as operating cash flow less capital expenditures was $17.7 million, an increase of 78% over the prior year period for the year, we generated 58.3 million of free cash flow an increase of 42% over 2018.
This strong cash flow performance has brought our cash and cash equivalent bounce to $92.9 million.
As a reminder, we repaid approximately 75 million of her outstanding got during 2019.
Turning now to our Standalone guidance for full year in first quarter 2020, net revenue growth for the full year is expected to be in a dollar range of 384 to 390 million.
This expectation reflects low to mid teen U.S. DEFINITY growth, coupled with an assumption for recovered and normalized technelite sales volumes throughout the year.
Overall gross margin is expect to be in a similar to 2019 levels. It's overhead expenses associated with our on campus manufacturing well back into the Pinedale ahead of an expected DEFINITY inventory build later this year.
Margin levels in the second half of the are expected to be ahead of between 19 full year levels in more in line with our longer term expectations of improving margins as a result unfavorable absorption and product mix.
Operating expenses as a percentage of revenue should be in line with 2019.
Including I Didnt investments in business development research and development cost as a percentage of revenue should also remain steady off for 2019 baseline as the company continues to invest in scientific talent in clinical programs to drive innovation and sustainable long term revenue growth.
Interest expense will continue to reflect the savings achieved with the mid year 2019 refinancing coupled with an overall lower interest rate environment.
Our effective tax rate is expected to be in the mid to upper twentys.
And for modeling purposes, total forecasted depreciation amortization expense is expected to be approximately $14 million.
Fully diluted average shares outstanding for the year on a standalone basis are expected to increase by approximately 2% over 2019.
Taken altogether full year adjusted.
Full year adjusted fully diluted earnings per share are expected to be in a range of $1.34 cents to $1.40 cents and finally, we expect first quarter revenue growth to be in a dollar range of 89 to 91 million and adjusted fully diluted earnings per share are expected to be in a range of 25 cents just 27 cents.
This forecast does not consider the impact of future acquisitions indoor divestitures, including Progenics transaction.
Before I turn the call back Marianne I'd like to comment on the financials associated with the newly amended merger agreement with Progenics. We believe this combination will create an enhanced opportunity to drive double digit revenue growth and expand the margin profile of the combined company for years to come extensive work has been done by integration management office to identify synergy opportunities.
Which we intend to achieve by the end of year 2022.
Also continues to believe we can deliver accretive adjusted fully diluted earnings per share in 2023, despite the higher exchange ratio.
Lastly, we believe financial metrics should accelerate in performance. Following the first year of combination as we achieve revenue and synergy targets with that let me turn call back over to Marianne.
Thank you Bob now let me provide some additional color on a standalone business performance in progress on our strategic programs outside of our Progenics effort.
Let's start with or Michael double franchise, DEFINITY posted strong growth with a 22% year over year growth rate in the fourth quarter, which demonstrates the value DEFINITY continues to provide physicians in diagnosing and managing patients. We look to build upon this strong performance in a year ahead.
With the leading micro bubble use worldwide. We believe our franchise is well positioned to capitalize on the emerging therapeutic applications of micro bubbles.
During 2019, we announced two agreements the first with very best medical for the treatment of retinal vein occlusion what are the most common causes a vision loss worldwide.
And the second Cartera for the use of a lantheus Mike let these micro bubble in combination with sort of cloud a proprietary implantable device in development for the treatment of recurrent glioblastoma.
We have less dome is illegal and devastating form a brain cancer with median survival of 15 months after diagnosis.
These collaborations aligned with our strategy to identify new applications for our micro bubble franchise as well as our interests in expanding into oncology and therapy.
We look forward to updating you do out twentytwenty on additional micro bubble collaboration.
Our on campus project to build a manufacturing facility for DEFINITY and other sterile byproducts remains on time and on budget.
In the second half a 2019, we completed machinery validation and during the fourth quarter, we completed engineering batches of DEFINITY. These steps keep us on track to have commercial product from this facility by early Twentytwenty one.
Finally regarding the status of a potential generic filer to date, we have not received notice of an anda application.
We remain confident in our plans to defend our DEFINITY intellectual property and our growth prospects for the future.
Moving to our nuclear business I'd like to provide an update on our Molly supply for the fourth quarter and what we expect for the rest of Twentytwenty.
During lunch at 29 team when do you see limited Maui supply from NTP. However, in the third quarter NTP was able to increase production of Mali and I'm happy to report we've received full Molly supply from NCP in Twentytwenty today, now that so 19 and 20 our online.
Another of O'malley suppliers, and Stow returned to service for domestic needs and we wait their approval for additional capacity. If you recall during the third quarter and so experienced a mechanical issue on their production line at A.N., causing it to shutdown.
As expected during the fourth quarter, we did not receive Molly supply from answer.
Once answer receives regulatory approval for additional capacity, we expect reliable service given the combination of a relatively young reactor Opel and the newest processing facility in the industry A.N., we did increased capacity capabilities.
We'd like to thank Irene was a consistent Molly supplier for us throughout 2019.
Irene not only that its commitment but sold in excess supply throughout the year, partially offsetting shortages from NTP and and stuff.
We look forward to work with Irene Twentytwenty as they complete their conversion to you.
The issues, we experienced in 2019 with Molly supply highlight the strategic importance of having a diversified supply chain.
On this call a year ago I shared with you my belief that nuclear medicine is enjoying a renaissance in the marketplace. We are seeing increased depreciation for the role of radio isotopes not only in diagnostics, but also as therapeutics engines Biomarkers.
The unique expertise Lantheus has in radio isotope makes us one of a small group of companies worldwide that will contribute to this Renaissance in nuclear medicine, we're excited to be part of this future.
Overall, our fourth quarter and 2019 results and operational achievements reflects another period of accomplishment. We enter twentytwenty would have strong balance sheet and its strong management team committed to successfully driving the lantheus business and integrating the talent and products of the Progenics business.
With that Bob and I are now ready to take your questions. Operator. Please go ahead.
Thank you ladies and gentlemen, if you have a question at this time.
Star one on your telephone.
Withdraw your question please press the pound.
Once again that a star one to ask a question.
First question comes from the line of.
Larry Biegelsen with Wells Fargo. Your line is open.
Good morning, glaring, taking the questions Hey, Marianne.
Let me start with the guidance excuse me I'm sure. So Bob I heard the commentary on DEFINITY I think low to mid teens, you exited the year, 22% growth full year, 19%. So why why are you expecting you know such a slowdown in DEFINITY in 2020 and just continuing.
And along those lines I think in the pass you talked about technelite being able to do about $100 million.
In 2020 is that still intact and Bob just lastly on the guidance why is the gross stuff you know more backend loaded and then I had one follow up.
Sure. So, let's just a attack those pieces I wanted to time, so from a DEFINITY perspective, I mean, it was a fantastic year grew 18.8% for the full year. So you know each quarter and only particularly as this business gets bigger the comps are more difficult on a year over year basis. So as we project forward Oh, we do expect to see it can.
You need a nice run rate with DEFINITY. So you know by providing a you know a low to mid teens. That's it's really more reflective of the size of the business. Then that's the underlying volume growth that we continue to expect.
With regard to Technelite, yes about $25 million quarter is but we have said in the past and that would be a normalized run rate. So 100 million. It. It makes all the sense and even just for further modeling purposes.
Don it's sort of reached its point where its.
Contracted level that you know with a $5 million a quarter itself is a good there's a good run rate as far as profitability in the said second half year. It really has more to do vary with but how gross margin stack up for the year.
With the Genesis product projects, you know, becoming ready for intended use now put in service the overhead associated with the individuals that you know that work in that particular facility.
We will become part of the expense budget in the first half from a gross margin perspective, and we expect a pretty significant step up if you will in gross margins in the second half a year. So it really has more to do that than the overall profitability on being spread evenly.
How it works is not necessarily a reflection of Uh huh.
Anything other than that.
Bob just one follow up on that I'll ask my my follow up question. It's the same type I was asking about the topline growth I think our through too many questions out there one.
For you, but the topline growth in Q1 is below the full year topline.
Growth guidance I was just curious about why.
The growth is softer in Q1 versus full year that tries imply that it's it's more back end loaded the topline growth and just lastly, Marianne.
You know what led to the enhanced offer for Progenics and what are the a the next steps and timeline. Thanks for taking the questions guys.
Right Larry so.
Bob again.
So from a growth rate perspective, a lot of it is being driven by the the Technelite shortfall talk if you will in Q2 and three and partially in Q4. So what you see then is as we go to more normalized tech revenue run rates on the growth rates. If you will are much higher.
Those other periods as opposed to Q1, where we actually had a more normalized a growth rate. So area right. So that answered your question on the growth rates right Larry.
Thank you.
Okay, then to your question on the amended agreement in offer I think there's there's several pieces at play here, but the most obvious one is what happened in in the market and we saw and we very much appreciated the announcement on the Condor trial and that was very real value making event the.
Phase three trial read out and it read out very positively and from just the.
Weighting of risk weighting on how we were looking at that assets in the overall some of the parts for a the progenics business that had a very real effect on the some of the parts valuation for the business and so as we continue to our discussions with the team and as we continue to our integration work that waiting and there were some other pieces that I won't speak to spin.
Typically as we continued our integration that kind of brought us back to the table. When we were kind of happy to re approach the table with that.
And the next steps.
Next step or go to close on transaction, we need to Ah, we have to shareholders that need to vote. On this transaction will continue to talk to them over the next several weeks, there's some process steps that need to happen with the FCC and then setting a record date and then getting a shareholder d. and we will work would be progenics seem to me those debts.
Hopefully we think we're looking past, perhaps you know at a very early second Q D to close this transaction and move on and create shareholder value.
Thanks for taking the questions.
Welcome.
Thank you and our next question comes from the line of.
Credit Suisse. Your line is open.
Great. Thanks, Good morning, everyone Hi, good morning.
Can you give us an update on the competitive landscape for DEFINITY at this point your visibility there on and also do you anticipate any changes this year up coming from our reimbursement standpoint, I guess I got here in the U.S. Thanks.
Sure. So a competitive landscape is actually very stable. There remains only three approved ultrasound contrast ages, the United States market ours, a the GE product and the brocco product, we don't speak specifically to share because that also remains very stable, we continue to hold greed <unk>, 80%.
Here in what we define as the market, which is essentially the largest market as the echocardiography Ultra sound market. There is a small market also in radiology as the Bracco product has an approval for ultra sound use in the radiology market. We don't compete there as we don't have an indication and quite frankly, it's a very.
Overall market Oh, we have as I said grades and 80% share in the echocardiography market from a reimbursement perspective, the on an annual basis CMS goes to recycle draft publication, and then final publication of reimbursement rates for the upcoming year those final publications where need either.
I think this year was actually the leader is in early December they publish the reimbursement rates for Twentytwenty. They were very much in mind with the reset had been in place for 2019, which allows for a but what does a very adequate I'll say spread between what the reimbursement rate is for a procedure gecko procedure done without plans.
Yes to one done with contrast, we in our indoor partners in in ultrasound contrast, as well as all of the other stakeholders in that or participate in that market watch that process very very carefully and comment during the open period, where we are allowed to when we were very pleased to see this year.
Sure that CMS came at the process, we've been very rationally on and so those those reimbursement rates are in place I'll. Just also note from a competitive landscape as I did during my talk crack during the call. We are still I'm not a receipt of any anda filings for a for DEFINITY nor are we aware of any for.
Or any of the other products in the market.
Okay, Great. That's helpful. And then I'm curious if you're seen just any disruption or just changing focus with the pending progenics deal. It's everything still on track in terms of the baseline.
<unk> focus.
As well as just any other changing and initiative are kind of focus for forgotten. Your line Lantheus team I started this pending progenics deal.
So if he knew were HM we've worked very hard and we've been Hertz also our partners at Virginia to work hard to remain focused on our businesses. There certainly has been distraction you know during the entire transaction, but we've we've both recognize that we needed to run or businesses.
With the potential that the transaction might not close and so we have a separate fully dedicated integration team working on the integration and on the transaction certainly on the Lantheus side would be a with a distraction we had with Molly we were fully focused on on working throughout 2019.
In two sources much Molly be good I think our results, especially with DEFINITY speak for ourselves that we were were able to we focused on having our business demonstrate and continuing we'll we'll show you that again in 2020 on on all fronts.
We're just really looking for it at this point to closing this transaction Oh and well then by when we do we'll be able to announce what our focus will be for the combined business with what milestones will have on the integration and on the performance going forward.
Okay, great. Thank you.
And once again, ladies and gentlemen, as reminder to ask a question you will need to press star one on your child.
We show no further questions at this time, ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect have a wonderful.
Oh.
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