Lantheus Holdings, Inc. (NASDAQ:LNTH) Q4 2023 Earnings Call Transcript
Lantheus Holdings, Inc. (NASDAQ:LNTH) Q4 2023 Earnings Call Transcript February 22, 2024
Lantheus Holdings, Inc. beats earnings expectations. Reported EPS is $1.75, expectations were $1.48.
Lantheus Holdings, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning. Welcome to the Lantheus Fourth Quarter 2023 and Full Year 2023 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 webcast will be available in the Investors section of the company's website approximately two hours after the completion of the call and will be archived for at least 30 days. I will now turn the call over to your host for today, Mark Kinarney, Vice President of the Investor Relations. Mark?
Mark Kinarney: Thank you. Good morning and welcome to today's call. With me are Mary Anne Heino, our CEO; Brian Markison, current Executive Chair of the Board and incoming CEO; Paul Blanchfield, our President; and Bob Marshall, our Chief Financial Officer. We'll begin the call with Mary Anne's introductory remarks followed by operational and strategic updates from Paul and Brian. Bob will cover our 2023 financial results and financial guidance for 2024. Mary Anne 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 fourth quarter and full year 2023 results. The release and today's slide presentation are in the Investors section of our website at lantheus.com.
Any comments made during our call today could include forward-looking statements. Actual results may differ materially from these statements due to a variety of risks and uncertainties. Please note that we assume no obligation to update our commentary or any 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. Discussions during the call will also include certain non-GAAP financial measures. Reconciliation of these measures to the most directly comparable GAAP financial measures is also included on the Investors section of our website. It is my pleasure to now turn the call over to our CEO, Mary Anne.
Mary Anne Heino: Thank you, Mark and good morning everyone. Before we get started, I want to welcome Brian Markison as the company's new Chief Executive Officer, effective March 1st. It was so important to the Lantheus Board and me that our new CEO will be able to drive forward the great work we have done. And in Brian, we have an experienced executive who intimately understands Lantheus, our strategy, and our industry. He brings decades of leadership experience in life science and deep expertise in oncology and neurology that will be essential to delivering on our strategic priorities. Welcome, Brian. 2023 was another stellar year at Lantheus, delivering record revenues, earnings and cash flows, bolstering our position as the leading radiopharmaceutical focused company.
I'm particularly proud that our products were used to impact the lives of more than 6 million patients and their families in 2023, a testament to our purpose to find it and follow disease to deliver better patient outcomes. For full year 2023, we reported revenue of approximately $1.3 billion, representing year-over-year growth of 39%, in line with what the company preannounced in early January. This growth was primarily driven by PYLARIFY and DEFINITY, both of which delivered strong performance of over 61% and 14% growth year-over-year, respectively, continuing solid momentum for 2024. PYLARIFY continues to grow with the potential to reach $1 billion in sales this year and remains the clear market leader offering a differentiated value proposition that, together with our operational excellence give us confidence that PYLARIFY will remain the number one PSMA PET imaging agent for prostate cancer patients, even amidst increasing competition and potential transitional pass-through expiry.
DEFINITY as well delivered solid growth and remains the ultrasound-enhancing agent of choice. Beyond our existing commercial diagnostics portfolio, we also made significant advancements across our radiopharmaceutical pipeline for both late and earlier-stage oncology therapeutics as well as oncologic and non-oncologic diagnostics. In mid-December, we reported positive top line Phase 3 SPLASH results for PNT2002. Our investigational PSMA-targeted radio therapeutics in development for the treatment of patients with metastatic castration-resistant prostate cancer, or mCRPC. The SPLASH trial met its primary endpoint, demonstrating a statistically significant 29% reduction in the risk of radiographic progression or death. We continue to review the SPLASH study results and are specifically awaiting more mature overall survival data, which we currently accept later this year.
For PNT2003, our product candidate for the treatment of neuroendocrine tumors, we filed and the FDA accepted, our abbreviated new drug application, or ANDA. As expected, Novartis filed a patent infringement lawsuit, which triggered a potential 30-month stay under the Hatch-Waxman Act. We are very excited about the process of commercializing this important radio equivalent to LUTATHERA and look forward to a potential launch in 2025. As the leading radiopharmaceutical focused company, we continually explore opportunities to grow and expand our pipeline. We are particularly focused on identifying the targets and complementary isotopes that are best suited to treat certain diseases. As an example, we recently announced a strategic partnership with Perspective Therapeutics that provides us with options to add radioligand therapy or RLT assets to our pipeline and expand into alpha therapeutics.
If exercised, these options will allow us to diversify our RLT pipeline with Perspective Pb212 label product candidate and alpha-RLT for the treatment of neuroendocrine tumors currently in Phase 1/2a development. In addition, we have an opportunity to co-develop Perspective's Pb212 isotope-based alpha-generating therapy candidates for prostate cancer. We are also investing in our innovative diagnostic pipeline. We continue to progress MK-6240, an F-18-based Tau [ph] PET tracer under development for the detection of tau tangles in patients with Alzheimer's disease. To-date, it is being used in more than 90 clinical trials either as a staging tool or as a biomarker to identify patients to be enrolled in trials of Alzheimer's disease therapeutic candidates.
We are finalizing the regulatory path to bring this exciting product candidate to market as a commercially approved agent. Similar to how PSMA PET imaging has transformed staging in patient selection for prostate cancer, we believe that Tau-based PET imaging agents like MK-6240 can play a similar role in staging and patient selection for Alzheimer's disease treatment. With that, I'll now turn the call over to Paul.
Paul Blanchfield: Thank you, Mary Anne and good morning. Our fourth quarter results demonstrated clear market leadership, operational excellence, and continued growth of the overall PSMA PET imaging market. We are pleased with PYLARIFY success and the impact that is made on the lives of those living with prostate cancer, including having been utilized for the diagnosis and staging of more than 300,000 patients since launch. PYLARIFY generated net sales of approximately $230 million in the fourth quarter and $851 million in 2023, up over 40% and 60%, respectively, from the prior year periods. Both quarterly and full year growth were driven by increasing utilization of PSMA PET with PYLARIFY at existing customers, complemented by our efforts to expand access through our distribution network to meet this growing demand.
We attribute our continued success to three primary factors: clinical differentiation, commercial differentiation, and operational excellence. Clinically, we believe PYLARIFY offers the best combination of our proprietary PSMA-targeted ligand and F-18 isotope. Our registrational trials demonstrated a high positive predictive value and high reader agreement, providing clinicians confidence in the accuracy and consistency of image interpretation and ultimately, in their patient management decisions. Commercially, PYLARIFY is the only PSMA imaging agent that is widely available through a diverse F-18 distributor supply network, ensuring convenient and reliable supply. In addition, more than 90% of covered lives have access to PSMA PET with PYLARIFY.
Operationally, we continue to grow PYLARIFY and maintain our market leadership in the PSMA diagnostic market through our educational and promotional efforts led by the industry's largest customer-focused team. We also offer a best-in-class customer experience that enables healthcare providers and patients to access PYLARIFY with a 98% on-time in-full dose delivery rate. To ensure PYLARIFY remains the number one utilized PSMA PET imaging agent, we are actively working to mitigate the impact of PYLARIFY potential transitional pass-through expiration at the end of 2024. We have already taken steps to ensure we remain the market leader in 2025 and beyond and have and continue to build long-term strategic partnerships with select customers to ensure they have access to and preferably choose PYLARIFY as their PSMA PET agent of choice.
We are fiercely committed to ensuring PYLARIFY is available for patients, continues to grow, and remains the market leader. Finally, we continue to work with the centers for Medicare and Medicaid Services, or CMS, to create separate payment for radiopharmaceutical diagnostics, while also advocating for the FIND Act to ensure health equity for patients seeking access to innovative radiopharmaceutical diagnostics, including PYLARIFY. To support long-term growth, we are exploring the clinical utility of PYLARIFY in additional patient populations. We recently enrolled the first patient in the MIRROR study designed to determine whether PYLARIFY PSMA PET imaging can accurately detect the presence or absence of prostate cancer outside of the prostate gland in patients staged as favorable intermediate risk and importantly, how it can change intended management.
As we shared earlier this year, we see significant growth opportunity for PSMA PET imaging. We believe the current addressable market for PSMA PET is about 445,000 scans or $2 billion and could grow to a total addressable market of approximately 700,000 scans or more than $3 billion by 2029. To realize this, we anticipate the expansion of PSMA PET imaging into the favorable intermediate population supported by the MIRROR study and other real-world evidence. We anticipate PSMA therapeutics, both RLT and other modalities, will move into earlier lines of therapy, including both pre-chemo mCRPC and hormone-sensitive prostate cancer, which would increase the need for PSMA PET imaging. Finally, we expect the incidence and prevalence of prostate cancer to grow 2% to 3% per year.
As such, we believe there is a significant opportunity for PSMA PET to continue to grow and for PYLARIFY to maintain its market leadership. In our microbubble business, DEFINITY maintained its strong momentum with full year 2023 net sales of approximately $280 million, up 14% year-over-year. The drivers of success for this product continue to be its clinical and commercial value proposition supported by our operational excellence. Clinically, DEFINITY delivers high-resolution echocardiograms that improve cardiac diagnosis and patient management and has a proven safety profile across broad patient populations. Commercially, DEFINITY remains the clear market leader as the most utilized, extensively studied, and a trusted ultrasound-enhancing agent in the U.S. and is widely available with more than 95% of covered lives having access to DEFINITY.
Operationally, we have increased production of DEFINITY at our Lantheus manufacturing facility, which allows for enhanced supply chain redundancy, improved flexibility, and reduced cost. These improvements, along with our continued efforts to drive demand for DEFINITY, will ensure continued brand success. Switching now to our pipeline. In December 2023, we announced positive top line results from the Phase 3 SPLASH trial of PNT2002, in which the study met its primary endpoint. We continue to analyze the results and expect more mature overall survival data later this year prior to the potential submission of an NDA. We also plan to present the SPLASH results at a future medical conference. PNT2003 is an investigational RLP targeting somatostatin receptors with non-carrier-added lutetium with the potential to treat gastroenteropancreatic neuroendocrine tumors, or GEP-NETs, as a radio equivalent to LUTATHERA.
Our ANDA filing with the FDA for PNT2003 underscores our commitment to making this therapy accessible furthering our purpose to improve patient outcomes through radio therapeutics and diagnostics. Based on public information, we believe Lantheus is the first applicant to have filed a substantially complete ANDA for Lutetium-177 dotatate. We estimate that PNT2003 has a current addressable U.S. market of approximately $1 billion that is expected to expand over $5 billion by 2029. In addition to our late-stage oncology pipeline, we have a number of earlier-stage assets, including the partnership with Perspective Therapeutics we recently announced. I'll now hand it over to Brian, who will speak briefly about this latest opportunity.
Brian Markison: Thank you, Paul and good morning everyone. As Mary Anne and Paul both mentioned, we are excited about the Perspective partnership, and I want to speak a bit more about why I think it's a smart strategic opportunity for the company going forward. Our partnership with Perspective has three components. First, we have an option to license their promising Pb212 program in neuroendocrine tumors. Perspective is currently enrolling patients in a Phase 1/2a study progressing through the dose escalation phase, and we expect to have a look at initial data later this year. Second, we have an option to codevelop Perspective prostate cancer assets supported by their innovative Pb platform technology. And third, we took an equity position in the company because we believe that science behind the Pb alpha-based therapy platform, and we have secured the right of first offer and last look protections for any third-party merger and acquisition transactions involving Perspective for a 12-month period.
We recognize the transformative potential of Perspective Therapeutics alpha therapies and believe this partnership provides flexibility while preserving our capital for additional business development opportunities. We see Pb212 as one of the more promising isotopes for alpha therapy, especially when paired with Perspective proprietary chelator. We believe Perspective's Pb212 key later may enable it to better retain the isotope at its daughters, including bismuth-212, thereby concentrating radiation at the target tumor and reducing off-hour target effects. This transaction aligns with our investment strategy to further expand our radiopharmaceutical pipeline with potential long-term benefits, allowing us to gain access to innovative therapies, technologies and establishing a collaborative partnership for sustained growth.
I will now turn the call over to Bob.
Bob Marshall: Thank you, Brian and good morning. I will provide highlights of the fourth quarter and full year 2023 financials, focusing on adjusted results unless otherwise noted. Revenue for the fourth quarter was $354 million, an increase of 34.5% over the prior year quarter. Revenue for the full year was $1.296 billion, an increase of 38.6% over 2022. And as was noted in the press release, we recognized a $15 million RELISTOR sales milestone achievement during Q4. Radiopharmaceutical oncology contributed $230.6 million of sales in the quarter, up 42.8% from the prior year quarter, attributable to the continued strength of PYLARIFY with sales of $229.9 million, up 43.1% year-over-year. Full year PYLARIFY sales totaled $851.3 million, an increase of 61.4%.
Precision Diagnostics revenue of $100.6 million was 6.6% higher over the prior year quarter. Sales of DEFINITY were $73.1 million, 14.9% higher as compared to the prior year. For the full year, DEFINITY contributed $279.8 million of sales, an increase of 14.2% over the prior year. TechneLite revenue was $21.5 million, down 13% versus the prior year comparable that included greater opportunistic sales. Full year TechneLite sales were $87.4 million, down 1.7%. Lastly, strategic partnership and other revenue was $22.8 million, up 214.9% over the prior year quarter, driven primarily by the aforementioned RELISTOR milestone contribution of $15 million and further bolstered by MK-6240's performance of $6.4 million. For the full year, MK-6240 contributed $21.9 million.
RELISTOR contributed $29.3 million, which should be removed for comparison purposes of 2024 versus 2023 revenue. Gross profit margin for the fourth quarter was 69.3%, an increase of 251 basis points over the fourth quarter of 2022 on a similar basis. Full year gross profit margin was 68.7%, 221 basis points ahead of the prior year on favorable product mix offset by PMS investments and general inflationary pressures. Operating expenses at 22.4% of net revenue were 120 basis points higher than the prior year rate of 21.2% and within previously guided spending levels, particularly when adjusting revenue for the RELISTOR milestone. Increases in operating expenses reflect the investments made to support near- and longer-term growth initiatives across all functions of the organization, as was noted throughout last year.
Other income and expense was $0.9 million of income and as a result of net interest income offset by a reduction of a portion of our indemnified uncertain tax positions. Operating profit for the quarter was $165.7 million or an increase of 38.4% over the same period prior year. Total adjustments in the quarter were $28.3 million of expense before taxes. Of this amount, $14.2 million and $11.3 million of expense is associated with noncash stock and incentive plans and acquired intangible amortization, respectively. The remainder is related to acquisition, integration, and other non-recurring expenses. Our effective tax rate was 26.4% and 26.1% for the quarter and the full year, respectively. The resulting net reported net income for the fourth quarter was $103.4 million and $122.7 million on an adjusted basis, an increase of 27% over the prior year period.
GAAP fully diluted earnings per share for the fourth quarter were $1.47 and $1.75 on an adjusted basis, an increase from the prior year of 28%. On a full year basis, GAAP fully diluted earnings per share were $4.65 and $6.23 on an adjusted basis, an increase of 47.7% over the prior year. Now, turning to cash flow. Fourth quarter operating cash flow totaled $112.3 million as compared to $105.4 million in Q4 2022. Capital expenditures totaled $12.1 million, $7.3 million higher than the prior year quarter. Free cash flow, which we define as operating cash flow less capital expenditures, was $100.2 million, effectively flat with the prior year period and $258.7 million for the full year, which includes the $99.6 million CVR payment to former Progenics shareholders last May.
Taken together, cash and cash equivalents net of restricted cash, now stand at $713.7 million. We have access to our $350 million undrawn bank revolver and are very comfortable with our strong liquidity position. Turning now to our guidance for 2024 full year as well as the first quarter. We expect full year revenue growth to remain robust, led notably with PYLARIFY and DEFINITY. We will make strategic investments across the organization to support currently commercialized products drive stabilization efficiencies from our new ERP system, which went live at the beginning of this year, as well as advancing several important clinical pipeline efforts, which include PYLARIFY life cycle management and advancing MK-6240, among other projects. We forecast net PYLARIFY revenue to grow mid-teens due predominantly to volume growth, together with a slight annual net price benefit with sequential trends that should follow those noted throughout 2023.
PYLARIFY is supported by high single-digit growth from DEFINITY and relative steady contribution from the balance of the portfolio. Taken together, we estimate full year revenue to be in the range of $1.41 billion to $1.445 billion, an increase of approximately 11% to 14% over 2023 when excluding RELISTOR from the 2023 result. For modeling purposes, gross profit margin should be in line with 2023, even after considering the headwind created by the RELISTOR royalty divestiture mid last year. And as Paul mentioned, inclusive of our mitigation efforts to address the impacts of PYLARIFY's potential traditional pass-through expiration at the end of 2024. Throughout 2024, we will continue to take steps to ensure we remain the market leader in 2025 and beyond by building long-term strategic partnerships with select customers.
Our operating expense forecast is expected to be in the range of 24% to 25% of revenue due to the investments noted earlier. Other interest income and expense should be reflective of our debt capital structure as well as approximately $36 million of interest income based on current and projected cash balances and forward interest rate curves. The effective tax rate assumed is 26.6%. Free cash flows are expected to be nearly double the 2023 results, providing significant strength to our balance sheet and ability to execute on our growth strategy and targeted acquisitions. Lastly, fully diluted shares to be between 71 million and 72 million shares. Therefore, for the full year, we expect fully diluted adjusted earnings per share to be in the range of $6.50 to $6.70.
For the first quarter, net revenue should be in the range of $347 million to $355 million. Fully diluted adjusted earnings per share should be in the range of $1.50 to $1.54. And again, for year-over-year comparison purposes, the prior year results had approximately $6 million of RELISTOR royalties or $0.06 of contribution in that quarter and should be removed. Lastly, for modeling purposes, depreciation and amortization for the full year 2024 should be approximately $12 million and $36 million, respectively, generally spread evenly throughout the year. Before turning the call back over to Mary Anne, I'd like to thank her for the last five-plus years of partnership and friendship. It has truly been an honored player that have worked alongside you.
And I dare say, on behalf of all employees, thank you, and we wish you the best.
Mary Anne Heino: Thank you, Bob, and I feel the same about our partnership. 2023 was another stellar year for Lantheus, delivering strong commercial and operational performance. As the leading radiopharmaceutical focused company, we will continue to leverage our deep expertise and our significant capital resources to advance and expand our pipeline. I would like to take a moment to express my gratitude for the incredible journey I have had at Lantheus. The organization has gone through significant change during my nine years as CEO, and we are now in an outstanding position to continue to lead the way in bringing novel radiopharmaceutical innovations to patients. This marks my last earnings call, and I'm thrilled to pass the tone to Brian.
I am confident Brian will lead Lantheus to new heights and are looking forward to remaining involved as the future of Lantheus unfolds. My role as Chair of the Board of Directors becomes official on March 1st, the same day that Brian assumes the role of CEO. To everyone across the Lantheus organization, I want to say thank you for all of your hard work and your dedication.
Brian Markison: Thanks, Mary Anne. I'm truly honored and excited to take on the role of CEO for Lantheus. Having served on the board, I've witnessed the unwavering dedication to our purpose, values and patients we serve. This transition is about continuity, building on the strong foundation established by Mary Anne, who has led us with great wisdom and vision. I look forward to leading this amazing team and continue our commitment to excellence, innovation and a shared purpose for the patient and for the benefit of our patients. With that, we're now ready to take questions. Operator, please go ahead.
Operator: Thank you. [Operator Instructions] Our first question today will be coming from Anthony Petrone of Mizuho Group. Your line is open.
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