United Therapeutics Corp (UTHR) 2006 Q2 法說會逐字稿

Some speakers inaudible; transcript is best product.

Good morning. At this time, I would like to welcome everyone to the United Therapeutics Corporation’s Second Quarter Earnings Conference call.

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 the actual results, events, or developments reference and such forward-looking statements will occur or be realized. United Therapeutics sustains no obligations 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.

Good morning everyone and welcome to the United Therapeutics Second Quarter 2006 Financial Results Conference call. I am pleased to report today that United Therapeutics’ revenue for the quarter ended June 30, 2006 totalled $40.2. In addition, on net income for the quarter was $7.7 million, so about $0.33 per basic share. In addition, if one were to exclude stock option expense pursuant to our adoption of FAS 123R and income tax expense which we’ve accrued $6.2 million, our net income would have been $17 million, or $0.73 per basic share. I’d just like to share with everyone this on the side that it is really exciting and [inaudible] that the whole company we started few years ago and as of now report on an annualized basis about $2.50 per share of precash flow kind of base topic. It’s just amazing and very, very exciting. So those are kind of the highlights of our financial results. I’d also like to note for everybody today that we have a management update that Fred Hadeed, our Executive Vice President for Business Development and Chief Financial Officer, will change his duty effective August 10 and first and said John Ferrari who is currently our Vice President of Finance and Treasurer will become our new chief financial officer, while Fred will remain with us as our Executive Vice President for Business Development. This changes very much in keeping with the [inaudible] that both of you who have followed up for a number of years have seen that we really like to offer promotion opportunities, career development opportunities for people within our Company. Most of our executives have been promoted within. That keeps our second tier and younger managers really enthused about their prospects, and I’d really like to salute Fred for offering John Ferrari the opportunity to service Chief Financial Officer after Fred has been a superb chief financial officer and will, of course, continue with us as executive vice president for business development.

I have joining me on the call today to answer any questions you may have Dr. Roger Jeffs, who is our President and Chief Operating Officer and is responsible for both clinical development as well as commercial development of our general Remodulin products, which are approved by the FDA and other markets around the world, and also, Fred Hadeed will also be with us on the call. As most of you are aware, Fred manages the distributor relations as well as the finances of the Company, so he will be answering the questions in that regard, and I’m pleased to answer any general questions or any questions relating to the activities [inaudible].

So with those introductory remarks, operator, if you could be so kind to take the callers in the order that they queue, that would be great.

[OPERATOR INSTRUCTIONS]

Matt Kaplan, Punk, Ziegel & Co.

Hi. Good morning. Congratulations on a very impressive quarter.

Thanks, Matt.

A question. Could you give us an update in terms of the status of the TRIUMPH study and also the oral program as well?

Sure, Matt. As you know, I’m responsible for managing the inhaled treprostinil, whereas Roger manages the oral treprostinil, so I’ll answer the first part of your question, and then ask if Roger can answer the second. Unfortunately, the inhaled proprium has very modest enrollment dose since our last conference call. We are right now at just around 90 patients enrolled. There are about 14, 15 centers active [inaudible] are able to enroll patients and that have enrolled patients. There are now 22 centers that can enroll patients that have completed all of their paperwork. There is about 8 centers that can enroll but have not yet enrolled their patients, and then we’ve actually increased the number of centers up to 34 total so there is another roughly 12 centers that we’re working with to complete the necessary paperwork so that they can enroll patients.

Now, let me add, when I mentioned completed the paperwork to enroll patients, as I know you’re aware of Matt, that there are kind of two levels to that. There’s the original protocol enrolling patients on Tracleer background therapy and then the amended protocol of enrolling patients on sildenafil background therapy. So as of now, actually only two centers have completed all of the paperwork necessary to enroll patients on sildenafil background therapy. I believe they are UC San Diego, and I believe University of Colorado. Our team is working very diligently to get the other 22 – the rest of the 22 centers that have otherwise complete all their paperwork to process the amendments that they can enroll sildenafil patients. I can’t give you an exact date when that will be done but we’re working on it diligently, and then the team is also working to get the balance of the 34 total centers that have completed all of their IRB paperwork and the contract paperwork so that they can enroll both Tracleer and sildenafil patients.

Now as to why we had so few patients added during the past quarter, the answer seems to be from everyone I’ve spoken with and let me hasten to add, I just attended an investigators meeting of all of our American investigators and the answer that I heard from all of these really great opinion leaders who were there, I mean, we had the cream of the crop there with Dr. Lewis [Rubin] and Dr. Robin [Bark] [inaudible] intense competition for patients with other clinical trials going on that have protocols that allow those clinical trials to compete directly with the patients [inaudible] and in particular that would be the Cialis clinical trial and the clinical trial of combining Tracleer plus treprostinil. I would – you know, I’m really [inaudible] because three months ago I had really thought that we would be about, you know, 30 or more patients further along than we are right now. So I can’t really include for you, Matt, great confidence, but what I can include for you is great confidence that we are probably doing every single thing that can be done to enroll the trial and let me just kick off a few of the major items for you.

We have increased clinical trial grants throughout the different centers so that there is a larger burden of the cost of putting the patient through a clinical trial which is now absorbed by LungRx. So we’ve increased the financial arrangements related to increasing clinical trial enrollments. We have put certain awards into place to encourage centers to go even above and beyond and be among the top enrollers. That’s another thing we’ve done. We are convening additional clinical investigator meetings both in the U.S. and in Europe, and as mentioned, I just attended one in New York last week which had all of the top investigators there and I was very impressed to see even like the Deans of the field, Bruce [Bonvidge], [Verner Seager] came from Europe. As mentioned, Dr. [Rubin], Dr. [Bark], and Dr. [Benson] and Dr. [Meralli] – there’s many, many more that I can add – that I mentioned right now, and there was an extreme enthusiasm. I talked to all of these doctors and their message to our team and me; we are going to get this trial enrolled. We’re positive we’re going to get this trial enrolled. Just be patient and bear with us. So I really feel that we are possibly doing everything that we can do to enroll the trial maps, but right now we have a slow quarter and hopefully in the next quarter with the sildenafil amendment [inaudible] centers, at these investigator meetings, with the higher grant payment, and with the continuous business by our new chief medical officer [inaudible] will have much better news to report next quarter.

Roger, could you comment on how things are going on the oral side?

Certainly, Martine. Good morning, Matt. As everyone is aware, we had a pickup with our clinical trial this year with oral study if there is a background with drug products [inaudible] testing of that drug and at our one month test point, we saw that 1 tablet that was tested, and there were many that were tested, released drugs more quickly than it should have and it fell out [inaudible] for the release profile – for the sustained release product, [inaudible] that we’re trying to develop. We stopped the trial at that point because the last thing we wanted to do was “[inaudible]” and potentially expose our patients to a [inaudible]. So we conducted an investigation and we’re confident that the formulation is correct. When we developed the formulation at Supernus, formerly Shire, on a small scale, we had serial tests out nearly 2 years and we can share – release the performance of the tablet [inaudible] release the drug over 10-12 hours [inaudible] those regimens. See then, unfortunately, Supernus cannot do large scale manufacture [inaudible] and in that process if we had this issue, we did an investigation and I’m pleased to report that we have [inaudible] is the call is that today we are re-manufacturing in the 1 mg [inaudible] and if all goes well with that and if that drug repackages and we restart the oral trial [inaudible]. So that’s the good news. It was just a scale-up manufacturing issue. Unfortunately, it happened once we had already begun the trial, but we will reinitiate that [inaudible] and to be able to trial up and run. That’s all I have to add, Matt.

Great. Thanks for taking my question.

Joshua Schimmer, Cowen

Good morning and thanks for taking my questions. Fred, can you try to qualify to what extent inventory build as contributed to the strong quarter?

So good morning, Josh. Thanks for the question. Inventory build did play some factor in the inventory growth for the quarter, but it wasn’t the only factor that was also use of Remodulin, and there were more scripts written and more drug dispensed in the second quarter than ever before. It’s not unsurprising that there would be some inventory build, especially after a couple of quarters of restocking, but there was nothing unusual about the level of inventory build. It pretty much falls within the level of activity that we’ve seen in our inventories for the last year and a half and, in fact, once all the numbers have been counted, I don’t even expect that our June inventories will be their highest ever. I think it will be below the highest inventories ever, which typically run not less than 30 days and not more than 60 days.

And to what extent were revenue front and/or back-end loaded if they were front-end loaded. Can you give us some sense just to help us with modeling what revenue run rate you actually did the quarter?

The – I mean, I think you should take the reported number for the second quarter and look at the indicative of sales for all the months in the second quarter. I say that because there’s always a certain level of variability in our monthly sales. We always see a reasonable degree of all totalling our monthly sales. I don’t think it’s indicative of any months sales. It’s never really indicative of an annualized run rate. So to get it at a run rate which you really need to do is look at one or two quarters and annualize those revenues.

Okay. Great. Thanks very much.

Joseph Schwartz, Leerink Swann

Hi. Thanks for taking the question. I was curious if there have been any changes to your sales force and any new hires in the sales marketing personnel recently on the heels of the label revisions for the phase 4 data.

Sure. Roger, that would be in your area.

Sure. We’ve had some growth in the numbers of sales force representatives. Our sales and marketing team is in the 20 range and different people working on that effort for [inaudible] Remodulin. I think the key thing is we spent a lot of time in the first six months of the year working on branding and messaging. So really focused on the contents and a lot of that is due to the clinical work that is done in 2005 around the long-term IV data, around the Switch data, the small pump data and then ultimately by the label change that was obtained in March. So certainly we spent time communicating and making physicians and patients aware of the data that exists for Remodulin, which is now quite extensive, and I would argue probably the most extensive of many PH therapeutics available today. We also we’re fortunate that we had the opportunity to communicate that information at both the American Thoracic Society Meeting and Pulmonary Hypertension Association Meeting and, in particular, we focused on the miniature pump, the long-term IV data, and the ability to [inaudible] in line with our new label for Flolan transition. I think the thing going forward that we’re pleased about is we’re just completed a four-year follow-up and with that long-term survival that data will be presented in September in Barcelona at the Congress of Cardiology and it’s also been accepted at the European Respiratory Journal for consultation later this year. And that shows if you look at historical data that being NIH Registry where patients were untreated, significant improvement over that in terms of long-term survival. It also provided us an opportunity to say, well, let’s compare the long-term survival, albeit in a nonrandomized way to what the survival data is for other therapies, particularly Flolan, and we can show that the overall year-to-year survival rates are the same or seem to be the same on re-launching as they do on Flolan, so that’s data that we haven’t had before that looks at the long-term outcome of our therapy.

But going forward that’s important results and we also – in terms of publications in Chest in October, we’re also going to have a presentation on the phase 4 data. So it’s more of improved awareness, improved communication and we’re blessed by the fact that we have a very good drug that has very good data behind it and now we’re able to communicate that with this 20-member sales force team that’s doing a fantastic job getting [inaudible] that we’re familiar with as well as developing relationships with new centers. You know, if we look at our business profile, we continue to do well at centers what we’ve done well in the past both with subcu and IV, and I think subcu gets lost in the mix a little bit, but it’s still a very, very well used drug and patients that tolerate it do very well on that drug. We’re also developing new usage at centers that we haven’t had usage [inaudible] before, somewhat do to the ID approval could have come in the past year and the absence of site pain associated with that route of delivery and also through the use of the miniature pump for IV delivery. I think the things that are advantages for Remodulin in terms of its half-life is the ability to infuse over longer interval, 48 hours, room temperature stability and no need for ice packs and the availability of those two routes, subcu and IV, and multiple pump options, you know, sort allows patients a choice and physicians to do many things with our therapy [inaudible] and that’s sort of where we’re headed, and I think our quarterly results speak to that.

Great. Thanks. And Martine, if I could just ask a follow-up to your commentary on the clinical trial competition from Cialis and the [comps’] trial for Tracleer and sildenafil. Have you noticed anything in the clinic in terms of competition in terms of accrual for your class 3 or 4 patients from Novartis with Gleevec?

That’s never come up in any of our meetings, and I didn’t hear that mentioned at the investigator meeting that we just had. To give you a little bit of background on what that meeting was like, we – as you recall we originally started the study with 12 centers because we originally thought it was going to enroll like wildfire and 12 centers would be all we needed. Well obviously we were proven wrong and we still took the number of centers and now it’s 34. But most of those doctors and nurses of those 34 centers have never had an opportunity to be in the same room with each other all at the same time discussing the kind of program. And that kind of everybody in the same room is a very key and important part of clinical trial development. So we are having now this second round of investigator meetings to include all of the new 34 centers and in these meetings you’ve got experts who get up in front of the room and recount the situation in the ph field and recount the client protocol and all the experience with TRIUMPH to date. Update people all the way up to the current point in time. There are now patients that are for example two years out on TRIUMPH alone, treprostinil [inaudible] well improved [inaudible]. So in all of that discussion and whatnot, I did not hear anything about competition from Gleevec. It was just the [inaudible] and the Cialis in the sense that despite that now that the paperwork was winding its way through and was the opening up to [cobanafil] there was a lot of enthusiasm, and I would say confidence on the part of the investigators that they would, in fact, enroll this trial.

Great. Thanks very much.

Lucy Lu, First Albany

Thanks, Martine. Just a quick question. Now you guys have significant cash level and also obviously the cash flow process business and I saw that you recently did a repurchase about $40 million. I’m just wondering do you have plans for the cash?

That’s a great question, Lucy, and nice to hear your voice this morning. As we reported in the press release, we ended June 30 with getting close to actually 25 billion in cash and that’s really exciting. Just to refresh people on the phone who may new to the story. The last time that United Therapeutics raised any money was like back in 2000 and so all of the accumulation of cash is overwhelmingly just lending a cash flow profited business and as mentioned in my opening remarks, and I see like we’re punching out earnings, you know, not counting stock option expense, income tax accruals at the rate of 250, almost 3 bucks a year per share, it’s really, really exciting but it does give rise to the question of, you know, how do you return value to the shareholders? You know, we have an obligation that I feel very personally to ensure that we’re using our assets at all times in the most efficient manner to produce the greatest long term value for the shareholders. One way to do that is to reduce the number of outstanding shares that obviously directly effect EPS calculation and so we were very pleased to be able to do that with our partner [Torey]. Another way to do it is to pay some kind of direct dividend but all of the advice that we have received from experts is that would not make a whole lot of sense right now. A third way is to acquire other companies or products that have synergistic accretive value for the Company and that’s something that we’re looking at very intensively. In fact, one of the benefits of Fred’s very graciously allowing his number two to have a turn at being CFO is that this allows Fred to focus more intensively on mergers and acquisitions, both of companies and of products. And to tell you the truth, right now we are evaluating more products and companies than I’ve got fingers on my hands. It is a full-time job because people look at us not only as such a successful company but as kind of a fun place to work and a fun place to be and the place that gives scientists considerable economy and hence we get a large number of new products and companies to look at and somebody has to be in charge of that effort and fortunately Fred can devote more time to that now.

I will mention, though, that we are very devoted to staying within our core areas of expertise, being cardiovascular, oncology, and infectious disease. So all of the things that we are looking at do fall within those three market sets.

Okay. That’s great. And then just a follow-up question for the TRIUMPH study. I’m just wondering if you could verify the number of patients [inaudible] 90 number. Is that a [inaudible] and also with additional initiatives when do you think you can actually enroll 150 patients and 200 patients? Thanks.

Wow. If I knew that number, I probably would also know like the lotto number and be able to win that. I could not possibly pin a data down when we would get a 150 or 200 patients, and especially I wouldn’t do that after the disappointment in the past three months in terms of enrollment. You know, sometimes enrollment is just like pushing a rope. I mean, you can squeegee it up a little bit but you just can’t like push it to where you want to because ultimately it depends on doctors. It depends on patients. It depends on a great many factors. So as much as I would like to give an estimate would be – it just wouldn’t be fair or right for me to do so and mostly because I couldn’t do so in any kind of an accurate fashion. But the 90 number is a current number. You can take that by current [inaudible] of today.

Great. Thank you.

Matt Duffy, BDR Research

Good morning and thanks for taking my call. Just wanted to get a little additional color. There has been a little more commercial experience behind it. I’m just wondering if you’re seeing any changing dynamics in the source of your patients, whether changes off from the original Tracleer switches over or what you’re seeing in terms of the other inhaled products and sildenafil as well?

There has been a bit of I would say, in my [Gratian] sort of statistic – traditionally we have seen something like one-third to no [inaudible] and one-third transitioning from Flolan and one-third saline oral drug coming directly to us. What we’re seeing now is much closer, Matt, to a 50:50 situation where about 50% of the patients are transitioning from other forms of prostacyclin and 50% of the patients are coming to it on oral background therapy. Of the ones who are transitioning from other forms of prostacyclin, of course, the big majority of those are transitioning from general prostacyclin, namely Flolan, because of all of the advantages and the growing body of data that Roger mentioned. As he pointed out, we now like to have more efficacy data and better controls efficacy data and better results of efficacy data from controls of trials than is available from Flolan. So that growing body of data is certainly driving things. The other things are the convenient centers that Roger mentioned. The miniaturized pump is extremely popular with patients.

Now, there are also patients transitioning from Ventavis and that’s really to be expected because while iloprost is a great drug, it was originally developed as like a platelet-deaggregating agent or dialysis use and so it was never really thought of something that would be a pulmonary selective type of drug or even one given for long term for patients like for pulmonary hypertension. And what happens is many patients start on Ventavis but hat drug has very, very limited titrating dosing. You can only increase the dose a little bit before you get systemic [inaudible] and dose-limiting side effects. So what happens is that because pulmonary hypertension is unfortunately progressive in a big majority of patients and because there is a tendency among the vast majority of the patients who need greater, greater amounts of this prostacyclin analog over time to remain at a constant New York Heart Association class. The larger and larger numbers of patients who punch right through their Ventavis dosing levels and then they are becoming increasingly straight to Remodulin rather than to Flolan.

And then, finally, you’ve got the other half of the patients, the ones who are not doing as well as they should be doing on even combinations of oral drugs. Tracleer is a fantastic drug for many patients and it directly addresses their problem. Sildenafil, Revatio is its trade name, is also helping many patients. Other patients who are not helped by one or the other or helped by both, but as larger numbers of patients go on one of the other drugs, larger and larger numbers of patients end up failing most of those drugs because the disease is continually a progressive phenomena for most people can’t be helped with just one repeat drug. Of course, our hope and our efforts that Roger is leading and Robert [inaudible] leading is that by combining right at the beginning a prostacyclin analog, a PD5 inhibitor, and an endothelin receptor antagonist that a triple drug combination therapy we are hoping can be just as effective in pulmonary hypertension as it is in a very different context, say in HIV, and that’s our long-term goal. But until we get to that point, I think about half of our patients are going to come from oral background therapy and about half of our patients are going to come transitioning over from Flolan or Ventavis.

Very good. Thanks. I should also mention that [inaudible] has just a new name, same company.

Oh, okay. Great.

One other thing. You’ve seen a lot of success now with your additional sales and marketing effort and I wonder if you’re considering adding more to that or if you feel you’re at the right number at this point?

Well, a lot of that success – we are constantly recruiting and constantly adding more. A lot of that success is due to Roger’s management of a combined clinical and commercialization needs which maybe just mentioned just a few things that Roger was perhaps a bit humble to mention. They were able to successfully get FDA approval for an entire new branding campaign and promotional campaign based around the theme prostacyclin streamline. And you know, prostacyclin is kind of the holy grail among pulmonary hypertension doctors because it’s the only thing that ever worked, but it was always so difficult to administer, and now with the prostacyclin stream line campaign, we really addressed the one kind of work pair on the face of prostacyclin and its inability to be delivered in a streamline fashion. So Roger has got that approved by the FDA. Just last week, Roger was able to get through his regulatory team headed [Dean Bunn], our very logo, you know, our heart and lungs logo. Previously we weren’t able to even get that on promotional literature and Roger’s team has been able to do that. Roger has hired the new vice president of sales, [Alex Satair] who is coming to with a bout of great background in sales and marketing for open drug indications and Alex has brought a huge amount of momentum in his team. They continue to build up more and more support. We have fantastic regional semi-national sales centers, one of them [Barry Jones] who is responsible for the East Coast of the United States is an individual that doctors really feel a peer to peer relationship with [inaudible]. So all of these great individuals on Roger’s team plus his continual recruitment for more people are very positive behind the growth for Remodulin sales.

Very good. Thank you for the call.

Sure. Well we’ve come up to our half-hour point so unfortunately that’s all the questions that we’ll be able to take. But in closing, I can certainly commit to everybody that it is foremost on all of our minds that our number one job is to continue to grow our core business for Remodulin and we’re doing everything possible that we can do to do that. We feel that with upwards of $250 million in Flolan sales that there is plenty of room for our core business to continue to grow at its half rate, just through getting Flolan patients to transition over to Remodulin, not to mention new patients coming over from background oral therapy and, secondly, it’s also foremost in our mind that it is our number one job to enroll the TRIUMPH study and I’m trying to really express to everyone that everything that we could do we are doing confidently. We are really reaching out in every way, and I’m sorry I can’t give a specific date for the trial that’s enrolled. I can give you total assurance that the trial will be enrolled and that we are doing every possible thing to get it enrolled as quickly as possible.

In closing, let me ask everyone not to forget our other pipeline products, the oral Remodulin projects that Roger spoke about, and our OvaRex product for ovarian cancer, which has now fully enrolled 2 twin trials, and we are awaiting for the statistical number of relapse events which will allow us to know for sure whether or not that product works.

So on that note, I want to thank everybody again for your time and hope that everyone has a good vacation plan someplace in August, probably cooler than where you are right now.

Operator?

Thank you for participating in today’s United Therapeutics Corporation’s Second Quarter Earnings Conference Call. This call will be available for replay beginning at 11:35 a.m. Eastern time today through 11:59 Eastern time on Tuesday, August 8, 2006. The conference ID number for the replay is 3004979. The number to dial for the replay is 1-800-642-1687 or 706-645-9291. This concludes the call. You may now disconnect.