Lantheus Holdings, Inc. (NASDAQ:LNTH) Q1 2023 Earnings Call Transcript

Lantheus Holdings, Inc. (NASDAQ:LNTH) Q1 2023 Earnings Call Transcript May 4, 2023

Operator: Good morning. Welcome to the Lantheus First Quarter 2023 Financial Results Conference Call. This is your operator for today’s call. This call is being recorded for replay purposes. A replay of the webcast will be available on 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 Investor Relations. Mark?

Mark Kinarney: Thank you, and good morning. Welcome to Lantheus’ first quarter 2023 financial results conference call. With me on today’s call 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 first quarter 2023 results. You can find the release and today’s slide presentation 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 those indicated by 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 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: Thank you, Mark, and good morning to everyone joining us. Today, I am pleased to discuss our outstanding first quarter results and update you on the state of our business. During the first quarter of 2023, we generated record results with quarterly revenues of $300 million and adjusted earnings per share of $1.47. I am proud to report we impacted the lives of more than 1.5 million patients, which is a testament to the focus and dedication of our employees, as we continued to advance our purpose to Find, Fight and Follow disease to deliver better patient outcomes. Our impressive first quarter growth was led by the continued strong performance of both PYLARIFY and DEFINITY, which continue to have the leading market share in their respective categories.

Our market-leading commercial portfolio and superior customer experience have been hallmarks of Lantheus and will continue to fuel our growth. Together, PYLARIFY and DEFINITY have already impacted the lives of tens of millions of patients, created significant shareholder value and enabled us to invest in our business to continue to expand our portfolio of commercial and clinical stage radiopharmaceutical assets, including the recently completed in-licensing of 2 late-stage radiotherapeutic product candidates from POINT Biopharma and the acquisition of Cerveau Technologies for MK-6240, an Alzheimer’s disease PET imaging agent. We are extremely excited about our partnership and the progress we are making with PNT2002 and PNT2003, including in the clinical, regulatory and manufacturing programs as well as advancing commercial readiness.

Most recently, we were pleased to announce the FDA granted Fast Track designation to PNT2002 for the treatment of metastatic castration-resistant prostate cancer, or mCRPC. Fast Track is a process designed to facilitate the development and expedite the review of new drugs intended to treat serious conditions that fill an unmet medical need. We are encouraged by the FDA’s decision as every year in the U.S., approximately 70,000 men are eligible for treatment for mCRPC. Importantly, this designation will allow us to work closely with the FDA, along with our partner POINT to quickly advance the PNT2002 program, which has the potential to make a meaningful difference for patients who require new treatment options. We look forward to sharing our progress, including the anticipated top line data readout for the PNT2002 SPLASH trial in the second half of 2023.

Our most recent acquisition, that of Cerveau Technologies, which closed in the first quarter of 2023, added MK-6240 to our pipeline of assets. MK-6240 is a novel clinical-stage second-generation PET imaging agent that targets tau tangles in Alzheimer’s disease and has the potential to aid in diagnosing and staging Alzheimer’s disease as well as guide treatment choices for modifying therapies. Over the last 2 months, we continue to advance the utilization of MK-6240 in clinical development partnership. MK-6240 is currently being used in more than 60 academic and industry late-stage clinical trials for Alzheimer’s disease therapeutic candidates under development by more than 16 pharmaceutical companies. With the expanding scope and scale of our business, we recently announced the promotions of Paul Blanchfield to President; and Dan Niedzwiecki to Chief Administrative Officer.

Paul joined Lantheus in 2020 and has been an exemplary leader throughout his tenure, demonstrating strong strategic and leadership skills, most notably with the very successful launch of PYLARIFY. His commitment to excellence and the patients we serve positions Paul as the ideal person for the role of President. In this role, he will continue to oversee all aspects of commercial, technical operations and manufacturing and quality and will now be responsible for our company’s R&D function, which includes our medical team. Dan joined Lantheus in 2013 and has been a critical member of the executive team that has transformed Lantheus. His contribution has been a key and will continue to be invaluable as Lantheus continues to grow. In his expanded role, Dan will now oversee several critical functions, including legal, compliance, intellectual property, human resources and corporate communications.

Dan will also continue to serve as our General Counsel and Corporate Secretary. I will now turn the call over to Paul to share an update on the Lantheus commercial portfolio, pipeline and key strategic initiatives.

Paul Blanchfield: Thank you, Mary Anne, and good morning, everyone. I am honored to have the opportunity to take on the President role. And I’m excited about the future of Lantheus and the radiopharmaceutical industry as a whole. According to third-party research reports, the global radiopharmaceutical market is expected to expand from $6 billion in 2021 to over $35 billion by 2031, fueled by the growth of currently approved products, new approvals, both diagnostic and therapeutic, and most notably the increasing number of patients diagnosed and treated with radiopharmaceuticals. Radiopharmaceuticals are in the midst of a renaissance and are considered to be disruptive innovations in cancer therapy. Lantheus is uniquely positioned to lead and shape this industry going forward.

We are one of the largest radiopharmaceutical focused companies in the world and further demonstrate our leadership through our market-leading products, diversified pipeline and our manufacturing, supply chain and commercial expertise, which we’ve honed over more than 65 years. Our success is exemplified by the recent expansion of our radiopharmaceutical oncology pipeline, a category that showcases truly exciting innovation and growth potential. Our POINT Biopharma partnership puts us on track to potentially launch 2 additional oncology, radiotherapeutics in the next few years and our most recent acquisition of Cerveau and with it, the addition of MK-6240 to our pipeline, moves us into the Alzheimer’s diagnostic market. We are excited about the future of the radiopharmaceutical industry.

Our differentiated capabilities in development, regulatory, commercialization and reliable supply will enable Lantheus to continue to lead, and most importantly, improve the lives of the patients and families we serve. Switching to an operational update. PSMA PET with PYLARIFY remains firmly established as the market-leading PSMA PET imaging agent with first quarter sales of $195.5 million, representing 110% growth year-over-year and 22% sequential growth from the fourth quarter of 2022. As we near the second anniversary of PYLARIFY’s FDA approval, our key drivers for success continue to be PYLARIFY’s innovation in the market, the significant unmet need in the prostate cancer community and our best-in-class customer experience. The 22% sequential growth was achieved through continued increased penetration in existing accounts, driven by our focus on referring physicians and our promotional efforts to increase brand awareness of PSMA PET with PYLARIFY.

Also contributing to sequential growth was the addition of new accounts, a modest price increase taken at the beginning of 2023 and an additional selling day versus the prior quarter. Over the course of the first quarter, we also continue to increase our capacity and reliability, out-the-door time flexibility and geographic reach, including the activation of new PET manufacturing facilities, most notably in Northern Florida, Puerto Rico and Arkansas. For our microbubble business, the first quarter sales for DEFINITY were $68.8 million, up 18% from the prior year. We are pleased with this solid performance as DEFINITY remains the #1 choice in the ultrasound-enhancing agent market. During the quarter, we benefited from an increasing number of patient office visits, which we expect to continue and the impact of our in-person programs in the second half of 2022.

We have made inroads, in particular with specific accounts that have benefited from our educational and promotional programs. I will now turn the call over to Bob for a financial update.

Bob Marshall: Thank you, Paul, and good morning, everyone. I will provide highlights of the first quarter financials, focusing on adjusted results unless otherwise noted. Turning to the quarter. Revenue for the first quarter was $300.8 million, an increase of $91.9 million or 44% over the prior year period. Earnings per share for the first quarter were $1.47, an increase of $0.50 or 51.3% over the prior year quarter. Now I’ll turn to the details, beginning with the radiopharmaceutical oncology. The category contributed revenue of $196.2 million of sales, up significantly year-over-year and meaningfully up sequentially from the fourth quarter due to PYLARIFY’s continued growth and adoption. AZEDRA contributed $0.7 million of sales in the quarter.

Precision diagnostics recorded $95.6 million, up 10.9% from the prior year. Sales of DEFINITY, net of rebates and allowances, were $68.8 million, 18% higher as compared to the prior year quarter and included a $2 million regulatory milestone payment from our China distribution partner, Double-Crane. Excluding this payment, DEFINITY grew 14.6%, exceeding our initial expectations. TechneLite net revenue was $21 million, down 7.2% from the prior year quarter, due mainly to a comparison that included opportunistic sales not repeated in the first quarter of 2023. Lastly, strategic partnership and other revenue was $9 million, driven primarily by the RELISTOR royalty but also included $2.8 million of sales from the newly acquired tau imaging biomarker MK-6240.

As a reminder, the prior year comparable contained the $24 million license revenue from Novartis not repeated this year. Gross profit margin for the first quarter was 68.6%, an increase of 165 basis points over the first quarter 2022 result 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, offset in part by higher material and labor costs. Operating expenses were 119 basis points favorable over the prior year at 21.4% of net revenue, which is lower than previously guided, driven by both higher revenue and lower R&D clinical expenditure. We continue to invest in sales and marketing efforts with an expansion of our dedicated PYLARIFY sales force intended to support and expand PYLARIFY adoption as well as our ERP project within G&A.

I would now like to note that late in the quarter, we decided to discontinue pursuing life cycle management plans for AZEDRA due to changes in the financial business case and the evolved market opportunity, which has now impacted the AZEDRA book value. Within the reported or GAAP financials, you will note that we have taken impairment charge for the intangible assets within the AZEDRA group, reflective of the required analysis. The currently marketed asset charge of $116.4 million is found within cost of goods sold and the IP R&D asset charge of $15.6 million is embedded within the R&D expense line. Operating profit for the quarter was $142 million, an increase of 53.2% over the same period prior year. Total adjustments in the quarter totaled $151.3 million before taxes.

Of this amount, $9.7 million and $11.1 million of expense are associated with noncash stock incentive plans and acquired intangible amortization, respectively. Also, as I have just mentioned, we recorded an impairment charge for the AZEDRA intangible asset group for $132.1 million. The remainder is related to net contingent liability adjustments, acquisition and other nonrecurring expenses. Our effective tax rate was 27.2% for the quarter. The resulting reported net loss for the first quarter was $2.8 million and net income of $102.2 million on an adjusted basis, an increase of 50.6% over the prior year quarter. GAAP fully diluted earnings per share were a loss of $0.04 and earnings of $1.47 on an adjusted basis, an increase of 51.3% over the prior year quarter.

Now turning to cash flow. First quarter operating cash flow totaled $108.5 million as compared to $10.3 million in Q1 2022. Capital expenditures totaled $9.2 million, in line with expectations. Free cash flow, which we define as operating cash flow less capital expenditures, was $99.3 million, an increase of $92.3 million over the prior year period. During the quarter, we invested $35.3 million, largely to acquire the Cerveau assets. Cash and cash equivalents net of restricted cash now stands at $470.9 million. We continue to have access to our $350 million undrawn bank revolver and are comfortable with our very strong liquidity position. Turning now to our guidance for the second quarter and updated guidance for the full year. We forecast revenue to be in the range of $300 million to $310 million for the second quarter of 2023, an increase of approximately 34% and 38.6% over the second quarter of 2022.

As noted, we are updating our full year view to take into consideration first quarter PYLARIFY and DEFINITY performance. And as such, we now expect DEFINITY to grow in high single digits to low double digits on average for the full year, while PYLARIFY will build on its first quarter strength, which we now model at $820 million to $860 million. Therefore, we now forecast full year revenue to be in a range of $1.23 billion to $1.27 billion from the prior range of $1.14 billion to $1.16 billion. Turning now to earnings. Adjusted EPS should be in a range of $1.25 to $1.33 for the second quarter. We are raising our full year adjusted EPS to account for the increased revenue estimates. We now expect adjusted EPS to be in the range of $5.45 to $5.70 per share versus the prior range of $4.95 to $5.10.

Importantly, and for modeling purposes, despite the lower-than-expected expenses in Q1 due to timing of hiring in activity, we expect operating expenses to be closer to prior guidance, but in a range of 23% to 24% of net revenue for the balance of the year. With that, let me turn the call back over to Mary Anne.

Mary Anne Heino: Thank you, Bob. In summary, the Lantheus team continues to make significant progress towards our vision and strategic goals. Our excellent first quarter performance is a result of our passionate team who are motivated by our purpose to Find, Fight and Follow disease to deliver better patient outcomes for the patients and families we serve. We are proud to be a recognized industry leader as one of the largest radiopharmaceutical focused companies in the world and are positioning ourselves at the forefront of the renaissance of radiopharmaceuticals with both a commercial portfolio and an innovative and high potential pipeline. We look forward to updating you on our efforts and reporting our progress over the coming months. With that, Bob, Paul and I are now ready to take your questions. Operator, please go ahead.

Q&A Session

Operator: Our first question comes from the line of Anthony Petrone from Mizuho Securities.

Anthony Petrone: Again, congratulations here 1Q, another strong result. Paul, I’m intrigued by the PMF comments, the Florida, Utah sites. You opened 3 new sites, PET manufacturing facilities. Maybe just a little bit on how large are those PMFs, how many hospitals were in their networks and how impactful to volumes can those 3 sites be? And I’ll have one follow-up on guidance.

Paul Blanchfield : Thanks for the question, Anthony. So as we’ve highlighted, we do continue to expand our PMF network, where we see the need for expanded geographies as well as additional optionality and flexibility for our customer base. We have recently expanded more so in Florida, which naturally, given the demographics is a relatively large market. We have been able to sustainably supply the Florida market through various means in the past, including other PMFs. But the addition of PMFs allowed for updated flexibility of out-the-door times, closer transportation to be able to reach those customers. We have not specifically commented on the number of hospitals in that catchment area. But expanding the PMF network and specifically flexibility and optionality is consistent with our strategy to ensure that we continue to deliver best-in-class customer experience to further cement our leadership in the PSMA PET imaging market.

Anthony Petrone: That’s helpful. And then on guidance here, it looks like almost $100 million raised for PYLARIFY, I guess, $90 million right at the midpoint, but certainly at the upper end, north of $100 million. And by our math, the number on PYLARIFY was ahead by $15 million. So certainly, the outlook is for continued acceleration. And maybe just a little bit on the bridge on that number. What is the complexion of price? You mentioned a little bit of a price gain here. Certainly, volumes are growing and we have new site activations, so maybe just a little bit on the bridge on the guidance range for PYLARIFY. Congratulations.

Bob Marshall: So Anthony, I’ll start, and then Paul, you can jump in. From the way to think about it is as we sat here in February and then we’re looking ahead, we had an extremely strong March. And that has helped to inform when I talk about the strength on a look-forward basis. When I look at the first half versus second half, it really is a continuation of that strength. But there are a handful of factors. I mean, obviously, the price — the modest price increase that Paul has noted, continues to roll through the balance of the year. But as I look at first half, second half, I’m looking at sort of a midpoint of sequential growth somewhere in that sort of 10% — is high on the high end, something like 16% first half, second half growth.

One of the other things I think that’s important to note that as we thought about the sequential cadence on a go-forward basis in terms of what we’ve learned in terms of holidays and the doses impacted is, I think, by holiday weeks, I’m talking about things like Memorial Day, July 4, Labor Day, Thanksgiving, Christmas. Those all do have an impact on weekly doses. And — but those kinds of numbers have been cooked into the forecast.

Paul Blanchfield: Maybe I’ll just add. So as I shared in my prepared remarks, the 22% sequential growth was primarily achieved through continued increased penetration in existing accounts, which we believe is a result of our activity and promotional efforts within the referring physician activity, also contributing, but to a lesser extent, with adding new accounts, a modest price increase that I mentioned. And while we don’t specifically discuss our pricing strategies, I would note that our price increase is consistent with market trends and aligned to the value that we believe we continue to deliver to patients and health care professionals across the prostate cancer landscape.

Operator: Our next question comes from Richard Newitter from Truist Securities.

Richard Newitter : Congrats on another outstanding quarter. I wanted to maybe — actually, I’m sure there’ll be plenty more questions on PYLARIFY, give you a break from that one for a second. Just DEFINITY was a standout this quarter. I appreciate you had maybe the one-timer in there, but still back to solid double digits. It sounds like you expect that outlook for the year to be improving. Would love to just kind of hear if you think — is this a sustainable double-digit grower from here on out? And is that what’s assumed in your guide for DEFINITY? And then I had one follow-up.

Paul Blanchfield : Thanks, Rich, for the question. So with regard to DEFINITY, I think we’ve really entered a new normal. With some of the lingering staffing constraints that we’ve talked about in the last number of quarters and indeed for the last couple of years have been largely mollified due to improving hospital efficiencies that have enabled them to handle increase in patient volumes, which we saw in the first quarter and we would expect that level to be sustained through the remainder of the year. I think in terms of the first quarter, it’s also a very different dynamic than we saw in the last few years, where, as you recall, in 2022, Omicron was spiking, we saw an impact of patient visits and similar to the Alpha variant hit in the first quarter of 2021. And so we think we will see continued patient growth to be able to support DEFINITY sustained leadership and continued growth going forward. I’ll turn it over to Bob wants to add anything.

Bob Marshall : Yes. Rich, I mean, I just point out that if it just reflects on last year’s performance, where the first half of the year, probably, as Paul was noting, was sort of an easier comp. But that was mainly due to COVID concerns in the early part of the year and then building on strength. But also importantly, the sales team was able to get more in-person as last year evolved and really driving the different programs to continue to drive growth, adoption and utilization. So we came into the year with an expectation that it has been exceeded. And I think it’s really the benefits of the accumulated sales effort that is now being reflected and that we feel comfortable to point forward to the balance of the year with what I just said in terms of high single-digit to low double-digit for the — on average for the balance of the year.

Mary Anne Heino: I think, Rich, I’ll just add one final comment here. And I think we have seen, and I’m sure you have as well, as the life science sector reports their earnings, there has been a consistent theme of patient volumes returning and with that procedure is returning. And that is absolutely also been true for DEFINITY. It is a kind of, I’d say a rising tide. And of course, both have returned to normal. But back to a normal tide, which had been impacted negatively for the last 2 years.

Operator: Our next call comes from Roanna Ruiz from SVB Securities.

Roanna Ruiz: So a quick one for me. I was curious, are there any updates on your scan per patient assumptions for PYLARIFY given the new guidance? And where are you seeing the most growth across different PYLARIFY patient segments?

Paul Blanchfield : Thanks for the question, Roanna. So as we shared in January, we did provide an update on the total addressable market, or TAM, for PSMA PET imaging agents in prostate cancer, where we updated our 2023 TAM to be approximately 350,000 patients or $1.6 billion. We have not formally updated that number. However, I would note we have seen continued evolution specifically in guidelines. And so as an example, the American Urology Association recently updated their advanced prostate cancer guidelines with a preference for PSMA imaging. And also a recommendation to monitor disease progression at 6 to 12-month intervals, among other to update, further reinforcing the benefits of PSMA PET imaging and the need for what we would call sequential scanning to monitor patients’ progression of disease.

In terms of where we are seeing growth, I think we are seeing growth across all patient segments with a specific driven by existing accounts, where we’ve activated referring physicians, both, urologists, oncologists and radiation oncologists to further understand the benefits of PSMA PET with PYLARIFY. And in turn, we’re seeing them continuing to refer increasing patients to take PSMA PET with PYLARIFY. I think we had seen a ramp-up, I would say, at the end of last year and earlier this year, specifically for radioligand therapy patient selection. Although naturally with Novartis’ announcement at the beginning of March that they would not be adding new patients, we have seen some of that growth temper. But overall, we’ve seen growth across the board.

Operator: Matt Taylor from Jefferies.

Matt Taylor: I’m going to start by following up on that thread. So Paul, I was wondering — I know you do a lot of market research, and you mentioned the change in the guidelines. One of your key assumptions, and I think the last came update was for recurrence to see 1.7 or so scans per patient. And I guess with radioligand therapy expected to grow here in the future, how would you expect scans per patient to evolve in that group, and for recurrence now that you’d be able to see a little bit more in the real world.

Paul Blanchfield: So thanks for the question, Matt. So I think what I would suggest is that as we’ve shared, we certainly see room for expansion in the total addressable market from a number of pieces, some of which you mentioned, right? First would be the expansion of medical practice into the frequency of scans as physicians become more comfortable, more patients are regularly scanned with PSMA PET with PYLARIFY and therefore, that becomes their new baseline. And so we do see that to continue to evolve. I would note, it’s probably too soon, 3 or 4 months after we shared an update to update those numbers from a scan frequency. But we do see further upside as PSMA PET with PYLARIFY becomes further embedded in the marketplace.

I think the second piece that we’ve highlighted and you referenced was the addition of radioligand therapy, further upstream into first and second line with potential approvals, including over time, PNT2002, which we’re developing together with our partner POINT. That would create an additional set of patients who would be need to be assessed for their applicability for radioligand therapy as well as monitored over time. And so we will see that continue to evolve and potentially impact not only the number of patients who could be scanned, but as you know, the frequency of scanning. And then finally, we also see the potential for further evolution within the staging population, specifically with regard to intermediate favorable, which is not currently in guidelines, but is being explored.

And so I think we, overall, see significant runway for the PSMA PET imaging market in the United States in prostate cancer to continue to grow meaningfully over the coming years and naturally for PSMA PET with PYLARIFY to continue to lead in that space.

Operator: Our next question comes from Yuan Zhi from B. Riley.

Yuan Zhi : Congrats for another solid quarter. So in many imaging centers, we can imagine that they are using both PYLARIFY and the competitor’s ILLUCCIX. Can you remind us what’s the value proposition of PYLARIFY versus ILLUCCIX? And what are the feedbacks you are hearing from doctors and imaging centers, why they are using more PYLARIFY? Then I have a follow-up question.

Mary Anne Heino : Happy to answer that question. And I think I’d start by saying as we and folks might not have mentioned this specifically. But when we look at the last quarter and estimate what share we believe we had in the marketplace, we believe we had about 75% share of the PSMA PET imaging marketplace, which I think is testament itself to PYLARIFY and the market’s choice for what we think is the best product out there for imaging prostate cancer patients. We’ve talked about this many times about what we see as the product profile advantages of PYLARIFY versus the other available agents. And I think one of the key ones is the choice of isotope. F 18 as an isotope is really much better suited to large-scale production, which matches the patient population and need here.

And I think with the work that we’ve done to build out our PMF network, we’ve been able to meet that need, not only geographically, but then Pan-America at this point with the network that we’ve built out. We certainly think that our choices also of targeting is stronger and that it leads to clearer images that are more specific and sensitive to the underlying disease. And again, I’ll say, I think the market has spoken about that as well.

Yuan Zhi: And Paul, in the long-term, there is a higher growth potential for radiotherapeutics than diagnostics. Can you maybe provide us an updated thought on how Lantheus wants to play in the long term? Do you intend to in-license more late-stage radiotherapeutic assets?

Paul Blanchfield : I would say we’re incredibly excited about the future potential of the radiopharmaceutical market, as I shared in my prepared remarks, including therapeutics and diagnostics. We have in development with POINT right now, two incredibly exciting assets in the therapeutic space, one PNT2002 for prostate cancer and a second PNT2003 for neuroendocrine tumors. And so we are already active from a therapeutic perspective. We also look to see that there’s significant opportunities in the diagnostics space in radiopharmaceuticals as evidenced by the acquisition of MK-6240 in the Alzheimer’s space, which is becoming incredibly exciting. And so I think when we look at our differentiated capabilities in development, in regulatory and market access and supply chain and naturally in commercial execution, we believe those differentiated capabilities position us incredibly well to continue to lead in radiopharmaceuticals, both in therapeutics and in diagnostics going forward as we undertake and indeed continue to lead in what it truly is a renaissance of innovation.

Bob Marshall: And I’ll just tack on from the perspective from a business development. The company is clearly in a very strong balance sheet liquidity position with nearly $0.5 billion in cash, access to further liquidity through our credit lines as well as relationships that we’ve built, I mean, in the capital markets. The company has stated that we are interested in finding those assets that can create continued growth for the balance of the decade and beyond. But as Paul pointed out, that are going to leverage our commercial manufacturing supply chain capabilities. And we certainly have built a team that is capable of robust diligence and ability to drive shareholder value and create and bring to market solutions for patients and caregivers.

Operator: Our next question comes from Justin Walsh from Jones Trading.

Justin Walsh : I think the evolving commercial and clinical success of PSMA-targeted therapeutic and diagnostic radiopharmaceuticals is kind of hard to dispute at this point. And it looks like at least one big pharma player is continuing to sight radiopharmaceuticals as a core driver of revenue growth with expected proportional investment on their part. So I think at this point, a lot of people are wondering what the next big target is. And expecting that it might be something with more pan-cancer expression such as fibroblast activation protein, which I know you guys have a CAF or PET imaging agent in the pipeline there. Are there specific targets that you think are particularly exciting for the next generation of assets in oncology? And how are you positioning yourselves to take as good advantage of that as you seem to have taken on the PSMA targeted side?

Mary Anne Heino: Justin, as always, I think you’re very, very well versed on what’s happening in this market and very also insightful about where the market is going. And we certainly echo your thoughts about what the next large targets might be. Certainly, if we can make contribution to the diagnosis and treatment of breast cancer, I think that would be an exciting, again, an important innovation for the market. But as you say, with our pipeline and specifically looking at our FAP products. Remember, we also have NM-01 in our pipeline as well. These are both targets that really allow us to look pan cancer. Now, having said that we will ultimately specifically target types of cancer within that. We have not released that information. Those programs are also early. But we have not released specific information as to what targets we would choose specifically for those 2 products.

Operator: Our next question comes from the line of Larry Solow from CJS Securities.

Larry Solow : Congrats on a good start to the year. Just a quick financial question, a couple for Bob. Gross margin obviously continues to sort of creep up along with your better mix. How should we kind of view that going forward? And I think you hit almost 69% this quarter and same respect operating margins, getting some leverage on the gross profit there. So operating margin, I think, was 47%, right, which was, I think, significantly higher even than last year’s average or even in the last couple of quarters. So how should we kind of look at that going forward?

Bob Marshall : As you balance – it goes to the balance of the year, Larry. I mean, I am calling for a bit more absolute dollars in terms of OpEx. But I’ll start with gross margin. Gross margin, as you point out, nearly 69%, that’s sustainable at these levels, particularly as you think about some of the investments that we’re going to continue to make in terms of – Paul noted that we have 3 new PMFs. That does include work that needs to be done to bring those online as it were. So those expenses will continue to be hit. We did note earlier this year that we would continue to add PMFs to the network throughout the balance of this year. And so furthering that chance to continue to grow gross margin into the future as some of those expenses come off and as the DEFINITY manufacturing facility comes sort of tethered into our overall gross margin story on a go-forward basis.

In terms of OpEx, I’ve noted before that in our numbers, if you will, for this – for the balance of this year, we do have investments related to our partnership in collaboration with POINT. Also now the expense base that comes with the Cerveau assets, in terms of it’s – as a pharma services, but also the back office and all of the work that it takes to keep that running. April starts sort of where merit kicks in, so you see that from a headcount, just so employee-based expenses that will continue to grow. But you’re right. Our intent is always to lever the P&L. That’s something that I talked about often here. And I think that’s something that’s important to continue to drive shareholder value, which will translate as we are seeing into free cash flows that continue on a very solid pace.

Operator: Our next question comes from the line of Dave Turkaly from JMP.

Dave Turkaly : Congrats. Looking at the updated TAM and the 350,000 scans that we’re targeting for this year, what percent of those do you have covered with the PMF base that you have now? I think you said you added 3. But do you need to continue to do that? Or are you close to having most of the geography here online?

Paul Blanchfield : Thanks for the question, Dave. So what we’ve said is we can cover the vast majority of the country. And indeed, we have now served patients in 47 of 50 states. We have not served patients in Alaska or Hawaii, given the geographic dynamics. And so we can serve patients in the vast majority of states with our current PMF network. Further expanding is really around optionality, flexibility and ensuring that we have redundancy to meet customers’ needs when they would like to use PSMA PET with PYLARIFY, which naturally giving the expanding marketplace continues to be at many different hours of the day, every day of the week. And so ensuring that we can be able to provide that is really behind our continued approach to expand our PMFs, recognizing that unlike in a small molecule world, we can’t build up inventory.

And so radiopharmaceuticals are naturally an incredibly complex supply and manufacturing chain. And it behooves us to continue to ensure that we have best-in-class customer excellence. And so it is less around new geographies that we can’t reach than it is around maximizing the customer experience to ensure that PSMA PET with PYLARIFY remains the market leader for many years to come.

Operator: Our next question comes from Richard Newitter from Truist Securities.

Richard Newitter: Thanks for the follow-up. Just on AZEDRA, I was just curious a little bit more on the decision to end that program there. And I’m curious if that — if the PNT2003 asset and kind of what your plans are for that initiative has influenced it at all. And while we’re discussing the topic, can you please provide an update on that asset, how you size the market opportunity? And kind of what kind of time lines we should be thinking about there.

Mary Anne Heino: So Rich, I’m going to start because I want to make sure we’re clear about the comments that we made and where we stand with AZEDRA. And then Bob can back in with the kind of financial implications of that. But we have not ended the AZEDRA program. We did discontinue a life cycle management program. But AZEDRA is still available commercially for patients with PPGL. And so I’ll let Bob fill in in a moment around the financial implications of that. But we also have to have PNT2003 and you’re right, we didn’t give a specific update here. But I can share with you that, that program is also on-time and on-track with our expectations to complete a program, which will bring us into the market for treatment of glioblastoma. I don’t have the specific market data for you to offer — for I’m sorry.

Paul Blanchfield: Neuroendocrine tumors.

Mary Anne Heino: I’m sorry. Neuroendocrine tumors, I think glioblastoma — I am getting corrected live in the room here — for neuroendocrine tumors. And I don’t have the specific market data here. But as we get closer to that market, we will certainly share that TAM.

Bob Marshall: So Rich, just to follow up on that. So I mean, it really is about phase gating. As you think about life cycle management or any kind of clinical trial kind of evaluation, you’re going to continuously look at the business case. And as we were evolving with the business case, it became apparent to us that we — the intelligent sort of financial decision to make at that point was to discontinue. But as you think about from an accounting perspective, if you look at the entire AZEDRA intangible group together. So when you put it all together with an evolving market opportunity, as I noted, it requires that with this new information that you do a study on the impairment. And it just made sense at that juncture after running the business model that we would take the charge.

And so just to be specific, even though as Mary Anne is pointing out, we are making AZEDRA continue to manufacture, continue to make it available to patients and caregivers. The currently marketed piece was the AZEDRA commercial asset, intangible asset is what then has been impaired through cost of goods sold. And then, of course, the life cycle management aspect of it in terms of what we were carrying on the books for that particular program and potential outcome long term is what is the IP R&D intangible asset that we took through R&D.

Mary Anne Heino: I’ll just make one other comment. And you’ve heard us speak about this, I think, continuously during the pandemic. But AZEDRA really was very negatively impacted by the pandemic, in that the treatment path for patients who received AZEDRA is one that is highly labor-intensive and requires in-patient hospitalization. And in hospital environments that we’re already short on staff, and given that the disease – the underlying disease of PPGL is what is considered indolent, they’re slow kind of growing. There was very frequently the decision taken to offset having – using hospital resources to offer treatment such as AZEDRA. And it’s not the only type of treatment that was impacted, but in this case, certainly.

And we have continuously seen that. We believe in the product. We know what the product can we do. It still remains the only product indicated with an indication for PPGL in the U.S. market. And we think that’s an important offering for patients. I’ll just update to you. Again, this is all happening live here. But Mark has shared with me what we have shared most recently as the TAM for the market that PNT2003 will enter and we currently estimate that TAM to be approximately $800 million.

Operator: Our last question comes from the line of Roanna Ruiz from SVB Securities.

Roanna Ruiz: So I wanted to check on the second half ’23 SPLASH trial readout time line, see if that affects a possible regulatory submission for the PNT2002 asset. I was curious, what are your plans on turning around that data quickly and assembling a data filing package?

Mary Anne Heino: So they are directly related, Roanna, because it will be the – those data from the SPLASH trial that will form the basis of the submission, the NDA for PNT2002. As we mentioned in our prepared remarks, we remained on track. It is our partner POINT Biopharma, who is completing that trial. And they have also publicly said that they expect those data to be available in the second half of 2023. We will then proceed with all haste in moving forward with our program. As we noted in our remarks today, PNT2002 was awarded Fast Track designation by the FDA. What that means or what that then kind of plays out to be is, that the FDA makes themselves available to you more frequently. So that as you’re preparing your file and then once you’ve submitted your trial, you have the ability to interact with the FDA more frequently.

And you can also have what’s called a rolling basis for submitting the different components of what will be the total NDA application, which again facilitates and makes the whole process more efficient. We’re, of course, hopeful and remain positive about what the outcome of the SPLASH trial will be. We think this is a very important addition to those treatment options that are available for patients with metastatic prostate cancer. And this is also – I’ll just make one final comment about what Fast Track designation offers. You get iterative feedback from the FDA. So it’s not just waiting for milestones where you get feedback and then you have to in kind of a linear way react to it. You get to again on a rolling basis interact and ensure that your file meets their expectations.

Operator: Ladies and gentlemen, there are no further questions at this time. Thank you for your participation in today’s conference. This concludes the program. You may now disconnect, and have a wonderful day.

Mary Anne Heino : Thanks everyone.