United Therapeutics Corp (UTHR) 2008 Q4 法說會逐字稿

Good morning. My name is Michelle and I'll be your conference operator today. At this time, I'd like to welcome everyone to the United Therapeutics Corporation fourth quarter and annual 2008 financial results 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 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, and you may begin your conference.

Thank you very much, operator and good morning to everybody and thank you for joining us on our conference call for 2008 fourth quarter and annual financial results. I'm joined today on the conference call by Dr. Roger Jeffs, our President and Chief Operating Officer, and by John Ferrari, our Chief Financial Officer. After a couple of brief opening remarks, I'm going to open the lines to questions which can be directed to any of the three of us.

We're very happy that our revenues for 2008 grew in excess of 30% for the seventh consecutive year, reaching a total of $281.5 million. In addition, to these fantastic results on revenues, the news continues to actually portend fantastic results for 2009 because we have two additional products up for FDA approval in the next few months, inhaled treprostinil and oral tadalafil. The inhaled treprostinil PDUFA date with the FDA is the end of April and the oral taldalafil PDUFA date is toward the end of May. We believe that together with the continued growth in organic revenue that we have from [prerenal] [Remodulin] has demonstrated by our seventh consecutive year of 30% growth that that revenue source, together with new revenues from inhaled treprostinil and oral tadalafil will allow us to continue this growth trajectory into the foreseeable future.

We're also announcing today that we are going to be rewickerring a bit our oral treprostinil programs, with an amendment to our FREEDOM-M study for oral treprostinil and with a new FREEDOM-C squared second combination oral trial and the goal of these trials is to develop our treprostinil molecule into an oral dosage form.

Now, we do not believe that the oral dosage form will be able to meaningfully contribute to revenues for several years, probably not until about 2014, but it is, I think, excellent evidence of United Therapeutics' firm commitment to developing better and better therapies for pulmonary hypertension so that the physicians and the patients can continue to have hope in looking to United Therapeutic's for better and easier to take treatments for their condition. But during the years between now and 2014, we have three very exciting sources of growth and three very exciting sources of therapies that physicians and patients can use. [Prerenal] Remodulin in both its intravenous and subcutaneous forms which today are pretty much split 50/50 between subcutaneous and intravenous and subject to FDA approval, inhaled treprostinil and then oral tadalafil. Each of which have shown in their pivotal registration studies P values better than 0.001, so highly statistically significant results with the standard -- gold standard end points of pulmonary hypertension of six minute block.

Ladies and gentlemen, with our track record of growth, which is unprecedented in North America and with our two new engines being strapped on that can provide even larger amounts of growth in the years to come, I'm very proud to say that the Company I'm honored to lead has one of the best prospects of profitability and revenue growth and new therapies for pulmonary hypertension than any company around. So with those words of introduction, let me now open up the telephone lines so that you can ask questions regarding business, clinical, sales and marketing or other questions of Roger, John or myself. Operator?

(Operator Instructions). For our first question we'll go to Biren Amin with Stanford Group.

Hope you feel better today. I was just wondering if you could maybe discuss the design of the new FREEDOM study, will we see similar primary end points with the six minute walk in the new FREEDOM trial?

Sure. Roger, could you answer that question?

Yes, certainly, Martine and thank you for the question. I'll preface my comments with echoing what Martine said and just reminding the callers that oral is now in early Phase III program and with the scenarios that I'll describe that at best unblinding will be in about two years and material revenues will not contribute for four years or more. Having said that, what our intention is with the ongoing FREEDOM-M or the monotherapy study is we'll add about 140 patients, so that will take the sample size to around 310 patients. All of the 140 patients that we will add will be added into the 0.25-milligram starting dose so all of those patients will have access to the 0.25 for both dose start and dose increment.

In total, given the patients that had access to the 0.25 of 171 that are already enrolled, that will give us around 200 patients that had exposure from the beginning of the study to the 0.25-milligram tablet and throughout the study. That will give us a 90% power to detect a 45-meter difference at the P less than 0.01 level and certainly if successful, we would have a single study that potentially would be of regulatory interest for filing. So that's our intention.

The amendment will be sent to the FDA shortly and then we will begin the study probably in the April time frame once the FDA approves the amendment and IRB and ethic's committees around the world also approve the amendment. We were -- the reason I gave the two-year scenario for data is we were doing about 8 to 10 patients per month at the end of the FREEDOM M study of the 171 patients enrolled, so that would predict around 14 months of enrollment, three months to conduct the study and then a couple of months to do the data analysis, cleaning and unblinding so that's where the two-year window comes from around FREEDOM-M.

I would also point out that we are going to do the FREEDOM-C squared study or the repeat of the FREEDOM-C, that will be about a 300 patient study starting in June. We're going to power that study give for a 30-meter difference at 90% the P less than 05, and that would roughly take two or more years to enroll and unblind. And whether or not we need one or two studies certainly will depend on the data. So that's what I can give you today about the current status of the oral program.

Will you be looking at six minute walk as a primary end point with the FREEDOM-C squared?

Yes, certainly, the FREEDOM-C -- both FREEDOM studies the end point will be peak six minute walks and then we'll have all of the secondary end points that are now common for these trials, trough levels, quality alive, human dynamics, et cetera, so nothing new in terms of what the primary end point focus is or should be.

Great. Thanks.

Next question, please.

Next question comes from Jim Birchenough with Barclays Capital.

Hi, thanks for taking the question and congratulations on the good 2008 results.

Thanks, Jim.

Just wondering if you could characterize your discussion was FDA currently around the inhaled Remodulin, whether you're in labeling discussions and if not when you expect those discussions to begin?

Sure, Jim. I mean, our experience is that the labeling discussions are really the very last thing that ends up getting talked with the agency about and in the past it's been basically about 45 days or so from approval until those discussions come up and so we've not had any back and forth with regard to labeling. The back and forth that we've had with the agency so far on TRIUMPH has been very routine sorts of questions, there is probably at least one e-mail a week that goes between our head of regulatory affairs and the FDA. There have been no surprises.

On one e-mail that got forwarded to me, for example, because it was particularly interesting was that the agency had asked what would the numbers look like if the following patients were cut out of the statistics and we would get that and the results were still highly statistically significant. So these are just the normal and customary sort of stress testing of the data that the agency does and I can say very confidently that everything has led us to believe that it's proceeding through a very normal and timely review and we remain quite confident that the PDUFA date can be met.

Thanks for taking the question.

Sure.

We'll take our next question from Jeff Meacham with JP Morgan.

Hi, I also want to offer my congrats for the year and thanks for taking the question.

Good to hear from you.

So question, two questions, one on oral. Was the plan for two studies based on your discussion was FDA or was it just your derisking the program and then what do you thing about the probability of filing on an upsized FREEDOM-M trial alone?

Roger?

Good morning, Jeff. The two studies is our idea. So while we're bullish about FREEDOM-M, we do want to derisk the program as you said so that if the study, FREEDOM-M for example was less than 05 but greater than 01, the filing would require a second study and we would be well positioned at that point in time to deliver a second result. I think the other thing that we've always tried to do here at United Therapeutics also is to really study the drug in its appropriate patient population and by that I mean, we fully expect that this drug will be used in combination with existing PD5 inhibitors like tadalafil or receptor antagonists. So we want to produce data to show that there is an added benefit to doing -- adding oral treprostinil to those background regime because we feel that is the right thing to do. It will also obviously sub serve as a secondary study if we so need it. It really is 100% our doing, Jeff.

On the inhaled program, how do you guys see this initial launch trajectory now that you're pretty close to the PDUFA date, do you anticipate switching? Do you anticipate capturing vast majority of new starts? Help us with the launch, if you can.

We're moving forward on the launch preparations, Jeff, with a combined effort in terms of market research, prepping the sales team, developing sales and promotional materials. We are, for example, already committing dollars to the printing of labels with alternative product names, so we're not actually printing the labels but we're signing the contracts because the exact product name is something decided by the FDA at the last minute. So we're doing -- we're doing everything we possibly can, because of our confidence in the late April PDUFA date. We want to get as good a start as possible. Our current launch plan is to launch in the first part of June, which is pretty much as close after the PDUFA date as it takes to get final labels and everything printed done.

In terms of the market entry points for inhaled, it's really interesting because we think that this drug has actually three separate market entry points. Each of which are going to be very attractive and while it being a mid-year launch, it's not realistic to look forward to any material amount of revenues from inhaled treprostinil in 2009, 2010 we definitely expect it to make a material contribution and that's simply because of the arithmetic of you launch something in June and by the time you get patients on it and reimbursement through it you've pretty much got a quarter of revenues when all is said and done.

Now, to get to some of your specific questions, first of all, the -- any patient who is on background oral therapy is going to be a prime patient for the marketing team to approach. And that's because of our expectation that the label would be something in the vein of this drug is indicated for patients who are on either PD5 or ETR therapy for pulmonary hypertension. That would be sort of a conservative label because that would be almost verbatim the results of their registration study that we submitted for the drug.

So certainly patients who are not doing their best on an ETRA or not doing their best on a PD5 inhibitor, those would be prime patients for the positioning of this drug. And on that point, let me just refresh everybody that the registration studies for Tracleer and the registration study for [revadio], both showed that in fact more than half the patients did not improve during the conduct of those studies and that data is sort of borne out by some excellent research that the Medicor Leerink Swann Group has done, showing that the average time patients remain on a single oral drug is actually less than a year now. So all of that shows that there is a huge market potential for people who are on one of the oral drugs and need to do better. So that certainly is a primary market thrust for this drug.

Now, a secondary market thrust are for the patients who are on Ventavis. Of course, the vast majority of those patients on Ventavis are also on either PD5 inhibitor or Tracleer, but it is a separate population because these are people who already been felt that they were not doing that well on an oral drug and needed an inhalation therapy as an adjunct. From everything that we've seen, we believe that inhaled treprostinil presents a pretty compelling posture, vis-a-vis inhaled Ventavis.. There is a lot of data to show that the treprostinil molecule has great efficacy and does the right things at the biochemical level that you would want to have done, to get a great clinical effect. There is also the marketed greater convenience, basically the patient goes from six, eight, nine or more long duration nebulation with Ventavis, to simple four one minute sessions with inhaled treprostinil. Unfortunately, with this disease, compliance is crucial and I know many of us who are all perfectly healthy think that oh, well if you had like a life-threatening disease you would be [tedious] about compliance but in the real world that's not how it is.

In the real world, people miss doses, people forget to take things and doing something four times a day is markedly better than six, eight or more times a day, especially if if those four times a day are as fast as a minute. We think that all across the board patients on Ventacis are going to actually be asking their physicians to switch to treprostinil and to get some data in support of that, Roger and his team are doing a very innovative multi national multi center Ventavis switch study which has -- that's Ventavis switch to inhaled treprostinil, which is already enrolled a number of patients and is continuing to enroll more as new IRB centers are rolled you out.

Finally, you asked a question about naive patients and, you know, we have to really see what the FDA label says. We're a Company that is very, very conservative in our attitude towards legal and regulatory compliance. So we have to see what the label says. But certainly there are going to be instances where patients present as, say, Class 3 patients and the physician is of the point of view that there is an important role played by prostacyclin class drugs in affecting the natural history of the disease. And I would say it's quite likely, if not inevitable, that there will be a number of those newly presenting Class 3 patients who are initially diagnosed with a combination of, say, tadalafil and treprostinil or and [litaris] and treprostinil to give them the combination of the synergies of a combination therapy right from the start.

That's something that data is still being developed on the synergies of combination therapies but my impression from talking with doctors all the time is that the mind share in favor of combination therapy earlier rather than later is growing. And so, therefore, I think a third market entry point for treprostinil is for the Class 3 patient to be given a shot at the power of prostacyclin from their very initial diagnosis and perhaps, together with the synergistic benefits of a PD5 or it ETRA.

Thanks a lot for the detail.

Next question comes from Bret Holley with Oppenheimer and Company.

Thanks for taking my question. Roger, I was just wondering what risks you see to the amendment to the FREEDOM-M trial as far as the FDA's point of view and what data analysis plan do you have on the primary end point for the revised study?

The risk would be, Brett, that they don't accept our proposed changes and would ask us to do a new study from the start, which would potentially delay us maybe four or five months in terms of when we completed the study. I don't think it's material in that respect but there is some precedent that other companies have done this. I think as longs as you're informed from an independent study without having looked at any of the cards so-to-speak from the current or ongoing study, then this is an acceptable thing to do in terms of amending the sample size and also amending the primary analysis to be only the patients, the 200 or so patients that had access to the 0.25-milligram program from the start of the study but the risk is that the FDA doesn't accept that and we have to then go through an alternative plan which is to start that 200 patient study from scratch and that would mean that the current FREEDOM-M study would be unblinded sometime in March.

But we don't anticipate that to be the outcome of our discussions but certainly the FDA no doubt will want to talk to us once we file the an study. As long as we haven't turned over any cards in the current study, this should be an acceptable strategy. The FDA is interested in showing or looking at data based on the dosing regiment that one would label which would be the 0.25-milligram start and the 0.25-milligram available as an increment. So I think that would be the primary analysis that they would be most interested in and why it would be acceptable to them.

I guess one question I have is if they kind of towed kind of a middle ground and said okay you can add the additional patients to the trial but you have to look at the trial on an intent to treat basis with all the patients included, how would the powering look under that scenario?

Well, it would stilling obviously be very strong because you would have a sample size of 315 patients versus 200 in your primary analysis. Irrespective of what we do on the primary, we're going to have to look at the total population as a secondary. We have written the amendment to do so. You can always, even within any study, share Alpha, so if Alpha is 0.05, another, this is just a hybrid, not something we're intended to do, we could share the Alpha between the overall population of 315 and then the quote, unquote, sub group that only had access to the 0.25, and we could share that Alpha evenly, if you will. But we don't really think we need to do that. We think we can spend all of the Alpha on the primary 0.25-milligram group and just redefine who the primary analysis group is. We think the reasons that we're doing that are legitimate. But certainly there's a risk that that will have some discussion

Thanks very much.

Sure.

Take our next question from Phil Nadeau with Cowen & Co.

Good morning, thanks for taking my question. My question is actually a financial one. Are you prepared to give any guidance for 2009 this morning? And particularly, on the R&D line, even excluding the payment to Lilly, it seemed like R&D was a bit heavier than we've seen in the past. Is that something we should extrapolate into the future?

We don't generally give guidance, forward-looking. However, what we do provide to the Street, which I think is actually better than some traditional forms of guidance, is, one, to ask people to look at the track record of seven consecutive years of revenue growth in excess of 30% and as you heard in our remarks earlier today, we think that prerenal Remodulin definitely has legs to allow us to continue growing its revenues, plus the contribution of inhaled and tadalafil. We are pretty open about the fact that we try to follow a pretty simple budgeting rule of spending less money than we make and in particular, we aim to spend in successive years upwards of about 80% or so of the revenues that we earned in a previous year and that, when you run those numbers through, it translates into there being an expectation that most spending categories can increase by something like 20 to 30% from one year to the next. And that's actually been our historical record. There of course will be blips up and down here and there in SG&A and R&D and of course I'm not excluding -- I am excluding extraordinary one-time things like the end license from Lilly of tadalafil. But we have no extraordinary R&D programs or than the one-third disclosed in our 10-Ks and have been. The FREEDOM trials, the inhaled treprostinil switch study, the continued development of treprostinil in other indications. We have an oncology study in neuroblastoma that's going to begin this year in 2009. We continue to do work on our anti-viral platform with encapsulated agents. So we've got a pretty robust R&D program that continues, but it shouldn't be anything that would cause our spending to go outside of the envelope that you've seen in the previous year.

And what about on SG&A, do you need to add any infrastructure to launch inhaled Remodulin and tadalafil.

No, I think we have our infrastructure well in place. We will add a few more people around the margins, but the basic infrastructure has been in place for a year now and those reps have been visiting all of the physicians to whom we would expect to be the writers of prescriptions for tadalafil and inhaled treprostinil. We know them pretty well. I think we're perfectly prepared as we are.

Great. Thank you.

For our next question will go to Joseph Schwartz with Leerink Swann.

Good morning, thanks for taking the question. I was wondering, how much clarity do you expect to get from the FDA regarding the proposed amendment, just based on your experience with you how they operate? How clear do you think that they'll be when advising you to go ahead or not go ahead with the amendment?

This is Roger. I think it will be a simple yes it's okay or no, we need to discuss it further. So it's that simple and that occurs actually with any protocol that you would submit to the agency. I don't think it would be unique necessarily to this amendment. In fact, this is about the fifth amendment for this study protocol. There's always during the course of studies, amendment to either the inclusion or exclusion criteria. So I think this would be either a a yes or a simple let's talk.

Okay. And do you have a meeting set up and how might we expect to learn of the outcome?

So we don't have -- we haven't submitted the amendment as of yet. It's imminent. It's usually a 30 day review and -- or so, and certainly with discussions. But I think it would just be at our next earnings call we would update you that we've commenced enrolling the amendment or not.

Okay. Great. And can you discuss the sites that you're considering using in the other two studies of oral Remodulin?

So I'm not sure about the other two studies. So the FREEDOM-M study is the sites that we're currently participating in in the FREEDOM-M study and then the FREEDOM-C squared, the repeat combination study is many of the same sites, if not all, from the original study group. We are endeavoring to add further, other centers to the FREEDOM-M study in particular and that effort is ongoing as we speak.

Great. Thanks.

We have time for one more question.

Mark Schoenebaum with Deutsche Bank.

Thanks for slipping me in. I appreciate it.

You're the man. You got the last slot.

You were kind enough on the last conference call to give an estimate of the revenue potential of tadalafil, kind of over a longer term perspective. I was wondering if you would be willing to give us that kind of perspective on the inhaled -- on inhaled treprostinil and if time, I had a housekeeping.

What about the housekeeping?

Sorry, just a housekeeping question. Sorry.

Oh, okay. So the the inhaled treprostinil, I answered the previous question that pointed out these three separate market entry points. So the next step in the analysis would really be to ask how many patients are being treated with either an ETRA or PD5. And there's a couple of ways to get some insight into those numbers. One way to get some insight into the number is by procuring IMS data. However, IMS data really only covers drugs that are filled at a local pharmacy. You can't really get good IMS data from specialized pharmaceuticals such as ETRAs. From what we've been able to learn from the IMS data, there is probably something in the order of magnitude of 10,000 patients being treated with a PD5 inhibitor and with regard to the ETRAs, you can get a fair amount of insight by dividing out revenues, which are overwhelmingly due to Tracleer by the known price of Tracleer and come up with an estimate that there is, again, rough order of magnitude, something like 20,000 patients being treated with Tracleer.

So some of them are going to be treated with both and it's no real easy way but -- to tell whether they're being treated with one or two but if you take a conservative figure of 10,000 patients, to just be very conservative, being treated with one of the two as monotherapy and you again, very conservatively, you assume that the drug is prescribed only in accordance with its label, which we don't know what the label is, but if the label exactly tracked the you study which was a study one of the other therapy, then you might see there might be an addressable market of inhaled treprostinil on something of the order of 10,000 patients. And how many of those patients would actually be captured by inhaled treprostinil would depend upon how many patients needed something in addition to their oral drugs. Well, as I mentioned in response to an earlier question, based on the registration study, it looks like more than half the patients need something in addition to their drug. The latest data from Leerink Swann is also highly consistent with that. So gone, just to pick a conservative factor, if you pick something like 5,000 patients are going to be capturable by inhalation therapy, then it's a toss-up between and inhaled treprostinil. I think from any objective sense, the benefits stack up pretty heavily in favor of inhaled treprostinil, vis-a-vis. It's premature to know exactly what the pricing would be but if it was priced comparably to, you would be looking at revenues around order of magnitude in the $500 million a year range.

Okay. Great. And then can you just update us quickly on the status -- actually very helpful, thank you -- the status of the Japanese and European filings?

Roger is responsible for the regulatory department at UT. So Roger, if you can brief everybody on the great relationship with and how we're going about on the centralized EMEA approach and the benefits that to us, as a result of that, the orphan drug status and so on.

As Martine mentioned, pharmaceutical Company is our partner for Japan for subcutaneous and intravenous approval. They will initiate patient studies. Now are going to move into formal dosing studies in patients starting this quarter. It takes a while to get studies completed there so it should be another couple years before they complete that but should be generating revenues in the 2012, 2013 time frame. In Europe, for inhaled, we did file in December our inhaled application as Martine mentioned via the centralized process to the EMEA. That filing was validated and accepted for review in January. So that is currently under active review and all things going well would predict probably a best possible approval time of late 2009. In addition, we've been engaged with the French on the ongoing intravenous application so it's been a busy time for both the inhaled and intravenous applications in Europe.

And the French discussions are going well?

The French discussions are ongoing and they've been ongoing for a long time so I hesitate to characterize.

Fair enough. Thanks a lot for letting me sneak in.

Thank you so much for your coverage. We really appreciate it. As a couple of wrap-up remarks. I know some people may have joined the call late. We had a record year of revenues for 2008. Our seventh consecutive year of growing in excess of 30%. According to our outside consultants, and Company, that actually meets or beats any other US biotechnology Company's record currently. In addition, we spoke quite a bit about the time shifting of the oral treprostinil program out to the 2013, 2014 time frame and, therefore, really the story with UT has evolved to be one of inhaled treprostinil, order tadalafil and continued strong growth in the core Remodulin business. That core organic Remodulin business remains strong because the number of patients who are living longer with pulmonary hypertension continues to increase. Specifically, the number of patients with New York heart association Class 4 pulmonary hypertension continues to increase year after year and that is a prime market for Remodulin.

In fact, our data shows that upwards of 90% of the patients with class 4 are on some form of prostacyclin and with regard to inhaled treprostinil, another interesting 90% stat as mentioned earlier is that Dr. Ray from University of Pittsburgh medical center recently reported data showing that in the one-year open follow-up study from the TRIUMPH pivotal study that 90% of the patients who were in that study required no therapy in addition to their inhaled treprostinil and whatever pre-existing background therapy they were on after a year. Again, very star startling confirmation and beautiful confirmation of Dr. Lou Rubin and Dr. initial insights that molecule met ideal delivery method when treprostinil met the inhaler and then last but not least, our exciting in license of tadalafil, the active molecule for pulmonary hypertension, exclusive license to United Therapeutics as part of a broader strategic relationship with Lilly and pursuant to this agreement we will be promoting subject to FDA you approval and selling tadalafil for its label and we believe we haven't had questions in this call on tadalafil but I'd say if you would take a look at the data which has recently been presented, it's to me absolutely in the sweet spot of drugs for patients newly diagnosed with pulmonary hypertension in particular in that it's got six minute walk distances that are equal or better than those of either the ETRAs or other PD5s. It's got a fantastic safety track record as one of the most widely prescribed drugs in the world. It's marketed price, is less than that which is charged for, which would be the only directly comparable.

And then most important, what has been pointed out to me by several KOLs is that the different between TID dosing with and the once a day dosing with tadalafil is really huge and it really augers a more consistent delivery, a heightened likelihood of compliance. The last thing you want with a pulmonary hypertension patients is for their pulmonary hypertension pressures to be cycling through the day from lower points to higher points. Tadalafil is likely to be very helpful in ensuring optimum compliance in this patient population. So we've got really an embarrassment of riches. We're extremely proud that companies, physicians and patients have entrusted us to do so much in pulmonary hypertension and we're all fired up and ready to go to make 2009 our best year ever. Thanks so much for joining us and look forward to seeing you guys at conferences during the course of the year. Thank you.

Thank you for participating in today's United Therapeutics Corporation fourth quarter and annual 2008 financial results conference call. This call will be available for replay beginning at approximately 11:35 Eastern standard time today through 11:59 Eastern standard time on Wednesday, February 25th with the conference ID number for the replay is 6654716. The number to dial for the replay is 1-888-203-1122. Thank you for participating and have a great day.