Questor: A 300pc share price rise reflects the value of this cancer spotter

Questor share tip: the firm is still priced at a relatively lowly 16 times earnings

“So, what seems to be the problem?” 
It’s the archetypal doctor’s question and answering it has become a multibillion-dollar business for some of the world’s leading healthcare companies.
Diagnosing illnesses quickly and correctly is becoming increasingly critical as populations age and become more susceptible to disease and the list of potential ailments becomes ever longer.
A good example is cancer, which, according to the National Cancer Institute, caused 9.7 million deaths worldwide in 2022. This figure is expected to rise to 15.3 million by 2040, with new cases set to hit 29.9 million.
The disease is one of the specialisms of Lantheus Holdings, a long-established US business whose precision diagnostics are particularly strong in detecting prostate cancer. The company also develops and produces radiopharmaceuticals – drugs containing radioactive isotopes – which can be used both to identify and treat conditions.
Among its three main products are enhancing agents that are used by clinicians to better assess medical imaging.
Lantheus is among the growing number of companies to have harnessed the power of artificial intelligence in its diagnostics software. 
It has one analytical product, Pylarify AI, which has secured clearance from the US regulator, the Food and Drug Administration. The deep-learning algorithms Pylarify employs dramatically improve the ability of the medical profession to detect, understand and monitor illnesses.
Lantheus shares are owned by a total of 17 of the world’s best fund managers, each of them among the top-performing 3pc of the more than 10,000 equity managers tracked by financial publisher Citywire. The significant ownership by these investors has led to Citywire awarding Lantheus its top AAA Elite Companies rating, reflecting the level of smart-money backing.
Among the backers is Nick Sheridan, who holds the stock in his Janus Henderson Horizon Global Small Companies fund. He particularly likes the way Lantheus’s diagnostic tools tie in with its related treatments: “Pylarify ultimately enables broader adoption of [the company’s] highly efficacious therapeutics, which then continues to drive market growth as both are used in earlier lines of therapy.
“This approach can be replicated in other diseases and cancers, and Lantheus, with its nuclear medicine expertise, is the premier partner to continue to develop new diagnostics and therapeutics over time.”
The group widens its addressable market by forging partnerships with industry, including leading pharmaceuticals companies, academia and physicians, to foster the development of precision medicines.
The shares, listed on Nasdaq, are available through the main UK stockbrokers, though prospective investors should make sure they fill out the W-8BEN form to minimise their exposure to US withholding tax and check with their provider about any additional dealing charges.
As things stand, Lantheus generates almost all its sales in the US, although it does have international distribution agreements with third parties, including in Europe.
Last year’s sales rose by a third against the previous year to just under $1.3bn and earnings before interest and taxes came in seven times higher at close to $500m as the company dramatically improved its margins and returns on invested capital.
Analysts are forecasting that sales will continue to roar ahead, topping $2.2bn in 2027, and that the net cash position will continue to grow, meaning its balance sheet is in rude health.
And even though Lantheus will have to continue to invest in its pipeline, its improving earnings mean its spending on research and development relative to achieved sales is expected to fall heavily, making its output more profitable and cash generative.
As an expanding business, Lantheus pays no dividend, nor is it expected to for the foreseeable future, so share price gains are the prize. So far backers have been well rewarded. The shares have increased in value by more than 300pc over the past five years but are still priced at a relatively lowly 16 times this year’s forecast earnings. That leaves scope for plenty more upside as long as the forecast growth comes through.
Many top managers are betting the company’s impressive progress will continue. Based on the size of opportunity and Lantheus’s success to date, this column is like minded.
Questor says: buy
Ticker: NYSE:LNTH
Share price: $110.05
Miles Costello is a contributing journalist for Citywire Elite Companies
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