United Therapeutics Corp (UTHR) 2004 Q4 法說會逐字稿

Good day and welcome, ladies and gentlemen, to United Therapeutics teleconference regarding its announcement of the 2004 annual financial results. 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. At the request of the Company we will open the conference up for questions and answers after the presentation.

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 in United Therapeutics' periodic and other reports filed with the SEC. There can be no assurance that these actual results events or development 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. Rothblatt. Please go ahead, Dr. Rothblatt.

Good morning everyone and thank you for joining us this morning. I hope everybody had a nice Presidents' Day weekend and we are proud and pleased to be able to start off the work week with some great news for everyone. In particular we are pleased to report that United Therapeutics' revenues for the year ended December 31, 2004 totaled $73.6 million, representing a 38 percent increase over 2003.

In addition our first-ever annual net income was $15.5 million for 2004. That is about 71 cents per share, a great way to lead the starting blocks I think.

Finally while we have had excellent operating results, the Company's financial position has also improved during 2004. We had our first ever cash flow positive year and we ended 2004 with $139 million of cash and investments and no debt. This is really just a great way for us to move into 2005 with our recent approval of intravenous Remodulin. We're really excited. We really jazzed about the year to come. I have joining me on the call here Dr. Roger Jeffs, who is our President and Chief Operating Officer and was the driving force behind intravenous Remodulin and is also the driving force behind a number of our other exciting R&D programs including our OvaRex program for ovarian cancer.

And I also have on the phone with me Fred Hadeed, who is our Chief Financial Officer and also our Executive Vice President for Business Development. The individual who has really guided our way through all of the necessary financials and financial responsibilities that go with being a public company and also helps to guide our way through the business development opportunities which present themselves to us.

So with that introduction, I know there are quite a number of you who have called in and we will take the calls in the order received through the operator.

(OPERATOR INSTRUCTIONS) Joshua Schimmer with SG Cowan.

Good morning and congratulations on a good quarter. My first question would be could you give us some clarity on what happened with distributor inventory in Q4 over Q3?

Sure, Joshua. I'd like to ask Fred if you could please field that question as Fred is the Senior Executives at United Therapeutics who is primarily responsible for managing the relations with Accredo, Priority Healthcare, and Caremark in the United States as well as our distributors overseas.

Good morning, Josh and thanks Martine. Josh, the inventory levels at the end of 2004 were virtually unchanged from where they were at the end of 2003. So for the year we were looking at virtually no fluctuation, no stocking in Remodulin inventories, so the 66 million that we sold in Remodulin was very reflective of patient demand in 2004.

Now for the quarter there was a $1.4 million fluctuation and a fluctuation upwards that is. And as we have said in the past these fluctuations quarter-over-quarter are quite difficult to analyze because the actual composition of the inventory changes very frequently and there is quite a value difference in the different Remodulin vials that are sold. From the cheapest vial to the most expensive vial, there is actually a tenfold price difference. So it is somewhat difficult to analyze quarter-over-quarter but I would be happy to give you the numbers at the end of 2003, 13.6 million. At the end of 2004, 14 million. And so you have the quarterly change at the end of September 30, it was 12.6 million.

Great and one other question and then I will jump back into the queue. Can you provide an update on the Inhale Remodulin program and what we can expect to see in the first half of '05? And if we are expecting a randomized trial, maybe some color on what that trial may look like?

Sure, Josh. The inhale trial which goes under the acronym TRIUMPH 1, that stands for treprostinil inhaled into utilization used for the management of pulmonary hypertension, that trial is scheduled to start in the first half of 2005, as you indicated. It will be both a U.S. and European study, so an international study with upwards of 10 centers participating throughout the U.S. and Europe.

The event for you to look toward in the first half of 2005 would be the actual filing of the IND in the U.S. and the analogous document in Europe and we are targeting that to occur during March. Of course right after that then there is the process of IRB approvals and actually that IRB approval process has already begun in Europe. So we feel that we have actually stepped across the line from Phase I to Phase II with TRIUMPH with the filing of these IRB approval requests in Europe and we will do our darnedest to try to complete that trial during 2005.

Do you expect that trial -- (multiple speakers)?

In fairness to the 80 people on the call, I'm going to take the next one. Thanks Josh. I appreciate your understanding.

Martin Auster with Wachovia Securities.

Another fine quarter. A couple questions. First off, I was wondering if someone could provide an update on the mini med pump for intravascular use; where that stands in terms of regulatory? And it was my understanding that maybe some pilot studies might kickoff in the first half of '05?

Definitely Dr. Jeffs would be totally on top of that.

We're working in partnership with Medtronics and they have submitted a 510(k) filing in December and they are expecting approval of the 407 C for intravenous use in March and whether it is late March or early March is yet to be determined. But all indications are it could trend toward early March. So I think from a market standpoint the physicians will be able to use the mini med pump that is currently used for subcutaneous use for intravenous use in the very near future.

What we're doing though to sort of help advance that as well as get some practical experience with it is start two studies, one in adults and then one in pediatric patients that are going to look at the ability to infuse Remodulin intravenously over an 8 to 12 week period in patients. And those first patients are actually expected to enter these trials in about a week or so.

What would the total size of these trials encompass? And then how would you see the results from these kind of being put out to the physician community at large?

The size of them, they are small trials. They are r noncontrolled so they are really principally safety studies just to make sure that going at low flow with a small pump that there is no occlusion. There are around 12 to 15 patients. It is going to vary based on individual center experience in terms of who is qualified to do the study. And we would expect to actually complete enrollment by June and then the patients would have to complete their study period. So probably not until the third or fourth quarter before we can start disseminating the information about the trial.

I will say we have done lead-in studies in animals that show quite effectively that you can use low flow to deliver the drug through the small pump intravenously without any difficulty. So our expectation is in patients it will go smoothly as well but certainly we need to do the study.

Thanks, Roger. I'll hop back in queue.

Matt Duffy with Black Diamond Research.

A very good quarter. I just wanted to ask you if you could give us some of the specific things you're doing to support the IV Remodulin launch? Specific programs and that sort of thing? And I guess the corollary to that for Fred is looking at SG&A have we hit a high watermark in the fourth quarter as you prepared for the launch or can we expect to see the spend increase slightly and then decline? Or if you could give us some color on trends there, thanks.

Thanks, Matt. We have taken our IV launch project and conceptualized it as sort of three waves of activity. They are what we call the tier 1 prescribers, Tier 2 and Tier 3. The tier 1 prescribers are the 50 to 100 prescribers that have relatively large numbers of Flolan and Remodulin patients, and when I say relatively large numbers, I mean these centers have on the order of 20 to 200 or even more Remodulin and flow in patients.

With regard to these tier 1 centers, we've already gone out there with our own detailing staff and met with everybody face-to-face, presented the new information that's available. At the same time we have used telephonic means as well as our distributor's forces to reach the tier 2 folks which takes you up to about 200 prescribers and there you get down to basically anybody that has a Remodulin patient and they are now upwards of 200 prescribers that have at least one Remodulin patient and maybe a handful of Flolan patients. And so for those we have directly reached out telephonically. Our distributor staffs are reaching out in person and in the meantime collateral information, meaning things like a new brochure, a new DVD, a new video, nice placemats that look like a giant placemat that helps a patient place all the different pieces they need to assemble their IV Remodulin setup in order to take the infusion; a lot of patient-oriented materials. As each of these wind their way through DDMAC, that's the part of the FDA that approves this stuff, then we begin to distribute those out to the distributors and to the Doctor centers.

Then finally there is the tier 3 which takes you up to about 1000 prescribers who have expressed interest in the therapy, don't currently have any Remodulin patients, may have something like one or two Flolan patients and have expressed interest and these we are reaching with direct-mail information and I get a little bit of contact with them through our various distributor's forces.

In addition to these activities, we conduct scientific symposia and workshops focused either for doctors, for the nurses who are in charge of the infusion therapy center, or for other associated professionals at the hospital dealing with the therapy and including even payers. So we have workshops, meeting symposia with all of these different interested parties in the therapy that are staggered basically every month from last month when we had a doctor's meeting through toward the end of the year.

One of the real exciting things coming up is we actually have joint satellite symposia at the American College of Cardiology with our friends over at Actelion, so there will be joined Actelion, United Therapeutics satellite symposia, which is another kind of an opportunity for doctors to gain more insight and more information about IV Remodulin and its appropriate place in the treatment of patients with pulmonary hypertension. That's a lot.

Very good.

Jennifer Chao with Deutsche Bank.

Thanks Martine. Congratulations to the team on a very strong operating quarter. Martine, I was wonder if you could perhaps comment on the strategy behind your recently filed shelf, what that means with respect to where you might intend to augment the business? And then second of all, if you could comment directly to the level of competition you expect from CoTherix and Ventavis and how that ties into any color you're seeing from the distributors with respect to the reception for IV Remodulin?

Thanks. Those are two very sage questions and let's first talk about the shelf. The shelf is a vehicle that we have done in order to provide us with flexibility to acquire either a project or a company fairly quickly if one needs to be done in cash in particular. As mentioned earlier, Fred Hadeed has been doing a great job as Executive VP of processing an unending stream of acquisition candidates and compounds that come to our attention. I think people feel we have done a good job and so a lot of things are coming over the transom. We are looking at them.

We had the sense that if we were to move on something that would for example require moving quickly and using 50 to $100 million of cash, we thought -- ouch, that really is cutting working capital thin and we would not feel comfortable doing that so that's when we went ahead with the shelf.

In terms of what area I can tell you this that we are -- we try to be a really focused Company and we have three areas that are therapeutic focus; cardiovascular, oncology, and infectious diseases. So first I would see it is very unlikely that we would go into something afield from those three areas of primary activity.

Secondly we are not really a drug discovery company. I think our core competency is in the efforts of Roger Jeffs and his team at RTP of designing and executing clinical trials that have a high likelihood of achieving regulatory approval. So it could be relatively later stage sorts of things that we would be interested in. We are also building a nice core competency in the detailing to the pulmonary hypertension community. So -- but I think we're already really strong there with all of our Remodulin offshoots.

In terms of the competitive situation, vis-à-vis Ventavis, it is real early to tell. I would say that so far we have seen nothing from the distributors in terms of well we don't think we're going to have as many Remodulin patients because Ventavis is there. We have not heard anything like that. In fact, to the contrary. The distributors, every one of them is excited to the point of I would say being almost ga-ga excited in the little world of pulmonary hypertension over intravenous Remodulin. And being like an absolute cure to the site pain that had afflicted many patients.

So I don't think that the distributors are at all worried about Ventavis. We are actually very happy to see it because as was mentioned by I believe Matt or one of the other callers, the inhaled Remodulin program TRIUMPH, which is based on the concept of just a few short breaths less than a minute of breathing, the portable inhaler and then actually a segueing from that next to an MDI version of Romodulin. It is nice to have somebody out there clearing the brush through the jungle for us and we really are glad that Ventavis is out there doing it. It lets us see where the pit holes to avoid and which direction will lead us to the fastest progress.

Thanks Martine. Your comments certainly underscore the Company's commitment to strong operating performance. Good quarter. Thank you.

(OPERATOR INSTRUCTIONS) Matt Kaplan from Punk, Ziegel & Co.

Great quarter. Quick question. First could you update us on the European French approval process and then the de novo IV trial in India and then your Phase IV postmarketing study?

Those are all three areas in Roger's management span. So Roger, can you hit on the French news, which is of course getting very good, and the trust trial in India and then the Phase IV?

Certainly, Martine. Good morning Matt. With France, we are right now in the process of having the labeling finalized. And we expect to receive the approval notice in the coming weeks but France is a little bit hard to predict exactly when things get posted and sent to us. But certainly now things are being finalized and we have agreed a final indication for Class III PPH patients. So we expect at least in the next couple of weeks that that should be forthcoming.

As to India for those that don't know, that's a placebo-controlled trial in patients new to therapy who have had no previous background experience on any therapy. So that has several sort of important points for us. One is why do the trial in India? Principally it is to provide us with very strong efficacy data from which we could bolster our label client which would then give our marketing group a stronger background of information on which to promote the product because as it stands now, there is very little with regard to information supporting the efficacy of this therapy which we all feel is very good.

The other thing it does is in the U.S. investigator trial that was previously conducted there was no experience in Class IV patients. The patients that came in de novo were Class III so it will provide what we think will be very strong data in Class IV patients and certainly Class IV patients are a particularly interesting entry point for any intravenous therapy. And we would like to demonstrate that we would be the therapy of choice in Class IV patients.

Finally as everyone is aware the labeling for Remodulin now says for subcutaneous use or for intravenous use but after intravenous use there is a parenthetical that states "for those that cannot tolerate subcutaneous use". Given this trial will be in patients who have never had subcutaneous therapy, we think good data from this trial will then allow us to remove the parenthetical from the label. So it sort of has a multi-focused approach and a triumvirate of goals in which to one, bolster the label; two, get Class IV patient information; and three, remove the parenthetical.

And then finally, Matt, and I will be quick here, on the Phase IV, we have 15 patients in. We have a 16th patient consented and we have 2 to 3 patients that are in the process of being screened for the study and are strong candidates for enrollment. We are behind in our enrollment objectives. We should have been 50 percent enrolled in June and we were not and we are making every effort to proceed diligently in the completion of this trial. And in particular we're trying to drive ourselves to the 21 patient interim enrollment target where it is our hope at least that things could show sufficient efficacy at that point that we could end the trial. The good thing about this trial though it also will allow a label change for transition of patients from Flolan which is not something that is in the current label.

There is a risk obviously that if we don't complete the trial in the timelines that the FDA could accelerate a number of things including an opportunity for a hearing for withdrawal of the product. Obviously this is our number one priority from a development standpoint. We are in the ongoing discussions with the agency about our progress on this. To date they are expressing some concern about our enrollment progress but they seem satisfied with everything we're doing to move it forward although there is a continuing dialogue. And we are updating and now every other months on our enrollment. So we are in close contact with them about this.

I think as long as we continue to show good progress on the enrollment and get to the interim, things will be mitigated. Otherwise things could intensify a little bit as we approach the final goal, which is to provide them with a final set of report in December of '05. And that we have plans to do that irrespective of enrollment because we think the sample size doesn't need to be very big to show a benefit here. But again, I think everybody should be aware that we are behind and while we are making every effort to proceed, there remain certain risks given the fact that we are behind. I think that's all I have to say about that Martine.

I think you covered everything, Roger. And again doing an amazing job of covering all these studies. For those on the call who may be new to the Indian study, its acronym is TRUST, which stands for treprostinil used as survival therapy and as Roger indicates, for the patients in India who have had no other coronary hypertension therapy available, it certainly is indeed that.

Lucy Lu from First Albany.

Just a couple of questions. First one is do you have any plans to do any combination studies? Second one ism what can we expect that ETS this year?

Great, Lucy. Nice to hear your voice. Thanks for calling in. Roger is working on an exciting concept with regard to a combination therapy and Roger, would you like to shed a little light on that?

Yes and thanks for the question, Lucy. We're doing a number of things to provide a broader information flow, particularly on the intravenous use. One of those is the combination experience. It will be a three-armed study looking at intravenous Remodulin added to oral therapies and that could either be Tracleer alone, sildenafil alone or the combination of the sildenafil and Tracleer together. And what we are looking for there is basically take patients that are non-optimized on their oral therapy, introduce them to an intravenous prostacyclin and show that we can then improve those patients.

Additional efforts include the miniaturization that we talked about; the IV control trial that we've talked about; and then one other thing that we're piloting is what we are calling the rapid switch study. One thing that we know is that patients can be successfully transitioned from Flolan to IV Remodulin. We showed that very nicely in the investigator study. The way that was done though was with a transition -- an initiation of prostacyclin of IV Remodulin and then you wean down the Flolan and wean up the IV Remodulin.

We're trying to see if we can do that much more quickly and in fact do that immediately through just a cassette change. In Europe, there are two centers doing this study. They have done 9 patients successfully and again, it is just a way to simplify the transition process which I think down the road will make it easier for centers to do this. So that is going well. So all of these things will result in data in the future that will provide I think very good support for the use of this drug and how to transition from Flolan therapy if that's what physicians desire to do.

Thanks, Roger. And in terms of looking forward to the ATS, I think there will be some interesting longer-term data from Remodulin available during this year. There will also be a larger dataset available from the inhaled studies which have been ongoing. And I think even more important than ATS or other conferences are what we have in Q4 peer reviewed publications because those I think really are the best guidance for physicians and there we are working on two, possibly three separate publications to come out of the investigator initiated study that demonstrated IV Remodulin had at least in its relatively small patient set an astounding 80 meter neighborhood improvement in walk distance for the patients that were de novo-ed to that therapy and no declination among the patients who had transitioned from Flolan.

So that study has been really very exciting to the physicians in the field and people are looking forward to a publication of the results. So I think that there will be two and possibly three different publications coming out hopefully by the end of this year, certainly the physicians agreed on a schedule of submission during the early part of this year and those studies in major journals I think will be just a tremendous flag to fly over the IV Remodulin franchise.

Thank you.

Franz Tudor (ph) from Variant Capital (ph).

This will probably have to be the last question as we have come upon our half-hour mark.

A quick question here. I just wanted try to figure out what we should be thinking about in terms of modeling for the ASP since we have heard of doctors having to increase the dosage for IV Remodulin versus sub-cu? And also I guess there have been some movements out there by the clinicians finally understanding that there is not a dose relationship with the pain of sub-cu and they are starting to dose higher. So just really what should we be thinking about the doses going forward and how is that translating into ASPs?

It is a very interesting question. I could say it's like the $99,000 question but it is virtually impossible for us to give any guidance on that point. I think the best thing for you to do is to continue attending the medical conferences like the American College of Cardiology coming up in Orlando next month and the ATS that Lucy mentioned and the other medical conferences and hear from the doctors in terms of what their experience is. The reason it is almost impossible for us to give you guidance is because there is just a plethora of variables at stake here.

One of the greatest variables is that of combination therapy. We're entering in 2005 clearly a new age in pulmonary hypertension therapy where combination therapy is going to very quickly become the norm and you see that Roger is really trying to lay the framework for that with controlled studies and different types of combinations with Tracleer, with Viagra, with both. But doctors are not really waiting for all of that and they are already prescribing people sildenafil endothelin receptor antagonists with or without prostacyclin analogues -- so while it is true that people are realizing that site pain is not related to dosing, on the other hand and that might give rise to a need to dose more aggressively, and people are also seeing that the higher you dose with Remodulin, of course up to an asymptotic limit, the better the results you get in terms of the patient feels better, walks further, has less dyspnea.

On the other side of the coin, there are some synergistic benefits with some of these other oral therapies and perhaps the greatest synergy lives between phosphodiesterase five inhibitors such as sildenafil and Remodulin because both of those are working the same cyclic AMP, cyclic GNP process and doing so in a synergistic fashion. And the oral therapies may tend to reduce dosing levels. Exactly where this is going to come out we really just don't know and we can't provide you any guidance on it. But I will say that there will be some very interesting and fascinating presentations from independent physicians at the ACC and the ATS and other conferences that will shed light on that subject. I encourage you to attend those meetings.

And just real quickly, have you had any pushback from any third-party payers since the launch of IV?

No.

That is all the time we have for questions. I will now turn the conference back to Dr. Rothblatt.

Once again I want to thank everybody for joining us. Right after the three-day weekend here. As the questioners indicated, it has been a great quarter with great results. There are some things that often don't come to light but really support everything and just like when you look at a building you see the windows and the outside but you don't see all steel and concrete that holds it up. In our case I'd like to close the call by noting that holding up everything at United Therapeutics is having absolutely bulletproof, top-notch, unimpeachable controls and audit processes and this is also the week that we complete our audit. And for the first time in history ourselves and all other public companies have to audit not only our financials but have to audit our controls through what is called the section 404 controls process, which is just as rigorous as the financial audit but makes sure that anything material that should be known is known and that there are adequate controls throughout the Company for everything going on.

I am very pleased to report that we received full flying colors from Ernst & Young on our audit and our controls. Fred Hadeed who is on the call with me together with his finance staff deserves the credit for working all through these President weekends and others to achieve that point. I am very happy to share with everybody who follows United Therapeutics that we just got a crystal clear audit report as well as a similar report on our 404 controls. And that really is the infrastructure that allows all the rest of us to do our job in terms of helping patients live longer and live better lives.

So thank you again for joining us. I look forward to seeing you at upcoming healthcare meetings or medical meetings. Have a great day.

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 333773. This concludes our conference for today. Thank you all for participating and have a nice day. All parties may now disconnect.