Lantheus Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 22, 2024

There are 14 speakers on the call.

Operator

Good morning. Welcome to the Xanthias 4th Quarter 2023 and Full Year 2023 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.

Operator

A replay of the webcast will be available in the Investors section of the company's website approximately 2 hours after the completion of the call and will be archived for at least 30 days. I'd now like to turn the call over to your host for today, Mark Kenarney, Vice President of Investor Relations. Mark?

Speaker 1

Thank you. Good morning and welcome to today's call. With me today are Mary Anne Haino, our CEO Brian Markison, current Executive Chair of the Board and incoming CEO Paul Blanchfield, our President and Bob Marshall, our Chief Financial Officer. We'll begin the call with Mary Anne's introductory remarks, followed by operational and strategic updates from Paul and Brian. Bob will cover our 2023 financial results and financial guidance for 2024.

Speaker 1

Mary Anne will provide closing remarks, then we will open the call for Q and A. This morning, we issued a press release, which was furnished to the Securities and Exchange Commission under Form 8 ks reporting our Q4 and full year 2023 results. The release and today's slide presentation are in the Investors section of our website atlantheus.com. Any comments made during our call could include forward looking statements. Actual results may differ materially from these statements due to a variety of risks and uncertainties.

Speaker 1

Please note that we assume no obligation to update our commentary or any 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. Discussions during this call will also include certain non GAAP financial measures. Reconciliation of these measures to the most directly comparable GAAP financial measures is also included on the Investors section of our website. It is my pleasure to now turn the call over to our CEO, Mary Anne.

Speaker 2

Thank you, Mark, and good morning, everyone. Before we get started, I want to welcome Brian Markison as the company's new Chief Executive Officer, effective March 1. It was so important to Galantia's Board and me that our new CEO be able to drive forward the great work we have done. And in Brian, we have an experienced executive who intimately understands Lantheus, our strategy and our industry. He brings decade of leadership experience in life science and deep expertise in oncology and neurology that will be essential to delivering on our strategic priorities.

Speaker 2

Welcome, Brian. 2023 was another stellar year at Lantheus, delivering record revenues, earnings and cash flows, bolstering our position as a leading radiopharmaceutical focused company. I'm particularly proud that our products were used to impact the lives of more than 6,000,000 patients and their families in 2023, a testament to our purpose to find, find and follow disease to deliver better patient outcomes. For full year 2023, we reported revenue of approximately $1,300,000,000 representing year over year growth of 39% in line with what the company pre announced in early January. This growth was primarily driven by Clarify and DEFINITY, both of which delivered strong performance of over 61% and 14% growth year over year, respectively, continuing solid momentum for 2024.

Speaker 2

Polarify continues to grow with the potential to reach $1,000,000,000 in sales this year and remains the clear market leader, operating offering a differentiated value proposition that together with our operational excellence give us confidence that Polarifi will remain the number one PSMA PET imaging agent for prostate cancer patients, even amidst increasing competition and potential transitional pass through expiry. DEFINITY as well delivered solid growth and remains the ultrasound enhancing agent of choice. Beyond our existing commercial diagnostics portfolio, we also made significant advancements across our radiopharmaceutical pipeline for both late and earlier stage oncology therapeutics as well as oncologic and non oncologic diagnostics. In mid December, we reported positive top line Phase 3 SPLASH results for PNT2002, our investigational PSMA targeted radiotherapeutic in development for the treatment of patients with metastatic castration resistant prostate cancer or mCRPC. The SPLASH trial met its primary endpoint demonstrating a statistically significant 29% reduction in the risk of radiographic progression or death.

Speaker 2

We continue to review the SPLASH study results and are specifically awaiting more mature overall survival data, which we currently accept later this year. For PNT-two thousand and three, our product candidate for the treatment of neuroendocrine tumors, we filed and the FDA accepted our abbreviated new drug application or ANDA. As expected, Novartis filed a patent infringement lawsuit, which triggered a potential 30 month stay under the Hatch Waxman Act. We are very excited about the process of commercializing this important radio equivalent to Lucatera and look forward to a potential launch in 2026. As a leading radiopharmaceutical focused company, we continually explore opportunities to grow and expand our pipeline.

Speaker 2

We are particularly focused on identifying the targets and complementary isotopes that are best suited to treat certain diseases. As an example, we recently announced a strategic partnership with Prospective Therapeutics that provides us with options to add radioligand therapy or RLT assets to our pipeline and expand into Alpha Therapeutics. If exercised, these options will allow us to diversify our RLT pipeline with prospective lead-two twelve labeled product candidate and alpha RLT for the treatment of neuroendocrine tumors currently in Phase 1, 2a development. In addition, we have an opportunity to co develop prospective led-two twelve isotope based alpha generating therapy candidates for prostate cancer. We are also investing in our innovative diagnostic pipeline.

Speaker 2

We continue to progress MK-six thousand two hundred and forty, an F-eighteen based tau PET tracer under development for the detection of tau tangles in patients with Alzheimer's disease. To date, it is being used in more than 90 clinical trials, either as a staging tool or as a biomarker to identify patients to be enrolled in trials of Alzheimer disease therapeutic candidates. We are finalizing the regulatory path to bring this exciting product candidate to market as a commercially approved agent. Similar to how PSMA PET imaging has transformed staging and patient selection for prostate cancer, we believe that tau based PET imaging agents like MK-six thousand two hundred and forty can play a similar role in staging and patient selection for Alzheimer's disease treatment. With that, I'll now turn the call over to Paul.

Speaker 3

Thank you, Mary Anne, and good morning. Our 4th quarter results demonstrated clear market leadership, operational excellence and continued growth of the overall PSMA PET imaging market. We are pleased with Polarifi's success and the impact it has made on the lives of those living with prostate cancer, including having been utilized for the diagnosis and staging of more than 300,000 patients since launch. Polarify generated net sales of approximately $230,000,000 in the Q4 $851,000,000 in 2023, up over 40% 60% respectively from the prior year periods. Both quarterly and full year growth were driven by increasing utilization of PSMA PetWit Polarify at existing customers, complemented by our efforts to expand access through our distribution network to meet this growing demand.

Speaker 3

We attribute our continued success to 3 primary factors clinical differentiation, commercial differentiation and operational excellence. Clinically, we believe Polarifi offers the best combination of our proprietary PSMA targeted ligand and F-eighteen isotope. Our registrational trials demonstrated a high positive predictive value and high reader agreement providing clinicians confidence in the accuracy and consistency of image interpretation and ultimately in their patient management decisions. Commercially, Polarifi is the only PSMA imaging agent that is widely available through a diverse F-eighteen distributor supply network, ensuring convenient and reliable supply. In addition, more than 90% of covered lives have access to PSMA Pet with Polarifi.

Speaker 3

Operationally, we continue to grow Clarify and maintain our market leadership in the PSMA diagnostic market through our educational and promotional efforts led by the industry's largest customer focused team. We also offer a best in class customer experience that enables healthcare providers and patients to access Polarifi with a 98% on time in full dose delivery rate. To ensure Polarifi remains the number one utilized PSMA PET imaging agent, we are actively working to mitigate the impact of Polarify's potential transitional pass through expiration at the end of 2024. We have already taken steps to ensure we remain the market leader in 2025 and beyond and have and continue to build long term strategic partnerships with select customers to ensure they have access to and preferably choose Polarifi as their PSMA pet agent of choice. We are fiercely committed to ensuring Polarifi is available for patients, continues to grow and remains the market leader.

Speaker 3

Finally, we continue to work with the Centers for Medicare and Medicaid Services or CMS to create separate payment for radiopharmaceutical diagnostics, while also advocating for the FIND Act to ensure health equity for patients seeking access to innovative radiopharmaceutical diagnostics including Polari. To support long term growth, we are exploring the clinical utility of Polarifi in additional patient populations. We recently enrolled the 1st patient in the MIRROR study designed to determine whether Polarifi PSMA PET imaging can accurately detect the presence or absence of prostate cancer outside of the prostate gland in patients staged as favorable intermediate risk and importantly how it can change intended management. As we shared earlier this year, we see significant growth opportunity for PSMA PET imaging. We believe the current addressable market for PSMA PET is about 445,000 scans or $2,000,000,000 and could grow to a total addressable market of approximately 700,000 scans or more than $3,000,000,000 by 2029.

Speaker 3

To realize this, we anticipate the expansion of PSMA PET imaging into the favorable intermediate population supported by the MIRROR study and other real world evidence. We anticipate PSMA therapeutics, both RLT and other modalities, will move into earlier lines of therapy, including both pre chemo and CRPC and hormone sensitive prostate cancer, which would increase the need for PSMA PET imaging. Finally, we expect the incidence and prevalence of prostate cancer to grow 2% to 3% per year. As such, we believe there is a significant opportunity for PSMA PET to continue to grow and for Polarifi to maintain its market leadership. In our microbubble business, DEFINITY maintained its strong momentum with full year 2023 net sales of approximately $280,000,000 up 14% year over year.

Speaker 3

The drivers of success for this product continue to be its clinical and commercial value proposition supported by our operational excellence. Clinically, DEFINITY delivers high resolution echocardiograms that improve cardiac diagnosis and patient management and has a proven safety profile across broad patient populations. Commercially, DEFINITY remains the clear market leader as the most utilized extensively studied and a trusted ultrasound enhancing agent in the U. S. And is widely available with more than 95% of covered lives having access to DEFINITY.

Speaker 3

Operationally, we have increased production of DEFINITY at our Lantheus manufacturing facility, which allows for enhanced supply chain redundancy, improved flexibility and reduced cost. These improvements along with our continued efforts to drive demand for DEFINITY will ensure continued brand success. Switching now to our pipeline. In December 2023, we announced positive top line results from the Phase 3 SPLASH trial of PNT2002 in which the study met its primary endpoint. We continue to analyze the results and expect more mature overall survival data later this year prior to the potential submission of an NDA.

Speaker 3

We also plan to present the splash results at a future medical conference. PNT-two thousand and three is an investigational RLP targeting somatostatin receptors with non carrier added lutetium with the potential to treat gastroenteropancreatic neuroendocrine tumors or GEP NETs as a radio equivalent to Lutathera. Our ANDA filing with the FDA for PNT-two thousand and three underscores our commitment to making this therapy accessible, furthering our purpose to improve patient outcomes through radiotherapeutics and diagnostics. Based on public information, we believe Lantheus is the 1st applicant to have filed a substantially complete ANDA for lutetium-one hundred and seventy seven DOTATATE. We estimate that PNT-two thousand and three has a current addressable U.

Speaker 3

S. Market of approximately $1,000,000,000 that is expected to expand over $5,000,000,000 by 2029. In addition to our late stage oncology pipeline, we have a number of earlier stage assets including the partnership with Perspective Therapeutics we recently announced. I'll now hand it over to Brian who will speak briefly about this latest opportunity.

Speaker 4

Thank you, Paul, and good morning, everyone. As Mary Anne and Paul both mentioned, we are excited about the prospective partnership. And I want to speak a bit more about why I think it's a smart strategic opportunity for the company going forward. Our partnership with Perspective has 3 components. 1st, we have an option to license their promising lead-two twelve program in neuroendocrine tumors.

Speaker 4

PROSPERctive is currently enrolling patients in a Phase 1, 2a study progressing through the dose escalation phase and we expect to have a look at initial data later this year. 2nd, we have an option to co develop prospectus prostate cancer assets supported by their innovative led platform technology. And 3rd, we took an equity position in the company because we believe the science behind the led alpha based therapy platform and we have secured the right of first offer and last look protections for any third party merger and acquisition transactions involving Perspective for a 12 month period. We recognize the transformative potential of Perspective Therapeutics Alpha Therapies and believe this partnership provides flexibility while preserving our capital for additional business development opportunities. We see LED-two twelve as one of the more promising isotopes for alpha therapy, especially when paired with Prospective's proprietary chelator.

Speaker 4

We believe Prospective's LEN-two twelve chelator may enable it to better retain the isotope and its daughters, including bismuth-two twelve, thereby concentrating radiation at the target tumor and reducing off target effects. This transaction aligns with our investment strategy to further expand our radiopharmaceutical pipeline with potential long term benefits, allowing us to gain access to innovative therapies, technologies and establishing a collaborative partnership for sustained growth. I will now turn the call over to Bob.

Speaker 5

Thank you, Brian, and good morning. I will provide highlights of the Q4 and full year 2023 financials focusing on adjusted results unless otherwise noted. Revenue for the Q4 was $354,000,000 an increase of 34.5 percent over the prior year quarter. Revenue for the full year was $1,296,000,000 an increase of 38.6 percent over 2022. And as was noted in the press release, we recognized a $15,000,000 RELISTOR sales milestone achievement during Q4.

Speaker 5

Radiopharmaceutical oncology contributed $230,600,000 of sales in the quarter, up 42.8% from the prior year quarter. Attributable to the continued strength of Polari Fi was sales of $229,900,000 up 43 0.1% year over year. Full year Polarifi sales totaled $851,300,000 an increase of 61.4 percent. Precision Diagnostics revenue of $100,600,000 was 6.6% higher over the prior year quarter. Sales of DEFINITY were $73,100,000 14.9 percent higher as compared to the prior year.

Speaker 5

For the full year, DEFINITY contributed $279,800,000 of sales, an increase of 14.2% over the prior year. TechneLite revenue was $21,500,000 down 13% versus the prior year comparable that included greater opportunistic sales. Full year Technolite sales were $87,400,000 down 1.7%. Lastly, strategic partnership and other revenue was $22,800,000 up 214.9% over the prior year quarter, driven primarily by the aforementioned RELISTOR milestone contribution of $15,000,000 and further bolstered by MK-six thousand two hundred and forty's performance $6,400,000 For the full year, MK-six thousand two hundred and forty contributed $21,900,000 RELISTOR contributed $29,300,000 which should be removed for comparison purposes of 2024 versus 2023 revenue. Gross profit margin for the Q4 was 69.3%, an increase of 251 basis points over the Q4 of 2022 on a similar basis.

Speaker 5

Full year gross profit margin was 68.7%, 221 basis points ahead of the prior year, unfavorable product mix offset by PMF investments and general inflationary pressures. Operating expenses at 22.4 percent of net revenue were 120 basis points higher than the prior year rate of 21.2% and within previously guided spending levels, particularly when adjusting revenue for the RELISTOR milestone. Increases in operating expenses reflect the investments made to support near and longer term growth initiatives across all functions of the organization as was noted throughout last year. Other income and expense was $900,000 of income and as a result of net interest income offset by a reduction of a portion of our indemnified uncertain tax positions. Operating profit for the quarter was $165,700,000 or an increase of 38.4% over the same period prior year.

Speaker 5

Total adjustments in the quarter were $28,300,000 of expense before taxes. Of this amount, dollars $25,500,000 of expense is associated with non cash stock and incentive plans and acquired intangible amortization respectively. The remainder is related to acquisition, integration and other non recurring expenses. Our effective tax rate was 26.4% 26.1% for the full for the quarter and the full year respectively. The resulting net reported net income for the Q4 was $103,400,000 dollars 122,700,000 on an adjusted basis, an increase of 27% over the prior year period.

Speaker 5

GAAP fully diluted earnings per share for the Q4 were $1.47 1 $0.75 on an adjusted basis, an increase from the prior year of 28%. On a full year basis, GAAP fully diluted earnings per share were $4.65 $6.23 on an adjusted basis, an increase of 47.7% over the prior year. Now turning to cash flow. 4th quarter operating cash flow totaled $112,300,000 as compared to $105,400,000 in Q4 2022. Capital expenditures totaled $12,100,000 $7,300,000 higher than the prior year quarter.

Speaker 5

Free cash flow, which we define as operating cash flow less capital expenditures was $100,200,000 effectively flat with the prior year period and $258,700,000 for the full year, which includes the $99,600,000 CVR payment to former Progenics shareholders last May. Taken together cash and cash equivalents net of restricted cash now stand at $713,700,000 We have access to our $350,000,000 undrawn bank revolver and are very comfortable with our strong liquidity position. Turning now to our guidance for 2024 full year as well as the Q1. We expect full year revenue growth to remain robust, led notably with Polarify and DEFINITY. We will make strategic investments across the organization to support currently commercialized products, drive stabilization efficiencies from our new ERP system, which went live at the beginning of this year, as well as advancing several important clinical pipeline efforts, which include Clarify Lifecycle Management and advancing MK-six thousand two hundred and forty among other projects.

Speaker 5

We forecast net Clarify revenue to grow mid teens predominantly to volume growth together with a slight annual net price benefit with sequential trends that should follow those noted throughout 2023. Polarifi is supported by high single digit growth from DEFINITY and relative steady contribution from the balance of the portfolio. Taken together, we estimate full year revenue to be in a range of $1,410,000,000 to 1,445,000,000 an increase of approximately 11% to 14% over 2023 when excluding RELISTOR from the 2023 result. For modeling purposes, gross profit margin should be in line with 2023 even after considering the headwind created by the RELISTOR royalty divestiture mid last year. And as Paul mentioned, inclusive of our mitigation efforts to address the impacts of Clarify's potential traditional pass through expiration at the end of 2024.

Speaker 5

Throughout 2024, we will continue to take steps to ensure we remain the market leader in 2025 beyond by building long term strategic partnerships with select customers. Our operating expense forecast is expected to be in a range of 24% to 25% of revenue due to the investments noted earlier. Other interest income and expense should be reflective of our debt capital structure as well as approximately $36,000,000 of interest income based on current and projected cash balances and forward interest rate curves. The effective tax rate assumed is 26.6%. Free cash flows are expected to be nearly double the 2023 results, providing significant strength to our balance sheet and ability to execute on our growth strategy and targeted acquisitions.

Speaker 5

Lastly, fully diluted shares should be between 71,000,000 and 72,000,000 shares. Therefore, for the full year, we expect fully diluted adjusted earnings per share to be in a range of $6.50 to $6.70 For the Q1, net revenue should be in a range of $347,000,000 to $355,000,000 fully diluted adjusted earnings per share should be in a range of $1.50 to $1.54 And again for year over year comparison purposes, the prior year results had approximately $6,000,000 of RELISTOR royalties or $0.06 of contribution in that quarter and should be removed. Lastly, for modeling purposes, depreciation and amortization for the full year 2024 should be approximately $12,000,000 $36,000,000 respectively, generally spread evenly throughout the year. Before turning the call back over to Mary Anne, I'd like to thank her for the last 5 plus years of partnership and friendship. It's truly been an honor and pleasure to have worked alongside you.

Speaker 5

And I dare say on behalf of all employees, thank you. We wish you the best.

Speaker 2

Thank you, Bob. And I feel the same about our partnership. 2023 was another stellar year for Lantheus, delivering strong commercial and operational performance. As the leading radiopharmaceutical focused company, we will continue to leverage our deep expertise and our significant capital resources to advance and expand our pipeline. I would like to take a moment to express my gratitude for the incredible journey I have had at Lantheus.

Speaker 2

The organization has gone through significant change during my 9 years as CEO and we are now in an outstanding position to continue to lead the way in bringing novel radiopharmaceutical innovations to patients. This marks my last earnings call and I'm thrilled to pass the baton to Brian. I'm confident Brian will lead Lantheus to new heights and I'm looking forward to remaining involved as the future of Lantheus unfolds. My role as Chair of the Board of Directors becomes official on March 1, the same day that Brian assumes the role of CEO. To everyone across the Lantheus organization, I want to say thank you for all of your hard work and your dedication.

Speaker 4

Thanks, Mary Anne. I'm truly honored and excited to take on the role of CEO for Lantheus. Having served on the Board, I've witnessed the unwavering dedication to our purpose, values and patients we serve. This transition is about continuity, building on the strong foundation established by Mary Anne, who has led us with great wisdom and vision. I look forward to leading this amazing team and continue our commitment to excellence, innovation and a shared purpose for the patient and for the benefit of our patients.

Speaker 4

With that, we're now ready to take questions. Operator, please go

Operator

ahead. Thank Our first question today will be coming from Anthony Petrone of Mizuho Group. Your line is open.

Speaker 6

Thank you. And say congratulations again to Mary Anne. It was a great journey. Enjoyed covering the company as from IPO through execution here. So congratulations on a great run and good luck on the next chapter and also congratulations to Brian.

Speaker 6

I'll start with, Polarifi and just the guidance. The guidance for, the full year in 1Q is actually ahead of our model. So maybe just a little bit to scrub out the Polarify drivers in there, a little bit of help on what we should be thinking about in terms of volume growth for Polarifi? That would be the first question. Are we baking anything for EU launch?

Speaker 6

And then lastly, price, is there any price baked in to the Polarifi equation for 2024? Thanks. And again, congratulations to everybody.

Speaker 2

Thank you, Anthony.

Speaker 3

Thanks, Anthony. Really appreciate the question. So as we mentioned in our formal guidance, we expect Polarifi to grow mid teens this year predominantly driven by volume with a slight annual net price benefit. I'll speak to volume and price and then next on the EU piece. With Polarifi being the clear market leader, we do believe that it continues to offer value to the prostate cancer community and that our pricing is comparable to most other PSMA PET imaging agents on the market.

Speaker 3

We did take a 6% WACC price increase at the beginning of the year. I would note we took price increase beginning of last year and the year before that as well. This is a large and growing market and we believe there is ample room for multiple players and for sustained volume and revenue growth going forward. The overall guidance is predominantly focused on the U. S.

Speaker 3

And includes de minimis EU components at this point.

Speaker 5

And Anthony, I'll just tack on and just note that we're sitting here at the end of February. And obviously, when you're sitting here at this point in the quarter, it gives you some fairly decent insights into how the market is shaping up at this part of the year.

Speaker 6

No, that's helpful. And then maybe one quick follow-up just on timing for or rather expectations and the scenario analysis around reimbursement. There's dual efforts out there for Clarify. Maybe your latest thoughts on how CMS can settle out here as we approach the expiration of the transition pass through status? And then any update on the FIND Act?

Speaker 6

And I'll hop back in queue. Thanks again.

Speaker 3

Thanks, Anthony. So transitional pass through status, as we've noted before, impacts about 20% of prostate cancer patients and will impact the PSMA PET class as a whole with 3 of the 4 available agents losing transitional pass through status in the 1st 9 months of 2025. To ensure we remain the number one utilized PSMA PET imaging agent, we have, as I noted on my prepared remarks, continue to enter into long term strategic partnerships with select customers to ensure they have access to and preferably choose Polarifi as their PSMA pet agent of choice. And we are fiercely committed to ensuring Polarifi remains available for patients, continues to grow and remains the clear market leader. We do continue to work with CMS and would expect proposed fiscal year 2025 rules to come out in July, But we do continue to have ongoing conversations with them to make them aware of the potential impact to patient access over time if the current TPT construct remains.

Speaker 3

And then naturally, we continue to support legislation, in both the House and the Senate of which the FIND Act has been introduced and to ensure that Congress and the Senate understand the benefits for doing so. So that's the nature of where we are. But naturally, we're fiercely focused on defending, growing and continue to ensure Polarifi remains the market leader going forward.

Operator

Thank you. Our next question was coming from Roana Ruiz of Leerink Partners. Your line is open.

Speaker 7

Great. Good morning, everyone. So I wanted to dig in a little bit more with Clarify. Could you talk a bit about the evolving dynamic of Clarify use between larger academic institutions and freestanding imaging centers? And how might that evolve in the next couple of years if you expect pass through expiration for Clarifi?

Speaker 3

It's a great question, So overall, we view PSMA PET and indeed the bulk of PET imaging to be split roughly 60% hospital, 35% freestanding imaging center and approximately 5% government. Over time, the freestanding imaging centers continue to grow. They expand hospitals in some cases have been outsourcing them. And overall we would expect that trend to continue as care moves outside the hospital system and into more of those freestanding centers. Pet CT cameras are equally distributed relatively proportionally across those.

Speaker 3

And so naturally, transitional pass through status only impacts about 20% of patients or roughly 1 third of the hospital business recognizing that within the hospital, a portion of their business would be commercial payers which is unimpacted by pass through as well as Medicare Advantage which is unimpacted. So you're really looking at an overall minority of their business. And so we would expect those trends to continue to evolve with freestanding imaging centers continue to be more important. But I don't think we expect dramatic shifts in the overall business going forward.

Operator

Thank you. The next question? One moment. Our next question will be coming from Richard Newitter of Chua Securities. Your line is open.

Speaker 8

Hi, thanks for taking the questions. And congrats, Mary Anne, on your next chapter and to Brian, echoing Anthony's comments. So I wanted to start off just on some of the mitigating strategies that you mentioned, Paul. If there's any more for transitional pass through, is there any more color you can provide on kind of what those are? And just in answering that question, you can address 2 things.

Speaker 8

1, I think I heard you say you expect PolariFi to continue growing. So is that a commitment to growth likely beyond transitional pass through Polarifi. And I would just imagine there'd be some pricing strategies in there as well as some impact to pricing. So if you could just comment on what if anything that would impact as you move through the year as some of those mitigating strategies get going in 2024? And then if you could elaborate on what those mitigating strategies actually mean?

Speaker 8

Thank you.

Speaker 3

So thanks for the question, Rich. As we noted in the prepared remarks, we do continue to enter into long term strategic partnerships with select customers to ensure they have access to and preferably choose, PolariFi. We are fiercely committed to ensuring PolariFi is available for patients, continues to grow and remains the market leader. But given the competitive nature of the market, I don't want to elaborate further on the specifics of those customer partnerships and what that means. That would be inappropriate at this point.

Speaker 3

But take it that we are fiercely focused on this. We talk about it on a daily basis and we are focused on ensuring that Polarifi continues to grow, remains the market leader and is available for patients. As we think towards long term growth as I mentioned the overall PSMA pet market will continue to expand with the potential growing this year from approximately $2,000,000,000 to $3,000,000,000 plus by 2029. And so there is still ample opportunity to continue to grow. We have also noted that both on a quarterly and annual basis, the growth is not necessarily linear.

Speaker 3

As new indications become available and as the market expands, we are focused on the long term and continuing to grow.

Operator

Thank you. One moment for the next question. The next question is coming from Zhong Zhai of B. Riley. Your line is open.

Speaker 9

Good morning. Glad to see the 2024 guidance. Can you guys talk about the current plan for PMT-two thousand and two? Any further clinical development in consideration? And is there any trigger point for those development?

Speaker 9

Thank you.

Speaker 4

Yes. Thanks for the question. This is Brian. We're closely watching 2,002 and the splash data,

Speaker 9

and

Speaker 4

we continue to look at various slices of the information that's coming across. And we remain encouraged, quite frankly. Q3 this year, we're going to take a formal look pre specified at the data for 2,002. And then we'll see what that tells us, but we think we're heading in the right direction.

Operator

Thank you. One moment for the next question. The next question is coming from Matt Tyler of Jefferies. Your line is open.

Speaker 10

Hi, thanks for taking the question. So I wanted to ask a follow-up question on polarifying. I was just hoping that you could take us into the most updated competitive dynamics there. I guess, what are you seeing from the traditional gallium competitors? And any color that you can give us on how you've seen Blue Earth acting in the market in the 1st part of this year?

Speaker 3

Sure, Matt. So, Polarifi obviously is the clear market leader in overall having been used in more than 300,000 scans since launch. As the leader, we do disproportionately benefit from competition as more PSMA imaging agents come into the market, they raise awareness and naturally Polarifi benefits from that rising tide. Competitively, our estimates for market share have been relatively consistent over the past two quarters with Polarifi share on the mid to high 60% range. I would note that's an estimate as only 2 of the 4 now 5 players report product specific revenue.

Speaker 3

Importantly, I would note that our market revenue leadership continues to expand and indeed solidify both annually where we grew from the Q4 of 2023 versus the Q4 of 2022, dollars 86,000,000 year over year as well as sequentially where we expand from 3Q to 4Q by $14,000,000 with that revenue dollar growth outpacing that of our competition. And therefore, the impact that we've seen both in the Q4 and is factored into our guidance is minimal impact from recently approved F-eighteen agents. Overall, we believe there's a lot of growth left in the PSMA PET market as evidenced by the TAM of $2,000,000,000 growing to potentially a $3,000,000,000 TAM. And we're focused as I've mentioned on ensuring Clarifi remains accessible to patients, continues to grow and remains the clear market leader.

Operator

Thank you. One moment for the next question. Next question will be coming from Justin Walsh of Jones Trading. Your line is open.

Speaker 9

Hi, thanks for taking the question. I think there's a lot of excitement and interest around PD L1 SAP and tau from a clinical perspective. But I was wondering if you could comment on thoughts about the relative commercial potential of the various imaging biomarkers?

Speaker 2

So I'll take that and I'll focus on MK-six thousand two hundred and forty and what we see there. As you heard in my remarks, we're really excited about the task we see forward for potential commercial application with that product. Currently, it's being used in clinical trials, which with radio traces you were approved and allowed to do that. And as I said, it's available and being used in over 90 clinical trials. But when you start looking at the commercial opportunity and I'm here, I'll kind of bifurcate my remarks between commercial opportunity from a revenue perspective, but then really from a value perspective.

Speaker 2

And I purposely said in my remarks that we see a corollary between what PSMA imaging was able to bring from a relative value perspective to prostate cancer diagnosis and treatment selection. We see that same potential in Alzheimer's disease, which would represent really a big step forward for the physicians who are trying to accurately diagnose and then select treatment options for those patients. And so that's what really excites us about. Now we have not yet announced our commercial regulatory strategy, but it is something that we are actively looking at and also engage of course with the FDA on. And so you'll hear us well not me, but you'll hear this team talking more and more about that into the future.

Speaker 3

And maybe I'll just expand, Mary Anne. Just on the specific market opportunities, we did share earlier this year that we view the addressable market for MK six-two forty specifically as Alzheimer treatments come to market and the ability to be used for both patient staging and selection of approximately $1,500,000,000 by the end of the decade. And so clearly another large opportunity with MK-six thousand two hundred and forty being used in over 90 clinical trials, certainly has an opportunity to be a partner as those therapeutics come to market. For the FAP agent, we are equally excited. Naturally, it's a little bit earlier in development.

Speaker 3

We have not put a market potential on that yet. But I would note that we think about pan cancer PET imaging agents, FDG, which has been around for over 30 years, does north of 2,000,000 scans per year. So if you think about the market potential, it's a large opportunity.

Operator

Thank you. One moment for the next question. Our next question is coming from Andy Hsieh of William Blair. Your line is open.

Speaker 6

Great. Thanks for taking my question.

Speaker 9

I wanted to dig in

Speaker 11

more on the Perspective deal. Curious if you can talk about the strategic positioning you envision for a various asset that you mentioned on the call. Specifically, maybe where do you think it will be positioned? Would it be spotted in the post Lutetian setting or before given that there's a pretty material difference in path length? And also the supply chain, will Perspecta be providing the generators on-site on clinical trial site?

Speaker 11

And what's the kind of long term capacity that we should be thinking about? Thank you so much.

Speaker 2

So I'll take that question for the group and then anyone else can add in. I think first to your question about where across the kind of the spectrum of prostate cancer can these assets be applied? You're exactly right to ask, can it be pre or post chemo, which would then kind describe in relation to where the lutetium based products are being used. And the answer is yes and yes. That is something I think we're all learning as we look at SPLASH, as we look at PSMA4, as we look at the original vision trial, it really does help us, I would say evaluate where these products are best placed.

Speaker 2

And as I believe, Paul might have added in his comments, we see these products moving earlier in line of therapy because of the benefit they can receive, especially with respect to the side effect profile, the total kind of, I would say, safety versus benefit profile of these products versus chemo agents. So that is something that, again, we have not yet been public about. It's something we're working with perspective on to decide what the best application for these products are as we bring them in their first applications to market. With respect to the supply chain, it's a really good question. And the lead-two twelve based isotopes right now have more than one option, I'll say as to how to come to the channel.

Speaker 2

You can either because of the half life, you have the option here to either do kind of central manufacturing distribution or regional distribution or a combination of both depending on what market you're in. And there again, we have not been specific yet. And I would actually reference you to perspective to their website. They've got some information and some material on their website that speaks to the efforts they've already undertaken for supply chain. It is as you I think you were noting, it is something that needs to reach commercial scale before we get to market, but we're confident that that can be achieved.

Speaker 4

Yes. I think I'll just add to that a little bit. Their lead program in neuroendocrine tumors has us very interested. And we think it has the potential to be best in class. And that's one that we're very close to as well.

Speaker 4

So we like their platform. We like the targets they have. And we especially like their lead program.

Operator

Thank you. One moment for the next question. Our next question comes from Larry Solow of CJS Securities. Your line is open.

Speaker 9

Great. Thank you. And Marianne, congratulations to you as well. It's been a good 6 year run for CJS myself. I

Speaker 2

know. Thanks, Larry.

Speaker 9

Absolutely. And Brian, welcome. We look forward to working with you. Just a question for both of my questions have been answered. But question for you, it looks like if I do the math on the guidance, sort of at the midpoint of your revenue guidance, kind of slightly down to the midpoint of U.

Speaker 9

S. Guidance. It looks like margins up modestly, looks 50 to 100 bps on the operating line. Is that about right? And where is that going to shake out?

Speaker 9

Is it a little bit more on the gross margin side or do you get a little leverage? And then part 2 of that question is, are you building in some increased expenses or material increases for PNT2002 this year or is that more of a weighted dip? Thanks.

Speaker 5

All right. Thanks, Larry. That's a great set of questions. Margin should be relatively flat, maybe slightly improved. But again, I think if you peel out the impact of the relistore royalty out of the prior year, that's about an 80 basis point headwind.

Speaker 5

So to remain flat is actually an increase. And you're right, that is coming from product mix in terms of Polari and DEFINITY, as well as some of the other cost containment factors may able to manufacture DEFINITY on campus that's contributing and helping. And yes, you are seeing an increase in overall spend, but I can tell you that we don't have spend for 2,002 embedded in our expenses. And mainly that's because we want to make sure that we're phase gating. So as Brian indicated earlier in Paul's remarks, we're waiting for the data to mature before we put further investment.

Speaker 5

And when that data does read out, we will make or not make investment as appropriate and we will communicate that to the street. I think another driver is the byproduct of having a lot of cash on the balance sheet and there is significant and when I look through the consensus models, I did note that it's sort of under appreciated the current level of interest rates and the forward curves that we see. So with this level of cash, it does generate that level of interest income that I noted in my scripted remarks around $36,000,000 Tax team does a good job. So as you kind of work down through the P and L, that's what's creating our opportunity to continue to expand and drive profitability for the company while taking the opportunity to invest appropriately across many aspects of the organization, whether that be all the things that Paul talked about in terms of clarify protection and mitigation strategies, as well as market access, market research, business development activities, which can be consuming and expensive. But also also the things that we've done with our ERP, the company did a fantastic job putting that in place.

Speaker 5

But it does come with a cost, but at the same time, those costs will ultimately drive workflow efficiencies that I think will continue to provide opportunities to invest in other aspects of our business much like our R and D pipeline.

Operator

Thank you. One moment for the next question. Our next question is coming from Kent Oliver of Brookline Capital Markets. Your line is open.

Speaker 12

Thank you and good morning. My question relates to PNT-two thousand and three and the market potential data. Could you just speak quickly about what drives the increases in the TAM between 20242029 because Point had indicated both a traditional generic strategy and then ultimately an NDA strategy for different indications in the GEP net space. So if you or the GEP net space,

Speaker 9

could you just speak to that

Speaker 12

in a little more detail?

Speaker 3

Yes, I'm happy to take that. So as we noted in our prepared remarks, we did submit an ANDA for PNT2002 3, which has been accepted by the FDA. And based on available public information, we believe we are the 1st applicant. The market we estimate currently has an addressable market of about $1,000,000,000 in 2024 and that's actually on one of the prepared slides. And that's about 4,000 plus patients with a real focus on metastatic second line within GEP NET.

Speaker 3

As we've seen from recent trial results in potential expanded use of the somatostatin receptor targeted RLT. We believe there's an opportunity for the overall market to grow specifically in first line as well as into other nets as well as FIO and para. And so when we look at what that potential is from a utilization, it won't necessarily change the proposed labels. This is more likely updates to guidelines, which would expand the potential use of this asset class into those. And that's really driving much of the expansion.

Speaker 3

And then as you get out in 5 years, there's really just continued expansion of overall incidence and prevalence. Unfortunately, more men and women continue to be diagnosed and present with these. And so overall, we view this as a large market opportunity with multiple room for additional players in including PNT-two thousand and three and we'll certainly be talking more about this opportunity and our go to market strategy as we get closer to 2026 and a potential launch.

Operator

Our next question will be coming from David Turkaly of JMP Securities. Your line is open.

Speaker 13

Good morning. You mentioned the ferocity of some of your long term partnerships. So I guess I just wanted to ask, can you sign these things? Can they be exclusive and can they be multi year? Like can you have contracts that go through 2025 and 2026?

Speaker 13

I'm just trying to get a sense of that word and then sort of what you can do with these customers to potentially maybe lock some of them up.

Speaker 2

I'm just going to start by clarifying. We think we were fiercely willing to fiercely defend our business, but we would not describe our partnerships as ferocious. In fact, they're very amiable, and they're two way, but I'll let Paul speak more to what our strategy is there.

Speaker 3

No, I appreciate the question. Naturally, I'm not going to go into significant detail given the competitive nature of it. But yes, we can enter into long term contracts, by that I mean multi year with key customers to ensure that Polarify remains their preferred choice of agent. I'll wait till over time to discuss more about what those specifically mean, But we have an incredibly experienced commercial team, which includes market access, national accounts and overall sales team that is very well experienced in working with commercial customers that we know deeply and have built long term relationships over the last number of years. And these strategic partnerships help codify that relationship and ensure that we remain solid partners together for years to come.

Speaker 2

I'll just add also you made a reference to whether these partnerships were exclusive and it is very atypical in the radiopharmaceutical space to ask for exclusivity just because of the supply chain and supply chain considerations for these products. Our strategy would be to retain Clarify's role as the most chosen and market leading choice for PSMA based imaging.

Operator

Thank you. One moment for our next question. And our final question of the day will be from Richard Newitter of Chorus Securities. Your line is open.

Speaker 8

Hi. Thanks for taking the follow-up. I just had one additional one. On transitional pass through, one of your competitors has talked publicly about product lifecycle management, possibly even restarting the transitional pass through clock for a next generation type diagnostic offering if it can get approved through the FDA. I'm just curious if you have any views on this kind of strategy?

Speaker 8

Is there anything you have in the pipeline beyond indication expansion? I appreciate the MIRROR study and intermediate favorable indication expansion. And that sounds promising, but more specific to the product lifecycle management concept? Thank

Speaker 3

you. Yes. I understand the question, Rich. Appreciate it. We're not going to comment publicly on what our competitors and of other public companies have said.

Speaker 3

As you noted, we are focused on life cycle management with POLARIFI both the MIRROR study as well as assessing its use in non prostate cancer, because PSMA is expressed by other solid tumors. For pass through, our primary focus is really to work with customers to ensure that we remain the preferred agent of choice and then naturally to engage with CMS to support legislation as well as I should CMS to support regulation and then work with the FIND Act specifically supporting legislation. And so I'm not going to comment publicly on what competitors have stated about their life cycle management. We believe Polarifi is the clear market leader. We believe the market is large and continues to grow and we are focused on ensuring it remains accessible to patients that Polarify continues to grow and that it remains the clear market.

Operator

Thank you. Ladies and gentlemen, there are no further questions at this time. Thank you for participating in today's conference. This concludes the program. You may disconnect and have a wonderful day.

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Earnings Conference Call
HOYA Q4 2023
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