A tough job lately, so I guess for investors that don't know the Lantheus story, can you describe just how the company is positioned and maybe talk about some of the different capabilities you have in this exciting radiopharma space?
Thanks, Matt. I'll keep this brief, though too, but I got to start with the forward-looking statements disclosure, so this presentation will have some forward-looking statements. Please refer to our SEC filings for a full list of risks and uncertainties. All right, with that said, Lantheus is a, I don't know, maybe 65+ year-old company. We are what we call a leading radiopharmaceutical-focused company in the space, and we say that because we believe that we bring unique skill sets about manufacturing, supply chain, logistics, and commercialization of what is a very complex product to make and deliver to patients. Almost think of it as a just-in-time kind of environment, and that, I think, presents its own unique challenges, as we have often seen. We are an isotope-agnostic company.
We have dealt with everything from technetium and even xenon would be another one from a blast from the past there, but F-18 more recently. Some of our earlier-stage assets are working with copper and lutetium. So from that perspective, we do believe that when you're talking about radiopharmaceuticals, you're talking about more than just the isotope. You're talking about the chelator. You're talking about the ligand or the target that make for a truly unique product that can deliver precision medicine. The markets that we play in are large. With DEFINITY, it's like a $600 million market. PYLARIFY is a multi-billion dollar market. We are looking at an Alzheimer's diagnostic market as we look to the future, which would also be ranging from $1.5 billion and growing to $2.5 billion over time. So these are significant markets with unmet needs.
They sort of focus on oncology, cardiology, and neurology. So from a product-specific perspective, our lead asset from a commercial perspective, obviously, is PYLARIFY, which we will obviously talk a little bit more about here in a moment, set to reach blockbuster status here in 2024. And so as we look at some of the other products, DEFINITY, which is one of more of our legacy, a 20-plus-year-old product, it should grow. It's been growing double digits over the last number of years, going to be north of $300 million. And like I said, it has a runway with a market that's about $600 million. We have 80+% market share and have maintained that position for the better part of the last decade. As I mentioned, the company's founding was based on SPECT.
So that's a multi-decade level of experience, which is what's really kind of fostered our ability to sort of master supply chain manufacturing and logistics. One of the newer assets, we do have early and late stage. The more late-stage assets really kind of focus on our neurology. So MK-6240 is a product candidate for diagnostic with tau tangles from an Alzheimer's disease perspective. And then a companion, which we just picked up this year, NAV-4694, which is a beta-amyloid diagnostic as well. From a financial perspective, pretty healthy margin profile, great top-line growth. Free cash flow, we're generating, call it, $125 million a quarter. In free cash flow, last quarter, we were at $159 million. We do work with a lot of financial discipline, but our objective is to be able to grow the business and invest in those opportunities with good return on investments for shareholders.
Great, so maybe moving right into some of the recent focus. There was a lot of focus on growth in 2025 on the last call, and you talked about some of the pricing headwinds that you're seeing starting in Q3, so maybe you could talk about how that could evolve going forward through Q4 and in 2025.
Yep. So let's just talk about Q3 to start. So from a sequential perspective, it did go from Q2 to Q3 as a - 5%. And when we put in our scripts, we have this sort of mantra of order implies priority. In our script, we said, what were the drivers? Seasonality. The second one was pricing from strategic contracts or partnerships that we have put in place. Our decision, our price points that we have put in place is something that we will talk maybe a little bit more in a bit. And the third was trade-offs based on product availability. And what we mean by that is sort of when you look at the tails, is it economically beneficial for us to do the onesie, twosie type doses out in the future, out to those different times of day or geographies that don't make economic sense for us?
Those were the main drivers. Anything else that we talk about would have fallen below those as priorities in terms of describing price. So as you look at Q4 and look ahead, it's all embedded in the guide that we provided, and I did say back in July that as we provided guidance that we would expect the pricing impact to be more heavily prominent in the sense that the contracts that we've been putting in place really wouldn't kind of kick in or start to have an impact until the latter part of the year, so as we think and carry that forward into 2025, we almost have to think of it as an annualization process to annualize your way through that sort of second half, call it first half of 2025, so I think you'll see our sort of a shift from that perspective.
When we talk about 2025, we made a couple of statements. I want to make sure that we're kind of clear about that. So pricing, like I said, we'll annualize as we get into the second half. And I am looking at my notes because I want to make sure I get this right. We said with confidence that we can grow volumes in 2025. No question about that. To the question of can you sustain the business, and we did say we can sustain the blockbuster sort of status for the product in 2025. And we said, absolutely, that's the case. But to put a little more meat on that bone, we didn't say that we couldn't grow on a net basis. But as a company, we plan to grow PYLARIFY in 2025. I mean, that's our mantra. We pride ourselves on being able to deliver long-term sustainable growth.
And so we'll go with that. And sort of back that up, the company announced a $250 million share buyback program this morning. And the reason for that is because we see a disconnect between where we sit today versus the intrinsic value of the company. So I see it as a great ROI opportunity for shareholders to execute that program.
Maybe I'll just follow up on the capital allocation piece. And that was a meaningful announcement. I think a lot of people have been hoping that you might do some share buyback with that disconnect. Talk about the decision process to get there. You mentioned the intrinsic disconnect. But how should we think about capital allocation going forward as well?
No, I think that's a great question and I think it's an important question. At September 30, we had $865 million in cash. I can say at the end of October, that number is north of $900 million, so we do, as a management team together with our board, evaluate constantly what to do with those funds to make sure that we're creating value by putting them out. We have a rich BD pipeline and that I think we've demonstrated this year that we've been executing against. We can, together with not only funding our organic and what the BD inorganic pipeline, we can fund all of these things within our liquidity profile, or I should even just say our cash profile. We can, like I said before, we continue to generate north of $100 million a quarter, and we can execute on meaningful BD.
The takeaway should be that we're not going to be doing multi-billion dollar deals. I think we've demonstrated that some of the deals will be larger than what we've done so far this year, assuming that we're able to continue to execute on that pipeline. We feel really good about where we are and look forward to being able to create additional value through that process.
So you already talked a little bit about PYLARIFY in 2025. But at a high level, can you talk about the growth potential for it over a longer period of time? You've laid out sort of this framework of a $2 billion TAM going to $3 billion. We know you've raised the TAM a few times. So that's a joke. But maybe just after 2025, can you talk about the potential for PYLARIFY to grow? And what are sort of the levers to get to $3 billion?
You're right. We have raised it. And it really does have to do with how it's used. So there's a handful of pieces and parts. So the basic market in terms of incidence and prevalence is growing 2%-3% each year from a market, just a pure underlying market perspective. But to get yourself from 2%-3% really hinges on probably two things. And one is more impactful than the other. And that's RLT moving solutions moving into earlier stages of the treatment for prostate cancer patients. So that's probably the largest number. That would move from what is now, call it, 30,000 scans to 220,000 scans. Another thing to think about in terms of the overall market is the fact that PSMA PET scans only account for about 30% of total prostate cancer scans that are done.
The other 70%, bone scan, MRI, CT, present an incredible opportunity to sort of continue to expand the utilization of PSMA PET, particularly PSMA PET with PYLARIFY, and then let me come back then to another driver, probably smaller, but still it works in terms of identifying for guidelines. You need to remember that our label does not identify or quantify risk profiles of patients, and current guidelines look for the use of a PSMA PET scan when a patient presents as intermediate, unfavorable, and then higher risk from there. Our mirror study that we've been running would look to get guideline changes around intermediate favorable, so that would be another addition, so the combination of all of those things, and so is it a linear? I think that's an obvious question. Is it a linear sort of progression? The answer to that is no.
We've always thought that would be the case. But it will depend heavily on how RLT therapies are, well, repeating myself with that, how they come into the market and how they are adopted.
Right. Well, I mean, Novartis is saying maybe first half of next year for PSMA fore. So that's good news.
It is good news.
The other thing, we recently wrote a note about this in terms of our view, but when you look at the $3 billion in 2029, can you talk about what is baked in there and what could be sources of upside to the $3 billion assumption?
I think the source of upside is, one, as physicians embrace RLT from a precision medicine perspective and how they may utilize it more frequently. In other words, a scan more frequently on a patient. That's one of the things that has sort of advanced as we've gone through time. He was joking about how many times we've changed the TAM, but it really has to do with the way we've surveyed doctors and how they use the product or just a PET scan and a PSMA PET scan in general, moving from either one to a multiple. Usually, I think we've been fairly steady about 1.5.
Yeah, roughly.
In general. But we have had in our surveys, the answer is being everything from one to four times per patient per year. But then those are out. The one is an outlier, but it certainly is out there.
I just wanted to go into the recent kind of CMS confusion. So for those who may not be aware, there's an update to the outpatient rule in terms of the final payments recently. And there were some different rates that were posted at different points in time. So it seems like now they're pointing to using the MUC rate, the $332 per millicurie. So maybe just talk about any updates that you can give since the last call. And I think one of the big questions investors have is whether there could be a path in the future to getting higher reimbursement maybe in subsequent years or even next year.
Yeah. And this is actually, and Mark and I face this a lot in terms of identifying what we're talking about in terms of price versus reimbursement. They're two different things. The price that we have to our customers doesn't change. What changes is their reimbursement scheme for 20% of the population. And what we're talking about is patients that have fee-for-service or traditional Medicare in a hospital outpatient setting specifically. So that represents literally 20% of those that present. That same patient in an outpatient setting in a freestanding medical center, this doesn't apply to them, even if they have traditional Medicare. So what Matt's outlined is true. So when we got the unbundling sort of proposal in July, that was a great outcome. It creates broader access to patients over time.
And I can tell you that the MUC is our base case and has been because that was when the proposed rule came out. It basically said, "We're going to unbundle and we're not asking for comments." But we are asking for comments around MUC, which is mean unit cost. And what that truly means is it's CMS's way of approximating what a hospital is actually paid for the product itself. And it's a complicated formula. But to that end, CMS has shown a willingness to engage on ASP. And in fact, I think there's been an indication that they think that could be the case for 2026. But again, we'll work hard.
I think that the work that the teams have done with both our own internal market access team, who has done a fantastic job and has been on this for more than a decade, will work again tirelessly to sort of look at the transparency around ASP that it provides. We've been reporting ASP since the first dose sold. So it does provide a clear path for CMS to be able to embrace that, both not just for us, but across the entire industry. So that's the other thing that I think is really important about this unbundling is that it makes PET diagnostics from a radiopharmaceutical perspective as a class benefits this. It benefits patients. It will reward innovation longer term than a past year period. So we think that this is just a tremendous outcome for the business as well as the industry.
We know, despite the recent Medicare head fake on the typo or whatever it was, that you have been assuming this in your base case since July. I mean, that was what was in the proposal. It started to kind of contract through that or at least have those conversations. Maybe you could talk about how the contracting is going, how you expect it to go, and how much share you could retain through that process.
So the purpose we have been, we were first to market and have done a fantastic job of really creating deep relationships across the board. So it wasn't something that we were waiting for in terms of what CMS may or may not do this year. We see what they have done, which again, we're thrilled with it. But the contracting process, we won't disclose exactly where we are with the process other than to say that this has been a strategic focus of the company for this year and even into early last year, where we have been targeting our key customers to make sure that we maintain a strategic relationship with them longer term. These are multi-year contracts that would benefit both parties with keeping PYLARIFY as a market-leading product with pricing that is premium to its competition. So we're pleased with where we are.
Okay. And on pricing next year, you've talked about the fact that you'll comp some of the lower pricing in the second half. You have to annualize through that. You've also said in other arenas that at least we've taken price in the past every year. So the core question is, what should investors expect in terms of full net pricing in 2025 versus 2024?
So you're asking the guidance question again.
It's what we do.
I know. I know. And as we've been saying, we give guidance every year consistently in February of every year. These contracts are in place to be able to help sustain the business. And from a pricing perspective, again, we're being very intelligent about approaching our customers with helping them understand the economics of what this small percentage of the total business means to them across their entire book of business. So what it means in 2025, I mean, let's go back to the fact that we did take a 6% increase at the beginning of this year. We had some of the benefit of that in the first half of the year. And then here in the second half, like I said earlier, that we are going to be able to, we're starting to see that impact.
That's baked into our number, a number which we raised back in April, our full year view of the business and have been able to maintain that view throughout the balance of the year. We will annualize through these contracts as we get into the second half of next year.
Related to the whole pricing discussion, there are questions around market share in your competition. So maybe you could talk about what you've seen so far from Blue Earth. Do you expect them to come in and be able to take more share? And how have you been able to defend there?
The market has obviously been very competitive and very dynamic in the sense that we see Blue Earth. They've had some changes through the year in terms of their approach to the market, and so we understand where they are and what they're trying to do. Our job is to focus on the value, the clinical and commercial differentiation that we can deliver from a best-in-class customer service perspective. We have the largest sales force out there, and helping to educate not only on the best uses of PYLARIFY, but also to sort of help to grow the market on an overall basis. More share of voice in the marketplace can be deemed helpful in the sense that a rising tide lifts all boats. We have leading market share. It's our intention to retain market share. That's always the goal of sales and marketing.
Otherwise, we have to have an OpEx discussion. But we invest to make sure that we are driving and we pay attention to our competitors. We don't take a market-leading position for granted. We wake up every day with an eye on how do we drive growth and sales. Competition will be there, but we're going to. Our ultimate goal is to win.
I don't want to have an OpEx discussion with you.
No, no. I was talking about, I was having with our sales and marketing division.
What about Telix? Can you talk about their competitiveness now and also your ability to compete with Illuccix too? Does that make a difference?
So that's an interesting call because it can't be based on how they filed it. It can't be. It's a manufacturing change, Mark, if I'm right.
Yeah.
So, under the way they filed, they will actually have to have a new name because it's in essence a new product, which comes with its own complexities in launching another product. They will have to recontract with their customers. They will have to go back to all of their payers and renegotiate for reimbursement. They will have to get new codes like HCPCS codes, for instance, like an A code. They would need to go do that. And it could cause some confusion and maybe even a distraction. I mean, we understand their strategy, but at the same time, there's a complexity that you would have to ask, what's the trade-off in the interim from a competitive perspective. So it's the same product. It's still gallium and doesn't matter. Gallium is gallium.
No matter how you do it, it still has a one-hour half-life, whereas we have a two-hour half-life. And yes, it is possible to create a much larger dose, I mean, with a longer life. But the way you do that is you load more activity into a dose, which from an economic perspective may not be the best gross margin decision. But at the same time, I mean, you could do that with any isotope in terms of loading additional activity. It's always a formula of what time of day are you making it, how far is it, and what time does the patient get it? So these are always sort of the decisions of how much activity goes into a dose on any given day.
Did you mention that in the half-life, we sometimes get questions about copper? Could you talk about the ability for copper to compete in the future?
Copper is an interesting choice because it does have different properties in the sense that it has a longer half-life, so you can do more regional. You see that we chose copper for our FAPI product. And I say product, I mean product candidate. So we do think it's interesting, but it does have different qualities from a science perspective, whereas imaging on day one versus day two, there could be just different questions for how that plays in the market. And so we'll see. I think there are isotopes across the board, which is why we remain agnostic as to trying to put our eggs all in one basket in the sense of even one of the more recent adds to our portfolio is a gallium diagnostic that pairs with a lutetium therapeutic in the RM2 product, which we're very excited about.
I think we might have time for one pipeline question. I think the area that you've been focused the most on in terms of near-term pipeline is Alzheimer's with now two assets to tag tau and beta. So maybe talk about the fact that you raised a TAM there, right? Well, at least the mean-.
We provided a TAM.
The longer-term TAM. So talk about how you think that market could potentially grow to. It's a $2.5 billion by middle of the next decade. And just remind us on the timing of the two assets in terms of when you're filing.
Yeah. So MK-6240 is a product that we've had a little longer out of the two assets. It's the tau tangle diagnostic. It is being used currently in 100+ academic and clinical, so meaning large pharma clinical studies, just shy of a dozen, if you will, which is really kind of important. It actually has done, it's been utilized. Go ahead. It's been utilized quite broadly. And we're very excited about it. We do see an opportunity to file in 2025. I think that initial expectations of that product and the NAV product, that it wouldn't be until later this decade that we would actually have it. But we do see a pathway to a 2025 filing with NAV-4694, which is the beta-amyloid. We see a 2026 filing opportunity into a market.
What's going to really sort of facilitate the ability to drive into that larger market is the approval of the therapeutics, and what becomes important is from a guideline perspective that the guidelines want to see both tau and beta diagnostics being used, particularly in expensive therapeutics to be able to help understand when to start a therapy and/or when to stop it, so again, we think these are nice catalysts, particularly focusing on the when we file and then when we can bring it to market.
Great. So I think we have to wrap there. But thanks, guys, so much for your time.
Thanks Matt .
Thanks, everybody, for your interest in Lantheus.