Lantheus Holdings, Inc.

Good morning, ladies and gentlemen. Welcome to the Lantius First Quarter 2022 Conditional 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 release 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's call, Mark Anarni, Senior Director of Investor Relations. Mark. Mark Anarni, Senior Director of Investor Relations. Mark Anarni, Senior Director of Investor Relations.

Mark Anarni, Senior Director of Investor Relations. Mark Anarni, Senior Director of Investor Relations. Mark Anarni, Senior Director of Investor Relations. Mark Anarni, Senior Director of Investor Relations. Mark Anarni, Senior Director of Investor Relations. Mark Anarni, Senior Director of Investor Relations. Mark Anarni, Senior Director of Investor Relations. Mark Anarni, Senior Director of Investor Relations. Mark Anarni, Senior Director of Investor Relations. Mark Anarni, Senior Director of Investor Relations. Mark Anarni, Senior Director of Investor Relations. Mark Anarni, Senior Director of Investor Relations. Mark Anarni, Senior Director of Investor Relations. Mark Anarni, Senior Director of Investor Relations. Mark Anarni, Senior Director of Investor Relations. Mark Anarni, Senior our financial results, and updated guidance. Marion 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 first quarter 2022 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 today 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 hospital staffing levels and 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 the 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's my pleasure to now turn the call over to Mary Ann.

Thank you, Mark, and good morning to everyone joining us. I am pleased to say we have very positive news to share today. Lantheus reported a record quarter, led by rapidly increasing Polarify sales and solid DFINITY performance. We continue to execute on our strategy to accelerate growth, position Lantheus as a category leader in the markets in which we compete, and pursue our passion to find, fight, and follow disease to deliver better patient outcomes. As the year continues, we are focused on further establishing Polarify as the PSMA PET imaging agent of choice in the USA prostate cancer community, maintaining market leadership with our microbubble franchise, executing strategic transactions in line with our portfolio objectives, and delivering on our financial objectives, which we believe best enhance shareholder value. I'll now take a few minutes to update you on our progress. It has been an exciting and transformational time for prostate cancer care, with advances in technology and new FDA approvals in both diagnostics and therapeutics. Paul will provide further details on the Polarify launch to date in a few minutes, but I am thrilled that less than one year after we commenced our launch, more than 30,000 men have been imaged with Polarify, including more than 20,000 in the first quarter of 2022 alone. This is a testament to the innovation of our PSMA-targeted PET imaging agent and our efforts to transform patient management for the U.S. prostate cancer community. Now, let me take a few minutes to highlight our recent strategic collaborations with Polarify. First, in March, we announced a collaboration with Novartis to include Polarify in their planned development programs for Pluvicto, their recently approved PSMA-targeted therapeutic for metastatic castation-resistant prostate cancer. This collaboration builds on Polarify's inclusion in their expanded access trial for Poblicto and directly aligns with our strategy to advance precision medicine in the treatment of cancer by enabling partners to use Polarify in ongoing prostate cancer therapeutic trials. As part of the agreement with Novartis, we will supply Polarify for the selection of patients within their trials And Novartis, in turn, will provide Lantheus with all Polarify-related clinical imaging data from these trials. During the quarter, we also entered into two strategic collaborations to advance our artificial intelligence or AI-enabled imaging biomarkers for prostate cancer. In January, we announced a collaboration with the Prostate Cancer Clinical Trials Consortium, or PCCTC. a premier multi-center clinical research organization that specializes in cutting-edge prostate cancer research. The intent of this strategic collaboration is to integrate Lantius' AI platform into early-phase PCCTC studies to advance the discovery, development, and validation of novel AI-enabled biomarkers. And earlier this month, we expanded our collaboration with GE Healthcare to include AI-enabled A-Promise on their latest platform. As a leading supplier of medical technology equipment, GE Healthcare is an ideal partner to provide global access to this unique AI platform for prostate cancer. Turning to DFINITY, our market-leading ultrasound enhancing agent, and our microbubble franchise, sales continue to grow despite widely reported hospital staffing challenges and record high COVID-19 levels early in the quarter. We are pleased to see that DFINITY sales have steadily increased since mid-January. as COVID-19 cases and COVID-related hospitalizations have subsided. With the FDA approval in February of our supplemental new drug application for our Billerica-based manufacturing facility, we are now producing and distributing DFINITY manufactured at our on-campus facility, in addition to continuing to source from our existing long-term contract manufacturer. the investment in our on-campus facility was strategically driven to ensure supply chain redundancy as well as to drive margin expansion over time. I'll speak briefly to Azedra before turning over to Paul. During the first quarter, our team worked with nuclear medicine departments at academic centers of excellence in key markets across the U.S., and we are pleased that two additional centers of excellence have joined the network of centers now offering Azedra treatment. With the COVID-19 pandemic receding, and hospital access improving, we are optimistic both physicians and patients will consider treatment with Azedra for pheochromocytoma and paraganglioma. Now, let me turn the call over to Paul for a commercial update on our key products.

Thank you, Mary Ann, and good morning, everyone. During the first quarter, our commercial teams continued to execute on our strategy, namely to establish Polarify as the PSMA pet imaging agent of choice in the U.S. prostate cancer community, maintain market leadership with our micro-bubble franchise, and deliver on our financial objectives. Beginning with the Polarify launch, we accelerated our momentum with Polarify sales of $92.8 million compared to $35.4 million in the fourth quarter. We also continued to invest in the brand across supply, contracting, market access, and customer adoption. Our supply and capacity investments included the activation of two additional pet manufacturing facilities, or PMS, during the first quarter, which further expanded our geographic footprint. We have also identified new PMS to supplement our network, expand our footprint, and provide redundancy and enhanced capacity in existing geographies. As highlighted last quarter, we continue to expand our capacity at existing PMF sites by investing in additional synthesis boxes. These new boxes allowed us to increase our overall capacity and number of batches produced. We have also been able to improve our batch efficiency and overall batch size while still selectively flying doses in advance of local PMF activation. Our broad manufacturing network and increased capacity along with F18's longer half-life, allows us to efficiently and continually meet the needs of our customers. We believe this ability to meet customer demand, when combined with Polarify being the first and only commercially available PSMA PET imaging agent for almost 10 months, provides us a sustainable first mover advantage. Within market access, Both our pass-through status with the Centers for Medicare and Medicaid Services, or CMS, and our HCPCS code went into effect January 1, 2022. We also continued to make considerable progress with commercial and Medicare Advantage plans, as well as radiology benefit managers, and now believe 90% of covered lives have access to both Polarify indications, well ahead of what is typically seen at this point in a launch. This is an important milestone for Polarify, facilitating its placement in the prostate cancer workflow and ensuring that US prostate cancer patients have access to this game-changing product. In addition, the Society for Nuclear Medicine and Molecular Imaging, or SNMMI, recently updated their appropriate use criteria, noting that the PSMA PET imaging, including Polarify, can be used for patient selection, for PSMA-targeted radioligand therapy. We believe this is an important step to ensure that healthcare professionals and patients will continue to have access to all approved PSMA PET imaging agents, including Polarify. Our market access team continues to support our customers and payers on relevant coding, coverage, and payment-related questions. During the first quarter, we also continued to execute on customer contracting, and I am pleased to announce we now have contracts in place with 100% of our targeted U.S. academic institutions which treat prostate cancer, as well as many community hospitals, government facilities, and freestanding imaging centers. These contracts, combined with our demand-generating activities, have enabled us to expand the breadth and depth of customer adoption. We have seen significant growth in the hospital outpatient segment following pass-through initiation with hospitals comprising 70% of year-to-date orders. Independent imaging centers and government facilities comprise 25% and 5% of year-to-date orders, respectively. We also remain encouraged by the rate of repeat demand increasing quarter over quarter, with over 95% of our customers having ordered multiple doses. As of the end of the first quarter, almost 700 customers across 45 states and the District of Columbia are actually ordering Polarify on a regular basis. We believe this highlights the impact Polarify is having on patient care and our ability to execute both in demand generation and supply fulfillment. We believe Polarify AI will also have a positive impact on patient care and product sales. as it is designed to provide enhanced consistency in quantitative analysis, 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. We are working with our partner, Centermed, and have continued to introduce Polarify AI at key centers across the country. Finally, I want to provide an update on the total addressable market for PSMA PET imaging agents. The recent FDA approval of Novartis' Pluvicto creates a new addressable market for PSMA PET imaging in patient selection for PSMA-targeted therapy. As a result, we updated the U.S. Total Addressable Market, or TAM, for all PSMA PET imaging to be around 250,000 annual scans. which is an increase of approximately 30,000 scans per year for this MCRPC patient population. The total market opportunity for PSMA PET imaging is now approximately $1.1 billion. Importantly, this TAM may continue to increase as medical practice evolves and as PSMA therapeutics expand into new indications. We look forward to continuing to be the PSMA pet imaging agent of choice in this large and dynamic market. As you can see, we continue to execute against our launch priorities and to further establish Polarify as a PSMA pet imaging of choice in the prostate cancer community. And we believe we will hold this position, even with the recent availability of competitive agents. Switching now to DFINITY, the first quarter saw continued growth in year-over-year sales, even amidst hospital staffing shortages and record COVID-19 levels in January. We saw steady improvement over the course of the quarter in both in-person promotional activity and customer ordering as case counts and hospitalizations decreased. And we believe we have strong momentum coming into the second quarter and remainder of the year. 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 first quarter financials, focusing on adjusted results unless otherwise noted. Turning to the quarter, revenue for the first quarter was $208.9 million, an increase of $116.4 million, or 125.8% over the prior year period. Earnings per share for the first quarter was 97 cents. an increase of 92 cents over the prior year quarter. Before providing further details on these results, it is important to note that within these numbers are the impact of the Novartis Agreement outlined in our 10Q filed this morning. We recorded revenue of $24 million and earnings per share of approximately 25 cents related to this agreement. Therefore, comparable underlying performance to our prior Q1 guidance is revenue of $184.9 million and earnings per share of approximately 71 cents. Turning now to the revenue details and beginning with precision diagnostics, revenue of $86.2 million were one half a percent higher from the prior year quarter. Sales of DFINITY, net of rebates and allowances were 58.3 million, 4.2% higher as compared to the prior year quarter and ahead of our previously disclosed expectations. Technolite net revenue was 22.6 million, down 0.9% from the prior year quarter due primarily to the exited contract mid last year with an approximate $2.5 million per quarter impact offset in part by opportunistic sales in the quarter. Rate of pharmaceutical oncology contributed 94.1 million of sales up significantly due to the continued rapid ramp in sales of Polarify as described by Paul. This result also includes a sequentially higher contribution from Azedra up 96.1% over the prior year, which benefited from deferred procedures from Q4 last year, as well as expanded sites of care. Lastly, strategic partnerships and other revenue was $28.6 million, driven primarily by the Novartis Agreement noted earlier, followed by the Relastor royalty. The Novartis Agreement has been deemed licensing revenue in the quarter for accounting purposes and can be considered a one-time event. Gross profit margin for the first quarter was 67%, an increase of approximately 1,670 basis points from the first quarter of 2021 on a similar basis. If we exclude the Novartis contribution, gross profit margin would have been 62.7% or better by approximately 1,240 basis points from 50.3% in the prior year. The increase is due mainly to favorable product mix led by polarifying affinity offset in part by increased supply chain and logistics costs. Operating expenses as a percentage of revenue were 1,497 basis points favorable from 40.5% in the prior year to 25.5%, excluding Novartis impact on revenue, driven primarily by operating leverage while investing for sustainable growth in both sales and marketing and R&D. Within G&A, the company has initiated investment in a new ERP platform to drive workflow efficiencies as we grow. Operating profit for the quarter was $92.7 million or an increase of $83.7 million or 927.3% over the same period prior year. Total adjustments in the quarter totaled $33.8 million before taxes. Of this amount, $5.6 and $8.3 million of expense is associated with non-cash stock and incentive plans and acquired intangible amortization, respectively. Also in the quarter, we expensed $18.4 million of net contingent liabilities, of which $18.5 million is related to polarized CVRs or contingent value rights. The remainder is related to acquisition, integration, and other non-recurring expenses. Our effective tax rate was 26% in the quarter. The resulting reported net income for the first quarter was $43 million, and $67.8 million on an adjusted basis, an increase of $34 and $64.5 million respectively. GAAP fully diluted earnings per share were $0.61 and $0.97 on an adjusted basis, an increase from the prior year of $0.48 and $0.92 respectively. As noted earlier, excluding the approximate $0.25 impact of these figures due to the Novartis Agreement, earnings would have been $0.36 and $0.71 on a GAAP and adjusted basis respectively. Now turning to cash flow, first quarter operating cash flow totaled $10.3 million as compared to $9.8 million in Q1 2021. Capital expenditures totaled $3.2 million, up slightly from the prior year quarter. Pre-cash flow, which we define as operating cash flow less capital expenditures, was $7.1 million, a decrease of $0.2 million from the prior year period. As we look forward to the balance of the year, we would begin, we would expect to begin generating significant free cash flows as month-over-month ramping of Polarify accounts receivables mature into cash receipts. Cash and cash equivalent net of restricted cash now stand at $105.4 million. We continue to have access to our $200 million undrawn bank revolver and are comfortable with our strong liquidity position. Turning now to our guidance for Q2 and the full year. We forecast revenue to be in a range of 200 to 215 million for the second quarter of 2022, an increase of approximately 98 and 113% over the second quarter of 2021. We are updating our full year view to take into consideration actual Q1 performance as well as quarter end exit rates for Polarify. Therefore, we now forecast full year revenue to be in a range of 800 to 835 million from the prior year from the prior range of $685 to $710 million. This updated range includes not only recognized revenue from Novartis of $24 million recorded in the first quarter, but also the continued adoption of Polarify, which we now model at $385 to $420 million for the full year. Our increased estimates of Polarify encompasses our expectations of consistent performance amidst competition as well as the continuation of progressive market penetration. Turning now to earnings, adjusted EPS should be in a range of 67 to 73 cents for the second quarter. We are raising our full year adjusted EPS to account for relative T1 outperformance as well as the incremental contribution from higher Polarify revenue expectations and the adjusted EPS impact of the Novartis Agreement of approximately 25 cents. We now expect adjusted EPS to be in a range of $2.90 to $3.15 per share versus the prior range of $1.95 to $2.05. With that, let me turn the call back over to Marianne.

Thank you, Bob. In closing, I'd like to leave you with a few key takeaways. First, and notably, I would like to recognize the first quarter of 2022 was a record period for Lantheus for both revenue and earnings. That performance was driven primarily by Polarify, with its strong adoption by the medical community as a true innovation in the management of patients with prostate cancer. We are fully committed in our efforts to further solidify Polarify as the PSMA imaging agent of choice with healthcare providers and the patients they serve. Second, Divinity's steady recovery throughout the quarter and momentum moving forward is gives us confidence in the continued growth and contribution of our Microbubble franchise. Finally, it is strategically important that we continue to advance our portfolio objectives, and this was an active quarter for us with the progress made towards that objective. I look forward to sharing more information with you about these initiatives throughout the year. Before we open the call to questions, I'd like to take a moment to highlight two recent additions, one to the Lantheus Board and one to my leadership team. In March, we were thrilled to welcome Minnie Baylor Henry to the Lantheus Board of Directors. Minnie has a stellar life science resume with regulatory affairs expertise. She's a proven business leader and will be a great add to the current complement of expertise represented by the directors on the Lantheus Board. Earlier this month, I added Dr. John Claude Provost to my leadership team as the Interim Chief Medical Officer. With more than 30 years of industry experience, including previous positions at GE Healthcare, Pfizer, Bayer, and Merck-Sorono, John Claude will play a critical role in helping execute our strategic vision to find, fight, and follow disease to better deliver patient outcomes. With that, Bob, Paul, and I are now ready to take your questions. Operator, please go ahead.

Thank you. Ladies and gentlemen, if you'd like to ask a question at this time, you will need to press the start and the one key on your touch-tone telephone. Now, first question coming from the lineup. Rich Neweyder with Truist. Your line is open. Hi.

Thank you. Hi. Thank you, guys, and congrats. Fantastic quarter here. Maybe just to start off on the guidance, which increased significantly. I was I was hoping, Bob, Marianne, can you talk to us a little bit about your approach to how you arrive at that number? Why is roughly 400 million at the midpoint, I suppose? Why is that the right number? And then specifically, if you could talk to kind of what would get you to the high end of the range, what factors would get you to the low end? Is there any contemplation of the expanded TAM and penetration into the therapeutic use contemplated in this guidance range? And how do we think about kind of the cadence through the year? My estimate gets, you know, there's about $300 million of Polarify revenue to spread between the remaining quarters. Do we just evenly spread that out? How should we think about that? Thanks.

So I'll start, Rich, and then Bob can get more detailed with numbers. But I think you've touched on some of it. This is a range. We're still in a launch. We're thrilled with what we're seeing. And we're still monitoring and kind of getting our own feedback from the market as to how they're adopting Polarify. All signs are go. And so we continue to monitor that. And that is what has led us to, as you noted, increase the TAM, along with some of the market events. The approval of Plovicto was certainly a factor there. But the other factors are the events, the anecdotal events we see in the market around the adoption of Polarify and the intent to use further. So I won't dive into the financial pool and tell you what to do with your model, but I'm not sure I would evenly spread that $300 million over the next three quarters, but I'll let Bob jump in there.

Good morning, Rich. So I guess my descriptive remarks were somewhat purposeful in how I laid out the comments. One, we continued to look at exit rates in terms of where we were Month by month, this is a month by month ramp. Every month seems to be just that much better than the last. But we are sitting here at the end of April. There's still many more months to go. So as we thought about going forward, I use the words that we encompassed expectations for consistent performance. So in other words, if we were to continue to, because of competition, that we're able to sort of continue to deliver what we've already managed to do, knowing that we will continue to add PMFs throughout the balance of the year, that, you know, that would get you toward the low end of the range. If you were to, you know, we see continued market penetration, so i.e., as we think through Qs 2, 3, and 4, yes, I mean, the implications are that Q2 was higher than what was in Q1, just by the math. And then I would expect the second half to You know, as we said, either be consistent with the first half or continue to grow in the same fashion that we've seen thus far. The other thing from a full year perspective, which is not a Polarify thing, just keep in mind that the full year number now takes into consideration that 24 million from the Novartis Agreement. So, as you think through your model, that's a one-time number, but that's embedded in that 800-835 number as well.

Okay, but importantly, not embedded in the Polarify number. No. Yeah. Thanks for that. Very helpful color there. And I think, Marianne, you suggested that there was some incremental contribution, you know, post-Plavicto approval contemplated in that guide, or you are assuming that you will have access to that market. You know, congratulations on the – you know, the SNMI update there, but are you assuming some contribution and use in that part of the market?

What I'm really comfortable saying, Rich, that we're very comfortable that polarifying the other PSMA agents will holistically be included in consideration for PSMA-targeted therapeutics. The SN, as you note, and as we noted in our remarks, the SN-MMI guidelines have already come out with that, and we expect NCCN to also update their guidelines briefly within a short period. And we believe that both those sets of guidelines, as well as practice, will consider the PSMA imaging agents holistically when considering patient selection for PSMA. PSMA targeted therapeutics. But I did not mean to infer that our guide or our numbers specifically include contribution from that. We increased the TAM, the total addressable market, for consideration, but I wasn't trying to infer that we specifically included contribution from that in our updated numbers.

Got it. And if I could just squeeze one more. Any timing or updates on some of these clinical collaboration efforts with Novartis that you highlighted up front? you know, anything that we can expect in 2022 or updates that would be helpful. Thank you.

So those are, all of those will fall under, normally when we refer to, clarify that we refer to PYL because we try to differentiate clinical use versus commercial use. But those, and as We mentioned, I'm not sure if the scripted remarks here, but we certainly have been transparent about that. At this point, Polarify is well established for use in all late-stage clinical PSMA-targeted therapeutic trials that are being conducted in the market. And so that will be a source of volume. But, again, that is not really what's driving our revenue guides. Our revenue drives are being driven by the commercial uptake for medical use.

Thank you. Congrats.

Thanks.

Our next question coming from the line up, Danielle Antoffee with SVP Lyric. Your line is open.

Hey, good morning, everyone. Thanks so much for taking the question, and I will echo Rich's sentiments. Congrats on another amazing quarter. I guess one question I have is, as we look ahead to the May 17th Analyst Day, not asking you to really front run, but Marianne, if there's any way you could preview what we should expect to be hearing? Is it really about what we know is in the existing product portfolio, or are we going to talk about sort of what's next beyond the current Polarify indication, any color on what we might hear on May 17th? And then I have one follow-up.

Sure, and good morning, Danielle. May 17th is going to be a very exciting day, and it's our intent to really take the audience through our rationale for isotopes, or as we call them now, radio ligand therapies, and really kind of help everyone understand how these products, whether it's diagnostically or therapeutically, are truly being embraced now in life sciences and how, as a company, landing as a strategy is to be forefront in that. It's a really exciting time. For healthcare, we've seen that now with, you know, we have our first approval with Novartis' approval of Pluvicto. That is the first of what will be, and that's on the therapeutic side. We have the approval of Polarify from last year, which I think really speaks to, we believe the uptake of Polaroid speaks to how welcome this innovation is in prostate cancer. And there's more to come. And so that's what we're hoping, among other topics, that's what we're hoping the Investor Day will really help shed some light on for our analysts and for the investors who will share the day with us.

That's great. And I guess just, you know, my follow-up was going to be on the TAM, you know, based on your guidance, you're going to be at, you know, somewhere around 35, 40% penetrated, 40% of the 900, but obviously less of the 1.1 billion. So what's next for Polarify? I guess stay tuned for May 17th.

I would stay tuned and keep you really eager to come.

Okay, got it. And then I just have one definitive question. I'm not sure if you guys have given this color in the past, but any way you can, I know this is a tough question, but any way you could quantify as best you can sort of what you do COVID impact is and has been on that product and what we should be thinking for steady state growth once we're sort of, once COVID is more in the rear view mirror here. Thanks so much.

Good morning. So I'll start and then I'll kick it over to Paul. So just from a numbers perspective, you know, the growth rate of 4.2 encompasses, you know, that early impact in the quarter. And, in fact, it was maybe even slightly less, like I said, than we expected. My prior guidance was that it would be flat based on what we were seeing, but we saw some robust rebounding in volumes as we went through. And so, you know, Of note, even though I didn't state it specifically, you know, our view of DFINITY for the full year remains intact in the sense that, you know, we would still be expecting what I think I had previously noted as high single-digit, low double-digit growth. And what that then means is that as we go through Qs 2, 3, and 4, that, you know, we're going to be at, you know, robust rates to, you know, lift up from where we are here in Q1. So we remain very confident about its, its current trajectory. Paul?

Yeah, thanks, Bob, and thanks, Danielle. As Bob mentioned, we did see steady improvement over the course of the quarter. If we look at COVID case counts and hospitalizations, we were at all-time highs in January, which impacted our ability to be in hospitals and physicians' offices promoting and detailing the product. As we saw cases and hospitalizations reduce over the course of the quarter, we in turn saw increased promotional activity, meaning in-person activity, and we saw greater utilization in our customer base. And we would expect that to continue as counts remain low and hospitalizations remain low. Naturally, we continue to monitor the overall staffing situation, but we believe we have significant momentum coming into the second quarter.

Thank you. Our next question coming from the line of Zach Wiener with Jefferies. The line is open.

Hey, good morning. Thanks for taking the question. Congrats on another great quarter. Just on the competitive landscape for Polarify, there's two other products coming to market in the second half. Can you just speak to how we should think about the second half of the year with these products coming to the market?

So Zach and Maureen, this is Marion. I'll start and then we can turn over to Bob or Paul, wherever we think the question goes best. We welcome competition into the market. As we've seen with the, Sam, this is a large market. It's a growing market. There's still awareness to be built out there around the availability of PSMA PET imaging patients. So for us, it's Almost in that sense, good news to have others out there helping us with creating that awareness. Having said that, we are absolutely confident that we will remain the leading PSMA PET imaging agent of choice. And it's our intent to have that be clear, not only to the market, but in the results that we'll continue to post with that. And I'll turn it over to Paul for additional comments there.

Thanks, Marianne. Yeah, I think I would echo what Marianne said, right? We've been thrilled to be the first commercially available PSMA imaging agent for almost 10 months. We remain focused on execution of Polarify, and we've always contemplated that we would have competition. We do think that given that PSMA PET imaging is a relatively new modality for U.S. prostate cancer patients, having additional voice out in the marketplace to raise awareness is a good thing to enhance the market and to raise awareness. The recent two competitive approvals represent the third and the fourth gallium-based PSMA PET imaging agent, and we remain confident that is the only F18 approved isotope for PSMA PET imaging with a significant distribution and scale advantage that better match marketplace dynamics that we're going to be able to continue to lead going forward. So we welcome the continued interest. We're also incredibly excited about expanding therapeutic options and, in turn, diagnostic opportunities and continue to remain confident that we can remain the PSMA PET imaging of choice in the community.

That's helpful. One more just on the PMS sites. I know you ended last year with 80% of the country covered, and I think you're Moving away from talking about that number, but is the comment now that the percentage of the country that is covered, that growth will slow, but the more high-density population areas, you will continue to add additional cyclotrons to drive increased batch usage? Is that the thought?

Yeah, so I can take that. So we will continue to add PMF coverage to expand our geographic coverage. That said, right, we already have the vast majority of the U.S. covered, as I think I highlighted. Polarify patients have and continue to be treated in 45 patients in addition to the District of Columbia. And so we have a significant distribution network that already covers there. I think when combined with our market access network, where 90% of covered lives have access to Polarify. We remain focused on continuing to add new customers, and we do that on a regular basis, but ensuring that we also increase the breadth and depth of the penetration going forward. So I think it's right to say that we will add capacity, we will add redundancy, and we will continue to focus on adding and supporting new customers and using Polarify.

Okay, that's really helpful. And if I could sneak one more in just on Polarify, Can you give some comments on Polarify and the OUS landscape and what that timeline potentially looks like? I know it's through a partnership.

So, Zach, it is through a partnership. Curion is our partner in the EU, which is the other major medical market here for PSMA imaging agents. I can't offer a specific timeline because I can't speak for the company. I can say they are phase three with the product, and I can say confidently that their intent is to bring it to market in the EU. There is appreciation for in the EU for PSMA-based PET imaging agents. And, in fact, as folks may remember from our comments before launch, the guidelines in Europe actually reflected, before the guidelines in the U.S., the guidelines in Europe reflected the preference for PSMA-based PET imaging agents over other modalities as the preferred modalities to use in the diagnosis and management of prostate cancer patients. So we support our partners. We'll look forward to that. But I can't offer specific timelines for them.

Thanks for taking the questions and congrats on the quarter.

Thank you.

And our next question coming from the line of Larry Sella with CJS Securities.

Great, thanks. Let me echo my congratulations. The first question I have is just a little quick follow-up on PYL. Competitive landscape, I don't know how well you can answer this question, but do you feel like you're taking most of your your market share gains today from Xumen, the other PET imaging agent, or, you know, are you also, you know, perhaps taking some share from more traditional CAT scans, ultrasounds, and it doesn't seem like the gallium-based are having much, you know, I don't know if they've really been on the market, even though a couple have been approved. But I guess my second part of that question is, as we look at competition, maybe we'll have to come from the F18 side. When is the sort of nearest competition on, you know, Floridian 18-based agents.

Larry, good morning. It's Mary. And just so it's clear for everyone, when we talk about the TAM and we talk about those, whether we're talking about scans or patients, that is across all modalities. So that is inclusive of historically what modalities have been used to image prostate cancer patients. When we look at the success that we've had with Polarify, I think it's fair to say that Polarify has been used instead of all of those modalities. Now, to what specific extent for each of them, I can't quantify, but if you look at just the uptake, and the intent of physicians, I think it's fair to say that if you compare to the other modalities that had been previously used to image prostate cancer, Polarify has taken share or however we want to kind of describe it from all of them. Okay.

I think if I were just to expand on.

Paul wants to add a comment there.

I think we think of this as. taking share from previous non-PSMA modalities, specifically in the recurrent population, right? And so I think we're taking share from all of those modalities as well as non-PSMA PET imaging that you referenced. But I think importantly, the metastatic indication is a new indication for the marketplace within PET imaging that we received last May. And so this has been about taking share, but it's most importantly about expanding the marketplace. And as you can see, the total addressable market continues to increase. As the PSMA agent of choice, we continue to take share as well as to build the marketplace to stress the advantages of this important modality and Polarify specifically. Got it.

And how about, you know, my second part of that sort of long-winded question was, you know, it does seem like, you know, F-18 is superior, so perhaps these galleon-based, you know, just with their supply issues, you know, the sort of, at least in the near term, seem to be, you know, on the back burner there. But perhaps another F-18 fallopian-based can compete better with you guys. Pete, do you have just a brief sort of, you know, outlook on when some of those

when that competition could potentially enter the market? Sure, and your comments are well noted there, Larry. There is another that we're aware of, another F-18-based product under development. To our knowledge, it's still in its Phase III program, after which it completes, it will require submission to the FDA. We would not anticipate it would require it would be offered priority review since that is for the novel entrance into a category, which is what we were offered. So from a timeline perspective, I don't think we anticipated at all that we would see that agent any time in 2022 at least. Okay.

How about a question for Bob, just on the guidance, and not to split hairs because, you know, obviously, you know, great outlook and all, but just on the Q2 guidance specifically, if we just compare sequentially, if you sort of strip out the strategic $24 million that you mentioned, from Novartis, you kind of did like 180, I think 184 you said, so say 185 and 70 cents, just to use round numbers, and your guidance next quarter is like midpoint is what, 207 and 70 cents. So is there any reason, let's say margin going down a little bit, is there higher cost or anything, or how should I kind of decipher that?

No, that's a great question, Larry. It's actually slightly higher cost in the OPEX aspect of things. So one, you know, we're letting Paul have, you know, funds to, you know, we mentioned the collaboration that we have that, you know, those expenses start to really kind of be in Q2. Our ERP investments, that is more ramping here in Q2 as well. So, you know, I think the gross margin number that we provided is sustainable. And so as you think, As you go forward from modeling, then you should see that drop through continuing, particularly as we see DFINITY and Polarify both continuing to grow according to our expectations. But we'll have slightly higher levels of investment, and that was purposeful, and we thought that was important to help to continue to drive the growth during the year, but also to set ourselves up for you know, technology advancements that we think can drive more workflow efficiencies for the company longer term.

Absolutely. Okay. Yeah, it sounds like discretionary investments to drive future growth. It makes 100% sense. This last question, any update on DFINITY in terms of the room temperature or the in-house manufacturing? I know you've, I think, sold a little bit of both, and, you know, I don't expect you to give quarterly updates every quarter, but anything you can mention on those two?

So as I offered in my remarks, Larry, we now are shipping from our on-campus facilities. So our supply chain for DFINITY, I'll say original formulation, is now sourced both from our Bill Ricka facility as well as from our longstanding contract manufacturer. From an RT perspective, as I've noted somewhat continuously, it's not our intent to break out DFINITY. the two formulations and offer information on specifics to the two. Our offering is out to our customers for choice of formulation. We are continuing to execute that with our customers, and as I said, we'll leave it to their choice. I don't anticipate at any point in the future where we'll be offering detailed information on the split of use of those products in the marketplace.

Understood. Fair enough.

Okay, great. Thanks. I appreciate all the calls. Oh, you're welcome, Larry.

And as a reminder, to ask a question, please press star 1. We have a follow-up question from Rich Neweyder with Truist. Your line is open.

Hi. Thanks for taking the follow-up. I just wanted to ask on pricing for Polarify. Is that all coming in as expected, or can you comment there at all? And then also, just on legislation that I believe is sitting in Congress right now, the KIND Act, for potentially amending or modifying transitional pass-through for radio pharmaceuticals. Any updates or views on prospects for that kind of moving through and when? Thanks.

So I will say pricing is where we expect it to be. As you know, we don't speak to pricing specifically, but I am okay with sharing that it is where we expect it to be. On the FIND Act, I like the reference to the KIND Act, which it certainly would be, but the actual name is the FIND Act. It continues to move forward. We continue to add support. We work with our advocacy to add support, and we continue to see progress there. I'm going to pull if you want to add any additional comments on specifics with that.

Thanks for the question. This is an active source of involvement for our government affairs organization. As you may be aware, the FIND Act has now been introduced on the floor of both the House and the Senate with significant bipartisan support and sponsorship. And so we are hopeful that this will become law in the coming months or year. And then that would have a notable impact on the pass-through dynamics to ensure that CMS continues to reimburse for innovative radiopharmaceuticals going forward.

Thanks. Actually, if I could just follow up on that, Paul. So let's just say it goes through and traditional pastu is done away with. What are the mechanics of what that does and how that impacts price and what it does for you and the market?

Sure. No, it's a great question. We are going to be talking more about this on Investor Day, but let me provide some more information here. First and foremost, I think it's important to understand that pass-through as a payment dynamic only applies to traditional Medicare payment in the hospital outpatient segment. And so that really is a minority of the patient population that is being treated for prostate cancer. When you think about the number of commercial payers, when you think about alternative sites of care, whether they're government facilities or whether they are freestanding imaging centers, And when you also note the increasing share that Medicare Advantage is having, and we've seen that rise and expect in the coming years to be almost 50%. So the patient population that actually in their site of care and through their insurers is a minority. It's around a quarter of the population. And so I don't want to overstate the importance. But what I do think is important is if the FIND Act is passed, then at the end of the 36-month or three-year, if you will, clock, then there is not a payment adjustment. This does not impact coverage in any way. This is strictly a Medicare hospital outpatient payment from CMS for traditional Medicare that would impact payments to hospitals. And so I'm not going to speak about the specific financials of a hospital system, but the passage of the FIND Act could positively influence their desire to to continue to use novel radiopharmaceuticals even after pass-through ends in the current construct. Okay, thanks.

And again, as a reminder, to ask a question, please press star 1. I am showing no further questions in queue. I'll turn the call back to Marion for any closing remarks.

Yes, thank you, everyone, for joining us on today's call. I would like to remind you that we will be webcasting our inaugural Investor Day on May 17th, where members of the Atlantis Management Team, including myself, as well as key opinion leaders, will provide what we'll see as an in-depth review of our prostate cancer and microbubble franchises, as well as our overall business and financial strategy. And I think that concludes our remarks for today.

Thank you, ladies and gentlemen. That's our conference for today. Thank you for your participation. You may now disconnect.