Lantheus - Q2 2023

Transcript

Operator (participant)

Good morning. Welcome to the Lantheus second quarter 2023 financial results conference call. This is your operator for today's call. Please note that all lines have been placed in mute to prevent any background noise. This call is being recorded for replay purposes. A replay of the webcast will be available in the Investors section of the company's website approximately two hours after the completion of the call and will be archived for at least 30 days. I'll now turn the call over to your host for today, Mark Kinarney, Vice President of the Investor Relations. Mark?

Mark Kinarney (VP of Investor Relations)

Thank you. Good morning, welcome to today's call. With me are Mary Anne Heino, our CEO, Paul Blanchfield, our President, and Bob Marshall, our Chief Financial Officer. Mary Anne will begin the call with introductory remarks and then turn the call over to Paul to provide a strategic and operational update. Bob will cover our financial results and provide updated guidance. Mary Anne will provide closing remarks, and then we will open the call for Q&A. This morning, we issued a press release, which was furnished to the Securities and Exchange Commission under Form 8-K, reporting our second quarter 2023 results. The release and today's slide presentation are in the Investors section of our website at lantheus.com. I would like to remind you that any comments made during our call today could include forward-looking statements.

Actual results may differ materially from these statements due to a variety of risks and uncertainties. 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.

Mary Anne Heino (CEO)

Thank you, Mark, and good morning to everyone. I am so pleased to share that Lantheus delivered yet another solid quarter with reported revenue of $321.7 million, up 44% year-over-year. We continue to focus on our commitment to innovation and operational excellence, and ultimately, to making a meaningful difference in patients' lives. In fact, in the first half of 2023, we impacted the lives of more than 3 million patients. Outside the U.S., we are pleased to note that our PSMA PET imaging agent will soon be available to prostate cancer patients in Europe. Curium, our European partner, announced last week that they have received marketing authorization for Pylclari from the European Commission.

Lantheus has been a recognized leader in nuclear medicine for more than 65 years. We believe our differentiated capabilities uniquely support our position as the leading radiopharmaceutical-focused company. Our expertise and commitment to bringing unique products of differentiated clinical value are why we are the clear market leader with both PSMA PET with PYLARIFY and with our ultrasound enhancing agent, DEFINITY. It's an inspiring time for our industry as the renaissance underway in radiopharmaceuticals was clearly evident at the recent Society of Nuclear Medicine and Molecular Imaging, or SNMMI, annual meeting. The breadth of attendees from across medical specialties and the increased focus on radiopharmaceuticals, including diagnostics, biomarkers, and therapeutics, speaks to the increased adoption and importance of these innovative products to the healthcare community.

Our deep expertise in radiopharmaceuticals and our proven ability to successfully commercialize products have made us the partner of choice in this space and enabled us to expand our pipeline with late-stage radiotherapeutic candidates. This includes PNT2002 for prostate cancer and PNT2003 for neuroendocrine tumors. We also have earlier-stage assets, such as MK-6240, our F-18-labeled PET diagnostic imaging agent targeting tau tangles for Alzheimer's disease, and our novel fibroblast activation protein alpha, or FAP imaging agent, which recently entered the clinic. It's an exciting time to be in radiopharmaceuticals, and as the leading radiopharmaceutical-focused company, we are committed to advancing our portfolio of leading products and late-stage product candidates to deliver better patient outcomes for those we serve.

Before I turn the call over to Paul, I would like to take a minute to note recent developments in the PSMA PET imaging class, including the recent approval of an additional F-18-based agent. We believe the healthcare community is well-served to have a broad set of choices available. We're also confident that PSMA PET with PYLARIFY offers clear clinical and commercial differentiation. Clinically, PYLARIFY offers the best combination of both isotope and F-18 and our unique and very PSMA-targeting ligand. It's important to note that each of the approved F-18 PSMA agents are new chemical entities with unique pharmacokinetics as well as corresponding pharmacodynamic profiles. We believe the clinical value of PYLARIFY was well demonstrated in our pivotal trials. These trials for PYLARIFY, CONDOR and OSPREY, both demonstrated a high predictive value, positive predictive value, which by definition correlates to a low rate of false positives.

Additionally, it is worth noting that the newly approved F-18 PSMA agent in the U.S. includes an explicit warning and precaution in its label that recommends, because of the associated risk of false positive interpretation, that healthcare professionals should consider multidisciplinary consultation and histopathological confirmation or biopsy. when clinical decision-making hinges on uptake only in the prostate and or prostate bed region, or only on uptake interpreted as borderline in patients with suspected recurrence. We believe the advantages of PSMA PET with PYLARIFY are clear, robust, and well-documented in scientific literature and our package insert. With that, I'll now turn the call over to Paul to provide a strategic and operational update.

Paul Blanchfield (President)

Thank you, Mary Anne, and good morning, everyone. Leading the way for Lantheus is PYLARIFY, which delivered sales of $210.5 million, representing 61.7% year-over-year growth and approximately 8% sequential growth from the first quarter of 2023, with the vast majority of our sequential growth driven by our existing accounts. We believe PSMA with PYLARIFY offers sustainable competitive advantages that will enable it to remain the number one PSMA PET imaging agent, even with the approval of additional competing agents. PYLARIFY's clinical differentiation includes being the only PSMA PET imaging agent to have measured change in intended patient management for 99% of enrolled patients in a registrational biochemical recurrence, or BCR study, with results having been published in a peer-reviewed scientific journal.

Our pivotal phase III CONDOR study demonstrated that nearly two-thirds of BCR patients with negative or equivocal conventional imaging results at inclusion had a change in intended management after being scanned with PYLARIFY. PYLARIFY also demonstrated high to very high inter- and intra-reader agreement, which we believe provides confidence in the consistent interpretation of PSMA PET with PYLARIFY scans. Scientific literature broadly supports F-18's image clarity advantages versus other isotopes used in PSMA PET imaging. Our pivotal studies, scientific research, KOL feedback, and guidelines all demonstrate the differentiated clinical value of PSMA PET with PYLARIFY. PYLARIFY also has the largest dedicated commercial team and significant adoption, as demonstrated by the more than 200,000 PYLARIFY scans performed since launch. Broad payer access, including transitional pass-through status, a geographically diverse, multi-partner PMF supply network, including both commercial and academic partners, and sustained supply reliability.

Finally, PYLARIFY has a nearly two-hour half-life versus 68 minutes for Gallium-68 products, which we believe offers more flexible dose administration advantages for imaging centers and the patients they serve. There have been promising developments in the reimbursement landscape as the Centers for Medicare & Medicaid Services, or CMS, recently requested public comments on proposed Hospital Outpatient Prospective Payment System. CMS put forth several proposals, including for radiopharmaceuticals, for the first time since 2008, separate payment for radiopharmaceutical diagnostics following expiration of transitional pass-through status. We are working with our industry partners and other stakeholders to strongly advocate that CMS adopt this important proposal, while simultaneously working with Congress to pass the FIND Act, to ensure that patients maintain access to innovative diagnostic radiopharmaceuticals, including PYLARIFY. We are positive about the future and the impact we continue to have on men living with prostate cancer.

In our microbubble business, DEFINITY maintained its strong momentum with second quarter sales of $70.5 million, up 13.2% year-over-year, and remained the clear market leader in the U.S. ultrasound enhancing agent market. Contributing to year-over-year growth was an increase in overall health system procedure volume as patient visits continued to rebound in this post-pandemic environment. We expect these trends, combined with our continued focus on educational programs and promotional efforts, to help sustain our momentum in the second half of the year. As Mary Anne mentioned, we have continued to expand our portfolio and pipeline, including PSMA-targeted radiotherapeutics. To realize this potential, we continue to work closely with our partner, POINT Biopharma, to progress PNT2002 across R&D, supply chain, manufacturing, and commercial readiness.

We received Fast Track designation from the FDA in April and expect to read out top-line data from SPLASH, the phase III registrational trial, later this year. SPLASH is designed to evaluate the efficacy and safety of PNT2002 in patients with metastatic castration-resistant prostate cancer who have progressed following treatment with an androgen receptor pathway inhibitor, or ARPI. The study has three phases: dosimetry, randomized treatment, and long-term follow-up. SPLASH commenced with a 27-patient safety and dosimetry lead-in, after which patients were randomized two to one to receive either PNT2002 or the alternate ARPI therapies like abiraterone or enzalutamide. In total, 412 patients were randomized.

The primary endpoint is radiographic or imaging-based progression-free survival, as assessed by blinded independent central review. At the time of primary endpoint analysis, we will also perform an interim analysis on overall survival, which could provide important information for our future discussions with the FDA. As is custom in long-term oncology studies, final overall survival analysis will be performed when data have matured sufficiently. When we announced our collaboration with Point in November, we estimated a U.S. total addressable market for PSMA radiopharmaceuticals of $3.5 billion. With the approved PSMA radiotherapy set to exceed $1 billion in sales this year, even amidst supply disruptions, we believe this market could be larger. Needless to say, we look forward to progressing PNT2002 for men with prostate cancer and to sharing top-line data in the second half of this year.

I'm pleased to note that this quarter we completed our integration of Cerveau Technologies and its asset, MK-6240, a clinical-stage PET imaging agent for Alzheimer's disease, which is already being used as a biomarker in more than 60 clinical trials. tau imaging has the potential to play an important role in patient staging and patient selection for future treatments. We are particularly encouraged by the proposed guidelines from the Alzheimer's Association and the National Institute on Aging for diagnosis and staging of Alzheimer's disease that incorporates tau PET, as well as the approval and regulatory submission of new therapies such as lecanemab and donanemab. We look forward to sharing more progress on MK-6240 and its potential in the future. We have also progressed our novel FAP alpha-targeted copper-64 labeled PET imaging agent.

In collaboration with Ratio Therapeutics, we initiated a phase I study evaluating the pharmacokinetics, biodistribution, and radiation dosimetry in adult healthy volunteers. FAP is overexpressed in the tumor microenvironment, specifically in cancer-associated fibroblasts, which are believed to modulate tumor progression and immune response. The ubiquitous expression of FAP across nearly all epithelial-derived cancers, paired with the low expression in normal tissues, makes it a unique target to focus on for tumor imaging for a wide variety of cancers, including breast, pancreatic, lung, and stomach cancer. Following the completion of the healthy volunteer study, we plan to progress to a phase I study in cancer patients. I will now turn the call over to Bob for a financial update.

Bob Marshall (CFO)

Thank you, Paul, and good morning. I will provide highlights of the second quarter financials, focusing on adjusted results unless otherwise noted. Net revenue for the second quarter was $321.7 million, an increase of $98 million, or 43.8% over the prior-year period. Earnings per share for the second quarter were $1.54, an increase of $0.66 or 73.8% over the prior-year. Turning now to the details, beginning with Radiopharmaceutical Oncology. The category contributed revenue of $211.3 million of sales, up 61.1% over the prior-year, with PYLARIFY delivering $210.5 million of sales, up 61.7% year-over-year. Precision Diagnostics recorded $97.6 million, up 12% from the prior-year quarter.

Sales of DEFINITY were $70.5 million, 13.2% higher as compared to the prior year quarter. TechneLite revenue was $21.6 million, up 11.1% from the prior year due to mainly to the realization of opportunistic sales in the quarter. Lastly, strategic partnerships and other revenue was $12.8 million, driven primarily by MK-6240 and the Relistor royalty. As was noted in this morning's Relistor press release, we sold our rights to the Relistor quarterly net sales royalty stream, though we have retained the rights to any future potential milestone payments. I will provide some additional details just ahead of our updated guidance discussion. Gross profit margin for the second quarter was 69.6%, an increase of 359 basis points over the second quarter 2022 results on a similar basis.

As has been the case in recent quarters, the increase is due mainly to favorable volume and product mix, led by PYLARIFY and DEFINITY, but also lower logistics expenses, partially offset by generally higher overhead costs. Operating expenses were 345 basis points favorable over the prior year at 22.9% of revenue, which was in line with our previously guided expense levels. As was noted last quarter, we continue to invest in sales and marketing efforts with an expansion of our PYLARIFY sales force intended to support and expand adoption, which demonstrates our confidence in the underlying PSMA PET imaging market. Within G&A and R&D, while the ERP implementation and advancement of our pipeline continue, we are also investing in infrastructure to support PYLARIFY's growth, in addition to activities associated with the Point and MK-6240 programs.

Operating profit for the quarter was $150.1 million, an increase of 69.4% over the same period prior year. Total adjustments in the quarter totaled $25.9 million before taxes. Of this amount, $12.7 million and $12.4 million of expense are associated with non-cash, stock and incentive plans and acquired intangible amortization, respectively. Also, during the quarter, we reduced our net contingent liability of coal by $7.6 million and recorded a fixed asset impairment of $6 million. The remainder is related to acquisition and other non-recurring expenses. Our effective tax rate was 26.7% in the quarter.

The resulting reported net income from the second quarter was $94.1 million, and net income of $109.6 million on an adjusted basis, an increase of 74.3% over the prior year quarter. GAAP fully diluted earnings per share were $1.33, and $1.54 on adjusted basis, an increase of 73.8% over the prior year quarter. Now turning to cash flow. Second quarter operating cash flow was a use of $32.3 million as compared to cash provided of $72.6 million in Q2 2022. Capital expenditures totaled $10.7 million, in line with expectations.

Free cash flow, which we define as operating cash flow less capital expenditures, was a use of $43 million, a decrease of $111.2 million from the prior year period. During the quarter, the company satisfied its obligation under the contingent value rights issued in the Progenics acquisition by paying $99.6 million, broken down between operating cash flows of $95.9 million and the balance within financing cash flows. Additionally, the company remitted both Q1 and Q2 tax payments in April and June, respectively, totaling $44.5 million. Cash and cash equivalents, net of restricted cash, stood at $414.1 million at quarter end. We continue to have access to our $350 million undrawn bank revolver and are comfortable with our very strong liquidity position.

Before turning to guidance, I would like to provide some additional details regarding the sale of the Relistor royalty stream. Lantheus retains the right to any future milestone payments and received an initial cash payment of approximately $98 million before tax in exchange for the royalties. This action will result in the reduction of approximately $13 million of revenue and approximately $0.14 of earnings per share, both split equally between the third and fourth quarters of this year. Strategically, we believe this unlocks significant value today as we focus on our core businesses to find, fight, and follow disease to deliver better patient outcomes. Turning now to our guidance for the third quarter and updated guidance for the full year, which incorporates the financial impact of the Relistor divestiture.

We forecast revenue to be in a range of $310 million-$315 million for the third quarter of 2023, an increase of approximately 30%-32% over the third quarter of 2022. We are updating our full year view to take into consideration second quarter performance, as well as the sale of the Relistor royalty stream. We now forecast full year revenue to be in a range of $1.245 billion-$1.27 billion, from the prior range of $1.23 billion-$1.27 billion. The implied PYLARIFY full-year range is now $835 million-$860 million, up from the prior range of $820 million-$860 million.

We expect DEFINITY to continue its momentum and also expect MK-6240 to now contribute $15 million of full-year revenues rather than the prior guide of $10 million. Turning now to earnings. Adjusted EPS should be in a range of $1.30-$1.35 for the third quarter as we continue to invest in additional sales and marketing efforts, as well as infrastructure to support company growth. We now expect adjusted full year EPS to be in a range of $5.60-$5.70 per share, versus the prior range of $5.45-$5.70. With that, let me turn the call back over to Mary Anne.

Mary Anne Heino (CEO)

Thank you, Bob. In closing, the second quarter was yet another solid quarter, anchored by our market-leading products, PYLARIFY and DEFINITY. Our commitment to execution and excellence are the cornerstones on which we operate. At Lantheus, we are driven by our purpose to find, fight, and follow disease to deliver better patient outcomes. We believe that radiopharmaceuticals present significant potential, both diagnostically and therapeutically, in what has become a modernized approach to personalized medicine. You see if a patient is avid for the target, you treat the disease at the target, and then you monitor patient response via imaging. By investing in innovative diagnostics and therapeutics, we are positioning Lantheus to remain the leading radiopharmaceutical-focused company.

Products with sustainable advantages, such as PYLARIFY and DEFINITY, have been the key to our long-standing success. We are proud to be able to equip healthcare professionals with the tools they need to make a significant difference in the lives of patients. With that, Bob, Paul, and I are now ready to take your questions. Operator, please go ahead.

Operator (participant)

Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Also, please limit yourself to one question per person. Please stand by while we compile the Q&A roster. Your first question, it comes from the line of Roanna Ruiz from Leerink Partners. Your line is open.

Roanna Ruiz (Senior Research Analyst)

Hey, morning, everyone.

Mary Anne Heino (CEO)

Morning.

Roanna Ruiz (Senior Research Analyst)

Wanted to ask about your guidance raise, first off. What were the main drivers behind that? Could you talk a bit about your level of confidence in reaching possibly the high end of that range?

Bob Marshall (CFO)

I'll start, and then people can contribute. I mean, yes, you've noted the fact that, yes, by removing the Relistor royalty stream out of the back half of the year, that, that, you know, and keeping our top end from the prior guide, that that is effectively, the raise that we're trying to point you to. I, you know, where it's coming from obviously is an outperformance in Q2. We're really pleased that it was broad-based across all three of the categories.

As we look to the future, we have a lot of confidence, and that was one of the reasons that we did raise the bottom end of the PYLARIFY range up more than double the over the beat of what we had provided as guidance in the prior quarter. From there, those are the main drivers of the revenue guidance performance. If you look at the EPS part of it, it's similar. The performance on EPS is also accumulation of our outperformance in Q2, which then allows us to continue to invest in the business, which continues to demonstrate our confidence in driving growth.

Paul Blanchfield (President)

Maybe I'll just add, Bob, very much agree with that. I think we're pleased with the continued adoption, specifically of PYLARIFY, including its position as the number one PSMA PET imaging agent. We believe it is clinically and commercially differentiated. Obviously, we are cognizant that we have new competition over the last couple of weeks. That's been expected. Indeed, we believe that physicians and prostate cancer patients are well served to have a broad set of choices available. The additional voice and awareness will help promote the overall benefit of PSMA PET for prostate cancer patients, and as the clear market leader, we believe that we can benefit from that. We do believe our product is clinically and commercially differentiated. It is obviously a dynamic market, but we remain confident about the potential for PYLARIFY and the overall PSMA PET imaging category.

Mary Anne Heino (CEO)

Roanna, I'll just add one set of two comments here that I, that I'd like everyone to hear, and the first is our confidence. As Bob said, effectively, by having to remove Relistor revenue and the associated EPS from the back half of the year, that is in effect a raise to what our prior guidance was. You also see our bottom guidance coming up, and this, I think, relates to my second point. First, we are incredibly confident in what we are accomplishing in the market here, and we're very also pleased to see the market's rebound, especially the return of significant patient volume to the DEFINITY market.

The second thing that we are really attending to as a team, is trying to be tighter in the guidance that we offer you so that you have better line of sight to what we're anticipating for the business, and you can build your models about that. I'd say that's the other concerted effort that you see with the guidance that we offered here.

Operator (participant)

All right. Thank you. For our next question, it comes from the line of Yuan Zhi from B. Riley.

Yuan Zhi (Senior Healthcare Research Analyst)

Good morning. Thank you for taking my questions. My first one is, we saw the commercial launch of another F-18-based PSMA PET imaging agent, Posluma, at SNMMI conference, and thank you for hosting me at your training session during the conference. Investors have been asking us about the difference between PYLARIFY and this newer one, Posluma. For these two moleculars, can you please comment on the clinical data presented so far between these two? Is there any clinically meaningful difference? Understand they are not compared in the same trial. I have a quick follow-up. Thank you.

Mary Anne Heino (CEO)

No, thank you for the question. I guess I'll take this first. First, let me say I know there's been a lot of chatter from the market about the F-18 product being alike, and it's interesting at this time, and I'll comment, but I, I really wish the, the more of the chatter was about what we're doing for patients and what PSMA PET imaging represents as an innovation to the prostate cancer treating community. It, it's interesting about this feedback because it, it seems that the, the generation of it is from one of the Gallium PSMA agent operators into the marketplace, and that makes it fairly ironic, and I'll, I'll explain why. The two commercially available Gallium PSMA agents in the U.S. both employed a 505(b)(2) regulatory approach to seek approval.

Essentially, they referenced the safety and efficacy data generated by UCLA and UCSF and then supplement and completed a bridging PK study to demonstrate their equivalency to those academic products. In direct contrast, the two F-18 PSMA agents employed a 505(b)(1) reg path, or an NDA application, in which essentially you must demonstrate that you were uniquely different from any other approved agent. The two F-18 approved agents do share a common isotope, F-18, and I think as we noted in our comments, it's well supported with an abundance of scientific literature that F-18-generated images are clearer than those generated by Gallium.

The two F-18 agents are uniquely different in the PSMA targeting ligand that is attached to the F-18 isotope, and that conveys into important PK and PK differences, which we feel are well documented in the reported results of our two pivotal trials. In both those trials, we reported very high positive predictive value, which again, as I noted earlier, correlates to low, low false positive rates in the trial. Again, I think somewhat ironically, it'd be much more credible to say that the Gallium PSMA agents in the U.S. are alike, and the F-18 agents in the U.S. are uniquely different. We can go into more scientific discussion of the actual results of trials, I, I think those are all well published. The pivotal trials are well published in peer-reviewed journals, they are there available for direct comparison.

Yuan Zhi (Senior Healthcare Research Analyst)

Got it. Thanks for the clarification there. We also heard comments from, you know, the other earnings calls that there are adjustments or changes in practice guidelines that do not favor F-18-based PSMA PET agents related to false positive rates, but particularly in bone lesions. Can you clarify if you have seen such changes, and we would appreciate any extra color?

Mary Anne Heino (CEO)

Again, this, this is one I'm almost gonna label as desperately seeking science, because in looking at those comments, what we've come to appreciate is that the guidelines that are being referenced are the European guidelines. PYLARIFY was just approved in the European Commission, but is not yet included in guidelines. Those guidelines reference the only PSMA, F-18 PSMA PET agent that is approved in, in Europe, which is an agent that is not approved in the U.S., nor under development in the U.S. Why those guidelines would be referenced when you have such outstanding exemplary guidelines in the U.S. with the NCCN, SNMMI, and AUA, is, is somewhat bewildering to us.

I can confirm to you fully that those guidelines, the U.S.-based guidelines from those exemplary agencies, have not changed their stance on PYLARIFY and its value in being used in PSMA PET imaging and in patient selection for PSMA-based therapeutics.

Operator (participant)

Thank you. For your next question, it comes from the line of Anthony Petrone from Mizuho Americas. Anthony, your line is open. Please ask your question.

Mary Anne Heino (CEO)

Good morning, Anthony. Anthony?

Operator (participant)

Once again, Anthony Petrone from Mizuho Americas, your line is open. Please ask your question.

Mary Anne Heino (CEO)

Kyle, why don't we move forward, and we can come back to Anthony?

Operator (participant)

Yeah, sure. No worries. One moment for your next question. Your next question comes from the line of Richard Newitter from Truist Securities. Your line is open.

Richard Newitter (Managing Director and Senior Equity Research Analyst)

Hi, thanks for taking the questions. I wanted to maybe just start off on PYLARIFY. Any color that you can give on how sales and performance tracked throughout the quarter and maybe even into the early part of 3Q? Specifically, did you see any, you know, any changes or did you see the new competitor, the new F-18 competitor, show up at all later in the 2Q?

Paul Blanchfield (President)

Thanks for the question. You know, I, I think we were confident in the trajectory that we saw over the course of the second quarter, which was in line with our overall expectations. As Bob had noted in the last quarter, we do see impacts from the holidays, so in the second quarter would be Memorial Day. We see natural impacts than we would expect over July 4th and then in the future, Labor Day, Thanksgiving and Christmas. But overall, we're very comfortable with the trends we saw. We're not gonna comment on what we've seen in the third quarter to date, other than Bob reiterating the guidance and raising what we saw and expect for the second half of the year. Overall, remain confident.

As I said earlier in my prepared remarks, we expected an additional competitor to come on board. We are very comfortable with our market-leading position as the number one PSMA PET imaging agent. We are very pleased with the overall growth of the market that is now annualizing in our estimates, approximately $1.2 billion. That's versus the TAM that we shared back in January and noted there could be upside of $1.6 billion. We still are very pleased with the uptake of PYLARIFY, the uptake of the overall market, and where we're gonna go going forward.

Mary Anne Heino (CEO)

Richard, this is Mary. I'm just going to add what I say each time on these calls. I would like everyone to appreciate, and something that we're thrilled at, we are still in a launch here. This is a brand-new market, a brand-new category, and we continue to be incredibly confident in what we see as the potential growth. As Paul mentioned, we're already dollarizing at $1.2 billion. We see minimally a TAM of $1.6 billion, and we see upside on that based on, again, evolving physician intent to use these products in their management, their diagnosis and management of prostate cancer.

Operator (participant)

All right, thank you. One moment for your next question. For your next question, it comes from the line of Matt Taylor from Jefferies. Matt, your line is now open.

Matt Taylor (Managing Director)

Hi, thank you for taking the question. Good morning.

Mary Anne Heino (CEO)

Good morning, Matt.

Matt Taylor (Managing Director)

Good morning. I wanted to see if you could comment a little bit further on some of the reimbursement developments that you talked about with CMS asking for public commentary and, and the FIND Act kind of running in parallel. Maybe you could discuss, you know, some of the potential outcomes that you see there. Could you help us understand the timing of when some of these things could happened, and maybe which of those you view as most likely?

Paul Blanchfield (President)

Thanks for the question, Matt. I, I think we were obviously pleased, as we mentioned in our prepared remarks, that CMS released their proposed OPPS rules for the calendar year 2024 in the middle of July. In those proposed rules, for the first time since 2008, so 15 years, they included proposed rules, five of them, that it would adjust the reimbursement for innovative radiopharmaceutical diagnostics, and two of which would dramatically change the current transitional pass-through status, effectively as they propose, potentially beginning next year. We're naturally very pleased that CMS has heard the need for continued patient access to these innovative radiopharmaceutical diagnostics.

We are working with stakeholders, as well as members across the industry, to submit comments and to help CMS understand the importance of specifically a number of their proposed rules, which could go into effect in calendar year 2024. Generally speaking, CMS finalizes its rules for the upcoming year in the early December, late November time frame, after which, before which they receive comments. What we're obviously working with them and our industry partners to ensure that they understand the importance and are optimistic that those could go into effect in next year.

That said, we've always said we have a multipronged approach, we are also supporting the FIND Act, both in the House and in the Senate. The FIND Act was reintroduced in the House on February 27th. It has 34 cosponsors, including bipartisan support as the cosponsors. It was also referenced in a recent House Energy and Commerce Committee meeting on July 18th, where several members made comments about the importance of supporting the FIND Act.

Then it was introduced in the Senate on May 9th and also has a bipartisan sponsorship. So we're naturally hopeful that the FIND Act will be included in a legislative hearing this fall and being passed in due course. As we've said, we have a multipronged strategy, both through CMS and through the FIND Act, as well as other commercial strategies, to minimize the potential impact on passthrough, and most importantly, ensure that prostate cancer patients continue to have access to innovative radiopharmaceuticals, diagnostics, including PYLARIFY, the market-leading agent.

Operator (participant)

Thank you. For your next question, it comes from the line of Anthony Petrone from Mizuho Americas. Anthony, your line is now open.

Anthony Petrone (Managing Director of Equity Research)

Thanks, and good morning, everyone. Congrats on a strong quarter here. Yeah, maybe just high level on, you know, looking at the PSMA prostate cancer testing, you know, landscape and just in terms of share as we go forward here. We do have the third competitor in the U.S. market. You know, maybe just thoughts on, you know, how share is gonna trend, you know, now with three options in the marketplace. Then one quick follow-up will be on Europe. You know, just to recap on, you know, how we should be thinking about the rollout of PYLARIFY in Europe. You know, there's fewer PET facilities, but yet there's a higher incidence of prostate cancer. How should we be thinking about the rollout in Europe? I'll have one quick follow-up. Thanks.

Mary Anne Heino (CEO)

Anthony, I'm gonna start with I'll speak to what our expectations are from a share perspective. Share is a fixed pool. It's 100%. The only thing you know for sure is that any participants have to share that number. What we're really confident about is that we will remain the commanding leader in this marketplace from a market share perspective. For this quarter, we're reporting approximately 70% is our estimated share. Again, I need to be clear about that because there is no, unlike the pharmaceutical industry, there is no third party here that explicitly and very carefully follows and tracks market share. We do have to estimate it.

Our estimate is, again, 70% of the market, and we continue to be the market leader, and we will continue to be the market leader, which is a really great place to be. For your Europe question, it's not one that we will answer specifically this time, although I really appreciate your comments about the infrastructure of PMS being less, but yet the incidence and prevalence for gentlemen with prostate cancer being higher. What I will say is we're really confident with our partner. Curium is the leading PMS provider. They have the largest network of PMS throughout Europe, and so that's, as you know, from our launch, that's an important access point that really, once you have the infrastructure, then you can drive the demand.

It will be our partner doing that, so it would be really early and probably, I would say, inappropriate this time for us to offer any projections there.

Operator (participant)

Thank you. One moment for our next question. For your next question, it comes from the line of Justin Walsh from JonesTrading. Justin, your line is now open.

Justin Walsh (Equity Research Analyst)

Thanks for taking the question. LNp-1363 S is still early, but I was wondering if you can comment on the potential advantages and disadvantages of copper-64 PET compared with fluorine 18 PET imaging. Sort of related to that, why use copper for targeting fat and fluorine for PSMA? Is there some concern that the future entrants of copper-based PSMA agents could pressure PYLARIFY down the road? Thanks.

Mary Anne Heino (CEO)

I'm going to come into your question generally, then if we we can absolutely jump deeper into the science you want. I think what you're seeing here for the larger marketplace is the intent to deploy a variety of isotopes and then exploit what are the individual differences between, between the different isotopes. Copper-64 is a really good isotope for PET. It has a short positron range, which is just a little bit longer than F-18 and a longer half-life. Remember, with the positron range, that's where you get clarity of image. It's a, it's a little bit longer than F-18, not noticeably, you get that nice, clear image. With a longer half-life, you have really distinct commercial advantages about how to distribute your product.

I will say, you know, copper production has a long way to go in terms of scale-up. Curium is the only company that we're aware of with a commercial copper-64 product in the U.S., which is called the Detectnet, and that's an orphan indication. The overall volume moving, you know, that's available for that is probably lower. Again, I, I would point you to what we're seeing in the larger marketplace, and this goes to some of the alphas as well as some of the other isotopes. The intent within radiopharmaceuticals to employ and deploy these isotopes across a variety of imaging and therapeutic products that really make for, as I said earlier, my really personalized medicine. That, that's kind of our, our stance.

I won't, I won't do a direct comparison F-18 than the copper, other than what I just offered you about the positron range and then, and then the half-life. Really, you always have to think about the, the full product. What is the isotope? What is the ligand or, or other, what is ever being chelated or conjugated, and look at the total value being offered by that product.

Operator (participant)

All right, thank you. For our next question, it comes from the line of Larry Solow from CJS. Larry, your line is open. Please ask your question.

Larry Solow (Partner)

Great. Good, good morning. Just, just a clarification first and then a question. Your guidance essentially is going from $545 million-$570 million to $574 million-$584 million, right? If I, apples for apples, including Relistor, right? $545 million-$570 million-

Paul Blanchfield (President)

It's $0.14 impact in the back half of the year. It was a $560 million-$570 million. Yeah, that would be the equivalent.

Larry Solow (Partner)

Would be $574.84.

Paul Blanchfield (President)

That would have been, would have been the equivalent, yes, but you have to make sure. Don't include.

Larry Solow (Partner)

Absolutely. Okay. Just a question on, on PYLARIFY, just to follow up on, just on adoption trends. Are you, as you go forward and, you know, more recently, are you, is it more expansion on existing doctors? Are you getting new doctors or scans, averages, are they continuing to go upwards? Then also in terms of are you seeing more penetration in the for initial staging of high-risk patients or suspected bio-reoccurrence? Is there a difference there where you have better penetration? Thanks.

Mary Anne Heino (CEO)

Larry, that was about 25 questions in one. I'm going to turn to Paul.

Larry Solow (Partner)

Thank you.

Paul Blanchfield (President)

Larry, good morning. Thanks for the question.

Larry Solow (Partner)

Good morning. Thank you.

Paul Blanchfield (President)

You know, I think, I think, where we see PYLARIFY and, and really the added penetration, I think this has really followed a trend that we had expected. If we go back to what we talked about last year, we were really about adding additional accounts, and those were metrics that we shared as we were having more imaging centers, whether they be government facilities, hospitals, or freestanding imaging centers, adopt PYLARIFY and be able to offer it to their referring physicians. I think what we've seen over the last couple of months, and certainly in the second quarter, was there's only so many accounts we're going to be adding, and so our real focus has been driving adoption and raising awareness amongst referring physicians. That does include new physicians that have not yet adopted, PSMA PET imaging, including with PYLARIFY.

I would say it's increasingly ensuring those physicians understand the breadth of patients with which they can prescribe, and the benefits of PSMA PET with PYLARIFY. Naturally, the recurrent setting, where we had a previous, conventional imaging, PET imaging agent approved in that setting, was an early adopter. I think we've seen increased adoption in the initial staging and going down, from high, very high risk to high risk to intermediate unfavorable, as we would expect, in a launch. Naturally, with Pluvicto being approved last year, we've also seen, albeit minor, some scans to support that patient selection. I think things are generally following the trend that we would expect, where that existing account growth or the activation of referring physicians has really been a key focus of ours.

As Bob mentioned, we've made investments in our sales and marketing, demand generating activities, which, we think is appropriate given where we are, but also demonstrates the confidence in the growth potential, to not only, continue to grow this $1.2 billion category, but also expand what the potential is as guidelines and medical practice continues to evolve.

Larry Solow (Partner)

Thank you.

Mary Anne Heino (CEO)

That was about 23 of your 25 questions, Larry.

Operator (participant)

All right, thank you. For your next question, it comes from the line of David Turkaly from JMP Securities. David, your line is open.

David Turkaly (Research Analyst)

Hey, good morning. Just looking at slide seven, in the deck, and you talked a lot about the commercial and clinical differentiation of PYLARIFY, but, you know, we look at the warnings and precautions and the commentary there, and I'd really just love to get your thoughts on, you know, do docs-- What, do, do you assume that they're gonna look at that and change their practice? Or, you know, do you have any precedent to look at where, you know, there was something like that, you know, clinically or, you know, com... A different label that actually impacted practice? Or do you feel like the docs are going to heed these warnings, or, or is it something that, that, you know... Any thoughts that you have on sort of what impact that might have would be great.

Mary Anne Heino (CEO)

I think it's a really fair question, and I'll answer it this way. We are absolutely committed, as we always have been as a company, to operating within our kind of field of play, which in the United States reg market is your package insert, your label. That is your, the basis for your right for promotion, the basis for your right for sharing, especially from a commercial perspective, from sharing clinical data about your products, and we're incredibly committed to that. I think your, your comment about, will doctors really change their mind based on a single part of a label? I, I don't think so. I think what's much more relevant here is the clinical experience that physicians already have with PYLARIFY.

You know, we've been in the market, it's now, over two years, and I think by, by any means measurable, you would call this a blockbuster launch. I say that, I'm proud to say that, but I'm much more proud about why that happened. That happened because the level of innovation that was represented by PSMA imaging, was correlated and matched by our commercial execution, the excellence with which we brought this product to physicians and, and to the market. I think that is really going to be much more the basis of how physicians choose going forward, what product to use when scanning their patients. When, when it is relevant or necessary, they do refer back to package inserts to make sure that their own practice is kind of in line with that.

We've brought particular attention to it today only because we, we've been offered, you know, significant feedback about the attempt to make a, a claim about F-18 agents in general, being alike, and we wanted to clarify where the products are different. And as I said, most, most distinctively, they're different in that they're both-- they're unique new chemical entities that both follow different paths to approval, based on the, the construct of the isotope and the, and the ligand that attached to it.

Paul Blanchfield (President)

I would just add, you know, I do think this matters in the marketplace. I think clinical and commercial differentiation is important. We saw that with our early commercial competitor, where they were approved about six months after us. If you look at the relative share positions, those clinical and commercial differentiators do play out. We welcome, as we and expected additional competition, with another F-18 agent. But as a fourth to market agent, where PYLARIFY has a significant market leadership, where over 200,000 patients have been scanned, where this has been used in over 1,000 imaging centers that we've shared, we think we have a market-leading position with sustainable clinical and commercial advantages that will enable us to remain the market leader for many years to come.

Operator (participant)

Thank you. We have a follow-up question from Richard Newitter from Truist Securities. Richard, your line is open.

Richard Newitter (Managing Director and Senior Equity Research Analyst)

Hi, thank, thank you for taking the follow-up. I, I actually have two quick ones here. Mary Anne, you had mentioned something about a slight change to your guidance, I think, either philosophy, you know, with, with, with this updated guide. Can you just refresh us on, on what, what that meant with a narrower band? Then just the second question is on this SPLASH trial. You're gonna, you're gonna have Novartis' PSMA-4 trial probably read out, you know, before or around the same time. Investors are naturally going to ask or try to compare between those trials. You know, Paul, or anything you can say about differences between those trials that you'd highlight as people try to compare them, is that fair and what do you think would be a reasonable way to compare the, the, the PFS primary endpoint? Thanks.

Mary Anne Heino (CEO)

You're welcome. I, I'll take on your first question, Rich, with kind of what I was trying to convey. I think we, we have been, again, we have been in a, coming through a pandemic and then through a launch, we have had our guidance more reflect a wider range just because of the uncertainty of what was going on in the market. When, you know, at points during the launch, you just, you know your product's going well, but you just don't know exactly where it's going. We feel now, and this is what you're seeing in our guidance, is somewhat of a tightening of the range, are confident in having better line of sight to what our products do. It's, it's on both ends.

In DEFINITY, we're now confident that patient volume is coming back into that market, so that the market now represents, again, the opportunity that it had before the pandemic, and so we have better line of sight and forecasting there. We also felt as a company, based on what has been our long-standing pattern of beating and raising on guidance, that it was also fair to our analyst community to try to give a tighter view as to where we think we're heading, since obviously and probably add here.

Paul Blanchfield (President)

Yeah, Rich, I don't want you to take the impression that this is new. I actually made those kinds of comments, that we were, you know, taking that kind of a shift in the view, just as Mary Anne has outlined, you know, over the last couple of quarters. We're kind of continuing the trend here of what we had, you know, kind of came into the 2023 fiscal year, with that kind of a view. As we had continued to gain knowledge, you know, with a couple of years of experience under our belt, we can see things like holiday schedules and so forth, that start to, you know, outline a clearer pattern for us to be able to give, we think, you know, intelligent and guidance ranges.

Mary Anne Heino (CEO)

To your second question, Rich, about the flash, you are so right that people will be incredibly eager to compare the, not only the trial designs, but the trial results when you're talking about PSMA-4, and then flash. You're also correct, our market intelligence would also suggest that the PSMA-4 data will read out at ESMO, which will precede what we believe, what will be the release and, and the availability of the, of the SPLASH data. I won't use this time here to try to compare actual trial designs. What I will say that is important is that both PSMA-4 and SPLASH are in the same patient population, which is the pre-chemo population, and the, any comparison to date has been between the SPLASH dosimetry data, the lead-in data, and the vision trial data, which really are different patient populations.

We'll wait to see. I think the important outcomes that will be looked at will, of course, be radiographic reprogression, and then OS. OS data will also trail a little bit because by definition, you have to let that data mature a bit. I can assure you there'll be lots of discussion about these data, and there'll be many players in the marketplace, who will, who will want to understand how the data are different and, and what they say.... I will say in general, though, and this is something you've heard us say before, that from a radiopharmaceutical perspective, one of the things that we see as an absolute constant in this market is the willingness to embrace additional products, just because of the, of the supply chains associated with these projects and products and like.

There is, there is more so than I say, in other non-radiopharmaceutical categories, a willingness for physicians and a desire for physicians to have access to more than one type of product. We think that will be very positive for PNT2002 and PNT2003.

Operator (participant)

Thank you. One moment for your next question. We have a follow-up question from Roanna Ruiz of Leerink Partners. Roanna, your line is open.

Roanna Ruiz (Senior Research Analyst)

Great, thanks for taking the follow-up. I wanted to check in about your contracts with the large PMF networks for a second. Like, how long do some of these last? Can you remind us, are you planning to add new ones in the near term or revamp some contracts? Could they help guarantee some exclusivity in terms of holding majority preferred morning time manufacturing positions for PYLARIFY and things like that?

Paul Blanchfield (President)

Thanks, Roanna. Appreciate the question. As we've shared in the past, we have a multi-channel PMF strategy across the U.S. We're currently working with 47 PMFs, up almost 75% year-over-year, and are able to offer PYLARIFY to a little over 95% of the U.S. population, just based on, on drive times and, and where we do those. A number of our PMF contracts, we've shared publicly, go out a number of years, including to 2027 and beyond. We are not exclusive to any individual PMF chain, although some of our partners are exclusive to us.

We have been working for this for a number of years to ensure that PYLARIFY is remaining accessible, including in those predetermined manufacturing time slots that we've continued to work through and optimize as medical practice has become more clear. We feel very comfortable in our PMF position to be able to continue to provide the market-leading product at the times and days in which our customers require it. We do naturally continue to work with our PMF partners to expand redundancy, to create more supply. We really think that's a unique value proposition that is not replicated by any other PSMA imaging agent, including recently approved satetranetan.