United Therapeutics Corp (UTHR) 2003 Q2 法說會逐字稿

Good morning and welcome, ladies and gentlemen, to the United Therapeutics Corporation second-quarter 2003 financial results conference call. At this time I would like to inform you that this conference is being recorded and that all participants are on a listen-only mode. At the request of the company, we will open the conference for questions and answers after the presentation. Our remarks today concerning United Therapeutics may include forward-looking statements which represent United Therapeutic's expectations or beliefs regarding future events. We caution that such statements involve risks and uncertainties that may cause actual results to differ materially from those in the forward-looking statements. Consequently all such forward-looking statements are qualified by the cautionary language and risk factors set forth in United Therapeutic's periodic and other reports filed with the SEC.

There can be no assurance that the actual results, events or developments referenced in such forward-looking statements will occur or be realized. United Therapeutics assumes no obligation to update these forward-looking statements to reflect actual results, changes in assumptions, or changes in factors affecting such forward-looking statements. I will now turn the conference over to Dr. Martine Rothblatt. Please go ahead, ma'am.

Good morning everybody, and this is Martine Rothblatt hosting United Therapeutic's conference call on our second-quarter results. With me on the call today are Dr. Roger Jeffs, our President and Chief Operating Officer, and Mr. Fred Hadeed, our Chief Financial Officer. What I'd like to do is, during the introduction period of the call, is to provide a few financial highlights for the company overall and to then zoom in on some of our Remodulin business statistics as that is our lead product, and then open up the call for any questions that you may have for either myself, Dr. Jeffs, or Mr. Hadeed.

Well, to start off with the overall picture, I'm very pleased to say that this is our fourth straight great quarter coming after the bombshell of Remodulin last year, and our revenues for the quarter now total $14 million for the second-quarter of '03, which is a very healthy 21 percent increase over the same quarter in 2002, which was the quarter that we actually launched our drug, so it's really a meaningful comparison. And perhaps even more significant, it's a 30 percent increase over our first quarter '03 revenues. And as you'll hear in a moment, almost all of that increase in revenues is due to the performance of Remodulin. So we're very pleased about that indeed. Perhaps even more exciting is the fact that the company's overall net loss fell 25 percent to $2.4 million or just 11 cents per share for the second quarter of '03 compared to $3.2 million or 16 cents per share in the second quarter of 2002.

So very much as we have been giving everybody the heads up expectation, the company's losses continue to drop quarter after quarter ever since we've launched the drug, and we clearly are on a very straight and I think close at hand path to achieve breakeven in the very near future here. Let me now it zoom in and provide some business statistics on Remodulin in particular, which is our key lead product. The Remodulin revenues for the second-quarter of '03 were almost $12 million, $11.7 million, and that compares, for example, with our revenues of almost $9 million in our launch quarter of quarter two '02 when of course manufacturers do get their inventory buildup and whatnot. So the fact that we are doing so much better than the matching quarter a year ago is, I think, highly material and significant given that that's a launch quarter when companies usually post pretty substantial revenues. And to show that this is even more exciting is to go ahead and compare our Remodulin revenues of almost $12.5 million in the first quarter of '01, as mentioned earlier, a very substantial increase.

In terms of some of the patient statistics, we've got -- for the first time in the company's history we've now crested over 500 in terms of reimbursable patients. We have 505 reimbursable patients worldwide. We have a total of 635 patients worldwide. The difference there is around 120 clinical trial patients outside the U.S. who are still on compassionate use drugs. That's a net increase of 45 patients from the numbers that we reported in the last quarter, I realize that for those of you who follow United Therapeutics closely, you may be concerned that that 45 increase is less than the 20 per month increase that you've come to expect, but I would urge you that that is not really significant at all, and is really just a consequence of month-to-month rounding and month-to-month lumpiness.

As you may recall, in February and March we reported 25 patients growth each month and several of Unidentified Participants in last conference call said are you going to do 25 a month here on out? And we said no, we feel very confident with 20 a month on a long-term average basis. And in the past quarter, there were a couple of months due to medical conferences, that a lot of doctors were on travel, and the patient counts were down, and that resulted, combined with some averaging in 45 -- for 45 patients in the second-quarter. But already we remain very, very confident, we remain quite strong in our belief that 20 patients per month is what this drug is going to do SubQ. And, for example, the July figures, which are not yet audited but we're pretty confident in their validity, have already come in at 25 patients for July. So again you see 25, 25 February/March, down to maybe 15/15 for April/May, 20 for June, 25 for July. These are the kind of figures rounded to the nearest five.

And again, so the fact there is 45 for the quarter is more of a facet of rounding and month-to-month lumpiness and not material. Our long-term forecast remains very strong at 20 patients per month. How does that translate into money? Well, 20 patients per month at our average per patient revenue, which it picked up a bit here to $91,000 per patient, 20 patients per month is adding $2 million in revenue per month month after month, or like an additional $24 million per year in annualized revenue. And that's part of the reason why our annual revenue run rate has now picked up again, as it has every quarter since launch, to $46 million of our annual revenue run rate. That's very exciting because it's almost $4 million per month, we are really right now rapping against the levels of our total expenditures and therefore coming, as I said at the beginning of the call, really within grasping distance of breakeven profitability.

So with those introductory remarks, I think you can see why I'm very excited and enthusiastic about these results for our fourth straight quarter. I'd like to now open up the phones to any questions that you may have of a financial, clinical or business nature.

(CALLER INSTRUCTIONS) Martin Auster with Wachovia Securities.

I had a quick question. If you could just really briefly review the patient numbers quarter by quarter that you gave?

Sure. The patient numbers quarter by quarter.

I'm sorry, month by month.

We don't really have detailed patient numbers month by month, but I will say -- and the reason for this, Martin, is that we collect patient numbers from about 13 different countries around the world and we now have patients on SubQ Remodulin. We actually have our first patients on IV Remodulin through an investigator initiated thing, so it's a little bit tricky to keep track of them exactly. That's why we follow a rounding rule that we round to the nearest five patients, and that gives as much granularity as I think anybody can reasonably expect. But avoids us getting into a thing of like oh, we forgot this patient, that kind of thing. So in February we were at 25, March 25, April 15, May 15, June 20, July 25. And again, that's always like rounding to the nearest five. So, whether for a quarter we report 45 or 50 patients has more to do with rounding than anything specific, and it mostly has to do in fact with the lumpiness in numbers jumping from 25 to 15 back and forth, and that's why we give our long-term forecast at 20 a month.

Martine, you mentioned that you already have some patients using the drug IV, and I'm really excited about that part of the story. I was wondering if you could give us a little more detail on that? And I don't know if Roger is on the call or if you could handle it, but maybe talk a little bit about the development strategy pursuant to getting a label expansion to include the IV form?

Well, why don't I give you just a couple of business highlights on the IV and then it Roger can go in and talk in some detail about the development strategy which he is in charge of. And I do want to take this opportunity to really let everybody who is an investor know that Roger deserves the credit for having conceptualized the IV route of development and has done just an absolutely brilliant job of doing so, it makes us all very, very proud of him. IV is a -- Remodulin is a great complement to SubQ Remodulin which is our lead product. Because notwithstanding the ability of us to minimize the pain associated with SubQ Remodulin, some patients remain quite sensitive to the pain and I think all of our common experiences are that no two people experience pain the same way. So for those people who remain sensitive to pain, we can't treat them SubQ and we hate to lose them as Remodulin patients. So IV Remodulin allows us to pick those patients up.

In addition, IV Remodulin has the benefit that many patients present to doctors in extremists, meaning that they have either held on to the hope of oral pills working a little bit too long, or they've gone undiagnosed of their pH a little bit too long and they report to doctors as New York class 4 patients are perhaps 3/4 patients. And as any good doctor would want to do, they want to do everything they can to first make sure that they save the patient's life, and that leads them to go straight to an IV therapy where there's no intermediation of the skin and they're getting the drug directly into the patients bloodstream with no issues relating to site pain or anything else. Right now Flolan is the solution for that, but Flolan has a number of significant warts and hair all over its face.

First of all, the drug has a very short half-life of just a couple of minutes, meaning that if the patient flow of the drug interrupted for any reason such as a kink in the line or a dislodged line, the patient is at immediate risk of rebound hypertension and abrupt death. Another problem is that the roomis (ph) of the drug is not stable at room temperature, resulting in patients having to cart around a big ice pack to keep a mobile pump pumping the Flolan into the bloodstream at its appropriate temperature. And the pump itself is very large and bulky. The patients need to go through a fairly complicated reconstitution method one or more times a day. So for all of these reasons, Flolan has some problematic aspects that IV Remodulin does not have.

We've got a comfortable hour plus half-life depending on whether you're measuring it in serum or other ways, and hence the blood remains -- the drug remains in the bloodstream for a considerable amount of time. If a patient's IV Remodulin line became kinked they would have more than enough time to get to a hospital and have an appropriate surgical operation done to get the line reinstated. The drug is stable at room temperature so the patient can use an invisible pump, doesn't have to walk around at work and at the mall and what not labeled as a patient. I will tell you that doctors from one side of the country to the other have clambered for the development of IV Remodulin, and until Dr. Jeffs' breakthrough bioequivalence development path, it was difficult to see how this could be done in a short time frame.

But Dr. Jeffs has developed a way to bring IV Remodulin into the market, which by the way we think could at least double the SubQ take up rates, so right now we report 20 patients a month. We believe with IV Remodulin we could take that up to at least 40 patients a month, 20 SubQ plus another 20 IV. So we're very excited. We think we can get that into the market perhaps as early as next year, provided that the development path goes smoothly. And on that note, let me toss the baton to Roger to walk you through the development path.

Thank you, Martine. The thing we struggled with in trying to conceive an IV development was whether or not we would have to do a comparative trial versus Flolan. And obviously when you do active control trials and noninferiority comes into play the sample size of those trials becomes unreasonable for an orphan population of patients. So in looking at the question then of how we could bring intravenous registration to Remodulin as quickly as possible, we were somewhat blessed by the fact that subcutaneous Remodulin is 100 percent bioavailable, and a lot of people with a generic drug for example will try to match pharmacokinetics and then get generic registration of a drug once it's off patent. But we are also going to apply that -- a similar approach then to our intravenous studies, and we're going to start in fact this month. Our bioequivalent study in normal volunteers to prove that the pharmacokinetics of intravenous Remodulin match and/or are thus bioequivalent to subcutaneous Remodulin.

We will have that data by the end of the year. Based on that data alone we hope to make a filing for intravenous labeling. We would expect that review to take at least six months so, as Martine stated, we would then expect to have intravenous labeling sometime in late '04. That's obviously very exciting. It truncates the development pathway by not having to do any clinical studies, in essence. We certainly will have the data from the ongoing investigator trial to provide to the FDA as support for chronic benefit. We're also doing some chronic toxicology studies just to support the safety of the formulation in a preclinical model, and there's always a possibility that we could get some compassionate use data preapproval.

We're extremely excited about the potential for this plan. We have visited this plan with our expert consultants, which include former heads of the Carter (ph) Renal Group, former head of the Carter Renal advisory panel, and also the former head of the FDA Bioequivalence Group. And they all are very supportive and 100 percent confident that it's a viable strategy. So it's one that we're going to work full force on and we've redirected some of our resources, in fact it's our top development priority at this time.

Roger, real quick and I'll jump off. Could you just quickly address what kinds of historical work you know that's been done on IV Remodulin, or what kinds of things make you comfortable that the bioequivalency will come in the way you expect it to?

We've done some acute studies to look at the infusion to just show that the pharmaco dynamic effect is similar if it's given IV or given subcutaneously. What makes me enthusiastic is usually when somebody does bioequivalence studies you actually do it the other way around. You look at the intravenous kinetics and then take your other route and compare the kinetics to the intravenous route. But we are blessed with the fact that we know from our earlier studies where we've actually given intravenous Remodulin and compared that then to SubQ that we see 100 percent bioequivalence. So now we're just basically doing it the other way and we're going to study about 50 patients, so we're going basically do overkill to show that it's bioequivalent because you do have to meet some competence interval bounds to say that definitively. So based on data that we had before, both kinetically and pharmaco dynamically, we're highly confident that it's going to be bioequivalent.

Matt Duffy with Black Diamond Research.

I just wanted to circle back on your current average dollars per patient.

Sure. That's $91,000 per patient per year.

Any early comments from the investigator who started the IV -- has already started the IV study? Any early comments, thoughts?

Yes, there actually has been some positive feedback, and because Dr. Jeffs -- I presume you're talking about our investigator IND -- being worked with Dr. Rich, Dr. Barst (ph), and Dr. Capsan (ph). And Dr. Jeffs, would you like to share any deidentified (ph) anecdotal information?

Sure, Martine. We've got a couple patients now on intravenous outpatient therapy for Remodulin. The first couple patients have reported that the inpatient hospitalization was shorter due to the simplicity of the mixing versus Flolan, and I think the longest that one patient has been on now is going on a month and they're doing fine with expected benefit from a prostacyclin therapy. There's other patients sort of queued up now based on these first two that have gone well. So while we don't promote intravenous use, I want to be clear about that. These are investigator initiated studies. The initial data looks very positive in terms of both the patient's ability to mix the drug and infuse it on their own as well as the ability of the physician to teach that patient the mixing requirements and get them out of the hospital as quickly as they can so they can go on with their lives.

Matt Kaplan with Punk (ph) Siegel.

A couple questions. Just wanted to get an update in terms of the status of the pain management aspect of using the drug subcutaneously. And then also, give us an idea with respect to how the drug is being used in practice in reference to the dose titration and how long it takes to get to a therapeutically relevant dose at this point.

Sure, let me handle the first part of the question in terms of the pain management status and how it plays out for SubQ Remodulin, and ask Dr. Jeffs if he can handle the second part of the question in terms of how long it takes a typical patient from when they present to get up to a therapeutically optimal dose on average. We have a growing array of pain mitigation methods that are all easy to apply, are non narcotic in nature, don't effect the patient's thinking in anyway that have a varying degree of success among patients. Again, as mentioned at the beginning of the call, some people are more sensitive to pain than others and you can't always predict it. I've heard doctors say stuff like well, we had this guy and we all know that men are more susceptible to pain than women, so that this person is a poor candidate for Remodulin. He insists on going on remodeling and he never felt any pain at all. So I just give you that anecdote as a thing why it's so hard to predict.

But what we use is, first of all, what we call PLO Gel which is a mixture of anesthetic and transdermal penetrating agents that have the ability to relieve pain at the site where a patient has been infusing Remodulin. In addition, there are nasal anti allergy steroids, these ones that have cortical steroids, very, very, very low dilution level of steroid but it's good enough to keep your nose clear during allergy season. And when those things are sprayed on a site they also have an ability, for a reason we don't totally understand, to eliminate the pain that occurs while a person is actually infusing Remodulin in a given site. So a combination of those two techniques, both of which are cheap as dirt, have eliminated the pain issue for the great majority of the patients.

Having said that, there still is always the perception among people that there may be pain, and I think that one of the beauties of IV Remodulin is it annoys me frankly that we lose some patients to Remodulin because they are on Flolan today, doctors ask them would you like to go to Remodulin and they say well I heard it causes pain, I can't handle any pain. And of course, if you've got a bad, bad illness like this, you can't blame anybody for not wanting to take on pain on top of a life-threatening illness. So with IV Remodulin I believe we can go ahead and transition a lot more of these Flolan patients than we've been able to do with SubQ Remodulin, even though a third of our patients each month that we bring onto Remodulin are in fact transitioned from Flolan.

One last comment I'd like to mention with regard to the SubQ Remodulin and pain issues and then turn it over to Roger, is that the pain mitigation has worked so well and that the Remodulin SubQ startup process has worked so well that increasingly patients are being started at home on Remodulin, which results in significant savings obviously compared to having to be hospitalized and started on a drug. And this is especially associated with Accredo, one of our three distributors, Accredo, Priority, and Caremark. But Accredo has developed a home start program for people on Remodulin where the drug can be shipped to their home and, with an Accredo nurse, they can be started on Remodulin at home, taught how to use the pain methods at home, and this greatly facilitates an uptake of Remodulin and we're very proud of our work together with Accredo in their Remodulin home start program. Roger, can you talk about whether it's home start or hospital start, the kind of rate of titration for Remodulin?

Sure. Coincidence with sort of that home learning is learning about the dose. And I think in general people are dosing more aggressively than we did in the clinical trials, particularly early, to get the earliest possible therapeutic benefit from Remodulin. And I would say on average between one month and three months the average dose is somewhere between 15 and 20 ng per kilogram per minute, and that escalates up over the course of the year. For example, by one year our average dose is approximately 40 to 45 ng per kilogram per minute. So in the real world physicians are achieving doses of Remodulin that are somewhat higher than what we achieved in our early trials and our own open label study with the drug over a similar timeframe.

And a couple other quick follow-up questions. With respect to the European approval status, what -- where is that in the process? And then, Martine, you mentioned that you're close to being breakeven. When are you guys targeting breakeven for?

Roger, why don't you answer the first question. I'm going to defer the second question because we're not giving any forward-looking statements on that. But if you'll look at our trendlines you can see it's very close at hand. And then we'll have room for three new questions after that. So Roger, if you could address French approval ,and then we'll move on to the next question after that.

Matt, we're still pending in France. There's three processes that actually occur. There's a preclinical meeting, a clinical meeting, and then a general commission that meets and reviews the recommendations from the preclinical and the clinical groups. We've gotten through the preclinical and clinical meetings and the general commission needs to meet. And as you know, France takes the month of August off, so we expect that to happen sometime in the next quarter. But the application is still pending and I can't provide any more color than that at this moment.

Kelly Sowenger (ph) with Cemetery Capital.

My question is about the average price per patient. One of the analysts came out recently with a $75,000 price per patient with the caveat that that delta was going to the distributor. Can you just talk about what that 91,000 means from your perspective?

Yes, thank you for the question. The $91,000 per patient is money from Remodulin that comes directly to United Therapeutics. It is almost all gross margin for us. And we can't comment on analyst reports, but we have reported steadily that our cash from Remodulin has been in the high 80s and it basically creeps up about $1000 or so every quarter as patients are on Remodulin longer and longer and use more and more Remodulin. As just an interesting footnote, we now have patients who are over five years on Remodulin doing extremely well. So the $91,000 is all money to us. The money that distributors get is above and beyond that $91,000, and probably the overall therapy cost for Remodulin is somewhere north of $100,000 per patient per year, but we get $91,000.

I'd also like to mention in that vein, Kelly, because it's a very, very good question, that sometimes people say well, $91,000, what does that really mean? So when you multiply the $91,000, say, times the 20 patients per month that we get each month on average, you come out with about $2 million per month, or in terms of our gross margin you come out with about $20 million per year in gross margin. We've got 20 million shares outstanding, so just growing at our current rate of 20 patient per month, we are in fact adding, once we get to break even, which you can see from the numbers we released today we are very, very close to, we're having almost a buck per share in earnings per year at this current growth rate. And you can see -- so that's, one, why we're very excited, and then on top of that, adding IV as an additional method of attack into the Flolan market we feel is going to double those numbers. Thanks for the question, Kelley, and next questioner, please.

Navdiv Jakara (ph) with Rodman and Renshaw.

My questions have been answered.

Bob Perente with Leerink Swann.

Martine, just a couple quick questions. Any contribution from Caremark being added as a distributor?

Very good question, Bob, and nice to have you on the call as well. Caremark, for those who may be new to United Therapeutics, is our third distributor that we signed up during the past quarter. And in the revenues that we reported for this quarter and in the patient numbers, that includes no contribution at all from Caremark. So those are all revenues from priority, Accredo, and from our international distributors. We are extremely confident, almost 100 percent confident that there will be additional revenue contributions from Caremark, which is one of the largest pharmaceutical distributors and pharmacy benefit managers in the country. They have a very large stable of Tracleer patients. And without -- before they signed up with Remodulin, the really had no Caremark product to offer to a failing to Tracleer patient. And now of course they do have Remodulin. We've engaged in training and getting them up to speed, and I can tell you with confidence that from July they have hit the ground running and we look forward to additional revenue contribution and patient contribution from Caremark in the third quarter.

Just two quick follow-ups. On the ng per kilogram per minute, I might be a little low. Could you just review the one to three months and then beyond?

Are you talking about the question that Roger answered?

Exactly.

Again, these are averages and certainly vary site to site, but in general it's around 15 ng per kilogram per minute anywhere between one and three months, and at one year it's approaching 40 to 45 ng per kilogram per minute.

Perfect. And last one, for the bioequivalence data, when would you release that and is there a timeline that you might think of using that as a release?

We'll have the data by the end of the year. It's obviously a lot of analytical work to look at the plasma levels in patients. But I think as soon as we've solidified that it's bioequivalent we'd announce that. Because one thing we potentially would consider is a compassionate use program for intravenous use. So that would be something we would announce.

Thanks a lot, Dr. Jeffs, and thank you, Bob. We're a bit over our time slot so we have time for one more question. Final question, please.

Stephen Patton (ph) with Asset Management.

I had two quick question. I just wanted to get a sense of where -- what the types of switches that you're seeing? On your last quarterly conference call you'd mentioned that you'd begun seeing patient preference switches onto Remodulin as opposed to just medically necessary, and I'm wondering how that's evolved over the quarter?

Very good question. It has continued to be something that we try to study more and more carefully to delve down into. As you can imagine, it's not always easy for us to do that because we are in fact -- in essence three steps removed from the patient. We interact with the distributors. The distributors interact with the doctors. And the doctors then interact with the patients. However, to the best of our determination, the trends have remained the same. We don't see any changes in terms of the -- about a third of the changes are patient preference changes, and the other two-thirds are the really doctor driven sort of changes. We see a third of the patients coming from Flolan, a third of the patients coming from pills, and a third of the patients firstly presenting with Remodulin in the first instance.

One thing that I can share with you that I think may allow us to shed a bit more light on this in our next quarterly conference call, we are stepping up our internal detailing force and fielding in this quarter what we call an advanced degree of detailer force that will be targeted specifically for pulmonary hypertension and Flolan transitions. It's a complicated thing when you get a patient on a lifesaving therapy like Flolan for them to consider whether or not they should switch to Remodulin. You're really here looking for a detailed medical and scientific discussion with the doctor on the pros and cons. And while we are very proud of the 10 detailers at Priority and the 40 shared people at Accredo, we felt that these forces needed to be complemented with some advanced degree detailers that were kind of part and parcel of the UT family.

So coming this month we're fielding five such individuals and we're hiring three more, which should probably be in place by the end of the quarter or there abouts. And these individuals will allow us to have much more direct contact with the prescribing doctors and to get a lot better information to answer questions such as yours with regard to patient preference, transitions from Flolan as opposed to medically directed. Of course, the primary benefit is we have greater assurance that we can continue to shift long-term our 20 net patient per month target goal, and if we grow above that, that will be even better.

I should add that we do continue to conduct a wide range of meetings and seminars and symposia and luncheons for doctors throughout the country when we gather them together and teach them the latest information on Remodulin, and that's actually spawned some very nice results in that we now have about 130 doctors who are prescribing Remodulin for their patients. That's up about 30 percent from last phone call. We have about 80 or so patients who have been transitioned from Flolan to Remodulin. That's up again about 25 percent from previously. So all the trends are in the right direction. We have about I think two or three dozen doctors who have a half-dozen or so patients each on Remodulin, which shows that for these doctors Remodulin is a core part of their practice.

So all of these trends I think are auguring very, very well. And I think it's a good note to conclude the conference call on that things are looking good. It's been a great quarter for us, our best financial quarter ever. And I look forward to talking with many of you between now and next quarter's call. In the meantime, have a good summer and thank you again very much for participating in our second-quarter conference call.

Ladies and gentlemen, if you wish to access the replay for this call you may do so by dialing 1-800-428-6051 or 973-709-2089 with an ID number of 302-307. This concludes our conference for today. Thank you all for participating and have a nice day. All parties may now disconnect.

(CONFERENCE CALL CONCLUDED)