Meara Murphy - Director IR and Corporate Communications. Mary Anne Heino - President and CEO Jack Crowley - CFO.

Anthony Petrone - Jefferies Lei Huang - Wells Fargo.

Good afternoon, ladies and gentlemen. I would like to welcome everyone to the Lantheus Holdings Fourth Quarter and Full Year 2017 Earnings Conference Call. This is your operator for today's call. [Operator Instructions] This call is being recorded for replay purposes.

A replay of the audio webcast will be available in the Investors section of the company's website approximately two hours after completion of the call and will be archived for 30 days. I would now like to turn the call over to your host for today, Meara Murphy, Director Investor Relations and Corporate Communications..

Thank you, Valerie. Good afternoon, everyone, and thank you for joining us for Lantheus Holdings fourth quarter and full year 2017 earnings conference call. With me on the call today are Mary Anne Heino, our President and Chief Executive Officer; and Jack Crowley, our Chief Financial Officer.

Please note that earlier this afternoon, we issued a press release, also filed with the Securities and Exchange Commission under Form 8-K, reporting our fourth quarter and full year 2017 results. Later this afternoon, we anticipate filing our Form 10-K with the SEC for the quarter ended December 31, 2017.

You can find these documents as well as a replay of this call in the Investors section of our website at lantheus.com.

Remarks that we make today regarding future expectations, plans and prospects for the company constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, which we disclosed in more detail in the Risk Factors section of our Forms 10-K.

We remind you that any forward-looking statements represent our views as of today and should not be relied upon as representing our views as of any subsequent date. While we may update any such forward-looking statements in the future, we specifically disclaim any obligation to do so except as otherwise required by applicable law.

Finally, on today’s call, we will reference certain non-GAAP financial measures with respect to our performance. We use these non-GAAP indicators for financial and operational decision making and as a means to evaluate our performance.

Reconciliations to GAAP metrics for EBITDA, adjusted EBITDA, adjusted operating income, adjusted net income, adjusted net income per diluted common share, and free cash flow are set forth in our earnings press release.

Of particular note, these tables include the reconciliation of our GAAP net income to adjusted EBITDA, a metric we consider to be particularly relevant at this time, due to the variability of our technology transfer activities and related costs.

Mary Anne will begin her comments today with a high-level review of 2017, followed by discussion of our corporate growth strategy, after which, Jack will provide a more detailed review of our 2017 financial performance, as well as financial guidance for 2018, followed by Mary Anne's closing comments.

With that, I will now turn the call over to Mary Anne..

Thank you, Meara. And welcome to everyone joining us today on our conference call. I'm pleased to be with you here today to discuss our continued strong performance in 2017 and to outline for you the key pillars of our corporate growth strategy for 2018 and beyond. 2017 was another successful year for the company.

We exited 2017 having exceeded the high end of our guidance for both revenue and adjusted EBITDA, further lowered our debt. The cost of that debt and the leverage ratio and finally built a strong available cash position of approximately $76 million. These were the important corporate goals for 2017 and we are pleased to have delivered on all of them.

And importantly our strong performance and balance sheet have positioned us to invest in and execute on our plan to deliver sustainable growth and success for our company.

The key pillars of our corporate growth strategy are as follows; One, enhance the growth trajectory and profitability of our core microbubble franchise; two, augment and invest in our pipeline with focus on emerging technologies, and three pursue external opportunities that fit our objective to deliver sustainable growth and profitability.

Let me start with programs already underway addressing our microbubble franchise. On a global basis, DEFINITY remains the leading echo contrast agent. We have been actively strengthening and expanding DEFINITY's IP protection and we have also been developing an alternative formulation.

Today I am pleased to announce we are pursuing an ejection fraction or EF indication for DEFINITY and plan to initiate two new Phase 3 clinical trials in the second half of 2018.

EF is an important measurement of heart function and critical for patient management decisions as it measures the percentage of blood leaving the left ventricle with each contraction. Currently, in echocardiography studies conducted without contrast EF measurement is highly variable.

Our clinical trials are designed to demonstrate superior accuracy and improved reproducibility in measuring left ventricular EF with DEFINITY enhanced echocardiography as compared to unenhanced echocardiography.

We believe the approval of an EF indication for DEFINITY would approximately double the addressable echo patient population in which contrast could be used. In addition to our continuing IP work, the new EF indication would provide DEFINITY with three years of regulatory exclusivity for this indication.

Also addressing microbubble franchise, I am pleased to report that we are adding specialized manufacturing capabilities at our North Billerica Massachusetts headquarters. The decision to add this capacity serves our larger corporate growth strategy in creating a competitive advantage in specialized manufacturing.

This program not only delivers cost savings and supply chain redundancy for our current portfolio but also affords us increased flexibility as we consider external opportunities.

Transitioning now to our second pillar of pipeline investment, I'm pleased to announce the advancement of an internal program focused on a key emerging technology in nuclear medicine.

This program targets LMI 1195 an internally discovered small molecule that we believe may be a first in class Fluorine-18 based PET radiopharmaceutical imaging agent designed to assess cardiac, sympathetic nerve function.

We believe LMI 1195 could become a useful tool in the diagnostic assessment of ischemic heart failure patients at risk of sudden cardiac death. Collaborations with academic centers in the U.S., Canada, and Europe yielded clinical data deemed adequate by the FDA to support advancing to a single Phase 3 clinical trial to support our NDA submission.

We anticipate initiating that trial in 2018. This trial will target patients with ischemic heart failure who are scheduled to undergo ICD implantation because of their risk of sudden cardiac death. Our trial is designed to demonstrate LMI 1195 improves the risk stratification of these patients.

If this trial is successful, we anticipate filing an NDA for this agent by 2021. Heart failure affects approximately 6.5 million patients in the U.S. today and approximately 2 million patients may be eligible for evaluation of ICD implantation.

As such, we're excited about the opportunity LMI 1195 represents in the emerging modality of PET for improved patient management as well as the growth opportunity this agent represents for Lantheus.

Now turning to the third pillar of our growth strategy, we are committed to pursuing thoughtful external business development opportunities that complement our current portfolio and capabilities.

Following on and facilitated by our success in delivering reliable revenue growth, improved operational efficiency, and cash flow generation, we are now ready and excited about pursuing opportunities that will drive our sustainable growth agenda and enhance value for our shareholders.

We are actively evaluating such opportunities and have recently created an additional board committee to aid in that effort. Rest assured, we will be disciplined in our approach and only pursue deals that represent a strong strategic fit, are priced appropriately, create value for investors and ensure the long-term success of our company.

Finally, I am also pleased to announce that effective tomorrow we have added three new directors to our board. We believe the skills they bring positively complement our current board. I'll now turn the call over to Jack for his financial review of 2017, and our guidance for 2018 before returning for closing comments.

Jack?.

Thanks, Mary Anne, and good afternoon everyone. As a reminder the tables included in today's press release include a reconciliation of our GAAP results to the as adjusted non-GAAP performance I'll be covering with you today.

I'll begin my comments by focusing first on our fourth quarter results as compared to the fourth quarter of 2016 followed by our full year results. And finally, I will provide 2018 financial guidance. In the fourth quarter, we delivered $81.2 million in worldwide revenue an increase of 9.3% as compared to the fourth quarter of 2016.

We continued our strong DEFINITY performance with worldwide revenues totaling $41.7 million for the quarter, an increase of 22.2% over last year. TechneLite revenue in the fourth quarter was $24.7 million an increase of approximately 1% over the prior year while Xenon revenue for the fourth quarter was $7.7 million an improvement of 2.7%.

Finally revenue from our other product category was $7.1 million in the fourth quarter, down from $8.2 million one year ago, approximately a third of that difference was a result of the impact of Hurricane Maria on our Puerto Rico business.

Moving below the revenue line, our fourth quarter 2017 adjusted gross profit margin excluding technology transfer activities which we refer to in our reconciliations as new manufacturing costs, totaled approximately 49%, an increase of 160 basis points over the prior year.

This improvement was once again attributable to the increased contribution of our higher margin products, as well as the impact of Xenon cost savings generated by the assumption of processing and finishing capabilities at our Billerica facility late last year.

Adjusted operating expenses were $25.2 million in the fourth quarter of 2017, an increase of $4.1 million from last year. This is largely attributable to higher employee related expenses as well as increased sales and marketing expenses in key areas.

Adjusted operating income for the fourth quarter of 2017 was $13.9 million compared to $13.6 million one year ago.

Moving below operating income, fourth quarter interest expense totaled $4.3 million, a 26.7% improvement over the same period a year ago reflecting the lower interest rate of our debt following our refinancing activities completed throughout 2017.

During the fourth quarter of 2017, we determined based on our in-depth GAAP analysis that there was sufficient positive evidence that our federal and state deferred tax assets are more likely than not realizable as of December 31, 2017.

Accordingly, we released the valuation allowance that we had previously reported over the past several years resulting in an income tax benefit of $141.1 million. These assets consist primarily of net operating losses that we will utilize to reduce future income tax liabilities.

Accordingly, we do not expect to be a cash taxpayer for the next four years to five years. We will utilize this expected cash savings together with the benefits of the federal corporate tax rate being reduced to 21% to be a significant source of funding for investments in our corporate growth strategy described by Mary Anne.

Net income for the fourth quarter of 2017 was $97.1 million or $2.47 per diluted share compared to $4.9 million or $0.13 per diluted share for the fourth quarter of 2016.

Our net income for the fourth quarter of 2017 reflects the income tax benefit of $85.9 million which was driven by the release of $141 million valuation allowance against deferred tax assets which was offset by a $45 million provision related to the impact of changes enacted under the Tax Act of 2017.

Moving on to our quarter end balance sheet, cash flow and liquidity as of December 31, 2017 we had cash and cash equivalents totaling $76.3 million. Borrowing capacity under our revolving credit facility was $75 million making our total liquidity including cash on hand of $151.3 million.

This will not only support our day-to-day operational needs but more importantly will be a source of investment capital to support our corporate growth strategy. Fourth quarter 2017 operating cash flow totaled $13.1 million compared to $12.8 million last year.

Capital expenditures during the fourth quarter were $6 million, compared to $2.4 million in the fourth quarter of 2016. This increase was primarily a result of investing in a specialized manufacturing capabilities that Mary Anne described earlier. Turning now to our full year results.

I would like to reiterate Mary Anne’s earlier comment regarding our success and that we exceeded both our revenue and adjusted EBITDA guidance for 2017. Worldwide revenues for 2017 totaled $331.4 million representing a 10% increase over the prior year.

Excluding the impact of the $5 million upfront payment received in the second quarter of 2017, from GE Healthcare under the flurpiridaz F 18 collaboration and license agreement, full year 2017 revenue totaled $326.4 million, representing an 8% over prior year.

On a GAAP basis, the company reported income before taxes of $39.6 million in 2017, an increase of $11.3 million, compared to the prior year amount of $28.3 million. This improvement is primarily attributable to increased DEFINITY revenues, operational improvements as well as decreased interest expense.

Adjusted EBITDA was $94.1 million during the year, as compared to $78.3 million in 2016. Excluding the impact of the $5 million upfront payment received in the second quarter of 2017 from GE Healthcare, full year adjusted EBITDA totaled $89.1 million or 27.3% of revenues. This exceeded our 2017 guidance at $86 million to $88 million.

We also delivered operating cash flow of $54.8 million and free cash flow of $37.2 million. Both indicative of the strong financial platform we've created as we launched into 2018. Turning to our financial guidance for 2018.

I stated in today's press release, we anticipate total revenue for the full year of 2018 in the range of $337 million to $342 million. For the first quarter of 2018, we expect to see revenue in the range of $78 million to $83 million.

The first quarter and full year 2018 revenue guidance reflects the impact of a temporary shutdown of NTP, one of our nuclear products suppliers due to a process issue. NECSA the parent company of NTP has announced that this process issue has been resolved and we are again receiving product supply from NTP.

Our 2018 adjusted EBITDA guidance incorporates our improving operating performance as well as our corporate growth strategy. For full year 2018, we anticipate adjusted EBITDA in the range of $85 million to $90 million representing 24.9% to 26.7% of anticipated revenue.

For the first quarter of 2018, we expect to see adjusted EBITDA in the range of $18 million to $21 million. Overall, we’re very pleased with both our Q4 and full year 2017 financial performance and we remain focused on driving strong financial results in 2018. With that, I will now turn the call back over to Mary Anne..

Thank you, Jack. As you can see we delivered strong results in 2017 and are excited about the initiatives we now in place to drive our corporate growth strategy. To reiterate that strategy includes the following three key pillars one, enhance the growth trajectory and profitability of our core microbubble franchise.

Two augment and invest in our pipeline with focus on emerging technologies and three pursue external opportunities that fit our objectives to deliver sustainable growth and profitability.

We’re excited about our prospects and we believe we are investing in the right strategic priorities today to ensure a strong and healthy growth profile that will maximize long-term success for our company and value for our shareholders.

I would like to emphasize, we remain continually committed to operational excellence and the optimization of our current business. I look forward to updating you on our progress as we move throughout the year. With that, I will conclude my comments and open the call for questions.

Operator?.

[Operator Instructions] Our first question comes from Anthony Petrone of Jefferies. Your line is open..

Couple questions on DEFINITY and then a little bit on margin mix and then maybe one on radiopharma. But on DEFINITY could you maybe give us a sense, you spoke a little bit about a manufacturing shift I believe away from JHS over time, moving more toward direct manufacturing.

How long will that shift take place over how long and then maybe what will the gross margin impact of that be over time just from having outside vendors versus internal manufacturing and then I have a follow-up?.

Anthony good afternoon it’s Mary Anne I’ll speak first to the decisions for our kind of putting our own capabilities here at play in our campus and I’ll let Jack speak to the gross margin implications. As you can imagine it just makes good corporate sense to have redundancy of supply. And so, over the past few years, we've worked hard at that.

As you may remember, we had a program also at Pharmalucence as an alternative supplier, but that program we brought to close for several good reasons. We've also had an arrangement underway at SBL, where we've talked about natural or alternative formulation.

As we looked at the expertise that we have, it seemed to make sense to us that the next level of capabilities we added right here on our campus. We are expert in micro-bubbles and in all the facets of manufacturing that are very complex and very necessary to have reproducible blocks of that type material.

And so as we assess whether our next decision should be to go outside or bring it inside on to our campus, we came to the right decision we believe and that is to add the capabilities right here on our campus. As I said I’ll let Jack speak to gross margin implications..

Thanks Mary, and Anthony it is Jack. Thanks for the feedback. Yes, from a gross margin perspective, as we evaluated on the prospects of bringing this stuff in-house versus the external cost of working through CMOs, we do see cost benefit and an improved gross margin under this initiative..

And a follow-up again on DEFINITY would be Mary Anne announcing just a little bit more color on the trials here, the EF indication. Maybe could you size the EF indication more specifically and then how long these two trials will take and maybe the expected uptick in R&D and then I’ll get back in queue? Thanks.

So again Anthony, I’ll speak to strategic reasons for undertaking the program and Jack will speak to what it means to our balance sheet, but as we looked at DEFINITY and where we serve, it seemed natural to us as we looked at expanding the applications of DEFINITY to look of course where we were most successful and that is with the cardiac community in echocardiography.

We recognized that EF measurement which again is ejection fraction measurement really is a critical measure used not only in assessing cardiac patients with cardiac disease but more importantly, in assessing them when they’re being considered for other types of medical procedures such as chemotherapy, pre-surgically, and et cetera.

I think there is several examples there and when we looked at medical claim database is to see how often that measure was being sought for those reasons.

And then we looked at the current level of contrast penetration that's where we derived our calculation and our estimation that pursuing this indication would essentially double the addressable patient population currently that we see with – for use with suboptimal echo. So I'll remind you of what that math is.

When we talk about echocardiography studies in the U.S. market and here we are talking about the U.S.

market, we recognize that approximately 33 million echocardiography studies are done annually, and as you’ve heard me say it previously, medical literature supports that up to 20% of those studies are suboptimal in that it's difficult to reach diagnostic certainty and clear diagnostic certainty without the addition of a contrast agent, it’s 20% of 33 million you can say proximately it is 6.5 million.

As we looked at what the data for medical claims based EF measurement showed us, it suggested that that was an equal population potentially for who would benefit from the use of contrast and that's why you heard me saying that it essentially doubles the approximate patient population who would be considered for contrast use..

Very helpful..

Anthony just to your question on the R&D, so as you know we don't provide specific expense guidance but let me take a step back, and maybe frame the larger financial picture.

So as we look at 2018 we expect to leverage the strong operational performance of our company, really to reinvest in our corporate growth strategy to drive the additional future growth and we expect to see a similar reinvestment profile through 2019 and kind of help frame this investment profile.

When you think about our gross margin perspective we expect to maintain similar gross margins, that we've achieved in 2017 through 2018. So I think if you put those pieces together that should enable you to kind of see the larger financial picture without me giving specific line by line expense guidance.

Our next question comes from Lei Huang of Wells Fargo. Your line is open..

It's Lei Huang calling in for Larry Biegelsen. Thanks for taking my question. I just want to go back to your - what you've said about the manufacturing disruption for your products in 2018.

Can you tell us when the NTP shutdown occurred? And when it resumed the supply?.

Lei, good afternoon this is Mary Anne. We were notified in mid-November that the NTP the reactor in the processing facility had been asked to suspend their operations and it was due to a process issue. As you can imagine this is sensitive information because it deals with a governmental oversight and governmental decisions.

And there was a well-defined process that was used to ensure that all safety and other operational guidances were being met.

That process lasted until recently and we were informed last week that the oversight agency which as Jack referred to as NECSA was - had come to the decision that the operations were safe to be resumed, and we in fact have started receiving supply again.

As we looked in 2017, as we do all the time you understand as well as any of the rest of folks who follow us Lei, this is a supply chain in general that requires a lot of oversight.

And so what we did through the balance of 2017, and then now into 2018 is we worked very hard throughout each week to look for alternative sources of supply to best complement what our total needs were.

We were not always able to do that, but as we finished 2017, it was certainly apparent to us that it did not financially materially impact us especially given the performance we were already seeing. And that's why you didn't hear us speak about it publicly..

So there's supply interruption.

Can you in any way quantify that for Q1 or for the full year?.

I will quantify - I’ll instead speak to NTP is our supplier and put that into perspective for you. We essentially supply or receive supply from three reactor processor combination NTP in South Africa, IRE in Belgium and ANSTO in Australia. And it's fair to say Lei that they are equal contributors on a weekly basis.

That's not true every day because supply comes in, in different days from different suppliers, but essentially it's fair to think about them as each representing approximately a third of our total supply. So that’s I believe the answer to your magnitude question, that's on a going basis.

What happens when there is any type of shifts to where potential slight delay is we move right into kind of our – natural second motion which is filling in supply and asking for slight changes in supply delivery to us. So that we can best – make as small as possible any change in what we need to satisfy down our channel into our customers..

If I can just ask also on EBITDA margin guidance, that's obviously a little weaker than we expect as well for 2018. Is that all due to the DEFINITY supply issue that we just talked about or are there other factors in there? Or i.e.

some of the reinvestment you talked about?.

Yes..

First let’s just clarify, we didn’t - I don’t think we spoke to a DEFINITY supply issue. The only issue that Jeff referenced was the supply interruptions from NTP which is a nuclear supplier and that was of course late 2017 and until approximately a week ago in 2018.

Jack?.

So Lei, the way to think about it - take into consideration that my comments to Anthony about the gross margin maintaining itself.

And so when you think about the adjusted EBITDA margin I think you can infer that the difference between the gross margin and adjusted EBITDA margin year-over-year is a result of the investments that support the corporate growth strategy..

And if I can just squeeze in one more please. Just on your next generation DEFINITY and thank you for the update, very helpful. Can you provide any sense of timing for the study completion filing and perhaps the size of studies? Thanks very much..

You’re welcome. And so again here I’m just going to clarify before I answer, Lei. We have an alternative formulation that we’re developing for DEFINITY, but I did not say that that was the agent that was being used for the clinical trials that we would conduct for the EF indication.

That indication those studies will be conducted using current generations or currently available DEFINITY. And that would be used in the clinic and that will be part of our submission to the FDA.

They are two Phase 3 clinical trials, we’ve already had our meetings with the FDA to discuss what about the endpoint they should be, and what size they should be. We are also submitting a spot or a special protocol agreement for the additional clarity with the FDA as to what has done - needs to look like there.

And as we mentioned - in the calls, we didn’t, I’m happy to mention now, we fully anticipate beginning patient enrollment in 2018 for that program..

[Operator Instructions] Thank you ladies and gentlemen, this concludes today's conference. Thank you for your participation..