New CMS Rule Will Improve Medicare Access To PYLARIFY In 2025

Key Takeaways

• Strategic partnerships and market leadership in diagnostic radiopharmaceuticals drive revenue growth and enhance Medicare coverage opportunities.
  
• Expansion in Alzheimer's and prostate cancer diagnostics, along with royalties from out-licensed assets, support earnings growth and pipeline diversification.
  
• Seasonal revenue challenges, partnership-related margin risks, and potential regulatory delays introduce significant uncertainty and execution risks in Lantheus Holdings' financial outlook.

Catalysts

Develops, manufactures, and commercializes diagnostic and therapeutic products that assist clinicians in the diagnosis and treatment of heart, cancer, and other diseases worldwide.

• The CMS rule update, effective January 1, 2025, allowing separate payment for specialized diagnostic radiopharmaceuticals, including PYLARIFY, enhances patient access and potentially drives revenue growth by securing Medicare coverage for key products.
  
• Lantheus plans to submit NDAs for MK-6240 in 2025 and NAV-4694 in 2026, positioning the company to capture part of the projected $1.5 billion U.S. market for Alzheimer's diagnostics by the end of the decade, which is expected to significantly boost future revenues.
  
• PYLARIFY's market leadership and strategic partnerships with hospitals and imaging centers position it to maintain growth, forecasted at mid-20% year-over-year in 2024, impacting both revenues and earnings positively.
  
• Continuous investment in pipeline expansion, including assets such as PNT2002 for prostate cancer and investigational assets targeting GRPR and LRRC15, could lead to new revenue streams and improved net margins from future product launches.
  
• The milestone payments and royalties from out-licensed assets like FLYRCADO are expected to contribute to earnings growth, providing a financial cushion and potentially higher net margins in the medium to long term.

Lantheus Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Lantheus Holdings's revenue will grow by 9.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 28.6% today to 32.0% in 3 years time.
• Analysts expect earnings to reach $620.4 million (and earnings per share of $7.91) by about December 2027, up from $427.6 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.4x on those 2027 earnings, up from 14.9x today. This future PE is lower than the current PE for the US Medical Equipment industry at 37.3x.
• Analysts expect the number of shares outstanding to grow by 4.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.64%, as per the Simply Wall St company report.

Lantheus Holdings Future Earnings Per Share Growth

Risks

• Seasonal fluctuations, particularly third-quarter seasonality, have led to a sequential revenue decline for PYLARIFY, which could continue to affect overall revenue growth in a recurring fashion.
  
• There has been a notable compression in net price due to strategic partnerships, which poses a risk to PYLARIFY's profit margins despite volume growth.
  
• The decision-making of CMS regarding reimbursement rates and ASP calculations could affect future revenues for innovative radiopharmaceutical products, introducing uncertainty in financial forecasts.
  
• The high degree of crossover in the PNT2002 trial has confounded OS results, presenting a challenge for regulatory approval and potential market introduction, which could delay revenue generation from this asset.
  
• The reliance on strategic partnerships for securing product availability and pricing negotiations introduces execution risk, which could impact revenue certainty and cost management.
  

Valuation

• The analysts have a consensus price target of $134.0 for Lantheus Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $166.0, and the most bearish reporting a price target of just $110.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $1.9 billion, earnings will come to $620.4 million, and it would be trading on a PE ratio of 20.4x, assuming you use a discount rate of 6.6%.
• Given the current share price of $91.4, the analyst's price target of $134.0 is 31.8% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.