Lantheus Holdings, Inc. (LNTH) Q3 2021 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. Welcome to the Lantheus Holdings Third Quarter 2021 Financial Results conference call. This is your operator for today's call. [Operator Instructions]. This call is being recorded for replay purposes. A replay of the webcast will be available in the Investors section of the company's website approximately two 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, Senior Director of Investor Relations. Mark?

Thank you, and good morning. Welcome to Lantheus Holdings' Third Quarter 2021 Financial Results conference call. With me on today's call are Mary Anne Heino, our President and CEO; Bob Marshall, our Chief Financial Officer and Paul Blanchfield, our Chief Commercial Officer. Mary Anne will begin the call with introductory remarks and then turn the call over to Paul to provide a commercial update. Mary Anne will return to provide a business update, and then Bob will cover our financial results and updated guidance. Mary Anne will conclude the call with 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 third quarter 2021 results. You can find the release in the Investors section of our website at lantheus.com. For those of you not on the webcast, you can find the slide presentation in the Investors section of our website under the Presentations tab. Before I 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. In particular, the impact of COVID-19 on our business results and outlook continues to be a best estimate based on currently available information. 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, it’s my pleasure to now turn the call over to Mary Anne.

Thank you, Mark, and good morning to everyone joining us on today's call. I hope all of you are safe and healthy. We delivered a strong quarter despite a resurgence of COVID-19 infections that impacted elective procedures and hospital access. We did see an impact to certain aspects of our business, which Bob and Paul will discuss, and we did note and are monitoring across our sites of care, the more recent and increasing reference by analysts covering health care of concern about staffing levels in hospitals. The past few months have been a period of intense activity and significant progress for Lantheus across our portfolio. DEFINITY again delivered solid growth. We are thrilled with the launch and reception to PYLARIFY in its first full quarter since approval and believe there is significant momentum heading into the fourth quarter and 2022. Before I turn the call over to Paul to give an update on our commercial portfolio, let me update you on select strategic developments since our last call. We reached an important milestone towards our goal of supplementing DEFINITY supply with our own on-campus manufacturing facility by filing our supplemental new drug application, or sNDA, with the FDA. The sNDA review process is expected to take approximately four months and will require a pre-approval inspection before anticipated approval in the first quarter of 2022. Earlier this year, we successfully manufactured batches of DEFINITY on this manufacturing line that will be commercially salable upon FDA approval. For PYLARIFY, which remains the first and only commercially available PSMA-targeted PET imaging agent for prostate cancer, we continue to make significant progress on our commercial launch, including ongoing investments in our customer facing teams, where we have, we believe, the largest fully dedicated PSMA PET sales force and market access teams. We are delighted by the reception to, and adoption of, PYLARIFY to date, including interest from institutions, physicians, patients and patient advocacy groups to this game-changing prostate cancer diagnostic, even against the backdrop of COVID resurgence and other challenges facing our customers during this period. We have continued to actively work with our PET manufacturing facilities or PMF channel partners to build out our PYLARIFY manufacturing and distribution network access across the U.S. As a reminder, for over 20 years, PMF have been reliably delivering FDG, another F 18 isotope test diagnostic nationwide to imaging centers on a daily basis. At almost two million patient procedures per year, FDG is the most widely used diagnostic cancer PET imaging agent in the U.S. We are tapping into the same prudent wide-scale PET manufacturing and distribution network for PYLARIFY. PMF works with the imaging centers they serve to meet the needs of physicians ordering imaging studies for their patients. The high batch yield of F 18 from cyclotron production is particularly well suited through the demographic and needs of the prostate cancer community as has already been proven with its use in other cancer types with significant patient populations. Cyclotron-based manufacturing offers the scale needed to meet customer demand, and this can be offered at whatever time of day suits that imaging centers? needs. This is in direct comparison to generator-produced products, which are limited by both the quantity and frequency of doses that can be produced at any one-time and a limited time frame during which the produced dose must be delivered and utilized. With PYLARIFY, the availability and scale offered through the PMF geographic network we are building with our partners, combined with F 18s to 110-minute half-life allows for broad availability across the U.S. and the flexibility needed for physicians and the prostate cancer patients they treat. During the quarter, we continued to expand our network in line with our year-end goal of broad availability across the U.S. At the start of the third quarter, our network covered approximately 6% of the U.S. population. Throughout the quarter, we continually expanded coverage, and I am pleased to report that we are now able to serve approximately 70% of the U.S. population across 20 PMS. Paul will give you further details on that and other aspects of the PYLARIFY launch shortly. The advantages of PET imaging and PSMA targeting with PYLARIFY are further complemented by PYLARIFY AI, the branded name for aPROMISE, the first and only FDA-cleared AI-enabled PSMA digital application. PYLARIFY AI employs a deep learning algorithm and trained and validated by employing more than 3,000 PSMA images. PYLARIFY AI offers a standardized platform for physicians and researchers to efficiently, consistently and accurately quantify PSMA uptake at the lesion level for men with prostate cancer. We were honored to have been selected to present PYLARIFY AI at the preeminent Prostate Cancer Conference, the Annual Prostate Cancer Foundation Scientific Retreat, which took place last week. At the conference, we introduced PYLARIFY AI to prominent researchers and key opinion leaders in the field of prostate cancer. Since 1993, the Prostate Cancer Foundation has hosted this annual scientific retreat that brings together diverse researchers in a collaborative forum to present and discuss new findings for prostate cancer, diagnosis, prognosis and treatment. We will be launching PYLARIFY AI at the Radiological Society of North America, or RSNA, meeting later this month, and are pleased to report that to date, five leading cancer centers are already in the process of adding PYLARIFY AI into their prostate cancer diagnostic workflows. Now I’ll turn the call over to Paul for a commercial update.

Thank you, Mary Anne, and good morning, everyone. Our commercial teams have been productive during the third quarter. I'll start with an update on the PYLARIFY launch. As Mary Anne mentioned, we began the third quarter with two active PMS, covering approximately 6% of the U.S. population. Over the course of the quarter, we activated 16 additional PMF covering major markets such as New York, Chicago, Los Angeles, San Diego, Houston and Washington, D.C. Just this past week, we activated two more PMS, which brings us to 20 and added the additional markets of Dallas and Kansas City. Moreover, we are selectively flying doses into key markets, such as Florida and Northern California in advance of PMF activations in those regions. This enables prostate cancer patients access to PYLARIFY and allows institutions to incorporate PYLARIFY into their prostate cancer workflow in advance of local PMF activation. We continue to work towards our previously stated goal of broad availability across the U.S. by year-end and ongoing geographic expansion in the first half of 2022. Together with our PMF partners, we have contracted with approximately two-thirds of our targeted academic institutions in the U.S. who treat prostate cancer. From a demand perspective, we have been happy with the breadth of ordering across our customer base, with hospitals comprising approximately 65% of orders to date, independent imaging centers 20% and government facilities 15%. We have been particularly pleased with the adoption by hospitals, much of which is in the hospital outpatient setting, even prior to pass-through payment initiation. We are also encouraged by the rate of repeat demand, with over 80% of customers having ordered multiple doses to date. Importantly, during the quarter, the National Comprehensive Cancer Network, or NCCN, included PSMA PET imaging in their recently updated guidelines. With piflufolastat F 18 now included in the areas of unfavorable intermediate, high and very high-risk as well as recurrent disease for the management of prostate cancer. The NCCN guidelines are widely recognized and used as a standard for clinical policy in oncology by clinicians and payers. The Society for Nuclear Medicine and Molecular Imaging, or SNMMI, also added PSMA PET imaging, including piflufolastat F 18 to the prostate cancer appropriate use criteria diagnostic guidelines. These guidelines were developed with input from the American College of Nuclear Medicine, American Urological Association, American Society of Clinical Oncology, the American College of Physicians and other key international associations. We believe this will further facilitate the commercial adoption of PYLARIFY as it raises awareness in the medical and payer communities of PSMAs clinical relevance for physicians in diagnosing and choosing treatment options for prostate cancer patients and the potential impact this novel PSMA-targeted imaging agent can have in the overall treatment plan of men with prostate cancer. Regarding market access, specifically coverage, coding and payment, we submitted our pass-through application to the Centers for Medicare and Medicaid Services, or CMS, during the third quarter, and we expect pass-through payment to go into effect January 1, 2022, which aligns well with our stated goal to have broad availability of PYLARIFY across the U.S. by the end of 2021. During the quarter, we also received notification that our HCPCS code, which enables streamlined billing will be effective as of January 1, 2022. We are making progress in coverage of both indications. The majority of Medicare Administrative Contractors, or MACs, have either paid claims, published guidance or have indicated they will cover PYLARIFY usage in our approved indications. Finally, we have seen prior authorizations approved and claims paid by both Medicare Advantage and commercial insurers, and we continue to work with payers to have formal policies updated during 2022. We also recently completed the build-out of our PSMA PET dedicated sales force, which we believe is the largest in the industry as well as our market access team. We continue to work to meet the needs of the U.S. prostate cancer community through PMF activation, customer contracting and on-boarding and appropriate coding coverage and payment. Switching now to DEFINITY. The third quarter saw double-digit growth year-over-year in sales. During the quarter, we did observe an impact to the traditional pattern of echo utilization that we attribute to the resurgence of COVID-19. We also noted nationwide concern related to medical staffing within hospitals with specific reference to nursing staff late in the third quarter. Despite these headwinds, our overall in-person promotion remained above 50% for the quarter, albeit with regional variability, and the team continued to drive awareness of the appropriate use of DEFINITY in suboptimal echocardiograms, and we were pleased with being able to deliver another strong quarter of growth for DEFINITY. Now on to our SPECT portfolio. TechneLite continued to be a stable contributor to our overall business. And this quarter, we again benefited from opportunistic sales to ANSTO. Ventilation studies, which have yet to return to pre-COVID impact levels, continue to negatively impact our Xenon business. Now I'll turn the call back to Mary Anne.

Thank you, Paul. Moving on to AZEDRA. The surge of Delta variant infections in the third quarter created conditions similar to those we initially experienced during the height of the pandemic, given the special conditions under which AZEDRA is administered in the hospital setting and the nature of pheochromocytoma and paragangliomas disease in patients, we have seen instances where treating physicians and patients have chosen to defer treatment until infection rates have subsided; a pattern noted in the early onset of the pandemic. Access to our commercial and medical representatives was also limited throughout the third quarter as hospitals reintroduced protocols to these specialty areas, again, similar to the latter half of 2020. Despite these challenges, our commercial teams have been working with academic centers of excellence in key markets across the U.S. in preparation for future demand, and we have continued to build out the medical team that will interface with stakeholders. Switching now to R&D. We are pleased to report we recently completed an interim analysis of our ongoing ARROW Phase II study of 1095, a PSMA-targeted therapeutic. The Independent Data Monitoring Committee has recommended the study continue without modifications. As a reminder, the ARROW trial is a multicenter, randomized, open label, controlled Phase II clinical study, evaluating the efficacy and safety of 1095 in combination with enzalutamide compared to enzalutamide alone in patients with metastatic castration-resistant prostate cancer who are PSMA avid, chemotherapy naive and have [regressed] on [abiraterone]. PSMA avidity is determined utilizing PYLARIFY. The primary endpoint in ARROW is prostate-specific antigen, or PSA, response rate. Key secondary endpoints include time to radiographic free progression, progression-free survival and overall survival. Patients in the ARROW trial are followed for one year after their first treatment for all efficacy endpoints. Survival and efficacy data are collected for an additional year. We will continue to update you on the trial as we progress. I will now turn the call over to Bob for a financial update.

Thank you, Mary Anne, and good morning, everyone. I will provide highlights of the third quarter financials, focusing on adjusted results unless otherwise noted. Referring to the quarter, revenue for the third quarter was $102.1 million, an increase of 15.3% over the prior year quarter. Comparison that includes our now divested Puerto Rico operation. Now turning to the details, beginning with precision diagnostics. Revenue of $87.9 million was 9.8% higher over the prior year quarter. Sales of DEFINITY, net of rebates and allowances were $57.6 million, 14.5% higher as compared to the prior year quarter amid the summer surge of the Delta variant of COVID-19. During the quarter, our sales and marketing teams experienced reduced access to hospitals in those regions impacted more severely by the surge with a slight overall impact on performance. TechneLite revenue was $22.7 million net, up 7.4% from the prior year quarter, supported by opportunistic generator sales to our partner, ANSTO of $3 million. Within other precision diagnostics, Xenon’s performance has continued at similar levels to the previous sequential four quarters. Radiopharmaceutical oncology contributed $8.9 million of sales, up 167.6% from the prior year quarter, mainly attributable to the promising early results from our launch of PYLARIFY, as noted by Paul earlier. While we remain confident in AZEDRA, it was down sequentially from Q2 2021 as it is more susceptible to treatment cancellations in the face of COVID infection spikes and limitations imposed on hospitals for access for Lantheus representatives. Lastly, strategic partnerships and other revenue was $5.3 million, up 2.7%, driven primarily by the RELISTOR royalty. Gross profit margin for the third quarter was 50.1%, an increase of 270 basis points over the third quarter of 2020 on a similar basis. The increase is due in part to the impact of COVID-19 on cost in the prior year comparison. Gross profit margin is slightly lower than our expectations for the quarter based on product mix with slightly lower contribution from DEFINITY, as I previously noted. As well as lower-than-expected AZEDRA sales against the relatively fixed overhead cost at our Somerset manufacturing facility. Operating expenses were 39 basis points unfavorable to prior year at 40.2% of net revenue, but within previously guided spending levels. Within sales and marketing, we continue to invest in the PYLARIFY launch with increasing effort around product awareness, market access and contracting activities as well as providing support for DEFINITY with a mix of in-person and virtual promotional activities. R&D and G&A together were in line with the prior year spending levels, reflecting permanency of synergy capture, together with focused investments in our pipeline and back-office functions. Operating profit for the quarter was $10.2 million or an increase of 50.2% over the same period prior year. Total adjustments in the quarter totaled $24.5 million of expense before taxes. Of this amount, $3.9 million and $8.4 million of expense is associated with noncash stock and incentive plans and acquired intangible amortization, respectively. Also in the quarter, we recorded a $2.6 million net expense adjustment to contingent assets and liabilities, including the PYLARIFY CVR contingent liability. Also during the quarter, the company successfully negotiated a sublease arrangement for its one world trade center office, one of the final synergy opportunities identified with the Progenics acquisition, and as such, incurred a $9.5 million impairment on the asset group, which is primarily made up of the right-of-use lease asset for the space. The remainder is related to acquisition, integration and other nonrecurring expenses. Our effective tax rate was 21.6% in the quarter. During the quarter, we released another portion of our uncertain tax position, or UTP provision, dating back to our sales from BMS in 2008, for which we are fully indemnified based on newly acquired information. The indemnified receivable release flows through other income as an expense and the release of the UTP tax reserve through the tax provision as a benefit. The net result does not have an effect on net income. The resulting reported net income for the third quarter was a loss of $13.4 million and a profit of $5.7 million on an adjusted basis, an increase of 134.9%. The GAAP fully diluted earnings per share were a loss of $0.20 and a profit of $0.08 on an adjusted basis, an increase in the prior year of 127.4%. Now turning to cash flow. Third quarter operating cash flow totaled $4.3 million as compared to $8.6 million in Q3 2020. Capital expenditures totaled $2.4 million, down $1.3 million from the prior year quarter. Free cash flow, which we define as operating cash flow less capital expenditures, was $1.9 million, a decrease of $2.9 million from the prior year period. One of the drivers of the year-over-year variance relates to the accounts receivable balance increasing due to ramping PYLARIFY sales in the quarter and related receipt terms with customers. Cash and cash equivalents, net of restricted cash, now stands at $91.5 million. We continue to have access to our $200 million undrawn bank revolver and are comfortable with our strong liquidity position. Turning now to guidance for Q4 and the full year. We forecast revenue to be in a range of $110 million to $115 million for the fourth quarter of 2021, an increase of approximately 17% and 22% over the fourth quarter of 2020. The range takes recent PYLARIFY performance into consideration as well as a broadened view of other product contribution against the backdrop of various macro environmental pressures. Therefore, we now forecast full year revenue to be in an approximate range of $405 million to $410 million from the prior range of $395 million to $402 million. Now turning to earnings. Adjusted EPS should be in a range of $0.15 to $0.18 for the fourth quarter. We are raising our full year adjusted EPS to account for relative performance of PYLARIFY on increasing bad productivity, offset in part by incremental impact from other unfavorable product mix estimates as well as a commitment to invest in revenue growth initiatives, as we have noted in prior quarters. As such, we now expect full year adjusted EPS to be in a range of $0.40 to $0.43 per share versus the prior range of $0.38 to $0.42. With that, let me turn the call back over to Mary Anne.

Thank you, Bob. In closing, we delivered a strong quarter with significant progress across our portfolio. DEFINITY delivered solid growth. We look at PYLARIFY?s first full quarter in the market and see success across all of our objectives and increasing momentum as we move through the fourth quarter and into 2022. We continue to monitor the impact of COVID-19, always with first priority to the safety of our employees and our intent to continue to serve our physicians and their patients whose health depends on Lantheus. For our shareholders, we continue to commit to the mutually achievable goal of driving sustainable growth across our portfolio of diagnostic and therapeutic solutions while delivering on our mission to find, fight and follow disease to deliver better patient outcomes. With that, Bob, Paul and I are now ready to take your questions. Operator, please go ahead.

[Operator Instructions]. First question from Anthony Petrone from Jefferies.

Great. And congratulations to everyone on a strong quarter here, and I hope everyone's doing well. Mary Anne, I want to start with PYLARIFY and sort of just going through some numbers in the P&L when we look at radiation, precision oncology rather, $9 million in the quarter, you sort of back out the sort of $1.5 million to $2 million previous to the PYLARIFY launch that suggests about $70 million in the quarter from PYLARIFY. So first, I want to kind of scrub those numbers. And it looks like that comes from just two activated sites, the Louisiana and Virginia site. So maybe just a little bit on the timing when those sites went live and whether or not there was any stocking in that number? And then I'll have a couple of follow-ups.

Anthony, great to hear you. And a couple of corrections, and I'm going to turn it over to Bob and Paul because he can really speak to this much more clearly. But just to correct, we started the quarter with two PMF. But then as Bob and Paul both noted, we built throughout the quarter and actually ended the quarter with 20 PMF. So that's one thing that they will speak to. And then as you remember, remember, I'm always teaching you, Anthony, but no stocking, when you're talking about radioisotope, remember, this is like running through the desert – there's no stocking on these drugs, right? They're used just in time. So there's no inventory build at these PMF. I'm going to turn it over to Paul first, who can talk about the great quarter we had with PYLARIFY, and then Bob can bring you up-to-date a little bit on the financials.

Thanks, Anthony. Yes, we were obviously very pleased with the quarter for PYLARIFY. As I mentioned, the -- both the interest and the reception to the product. We believe there's significant momentum heading into the fourth quarter and into 2022, and overall, things are on track. Regarding PMFs, as you correctly noted, we started the quarter July 1 with two PMF. Over the course of the quarter, we activated 16 additional PMFs and so ended the quarter with 18 PMFs covering roughly two-thirds of the U.S. population. And so you can think of that as a phasing where we added some activated some sites in July, August and September, ending with 18. And then as was recently noted, we added two additional sites earlier this week, which brings us to 20% and roughly 70% coverage. So overall, we're very pleased with the reception of the launch thus far as the only commercially approved PSMA PET imaging agent for men with prostate cancer. I’ll turn it over to Bob to answer some of the financial questions.

Anthony. So you're right around radiopharmaceutical oncology as a product category. Just remind everybody what's in there. It's -- you have what is QUADRAMET or what had been QUADRAMET, which did have sales in the quarter. AZEDRA as well as PYLARIFY. Now as I noted in my scripted remarks, AZEDRA, which had a pretty good Q2, if we remember, but I would like to point out just the headwinds we were discussing relative to DEFINITY, AZEDRA is probably even that much more susceptible because it’s an in-inpatient procedure. So from that perspective, it does step down. So I think the math you're doing is pretty accurate. And from that perspective, that is one of the reasons that we created this product category is to be able to give some transparency to these different products that we know will help to drive diversified revenue growth over the long term.

That's helpful. And then maybe to stand corrected there on the active PMFs in the quarter. So you exit July 1 and 2, you come up to 20 as of November 1. I guess what was the timing of activations and sort of just trying to get a sense of sort of how the initial utilization went at some of these sites. And I'm sure it's dispersed by volumes at these sites? And then looking ahead to the planned future sites, several more coming. Is this expected to -- are these expected to be sort of ready to go Jan 1? And then as we look into 2022 and perhaps even beyond, when we look at the sort of PET market for prostate cancer, really have two solutions here in the marketplace. How do you think sort of share shakes out over the next couple of years? And then I'll have one on just some of the headwinds in the quarter.

So just as a reminder, Anthony, there is only one product approved in this category and that is PYLARIFY, the only approved PSMA PET diagnostic. And to your question around PMF activation. This is a fluid process, and we've kind of been clear about that from the start that we have a plan that is a continuous rollout. You can actually track it because we have our website, PYLARIFY.com, that is updated. Not -- I would not say daily, but on a fairly frequent basis, you can go and look and we show which PMFs have been activated and where they are geographically. We remain confident on our goal, and our goal is to have broad availability across the U.S. that covers all the major markets. And until we have that, and Paul can speak to this better than I can, we are literally using planes, trains and automobiles to even cover those markets that we're not yet in, all to the service of this prostate cancer community, which we feel is really benefited by the availability of clarify. So I’ll turn to Paul and let him cover additional remarks.

Yes. No, thank you, Anthony. Thank you, Mary Anne. So Anthony, I think how I would characterize as, as I mentioned, we started the quarter with 2 PMFs active, and they ramped up fairly steeply during the quarter where we added 12 -- we had 12 as of August 1. We had 17 as of September 1, and we closed the quarter with 18, and then as I noted, added two more earlier this week. Similarly, we have seen a ramp in PYLARIFY adoption. When a PMF does come on board, we’re obviously working with customers to contract and onboard them. But that does take a little bit of time. And so we have seen the ramp improve for PYLARIFY over the course of the quarter. To your point, we are flying doses, as Mary Anne mentioned, in the key markets, specifically Florida and Northern California, where we do not yet have an active PMF. But given the benefits of F 18 and the 110-minute half-life, we have that availability to be able to bring product in while we work to activate PMFs to serve those prostate cancer but also to ensure that PYLARIFY is embedded in the prostate cancer workflows of those key institutions. So that does remain an overall priority. Regarding the ramp going forward, we do focus on having broad availability. And I’d note, we are already at 20 PMFs and 70% coverage by the end of the year, which coincides well with pass-through initiation in the hospital in-patient setting going live January 1, 2020. We will continue to add PMFs to ensure that PYLARIFY is available across the country, both through the rest of the year as well as into 2022.

Only other note I'll make is ask how the share will shake out. Right now, it’s shaking out at 100%, and that’s for PYLARIFY.

No, no. Understood. Last question and I'll get in queue here. You mentioned prior authorizations for PYLARIFY are actually approved and claims are being paid. I’m just wondering if in the early days that's covering the cost of doses for the early adopters here. And then Mary Anne, just on staffing, obviously, we've heard a lot about this across this earnings season and for channel checks. So just from the view of Lantheus on staffing shortages, any data points you can share on perhaps how long this headwind will last later into this year and perhaps into the next. Congratulations on a good quarter.

Thanks, Anthony. I’m going to ask also, the rest of the folks in the background can put yourselves on mute because we seem to have a little bit of background noise. And for staffing, Anthony, this is, of course, an issue that is so much broader than our sites of care and those parts of the hospital or different parts of health care institutions that we call on. We're, of course, very attuned to it, and we're watching it, and we hope that if there are -- One is our folks being taken care of, and we hope that everyone out there is healthy. We've seen it impact our business, as Bob mentioned, in different ways, AZEDRA has an in-patient treatment and using very specialized resources in hospital probably gets impacted earliest and most when either hospitals limit access or when staffing concerns become a concern for the hospital. We've probably seen it least in AZEDRA. But I would also say there that our background is also leased. We don't have as much experience in understanding of what happens. But AZEDRA, also from a site of care perspective, has a lot of out-of-hospital use. So a lot of the imaging centers are freestanding and are not as dependent on hospital staffing. If you're talking about concerns with overall nursing staffing in hospitals -- I'm sorry, I meant to say PYLARIFY there, not, of course. And with the DEFINITY, as Paul mentioned, we have seen or anecdotally heard that there may be some pressure on overall levels of sonographers, and it’s something that we're in touch with the American Society of Echocardiography about looking to see what are the overall programs doing? Are they inviting more students in so that they have good levels coming out of the programs to ensure that on a go-forward basis, they're bringing enough people into these programs. But it's an issue that is much larger for the industry that I think we all have to be concerned about. And quite frankly, it crosses out of health care and into many other industries, operating a lot of other forums in the larger Boston area and staffing and the worker talent are concerns that we all share across many industries.

Anthony, maybe to just touch on your market access questions. You did correctly note as we noted that we are seeing prior authorizations covered in the commercial landscape. I think what I would highlight is that we are particularly pleased with the uptick in the hospital setting. I noted that 65% of our orders to date are in the hospital setting. That is primarily, but not exclusively in the hospital outpatient Medicare setting in light of the age of the prostate cancer demographic as well as most of this being outpatient from a PET imaging. We do have coverage in the majority of Medicare locations, but that is distinct from a separate payment for the radioisotope. And so while the overall scan is being covered, hospitals in the Medicare hospital outpatient setting are not yet getting paid for the separate PYLARIFY dose. And yet we’ve still seen 60% -- 65% of our orders to-date coming from the hospital setting, which we believe is building significant momentum as we go into 20 -- in the fourth quarter in 2022, specifically January 1 when pass-through is initiated, and there would be a separate payment for PYLARIFY in addition to the PET imaging scan..

Your next question from Danielle Antalffy from SVB Leerink.

Congrats on a really strong quarter. I wanted to get into guidance a little bit. And you're raising guidance by, I think, about $9 million at the midpoint. You beat in the quarter by about $4.5 million at the midpoint. Just following up on some of the commentary around the headwinds, but also the PYLARIFY launch. Is it safe to assume that at least 4.5 million of that guidance raise is tied to maybe a better-than-expected PYLARIFY launch and maybe a less good performance from the hospital procedure tied business? Just trying to get a sense of like sort of where PYLARIFY is in that guidance and how to think about Q4 and the momentum we're taking into 2022? And then I have one follow-up.

Great. So that's a great question. And so when I was putting this together, I was trying to think through how you guys might model things. So let me just sort of break down what I was saying. When you think about DEFINITY, when I look at what the Street consensus is, I would have people moderate what they are thinking about Q4. Now why is that? Because the access into hospitals, both for people’s willingness as well as from a sales rep ability to get into the hospital and do in person promotion as well as a patient willingness to go into that setting of care, which has always been one of our key tenants to our guidance. As that -- as we've seen the Delta variant sort of wane a little bit, that doesn't necessarily mean that we think hospitals are going to immediately sort of back off of their current policy. And so we think that, that can continue into Q4. And so because of that, we just want to be -- take a stance that this is going to have potentially an impact into Q4. We're not talking big significant dollars, but I would have the Street moderate their expectations. AZEDRA, again, for the same reasons that we've been discussing here for -- over the last moments, I would expect, AZEDRA to look a little bit more like Q3 than it did like in Q2. So from that perspective. So as you kind of work through then the other products at a similar run rate that we've had, that should then shake out by math, what we think that PYLARIFY should do. And yes, we should -- we are expecting for it to continue to ramp from where we left off in Q3 and as we progress through Q4. And the entire difference, I would say, from that -- our prior guidance, taking into consideration these other adjustments to the other parts of the portfolio are attributable to PYLARIFY. Again, this is the benefit of having a diversified revenue stream that we can continue to demonstrate strong growth and be able to have an opportunity to raise our guidance.

That's super helpful color. And then I know you're not going to give 2022 guidance on this call. I certainly appreciate that. But just looking at where consensus is for PYLARIFY in 2022 at around $50 million, I think it’s a pretty wide range, though, from what I can tell. I mean, maybe you could talk qualitatively about the launch. You're going to be going into 2022 with most of the country covered from a PMF and an insurance perspective. So just curious how to think about how reasonable that sort of growth trajectory is as we look to 2022, even if you could talk qualitatively about the ramp?

So I think we can talk qualitatively. We -- as Bob has already alluded to, we will not offer specific product guidance for PYLARIFY. But you've already touched on some of the important considerations. And that is, Paul spoke to, we will have -- we anticipate we will have pass-through coverage as of January 1. We will also have our HCPCS code as of January 1. We remain on track with our goal of having broad availability, which is our PMF coverage. And as we've now mentioned several times, we see great momentum. Here, we've built already what we see is great loyalty with physicians. Paul has mentioned we've seen lots of repeat usage already in the markets where we're serving. We've embedded ourselves in many of these markets. We already own the approved product. So physicians are really getting great kind of usage experience with PYLARIFY, and the feedback has just been simply terrific about what this kind of diagnostic does and allows for them in their treatment as they're considering treatment options for patients from the information they get from the PYLARIFY scan. So we really are very optimistic about 2022, and we're going to continue to build out the teams that we have. And quite frankly, the influence that we have out in the markets where we are serving physicians and their patients.

[Operator Instructions]. Next question from Larry Solow from CJS Securities.

Just a couple of follow-ups on the PYLARIFY. It sounds like the revenue trends and the interest level are really high to start. How about on the cost side, you spoke of -- it sounds like you've completed a good majority of the commercial infrastructure there. Can you -- maybe, Bob, just give us an idea, are these good sort of base levels in terms of SG&A and expenses? Or should we expect significant increases in these...

So let's just kind of pick a part, you talked about gross margin, you also asked about OpEx. So I'll tackle OpEx first. So all year, I've been noting that we've been sort of in a range of $40 million to $45 million. I don't really necessarily see that ramping that significantly. Now of course, there will be some annualization as we look into 2022 of the sales team, market access teams that we've been adding. So I would see some there. But there will be other costs that will moderate over time as well. I expect to see G&A stay fairly stable and get leveraged as a percentage of revenue. And then R&D will be very dependent on the different programs that we advance and the different costs associated with that. And of course, each -- every dollar that we spend in R&D is one of these -- we're going to phase gate, we're going to be very diligent about the return on that investment. So from that perspective, I do expect to see leverage in the P&L as we go forward in time. So from that perspective, that's not only just for Q4, but also into 2022. With regard to gross margin, the beauty of this ramp with PYLARIFY, particularly as you think about the beginning aspects of Q3, and I'll make up an example. If your batch is 10 or 15 doses and you’re selling three, you're still having to expand the entirety of that entire back. But what we've seen throughout the quarter is with the really great growth that we've seen, obviously, our gross margin profile has improved because now I'm being able to use all of those doses being sold -- to sell them. But my overall costs don't go up from a fixed basis. Yes, there are variable costs of each dose, but not to the same extent. So as we go and are able to ramp volume, I do expect PYLARIFY gross margins to be above the company average. And so as such, it will be more contributory, not only from a gross margin perspective, which I would expect to jump up a bit, a little bit here in the fourth quarter and then continue on that path that we have talked about over time, which is an expansion of gross margin over the next numbers of years by hundreds of basis points. This is one of those drivers. And so that will help to drive each of the different operating expense categories as a percentage of revenue to fall over time to drive that earnings leverage.

Okay. No. I appreciate that color. And just -- I realize the acquisition of Progenics obviously closed a couple of years ago. But I know that -- I mean, excuse me, it was announced a couple of years ago. And at that point, you sort of -- you gave sort of accretion targets sort of two years post gross margin targets. And I know you haven't specifically updated those numbers, but are we still sort of targeting or in the range? Do you feel like things have changed at all from a high level, without being super specific?

So Larry, this is Mary Anne. I think we're just going to all agree. It was a really good decision. And I think we are – we're on target or ahead of our initial assumptions, and it was just a really good decision.

Yes. I mean let me just tack on to that. I mean, so I totally agree with what Mary Anne just said. I mean, our synergy targets, we hit all of them a year ahead of what we had initially. And even capped off today with the announcement of being able to sublease the One World Trade office. That was one of -- some of the last of the synergy targets that we had in mind, and that will start to flow through the P&L as well. But in terms of some of the other goals, we remain committed to the 800 basis points over the next three years. That is achievable. And you have to remember, too, these goals that we put in place were done pre-COVID. And even throughout this process of closing the deal on a virtual basis and then achieving these financial targets and getting PYLARIFY filed on time, getting it launched in expectations, we're -- this is a very -- the deal is working out quite nicely.

[Operator Instructions]. We show no further question at this time. Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may disconnect, and have a wonderful day.