Q3 2020 Lantheus Holdings Inc Earnings Call
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Good morning, ladies and gentlemen, welcome to Lantheus Holdings third quarter 2020 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 <unk> 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'd now like to turn the call over to your host for today Mark Good Ari senior director of Investor Relations.
The floor is yours.
Good morning, ladies and gentlemen, welcome to the Lantheus Holdings third quarter 2020 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.
This call is being recorded for replay purposes a re.
Play 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'd now like to turn the call over to your host today, Mark Canary Senior director of Investor Relations Mark the floor is yours.
Thank you and good morning, welcome to Lantheus Holdings third quarter 2020 earnings Conference call. This.
This morning, we issued a press release, which was furnished to the Securities and Exchange Commission under form 8-K reporting our third quarter 2020 results you could find the results in the investors section of our website at Lantheus dotcom.
So that for those of you not on the webcast you can find the slide presentation in the investors section of our website under the presentations tab.
Before we get started I'd like to remind you that our comments during the call will include forward looking statements actual results may differ differ materially from those indicated by forward looking statements due to a variety of risks and uncertainties in particular, the continuing impact of COVID-19 on our business results.
And outlook is a 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, even if actual results or future expectations change materially. Please.
Please refer to our SEC filings for a detailed discussion of these risks and uncertainties also.
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 investors section of our website.
With me today and with me on today's call are Mary Anne Heino, our president and CEO and Bob Marshall, Our Chief Financial Officer.
Sorry, I will begin with some introductory remarks, and a business update and then Bob will cover our financial results Maryann will conclude the call with closing comments and then we'll open the call for today with that it's my pleasure to now turn the call over to Maryann.
Thank you Mark and good morning, everyone.
I hope you size each of you and your families save and well as you listen to this call.
As we continue to navigate through the COVID-19 pandemic, the health and safety of our employees patients and other partners in the healthcare community remain our top priority.
The long term strategy for Lantheus is one is sustainable growth and I am pleased to share with you today. The progress we have made across the business in those areas. We feel offer significant opportunities for growth today I will update you on our progress within our prostate cancer portfolio on micro level franchise and it off on the services business.
I will begin with t., while the lead product in our prostate cancer portfolio.
In late September we filed our India with the FDA therapy, while our profit this date specific membrane antigen or PS M&A pet imaging agent.
In our EBITDA. We included a request for priority review, which if granted could shorten the FDA review to six months from Atlantic setting versus the standard you use time of 10 months.
We project, we received notification from the FDA confirming acceptance of the filing for substandard review by early December.
I would like to recognize and P., while NVH team for their unwavering commitment visibility what we feel is an excellent and comprehensive filing.
Despite the disruption of the pandemic our teams continued to come together virtually as a highly effective company.
We are very excited to have P. way under review for approval and potentially available to both physicians and patients who we feel will benefit from it.
Okay cancer is the second leading cause of death in men today.
Each year in the United States. There are approximately 192000, new cases of prostate cancer diagnosed and more than 3.2 million men are currently impacted by the disease.
We currently estimate that there is a potential need for up to 130000 PS any targeted images per year in the United States.
Basically into the prostate cancer biochemical recurrence in approximately 50000 men for year. In addition to ongoing imaging in the prevalent population.
Just to say please present, a large addressable market with an estimated market valuation of approximately a half billion dollars.
If approved will be the first commercial F 18 labeled PS may targeted pet diagnostic agent.
Our clinical program included two prospective well designed phase three studies vetted by the FDA to establish the safety and diagnostic performance of P., while energy across the disease continuum of prostate cancer with verify data technology or composite treat standard.
The rail has been administered in approximately 3500 patients with prostate cancer globally, including the two projects sponsored phase three studies investigator sponsored studies and clinical use reported in the literature and has an attractive safety profile as demonstrated through our clinical use.
In July Twentytwenty at the society of nuclear Medicine, and molecular imaging meeting or as an airline we unveiled our PS any imaging awareness campaign, which we then launched online in September.
This campaign focuses on four key aspects of PS any imaging.
The role of pet imaging as a leading technology.
The benefits of the Anthony as a target.
Vantages of 18, as the isotope based tracer and finally, the additional value artificial intelligence software tool can add to the clinician.
Given that the while may be the first 18 commercial diagnostic agent approved I'll spend a few minutes discussing how p. whales produced and distributed as those what we believe are the inherent advantages of the S&P isotope in imaging agent.
The Leo is a nuclear pet imaging agent containing the fluorine 18 isotope, which is commonly abbreviated as 18 Adam.
Additive manufacturing facility or TNF.
The team has produced on the cyclotron.
As 18 event introduced easily synthesis box, we react with a few while precursor to form the p., while drug substance, which isn't purified and formulated to produce a bulk sale product vile.
Individual patient ready doses are then withdrawn from the bulk finished product, while and you alluded to pet imaging centers, which are usually part of a hospital nuclear Medicine Department.
This batch process approach to the production NPL produces a large quantity of bulk finished product, which can eventually be 30 to 40 doses or more per batch depending on size of cyclotron demand and proximity to end user customers.
This is important given the prevalence of prostate cancer and the volume of imaging studies performed at larger treatment centers, especially when compared to the relatively few number of doses that can be produced from a generator driven process.
In addition to the advantages of batch processing. We believe there are a number of other advantages of as 18, making is the ideal isotope therapy estimate targeted imaging agent for example.
The team has a 110 minutes half life, which means doses can be easily transported to hospitals within a two to three hour radius of the production side.
Moreover, given its half life Edp offers more flexibility as to when a patient can be managed after the doses than prepared this is important to an imaging center as a schedule multiple different types of pay procedures throughout the day.
Further we believe at 18 produces inventories with high resolution when compared to other radio isotopes used in pet prostate cancer imaging as 18 has a higher positron yield which improves contract resolution and decreases in engine noise.
Now turning to our commercial portfolio in August we announced that the FDA approved our NVH provided RF I'd.
Our next generation activation device designed specifically for DEFINITY.
As a reminder, this entity is the only image enhancing agent approved would have dedicated proprietary activation device for preparation before administration.
Our proprietary device vial mix is used for that process.
Our newly approved bionics RF I'd incorporates two advanced features that provide important customer benefits first of all these RF I'd incorporate RF I'd tag technology, allowing for product tracing of each file two specific patient in which it was used.
This is a patient safety feature already present in unit drug dosing in hospitals, and we are pleased to be able to offer the same patient safety benefit predictability.
Second the RF I'd tag allows the vial next to differentiate between DEFINITY and utility room temperature or R&D.
DEFINITY IP is a modified formulation of DEFINITY that allows the room temperature storage. It is currently under FDA review.
Assuming FDA approval DEFINITY Rts reconstitution parameters of shake time, and shake speed will be different than those that are currently used for the divinity formulation.
Violence, RF I'd will differentiate between the two product formulations and apply the different reconstitution parameters appropriately Vince.
This means the introduction of the R&D will be seamless to our customers and they will only require one environments are if I'd device for all their DEFINITY needs.
Our UN issued patent on the use of the new learnings are if I'd with an expiration date of 2037 has been listed in the Orange book and additional patent applications have been submitted in major markets throughout the world.
We continue to see steady recovery throughout the quarter, primarily driven by an entity that we do see differences geographically due to COVID-19 Bob.
Bob will speak specifically to the trends, we are seeing DEFINITY growth over prior periods.
While the recovery we've seen in affinity has not been matched by our new portfolio overall, our technelite business. It performed relatively well during the quarter posting a 13.6% sequential growth rate.
Xenon business. However continues to be negatively impacted by limited utilization of in hospital respiratory inhalation products. As a result of cold 19 transmission concerns and this market may not return to pre COVID-19 levels until well into 2021.
Regarding azedra, we are encouraged by its continued utilization despite ongoing hospital asset limitation to company representatives and having maintaining volume with our current centers of excellence network.
Going forward. Our plan includes further enhancements to our commercial capabilities to drive awareness and we may also consider expanding our commercial footprint once entities and we open access to our sales team.
We believe market opportunity exists for the only EBITDA improved therapy for pheochromocytoma and Paraganglioma and we are committed to ensuring physicians and patients are aware of and have access to this important treatment.
In the meantime, we continue to make significant progress in optimizing our iodine manufacturing network to ensure sufficient supply at potentially a more favorable cost. This.
This plan involves work at our Somerset facility as well as with the external partners, we used for additional supply.
For example, as part of our integrated iodine strategy, we have been able to leverage relationships, most notably with the IR E to more directly manage our I 131 supply chain.
Our goal is to ensure adequate capacity to satisfy our projected commercial and clinical needs for his vedra as well as to support our 10 95 clinical development program.
Now I will discuss our progress in our pharma services digital and partnerships business.
Within the last few months, we have signed clinical supply agreements with both regeneron and bear to include P., while in their clinical trials for prostate cancer.
The way I will be used to assess DNA expression levels at different times during their respective studies.
We believe these are illustrative of the value pharmaceutical company CMP whale as a next generation diagnostic imaging agent and represents a potential growth opportunity beyond the large market I discussed earlier.
We also continue to identify growth opportunities in our micro level franchise last week, we announced a strategic collaboration which we will use in which we will use our micro level in combination with Insightec investigational EMR guided focused ultrasound platform to evaluate treatment of Glioblastoma one of the most aggressive.
Malignant primary brain tumors affecting over three Americans per 100000, and presenting a very low five year survival rate.
This partnership directly aligned with the key lantus growth strategy of pursuing new applications for our micro level platform as well as our expansion into oncology.
In the digital solutions area of our former services business in September 2020, the FDA granted five 10-K clearance for the use of our ABS on digital solution on the GE precision healthcare platform Avi.
Avi ESI is our standalone artificial intelligence or AI application approved by the FDA for the evaluation of patients with bone metastasis from prostate cancer.
Avi as I work by quantifying the selective lesions identified on a bone scan an inch owns.
Bone scans are the second most broadly use radiopharmaceutical diagnostic imaging study performed in the U.S.
The AI application provides a bone scan index value as adjunct information related to the progression of disease to 40 more informed clinical decisions.
We are excited about the potential for this AI applications any overall treatment paradigm of prostate cancer and the complementary role it plays to our prostate cancer product pipeline, an important growth area for the company.
Lastly, regarding 10 95, our phase II SNA targeted clinical development candidate for the treatment of metastatic prostate cancer in October we resumed patient enrollment for arrow trial in both the us and Canada as a reminder, during the second quarter Progenics had passed new enrollment to mint.
Mine's, a risk to subjects and healthcare providers during the event and Dennis.
For our resulting in slight dependent as each clinical site individually makes a determination as to when to allow new patient enrollment in the trial given the current standard setting rates and other considerations after clinical sites.
With that I'll conclude my update on key commercial and strategic programs and turn the call over to Bob Bob Secondary and good morning, everyone. I will focus my discussion on adjusted results unless otherwise noted.
Revenue for the third quarter was $88.5 million, an increase of 3.2% from the prior year quarter and a decrease of 3.6% organically.
We continue to see progress across our portfolio from June through the end of the quarter with revenue up by 34.1% over Q2.
Sales of DEFINITY in the third quarter were $55.4 million or 5.8% higher as compared to the prior year quarter and 37.3% higher sequentially over the second quarter.
DEFINITY sustained volume strength during the quarter and when you analyze this year's performance to last year's Q3 growth rate of 19.7%.
A two year stack quarterly average growth rate remains in line with low to mid teens growth expectations.
Technelite revenue was $21.5 million down 1.2% from the prior year quarter similar to DEFINITY sequential improvement capital and grew at a positive, but lesser pace at 13.6% sequentially.
Other nuclear inclusive of newly acquired assets increased 10.5% to $17.2 million rebates and allowances totaled $5.5 million.
Gross profit margin for the third quarter was 47.4% a decrease of 225 basis points from the third quarter of 2019. The decrease is due largely to on variable contribution on lower xenon revenue year over year due to a relatively fixed cost of raw materials.
Additionally, ongoing mine logistics cost and the necessary added to K purchases to support those logistics also compared unfavorably year over year.
Operating expenses were 39.8% of net revenue driven primarily by ongoing investment to advance.
Glenn products, including few while notably the FDA filing fees paid in the quarter as well as costs associated with a larger employee base in our first full quarter as a combined company.
Operating expenses were $15.6 million higher than Q2, 2020 modestly lower than anticipated increase associated with the comparative span from Progenics as I noted on our last earnings call.
During the quarter and within these numbers, we were able to realize the targeted run rate savings of 4.6 million announced on our prior earnings call. In addition to certain of those cost containment initiatives, we implemented earlier this year.
Operating profit for the quarter was $6.8 million or a decrease of 61.5% from the same period prior year.
Adjustments in the quarter totaled $11.6 million before taxes.
This alone 4 million is associated with non cash stock and incentive plans 4.8 million related to acquired intangible amortization.
And 800000 related to changes in fair value associated with contingent consideration.
The balance of $2 million is tied to ongoing integration efforts in other onetime expenses related to the Progenics acquisition.
Our effective tax rate was 41.9% in the quarter.
Elevated rate is driven by a fixed interest accrual associated with our uncertain tax positions for which we earned indentified.
We need to call taken together with certain levels of profitability the results impacting underlying effective tax rate.
The resulting reported net income for the third quarter was a loss of $6.4 million and a net profit of $2.4 million on an adjusted basis.
The decrease of 78.5% compared to the prior year period.
Basic and fully diluted earnings per share were a loss of 10 cents and a profit of four cents on an adjusted basis a decrease from the prior year, 87.1%.
Now turning to cash flow third quarter operating cash flow was $8.6 million as compared to $26.4 million in Q3 2018.
Forties to drive longer term efficiencies are expected to modestly impact gross margin in the fourth quarter relative to the third.
Operating expenses should be modestly higher than our adjusted Q3 run rate as we continued to bill scale in a commercial and manufacturing effort in support of T y L. A.
Additionally, we expect the resumption of patient enrollment in our 10 95 clinical study alongside other R&D efforts to advance our pipeline.
Lastly, we anticipate any of them a year and a strong cash position.
Free cash flows will continue to benefit from increasing profitability as well as ongoing diligent capital management.
Looking to the future free Cashflows will also benefit from the acquired Nols from projects, which totaled approximately $339 million. After applying section 382 of the internal revenue.
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Taken together with pre 2020, Nols Atlanta's the aggregate and allows available to the combined business are approximately 510 million of which approximately half can be used over the next five years to reduce the cash impact of taxes over that period dependent on textbook profitability.
In addition to financial performance indicators I also want to provide updates on several integration an expense related milestones.
Company remains on track to deliver on targeted strategic and tactical integration goals forecasted to be completed during 2020. For example is Marianne mentioned earlier, we've accomplished the most significant goal to date with the filing of the <unk> NDA in September and launched our Psm's image imaging awareness campaign online.
Additionally, we have finalized our manufacturing strategy in support of iodine 131 products and or executing against that plan. Currently tactically internal controls have been integrated with testing underway and various solutions has been merged to promote internal efficiencies and communication with.
Let me turn the call back over to Marianne.
In closing I would like to recognize all Lindsey as employees for their commitment to patient and to our customers I'm very encouraged with what I've seen in the first of all quarter as a combined entity not only have we achieved a significant milestone with our P Y L submission, but we also continue to make the expected progress through out the organization.
<unk> any other areas that are important to our growth strategy on Microbubble franchise, and a pharmacy services business with what I have seen I am more optimistic ever and our ability to deliver on our strategic vision a sustained growth Atlantis I look forward to future update on the progress of our business with that Bob <unk>.
Iron are ready to take your questions. Operator. Please go ahead.
To ask a question simply press one on your telephone keypad again that star one to ask a question and we'll pause for a moment to compile the roster.
Your first question is from Larry cellar with C. J S Securities. Please go ahead.
Good morning, and thanks for taking the questions Uhm Marianne.
Maybe a global question just on projects obviously.
Because she was amounts of acquisition about a year ago, you've only had it for I guess three or four months, but it just.
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Today, what what.
Surprises you the most perhaps on the plus side and and you know what if any things are you know maybe not negative, but maybe where there's more room for improvement that may be perhaps you thought and also a few months ago. When you first start corner of the company.
I think it's a very good question Larry Good morning, Hope you do well.
On the upside as I said in my closing remarks in Glen flashback to might be getting much I am just incredibly impressive the way. These teams have come together.
No disruption to what was ongoing into business on both sides and what was important to visit to get the P. Y L submission in and have that be such an outstanding file I think is real testament to not only the will of the two companies to come together, but the kind of the greater will to do it and it's what was it kind of are really struggling.
Drop the the pandemic and then the need to do everything virtually so I wanted to hats off to all the employees that really speaks to their intent become one.
On the other positive sided pod noted we're on target for our synergies and that is something that we've always been committed to we remain committed to but against something that was complicated by the pandemic gentlemen, almost an administrative perspective getting everything together, so I'm incredibly pleased with that on the on the kind of less.
Positive side, because I'll never say negative, but nonetheless positive site, where we're operating in a world where our sales team and all of our customer facing team have now had a complete sea change and how they access their customers and we're trying to find out and trying to work our way through as are so many other company what is the coming through.
<unk> what is the right way coming out of this to go forward and be able to offer the services that we've always offered we're very intent on medical education, we truly feel that was our success in our cornerstone with the affinity. It's a model that we want to apply to et cetera. It's certainly part of the model that will apply with P y L, but that <unk>.
Model be completely rethought in a new world, where ongoing basis access to customers may be permanently limited in the physical sense. So that's something we're gonna have to think through and in the in the same sense I'll speak to the 10 95 trial you know the Arrow trial was underway, we are starting to see good patient enrollment in.
Accumulation of patients in the trial and that came to a halt for all the right reasons. We're starting now but we are incredibly eager to bring back and have that drug offered to patients who we feel will benefit and to get ourselves to a point of patient enrollment, where we can get to a point to see and make decisions around the value of that as.
So I think those are some of the things that they're not really related to the acquisition or our effort that integration that war related to the backdrop of the market that we're trying to accomplish it in.
Oh, great that was very helpful. Maybe just a follow up question for Bob you mentioned sooner.
The synergies and whatnot are certainly on target.
Maybe I don't know I know, you're not giving guidance, but just some of the costs sides. The the sales and marketing line was somewhat lower than I thought it would be.
And I realize you just acquired for genetic but.
That would line item.
I would expect that to go up sequentially as we look out and maybe it costs can come from savings coming from other line items is that fair to say.
Good morning, Larry Yes that is actually.
Observation the synergies are coming from the G&A line.
Those things are the and the redundant positions like see sweet and that kind of thing as well as other.
Administrative like board costs or.
Work, that's done from an audit fee perspective, those are the places I remember finding cost savings.
For for sales and marketing it has really more to do with the fact that what Marianne with just articulating for doing less.
Promotion in person, so there's less travel costs and those kinds of expensive.
And.
From that perspective, we would expect yes that as we build out our commercial team and an R. C. C. O has done a good job of attracting some talent, particularly towards the end of the quarter.
Which is why I noted that operating expenses would be slightly higher in the fourth quarter, because we would see the beginnings of those people are starting to do their work and to get to be prepared for the P Y L. <unk>.
Commercial launch.
And as well as dependent on ongoing whether we can get access there are regionally. Some places where you can get access into hospitals, but they're not many at this juncture, but we would forecast that as access is granted in the future that people will be doing more of that in person promotion, which isn't.
You know more expensive.
Got it okay, great I appreciate that thanks a lot.
There is very much sort of in line with what we saw in the third quarter as well, which was right around about a million and a half dollars worth.
Okay. That's helpful.
Hi, Marianne.
Just on fuel oil I'm curious you've given more information recently just in terms of your views on the size of the market and.
And we have a better sense on timing at this point, but I'm curious your views on the cadence of the ramp should get approved and I. Appreciate it could be anywhere from six to 10 months given on the given the expedited review path or not how quickly does this ramp in a sense in what what could constrain. It do you have to sign contracts with radio pharmacies is their cups.
Pasadena cyclotron at this point, how should we think about how the starts to rollout.
Good morning, Raj I Love, what we do well happy to talk about that because I think it is really very intuitive question.
Certainly you're probably used to pharmaceutical launches in some of the games that that kind of control how pharmaceutical comes out and coverage is certainly one of those gates.
We will be we feel will be well prepared to launch with as you say contracts down the channel for where we need channel partners to move the product, but there are some other gates one of them is the pass through application to CMS. So with this type of radio pharmaceutical product you were required after approval to.
The application in through CMS for designation and recognition of past or it's not a question of whether it will be approved but it's it is a question Im just from the function of putting the application and there could be a 60 day gap between the approval date and when you get that application and then when the application comes back to the <unk>.
Group. So I think you do need to gate the uptake based on that if you look at the population here. This is a significant Medicare population of patients in the market that I was referring to.
Average age of.
Diagnosis at time of diagnosis for prostate cancer is below the Medicare age. These gentlemen, Fortunately live for 18 to 20 years, so, especially if you're talking about our addressable population, which is mainly biochemical recurrence the gentleman who have been already with in the treatment paradigm and so many of them will be of Medicare eight so I think.
To date that way the other gating factor is the coverage you have across the U.S population and with Radiopharmaceuticals that our pet manufactured when you submit your application within your application you submit for simultaneous approval of pet manufacturing Center.
Orders.
These are each site is considered an approved manufacturing site just by nature of how the product is produced as I described it in my comments earlier and so what is very typical with these products is you submit with a group of manufacturing facilities and then at medley at approval you submit the next I'll call them, a basket or group.
Uh-huh Pms that will then also be considered and approved by the FDA as additional supplemental manufacturing sites and you can do that on a six month basis now there were different regulatory pathways that allow you either quicker access to those approvals or more standard review and we intend to take.
To take availability of all of them, but that will also present gating as to what percent of the total us addressable population will have access to a media at approval. What I will say is that we are confident that by six months out we will essentially be covering the U.S. population, but from the zero.
The six month period, it is somewhat of a ramp.
Yes, so given those constraints right so having to establish the pass through payments and then ultimately getting.
Yes, the volumes manufacturing sites higher do you anticipate that there could be revenue in 2020.
Next year again, I realize theres the timing constraints around.
FDA approval process, but just trying to right size how to think about this next year.
So raj.
Reference 2020, I believe you probably in the 20, sorry parties running that you asked once we do absolutely anticipate revenue Twentytwenty one, but we also look at it I guess use as you're noting through the lens of those different constraints that will faces as we come through launch we're confident about what I said that our file we think is.
Is very strong we think our our approach to market is strong we certainly know that there is unmet demand in the market and its high anticipation for this product and we also believe that the team based product is the stronger product for the market, but I think what would be fair to say as you think about how to how to think about the product the higher ran.
And the pre steeper ramp comes in 2022.
Fair enough, maybe I'll squeeze one in I'm not sure there's other questions, but the.
They typically like to schedule more of their FDG based studies in the morning, because those patients were going undergoing EMG studies need to be fasting and so it's just more humane and logistically easier if they use the morning time on the pet machines for MTG based doses that can limit the undercurrent frac.
As limits when they can do the prostate PS amazed against the afternoon, which further constrain how those fewer doses can be use because you can't space them out well over today.
Helpful. I appreciate it thank you.
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