United Therapeutics Corp (UTHR) 2003 Q4 法說會逐字稿

Good morning, and welcome, ladies and gentlemen, to the United Therapeutics fourth-quarter earnings conference call. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen only mode. (OPERATOR INSTRUCTIONS). Remarks today concerning United Therapeutics will include forward-looking statements, which represent United Therapeutics' expectations or beliefs regarding future events based on current assumptions. United Therapeutics cautions 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 and United Therapeutics' 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 would now like to turn the call over to Dr. Rothblatt. Please go ahead.

Good morning, everybody, and thank you for joining our first conference call reporting on the financial results of last year. And I am happy to say that we started off 2004 here on a really strong footing. As noted in the press release issued this morning, our total revenues for 2003 grew by 77 percent up to over 53 million. And at the same time, our annual loss fell to its lowest level ever, and that's down 58 percent to only $10 million loss for the year. In fact, it's our third consecutive year of rapidly increasing revenues and our third consecutive year of rapidly dropping losses. So we are really pleased to have started off the year on this nice footing.

Moving down to a higher level of detail, I am also able to share with you some net patient count figures for January, which we have just received. In our last conference call, we had reviewed that we had no net patient growth in the fourth quarter of last year, but for January, we came in right at 20 patients, net patient growth, for January. That's exactly in line with our forecast. So once again, another indication that we're starting 2004 on a very good and solid footing. I have with me today on the phone Dr. Roger Jeffs, who is our President and Chief Operating Officer; and Fred Hadeed, who is our Chief Financial Officer and Executive Vice President for Business Development. The three of us are pleased to answer any questions that you may have about the clinical, financial or business aspects of the Company.

At this point, I would like to open the conference call to any questions.

(OPERATOR INSTRUCTIONS). Martin Auster, Wachovia Securities.

It's actually Zef (ph) Cohen (ph) standing in for Martin. I just wanted to ask a question on the open-label study that's ongoing. First off, if you guys could give us an update on anything you're hearing, specifically with the Flolan switch patients; I know we had some good efficacy data out of the prostacyclin (indiscernible) patients -- anything you're seeing on the Flolan switch patients. And then maybe what we could expect at ETS in May?

That is clearly a call within Roger's domain.

Sure, good morning. As we understand it, there are currently 18 patients in the investigator-initiated study that is occurring now at five centers. It's recently been expanded from a 20-patient trial to a 50 patient trial; and the centers that were added to Rush, Duke and Columbia, are Michigan and University of Alabama, Birmingham. The split of patients is about -- half are de novo and have are transitions. And as you pointed out, the de novos are doing as expected quite well on new intravenous Remodulin prostacyclin therapy. The transition, as we understand it, are also doing very well. They are in essence going to typically sort of a 1 to 1 does transition. So if they were on 50 ng per kilogram per minute of Flolan, they are going easily to 50 ng per kg per minute of I.V. Remodulin. And then over the course of 12 weeks, that does maybe increase somewhat over time. But as we understand it, the patients are doing as well if not slightly better than they were on I.V. Flolan. And in particular what we hear is that the side effect profile of I.V. Remodulin seems to be a little bit less aggressive in that sense, that there doesn't seem to be the intolerable leg and jaw pain that is associated with Flolan. And in fact, a number of the patients have transitioned now because of this. So what you see with I.V. Remodulin, nicely, is Flolan-like effects without the Flolan-like side effects. You do see some nausea, headache and that type of thing. But the leg and jaw pain seems to be much, much less on I.V. Remodulin therapy. So that is good news. So what we have is a therapy that is apparently equally efficacious, but perhaps more tolerable. What will be good about that then is that when a patient comes in either to transition or de novo, and is very sick, you could rapidly dose them up with Remodulin to get them stabilized, perhaps more rapidly than with Flolan. But certainly, that will have to be tested over time.

Matt Kaplan, Punk Siegel & Co.

With respect to the I.V. regulatory time line, could you give us kind of the next steps -- what to expect with the I.V. regulatory?

I think the next step that we will announce will be that they have accepted the filing for review. They have until March 30 to do that. We do know in early March, they are going to have an internal meeting to discuss the contents of our filing. The good news about that is it will -- we fully anticipate that it will be accepted for filing, and it will confirm that once again, the approach we have taken of demonstrating bioequivalence for label expansion is an acceptable methodology. So that will be the next news.

Then we are aware that the review period is ten months. So the filing date as registered is January 30, 2004. But November 30, 2004 would be their "drop dead date" for providing an action letter. So those are kind of the two big things that will happen in the coming months.

Could you talk a little bit about why you are so optimistic that the strategy will succeed?

Sure. I think one is, we have had discussion with the agency. So we have already sort of gone verbally over what the strategy and the content of the filing would be, and they were okay with that. Secondly, this isn't our first filing, so we are pretty sure we got all the content correct. And we are having ongoing conversation now about what is in the package that it's received and that type of thing. In fact, we are aware that their internal review meeting is in March, earlier part of March rather than the latter part of March. So to date, I think, given those conversations, we are expecting a positive outcome for the filing acceptance.

Great, to follow up on Zef's question, with respect to what data to expect at ATS?

As I understand it, there will be -- by the time of ATS -- there will be 14 of the 18 patients that are in who will have completed the 12-week study. So at ATS, you will see data from 14 patients. And it should, I think, reasonably be about 50-50 in terms of de novos and transition. So I think you'll see some effect sizes that you will be very pleased with, in the 60 meter type range or plus at 12 weeks -- at least that's what the early results are. And you'll see transition maintenance, so that patients that were on Flolan seem to be well maintained. And I think the ATS abstract will confirm that. In addition, you'll get tabular data, as I suggested on the side effect profile, looking for transition patients in particular sort of what their adverse effects were on Flolan, and now what type of events they are having on I.V. Remodulin. And I think that will also be consistent with what I said in (inaudible).

One last question for Martine or Fred, with respect to financial guidance for 2004, could you give some color there?

We continue to stand by the financial guidance that we have given, which, as you know, we look at 2004 as being a year that we break through into profitability. Just to give you a little bit of color and confidence on where we are coming from, as I just mentioned, we gained an additional 20 net patients during January. So currently, we have 690 patients worldwide, of which 575 are reimbursable. Our average revenue per patient is now at approximately $99,000 per patient per year. That means that our current annual revenue run rate, the number of patients we have times the average revenue per patient, is now at $57 million per year. If you take a look at our fourth-quarter numbers that we reported today, you'll notice for example that our fourth-quarter spending, total spending, hit about $16 million. And if one was just to go ahead and annualize that, you would see that spending rates 64 million, which is just a difference of 7 million from our current average revenue run rate. So you can see by those numbers that we are within a handful of million dollars of breaking even. We have got a very low amortization and depreciation load to put on top of that for GAAP profitability -- a couple million dollars per year. So clearly we have got all of the fundamentals and all the technicals in place to achieve the forecast that we have set out for ourselves.

Your guidance remains 20 patients per month?

Yes, like really steadfast toward that.

Matt Duffy, Black Diamond Research.

I wonder if you might give us a little color on what your sales force and your MSL-type people are doing out in the field, and whether you have got enough data at this point for them to respond to I.V. bioequivalence questions, if they are asked by clinicians?

We have now got a very well-seasoned sales force out there, consisting of nurses, people with advanced degrees, detailers, that are able to call on all of the 50 to 70 primary prescribing doctors at least every one to two months, basically as frequently as they will have us in their office. In addition, this force fans out and touches base with new doctors who have never prescribed Remodulin before. And as a result of this sales force's outreach, we are now up to 150 doctors prescribing Remodulin, which is really reaching out to -- that covers all the doctors who have ten or more patients on any form of prostacyclin and some even beyond that. So we are really covering the entire marketplace very well with face-to-face meetings.

On top of that, our sales force has implemented a new program we call our Prepsi (ph) program starting on January 1, which in cooperation with our distributors, Acreto (ph) and Priority, as soon as a patient is referred to a distributor for insurance check out and stuff like that, and again, when a patient is actually started on drug, which the distributor obviously has to know because they'd ship the drug to the patient, at that point in time, once again, our detailers make direct contact -- or our MSL-level detailers make direct contact with the doctor, and make sure that the doctor, the nurse are aware of all of the latest teaching in terms of best practices and delivering Remodulin and minimizing the side effects. So that sales force is just doing a very, very fantastic job. And it's their medical knowledge that really allows them to be so valuable. In fact, we just concluded a large seminar, including several dozen of the leading P.H. (ph) practitioners, both in the U.S. and overseas. And at these meetings, we have all of our advanced degree detailers attending these meetings, interacting with the doctors, so they are treated as true equal health care professionals with the rest of us. I think that has been a, so far, a success. In terms of getting into things like I.V., V., this is not something that the Company is at all promoting in any way. Because it's not yet approved by the FDA. The only trial being undertaken is one that is an investigator initiated, investigator-run story (ph). So we really kind of -- we have our advanced degree detailers keep a wide birth away from I.V. matters, and simply focus on building up our number of sub-Q patients, which for again, as the numbers tell the story, for hundreds of patients, is a lifesaving therapy preferable to any alternative.

What do they do if they do get a question on bioequivalence or I.V.?

I think any question like that, they would refer to our clinical team, and RTP (ph) headed ultimately by Dr. Jeffs.

Did we see the full effect on SG&A of all the advanced degree detailers etc. in the fourth quarter? Is that portion of SG&A pretty steady for '04?

I think we are like 90 percent of the way there.

Bob Pereinte, Leerink Swan.

Regarding your guidance going forward, I was just wondering what you're using for an average selling price or average cost per therapy per individual for 2004?

We are looking at $99,000 per patient per year as the revenue received by United Therapeutics. And k to give you a little bit of color on that, as for example 9/30/03, that figure was 97,000. As of 6/30/03, it was 91,000. So it creeps up a little bit quarter-by-quarter. The reason it does that is that first, as more and more patients are on Remodulin for longer and longer periods of time -- we have got some patients on over five years at this point -- they tend to titrate up a bit the dose of Remodulin, as has been common practice with Flolan for many, many years. It's a well-known consequence of being on prostacyclin therapy. In addition, as we become better and smarter at side effect mitigation, such as through the efforts of our commercialization team and the Prepsi Force teaching best practices, doctors are less antsy about upping the dose for fear that it is going to cause some kind of side effect aggravation, particularly, site pain. So they have been able to give the patients a more therapeutic dose. The patients feel better; when you feel better, the site pain hurts less and it's an upward spiral, very happy upwards spiral, that has now resulted in revenue per patient being at this $99,000 figure.

Seth Pike (ph), Apex Capital.

I was wondering if you could tell us what your Q4 Remodulin revenue was please? Then I have a couple of other questions.

Q4 Remodulin revenue came in at $12 million.

Can you give us what the patient count was, your reimbursable, nonreimbursable at the end of the fourth quarter please?

The patient count reimbursable was 555 patients. And the total patient count was 670. So that means 115 nonreimbursable. By the way, I am not sure how long you have been with the story, but virtually all of the nonreimbursables are outside the U.S. in countries where we don't yet have regulatory approval. Well over 95 percent if not 98 percent of the U.S. patients are all reimbursable.

This question is a little bit more perhaps for Fred. If I take the $12 million in fourth-quarter revenue and use a 99,000 per patient, per year number, I get something less than 500 patients on drug. I was curious to know if you could help me reconcile the difference in that math.

The shipments to distributors in the fourth quarter is not necessarily a function exactly of the per-patient run rate times the number of patients. As you know, they buy in bulk quantities. So every month when they put their purchase order in, they are literally buying hundreds of vials of drug of each of the various concentrations that we sell. And the amount that they buy is a function of what they know they are going to need to dispense for their current patients; what they believe they should build up as an additional buffer for new patients starting; and then they always try to maintain a fairly small safety buffer, to have a little additional inventory, because not having enough inventory could be dangerous. So I think that the number generally was impacted by the lack of growth in reimbursable patients during the fourth quarter. And that would be the reason for the sequential drop of about $800,000.

I have two other quick questions please. I just want to make sure I heard you say that you're standing by your revenue guidance for '04 of 70 to 80 million.

That is correct.

Can you also explain your cash position? It looked like it went down $15 million in the fourth quarter versus the third quarter; can you explain that, please?

From the third quarter -- I do not think that is correct.

On the press release, it said you had $117 million in cash at the end of '03.

Right, it was down 15 million for the year, not for the quarter.

You had 135 at the end of the third quarter, and 117 at the end of the fourth quarter. So my math is a little off, it may be more like 18; I just didn't know if that was right.

I don't think that's right, Seth. I don't have the third-quarter statements in front of me, but I do not think that is correct. We ended '02 with $132 million, and we ended '03 with $117 million.

Mark Attalenti (ph), Alliance Capital

I want to make sure I have my numbers right. You are closing '03 with 555 patients; is that correct?

Correct, Mark.

And we are going to add 20 per month, so that is 240 for the year?

Correct.

So that is 795 patients at the end of '04. That is how you get to the revenue guidance of 70 to 80 million?

Correct.

If everything goes along with the I.V. Remodulin, when would you be able to start selling that?

We would love to do it as quickly as possible, Mark. But the guidance that we have given is that we do not expect to see I.V. revenues before 2005. As Roger Jeffs indicated earlier, we have a PDUFA date of November 30, 2004, where we are actually heartened by the fact that the FDA seems to be working already on our file. And I think they understand the importance of the therapy and the value of the therapy. So hopefully, we will get it approved before then. We are already working on a launch plan, and we plan to have a very good and aggressive launch of the product, if we get approval before 2005. But for planning purposes, we are looking at all I.V. revenue as being '05 revenue.

Would you go as far as to say first quarter, second quarter '05?

I would not go that far because we are just trying to stay away from quarters in general.

Is it becoming easier, I guess, because the payers are a little more familiar with the product because it has been out for awhile -- is the time that a patient goes on to the time reimbursement starts to flow, has that shortened?

I don't really have any statistics on that, whether it's shortened or lengthened. There is -- we have a real good record with payers. We have only got less than five patients in the U.S. receiving complementary drug. So I don't really know if there are any issues on that front. What I can say is that the -- as the physicians become more and more comfortable with it, they are treating more and more patients with Remodulin. We are now at just about 40 U.S. doctors who have five or more patients on Remodulin, as well as that 150 that are treating at least one. Several doctors have a dozen or more patients. So it's achieved, I would say, a level of permanence within the armamentarium for treating pulmonary hypertension. There is tremendous excitement about the coming forth of the I.V. Remodulin. And a number of doctors believe that I.V. Remodulin will become a prostacyclin standard of care. Our goal as a company remains the same as it always has been, to be the market leader, the number one in continuous prostacyclin therapy. And we feel that with the growing platform of sub-Q Remodulin and the numerous advances of I.V. Remodulin, we have got all the tools at our disposal to be number one.

It looks like you have a little over 11 million in unreimbursed revenue. Any opportunity in '04 capture some of that? For the outside the U.S. --?

The U.S. patients. That's a great question, Mark, because we are putting a whole lot of effort into getting European approval so that we can collect revenue on those remaining patients. And Roger, maybe if I could -- Roger has got a bit of a cold, so if you would excuse him a little bit. But Roger, if I can press you into service again, to give us an update on how nicely things are going in France?

We have until March 30 in France to provide our final response to their questions that we received I think in December. And those are -- we have basically done them. We are reviewing them with some consultants that we have. In fact, I am flying to Paris tonight with our regulatory head, and we are going to finish off these responses and get them submitted. Our meeting in November was very favorable in terms of the clinical outcome that we achieved. We actually were talking about labeling. And there was agreement that they could see their way through to labeling for sort of Class 3 patients. We are very encouraged that this will go favorably. I cannot predict, however, the timing of the French review of our documents. So we will submit the response in mid-March. And then how long that takes, I am not quite sure. It is something I am going to try to get some clarity on over the coming weeks. But who knows. But I think sometime during '04, we should expect French approval. Beyond that, we will go into mutual recognition and seek other country-by-country approvals, and then certainly coincident with that, we will see pressing approvals in all of these countries. So the first part is get regulatory approval in France. We will then start our pricing approval and negotiations and then we will move into other countries one by one.

So upon approval you could start billing French customers immediately?

Not immediately. You have to go through the pricing process, and that takes anywhere from three to nine months. It should be a pretty quick one. Flolan has set a very nice precedent for us.

Operator we have time for one more call.

Matt Teflet, Quaker Capital Management.

A couple quick questions -- I don't know whether you have enough data yet. In terms of the 99,000 patient per year, do you have any sense yet on how drug usage changes if at all on I.V. versus sub-Q?

That is definitely the clinical question I would refer to Roger.

I think it would be premature to say kind of what the long-term dosing requirements will be. Certainly, there is an ability to up-titrate the drug intravenously. Obviously, there is no subcutaneous site pain, so that is not an issue. And the dosing at least in the early study has been fairly aggressive. I know by week 12, for example, in the first series of de novo patients, patients were around 30 ng per kg per minute. So that seems a bit more quick at the front end at least, in terms of dosing. Whether or not that then carries forward over the course of 12 months, I certainly cannot say at this time. But I think what we will see is a more rapid initial ramp I dose. What happens beyond that, time will tell us.

I think I can give you sort of like a good rule of thumb to use is, we have demonstrated, as was reported in our last conference call during January, we have reported very clearly bioequivalence between the I.V. and the sub-Q route. And so based on that bioequivalence data, which we showed very well, we should expect real comparability between the revenue from I.V. and the revenue from sub-Q.

Just probably get to the plateau more quickly with (ph) I.V., I guess?

Yes, exactly. But as Roger said, we get there quickly, but kind of the longer you go out, the less meaningful that really matters. So okay, we will get like a nice boost in the first two or three months. But after that, I think they are going to both approach the same absent (ph) tautic (ph) level.

Roger updated us on your -- in terms of the other international approvals you have, which I believe would be Canada, Israel, Australia, where are you in terms of reimbursement at this point?

We are very, very close. Sometimes it's frustrating in these other countries, unlike the U.S., where you get approval and you get paid, that's the nice thing about the American way.

Good model.

In these other countries, sometimes it is always like you are going halfway to an endpoint, and it's quite frustrating. With regard to the Israeli, there are multiple bureaucratic levels to go through. We have successfully gone through all but one or two final ones. So I am hopeful there that within perhaps three to six months, we will start to get paid. With Canada, you then have to do a pricing thing in each province to individually. We have had a very successful round of meetings where we have reached agreement with the provincial authorities in Ontario, which is our lead province. So I would say that to at least I will say that in my operating plan for the marketing team, we expect first quarter -- we expect within the next three months from now, to have our revenues flowing from Ontario, and then three months after that from Quebec, which are the two largest markets there. Australia, they are asking for a little bit more detail. They are asking for a pre-reimbursement confirmation of the bona fides of our manufacturing process. So our regulatory team is checking back with them because it's been about three years since we first applied in Australia. So they want like sort of what's happened with the manufacturing process during that time, which by the way, we have not talked about that on the call. But our manufacturing team in Chicago has just done a superb, A+ job of manufacturing. We've got a nice amount of drug on stability. We are always pushing out the date for its shelf life. So we have got no problems at all in the manufacturing side now. We just have to show the Australians that that is the case. And then revenues will be able to flow in Australia. So I would say with high confidence, all three of those markets we should see '04 revenues. And as Roger said, the French, it's a dicey thing to predict over there. But a reasonable worst-case is '05 revenues in France.

Okay. But it's certainly better than things are looking --

Oh, yes, like a 180. From when like an abundance of Sarbanes-Oxley cautioned, we said don't count any revenues from there. And it's been a 180 turnaround since then.

Okay, last quick question. Fred, I am going to bug you again on the prior cash question. I pulled up a Q during the other questioning. And it looks like it's September 30. Under short-term and long-term investments, you had 135 million of cash, cash equivalents and marketable investments. So it would appear that as briefly noted in your press release, the cash went down 18 million in the fourth quarter.

Okay. Matt, thanks for doing the research for me. I appreciate that. I didn't have the numbers at my fingertips here. But as we all know, your cash balance is very simply a function of when you pay your vendors and when you collect money from your customers. And it's going to fluctuate month to month. I will give you an example, just in the first five weeks of 2004, we've collected about $7.5 million from our customers, so the balance moved up again. That is always going to be the case. So it's largely just timing of payments to vendors and timing of collections from customers. But in addition to that, we also did spend about $3 million acquiring a vacant lot, which is adjacent to our headquarters in Silver Spring, Maryland. So that was one large chunk there, as well.

It looks like your liabilities are down about 7 million in the quarter as well. So I guess you paid down a bunch of stuff.

We did. We did pay quite a bit to vendors in the fourth quarter.

Okay, thank you. Nice quarter.

I can add one little bit more of color to Fred said. What Fred said definitely is the main landscape on that question. But we did internally -- and this actually can give everybody a little bit more color on what's going on at UT operationally -- we did internally shift from a one five-year budget that basically was our budgeting process from 2008 -- 1998, 9, up through 2003, which we called our pre-profitability budget, to a new budget regime from 2004 to 2008, which is called our growing profitability budget. And when people switch over from one budget to another, a lot of times, individual budget managers have a tendency to pay down some expenses. So like you saw, the Accounts Payable were dropped down. That was like a use of cash in Q4. We are now on actually even somewhat of a tighter, more strict spending leash in 2004 because all of us are highly motivated to -- now that have we have produced three straight years of dropping losses and growing revenues -- we now want to produce several straight years of growing profits. And our budgets reflect that. So Matt, that probably also helps explain the little bit of variance there on fourth-quarter cash? Good, operator that should be the last, then.

Yes, thank you. Ladies and gentlemen, this concludes our conference call for today. Thank you all for participating, and have a great day. All participants may now disconnect.