Good afternoon, ladies and gentlemen. Welcome to the Lantheus Holdings Third Quarter 2018 Earnings Conference Call. This is your operator for today’s call. Please note that all lines have been placed on mute to prevent any background noise. This call is being recorded for replay purposes. A replay of the audio webcast will be available in the Investors section of the company’s website approximately 2 hours after completion of the call and will be archived for 30 days. I would now like to turn the call over to your host for today, Meara Murphy, Director of Investor Relations and Corporate Communications.

Thank you and good afternoon. Welcome to Lantheus Holdings third quarter earnings conference call. Joining me today is our President and CEO, Mary Anne Heino and our CFO and Treasurer, Bob Marshall. Earlier this afternoon, we issued a press release, which was also filed with the Securities and Exchange Commission under Form 8-K reporting our third quarter results. You can find the release in the Investors section of our website at lantheus.com. Before we get started, I would like to remind you that our comments during this call will include forward-looking statements. Actual results may differ materially from those indicated by forward-looking statements due to a variety of risks and uncertainties. Please note that we assume no obligation to update these forward-looking statements even if actual results or future expectations change materially. Please refer to our SEC filings for a detailed discussion of these risks and uncertainties. Also, the discussions during this call will include certain non-GAAP financial measures. Reconciliation of these measures to the most directly comparable GAAP financial measures is included within the earnings release found on our website. With that, I will turn the call over to Mary Anne. Mary Anne?

Thank you, Meara and good afternoon everyone. Q3 was a strong quarter for us. We exceeded our Q3 guidance for each of revenue and adjusted EBITDA driven by double-digit growth in sales of both DEFINITY and TechneLite. We remain focused on driving forward our broader corporate strategy of growing our microbubble franchise, investing in our product pipeline and pursuing external opportunities that fits our growth and profitability objectives. On the call today, I will share important insight into our efforts to secure and sustain the value of DEFINITY and to our microbubble franchise. First, I will turn the call over to Bob Marshall who recently joined as our Chief Financial Officer. After Bob reviews our Q3 numbers, I will provide the update reference as well as updates on our nuclear product pipeline and other strategic initiatives. Bob?

Thank you, Mary Anne and good afternoon everyone. I am pleased to be here and I am looking forward to an exciting future with Lantheus. Let me move to the numbers. Revenue for the third quarter totaled $88.9 million, an increase of 11.2% over the prior year and an increase of 11.4% on a constant currency basis. Sales of DEFINITY continued to post solid growth at $43.8 million or up 16% on a similar basis during the quarter. TechneLite revenue was $30.6 million, up 16.2% supported by the manufacture and sale of generators to an international partner, ANSTO, on an opportunistic basis. During the third quarter, these sales amounted to $7.5 million and more than offset the effect of supply shortage in our U.S. TechneLite business stemming from the NTP shutdown that extended through the quarter. We also have been able to leverage our relationships with our other two suppliers of Moly 99 to limit the impact of lost supply from NTP to our existing customers. Turning now to Xenon, despite a competitor’s reentry in May, revenue declined by only $487,000 or 6.3% to $7.2 million versus the same period last year. Other revenue decreased 10.4% to $7.3 million, driven by flat product sales within the category offset by higher administrative fees and rebates. Gross profit margin for the third quarter was 50.5%. When new manufacturing costs are excluded, that rises to 50.9%, an increase of 70 basis points over the same period last year. This increase is the result of favorable product and customer revenue mix. Operating expenses were 21 basis points favorable to prior year at 31.9% of net revenue on lower period expenditures in sales and marketing offset by both higher research and development investments in support of our product development activities and G&A driven primarily by…

Thank you, Bob. I will now provide some updates on our business performance and strategic programs. We continue to drive double-digit growth with our market-leading ultrasound contrast agent, DEFINITY. Our sales, marketing and education investments emphasize the benefits of the appropriate use of contrast in suboptimal echos. We believe this, complemented by growth in the underlying echocardiography market, will continue to drive sustainable revenue growth of DEFINITY. We currently have underway a number of strategic initiatives to secure our microbubble franchise in addition to our activity to expand the DEFINITY patent estate. These include a new indication to expand usage and drive growth, a modified formulation with an enhanced product profile, new applications and new geographies. We believe these efforts will be engines for continued revenue growth. Let me now share greater clarity on DEFINITY’s intellectual property. In the United States, we have two key Orange Book-listed patents: Our composition of matter patent valid until June 2019 and our method of use patent valid through March 2037. Our patent portfolio also includes manufacturing patents dated through 2021, 2023, and 2037. Under the Hatch-Waxman Act, an ANDA applicant must give us notice certifying either that his generic candidate does not infringe our DEFINITY Orange Book listed patents or claiming those patents to be invalid. Should the FDA accept an ANDA application, we would then be notified and we challenge the applicant using the Hatch-Waxman process. FDA approval to commercialize that applicant’s generic candidate may be delayed for up to 30 months while our dispute with the applicant is litigated in court. To-date, we have not received any notice of an ANDA applicant for a generic candidate. So we, by way of example, if we receive notice of an ANDA applicant in November 2018 and the full 30 months stay applied, that…

Thank you. [Operator Instructions] Your first question comes from Raj Denhoy with Jefferies. Your line is open.

Hi, good afternoon. What if – maybe I can start with –

Good afternoon, Raj.

Good afternoon, Raj.

Good afternoon. With the TechneLite business and obviously very strong quarter and I think you noted that there was some opportunistic sales. I think you mentioned was overseas. So maybe you could give us a little more in terms of what transpired in those orders and then also any update in terms of what's happening with the South African reactor and any updates in terms of when that might come back online?

Sure. So, Raj, the opportunistic sales that we referenced did occur in Australia and it was with our partner, ANSTO. ANSTO is a supplier to Moly for us, but they also supply and produce generators for the Australian market on their own generator manufacturing line. They occurred of an issue with their manufacturing line and they asked us to manufacture their generators for them. So, they shipped their Australian market Moly to us, we manufactured the generators for them and shipped them back and the revenue that we cite is sourced from that service that we're providing them. With respect to NTP as Bob alluded, we have a fairly recent communication from them and by their communication, they expect to come back into service shortly. That process we anticipate will involve a start-up time during which they’ll only use part of their capabilities before returning to full-service. But as Bob also noted, we have not in our own guidance and in our own forward-looking forecasts, we have not assumed that NTP come back up to service for the fourth quarter.

Okay. And that was my – my second question was really on that fourth quarter guidance, so as Bob mentioned I think $80 million to $85 million in the fourth quarter. I just wanted to understand the complexion of the different businesses, so DEFINITY continues to grow in the teens, I'm guessing you expect it will continue to do that. But then the other two businesses for TechneLite and Xenon, should we assume that TechneLite kind of regresses back to that kind of low $20 million range we’ve seen in the first couple of quarters and Xenon as you mentioned because of the reentrance of the competitor kind of stays in the low $7 million range. Is that how we kind of stay in that, that kind of low $80 million range in total?

Yes, Raj, I think that's a great question. There are just basically the four key assumptions in the whole sort of forecast, if you will, the DEFINITY continues its run rate that we've been seeing in recent quarters this year, so we continue the strong growth there hopefully, and then we also have – we’re expecting that NTP doesn't come back. So, our assumptions are that, that we’re able to supply the U.S. market through whatever our available Moly happens to be in, but we would expect not to be able to overcome that with the ANSTO sales that had been able to more than offset that run rate in Q3.

Okay, that’s helpful. And then maybe just one last one, Mary Anne, so I think, again, Bob, as you mentioned, your debt-to-EBITDA is now down below 2. You are 1.8. You have talked about perhaps being a bit more aggressive or at least dynamic in terms of acquisition. Anything you can offer in terms of how your pipeline looks for deals and any areas you are focused on in particular?

There is nothing specific that I will offer, Raj. As you can imagine, I will offer that when I am ready to announce something. I will say it, as you note, our leverage ratio is in very healthy shape as is the rest of our balance sheet. So, we do feel prepared to execute on our strategy.

Okay, great. Thank you.

Thank you. Your next question comes from Erin Wright with Credit Suisse. Your line is open.

Great. Thanks. A follow-up to the TechneLite question, how much – did you quantify the benefit from the new relationship in Australia? And are there any other offsets that you can kind of point to in terms of other new relationships that could potentially be offsetting and offer upside in the fourth quarter that maybe aren’t embedded in your expectations. Just trying to figure out maybe some puts and takes and elements of conservatism is potentially embedded in there? Thanks.

Erin, I will just clarify on the relationship with Australia and then Bob will speak to the numbers. The relationship with ANSTO is certainly not new. They have been a Moly supplier to us for several years. What is new is their request to us to actually manufacture generators for them. We are one of the few companies in the world with a generator manufacturing line and their choice was to reach out to us to ask that in the interim while they repair and bring their our own line back into service on that temporary basis, we manufacture generators for them. As Bob noted and then he will get much more numerical, we do expect some level of that service to continue into fourth quarter, but significantly reduced from the impact that we saw in the third quarter.

Right. So Erin, so as you saw that we did have $7.5 million in the third quarter of contribution for those ANSTO sales, which when we say they are going to reduce significantly, we would expect to see them start to falloff, but not to put a number on it because we have never – we don’t forecast opportunistic sales, because that’s what they are, they are opportunistic. So that’s what we have embedded into the fourth quarter. If you really were to look at your sort of second half of the year, it’s pretty much in line with what expectations were for the whole second half of the year coming into the third quarter. So I think that should address your question.

Okay, yes. That’s helpful. And then you have made several hires year-to-date, not only including the CFO, but other hires from I guess other operational kind of functions and can you speak to kind of how that could jump-start your business development efforts now and where you stand with that hiring process and how that aligns with sort of your longer term vision in terms of a mix of this business 3 to 5 years down the road? Thanks.

Yes. So as you know, Erin, I have made some key changes this year by kind of switching now not only the CFO role, but also the Head of Manufacturing and Operations, the Head of HR and I added by breaking out and having specific title for corporate development. I added singular expertise in business development and in strategy. And I think that last role was one that certainly speaks to our intent. With each of the roles, Michael was very future-oriented and looking at what it would take as a company to identify, assess and then integrate new opportunities, be it a geographic, be it a manufacturing or capabilities, it was really with that intent that I changed out the team and built it to where I have now. I do continue to have one opening that I have not billed yet and that is my Head of Commercial and that is a search that is very actively underway.

Excellent. Thank you.

Thank you. Your next question comes from Lei Huang with Wells Fargo. Your line is open.

Hi, thanks for taking my question. It’s Lei calling in for Larry. I just want to go back to your Q4 guidance to be clear on what’s in the guidance and what’s not. So it sounds like your guidance does not assume the NTP resumes production period even though they might be partially back online during the quarter?

That’s true, Lei. For purposes of our forecasting, despite receiving positive signals from them, our guidance does not assume that NTP returns to service in the fourth quarter. It does assume as we have in the third quarter that we continue to mitigate the absence of NTP by leveraging the other two suppliers in our Moly supply chain.

Got it.

And Lei, if I – this is Bob. I just want to just kind of tack on to that to sort of walk it down just a little bit further, because these – that the revenue – where the revenue comes from is also having the impact on gross margin as I noted in my prepared remarks. And so the favorability that we saw in our revenue mix in terms of the customer is because that benefit is not assumed to repeat with that as one of the pressures on the gross margin, but I would also note that as we source – we are – it is incrementally slightly more expensive just because we’re not getting a completely balanced supply based on timing and from whom we’re purchasing, so that has an impact. But the other thing I wanted to point out within the gross margin line to just sort of flush it out was that, as we have reached a point with our room temperature DEFINITY formulation, if we hit a milestone where we’re going to need to run qualification batches as part of our technology transfer process in the fourth quarter, that’s about a $2 million expense that would be in COGS, but then – would then of course be – because new manufacturing cost is part – not part of adjusted EBITDA. I just want to make sure I didn't see that in different models and wanted to point that out.

Got it. Okay. That’s really helpful to know about Q4, the COGS. And so just going back to the revenue guidance, what is assumed in your guidance about ANSTO? It sounds like you're assuming there's some revenue in there, not the $7.5 million obviously, but some number, but you also call it opportunistic, and I know in the past when you’ve had those opportunistic sales in this business, it's usually not part of the guidance. So, I just want to be clear what’s included in that guidance?

So, Lei, that’s a very fair question, because you’re right. In the past, we were very specific to say that we did not forecast to opportunistic sales. In this case, we have line of sight into the start of the fourth quarter that ANSTO will continue to order from us and those – that – for that reason, those sales have been included in our forecast. But as Bob mentioned, they are significantly our assumption and what was included is significantly down from the $7.5 million that we recognized in Q3.

Got it. Okay. That’s helpful. And then in terms of the sales to ANSTO, would you say that margin is similar to your margin and the rest of the TechneLite business or is it very different?

I wouldn’t say it’s very different, but it is slightly better.

Okay, got it. Okay, that’s helpful. And then just on DEFINITY, the number I mean, 15% obviously is still good growth, but I would see the numbers certainly a little bit lower than we expected both in terms of the absolute dollar and a year-over-year growth. Was there anything to call out in the quarter in terms of the market penetration, pricing share, anything that might have changed it a bit versus first half of the year?

No, Lei, I’d say there is not. We continue to see growth of the underlying echocardiography market. We continue to hold share at above 80%, which is the reference that I've offered in the past and we continue to see growth in contrast penetration. You are correct that especially compared to 2017 and perhaps 2016, the overall growth which at that time I think consistently held around 20% or close to 20% is down slightly, but we still see it as very positive growth of DEFINITY on a forward basis.

Got it. Okay, that's helpful. And then just one quick one on your pipeline and by the way thank you for the greater color. That's really helpful. On the LL 1195 – LMI 1195, are you on – it sounds like you’re still in discussions with FDA, so would you still expect to start the Phase III this year or could that kind of move into next year?

I won’t – will never say never, but I don't see this likely that we’d be able to enroll first patient in 2018. Our stand and our commitment is that we would not enroll our first patient until we have an agreed upon SPA with the FDA, and in fact, that is what we bid with the LVEF trial for DEFINITY. We had the other trial activities somewhat ready to go. We had our CRO contract. We had our site selected, but we waited until we had agreed SPA in hand before we actually went on to enroll our first patient. It meant that it was a quick and easy process from once we had agreed SPA to get to that and as I mentioned on the call today, it’s actually we’re up to three patients enrolled already, I just referenced in one of my comments, but we will wait for the FDA to come into agreement with our design of the SPA.

Got it. Okay. Thank you very much.

Thank you, Lei.

Thank you. Your next question comes from Larry Solow with CJS Securities. Your line is open.

Great. Thank you. Just a few handful of follow-ups to that. On – Mary Anne on DEFINITY, the 16% growth in the quarter I think it was actually pretty much in line with the year-to-date sales. So, sort of pretty constant trend there. It has slowed obviously a little bit from probably numbers that weren’t sustainable. But going forward not specifically, but are you comfortable sort of with whatever maybe low to mid-teens growth over the next few years barring any patent situation?

Absolutely. And I think Larry that is what I was suggesting that with the status we see of the intellectual property of DEFINITY and with the assets we have to the Hatch-Waxman process should an ANDA be filed. We remain confident in the sustained growth of DEFINITY revenue.

Okay. And on the patent estate and all that, how does that VIALMIX come into play, I believe you also have, I guess, a separate patent on that, I don’t know if you called that out as one of the other patents, but –

We do have separate patents also – that also protect our VIALMIX apparatus. They are not Orange Book listed, because by definition they are not eligible for Orange Book listing, but they would be addressable through litigation, where we defined that someone was in violation of the patents that cover our VIALMIX.

Okay, fair enough. And then just switching gears not to be a dead horse here, just on the opportunistic sales to ANSTO. I guess your visibility is based on their own facility being down and as soon as – right, is that sort of – is their facility gets repaired then you maybe don’t get as much or limited sales then going forward. Is that sort of a –

So, our visibility is actually line of sight directly from them that have forward orders already in place for a short period into with the potential, but certainly not the certainty that some level of orders might continue throughout the fourth quarter. So as Bob and I shared, we are allowing for partial sales in our guidance and in our forecast as we move forward, but again significantly reduced from the $7.5 million in revenue that we recognized from ANSTO for those services in third quarter.

Got it. So – but inevitably these sales are recurring, because they have to set their own capabilities are impaired at the moment, right, their abilities to meet the –

Yes. That’s true, Larry. Yes, that’s true.

Okay, great. That’s fair enough. Just – so I’m just trying to sort of break down what are the – some of the other drivers of the beat in the quarter. So, your DEFINITY sales are right in line and you had obviously, I think sales excluding as one-time gain would have been right in line, right. So, your R&D was obviously a little bit lower than we had projected. Maybe you could discuss the lower number there, and is that because some of these trials were just – timing of trials and what not and how should we look at that going forward?

I think it’s fair with respect to R&D to think of that as timing and to that extent some may catch up in Q4, some may actually post into 2019, we’ll speak more to that as we close out the year as the next quarter closes out. From a product revenue mix perspective, the addition of DEFINITY sales given its margin is always accretive more strongly than some of the other products in our mix. Bob, anything you’d like to add?

Yes. I mean, just looking at the P&L, I mean, the sales and thinking of it from a percentage of net revenue, I mean, we did see in the research and development actually higher as a percentage of net revenue for the – in the third quarter relative to the same quarter prior year and that had to do with pipeline development costs, the flu work that Mary Anne has referenced as well as increased headcount in support of those pipeline investments. G&A unfavorable as we talked about, that was mainly because of actions in the quarter from an employee perspective.

Right.

And so those things will be some of that that carries into Q4 just based on some of the further recruitment that Mary Anne has also referenced. And sales and marketing did have some timing that slipped between quarters. But at the same time, there were items in there – from going to be planned in the fourth quarter that are just part of supporting the overall growth of the business. So when you really look at it, it really is a slowdown from gross margin more than it is coming from the operating expenses.

Right. And how you sort of write-off, an asset write-off looks like some inventory write-offs that’s I know you adjusted out for in your EBITDA number, but not on your EPS. So I assume is that impacting your cost of goods line, your gross profit?

In the quarter, it was really gross margin is being completely run by I mean, honestly, it has more to do with the cost of raw materials in terms of Moly and the overall performance of what we were able to accomplish on an opportunistic basis that really was what was – those are the two main drivers of overall volume working through the system as well for the different products. From a write-off perspective that wouldn’t have been material enough to make any difference.

And the opportunistic sale is that on the gross level? I know the TechneLite margins are far inferior normally to DEFINITY and to the corporate average. So normally that bigger sale would actually impact your mix and bring your margins down, but that did not occur this quarter?

Well, when you think about it from a contribution perspective having higher opportunistic sales relative to U.S. TechneLite sales was actually a margin benefit versus what I think what you are suggesting is exactly why we are talking about from a fourth quarter gross margin perspective, because that reverses and that’s the pressure that I am talking about. So you are...

The EBITDA, a lot of the beat in the quarter is related to that, right, I mean, it seems like is that a majority of the beat in the quarter is related to that or I mean little bit of puts and takes on the expense line?

Yes. And obviously, the more we outperform on DEFINITY that also has a good margin contribution as well.

Right, okay. Fair enough, great. Thank you very much.

You are welcome.

Thank you. And I am showing no further questions at this time. I would like to turn the call back over to Mary Anne Heino for closing remarks.

Thank you. In closing, we are pleased with our business results to date and the status of our strategic initiatives. As we plan out for 2019, I in conjunction with the new members of the executive team believe we are well positioned and we are certainly excited about our business prospects and we look forward to updating you in the coming quarters. So with that, we will sign off. Thank you very much, everyone.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you all may disconnect. Everyone have a wonderful day.