United Therapeutics Corp (UTHR) 2007 Q1 法說會逐字稿

Good morning, my name is Constance, and I will be your conference operator today. At this time we would like to welcome everybody to United Therapeutics Corporation First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers are done, there will be a question and answer session. [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 risk 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 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, and good morning everybody for joining us for our quarterly conference call. It's been another excellent quarter for United Therapeutics, and I'm Martine Rothblatt, the Chairman and CEO. I'm joined today by Dr. Roger Jeffs, our President and COO, and Mr. John Ferrari, our Chief Financial Officer. In addition to the press release, which we issued a little bit ago, I'd like to provide a brief overview of some of the highlights of the quarter and then open up the call for questions that can be directed to any of us.

The first quarter has been a quarter of, I think, four key bullet points -- consolidation; recovery; globalization; and positioning for major expansion.

With regard to consolidation, despite a concern in the earlier part of the quarter about the risk of Sepsis affecting Remodulin sales, we have been able to retain our Remodulin revenues at the approximately $160 million a year level, which we benchmarked in 2007. That gives us four quarters in a row of revenues north of $40 million a quarter. And we've been able to consolidate our revenue hold at this level by doing just a superb job of deploying our sales, marketing, and clinical development forces, into the field talking with doctors, explaining the clear facts about the benefits of versus risks of Remodulin and the vast majority of those doctors were quite pleased. That's allowed us to—despite what was a little bit scary sounding at first, in fact to maintain our revenues at the benchmark levels we set for 2007. So we're very pleased about that indeed.

Now the second bullet point is to talk about the quarter of recovery. Because the sepsis fear naturally caused inventory levels to be drawn down a bit during the quarter. And in addition to that, we had a change in terms with one of our three U.S. distributors, Caremart, a change in the terms of their contract that allows them to reduce their inventory levels from 60 days to 30 days. That itself bringing about a $2 to $3 million effect. Nevertheless we were able to work with the CDC, work with our distributors, work with the Senior Leadership Council of the Pulmonary Hypertension Association, to really clear the air, get all the facts out on the table, and by April our revenues have in fact rebounded to excellent levels, just exactly what we would have hoped for by this time. So it really is clear evidence that during the first quarter we first consolidated our hold on the revenues position and then during the quarter recovered and prepared ourselves to get back on the fast growth track that we've been on.

So consolidation, recovery. The third big bullet point has been one of globalization. We've expanded both east and west, teaming with Mochida Pharmaceuticals of Japan, who have contracted with us and given us a multimillion-dollar upfront payment to demonstrate their strong optimism and confidence in the success of Remodulin in the Japanese market. So we're very excited to move into that. Japan is--as most of you know, has about a third or so of the U.S. population, so it should augur for a substantial boost to our Remodulin revenues there once regulatory approval is obtained.

And then we've also expanded to the east, with our agreement with Toray Industries, who gave us exclusive European Union rights to their big-selling oral prostacyclin analog beraprost. And with beraprost European rights, combined with our existing Remodulin drug, we feel that we are really doing an excellent job in terms of establishing a global prostacyclin franchise that spans the East, the Americas, and Europe as well.

The final bullet point that really summarizes the quarter is one of positioning for major expansion. During the next twelve or so months, we'll be unblinding three pivotal trials. The Triumph trial for inhaled Treprostinil, the FREEDOM trial for oral Remodulin, and the OvaRex trial for ovarian cancer. Each of these three pivotal trials which we are blinding really are capable of launching us into a whole new tier or biotech companies, a much larger tier. So the positioning for expansion is really the fourth thing that we've accomplished during the quarter with moving the Triumph enrollment to approximately 190 patients, just at the cusp of its completion. Major strides forward in our oral enrollment, and also coming really close to the cusp of completion of the necessary number of relapse events for OvaRex.

So in summary, we've strengthened and demonstrated a strong going-forward capability, even under bad weather, with our Remodulin revenues at the $160 million revenue run-rate level. And we also have a great quarter of digging ourselves out of the test weather by working constructively with the CDC and the FLC and the distributors, and others to get our revenue growth back on track, which we're definitely seeing during April. Globalization to expand to the Asian and European markets. And probably most exciting of all, positioning for a major expansion with our three pivotal trials all moving into the latter phases.

So with that introduction behind us and the press release that we released earlier, Roger, John, and I are most happy to answer any questions you may have. Operator, can you please open the phones to any questions.

[OPERATOR INSTRUCTIONS]

The first question comes from [Jim Ojenow] of Lehman Brothers.

Good morning, Martine.

Good morning.

A couple of questions, just first on the financials, just trying to understand on the pro forma EPS line. We had $0.20 this quarter, versus $0.68 on the second quarter '06 on essentially the same revenues. I'm just trying to reconcile those two in terms of whether there are add-backs in the 2-2006 number that we aren't seeing in the first quarter of '07 or whether the operating leverage has really changed over the last nine months.

Great question. There certainly has been no change in the operating leverage. We've maintained very constant percentage parameters on that, but let me ask John Ferrari, our CFO, if he could please delve into some of the details comparing and contrasting the second quarter with this quarter. John?

Yes, hi, Jim. Yes, last year we adopted—two things happened in 2006 which did not occur in 2005. We adopted FAS 123R which was a new pronouncement stock option expense, and we had income tax expense. So we did a pro forma comparison between 2006 quarters and 2005 quarters using that pro forma. So when we got into this year, now that our quarter-to-quarter financial statements are comparable in terms of the stock options and the income tax, so we use the pro forma to highlight the two things that we are not recording [inaudible].

Does the pro forma number still exclude the stock option expense, or is that baked in now?

Baked in, now.

Okay. And then just on inhaled Remodulin enrollment in the Triumph study. By simple math it seems like you're enrolling about five patients per month, and on that runway it would take another six months to complete enrollment. Can you just maybe update us on your expectations for completing enrollment?

Sure, Jim. It's been very dodgy to predict a consistent enrollment phase for this trial. And in fact most trials are characterized by nonlinearity in their curves. The typical format is that a trial will start off kind of slowly, increase at a faster and faster rate towards the end. In the case of our study it seems to me almost more of like a bell curve distribution. But it started off slowly and then there was a big boost of enrollment, and now it's winding down towards the end.

I think there are a couple of reasons for that. First of all, the study is very much similar in its enrollment characteristics to the [Ampercentin] study that you may be aware of. And that was a study where the steering committee and the clinical trial managers in charge of it were pressed upon frequently to accept a lot of patients that were at the margins if not frankly outside the inclusion criteria. But the study had fairly tight inclusion parameters. And it's the same thing here. We've been hewing very strictly to the inclusion criteria to try to get as absolutely clean a data set as possible, and that's perhaps even especially more important when you're doing just a single study pivotal as we're doing with Triumph. So that's the first reason. Quite a few patients are proffered up, are not accepted in terms of waving their variances with the inclusion criteria.

A second reason is the competition of other drugs and other trials is as intense as ever, especially I would say in the combination drug regime. Everybody really knows now that the future is combination therapy, and of course what really excites us is that we see that we are very well positioned to become frontline prostacyclin therapy. Our prostacyclin has always been the gold standard of treating pulmonary hypertension, but because of the difficulty of delivering it, it's never been able to be frontline therapy. But with inhaled and with oral, we now have the ability to become frontline therapy. But that puts on a direct clinical trial competition with all the various studies that are being done even by drugs already on the market, such as Tracleer, in terms of frontline combination therapy.

So competition with those studies and even with our own oral combination study of FREEDOM, all have the effect of dissipating the clinical trial population. Of course clinical trial population is just a very small set of the total PH population. I mean, just a back-of-the-envelope type of number, there are maybe about 2,000 or so patients floating around that are clinical trial patients and there's probably something between 20 and 30,000 patients being treated with frontline drugs for pulmonary hypertension.

So the fact that we're winding down at the five patient a rate month so far during the past quarter, it doesn't really say anything about the prospect of Triumph in the larger market. I encourage you to talk to any number of prescribers, and I've never heard them any more enthused about any drug than they are about inhaled Treprostinil.

But in terms of what does this mean in terms of how much longer it will take until the Triumph data is un-blinded and completed, I would not take the five patient rate of the past quarter as any type of a measure. In fact, I would say to the contrary, we expect an uptick for a number of reasons. During this quarter, we provided some new incentives to the enrolling centers. And those new incentives had to be worked through the contract process, so only in this coming three months are you going to see the results of those new incentives. The second factor is that we just had an all-hands-on-deck investigator meeting with all of the various centers coming there, and when they saw some of the very exciting stuff going on at the periphery of inhaled Treprostinil, worked with the meter dose inhaler and what not, and some of the—a little bit more color on some of the PK data, all of them recommitted themselves to basically giving Triumph every bit of preference that they possibly can in the enrollment criteria. And finally, everybody has basically a dream that this could be a spotlight, a headliner for the American Heart Association to have results that could be announced at that meeting, or possibly before that, at the cardiology meetings before that. And people realize that that requires three months to complete the last patient and maybe another month or so of data lock and recovery. So there's a strong effort to have all of this data be the exciting start of the show at the autumn period cardiology meetings.

So for all of those reasons, I would really be much more optimistic than the five patient per month rate that you mentioned.

Okay, thanks for taking the questions.

Sure.

The next question comes for Matt Kaplan, of Punk, Ziegel, and Co.

Good morning.

Hey, Matt, nice hearing your voice again.

Okay, a couple of things. With the sepsis issue. What's your expectation for the impact on revenues going forward now that—and give us some more detail on why you're confident, what you see in April.

Sure. Well, the main point is the point that I made in my introductory remarks, that the—we've passed through the frontage of the storm. We've passed through the eye of the storm. And then we passed through the very edge of the storm. So I really believe that the sepsis storm is behind us, and it really left the vicinity with the announcement by the Senior Leadership Council of the Pulmonary Hypertension Association that there's no reason for there to be any change in prescribing practices. And as you know those prescribing practices have been propelling Remodulin growth at 40% a year for the past four straight years. So that's the reason for optimism.

However, even after a storm passes, there is a lot of cleanup to be done. There are branches that are down and all that sort of stuff. And in fact, we are in a competitive environment and we need to detail parental Remodulin and parental Flolan, and certainly when you're in this type of competitive environment one has to constantly put forward the most accurate information and counterdetail any confusion that might be out there. So there's no doubt that the sepsis issue is now kind of a permanent issue on the landscape, and as you know we're going to be engaging in a multiyear study to further assess its effects. So it is a permanent fixture of the landscape. Fortunately with subcutaneous Remodulin we have the safest parental therapy, and while it does a side effect of site pain, there is an awful lot of patients, more than enough to continue us at our 40% growth rate who are able to manage the site pain and feel that the freedom associated with subcut modular is well worth the minimal discomfort that this number of patients has.

In addition to that, though, the intravenous Remodulin has been show to be a very safe and highly effective drug for the majority of the population and what we are hearing doctors across the country say is that most of them are saying we never paused in our Remodulin prescriptions. There are a few that did, and they say, "hey, we paused. And now we've heard the Senior Leadership Council, the Scientific Leadership Council, I should say, from the Pulmonary Hypertension Association. You guys have dealt with the issue very well. We see the facts. We're back on putting patient on IV Remodulin."

So all of those are the reasons why we're optimistic. It's too early. It's only a day after April—for me to give any specific, concrete information about April, other than to say in our view—I think in anybody's view—it was a very good month of revenues and clear evidence that the sepsis storm was behind us.

Okay, and just a couple of follow-up questions. Timing in Japan, for a potential launch there, and then just in terms of the—getting out Remodulin, you're early target there is still 200 patients?

200 evaluable patients, and we've had so few dropouts of that study. I'm going to second shift to Roger to answer your question about Japan. But while I have the phone, there have been so few drop outs with inhaled Treprostinil, which in and of itself is just an absolutely fantastic sign of how much the patients like it. We will not have to go to as many patients as we had originally thought. We originally thought that we were going to have to go to 220 patients to get 200 evaluable patients. I don't know the exact number above 200, but it's definitely quite a bit less than the originally thought number. So we won't be able to stop at exactly 200. it will be a little bit more than that because we have to have 200 evaluable patients. I think a rule of thumb is—it might be something like 210 patients, something like that. Roger, can you answer the question about the timing and the milestones to come for the Japanese market development and when we can see some revenues there. In addition to the revenues we get from the [inaudible] part of the agreement.

Good morning, Matt. It's always a little bit difficult to look through the crystal ball and predict precisely what the timing may be. But we would expect in the 2010, 2011 frame we would have marketing authorization in Japan. The reason it's going to take a bit more time to mature than a simple distribution agreement is there has to be a [virgin PK] study comparing Asian nationals to Caucasians in essence, and that's one thing we're probably going to take on ourselves. And then in addition the Japanese regulatory authorities like to see experience with the therapy in Japanese nationals in open label type trials looking at outcome measures. So that's something that Mochida, as part of their distribution agreement has agreed to do. But that's the crux of it. I know in the near term there's an open application that's being developed and will be submitted some time later this year. And I think once that goes, it will preserve that market to both Mochida and ourselves for a long time to come. But that's in essence where things are.

Okay, thank you.

The next question comes from Geoff Meacham of JP Morgan.

Hi, thanks for taking the question.

Good morning, Geoff.

Good morning. I just wanted to discuss—I don't want to talk too much about the substance of this, but I wanted to ask you though if you had seen any trends and new starts, more biased toward sub-cu initially, and then to IV, if that has been a trend of late, and perhaps if that has been any reason for the sequential differences in Remodulin?

Geoff, let me ask Roger. Roger, in addition to being in charge of clinical development is also in charge of sales and marketing. So Roger, could you shed some light on that.

Yes, I think there's a—to answer your question I would say yes and no. and the reason being is that in accounts, in a small number of accounts that have had some concern, that had sepsis and were waiting for the SLC statement, I think in that intro period they've had preferentially if they were going to start a regimen of Remodulin, they were [inaudible] Remodulin. But that's the yes part.

But the no part is that in general sepsis, in most of those accounts that we call on, was not a big issue. So they continue to prescribe intravenous Remodulin as well as subcutaneous Remodulin in a normal matrix of around 50-50 or 60-40 IV to sub-cu. So yes it's helped certainly, and I think I'd emphasize as Martine said, sub-c Remodulin has a benefit and it's the reason that we first developed it, of an absence of bacterial infection risk, at least for sepsis. So I think that the value of that has been, we thought, the group that's concerned. But I think that in general physicians are very, very happy with intravenous Remodulin and all the advantages of stability of temperature, the absence of an icepack, the 48-hour infusion interval, the [inaudible] options, and the longer half life potential with its safety advantage. So I don't think, if you put it all in a mix—I don't think in general we've seen much of a change in our sub-cu to IV prescribing ratio. And as Martine said, I think with knowing the matrix numbers, we're very enthusiastic about where our business is headed.

We have three things that have really helped, I think, and that will continue to help drive the business through the year. We have increased our sales and marketing presence for about 50% up on our core cardiopulmonary specialty staff that helps detail this drug. Our marketing presence continues to expand with—in terms of advertisements and production materials in major journals. So that's one arm. An educational arm. I think we are developing as a first-time strength of the company. We have a C&E program, that Dr. Lewis Goldman is chairing, that monographs for, that will try to release the marketing in the summer timeframe. The goal there to educate all of the CH-prescribing physicians, the 2000 or more, that describe therapy for the population of patients about Remodulin and its benefits. In addition to that we have a [inaudible] test in the Fall. It's the first time this company has done a [inaudible] at a major meeting. So there's both marketing and educational arms.

The third and final arm that I think has really leveraged the future is, I think, the science. And that's something we're very, very proud of. We have developed data for this drug that I would say is better than the data for any drug in this field. We published in December the long-term four-year survival data showing that survival on Remodulin is on par with any therapy in this field, and I think would show that this drug should be used not only in class-3, class-4, but potentially in early-stage patients the same as its [labeled before]. The phase 4 data, which is in the label, that is actually e-published now, show that you can transition patients from Flolan to Remodulin. And as long as people believe in the quality of life advantages, I think that's a meaningful market for us to continue to capture. And finally the trust data, which has been at the controlled trial, that tracks with [inaudible] a number of other abstracts. So I think the growing evidence for Remodulin in its clinicals is clear so that we have the trilogy of sales and marketing, education, and science I think are very promising going forward on Remodulin.

Just a real quick follow up. Can you still remind us what still needs to be done for the inhaled Remodulin regulatory filing, how quickly you guys think you can turn that around, obviously aside from the final pivotal test.

yes, I'm pretty comfortable with the standard aggressive industry measure of six months for turning that filing around from the last patient exiting the study. So basically from the completion of the study and when we announce the results within six months I'm quite confident that we'll have at least the NDA filed. Hopefully the MAA for Europe as well. If not, worst case that could lag a little bit after that. So given the importance of the therapy, the strong interest of it, the—as Roger just pointed out, the survival benefit of being able to start somebody of prostacyclin as soon as possible, I think all of these things will tell the FDA to look at the filing with a matter of priority. And of course we don't want to really predict future outcomes in any way, but I would have to say I could not imagine doing more or better preparation work to have a frontline prostacyclin therapy alongside Tracleer and Robotio in the very near future with inhaled Treprostinil.

Thanks a lot.

Sure.

The next question comes from Liana Mousattos of Pacific Growth Equities.

Thanks for taking my question. Can we have a little more detail on the Japan agreement? You mentioned multimillion up front and milestones. Can we get specifics on the milestone amounts and timing and the upfronts? Then can you give us the status update on the FREEDOM trial? And finally Roger mentioned the mix of IV to sub-cu Remodulin was about 60-40. I just want to confirm that.

Sure, all three of those questions—Liana, thanks for joining the call, all three of those questions would be in Roger's area. So Roger, could you do another trilogy. Roger? [pause]

Yes, I'm showing Roger's line disconnected.

Oh, boy, that's not good. So let me continue—let me answer your questions as best I could, Liana, and hopefully Roger will jump back on.

Okay, let's go backwards first. So 60-40, 50-50, actually we don't know because it changes from month to month, the mix of patients, and we don't actually have the information all the time on which one they're on because from our standpoint it's the same drug that they're purchasing whether they're on IV or sub-cu, so the information we get from the distributor is vial counts, not whether their sub-cu vials for IV. So with regard to that I would say 50-50 is a good number. When we were in the midst of the sepsis thing it probably tilted 60-40, 60 sub-cu, and 40 IV. And on the other hand when things are rolling along for IV, and stuff like the rapid switch data is very much in everybody's mind, that becomes more like 60-40 in favor of IV. So for modeling purposes, I think 50-50 is as good as anything.

The second question you asked was with regard to the milestone amounts from Mochida? Right. So all of those are to the best of my recollection--they're all single-digit millions of dollars, and it's something like—don't nail me to a cross on these numbers—but it's something like $4 million or so upon the completion of the orphan drug filing, which as Roger mentioned we expect to occur in this year. That may also be part of the upfront payments, so maybe $4 million is the upfront payment, and including the orphan drug filing. And then there are additional payments on the order of a couple of million dollars here and there as we move through the normal drug development process. But they're not material to our revenues. But they do evidence—whenever I sign agreements with somebody and they say that they're going to do something, I always like when they pay us money up front, because it means that they really believe in us and that they're strongly committed. And Mochida definitely passed that threshold.

Can I add a couple of things to that, please.

Sure.

Okay, with Mochida, we're running a $4 million upfront payment, which we'll get sometime during the second quarter of 2007. But that upfront payment under the revenue recognition rules will be recognized gradually over the development period until commercialization. So while we'll get the cash up front, we'll recognize the revenue monthly, quarterly over probably about a three-year period. There's a $2 million which we'll be getting next year, based on getting orphan status. And then there's another $2 million payment which we'll get when they file for regulatory approval.

Great, and then the last question was on the status of the FREEDOM trial.

And what was the specific question on the status of the FREEDOM trial? Was it how many patients, or something like that?

Yes, or whatever you want to say, whatever you want to give us so we can see how it's going.

Roger, are you back on the phone?

Yes, I'm back on, Martine.

Okay, so the only last question for you to answer is what's the enrollment status for FREEDOM?

Okay, I'm happy to report that we're about 125 patients in at both trials, so there's approximately 85 patients in the combination therapy trial and approximately 40 patients in the monotherapy trial. Of the two studies, one is an add-on to an ERA or PDE-5 inhibitor, either in isolation or combined. The other trial is a frontline therapy, placebo versus oral Remodulin given twice a day.

Liana, one other bit of color I'd like to add aside from Mochida-- I'm not sure if you and others on the phone are aware of them. They're a very, very strong and well respected pharmaceutical distribution company in Japan. But what's interesting is that that company, like our company, was founded because the founder was looking for a cure for a familial illness and connection. And we're now in the second generation of the founders of Mochida, but we've established a very warm relationship with them. And again even though on the accrual basis, the numbers are not significant, when a company from Japan is willing to pay several million dollars up front to bring a drug over there that takes a few years to get through the whole regulatory process. It's a very strong vote of confidence that that drug is going to have a strong—tens of millions of dollars, if not more like $100 million ultimate potential in Japan.

Great, and just one little follow up on FREEDOM to Roger, what's the enrollment per month right now.

Yes, rather than give that I would just say that we're accruing at a pace that we're happy with. We don't have all the centers on board yet, including the European centers have not started. They should start in summer. The pace has—you're going to wax and wane a little bit as we get into the meeting season with ACS, and that tends to slow down trial enrollment as all the doctors are away from the clinic. But I think you can calculate where were on 2/20, when we last reported—I think we were at a net sum total of 72, and now we're at a net sum total of 125. that sort of predicts the pace that we're currently at. But I would expect that to improve further.

The other reason I would expect it to improve is we have a single dose strength in the trial right now, 1 mg dose strength, which is we thought for 70kg patients equivalent to about a 5ng per kg per minute infusion rate. We are allowing patients that weigh less than 70kg in, so we've had a little bit of tolerability issues at start, as well as during those escalations. We're going to introduce a half-milligram tablet strength, which we think will help with the intolerability profile. And if that's true, then I think the enrollment rate will further accelerate. So I think with the addition of new centers, as we get beyond the meeting period of May, particularly for ATF, and as we produce the new tablet strength, the enrollment will improve upon the numbers that would be predicted based on the current growth rate.

Thank you, and when you said 125 patients, that's as of the end of March, or April?

That's as of May 1st, today.

Okay, and the tolerability issues, headache, beta dilator issues?

Yes, typically those are the dilatory effects, I think. There's good and bad news. The good news is this drug is doing exactly what we wanted it to do. It's fully [inaudible] available, and you're getting the constellation of adverse events that are predicted for across the cycling. The bad news is we may need a softer dose or a lower dose strength so that we can titrate less aggressively, and I think we'll have that very shortly.

Okay, thank you very much.

The next question comes from Joseph Schwartz of Leerink Swann.

Hi, thanks for taking my question.

Sure, Joe.

I was wondering how reasonable it was to expect data at AHA for the Triumph study or even before, as you mentioned, given I thought that the late breaker deadline was towards the end of June and, is there not any data required for that in addition to trial design for such a baseholder strategy? Does this imply that you might using interim data to get the results spotlighted there? Can you help us understand that please?

ah, interim data. That would be a great strategy if it were available, but it's not available. We don't have any interim data. We're just going for the complete dataset, Joe. But in terms of the actual—if there's such a word, of conferencemanship, I don't really know what the details of how to do that. What I do know is that at the investigators meeting, everybody signed onto a goal of being able to announce the results of the time study at the autumn meetings. So they did that because they thought it was a doable do, and I certainly do think it is a doable do. But exactly how many days and which forms to submit and whatnot, that would be more in the domain of Dr. [Rosigno] and [Carpoleve] and the clinicians who are involved, like Dr. Rubin. But those guys have world class experts on how to compile the procedures to meet the late-breaker deadlines and whatnot.

It's going to be close, and it's going to be very, very exciting because the fact that there are so few dropouts, the fact that there are so many patients who have exited the study and continue to do so well after they exit it, all augur very positively. Of course everybody's very excited to know exactly what the p-value will be, and I feel really sure that we made the right decision to a, not do the interim, and to go for the enrollment even though it takes longer. But just like with our [Ampercentin and mildzin], everybody was saying, "we'll just study [inaudible], we'll just study [inaudible]," and it took a long time, but they did it right. They were strict as—just, strict as like a teacher in a nunnery or something, to make sure that only the patients that met their inclusion criteria were in, and at the end of the day, people saw the [Ampercentin] data, and they said, "Wow!" and personally I think at the end of the day when people see the Triumph data, they're going to say, "double Wow!" It's going to be really exciting. But we're going to work our hardest to get that done for one of the autumn conferences, Joe, and stay tuned.

We will.

Are there any more questions out there?

Yes, your next question comes from [Malili Saterki] of K Street Capital.

Oh, great, I'm so glad. Hi, Malili.

Hi, Martine, how are you. Quick question. So when your refs are in the field, what kinds of questions are they most faced with, and what is the most difficult thing that they have to deal with as they deal with doctors and the staff physicians?

Wow, that is a really trenchant question because that actually shines a light on the reality of the situation. And I'd like to turn it to Roger, because Roger manages [Alex Siteer], whose our VP Sales and Marketing, and Alex in turn is in direct, face-to-face contact with our two dozen sales reps, and each of them report directly what the doctor says. Roger, what can you share that really gives Malili some deep cover on her question?

The best answer, sepsis is not the first question that's asked. The first question is, Can you review the long-term survival of Remodulin that I've just read about? So we have the opportunity to speak in terms of how that data was generated, how outpatients were handled, and what's the data in relation to other therapies.

The second question that gets asked most commonly is about the rapid switch, which was published in January. And physicians are saying, "okay, while I'm interested in transitioning some of my Flolan patients, the patients are asking me about Remodulin transition. How do I do that, and what is this rapid switch. It seems attractive, but it seems a little scary, but can you please explain it to me." So we spend some time talking to them about that publication, again in response to what they're asking.

The third thing, I think, that comes about after that is maybe distribution channel and how they get the drug. And I would say that down in the farther nether reaches of their questions is, "what's this about sepsis? Can you tell me a little bit about it?" So we review the CDC data that was presented to the SLC. We review the comments from the SLC about how that study was conducted in terms of being a non-random sample of index centers, with no [inaudible] risk in the folds of that. We talk about the rate. And then we talk about the things that we're doing and where we think the focus should be, which is really on good catheter care and maintenance. We talk to them about the fact that the Remodulin product is certainly not the contaminating source, that if the fusate once diluted for intravenous infusion is inadvertently contaminated, the filter does what it should and that filters away any inadvertent contamination. And really everything would then point to catheter care around the connection hub. And we talk about that, in terms of what it means, and the fact that we're now going to work with the SLC and their designated task force on the good practice guidelines.

Roger, given that the proof of the pudding is in eating it, I mean, you guys are doing so much to talk to your doctors. And the doctors are using better methodology, what have you. But does this mean that there have been no more cases of sepsis in the bygone months?

I think it's unrealistic to think that we're going to eradicate sepsis, so I think—

or rather gram negative sepsis.

And I think that you're going to see gram-negative rates. And in fact, and I'll just draw out a number. If you had, let's say, 1,000 patients on intravenous Remodulin, the normal expected rate would be at least 50 cases per year, based on normal infection rates with gram-negative—with catheters in gram-negative infections. So eradication is a difficult thing when you have an ingoing catheter in an ambulatory patient, including pediatric patients. So it's a difficult environment to keep sterile. So I don't think that zero is ever going to happen. Now I do know that one of the centers that had difficulty, that had a pediatric population, they had started wrapping the connection site to the filter that actually hooks to the hickman with [tegaderm], an elastic plastic wrap. And that in their--from what they're telling us, has significantly reduced the infection rate. So what they're trying to do is eradicate the introduction border into that catheter connection hub, and this seems to help. Does that mean they'll have zero this summer when kids want to go swimming, and kids want to take showers? Probably not. But I think in general it will diminish the rates of infections that that one center will see in the gram-negative bandaging.

And the other question, Caremart brought down your inventory just a little bit. Can you allude as to why they did that?

Oh, yes, I'm sorry Malili, I should have mentioned that in the introduction. Caremart originally was brought on with us to require that they maintain a 60-day inventory at all times. And they've been doing a really good job of building up their Remodulin franchise, and they came to us and asked as a matter of their own optimization of inventory management and cash balances, if they could reduce that to a 30-day inventory. And we said, yes, that was fine. So we just made an amendment to their contract. It didn't change anything other than reducing their inventory obligation from 60 days to 30 days, and that's what caused that $2 to $3 million revenue drop.

Okay so that doesn't—that is not indicative of their expecting low-patient demand.

They just don't want to write—pay for drugs that they're not going to need to use for an extra 30 days, and 30-day inventory is industry standard. So, at first we were really strict with them, but that doesn't—in fact, they've been growing the Remodulin franchise quarter to quarter.

Thank you so much.

Martine, just for clarification purposes, the distributor was [CuraScript]?

Yes, I'm sorry, I mean CuraScript.

And then were one of the first ones we signed on, so—well, the first ones on the block, we had the 60 days. And the distributors said, well [Loqueedo] and Caremart after that all have the 30 days.

Yes, I misspoke. Thanks, John, for bringing that up.

And there is no—this is just a jump, but there's no likelihood of Caremart going from 30 days to 15 days. 30 days is an industry standard, so as John said, that amendment put brought CuraScript in line with everybody else. And I think that's—I'm glad you asked that question, Malili, because it really re-emphasizes that the intrinsic revenue growth and consolidation remains very strong. I mean, we were worried of course that with all the publicity being given to the sepsis issue that there would be some crumbling of the Remodulin revenues, but in fact that wasn't the case at all. The consolidated at their $160 million a year revenue run level, and then we're growing forward from that in April, so that's really a good start.

Okay, thank you.

Sure. Operator, are there any more questions?

Your next question comes from Scott Marks of [Simlin]

Hi, Scott.

Hi, quick question. I don't know if it was asked already. But as far as the total due to the dropout rate, what's the total number of patients you're looking for in the trial.

In the Triumph trial? I think the good number for you to work with is something like, 200 to 215, something like that, probably 210 is a better number. The exact, precise number is really not that material, but the key data point is that it has to be more than 200 and it'll be less than the original 220 that we were looking for because of the low dropout rate.

Great, thank you.

Your next question comes from [Jim Korvatt] of [Unterberg]

Oh, Jim, how's it going.

Great, thank you. Some of my question was answered but I was just wondering if you could characterize the overall inventory levels, versus last quarter, where you ended in last quarter.

Sure, Jim, that question I'm going to toss over to John Ferrari. He's our inventory meister as CFO.

Hi, Jim. Last quarter we reported that inventories were on the high side of normal. And at the end of March we're on the low side of normal. So we went from high to low on a normal expected ranged. And as you can imagine, part of that decline was the drop in the CuraScript inventory quota.

Is CuraScript a very small distributor for you guys? What percentage of overall revenues does CuraScript distribute for you guys?

Well, I'm not going to qualify that probably in percentages in dollars, but [Loqueedo]'s number one, and CuraScript and [inaudible] are pretty close together as our number two. So they're not small by any stretch of the imagination. I mean they're a [inaudible] customer for us.

Okay, and just as a follow-up, high side of normal would stand at what, and low side of normal would stand at what overall in terms of weeks or months of inventory?

High side—low side is potentially about 30 days. Low side is about four weeks. High side is about six or seven weeks, during the history of the Remodulin franchise.

Thank you.

Next question, operator.

The next question comes from Jennifer Chao of Deutsche Bank.

Oh, wonderful. Hi, Jennifer.

Great, hi, Martine and everybody, thanks for taking the question.

Sure, always great to have Deutsche Bank on the phone.

Martine and Roger, is it possible and would it make strategic sense at this point to explore combination therapy of inhaled Remodulin and Ampersantin once Ampersantin gets approved?

It definitely would. I think Ampersant is a fantastic drug. I think the data says that. Of course we're waiting for the FDA to say that. And we're really excited because I think that Ampersant is going to further expand the ph marketplace. As you know well in the documents in your report, there is a potential market for ph of something shy of 200,000 patients. And perhaps in adjustable market, maybe about 100,000 patients. But right now there's only about 30,000 patients who are actually captured with therapies. So there's tremendous room there for growth in the capturable market, and it takes I think a next generation ERA like Ampersantin with its superior profile to grow that market, and fortunately with the sponsor's capability I think they will be able to grow that market. We would be very, very keen as soon as we announce our results with Triumph to then go into a study in combo with Ampersantin, because I think that would be kind of a dream combo.

And on that front, would you position Remodulin to be agnostic with regard to either Tracleer or Ampersantin, and are there specific tactics that you can implement to be ready to pull the trigger on approval to get those trials going?

Well, our hope is that our discussions with the FDA would result in a label that was completely agnostic in terms of which ERA or for that matter which PD-5 inhibitor, [trecostinal] was combined with. And that would also be our plan to do with beraprost as well. As we move beraprost forward, it would be combined with all of the different flavors of ERAs and PD-5s. so we're definitely laying all this groundwork in our discussions with the agency, even though we just tested trecostinal with [refadio] and Tracleer. Now it's very likely if we don't get exactly that kind of ERA-agnostic label that we like and a more specific with another drug, we will go in for the amendments and changes of the label. So we are very capable in terms of our resources and [inaudible] capability to very quickly get a kind of follow-on study.

And indeed in 2008, while part of the company is going to be focused on making sure that the filings get into the agencies, both in the U.S. and Europe, the other part of the company is focused on additional clinical studies with [Redeta] our trade name for inhaled treprostal. And those include studies with a smaller inhaler, an NGI type of inhaler, as well as other forms of combination therapy. So we actually see 2008 as being a very robust year for clinical development.

Martine, can you just share your impression of scarcity value in the pulmonary market at large? Certainly we've seen a number of big take-outs even just in the PAA niche space with Myogen and Kofarex. And from your point of view, do you continue to observe those trends, and how does that continue to shape corporate strategy in terms of maintaining balance between your balance sheet, growing the company organically, and also being opportunistic?

Well, I'm kind of shaking a little bit in my boots answering that question from the inventor of the Chao index. [laughter] It's like I'm answering a question about relativity to Einstein. But with that caveat I'd say that I think what's unique about United Therapeutics is that we have such a strong track record of 40% annual growth. We've grown revenues and earnings of that rate for four consecutive years. We've got all of the ammunition to continue to grow at that rate with [Vaveta] with FREEDOM, with OvaRex, and with the expanding indications for all three of those drugs.

So our long-term shareholders tell us that they're in the company because they love the way the company's continued to grow 40% a year for four straight years. And I think that we would be—I think they would be concerned were we to dilute that rate of growth in another company that was growing at a lesser rate. Now if there was some other company that had as strong a track record of annual growth as we do, and as strong a prospect of future growth at that same 40-plus% annual rate as we did, and were otherwise synergistic in terms of their disease competencies, that would make sense.

Okay, thanks, I appreciate the insight into the quarter.

Sure, thanks so much.

Well, we've gone a full hour on this conference call, and I think we did that out of some telecommunications glitches in the middle of this, and I apologize for that. But hopefully the additional time was good value to everybody. And I want to thank everybody for joining the call and for your continued support of United Therapeutics. We look forward to seeing many of you at the upcoming conferences, starting with the Deutsche Bank Healthcare Conference later this week. Thank you so much.

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 AM EST today through 11:59 PM EST on Tuesday, May 8th. The Conference ID number for the replay is 6771049. Again the Conference ID number for the replay is 6771049. if you wish to dial for the replay, it's 1-800-642-1687, or 706-645-9291. You may now disconnect.