LNTH
#2016 was a successful year for Lantheus as we delivered significant value to shareholders on a number of levels.
A principle contributor to that success was stabilizing the base of business represented by our nuclear products portfolio.
We successfully accomplished this through disciplined execution of our nuclear products contracting strategy which we started in the latter half of 2015 and had fully in place by the start of 2016.
Additionally, a resourceful approach to supply chain logistics, coupled with our agile operational infrastructure, provided the foundation by which Lantheus profited from unanticipated opportunities in the marketplace.
Finally, our fiscal discipline drove improved free cash flow and continued reduction of our leverage and interest expense.
We ended 2016 with an improved financial profile as compared to prior years, positioning us well to capitalize on the opportunities ahead of us.
Before turning the call over to <UNK> for a more detailed review of the numbers behind our 2016 performance, I would like to summarize achievements against our 2016 priorities.
As you may remember, they were one, grow revenue and unit volume of our commercial portfolio; two, advance our pipeline assets and business development opportunities and three, create efficiencies in operations and optimize our capital structure.
With respect to revenue and unit volume, as expected DEFINITY remained a key growth driver in 2016.
From a marketplace perspective, we saw continued growth in the number of echocardiography studies performed and more importantly, the percentage of those procedures utilizing a contrast agent.
We believe our industry leading sales force drove this through their consultative approach.
As a result, awareness and usage amongst industry participants continued to increase.
In the same time frame, Lantheus maintained our leading share of the US echo-contrast market.
We also continued to expand the world wide footprint for DEFINITY.
And in 2016, we saw increased sales in international markets through the reintroduction of DEFINITY in Germany, UK, the Netherlands, and Austria, where it is sold through our distribution partners CS Diagnostics and Lamepro B.
V.
To assure continued supply for our increasing demand of DEFINITY, in September we extended and expanded our manufacturing and supply agreement with Jubilant HollisterStier, JHS, for the manufacturing of DEFINITY through January 2022.
As discussed previously, our technology transfer activities with Pharmalucence have been repeatedly delayed.
As a result, we are now in the process of negotiating an exit to that arrangement.
As part of our next generation strategy for DEFINITY, we have active programs underway with both JHS and Samsung Biologics for the future US supply of our DEFINITY products.
I will share more about our next generation programs later on in the call when I address our 2017 outlook.
For our nuclear products, as we have discussed on previous calls our focus on executing multi-year contracts aligned perfectly with our desire to provide predictable and stable revenue and unit volume stream for our key nuclear products.
In 2016, this strategy delivered with our agreements with the four largest radiopharmacy groups yielding increases in both revenue and unit volume.
Additionally, TechneLite performed at higher than forecasted revenue as our customers intermittently requested additional orders above contracted minimums that we were able to supply.
We also continued to be the leading supplier of Xenon following our successful transition from NRU to IRE-sourced Xenon, allowing Lantheus to be a stable provider of this critical imaging agent to the medical community.
Turning to the advancement of our pipeline assets and business development opportunities, as promised, throughout the latter half of 2016 we continued active negotiations with potential strategic partners to assist in the further development, manufacturing, and commercialization of our Flurpiridaz F 18 agent.
This afternoon, we announced the signing of a term sheet with GE Healthcare related to the continued phase 3 development and worldwide commercialization of this next generation PET cardiac imaging agent, which I will cover in more detail as part of our outlook for 2017.
During the year, we further leveraged our own manufacturing capabilities with the addition of two Cyclotron-based products which we are now supplying to non-medical customers.
We also completed the divestiture of our Canadian and Australian radiopharmacy businesses, coupled with finding favorable multi-year distribution and supply contracts with the buyers of each.
Finally, turning towards creating efficiencies in our operations and improved capital structure, in 2016 we continued to deliver on our commitment to de-leverage our balance sheet.
By paying down $75 million of outstanding principle through a combination of cash on hand as well as proceeds from follow on primary stock offerings throughout the year, we significantly improved the company's gross debt leverage ratio, reducing our debt by over 20% on a year over year basis.
Finally, despite using $29.8 million of cash on hand from our balance sheet to pay down debt, we ended 2016 with a healthy $51.2 million dollars of cash.
As I shared at the outset of my remarks, 2016 has been successful on a number of levels.
While we are proud of our performance, we recognize that it was a necessary step towards realizing our longer term vision.
I now invite <UNK> to provide a more detailed review of our fourth quarter and full year 2016 results as well as guidance for 2017 after which I will share our corporate vision for the year.
<UNK>.
The tables included in today's press release as previously noted, include a reconciliation of our GAAP results to the as adjusted non-GAAP performance I'll be covering with you today.
I'd like to start by focusing first on fourth quarter results followed by our full year results and then 2017 guidance.
In the fourth quarter of 2016, we delivered $74.4 million in revenue.
As <UNK> <UNK>'s comments indicated, our continued focus towards driving DEFINITY revenue, as well as the successful implementation of our nuclear products contracting strategy were keys to our performance.
Looking at our revenue results on a product line basis, DEFINITY once again delivered, posting revenue of $34.1 million in the fourth quarter, a five percent increase compared to the prior quarter and an 18% increase on a year over year basis.
Our TechneLite business boasted worldwide revenue of $24.6 million for the fourth quarter, consistent with the prior quarter and a 44% improvement on a year over year basis.
Opportunistic sales were a contributor to our strong performance in 2016, accounting for approximately $8 million in revenues for the full year.
Xenon revenues totaled $7.5 million in the fourth quarter, an increase of 12% compared to the prior quarter driven by customers buying at higher than contracted volumes.
As expected, Xenon revenues were down 32% as compared to a year over year basis.
Revenue from our other products category, which represents approximately 11% of total revenue, was $8.2 million during the fourth quarter of 2016 down $6.1 million compared to last year.
This decrease was driven primarily by the divestiture of our Canadian and Australian radiopharmacy businesses in the first and third quarters of 2016, respectively.
As we had previously discussed, these transactions were accretive to adjusted EBITDA.
Moving below the revenue line, our fourth quarter 2016 gross margin, excluding technology transfer activities, which we referred to in our reconciliations as new manufacturing costs, totaled 47 percent, a one percent decrease on a year over year basis.
Operating expenses were 22.4 million for the fourth quarter of 2016, representing an increase of seven percent on a year over year basis.
The increase in 2016 primarily reflects accelerated depreciation related to our campus consolidation as well as our decision to invest in additional promotional activities in support of DEFINITY.
Adjusted operating income was $13.6 million for the fourth quarter of 2016, representing an increase of nine percent on a year over year basis.
Moving below operating income, fourth quarter interest expense totaled $5.8 million, a 14% improvement on a year over year basis following our aggregate $75 million of voluntary pre-payments made on the principal of our term facility during 2016.
Pretax earnings for the quarter totaled $5.7 million, an increase of $0.7 million on a year over year basis.
A key driver of this increase was the reduced interest expense as a result of our debt reduction activities.
Moving on to our year-end balance sheet, cash flow, and liquidity.
As of December 31, 2016 we had cash and cash equivalents totaling $51.2 million.
Borrowing capacity under our ABL facility was $35.7 million, taking into an account and $8.8 million letter of credit as well as no outstanding balance at year end.
Total liquidity, including cash on hand, as well as availability under our revolving credit facility, was $86.9 million providing substantial support for our operating needs.
Fourth quarter 2016 operating cash flow totaled $12.8 million compared to $12.6 million in the fourth quarter of 2015.
As for the other key components of our cash flow, capital expenditures during the fourth quarter of 2016 were $2.4 million compared to $4.7 million in the fourth quarter of 2015.
Our follow on primary offering during the quarter raised gross proceeds of $9.3 million which we used, along with cash from our balance sheet, to prepay $20 million of our term facility, again substantially improving our leverage ratio.
Turning now to our full-year results, I would like to reiterate <UNK> <UNK>'s earlier comment regarding our success adding that the company again exceeded its revenue and adjusted EBITDA guidance.
Worldwide revenues for 2016 totaled $301.9 million, representing a 3 percent increase over the prior year.
On a gap basis, the company recorded net income of $26.8 million in 2016, an increase of $41.5 million compared to a net loss of $14.7 million recorded for the same period in 2015.
This improvement is primarily attributable to operational improvements, decreased interest expense, and one-time activities in 2015 associated with our initial public offering and refinancing activities.
Adjusted EBITDA was $78.3 million during the year as compared to $76.3 million in 2015.
We also delivered operating cash flow in 2016 of $49.6 million and free cash flow of $42.2 million while reducing our outstanding debt by 21 percent and expanding total liquidity by 28 percent, all indicative of the strong year that we have had.
Now, I will turn and discuss guidance for full-year 2017, as well as for the first quarter of 2017.
Our guidance does not reflect any impact of the partnership for Flurpiridaz F 18.
In addition, similar to 2016, our 2017 guidance does not reflect any potential opportunistic sales of our nuclear products.
As stated in today's press release, we anticipate total revenue for full year 2017, to be in the range of $312 to $317 million.
For the first quarter of 2017, we expect to see revenue in the range of $77 to $80 million.
Also as stated in today's press release, we anticipate adjusted EBITDA for the full year 2017, in the range of $79 to $82 million, representing 24.9 percent to 26.3 percent of anticipated 2017 revenue.
For the first quarter of 2017, we expect to see adjusted EBITDA in the range of $18 to $20 million.
Overall, we are very pleased with both our fourth quarter and full-year 2016 financial performance and we remain focused on driving strong financial results in 2017.
With that, I will now turn the call back over to <UNK> <UNK>.
At this point, I would like to move on from 2016 and share our outlook for 2017.
<UNK> and I both believe that Lantheus is well-positioned for the future.
While 2016 was a story about stabilization, 2017 will be the start of a story about growth.
That growth will come from both organic and business development activities.
Our capital structure now allows us to participate opportunistically across that spectrum.
Today's flurpiridaz F 18 announcement is one such example.
We are excited about the prospect of GE Healthcare being our global partner to bring this next generation PET cardiac imaging agent to market.
As GE Healthcare touches every level of the PET diagnostic delivery continuum and shares our commitment to serving the nuclear medicine community.
The collaboration would enable us to participate in the long-term economic success of flurpiridaz F 18.
Lantheus will also continue to advance our other pipeline assets, deploy additional resources towards the Next Generation Program for DEFINITY, and pursue additional near-term business development opportunities to drive growth.
Under the proposed transaction, GE Healthcare would completely fund the agent's second phase three clinical study as well as worldwide regulatory approval and worldwide launch and commercialization.
Lantheus would collaborate in both development and commercialization through a joint steering committee and would also maintain the option to co-promote the agent in the U.S. GE Healthcare's development plan would focus on obtaining regulatory approval in the U.S., Japan, Europe, and Canada.
Under the proposed transaction, we would receive a $5 million upfront cash payment and, if successful, up to $60 million in regulatory and sales milestones payments, plus tiered double-digit royalties on U.S. sales and mid-single-digit royalties on sales outside of the U.S. Both parties anticipate entering into a definitive agreement for the proposed transaction in the second quarter of 2017, subject to the completion of satisfactory due diligence and necessary approvals.
In additional to Flurpiridaz F 18, we remain excited about the rest of our product pipeline.
Our cardiac neuronal agent, which we also refer to as CNA or LMI 1195, is a fluorine 18-based PET agent capable of identifying heart failure patients who may benefit from implantation of cardioverter defibrillator, decreasing the risk of sudden cardiac death.
Heart failure is a major public health problem in North America, associated with high morbidity and mortality, frequent hospitalizations, and at a major cost burden to the health care system and patients.
CNA presents an opportunity to better match patients to treatment based on the identification of the underlying driver of disease progression and compliments other modalities that assess structure and function.
A phase I study has already been completed and we are currently working closely with independent investigators in the U.
S.
, Canada, and Europe, to develop additional clinical data which may allow us to enter into pivotal clinical trials.
It is still too early to tell what path future development and commercialization of this agent may take, however, the number of options available to us are numerous and we intend to be opportunistic in our approach.
For DEFINITY, we have launched a Next Generation Program that includes formulation, indication, and manufacturing alternatives to our current DEFINITY offering.
Activities supporting this program are underway with both JHS and Samsung Biologics.
Additionally, we recently announced U.
Information concerning administration in patients with a cardiac shunt continues to appear in the Warnings section of the prescribing information.
The label change implemented by the FDA is reflective of both the extensive data on contrast agents and the well characterized and stable safety profile of DEFINITY.
Finally, we will continue to drive execution of our nuclear products contracting strategy, which to date has allowed us to develop and protect our baseline business.
Our contracts in 2017 specify greater volumes of key products as compared to 2016.
In 2017, our corporate priorities will continue to focus on growing revenue and volume, advancing pipeline assets and business development opportunities, and creating operational efficiencies.
We remain committed to creating additional shareholder value through expansion of our nuclear product portfolio, our Next Generation DEFINITY program, and our ongoing commitment to pipeline products such as CNA.
I look forward to keeping you updated on our progress throughout the year.
With that, I'll conclude my comments and open the call for questions.
So the way that we've guided, I want to unpack your question a little bit.
Most of the one-time items in any, we would capture it to the adjusted EBITDA guidance.
So if you are going look at our revenue, revenue is pure, and then when you kind of look at our add backs between net income and adjusted EBITDA, I think we capture most of the one-time items through that adjusted EBITDA calculation.
So when you look through that, you will see anything of a recurring nature.
One thing I would think about is kind of the campus consolidation cost which you can see broken out in our - in the detailed reconciliations in our press release.
So I think that guidance that we give does contemplate it but again it adds it back to the adjusted EBITDA.
You asked about co-commercialization and I don't know if you were referring to the agreement that we're talking about with GE - and at this point, if you think of all it kind of the timeline ahead of us, there would be none of that that would be contemplated in the 2017 at this point.
I will pause there and see if that answered your question.
We do not offer guidance on a product-by-product basis.
We do talk about it retrospectively.
I think what is fair to take away from the comments that we offered today is that DEFINITY continues to be a growth driver for our company and the growth rates that we see with that product exceeds that we see for our nuclear business.
In '16 and the latter half of '15 we worked very hard and very successfully to ensure that we had a stable source of revenue and volume for our nuclear business, and the contracts that we signed that now comes into play in '17 actually called for greater volumes in 2017 for some of the key nuclear products compared to the volume commitments that had been in '16.
So that will be a source of growth for us but one that's already predicted by the contracts that we signed.
Yes, so the mechanics of the GE deal, once fully signed, and as we shared, we anticipate that that deal will be fully consummated in Q2 of 2017.
The first economic factor that you'll see will be the $5 million up front cash payment that we will receive and you'll see the accounting treatment for that money as it enters our ledger.
The rest of 2017 will quite frankly be quiet because, as I noted in my comments and I think it is also explained in the press release, what happens next is GE undertakes all responsibility for the conduct of the second phase 3 clinical trials as well as the rest of the activities that relate to the march towards what will be regulatory approval and ultimately commercialization.
So we would not anticipate having any other financial events that occur in '17.
I will respond also to the final question that you posed which had to with the future relationship with GE as is very common in this marketplace; GE is both a partner and a customer of ours.
And they're a very long-standing customer on receipt of our nuclear product portfolio that they deployed through their radiopharmacies in the United States.
We absolutely expect that relationship to continue.
It's one that has been in place for a very long time and one that is very healthy and amiable to both parties.
So, you may hear us talking about that relationship as we go forward.
<UNK>, let me speak first to market opportunity in the U.S. Quite frankly, let's just call it large.
And it's one that we and GE are already familiar with because we both operate in it.
Currently this market is mostly satisfied using the spec modality to conduct MPI or myocardial perfusion imaging studies using spec modality.
The advantages of PET, use of PET modality and then an agent like Flurpiridaz, are quite dramatic in the clarity and the diagnostic certainty that it adds to exams.
So we would anticipate in the future when the product is available that it will successfully compete in what is currently called the MPI marketplace.
I can tell you that on an annual basis, currently, there are approximately 6.1 million studies, MPI studies, conducted annually in the U.S. I'm not prepared, <UNK>, to speak to the relevant size of O.
U.S. markets.
I don't compete there right now and therefore I wouldn't feel comfortable giving you what I would consider to be relevant or up-to-date data.
I think you had another question.
The clinical pathway is dictated by the FDA, and not by an individual company.
As a refresher where we are at this point in this clinical pathway is one phase 3 study has been completed.
The FDA has approved an SPA, which is a protocol for conduct of the second study, by [how the] FDA drives its own regulatory approval practice you're required to conduct two phase 3 trials which then are used to populate an NDA or new drug approval application which is then offered to the FDA.
And based on the assumption of paying a user fee, the FDA has approximately a 10 month window during which to consider the contents of your application and offer opinion back to the company as to whether the application is complete and approvable as is, or whether there are questions they would like answered.
As I mentioned, while we, Lantheus, will be fully involved through a joint steering committee, GE will head that process as we go forward and we anticipate given their long-standing presence in the United States marketplace they have a well-established relationship with the FDA that they will use as a venue for the movement of that program.
It's a very fair question <UNK>, and I'll - I can answer it very directly for you.
While the label change was individually awarded to each of the three products that currently compete in the U.S. market place in echo contrast, the net result to the label for those three products is the same.
Each of the products prior to their label change, carried in the contraindications section, a contraindication against use in the patient population that I mentioned.
And as a result of each of the three companies, for their product, submitting for the change to the FDA, each of the labels has been updated.
Therefore, I think what a fair answer to your question is; The product, the three products are at par with reference to how that particular patient population is referenced in their package inserts.
And of course, I would refer you to the package inserts, for the other products to confirm that.
The effect may be positive to the kind of larger issue of safe use of contrast and therefore may evidence itself in an increase in contrast penetration rate, but it's probably too early to say that and we will continue to monitor the market.
Yes, <UNK>, it's <UNK>.
I think the way that we look at, just to take you back there - one of the things that we have talked about during the year, the opportunistic sales we have with our nuclear products.
And as you recall, I did give a quantification of the year, of about $8 million for this year in 2016; and those opportunistic sales because they are really incremental to us, we have a greater margin on those than we do our baseline business.
So when we forecast to our baseline business we don't capture that margin improvement that we give with the opportunistic sales.
So if you would kind of strip those out from the 2016 results and look at the margin on our baseline business, I think we are we are pleased with the margin improvement that we predict in 2017.
But, again those opportunistic sales is something we don't forecast.
But they do give us greater margin, because we are spreading over a fixed cost base on manufacturing.
So all we are really picking up for those are just the incremental raw material costs.
Yes, one of the things that we have talked about <UNK> in the past; in 2017 we do get incremental volume under our contracts; with our four largest radiopharmacies in 2017 versus 2016.
So I think that would be one of the drivers for the sequential improvement in Q1 2017 over Q4 2016.
Also <UNK> as you remember this is <UNK> <UNK>.
Also have a little bit of lumpiness in some of our quarters with the number of selling days.
And Q4 is our typically lower end selling days versus other quarters.
And in fact if we look at Q4 '16, Q4 '16 had what we consider 62 selling days, while Q1 of '17 we're noting that there are 64 selling days in that quarter.
So let me first preface by saying while we have added these products to our manufacturing mix, I would be remiss if I did not qualify that as compared to the rest of our products they are low revenue opportunities.
But what's exciting about them is really two things.
One, it moves us into the non-medical community for sale of these products.
And as you can imagine, we are very strongly oversighted for our manufacturing capabilities, not only because they're nuclear products, but because they're also used in humans in medical diagnostics.
So having met that hurdle, we certainly meet the hurdle for selling product for non-medical uses.
The second piece that it really attends to is the expertise that we have in cyclotron technology, and the manufacturing of different isotopes, using our cyclotrons.
So these are two different isotopes.
I won't say specifically which they are because I don't want to draw competition, but suffice it to say, it's two different isotopes that have use in non-medical applications perhaps in some type of testing for machinery or equipment, and we can produce them on our cyclotrons and sell them to the public based on the capabilities that we already have.
The sales started in 2016, they were very light and it was late in 2016.
2017 will truly be the first full year of sales.
Right now it's with two products, we hope that we continually add more.
Yes, this is <UNK>, I can take the first part of that question which is the revenue recognition on the upfront $5 million.
We're still in the process of evaluating that.
I think it's safe to assume we will see that, presuming the second quarter signing throughout 2017 it would get spread over a long term, but we'd like to finalize on that and give guidance when and if we announce that deal as final.
And I'll take the second part of the question which is regarding DEFINITY China.
I think we are status quo with where I left us when I commented, and that is that our partner in China which is Double-Crane, now has responsibility for conducting the small clinical trials which we'll use as a basis of approval.
One piece of added information that we have is that the Chinese FDA did ask us to include an additional small study.
It's a pharmacokinetic study for DEFINITY as well.
It will occur and be conducted simultaneously with the other study, so it will not add time to it.
Having said that, as I mentioned, the ball is now in Double-Crane's court, by nature of our partnership and contract, it's their responsibility to conduct the trials, to accumulate the data from those trials, and then submit it to the Chinese FDA.
