Good morning, ladies and gentlemen. Welcome to the Lantheus Holdings Fourth Quarter and Full Year 2019 Earnings Conference Call. This is your operator for today's call. Please note that all lines have been placed on mute to prevent any background noise. This call is being recorded for replay purposes.

A replay of the audio webcast will be available in the Investors section of the company's website approximately 2 hours after the completion of the call and will be archived for 30 days. 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 the Lantheus Holdings fourth 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 8-K reporting our fourth quarter and full-year 2019 results. You can find the release in the Investors 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 Investors section of our website. With that, I'll now turn over the call to Mary Anne.

Mary Anne?.

Thank you, Mark. And good morning, everyone. We delivered solid fourth quarter results with revenues within our guidance range, a robust profitability and free cash flow.

While we dealt with a particularly challenging molybdenum-99 or moly supply environment throughout 2019, I am pleased to report we are in a more favorable moly supply position as we enter 2020, which I will discuss in more detail later in this call.

Additionally, last week, we announced that we entered into an amended and restated merger agreement with Progenics. Since we first announced the merger last October, the compelling strategic rationale of combining our companies has not changed. I remain excited about the potential value that can be unlocked by combining our two businesses.

And I'm very encouraged by what we have continued to learn about the Progenics business during our ongoing integration efforts. The most exciting news for our teams, as well as for patients and physicians, has been the positive top line results Progenics achieved with its PyL Phase III CONDOR trial announced now in late December.

As many of you know, PyL is Progenics' PSMA-targeted PET imaging agent in Phase III clinical development. PyL enables visualization of both bone and soft tissue metastases in patients with locally advanced, recurrent and/or metastatic prostate cancer.

PyL targets the extracellular domain of prostate-specific membrane antigen, or PFMA, which is a protein that is overexpressed on the surface of greater than 95% of prostate cancer cells and is an emerging target for the detection and treatment of prostate cancer.

PyL has demonstrated the potential to detect prostate cancer non-invasively and to inform clinicians in the treatment of prostate cancer, with the ultimate goal of improving disease management of one of the most prevalent forms of cancer in the US for men.

Indeed, last Friday, the American Society of Clinical Oncology, or ASCO, published guidelines for optimum imaging strategies for advanced prostate cancer that recommends PSMA imaging for patients with rising PSA after prostatectomy or radiotherapy who have negative conventional imaging.

The Lantheus team was very pleased to see the positive top line results of the Phase III CONDOR trial. We believe these results increase the likelihood of regulatory approval of the product and we are confident that our combined company can capitalize on PyL's strong potential.

We're also pleased with the progress we've made in our integration planning efforts. Our fully dedicated integration project management office continues to drive execution of planning activities, so that we can achieve the strategic and financial benefits inherent in this combination as soon as possible after closing.

As evidenced by the revised economic terms of the amended merger agreement, Lantheus enthusiastically shares the view of Progenics stockholders and the long-term growth potential of the Progenics product portfolio. I believe both sets of stockholders should benefit from the strategic long-term growth potential.

With the Progenics acquisition, we believe we can leverage our existing infrastructure and longstanding expertise in complex manufacturing, supply chain and commercial excellence to deliver on the untapped promise of Progenics product portfolio and maximize value for all stockholders.

Before turning the call over to Bob to review our financial performance, I'd like to welcome to recent additions to our senior leadership team. On January 6, Dr. Istvan Molnar was appointed our Chief Medical Officer.

Istvan, an oncologist by training, has extensive experience in both pharmaceutical and radiopharmaceutical industry and has been involved in the development of early, mid and late stage oncology drugs.

Most recently, he served as Chief Medical Officer of Fusion Pharmaceuticals, a clinical stage biopharmaceutical company, developing targeted alpha particle radio therapeutics for the treatment of cancer. And on January 27, Paul Blanchfield joined Lantheus in the role of Chief Commercial Officer.

Paul brings extensive operational experience and deep expertise in commercializing rare disease products. Prior to Lantheus, Paul served as head of Takeda's US immunology business unit. And prior to his time at Takeda, Paul served in several senior executive roles in the field of immunology.

With the addition of these two executives, I complete the process I began about two years ago to build an executive team with the expertise needed to execute the strategic visions of Lantheus. I'm confident this team will take us to our future as a leading company in precision diagnostics and oncology radio therapeutics.

With that, I'll turn the call over to Bob. Later, I'll speak more about our operating performance and business highlights from the fourth quarter.

Bob?.

Thank you, Mary Anne. And good morning, everyone. I will provide highlights of the fourth quarter financials, focusing on adjusted results unless otherwise noted, and then provide additional details of 2020 full-year and first quarter revenue and earnings guidance that was found in our earnings press release this morning.

Net revenue for the fourth quarter was within our guidance range at $89.3 million, an increase of 3.6% over the prior year. For the full year, net revenues totaled $347.3 million, an increase of 1.2% over 2018. In the fourth quarter, sales of DEFINITY posted robust growth at $59.4 million or 22.3% higher as compared to the prior-year quarter.

Our sales efforts and execution continued to drive market demanded at DEFINITY within its current indication and have the opportunity to sustain a strong growth profile in future operating periods. TechneLite revenue was $20.6 million, down 11.9% from the prior-year quarter.

Customers worked their way back to contractual levels by the end of the quarter, and we expect normal revenue run rates in 2020, as you will see later when I provide details of our guidance. Additionally, thus far in 2020, we are running at our normalized annual run rate for TechneLite, lending to our confidence.

Other nuclear decreased 22.2% to $13.9 million. Rebates and allowances totaled $4.5 million. Gross profit margin for the fourth quarter was 51%, a decrease of 90 basis points from the fourth quarter of 2018.

While the difference from the prior year is due to a relative contribution to certain of our vial line product, the current quarter's result reflects sequential improvement from Q3 due to supply chain efficiencies and fewer purchases of excess moly, combined with favorable contribution from product mix with DEFINITY's performance.

Operating expenses were 32 basis points favorable to prior year at 28.4% of revenue, driven primarily by lower relative expenditures in G&A and research and development, offset by higher variable sales and marketing expense due to some DEFINITY strong performance.

Operating profit for the quarter was $20.2 million or an increase of 1% over the same period prior year. Total operating adjustments to reported EPS in the quarter were $7.8 million before taxes. Of this amount, $3 million was associated with non-cash stock and incentive plans.

Also in the quarter, we recorded $4.3 million of expenses relating to non-recurring business development activities, primarily related to our Progenics acquisition. The balance relates to previously acquired intangible amortization.

During the quarter, the company released a portion of our uncertain tax positions relating to private period, indemnified, long-lived liability reserves and the corresponding asset associated with an indemnification agreement with a former parent.

The impact of the release was $12.2 million added to other expense and conversely subtracted from tax expense. In combination, the release had no impact on net income. Similar equal-and-offsetting entries were made to the weighted balance sheet accounts. Underlying net interest expense and other amounted to $1.3 million expense in the quarter.

The underlying effective tax rate was approximately 28% for the quarter and the full year. The resulting reported net income for the fourth quarter was $10.5 million and $13.6 million on an adjusted basis, the latter an increase of 21% over the prior year.

GAAP fully diluted earnings per share were $0.26 and $0.34 cents on an adjusted basis, again the latter an increase over the prior year of 19%. For the full year, adjusted fully diluted earnings per share were $1.17 cents, or an increase of 3.5% over 2018.

Now turning to cash flow, fourth quarter operating cash flow totaled $22.4 million, as compared to $17.3 million in Q4 2018. Capital expenditures totaled $4.7 million, down from the prior year as capital investment in our own strategic manufacturing capabilities winds down.

Working capital metrics continue to be strong and contribute to cash generation. Free cash flow, which we define as operating cash flow less capital expenditures, was $17.7 million, an increase of 78% over the prior-year period. For the year, we generated $58.3 million of free cash flow, an increase of 42% over 2018.

This strong cash flow performance has brought our cash and cash equivalent balance to $92.9 million. And as a reminder, we repaid approximately $75 million of our outstanding debt during 2019. Turning now to our stand-alone guidance for full year and first quarter 2020.

Net revenue growth for the full year is expected to be in a dollar range of $384 million to $390 million. This expectation reflects low-to-mid-teen US DEFINITY growth coupled with an assumption for recovered and normalized TechneLite sales volumes throughout the year.

Overall gross margin is expected to be similar to 2019 levels as overhead expenses associated with our on-campus manufacturing rolled back into the P&L ahead of an expected DEFINITY inventory build later this year.

Margin levels in the second half of the year are expected to be ahead of the 2019 full-year levels and more in line with our longer-term expectations of improving margins as a result of favorable absorption and product mix. Operating expenses as a percentage of revenue should be in line with 2019, including added investments in business development.

Research and development cost as a percentage of revenue should also remain steady off our 2019 baseline as the company continues to invest in scientific talents and clinical programs to drive innovation and sustainable long-term revenue growth.

Interest expense will continue to reflect the savings achieved with the mid-year 2019 refinancing, coupled with an overall lower interest rate environment. Our effective tax rate is expected to be in the mid to upper 20s. And for modeling purposes, total forecasted depreciation and amortization expense is expected to be approximately $14 million.

Fully diluted average shares outstanding for the year on a standalone basis are expected to increase by approximately 2% over 2019. Taken all together, full-year adjusted fully diluted earnings per share are expected to be in a range of $1.34 to $1.40.

And finally, we expect first quarter revenue growth to be in a dollar range of $89 million to $91 million and adjusted fully diluted earnings per share are expected to be in a range of $0.25 to $0.27. This forecast does not consider the impact of future acquisitions and/or divestitures, including the Progenics transaction.

Before I turn the call back to Mary Anne, I'd like to comment on the financials associated with the newly amended merger agreement with Progenics. We believe the business combination will create an enhanced opportunity to drive double-digit revenue growth and expand the margin profile of the combined company for years to come.

Extensive work has been done by integration management office to identify synergy opportunities, which we intend to achieve by the end of year 2022. We also continue to believe we can deliver accretive adjusted fully diluted earnings per share in 2023 despite the higher exchange ratio.

Lastly, we believe financial metrics should accelerate in performance following the first year of combination as we achieve revenue and synergy targets. With that, let me turn the call back over to Mary Anne..

Thank you, Bob. Now, let me provide some additional color on our standalone business performance and progress on our strategic programs outside of our Progenics efforts. Let's start with our microbubble franchise.

DEFINITY posted strong growth with a 22% year-over-year growth rate in the fourth quarter, which demonstrates the value DEFINITY continues to provide physicians in diagnosing and managing patients. We look to build upon this strong performance in the year ahead.

With the leading microbubble used worldwide, we believe our franchise is well positioned to capitalize on the emerging therapeutic applications of microbubbles. During 2019, we announced two agreements. The first with Cerevast Medical for the treatment of retinal vein occlusion, one of the most common causes of vision loss worldwide.

And the second with CarThera for the use of Lantheus' microbubble in combination with SonoCloud, a proprietary implantable device in development for the treatment of recurrent glioblastoma. Glioblastoma is a lethal and devastating form of brain cancer, with median survival of 15 months after diagnosis.

These collaborations align with our strategy to identify new applications for our microbubble franchise as well as our interest in expanding into oncology and therapy. We look forward to updating you throughout 2020 on additional microbubble cooperations.

Our on-campus project to build a manufacturing facility for DEFINITY and other sterile vial products remains on time and on budget. In the second half of 2019, we completed machinery validation. And during the fourth quarter, we completed engineering batches of DEFINITY.

These steps keep us on track to have commercial product from this facility by early 2021. Finally, regarding the status of a potential generic filer, to date, we have not received notice of an ANDA application. We remain confident in our plans to defend our DEFINITY intellectual property and our growth prospects for the future.

Moving to our nuclear business, I'd like to provide an update on our moly supply for the fourth quarter and what we expect for the rest of 2020. During much of 2019, we received limited moly supply from NTP. However, in the third quarter, NTP was able to increase production of moly.

And I'm happy to report, we have received full moly supply from NTP in 2020 to date now that both 2019 and 2020 are online. Another of our moly suppliers, ANSTO, returned to service for domestic needs and we wait their approval for additional capacity.

If you recall, during the third quarter, ANSTO experienced a mechanical issue on their production line at ANM causing it to shut down. As expected, during the fourth quarter, we did not receive moly supply from ANSTO.

Once ANSTO receives regulatory approval for additional capacity, we expect reliable service, given the combination of a relatively young reactor, OPAL, and the newest processing facility in the industry, ANM, with its increased capacity capabilities. We'd like to thank IRE, who was a consistent moly supplier for us throughout 2019.

IRE not only met its commitment, but sold us excess supply throughout the year, partially offsetting shortages from NTP and ANSTO. We look forward to work with IRE in 2020 as they complete their conversion to LEU. The issues we experienced in 2019 with moly supply highlights the strategic importance of having a diversified supply chain.

On this call a year ago, I shared with you my belief that nuclear medicine is enjoying a renaissance. In the marketplace, we are seeing an increased appreciation for the role of radioisotopes not only in diagnostics, but also as therapeutics and as biomarkers.

The unique expertise Lantheus has in radioisotopes makes us one of a small group of companies worldwide that will contribute to this renaissance in nuclear medicine. We are excited to be part of this future. Overall, our fourth quarter and 2019 results and operational achievements reflect another period of accomplishment.

We enter 2020 with a strong balance sheet and a strong management team committed to successfully driving the Lantheus business and integrating the talent and products of the Progenics business. With that, Bob and I are now ready to take your questions. Operator, please go ahead..

[Operator Instructions]. And our first question comes from the line of Larry Biegelsen with Wells Fargo. Your line is open..

Good morning, Larry..

Thanks for taking the questions. Hey, Mary Anne. Hey, let me start with the guidance. So, Bob, I heard the commentary on DEFINITY. I think low to mid-teens. You exited the year 22% growth. Full year, 19%.

So, why are you expecting such a slowdown in DEFINITY in 2020? And just continuing along those lines, I think in the past, you talked about TechneLite being able to do about $100 million in 2020, is that still intact? And Bob, just lastly on the guidance, why is the growth more back-end loaded? And then, I had one follow-up..

Sure. So, let's just attack those pieces one at a time. So, from a DEFINITY perspective, it was a fantastic year. We grew 18.8% for the full year. So, each quarter, particularly as this business gets bigger, the comps are more difficult on a year-over-year basis. So, as we project forward, we do expect to see a continued nice run rate with DEFINITY.

So, by providing a low to mid-teens, it's really more reflective of the size of the business than the underlying volume growth that we continue to expect. With regard to TechneLite, yes, about $25 million a quarter is what we have said in the past, and that would be a normalized run rate. So, $100 million, it makes all the sense.

And even just for further modeling purposes, Xenon has sort of reached its point where it's at a contracted level that – with the $5 million a quarter is a good run rate. As far as profitability in the second half of the year, it really has more to do, Larry, with how gross margins stack up through the year.

With the Genesis [ph] project becoming ready for intended use and now put in service, the overhead associated with the individuals that work in that particular facility will become part of the expense budget in the first half from a gross margin perspective and we expect a pretty significant step-up, if you will, in gross margins in the second half of the year.

So, it really has more to do with that than the overall profitability being spread evenly. It's just how it works. It's not necessarily a reflection of anything other than that..

Bob, just one follow-up on that. I'll ask my follow-up question at the same time. I was asking about the top line growth. I think I threw too many questions out there at once for you. But the top line growth, Q1 is below the full-year top line growth guidance. So, I was just curious about why the growth is softer in Q1 versus full year.

That's why I was implying that it's more back-end loaded, the top line growth. And just lastly, Mary Anne, what led to the enhanced offer for Progenics and what are the next steps and timeline? Thanks for taking the questions, guys..

All right. Hey, Larry. So, Bob again. So, from a growth rate perspective, a lot of it is being driven by the TechneLite shortfall comp, if you will, in Qs two and three and partially in Q4.

So, what you would see then is, as we go to more normalized Tech revenue run rates, the growth rates, if you will, are much higher in those other periods as opposed to Q1 where we actually had a more normalized growth rate.

So, Mary Anne?.

Right.

So, that answers your question on the growth rate, right, Larry?.

Yes, thank you..

Okay. Then to your question on the amended agreement and offer, I think there are several pieces at play here, but the most obvious one is what happened in the market. We saw and we very much appreciated the announcement on the CONDOR trial and that was a very real value-making event. The Phase III trial read out and it read out very positively.

And from just a weighting of – risk weighting on how we were looking at that asset in the overall sum of the parts for the Progenics business, that had a very real effect on the sum of the parts valuation for the business. And so, as we continued our discussions with the team and as we continued our integration work, that weighed in.

And there were some other pieces that I won't speak to specifically. As we continued our integration, that kind of brought us back to the table and we were kind of happy to re-approach the table with that..

And the next steps?.

Next step, we're a go to close on transaction. We have two shareholders that need to vote on this transaction. We'll continue to talk to them over the next several weeks.

There are some process steps that need to happen with the SEC and then setting a record date and then getting a shareholder date and we will work with the Progenics team to move through those steps. I think we're looking perhaps at a very early second Q date to close this transaction and move on and create shareholder value..

Thanks for taking the questions..

You're welcome..

Thank you. And our next question comes from the line of Erin Wright with Credit Suisse. Your line is open..

Great, thanks..

Good morning, Erin..

Hi, good morning. Can you give us an update on the competitive landscape for DEFINITY at this point, your visibility there? And also, do you anticipate any changes this year or upcoming from a reimbursement standpoint, particularly, I guess, here in the U.S? Thanks..

Sure. So, our competitive landscape is actually very stable. There remains only three approved ultrasound contrast agents in the United States market – ours, the GE product and the Bracco product. We don't speak specifically to share because that also remains very stable.

We continue to hold greater than 80% share in what we define as the market, which is – essentially, the largest market is the echocardiography ultrasound market. There is a small market also in radiology as the Bracco product has in approval for ultrasound use in the radiology market. We don't compete there as we don't have an indication.

And quite frankly, it's a very small market. We have, as I said, greater than 80% share in the echocardiography market. From a reimbursement perspective, on an annual basis, CMS goes through its cycle of draft publication and then final publication of reimbursement rates for the upcoming year.

Those final publications were made in – I think this year was actually a little later. It's in early December, they published the reimbursement rates for 2020.

They were very much in line with the rates that have been in place for 2019, which allowed for a – what is a very adequate, I'll say, spread between what the reimbursement rate is for a procedure, an echo procedure done without contrast to one done with contrast.

We and our partners in ultrasound contrast as well as all of the other stakeholders that participate in that market watch that process very, very carefully and comment during the open period where we are allowed to and we're very pleased to see this year that CMS came at the process we think very rationally, and so those reimbursement rates are in place.

I'll just also note, from a competitive landscape, as I did during my talk track during the call, we are still not in receipt of any ANDA filings for DEFINITY nor are we aware of any for any of the other products in the market..

Okay, great. That's helpful. And then, I'm curious if you're seeing just any disruption or just change in focus with the pending Progenics deals.

Is everything still on track in terms of the baseline R&D focus as well as just any other change in initiative or kind of focus for the underlying Lantheus team as sort of this pending Progenics deal?.

So, we've worked very hard and we've encouraged also our partners at Progenics to work hard to remain focused on our businesses. There certainly has been distraction during this entire transaction, but we've both recognized that we needed to run our businesses with the potential that the transaction might not close.

And so, we've had a separate fully dedicated integration team working on the integration and on the transaction. Certainly, on the Lantheus side, with the distraction we had with moly, we were fully focused on working throughout 2019 to source as much moly we could.

I think our results, especially with DEFINITY, speak for ourselves that we were able to remain focused on having our business demonstrate and continuing and we'll show you that again in 2020 on all fronts. And we're just really looking forward, at this point, to closing this transaction.

When we do, we'll be able to announce what our focus will be for the combined business with what milestones we'll have on the integration and on the performance going forward..

Okay, great. Thank you..

[Operator Instructions]. We show no further questions at this time. Ladies and gentlemen, thank you for participating in todays' conference. This concludes the program. You may now disconnect. Have a wonderful day..