Lantheus Holdings' (LNTH) CEO Mary Anne Heino on Q4 2015 Results - Earnings Call Transcript

| About: Lantheus Holdings (LNTH)

Lantheus Holdings (NASDAQ:LNTH)

Q4 2015 Earnings Conference Call

February 22, 2016 4:30 AM ET

Executives

Meara Murphy - Director of Investor Relations and Corporate Communications

Mary Anne Heino - President and Chief Executive Officer

Jack Crowley - Interim Chief Financial Officer

Analysts

Larry Biegelsen - Wells Fargo Securities, LLC.

Glenn Novarro - RBC Capital Markets

Anthony Petrone - Jefferies & Company

Jeffrey Johnson - Robert W. Baird & Co.

Douglas Dieter - Western Asset Management Company

Operator

Good afternoon, ladies and gentlemen. I would like to welcome everyone to the Lantheus Holdings’ Fourth Quarter and Full-Year 2015 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 this call will be available approximately three hours after the conclusion of the live call through March 7th.

I would now like to turn the call over to your host for today, Ms. Meara Murphy.

Meara Murphy

Thank you, and good afternoon, everyone. Welcome to Lantheus Holdings fourth quarter and full-year 2015 earnings conference call. We appreciate you joining us. I’m Meara Murphy, Director of Investor Relations and Corporate Communications for Lantheus. With me on the call today are Mary Anne Heino, President and Chief Executive Officer; and John Crowley, Interim Chief Financial Officer.

Please note that earlier this afternoon we issued a press release reporting 2015 fourth quarter and full-year results. On or above March 3, we will be filing with the SEC our Form 10-K for the year ended December 31, 2015. You will be able to find both of these documents in the Investor Relations section of the Lantheus’ website at lantheus.com.

The agenda for this call will include opening remarks and a 2015 corporate overview from Mary Anne, a detailed review of our fourth quarter and full-year 2015 financial results and the presentation of our 2016 guidance from Jack, all the way discussion of 2016 priorities by Mary Anne, before moving into our question-and-answer session.

Before we begin, I would like to remind you that remarks during this call will include some forward looking statements, including statements about our outlook for 2016 and other predictions or estimates regarding the future of our business. Matters addressed in these statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectation. The forward-looking statements made in today’s call, speak only as of this original date and except to the extent required by law, we do not undertake any obligation to update any forward-looking statements. We caution you against placing undue reliance on any forward-looking statements.

Additional information regarding forward-looking statements appears in the Safe Harbor section of today’s press release. Information about our specific risks and uncertainties is contained in our SEC filings including our prospectus dated June 24, 2015 and filed with the SEC on June 26, 2015 and in our subsequent Quarterly Reports on Form 10-Q and our Form 10-K which we will be filing on or above March 3, with the SEC. Copies may be obtained at sec.gov and on our website at lantheus.com.

On today’s call, we will also discuss 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. The definitions of EBITDA, adjusted EBITDA, operating income as adjusted and net income as adjusted along with the reconciliations to GAAP metrics are set forth in our earnings release, which was filed today on Form 8-K. Copies may be obtained at sec.gov and on the company’s website at lantheus.com. Please note that unless indicated otherwise, all of our commentary on today’s call will make reference to as adjusted results.

With that introduction, it is now my pleasure to turn the call over to our CEO, Mary Anne Heino. Mary Anne?

Mary Anne Heino

Thank you, Meara, and welcome to everyone joining us today on our conference call. I’m pleased to be here with Jack Crowley, our Interim Chief Financial Officer. Jack previously served as our Chief Accounting Officer and was appointed to the role of Interim CFO on September 10, 2015, as announced in the press release we shared at that time. Jack will take you to our 2015 financial performance as well as our financial guidance for 2016. I will review progress against the corporate objectives we stated for 2015, as well as our corporate priorities for 2016.

Let me start with a review of our 2015 performance. We finished 2015 with $293.5 million in revenues, directly in line with our guidance. This represented a 2.7% decrease as compared to $101.6 million for 2014, which was mostly attributed to the negative impact of foreign currency rates on our international business.

We exceeded our adjusted EBITDA guidance posting $76.3 million versus our guidance of $72 million to $75 million. This favorability was driven by positive revenue mix related to pricing with one of our key customers buying off-contract for much of the year and with expense management. In 2015, we delivered a 26% adjusted EBITDA margin as compared to a 23.5% adjusted EBITDA margin in 2014.

Now, let’s review progress against the four corporate objectives we stated for 2016. These objectives were one, grow sales of our existing portfolio products; two, enhance the position of our commercial products in international market; three, create strategic partnerships to further advance our agency development; and four, evaluate opportunities to advance – enhance our portfolio.

The first objective was growing sales of our existing portfolio of products. DEFINITY posted [ph] strongly with 17% growth over 2014, as the healthcare community continue to recognize the value of contracts were needed and specifically the value of DEFINITY. In 2015, the overall use of contracts grew consistent with our forecasted assumptions and DEFINITY maintained its majority of share.

I would like to share with you a reporting change we will make beginning with Q4 2016. As of this quarter, we will no longer offer an absolute measure of three-month rolling contract penetration rate. Based on the evolving dynamics and increasing complexity of the market and the reliability of data source from a single third-party provider, we feel it is better to speak to trends rather than absolute numbers.

I’m pleased to report contrast penetration grew as forecasted in 2015 and continues to be a critical contributor for the growth of DEFINITY. Our Xenon business grew with revenue and margins higher than in 2014. As previously discussed, incremental revenue and margin were related to certain customers purchasing Xenon at supply pricing. In order to increase the predictability of our Xenon business, we have entered into agreements with our key Xenon customers for committed volumes and exchange for reduced pricing.

While these new agreements will negatively affect revenue, net income, and adjusted EBITDA for 2016 versus 2015, we believe these actions create a foundation in 2016 and a platform for revenue and unit volume growth in 2017 for this important product and the company.

We were pleased to announce a multi-year agreement reached [ph] with Cardinal in November 2015, relating to Xenon, TechneLite Generators, Neurolite, and our other nuclear products grew 2017 – December 2017. As we shared with you in the second quarter of 2015, we negotiated a multi-year agreement with Triad Isotopes. I’m pleased to report that we have now expanded our agreement with Triad. Our expanded agreement provides for a higher percentage of generators and committed volumes on other key nuclear products, including Xenon. This agreement also runs through December 2017.

The second objective was enhancing the position of our commercial products in international market. We created efficiencies in our radiopharmacy distribution model, including selling our Canadian radiopharmacies to Isologic and establishing a new long-term supply contact with Isologic for our products, including minimum product purchase commitment. Additionally, we consolidated our Puerto Rico operations into a single large radiopharmacy in San Juan.

As part of our international growth strategy for key products, we secured commercial partners for both Neurolite and DEFINITY in Europe. Additionally, we advanced our DEFINITY in China programs with our Clinical Trial Application or CTA approved by the China FDA in mid-February. With the receipt of this approval, our partner Double-Crane will now advance to the next stage of the program, which will be the conduct of two small confirmatory clinical trials. I will continue to update you on the progress of this program throughout the year.

The third objective focus on creating strategic partnership to further advance our agents and development. We’re currently in diligence with several companies for potential partnership with flurpiridaz F 18. We are evaluating global, regional, and functional opportunities relating to development, manufacturing, and commercialization. As we finalized one or more of these partnering opportunities, we will then commence the second Phase 3 study, which we currently believe will take between two and three years to complete.

Our potential partners agreed that flurpiridaz is very promising as a next generation myocardial perfusion imaging agent. We will keep you apprise of further development. For our cardiac neuronal imaging agent or CAN, we are currently working closely with independent investigators to develop Phase 2 data for this product, which then may allow us to advance the clinical development program.

CNA is a fluorine-18 based PET agent designed to assess cardiac sympathetic nerve function. Stages in the cardiac sympathetic nervous systems have been associated with heart failure progression and fatal arrhythmias, which were associated with high morbidity and mortality. We are also seeking to engage strategic partners with this ongoing development of this agent.

The fourth and final objective is centered on evaluating opportunities to enhance our portfolio. We have considered a number of possible product opportunities, both branded and generic to enhance our position in the global diagnostic medical imaging space. Although at this time there’s nothing additional to report. We have added two small products at CMO manufacturing opportunities on our cyclotron. We're also pursuing additional Isotopes we can produce and to our package in our Billerica manufacturing space. 2015 was a good year for our business and I’ll expand further on some of these topics in more during my discussion of our 2016 corporate priorities.

Now, let me turn the call over to Jack Crowley for a detailed review of our fourth quarter and full-year 2015 results and a presentation of our 2016 guidance Jack?

Jack Crowley

Thanks, Mary Anne, and good afternoon, everyone. Tables included in today’s press release, as previously noted, include reconciliation of our GAAP results to the as adjusted performance I’ll be covering with you today. Of particular note, those tables include the reconciliation of our GAAP net income to adjusted EBITDA, which is a metric that we consider to be particularly relevant at this time due to the variability of our technology transfer activities and related costs.

Fourth quarter 2015 revenue totaled $71.2 million. Looking at our revenue results on a product line basis, DEFINITY again posted a strong performance with revenue growth totaling 13%, both as reported and on a constant currency basis as compared to the year ago quarter.

Our TechneLite business posted worldwide revenue of $17.1 million for the fourth quarter of 2015, decreasing by 25% on a constant currency basis compared to the year ago quarter. This reflects the impact of our change in 2015 in contract status to the significant customer as referenced in our previous calls.

Xenon revenues, which represented 15% of our total sales during the fourth quarter of 2015 totaled $10.9 million, an increase of $1.9 million, or 21% versus the prior year. This is attributable to higher selling prices in 2015, which we will not replicate in 2016, as we have chosen to contract at lower prices for committed volumes with key radiopharmacy customers.

Our other product category, which represents 20% of our total revenue totaled $14.3 million during the fourth quarter, decreasing by 18% in constant currency as compared to the fourth quarter of 2014. Similar to our Q3 performance, the year-over-year decrease is attributable to certain license fee revenues that ended in December 2014, as well as the lower sales of certain other nuclear products impacted by our previously noted customer specific changes.

Moving below the revenue line, our fourth quarter 2015 gross margin totaled 46.9%, a 430 basis point improvement over the 42.6% gross margin we reported in our fourth quarter of 2014. Similar to the year-over-year comparison we reported for Q3, the main drivers of this significant Q4 improvement are increased sales of DEFINITY, our highest margin product; and lower volumes with increased per unit selling prices for certain nuclear products associated with the previously noted customer specific changes.

As we’ve stated during our previous earnings calls, our reported cost of goods sold includes technology transfer costs, which are the period expenses associated with our various contract manufacturing initiatives. These costs totaled approximately $1.1 million during the fourth quarter and were lighter than previously anticipated due to changes in the timing of underlying activity. Going forward, we expect increased costs during 2016, as our tech transfer related activities intensify.

While these increased costs will dampen our reported gross profit and our reported gross margin results, as we previously noted, we do not impact adjusted EBITDA since they are included as an add back to that calculation. Note that our tech transfer cots have historically demonstrated and we believe will continue to demonstrate for the next one to two years, considerable variability from period-to-period. These investments in tech transfer cots to increase the number of manufacturing advantage serve to significantly reduce product sourcing risk in the future.

Moving now to operating expenses, fourth quarter 2015 operating expenses totaled $21 million and remain relatively consistent as compared to the prior year period. Our continued focus on spec expense management has contributed well due to expansion of our operating profit and EBITDA margin. We delivered operating income of $12.4 million for the fourth quarter of 2015, an increase of 6% over last year with operating margin expanded by 220 basis points to 17.4% for the fourth quarter.

Moving below operating income, fourth quarter interest expense totaled $7.1 million, which improved by $3.5 million, or 33% in comparison with the fourth quarter of 2014, and is consistent with our expected go-forward quarterly interest expense levels, following our June 2015 refinancing activity.

Pretax earnings for the quarter totaled $5 million. Fourth quarter income tax provision totaled $1.1 million consisting exclusively of taxes on foreign income and discreet items unrelated to our U.S. pretax earnings. As noted during last quarter’s call, U.S. pretax earnings are currently being offset; both for GAAP and cash tax purposes by the utilization of our significant federal net operating loss carry forwards.

Finally, per share count. Our Q4 per share results are based on an average of 30.4 million diluted shares for Q4 of 2015, and 19.3 million shares for Q4 of 2014. Our full-year diluted share for 2015 totaled 24.4 million shares.

Moving on to our balance sheet, cash flow and liquidity, as of December 31, 2015, we had cash and equivalents totaling $28.6 million. Our ABL facility, with an outstanding loan balance of zero and an outstanding letter of credit totaling $8.8 million, provided us with net availability of $39.3 million as December 31. Our total liquidity, including cash on hand is $67.9 million as of December 31, providing ample liquidity to support our operating need.

Our fourth quarter 2015 operating cash flow totaled a positive $12.6 million, as compared to a negative operating cash flow in the fourth quarter of 2014 of $3.9 million. The key driver is – of this improvement is improvement in our debt interest rates and the timing of the related interest payments for 2015 as compared to 2014.

As for the other components of our cash flow, capital expenditures during the fourth quarter of 2015 were $4.7 million compared with $2.8 million for the fourth quarter of 2014 and $2.3 million in the third quarter of 2015. Within financing activities, we used $1 million of cash during the fourth quarter of 2015, as our quarterly payments to our term loan principal commitment.

Now, I would like to add a commentary that Mary Anne provided earlier with a recap of our full-year 2015. Altogether, we accomplished our revenue goal for 2015 and exceeded our adjusted EBITDA forecast. Worldwide revenue for 2015 totaled $293.5 million, representing a 3% decrease on an as reported basis. On a constant currency basis, our revenues remain consistent with 2014.

On a GAAP basis, the company recorded a net loss of $14.7 million for 2015, a change of a $11.1 million over the net loss of $3.6 million reported in 2014, largely as a function of expenses related to our initial public offering and debt refinancing, the termination of our monitoring agreement with our sponsor.

On an as adjusted basis, we achieved positive net income of $14.2 million for the full-year, as compared to an adjusted net loss of $2.4 million in 2014, and we achieved adjusted EBITDA of $76.3 million. We also delivered operating cash flow of $21.8 million and free cash flow of $8.6 million, while funding the working capital requirements of the year, at the same time we increased our cash balance by $8.9 million and expanded our total liquidity by $15 million since year-end 2014, reducing our total outstanding debt by approximately $40 million, or 10% and our anticipated annual interest costs by approximately $14 million, or 33%.

Now, I’ll discuss our guidance for full-year 2016, as well as coupon of 2016. Please note that going forward, we will be providing quarterly guidance, as we believe it provides proved investor transparency into our expected financial results. The predictability of our revenue streams under our new contracts has improved our ability to provide this value.

As stated in today’s press release, we anticipate total revenue for the full-year 2016 in the range of $285 million to $290 million. Note that our foreign currency assumptions are based on prevailing rates and will contribute or have contributed $2.5 million to our revenue reduction in 2016 as compared to 2015.

Our revenue guidance also reflects the impact of continued DEFINITY growth, offset by the sale of our Canadian radio pharmacies, which contributed $13.5 million of revenue in 2015. It also reflects the impact of entering into long-term Xenon agreements with key customers at committed volumes and lower prices, but does not include any potential unit volume pressure, the potential new competitors in this market.

For the first quarter of 2016, we expect to see revenue in the range of $72 million to $74 million. Also stated in today’s press release, we anticipate adjusted EBITDA for the full-year 2016 in the range of $60 million to $64 million, representing approximately 21% to 22% of reported revenue. This guidance for 2016 includes the effect of our new multi-year agreement with Cardinal Health, as well as the impact of the contracts we have entered into with our current customers for Xenon that include committed volumes or lower unit pricing.

In 2017, we have contractual commitments for greater portion of Cardinal’s volume of innovative products. And as a result of this multi-year contracts, we expect that 2017 revenue for these products will improve in comparison with 2016.

For the first quarter of 2016, we expect as adjusted EBITDA in the range of $14 million to $16 million. We’re also forecasting continued improvement in our operating cash flow and working capital metrics for 2016. We believe we are entering 2016 in a strong liquidity position, which will be further enhanced with the addition of Q1 cash inflow of approximately $8.5 million provided from the sale of our Canadian radiopharmacy.

And we are comfortable that we are well-positioned to meet our debt covenants. As a remainder, our debt covenants are calculated using a bank defined adjusted EBITDA, which allow us for traditional add backs to our reported adjusted EBITDA. We are comfortable that we have significant cushion against our debt covenants.

With that, I’ll turn the call back to Mary Anne.

Mary Anne Heino

Thank you, Jack. I’d like to now share our corporate outlook and 2016’s priorities with you. Our overall business strategy remains primarily the same in 2016. However, we have identified three major priorities. They are one, low revenue in unit volumes of our commercial portfolio; two, opportunistic advancement of pipeline asset and business development; and three, relentless attention creating efficiencies in our operations and capital structure.

First, the respective growing revenue and unit volumes of our commercial portfolio, DEFINITY is expected to remain a key growth driver in 2016. A number of positive aspects are expected to drive this. We are forecasting continued growth of the U.S. echo market in 2016. In addition to growth of the number of echocardiography study forms, we also see continued growth in the percent of those procedures performed using a contrast agent. We’re also forecasting that DEFINITY will continue to retain market share leadership allowing that Lumason will grow its presence and share.

We welcome the added voice Lumason brings to the market in driving awareness of the value of contrast. We believe another positive aspect of this market is stable reimbursement. The final CMS top three reimbursement rate have been published and provides modest incremental reimbursement for echo with contrast as compared to 2015 reimbursement rate. We also project 2016 with the increased DEFINITY sales in key OUS market, with higher sales in Canada and sales generated by our reentry into the EU market as well as commercial sales in South Korea. So certainly less than a sales potential of the U.S. marketplace, we believe these are important contributions to worldwide revenue and speak to our efforts to continually expand the worldwide footprint for DEFINITY.

Finally, with regard to DEFINITY, while our next generation development program will not contribute revenue in 2016, we anticipate we will make significant progress with this program and believe it will provide future continued growth for this important diagnostic agent once approved. I will update you on this program on future calls.

With respect to our U.S. nuclear product, we successfully negotiated multi-year agreements with both Cardinal Nuclear Pharmacy Services and Triad Isotopes in 2015 that generate committed volumes of key nuclear products in 2016 and beyond. While these contracted prices are significantly lower than the supply prices of these customers have been seen, we feel these new agreements provide predictable and stable revenue and unit volume stream for our key nuclear products in 2016, while also providing for potential incremental growth in 2017.

In line with protecting the material supply of our key new commercial products, our Xenon program with the Institute for Radioelements or IRE is on track. Upon receipt of regulatory approvals to both IRE and Lantheus, IRE will provide Lantheus with both Xenon, which we will then process and fill for our customers. We anticipate providing commercial supplies from this process later in 2016, before the shutdown of the NRU reactor, our current source to process Xenon. Finally, we also project sales of our product Neurolite in the EU in 2016, as we enter that market.

Our second priority in 2016 will be opportunistic advancement of pipeline asset and business development. We consider our DEFINITY China program in this category, as it represents future revenue opportunity. We’re pleased to share we’ve reached a key program milestone as the China FDA has completed their review and approved DEFINITY Clinical Trial Application or CTA.

As mentioned earlier, with China FDA approval our partner Double-Crane will now conduct two small confirmatory trials; one in echocardiography, and the other in abdominal ultrasound. Assuming the trials are successful, we currently estimate approval of DEFINITY in China could be as early at the end of 2017. Actual timing will be dependent on when the Chinese FDA grants approval of the import drug license. This is the last milestone before commercial activity can begin.

Flurpiridaz F 18 is a critical pipeline product. Our goal in 2016 is to finalize as soon as possible ongoing partnering discussions with one or more of the companies currently in diligence. Flurpiridaz F 18 and our other pipeline products are important priorities in our longer-term strategic planning. We will continue to be on the lookout for attractive acquisitions and licensing opportunities to expand the breadth and depth of our product offerings and the use of our manufacturing capabilities.

Our next priority is relentless attention to creating efficiencies in our operations and capital structure. As noted in late 2015, we concluded the sale of our Canadian radiopharmacies and entered into a long-term supply agreement with Isologic. While this decreases revenue for 2016, the transaction should result in improved EBITDA and margin for our business. In addition, we have several other efficiency programs to improve product costs and reduce operating expenses, either already underway or under assessment addressing our business footprint and capital structure that we believe could improve both the efficiency of our business and our balance sheet. I will update you on progress during our call for 2016.

Finally, I’d like to offer my perspective on our financial guidance for 2016. We view 2016 and the year of transition, due to the multi-year contracts we signed in 2016 with our nuclear customers that should solidify revenue in 2016 and extend further in 2017.

Xenon is also in transition in 2016, as we move from higher unit price sales in 2015, the committed volumes sales in 2016 that also extends further in 2017. Combined with the efficiencies gains to the sale of our Canadian Radiopharmacy and programs we have underway within rest of our business, we believe we can achieve greater revenue growth and margin improvement performance, as we move from 2016 which is 2017 and beyond.

In summary, we believe our leading position in the echo contrast market, the steps we have taken to secure committed volume for our key nuclear products, our continued progress in next-generation and pipeline programs, and our focus on efficiency efforts create a strong foundation in 2016 and a platform for increased revenue and unit volume in 2017 and beyond. I look forward to updating you throughout the year.

With that, I’ll conclude my comments and open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Larry Biegelsen from Wells Fargo. Your line is open.

Larry Biegelsen

Good afternoon, guys. Thanks for taking the question. I just wanted to ask about the nuclear supply contracts you have with UPPI? And do that expires at the end of 2016, and GE at the end of 2017? Is there any update on those contracts and then I had a follow-up?

Mary Anne Heino

Good afternoon, Larry. Update - a quick update on those contracts other than say, as you noted when they expire, I will share that we are already in contract negotiation with UPPI and we’re in constant conversation with GE.

Larry Biegelsen

Okay. And then on DEFINITY, could you give us a little bit more color on your expectations for 2016 in the U.S.? Sales were – the year-over-year growth slowed a little bit in the fourth quarter, and it was flat sequentially, and in years past, we’ve seen it up sequentially in the U.S., at least, the two prior years. So could you give us a little bit more color on what you're seeing competitively and expectations for next year for 2016? I'm sorry.

Mary Anne Heino

Sure, I’ll speak to the market Larry and then I’ll let Jack comments on the actual dollars Yuan. First, I would like to note, because this question might come up when looking at other aspect of quarterly revenue. Q4 of 2015 was unique and that it had three fewer selling days than the prior quarter Q3 of 2015. So if you look at the average sales per day, we could see sequential growth in average sales per day, but on a quarterly basis because of the difference in number of selling days that doesn’t translate.

Specifically to DEFINITY, I’ll speak to the market first and then we’ll speak to the three assets we see in the market.

First, at the total market of the level of echos, we see continued growth in the number of echo procedures done in the United States. And that growth rate has been consistent over the last several years, so that that’s still there. When we look at contrast penetration work, he number of procedures using our contrast agent, we also see that growing, and I’ll share with you that our assumptions for the growth of that are very similar to year-over-year.

We do see on a – from a share perspective, we do expect to give up some share to Lumason, as they enter the market fully and really execute their own efforts and that’s something that we predicted and we’re comfortable with. On an absolute basis, 2016 will deliver higher revenue for DEFINITY fully and absolutely your post-higher margin as well, I’m not going to give you anymore specific guidance other than that.

Second, performance on quarters…

Jack Crowley

Yes. Thank, Mary Anne and Larry. Mary Anne outlined exactly right. So you’ll see less selling days – you’ll see a pickup in the selling days in Q1 of 2016, we expect to see the corresponding increase in DEFINITY sales. But we don't provide product line guidance. So I will leave it at that.

Mary Anne Heino

And not respectively, we do obviously historically.

Larry Biegelsen

Hey, lastly from me guys. Could you talk a little bit about what the press release means by that the statement in the press release regarding Xenon competition. I guess, my question is how much Xenon exposure is there that that’s non-contract. Can you help us kind of understand where it’s non-contracted versus contracted. Thanks for taking the question.

Mary Anne Heino

You’re welcome. This is, Larry, what I will share with you is, as we’ve noted I, think, a few times in our transcript today is, we have committed volume contracts with Xenon with the four largest radiopharmacy customers in the U.S. radiopharmacy market than the U.S. nuclear market. I won’t speak to specific contract terms. There are a handful of other concept that we call independent that are not part of one of those four large customer groups, and we do not have specific contracts with them for committed volumes on a product basis.

Larry Biegelsen

Thanks for taking the questions, guys.

Operator

Our next question comes from Glenn Novarro from RBC Capital Markets. Your line is open.

Glenn Novarro

Hi, good afternoon. Two questions on DEFINITY. First, you talked about DEFINITY being launched in Europe in 2016, and then also Korea. Can you talk about the infrastructure that's in place in both Europe and Korea? Are you going direct or using distributors, and maybe a sense of what these territories can contribute this year. Thanks.

Mary Anne Heino

Well, good afternoon, Glenn. So our relationship in both Europe and Korea will be through distributors. I would like to clarify the reentry into Europe DEFINITY had been approved in that market. What we had to move through was the approve of JHS as an approved manufacturer for product distributed in that market we were successful in that effort. But it is distributor relationship in both those markets.

The overall use of echo is similar on a population basis, but it’s absolutely lower, and the U.S., I won’t be offering at this time specific guidance on sales in either of those markets. But we will update you on the international segment as we move through the year.

Glenn Novarro

Okay, that’s fair. And then DEFINITY in China, that’s a big part of the story going forward, and you talked about a potential approval in 2017. But then there's getting clearance for launch and reimbursement and so forth. So maybe talk give us a little bit more color about when we should anticipate seeing sales in the model from DEFINITY in China? Thanks.

Mary Anne Heino

It’s good question, Glenn. So we use the guidelines that are published by the China FDA to estimate the length of time it takes to move from each milestones. And we've been somewhat on track with that give or take a little bit on the edges. And that’s how we come by our date of as early as the end of 2017. With the approval of the IDL, the product is then immediately available for commercial use in the market. Similar to other countries, such as Canada and some of the European markets, there is a separate process to set certain reimbursement levels, but that does not stop the product being available commercially.

Glenn Novarro

Okay, good. Thank you very much.

Mary Anne Heino

You’re welcome.

Operator

Our next question comes from Anthony Petrone from Jefferies. Your line is open.

Anthony Petrone

Thanks for taking the questions. Maybe just to switch gears a little bit to margins, specifically, I guess for 2016, the guidance 21% to 22% adjusted EBITDA margins. Can you maybe explain a little bit how much contract manufacturing is factored into that number as well as technology transfer costs. So it seems that there's three different items going on that are impacting the margins of cost to lower Xenon pricing? But also last quarter more contract manufacturing and tech transfer costs were called out as well. So I’m just wondering how much of that is factored into the guidance for 2016? And then I have a follow-up to that. Thanks.

Jack Crowley

Sure. Thanks, Anthony, it’s Jack. So I guess if you think about it just kind of going in reverse order when we talk about adjusted EBITDA margin, our transfer costs are pulled out for adjusted EBITDA, so that’s already included the technology transfer costs from the adjusted EBITDA numbers.

Anthony Petrone

Got it.

Jack Crowley

And then when you think about Xenon, as we've been talking about taking the lower prices for committed volumes is absolutely going to impact the gross margin. So that certainly has an impact throughout 2016. But as we said procuring these contracts, we believe there’s a good foundation for improvement over the margins in 2017. And then in terms of that phasing of our tech transfer costs, these costs are tough to predict on a quarter-to-quarter basis, but there’s some variability. So we’ll continue to talk about it, but we expect to see the pace of that work pickup in 2016.

Anthony Petrone

And I guess…

Jack Crowley

I don’t know if I clarify your questions there.

Anthony Petrone

Yes, you did. I think the last is just contract manufacturing, I guess, more volumes going through JHS, and the extent that that can have put pressure on margins?

Jack Crowley

Yes. Well, part of it is the margins the contracts with JHS and more products gone through that doesn’t necessarily impact our margin. But I think we’ll see some change in the Moly landscape over the odd coming years, which may impact our margins a little bit in 2016, but JHS contract manufacturing is consistent from a pricing perspective for us.

Anthony Petrone

That’s helpful. And then just really a follow-up on margins overall, as we look into 2017. Just maybe the press release calls for an improvement in 2017. I’m just wondering being that you will still have Cardinal running through their lower pricing. What would be reasonable to expect from margin expansion, as you look further out in the model? Thanks.

Jack Crowley

Sure. And I think at this point Anthony for 2017, we will be comfortable saying, as we expect to see margin improvement and a lot of that is in 2017, our volume commitment with Cardinal increases and based on that we see an expanded – with our fixed contract – fixed manufacturing base, we see expanded contract being – products being built that actually helps to improve our margin. But we’re not going to give specific margin for 2017.

Anthony Petrone

Now understood. Thank you.

Mary Anne Heino

I do think it is fair to say that as DEFINITY continue to become a larger part of our product mix some – since the margins with that are very strong that will also contribute to margin improvements.

Anthony Petrone

Thank you.

Operator

Our next question comes from Jeff Johnson from Robert W Baird. Your line is open.

Jeffrey Johnson

Thank you. Good afternoon, guys. Jack, could I just ask a quick follow-up on something you just said there before I get into my questions. Just on the increase in 2017 of sales to Cardinal, I thought in your prepared remarks, you made it sound like it was mainly the nuclear products that I couldn't tell if that included Xenon or not. With the penetration of Xenon with Cardinal be expected to go up in 2017, or is it the other nuclear products only?

Mary Anne Heino

So, Jeff, I’m going to have to note that you refer to me or Jack?

Jeffrey Johnson

I'm sorry, I'm sorry, I thought I said Jack, I thought I said Jack.

Mary Anne Heino

I’m not going to take it though. I’m going to allow Jack answer your question.

Jeffrey Johnson

I'm sorry. Well, I meant to say, Jack, but Mary Anne, I’m happy if you could answer that question for me?

Jack Crowley

Yes. So, yes, in 2017, we expand the commitment of Xenon, our committed volumes for Xenon.

Jeffrey Johnson

Okay, that’s great.

Jack Crowley

Versus – the Cardinal versus 2015.

Jeffrey Johnson

Great. And then so the two questions I did have that I wanted to get through is just on DEFINITY, could you speak at all the kind of maybe what you saw in the October, November, December time period from a competitive perspective? I think it was October 1, when the add-on payment for Bracco's product went on.

So was there a noticeable shift during those last three months of the year, I mean, we can look at the DEFINITY growth rate and try to assume some answers there. But just would like to hear what you were seeing in the field once that add-on payment went through? And if you could update us at all on the DEFINITY market share, I think the last update we’ve got was in the upper 70s, but any update there would be helpful?

Mary Anne Heino

So, Jeff, we did not see any noticeable change in that period of plans. One model has always allowed that moves on and continued to gather share as is consistent with the product launch. And we did see real, but appreciable increases in their share. From a larger perspective, it was a good quarter other way that we monitor the market we look at total number of echoes, we look at contrast penetration rate, and we look at our share. The first two group and we held our share and I will refer you and the reference you gave us to being high 70s. We can continue to see that as the share level performance for DEFINITY.

Jeffrey Johnson

All right. That’s helpful. Thank you. And then my last question just on the competitive Xenon environment other than the talk out there that Marilyn Crowder [ph] competitor is coming with Xenon? Any updates there, I mean, we haven't been able to hear too much else from a timing standpoint anything else. Is there anything in the field that you could help us with that would make us help us think about how this plays out throughout 2017 or 2016 and 2017?

Mary Anne Heino

No, we have no additional information that we can shed light on it. We are aware anecdotally, but there is an application with the FDA for approval of a competitor. There is no FOI information versus that we can check that if any kind of progress update about where that application or approval process is.

Jeffrey Johnson

Yes, that’s kind of where we’re at as well. Thank you so much. I appreciate the time.

Mary Anne Heino

You’re welcome.

Operator

[Operator instructions] Our next question comes from Doug Dieter from Western Asset Management. Your line is open.

Douglas Dieter

Thanks for taking my questions. I wanted to understand what was not included in your 2016 guidance since $60 million to $64 million of EBITDA and the revenue. So what is and is not, is the international expansion included in that number?

Jack Crowley

Yes, Doug, it’s Jack. Yes, so the guidance that we provided is our full-year expected financial guidance. So all of our assumptions, including the international expansion are included in that.

Douglas Dieter

And just – go – looking back on history here, I mean, at the time not to sign a contract with Cardinal was expected to reduce revenues, but improve margins. And here you are in terms of signing with Cardinal, I would have assumed the volumes would have been more than enough to improve revenues, but weaken margins. In this case, it looks like revenues and volume, but revenues and EBITDA margins were down from it. Can you kind of walk us through kind of what the thought process there is? I mean, in theory you should be accepting – you would be getting more volumes and the even though the hit in price is somewhat material, it seems like it's more than offsetting any future revenue growth in 2016 from that contract?

Mary Anne Heino

So, Doug, I’ll start now and I’ll let Jack in, if he think of additional information that we share. But I think to address our revenue and margin outlook 2016 versus 2015, really there’s two factors that I would point to right away. And the first one is, we – I think we’re quite transparent [throughout the full] [ph] that wetook the decisions which is in that whole state any decision you’re taking originally not part of the Cardinal. We took the decision to contract with Xenon across all of the radiopharmacy customers. And to do so allowing for committed volumes did exchange the lower pricing. And that’s the impact that will be fully built into 2016, specifically, it wasn’t there in 2015.

Second item that has a lesser impact, but still as a real impact to 2016 is with the sale of our Canadian Radiopharmacies, there’s a piece of that revenue that goes away. As part of operational activities of those pharmacies, we produced unit doses of third-party products that is – those are products of other companies that we would combine with TechneLite generators and technetium to produce unit doses. That revenue has not replaced with our supply contract that we now have replace with Isologic.

That alone accounts for that [indiscernible] million in revenue with full-year basis 2016 versus 2015. So those are the two pieces that I would say contribute most to our 2016 outlook. As Jack also noted, we do using prevailing foreign currency rates. There’s approximately I think $2.5 million revs that we estimate in loss and what is loss revenue based on what we see at the prevailing FX group. Jack, anything else.

Jack Crowley

So I think I covered it. And, again, Doug, I think we use this as really a transition year for us to secure these long-term contracts. But we know that we can predict with this predictable revenue plan that are first 2017 and beyond.

Douglas Dieter

And obviously the F-18 the contract – the clinical trial review concluded not – a little bit less than a year ago. And the company has been talking about finding a partner for sometime now and obviously you had to get through that process of reevaluating the clinical trial. I was a little surprised by the fact that you haven’t provided any commentary on when you hope to have a partner and why you can't commit to a 2016 partnership?

Mary Anne Heino

So, Doug, I would say, we’re not on this call committing to a 2016 partnership, but we’re also not saying that it won’t happen in 2016. I do think it’s a fair question that you bring up and I would like to offer in response to that what we were able to see our re-review of the data from our first trial, we did not been, there was another period of time during, which we had to complete negotiations with the FDA for what we see the designing contrast of our second Phase III trials.

And those efforts were successfully completed, I believe it was in partially mid-Q2 of this teen. And that’s what really I think gave us the updated kind of product profile and product outlook that was important to take out to the folks who were interested in the product, and that we’ve been doing. As I mentioned that right now several companies in full diligence looking at the program and we have feedback to us is that it’s a very interesting product and that they’re excited about the potential for it.

Douglas Dieter

And, Mary, you mentioned a couple of times, the word capital structure in evaluating the capital structure. And I’m not exactly sure, I know what you mean by that? Could you maybe elaborate on that?

Mary Anne Heino

So I’ll start and just speak to the larger priority we have around efficiencies and I’ll let Jack laying onhow it seem specifically to capital structure. So I think and this is certainly a pull out to our pharmacy or just. But just really and so a very strong rise on our campus to look for efficiencies. And we've been – we have that underway since 2013 and I think we’ve been successful with it.

We have additional programs we’re looking at that are efficiency driven programs. I think the sale of our radiopharmacy is the perfect example. They were business assets, so they were no longer strategic to our operations. When we initiated them, they were strategic to our operations. They are no longer in the sale of the Canadian Radiopharmacy, was an efficiency move. It created a slightly lower revenue profile, which I just talked about, but it improves our EBITDA margins.

We did a similar move already in Puerto Rico. We were operating two radiopharmacies in Puerto Rico. One was much larger and really was the hub for our activities. The second was satellite. When we looked across the business, we recognized that we could consolidate into our single large radiopharmacy and actually improve our margin.

So we did that. Those are the type of activities that we continue to look at and look for. As far as our campus, we have a lot of manufacturing capabilities on our campus and we certainly look to leverage some of those to create efficiencies in what the operating costs or total campus and how we allocate that across the product that we ‘re currently manufacturing. John, if you want to add any capital structure?

Jack Crowley

Yes, thanks. Doug, I guess, finance person thinking of capital I always look at it. Certainly, what Mary Anne alluded to is true. And I think that manifest itself with the results of our operating expenses being consistent year-over-year. But as I look at 2016 from a capital perspective that – obviously the IPO and refinance increased [Technical Difficulty] perspective. So I do think from a finance capital structure perspective, we’ve also excited about what we will accomplish in 2016, and mindful as we in 2015 rather and mindful as we go through 2016 that we do want to continue to see ways to maximize the balance sheet.

Mary Anne Heino

And certainly deleveraging is one of them.

Douglas Dieter

And, just you ended the quarter or the year with how much outstanding on your revolver?

Jack Crowley

There's nothing outstanding on the revolver year end, it wasn’t 2014, but we paid that during 2015.

Douglas Dieter

So you are in that swing in the quarter of about $15 million in terms of cash between adding about $7 million of cash, cash equivalents and paying down $8 million on the revolver?

Jack Crowley

Yes, we actually paid the revolver down in Q2, I’m sorry Q3.

Douglas Dieter

For Q3 in a Q. Okay, I’m sorry I apologize. So and then in terms of debt repayment, obviously your stock is trading where it is. But you also have debt that’s currently trading at a material discount. Do you have any baskets of – to be able to buyback debt in European market at discounts?

Jack Crowley

Yes, we – yes, Doug, we do continually look at our options for that. I mean, we totally recognize where our stock price is and understand where our debt is trading now. And as we continue to focus on our fundamentals, which is driving efficiencies in the balance sheet, driving efficiencies in the business, building predictability into our P&L. We will take a look at our debt opportunities in 2016.

Douglas Dieter

Okay. Thank you.

Operator

And I’m showing no further questions. Thank you ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may all disconnect.

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