Lantheus Holdings (NASDAQ:LNTH) Q1 2019 Earnings Conference Call April 30, 2019 8:00 AM ET
Mark Kinarney - Director, Investor Relations
Mary Anne Heino - President & CEO
Robert Marshall - CFO & Treasurer
Conference Call Participants
Raj Denhoy - Jefferies
Larry Biegelsen - Wells Fargo
Larry Solow - CJS Securities
Welcome to the First Quarter 2009 Lantheus Holdings Earnings Conference Call. [Operator Instructions]. I would now like to introduce your host for today's call Mr. Mark Kinarney, Director of Investor Relations. Sir, you may begin.
Thank you and good morning. Welcome Lantheus Holdings first quarter 2019 earnings conference call. Joining me today is our President and CEO, Marianne 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 first quarter 2019 results. You can find our release in the investor section of our website, 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'd like to now turn the call over to Mary Anne. Mary Anne?
Mary Anne Heino
Thank you, Mark and good morning everyone. We delivered strong first quarter results, driven by double digit sales growth for both DEFINITY and TechneLite. In addition to posting these results, we advanced efforts on our internal projects and business development. Earlier this month, we announced a strategic collaboration with Cerevast Medical for the treatment of retinal vein occlusion or RVO, one of the most common causes of vision loss worldwide. Under this agreement, Lantheus' microbubble will be used in combination with Cerevast ocular ultrasound device to address blood flow in occluded retinal veins in the eye.
By treating the underlying cause of this disease as opposed to the symptoms, this therapy has the potential to reduce or eliminate the need for chronic maintenance therapy and improve the quality of life for those patients afflicted with RVO. Cerevast RVO technology is expected to enter a Phase 2b clinical trial in the second half of 2019 and if approved, the RVO technology could be commercialized as early as 2023. This collaboration fits squarely into Lantheus' growth strategy of identifying new applications for its microbubble franchise.
A number of additional scientific collaborations and research initiatives are underway that include expanded uses of microbubbles for diagnostic and therapeutic applications. One such example was recently presented at the American College of Cardiology by Dr. Wilson Matthias [ph] of Sau Paulo, Brazil. In his research, Dr. Matthias is utilizing ultrasound induced cavitation and DEFINITY in the treatment of acute myocardial infarction or MI. This application has the potential to be useful in the developing world as well as rural areas with little or no access to endovascular therapy, as it allows emergency technicians the ability to initiate mitigating treatment to MI patients while enroute to treatment centers. Our belief in the potential application of microbubbles remain strong, and we will continue to support valid efforts to evaluate additional applications of DEFINITY.
In a moment, I'll speak more about our performance and highlights from the first 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 first quarter financials focusing on adjusted results unless otherwise noted and then provide second quarter and full year 2019 revenue and earnings guidance, net revenue for the first quarter totaled $86.5 million, an increase at 4.7% over the prior year. As a reminder, we had one fewer shipping day this year's first quarter as compared to the same quarter last year.
Foreign currency was a negative headwind of approximately $250,000 or a negative impact of 30 basis points on year over year growth. DEFINITY continued to post solid growth with recorded sales of 51.1 million or 14.5% higher as compared to the prior year quarter. TechneLite revenue was 24.1 million, an increase of 12.9% over the prior year quarter despite another production outage at NTP late in the quarter a situation we are monitoring closely. Other nuclear revenue which exclude TechneLite but include and due principally Xenon decreased 22.4% to 15.1 million, revenue was offset by rebates and allowances of $3.9 million. Adjusted gross profit margin was 52% of net revenue, a decrease of 30 basis points from the first quarter of 2018 on a similar basis. This quarter's results are in-line with our forecasts and include, among other items, planned expenses in support of the construction of our new manufacturing facility.
Operating expenses were 60 basis points favorable to the prior year at 29.6% of net revenue as adjusted, driven primarily by lower GPA and sales and marketing expenditures. Additionally, while our LVEF clinical studies remain on track for completion in 2019, anticipated expenses now skew more to the second and third quarters, creating first quarter favorability relative to initial expectations. That said, the increased investment in R&D by to higher expenses by approximately 100 basis points versus the prior year at 5.4% of net revenue.
Total adjustments in the quarter were $3.2 million before taxes of this amount 2.8 million is associated with non-cash stock and incentive plans with the balance attributable to intangible amortization expense. Adjusted operating profit for the quarter was $19.4 million, an increase of 6.1% over the same period prior year. Net interest expense and other income amounted to $3.4 million underlying net interest expense was slightly higher over the prior year due mainly to a higher interest rate environment. Reported effective tax rate for the quarter was 22.1%, the rate adjusting for certain prior period, non-recurring tax benefits booked in the period was 29.7%.
The resulting net income for the first quarter was $9.9 million, or an increase of 21.2%. Adjusted net income was $11.2 million or an increase of 9.1%. Reported GAAP fully diluted earnings per share were $0.25, an increase of 20.3% from the same quarter last year. Adjusted fully diluted earnings per share were $0.28, an increase of 8.2% over the same period prior year,
Lastly, first quarter operating cash flow totaled a source of $10.5 million as compared to the use of $700,000 in the first quarter of 2018. Capital expenditures totaled 10.6 million, which increased over the prior year, mainly due to planned strategic investment in our manufacturing facility on our Billerica campus. A significant portion of the expected flows in the quarter were for construction equipment installation in the new facility, which remains on time and on budget. Free cash flow which we defined as operating cash flow less capital expenditures was essentially flat for the quarter. Cash and cash equivalents totaled $112.1 million at quarter's end, and for modeling purposes depreciation, amortization expensive amounted to approximately $3.3 million for the quarter.
Turning now to our guidance for the second quarter of 2019, net revenue is expected to be in a range of $86 million to $90 million. Shipping date or equivalent quarter over quarter last year same quarter. Adjusted fully diluted earnings per share expected to be in a range of $0.23 to $0.28 and for reference, the equivalent adjusted EPS for the second quarter of 2018 was $0.37. For the full year, we are affirming our prior revenue guidance range of $358 million to $363 million. We are also affirming our adjusted fully diluted earnings per share range of $1.14 to $1.17.
With that, let me turn the call back over to Mary Anne.
Mary Anne Heino
Thank you, Bob. Now let me provide some additional color on our business performance and progress on our strategic program. Turning back to our microbubble franchise, we delivered double digit DEFINITY sales growth, while continuing to make progress on 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 investment in our DEFINITY left ventricular ejection fraction or LVEF clinical program. We remain on track with our two parallel Phase 3 studies, BENEFIT 1 and 2 with patient enrollment now over 50% complete for BENEFIT 1 and total enrollment on track to be completed this year.
With the data from these completed studies, we plan to file a supplemental NDA that if approved would enable us to commercialize soon thereafter. We are excited about the prospects of an LVEF indication and continue to evaluate the associated market opportunity. Additional research completed recently supports the view that clinicians see value in improved LVEF measurements accuracy, particularly for heart failure, valve disease and chemotherapy patients. The inclusion of these patient types for whom LVEF is an important measurement approximately doubles the addressable market for DEFINITY enhanced echocardiography.
We also continue to make progress with our DEFINITY RT program having completed the critical phase of producing qualification batches with our partner Samsung Biologics. We are now gathering stability data critical to the submission of our regulatory application. Regarding the status of a potential generic filer to-date we have not received notice of an end application. We remain confident in DEFINITY's future and will continue to invest in our expanding microbubble franchise.
I'd now like to provide an update on our ongoing initiative to build a specialized manufacturing facility for DEFINITY and potentially other sterile bio-products at our North Billerica headquarters. As Bob noted the project remains on schedule we expect to receive final delivery of equipment and to substantially complete construction in the first half of 2019. These steps should position us for product qualification in 2020 and keep us on track to produce commercial product by early 2021.
I'd like to now turn to China and our ongoing program with DoubleCrane crane to introduce DEFINITY into that market. During the first quarter, our partner informed us that they anticipate a delay as they work through certain issues related to Chinese regulatory approval of our packaging components, as well as the completion of clinical data assessment from our liver and kidney clinical trials. We will continue to work closely with DoubleCrane on these matters. While we are not providing a specific timeframe for our regulatory filings, our ultimate goal remains the same to introduce DEFINITY into China through DoubleCrane in cardiac, kidney and liver imaging
In our nuclear business, we continue to focus on meeting the needs of our patients and customers. As Bob mentioned, we are managing a temporary loss of Moly supply from NTP. While NTP has again experienced an outage, another critical partner [indiscernible] recently received regulatory approval from the Australian Nuclear Regulatory Authority to begin initial production in its new Moly processing facility, and so ANTSO nuclear medicine or ANM. In recent days we received notice that the FDA completed its audit of ANM and approved our use of Moly supplies from this new facility. At full ramp up capacity, ANM will be able to provide incremental supply to our globally diversified Moly supply chain.
Turning now to Flurpiridaz F 18, our novel pet cardiac imaging agent, the second Phase 3 trial is underway and will eventually enroll up to 650 participants with a target completion date in the second half of 2020. Our partner GE Healthcare has informed us that enrollment in the program is going well.
For LMI 1195, our test based molecular imaging agent targeting the norepinephrine transporter, what we have not yet finalized a special protocol assessment, or SPA, we continue active negotiate patients [ph] for our Phase 3 heart failure programs and patients under consideration for ICD implantation. In addition to pursuing this indication, we are also defining two Phase 3 clinical trials for the use of LMI 1195 in the diagnosis and treatment follow up of neuroendocrine tumors in pediatric and adult populations respectively which may qualify for an orphan drug regulatory filing, and could allow for a streamlined regulatory process.
Overall, our first quarter financial results and operational achievements reflect progress in yet another year of growth and strategic investments for Lantheus. As we look ahead, we remain focused on enhancing the sales growth and profitability of our core microbubble franchise, investing in our pipeline with an emphasis on emerging technologies and continuously screening external development opportunities to deliver long term sustainable growth.
With that, Bob and I are now ready to take your questions. Operator, please go ahead.
[Operator Instructions]. First question comes from Raj Denhoy from Jefferies. Your line is open.
Maybe I could start on the Moly supply issue. You know, you mentioned NTP has gone down again, but you're expecting, you know, additional supply perhaps over the course of the year. Maybe you could just flush out for us how that dynamic is going to play out as it relates to your revenue over the course of this year?
Mary Anne Heino
First let me say NTP is down again, but I hope everyone appreciates when we look at our revenue forecast and when we look at our business model, and we've been in this nuclear business for more than 30 years, there's lots of moving parts and our end game is always to mitigate and make use of what Moly we need where we need it. So that is our plan going forward. You saw us do something similar last year where in dealing with the outage, we were able to shift supply sources from different suppliers. Ideally, they all be up and always running but practically, we are always managing supply and at the end of the day, our target always remains same. Keep patients whole, and then keep our customers whole and from that perspective, that really is our first effort. We will keep you updated if there is any news that becomes public about NTP but at this point we're thrilled with our approval from ANTSO and as I mentioned, when they get to full ramp up capacity, which is certainly this year, and perhaps by mid to early late this year, they will have a significant amount more of Moly available to us.
Okay, so, you know, if we think about last year for 2018, I think, you know, I don't know if you ever gave us an exact number in terms of the impact your revenue last year, but it was offset by the additional ANTSO sales. You know, this year, it sounds like you're not expecting it a sizable of an impact on the business given all the dynamics. Would that be a fair conclusion?
Mary Anne Heino
I think the more fair conclusion is that last year - if you are just purely looking at the TechneLite, then yes, you can say that certainly what we were mitigating and loss from NTP out to our U.S. customers was offset by what we sold directly to ANTSO and generated to their market. But again, there's so many different pieces to our forecast that we look for the total revenue forecast to kind of offset each other from not only a revenue top line, but from margin bottom line which is important to us as well.
Okay, and then maybe just two other quick ones. So you mentioned LVEF it doesn't sound like you're still ready to give as much in terms of your expectation for the potential of that. You know, but by mid-2020, it sounds like that could be on the market. I mean, do you have any broad thoughts in terms of how much of a contributor that could be to DEFINITY growth as we started thinking about late 2020 and beyond?
Mary Anne Heino
Yes, so I can give you some color on that. And again, we were constantly looking at that market and it's very appropriate at this timeframe before market well every month or every quarter that we get close to we will continue to firm up our commercial launch plans for it, but one of the pieces that so attracted to us is this is going right back into the market we're already in. So this is squarely in the echocardiography suite, it's just a whole different section or segment of patients. So we're well known there, well obviously if you look at our the share of DEFINITY, we're well liked there, we are trusted, our educational efforts which were so successful in addressing sub-optimal images, we will have similar programs, which will educationally address the benefit of accurate LVEF measurements in the patient types, especially those patients eyes that I mentioned which are valve disease and chemotherapy patients especially. And we're hoping our educational efforts there in conjunction with the medical practitioners we work with open up this product for good use in what we see is a market that is similar in size to the market we're addressing with suboptimal. That's why I mentioned that it approximately doubles the addressable market population for the product.
Great. And let me just one last one for Bob, you know, the guidance for the second quarter, the revenue guidance of 86 million to 90 million, the 0.5% to 5.2% is relatively wide range relative to what you've given in the past. And so I'm curious if there's, you know, some uncertainty baked into that maybe from the TechneLite line or what's really behind perhaps that wider range, and you've normally given for quarterly guidance?
From a guidance range perspective, and we did think through it, I mean, there are a lot of moving parts, like Mary Anne mentioned, and as we think through, you know, the performance across the entire portfolio. I mean, yes, of course, we take into consideration the impact of NTP in the quarter, or at least the potential and have given ourselves a thoughtful analysis around what the potential outcomes can be. So, you know, we feel comfortable with where we've guided and wanted to provide you with our best insight into where things can go.
Our next question comes from Larry Biegelsen from Wells Fargo. Your line is open.
Just one housekeeping, Bob, the one last selling day in Q1 2019, is that about, did that take off about 1.5% growth so you did more like 6.5 in Q1 and when do we lose that day in 2019?
Yes, I mean, we've not done that specifically in terms of the math, but Larry, I think that's a very fair assessment, and we give back in the third quarter.
Okay. And then, you know, to follow up on Raj's question, you know, Q2 the 0.5% to 5.2%, you know, Q2 is an easy comp. So what are you assuming gets worse in Q2 versus Q1 and then Bob, the second half growth if I'm doing the math, right, it implies 5% to 8% on tougher comps. So what's going on here and are you assuming DEFINITY's pretty constant at mid-teens?
Yes. So one of the big assumptions honestly, is that, you know, DEFINITY has outperformed our expectations as we go through the year and then coming in, we had said, sort of low to mid-teens and we're seeing that mid-teen type growth and what we're seeing is, you know, positive on volume, we're also seeing, you know, decent price from our expectations perspective, as that carries forward through the balance of the year. In terms of the dollar, yes, the percent range in the second quarter is wider, but again, on a smaller dollar base, those percentages can get widened a bit, but the absolute dollars are fairly consistent with what we've done historically.
What has the potential is, obviously could be TechneLite, but at the same time we from, you know, these are some of the unknowns, but at the same time, we have confidence in the base as we build up the overall guidance range for the quarter and yes, if you look at the second half of the year those numbers, as I looked at them were more than achievable, just based on the sum of the parts.
As Mary Anne noted, that we will come into the back half of the year with more diversified Moly supply, which we believe that will continue to support our - the ongoing efforts to sort of drive the TechneLite sales and I guess, just even just further that in terms of the comps they are varied in the third and fourth quarters to be honest. So I think I had mentioned that those growth rates would be a little lumpy in the back half of the year, but would expect to see some decent growth rates based on comps of the certain different product lines.
And then just two more for me and I'll drop. EPS guidance, Bob down sequentially in Q2. We don't typically see EPS down in Q2 versus Q1 if I look back historically, and just so why is that and then just Mary Anne and lastly, what are the next steps and the next generation DEFINITY with Samsung, you know what's next before the filing, and it's pretty still on track for 2020 watch? Thanks for taking the questions, guys.
So two things there, Larry, one, as I noted the clinical studies from LVEF we had originally sort of forecasted that would be a little heavier in the first quarter but that has shifted a little bit because there's multiple reasons why it's not just based on numbers of patients that are going through but different aspects of way that those expenses roll out, we see it a little heavier now, as we move towards conclusion in Q2 that, that sort of weighing. The other thing too is as you think through as we go through the balance of the year this is also where we will see heavier investment in our manufacturing facility, which is part of our adjusted results. If you were to take the first quarter and the second quarter together in terms of taking our outperformance you'll know that when you sort of look at half one, it's more or less in line with overall expectations as we set them out the end the year and I think also your own. So I think it was just really more about phasing issue between Q1 and Q2 more so than, you know, a sequential movement and overall performance.
Mary Anne Heino
Larry, I'll speak to the DEFINITY RT program. As I mentioned during my comments, the period we're in now is a period it's I don't want to call it the wait period but what happens is, once you've completed your qualification batches, you then literally put your product up on stability and you let your product sit, because you gather time based stability data that is part of your application. So in many different programs that can be anywhere from 3 months to 24 months depending on what the product is but we are in that phase and once we reach our date for what we're gathering at stability data, that's the last component of data that goes into the actual application, which will then be submitted, where the rest of the components of the application are already in process and being completed and again, we're waiting for that stability data. Once that gets to the FDA in the entire application then we do see an expedited review period, because this is an SNDA and not an NDA application. So with that in mind, we see ourselves in track to keep the timelines that we've talked about
Which are 2020, Mary Anne?
Mary Anne Heino
I think we've mentioned late 2020 or sometimes 2024 commercially period we haven't identified a quarter.
Our next question comes from Larry Solow from CJS Securities. Your line is open.
Some of my questions were answered, but just a few follow ups, on the DEFINITY specifically obviously you mentioned a little better growth than you expected at least for the full year and it was up against pretty difficult comp. Does your guidance sort of imply a little bit of a slowdown like I assume it doesn't in the back half?
No, I think that it just sort of continues to continue to grow. I mean, the team, the commercial team has done a very good job from an execution perspective. The products as we've noted in past calls has a lot of runway, a lot of availability for sustainable growth and as we look at that market, and we continue to execute and we do believe that we're able to continue to grow it at these levels that we've indicated.
Right, so but I think you had guided towards a low double. So the 15% in Q1, probably a little bit outside, you know, and hopefully that's maintained but a little bit higher than sort of your full year guidance.
Mary Anne Heino
I don't think, Larry that we intended to specifically guide too low double, I think we said mid-teen growth and this is a product that Bob said that continues to perform and right behind that is because the market continues to perform. It's the market that continues to grow and that's the market here. We talked about the total number of echocardiography exams being executed in this case in U.S. market as referring to, and then we look at within those exams, the percent of those exams that are being done using a contrast agent, and then below that, what percent of those are done using the DEFINITY agent and we continue to very good dynamics there and that has a confident about continuing to have DEFINITY produce what it needs for us.
Great. And you mentioned pricing was actually maybe I don't think the big driver but even a little better than your expectations, can you just remind us is pricing sort of flat-ish, is it little bit of a north of or south?
Mary Anne Heino
So I will not speak about the price and I haven't and I won't start now, what I will say what I said in the past is that for me prices and investment as is any other investment in the market, such as education and alike and so we use it where appropriate.
Okay. And just a thought on the RT, the room temperature program, is that something that will more or less, you know, cannibalize some of your sales and I guess, you know, maybe help you take some share in some areas. Can you sort of speak to where that incremental benefit would come from?
Mary Anne Heino
I think when we look at the RT programs first and foremost, we see it delivering choice into the marketplace. We have historically been very successful with our formulation, which does require cold temperature storage. There is a room temperature storage choice out there for contracts agent and so our goal here is to ensure that whichever the market prefers, they have that choice and they have it from the Lantheus' microbubble. More importantly, the RT program takes us places that our current formulation can't because the restraints I'll say or the constraint of requiring refrigeration does make it a hindrance to use DEFINITY in some situations where a room temperature formulation really is more ideal. And the program I spoke to that we have with Cerevast is a terrific example of that. The Cerevast kit, which will be ultimately commercially produced and be available to clinicians will include other components and for including DEFINITY or Lantheus' microbubble it would be in elegant if that cold kit then required refrigeration or cold temperature storage. So allowing for a room temperature storage variation puts our products into more situations where it's currently not right now.
We show no further questions at this time. Ladies and Gentlemen, thank you for participating in today's conference. This concludes the program. You may disconnect and have a wonderful day.