LNTH
#Thank you, <UNK>, and welcome to everyone joining us today on our conference call.
I'm pleased to be with you here today to discuss our continued strong performance in 2017 and to outline for you the key pillars of our corporate growth strategy for 2018 and beyond.
2017 was another successful year for the company.
We exited 2017 having exceeded the high end of our guidance for both revenue and adjusted EBITDA, further lowered our debt, the cost of that debt and the leverage ratio and finally, built a strong available cash position of approximately $76 million.
These were the important corporate goals for 2017, and we are pleased to have delivered on all of them.
And importantly, our strong performance in balance sheet have positioned us to invest in and execute on our plan to deliver sustainable growth and success for our company.
The key pillars of our corporate growth strategy are as follows: one, enhance the growth trajectory and profitability of our core microbubble franchise; two, augment and invest in our pipeline with focus on emerging technologies; and three, pursue external opportunities that fit our objective to deliver sustainable growth and profitability.
Let me start with programs already underway addressing our microbubble franchise.
On a global basis, DEFINITY remains the leading echo contrast agent.
We have been actively strengthening and expanding DEFINITY's IP protection, and we have also been developing an alternative formulation.
Today, I am pleased to announce we are pursuing an ejection fraction, or EF, indication for DEFINITY and plan to initiate 2 new Phase III clinical trials in the second half of 2018.
EF is an important measurement of heart function and critical for patient management decisions as it measures the percentage of blood leaving the left ventricle with each contraction.
Currently, in echocardiography studies conducted without contrast, EF measurement is highly variable.
Our clinical trials are designed to demonstrate superior accuracy and improved reproducibility in measuring left ventricular EF with DEFINITY enhanced echocardiography as compared to unenhanced echocardiography.
We believe the approval of an EF indication for DEFINITY would approximately double the addressable echo patient population in which contrast could be used.
In addition to our continuing IP work, the new EF indication would provide DEFINITY with 3 years of regulatory exclusivity for this indication.
Also addressing microbubble franchise, I am pleased to report that we are adding specialized manufacturing capabilities at our North Billerica, Massachusetts headquarters.
The decision to add this capacity serves our larger corporate growth strategy in creating a competitive advantage in specialized manufacturing.
This program not only delivers cost savings and supply chain redundancy for our current portfolio but also affords us increased flexibility as we consider external opportunities.
Transitioning now to our second pillar of pipeline investment.
I'm pleased to announce the advancement of an internal program focused on a key emerging technology in nuclear medicine.
This program targets LMI 1195, an internally discovered small molecule that, we believe, may be a first-in-class Fluorine-18-based PET radiopharmaceutical imaging agent designed to assess cardiac sympathetic nerve function.
We believe LMI 1195 could become a useful tool in the diagnostic assessment of ischemic heart failure patients at risk of sudden cardiac death.
Collaborations with academic centers in the U.S., Canada and Europe yielded clinical data deemed adequate by the FDA to support advancing to a single Phase III clinical trial to support our NDA submission.
We anticipate initiating that trial in 2018.
This trial will target patients with ischemic heart failure who are scheduled to undergo ICD implantation because of their risk of sudden cardiac death.
Our trial is designed to demonstrate LMI 1195 improves the risk stratification of these patients.
If this trial is successful, we anticipate filing an NDA for this agent by 2021.
Heart failure affects approximately 6.5 million patients in the U.S. today, and approximately 2 million patients may be eligible for evaluation of ICD implantation.
As such, we're excited about the opportunity LMI 1195 represents in the emerging modality of PET for improved patient management as well as the growth opportunity this agent represents for Lantheus.
Now turning to the third pillar of our growth strategy.
We are committed to pursuing thoughtful external business development opportunities that complement our current portfolio and capabilities.
Following on and facilitated by our success in delivering reliable revenue growth, improved operational efficiency and cash flow generation, we are now ready and excited about pursuing opportunities that will drive our sustainable growth agenda and enhance value for our shareholders.
We are actively evaluating such opportunities and have recently created an additional Board Committee to aid in that effort.
Rest assured, we will be disciplined in our approach and only pursue deals that represent a strong strategic fit; are priced appropriately; create value for our investors; and ensure the long-term success of our company.
Finally, I am also pleased to announce that effective tomorrow, we have added 3 new Directors to our board.
We believe the skills they bring positively complement our current board.
I'll now turn the call over to Jack for his financial review of 2017 and our guidance for 2018 before returning for closing comments.
Jack.
Thanks, <UNK> <UNK>, and good afternoon, everyone.
As a reminder, the tables included in today's press release include a reconciliation of our GAAP results to the as-adjusted non-GAAP performance I'll be covering with you today.
I'll begin my comments by focusing first on our fourth quarter results as compared to the fourth quarter of 2016, followed by our full year results.
And finally, I will provide 2018 financial guidance.
In the fourth quarter, we delivered $81.2 million in worldwide revenue, an increase of 9.3% as compared to the fourth quarter of 2016.
We continued our strong DEFINITY performance with worldwide revenues totaling $41.7 million for the quarter, an increase of 22.2% over last year.
TechneLite revenue in the fourth quarter was $24.7 million, an increase of approximately 1% over the prior year, while Xenon revenue for the fourth quarter was $7.7 million, an improvement of 2.7%.
Finally, revenue from our other product category was $7.1 million in the fourth quarter, down from $8.2 million 1 year ago.
Approximately a third of that difference was a result of the impact of Hurricane Maria on our Puerto Rico business.
Moving below the revenue line, our fourth quarter 2017 adjusted gross profit margin, excluding technology transfer activities, which we refer to in our reconciliations as new manufacturing costs, totaled approximately 49%, an increase of 160 basis points over the prior year.
This improvement was once again attributable to the increased contribution of our higher-margin products as well as the impact of Xenon cost savings, generated by the assumption of processing and finishing capabilities at our Billerica facility late last year.
Adjusted operating expenses were $25.2 million in the fourth quarter of 2017, an increase of $4.1 million from last year.
This is largely attributable to higher employee-related expenses as well as increased sales and marketing expenses in key areas.
Adjusted operating income for the fourth quarter of 2017 was $13.9 million compared to $13.6 million 1 year ago.
Moving below operating income, fourth quarter interest expense totaled $4.3 million, a 26.7% improvement over the same period a year ago, reflecting the lower interest rate of our debt, following our refinancing activities completed throughout 2017.
During the fourth quarter of 2017, we determined, based on our in-depth GAAP analysis, that there was sufficient positive evidence that our federal and state deferred tax assets are more likely than not realizable as of December 31, 2017.
Accordingly, we released the valuation allowance that we had previously recorded over the past several years, resulting in an income tax benefit of $141.1 million.
These assets consist primarily of net operating losses that we will utilize to reduce future income tax liabilities.
Accordingly, we do not expect to be a cash taxpayer for the next 4 to 5 years.
We will utilize this expected cash savings, together with the benefits of the federal corporate tax rate being reduced to 21%, to be a significant source of funding for investments in our corporate growth strategy described by <UNK> <UNK>.
Net income for the fourth quarter of 2017 was $97.1 million or $2.47 per diluted share compared to $4.9 million or $0.13 per diluted share for the fourth quarter of 2016.
Our net income for the fourth quarter of 2017 reflects the income tax benefit of $85.9 million, which was driven by the release of our $141 million valuation allowance against deferred tax assets, which was offset by a $45 million provision related to the impact of changes enacted under the Tax Act of 2017.
Moving on to our quarter end balance sheet, cash flow and liquidity.
As of December 31, 2017, we had cash and cash equivalents totaling $76.3 million.
Borrowing capacity under our revolving credit facility was $75 million, making our total liquidity, including cash on hand, $151.3 million.
This will not only support our day-to-day operational needs but, more importantly, will be a source of investment capital to support our corporate growth strategy.
Fourth quarter 2017 operating cash flow totaled $13.1 million compared to $12.8 million last year.
Capital expenditures during the fourth quarter were $6 million compared to $2.4 million in the fourth quarter of 2016.
This increase was primarily a result of investing in the specialized manufacturing capabilities that <UNK> <UNK> described earlier.
Turning now to our full year results, I would like to reiterate <UNK> <UNK>'s earlier comment regarding our success in that we exceeded both our revenue and adjusted EBITDA guidance for 2017.
Worldwide revenues for 2017 totaled $331.4 million, representing a 10% increase over the prior year.
Excluding the impact of the $5 million up-front payment received in the second quarter of 2017 from GE Healthcare under the Flurpiridaz F 18 collaboration and license agreement, full year 2017 revenue totaled $326.4 million, representing an 8% increase over prior year.
On a GAAP basis, the company recorded income before taxes of $39.6 million in 2017, an increase of $11.3 million compared to the prior year amount of $28.3 million.
This improvement is primarily attributable to increased DEFINITY revenues, operational improvements as well as decreased interest expense.
Adjusted EBITDA was $94.1 million during the year as compared to $78.3 million in 2016.
Excluding the impact of the $5 million up-front payment received in the second quarter of 2017 from GE Healthcare, full year adjusted EBITDA totaled $89.1 million or 27.3% of revenues.
This exceeded our 2017 guidance of $86 million to $88 million.
We also delivered operating cash flow of $54.8 million and free cash flow of $37.2 million, both indicative of the strong financial platform we've created as we launch into 2018.
Turning to our financial guidance for 2018.
As stated in today's press release, we anticipate total revenue for the full year of 2018 in the range of $337 million to $342 million.
For the first quarter of 2018, we expect to see revenue in the range of $78 million to $83 million.
The first quarter and full year 2018 revenue guidance reflects the impact of a temporary shutdown of NTP, one of our nuclear product suppliers, due to a process issue.
Necsa, the parent company of NTP, has announced that this process issue has been resolved, and we are now again receiving product supply from NTP.
Our 2018 adjusted EBITDA guidance incorporates our improving operating performance as well as our corporate growth strategy.
For full year 2018, we anticipate adjusted EBITDA in the range of $85 million to $90 million, representing 24.9% to 26.7% of adjusted ---+ of anticipated revenue.
For the first quarter of 2018, we expect to see adjusted EBITDA in the range of $18 million to $21 million.
Overall, we are very pleased with both our Q4 and full year 2017 financial performance and remain focused on driving strong financial results in 2018.
With that, I will now turn the call back over to <UNK> <UNK>.
Thank you, Jack.
As you can see, we delivered strong results in 2017 and are excited about the initiatives we now have in place to drive our corporate growth strategy.
To reiterate, that strategy includes the following 3 key pillars: one, enhance the growth trajectory and profitability of our core or microbubble franchise; two, augment and invest in our pipeline with focus on emerging technologies; and three, pursue external opportunities that fit our objective to deliver sustainable growth and profitability.
We're excited about our prospects and believe we are investing in the right strategic priorities today to ensure a strong and healthy growth profile that will maximize long-term success for our company and value for our shareholders.
I would like to emphasize, we remain continually committed to operational excellence and the optimization of our current business.
I look forward to updating you on our progress as we move throughout the year.
With that, I'll conclude my comments and open the call for questions.
Operator.
This is <UNK> <UNK>.
I'll speak first to the decisions for our ---+ kind of, putting our own capabilities here at play in our campus, and I'll let Jack speak to the gross margin implications.
As you can imagine, it just makes good corporate sense to have redundancy of supply.
And so over the past few years, we've worked hard at that, as you may remember, we had a program also at Pharmalucence as an alternative supplier, but that program we brought to close for several good reasons.
We've also had an arrangement underway at SBL, where we've talked about, and that's for alternative formulation.
As we looked at the expertise that we have, it seemed to make to sense to us that the next level of capabilities we added right here on our campus.
We are expert in microbubbles and in all the facets of manufacturing that are very complex and very necessary to have reproducible blocks of that type material and so as we assess whether our next decision should be to go outside or bring it inside onto our campus, we came to the right decision, we believe and that is to add the capabilities right here on our campus.
As I said, I'll let Jack speak to gross margin implications.
Thanks, <UNK>.
<UNK>, it's Jack.
Yes, from a gross margin perspective, as we evaluated on the prospects of bringing this stuff in-house versus the external cost of working through CMOs, reducing cost benefit and an approved gross margin under our ---+ under this initiative.
So again, <UNK>, I'll speak to you the strategic reason for undertaking the program, and Jack will speak to what it means to our balance sheet, but as we looked at DEFINITY and where we serve, it seemed natural to us, as we looked at expanding the applications of DEFINITY, to look, of course, where we were most successful, and that is with the cardiac community in echocardiography.
We recognized that EF measurement which, again, is ejection fraction measurement, really is a critical measure used not only in assessing cardiac patients with cardiac disease but, more importantly, in assessing that when they're being considered for other types of medical procedures such as chemotherapy, presurgically and et cetera.
I can ---+ there's several examples there, and when we looked at medical claims databases to see how often that measure was being sought for those reasons and then we looked at the current level of contrast penetration, that's where we derived our calculation and our estimation that pursuing this indication would essentially double the addressable patient population currently that we see with ---+ for use with suboptimal echo.
So I'll remind you of what that math is.
When we talk about echocardiography studies in the U.S. market, and here we are talking about the U.S. market, we recognize that approximately 33 million echocardiography studies are done annually.
And as you heard me cite previously, medical literature supports that up to 20% of those studies are suboptimal in that ---+ you ---+ it's difficult to reach diagnostic certainty and clear diagnostic certainty without the addition of a contrast agent.
It's 20% of 33 million.
You could say, approximately, it is 6.5 million.
As we looked at what the data for medical claims-based EF measurement showed us, it suggested that that was an equal population potentially for ---+ who would benefit from the use of contrast.
And that's why you say ---+ and that's why you hear me saying that it essentially doubled the approximate patient population that would be considered for contrast use.
Thanks, <UNK>.
<UNK>, just to your question on the R&D.
So as you know, we don't provide specific expense guidance, but let me take a step back and maybe frame the larger financial picture.
So as we look at 2018, we expect to leverage the strong operational performance of our company, really to reinvest in our corporate growth strategy to drive the additional future growth.
And we expect to see a similar reinvestment profile through 2019 and kind of help frame this investment profile.
When you think about our gross margin perspective, we expect to maintain similar gross margins that we've achieved in '17 through '18.
So I think if you put those pieces together, that should enable you to kind of see the larger financial picture without me giving specific line-by-line expense guidance.
Yes.
<UNK>, this is <UNK> <UNK>.
We were notified in mid-November that NTP ---+ the reactor in the processing facility had been asked to suspend their operations, and it was a due to a process issue.
As you can imagine, this is sensitive information because it deals with a governmental oversight and governmental decision, and there was a well-defined process that was used to ensure that all safety and other operational guidances were being met.
That process lasted until recently, and we were informed last week that the oversight agency, which as Jack referred to as Necsa, was ---+ had come to the decision that the operations were safe to be resumed, and we, in fact, had started receiving supply again.
As we looked in 2017, as we do all the time, you understand as well as any of the rest of folks who follow us, lead us, this is a supply chain, in general, that requires a lot of oversight.
And so what we did through the balance of '17 and then now into '18, as we worked very hard throughout each week to look for alternative sources of supply to best compliment what our total needs were.
We were not always able to do that but as we finished '17, it was certainly apparent to us that it did not financially materially impact us, especially given the performance we were already seeing, and that's why you didn't hear us speak about it publicly.
I'll quantify ---+ I'll instead speak to NTP as our supplier and put that into perspective for you.
We essentially supply ---+ or receive supply from 3 reactor-processor combinations: NTP in South Africa, IRE in Belgium and ANSTO in Australia, and it's fair to say, <UNK>, that they are equal contributors on a weekly basis.
They ---+ it's ---+ that's not true every day because supply come in in different days from different suppliers but essentially, it's fair to think about them as each representing approximately 1/3 of our total supply, so that's, I believe, the answer to your magnitude question.
That's on a going basis.
What happens when there is any type of shift or potential slight delay is we move right into, kind of, our natural second motion, which is filling in supply and asking for slight changes in supply delivery to us so that we can best make as small as possible any change in what we need to satisfy down our channel into our customers.
First, let's just clarify, <UNK>, we didn't ---+ there ---+I don't think we spoke to a DEFINITY supply issue.
The only issue that Jack referenced was the supply interruption from NTP, which is a nuclear supplier, and that was, of course, late 2017 and until approximately a week ago in 2018.
Jack.
.
Yes, thanks.
So <UNK>, the way to think about it, taking the consideration that my comments to <UNK> about the gross margin maintaining itself, and so when you think about the adjusted EBITDA margin, I think you can infer that the difference between the gross margin, adjusted EBITDA margin year-over-year is a result of the investments that support the corporate growth strategy.
And so again, here I'm just going to clarify before I answer, <UNK>.
We have an alternative formulation that we're developing for DEFINITY, but I did not say that that was the agent that was being used for the clinical trial that we will conduct for the EF indication.
That indication ---+ those studies will be conducted using current generations or currently available DEFINITY, and that will be used in the clinic, and that will be part of our submission to the FDA.
They are 2 Phase III clinical trials.
We've already had our meetings with the FDA to discuss what value of the endpoints they should be, what size they should be.
We are also submitting a SPA or a special protocol agreement for the additional clarity with the FDA as to what done ---+ needs to look like there.
And as we mentioned, or in the call, if we didn't, I'm happy to mention now, we fully anticipate beginning patient enrollment in 2018 for that program.
