Lantheus Holdings, Inc. Q2 FY2021 Earnings Call

Good morning, ladies and gentlemen. Welcome to the Lantheus Holdings Second Quarter 2021 Financial Results Conference Call. This is your operator for today's call. Please note that all lines have been placed on mute to prevent any background noise. This call is being recorded for replay purposes. A replay of the 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 will 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 the Lantheus Holdings second 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 give an update on the PYLARIFY commercial launch. Mary Anne will return to give 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 second 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 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. 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 is 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’m pleased to report that the second quarter was a successful and productive one. During the quarter, we announced the FDA approval and commenced the commercial launch of PYLARIFY, the first and only commercially available PSMA PET imaging agent for prostate cancer. DEFINITY performed well and has maintained its market leadership with more than 80% share of the U.S. ultrasound enhancing agent market. AZEDRA sales significantly increased and TechneLite delivered stable revenue sequentially. We are committed to building on this positive momentum and delivering value for shareholders. Before I turn the call over to Paul for an update on our PYLARIFY launch, I would like to provide background on why we believe PYLARIFY is an important addition to the treatment of prostate cancer. On May 26, the FDA approved PYLARIFY, a fluorine 18-labeled prostate-specific membrane antigen, or PSMA, targeted positron emission tomography, or PET, imaging agent. PYLARIFY identifies PSMA, the protein expressed on the surface of prostate cancer cells in men with suspected metastasis who are candidates for initial definitive therapy and/or with suspected recurrence of prostate cancer. Slide 7 highlights the time points where PYLARIFY received approval by the FDA. Starting with the purple box, initial staging describes patients who are candidates for initial definitive therapy and are suspected to have metastasis. While approximately 248,000 men are diagnosed annually with prostate cancer, currently we believe there are approximately 40,000 men in this category who may be eligible for PYLARIFY scans based on suspected metastasis. Second, as shown in the two blue boxes, there are approximately 105,000 and 25,000 men, respectively, who may have a suspected recurrence of prostate cancer as indicated by rising prostate specific antigen, or PSA. These patients are also candidates for a PYLARIFY scan based on our awarded indication. As you can see, overall, a prostate cancer patient’s journey can last 15 years or more and is marked by frequent interactions with the physician to determine treatment course. We believe PYLARIFY offers a number of advantages as a diagnostic agent. First, it is the PET modality which offers several advantages versus current conventional imaging modalities. PYLARIFY demonstrated high detection rates of metastatic disease even in patients with low PSA levels and was not limited by the size of lymph nodes with respect to detection of nodal disease and visualize metastases when CT or bone scan could not, as was demonstrated in our Phase 3 CONDOR study. Another advantage of PYLARIFY is that it works by binding to PSMA, a protein that is overexpressed on the surface of more than 90% of primary and metastatic prostate cancer cells. This enables the reader of a PYLARIFY PET scan to detect the presence and location of prostate cancer cells with greater sensitivity versus imaging modalities that are not specific to PSMA. The third advantage is that PYLARIFY is radio labeled with F 18. The attributes of F 18 contribute to high quality, clear, detailed and reproducible images for prostate cancer disease monitoring. Production of the F 18 isotope at PET manufacturing facilities, or PMF, offers high batch capacity and F 18’s 110-minute half-life allows broad geographic distribution and clinical flexibility in administration. Finally, a distinct advantage of PYLARIFY is the proprietary, patent-protected artificial intelligence medical device software we have developed to assist physicians with the reading of PYLARIFY scans. aPROMISE employs deep learning to quantify and automate the reading of PYLARIFY images. aPROMISE is designed to provide enhanced consistency in quantitative analysis and precise anatomical context, and can enable quantitative reporting. Collectively, these benefits potentially contribute to increased reader efficiency and reproducibility of PSMA PET/CT image assessments. Importantly, for the management of prostate cancer, the data from our studies demonstrated PYLARIFY is more likely than conventional imaging to detect the spread of disease, providing more accurate and potentially earlier detection of disease, which we believe will empower doctors, along with patients and their families, to make more informed decisions about how to treat their prostate cancer. Based on the data from our clinical trials, we believe PYLARIFY may also have an important role in the clinical development of product candidates for prostate cancer treatment as an important biomarker. For these clinical applications, I will refer to PYLARIFY by its compound name, Piflufolastat F 18 or PyL. Along with our current Phase 2 trial for our 1095 product candidate, PyL is also included in several ongoing clinical trials for other prostate cancer therapeutics to assess PSMA expression with leading companies such as Bayer, Regeneron and POINT Biopharma. Before I turn the call over to Paul to provide details on the PYLARIFY launch to-date, I would like to share with you an image from our CONDOR trial. This image shows a 71-year-old patient with a Gleason score of 4+3, a history of radical prostatectomy and external beam radiation therapy and equivocal results on a PET/CT scan, which is the image shown on the right side of this slide. This same patient was imaged with PYLARIFY. The PYLARIFY image identified left common iliac lesions and multiple retroperitoneal para/peri aortic lymph node lesions, which were later confirmed to be prostate cancer by biopsy. Similar to the results found here, PYLARIFY similarly demonstrated higher clarity results versus other forms of conventional imaging in our Phase 3 CONDOR study as well as in other studies. We are extremely excited about the potential of PYLARIFY. Now, I'll turn the call over to Paul.

Thank you, Mary Anne, and good morning, everyone. It's a pleasure to be here to share our launch progress today and our plans to maximize the potential of PYLARIFY to benefit the U.S. prostate cancer community, our customers and shareholders. In the two months since the FDA’s approval of PYLARIFY, we have seen strong patient, customer, and healthcare provider interest, and the approval was covered by multiple national and local media outlets. While today I will not present product-specific sales data or current projections for PYLARIFY, I will share that post-approval, PYLARIFY has been used to image patients at freestanding imaging centers, hospitals, and government facilities, with most of these sites already imaging multiple patients. We are tracking these usage metrics closely and are pleased with the breadth of interest and recurrence of ordering that we are experiencing. Our manufacturing network now encompasses 12 PMFs that have been activated to-date, including the three largest metropolitan areas in the U.S.; New York, Los Angeles, and San Diego, and Chicago, as well as select locations in the Southeast, the Midwest, the Southwest, and the Northwest. We expect PYLARIFY availability to continue to expand across the U.S. over the remainder of the year, with broad nationwide availability by year-end. While we are discussing the scope of our PMF network, it's important to add that we have diversified our national manufacturing network across multiple partners, and we're confident that our network will be able to manufacture PYLARIFY at scale. F-18 is a well-understood cyclotron-manufactured isotope, and PET manufacturing and PET imaging facilities have significant experience working with F-18. Indeed, F-18 is a radioisotope used in almost 2 million doses of FDG on an annual basis, and we have contracted with our PMF partners to ensure adequate supply to meet the PYLARIFY demand. As our PMF network expands, we are also investing in our commercial infrastructure, including hiring and training a dedicated field sales team, supported by PYLARIFY-specific contracting specialists and other home office resources, as well as a market access team. We believe our commercial footprint, combined with the resources of our manufacturing partners, will help imaging centers and prescribing physicians better access and realize the benefits of PYLARIFY, which include the advantages of PET imaging, the F-18 radioisotope, PSMA targeting, and eventually incorporation of our proprietary artificial intelligence into reading scans, all of which should make PYLARIFY a best-in-class imaging agent for men with prostate cancer. Lastly, a word about patient access. Our market access team has been laying the groundwork for reimbursement coverage with both governmental and commercial payers. We remain on track with our internal timelines for obtaining appropriate coding, pass-through status, and progress with commercial payers related to ensure appropriate coverage and payment. This coordination with our PMF partners, commercial teams, and commercial and government payers is critical to ensure we make PYLARIFY broadly available to the U.S. prostate cancer community and ensure that patients and facilities can be adequately reimbursed and covered for the use of this important agent. We believe PYLARIFY will make a significant contribution to the identification and treatment of prostate cancer, potentially impacting millions of men over the lifecycle of the product. I'll now turn the call back to Mary Anne.

Thank you, Paul. Now I'll review other commercial products and product candidates in our portfolio, starting with DEFINITY. Bob will speak to the actual revenue results as compared to the prior quarter and prior year. But I'm pleased to report that during the second quarter, DEFINITY demand exceeded pre-COVID-19 levels. While still very much dependent on geography and customers, over 50% of our DEFINITY sales team’s promotional efforts are now in-person, up from approximately 10% at the start of the year. Our sales representatives have looked forward to reengaging in-person with their customers. These positive trends, combined with our market-leading and stable share position, have resulted in DEFINITY returning to strong revenue growth. As we approach the 20th anniversary of DEFINITY’s FDA approval at the end of this month, we believe the market opportunity for this agent remains significant. And we anticipate DEFINITY sales will continue to deliver sustainable growth. Moving to AZEDRA, we are pleased to see sales growing. And with increased accessibility to customers, we've begun introducing changes to our customer approach, which we believe will optimize AZEDRA’s availability as the only approved treatment for pheochromocytoma and paraganglioma. Several new centers of excellence have chosen to make AZEDRA available to their patients. And we have launched a new peer-to-peer education campaign to increase awareness of AZEDRA and its value to patients. I'm pleased to report that the percentage of AZEDRA patients now completing the second dose of therapy is up significantly from last year. This is important because in the long-term follow-up of the pivotal trial for AZEDRA, the overall survival for patients who received two doses was more than twice as long as patients who received only a single dose. In June, we hired Kate Holland as Vice President of Radiopharmaceutical Therapy Oncology. In this new role, Kate will lead both the sales and marketing teams for AZEDRA. Kate has held broad leadership roles across commercial functions in rare diseases, most recently with Harmony Biosciences and CSL Behring. We're excited to have Kate on board and we're confident that her leadership will contribute positively to our growth plans for AZEDRA. Moving on to our pipeline, I'll discuss 1095, our iodine-131 PSMA-targeted therapeutic product candidate for the treatment of metastatic castrate-resistant prostate cancer, or mCRPC. In ARROW, our multicenter Phase 2 trial designed as a proof of concept study for 1095 in mCRPC, we are studying the combination of 1095 with enzalutamide in patients who have PSMA-avid disease or who are chemotherapy naive and have progressed on abiraterone. PSMA-avidity is determined by a PyL scan in this study. The primary endpoint is PSA response rate. Secondary endpoints include radiographic response, progression-free survival, and overall survival. We plan to enroll approximately 120 patients in this study. We now have 25 clinical sites actively recruiting across the U.S. and Canada, and patient enrollment is progressing as planned. We will use our data from this proof of concept study to determine the next steps in our clinical development plan for 1095. I'll now turn the call over to Bob for a financial update.

Thank you, Mary Anne, and good morning, everyone. I will provide highlights for the second quarter financials focusing on adjusted results, unless otherwise noted. Turning to the quarter, revenue for the second quarter was 101.1 million, an increase of 53.1% over the prior year quarter. A comparison that includes the full impact on run rate revenues from the prior year of the COVID-19 pandemic and our now divested Puerto Rico operation as well as the partial contribution from the Progenics portfolio, namely RELISTOR. Beginning with precision diagnostics, revenue of 90.4 million was 43.6% higher from the prior year quarter. Sales of DEFINITY net of rebates and allowances were 59.8 million, 61.2% higher compared to the prior year quarter, driven by sequentially higher volumes. TechneLite net revenue was 23.8 million, up 27.3% from the prior year quarter on solid volumes supported by opportunistic generator sales. Within other precision diagnostics, Xenon's performance has continued at similar levels to the previous sequential four quarters. Radiopharmaceutical oncology contributed 2.8 million of sales, up 28.8% from the prior year quarter due mainly to promising and solid performance from AZEDRA, offset in part by the loss of revenue tied to the strategic divestiture of the Puerto Rico operation. As a reminder, in addition to AZEDRA, PYLARIFY and QUADRAMET reside within this revenue category. Lastly, strategic partnerships and other revenue were 7.9 million, driven primarily by the RELISTOR royalty. Also during the quarter, we completed the sale of cREPO, a cardiac artificial intelligence software solution to a strategic partner for the Japanese market. Gross profit margin for the second quarter was 52.6%, an increase from 41.7% posted in the second quarter of 2020 on a similar basis. The increase is due mainly to the impact of COVID-19 in the prior year comparison. In the current year, favorable product mix led by DEFINITY volumes was partially offset by an extended manufacturing footprint acquired with Progenics on a year-over-year comparable basis, as well as increased Moly distribution and logistics costs due to the COVID-19 pandemic. Operating expenses were 12.7% unfavorable to the prior year at 42.4% of net revenue, driven primarily by the continued annualization expenses from Progenics, offset in part by synergy achievement. Commercial efforts for DEFINITY and investments in PYLARIFY commercialization as well as the continued progress in our 1095 ARROW clinical study accounted for the increased level of spend from the first quarter this year, but in line with expectations. Additionally, it's also worth noting that the company had a number of cost savings initiatives in the prior year quarter to counter the impacts of COVID-19 on our financials, which drives some unfavorability in comparison with spend normalization in the current year. Operating profit for the quarter was 10.4 million, or an increase of 30.8% over the same period prior year. Total adjustments in the quarter totaled 37.2 million of expense before taxes. Of this amount, 4.6 million and 6.1 million of expense is associated with non-cash stock and incentive plans as well as acquired intangible amortization. Also in the quarter, we recorded a 25.6 million net expense adjustment to contingent assets and liabilities, including the PYLARIFY CVR contingent liability, which was the main driver. The CVR contingent liability fair value is determined quarterly using the Monte Carlo simulation. Assumptions in the model include the company's then current forecast, estimate of future volatility, and utilization of an appropriate discount rate. The remainder is related to acquisition, integration, and other non-recurring expenses. Our effective tax rate was 9.9% in the quarter and 27% year-to-date and reflects the impact of the treatment for the capital gain associated with the divestiture of our Puerto Rico operation and contingent consideration adjustments. Additionally, in the quarter, we released a portion of our uncertain tax position, or UTP provisions, based on newly acquired information, which had a modest impact of lowering our effective tax rate. The resulting reported net income for the second quarter was a loss of 26.7 million and a profit of 7.8 million on an adjusted basis, an increase of 71.6%. GAAP fully diluted earnings per share were a loss of $0.39 and a profit of $0.11 on an adjusted basis, an increase from the prior year of 8.1%. Notably, the earnings per share for the quarter were based on weighted average fully diluted shares outstanding that were approximately 58.7% higher on a year-over-year basis due to the Progenics acquisition, which closed last June. Now turning to cash flow. Second quarter operating cash flow totaled 25.9 million as compared to a use of 2.2 million in Q2 2020. Capital expenditures totaled 2.7 million, up slightly from the prior year quarter. Free cash flow, which we define as operating cash flow less capital expenditures, was 23.2 million, an increase of 27.6 million over the prior year period. 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. Now turning to guidance for Q3 and the full year. We forecast revenue to be in a range of 95 million to 100 million for the third quarter of 2021, an increase of approximately 7% and 13% over the third quarter of 2020. The range takes PYLARIFY into consideration as well as ongoing strength of DEFINITY and the impact of the recurrent summer seasonality on sales. Additionally, we are updating our full-year view due to trends in our underlying core business. Therefore, we now forecast revenue to be in a range of 395 million to 402 million from the prior range of 390 million to 400 million. Lastly, during the quarter, it is important to note we made a strategic decision to exit one of our TechneLite contracts, which carries a $5 million net revenue impact on the second half of this year. Our revenue forecast for Q3 and full year have taken this impact into consideration. Regarding adjusted earnings per share, we remain committed to investing in revenue growth initiatives. Taken together, adjusted EPS should be in a range of $0.05 to $0.07 for the third quarter. We are raising our full year adjusted EPS to account for relative year-to-date outperformance, offset in part by incremental pipeline investments. As such, we now expect adjusted EPS to be in a range of $0.38 to $0.42 per share versus the prior range of $0.36 to $0.41. This forecast does not include a tax credit we anticipate applying for as part of COVID-19 related government programs in the near term. You can find more information on this topic in our 10-Q filed this morning. With that, let me turn the call over to Mary Anne.

Thank you, Bob. As you can see, the second quarter was a successful and productive one for Lantheus. With the approval and launch of PYLARIFY, strong DEFINITY performance, and continued financial strength informing full year guidance, we are confident about our growth momentum and our ability to deliver shareholder value. Before I open the call to questions, I would like to recognize the progress we've made not only this quarter, but also year-to-date, all against the uncertain backdrop of continued evolving global pandemic events. As always, the performance of Lantheus is made possible only by our committed employees who continue to work tirelessly to guarantee we best serve our patients, healthcare providers, customers, and shareholders who place their trust in us. I recognize, thank, and appreciate them for their efforts. With that, Bob, Paul, and I are now ready to take your questions. Operator, please go ahead.

Thank you. Our first question comes from Richard Newitter from SVB Leerink. Your line is open.

Thanks for taking the questions. Wanted to maybe start off on PYLARIFY contribution that's anticipated or baked into your outlook for the back half, if you could just give us a sense as to what you're assuming if anything for 3Q contribution? The consensus kind of had a 2021, about 5 million to 6 million placeholder in there. And in light of the $5 million impact that you mentioned exiting the TechneLite contract, I'm just curious about the moving parts there. Is that the right placeholder for PYLARIFY, or is PYLARIFY maybe a little higher now that you have approval? What you see there that counters that $5 million that’s coming out from TechneLite? Thanks.

Good morning, Rich. I'm going to let Bob take that one here. As you know, we're not giving specific guidance on product-specific guidance on PYLARIFY, but I'll let Bob give you some general range there.

Good morning, Rich. Regarding the guidance for Q4, it's clear that the launch is just starting. I believe the modeling has been done correctly. The TechneLite contract's performance is reflecting the strength of our core business. DEFINITY is performing exceptionally well, and we are pleased with its progress. As indicated by this morning's Q2 results, we are returning to pre-pandemic levels. There is some seasonality to consider, as Q3 is typically our lowest sales revenue quarter, while Q4 usually marks our highest revenue quarter of the year. The forecast has already taken PYLARIFY into account, as we had confidence in its approval moving forward. Overall, the modeling appears suitable as we initiate this phase. We have consistently stated that we anticipate 2022 to be the significant launch year for PYLARIFY.

Thanks. That's helpful. What was the reason for the contract exit at TechneLite? How do we think about that going forward? Is that just $5 million that kind of goes away forever and a new base? And then I'm just curious if not for that, would your guidance likely have been $5 million higher, all else equal?

Let me address this. The 5 million is for the entire second half, so think of it as evenly spread between Q3 and Q4. But Mary Anne.

Yes, I’ll address the larger issue of your question that doesn’t go away forever. These contracts are negotiated at this point almost on an annual basis. And that's more about the dynamics in the market that we see occurring really in the radiopharmacy market. And my stance on this, and we chose voluntarily not to enter into what we saw as a noxious contract, this particular contract. We had a similar situation back in 2015, where we took the same decision. And I will say, honestly, at the time, it was a much bigger decision for the company because at that time, that contract represented a much more significant piece of business for the company and on a much smaller revenue base. And we still took the stance to say that we would not enter into a noxious contract. We don't see it as being healthy for the market. And that's the same stance we're taking today. But I would not take it as a permanent decision. Back in that timeframe, within a few quarters, we were back in a contracted status with that customer. And that's I would say the nature of this market more than anything else.

Okay. But if you don't negotiate something on terms you find appropriate or reasonable, that will be an annualized $10 million that would theoretically kind of have to come out from whatever one was thinking about '22 prior. Is that right?

So I'm not going to agree with that statement, Rich, because that means that we would not change the amount of business that we have with the other players in the market and the other players in the market might not pick up more share of the market, and that is a fluid event that we see.

And your next question comes from the line of Anthony Petrone from Jefferies. Your line is open.

Hi. Thank you. A couple of questions. Mary Anne, first congratulations on again a strong year so far with PYLARIFY clearance. My questions would be on PET manufacturing facility clearances. I know you had several secured heading into launch and there was more coming on in the next six months, so just kind of looking to get an update there. How many will be in place starting in 2022? And then maybe a bit of an update on the CMS pass-through code, also an initiative that was evolving into 2022? And then lastly, I'll just throw it in just on the commercial side. Any updates there on reimbursement for PYLARIFY? Thank you.

Terrific. Good morning, Anthony. I'm actually going to let Paul speak to all that, because he's much closer to it. When you hear me, often some of those thoughts I usually get them right from Paul. So I'll let him address them directly.

Thanks for the question. So I’ll take it in two parts. The first part was related to the PMF activation and our rollout plans, and the second related to our CMS pass-through. So I'll take the first part. As we mentioned, we do have 12 PMF sites activated across the country, including the three largest metropolitan areas of New York, Southern California, Los Angeles, as well as Chicago. We do have plans to roll that out and to expand our commercial footprint across the major footfall cities in the United States to get to more than as you'll see on pylarify.com more than 30 sites by the end of the year, which would get us to the vast majority of coverage for the U.S. marketplace by year-end, which aligns as I segue to the second piece around our pass-through status. As we have conveyed, we do plan to submit our pass-through application by September 1 of this year, which would coincide with activation of pass through for the Medicare hospital outpatient setting, which is obviously very important for this patient community to go into effect January 1 of 2022, which would align with our PMF activation coverage to cover the majority of the market. And so we feel those two are very well synced to support continued growth on PYLARIFY not only through this year, but, as Bob mentioned, in 2022.

Thank you very much.

Thank you.

Anything else, Anthony?

Just my follow up would be on DEFINITY. Just in terms of looking at obviously ESG, there was procedure backlog due to COVID. It looks like certainly some of that came back in the quarter. So maybe just a little bit of an update on echocardiogram landscape? Is there a way to sort of quantify what the backlog still is at the moment if there is still one? And how long of a tailwind is that perhaps into later this year or early into '22? Thanks.

That's a somewhat complex question, Anthony. As Bob pointed out, this time of year typically sees a decrease in procedures due to both patients and staff being on vacation. We're trying to determine whether that slowdown will occur this year or if people will be more inclined to catch up on the backlog. We can only assess that after we review the data later, as we can't see it in real-time. However, so far, we have observed a strong rebound, and currently, DEFINITY performance is surpassing pre-pandemic levels. We believe that the increased performance is being driven by the underlying market for echo procedures. Nonetheless, we can't confirm that until we analyze the data retrospectively.

And our next question comes from the line of Larry Solow from CJS Securities. Your line is open.

Thanks, guys. Just a couple of sort of high-level questions. I realize you can't really quantify sales and whatnot, but just on the initial PYLARIFY sales, just curious if you have any anecdotal thoughts on doctor awareness, patient awareness as the drug came out or as the tracer came out on initial sales? Can you just give us any feel? Are they going towards docs or using Zoom? Are these new docs? Any color on that would be great.

Good morning, Larry, and thank you for joining the call. As we mentioned, we won't provide specific data on PYLARIFY sales, but I'll let Paul discuss that. We were quite pleased with the coverage that PYLARIFY received at launch, and Paul can share more details on that.

Yes, absolutely, Mary Anne. So I think we're incredibly pleased, right, the PYLARIFY, the first and only commercially available FDA approved PSMA PET imaging agent was picked up by many media outlets across the country. We have seen, as we've mentioned, PYLARIFY be ordered at multiple types of centers, whether that's freestanding imaging centers, hospitals, or government facilities. The vast majority of these are already ordering multiple scans. And so we have seen strong uptake. I would note that with the approval, we received activation of two specific PMFs, and we've been rolling that out more where we are now up to 12 as of the middle of July. It is important to note that as I mentioned in building out our commercial infrastructure, we are driving awareness. There was significant media attention. Physicians and the healthcare community are certainly aware of PYLARIFY and what this product could mean to the U.S. prostate cancer community. But we do have our own dedicated marketing and sales teams that are out there making sure that physicians, healthcare professionals, and imaging centers are aware of the benefits of PYLARIFY, as Mary Anne noted the four major benefits. We’re out there actively ensuring that we are not only making awareness but building the market to ensure that we have a successful launch this year and in years to come.

I think, Larry, we have to be somewhat humble about this. We'd like to believe that it's on the tip now with everybody telling this is a classic launch where you have to build awareness, we're building up the PMF network, and then we were also, as Paul said, building what is the slow and steady awareness of what the benefits of the product are, how to use the product, where to use the product? We're confident that that will all come to fruition, but we're taking it very seriously as a very classic launch of what will be a long-held product in the market, and that's how we're treating it.

Yes, absolutely. Can you just help just in terms of building out your SG&A infrastructure, particularly on the sales and marketing side? Obviously, you're at a run rate now of I think like 65 million, 70 million, up from like 40 million the last couple of years pre-Progenics, pre-PyL. Do we see significantly more increases in this number? Does it go to 100 over the next couple of years, or is it just more or less continue to grow, but maybe not that fast? Any clarification there would be great.

Thank you, Larry. I tend to keep a close watch on the financials. The increase you noticed from Q1 to Q2 is how you should think about our operational expenditures, which I mentioned would be around $40 million to $45 million. In the latter half of the year, we reported $42.8 million for this quarter. It might be slightly higher, largely due to activities in research and development. However, you can expect our spending to normalize and stabilize near the current level. I don't foresee a continued increase in expenses. I anticipate profitability will start to show, particularly looking at Q4 and the following quarters, as we reach the peak spending level necessary for sustainable revenue growth. We've been making proactive investments to support our commercial teams and R&D while keeping our back office in check, which has allowed us to reinvest in the near term for long-term sustainable growth. I expect our gross margin to keep improving while expenses level off.

Okay. I noticed in the Q that the fair value of the CVR related to PyL, PYLARIFY actually increased. Is that mainly because you received approval and it's now on the market, bringing you closer to meeting some of those thresholds? Can you provide any additional insights on this?

To determine the continuing liability in this case, fair value is assessed using the current internal forecast. This is then processed through a Monte Carlo simulation, which incorporates volatility assumptions alongside an appropriate discount rate. The discount rate reflects factors such as whether risks have been mitigated, whether something has been approved or not, and if there are remaining execution risks. This process involves multiple inputs and outputs. It's important to note that this valuation is determined quarterly, meaning that any changes in inputs can affect the value of the contingent liability. This should not be interpreted as a long-term forecast or guidance; rather, it is an accounting method that takes various factors into account as we look ahead.

Okay, great. Fair enough. Just one last question about DEFINITY. You mentioned that the market opportunity remains significant. Is there any reason to believe that as we move past some of the disruptions from COVID, which we hope will diminish, and perhaps starting in 2022, DEFINITY can't return to double-digit growth? It might not reach the 20% growth we saw in previous years, but is it reasonable to expect double-digit growth?

We are already surpassing pre-pandemic levels and seeing performance that aligns with what we experienced before the pandemic. However, we need to be realistic because the range you mentioned reflects our situation. Before the pandemic, our growth was already not at 20%, but rather in the double digits, as you pointed out.

Right, high teens rather than mid-teens.

And this is something that we do want to highlight because of the importance of DEFINITY to our forecast and revenue. So you'll see the DEFINITY performance throughout this quarter.

Yes. When I analyze the two-year stack, particularly for Q2, that figure is approximately 17%. This reflects our performance and gives us confidence in whether we are returning to pre-pandemic levels. It appears to align with the growth we anticipated, as Mary Anne mentioned regarding backlog, though we won't have clarity on that for some time. This suggests a more normalized market environment.

And I'll say and Paul can weigh in here as well. It's a significant asset for us. We have a dedicated business team too. Paul and team did a great job earlier this year as we do every year looking at what are the resources needed to continue to support this asset?

I think we remain very optimistic about DEFINITY’s future as we're coming up on the 20th anniversary of DEFINITY’s FDA approval at the end of this month, but we believe the market opportunity for this agent remains significant. There are still a significant number of suboptimal echoes out in the marketplace that could benefit from the use of an ultrasound enhancing agent. And we maintain our 80% market share as the contrast agent of choice, and believe that DEFINITY sales will continue to grow in the future.

We are very optimistic about DEFINITY’s future as we approach the 20th anniversary of its FDA approval at the end of this month. We believe the market opportunity for this agent is still substantial. There are a considerable number of suboptimal echoes in the market that could benefit from using an ultrasound enhancing agent. We maintain our 80% market share as the preferred contrast agent and believe that DEFINITY sales will keep growing moving forward.

Excellent. I appreciate all the color, guys. Thanks a lot.

You’re welcome.

And our next question comes from the line of Erin Wright from Credit Suisse. Your line is open.

Hi. Thanks. How are you thinking about the potential tailwind from Novartis’ potential prostate cancer therapeutic? Could that be meaningful for you? And then a second kind of question here, just given some of the protocols associated with Biogen’s Alzheimer's approval could increase PET scans tied to that approval that all represent an opportunity for you as well.

Good morning, Erin. This is Mary Anne. You raise an excellent point about the broader market and the significance of isotopes and PET scans within it. We're particularly excited about the Alzheimer's product, as it highlights the importance of PET scanning and companion diagnostics, which we see as a strategic focus for the future of Lantheus. While we are not solely focused on Alzheimer's, we aim to be heavily involved in the bigger picture of using isotopes and related products for both diagnostic and therapeutic purposes. Regarding the Novartis product, we are pleased with its market entry and the efficacy results, especially since we have similar products in our pipeline. This underscores the positive impact companion diagnostics is poised to have. As I mentioned earlier, PyL has been selected as the companion diagnostic for companies like Regeneron, Bayer, and POINT Biopharma. This highlights what we are achieving with our pharma services group, which is becoming the preferred partner for clinical development, enhancing the efficiency of this process and ensuring patients receive therapies with a greater chance of being beneficial. These decisions are being made earlier in clinical development, and we are excited to be involved in that process.

Okay, great. And then on DEFINITY, could you give us an update on the competitive landscape, what you're seeing now and where market share stands? Is it still roughly in that 80% sort of range? Thanks.

I’m going to let Paul speak to that because he’s much closer to it.

Thanks, Mary Anne. Yes. So on the competitive dynamics, we still see ourselves as the market leader, with roughly 80% share of the U.S. marketplace. We see continued growth. We have maintained our leadership position and remain the contrast agent of choice across the marketplace. And so we remain very pleased after 20 years to still be able to be the preferred partner across echo labs around the country and continue to grow as we support our customers and ensure they understand the benefits that DEFINITY brings to their practices.

Okay, great. Thank you.

And we do have a follow-up question from Richard Newitter from SVB Leerink. Your line is open.

Hi. Thank you for taking the follow-up. Just because I'm getting asked the question, I'm just going back to what I had asked earlier. I want to make sure I'm clear. The $5 million impact of TechneLite that gets spread out evenly roughly between 3Q and 4Q, I guess just if not for that, given that you're still raising your full year guidance, would your guidance have gone up by even more? In other words, if not for that, would PYLARIFY’s momentum underlying getting baked into your backup guide as continuing and therefore that marginally offsets some of the headwind that that TechneLite creates?

Yes, it is indeed an ongoing trend with DEFINITY, considering seasonal factors, that contributes to the overall difference. There are numerous components at play, including the timing of Neurolite and Cardiolite. This is fundamentally tied to DEFINITY’s core business. We also have some PYLARIFY factored into our results. Although if we had not encountered the impact of TechneLite, our guidance could have been slightly higher. However, we also need to consider the external environment in which we are operating. Despite the presence of the Delta variant, which is receiving a lot of media attention, it hasn't created a significant headwind for us. We are cautious in our outlook but maintain confidence in our core business, which is performing exceptionally well and is reflected in our results. This success has allowed us to adjust our full-year guidance based on our strong performance so far and our projections for the remainder of the year.

Okay, that's helpful. Thank you. And just two other product questions on AZEDRA and RELISTOR. First on AZEDRA, you said you had a lot of promise in Q2. It sounds like you're really building a stage for a much steeper or setting a stage for a much steeper kind of sequential ramp moving through the year into '22. But is that the right way to think about it? And how much of a contributor should we be thinking about for AZEDRA in 2021, or is this really going to be a 2022 product? And same thing with RELISTOR. What's the run rate? Is the performance you saw in Q2 kind of sustainable by quarter going forward?

Yes, Rich, I want to clarify my earlier comments. It's encouraging to hear that you found my remarks promising. However, it's important to understand the context. When we discuss significant growth, we need to consider our starting point. My previous remarks emphasized that our access to customers was significantly hindered during the pandemic due to our lack of established relationships with them, which is something Lantheus had prior to the acquisition. Those relationships were fairly nascent and quickly disrupted by the pandemic. Recently, we've seen improved access to those customers, allowing us to begin implementing our plans for the acquisition. Our goal has always been to enhance how we engage with patients, caregivers, and healthcare providers, which is crucial for raising awareness about AZEDRA. We're starting to see positive outcomes, particularly in the second quarter, which marks the beginning of what we believe could be optimal potential for this product. However, I want to emphasize that AZEDRA is not comparable to PYLARIFY in terms of revenue potential, as it addresses an orphan disease. Nonetheless, as a company, we remain committed to maximizing the value of our assets, including AZEDRA. So while the terms promising and ramp are fitting, it's essential to understand the baseline from which we're growing. I also want to mention that Kate Holland is a valuable addition to our team. Having previously worked with her, I am confident in her capabilities. With our current team and resources, we believe we can effectively support AZEDRA and the patients in need. One of the encouraging signs is that more treatment centers have started offering AZEDRA, which is excellent news for patients requiring this treatment.

Yes. And one, just to level set too on size and you can look at our radiopharmaceutical oncology which is where AZEDRA sits from a total revenue contribution perspective. It is the main driver of that number, which I have noted. At RELISTOR, we have continuously be able to tell people at a pretty steady stream, which has ranged between $4.5 million and $5 million. We're trending toward the higher end of that range in more recent quarters, and we're very pleased with the ongoing contribution that we're seeing from our partner. And at this juncture, we don't control it. So we can't sort of speak to what the future trends might be, but what we're experiencing now is very solid and very pleased with it.

Okay. Thank you.

Thank you for your participation in today's conference. This marks the end of the program. You may now disconnect and have a wonderful day.