United Therapeutics Corp (UTHR) 2006 Q1 法說會逐字稿

Good morning. My name is Latasha and I will be your conference operator today. At this time, I would like to welcome everyone to United Therapeutics Corporation First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. All questions will be taken in the order they are received.

[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 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. Thank you.

Dr. Rothblatt, you may begin your conference.

Thank you, operator. I'd like to welcome everyone this morning to our first quarter financial results conference call. We're pleased to report that our revenues for the quarter ended March 31, 2006 totaled $33.2 million. This represents a 43% increase over the same quarter in 2005 and does not even yet constitute the first quarter following the label change for launching the intravenous form of Remodulin without the limitations of our previous sub-part H status. So, we're really pleased to start off the year on such a strong foot and to expect yet better things to come because of the improved label.

Our net income for the quarter was $2.3 million or $0.10 per basic share. However, that includes a number of one-time and newly implemented accrual based items, such as our adoption of FFAF stock option reporting of $3.8 million and a income tax expense accrual of $1.9 million, as well as a one-time write off of a previous HeartBar product. So, if you exclude these matters that don't directly relate to the operations of the Company, our net income would have been $10 million or $0.43 per share.

In addition, United Therapeutics ended the year -- ended the quarter with a ever-growing stronger cash position of $210 million in cash and investments and no debt. And that is overwhelmingly due to the very strong margins that we continue to earn on our Remodulin product.

With that overview of financial information, I'd like to introduce two other people joining me on the conference call. There's also Dr. Roger Jeffs, who's our President and Chief Operating Officer, and Mr. Fred Hadeed, who is our Executive Vice President for Business Development and our Chief Financial Officer. Between Roger, Fred and myself, we'll do our best to answer all the questions that you may have. And I'd like to now ask the operator to please open the lines and welcome any questions from the listeners to the call.

Thank you.

[OPERATOR INSTRUCTIONS.]

Your first question comes from Gil Aharon.

Thank you for taking my question. I was wondering if you can discuss somewhat the X-US contribution to the sales of Remodulin and the kind of challenges that you're facing there in establishing an effective distribution system.

Sure, Gil. We've had good results X-US on Remodulin. And certainly, that's another example of something that, it started off very strong in the first quarter here and yet, the best is yet to come. For the first quarter, the X-US revenues were somewhere in the 10 to 15% range of our total revenues, which was actually a bit of a better contribution than they have been in the past. And yet, as you probably are aware, the intravenous form of Remodulin is not yet approved in Europe. We have filed for a form of type of mutual recognition to get regulatory approval of the intravenous form. So, there's only the subcutaneous form.

And on top of that, the subcutaneous form only has pricing approval in just a couple of European markets. So, we're still very much in the named patient type of domain of selling our drug in Europe. And yet, despite that fact, European revenues have grown nicely in the first quarter. Very preliminary, not yet audited results for April show yet a further significant growth of Remodulin from Europe, in particular. So, we're quite excited about it.

In terms of our distribution plans there, we are fielding our own sales force as a complement and assist to the efforts of several different European distributors who handle various markets throughout the continent. The largest such distributor is Grupo Ferrer, who is covering either directly or through affiliates Portugal, Spain, France, Italy. And Ferrer has been producing just tremendous results with Remodulin because the physicians there really have a lot of confidence in our drug.

So, the bottom line to your question is we'll work with a network of European distributors, complemented by our own internal sales and marketing force, managed out of our UK head office.

Okay. Thank you for that. And secondly, maybe Dr. Jeffs can comment on, now that there's some more experience with IV Remodulin, do you guys have a better perception as to what is the optimal dosing with this formulation at this time?

Yeah, thanks for the question, Gil. That's a difficult question actually to answer and it's, as one knows from the labeling of this product and other Prostacyclins, like Flolan, for example, they're dosed specifically to effect for the individual. So, it's based on tolerability and efficacy.

Having said that, we do have long-term data which shows that patients achieve on average a greater than 40 nanogram per kilogram per minute equivalent for infusion. So, I think it's north of that for some patients. It's south of that for others. And that seems to be the average. But again, what it would mean for a specific individual is hard to say.

Thank you very much, guys.

Your next question comes from Lucy Lu with First Albany.

Hi. Thank you.

Good morning, Lucy.

Good morning, Martine. Just wondering if you could give us an update on the inhaled Remodulin study, how many patients you've enrolled, what is the plan and any preliminary timeline that you can share with us? Thank you.

Sure, Lucy. Inhaled Remodulin is gathering more and more speed and more and more momentum as we march toward our planned unblinding and regulatory filing. We're currently at 85 patients in the study. That's as compared to its baseline number of 150 patients. And we currently have 20 centers with IRP approval participating in the study. And that's on our way up to 28, possibly 30 centers that are in the stage of completing their IRP approval and contracts to participate in the study.

Now, we have actually asked the FDA for permission to amend the protocol and to increase the number of patients from 150 up to 200 patients. There are a couple of reasons for that. The first reason is, of course, as we opened up the study to many more centers, in large part because of the centers who really wanted to participate in what they feel will be perhaps one of the most trailblazing studies ever in pulmonary hypertension, in order for each center to have adequate patients and enough experience, it would really be nice to get up to 200 patients rather than 150 patients.

Secondly, the environment in pulmonary hypertension changes so quickly that just in the course of this pivotal study from when we began it until now, a drug that was not previously approved, Sildenafil, is now not only approved, but widely in use for pulmonary hypertension and would really make the study, I think, much more interesting and insightful if there could also be some patients who were non-optimal responders to Sildenafil in the study. So, another thing that we're asking the FDA to do is to allow us to take the study up to 200 patients so that we could permit some patients to enter the study who are non-optimally responding on Sildenafil instead of non-optimally responding on Bozantin [ph].

And we expect to hear in terms of looking forward, we expect to hear whether or not we can go ahead with that protocol amendment within, oh, maybe like the next couple weeks, something like that. And if you track the enrollment rate that we were doing with about 12 or 15 centers participating, we're moving along at around 9 to 10 patients per month. So now, we're at basically twice as many centers. And I think it's an entirely reasonable to expect the rate to move along roughly twice as quickly.

That's really helpful. Thank you.

Sure.

Your next question comes from Geoff Meacham with JP Morgan.

Hi. Actually, this is Chris Metropolis for Geoff Meacham. A couple of modeling questions.

It didn't sound like Geoff.

Just looking at the R&D and SG&A for the quarter, is that an accurate run rate of what we should expect going forward through the year?

The -- I'd like to ask Fred to field that question, Chris, because he, being the Chief Financial Officer, he's the real architect of our fiscal discipline.

Yeah, good morning, Chris. You know quite well that it's not been our practice to give guidance with respect to either revenues or burn. And we don't plan on departing from that guidance. But, sufficed to say, I think you're familiar with the budget discipline that we have at UT, which involves setting spending caps for all of our various activities at a percentage of previous year's revenues. And all of those budget disciplines remain in place and they've been unchanged for the last three years and they'll continue going forward. So, it's our goal to produce bottom line growth that will mimic what you've seen in the past.

That's helpful. Thank you. And then, any color that you could provide on the tax rate during the quarter?

Yeah, yeah. This is a period not only in which we have to record expenses, a tax expense for the first time, but also have to report under FAS123R and expense all of our stock options. And expensing of stock options actually has the effect of increasing the Company's effective tax rate. And that is because, although stock options are a hit to your books, they're a hit to your P&L, they're not deductible for tax purposes. So, they tend to inflate the effective tax rate.

And for an example, this quarter, our effective tax rate was right around 45%. If you just took the tax expense divided by the pretax book income, it was around 45%. However, if you add back all of the non-cash FAS123 expense, the effective rate actually drops closer to around 21 or 22%.

I believe that the rate that you see here in Q1 of around 45% will probably be level for the next couple of quarters and into the fourth quarter, as well. But, I'd like to point out that the Company still has available to it over $90 million of net operating loss carry forwards and then, an additional $30 million of business tax credits. And so, what that means is, although we're reporting tax expense, we don't expect to pay any significant amounts of tax expense this year because we'll apply our NOLs. And once those have been exhausted, then we'll move to the tax credits and use the tax credits.

So, the effect of having this tax credit is such that we continue to have a very large deferred tax asset base that is not yet reflected in the balance sheet. And so, I expect that in the fourth quarter of this year, we will reassess our unrecorded tax assets and look at them for realizability. And we may then be in a position to record another benefit in the fourth quarter of this year, similar to the benefit that we recorded in the fourth quarter of last year. And that would in effect -- if that happens, that would in effect reverse much of the tax expense that we're booking in the earlier quarters of the year.

Great. Thank you very much.

You're welcome

Fred, thank you. That was a really clear and good explanation. Next question, please.

Your next question is from Novima Yamanichi [ph] with BK Partners.

Hi, thank you. I have a few questions. First--.

--Okay, one thing is we try to limit everybody just to one question and one follow up question so that the other callers, as many other callers have--.

--Oh, sure. That'd be fine. I was wondering if you can give any idea what sort of inventory changes you have, perhaps in dollars, that you've experienced in this quarter?

I'd like -- Fred, as Chief Financial Officer, also oversees all inventory questions. So, Fred, if you could please answer that question.

Sure, sure. Yeah, as we stated in our 10K that we filed last month, it's no longer our -- we no longer have the ability to track all of the inventories held unsold by distributors in a manner that is timely enough to be able to report figures for these calls or even for our quarterly reporting. So, we're not able to tell you what the inventory levels were at the end of March.

However, we do know based on purchase orders that we've received in April from all of our distributors -- obviously, they've all come in at this point -- that sales in April have exceeded any single month in the first quarter. And so, logic would tell you that there would have been no inventory stocking in the first quarter. If anything, there may have been a little bit of -- either it was level or there could have been some de-stocking in the first quarter.

I see. All right. Thank you.

Thank you very much.

Your next question is from Steven Greer [ph] with Merrill Lynch.

Hi. Could you explain again, what's the need to increase the N of the study? Usually, that's done to ensure that the P values match. Are you seeing efficacy issues or, I mean, if it's slow enrollment, that would be addressed by increasing the number of sites, not by increasing the N to 200.

Well certainly, we've not seen any efficacy issues for two reasons - first of all, it being a totally well controlled and double blinded study, we wouldn't have any idea with regard to the efficacy of the drug, but secondly, there are so many patients that are on open label inhaled Treprostenol from the very large number of exposures that were done during Phase II that there's, I would say, near universal acclaim with regard to the efficacy of taking Treprostenol by the inhaled route. So, it's nothing like that.

On the other hand, the desire to -- if there was a problem with enrollment, one might want to try to perhaps reduce the size of the study. But, that's not what we're trying to do, either. We had begun the study with 12 centers and there were a large number of centers which wanted to also participate in the study. And we always endeavor at United Therapeutics to maintain the absolute best of relations with clinicians in the field. So, we have tremendously increased the size of the study in terms of centers, tripled the number of centers participating in the study.

And so doing that, we have to make sure that there's still enough patients for each center to get an adequate experience. That in and of itself would have been perhaps a good reason to increase the size of the study, but we had an even more compelling reason when the approval of Sildenafil was welcomed so much by the physicians in the field that at some centers, Sildenafil is prescribed even more as a front line therapy than is Bozantin. At many other centers, Bozantin is still the first line therapy. But certainly, at many other centers, Sildenafil has become the first line therapy.

So, one of our five key strategic objectives at United Therapeutics is to always conduct the most insightful possible clinical studies. For something as big as the first inhaled Treprostenol study, we really felt it would be a lot more meaningful if it also included Sildenafil patients in the study. And that's the second reason that we increased the study.

Those two reasons would have been adequate and sufficient. However, I would also point out that under the FDA's policies, if you -- they will approve certain drugs on a single study if the P value is very small and -- but, might require a second study if the P value is more in the normal range of an approvable P value, such as .05. Of course, we would not want to defer the availability of inhaled Treprostenol to the patient community any longer than absolutely necessary.

So, yet a third, although I would say it was not any kind of a material reason for increasing the size of the study, was to render yet even smaller the possibility that this study will produce a P value requiring a second study and therefore, to maximize the probability that we could get approved on a single study and thereby, get inhaled Treprostenol to the patient community as quickly as possible.

Okay. So, it was concerns over the P value or issues around it.

No, it was concerns, first of all, with regard to ensuring that each center has adequate number of patients, secondly, to allow us to include Sildenafil patients, as well as Bozantin patients.

Okay, thank you.

Your next question comes from the line of Constance Vi [ph] with Cowan.

Hi. Thank you for taking my question. Perhaps you could give us a little bit more color on your oral Remodulin, how that's actually rolling along and any presentations that you've presented recently?

Great. Well, the oral Remodulin program is one that has been conceived and managed by the team working directly for Roger. So, Roger, could you give us an overview of that exciting program?

Sure, I'd be delighted to. The program's going very well. We have had meetings with both the FDA and the EMEA and are progressing two studies. One is a, what we're calling a monotherapy trial where it's first line use of oral Treprostenol versus placebo. And that's 150 patient study, randomized two to one. The second trial is an add on study where we'll add background therapy, similar to the trial study, be patients on Tracleer, Sildenafil or actually both. We would allow that, as well. That's a 300 patient study with an interim look at 150 patients. And that study's randomized one to one.

The good news is that we're targeting to ship our clinical trial material to centers May 10th, pending the final discussion with the FDA. So, it looks like we could begin the trial enrollment as early as the second quarter. So, we're excited about that. There's a lot of enthusiasm. We've had our investigator meeting already, where we had many of the participating centers in the US participate. And we are now garnering IRV approvals and all the necessary contract approvals. So, it looks like we could quite conceivably start the study in May, if not June.

So, we're excited. I think it's sort of the natural evolution of this product. And it will be yet again another trailblazing effort that we're trying to do with Prostacyclin therapy in advancing, not only the utility of the drug, but the convenience of the drug so that we can make it available to a wider spectrum of patients.

And do you expect that the enrollment of that trial would actually be a little bit faster or slower than what you're seeing for the inhaled drug?

That's always a difficult question to predict when we haven't actually started. So, I think one thing we have done is we are targeting 50 centers. So, we do anticipate some struggles. There are a lot of trial options out there now. Lilly's doing a trial with Cialis. Acetylene continues to do trial work. CoTherix is doing some work and we're doing the trial, as well.

So, the opportunity to get patients is tougher. Nonetheless, I think the excitement over a twice a day oral therapy with sustain relief characteristics should be exciting enough to lead to a very nice and sharp enrollment. But certainly, that's going to be graded over time in that the enrollment will probably start slow as we start to get centers approved and then increase as we get the bulk of the centers approved and then, move into Europe. We're much more ahead in the US in terms of getting sites up and running than we are in Europe. This is global effort. We're going to use sites in the US, Canada, Europe, Australia, Israel, Mexico, so a certainly all hands on deck effort. So, we'll do our best is all I can say with regard to enrollment, but I can't predict at this time what that enrollment rate will be.

Great, thanks. And could you provide us just a quick update on any data presentations from the oral studies that you've had recently?

Yeah, there really aren't many data presentations for the oral study because most of the work was Phase I work. And we have then, in essence, jumped right into a pivotal trial because we believe we know how to dose the drug, which is through dose titration. So, there's not a bolus of Phase II data that we can be presenting in conferences. So, there will be some data that will be published later in the year, but most of it's Phase I work and not really presented.

There is data at the upcoming ATS on intravenous Remodulin, particularly the ability to rapid switch. And then, there's going to be other data presentations at the Pulmonary Hypertension Association Meeting in June on IV specifically. And I think that's a lot of where we're focusing our, both our presentations and our publications is in the IV arena so that we can assist the commercial team with their promotion of parenteral therapy. So really, though, at this time, there's not that much data to publish on oral Remodulin.

Great. Thank you.

Your next question comes from Navdeep Jaikaria with Rodman and Renshaw.

Yes, this is actually Sean standing in for Navdeep. I just have a couple of questions along your inhaled Remodulin. You said the -- I don't know if I heard you right. You said that you usually recruit 10 to 15 patients per month and now we are doing double that. So, we should expect you'll finish enrollment by year-end at least?

The historical enrollment rate in the inhaled Treprostenol program has been about 10 patients per month. And we try to stay away from making projections about when specific trials will end because, as Roger mentioned, there's so many confounding factors with so many other studies going on.

But, what I could say about that is that there are really two main schools of thought in the pulmonary hypertension community with regard to the ideal route of drug delivery for patients with earlier stages of pulmonary hypertension. And one school of thought is that it's best to really get the highest possible levels of Prostacyclin in the lung tissue. And therefore, inhaled delivery is sort of like the Holy Grail.

And then, another school of thought is that it's most important to really get a very steady and stable level of Prostacyclin in the serum circulation, but to do so conveniently, safely and in a reasonable fashion for people with earlier stage disease. And therefore, an oral Remodulin pill has always been viewed as sort of the Holy Grail of pulmonary hypertension development.

So, we're going forward during 2006 with advanced pivotal trials in both of the main pathways. And this is so that pulmonary hypertension clinicians have both oral and inhaled pathways available to deliver their drug. Now finally, almost everybody who practices in pulmonary hypertension will tell you that for patients with resistant disease, there is no substitute for parenteral Prostacyclin and the patients with the resistant type of disease, that continuous intravenous delivery is the only thing that really works and can be used for such patients.

And in that regard where we have our intravenous and our subcutaneous forms of Prostacyclin, and those two are also growing very nicely. Fred indicated a moment ago that revenues for April were up markedly compared to the earlier months in the quarter. And that, no doubt, reflects the fact, as mentioned at the beginning of the call, that we were very happy in March to be able to launch intravenous with a new label that took away a lot of the marketing restrictions that we had before.

That's great. Do you have any kind of like interim look planned for your inhaled Remodulin trials now that you are expanding the trial?

Yes, I'm very glad that you asked that question. We have -- currently, we have no interim looks in the inhaled Remodulin trial. However, in the amendment that we submitted to the FDA -- and we should hear back in a week or two about -- we did propose two interim looks, one at 100 patients, one at 150 patients. We really have no expectation of stopping the trial at those points. But, in case we are surprised, in case by -- even in a surprise to us -- we think it's a very effective drug, but if it's even more effective than we thought, that it is possible to stop the study earlier, then that would be great for the patients and the doctors because they could have access to inhaled Treprostenol more quickly. So, we did put those interim looks in out of concern for the patient and doctor community. But, we don't expect at all that we would hit those interim points.

Do you think the FDA measures allow you to expand the trial to 200, but not allow you to have those two interim looks?

Well, we'll know in a couple of weeks about that.

Thank you very much.

Your next question comes from Martin Auster with CLG.

Hey, guys. Thanks for taking my question.

Sure, Martin.

It's good to hear from you, Martine.

Nice to hear your new base there.

Thanks. It's good to be here. Quick question, just to follow up on Sean's question. Do you have any idea what the statistical burden might be to stop the trial for good efficacy at 100 to 150 patients?

There -- again, I'd like to really emphasize, Martin, we don't think that there's any realistic prospect of stopping the study at 100 or 150. And of course, for right now, that's not even in the protocol. We really just picked those numbers for sake of kind of numerical symmetry, like 100 is half of 200 and 150. And just in case of an outside chance of efficacy, we'd like to be able to get the drug to the market more quickly. But, I would like to really emphasize, we are not expecting any interim efficacy stopping at 100 or 150.

Okay. And then, real briefly, the guys over at CoTherix have done a great job of kind of planting the seeds for the inhaled Prostacyclin market here and they're showing some really good growth there. And I know in Europe, inhaled Iloprost has been used for a much longer period of time. I was wondering if you could comment at all about kind of how established the European market is already in terms of its reception towards inhaled Prostacyclin and how this opportunity is going to shape up to be?

Sure. Well, we're really very pleased to see the work that CoTherix is doing. In a sense, we have kind of a bucket brigade going on here in the pulmonary hypertension area where the oral drugs like Sildenafil and Tracleer are handing the patients at the front end. And then, some of those patients who do not respond well to those oral meds get passed on to Ventavis, for example, in the middle.

Now, the problem with -- the reason it's sort of like a bucket brigade is that the nature of the Iloprost molecule is such that it can only be dosed within a very narrow range. And as I know you know, Dr. Auster, people with pulmonary hypertension require increasing levels of Prostacyclin because of the resistant nature of the disease. So, what happens is the patients then get sort of passed down the line to the parenteral therapies, which have basically an unlimited ability to titrate the drug or at least a much greater ability to titrate the drug.

And that's sort of what's seen in, even in Germany where Iloprost is most ensconced. Recently had the honor to hear a presentation by Dr. Voswinkle [ph] where he mentioned that when the patient stopped being responsive to inhaled Iloprost, they are moved onto intravenous Prostacyclin because it's possible to continue increasing the dose with intravenous Prostacyclin, whereas you cannot increase the dose with Iloprost. Of course, that was the logic that led the European Iloprost developers to lead us in a development of inhaled Treprostenol because unlike Iloprost, Treprostenol can be upwardly titrated and dosed by well over an order of magnitude. So, you have a huge ability to continually up-titrate inhaled Treprostenol. And it's one reason why we, patients and physicians are very excited about having that join Ventavis in the marketplace as soon as possible.

Any idea how large the European market is in terms of patients on inhaled Prostacyclin therapy?

I think it's generally understood that most of the patients on inhaled Iloprost are in Germany and, in fact, Flolan has never taken hold in Germany at all. And at a presentation quite recently -- in fact, just Friday -- it was mentioned by one of the clinicians from the German center that he believed that there were several hundred patients on Iloprost, at least at his center or perhaps at multiple centers. And his certainly is the largest center in Germany.

So, that gives you at least an order of magnitude. And what we really plan to do with inhaled Remodulin is to offer this as a concomitant therapy on top of oral meds. And that's the reason why our entire trial design is for patients who are already on Tracleer, already on Sildenafil. And we estimate that those numbers are now perhaps 15, 20, 25,000 patients are on one or another of those two drugs. To add inhaled Remodulin on top of those two drugs -- and we hope in our study that we'll show that we produce a synergistic benefit and thereby, we can create an entirely new market here of inhaled Prostacyclin plus oral meds. And that's where we'll really transform the size of the entire pulmonary hypertension market.

Thank you very much for the helpful explanation.

Sure. Well, we've reached the time limit for the call. So, in conclusion, I'd like to first thank everybody for participating, thank a lot of the new questioners who asked questions, remind everybody once again that at United Therapeutics, we feel really, really honored to have such a great molecule as Treprostenol. It's a Prostacyclin analog that's stable and long lasting, that's titratable over a vast range and that can be dosed orally via inhalation, subcutaneously or intravenously.

Thanks to the great market education work done by Acetylene and now increasingly, by Pfizer and by CoTherix. More and more physicians are becoming aware of pulmonary hypertension. The number of patients who have the disease are being identified rather than being left to suffer from the ravages of the disease. And our single minded goal at United Therapeutics is to provide the appropriate type of Prostacyclin, be it intravenous for patients with more resistant disease, oral for patient with the earlier form of disease or inhaled or subcutaneous for patients with the middle form of disease, so that ultimately, every patient with pulmonary hypertension can benefit from some form of Prostacyclin.

Thank you very much again and look forward to seeing many of you at either the upcoming American Thoracic Society Meeting or the Pulmonary Hypertension Association Meeting.

Thank you for participating in today's United Therapeutics Corporation First Quarter Earnings Conference Call. This call will be available for replay beginning at 11:35 a.m. Eastern standard time today through 11:59 p.m. Eastern standard time on Tuesday, May 9, 2006. The conference ID number for the replay is 7924574. Again, the conference ID number for the replay is 7924574. The number to dial for the replay is 1-800-642-1687 or 706-645-9291. Again, this concludes today's conference call. You may now disconnect.