Lantheus Holdings, Inc. (LNTH) Q3 2022 Earnings Report, Transcript and Summary

Good morning, and welcome to the Lantheus Third Quarter 2022 Conference Call. This is your operator for today's call. [Operator Instructions] I will now turn the call over to our host for today, Mr. Mark Kinarney, Vice President of Investor Relations. Mark?

Thank you, and good morning. Welcome to Lantheus' Third Quarter 2022 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 Operating Officer. Mary Anne will begin the call with introductory remarks and then turn the call over to Paul for an operational update. Bob will cover our financial results and updated guidance, then we will open the call for Q&A, and finally Mary Anne will provide closing remarks. This morning we issued a press release, which was furnished to the Securities and Exchange Commission under Form 8-K released 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 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, 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 -- 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. We delivered an exceptional third quarter as we continue to find, fight, and follow disease to deliver better patient outcomes. Our strategy to accelerate growth and diversify our portfolio and revenue streams which we outlined at the beginning of this year is succeeding. I am pleased to note we reported revenue of $239.3 million, up more than 134% year-over-year. I'll take a few minutes now to highlight some of our recent progress across our portfolio. Almost 18 months into our launch, we are thrilled that PYLARIFY is firmly established as the leading PSMA PET imaging agent. We are particularly proud of the difference it is making for the U.S. prostate cancer community. With commanding market leadership and continued growth of the overall market, our business has continued to grow even amidst increasing competition. We believe we will see continued growth as more patients and health care professionals become aware of the benefits of PSMA PET imaging and PYLARIFY, in particular. Since our last call, we further expanded our U.S. footprint with additional sites activated for our PRT manufacturing facility or PMF partners, increasing our overall capacity and adding redundancy. Our European partner, Curium, is making progress with their efforts to bring our product to market as the first commercially available F 18-based PSMA PET imaging agent in Europe, having filed their marketing authorization application with the European Medicines Agency in June. Last month, Curium presented top line results from their pivotal Phase III PYTHON clinical trial at the European Society for Nuclear Medicine or EANM. The trial enrolled prostate cancer patients with biochemical recurrence who underwent definitive radical prostatectomy, external bean radiotherapy or brachytherapy. The clinical trial results highlighted that pipoflelostat F 18 showed a significantly higher detection rate as compared with 18 F-fluorocholine and had a higher impact on intended patient management. We are excited that we are one step closer to our leading U.S. F 18-based PSMA PET imaging agent, making a difference to the European prostate cancer community. We were also in attendance at EANM with several presentations on aPROMISE, which is branded as PYLARIFY AI in the U.S. Of note, in a top-rated oral presentation, we reviewed the results from a retrospective analysis using aPROMISE to evaluate PSMA PET CT scan pre and post androgen deprivation therapy of men with treatment-naive castrate-sensitive prostate cancer. The results demonstrated that a change in automated PSMA scores in bone and lymph nodes is strongly associated with PSA response. The analysis also indicated that a quantitative automated PSMA score may assess treatment response in bone, which is not feasible with conventional imaging. We are pleased to share that we signed an agreement with Siemens Healthineers to integrate aPROMISE into the latest software for the company's workstations in the U.S. and Europe. Through this collaboration, along with our collaboration with GE Healthcare that we announced earlier this year, our AI technology can be broadly distributed and integrated into the leading workstation system that facilitates the nuclear medicine clinical workflow across the majority of PET sites in the U.S. and Europe. Switching now to our microbubble portfolio. In our 22nd year since launch, I am proud to say DEFINITY remains the most chosen, most studied and most trusted diagnostic ultrasound-enhancing agent in the U.S. We have continued to grow our franchise and are sustaining our 80-plus percent share of the market. With respect to a key partnership, in September, GE Healthcare, our partner for the product candidate flurpiridaz, announced that the AURORA Phase III pivotal trial met its co-primary endpoints for both sensitivity and specificity for detecting coronary artery disease, or CAD, the most common form of heart disease and the leading cause of death globally. The trial also met its key secondary endpoint, demonstrating higher diagnostic efficacy for flurpiridaz PET as compared with SPECT myocardial perfusing imaging or MPI, the predominant procedure used in nuclear cardiology today. In the U.S., there are approximately 6 million MPI procedures performed each year. The Phase III open-label study which enrolled over 600 patients across sites in the U.S., Europe and Canada, assessed the diagnostic efficacy of flupiridaz in detecting CAD with invasive coronary angiography as the standard of truth. If flurpiridaz is approved, given the advantages of the F 18 isotope, this product would have broad available distribution and also be suitable for exercise stress testing, which is challenging with the currently available cardiac PET radiotracer. Under the terms of our agreement with GE Healthcare, we are eligible to receive up to $60 million in regulatory and sales milestone payments, tiered double-digit royalties on U.S. sales and mid-single-digit royalties on sales outside the U.S. Now let me turn the call over to Paul for an operational update on our business.

Good morning, everyone. As Mary Anne noted, we continue to execute on our strategy during the quarter, specifically for PYLARIFY and DEFINITY, which I'll highlight now. I'm pleased to announce that PYLARIFY, the U.S. market leader in PSMA-targeted PET imaging, generated net sales of $143.8 million and was used in over 30,000 patient scans during the quarter. Our success derives from significant unmet need, innovation and execution. Prostate cancer is one of the leading causes of death for men, and conventional imaging does not offer sufficient sensitivity or specificity to adequately identify metastatic disease. PYLARIFY's innovation is its ability as a PSMA PET imaging agent to selectively bind to prostate cancer cells. In fact, PSMA binds to over 90% of prostate cancer cells, which in turn, allows physicians to identify the location and extent of disease. In our clinical trial, 2/3 of men had a change in their intended treatment plan based on their PYLARIFY image, demonstrating that these new insights are actionable by HCPs. And finally, execution, since we acquired Progenics. The team successfully gained FDA priority review, which accelerated our time to approval and secured widespread reimbursement, established manufacturing and distribution capabilities at scale, built a commercial infrastructure to support a best-in-class launch that has already impacted the lives of over 90,000 men to date. Since the beginning of the third quarter, we further expanded PYLARIFY's U.S. footprint with new PMFs, including the first academic PMF to self-supply PYLARIFY, increase capacity at existing sites, added redundancies in key geographic areas, broadened our customer base and made progress with PYLARIFY AI. Our new PMFs include Somerset, New Jersey, Nashville, Denver, Birmingham, and most recently Davenport, Iowa and Salt Lake City. These new PMFs enhance our capacity in the New York City Metro area and Tennessee markets and expand our footprint into Colorado, Alabama, and now Iowa and Utah. We have now successfully served patients in 46 of the 48 contiguous states and the District of Columbia. As I mentioned last quarter, we modified our existing agreement with a key PMF partner to double the number of their PMF locations manufacturing PYLARIFY and extend the agreement to 2027. By the end of 2023, we expect our existing PMF network to increase by over 50%, further enhancing capacity and redundancy. In turn, our customer base continues to grow. We have been pleased with the rate of adoption and note that more than 1,000 customers have now ordered PYLARIFY, with 97% of them being repeat customers. Our promotional efforts are increasingly focused on ensuring that referring HCPs, namely urologists, medical oncologists and radiation oncologists are aware of the benefits that PYLARIFY can offer the U.S. prostate cancer community. In market access, we continue to make progress and are pleased that now 5 of 7 Medicare administrative contractors or MAX, have confirmed an agnostic approach to patient selection for PSMA-targeted radioligand therapy such as Pluvicto. Meaning, any approved PSMA PET agent, including PYLARIFY can be used. Finally, we established a European collaboration with Curium for the commercialization of aPROMISE, as they anticipate approval for piflupolastat F 18 in Europe in mid-2023. Turning now to DEFINITY, the market-leading ultrasound-enhancing agent. Sales for the third quarter were $60.7 million, up 5.4% from the prior year period. We continue to grow the franchise and maintain market leadership even amidst staffing challenges and a decrease in referring physician patient visits that continues to impact the broader health care market, including echocardiography. I'll now turn it over to Bob.

Thank you, Paul, and good morning, everyone. I will provide highlights of the third quarter financials, focusing on adjusted results, unless otherwise noted. Turning to the quarter. Revenue for the third quarter was $239.3 million, an increase of 134.4% over the prior year period. Earnings per share for the third quarter was $0.99, an increase of approximately $0.91 over the prior year. Now I will turn to the details, beginning with Precision Diagnostics. Revenue of $89 million increased 1.3% over the prior year quarter. Sales of DEFINITY net of rebates and allowances were $60.7 million, 5.4% higher as compared to the prior year quarter and in line with prior expectations for the third quarter. TechneLite net revenue was $22.1 million, down 2.6% or about $590,000 from the prior year and included a modest amount of opportunistic sales as guided on our last earnings call. I would like to note we have exited our thallium and gallium businesses effective at the end of the third quarter as capital expenditures necessary to keep our facilities current do not meet our internal return -- internal return hurdle metrics given the declining market opportunity for these 2 products. Year-to-date sales totaled approximately $2.3 million and have been reported within other Precision Diagnostics. Radiopharmaceutical oncology contributed $144.7 million of sales, up significantly due to the exceptional performance of PYLARIFY. This result also includes an incremental contribution from AZEDRA. Lastly, strategic partnerships and other revenue was $5.6 million in the quarter. Gross profit margin for the third quarter was 66.2%, an increase of 16.1% over the third quarter of 2021 as a result of 50.1%. As has been the case in recent quarters, the increase is due mainly to favorable product mix led by PYLARIFY and DEFINITY, offset in part by expenses associated with expanding our PMF partner network for increases on redundancy and capacity for PYLARIFY. Operating expenses were 16.7%, favorable from 40.2% in the prior year to 23.4% of net revenue in the current quarter. Overall, operating expenses are in line with our expectations with continued focus on driving PYLARIFY awareness amongst the referring physician community, increased in-person commercial activities in support of commercial products and attendance antennas at congresses, as well as focused investments in business development activities and our ERP program. And as a note, we expect to transition our ERP program from a discovery phase to implementation beginning now in the fourth quarter, amongst other investments, which you expect will incrementally add to our current OpEx run rate. Operating profit for the quarter was $102.2 million or an increase of $92 million or 904.1% over the same period prior year. Total adjustments in the quarter were $16.5 million before taxes. Of this amount, 8.1 and $8.3 million of expense is associated with noncash stock and incentive plans and acquired intangible amortization, respectively. The remainder is related to net changes in our contingent receivables and liabilities as well as acquisition, integration and other nonrecurring expenses. Our effective tax rate was 29% in the quarter. This rate includes a higher blended state tax provision rate due to PYLARIFY's geographic mix, offset in part by the impact stemming from the resolution of certain of our state tax UTPs in the quarter. The resulting net reported net income for the third quarter was 61.2 and $70.7 million on an adjusted basis, an increase of 74.6 and $65 million, respectively. GAAP fully diluted earnings per share were $0.86 and $0.99 on an adjusted basis, an increase from the prior year of $1.06 and $0.91, respectively. Now turning to cash flow. Third quarter operating cash flow totaled $93.6 million as compared to $4.3 million in Q3 of 2021. Capital expenditures totaled $6.1 million, up $3.7 million over the prior year quarter. Free cash flow, which we define as operating cash flow less capital expenditures, was a record $87.5 million, an increase of $85.6 million over the prior year period. Year-to-date, free cash flows totaled $162.8 million. Cash and cash equivalents net of restricted cash now stands at $257.3 million. We continue to have access to our $200 million undrawn bank revolver and are comfortable with our strong liquidity position. Turning now to our updated guidance for the full year and Q4. We now forecast full year revenue to be in a range of $915 million to $919 million from the prior range of $885 million to $905 million. This implies a fourth quarter range of $243 million to $247 million. As a reminder, this updated full year range includes the recognized revenue from Novartis of $24 million, which was recorded in the first quarter. Turning now to earnings and keeping with the fourth quarter. Adjusted EPS should be in the range of $0.95 to $0.98. Taken together with the increased revenue expectation and year-to-date earnings performance, we are raising our full year adjusted EPS to be in a range of $3.80 to $3.83 per share versus the prior range of $3.50 to $3.60. With that, Mary Anne, Paul, and I will now take your questions. Operator, please go ahead.

Thank you. At this time, we will conduct the question-and-answer session. [Operator Instructions] Our first question comes from the line of Roanna Ruiz with SVB Securities. Roanna, go ahead, please.

Great, thanks. Good morning, everyone.

Good morning.

So I had a -- good morning. I had quick question about your over 1,000 customers who are ordering PYLARIFY. Maybe could you just elaborate a bit on what the breakdown is between large institutions versus smaller imaging clinics? Just curious how that demographic is evolving over time for PYLARIFY.

Yes, I can take that. So thank you for the question. So of the 1,000 customers that have ordered to date, we've certainly seen a mix of what that looks like. I think historically when we look at the concentration overall of our business, it remains somewhat comparable. So while many are familiar with the 80-20 rule, where 80% of business is driven by 20% of accounts, we actually have a broader usage across our business. 80% of our business is within about 35% of our accounts. And that -- those larger accounts are a mix of large academic hospitals, freestanding imaging centers, as well as government facilities. The overall breakdown across hospitals, across government facilities and independent imaging centers has stayed relatively stable as we've continued to add imaging centers over time. And I think I would add, as I've mentioned in the past, where we have certainly added customers from an imaging center perspective, going from 300 roughly at the end of last year to 900 at the end of the second quarter, and they were now a 1,000. The future growth, as we've said in the past, will increasingly come from activating the referring physician community, specifically urologists, medical oncologists, and radiation oncologists to raise awareness of PSMA PET imaging and PYLARIFY specifically.

Got it. Super helpful. And you sort of started to answer my next question. I was curious how are you thinking about the future growth trajectory of PYLARIFY, like going into 2023. Anything to expect as you start to see, get more of a sense of how PYLARIFY growth goes year-over-year?

Well, I think first and foremost, we're obviously incredibly pleased with the impact that PYLARIFY has had on the U.S. prostate cancer community. We take great pride in 90,000 patients having been scanned since launch, and that impact we think can continue to grow. There is still significant room to be able to educate additional referring physicians on the benefit that PYLARIFY and PSMA PET imaging can bring to their customer base. There are still imaging centers to add, though we don't expect that number to increase at the same rate as we've seen in the past. But overall, we're incredibly excited about where we've gone to date and even more so with the potential to continue to bring PYLARIFY to the U.S. prostate cancer community in the future.

Interesting. Yes, super helpful. And last question for me. I know you have a new competitive entrant in the market. I'm curious if anecdotally your field force is hearing anything in terms of competitive dynamics or in terms of strategies that you might use to protect PYLARIFY?

So, Roanna, I'll start there and then Paul can jump in and Bob as well. We are very comfortable with our position as the most chosen and the leading PSMA PET imaging agent, and we absolutely expect that to continue. So it's not -- we're not in protective mode with our business. We're in growth mode. And so we continue to open and as Paul alluded to, there is a -- there is demand to be unlocked among the physician generating -- who generates request for these exams community, and that's where we will stay focused. As a market, we continue to see this market becoming larger and larger as physicians understand how they want to embrace PYLARIFY for utilization. And so we're fully in growth mode and don't feel that it's -- that it would be any way to define our kind of strategy at this time or operations as being protective. Paul, do you want to add.

Yes, Mary Anne, I think that's 100% accurate. I mean, I think we're incredibly excited with the growth, not only of PYLARIFY but of the overall market. If we look at what our competitor has published for their sales in the second quarter combined with ours, the market on an annualized basis was north of $500 million. And with our third quarter results and what we've seen them, the annualized market for PSMA PET imaging in the U.S. is already now over $700 million just 1 quarter later. And so, as Mary Anne mentioned, we are absolutely in growth mode. We have expected competition from the very beginning. We think overall it has helped raise awareness across the marketplace of PSMA PET imaging and the role that can play in the prostate cancer community. And we've obviously been very pleased with our results, but also recognize that there is a role for competition. They have had some success, specifically in geographies where we are still ramping up capacity and redundancy. There are some centers that have their own gallium generators that are going to want to provide self-supply, which is entirely appropriate. And then there's also customers that are going to want dual supply, unlike a small molecule or a biological area. This product is made on a daily basis across the country. And so we've also seen that. But we are really focused on growing the overall market and are incredibly pleased not only with the impact we've had on the community to date, but where we see going forward to continue to have that ability to grow this franchise.

Sounds good. Thanks for the clarification.

Our next question comes from the line of Larry Solow with CJS Securities. Larry, please stand by while I open up your line.

Just quick question, a follow-up on the PYLARIFY. Can you maybe just give any color on -- I think you said you went from 900 customers to 1,000 -- usage, I'm sure ranges there in degrees. But I assume in terms of doctors and clinics that are penetrated or that are using it, there's still a lot of room for growth in terms of within those clinics. Is that a fair statement?

Good morning, Larry. This is Mary Anne. I'll start and then I'm going to turn it over to Paul. I think it's very fair to say that current utilization of PYLARIFY reflects the communities and how prostate cancer is treated. And I think Paul was trying to describe that as well in talking about the mix of our customers and where they exist. We exist everywhere where prostate cancer is being treated. And as you mentioned, there is -- we are still at the -- what will be the beginning, I'd say, of what full utilization will be as physicians not only gain access and familiarity with the product, but then also decide themselves how they want to embrace this product for better management of prostate cancer disease.

Yes. Larry, I think the question is, fundamentally we are still incredibly excited about the growth prospects of PYLARIFY. There are only so many centers in the U.S. with PET CT centers. We've seen that number that have been using PYLARIFY grow, as we've mentioned, from 300 to now 1,000. But that number isn't going to continue to grow at the same rates we've seen. We penetrated the vast, vast majority of imaging centers across the country that now have access to and are ordering PYLARIFY, where the growth will come from is now activating those urologists and medical oncologists and radiation oncologists that were not early adopters to help them understand the benefits of prescribing PYLARIFY for those patients and then those referring physicians in turn request scans from their imaging centers. And so we're still very excited at the potential. We still think there's significant room for opportunity and for growth to reach a significant number of patients that are still not receiving [indiscernible].

Everyone, we just had a significant echo feedback on our lines. I apologize if that was also translated to all of our participants, but it seems to have quieted now. Paul was just completing his comments talking about the growth in the future for PYLARIFY will also come from activating more patient pools as we engage with those physicians who are generating demand for -- currently for imaging done with conventional approaches, which will -- we believe will translate over to PSMA PET-based imaging.

Great. And just a quick follow-up, just, Mary, on the pass-through status. I think techincally -- I think it's set thus far at the end of '24. Can you just just -- I think I know this came up at your Analyst Day too, but can you just give us a couple of minutes discuss that and your confidence that it won't necessarily impact pricing once that expires?

Absolutely, Larry. So as you correctly noted, pass-through status under the current administration, pass-through status will end at the end of 2024 for PYLARIFY having been in place for 3 years. The piece that we are educating as well as we can to our audience about pass-through is understanding for what sites of care and what patient pools pass-through applies. Pass-through is only an administered benefit -- the pricing schema for traditional Medicare patients treated in the hospital outpatient setting. And what we continue to see is migration of imaging out of the hospital outpatient center and a decreasing pool of patients who are insured under the traditional Medicare benefit. So both of those factors, especially in combination results in a smaller pool of patients who are essentially covered by -- would be covered by pass-through, especially as we get out to the end of 2024. Now we also believe that the physician adoption of PYLARIFY and physician satisfaction with the results they're seeing with our images will also create, I'll call it a stickiness, or we could call it product loyalty to PYLARIFY even in a post pass-through period. And finally, we still are very carefully monitoring a piece of legislation called the FIND Act, which the purpose of is to eliminate what is currently the pass-through pricing schema for radiopharmaceuticals and certain other products, but here we're specific to radiopharmaceuticals, which means that we would have a permanent, I'll say, what we would say is more fair reimbursement levels for complex radiopharmaceuticals. Pau, do you want to add anything?

No, I think it's very well said, Mary Anne.

Great. Thanks so much. Just last question just for Bob, real quick. Just on the operating expenses. It looks like it kind of trended down sequentially. Was there anything timing related there? SG&A was a little lower, R&D a little lower. Or is that just sort of moving around from quarter-to-quarter?

It's just moving around a little bit quarter-to-quarter, Larry. If I just look sequentially, it's pretty much in line on an average basis. You do get puts and takes during the year. I am trying to signal though for the fourth quarter, particularly when I think about our ERP program, there are certain operating expenses associated with getting that program off the ground. We've been doing a lot of discovery work and that implementation phasing starts now here in the fourth quarter. So I do expect it to be incrementally higher. We are doing -- and I don't mean tens of millions, I'm talking small -- small numbers. But we are also using this opportunity to do advanced work in sales and marketing, if you will, around market research as we know, as we really kind of dive into the different markets in which we're playing, particularly in the prostate cancer arena. So thanks for the question.

Great. Appreciate all the color. Thank you.

Our next question will come from the line of Mr. Anthony Petrone with Mizuho Group. Anthony, will you please stand by while I open up your line. Anthony?

Hello?

Yes. Your line has been opened.

Okay. Great. Thank you. Going back to a couple on PYLARIFY stay on the 1,000 sites at the end of 3Q and across 46 states. Just wondering, Paul, when we think about the actual number of sites out there in the United States, what is that number? So are we kind of at the upper bound just in terms of sites? And then when you think about penetration into the site, certainly the growth going forward would be getting additional physicians trained and prescribing PYLARIFY. So when you think about the penetration level at sites on a physician level, where is that number on average across the 1,000? And I'll have a couple of follow-ups.

Yes. Thanks for the question. So I think when we think of the total number of sites, IMV is probably the best source to kind of look to. I will note that the number is not exact because many centers around the country have mobile sites that may have a mobile camera 1 or 2 days a week. But when you think of kind of full cameras on an annualized basis, anywhere in that 2,000 plus or minus range. I think we've naturally focused on the big centers. And so when we think about growth from 1,000, we think that number will continue to grow, but at a decreasing rate. There are certainly PET CT centers in geographies where we are still to open additional PMS. If you refer to clarify.com, you can see where our PMF coverage is. We still do have some areas to build in as we add additional capacity across the country in those areas, and those are where we really add PET CT centers. But to your point, the bulk of the growth is going to come from driving more volume through those existing centers, and that comes from activating the urologists and oncologists that are not early adopters that have not been excited for years and expecting PSMA PET imaging, but as an example, in urology. The initial staging indication, we were the first commercial PET agent in prostate to have that indication. So that's a market we're still very much building. PET agents were not necessarily used in that space before. And so your community urologists, your large urology group practices, there's still a tremendous amount of education to have there to be able to activate them to ensure that all appropriate candidates are being prescribed PYLARIFY. And so we haven't put a number on it, but we're incredibly excited for the future and see continued growth for PYLARIFY as we continue to activate those marketplaces.

And just a follow-up on competition. Blue Earth out there with the spotlight results at ASTRO and seems a little bit more comparable than the Gallium-68 PSMA PET imaging agent. Just wondering how you think the competitive dynamic shifts when we have a similar agent come on market? Any thoughts there? And then again, the last one for me, I just want to throw one in on F 18 with GE. Maybe just a reminder on the total available market statistics that are out there for Flurpiridaz 18 and how you think that market proceeds in 2023? Thanks.

Good morning, Anthony. It's Mary Anne. I'll speak a little bit to your questions and then anyone else here can jump in if they want to add additional color. We are -- and this goes back, I think, to a question we've already taken this morning that was suggested we might be like moving into protective mode. We remain firmly established in growing this market as a market leader. It's almost in obligation. I think you've seen the same behavior from us with DEFINITY over the years, and that is going to remain our focus, even amidst competition. And you're right, the entry of a second -- the F 18-based product would be, I guess a closer parallel to PYLARIFY. But we are very confident that especially with the PMF networks that we've set up, that PYLARIFY will remain the market-leading and commanding leader in this PMSA-based market, and that will be true after the introduction of another F 18-based PSMA PET imaging agent. To Flurpiridaz and to their -- kind of our relationship with GE Healthcare, the market that we look at there is a market that we know very well, and that, as I mentioned, is the NPI market. This is the standard of care imaging for coronary artery disease in the United States health care market now. And on an annual basis, it's about 6.1 million procedures that are done. And I make an analogy here to what we've seen happen with PSMA-based PET imaging with the availability of PYLARIFY per se the 2 academic products and then -- and closely after PYLARIFY, we've seen -- I think it's fair to say, a wholesale switch from what is used as standard of care imaging for prostate cancer. And the part of that is the incredible specificity, sensitivity and just clarity of the images that can be produced with the combination of an F 18 isotope and then the modality of PET imaging. The same is true with cardiac imaging currently, and we've been in this market for over 40 years. Cardiac imaging is done with SPECT-based -- the SPECT-based modality. The switch to F 18 and F 18-based product with Flurpiridaz, the clarity of images we used to describe it as moving from black and white TV to HD or high definition, high def TV. There's just that much more clarity and specificity and sensitivity with the images. So we very much look forward to our partner. GE is our partner who will take the lead on that, bringing that awareness into the market once the product is approved and we're confident that we will see physicians embrace that product in a similar fashion to what we've seen with PSMA-based PET imaging.

Maybe I'll just add. -- Maybe I'll just add specifically on the Blue Earth and really F 18 competition. One, and as I think as Mary and I have both said, greater voice and awareness around PSMA PET imaging will help grow the overall market. We've seen this grow already. We mentioned from a combined annualized north of $500 million in 2Q to now north of $700 million in 3Q. And so we're incredibly excited to continue to grow that overall market. I think you're right to note that they've published data on one of their clinical trials. We have not yet seen data on the other trial. But regardless of how that plays out, we do think there's a significant first-mover advantage. The progress we've made in contracting with now 1,000 sites using PYLARIFY, the significant progress we've made on market access, including pass-through and coverage, when we think of all those pieces put in place as a first mover advantage. And then I would also note our PMS network. Is already up and is active. We have contracts through some of the major players through 2027 with preferred cyclotron status making F 18. And so we feel well positioned to continue to be the market leader in what is an ever-growing PSMA market with many more patients left to scan going forward. So we're incredibly excited.

Thank you. Thanks.

And our next question comes from the line of Mr. Richard Newitter with Truist. Please stand by while I open up his line. Mr. Richard Newitter of Tuist, your line should be open.

Hi. Thanks for taking the questions. I'm not sure if I missed it. Did you guys give specific clarified guidance or update the range there? And if so, could you provide that?

So Rich, we did not give specific, but I mean it is implied when you do the math around the guidance that I did give. So in the prior guidance range, I think we had implied a full year range of about 480 to 500. Now that range is now sort of in the 5 -- and I've refined it, there's 8 weeks to go in the year, if you will, to sort of a 513 to 516 type range for the full year, which then gives you a Q4 number in the sort of right around bracketing about 150 if you will.

For 4Q?

For 4Q.

Yes. Okay. I guess, you're talking about all this capacity coming online and you have a bigger user base. I guess, it seems like that sequential improvement is -- it's not huge. But I guess, how should we think about that? And then secondly on that topic, you've talked in the past about getting to capacity for PYLARIFY, exiting '22, I think in the 150,000 to 200,000 dose range. Where are you from ramping up to that level currently? Where do you think you'll be exiting '22? And is there any reason to think that every unit you can produce right now isn't getting used? In other words, is demand continuing to outstrip supply? Thanks.

So Rich, I'll start there and then Paul can jump in with some more specific numbers. But to your very last comments -- last question about our comfort level that every dose is getting used. Just as a reminder, this is a batch manufactured product. And so it is possible that you have in certain more -- I would say, more rural geographies where they're producing a full back as they do with F 18 to make the product, but they don't have for what can optimally be produced with a batch which could be 20-plus doses, the demand for that in that given day. So that is part of our economics and already built into our assumptions and has been as we -- and to your other point, as we continue to ramp up, we are really now from a capacity perspective, we're thrilled with our -- the rollout plan we've had, but there are areas where we continue to add especially redundancy, some capacity and then redundancy because these are very large geographic markets. And Paul mentioned one of our -- the sites that we opened recently was in the Greater New York area. That is an area where we continue to see the opportunity to service more demand with additional capacity or redundancy, which everyone want to call it. Paul, do you want to add any?

Yes. No. Thanks, Mary Anne. I think to go into your question. For overall capacity and redundancy, we continue to increase this, right? We noted the new PMF regions, Colorado, Alabama, Utah, and Iowa since the end of the second quarter we've added. Now we've served patients and sites in those markets, but we've been bringing in doses. And so it's obviously better for customers, it's better for patients to be able to have local manufacturing there. It provides more flexibility not only in terms of the number of doses that we can bring in, but the time that we can bring doses in to meet the workflow needs of the PET CT centers. As Mary Anne mentioned, we've been building redundancy in places like New York City Metro area and in Tennessee. We've also invested in the existing sites since we've been continuing to add traces boxes. And then there are PMS that now have multiple cyclotrons and we're able to now run multiple batches over the course of the day to truly meet the needs of the customer base. When we think about the overall capacity, you're right, we highlighted about 150,000 to 200,000. I would note that on an annualized basis, we're going to be ahead of that by the end of the year based on the capacity and the redundant. And so the national number -- I don't want to call it a relevant, but it very much matters on a local market. There are markets where we still need to build capacity and the redundancy in there to meet medical practice and how it's evolving. We also need to ensure that we continue to grow because we're incredibly excited about the future. Does that help?

Yes. Yes, it does. And just maybe the underlying assumptions in the implied 4Q ramp?

The underlying assumption around demand. Richard, can you just clarify your question?

You have an implied guide of 150. So maybe just talk to us a little bit about how you arrived at that? Why is that the right number? You historically you guided sequentially flat to up slightly, I guess, is your approach to guidance any different? And then what are the key assumptions kind of to get to that level? Thanks.

So I would say our approach to guidance remains consistent. I think that's something we've established as a company as to kind of how we choose to communicate on a forward basis. I would also say we're still in a launch. I know it feels like now we've been talking about PYLARIFY for a long time, but we are still in a launch. And so I think our numbers are -- you could say we continue to be slightly conservative because we are not -- we're still not fully aware of how large the intent is with the medical community to embrace PYLARIFY across the entire disease spectrum of prostate cancer, and that continues to be an opportunity for us that -- we work on from a demand generation perspective within our labeled indication, but we also note what the medical community is choosing to do with these products. And that's something that Paul has some very specific research ongoing -- market research ongoing so that we can better understand the community. Until we do, I think you'll continue to see this practice from us, which is to have a bracketed implied guidance that for -- I would say, operationally, you've seen us exceed on each of the quarters.

And Rich, I would just also want to point out that we are entering the time of the year where within the quarter, major holidays. And with the prior experience of last year, where we did -- I believe it was like $35 million, $36 million in the quarter last year. This is the first year with a much more expanded network coming into that holiday season. So we want to make sure that we fully understand how those dynamics work in that part of the year.

Thank you.

Our next question comes from the line of Matt Taylor. Matt, Please standby while I open your line up for you to pose your questions. Mr. Matt Taylor with with Jefferies, your line is open.

Thank you. Can you hear me okay?

Yes, sir.

Good morning, everybody.

Good morning.

Good morning, Bob. So I wanted to follow up on 2 things. So one is, when you think about the next couple of years, I know this is kind of an unprecedented launch. Maybe you could talk about what you think market growth could be and your ability to grow within that framework given some of the advantages that you have, being first move or setting up this network, et cetera, as you see more competition come online. Could you give us any high-level thoughts on that?

So Matt, obviously, we understand that people are interested in how the next year looks as we kind of get to the end part of this year. As we think about 2023, 2024, we certainly expect healthy growth for the business in its totality and certainly from the contributions that we expect to get from our leading products in PYLARIFY and DEFINITY. So from the perspective of -- are we going -- as we think about how models that we see from a street perspective look, we're comfortable that we're going to be able to continue to grow this business, do so profitably and see our free cash flows, as you saw what we did here in the third quarter with a record free cash flow number of nearly $90 million, that -- those kinds of numbers are going to continue to grow, and we're going to be able to really kind of strengthen the position of this company as we think into the near-term planning horizon that we're discussing.

And I would just add, Matt, we're not here to offer annual guidance for 2023. However, if we look at the 2 major markets we're in now, as we've repeatedly kind of tried to offer here, we see significant continued growth in the PSMA imaging market, not only for the demand of generating that we've already generated for patients for initial staging and for recurrence, but also because of the continued -- what will be the continued entrance of therapeutic agents into that market. On the other, I'm sorry -- then we didn't speak to this significantly today during the call, but DEFINITY. Paul did offer that we've seen some, I'll say, softness in our -- the total echocardiography market, which, again, historically we have never tried to influence the total number of echocardiography studies done in the United States medical market. All of our pointed medical education has always been to use the addition of an ultrasound-enhancing agent. 2 studies already underway, but we have seen some softness in the total number of echocardiography studies based on what we see as decrease percentage of in-office visits or cardiology year-over-year and then kind of continued impact of staffing challenges, both at the nursing level and at the sonography tech level. If that heals itself coming into the coming year, then we would expect to see improved growth rates for DEFINITY as a kind of a bear down from the increased number of echo studies and what will be the increased demand then for use of an ultrasound-enhancing agent.

Thanks for the thoughts there. I did want to ask you one about -- you mentioned the cash flow and certainly building a lot of cash. Can you talk about what you're thinking about doing with that strategically as you kind of pile more on here? And what kind of things could you tuck into the portfolio that would be additive and synergistic, how do you think about acquisitions?

I'm just going to start very quickly, Matt, because then it's obviously a question more for Bob. But I'd like to say that as a company, we see ourselves -- you talk about like what we could tuck into our portfolio. We see ourselves as a very highly chosen and attractive partner for companies out there that have assets, that are looking for that type of relationship. And I think what we've demonstrated already with the Progenics acquisition speaks to the kind of talent we have here and what we do with assets that are brought under our care.

Yes. And certainly, in my prepared remarks I did make the comment that in terms of our OpEx, we are clearly visibly working hard to fill a pipeline of opportunities. And if I just go back to our Investor Day in terms of what are we interested in doing, we are focused on late-stage or near commercial stage assets that are high growth, high margin. But what those are likely to do are to leverage our commercial manufacturing supply chain as sort of our core capabilities as a company. But we also want to make sure we can get robust diligence on these targets and the environment in which their products or product candidates are going to be working in. From a financial perspective, obviously, we're looking to sustain double-digit growth long term. And those are the kind of assets we're targeting and looking at to be able to drive that, and we're going to be able to maximize the opportunities to drive profitability margin accretive, particularly as you think about how we have been able to sort of transform the company with the Progenics acquisition to drive expanding gross margin and EBITDA type margins. So again, I think that we're going to really work hard to be able to achieve these types of criteria filling these -- filling out the metrics that are going to help drive, like I said, long-term sustainable growth done profitably.

Thanks, Bob. And I have one last one, I just wanted to ask about when you look at the dollars per customer this quarter, so basically the math would be you added 10% more customers. You did 10% more sales. So same -- that would imply same-store sales didn't change very much. But I don't know the dynamics like seasonality or stocking if those kind of things played in. But maybe you could talk about the expectations for same-store sales going forward and where you think those could go?

Well, Matt, that is a new one. I've never seen same-store sales apply to radiopharmaceuticals before, so congratulations on being unique with your question. And I think what -- this comes back to some of the conversation we've already had in the Q&A here, and that is the ability with same-store. So the significant geographies in the U.S. to bring in additional capacity and redundancy to better penetrate and service those markets. So from that perspective, it's quite a -- it's not something we calculate in the way that you've defined it. But I think for having asked the question, we would say in the larger geographic areas where, again, the patient concentration is, we will continue to see improvement in what you're referring to as same-store sales.

Yes, Matt, maybe just some added color there, and totally understand the question. I think the key piece, and I'll go back to a bit of information I shared earlier is that about 80% of our business comes from about 35% of our customer base. That core customer base hasn't materially changed in terms of the percentage. And so while we're adding new imaging centers, those are by and large smaller imaging centers, smaller regional hospitals, the vast majority of large academic centers of significantly sized freestanding imaging centers are in place and have been in place. And so I think we're seeing continued growth and that the ad imaging centers are not necessarily a key driver of growth. It really is the volume at existing sites, and that's what we're focused on continuing to grow in our parlance same-store sales, which I understand, we're driving more same-store sales, if you will, by activating those referring physicians, and that's really going to be driving future growth.

Okay. Thank you. Thank you very much.

Your welcome.

Our next call will come from the line of Justin Walsh with Jones Trading. Justin, please stand by as I open your line up for you to pose your questions. Justin, your line should be open.

Hi. Thanks for taking the qestion. It was great seeing PYLARIFY AI showcased at EANM. How would you characterize its reception at the meeting? And maybe some feedback that you received from users as PYLARIFY has continued its rapid market penetration?

Justin, this is MarY Anne, and I'll take your question. We were thrilled with the reception at EANM, and we think this is very indicative of what's happening of practice of medicine and use of therapies where the mandate will continue to rise, that products that are used have these complementary products associated with them or offerings associated with them that further embellish and further improve the -- whatever we're going to say is the efficacy of the product. So in the case of PYLARIFY AI, this offers consistent quantification across the important body regions of PSMA imaging and it augments what a physician reader can see and interpret on a screen. So I think it's very much embraced as necessary and complementary, and we are doing everything we can to ensure that it's fully integrated. So you heard about the additional collaboration that we announced today, which complements the one we had already announced. And what this makes? Does this make PYLARIFY AI essentially ubiquitous. Sso that it will be already present in the workstations that are being used by nuclear medicine physicians and radiologists to read these images. And we think that's an important trend that we are absolutely supporting. From an adoption perspective, I think we also see the -- what is typical, and that is from -- that these products and these additional pieces of software tend to be embraced first in research because that's where you really come to fully understand how the product will play into clinical workflow. So we're really pleased also with the adoption rate we've seen across the major academic centers in the United States market, especially for research applications, which will then, we believe, lead to commercial adoption as well.

Our final question will come from the line of Yuan Zhi with B. Riley. Yuan, please stand by as I promote you to open up your lines. Yuan, your line is open.

Good morning. I guess I will be the first one today to say congrats on another strong quarter. Thank you for taking our questions.

Thank you.

Thank you, Yuan.

So first, have you heard any staffing shortage of radio imaging technicians in the last quarter which might have impacted the yield of PYLARIFY in the quarter?

Yuan, I'll answer that question. And the answer is, we have not anecdotally had that feedback. But this is not -- this part of the market, which is PET CT imaging centers is not one that is as historically familiar to us as echocardiography suites. And so I think we have -- we have stronger insight into echocardiography because our relationships there have been in place for so long. But -- so I cannot affirm or deny whether there is any staffing shortages at PET CT imaging centers. We know that among our PMS partners, we've seen very good response and very good support there to ensure that what they produce can be produced that there's no staffing shortages there.

Got it. That's very helpful. And our second question is on the Phase II clinical trial of NM-01, the PD-L1 imaging agent. So you guys had the first patient dosed in May. Just want to check -- can you provide an update of the trial enrollment and maybe the time line to have the top line data there?

So, Yuan, at this time I cannot offer an update on trial enrollment. If not, we will speak to it as we hit significant milestones. But at this time, we are only publicly still having reported the first patient in, and I would anticipate it will be probably first quarter of 2023 when we next make an update on that trial.

That concludes our question-and-answer session. I will now turn the call back over to Mary Anne for her closing remarks.

Thank you, everyone, for joining us on today's call. In closing, the third quarter was another strong one for our business as 2022 provides -- proves out to be a historic year for Lantheus. Building on more than 65 years of life-changing science, we continue to innovate to deliver on what matters for health care professionals and patients. I'm extremely proud of the results the Lantheus team has delivered. Their hard work, focus and dedication to our patients and our corporate strategy are evident in the results we outlined today. As the year comes to a close, we continue to be driven by our purpose to find, fight, and follow disease to deliver better patient outcomes. Thanks, everyone.

This concludes the Lantheus third quarter earnings call. You may now disconnect.

Great. Thank you very much. Thanks, gentleman.