Good morning ladies and gentlemen. Welcome to the Lantheus Holdings Third Quarter 2019 Earnings Conference Call. This is your operator for today's call. [Operator Instructions] A replay of the audio webcast will be available in the Investors section of the company's website approximately 2 hours after the completion of the call and will be archived for 30 days. I'll now turn the call over to your host for today Mark Kinarney, Director of Investor Relations. Mark?

Thank you and good morning. Welcome to Lantheus Holdings' third quarter 2019 earnings conference call. Joining me today is our President and CEO Mary Anne Heino; and our CFO Bob Marshall. This morning we issued a press release which was furnished to the Securities and Exchange Commission under Form 8-K reporting our third quarter 2019 results. You can find the release in the Investors section of our website at lantheus.com. Before we get started I'd 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 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. Also, 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 in the Investors section of our website. With that I'll now turn over the call to Mary Anne. Mary Anne?

Thank you, Mark, and good morning everyone. We delivered strong third quarter results driven by nearly 20% sales growth for DEFINITY and better-than-expected TechneLite performance despite a challenging molybdenum-99 or moly supply environment. Before detailing our strong earnings performance for the third quarter I'll first speak to the announcement we made earlier this month of our proposed acquisition of Progenics Pharmaceuticals an oncology company with a portfolio of radiopharmaceutical and AI products focused on diagnostic and therapeutic solutions to find fight and follow cancer. This is an exciting transaction and I'd like to walk through some of the key strategic and financial rationale why we believe strongly in the combination and the value it will create for stockholders of both companies. As mentioned on the transaction announcement this acquisition is a result of a long and careful evaluation of the opportunities and benefits of the combination and the valuation that started with our initial conversations with the Progenics team in early 2018. As we learn more about Progenics and their innovative portfolio especially over the past nine months during extensive due diligence with professional advisers it became increasingly clear that the fit between our companies is incredibly strong and that the business and operations of Progenics will benefit from Lantheus' strengths. Lantheus has a proven track record of creating long-term shareholder value as demonstrated by total shareholder returns since our IPO in 2015 of 232%. We've accomplished this through our commercial and operational excellence backed by financial discipline. With these capabilities and our expertise in managing global complex isotope supply chains, we believe Lantheus is uniquely positioned to optimize Progenics' radiopharmaceutical operations and maximize the value of the combined companies' portfolios. Lantheus today is recognized as a leader in two areas: microbubbles anchored by DEFINITY; and nuclear medical imaging with…

Thank you, Mary Anne, and good morning everyone. Beginning with the Progenics acquisition. The business model we envisioned for the combined company is grounded in financial discipline and accountability consistent with the way we operate at Lantheus. We see a clear well-defined path to accretion and enhanced free cash flows. Near-term dilution over the next 24 months will be the result of needed investments to bolster commercial manufacturing and clinical pathways for certain of the combined companies' developmental pipeline ahead of the strong revenue growth that we expect to generate from these products as we ramp their commercialization. We plan to be diligent in our pursuit of accretion and then realizing the value we see in this transaction for stockholders. For example with a combined focus on capturing manufacturing efficiencies as well as favorable product mix with a growing diversified revenue stream we expect gross margins to expand by nearly 800 basis points over the legacy Lantheus run rate by the end of year three. Further, as I mentioned on the announcement call we will employ a fully dedicated integration project management office in an effort to capture between $15 million and $20 million of G&A synergies from the Progenics 2019 baseline expenses. Also as we study the third-party models Progenics appears to have a much higher expense and CapEx profile than it would under Lantheus' management. Our existing infrastructure notably from a customer service and commercial operations perspective will allow the combined company to avoid significant assumed expenses in future operating periods that Progenics as a standalone entity would have had to build. Finally, as we mentioned at the time of the transaction announcement we structured the deal as an all-stock transaction to maintain and protect our financial flexibility going forward. This will provide the company with access to…

Thank you Bob. Now let me provide some additional color on our business performance and progress on our strategic programs. Let's start with our microbubble franchise. DEFINITY's continued strong growth is a result of an increasing appreciation of the benefits of echocardiography as well as our ability to continue to grow the appropriate use of DEFINITY in suboptimal echocardiograms. This strength fuels our confidence in the long-term growth of the existing business as well as our commitment to key pipeline and infrastructure initiatives which we believe will support the sustained growth and profitability of our microbubble franchise. The first of these initiatives is our investment in our DEFINITY LVEF clinical program. We remain on track with our two parallel Phase III studies BENEFIT 1 and 2 with patient enrollment complete for BENEFIT 1 and over 80% for BENEFIT 2 with the total enrollment set for completion later this year. Upon successful completion of the trials, we will use the results to file a supplemental NDA that if approved would enable us to commercialize soon thereafter. Our on-campus manufacturing project for DEFINITY and other sterile vial products remains on time and on budget. After having completed the construction phase earlier this summer we had moved on to validation. These steps keep us on track to produce commercial product by early 2021. Finally regarding the status of a potential generic filer to date, we have not received notice of ANDA application. We remain confident in DEFINITY's future. Moving on to our nuclear business I'd like to provide an update on our moly supply for the third quarter and what we expect for the balance of the year and 2020. While we experienced limited supply throughout the third quarter we have been informed by our supply partner NTP that they have been able…

[Operator Instructions] Our first question comes from Larry Solow with CJS Securities. Please proceed with your question.

Good morning. Thank you. Just a couple of questions on DEFINITY. Obviously continues the strong growth 19% really rapid. I think over time we all bring our models down to sort of that low to mid-teens growth rate. But can you just speak to why wouldn't it continue to grow at this rapid rate that it's growing out the last three years? Is the reason is why we -- perhaps we are being a little too conservative most of our models out there?

So Larry I think that's a fair question. This is obviously Mary Anne not Bob. I don't -- I think it's a fair question. When we look at the growth and where we see -- when -- where it's coming from it really is coming from continued contrast penetration rate. So it is really as I said in my remarks the continued increased appreciation for use of contrast within studies. And so it's not growth that we would need to depend upon from the underlying market just overall growth of use of echocardiography. That really reflects the efforts that we put into the market because that is what we point all of our sales and commercial effort at is medical education on how to recognize suboptimal echos as sonographers are performing their exams. We do that with not only the technician but that's where we point to our medical education with physicians. So I would say that it is really the result of where we point to our efforts at both at the society levels and then at the day-to-day levels with our interactions with sonographers and physicians. I can't tell you how to run your models. It may be that we are somewhat conservative. As we plan forward we know where contrast can still sit. There's a lot of headroom left in that market if you compare it to where medical literature would suggest contrast and should be it would suggest that up to 20% of all studies should be done using a contrast agent. I would also say looking forward you heard me also mention that our LVEF study should complete patient enrollment by the end of this year. We'll then put together our sNDA file that NDA. With the PDUFA date -- PDUFA timing the PDUFA date that could bring us into the market fairly shortly. We're going back into that same market that we are already addressing. And that also then expands the patient population that would be addressable with the use of contrast. So another growth driver right back into that same market.

Absolutely. And of course that would -- it can certainly enhance and give more reason to continue to maintain if not potentially increase its growth. What's just in terms of the left ventricular the time line there? So the trial -- the enrollment completes within whatever a couple of months. And then I assume that once enrollment and patients come through that it's a onetime visit right? So there's no follow-up. So the trial is basically after the data is analyzed pretty much done right? So will we get any -- will there be a notification of that or we will just hear that you filed or how that play itself out if you happen to know or can share any of those details?

I haven't shared any of those details yet. But I will say just based on the trial design there are 3 different study reads that are done as part of each patient because their -- the study without contrast the echo study without contrast there's the study with contrast and then the -- there's the MR study which is the truth standard for the trial. So you're right. There's no follow-on in -- as you'd see in these kind of pharma trials where you're looking at file one for other reasons. But there are three reads of studies for each patient in the trial. So I haven't decided yet what I'll announce as far as last patient out data locks or whether we will announce with the sNDA filing but you can be sure there will be announcements related to kind of the reg pathway with that.

Okay. And then lastly I joined the call a little late just announcements between a couple of other ones. But gross margin was a little bit less than I thought. Was there anything in there -- in the one-timers in there other than I guess the ramp -- the manufacturing expense? But anything else that are higher than expected? Or...

Well it's actually a little bit more in line with what we had expected. I think if you recall back to our July call I did mention that we would be witnessing a gross margin below the run rate that we saw in the first half which was around -- right around 52.5%. That's actually a couple of things because when we get into these supply shortages if you will what we do is what we do best in terms of managing our way through that complex radiopharmaceutical market. And in doing so what that effectively does is that we are buying moly throughout the week which is not necessarily always the most optimal way to do it. And we do that with a bit of a hedge to make sure what you're doing is creating an opportunity to take advantage of demand. So what you do get is some excess decay. It does cost a little bit more. And then, of course, the margin mix this year. If you remember last year in the third quarter the TechneLite we were selling to Australia was at a higher margin than what we typically sell.

The generator.

Of the generators here in the United States. So that was a little bit of an unfavorable product mix but again a little bit offset by DEFINITY's outperformance. But again it really was driven mainly by the TechneLite.

Okay. Great. Excellent. And I know you shared some additional stuff on the Progenics stuff. I just missed part of that so I'll review that. And then if I have any questions I'll certainly circle back.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating.