United Therapeutics Corp (UTHR) 2008 Q2 法說會逐字稿

Good morning. My name is Sim and I'll be your conference operator today. At this time, I'd like to welcome everyone to the United Therapeutics Corporation second quarter earnings conference call.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

(OPERATOR INSTRUCTIONS)

Remarks today concerning United Therapeutics will include forward-looking statements, which represent United Therapeutics' expectations or beliefs regarding future events based on current assumptions.

United Therapeutics cautions that such statements involve risks and uncertainties that may cause actual results to differ materially from those in the forward-looking statements. Consequently, all such forward-looking statements are qualified by the cautionary language and risk factors set forth in 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.

Good morning, everyone, and I'm pleased to share with you our second quarter 2008 financial results today. The United Therapeutics team on the call today literally spans quite a bit of the globe in over eight time zones.

I'm in California this morning for my niece's bat mitzvah. And Roger Jeffs, our President, Chief Operating Officer is in the UK, both on a well deserved vacation but still managing our sales, marketing, and clinical development efforts via the wizardry of digital technology.

And John Ferrari, our Chief Financial Officer, is minding the store at our Silver Spring headquarters, ensuring that all of the [coupling] companies, all of the shekels coming into the Company are being counted to exacting GAAP standards.

So the three of us are here today to answer your questions. And after I give a brief introduction we'll open up the lines to provide you any color or additional information on things that might be of interest to you.

On most quarterly conference calls, we assess how we've been doing in terms of our what we call our three main thrusters, those being revenues, profits, and milestones. And I'm glad to report that we are doing absolutely great. All three thrusters are firing I would say at optimal capacity.

For example, starting with revenues, revenues this quarter are up 32% from the matching quarter previously, topping over $68 million. Profits are up 125% from the matching quarter in 2007. And in addition, our earnings before non-cash charges are up over 70% from the matching quarter.

So the financial metrics are looking really, really good here. And for me it's extremely gratifying that we are on track to grow our annual revenues in excess of 30% for the sixth consecutive year. And it's, all of us just are thrilled to be able to provide such consistent performance year after year.

I'm also really pleased that after 12 years of operation, our cumulated deficit has this quarter been eliminated. And we are now able to report accumulated earnings and hence the importance of having John Ferrari there at our headquarters doing that very enjoyable task.

But sometimes we can get so focused on the numbers that we forget what the forest it out there. And the story on the forest versus the trees is that these financial accomplishments really just reflect the decisions of hundreds of doctors and patients throughout the United States, Europe, and beyond to use Remodulin.

And in fact as of now have made Remodulin the leading form of prostacyclin therapy in the United States. And that's really the real story here and the big picture. Well I've mentioned that we always assess our performance in terms of our three main thrusters, RPM, revenues, profits, and milestones. Let me talk about milestones, the third thruster.

For this one, as with our financial thrusters, we're really right on track. The new drug application, or NDA, for TRIUMPH, our inhaled form of treprostinil, was filed right on time during June 2008. That was a date that Dr. Jeffs had targeted several quarters previously.

And he and his team, led by Dean Bunce, our Senior Vice President for Regulatory Affairs and Dave Zaccardelli and many, many key people at their team deserving enormous credit for achieving that electronic filing of the TRIUMPH NDA right on time.

Another very exciting part of our milestones is that the MAA, the European regulatory filing for TRIUMPH, is right on track for being filed before Christmas of this year. And we're really excited about that because it's our first application for European wide approval. So that's another key part of our milestones and something to look forward to.

And then the other aspect of our milestones thruster here is the unblinding of our FREEDOM-C trial for all form of treprostinil. And the unblinding of FREEDOM-C is right on schedule for November of 2008 with the FREEDOM-M or the monotherapy study being unblinded in the first half of '09.

So when you take a look at this lineup of the NDA in June, the MAA by December, the unblinding of FREEDOM-C in between, the unblinding of FREEDOM-M in the next year, these are clearly very exciting times for United Therapeutics with important milestones lined up for several quarters to come.

Well with those introductory remarks, let me now ask the operator there kindly open the lines to any questions. And I'll kind of answer the questions that are most in my area directly or ask Roger or John to address questions, which are more in their area. Operator, you could take the first question.

(OPERATOR INSTRUCTIONS). Your first question will come from the line of Jeff Meacham.

Hi, can you hear me?

Yes, Jeff. Good to hear your voice this morning. How are you doing?

Good. Thanks, Martine. A question for you on the FREEDOM-M trial, just wanted to know where you guys were with enrollment, when you're set to have sights activated in India and what impact you think this could have on the enrollment curve?

Sure. Dr. Jeffs, would you like to field that question?

Happy to, Martine. Good morning and good afternoon, Jeff. The FREEDOM-M is moving along nicely. The patient enrollment number now is 128. And while that hasn't moved too much from the last call, I think the important thing, as you alluded to, is that we have five of the six centers in India are currently active.

So they have study drug on our screening or enrolling patients. We've had our first patient enrolled last week from one of the centers. We're actually going on a fairly governed and measured approached initially to make sure that they enter the first patients correctly, perform all of the initial procedures, including the important walk test as it should be done.

And then we're going to allow the gates to open, if you will, and let more patients in. We have one center, for example, that has seven patients waiting to go into this study. But we're having them do one patient first before they enter the other six.

So I think with the six Indian centers, as well as the continued effort from the centers in the U.S. and Mexico, we are confident that we can enroll that trial late in the third quarter of this year or early part of the fourth quarter of this year. Which then, as Martine said, should provide an unblinding from the monotherapy trial in the first half of 2009.

Thank you.

Your next question will come from the line of Jim Birchenough.

Hi, Martine. Just wanted to add my congratulations for a good quarter.

Thanks so much. We appreciate it.

So just a question on the overall prostacyclin market. Could you maybe give us an update on where we're at in terms of the size of the prostacyclin market? What kind of growth we're seeing in prostacyclin use? Where Remodulin is in terms of market share and how much more room you think you have to grow is I guess the big question.

Sure, great question. The prostacyclin market is a really fun and exciting market to look at because it's segmented really so nicely. And therefore it's something that you could really take a look at different market shares.

We, as you could tell from our financial results this quarter, we're getting very, very close to tracking at just about $300 million a year in terms of sales for Remodulin. And that's split pretty much 50/50 between IV and subcu Remodulin.

To the best of our ability to determine, neither -- each of, let me say each of Ventavis sales and Flolan sales are each below $100 million per year. And therefore by sort of any way that you slice and dice the market, it's clear that Remodulin is the leading form of prostacyclin, at least in the United States today.

Now in terms of continued growth, the growth that we have seen is mostly what I would call organic growth, meaning that it's mostly growth from oral non-responders coming onto Remodulin.

And indeed the message when we surveyed doctors in the field, the key information that is coming back from the specialists in treating pulmonary hypertension is that at the first sign of decline, meaning decline from a patient who's being treated with Tracleer or Revatio or Letairis, at the first sign of decline, put the patient on Remodulin.

And that seems to be the key message, which is out there right now. Now to the best of our ability to discern, there's something north of 20,000 patients currently being treated with oral meds for pulmonary hypertension, again, either an ETRA or a PD5 or a combination of the two.

And on the other hand, there is less than one out of, less than 20% as many patients are being treated with prostacyclin which doctors pretty universally feel is the gold standard to use once a patient stops responding to the oral meds. So we see there to be tremendous room for continued organic growth in the prostacyclin market, as over time patients become non-responsive to the oral medications.

I constantly look at the literature, frankly very hopeful that I can find some data indicating that long-term survival with PD5 or ETRA has moved significantly from the current published data that mean survival with PAH is maybe five years, six years, seven years. Sometimes you'll see something between five and 10 years mean survival.

But frankly I've not seen anything, nor have I had any discussions with any key opinion leaders to indicate that mean survival has moved past 10 years, even in the most expert centers that treat patients.

So just straightforward arithmetic tells you that a substantial number of those 20,000 patients treated with oral meds are going to unfortunately roll off -- roll down the oral mountain and the valley there is only prostacyclin therapy. And then within that family the prostacyclin therapy that physicians and patients are favoring most is Remodulin.

So it's strictly based on that objective data that we have strong confidence that the Remodulin franchise will continue to grow at the rate that it has been growing. And indeed this quarter's results I think are just another data point right on that line.

Great. Thanks for taking the question.

Sure, good question.

Your next question will come from the line of Eun Yang.

Hi, this is Eun Yang from Jefferies. Once inhaled and oral versions of prostacyclin are on the market, I'm just wondering in terms of the combination use, how would you petition those two drugs? So like to get your thinking on the strategy.

Yes, another very insightful question. Thanks to Dr. Jeffs' clinical design and that of his entire superb clinical development team, we have a very, very scientifically meaningful and insightful structure through which to answer your question.

And that is we have two separate trials going on for oral treprostinil. One is the combination study, which we call FREEDOM-C. And that's the one I indicated would be unblinded during the next quarter so very, very important and interesting and fascinating news event. And then another study of it is monotherapy, which would be unblinded next year.

So what that means is that the results from the FREEDOM study will allow us to very precisely answer your question is oral treprostinil something that should be used only in combination patients, in other words, patients who are already on either Letairis or Tracleer and or Revatio or perhaps tadalafil, which would probably very soon be approved.

And are we talking about a drug that's to be used only on top of those, because we will show an incremental improvement in exercise ability, which is exactly what we showed with inhaled treprostinil.

Or is this a drug that'll be used both in combination and also as front line therapy for patients who have never been treated with anything for pulmonary hypertension? And that's exactly the hypothesis which is being addressed in the FREEDOM-M study, where patients who are newly diagnosed, have never been treated with anything, are being given either oral treprostinil or placebo as their first line treatment.

So we'll be able to answer that question very precisely with the outcomes of the FREEDOM trial. But let me say that the, whether the outcome is that it's used mostly as solo monotherapy or if the outcome is that it should be used preferentially just as combination therapy, United Therapeutics wins either way.

And the reason for that is that there are already more than 20,000 patients on oral background therapy, the PD5 inhibitor such as tadalafil or the ETRAs. And that's a huge number of patients compared to the number of patients on Remodulin, for example.

And if the only market that we addressd was the combination market, having inhaled treprostinil and oral treprostinil on top of the meds taken by the currently treated 20,000 patients, you will see a multi-fold increase in United Therapeutics' revenues.

And it's for that reason that all of us at United Therapeutics feel that we're very honored and favored to have an opportunity to build this biotechnology company. But simply through doing a good and rigorous job of making prostacyclin therapy easier to take that we can broaden the market and therefore allow many more people to get the benefits of what all of the prescribers agree is the gold standard in pulmonary hypertension treatment, namely prostacyclin therapy.

Thanks very much for the clarification.

Sure. Good question.

Your next question will come from the line of Bret Holley.

Yes, hi, thanks. Thanks for taking my question and good morning.

Hey, Bret. How's it going?

All right. How are you?

Good.

I had a question. Just wondering, you're kind of reiterating your expectation for a 10% to 15% dropout rate in FREEDOM-C. That's kind of what you were talking about in May. And I'm just wondering if there's any update on your thinking on that?

Let me ask Dr. Jeffs to talk about that clinical question.

Sure, Bret. Good morning. Yes, I think we're still in the range. Probably going to trend a little bit towards the upper end of that range. I think as the last patients complete the study, as you know, the last patient will exit the study in mid-September. So it's a little hard to predict exactly what the final percent dropout will be. But roughly speaking it will be in the sort of upper end of the range that you talked about.

Some of the reasons for dropout have been more towards clinical worsening and (inaudible). And we think that's a good thing. So we don't get too concerned if dropouts go to the upper end of the range, particularly if it happened to be, if it turns out to be in the placebo group more preferentially than the active group in this later half of the study.

So the good news is we're not too far away from unblinding and knowing where the dropouts fall and then seeing what the impact of those dropouts are on the effect size and the statistics. So I think in general speaking the range that we've set in the last quarter is still true. Although I would maybe target you guys to the upper end of that range.

Okay, so upper end meaning around 15%?

Exactly.

Okay. And then one other question I had, what was, is, has been the feedback from the European regulators going into the filing for inhaled in Europe? Obviously you're not filed yet. But what has the feedback been about the single trial and that approach, at least in terms of European approval?

Yes, good question. So we've had similar types of discussions that one would have in the U.S. in terms of having pre-NDA meetings. So we've had a discussion about the filing, the contents of the filing. And that was fine. They were more than happy with the single study filing and the statistics that we presented to them that the study provided.

We did talk about some of the data a little bit more in-depth in the pre-filing meeting than we did at the FDA. And with that, I think they had additional comfort with the study and its design and the data that was provided for the study.

We've even been assigned repertoires. It's a centralized filing. It's a little bit different than what we did for intravenous and we did for subcu. But we filed that my mutual recognition. This one went through, it's going to go through a central filing. So it'll be a one-stop approval across all countries, which we think is a much better approach for the inhaled filing. And those repertoires have been assigned.

So we're doing some of the things that one must do in Europe, which includes writing a pediatric plan. There's a risk management plan as well that one does that just talks about how we're going to assess the post marketing situation. And all of those pieces are being put in place as we head towards the December filing.

So in general, the electronic filing for Europe is fairly similar to what we see in the States. Although the format can be a little bit different. So that's why it's taking some time. In addition we need to do these pediatric and risk management plans along with it. So I would say everything is 100% on target for an end of the year filing.

Okay. Thanks very much, Roger.

Sure.

Your next question will come from the line of Matt Kaplan.

Hi, good morning. Thanks for taking my questions and congratulations on a great quarter.

Thanks, Matt.

Could you talk a little bit about the quarter in terms of what happened during the quarter, specifically in the revenue side, inventory levels, et cetera, why you did such a good job?

Sure. John Ferrari, our CFO, can give you a really good analytic breakdown of the different components there. John?

Hey, Matt, how are you doing?

Doing great.

I think in quarters, if you take a look at the previous quarters I mean most of the growth has been through increases in patient count and use of Remodulin. So I mean that's the primary reason why our revenues have grown. Inventory has been, by patient count actually for the quarter; inventory levels went down, but nothing significant. So it's really just organic growth from patients.

Great. And then just a follow-up on the questions that were asked previously in kind of the dynamics of the current market and the current business. And just some insight in terms of with the introduction of the inhaled product and then the potential introduction of oral product, how is that going to affect your current base business the [parenteral] therapies?

And then with the introduction of the oral product, how would that impact the potential introduction of an oral product? How would that impact the inhaled business?

Right, so I really don't think that there's going to be anything but a positive impact from the introduction of those two therapies on our revenues. And here's the reasons why. By the very nature of it therapy, perenteral therapies are reserved for patients who have not been able to achieve success with earlier therapies.

And to give you an example of a market, which is more mature than the U.S. market in terms of inhaled therapy, inhalation therapy has been used in Germany for as long as Flolan has been used here, upwards of 10 years.

And when patients are no longer responsive to inhalation therapy in inhaled iloprost, they're transitioned to perenteral iloprost or IV iloprost therapy. And sometimes this is done as a bridge to transportation mode.

And sometimes this is done basically just to be able to get a better quality of life, better exercise ability, move a patient that is perhaps sinking toward Class IV status back up into Class III status. And that's the role that perenteral therapy seems to play best in terms of prostacyclin therapy.

But with oral and inhaled, we're going to be trying to push the curve, if you will, push this prostacyclin therapy earlier in the stage of disease. So even though our IV and subcu therapies have a label indication of Class II, III, or IV New York Heart Association class, in practice because it's such an invasive therapy walking around with a catheter for the rest of your life dwelling into your abdomen or into your chest. It's something that by its very nature doctors are going to reserve for New York Heart Association Class III or IV patients.

But with an inhalation therapy, this is something that can be pushed forward in the differential treatment algorithm for pulmonary hypertension and can be given to early Class III patients who are basically just beginning to -- perhaps they are in fact well optimized on their oral meds, which was the case for the clinical trial that we conducted with TRIUMPH. And the doctors wants to try to give them an improved exercise ability, which is exactly what we demonstrated in the TRIUMPH study.

So we see that some big chunk of those 20,000 patients being treated with a PD5 or an ETRA are going to be the natural market for the inhaled therapy. And it's hard to be precise about the numbers, but I would say as a rough figure of merit, somewhere between perhaps 20% to 40% of the patients being treated with ETRAs or PD5s would represent the maximum potential of a four-times-a-day inhalation therapy such as TRIUMPH.

Now with the oral treatment that Roger is developing in the FREEDOM series of trials, we're able to push the treatment yet earlier in time. Ultimately, based on the results of the FREEDOM-M study, all they way to upon diagnosis.

And that would open up I think the balance of the PAH market, which by subtraction would be an additional anywhere from say 50% to 80% of the diagnosed patients would be the most logical patients for the oral treatment. And the Company's goal is a nutshell is to basically leave not PAH patient behind. That every patient diagnosed with pulmonary hypertension should have the power of prostacyclin.

If they're early stage, oral; middle stage, inhaled; later stage, perenteral. And with this entire spectrum of prostacyclin therapy, I think that we're in an excellent position to ensure every PAH patient is using prostacyclin.

Great. Thank you.

Sure.

Your next question will come from the line of Lucy Lu.

Great, thank you. Martine, you are planning an oral Remodulin dose ranging study that would forge a relationship between dose and therapeutic effect. My question is that if you already know how oral Remodulin doses is translating to IV subcu equivalent, what additional information are you hoping to get from the study? Can you just provide some details?

Sure, Dr. Lu. Thanks for the question. Glad you got on the call this morning. And let me ask Roger to give you that color.

Yes, sure. Good morning, Lucy. I think it's really more to think about the dose ranging study I would think of it as a labeling study. So in essence what we're trying to do, and it speaks somewhat to our confidence in the current trials, is it's a Phase IV study done pre-approval.

So one of the issues that comes up with prostacyclins in general, and this could be for epoprostenol or treprostinil, is that there is no, in the labeling, there is no upper dose described. And in fact the dosing information is patient centric and patient specific such that it really doesn't describe how one doses week-by-week or month-by-month or year-by-year. It just says to dose to clinical benefit and tolerance. So that can make some regulators uncomfortable that there's no upper limit.

So what we're trying to do with the dose ranging study is to show that if you pre-assign patients to very specific and discreet those cohorts. Either no dose, very lose dose, or a higher dose, that the patients that got the higher dose did better. And that would support the thesis that's always been employed with prostacyclins, that giving more does lead to better benefit.

So in a way it's somewhat, mostly addressing what I would say is a labeling issue. And it's also an issue that, for example, the FDA wants to know, has some interest in. They get uncomfortable with these open-ended dose ranging labels. So we said well we'll give you some clarity around that and show that there is a dose response to the therapy.

That's a very difficult answer to get out of the titration studies that we have employed both with the subcu and now with the oral therapies. Because it could be when you titrate patients in the trial that patients that need, that get more drug, need more drug. So they're actually less responsive.

So in sort of a study that's open-ended in terms of its dosing strategy let's any patient go to whatever is beneficial to them and is tolerated by them. It's very hard to show dose response potentially, although it can be done if things work out. So we're going to try to do that in a more formal strategy. I think the other it does is it gives us yet again a third efficacy study, if for some unusual reason that we would need it.

But I think for us the way we're viewing this given that the 301 combination study, which we'll unblind at the end of the year, was 90% powered at 01. And as you say, we can equate very nicely what the oral dose is in terms of when we get perenteral therapy.

We're very confident that the drug, if tolerated and dosed as we think it has been dosed in the study, will show a very good effect. And the monotherapy study, which is at 90% power at the 05 level will also show a very nice effect. And then we'll have not only one but two studies to support a registration.

The third study again then would just to more labeling information. And I think the other thing we're going to do with it, it's an important dosing concern for us, is that we are using a 0.25 milligram start dose in the dose ranging study. So it's a lower start dose than we've ever used.

And we're also incrementing by 0.25 milligrams. So it's a gentler titration strategy. So the other thing that we hope to get out of this study is to show that you can start lower and go up perhaps more frequently with smaller dose, but with smaller dose increments, to derive the same clinical benefit. But do it with a much kinder and gentler adverse event profile. So I think that's another reason to do this post marketing study pre-approval.

Will this delay your oral Remodulin filing?

No. So it's not even part of our filing thesis. So I think technically if we had a, as we have with inhaled, if a combination came in at less than 01 and was robust at less than 01, we'd have a single study that was worthy of a filing and potentially be registerable.

The fact that we have a second monotherapy study that Martine has described so close to unblinding, I think agencies would be keen to see that data at least during a review. So those two studies I think are requisite for the approval of oral Remodulin.

This other study again, we could have waited until later to do it and shown that this lower dose strength going lower, going slower was as good as going a little bit harder as we did in the trials. But we just decided we'd go ahead and start generating Phase IV data earlier.

I think you'll also see once we unblind in the fourth quarter of this year and are successful, that we'll potentially start other Phase IV type studies exploring patients with other types of pulmonary hypertension like chronic fibro embolics, HIV associated. And really start getting a jump on expanding the usage of our product throughout the entire PAH continuum.

Great. Thank you.

Sure.

Great. Operator, we have time for one more question.

Thank you. Your final question will from the line of Liana Moussatos. Ms. Moussatos, your line is open.

Hi, thank you. I just wanted to make sure that I heard correctly that you expect to unblind FREEDOM-C in November and the last patient visit is mid-September?

That's correct.

Okay, thank you.

Great. Well, I'd like to thank everybody for participating on our conference call this morning. It's, as you can see from the results and we really appreciate the congratulations, it's been a fantastic quarter.

It's one where UTHR continues to keep exactly to its growth targets. And not only in terms of looking backwards but looking forwards, we have a really exciting set of milestones coming up in the second half of this year and the first half of next year.

And it's a real pleasure on behalf of the entire United Therapeutics team to share with you our confidence and satisfaction with the revenues, profits, and milestones portions of our Company with our ability to continue our growth rate in revenues and profits going forward.

And continue unblinding exciting scientific results that can ultimately bring the power to prostacyclin to every single pulmonary hypertension patient. Thanks so much for listening in this morning and look forward to seeing you at the upcoming investment conferences in September, October, and thereafter. Thank you very much.

Thank you for participating in today's United Therapeutics Corporation second quarter earnings conference call. This call will be available for replay beginning at 11:35 am Eastern Standard Time today through 11:59 pm Eastern Standard Time on Thursday, August 7, 2007.

The conference ID number for the replay is 56186490. The number to dial for the replay is 1-800-642-1687 or 706-645-9291. This concludes today's conference call. You may now disconnect.