Lantheus Holdings, Inc. Q4 FY2021 Earnings Call

Good morning, ladies and gentlemen. And welcome to Lantheus Fourth Quarter Full Year 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 Investor Section of the company's website, approximately two hours after the completion of the call and will be archived for 30 days. I'll now turn the call over to your host for today, Mark Kinarney, Senior Director of Investor Relations. Mark.

Thank you and good morning. Welcome to Lantheus' fourth quarter and full year 2021 financial results conference call. With me on today's call are Mary Anne Heino, our President and CEO, Bob Marshall, our Chief Financial Officer, and Paul Blanchfield, our Chief Commercial Officer. Mary Anne will begin the call with introductory remarks and then turn the call over to Paul to provide a commercial update. Bob will cover our financial results and provide 2022 financial guidance, and Mary Anne will provide 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 fourth quarter and full year 2021 results. You can find our release in the investor section of our website at lantheus.com. For those of you not on the webcast, you can find the slide presentation on 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 hospital staffing levels and the impact of COVID-19 on our business results and outlook continue 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 on the Investors section of our website. With that, it's my pleasure to now turn the call over to Mary Anne.

Thank you, Mark. And good morning to everyone joining us on today's call. I hope all of you are safe and healthy. 2021 was an incredibly exciting and productive year for Lantheus. As you can see from our fourth-quarter and full-year results, we have significantly progressed our strategy to accelerate growth, diversify our portfolio, and position Lantheus as a category leader in the markets in which we compete. 2021 was a year of significant achievement across our portfolio, and I'll take a few minutes now to summarize our accomplishments. In our prostate cancer franchise, we launched two products in 2021. First, PYLARIFY, which received priority review designation in December 2020 and was approved by the FDA in May as the first commercially available PSMA-targeted PET imaging agent for prostate cancer. As a reminder, PYLARIFY is an F-18 labeled PET imaging agent that enables visualization of lymph nodes, bone, and soft tissue metastasis to determine the presence or absence of recurrent metastatic PSMA-avid prostate cancer. We've been thrilled with the progress of the PYLARIFY launch, and I'm excited to announce that fourth quarter sales exceeded $35 million. During the quarter, we made outstanding progress across all our major business drivers: supply, contracting, market access, and customer adoption. We have significant momentum going into 2022 with market access and customer demands continuing to be key drivers. Paul will give you further details on the launch to date in a few minutes. Along with our efforts to launch PYLARIFY, we have also partnered with several companies, including Bear, Regeneron, and POINT Biopharma to embed the Simpolo Stat, FAT imaging, which I will refer to as PYL, into their prostate cancer therapeutic trials to assess PSMA expression. Similarly, we've incorporated PYL into our own PSMA-targeted therapeutic ARROW Phase 2 trial of 1095 to test for PSMA avidity. During 2021, we also announced a development and commercialization collaboration with Reflexion in utilizing PYL. The collaboration is evaluating the use of PYL to enable real-time therapeutic guidance of biology-guided radiotherapy, with the goal of improving treatment options for prostate cancer patients. Our second product in our PSMA-targeted portfolio is PYLARIFY AI, which was cleared by the FDA just two months after PYLARIFY's approval. PYLARIFY AI is the first and only FDA-cleared artificial intelligence-enabled PSMA digital application that demonstrates increased efficiency and reproducibility of clinicians' PSMA PET-CT image assessments, which we believe provides a distinct advantage for our prostate cancer franchise. With FDA clearance, we are working to advance the utility of AI-enabled imaging diagnostics in prostate cancer. Just last month, we announced a collaboration with the prostate cancer clinical trial consortium, or PCCTC, a premier multicenter clinical research organization that specializes in cutting-edge prostate cancer research. The intent of this strategic collaboration is to integrate Lantheus' AI platform into early phase PCCTC studies to advance the discovery, development, and validation of novel AI-enabled biomarkers. For our microbubble business in 2021, DEFINITY sales continued to grow despite a year challenged by hospital staffing and other COVID-related issues, all during which we maintained our market leadership position. In October 2021, we submitted a supplemental new drug application, or SNDA, for our on-campus manufacturing facility for DEFINITY, which we call Genesis. I'm pleased to announce that we received FDA approval earlier this week. This facility provides us with supply chain redundancy and the opportunity for margin expansion as we progressively include inventory from this manufacturing line into our supply chain. In 2021, we successfully manufactured batches of DEFINITY at our Genesis facility so that the product will be ready for commercial sale upon FDA approval. I'm pleased to announce that we have already begun shipping DEFINITY from our Genesis manufacturing site to our customers. Additionally, earlier this month, we entered into a new manufacturing and supply agreement with our longstanding DEFINITY manufacturer, JHS. Between our Genesis facility and our partner JHS, we believe we will have sufficient supply of DEFINITY to meet our expected demand well into the future. In 2021, we entered into another strategic collaboration for our microbubble franchise. This collaboration is with Allegheny Health Network, or AHN. AHN is investigating our microbubble technology in combination with their ultrasound-assisted gene therapy for the development of a treatment for xerostomia, a chronic and debilitating condition with limited treatment options currently available for patients. Turning to TechneLite, sales remained stable during 2021 as compared to the prior year. We successfully navigated the negative impact of both the Delta variant and the COVID infection rate spikes on supply chain logistics and continuously delivered our just-in-time generators to our customers throughout the year. AZEDRA, as a hospital-based product, was impacted by staffing and other COVID-related challenges over the course of 2021. This did negatively impact demand. As such, in 2021, we focused on building out our commercial and medical-based field market model for AZEDRA and introduced new marketing initiatives to increase awareness of pheochromocytoma and paraganglioma, or PPGL for referring physicians and AZEDRA as a treatment option for their patients. We are pleased to see additional centers of excellence during the network of those centers offering AZEDRA treatment. We believe when hospital conditions permit, our team is well-positioned to drive usage of AZEDRA in PPGL patients. Finally, during 2021, we advanced our pipeline with prudent investment. In March, we announced that we acquired exclusive worldwide rights to develop, manufacture, and commercialize a novel imaging biomarker targeting fibroblast activation protein or FAP. We believe FAP is a promising target for cancer imaging and has broad potential to inform diagnosis and staging to guide patient selection for therapy, and to monitor response to treatment across multiple tumor types. We are pleased to partner with a very experienced team led by Dr. Alan Greene and Dr. John Babich, both proven experts in the development of radiopharmaceuticals to move this agent into clinical trials. We announced on our third quarter earnings call the completion of an interim analysis of our ongoing Phase II study of 1095, our PSMA-targeted therapeutic. The Independent Data Monitoring Committee recommended the study continue without modification. As a reminder, the ARROW study is a multicenter, randomized, open-label, controlled Phase II clinical study, evaluating the efficacy and safety of 1095 in combination with enzalutamide compared to enzalutamide alone in patients with metastatic castration-resistant prostate cancer who are PSMA-avid, chemotherapy naive, and have progressed on Abiraterone. As you can see, over the course of 2021, we've made significant progress on our strategy to accelerate growth, diversify our portfolio, and position Lantheus as a category leader in the markets in which we compete. In 2022, we are committed to continuing this same level of progress. Now, I'll turn the call over to Paul for a commercial update on our key products.

Thank you, Mary Anne. And good morning, everyone. During the fourth quarter, our commercial teams were productive in establishing PYLARIFY as the PSMA PET imaging agent of choice for the U.S. prostate cancer community, and growing DEFINITY while maintaining our market-leading position. Starting with the PYLARIFY launch, as Mary Anne mentioned, during our second full quarter since approval, we made significant progress across our major business drivers: supply, contracting, market access, and customer adoption. This momentum has translated into fourth-quarter sales of $36 million and full-year sales of $44 million. We expanded our PET manufacturing facility, or PMF network from 18 to 21 activated sites, which in turn increased geographic coverage for the share of the U.S. population we can reach through this network from two-thirds to now approximately 80%. We also invested in our capacity at existing PMF sites by adding additional synthesis boxes and securing additional time on cyclotrons, while still selectively flying doses into certain markets, including Florida, Colorado, and Utah, in advance of PMF activation in these remaining regions. This facilitates patient access to PYLARIFY, and it allows institutions to embed PYLARIFY into their prostate cancer workflow. Our broad manufacturing network, and increased capacity along with a longer half-life, enables us to deliver doses to adjacent geographies, allowing us to efficiently and continually meet the needs of our customers and we think will prove a competitive advantage when competition becomes available. In 2022, we will continue our efforts to increase PYLARIFY supply through ongoing geographic expansion, as well as increased capacity at existing sites. Regarding market access, specifically coverage coding and payment, our pass-through application to the Centers for Medicare & Medicaid Services or CMS, was granted in November and went into effect January 1st, 2022. Transitional pass-through payment status enables traditional Medicare to provide an incremental payment for PET-CT imaging done with PYLARIFY in the hospital outpatient setting. As we mentioned last quarter, we received notification that our HICS fix code, which enables streamlined billing, also went into effect as of January 1st. We believe the activation of pass-through payment status and our HICS fix code with PYLARIFY further facilitates patient access to our game-changing PSMA-targeted imaging agent for prostate cancer. We are also making progress in coverage of both indications with Medicare Administrative Contractors or MACs as well as with radiology benefit managers or RBMs and traditional commercial payers. As I shared last quarter, the majority of MACs have either paid claims, published guidance, or have indicated they will cover PYLARIFY usage in our approved indications. In addition, two major RBMs and a number of commercial payers have recently enacted policies to cover PYLARIFY in both recurrent and metastatic indications. And we expect additional commercial payer policy reviews to take place in the coming months. During the fourth quarter, we remained heavily focused on contracting. By year-end, we had contracts in place with almost 90% of our targeted academic institutions in the U.S. who treat prostate cancer, as well as many community hospitals, government facilities, and freestanding imaging centers. From a demand perspective, we are very pleased with the underlying trends and the range of ordering across our customer base, with hospitals comprising 63% of orders. Even prior to pass-through initiation. Independent imaging centers and government facilities represented 27% and 10% respectively. We are also encouraged by the rate of repeat demand, increasing quarter-over-quarter with over 90% of customers having ordered multiple doses. We are also excited to announce that we have partnered with Palette Life Sciences, a global medical device company in the prostate cancer space, to have their dedicated U.S. urology and radiation oncology sales team support the promotion of PYLARIFY. This partnership will fortify our existing promotional efforts, as well as that of our PMF partners, and enable us to build on our success in educating even more referring physicians on the availability and unique benefits of PYLARIFY. We expect this partnership to be operational in April 2022. As Mary Anne mentioned, we received FDA clearance for PYLARIFY AI this past summer and launched the product at the annual meeting of the Radiological Society of North America, or RSNA at the end of November. We believe PYLARIFY AI provides a distinct advantage for PYLARIFY. PYLARIFY AI is designed to provide enhanced consistency in quantitative analysis and precise anatomical context and ten enabled quantitative reporting. Collectively, these benefits potentially contribute to increased reader efficiency and reproducibility of PSMA PET-CT image assessments. Both our internal AI team and our partners' sentiment have been working to introduce the software at key centers and begin demonstrations with current PYLARIFY customers in December. Finally, I want to provide you with an update on the total addressable market for PSMA PET imaging agents. We currently believe the market potential could be up to 220,000 annual scans, an increase from the 170,000 scans we previously estimated. These 220,000 scans consist of approximately 90,000 scans for men who have intermediate unfavorable, or high, or very high-risk of suspected metastases of prostate cancer, and approximately 130,000 scans for men with suspected recurrence. We revised our prior estimates based on PYLARIFY's broad label, and NCCN and SNMMI guidelines, as well as our refined understanding of how PYLARIFY is being used in clinical practice. This translates into a total addressable market for PSMA PET imaging agents of more than $900 million. The market could be further expanded by additional scans coming from further use of PSMA PET imaging agents if and when PSMA-targeted therapeutic agents are approved. Needless to say, we are excited about the launch and reception of PYLARIFY today and believe there is significant potential for us to grow the business and ensure PYLARIFY remains the PSMA imaging agent of choice in the U.S. prostate cancer community. Switching now to DEFINITY. The fourth quarter saw continued growth in year-over-year sales, even amidst hospital staffing and COVID-related challenges. DEFINITY has been impacted by hospital nursing and staffing shortages, and we expect these headwinds to affect the first quarter of the year. We also saw an increase in the portion of our promotional efforts done remotely. Despite this, we still maintain greater than 80% market share of the ultrasound enhancing agent market and grew our business 19% for the year and 6% in the fourth quarter. As Mary Anne Heino mentioned, we are committed to sustainable growth in existing and new markets for DEFINITY. During the fourth quarter, we shipped our first vials of DEFINITY RT as well as our enhanced vial mix, our ID, which is used to activate DEFINITY doses. With DEFINITY RT, customers now have the added choice of a room temperature formulation in addition to our market-leading refrigerated DEFINITY. This enables those customers who prefer a non-refrigerated product to be able to benefit from our DEFINITY microbubble products. As you can see, we made significant progress in the launch of PYLARIFY and have continued to grow DEFINITY while maintaining our market leadership position. I will now turn the call over to Bob for a financial update.

Thank you, Paul. And good morning, everyone. I will provide highlights of the fourth quarter and full-year financials focusing on adjusted results, unless otherwise noted. Turning now to the results. Revenue for the fourth quarter was $129.6 million, an increase of 37.6% over the prior year quarter, a comparison that includes our now divested Puerto Rico operation. On a year-to-date basis, revenue for the full year was $425.2 million, an increase of 25.3% on a similar comparison. Beginning with precision diagnostics, revenue of $87 million was 0.8% higher for the prior year quarter. Sales of DEFINITY, net of rebates and allowances, were $59.3 million, or 6.1% higher as compared to the prior year quarter. DEFINITY closed out 2021 with $232.8 million of net sales, an increase of 18.8% over the prior year. TechneLite net revenue was $22 million, down 1.5% from the prior year quarter due to an exited radiopharmacy contract, which occurred at the start of Q3 2021, offset in part by opportunistic generator sales to a key partner of $2.2 million. During 2021, opportunistic generator sales contributed a total of $6.1 million of TechneLite's total $91.3 million, which was up 7.5% year-over-year. Within other precision diagnostics, Xenon's performance has continued at similar levels, remaining consistent throughout 2021 and since the start of the pandemic. Radiopharmaceutical oncology contributed $35.7 million of sales in the quarter, up 1,300% from the prior year quarter, attributable to accelerating PYLARIFY sales as noted by Paul earlier. As was the case in Q3, AZEDRA was down sequentially, as usage remains more susceptible to hospital access for both patients and sales representatives during heightened measures to control COVID-19 surges. Lastly, strategic partnerships and other revenue was $6.8 million, up 29% in the prior year quarter, driven primarily by the RELISTOR royalty stream. Gross profit margin for the fourth quarter was 56.5%, an increase of 676 basis points over the fourth quarter of 2020 on a similar basis. Gross profit margin is slightly higher than forecasted for the quarter based on product mix with PYLARIFY volumes driving higher contribution, offset by slightly lower than expected contribution from DEFINITY and AZEDRA. Operating expenses were 153 basis points favorable to the prior year at 34.8% of net revenue, and within previously guided spending levels. As I noted in the prior quarter, we intend to continue driving PYLARIFY sales with increasing effort around product awareness, market access, contracting activities, and activated PMFs, as well as supporting DEFINITY with a mix of in-person and virtual sales and marketing activities. R&D was higher on a dollar basis but in line with prior year spending levels as a percentage of revenue, reflecting costs associated with ongoing pipeline advancement. G&A improved 270 basis points as a percentage of revenue in the quarter and was a key driver of overall leverage from operating expenses. Operating profit for the quarter was $28.2 million, an increase of 122.3% over the same period the prior year. Total adjustments in the quarter totaled $63.5 million of expense before taxes. Of this amount, $4.2 million and $8.4 million of expenses were associated with non-cash stock and incentive plans and acquired intangible amortization, respectively. Also in the quarter, we recorded a $43.9 million net expense adjustment to contingent assets and liabilities, including the PYLARIFY CVR contingent liability. Additionally, the company recorded an expense of $5.4 million related to an acceleration of our asset retirement obligation due to a change in estimated useful life assumptions for certain of our manufacturing assets. The remainder is related to acquisition, integration, and other nonrecurring expenses. Our effective tax rate or ETR was 23.5% in the quarter. During the quarter, we released yet another portion of our uncertain tax position or UTP provisions, dating back to our 2008 sale from BMS for which we are fully indemnified, based on newly acquired information. The release flows through other income as an expense and through the tax provision as a benefit. The net result does not have an effect on net income but does distort the underlying ETR for the period. The full-year ETR was 19.8%. The resulting reported net income of the fourth quarter was a loss of $40.2 million and a profit of $17.2 million on an adjusted basis, an increase of 276%. GAAP fully diluted earnings per share were a loss of $0.59 and a profit of $0.25 on an adjusted basis, an increase from the prior year of 263.5%. On a full-year basis, GAAP fully diluted earnings per share were a loss of $1.06 and a profit of $0.49 on an adjusted basis, an increase of 4% over the prior year. Now, turning to cash flow, fourth quarter operating cash flow totaled $13.9 million, as compared to $0.6 million in Q4 2020. Capital expenditures totaled $4.5 million, up $0.8 million from the prior year quarter. Free cash flow, which we define as operating cash flow less capital expenditures, was $9.3 million, an increase of $12.6 million from the prior year period. The main driver of the year-over-year variance is attributable to increased profitability, unfavorable product mix and volume, as well as increasing overall P&L leverage. Cash and cash equivalents net of restricted cash now stands at $98.5 million. We continue to have access to our $200 million undrawn bank revolver and are comfortable with our strong liquidity position. Late in January, we entered into a global settlement agreement with Novartis and its affiliates to settle certain intellectual property disputes. The settlement agreement includes, among other things, the dismissal of litigation in Germany related to PSMA-617, a PSMA-targeted radiopharmaceutical compound under development by Novartis for the treatment of prostate cancer, and the resolution of other certain proceedings. Under the agreement, we will cross-license certain patent rights to one another, and Novartis will make a $24 million lump sum payment to us. This item is outlined in our 10-K filed this morning. Additionally, this benefit has not been considered when either our full-year or first-quarter 2022 guidance, which I will now turn to. We expect growth to be driven by PYLARIFY, supplemented by resilient growth profile from DEFINITY. Within precision diagnostics, we expect high single to low double-digit growth from DEFINITY for the full year 2022, while TechneLite will look much the same as 2021 after adjusting for the exited customer contract. As a reminder, that decision had a $10 million full-year impact which started in Q3 of last year. Additionally, we don't typically forecast for opportunistic sales of TechneLite, which had amounted to $6.1 million in 2021 base, as I have already noted, radiopharmaceuticals oncology, we've driven via PYLARIFY and modestly by AZEDRA. Our AZEDRA forecast does assume, however, that COVID-19 variant impacts on hospitals lessen and sustain throughout 2022. We forecast PYLARIFY to be in a range of $300 million to $325 million for the full year. Taken together with other revenue contributors, we estimate full-year revenue to be in an approximate range of $685 million to $710 million, an increase of approximately 60% to 65% over 2021. For modeling purposes, both gross profit margin and operating expenses as a percentage of revenue are expected to be several percentage points improved over Q4 2021 metrics, with favorable product mix and volume along with ongoing spend to capture and retain market share while investing in technology to drive efficiencies longer-term. Therefore, for the full year, we expect fully diluted adjusted earnings per share to be in a range of $1.95 to $2.05. For the first quarter, net revenue should be in a range of $160 to $170 million. As I have noted, our guidance considers the tangential impacts of COVID-19, notably on DEFINITY, AZEDRA, and Xenon, offset by ramping PYLARIFY sales. To assist with models, DEFINITY will likely be flat to Q1 2021 due to the aforementioned early quarter COVID impacts, while PYLARIFY should be in the $70 to $80 million range based on January trends. Fully diluted adjusted earnings per share should be in a range of $0.45 to $0.50. Lastly, for modeling purposes, depreciation and amortization for the full year 2022 should be approximately $12 million and $37 million respectively, generally spread evenly throughout the year. With that, let me turn the call back over to Mary Anne.

Thank you, Bob. In closing, 2021 was marked by the successful launch of PYLARIFY and another solid year of revenue in market leadership for DEFINITY. We diversified our revenue stream and ended the year with nearly $100 million in cash. In 2021, we executed on our strategy to accelerate growth, diversify our portfolio, and position Lantheus as a category leader in the markets we serve. In 2022, we look to further establish PYLARIFY as the PSMA PET imaging agent of choice in the U.S. prostate cancer community, maintain market leadership with our microbubble franchise, execute strategic transactions in line with our portfolio objectives, and deliver on our financial objectives, which we believe will allow us to continue to deliver strong shareholder value. In closing, I would like to thank all Lantheus employees for their dedication and commitment to our patients and their unfailing passion for our purpose, to find, fight and follow disease. It is their commitment that continues to make what we achieved possible. With that, Bob, Paul, and I are now ready to take your questions. Operator, please go ahead.

Thank you. Please standby as we compile the Q&A roster. Our first question comes from Danielle Antalffy from SVB Leerink, your line is now open.

Hi, good morning, guys. Thanks so much for taking the question and while on the quarter and guidance, that's amazing. So just curious. I appreciate you're increasing the TAM, number one, just what's the go-to-market if adding intermediate risk patients into the TAM changes that go-to-market strategy sort of what's the confidence that you can capture those patients? And also curious how you're thinking about penetration based on your guidance for PYLARIFY and where that can ultimately go in and how quickly. And then I have one follow-up.

Sure. Good morning Danielle and I am going to turn you over to Paul Blanchfield for that question.

Thanks so much, Danielle. So as I mentioned, we've obviously been looking at the total addressable market and we've upped our view of that market to 220,000 scans on an annual basis. We've upped that based on, as I mentioned, the label that we have for the risk of metastases prior to definitive therapy, as well as guidelines from SNMMI and the NCCN, which have combined with medical practice, expanding how physicians and payers are looking at the use of PYLARIFY for the risk of metastasis to not just very high, but to high as well as intermediate. And so from a go-to-market model, we have always been viewed as looking at both the nuclear market as well as the referring physician market, meaning those that are actually doing the treating and the referring physicians that are writing the prescription. And so, it doesn't necessarily change our go-to-market model. But we will see that continued investment, as I highlighted, an expanded partnership with Palette Life Sciences, who will focus on in addition to our efforts, as well as that of our PMF partners to promote PYLARIFY in the referring physician space. And so it doesn't change our view of the market other than we believe it to be larger, but our go-to-market model remains consistent and we remain incredibly focused on promoting PYLARIFY to both the nuclear imaging physicians, as well as referring physicians, and ensuring that our first and only commercially available PSMA PET imaging agent remains the product of choice.

Got it. Sorry. Go ahead.

I said with regard to the total addressable market, we obviously mentioned that it's north of $900 million with the guidance that Bob provided, we can do the math on what penetration that would be today, but we continue to see growth into this market going forward.

Got it. I'm sorry to interrupt you. So, just a follow-up question on that and that's related to competition and what you're seeing there. I mean, it seems a little silly to ask the question based on your guidance. But just any early indications on how the competition is impacting your PYLARIFY adoption? Thank you so much.

Absolutely. Well, today, we do remain the only commercially available PSMA PET imaging agent in the marketplace. We have contemplated competition. We are very well aware of competition, which has been factored into our guidance. But currently we remain focused on maximizing the potential of PYLARIFY, both today and in the future through our promotional efforts, including the launch of our AI, as we talked about in the fall. And so that's been factored into our progress to date and our guidance going forward. But we remain focused on ensuring that PYLARIFY remains the best in class and preferred PSMA agent of choice.

Thank you.

And thank you. And our next question comes from Zach Wiener from Jefferies. Your line is now open.

Thank you for the question and congratulations on a fantastic quarter. I have a couple of inquiries, starting with the PMF site cadence throughout the quarter and expectations for 2022. Where do you anticipate being as the new year unfolds? Additionally, could you provide some insights on the margin benefits from PYLARIFY and the impact of bringing DEFINITY manufacturing in-house? What is the difference between the two? Thank you.

Good morning. Thank you for your question. Regarding your inquiry about PMF, we've mentioned from the beginning of the launch that this is an ongoing build-out that we will continue to prioritize. Paul highlighted the progress we made by year-end. As he also noted, we will keep expanding our PMF network to meet our needs in the market, which we achieve in two ways. We consistently add new PMFs, and for the PMFs we are currently utilizing, we increase capacity by incorporating more synthesis boxes, which are the manufacturing units where PYLARIFY is produced. This is an effective way to enhance capacity at existing sites while also adding new PMFs. As Paul pointed out, we are already covering about 90% of the U.S., and he mentioned regions where we are still delivering doses, correcting my earlier statement to 80%. Going forward into the rest of 2022, we will strive to increase that coverage in the areas we can reach. This is an ongoing expansion, and we will keep you informed throughout the year. Bob and Paul, do you have any additional comments on this?

No, Mary Anne, I think it's a build-out. It's rolling out additional PMFs, but it's also expanding capacity of those as we highlighted. So we're comfortable with our supply position but continue to build that capacity as the first and only commercially available agent.

I apologize. I think it was the contracting figure that was the 90% target that we had reached.

So regarding gross margin contribution, it's clearly being driven by PYLARIFY. To recap some numbers, in the quarter, gross margin was 56.5%, and for the full year, it was 52.7%. You can see that as PYLARIFY is increasing, it is one of the largest contributors to that growth, which also informs our gross margin model for 2022. In terms of ongoing drivers, I've mentioned that it will come from a few key areas. These include continued growth of DEFINITY and the ramp-up of PYLARIFY, which is evident. We have confidence looking ahead regarding our on-campus manufacturing facility in Genesis. While it is still early in the product rollout, it will contribute. As we move further into the future, this will involve dual supply, so we will be managing inventory with the product we have along with what we receive from our partner at JHS. Thus, that contribution will take time to materialize but will still be present as we seek to leverage that investment.

That's helpful. And then one more, just on DEFINITY room temperature. Going forward, I guess in 2022, where do you expect the mix to be between the legacy product and RT version? And is there any margin benefits to RT or ASP increase to the RT versus the legacy product? Thanks for taking the question.

You're welcome, Zach. And we've never spoken to an intentional mix of the two products or trying to create an intentional mix out in the marketplace. Our strategy with adding the two formulations has always been one of customer choice and offering customer choice. Because as the market leader, we feel that's important. There isn't a competitive product out there that has a room temperature formulation. And so we brought RT to market to make sure that we could cover choice in the market. We also felt that was important because, from again, from a customer perspective, in our partnerships and in the partnerships that we have of these, in those cases, the product is typically part of a complex product kit and we felt it was important to have a room temperature formulation available as part of a complex product kit. But we have never had as a strategy, had it as part of our strategy to force product into the market in any percentage. So you'll never hear us speaking to that and we don't also speak to any margin benefit or pricing difference between the two products, so that is not a strategy of ours either.

Understood, thank you.

Thank you? And our next question comes from Lawrence Solow from CJS Securities. Your line is now open.

Great, awesome. Thank you very much. Congratulations, really, really strong start for PYLARIFY. Good start. Just a couple of follow-ups on DEFINITY. It sounds like sluggishness seems pretty temporary. I suppose related to staffing, which I think has really gotten crazy early in the quarter, but it seems to have calmed down. So hopefully, I think we could get a rebound depending. It doesn't sound like anything has changed for your longer-term outlook, you still think it's a low double-digit kind of grower. And is that a fair statement?

As Bob? Good morning. Yes. Our guidance does contemplate the DEFINITY opportunity as being what we've always expected it to be. This is why I say that it's trying to give you a range that incorporates the early quarter Q1 read so that spillover of what had been Delta and then Omicron and the related impacts in the early part of the quarter. And then as we would then see it, then kind of recapture its trajectory into Q2, Q3, Q4 as we look forward. So no, we still firmly believe in the opportunity to be DEFINITY, we are market leader and we intend to continue to invest to drive that market share and protect it.

Right. Regarding the Genesis e-health product, I always anticipated that it would be able to dual source initially or for a certain period. It appears that the growth will be gradual at first. Looking ahead, do you foresee this being non-exclusive? What is your long-term plan? Will most of it eventually be brought in-house? Can you provide some insights on that?

Well, we're not providing specific mix, if you will, of how because, again, this is also about protecting and dual-sourcing a very important product to our portfolio. So yes, I mean, again, early days with the product we have manufactured inventory on the shelf that we can start to integrate into the flow. And we will work with mission teams and get the expertise behind it, and the capacity opportunity with that facility is significant so that we have the ability to provide for our own total volume and growth. But at the same time, I think it's also important from a business continuity perspective to be able to continue to leverage that long-standing partnership that we've had. And we think that it will always be a mix.

Just a couple of on PYLARIFY, just really quick. I know you've never given the actual unit price, but just from a high level, your pricing sort of in the range you thought it would be, that. And the second question is just a technicality. On the CVR, on the contingent value rights, I guess the payments are done after the year, does that come off on the P&L? How is that sort of accounted for?

I'll start with the CVR. Just to remind everyone, it is based on sales exceeding $100 million in 2022 and over $150 million in 2023, capped at 19.9% of the total consideration in the Progenics deal. We are required to accrue based on a Monte Carlo simulation of the potential liability we may have. This involves using our forecasts in those Monte Carlo analyses, carried out by third parties, and we record this through the P&L. You may have noticed this in the Q4 GAAP P&L. We assess these every quarter to determine if they will actually pay out. The total accumulated value noted in this morning's filing will continue to fluctuate due to the time value of money. Ultimately, the cash payment will transition to a balance sheet item, changing the contingent liability into cash, likely in the early part of 2023 and 2024, depending on how the CVR is accrued.

And, Larry, as you know, it has been our long-standing policy in that we do not speak to pricing. I will tell you that as a matter of public record, because we deal with PMFs as an agency, that the pricing of the product does get publicly reported through CMS on a trailing basis, until it does get publicly reported. So I will say that the pricing of the products and the cross-competitive products are fairly similar.

Got it. Okay. Great. Thank you very much.

And thank you. And I am showing no further questions. I would now like to go ahead and close the call. This concludes today's conference call. Thank you for participating. You may disconnect.