Lantheus Holdings, Inc. (LNTH) Earnings Call Transcript & Summary

Welcome, everyone, and thank you for attending the fireside chat for Lantheus this morning. My name is Kelly McCarthy. I'm an Executive Director in the Morgan Stanley Healthcare Investment Banking Group. And I'm thrilled to be joined here in person by the company's CEO, Brian Markison; and CFO, Bob Marshall. Welcome, Brian and Bob. Great to have you here.

Good morning.

Before we get into it, just for important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales rep. So for those in the audience who aren't as familiar with the Lantheus story, can -- maybe Brian can start with just a quick snapshot in the history of where you've been.

Yes. I think the Lantheus story is quite interesting. We were more or less born out of the time of the Manhattan project, and so dating back to around 1956. And the mission at the time was to found a company that could deliver radiopharmaceuticals in what was then a growing and emerging field. And ever since then, it was called New England Nuclear, and the company has changed over time and sort of grown and [indiscernible] a bit. And now we're -- today, we're sitting here as Lantheus. And we view ourselves as one of the leaders in radiopharmaceuticals, and we're very proud of our heritage.

So Brian, you assumed the role of CEO in March after sitting on the Board for 11 years. So what new perspectives are you bringing to that role? How, if in any way, is that changing the strategic focus of the company?

Well, I think the company has done an amazing job with PYLARIFY. It's a true blockbuster in the marketplace. And under Mary Anne's leadership and the commercial team, Paul Blanchfield, the company obviously flourished. And what we're doing now really is we're diversifying the company a bit more, engaging in a little more M&A activity, BD, I mean, that's evident by what we've done already this year. And we're basically reducing our concentration risk and putting more chips on the board where we have expertise. So the -- nothing's really changed in terms of our strategic imperative, if you will, but we are diversifying. We are branching deeper into therapeutic oncology, which is just a natural extension for us. And we're also digging a little bit deeper into dementia and Alzheimer's disease, where we already have a pretty good foothold with some very exciting agents.

So I definitely want to talk more about the M&A that you've done. But let's start with the commercial portfolio. So like you said, PYLARIFY is that huge success out of the gates, on track to surpass $1 billion in sales, will really be the first radiopharma diagnostic blockbuster. So what measures are you taking as an organization to maximize that opportunity? Why has the launch been so strong?

Well, the launch has been incredibly strong for a number of reasons. Number one, we're satisfying a huge unmet need. The incremental information with molecular imaging and a PET agent, like PYLARIFY, we are changing the course of therapy. So clinicians have more information, great information. They can direct therapy better and people will have a better outcome. And this was a technology that the market was waiting for, and we have the first mover advantage. So when we commercially introduce PYLARIFY, we were roughly a year ahead of our competitors. Now what has really spurred the growth to a great extent is the PMF network that we have around the U.S. I mean, we have multiple sites, multiple redundancies where we can deliver dosing, generally any time of the day that people would want it. We don't have absolute coverage all over the country, but all the major markets that you would expect us to have coverage, we have it plus more plus redundancy. So we've got a lot of great partners working with us in this endeavor. And I think it has just been fabulous to watch this grow. And my hats off to our commercial team and our manufacturing team. Bob, do you want to add anything to that?

Yes. I think one of the key differences for us in terms of relative to the competitive environment is we invested ahead of the curve. We had priority review and -- which shortened our window to be prepared, but we invested in the sales channel. We invested in market access, which I think was also a very critical factor in driving. We also worked to have guidelines change, which were changed within months of approval. So from that perspective, as Brian said, the commercial team has sort of continue to work with the market we're providing to us to sort of get out and get two referring physicians, to kind of broaden who we're talking to. So again, I think it's really about making sure that you're making the right investments at the right time to be able to drive the market opportunity.

Can you talk a little bit more about the competitive dynamics in PSMA PET imaging and any competitive threats out there?

Yes. Well, we have a few competitors right now. They're all carving out their piece of the market. And I think we've seen this playbook before. And we know how to compete with DEFINITY. We've been doing it for years, and we have a terrific market share. But I think for us, we're out here growing the market, right? We're roughly in our estimation, halfway into the total addressable market for this agent and the class of compounds. So we're focused on really growing the market, educating, referring physicians, getting deeper and deeper into our TAM. And there are accounts and customers that love PYLARIFY. We think it's the best agent out there, and we have the best service and the best quality. So we have to give up share because when we launched, we were 100%, right? So you can't be everything to everybody, but we're focused on growing. We're not too focused on who's nibbling on our heels.

Right. So what does that growth look like in 2025 and beyond?

This is where Mark Kinarney cringes, but -- and so is Bob. We're not going to get into guidance for '25, but I appreciate the question.

Fair enough. Fair enough.

It's going to grow.

Let's talk a little bit about the reimbursement situation. There's been a lot of noise on this topic with transitional pass-through, but I understand you've received some good news from CMS in mid-July. So what are the implications there? What's the potential impact to patients?

Well, the impact for patients is terrific because what we've been trying to get through in legislation and also dealing with CMS is we don't want patients to deal with an interruption of care, right? We don't want them to be reimbursed today and then not reimbursed tomorrow. And the 3-year reimbursement at average selling price for pass-through, it feels arbitrary like where did that come from. So working with CMS, working with legislature for the flying deck, et cetera, has been 10 years in the making. And I think the recent explosion in Alzheimer's interest has really spurred us to a new level. And I think CMS decided to take action before Congress did it for them. It's still -- they're in the comment period, but we think it's going to be the way it looks a major win for patients, for companies and for the industry because now you don't have this 3-year period and then all of a sudden, you lose reimbursement, like that's just terrible. So whether they reimburse that average selling price or MEC, both are a win for us. It's going to reduce our cost of doing business dramatically.

Sounds like a great development and certainly, it will be paying off for your business. Let's talk a little bit about the pipeline. You've got your prostate cancer therapeutic candidate, PNT2002, and you've got SPLASH data right around the corner. What's the latest update there, where are expectations and...

Well, we're still hanging to this quarter for a reveal of 75% of the data. I think if you look back at the 45% cut that we announced, I think at the very beginning of last year. It was at the end of last year?

Yes, in December.

In December, you saw that the progression-free survival of response was terrific. So we hit our primary endpoint. That's not going to change. The overall survival was confounded. There was incredible crossover from the control arm into the active treatment arm or to the SPLASH 2002 arm. And I don't think that that's going to self-correct. So I think we have to see it play out. Roughly 80% or so of the patients that were in the control on crossed over. And if that, in fact, plays out, they're also in the survival curve for the control arm. So it's a bit messy. We'll have to sift through it when we get the data in full and then figure out what we want to do with it. So I mean, the drug is clearly active. It clearly works. We hit our primary endpoint. I think the flaw in the trial design was letting patients cross over from the control group to 2002. And I think we're paying -- we're going to pay for that a little bit. I don't see how these intertwine curves correct themselves. It's almost impossible to tell, so we'll see.

Well, I'm sure everyone is very focused on that. So good luck.

Yes. Well, I mean, it's an important study, and we'll see where it goes.

And then on the other asset you in-licensed from POINT PNT2003, what's the -- this is in the neuroendocrine tumor setting. How do you think about the past regulatory path forward and how does that fit competitively if that were to launch in 2026, I think is the guidance you've given?

Yes, because that's when we would get through the Hatch-Waxman legislation or exclusivity period of the 30-month stay. But we filed it as an ANDA. We're calling it a radio equivalent, but it filed as a generic to Lutathera. And we're in the review process right now with OGD. It's a pretty active process. And I think we feel pretty good about the likely eventuality of getting approved. It's not the average challenge for OGD, where they get pills and solutions to look at and approved. So it's been quite a robust back and forth, but we're very comfortable with the dialogue and how it's going. And I think it's a nice fit for us, right? We just run it through our channel. There's not a lot of incremental expense and it's a very good product. The Lutathera keeps growing and producing great data. And as you know, with our other partnerships like with Perspective, we're very keenly interested in the [ Alphanet ] space.

Absolutely. Let's talk about the topic of M&A, and you've been very, very active on the business development front this year. So maybe you can talk a little bit about what you've been able to add to the pipeline. And what's the impact do you expect some of these deals to have?

Yes. I mean, in no particular order, we acquired the rights to RM2, which is a bombasin agent, both the diagnostic and the therapeutic agent, [ I'll be calling it ] RM2. And it works by basically attaching to the GRPR receptors. And it's quite an interesting product because it expresses in GRPR, expresses in prostate cancer, lung cancer, but we're focused on prostate right now. And does seem to have, in a sense, an inverse relationship to PSMA expression. So if one is up, the other is down and androgen therapy or deprivation has a unique effect on GRPR as well. So it could be very, very useful, very early in the prostate recurrence, paradigm or very late after PSMA therapies have run their course. So we hope to be in the clinic next year. The drug has already been in studies, and so we have a very good characterization of it, and we're very excited about it. It looks like it could be best-in-class of the agents that are like it that are being studied today. So we're quite enthused about it. I think the next one up is we acquired NAV, which is a beta amyloid for Alzheimer's disease. We think, again, like our MK-6240 tau agent, this one could be best-in-class. It picks up Centiloids much earlier and with much lower quantification. And it seems to be highly specific with less off-target binding than what's available today. And we're working very closely with our partners to get this product filed. We hope to file it sometime either next year or very early thereafter. And MK-6240, we will file next year as well. And then the other one we also picked up through a partnership with RAD was LRRC15, which I'm very excited about. It's a very unique target. It seems to light up pretty well in osteosarcoma sarcoma, non-small cell lung cancer and other cancers, you can -- there's a list of them where it all expresses. But again, another one where we hope to be in the clinic next year. It seems to be an incredible target. And then also, we picked up a preclinical asset of TROP2 with from RAD, and that's in very early development right now. And I think that's on the table so far. Am I missing one?

No. The only thing I would add to this in terms of that's the science part of it from a financial perspective. We did, I think, a very disciplined job of executing these transactions, not, not paying some giant amounts and burning a big hole in our pocket with our cash. But more importantly, as I thought about the investments that we're making, we've -- these add to our clinical pipeline. So more of a focus on R&D on a go-forward basis. Our last guidance, we adjusted our guidance to account for these investments. Particularly NAV, I think was basically, I think, about half of the total R&D spend we saw here in the back half of 2024, and that we should expect to see us both continue to invest in R&D as well as commercial readiness. But again, only investing commensurate with the market opportunity.

Very helpful, and thanks for walking through those. And now with those transactions in the rear view, how does your BD funnel change? Where is it today? Where are the focus? Is it diagnostic therapeutics, early later stage? What are you looking for now?

Well, I think what we're looking for on the development front is adjacency to where we are today. So strategically, it needs to make sense with the organization's capability and expertise. So clearly, neuroscience imaging, cancer imaging, that's right down the metal for us. Therapeutic oncology, a natural extension for us. I think we're going to look closely at developments with our partners to see how things are moving in their pipelines as well. And I think we're really open to targeted transactions where we're not out there doing crazy dilutive deals, but actually adding intelligent pieces and building blocks as we go. So we're going to be careful. I'm not going to give Bob a heart attack and spend all this cash, but I'd like to. But we'll see.

So maybe on the financial side, Bob. And on this point, you've continued to heavily invest in the business, both internal and external R&D and some of these transactions we've been talking about. Have you been able to kind of manage the profitability profile of the business with this investment ongoing?

So the company has done -- the PYLARIFY has changed. DEFINITY was sort of our engine to begin with, but then shifting to PYLARIFY, but we've remained very financially disciplined. I'd say, over the last five years, six years and even before that. But the opportunity to drive a levered P&L is we're generating $100-plus million of free cash flow every quarter. So we're able to build on that. That gives us the comfort and the ability to go and make investments in the future of our business for growth. Like I said before, our -- when we think about investing, whether it be stage gating from an R&D perspective or expanding our sales force to attack a different avenue, it's always done with the market opportunity in mind, so what's the return on investment. And so we've approached that with all of the deals that we've done, and we will continue to do so.

And then how are you thinking about your capital deployment strategy more broadly? Have you thought about a buyback? Have you thought about other things?

We talked with the Board often about all of our different capital deployment opportunities, whether that be business development, which as Brian has said that we have an active pipeline. And we look at our debt structure, are there opportunities from a liability management perspective and/or ways to make sure that our capital structure gives us an opportunity to sort of lower our cost of capital to make deals more attractive longer term. Of course, buybacks are on the table. We talk about that with our Board to make sure that, that's something that we don't overlook. We do feel like you look at the intrinsic value of the company, it could be an attractive solution. But at the same time, we have our cash balances, which I think last were a little over $700 million would expect at the same pace to be closer to $1 billion by the end of the year. It's good to have the dry powder. Interest rates are still high, and so supplying capital. From here would actually be -- we'd be still in a good spot. And so yes, everything, we consider it all. But at the same time, we want to make sure that we're thinking intelligently about the future as well.

I think we're also very much concerned about our current shareholders. We want to make sure that we protect them through our growth phase here as well because we've been a meet and beat story now quarter after quarter after quarter. But as we're spending more money in R&D, right, we're going to shift our focus a little bit to giving guidance once a year. I'll stick to that and stop the quarterly thing. It's taking everybody nuts. So -- and we're going to be very mindful of our current shareholders. And -- so we're looking, as Bob mentioned, everything is on the table to protect our EPS while we're through a growth and investment phase.

All right. Very good. I want to circle back on one point in terms of assets you brought in to the pipeline, and you've made some investments in the Alzheimer's disease diagnostics space. So can you discuss the opportunity set in Alzheimer's and particularly, what's the read-through from some of the recent pharma product approvals to what that space could look like?

Yes. Well, the Lilly approval was sort of like a celebrity event in the space, if you will. And -- but there's a pretty meaningful risk-benefit trade-off for these new agents. But the door is open for new therapies now, right, because you have something to shoot at. And I think the therapeutic landscape, everyone that's got pipeline assets that really failed because they were being used in later-stage patients. They're going to take another look at all their data, see what they can dredge and look at earlier stage patients. But I think therapeutics will drive the imaging space in this case. And the need for tau scan and a beta amyloid scan, I do not think are going to go away. In fact, it's just going to grow. And I'm really more worried about machine capacity down the road because the patients will be there if a blood test becomes widely available, and almost like a PSA test, for example. And then you get referred to a neurologist, you will still need a PET scan to understand the geography of where is the amyloid, where is the tau, what part of the brain is it affecting. And then if you're treating it, you want to see how much of it can go away and then obviously, when can you stop treatment because that was a big feature of the Lilly recent clinical trials in the ADCOM. So it's a fascinating space. It's going to explode. I'm more worried about camera capacity down the road, but there's all kinds of projections out there about how many scans will be in the near future. And I think as we've looked at the landscape, we don't have a crystal ball, but you can clearly see where it's going, and you want to be there with the best agents, the most sensitive and the most specific, right? Because it's all going to be about earlier disease quantification and geography, and that's really what we're good at. So we were very careful in picking up MK-6240 for tau and then most recently, NAV. And we're going to remain very active in the space, looking at new things that come along.

So is it fair to say the infrastructure of the industry is not necessarily there to meet the therapeutic opportunity today, and that's kind of the opportunity that's being built?

Yes. I think it's not really ready yet, but it's evolving. I think that the camera manufacturers are all over it now, and they're designing better, more sleek units. Some of them look like giant hair dryers from years and years ago. It's a pretty exciting technology. But I think we've got a ways to go. I think this is not an overnight thing. I think it will build over the next five years. And -- but what I failed to mention is, for example, with our tau agent, we're in over almost 100 clinical trials right now, 83 or so academic trials and industry trials, looking at tau agents or tau as criteria for the study, either to exclude or include patients and follow them, attract them. So, so much information is being built around our agents that when they get approved, I think there's going to be a pretty ready market for it.

Okay. And then how do you think about PET imaging as opposed to blood-based tests for Alzheimer's?

I think blood-based tests are terrific. I think you'll be able to rule in or rule out who needs a PET scan. And we don't want people to get a PET scan if they don't really need it. But again, you're going to need a PET scan, you're going to need molecular imaging to really understand the true mapping or geography of where tau is, where beta amyloid is, how much is really there and what part of the brain is it affecting. So it's very clear. Tau and its progression or worsening, if you will, is directly related to a worsening of dementia. Beta amyloid is not as clear cut, but obviously, the more beta amyloid you have, the [indiscernible] you are. So -- but also seeing what parts of the brain are affected are extremely important as you're looking at depression, for example, which is linked to beta amyloid deposits, right? And all other types of symptomatology, it's really critical to understand where it is and what's going on. So there's -- I don't think there's any lessening there. I think it's just a good thing to have a blood test out there.

For sure.

I'd like to -- can I just tack on to the capacity comment that Brian was just making? But from the manufacturing side of things, the PMF network, which is where the F18 is generated, that network was built with the concept of Alzheimer's diagnostics coming to the marketplace in time. So keeping in mind, we talk about PSMA, PET agents. You're talking about 300,000, 400,000 scans a year versus [ FGG ], which is doing two million doses a year from that same network. So there is a ton of capacity that still exists within that PMF network as well as getting a way to optimize how those cameras are being used from a scheduling perspective as well.

Yes. And I think if you look at the future projections of PET scans, I think even your own analysts put it out there, it dwarfs what's happening with PSMA right now in the future. So we have pretty high expectations with growth in that market space.

Good. So there's been a lot of strategic activity and a lot of investor focus on radiopharma more broadly as an area of focus. What's your competitive advantage? How do you maintain your position as a leader in the space? What excites you the most?

I think the competitive advantage we really have is our know-how in the space. We've been wheeling and dealing and working with radionuclides for a very long time. So when we look at drug development, we will not make the mistakes that we've seen other people make. For example, we're not going to start a Phase III trial and run on a product. It's just not going to happen to us. But I think the other thing that makes us -- gives us a real competitive advantage is, we can make decisions really fast. We can move quickly if we see something we really like, a strong partnership, for example, like with Perspective. We can move very quickly. And we have the expertise in-house to make these decisions. So it's not really a tough road for us. I think it's -- we're basic in the space. We know what we're doing, and we can intelligently add building blocks.

We've often talked about the fact that one of our advantages really come from our commercial effort, but also the supply chain and logistics of these agents is complex, it seems simple, but it's very complex. And we're one of the few companies that have executed on that front for multiple decades.

I want to leave a few minutes for Q&A, but maybe one last question before we do that, which is you've made a couple of references to strategic partnerships in the arena and particularly with customers. Can you elaborate on the breadth of the contracting that you do with your customers? And what does that mean for your pricing and your long-term business outlook?

Well, we have a long tradition of partnering with our customers. And this is basically a playbook right out of DEFINITY, where we'll get into multiyear agreements with our top customers, and we'll reward them for growth in volume and loyalty to staying with us. So it's really straightforward. And there's a portfolio play with us, that's really important. And also the ability for us to deliver and have great service is really important. So when customers want the doses, they get the doses, no matter where they are, for the most part, and they stay with us for multiple years. So it's a pretty strong relationship where we live in nuclear medicine.

Fantastic. Maybe I'll just open it up to the crowd and see if there's any Q&A. And there's a microphone in the back if anyone has any questions.

See, I think you startled them. No one's used to asking questions as early in the morning.

Very intimidating at 7:45 a.m. We'll give everybody a pass. But just Bob and Brian, any last words you want to share with the crowd and investors tracking along as you look at the next 12, 18 months, what are you looking forward to most and any parting words?

Yes. I think we're really excited about the future for Lantheus, what we have coming down the pipeline is very exciting, very interesting. We intend to expand our pipeline. We are attracting really great people that can work in the organization and help us build the effort. The commercial team is just getting better and better as we go. And that investment is paying off for us. So I think we've got a great culture in the company. We're growing a lot of people's careers. They love coming to work. So right now, I think we're sitting in a really good spot, and we're very enthused about what we have coming down the road.

Yes, I would just say that the opportunity to continue to grow our commercial portfolio, just given the circumstances that we see with PYLARIFY and so forth, but all the additional catalysts that we've added to the pipeline, which are not very far into the future, which is, I think, an incredible part of the story, for not just the next 12 months, but the next three years as well, three, five years.

Fantastic. Well, Brian, Bob, thank you so much for your time this morning. Hope you enjoy the rest of the conference, and thanks to everybody for attending.