United Therapeutics Corp (UTHR) 2007 Q4 法說會逐字稿

Good morning. My name is Aldous, and I will be your conference operator today. At this time, I would like to welcome everyone to the United Therapeutics Corporation fourth-quarter earnings conference call. All lines have been placed on mute to prevent any background noise. (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 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 recognized. 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.

Good morning, everyone, and welcome to the year end 2007 and fourth-quarter 2007 financial reporting of United Therapeutics.

I'm joined on the conference call today by our Chief Financial Officer, John Ferrari and our President and Chief Operating Officer, Dr. Roger Jeffs.

I would like to start off with the great pleasure to report record revenues for 2007 of $211 million and record EBITDASO or earnings before interest, taxes, depreciation and stock options, of $4 per share. GAAP profits, of course, came in lower at $20 million for the year, but EBITDASO better reveals our great operating leverage. We can see this operating leverage most clearly in the fourth-quarter '07 results. For the fourth quarter, our revenues came in at about $60 million, our highest quarterly level ever, of which nearly $25 million was EBITDASO. This 42% operating leverage is likely to improve yet further in 2008 because we have reduced our basic spend against previous year revenues by 5%. So for 2008, we should see even greater operating leverage than 2007.

With regard to the difference between EBITDASO and GAAP, the primary difference is, of course, stock options, and during 2007, stock option expense increased significantly compared to 2006 because we follow a strict pay for performance metric in compensating the Chief Executive in particular as well as the rest of the Company. Under the Chief Executive stock option compensation program, stock options are awarded only for increases in market capitalization. For years when there is no increase in market capitalization, no stock options are awarded. In 2007, we nearly doubled our market capitalization and, as a result, stock option expense went up accordingly.

In addition to all of this great news, we have some fantastic news flow geared up for 2008 as well. Specifically, in the next quarter, second quarter of 2008, we expect our Inhaled Treprostinil NDA to be filed with the FDA. Following that, in the second half of 2008, we expect to unblind our oral treprostinil study, the FREEDOM-C study. And finally, by the end of 2008, we expect to file with the European central filing system, our Inhaled Treprostinil registration package, seeking approval of Inhaled Treprostinil in Europe.

So it's been a year of fantastic financial results. Our best fourth quarter ever, a fourth quarter that pegs as solidly as almost a $250 million revenue run rate. We can see clearly that we're also nowhere near the peak revenues from our parenteral franchise, and we've got much greater franchises with inhaled and oral very close at hand.

It's now my pleasure to open up the lines for any questions that can be directed to me, our Chief Financial Officer or Dr. Jeffs. Operator?

(OPERATOR INSTRUCTIONS). Geoffrey Meacham.

Question for you on Remodulin. Just a couple of questions on the quarter. First, can you talk a little bit about the growth that you've seen outside the U.S.? And then the second part is where are you with the IV Remodulin launch in Europe?

Our growth continues to be very strong in Europe as well as the U.S. We've been tracking for quite a while somewhere between 10 and 15% of U.S. revenues come from Europe. And that's despite the fact that with regard to SubQRemodulin, we've had to go through a country by country approval process, which has certainly slown down the commercialization effort.

With regard to intravenous Remodulin, we've just received notification that we'll have to wait yet longer before we have approval for -- commercial approval -- for intravenous Remodulin, because the regulatory authorities in France, with whom we are working, are still not satisfied with the filing that we have put fourth.

As some of you may recall, we went through a very similar obstacle course with regard to SubQRemodulin, but fortunately, after perseverance and patience and performance, then our case performance in terms of providing all of the documentation that the Europeans requested differentially from the Americans, we ultimately were able to get SubQRemodulin approved. And we feel confident that, eventually, we will be able to have commercial approval for intravenous Remodulin in at least some of the countries in Europe.

An important point to keep in mind with regard to parenteral Remodulin in Europe is that parenteral prostacyclin has never been the success story in Europe that it was in the United States. And, in fact, most patients in Europe who are on prostacyclin therapy are on inhaled prostacyclin therapy, specifically inhaled iloprost. Whereas, most patients who are on prostacyclin therapy in the United States are on parenteral prostacyclin therapy.

So it's basically just a difference in terms of the way different routes of administration developed between Europe and the U.S. and different prescribing preferences on behalf of the key opinion leaders in Europe and the U.S. But the bottom line is that we continue to sell parenteral prosta-Remodulin in Europe. It makes a healthy contribution to our revenues and earnings and we expect to continue to do so for many years.

And just a follow-up if I may on Viveta, the filing in Europe. Is there anything different that has to be done from a regulatory standpoint compared to the U.S. filing?

Sure. I'm 100% positive that there will be because in every respect, with most drugs, the Europeans are going to have different preferences than the U.S. But the really good -- so there are a number of things which I think auger for a substantial increase in the percentage of our inhaled revenues that come from Europe as compared to the parenteral revenues.

First of all, as I just mentioned, in Europe, inhalation is the preferred way to take prostacyclin. And so the fact that we will have an inhaled product augurs very well for us. Secondly, with regard to Inhaled Treprostinil, we are going to go with the centralized filing method. So we'll be able to get approval for like all countries at one time rather than the country by country approach that we went with parenteral prostacyclin. So that's definitely going to grease the skids tremendously.

And finally, there is a clear recognition already that actually originated from Europe and from the KOLs in Europe, key opinion leaders in Europe, that Inhaled Treprostinil is very, very safe. It does not involve any of the kind of issues that parenteral prostacyclin entails, which have been things that have given Europeans pause. And secondly, that it actually has differential efficacy and dosing flexibility compared to inhaled iloprost. So it's actually objectively a superior way to provide prostacyclin, and for those reasons, we think that the regulatory process, while it will not be identical in Europe and the U.S., it will go quite smoothly.

Great, thank you.

Bret Holley.

Just a question on the enrollment in FREEDOM trials. If you continue to be satisfied on that front and I guess another question would be whether you've seen a continued low discontinuation rate amongst patients with the new low-dose loading dose.

Good questions. I'm going to refer to Dr. Jeffs to give the details, but I can say that we have had great enrollment on FREEDOM, and it's really a great tribute to the way that Roger's team has carried out that study. But Roger, can you provide some details?

Certainly, Martine. Yes, I would agree with Martine, I think this is our greatest period of enrollment. We certainly have more sites than ever enrolling in the study. In the FREEDOM 301 study, that's the combination trial, so that's with oral Remodulin added on top of background therapy, we're nearly 80% enrolled with 235 of the 300 patients enrolled into the study. In the FREEDOM monotherapy study, where this is front-line therapy, we're also doing fantastically in terms of enrollment with two-thirds of the patients enrolled. 100 of the 150 are now enrolled.

What that augurs well for is that particularly for the combination trial, given we're 80% enrolled, we believe we can complete enrollment in the second quarter of 2008 and then easily meet our own milestone of providing data in the fourth quarter of 2008 on the combination trial.

I think what's exciting about that is certainly that is the tougher test of the drug. I think we all believe if it works in combination, it certainly will work as a monotherapy trial. So to me, the true test of the therapy is this combination trial. One thing that will make that a successful test as you've asked about is, do we have the dose that is well-tolerated and can we escalate that dose.

So since we introduced the 0.5 mg into the clinical trials back in July of 2007, we've had very few, less than a handful of patients, that have dropped out for prostacyclin-related adverse events. So I think the dropout rate is largely solved by the 0.5 mg tablet. We're also able to dose escalate a little bit easier with a smaller dose increment. So that has gone well. So we are achieving a range of target doses that we need to achieve. So I think if all things continue along this path, we will be well-positioned for successful trials later in the year.

Thank you. Next question, please.

Matt Kaplan.

Could you give us an update in terms of what to expect at the ATS meeting coming up in May of this year in terms of data presented?

Great. Well, as you know, Roger is in charge of all of the clinical programs, so Roger, can you give us a snapshot?

I will, Martine, and good morning, Matt. One thing we promised the investigative group is that we really won't divulge the data in advance of the ATS meeting. So Valerie McLaughlin is going to present the data at ATS. Her presentation has been chosen for oral presentation. It will be presented on Wednesday, May 21st at the treatment -- New Concepts in Treatment pulmonary hypertension session, which is in the afternoon from 1:30 to 4:15.

So other than what we've already told you, we're really not going to say anything additional in terms of giving you a little bit more color on the data. Valerie will give you color on all the endpoints, all the different permutations of analysis. And I think you'll find that the data is consistent. The data is supportive of the primary endpoint findings and the data is robust. So while in the grand picture, that's what you'll see I think you will get great comfort from what she presents, I really won't go into the specifics of that.

Okay, fair enough. Then one quick question. Could you give us a sense of the R&D expenses going forward in '08 with the wind-down of the OvaRex programs and related programs?

Sure. When we decided to terminate the OvaRex program, at that point in time, we basically decided to ratchet back our overall spending across the board by 5%, as mentioned in my opening words. And even though we've got -- we had a great fourth quarter and a great 2007, both in terms not only revenues, but also in terms of earnings and operating leverage, I think things will improve yet further in 2008, because pretty much across the board, R&D, we will reduce our percent of spend as against revenues by about 5%. And effectively, that will increase overall Company operating leverage by about that amount.

Thank you.

Jennifer Chao.

First, Martine, I'm just wondering if you can just discuss any changes to trends that we are seeing in the rate of conversion to Remodulin from Flolan and Ventavis, and any important considerations. And then secondly, Martine, if you can just give us an update on the sepsis investigation follow-up and then any expected inventory changes in 2008.

Sure. I think probably the best person to answer the first two questions would be Roger because we've been doing very, very well in growing our franchise. I'm -- for example, when you take a look at our current total revenues right now, of around 200, and then a revenue run rate of around $240 million a year, and you compare that to what is generally discussed as the Flolan annual revenue run rate of around $60 million, you can see pretty clearly that Remodulin has become about the 80% market leader in parenteral prostacyclin. And if one includes Ventavis revenues in there, we have about a 60% market share in terms of all three prostacyclin therapies. So we're really happy to have over 2,000 -- just occurred during 2007, that we became both the number one parenteral, number one prostacyclin in general. And for that matter, the market leader just in severe pulmonary hypertension.

But let me ask Roger to give a little bit more color on individual transition stories from Flolan and from Ventavis. And then for the third question, John, if you could be queued up and ready to answer Jennifer's questions about inventory.

Right. Good morning, Jennifer. As to conversions, I think a couple things. I would echo what Martine said, that it is exactly true, that we have continued to gain share in the parenteral market. I think one of the -- the only discomforting thing is that the Flolan share is declining, so there is less opportunity to switch patients, but still I think a bountiful level of business there.

The other transition base that we're focused on is obviously the Ventavis base. I think given that the average patient retention on that therapy is between six and eight months. That's a low hanging fruit of patients that we would like to transition to parenteral Remodulin.

In that regard, also at the ATS meeting in May, we're presenting two abstracts that are specific to transition. One is a rapid switch protocol from intravenous epoprostenol, where we look at quality of life and treatment comparisons. So for the first time, you will see some quality of life measures that show not only can the patients be maintained when they switch without any acute change in their clinical status as well as a long-term follow-up that shows that they maintain their status, but you will see that the quality of life of those patients has improved when they do that. So I think that's an important piece that's particularly important to patients since they have a rare and life-threatening disease. Intravenous therapy can be a burdensome therapy, but this will show that being on intravenous Remodulin provides a better quality of life. So that's one important abstract.

The second one is a retrospective multi-center transition experience, where we have looked at data from a number of centers that have transitioned these patients that just aren't well-managed on Ventavis and then switch to intravenous Remodulin. And we will show data to show that those transitions go well, that the patients do well, and that there's benefits to those patients who were declining on the Ventavis therapy and are then managed on Remodulin. So two important, I think, pieces of work that will continue to improve our transition experience and maintain the growth in that subset of patients.

In terms of sepsis, there's really not -- the number of questions we get about sepsis now is minimal. I think the revenues somewhat speak for themselves in that the market in large part doesn't view sepsis as a particularly unique concern with Remodulin. The SLC has met and they are producing -- that's a scientific leadership committee of the Pulmonary Hypertension Association. And I think under the direction of Ray Benza, who is from UAB, they're going to produce a guidance document on good catheter care and maintenance.

And one of the aspects that they will speak to is the use of what's called a closed hub system. It has become clear that the infection risk is not related to the products. And I would say that that's true for Flolan or Remodulin. And that the risk of infection is a contamination risk and one entry point for water, particularly for gram negative infections, would be at the catheter hub. So use of a closed hub system minimizes the intrusion of water into the line, and it seems when that happens, that you can nearly eradicate the rate of gram negative infection. And that the real leader in that effort has been Dr. Dunbar Ivy at Children's Hospital in Denver. He's taking these kids, which like to shower, swim, and do other things and introduce water into these lines and taken their rate of infection to almost zero by use of a closed hub system. He shared that data with the SLC and they are going to envelope his data as part of their guidance statement.

In addition to that, we've also worked with our distributors to educate them about this practice and they are widely distributing knowledge to those patients and physicians about the use of closed hub systems as well as all of the other appropriate prophylactic techniques that one must use when intravenous therapies are delivered.

So I think the sepsis issue remains a minimal issue and I think it will become an even more minimal in the future as a better job is done with catheter care and maintenance. So John, I'll turn it over to you now.

In regards to the inventory for 2008, my crystal ball is a little cloudy on that, but my expectation would be that inventory levels should only grow as patient demand grows and patient counts grow. We've seen for the last three quarters, inventory levels relatively stable and only growing as the patient demand grows.

Okay great. (multiple speakers)

Thank you, Jennifer. Nice hearing from you.

Liana Moussatos.

When do you think you will have data from the FREEDOM-M trial. And then for oral Remodulin, assuming that all the data goes well, when do you think you would be filings? And finally, what percent of Remodulin sales in Q4 were from the IV?

Thanks, Liana. Roger, you want to hit those three questions?

Yes. So it's a little bit hard to predict when we will have data from the FREEDOM-M trial, but it's a 12-week study. So from the last patient in, it will take three months to get the last patient out. And then I think you can reasonably add six to eight weeks to lock the database. So from last patient in, you're talking five months from there. So I think probably a reasonable expectation would be in the first half of 2009, we would have data from FREEDOM-M study, and certainly, we're pushing to get that as early in the first half of '09 as we can. And then, the filing would be probably in the third quarter of '09, that type of timeframe or second half of '09 for sure. So we would look to hopefully have answers again from FREEDOM-C, the combination trial, in the fourth quarter; first half, I hesitate to commit to first or second quarter, because first half of '09 for FREEDOM-M and then a filing in the latter half of '09 with an approval 10 months from then, so an approval in 2010.

Thanks, Roger.

And what percent of Q4 Remodulin sales were from IV?

I'll take that. So we don't necessarily break the sales out by route subQ to IV, but historically, our trends have been close to 50-50 with a slight lean in favor of subQ actually given its longer life in the market. But I think it's approximating a 50-50 usage pattern.

Thank you.

Biren Amin.

I was wondering when investors should expect the bridging data from the Aradigm inhaler program?

Right. Right. Well, I think it's realistic that we could have some good proof of concept data relatively soon in this year, Biren, and that would give us basically complete confidence that the treprostinil drug is delivered commensurately with the Aradigm unit, as it would be with our current OptiNeb device from the company, Nebu-Tec.

Now, the term bridging could be a little bit ambiguous because different people might have different meanings of that and frankly, ultimately, the only persons whose meaning really matters is the FDA and the EMEA's meeting. And we don't yet really know exactly what kind of "bridging data" they may want in terms of expediting the approval of the MDI.

I would like to emphasize that our current OptiNeb device, works extremely well, is very well received by patients and because it allows patients to drastically shrink their inhalation time down to only about four minutes a day from close to an hour a day with the Ventavis product, the OptiNeb has been a real lifesaver for our patients.

But what we are interested in doing is reaching to broader and broader market segments. And finally, we are like totally focused on the goal that no pulmonary hypertension patient should be without prostacyclin therapy because of its great benefits. Of course, it's difficult to ask a patients who is just in the early stages of pulmonary hypertension to put up with an indwelling catheter or to breathe in from a nebulizer even four times a day, even for a minute at a time. It's much easier if you can offer the patient something like a pill or something like an MDI that can be put in their pocket, much like an asthma inhaler.

So we are confident that there will be a good market for the OptiNeb and a larger market in the future for an MDI-based device. There will be a place for both. Exactly how we bridge from one to the other in terms of regulatory data, we're going to have to wait and get clear guidance from FDA and EMEA. And I do feel quite confident that we will have that guidance around the middle to the third quarter of this year. And we will definitely announce it at that time.

Great, thank you.

We have time for one last question, operator.

Joseph Schwartz.

Thanks very much. I was wondering if you could provide us with some insight and to help us appreciate the development and hypothesis for oral Remodulin some more. Just because when I look at the past presentations, it appears that around 1 mg of oral Remodulin achieves about 1/5 of the plasma concentration of IV and subQ at therapeutic doses. So now that you are looking at even lower doses, how do you expect oral Remodulin to potentially succeed? Thank you.

Well fortunately, we've got the world foremost expert or at least the boss of the world foremost expert on the line. Roger, can you answer that question?

Sure, Joe, a good question. So I think maybe let me clarify sort of how prostacyclins are dosed or at least remind people how they're dosed.

So the goal of the 1 mg initially was to provide a start dose that was well-tolerated and equivalent to about a 5 nanogram per kilogram per minute infusion rate over the 8 to 10 hours that its release would be profiled. So it turns out that the 1 mg, in a patient, was more equivalent to about 10 nanograms per kilogram per minute. And that was why that start dose was somewhat intolerated by some patients. So that's why we went back to the 0.5 mg, to get back in line with where we intended to be from the beginning. And as I said earlier, once we did that, the dropout rates have declined to a bare minimum. So that's the goal of the tablet strength, the initial tablet strength. And in fact, we're producing a 0.25 mg tablet to release to the clinic so that we can even manage the handful of patients that are intolerant to the 0.5. And then as you look down the line, as we progress into pediatric populations, it's conceivable that they would need even lower doses to start, and then increment with. So that's the rationale behind choosing a dose or a tablet strength to start with.

But then, when you talk about therapeutic equivalency, we think the business end of this drug, where you start seeing therapeutic benefit, is between 15 nanograms per kilogram per minute or 20 nanograms per kilogram per minute or greater over time. And some patients take more and some patients take less. But on average, I would say that's where you start seeing the therapeutic benefit of the drug. So the goal of the oral dosing paradigm is to increase the number of tablets that a patient takes over the course of the clinical trial to achieve a target dose that's therapeutic. The beauty of a dose escalation protocol is that you can individually dose (technical difficulty) titrate so that each and every patient should be able to titrate to a therapeutic dose for them, which is also well-tolerated for them. And it may be different. But again, on average, we think that it would be at least 20 nanograms per kilogram per minute or more. So that would equate to about 2 mg twice a day or more.

So when we look at the conduct of the study, what we're trying to achieve in the clinical study is to make sure that patients are dosed at least to about 2 mg BID or more at the end of the 12-week or 16-week treatment period, whatever it might be for the study. So that's the goal of the protocol. So it's very -- so I think when you look at equivalency, all we really have tried to do is equate that tablet strength to an initial start dose and then allow a strength that would allow for discrete dose increments over time because you don't want to also increase the dose too rapidly; that could lead to intolerance as well.

So all factors point that we have it right now and again, we have to do the studies and we have to do placebo controlled studies. But at least anecdotally I think seems to be going quite well. But we won't know until we unblind.

Thanks, Roger. That's a fantastic answer. And thanks, also to the two key members of your team, Dr. [Mitola] and [Ferris] for their work on the oral formulation, which has made possible what has been called the Holy Grail of prostacyclin therapy, to be able to get prostacyclin down into an oral pill that can be provided to the entire population of pulmonary hypertension patients. So I really, really appreciate the work that they've done.

Well for those of you who may have joined the call late, I would like to reiterate a few highlights from the call before closing. We had a great year with our best revenues yet of $211 million. EBITDASO of $4 per share, revealing about 40% operating leverage, and also record fourth quarter '07 revenues and EBITDASO, showing that we are solidly positioned for 2008.

And speaking of 2008, we are very, very clear that we are quite a long ways from the peak of parenteral revenues. There are many more patients who are not responding to oral treatments and inhaled treatments in need of parenteral treatment.

In the parenteral market, where we now have about an 80% market share, we are quite confident that growth can continue at the past rates for at least another year or two before peak is reached and by the time that peak is reached, prostacyclin revenues can grow yet further with inhaled treatment, which has a market potential for, of at least double the parenteral market. And then, long before that peak is reached, there will be hopefully the availability of our oral treprostinil product, which can support yet another doubling of the inhaled market peak.

So with intravenous, subcutaneous, inhaled and oral routes of treprostinil delivery, I think it could be confidently said that we at United are uniquely positioned to capture the great market potential of prostacyclin therapy. And we are firmly focused on that goal for 2008, '09, and '10.

Thank you so much for joining our call this morning and we look forward to seeing you at the ATS or other Healthcare conferences in the coming months. Thank you very much sure.

Thank you for participating in today's United Therapeutics Corporation fourth-quarter earnings conference call. This call will be available for replay beginning at 11:35 AM Eastern today through 11:59 PM Eastern time on Tuesday, February 26, 2008. The conference ID number for the replay is 33422885. Again, that conference ID number for the replay is 33422885. The number to dial for the replay is 1-800-642-1687 or 706-645- 9291. You may disconnect at this time.