Q2 2022 Lantheus Holdings Inc Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Good morning, ladies and gentlemen, welcome to the landfills second quarter 2022 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.
Replay of the webcast will be available in the investor sections of the company's website approximately two hours. After the completion of the call and will be archived for at least 30 days I'll now turn the call over to your host for today, Mark <unk> Vice President of Investor Relations. Please go ahead.
Thank you and good morning, welcome to Atlanta, as the second quarter of 2022 conference call.
With me on today's call are Maryann, Henao, our president and CEO , Bob Marshall, Our Chief Financial Officer.
Paul Blanchfield, our Chief operating officer.
Maryann will begin the call with introductory remarks, and then turn the call over to Paul to provide an operational update.
Bob will cover our financial results and updated guidance Maryann will provide closing remarks, and then we will open the call for Q&A.
This morning, we issued a press release, which was furnished to the Securities and Exchange Commission under form 8-K reporting our second quarter 2022 results.
You can find the release in the investors section of our website at <unk> Dot com.
For those of you not on the webcast you can find the slide presentation in the investors section of our website under the presentation tab.
Before I get started I would 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 if actual results or future expectations change materially.
Please refer to our SEC filings for a detailed discussion of these risks and uncertainties.
Also discussions during the call will include certain non-GAAP financial measures.
Reconciliation of these measures to the most directly comparable GAAP financial measures is also included on the Investor section of our website.
With that it's my pleasure to now turn the call over to Maryann.
Thank you Mark and good morning to everyone joining us.
We had another outstanding quarter as we continued to execute on our strategy to accelerate growth diversify our portfolio.
Lindsay, it's as a category leader in the markets in which we compete.
I'm, particularly pleased to share that for the second quarter in a row, we reported record revenue of 121% year over year led by Polaris high growth in our radiopharmaceutical oncology category.
Having launch Polaris I just over one year ago, we are delighted with the impact P. S. <unk> targeted pet imaging is making on the U S prostate cancer community.
In fact at our inaugural Investor Day in May Dr. <unk> E. David Crawford and internationally renowned urologist at the University of California, San Diego highlighted that he believes pet T estimate imaging is one of the most important steps forward. He has seen in prostate cancer in the last few decades, we built.
Leave that endorsements from experts in the field such as Dr. Crawford along with inclusion in the guidelines for both the National comprehensive cancer network or N C. C N and the society of nuclear Medicine, and medical imaging or S. N and M. I speak to the importance of P. S. N <unk> targeted pet imaging for the U S prostate cancer.
Immunity.
In the EU. We are pleased to note that kurian completed its phase III Python clinical trial for Pitney Bowes stat at 18 in May and submitted its marketing authorization application to the European Medicines agency or E. N E on June 27th.
We also worked with carriers to add Polaris <unk> to its U S Eclipse trial.
<unk> Center open label randomized phase III trial, comparing the safety and efficacy of curious P. S domain targeted therapeutic versus hormone therapy in patients with metastatic castration resistant prostate cancer.
Clarify will be used to determine P. S may avidity as part of patient selection.
Polaris I will now be included in the vast majority of late stage U S trials for the study of P. S <unk> targeted therapies.
He also noted progress with our AI offering having received an additional FDA clearance for Polaris I AI during the second quarter.
Update it deep learning algorithm of clarify AI has been trained and validated and one of the largest and rapidly growing databases of contextualized Polaris Ips and a pet C D images in the world.
The enhanced performance of Polaris High AI was prevented by Dr. Jeremy <unk> at the end of my annual meeting along with the results more prospectively planned and independently validated study of Polaris by AI in our phase III Condor study.
These results independently validated and confirmed the efficiency consistency and diagnostic accuracy of AI assisted image interpretation and detecting and quantifying disease in patients with prostate cancer.
Clarify AI provides a standardized approach to identifying and quantifying prostate cancer and further enhances the clinical utility of <unk> as an imaging agent earlier.
Earlier this year in the American Urological Association annual meeting Dr. Nicholas Nickels presented data on the AI enabled enabled quantification of disease by P. S made pet and how Polaris by AI could serve as an imaging biomarker to predict response to androgen deprivation therapy.
<unk> AI continues to add real world evidence and enhance the utility of Polaris side in the effective care and management of prostate cancer patients.
We are pleased to continue to support the U S prostate cancer community with Polaris Sai and clarify AI to find and follow disease.
Our market, leading ultrasound enhancing agent affinity group despite headwinds associated with a decrease in referring physician visits and staffing related challenges consistent with the trends noted by other companies in the health care sector.
While in person U S. Cardiology visits were down during the quarter year over year reported staffing challenges for nurses persisted at U S health care institutions, the affinity group quarter sales year over year.
Well its affinity growth during the second quarter was lower than expected. We believe that contrast, enhanced echo cardiac Agra feet continues to play an important role in cardiac imaging and we are confident growth levels will normalize as these challenges abate.
Moving now to our clinical development programs. We have recently progressed two of our pipeline products 10, 95 R. P estimate targeted I 131, prostate cancer Therapeutics and Anna <unk>, our novel imaging agent currently under development the assessment of PDL, one expression in non small cell.
Non small cell lung cancer.
<unk> thousand 95, I'm pleased to announce that we've enrolled the last patient in our Arrow trial in total 120 patients have been randomized 80 in the $2 95, plus <unk> combination group and 40 in the <unk> group alone.
As a reminder, the primary endpoint in Arrow is prostate specific antigen or PSA response rate.
Key secondary endpoints include time to radiographic progression progression free survival and overall survival of patients.
Patients in the Arrow trial will be followed for one year. After their first treatment for all efficacy endpoints survival and safety data will be collected for an additional year.
That is an important milestone and I look forward to sharing more information in the future.
Moving to and won the preliminary study results of the phase one PK study evaluating PDL one expression in cancer were presented at S N and M I <unk>.
These results indicate that animal one has the potential to identify non small cell lung cancer patients, who will respond to checkpoint inhibitor therapies and monitor the early response of these patients to these therapies pending further an ongoing investigation and.
In addition to the phase one PK study being run by King's College, we continue to progress this asset with the initiation of a single arm phase two eight pelican trial and enrolled the first patients in may.
The primary endpoint of the Pelican study is the measurement of PDL, one expression in non small cell lung cancer, both primary tumor and metastatic lesions as assessed using animal one compared to immuno histochemistry PDL one expression results.
We continue to seek ways to further expand our portfolio evaluating several opportunities to collaborate in license or acquire additional assets, which match our strategic priorities.
We are particularly pleased and focused on late stage diagnostic and therapeutic product opportunities in oncology that complement our existing portfolio.
In addition, certain early stage opportunities also aligned with the strategy that drives our pharma services business. For example, we recently entered into a collaboration agreement with radio farmed Theyre agnostic.
Radio farm is an Australian based developer of platforms, a radiopharmaceutical products for both diagnostic and therapeutic uses.
Radio form plans to initiate a phase one therapeutic trial for patients with PD, one PDL, one positive non small cell lung cancer in Australia.
Yes, we'll supply our diagnostic product candidate and I'm, a wan to radio Pharm for their clinical trials to be used as a clinical research tool to assess PDL one expression in patient selection.
We have also.
Retaining the option to expand our partnership to additional assets in radio forms pipeline.
Finally, I would like to share an important change I recently made in the executive team in June I promoted Paul Blanchfield to the role of Chief operating Officer I've had the pleasure of working with Paul since he joined jet Lengthiest in January 2020, as Chief Commercial Officer, Paul has been an exemplary leader throughout his tenure.
And combines a strong command of the data that drives the business with attention to longer term strategy in his new role Paul has taken responsibility for commercial manufacturing and technical operations quality and corporate Communications now, let me turn the call over to Paul for an operational update on our business.
Good morning, everyone. As Maryann noted, we continue to execute on our strategy during the quarter, including for Polaris high and affinity.
Beginning with Polaris.
The market leader in <unk> targeted pet imaging I am pleased to announce <unk> net sales for $132 million.
Compared to $92 8 million in the first quarter.
We continued to make progress during the quarter, and our geographic footprint, including capacity and redundancy new customers market access and our clarify AI software, while monitoring medical practice and guidelines as it relates to our total addressable market or Tam.
We expanded our U S geographic footprints with the activation of four additional pet manufacturing facilities or Pms since our last quarterly earnings call.
These new Pms are located in New York, and West, Virginia, which add redundancy and enhanced capacity.
And in Colorado, and Florida, which are new geographies, where we had previously been flying doses.
I am also pleased to announce that we have reached an agreement with one of our key Pms partners to nearly double the number of their pms that are manufacturing clarify and extend our partnership through 2027.
This agreement will expand our geographic footprint and provide redundancy and enhanced capacity in existing geographies to ensure we can continue to meet the needs of the U S prostate cancer community for many years to come.
We also continue to focus on adding new customers, whether they be hospitals freestanding imaging centers or government facilities.
Now have almost 900 customers across 45 states and the district of Columbia actively ordering Polaris Sai.
This is up from the approximately 700 customers at the end of the first quarter, even with the availability of competing Psm's pet imaging agents.
With respect to market access both end CCN and S and MMR updated their guidelines earlier this year to endorse all P. SMA pet imaging agents, including Polaris high for the use of patient selection for P. SMA targeted radio ligand therapy.
<unk> <unk>.
We are pleased to note that several commercial payers, including Humana Aetna anthem BCBS are blue Cross Blue shield have updated their policies to reflect an agnostic approach to the choice of imaging agent used to identify patients with pes SMA avid lesions, who may be eligible for radio.
<unk> therapy.
Humana's policy in particular highlights <unk> F 18 by name as an alternative to other tracers.
We believe these advancements combined with more than $130 million in sales for the quarter.
Speak to the clinical benefits of clarify, it's scalable manufacturing network and our operational capabilities.
I also want to note the progress we have made with Polaris high AI.
As Maryann mentioned the FDA cleared an updated version of clarifying AI. In addition, we continued to install clarify AI at leading institutions and incorporate it into P. SMA targeted therapeutic trials.
We believe this continued progress will have a positive impact on patient care and help sustain clarifies market leadership going forward.
During Investor Day in May I told you there were three key takeaways for Polaris Sai.
P. SMA pet imaging has significant opportunity with a total addressable market of approximately $1 1 billion.
That continues to grow.
Second we have a significant first mover advantage that has translated into what we believe is sustainable market leadership.
And third there is significant long term potential with the likelihood of labels and guidelines expanding in the future.
On the Tam specifically I would note that we continue to see guidelines and medical practice evolve as it frequently does an oncology based on real world experience and we expect the same for P. SMA pet more broadly and Polaris side specifically.
We believe the Tam could increase by an additional 100000 scans from its existing 250000 scans that we highlighted in April from two primary areas.
We believe there could be additional P. SMA pet scans for patient selection for metastatic castrate resistant prostate cancer in the first and second line and Whats P. SMA targeted therapeutics are currently being studied.
Second we believe that medical usage of P. SMA pet imaging may expand over time to additional patient populations, including but not limited to the intermediate favorable patient population.
These additional 100000 scans would increase the Tam to approximately $1 5 billion up from $1 1 billion.
We will continue to monitor guidelines for both <unk> and radio therapeutics as well as medical practice and continue to update the total addressable market as it evolves.
I am thrilled with our results for the first half of 2022 as well as the opportunity to continue to expand the market and believe our continued efforts to solidify clarify as V. P. SMA pet imaging agent of choice, we will continue to positively impact the prostate cancer community for the <unk>.
Seeable future.
Turning now to definitively the market, leading ultrasound enhancing agent sales for the second quarter were $62 3 million compared to $59 8 million in the prior year quarter.
While we saw increasing momentum in definitive during the first quarter as COVID-19 levels receded.
Daffing and customer capacity related challenges impacted growth in the second quarter, particularly at our largest customers.
We note our year over year decrease in in person cardiology visits and many customers noted a backlog of patients needing an echo ultrasound.
We continue to have over 80% share of the U S ultrasound enhancing agent market, but believe near term growth will remain constrained until hospitals have adequate staff to support the current demand for echocardiographer and ultrasound enhancing agents.
Bob will share more about our 2022 expectations when he reviews guidance as part of his financial update.
Bob.
Thank you Paul and good morning, everyone I will provide highlights of the second quarter financials, focusing on adjusted results unless otherwise noted.
Turning to the results revenue for the second quarter was $223 7 million, an increase of $122 7 million or 121, 4% over the prior year period.
Earnings per share for the second quarter were <unk> 89, an increase of approximately 78 over the prior year quarter.
Now I turn now turn to the details beginning with precision diagnostics revenue of $87 1 million was down three 6% from the prior year quarter sales a definitive net of rebates and allowances were $62 3 million or 1% higher as compared to the prior year quarter and slightly lower than our.
Patients for the reasons just explained by Paul <unk>.
<unk> net revenue was $19 4 million down 18, 2% from the prior year quarter due primarily to a contract we exited mid last year with an impact of approximately $2 $5 million per quarter as well as the prior year comparable that included our participant sales, which did not repeat this year in the quarter right.
Pharmaceutical oncology contributed $131 2 million of sales up significantly due to the continued rapid ramp in sales of Polaris high.
This result also includes a sequentially lower contribution from his address with continued COVID-19 related constraints commercial efforts remain focused on bringing leading sites of care online increasing share of voice and driving a referral campaign.
Lastly, strategic partnerships and other revenue was $5 $5 million driven primarily by the Relistor royalty stream on.
Favorability for the carrot for the category is due to a prior year comparison that includes the sale of see repo digital solution to Fuji not repeated in the current year.
<unk> profit margin for the first quarter was 66.0% an increase of $13 three 5% over the second quarter 2021 result at 52, 6%.
As has been the case in recent quarters. The increase is due mainly to favorable product mix led by clarify and affinity offset in part by increased supply chain and logistics costs.
Operating expenses were $15, 97% and favorable from 42, 4% in the prior year to 26, 4% of net revenue in the current quarter, highlighting operating leverage while investing for sustainable growth in both sales and marketing and R&D in support of our commercialized and pipeline portfolios G&A as a <unk>.
<unk> of net revenue improved by approximately 550 basis points, even though.
Higher travel expenditure rebranding business development efforts as well as ERP discovery work to drive workflow efficiencies as we grow.
Operating profit for the quarter was $88 6 million.
Or an increase of $78 2 million or 752, 5% over the same period prior year.
Total adjustments in the quarter were $25 4 million before taxes.
This amount seven four and $8 three of expense is associated with noncash stock and incentive plans and acquired intangible amortization respectively.
So in the quarter, we expensed $8 5 million of net contingent liabilities of which 8 million is related to the Polaris <unk> or contingent value rights.
The liability now at $99 7 million is fully accrued up to the maximum amount that may be paid to the CVR holders under the merger agreement dated February 22020.
<unk> has been recorded within short term liabilities on our balance sheet in its entirety.
As such we would expect to pay this amount in the first half of 2023 with no further liability beyond this amount or date, the remainder is related to acquisition integration and other nonrecurring expenses our.
Our effective tax rate was 28, 1% in the quarter, our effective tax rate is slightly higher than recent run rates with unfavorable mix of clarify sales and higher state tax jurisdictions.
The resulting reported net income for the second quarter was $43 1 million and $62 $9 million on an adjusted basis, an increase of $69 7 million and $55 $1 million, respectively. GAAP fully diluted earnings per share were <unk> 61, and 89% on an adjusted basis at an increase from the prior year.
Of one dollar and approximately 78, respectively.
Now turning to cash flow.
Second quarter operating cash flow totaled $72 $6 million as compared to $25 9 million in Q2 of 2021.
Capital expenditures totaled $4 3 million up slightly from the prior year quarter.
Free cash flow, which we define as operating cash flow less capital expenditures was $68 3 million increase of $45 million over the prior year period.
We are beginning to see the impact from ramping Polaris high revenue as it converts to cash through the working capital cycle cash and cash equivalents net of restricted cash now stand at 171 $4 million we.
To have access to our $200 million Undrawn bank revolver and are very comfortable with our strong liquidity position.
Turning now to our guidance for Q3 and updated guidance for the full year.
We forecast revenue to be in a range of $220 million to $230 million for the third quarter of 2022, an increase of approximately 116 and 125% over the third quarter of 2021.
As noted we are updating our full year view to take into consideration actual first half performance.
While the affinity has continued to post record dollar level results. This year lower than expected cardiology visits coupled with ongoing staffing issue that hospitals have us forecasting definitively in the second half of the year in the mid single to high single digit range. Our surveys do not indicate any loss of share and we believe that these trends are transitory.
As I have mentioned and importantly, the affinity continues to grow amidst this backdrop.
With regard to clarify we now model.
At $480 to $500 million with expanding PFF coverage and user uptake. Therefore, we now forecast full year revenue to be in a range of 885% to $905 million from the prior range of $800 million to $835 million.
This updated range includes the recognize revenue from Novartis and $24 million, which was recorded in the first quarter.
Turning now to earnings adjusted EPS should be in a range of 80 to 85 for the third quarter.
We are raising our full year adjusted EPS to account for relative first half outperformance as well as the incremental contribution from higher <unk> revenue expectations.
And inclusive of the aforementioned adjusted EPS had an impact of the Novartis agreement of approximately 25.
We now expect adjusted EPS to be in the range of $3 50 to $3 60 per share versus the prior range of $2 90 to $3 15.
With that let me now turn the call back over to Marion.
Thank you Bob.
Closing I would like to leave you with a few key takeaways our mission to find fight and follow disease to deliver better patient outcomes remain our guiding for it.
We continued to execute our strategy to accelerate growth diversify our portfolio and position Lindsay is as a category leader in the markets in which we compete our.
Our record revenue and outstanding financial results for the first half of 2020 to reflect the strong execution of our strategy and our ability to deliver on our goal to drive long term growth and shareholder value.
The key drivers of our growth continued to be our category leading products.
<unk> our market defining product, we continue to grow the market and have now solidified it as VP estimate at imaging agent of choice for the U S prostate cancer community.
Our market, leading ultrasound enhanced agent definitive grew despite headwinds associated with a decrease in referring physician visits and staffing related challenges.
We expect our growth for the second half of the year will continue and will be driven by our passion to find fight and follow disease to deliver better patient outcomes.
With that Bob Paul and I are now ready to take your questions.
Operator. Please go ahead as a reminder to ask a question you will need to press star one one on your telephone please standby, while we compile the Q&A roster.
Yes.
Your first question comes from the line of Richard <unk> from <unk> <unk> Company. Your line is open.
Hi.
Thanks for taking the questions and congrats on another.
Another excellent performance in the quarter.
Okay.
Good morning Rich.
Good morning.
A couple of questions for me I wanted to just start off with the Tam.
Paul Thank you for the comments there on the Tam I think you guys are talking to about it.
About a $1 $5 billion.
Right now I guess.
I am trying to figure out if that's the right actual size just given the Polaris high performance and the trajectory that you're on it would seem to me to suggest that.
You guys are either close to penetrating are much closer than we would've thought to penetrating that that diagnostic component therapeutic piece, but the diagnostic.
<unk> of the Tam.
Potentially in the next few quarters or within the next year here. So is it is it that or is it just that maybe that diagnostic Tam.
Bigger when you exclude the therapeutics piece.
Even beyond the intermediate unfavorable portion that you added to it.
And then on the therapeutic piece.
What's the assumption that you're using to get to call it that $400 million to $500 million Tam expansion by my math. It would suggest you're only assuming like one and a half scans per patient.
It was there anything closer to two to three to four which is kind of what physicians say they would do when accounting for follow up scans. It would seem that that would probably be close to double. So I was just wondering if you could talk about that.
Those tam considerations or are we thinking about that correctly. Thank you.
So rich first of all thank you for the question and obviously the diligent preparation and research that you and your team continue to do.
I don't think Youre thinking about this incorrectly.
You've raised the total addressable market for PSM, a pet imaging three times over the last 15 months or so.
And the determination of a total addressable market is really a triangulation between our indications.
Leading institutional guidelines like end, CCN, and Sn NII as well as medical practice.
We are very pleased with our penetration in both of our indications for the risk of metastases as well as the recurrent population and we continue to assess what that total addressable market is recognizing that we are in oncology.
And so that does add some nuances as medical practice evolves. We've highlighted that it's currently based on a proved guidelines for <unk>.
Radio ligand therapies at $1 1 billion, but as you know there are clear opportunities as radio ligand therapy is used earlier line.
And physicians use PMA pet imaging and clarify in particular earlier in the risk of metastases indication and so we've highlighted its grown three times recently.
See future growth and as you correctly know this is very sensitive to the assumptions that you make on a per patient per scan basis, meaning the number of scans per patient.
You are correct to say that we have heard physicians using this.
As you know an increasing number of times, particularly in the therapeutic space, but I think I'd also remind you that for Victor on particular has only been approved for a few months and so medical practice is still very much evolving I think we're pleased with our penetration and believe that as we work and Polaris <unk> and PMA pet image.
<unk> continues to penetrate the market that physicians and guidelines will continue to catch up and this will be a growing market for many years to come.
That's very helpful context, thank you.
And then just with respect.
Back to the.
So the guide for 480 to 500 million for Polaris <unk> is implied there that that implies that youre QQ performance more or less get run rated for the rest of the year I know that more or less consistent with how you've been guiding to Polaris Sai.
In the past few quarters.
Given that you have so much capacity coming online you mentioned all these TNF approvals, Florida and New Yorker are now.
Online in a more significant way is there any any reason why that wouldn't continue to step up sequentially.
So rich I will.
I'll take that and Paul can fill it in maybe the qualitative aspects of it but.
The math does demonstrate that it should be sequentially.
Improved as you go through the back half of the year, if I look at the first half versus total second half.
It showed that our second half performance relative to the first half performance is probably between call it 15%, 20% greater.
In total in terms of total clarify volumes.
Yes.
There is still competition that is just sort of entering the marketplace at this juncture, albeit small but still.
Still competition that is that is there and we will continue to make sure that we watch the marketplace and make updates as appropriate but.
Right now we're staring at what is a <unk>.
Significant.
Both from what had been last year of I think $42 million or so.
To what is now.
Sort of bracketed at nearly $500 million contribution to that.
Our revenues so.
Again, I don't think that there is a reason for us to.
Need to get out over our skis and Theres still a lot of runway in the year and we're very pleased with where we're going rich. This is Mary I think you said it in the interim to your question. This is consistent with the way that we have guided in.
In recent quarters to clarify.
That's helpful and maybe just one last one I'll jump back in queue on competition you mentioned.
You have another competitor, that's a little bit more aggressive in the marketplace now going forward with the gallium.
Radioisotopes.
Yes.
What's contemplated in your guidance your updated guidance for competition, what are you seeing in the marketplace.
Right now now that they.
They're out there and they have some some reimbursement tailwind at their back thank you.
Okay.
So I'm going to.
Take that rich and I think what what we see in the market and what we want to continue to see is adoption of P. S. Mei based pet imaging that is the wonderful innovation that has been brought to the prostate cancer community and where our focus has remained.
Anyone who knows me knows that my typical kind of approach has always been I talk about lanthier I took that our product and how we're doing but I am going to step aside for a moment here.
And talk about competition, because I think it's important I think thats important that accurate information be offered out to the not only the analyst community, but also to shareholders, who are making decisions and so I'm going to correct. What I think has some fairly inaccurate information that's been set into the market about one of the reset.
Commercial entrants of the two P. SMA 11 agents, so kind of just as we all know there's now <unk> 11 agents in the market two of them are the academic they were approved a late 2020.
Or they were approved.
Early by 2020, and Theyre kind of geographically restricted in how they use more recently, we had the two approved <unk> 11 agents and it's one of these two public company has been fairly kind of vocal in public and cleaning that they've had a more successful launch execution than Polaris.
Just going to take a look at that this is a company for whom their product missed its original produced the date by three months and then if you then look at what happened post approval, but what was finally, the delayed approval and you look at revenue posted generated no revenue in its first full quarter on the <unk>.
And this would be compared to then Polaris <unk> first full quarter in the market in which we generated and reported $7 $4 million in revenue in.
In the second full quarter for both products in the market Polaris, Hi, Lindsay as reported $35 $4 million. This other product, even though it was I'll say riding the wave.
The momentum that had been built by us with the P. S made market.
Has come in and reported $13 million, so I'm going to stand firm on what represents a successful launch and take that victory and they take that claim for for Lantus. The sales numbers and everything else that we've done in the market as far as building our capacity building market access.
With this product and building awareness I'm going to say, we feel terrific about and for what we've done for patients and physicians in making this product available. This is again kind of a one timer on me that I feel is important we are going to stay as a company focused on our commitment to the prostate cancer community.
The patients we serve there as well as of course the shareholders we serve.
<unk> continued to work to make sure that patients and physicians have access to what we truly believe our innovation breakthroughs in <unk> based pet imaging. So I'm not sure if that answers your question there.
It does thank you and congrats.
Thank you.
Your next question comes from the line of Zach Weiner from Jefferies. Your line is open.
Hey, everyone. Thanks for taking the questions and congrats on another great quarter.
Wanted to continue Marianne if I could.
On on competition.
Can you talk about some of the benefits.
F 18 versus gallium in terms of the manufacturing side I know you've talked about in the past.
Halfway comparisons.
But just curious on the manufacturing side, if you could provide any any color there. Thanks.
Sure. So I think the question is essentially Paul is going to add in here because he's closer to it on <unk> and I am but theres really these two major differences here that lend themselves into advantages. One is the half life of F 18 versus gallium, it's essentially double and when you if everyone remembers kind of fourth grade chemistry.
Life is the amount of time it takes for the amount of isotopes two half itself as far as what's available. So when you have twice. The time you can essentially you have twice the logistical availability to deliver the product. So that's one key advantage. The second is in manufacturing scale when you're using it.
<unk>, you're using a cyclotron and so you're producing in batches and what that means and what we've already seen is that you can produce upwards of 14 doses patient doses per batch and you can run more than one batch of day. So this is truly a manufacturing.
Approach that matches.
Large scale patient population and unfortunately prostate cancer is a large scale patient population. So the approach of manufacturing matches. The patient community that you are serving and Thats, what why we feel F 18, and widened from it from a description F. 18 is a better match now gallium is a is a fine isotope.
As well, it's got about a 68 minute half life its manufacturing processes to regenerate or what that means though is it is limited as to the number of doses that can be produced at any given time and not just from a total from our scale.
Perspective is limiting the more important thing here is do we have enough capacity to serve the U S. Prostate cancer market that is what's most important and I'm pleased to say that we have now built capacity on our own just through our own network.
We have built capacity that can serve the United States prostate cancer community.
Importantly, we'll fill in here there are certain geographic areas, where as we all know population density wise, where that has been challenging just because of the kind of those population centers, but even there. We continue to open new sources of availability to ensure that we can meet the demands of the U S. Prostate cancer community Paul do you have.
And maybe.
Maybe just a few points maryann I think it's important to remember that the most prevalent.
The most prevalent pet imaging out there is FDG with over 2 million doses is done on an annualized annual basis that is an <unk> based product that is levering the same.
Scalable pms.
Tms network across the country and so the health care community is very accustomed to working with <unk> to ordering from these same pms because this is embedded in their practices for decades, and so we're really leveraging an existing pms network across the country that provides the number one.
Pet agent in FDG, we are naturally, adding additional pms to be able to manufacture clarify as maryann note and are acutely focused on ensuring we have capacity and redundancy to ensure that we can provide backups and as I've mentioned, we're able to provide doses to repeat customers on a weekly.
In 45 States plus the district of Columbia, There are naturally going to be regions as Mary has mentioned and so Wyoming, Idaho, and Montana, Alaska and Hawaii are not markets that we can currently.
Fly doses into or travel nor are their pms that are easily accessible in those markets, but in the key geographies. When we look at major metropolitan areas of New York of Chicago of Los Angeles, Dallas, and Houston, When we think of the new market that we just opened up with Polaris Phi in Florida.
Those are our key markets, where we believe we can continue to have market leading share as we've demonstrated on our comparable share in the second quarter of roughly 90 plus percent relative to our competition and we believe that <unk> will continue to provide those sustainable advantages.
Thanks, and I just had one on definitive and this shift.
Shifting manufacturing.
In house can you provide just a timeline as to when you think you sell through all of the historical inventory and we should start to see the the margin benefit from to be produced in house. Thanks for taking the questions.
So zack.
We will continue to sort of co blend if you will and co source both from external partners that we've had for.
Any number of years together with batches that are being produced in house now that mix will shift over time over the next years.
Will.
That incremental benefit.
I talk about gross margin and its ability to continue to expand.
Driven by volume of Polaris Fi as well as definitive Ito anytime those those products are growing.
Margin expansion will happen naturally the incremental benefit from in house manufacturing of our own.
It's just that it's incremental so I would expect to see it continue to contribute probably the first bits, where our contributions are probably some time.
Late this year into next year because of just the timeframe of working through existing inventory and batch production, which we do expect to increase back to production here in the second half of the year.
But from that perspective.
Those inventories of course that benefit doesn't show up until you actually sell that particular product.
In that period, so again I think it starts into.
Into next year and the next one because it keeping in mind that definitely has a 24 month shelf life. So as we work through inventory levels.
That's sort of the time horizon that you would start to see that benefit.
Got it very helpful. Thanks for taking the question.
Your next question is from the line of Rwanda relief from SBB Securities. Your line is open.
Hi, Good morning, and also my congrats on the progress.
Two quick ones from me on Polaris Sai.
Now I noticed you mentioned 900 customers, who have ordered the product in.
How do you expect this number to grow into the second half of the year and if you can't speak to the exact numbers maybe it would help to just elaborate on the push and pulls that could influence this customer metric.
Follow up.
Sure. Thank you for the question. So as we as we mentioned we have approximately 900 customers and by customers just to be clear, we define those as pet imaging facilities, whether they be freestanding imaging centers government facilities like the VA or hospitals.
And that's up from approximately 700 at the end of the first quarter and so we would expect that number to grow but.
But we wouldn't expect it to continue to accelerate because theres only so many pet imaging centers across the country, where we do see continued growth is the amount of referrals and prescriptions flowing into those imaging centers from the referring community and by referring community I mean, urologists I mean medic.
Oncologists and Urological oncologist, who are managing men with prostate cancer and when they determined a scan as needed they would send a prescription to one of our current 900 customers to then run the scan.
And so when we see growth.
We'll naturally see an increase.
<unk>.
I should say of treating sites the hospitals the government facilities in the imaging centers, but that number will slow over time, because we already have significant penetration of that marketplace. Our commercial efforts are increasingly focused now that we have 900 customers with almost 100% that repeat ordering.
And ordering on a regular basis to continue to drive demand and awareness in the referring community because many of those can continue to drive.
Additional demand and so we're really in the demand generation phase within the referring physician community and that's where we see the bulk of the growth coming going forward.
Great Super helpful. And also wanted to ask I noticed that you mentioned <unk> is now included in the majority of the late stage trials for <unk> targeted therapeutics and I'm curious what kind of Optionality does that give clarify in terms of possible.
Asian expansion, our therapeutic use the next couple of years and what do you think we should keep an eye on in terms of future updates.
So to be clear, it's being included in the trial as a biomarker to reflect PSA avidity for patient selection <unk> response to therapy. Once the therapy is initiated I think from an Optionality perspective, again speaks to the value and the growing utility that is b.
Appreciated four P. SMA based imaging agents and I think we could anticipate at a point in the future that the labels for therapeutic products will broadly reflect the use of <unk> based imaging agents as a criteria for selection and then response to therapy of patients.
Not saying that they will named by brand Thats, an F D. A choice as to how they reflect that in their labels, but I think we would absolutely.
That at some point those therapeutic labels will reflect.
The utility of using PMMA based agents either for patients, including for patient selection and then for response to therapy and perhaps broader throughout the prostate cancer therapeutic options you may see and that was something I mentioned in my comments the use of Polaris <unk> in a trial that is currently underway.
We're just looking at response to androgen deprivation therapy. These are also patients that are PSNH avid in their disease, but their current therapeutic intervention at that point in their disease State is androgen deprivation and you can there still use a P. S made based eight imaging agent to monitor that patients respond to that therapy and that is.
The trial that I referenced in my comments earlier I think this goes really to the increasing potential total addressable market SP SMA pet imaging is being used in these new patient populations as maryann notes, whether it's patient selection or treatment response or patient following and so as Polaris <unk> is being used.
And more and more trials not only just for radio ligand therapy as she notes, but but alternative therapies. This has the opportunity.
These studies progress to not only benefit the U S.
Prostate cancer community. Most importantly, but also increase the potential usage and the awareness and comfort of Polaris high usage, particularly going forward.
Got it thanks.
Your next question is from the line of Larry Solow from CJS Securities. Your line is open.
Great. Thanks, good morning, everybody.
Maryann, Thanks for the clarification too.
The competitor.
And just the last few weeks, 100% agree with you on that one could you could you just talk about on the on the competition front, maybe a little bit more on mid to long term again on the <unk>.
Just in terms of potential F 18 based agent coming out.
You guys will have significant first mover advantage or whatnot, but when might we see.
F 18 base I believe sometime maybe even within 12 months is up.
Possible.
Good morning, Larry and please let's called clarify not P. While thank you. Thank.
Yes, absolutely.
Absolutely.
Forgiven.
So to the other.
<unk> agents under development as you know the one that we're aware of that we referenced is underdeveloped and by Bracco, plus blue Earth and that is a private company. So we do not have access to those data as to whether that product has been filed with the FDA, yet again I'm going to come back and say that I think this is a very large market and the market will see.
Many products now at Atlanta, we intend to be first and best wherever we go is it in my comments are clear on that throughout this.
Discussion this morning, as well, but I think this is a market that as we've noted earlier in our discussions with rich.
Continues to grow and it's continued to evolve and what the full utility will be so we're confident that regardless, how many agents to enter the market, we will retain our leadership position and that will come with both share and with revenue.
<unk> revenue increased.
Okay, Great could you speak to pricing at all.
Seems like.
You guys you guys are seem like Youre getting what you thought you were somewhere in that 4000, alright, but could you maybe talk about that a little bit.
I've heard some noise that reimbursement potentially there could be some kind of a cliff will be could be coming down in a couple of years, especially on the Medicare side is it is there any thing you can add to that any color to that.
Just I'm going to start and then I'm going to turn over to Paul but your comments about pricing, we don't speak specifically to pricing points for any of our products, but I will say that I did not hear Bob stated that our revenue was impacted by loss of pricing, sometimes youll hear us when we do speak to definitively we'll talk about.
Price versus volume a little bit. So there is that about to say I would say that yes prices, where we expected it to be.
<unk> Bye bye benefit design in the pet imaging cloth agent imaging class. There is a CNS distinction around reimbursement approach that is referred to as pass through period and I'm going to let Paul describe that and what impact that may have within the <unk> imaging agent class.
Thanks, Mariana and Larry Thanks for the question.
As Mary mentioned overall price we've been pleased we've been very much in line with our expectations.
Able to garner that.
We believe going forward, what maryann refers to is.
The CMS distinction as noted a pass through.
<unk> is a three year program that provides separate payment for.
Use of <unk>.
Imaging in this case Polaris high in the hospital outpatient setting for traditional Medicare and so that is currently a three year program, which provides that differential payment.
As I mentioned traditional Medicare so not Medicare advantage and it's only in the hospital outpatient setting.
We expect that to be that portion of the population is roughly a 3rd% to 30% of the overall population as Medicare advantage has become increasingly popular and then we've also seen significant adoption within government facilities as well as freestanding imaging centers, both of which are not subject to pass through.
And so that clearly affects a minority of the overall business.
We believe we have a number of opportunities and means to sustain payment.
Payment and reimbursement even after that date, we've spoken extensively on the find act, which is currently being discussed on both the floors of the house and the Senate.
Which would alter the pass through payment and effectively provide permanent reimbursement.
The second piece is we naturally have stickiness.
State cancer is a disease of prevalence and so as patients get scan repeatedly. We believe there are benefits to continue with the same agent agent to be able to track progress.
And then we also think about other options to continue to work with our customers. We talked about the benefits of clarify AI that is increasingly rolling out to institutions, which also provides some of those stickiness and so we've been very pleased with our coverage coding and payment.
We're very pleased with the updated views that payers have taken regarding radio ligand patient selection.
And we are monitoring and continue to influence.
The payment related to pass through in this minority of the patient population going forward.
Great I appreciate all that color.
Maybe just one more question for Bob if I could just slip in just on the on the margins, obviously Polaris Sai driving higher better improved mix. So.
That's clearly benefiting gross margin.
The 66% this quarter.
You view that going forward at least in a cup.
Quarters.
And as you mentioned also you are certainly increasing operating expenses, but youre still getting leverage so how should we kind of decide for those.
Gross margin line operating line over next couple of quarters. Thanks.
No Larry Great question.
The 66 is obviously a number that we.
Had thought about in terms of.
We haven't given guidance that being north of 65%. So I do believe that it can be sustainable.
In the sort of mid 60 kind of range.
Specifically to 66, I'm not going to go there.
I do think that obviously is one of the things that we have all seen the witnesses that our supply chain logistics is increasingly unpredictable.
So I would build in certainty of uncertainty.
And as we look forward, but certainly the key drivers as you pointed out very specifically with Polaris high volume and definitive volume growing both as growth engines. Both of those things are going to continue to help drive gross margin.
Benefit as we look forward so yes, I do think that.
Gross margins of sort of that mid <unk> range is sustainable as far as the Opex goes you are correct.
Maintaining its sort of in that 25% range.
And I think that that.
Again.
We're also able to gain leverage while making investments and there are a number of sort of singular investments that are embedded within the financials as they exist.
What we're reporting.
That nets.
Necessarily repeat over the longer term so as I, even look at adjusted EBITDA margins, which we had also talked about I know what those are.
And that 42 ish range at the moment, which is really where we're going to drive further leverage from from.
Gross margin expansion down through leveraging our Opex base as we as we go forward without sacrificing the opportunity to invest.
Fair enough I appreciate it thank you very much.
Yep.
And your next question is from <unk> <unk> from B Riley Your line is open.
Hi, Good morning, Thank you for taking our questions and congrats congratulations on an impressive quarter. So maybe two questions from US first maybe can you clarify a bit the milestone payments related to your purion.
Collaboration in Europe <unk>.
Therapy, a milestone payment after the EMEA approval and do you think.
I will tell you from that part could be a.
A significant driver for your 23 or beyond revenue.
Thanks for the question. This is Mary Anne So our relationship with <unk> for the EU market for what is called clarify in the U S market as a royalty only based agreement.
Okay got it.
Add to that.
So the concept of.
With with their approval and their ability to sort of launch into that market. Those numbers. They don't believe have been sort of contemplated.
Street estimates as we look forward nor have we provided any kind of guidance too.
How we think about that addition to two.
Two our income stream is you will if you look into 2023 and 2024, and we will give that update.
As we get more clarity.
Timing and so forth and how it relates to future financials.
Yes, that's helpful. And then one more from us and maybe Maryann can you comment on your thoughts to expand beyond oncology indications. So far allows how your indication that is oncology.
Just want to hear if you guys have thought about expanding to CNS neuroscience Sunshine as the Parkinson's Alzheimer's.
That is a terrific question and certainly within our pharma services business, which is somewhat the lead and the insight that we get into what the kind of emerging trends are for use of biomarkers, which become imaging agents. There is already good investigation and advanced invested.
Asian outside of oncology I do think though that when we're talking about.
Therapeutics, and we're talking about companion diagnostics in the Therapeutics area I think we're going to continue to see that lead in oncology and also in kind.
Kind of late line use in oncology that is just very very much typically the way that oncology, especially complex oncology agents enter they enter usually as either.
The line might be we'll call. It third line here, assuming that there are three lines of treatment available for a patient and then with good data and with good experience. They tend to then move up in the line of usage that they have within those patient populations, but I do see for what we're seeing is somewhat a renaissance of.
Of use of radio ligands, both therapeutically and diagnostics I think in the short term, we will continue to see that within the oncology arena outside of prostate cancer, which will be very exciting, but within the oncology arena.
And your next question is from Anthony Petrone from Mizuho Securities. Your line is open.
Thanks and congratulations.
How are you Mary Ann congratulation as well.
Okay.
Congratulations on a fantastic launch of clarifying all of success here.
And obviously, it's reflected in valuation as well as it should be so congratulations to you and the team I have two on clarifying and then a couple of quick follow ups just to start on <unk>, one would be to just walk through the diversion of ordering pattern.
Ordering patterns across the 900 active accounts. So what would you consider a high volume account when you consider.
For instance, monthly orders and then what is the average across the 900, so that would be the first question and then.
At the analyst day, we heard of previously untreatable patients moving to curative therapies.
With clarify right and so they are actively diagnosed prostate cancer or recurrence. So they move to a tradable therapy are those patients in particular being re scanned with <unk> and I'll have a couple of follow ups.
So I'm going to answer your second question, and then call Paul and for your first.
I think to the to.
So the concept of what.
Patients.
I don't know that I would designate that there was untreatable patients they've always been lines of therapy available for prostate cancer patients I think what the true innovation has been has been the role of <unk> imaging in really helping physicians and then in discussion with their patients have.
Much clearer view to staging of that patient and early arent be it early on or be it late stage and now as we've seen also with the advent of therapeutics. The response of patients and that is an incredible an incredible insight that was not available previously into the extent that it was not <unk> based.
I think that has been kind of a revelation in the and the innovation in the prostate cancer community, but I would not want to characterize that from a treatment perspective. These were untreatable patients prior to that I do think though to the point of your question. Anthony that these are all patient areas where PSNH.
Imaging, we're already anecdotally hearing it being embraced it comes back to what Paul was explaining before our estimates are what they are for what we assume currently will be the number of scans used per patient, but it's the physician community who will ultimately decide how often there is good utility in imaging a patient to that.
They can make the most informed decision at that moment as to how to treat a patient with it to begin to treatment to switch a treatment or.
Stop treatment and Thats, what I think PSA a imaging also brings us a kind of a gift of science to the prostate cancer community.
Okay, that's great 100% agree Maryann I think on that right.
The medical practice continues to evolve.
We are prudent in ensuring that we can substantiate any total addressable market that we put out there and while we continue to do surveys and understand that we will update that as due course allows to be able to substantiate what that evolution is in terms of our scans for patient if I go back to your first question Anthony.
I'm not going to break down specifically each each of the key customers. What I would say is there is naturally variability around those approximately 900 customers with some very large.
Institutions doing a significant number of scans I think the key pieces of data that I would be willing to share is it's about 90, 798% of customers are repeat orders.
They're ordering clarify on a repeat basis, when we think of large accounts.
Approximately 40% of our accounts of those 900 that make up about 80% of our volume and so if you do the math there you can see that.
80, 20 rule, it's a little bit more diverse, but 40% of those accounts roughly make up 80% of the volume.
Roughly 40% of ordered more than 50 doses year to date through the second quarter and so.
You can do the math there and so there are some very large accounts in the names that you would expect large academic and institutional organizations and then there are smaller freestanding imaging centers across the country, but that number continues to grow and our job and the commercial teams. Our role is to continue to educate and drive more demand.
Two from those referring physicians to those institutions and we believe there is still ample capacity not just in our ability to supply but in terms of space on the Pepsi machines to be able to do more Polaris high scans going forward.
That's extremely helpful. And then the quick follow ups here. The first one is on Arrow to 10 95, the last patient in a quarter you have a one year follow up so maybe just just thoughts on timing for next year on the phase II readout, just considering that it was staggered.
In terms of enrollment, we just had last man in.
And then maybe what the phase III protocol may or May not look like and then the last one for maryann or Bob So cash flow profile has dramatically improved the CVR liability is all but but satisfied here in the debt ratio.
Is that favorable levels and so maybe just the updated thoughts on being more aggressive here on follow on M&A. Thanks again congratulations.
Thank you Anthony so to your first question around Arrow, So it's arrow non aero too.
And yes, youre right the patient enrollment with staggered and when you're following for a year that means that the information coming in and the data for what is that patients will stagger until.
I don't have a date that I'm offering right now as to when we'll offer publicly.
Readout on the trial and my answer then goes to somewhat of the same about what the phase III protocol would be and I think that response, there is even more appropriate given what we're seeing in the market and this is again great news for all of us in the radiopharmaceutical space, but the market is evolving so rapidly around us with.
Advent of Radiopharmaceuticals and appreciation of them I think we'd like to leave our options open as to what that means about how we'd like to structure. Our faced a phase III trial potentially for that asset to most uniquely and best meet the needs of the market as it's evolving so I think you'll you'll we'll wait to offer.
Our commentary there.
I'm not sure. Your other question I think you kept answering it as you were offering it so.
Thanks for all of the great insight into our business and you're right. It does set us up we once again, we are said thanks to Bob and.
All his great work, we are set very well from a capitalization structure to pursue whatever M&A meets our strategic priorities and also meet the what we see is the kind.
The tenants of our strategic plan as we go forward.
The only thing I would tack onto that as you pointed out I mean, our liquidity position.
<unk> continues to improve and I would expect it to continue to improve from even where we are today.
Ending the year with significant cash balances.
As well as a leverage ratio that is.
I think under a half a turn at this point on a net basis and obviously were at net cash as a company, which just provides us the flexibility to do what we need to do yet still remained conservative when it comes to <unk>.
Overall capital structure, and not having to over or extend ourselves to find assets that we believe can drive future long term growth. So I think youre spot on and the company is going to continue to be very disciplined in its deployment of capital.
Thanks again.
Thank you Anthony.
I'm showing 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 and have a wonderful day.
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