Q1 2020 Earnings Call

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

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Good morning, ladies and gentlemen.

Welcome to the Lantheus Holdings first quarter 2020 earnings conference call.

This is your operator for today's conference call. Please note that all lines have been placed on mute to prevent any background noise is called me being recorded for replay purposes 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 coal and will be archived for 30 days I'll now turn the call.

Little bit your host for today Mark can already.

Director of Investor Relations Mark.

Thank you and good morning, welcome to Lantheus Holdings first quarter 2020 earnings Conference call. Joining me today is our president and CEO, Marianne Hannah 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 first quarter 2020 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 or may differ materially.

From those indicated by forward looking statements due to a variety of risks and uncertainties.

In particular, there a significant uncertainty about the duration and contemplated impact of the cobot 19 pandemic. This means that results could change at any time and the contemplated impact of cobot 19 on the company's business results and outlook is the best estimate based on the information available as of today's date.

Please note that we assume no obligation to update these forward looking statements, except as required by applicable law.

<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 in the Investor section of our website.

With that I'll turn over the call to Marianne Marianne.

Thank you Mark good morning, everyone first and foremost Lantheus is proud to serve the life sciences sector, and we want to think healthcare workers everywhere, but they are extraordinary commitment and he's unprecedented time.

I hope beside each of you and your families safe and well as you listen to this call.

Lantheus is products have been included in the list. Good products. These are essential and we continue to manufacture and ship products from our campus daily although want to reduce basis as Bob and I will discuss during the call.

C D of our employees is a priority I think that of the patients who receive our products and we have adopted heighten measures to ensure the ongoing production of our micro bubble and nuclear medicine products.

I am proud of the dedication in support of being higher Lantheus team, whether they are working at home or in our manufacturing facilities. During these very challenging times.

On April nine we announced that well business results to the first two months of the first quarter. We're ahead of company expectations.

Cobot 19 reached global pandemic levels in mid March procedural volumes for our products declined.

We also noted that we anticipated the second quarter impact of the cold igniting pandemic on her business would be more significant than that seen in the first quarter.

Accordingly, we had already taken steps at that time to reduce ongoing costs until demand levels for our products impacted by the reduction of elective procedures, we didn't health care systems recover.

In addition to significant reduction of discretionary spending we've implemented a hiring freeze through the balance of Twentytwenty.

Further effective April 13th Twentytwenty and for the balance of the second quarter, we reduced our work week from five days did 40 in order to better align manufacturing supply distribution and other activities with reduced product demand.

We also reduced pay for our personnel, including a 75% reduction for myself, a 35% reduction for members of our executive team a 25% reduction for our vice president and across the board reduction of 20% of salaries for other salaried employees and 20% good hours for hourly.

Simply put that same period.

In addition, our board of Directors has also reduced director and committee member compensation like 35% for the second half of the year and has elected to receive all remaining compensation payable in twentytwenty in the form of kind be restricted stock units that will best on the first anniversary of the granting rather than in cash.

We are confident that despite these measures we are poised to meet our customers' needs as elective procedures starch return across the country.

The company also strategically important implemented older precautionary measures in an effort to ensure business continuity capabilities in our management supply chain in manufacturing facilities.

Our manufacturing employees have always been protective would appropriate personal protective equipment, where PPP as we are a manufacturer of nuclear in several products. We've adopted additional measures to ensure appropriate social distancing and increased safety measures in our manufacturing suite.

At the business level, our product portfolios, we're demonstrating healthy trends in twentytwenty prior to the impact of the pandemic I'll begin with DEFINITY DEFINITY delivered another strong start to the year for Michael bubble franchise, and we continue to bolster our patent portfolio.

Earlier this month three of our recently issued method of use patents covering DEFINITY were listed in the Orange book one of these patents expires at the end of 2035 and two of them expire in 2037.

Our DEFINITY patent portfolio now include four Orange book patent lifted go lifted patents in total also as we have disclosed previously we hold the composition of matter patent that expires at the end of 2035 for a second generation modified formulation of DEFINITY, which we call DEFINITY RT once.

Product is approved by the FDA that's composition of matter patent would also be eligible for listing in the Orange book, We continue to prosecute patents relating to the seem to be enters into the RT worldwide and we also appeared to vigorously defend our patent portfolio against potential infringes.

Regarding the status of a potential generic filers to date, we have not received notice of an anda application. We remain confident in our plan defend our DEFINITY intellectual property and growth prospects for the future.

Another important development relating to DEFINITY in the quarter with with our Chinese development partner double Crane pharmaceutical company on March 19th we filed an input drug license application would be an empty a or national medical products administration for the use of DEFINITY pretty echocardiography indication.

This is an important milestone in our efforts to commercialize DEFINITY in China.

Double Crane is also in the process of analyzing the clinical result relating to the liver and kidney indication and will also work with us to prepare an import drug license application for those indications.

In February we announced the result of benefit one the first of our two phase three open label Multicenter studies to evaluate left ventricular ejection fraction or L.D.S. measurement accuracy and reproducibility of DEFINITY contracts in hand, and on enhance echocardiography, where noncontract cardiac magnetic resonance imaging.

We're CMR I would use as a true standard after reviewing the benefit one study results. We concluded there was no statistically significant improvement in the accuracy of Ob values for contrast, enhanced echocardiography versus an enhanced echocardiography as compared to see M. our eyes.

In addition analyses of the secondary endpoints revealed no improvement in intermediate variability between the contracts in hand, and an enhanced echocardiograms for LDS assessments.

We have now have the opportunity to review the study results a benefit to our second phase three study and those results are similar to the previously reported benefit one result, namely that the benefit to study also did not meet its primary endpoint.

Among the secondary endpoints and benefit to enter reader variability for left ventricular volume measurement improved when using DEFINITY first is on enhance ultrasound well there was no improvement in them Lvs intermediate variability in both studies a post hoc analysis did show statistically significant improvements and left ventricular diastolic.

Thanks to solid volume measurements with contract enhanced version on enhanced echocardiography, when compared to CMR I.

Well go to be very let's see the continued value of the use of contrast in sub optimal echocardiograms two pacify the left ventricular cheaper and improve the delineation of the left ventricular endocardial border at this point, we did not foresee spending additional time or effort pursuing and lvs indications for DEFINITY.

Now, we'd like to provide an update on or Molly supply for the first quarter and what we except for the balance of Twentytwenty.

If you recall and still had been approved to produce at levels to satisfy their domestic demand since late 2019.

In late March of this year is doing them said it received regulatory approval for more ponta, yes, brilliant radiation protection and nuclear safety agency to utilize its additional capacity.

With this approval and still can resume supply to international customers and as a priority customer lantheus will be the first to receive that supply.

As a cold is 19 pandemic has evolved the availability of international transportation logistics for inbound supply has been a dynamic situation.

While we have been able to secure a flights we have experienced challenges on certain days being able to meet demand for our nuclear products in the U.S. and other markets we serve.

Turning now to our pending Progenics acquisition as you know in February we announced with if we can't afford that we'd entered into an amended and restated merger agreement.

More recently, we jointly announced that we'd be schedules are respected special meeting on April 28, Twentytwenty to June 16th Twentytwenty, given the high level of volatility in the capital markets caused by the Cold and 19 Pandemics. In addition on April 14, <unk> together with Progenics, we announced that Lantheus it entered into with it.

Port agreement would belden capital in certain of its affiliates are to which they have agreed to vote in favor of approving the proposed merger between land he isn't progenics and to be down by certain standstill obligations through what 2021 annual meeting I set forth in that agreement.

Here's announcing the merger in October the compelling strategic rationale of combining our companys hazmat teams I remain convinced about the value that could be unmatched by combining our kids business and I'm very encouraged by the progress of our integration planning effort.

I am proud to share that as a life science company manufacturing sterile products, we were able to donate 10000 pieces of P.P., including Bath gowns and gloves.

He's pp collected by the National Guard Winter first responders in our home state of Massachusetts.

We are so grateful for the brief service a first responders everywhere and we're privileged to be able to make such a contribution with that I'll turn the call over to Bob Bob.

Thank you Mary Anne and good morning, everyone I will provide highlights of the first quarter financial focusing on adjusted results unless otherwise noted.

Revenue for the first quarter was $90.7 million, an increase of 4.8% over the prior year quarter. While revenue came in at the top end of guidance for the fall for the full quarter, we saw meaningful drop off beginning during the last two weeks of March.

Sales of DEFINITY in the first quarter were 56.8 million or 11.1% higher as compared to the prior year quarter Technelite revenue was 23.1 million down 4.3% from the prior year quarter. Other nuclear increased 2.5% to 15.5 million due to the timing of certain neurolite tails off.

Second part fighting on volume rebates and allowances totaled 4.7 million.

Gross profit margin for the first quarter was 51.1% a decrease of 85 basis points from the first quarter 2019 on a similar basis.

Decrease is due mainly to planned underabsorbed overhead costs associated with our new on campus manufacturing facility as was noted earlier this year.

Operating expenses were 221 basis points favorable to the prior year at 27.4% of net revenue driven primarily by lower relative expenditures in each spending category favorability was driven by both the phasing of certain planned expenses as well as conscious decisions to slow discretionary spend during the latter half of the core.

However, as the coded 19 pandemic began to take shape.

Operating profit for the quarter was $21.6 million or an increase of 11.2% over the same period prior year.

Total adjustments in the quarter totaled 14.5 million before taxes.

This amount 3.1 million is associated with non cash stock incentive plans.

Also in the quarter, we recorded 7.3 million of expense relating to an asset impairment charge associated with certain of our other nuclear legacy manufacturing assets. Additionally, we recorded 3.8 million of expense related to our acquisition and pre integration efforts with Progenics the balance sheet.

Excuse me balance relates to acquired intangible amortization.

Our effective tax rate was 28.5% in the quarter.

The resulting reported net income for the first quarter was 3.3 million and $14.3 million on an adjusted basis, an increase of 27.1%.

GAAP fully diluted earnings per share were eight cents and 36 cents on an adjusted basis, an increase over the prior year of 26.1%.

Now turning to cash flow first quarter operating cash flow totaled $9.4 million as compared to 10.5 million in Q1 2019.

Capital expenditures totaled 2.7 million down from the prior year quarter, both as a function of the work taking place in the prior year quarter on or new on campus manufacturing capabilities as well as of slowing of capital investment spend during the quarter.

Free cash flow, which we defined as operating cash flow less capital expenditures was $6.7 million, an increase of $6.8 million over the prior year period.

This cash flow performance has brought our cash and cash equivalent balance $95.7 million, adding to the strength of our balance sheet heading into the pandemic.

Also just following the quarter and there's a precautions to company grew $100 million on our revolver, representing half of the availability and as a note.

We intend to repay this call. It had his closing progenics transaction to better manage our covenant requirements as a combined company the net leverage ratio as we exited the first quarter and not including the subsequent facility draw stood at 1.4 times.

As you know we review our revenue and adjusted earnings per share full year guidance for 2020 in April nine press release. This action was precipitated by the meaningful decrease in revenue due directly to patients in hospital actions associated with stay at home orders in advisory throughout the United States during the second half of.

Margin throughout April we have seen or total sales decreased by as much as 50% to 60% from recent quarterly revenue run rates and notably have maintained these levels over the last three weeks.

We are monitoring customer orders and order trends closely looking to both regional and national data points to inform our forward looking sensitivity analyses.

For modeling purposes, we would expect gross margins to be lower in Q twos, and what we experienced in Q1 due to a low lower overall absorption trends and lower relative contribution from DEFINITY.

As we assess revenue for the balance of 2020.

We have attempted to model various sensitivity assumptions for recovery of elective procedures and a return to patients hospitals and related point of care, where our products are most often utilized however, due to the uncertainties of recoveries within each geographic segment of the country. The uncertainties of each state governors decisions to reopen parts of that respect.

These economies.

Uncertainty surrounding any potential reemergence of covert 19 severity later in 2020 and many other coated 19 related issues. We are unable to provide investor guidance at this time.

We continue to assess the impact of covert 19 on our business and remain vigilant to day to day indications that could challenge the validity of our assumptions and allow ourselves the opportunity to me cost savings in capital spending decision adjustments as business conditions warrant to protect the long term prospects of our business.

With that let me turn the call back over to Marianne. Thank you Bob.

In closing I'd like to give especial, thank you to Lantheus employees.

Well those potential workers coming to our bill recur headquarters daily to manufacture products as well as those diligently working from home as we do our port to serve patients and fight to Cyrus you continue to embody the very best of our company values and I. Thank you for your commitment.

Before I open the call to questions I'd again like to express my sincere. Thanks to first responders and those on the front line everywhere and wishing for the sake keeping of everyone until our next call.

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

Thank you.

And as a reminder, ladies and gentlemen to ask a question relates to press star one of your telephone.

Your question. Please press the pound key.

Please standby politics when a roster.

And our first question comes from the line of Larry Solow CJS Securities. Your line is no.

Good morning, and thanks for taking the call and not get to hit your voice is I hope by you and your families are all relatively well.

Thank you Larry you as well.

Yeah, just obviously on president Tom on the affinity.

A lot of the stuff is.

Order.

Not really.

Dave I guess, but from I guess in a short Ron.

The ability to get the hospitals and closures and whatnot and people are just probably afraid to go to the hospital works. They absolutely have to how do you view do you view this as.

Somewhat of it is just going to be lost revenue I guess, you can't make up all this stuff but inevitably.

Hopefully, we get some break in slow down in the stock, especially in some of the major cities and.

The common for these procedures right. So how do you sort of balance that and now and thoughts on that.

Oh, Larry It really is a popery here because the the the range of use of echocardiography.

Really spend so many uses you have you know in patients where echocardiography is used as part of the kinds of routine evaluation to patients who were already.

Being.

Part of its part of their inpatient care you have echocardiography as part of the pre screening of patients are being admitted into hospitals for elective procedures, you have echocardiography as part of ongoing cardiac screening of patients who are being monitored for their cardiac status and you're right for some of the latter uses that I just mentioned there.

Right now those uses are suspended because patients aren't being screened now they're not having a pre hospital screening done for elective procedures, because those elective procedures have been postponed.

For you know because patients aren't going to their physicians offices for kind of normal ongoing health assessment on a yearly basis until that those echocardiography studies aren't being ordered.

To the question of whether they are lost revenue the only echocardiograms that we see is lost revenue right now or what we call cereal echocardiograms and those are patients who for for what could be a variety of reasons. Also are currently scheduled to say per se have an echo done every three months so they might be post AAA repair.

Co. Some other kind of cardiac repair where they were on standing schedule of having an echo done every three months and because of the timing of this pandemic, it's very likely that that patient will not have one of those that goes done that they'll just by the timing move onto what would be the next echo.

I'd tell you across the full universe of use of echocardiography what percent those patients represent that is just not a level of detail of data. We have you heard Bob speak to what we're seeing as the level of reduction in our revenue, it's a really fluid.

Customers that were making it's very different geographically as is the pandemic across the nation, you have and we're seeing that especially now as we see different parts of the country. We open at different rates were going to continue to see that so we're monitoring this in real time, where with our customers in real time.

We will continue to kind of follow it but I think where we're all suffering in some ways from a lack of intricate detail and I know, it's tough because where you know it's a very finance. So it's really financial business that we run but I think we're all doing our best to try to understand what's happening in real time.

So how about just on the you know qualitatively maybe on the R&D side, obviously with your programs and then.

A couple I don't know how much you can speak to progenics, yet, but obviously would there the depending hopeful filing for the PFM agent antigen in the back half of this year and just R&D trials and work to some of that I assume get delayed or pushed out just because of logistics and an ability to get patients.

In crude into the trials and you know how do you view that stuff.

So I think there's there's two different be put two different questions into one there you could you referenced filings versus trials. There's there's no need to stop forward progress with the preparation of filings and that certainly at north Progenics saved the very important work going on for the preparation of the P., while filing that is filing and progress because those trials are closed door.

The patients have been enrolled that's about data preparation and file preparation no need there's no lack of forward progress in in files like that from clinical trial enrollment and I'm now I'm speaking generally for the the larger fields here I'd say very fair to say there has been a general stock to clinical trial enrollment.

For very valid reason, depending on what you're studying these are patients who are who are usually at risk for one reason or another and be the not to patients and unless they are so it recently that they truly the risk out leaves a bit in the benefit of the trial, Doug outweighs the risk of bringing them to a clinical site to administer it in a coded environment.

That's a decision that's being made on trial by trial basis, but borough trials, where the benefit of the trial does does not outweigh the risks of bringing the patient to a site where there is risk of exposure to coded it's fair to say that enrollment has been pause.

Got it great I appreciate that thanks very much.

Thank you and as a reminder, ladies and gentlemen to ask a question lead to press Star one was the telephone.

Your question. Please press the pound key.

Yes.

Alright.

We still 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 everyone have a wonderful day.

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