Lantheus Holdings, Inc.

Good morning, ladies and gentlemen, and welcome to Lanthea's 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 Canarni, Senior Director of Investor Relations.

Mark? Thank you, and good morning. Welcome to Lantius' fourth quarter and full year 2021 Financial Results Conference call. With me on today's call are Marianne Haino, our President and CEO, Bob Marshall, our Chief Financial Officer, and Paul Blanchfield, our Chief Commercial Officer. Marianne 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 Marianne 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 8K, reporting our fourth quarter and full year 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 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 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 on the investor section of our website. With that, it is my pleasure to now turn the call over to Marianne.

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've 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, Polarify. 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, Polarify is an F18-labeled PET imaging agent that enables visualization of lymph nodes, bone, and soft tissue metastasis to determine the presence or absence of recurrent and or metastatic PSMA-avid prostate cancer. We've been thrilled with the progress of Polarify's 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 demand 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 Polarify, we have also partnered with several companies, including Bayer, Regeneron, and Point Biopharma, to embed pifofolistat F18 imaging, which I will refer to as PYO, into their prostate cancer therapeutic trials to assess PSMA expression. Similarly, we have incorporated PYO into our own PSMA-targeted therapeutic ARO Phase II 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 Polarify AI. which was cleared by the FDA just two months after Polarify's approval. Polarify AI is the first and only FDA-cleared, artificial intelligence-enabled PSMA digital application that demonstrates increased efficacy 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 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 micro bubble business in 2021, DFINITY sales continue 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 DFINITY, which we call Genesis, and 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 chains. In 2021, we successfully manufactured batches of DFINITY at our Genesis facility so that the product would be ready for commercial sale upon FDA approval. I'm pleased to announce that we've already begun shipping DFINITY from our Genesis manufacturing site to our customers. Additionally, earlier this month, we entered into a new manufacturing and supply agreement with our longstanding DFINITY manufacturer, JHS. Between our Genesis facility and our partner, JHS, We believe we will have sufficient supply of DFINITY 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 Technolite, sales remained stable during 2021 as compared to the prior year. We successfully navigated the negative impact of both the Delta and Omicron 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, and this did negatively impact demand. As such, in 2021, we focused on building out our commercial and medical-based field market model for Exedra and introduced new marketing initiatives to increase awareness of pheochromocytoma and paraganglioma, or PPGL, for referring physicians and Exedra as a treatment option for their patients. We were pleased to see additional centers of excellence join the network of those centers offering Exedra treatment. We believe when hospital conditions permit, our team is well positioned to drive usage of Exedra 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 Green 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 ARROWS 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 Ann, and good morning, everyone. During the fourth quarter, our commercial teams were productive in establishing Polarify as the PSMA PET imaging agent of choice for the U.S. prostate cancer community and growing DFINITY while maintaining our market-leading position. Starting with the Polarify launch, as Marianne 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, or 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 patients' access to Polarify, and it allows institutions to embed Polarify into their prostate cancer workflow. Our broad manufacturing network and increased capacity, along with F18's 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 Polarify's supply through ongoing geographic expansion, as well as increase capacity at existing sites. Regarding market access, specifically coverage, coding, and payment, our pass-through application to the Centers for Medicare and 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 scans done with Polarify in the hospital outpatient setting. As we mentioned last quarter, we received notification that our HCPCS code, which enables streamlined billing, also went into effect as of January 1st. We believe the activation of pass-through payment status and our HCPCS code for Polaris 5 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 Polarify usage in our approved indications. In addition, two major RBMs and a number of commercial payers have recently enacted policies to cover Polarify 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, and 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, and independent imaging centers and government facilities, 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 US urology and radiation oncology sales team support the promotion of Polarify. 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 Polarify. We expect this partnership to be operational in April 2022. As Marianne mentioned, we received FDA clearance for Polarify 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 Polarify AI provides a distinct advantage for Polarify. Clarify AI 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. Both our internal AI team and our partner, SyntiMed, have been working to introduce the software at key centers and began demonstrations with current Polarify 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 Polarify's broad label and NCCN and SNMMI guidelines, as well as our refined understanding of how Polarify 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 Polarify today and believe there is significant potential for us to grow the business and ensure Polarify remains the PSMA imaging agent of choice in the U.S. prostate cancer community. Switching now to DFINITY, the fourth quarter saw continued growth in year-over-year sales, even amidst hospital staffing and COVID-related challenges. DFINITY has been impacted by hospital nursing and sonographer 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 Marianne mentioned, we are committed to sustainable growth in existing and new markets for DFINITY. During the fourth quarter, we shipped our first vials of DFINITY RT as well as our enhanced vial mix RFID, which is used to activate DFINITY doses. With DFINITY RT, customers now have the added choice of a room temperature formulation in addition to our market-leading refrigerated DFINITY. This enables those customers who prefer a non-refrigerated product to be able to benefit from our DFINITY micro bubble products. As you can see, we made significant progress in the launch of Clarify and have continued to grow Dfinity and maintain 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 DFINITY net of rebates and allowances were $59.3 million, or 6.1% higher as compared to the prior year quarter. DFINITY closed out 2021 with $232.8 million of net sales, an increase of 18.8% over the prior year. Technolite 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 Technolite's total 91.3 million, which was up 7.5% year over year. Within other precision diagnostics, Zenon's performance has continued at similar levels seen 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 polarified sales as noted by Paul earlier. As was the case in Q3, Excedrin 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% from the prior year quarter, driven primarily by the relist or 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 Polarify volumes driving higher contribution offset by slow slightly lower than expected contribution from DFINITY 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 Polarify sales with increasing effort around product awareness, market access, and contracting activities at activated PMFs as well as supporting DFINITY 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 percentage of revenue, reflecting costs associated with an 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, or an increase of 122.3% over the same period prior year. Total adjustments in the quarter totaled 63.5 million of expense before taxes. Of this amount, 4.2 and 8.4 million of expense is 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 clarified CPR 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, integrated, and other non-recurring 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 VMS, 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 59 cents and a profit of 25 cents 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 49 cents 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 on favorable 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 within either our full year or first quarter 2022 guidance, which I will now turn to. We expect growth to be driven by Polarify, supplemented by resilient growth profile from DFINITY. Within precision diagnostics, we expect single, excuse me, high single to low double digit growth from DFINITY for full year 2022, while Technolite 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 Technolite, which had amounted to $6.1 million in 2021 base, as I have already noted. Radiopharmaceutical oncology was driven by a Polarify and modestly by Exedra. Our Exedra forecast does assume, however, that COVID-19 variant impacts on hospitals lessen and sustain throughout 2022. We forecast Polarify to be in a range of $300 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 to $710 million, an increase of approximately 60% and 65% over 2021. For modeling purposes, both gross profit margin and operating expenses as a percentage of revenue should 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 DFINITY, Exedra, and Xenon, offset by ramping Polarify sales. To assist with models, DFINITY is likely flat to Q1 2021 due to the aforementioned early quarter COVID impacts, while Polarify 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 45 to 50 cents. Lastly, for modeling purposes, Appreciation 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 Marianne.

Thank you, Bob. In closing, 2021 was marked by the successful launch of Polarify and another solid year of revenue and market leadership for DFINITY. 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 Polarify 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 to our purpose to find, fight, and follow disease. It is their commitment that continues to make what we achieve possible. With that, Bob, Paul, and I are now ready to take your questions. Operator, please go ahead.

Thank you. As a reminder, to ask a question, you'll need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by when we compile the Q&A roster. And our first question comes from Danielle in Telfi from SVB Lyric. Your line is now open.

Hey, good morning, guys. Thanks so much for taking the question. And wow, on the quarter in guidance, that's amazing. So just curious, I appreciate your increasing the TAM. Number one, just what the go-to-market, if adding intermediate risk patients into the TAM changes the 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 Polarify and where that can ultimately go and how quickly. And then I have one follow-up.

Sure. Good morning, Danielle, and I am going to turn you over to Paul for that question and answer. 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 scams 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 for SNMMI and the NCCN, which have combined with medical practice expanding how physicians and payers are looking at the use of Polarify for the risk of metastases to not just very high, but too 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 the 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 Polarify 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 Polarify 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. Oh, 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 preferred. 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. And 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 Polarify 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. That has been factored into our guidance. But currently we remain focused on maximizing the potential of Polarify. today and in the future through our promotional efforts through the launch of now our AI, as we talked about in the fall. And so that's been factored into our progress to date and to our guidance going forward. But we remain focused on ensuring that Polarify remains the best in class and preferred PSMN agent of choice.

Thank you.

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

Hey, thanks for taking the question, and congrats on a blowaway quarter here. I just have a few. First, on the PMS site cadence through the quarter and then expectations through 2022, where do you expect to get as the year progresses? And then one, just if you'd give some color on margin benefits from Polarify and then also from bringing the DFINITY manufacturing in-house, you know, the spread between the two.

Thanks. Zach, good morning. Thanks for your questions. I think on your question around PMFs, we've kind of talked from the start of the launch that this is a continual build-out that we will continue to focus on. Paul referenced, you know, what progress we made through year-end. And as he also referenced, we will continue to build out our PMF network to satisfy our needs in the marketplace, and that happens two ways. We look to continually add PMFs, and then at the PMFs that we're already using, we add additional capacity. by building in additional what we call synthesis boxes, which are literally the manufacturing boxes in which Polarify is made. So it's a great way to add additional capacity where you already are, in addition to adding additional PMFs into our sites. As Paul mentioned in his comments, we're already covering approximately 90% of the U.S., and he mentioned the couple of different geographic regions where we are still flying doses into that we will additionally cover. Oh, I'm sorry, 80%. I overspoke there a little bit. They're correcting me in real time here. And as we look out across the rest of 2022, we'll continually take that number higher to those areas that we can cover. So it's a continual build-out, and we'll keep you updated across the year. I don't know, Paul, if you want to add any comments onto that.

No, Marian, I think it's a build-out. It's rolling out additional PMS, but it's also expanding capacity at 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.

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

So, Zach, with regard to gross margin contribution, it is clearly being driven by Polarify. Just to sort of recap a handful of the numbers that we had, In the quarter, gross margin was 56.5%, and we were at 52.7% for the full year. So you can see that as Polarify is ramping, that clearly it is one of the single largest drivers in the quarter of that ramp, which is also what informs our 2022 gross margin model. Now, with regard to what drives it or continues to drive it, I've always sort of mentioned it would come from a handful of things. It would come from continued affinity growth. It would come from ramping Polarify, which clearly you can see we have good confidence as we look forward. With regard to our on-campus manufacturing facility in terms of Genesys, early days in terms of rolling out product, it will be a contributor. As we go further into the future, this is about dual supply. So we will be working inventory in and amongst the product that we have also getting from our partner at JHS. So that contribution will be a slower contributor, but still will be there as we look to leverage that investment.

That's helpful. And then one more just on the room temperature. Going forward, I guess, in 2022, where do you expect the mix to be between the legacy product and the RT version? And is there any margin benefit 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 having 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 is 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 it was important because, again, from a customer perspective, in our partnerships and in the partnerships that we have, 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 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.

And thank you. And our next question. comes from Larry Solo from CJS Securities. Your line is now open.

Great.

Awesome.

Thank you very much. Congratulations. Really, really strong start for Polarify. Good stuff. Just a couple of follow-ups. It sounds like a little sluggishness seems pretty temporary, I suppose, you know, related to staffing, which I think the staffing issues and COVID kind of really got a little crazy early in the quarter, but seems to have calmed down. So hopefully, you know, I think we could get a rebound at the end. It doesn't sound like anything's changed for your longer-term outlook. You still think it's a, you know, low double-digit kind of grower, and is that a fair statement?

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

Right. And on the genesis, on the in-house product, I think all along it was going to be at least dual source in the beginning or for a while. And it sounds like a slow ramp at first, but, you know, over time, do you expect this maybe not to be exclusive, but do you expect, you know, or maybe, I don't know, what's your sort of long-term plan? Do you eventually sort of bring most of it in-house? Is that the goal, or can you speak to that?

Well, Larry, we're not providing, you know, 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, it's sort of, you know, 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 the machines 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 the long-standing partnership that we've had and would think that, you know, it will always be a mix.

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

So I'll start with the CVR and then, I don't know, maybe Paul or Marianne, you can take up the price question. But with regard to the CVR, the way they work, just to remind people, is that it's based on Sales over $100 million in 2022 and over $150 million in 2023. And they are capped at 19.9% of total consideration in the Progenix deal. So as such, our obligation is to accrue, based on the Monte Carlo simulation data, the potential liability that the company would have. And so that, obviously, you do that as you bring your forecast into those Monte Carlo analysis, which are done by third parties. And we record that through the P&L. So you saw that come through the P&L in Q4 in the GAAP P&L. And, of course, we evaluate those every single quarter and true them up from the perspective of you know, will they pay out? And so you can see in the K this morning the total accumulated value that's there. That will continue based on time value of money to move around a little bit. But the cash payment itself would then become a balance sheet item where the contingent liability then, you know, becomes cash in what would likely be the first part of 2023. and 2024, respectively, depending on how the CBRs actually accrue.

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