United Therapeutics Corp (UTHR) 2005 Q2 法說會逐字稿

Good morning and welcome, ladies and gentlemen, to the United Therapeutics teleconference regarding its announcement for second-quarter 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. (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 in the United Therapeutics periodic and other reports filed with the SEC. There can be no assurance that the actual results, events or developments referred 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.

Now I would like to turn the conference over to Dr. Rothblatt. Please go ahead.

Good morning, everybody, and thank you for joining us on this sweltering August day in many parts of the United States and overseas. We're pleased to have well over 100 people on this conference call, which I think for an August conference call is a bit of a record for us.

I'm really pleased to start this conference call by announcing that we have had sort of like a three-run homer for this quarter. It's very exciting.

First of all, revenues have achieved a record level of $30.1 million, representing a 64% increased over the same quarter in 2004. I'd point out that this is our first full quarter of IV Remodulin revenues after launching IV Remodulin during a first quarter 2005. So we're definitely seeing some nice results of that launch.

The second real exciting run here is that the record revenues are followed by record earnings. Earnings are for the quarter $12.2 million or $0.54 a share. That's up 194% over the same quarter of last year. I think that continues to represent the Company's disciplined sequencing of a very exciting pipeline. We've got exciting projects going on with inhaled Remodulin, oral Remodulin, ovarian cancer, and so on. But yet we try to do our best to discipline our sequencing of this pipeline so that we can continue to produce earnings that everybody can be pleased with.

And then finally, last but certainly not least, really the guy who hit the ball out of the park here is our achievement of our Phase IV milestone with a p value of 0.0006, super highly statistically significant. And tremendous credit goes to my colleague who joins me on this call, Dr. Roger Jeffs, for accomplishing that Phase IV study and demonstrating super convincingly the safety and efficacy of Remodulin with that p value of .0006.

Also joining me on this call is our Chief Financial Officer and Executive Vice President for Business Development, Fred Hadeed. And at this point we're happy to make any questions from all of you on the call. Operator, you can open the lines to questions,

(OPERATOR INSTRUCTIONS) Joshua Schimmer, SG Cowen.

Good morning and congratulations on a great quarter.

Thanks, Josh.

I was hoping you could comment first on the level of inventory at distributors, inventory and how that may have changed quarter-over-quarter. And then also quarter-over-quarter where did you see the growth in terms of US versus ex-US, as well as IV versus SubQ?

Let me answer the second part of the question and then turn over the distributor inventory part to Fred, who is the officer at United Therapeutics that principally manages the distributors.

The growth was evident across all sectors and all areas of our Remodulin business. We had nice growth overseas because I think there is now more confidence in prescribing Remodulin on the named patient basis, which is still the only basis that it's sold, following the successful achievement of French regulatory approval and the successful transmission by the French regulatory agencies on our behalf of our regulatory approval application to upwards of 25 other European countries. So that information is out there and definitely contributed to a nice European component. But the US component grew even more robustly.

I had also mentioned that we are continuing to add to our ranks of sales and marketing professionals both in US and Europe. And that probably also contributed to the growth in SubQ, IV, QS in Europe.

Fred can you comment on the inventory question?

Very happy to let you know the inventory levels came in right around 15.5 million at the end of June, which represents an increase of about 2.7 million from the end of the first quarter, but a very insignificant increase of 1.5 million from the beginning of this year. And so at these levels of 15.5 million we're looking at roughly a month and half worth of inventory, which is fairly typical for our business.

Thank you, Fred. Next question please

Jennifer Chao, Deutsche Bank.

Thanks for taking the call and congratulations on a blowout quarter.

Thank you Jennifer. Great to hear from you.

You guys have done such a fine job managing your expense line. I'm wondering if, first, you can give us some understanding of how we should be looking at the forward burn rate just given the number of ongoing and planned trials you have coming on.

The best guidance that I can give you is that of course we understand that once we've become profitable people would like us to remain profitable. That's certainly just like business as usual. So what we try to do is we try to budget our expenses so that they are less than our revenues that we expect to occur in any given year. Since revenues are growing nicely, it's reasonable to expect that expenses will grow as well.

And certainly with our ovarian cancer trials moving toward completion of Phase III we're now over 75% enrolled in the ovarian cancer study, with our inhaled trials now about 10% enrolled and moving to it's more aggressive phase in its pivotal trial, and with our oral studies now also moving very quickly we have a lot of things to spend the money on. Plus, as mentioned before, our staffing up of our sales and marketing. But our philosophy is that -- well actually, the name of our budget internally is called profits first. And that also -- that is just like the pneumonic to let everybody remember that the first thing to spend money on is not to spend it namely to maintain profitability and everything else comes after profits first.

I think I hear the message. Just a quick follow-up and I will let others get a chance. Can you give us a sense what kind proportion of SubQ versus IV starts was, and also the portion of de novo versus Flolan converts?

It's really difficult for us to break out those numbers so we basically don't. But what we can say is that in keeping with the label for IV Remodulin, it is labelled for people who have tried subcutaneous Remodulin and found that they could not tolerate the site pain. So almost all of that IV business are people who transitioned over from the IV.

It's very interesting in the Phase IV study that Dr. Jeff's team completed that we demonstrated now super convincingly that you can transition from IV Flolan to subcutaneous Remodulin with a p value of 0.0006. So some people may want to go ahead and do that, and then if they end up finding that they are intolerant of the site pain they can go to IV Remodulin. So it's kind of a IV Flolan-SubQ Remodulin-IV Remodulin path.

Everybody -- the real answer to your question is to put yourself in the mindset of the doctors and the patients. And all of those people appreciate the much greater convenience and safety associated with the less invasive subcutaneous therapy compared to the more invasive IV therapy. It's a tremendous relief if you're a patient to be able to just unplug your therapy and plug it back in rather than to have an indwelling catheter as is the case with the IV therapy. However, if your particular constitution of your sensitivity to pain and your skin and everything is such that you will suffer site pain from SubQ, then now it's very easy to very quickly, within like a couple of days, segue way right over to IV Remodulin. And that's what we're seeing.

Thank you.

Martin Auster, Wachovia.

It's nice to see the three-run homer this morning. I'm looking forward to a grand slam.

We're working on inhaled and oral to try to deliver that.

And that segue ways into my question perfectly. I was wondering if you could just highlight for us what sort of data we might see from earlier work on the inhaled Remodulin program at the fall medical conferences and also when we might get our first taste of data of the oral Remodulin program as well.

I'll answer the first part of the question about the upcoming events and presentations and data and then ask Dr. Jeffs if he could please address the second part of the question.

The next two conferences, which in fact a lot of our teams are leaving to shortly after today, are the European Respiratory Society and the European Society of Cardiology meeting in Europe. There's going to be a very interesting topic at the European Respiratory Society called "Hot Topic -- New Treatments in Pulmonary Hypertension". And we're very pleased to actually have an oral presentation at that meeting called "Treprostinil -- Subcutaneous, Intravenous and Inhaled". So it really addresses that segue way from the three-run homer to the grand slam. And that will be on Tuesday, September 20 at 8.30 AM.

At the European Society of Cardiology, there's going to be a very interesting poster presented which we hope will eventually be able to form the basis for new materials we can get through DDMAC for the marketing called "Long-term Subcutaneous Treprostinil Therapy for Severe Pulmonary Arterial Hypertension". I think people will see some very, very exciting results of what SubQ Remodulin is able to do on the long-term basis. Of course that's absolutely key to the doctor's prescription decision.

Then, right after that, perhaps the most exciting presentation of the summer period, or actually moving into the fall now, may be at CHEST (ph), the CHEST meeting in Montreal, which is a one year experience with IV treprostinil in pulmonary hypertension patients by Valerie McLaughlin. And this has been accepted at CHEST as a major oral presentation on October 31. And I think there you're going to see that IV Remodulin provides all of the different indicators that doctors are looking for in patients on a long-term basis. I'm talking about both exercise as well as hemodynamics. And so that's one year paper by Dr. McLaughlin, who is course one of the most key opinion leaders, is going to be very, very well received.

Finally, at the American Heart Association, which is coming up on November 13, they have not yet given their final answer in terms of what is actually accepted as the previous three meetings I discussed have. However, I can tell you that there is a robust number of papers submitted to the AHA which we would hope would be adopted. Perhaps one of the most exciting ones is a presentation from UCFD, (ph) Dr. Rubin (ph) and Dr. Chaenck's (ph) center on inhaled treprostinil Phase II dosing data. That will give people their most complete look yet at the inhaled treprostinil data from Phase (inaudible).

There are also will be a very exciting presentation by -- if accepted by that AHA, which we certainly hope is the case -- by the delivery of IV Remodulin using the miniaturized infusion pump. That's a paper presented by Dr. Barst (ph) whose name is emblematic with being a key opinion leader, lead-off on The New England Journal article for Flolan. So we're really hopeful that that paper will get in and will help people understand how safe and convenient the miniaturized infusion pump is which will help further with IV uptake.

We've also got a very exciting submission of rapid switch, the rapid switch data from France about rapidly switching from IV Flolan to IV Remodulin. And it's remarkable that these rapid switches are occurring over a period of two to three hours, and the doctors are extremely pleased with the results. It really augurs very well for more of a rapid transition from Flolan to Remodulin in the marketplace. So hopefully that paper will be presented.

And at that point let me ask Roger if you can talk about upcoming looks at oral data.

As Martine alluded to, a lot of our effort has been getting the intravenous data into these major meetings. One of the difficulties with the oral program is you need about a six-month lead for submission before the meeting to get the abstract accepted. In fact, we're still waiting on the AHA abstract. But we have submitted to AHA a single oral dose study in normal volunteers which would just show simply the sustained pharmacokinetics profile of oral Remodulin, which we're finding is easily 12 to 13 hours. So as we move into our twice a day oral dosing studies this will be the first presentation of the Phase I data.

Just as an update, currently we're going to begin multi-day, multi-dose studies, again in volunteers, just looking at the kinetics of oral Remodulin, making sure that as we increase dose and look out over time the kinetics remained linear and similar as to single-dose kinetics. Then we're going to move into a Phase II study of a single oral dose, but looking at hemodynamic effects. In essence what that study will investigate is if you give a patient a single oral dose how long is the hemodynamic response sustained. So that will give us a clue not only to durability of response, but also to the dose response that one would see in a patient. Those will then be a prelude study to our pivotal trials which we will to start sometime next year based on good results in these studies that I've mentioned.

So really right now we're just beginning to, if you will, put public the information about oral Remodulin, but moving aggressively forward with the other work with that sustained release (indiscernible).

It sounds like the bases are loaded then. Thanks for the comprehensive reply.

That's great, Martin. And thank you for your question.

I'd like to add one thing just to put maybe the oral program in more context for some of the listeners that may not be as deeply familiar with pulmonary hypertension as you are, Martin, and you're one of the real experts out there.

The logic for our oral program is based upon the new theory that has been articulated by Dr. Milton Packer who is this country's leading expert in heart failure, left heart failure, right heart failure, and the country's leading cardiodynamic biostatistician. And Dr. Packer has been quite clear based on his summary of the research that has been done, a large body of research, that the best way to address pulmonary hypertension is with concomitant dosing of an endothelin receptor antagonist such as Tracleer, a phosphodiesterase 5 inhibitor such as revadio (ph) and a prostacyclin analogue once one can be provided which is as easy and convenient as Viagra and Tracleer. And so the logic of our oral program being managed by Dr. Jeffs and Dr. David Mottola in Research Triangle Park is to provide a twice a day pill form of Remodulin that can be taken together with Tracleer and revadio Viagra so that patients are able to simultaneously hammer the three main areas of hormonal imbalance -- neural hormonal imbalance, namely endothelin up regulation, nitric oxide down regulation, and prostacyclin down regulation.

So these other two therapies, the endothelium (ph) receptor antagonist and the phosphodiesterase 5 inhibitor, they have already captured upwards of 15,000, perhaps going up towards 20,000, patients. Yet because of the lack of a really convenient prostacyclin no form of prostacyclin therapy has ever broached past 3000 patients. So our excitement behind the oral program is finally based on the very clear pharmacodynamic theory that was laid out by Dr. Packer that we finally have a way to get the prostacyclin therapy to 15, 20,000 patients. And that really is what gives us the tremendous amount of energy and enthusiasm behind the oral program.

Operator, can we have the next question, please?

Matt Kaplan, Punk, Ziegel & Co.

Most of my questions have been answered. Question about, I guess for Roger, with respect to the TRUST (ph) trial, the Indian trial. Could you update us on the status of that and how that's going?

It's going very well. We have around 42 patients enrolled. It is a learning experience in terms of these centers have never used a central line, so we have had to do a lot of intensive training in terms of Hickman catheter replacement, the maintenance of the Hickman catheter.

Having said that, however, the patients seem to be doing well with the trial. The physicians are conducting the trial well. We actually have two of our scientists over there this week monitoring the study.

The study has interim analysis points after 33, 66 and 96 patients have enrolled. Our 33rd patient enrolled earlier this summer, so some time this fall we will have the first interim analysis from the TRUST trial. Of the 33, that's a 2-to-1 randomization, so it still would be a fairly small sample of patients, 22 versus 11. So we're not typically expecting to see success at that point in terms of crossing a very rigorous interim statistical (indiscernible) in that point. We actually expect to go at least to 66 patients or beyond. So we're making every effort now to enroll the trial. But the enrollment is both rapid, as well as complete in the sense that we're getting the right patients, which is something we wanted.

The thing that TRUST will allow us is it will show de novo use of IV Remodulin. As Martine said, currently, we are only allowed to promote for subcutaneous intolerant patients. TRUST actually studies patients who never had prostacyclin therapy. So what we would hope from this trial is that we could solidify our label claim that not only is it good for patients who can't tolerate SubQ Remodulin, but it is also a good de novo therapy and should be considered as a first line intravenous therapy. So we are putting a lot of effort into getting a very good study result here, just as we did with the Phase IV study. I think it will have an important benefit not only to patients but to the Company.

Just one quick follow-up question. Could you talk about -- I guess this is more for Martine -- talk about reimbursement and have you been confronted with any reimbursement issues?

No we haven't. Reimbursement has proceeded very, very smoothly. And the reimbursement for IV is proceeding indifferently from the reimbursement for subcutaneous.

Great. Thank you, Martine and Roger.

Matt Duffy, Black Diamond Research.

Congratulations on the quarter, and thanks for taking my call. Just a couple of things. A lot of questions have been answered. But I wonder if you could qualitatively talk about revenues per patient. I know you're not giving anything too specific as you have in the past, but can you qualitatively talk about whether -- what has happened on the average revenue per patient with the advent of IV? And then also, it looks like you're shaving off a little bit of cost of goods. I wonder if that is something that will continue.

I'll talk about the qualitatives on revenue per patient and ask Fred to address your question on margins.

All that we can see is that the revenue per patient on Remodulin is very similar to the price per patient on Flolan. And the two therapies appear to be very comparable in terms of the cost to the patient and hence the revenues to us. In fact, we've actually seen a couple of manuscripts which I think are not yet in print but are soon going to be in print dealing with the pharmacoeconomics of Flolan and Remodulin and come exactly to that same conclusion.

The only thing I can say qualitatively is that there is a tremendous variation both in terms of doctor practice and in terms of patient result -- individual patients within a doctors practice, so across doctors and across patients within a doctor's practice -- on their use of both these drugs, Flolan and Remodulin. And just by way of example, there are patients using as little as 30 or $40,000 a year of Flolan and Remodulin and there are patients using over $0.25 million a year of Flolan and Remodulin. And you'll find that type of span of variation even within the single practice of a large medical center.

There are doctors who believe in dosing Flolan very parsimoniously, and that's frequently a practice one sees in Europe, in particular in the UK I know. And yet there's really no data that's been published showing that the patients necessarily do much worse. I don't know if everyone has ever done a rigorous study. There are doctors that believe that IV Remodulin should be dosed much more aggressively than IV Flolan. There are other doctors that are dosing IV Remodulin less than SubQ Remodulin and some about the same. So it's almost like a scatter pock (ph) is what I would have to say. And the best color I can give you on the whole subject is that there's just a tremendous amount of variation.

Fred, can you talk about whether you have seen any difference and margins quarter-to-quarter?

Actually, the margins have been very consistent in the recent quarters. The gross margin on all sales was running around 89% through the second quarter. That was actually true in second quarter 2004 as well so there's really no change in gross margins.

As you know, we pay a royalty to the licensors of Flolan -- I'm sorry, of treprostinil. And those royalties can slide a bit depending on the sales levels. But they will generally remain in the neighborhood that you've seen.

Thanks.

Bob Eye (ph), Bivit Lawrence Management (ph).

Thank you for taking my call. My question relates to the rescue therapy in the Flolan transition trial. What is rescue therapy?

Roger, could you address the question of the rescue therapy in the Phase IV trial?

Maybe I'll start with just a reminder of what the trial entry was. It was patients that were -- had been on Flolan and were stable on Flolan at the time of entering into the study, and they were then randomized in a 2-to-1 basis to either active drug or placebo. And the endpoint for the study was time to clinical deterioration. What physicians did is monitored patients during the transition from Flolan to study drug, be it active or placebo, and looked for signs and symptoms of worsening. And as you saw in the press release, six of the seven patients in the placebo group worsened and the rescue therapy, therefore, was reinstitution of Flolan therapy. So it was the need to reinstitute Flolan therapy. That's opposed only 1 of the 14 patients in the active group. So in general, 93% of the patients that were transitioned -- that were crossed over from Flolan to Remodulin did so successfully.

What's nice about that for us is it shows patients can easily cross over to Remodulin therapy and it's certainly something that not only will it help to resolve the subsidiary part h (ph) commitment, but it is something we're going to seek labeling for because it's a well-controlled study that the FDA mandated we do in a placebo-controlled fashion. Given the result that we have and the robustness of that result, we think we are fully justified in asking for the ability to transition patients from Flolan to Remodulin in our labeling, and that's what we will be doing in the coming months. I hope -- is that clear?

Also, do you have much anecdotal evidence from doctors how the other inhaled drug on the market, Ventavis? How much are you impacted on the switch of patients for oral drugs to IV drugs?

I think that the Ventavis does not seem to be having any real big significant impact. The view of the Ventavis is that it's sort of a drug for the in-between space. I think this is the view that the Ventavis marketing teams generally make, is that it's a drug for the in-between space for a patient that is not doing well on oral drugs but is not sick enough for continuous prostacyclin.

And as you know, with the Ventavis drug, it's just an intermittent amount of prostacyclin -- about 6 to 9 times a day for about 15 minutes at each time. They need to sit by an electric outlet and breath for 15 minutes the Ventavis drug. And because of the awkwardness of that delivery method and because of the intermittent nature of the delivery of the prostacyclin -- and the drug has a very short half-life, only about half hour. So as a result of all that, it's kind of hard to find the right patients for it. Usually if a patient has failed oral therapy -- I remind you, pulmonary hypertension is a life-threatening disease. I think most doctors do not want to fiddle about, and instead at that point get the doctor on -- get the patient on continuous prostacyclin.

Thanks.

Operator, we have time for one last question.

Kelly Seringer (ph), Symmetry Capital.

Congratulations on fantastic execution.

Thank you so much Kelly. Nice hearing you this morning.

Just a question on -- I think what people are really thinking about Ventavis is that they are going to have a handheld device later on this year and so it will be more convenient for patient. Are you seeing any impact to your de novo patient adds based on the launch of that drug at all?

And then also, can you give us a little bit of color on the pricing that you're seeing right now? I know you won't give us the average price any more, but can you give us some color on that because it seems to be that there's a tremendous amount of leverage on your P&L given the price? Can you just give us some color on that?

I'm very happy to hear that there will be an easier to use Ventavis device because that will definitely make life easier for the Ventavis patient. I don't think it would in general change the medical view of the drug, though, because you're still -- it's still a drug that has a very short half-life. There's well-documented published studies, a half-hour half-life. So the patient is not getting a sustained level of prostacyclin, meaning that hemodynamic pressures are cycling and that's not a good thing. That's causing repeated shear stress on the pulmonary vascular bed, which ends up giving rise to additional proliferation of the endothelial sells within the bed. Not a good thing.

So I think it's a nice convenient addition. There are certainly patients for whom Ventavis is the right drug. It's nothing that's kind of like rolling out and everybody is really excited about it. And certainly we've seen, as this quarter results have shown, de minimus impact. In fact, the most frequent story that we hear is somebody trying Ventavis and then coming back to Remodulin within the same quarter. And I've got more stories of that than I've got fingers on my hands.

With regard to the pricing coloring, it kind of relates a little bit to the question asked earlier by Matt that for the doctors that are prescribing IV Remodulin in excess of SubQ Remodulin doses that definitely would translate to us for those patients of greater revenue per patient beyond a doubt. However, it's also true that there are more and more patients that are on combination therapies of sildenafil, as well as bozantin (ph) and treprostinil. And for those patients the doses are actually more moderate than we had seen earlier. So there's already some emerging evidence of a synergistic benefit from the combined drugs.

Of course, Dr. Jeffs and his team is going to tease that out a little bit more in their revised study, which is a study combining Remodulin, bozantin and sildenafil in different mix and match combinations. And that study is enrolling right now.

So I think when you take a moderating doses of combination therapy, the outliers of the people who are dosing IV Remodulin very aggressively, and then the bulk of the SubQ Remodulin bed, overall it probably means that revenue per patient on average is probably drifting upwards. But that's about the most color I can provide.

Just real quickly, can you give us a time line -- do you expect -- what is the time line you expect from the FDA on the Phase IV trial?

That's a question that Dr. Jeffs and his regulatory team under Dean Buntz (ph), our Senior VP for Regulatory Affairs is managing. Roger, can you address that?

Simply what we've done is just provided the interim analysis results with supporting documentation, including some sensitivity testing that we did to sort of test the robustness of the results. I can say that the result holds very true. So we don't expect the FDA to do anything or to find anything different than what the independent adjudication committee and statistician found. But they're going to have to take their time to do their own adjudication and analysis of the results.

It's difficult to say how long that would take. Probably weeks to months. Once they concur with the result, we've suspended enrollment in the trial, we would then stop enrollment and we would go about the business of completing the final study report and submitting that for their review. As I mentioned earlier, we will also ask for a label change to allow for Flolan transitions. That review from the time of submission of the study report could take upwards of nine months.

So hard to predict when the FDA will concur with the results and then allow us to do our thing in terms of getting a final study report submitted. So I would say it's going to take another upwards of 9 to 12 months to get this all concluded.

Thanks Roger. I'd like to thank everybody once again for being on the conference call and just in conclusion recap for everybody our Company's five general strategic objectives, which are to develop the best medicines possible out of our nicely substantial intellectual property portfolios in both Remodulin therapies, glycobiology and monoclonal antibodies; to incite the most insightful clinical trials that we can out of -- with these medicines; to ensure maximum awareness of our clinical trial results among the subscriber and patient communities; to do all of that all the time respecting the most high ethical standards prevailing in our field; and finally, kind of coming around to the earliest question asked in this call, to do all of the above while maintaining a level of growth and profitability that keeps us near the top of our peer group in the biotechnology sector.

All of you on this call today have been -- many of you have been participants in watching us execute these five strategic objectives. We really appreciate the kind words you've shared with us today, and we look forward to continue performing as best as possible for you in the quarters and years to come. Thanks a lot and have a great day.

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