Good morning ladies and gentlemen, welcome to the Lantheus Holdings Second Quarter 2009 Earnings Conference Call. This is your operator for today’s call. [Operator Instructions] I’ll now turn the call over to your host for today Mark Kinarney, Director of Investor Relations.

Mark?.

Thank you and good morning. Welcome to Lantheus Holdings second quarter 2019 earnings conference call. Joining me today is our President and CEO, Mary Anne Heino and our CFO, Bob Marshall. This morning we issued a press release which was furnished to the Securities and Exchange Commission under Form 8K reporting our second quarter 2019 results.

You can find our release in the investor section of our website at lantheus.com. Before we get started, I'd like to remind you that our comments during this call will include forward looking statements. Actual results may 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 this call will include certain non-GAAP financial measures. Reconciliation of these measures to the most directly comparable GAAP financial measures is also included in the investor section of our website. With that, I'll now turn the call over to Mary Anne.

Mary Anne?.

Thank you, Mark and good morning everyone. Our second quarter revenue performance was supported by strong DEFINITY growth in the high teens offset by multiple molybdenum-99 supplier challenges that impacted our ability to meet total TechneLite demand.

Despite these challenges, we delivered both solid earnings per share as well as free cash flow while continuing to make targeted strategic investments in our business to drive long-term sustainable growth. Regarding Moly supply, I’d like to provide some detail on venturing the second quarter and what we expect for the balance of the year.

While our goal is to always focus on meeting the needs of our patients and customers, we do so with a supply chain proven challenging. Throughout the second quarter, we experienced limited supply from NTP while they continue to work with South African Regulator for approval to return to full scale operations in their processing facility.

Additionally starting in mid May, another of Moly supplier to ANTSO faced challenges while transitioning to their new processing facility, ANSTO Nuclear Medicine or ANM, which impacted their ability to fully supply us. This was further complicated in late June by a technical issue that led to a temporary shutdown.

ANSTO is progressing with their full return to service and is already producing supply for Australian domestic customers. They’re scheduled to have the OPAL reactor 10-year maintain shutdown in the month of September and have communicated to us their expectation to resume supply to international customers they’re after.

These multiple disruptions in Moly supply have resulted in an inability to fill all of our customer demand for TechneLite generators. As frustrating as these supply disruptions have been for us, our concern remains with our customers and the patients they serve.

The recent progress our suppliers have made, we now project our Moly supply will be stable beginning in the fourth quarter. Consequently, we believe the issues across our temporary supply challenges this year should not recur in 2020. Later I’ll speak more about our performance and highlights on the second quarter.

First, I’ll turn the call over to Bob, who will review our financial results. Bob..

Thank you, Mary Anne and good morning everyone. I’ll provide highlights of the second quarter financials focusing on adjusted results unless otherwise note and then provide third quarter and updated full year 2019 revenue and earnings guidance. Worldwide revenue for the second quarter totaled $85.7 million, an increase of 0.2% over the prior year.

Foreign currency was negative headwind of approximately $200,000 or a negative impact of approximately 20 basis points on year-over-year growth. Reported sales of DEFINITY continued with the strong growth at $54.6 million or 18.5% higher as compared to the prior year quarter.

TechneLite revenue was $20.1 million, a decrease of 14.4% from the prior year quarter due mainly to the prolonged production outage at NTP. Additionally supply was further constrained by the unexpected supply shortages that Mary Anne has just described. Other nuclear revenues, which excludes TechneLite was $15.2 million, a decrease of 21.3%.

Total revenue was offset by rebates and allowances of $4.3 million. Adjusted gross profit margin for the second quarter was 53.2% of net revenue, an increase of 80 basis points over the second quarter 2018 on a similar basis. This quarter's results reflected a favorable product mix led by DEFINITY outperformance.

Adjusted operating expenses were 190 basis points unfavorable to prior year at 31.4% of net revenue driven primarily by high end research and development investment at 5.9% of net revenue in support of our LVEF clinical studies.

G&A was also higher year-over-year due mainly to phasing increase investment in strategic IT and business development efforts. Total adjustments in the second quarter were $7.3 million before taxes. Of this amount $3.4 million is associated with non-cash stock and incentive plans.

Also in the quarter we recorded debt extinguishment costs of $3.2 million meant to the prior term loan when we replace it with our new credit facility which I'll describe in just a moment. Adjusted operating income for the quarter was $18.7 million, a decrease of 4.8% from the prior year.

Adjusted operating income was also negatively affected by our Moly supply challenges as previously discussed. Net interest expense and other income amounted to $3.2 million. The reported effective tax rate in the quarter was 20.9%, our adjusted effective tax rate was 29.5%.

The resulting net income for the second quarter was $6.4 million or a decrease of 34.2% from the same period prior year. Adjusted net income was $10.9 million or a decrease of 6.4%. GAAP fully diluted earnings per share were $0.16, a decrease of 35.6% from the same quarter last year.

Adjusted fully diluted earnings per share were $0.27, a decrease of 8.3% from the same period prior year. Lastly, second quarter operating cash flow totaled $21.1 million as compared to $20.3 million in the second quarter of 2018.

Capital expenditures totaled $3.4 million and include ongoing investment in our own strategic manufacturing capabilities on our Billerica campus. Free cash flow which we defined as operating cash flow less capital expenditures was $17.6 million for the quarter.

Also during the quarter the company used approximately $73 million to pay down its then outstanding term loan B and to refinance the $200 million balance with a new term loan A at favorable credit terms. Accordingly cash and cash equivalents totaled $56.9 million at quarter’s end.

The new $200 million revolving credit facility replaces a $75 million revolver and will provide the company with increased overall liquidity which now stands at approximately $260 million. Credit spreads have been significantly reduced with spreads ranging from 1.25% to 2.25% depending on our then current net leverage ratio.

For the balance of 2019, we expect savings of approximately $0.06 per share on reduced interest expense linked to the outstanding debt balance in addition to savings associated with utilizing our cash on hand to reduce outstanding debt while retaining access to those funds. Full year effect of these savings will be realized in 2020.

Moving now to our third quarter guidance and updated full-year financial expectations, we expect the third quarter revenue to be in a range of $83 million to $85 million. Full year revenue growth is now expected to be in a range of 0.8% to 1.9% or $346 million to $350 million.

Q3 and full year revenue expectations reflect the updated assessment of Moly supply from ANTSO which is clearly operational for their own domestic market, but will not have export supply for the duration of the third quarter.

NTP while having resumed production it's currently producing at lower than full capacity but is expected to return to full production later this quarter. That all said we expect these issues to be confined to the third quarter while our fourth quarter revenue and adjusted EPS expectations will be largely consistent with our prior estimates.

We now project DEFINITY will outperform our initial expectations maintaining growth in the mid to high teens. Moving now to earnings adjusted fully diluted earnings per share are expected to be in a range of $0.18 to $0.20 for the third quarter.

For modeling purposes, forecasted depreciation and amortization expense is expected to be approximately $3.5 million for each of the remaining two quarters. Additionally, you should expect lower gross margin levels and current run rates strictly during the third quarter and then recovering in the fourth quarter.

Operating expense savings and lower debt costs are expected to mitigate a significant portion of lost earnings associated with lower TechneLite revenue in the second half of 2019. For the full year, we are also updating our adjusted fully diluted earnings per share range to $1.09 to $1.12.

Lastly, as you look to future operating periods, we are confident in our ability to restore our nuclear business to normalize levels and deliver on our financial goals in Q4 and a full year of 2020. With that let me turn the call back over to Mary Anne..

Thank you, Bob. Now let me provide some additional color on our business performance and progress on our strategic programs. Let us start with our microbubble franchise. As Bob mentioned DEFINITY grew at over 18% versus the prior year. DEFINITY’s continued growth fuels our confidence in investing in key pipeline and infrastructure initiatives.

We believe these investments support the sustained growth and profitability of our microbubble franchise. The first of these initiatives is our investments in our DEFINITY left ventricular ejection fraction or LVEFS clinical program.

We remain on track with our two parallel Phase 3 studies, BENEFIT 1 and 2 with patient enrollment now over 80% complete for BENEFIT 1 and over 60% for BENEFIT 2 with total enrollment on track for completion later this year.

Upon successful completion of these trials, we will use the results to file a supplemental NDA that if approved would enable us to commercialize soon thereafter.

In June, new clinical outcomes data presented at the American Society of Echocardiography annual scientific sessions or ASE 2019 demonstrated the positive impact of contrast echocardiography with DEFINITY in intensive care unit patients as compared to ICU patients who received echocardiography without contrast.

The study findings showed improved clinical management and decreased length of stay in ICU patients receiving DEFINITY enhanced echocardiography versus non-contrast echocardiography patients. ICU patients are often difficult to image due to their medical conditions impacting diagnostic certainty of the echocardiography exam.

This new research data supports the use of DEFINITY in improving patient outcomes in a critical care environment. Now moving on to our ongoing initiative to build a specialized manufacturing facility for DEFINITY and potentially other stereo vial products at our North Billerica headquarters, the project is on schedule and on budget.

In the second quarter, we completed installation of equipment as planned. Having accomplished that in the second half of the year, we will commence trial runs of placebo product in anticipation of producing qualification batches in the fourth quarter. These steps should keep us on track to produce commercial products by early 2021.

Finally, regarding the status of a potential generic filer, to-date we have not received notice of an end application. As evidenced by continued investment in our microbubble franchise, we remain confident in DEFINITY's future.

Turning to our nuclear pipeline and to LMI 1195, as we mentioned in our last call we are designing two Phase 3 clinical trials for the diagnosis and management of neuroendocrine tumors in pediatric and adult populations respectively.

During the second quarter, the FDA granted us an orphan drug designation for the use of 1195 in the management indication.

With respect to business development efforts, earlier this quarter we announced entering into a strategic collaboration and licensing agreement with NanoMab Technology Limited, a privately held biopharmaceutical company focusing on the development of next-generation radiopharmaceuticals for cancer precision medicine.

Under the collaboration agreement Lantheus licensed NanoMab’s NM-01, a development stage imaging biomarker which identifies tumors expressing PD-L1.

Although PD-L1 checkpoint inhibitor therapies have achieved impressive results in certain patient populations, improving response rates and extending survival across multiple tumor types, challenges remained in optimizing the use of these therapies.

There is an opportunity for biomarkers that can best predict patient response which may also serve to avoid unnecessary cost to patients and health systems. NM-01 will be provided by Lantheus to pharmaceutical companies, academical medical centers and other researchers.

NM-01 may be used to optimize clinical trial design of early developmental stage PD-L1 immuno oncology agents by identifying patients most likely to benefit from these therapies. We are excited about this opportunity as we believe NanoMab has strong technology proven by recently published data with very good image resolution.

We believe that molecular imaging and analytics could uniquely address current unmet needs in ongoing drug development of PD-L1 based therapies especially in patient selection, stratification as well as predicting drug response.

We are projecting that we will file a DMF with the FDA in the first quarter of 2020 and are currently talking with potential customers. We will have a better understanding of the market potential as we progress and we'll keep you updated.

Our agreement with NanoMab along with our previously announced collaboration with Cerevast allows us to leverage our core competencies mainly our commercialization capabilities in nuclear isotopes and our expertise in microbubbles. I'm excited to see where these collaborations go.

I remain optimistic about the future and delivering on our strategic vision in the quarters and years to come. With that Bob and I are now ready to take your questions. Operator, please go ahead..

Thank you, ma'am. [Operator Instructions] First question is coming from the line of Raj Denhoy from Jefferies. Go ahead please..

Hi good morning..

Good morning, Raj..

Good morning. Good morning.

I wonder if I could start a little bit on the Moly supply issue in the quarter, just so we understand what you're suggesting we do to the model so this the 20 million or so you did here in the second quarter, we should assume it sort of runs at that rate into the third quarter and then sort of picks back up in the fourth quarter and then we get out to 2020, you should still be at that sort of roughly a $100 million annual basis for that product.

Is that the right way to think about it?.

Raj, I think that's exactly how you should think about it. When I look at the models that are out there, I noticed that they're running probably right around $26 million or so for the second and third quarter and you saw a result, as you did point it out and yes, you should probably see that number maybe slightly lower than that number in Q3.

But that would be exactly how you should, the model..

Maybe kind of a broader question on kind of the Moly supply issue right, because this isn't the first time we've had these issues right, over the years they come up pretty regularly.

And I guess I'm curious what your current views are on the sort of fragility of the supply rate and what it's sort of doing to this market in demand and then ultimately what it's doing to your competitive position because [QM] again they're not as public as you guys are about what goes on there.

But when you have a supply outage they sort of backfill in with supply.

And so does that have any long-term implications in terms of share in this market and demand in this market?.

Well, I think you've got a couple of questions there Raj and I will try to take them all and if I miss any, you can help me readdress what I've missed there, but to your first question about the overall market and whether these shortages have an impact on the overall market.

I think we work very hard to ensure that they don't and the way to do that is to stay focus on patients. And so, when we see these shortages our focus is to get the communication out as early as we can, downstream to our customers so that they can get the supply they need and you're right it's got to come from our competitor.

So that ultimately the adequate supply is available if it can be to make sure that patient don’t miss studies. And that's got to be kind of job number one here and I think we've tried to ensure that we do that.

From a supply standpoint you're right, we have had issues and I think we would say over the last year and a half we have seen issues that we have not seen kind of punch up in a way that we have not seen in years task and what I'd like to say is, coming out of this period that we see that will still last through the third quarter and I think Bob guided you well there.

But coming out of the third quarter and coming into the fourth quarter, we see a period of stability starting that we hope that will last.

And the reason that we're confident about that is as we come into the fourth quarter and beyond you have overhaul coming out of what will be a 10-year maintenance schedule and that's a fairly significant overhaul on a reactor that is a fairly young reactor and then you'll also have ANM now up and running with a brand new processing facility and we'll have 30% more capacity.

So you'll have them in the supply chain, the worldwide Moly supply chain is fairly attractive combination of a reactor that's just been very nicely overhauled and a brand new processing facility with a lot of capacity and that'll be regarded as the most attractive pair in the worldwide supply chain.

And for us the vaccines are competent, and again is our diversification strategy which is what we built our Moly supply strategy on, initially [indiscernible] announced that they were closing.

Quite frankly and quite honestly that strategy has not worked for us this year and it's because we would not have anticipated that the problems that ANTSO had in trying to transition from their prior processing facility to their new processing facility would coincide with NTP's struggles in coming back up to speed.

But it happens and we are dealing with it. But again, we have confidence coming out of it. Your comments about our competitive position is also, it's a fair one that's my issue to deal with as you know, we're contracted, we've been contracted. Our customers believe very strongly in having balance supply because we're essentially two competitors.

We are contracted two of our contracts already last past 2019. We have two contracts where we will renegotiate for 2020 and I will go to the table with my customers and I will present what will be my best efforts to maintain my competitive position and I'm confident in that as well.

Anything I missed there Raj?.

No, no. I think that hit all of it. Maybe just as a follow-up to that competitive question you're right. So as you mentioned there are only a couple of contracts, four or five contracts you work on in this market.

As you've these issues and again to your point they've been a little worse than in times past, has that influenced those negotiations with your customers about these contracts?.

I would say in some sense no Raj, I'm in constant communication with my customers and so it's an ongoing conversation.

It's become a weekly conversation because we’re always talking about what supply we're getting to them and how we're getting it to them and so there, well some of the points I just made to you are points that I've been making to them and in some ways they're very aware of what the Moly supply chain looks like and so some of the very points I just made to you that what we see as the emerging strength or the re-emerging stability of the Moly supply chain they're very well aware of as well..

And this one last one for me just, you have talked a little bit about other sources.

So looking to partners like Shine for instance here domestically, are there any updates you have on that in terms of when that might come online or other ways you can sort of prevent these kinds of shocks from occurring?.

So Shine just had an announcement the other day, the announcement they received their license. I'm sorry that I'm blanking on specifically what license but I can send you the link on it because it was a public press release. But that's not an answer for 2020 that is a definite answer for 2022, 2023 period.

I think if you look at into some of the other announcements that have been out there about other types of domestic supply, none of those are answers for 2020.

And so I think as we sit here today, we're looking at fourth quarter and beyond and we're looking at our strategy being the partners we have which are ANTSO, NTP and IRE and I didn't mention in part of that I gave you, but IRE has been a stellar partner for us during this whole period.

We have upped our access to them and they've upped their delivery to us and we've done everything we can, including changing out our manufacturing schedule to optimize that every carry that we can get our hands on turns into a carry that we put into a generator changing on our days of the week on manufacturing and then the logistics out to customers to ensure that we can get everything that we get our hands on out in the form of a generator to a customer..

Okay. .

They’re operating license with the NRC that they filed for that they announced, Shine earlier this week..

Very good, well, I will leave it there. Thank you..

Thanks Raj..

[Operator Instructions] Next question is from the line of Erin Wright from Credit Suisse. Go ahead please..

Great, thanks. In terms of the partnerships, can you provide a little bit of an update on Cerevast as well as your PD-L1 that you mentioned. I guess what sort of contributions in terms of magnitude as well as in terms of timeline when do you think that would materialize more meaningfully? Thanks..

Sure. So Erin it's a great question and I can answer it easily to start. I would not have you looking to build into your models anytime soon any kind of meaningful contribution from either both or early stages at this point especially Cerevast.

They are certainly early stage in their development program and that will be a royalty stream back to us when it does materialize and they will file, 2023 is what they are projecting at this time would be the earliest approval.

NM-01 will be a partner revenue source for us as we begin to place the biomarker into early stage developmental trials and so that will also be a slow build on a revenue base.

And I'll have more to speak about that as we begin to get out there and talk to potential partners about who might access the biomarker from us and so that's probably something that I would have you wait and hear more from me about.

I'm certainly happy to talk about what the product is and how it might be used, but it really is quarters to come before I'll have more specific details about what revenue potential might look like..

Okay got it.

And can you provide what's the next development catalyst for you on the R&D front? Would it be the LVEF clinical programs and what could we hear next on that front and can you give us an update on the timeline there as well?.

Sure.

So it's absolutely in time, from the time perspective of LVEF and the next milestone you'll hear there will be completion of patient enrollment which we have projectable, complete by the end of this year but when it is finally complete as I mentioned earlier we're about 80% complete on the first of Phase 3 about 60% complete on the second Phase 3, but when we're 100% complete and we've locked enrollment a last patient in, will announce that.

We project it will by end of the year and then the development point after that will be the filing of the SNDA that would be the milestone after that and then probably if that would be the either the FDA acceptance of the SNDA or the approval depending on which we see.

The other milestones you'll hear from me about are related to the LMI 1195 neuroblastoma trial in pediatrics and adults. You'll probably hear me talk about the Phase 3 trials, the development of the protocols perhaps the acceptance of the protocols I announce today that we had gotten received often indication status from the FDA for that.

So that was a significant milestone from us. So that's the other program that you're likely to hear from.

Any other questions, Erin?.

No, I am good. Thank you so much..

You're welcome..

So the question coming from the line of Larry Solow from CJS Securities. Go ahead, your question please..

Great, good morning. Thank you. Just to clarify on Shine, I think they filed their primer with the Nuclear Regulatory Commission this week. So I think and they say up to a two-year approval so that would be early 2022, but that's it for the public service announcement..

Thank you, Larry..

Yes. No, my pleasure. A question just on obviously DEFINITY and the TechneLite, I think you pretty well spoke a bit about. Just one other nuclear I realize Xenon is a big piece of that that's been coming down.

Should that stabilize over time or does that it's a small piece of your business but does that category sort of continue to sort of float down or should it stabilize as we look out?.

Larry, its Bob.

I wouldn't tell you that it, I think that you're absolutely right again when I also look at the model, I also notice that the current run rates that are in there probably aren't as reflective of what I've been trying to communicate with relation to the fact that Xenon has sort of come down and we would have affected to be at those same levels through the balance of the year.

Now in terms of stabilizing yes, you recall that competitor brought as to the market last May, in last Q3 and Q4 and Q1 and now Q2, we've seen the impact of that coming in. so what we should start to see is a sort of comps and you get into the back half of the year and then into 2020.

Yes, it would become a much more stable type of business which again gets contractual and we would expect to be able to work with our partners in terms of stabilizing that level and hopefully grow it over time..

Okay, great thank you..

Any other questions Larry?.

No, no, all set. Thank you..

Okay..