United Therapeutics Corp (UTHR) 2009 Q1 法說會逐字稿

Good morning. My name is Anthony and I will be your conference operator today. At this time, I would like to welcome everyone to the United Therapeutics Corporation first 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 concerning United Therapeutics will include forward-looking statements which represent United Therapeutics's 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 the United Therapeutics periodic and other reports filed with the SEC. There can be no assurance that actual results (inaudible) in such forward-looking statements will occur or be realized. United Therapeutics [disowns no] obligations to update the statements to reflect actual results, changes in assumptions, or changes in factors affecting such forward-looking statements.

Thank you, Dr. Rothblatt, you may now begin your conference.

Good morning, everybody. Welcome to the United Therapeutics first quarter 2009 quarterly conference call. I'm joined today by Roger Jeffs, our President and Chief Operating Officer; and John Ferrari, our Chief Financial Officer.

I'm pleased to announce this morning that our quarter one 2009 revenues reached just about $80 million, an increase of almost 30% over quarter one 2008, which is consistent with our now eight year track record of achieving 30% growth year after year. As a comment on that track record, we recently had our outside compensation consultants who worked not directly for the management but actually for the board analyze how that compares with other US biotechnology companies, and it is actually the best track record achieved by any publicly traded US biotechnology company, 30% growth for eight straight years. So, just a great shout out to the fantastic sales and marketing teams that we have at United Therapeutics, and a note of deep appreciation to the physicians and patients who have shown Remodulin to be their preferred choice of prostacyclin.

This $80 million Q1 2009 level of revenues also pegs us to almost one-third of $1 billion a year revenue run rate, which coincidentally matches almost exactly our level of cash and marketable investment. Questions are sometimes asked in terms of what are our intentions with this level of cash and marketable investments, and in fact, we're actively looking at a wide range of synergistic end licenses or acquisitions that would be used with some portion of this cash. And we've got a great team working internally here at the rather large number of companies that are finding it difficult to raise cash in this environment, but nevertheless, have some very exciting products that meet our general profile -- which are products that treat chronic, life-threatening illnesses, characterized by unmet medical needs -- orphan diseases are classic examples of something in this category -- that have a revenue potential of at least in the $500 million a year range and something less than five years in terms of being able to get that product into a material level of revenues.

Now, speaking of research and development, our profits for the quarter were also quite sweet. Up 20% on a per share basis from last year, at $0.50 per share. In fact, were it not for the shares issued to Lilly in connection with our in license agreement tadalafil for pulmonary hypertension, profits per share would have been up 30%.

Now, speaking of tadalafil, we're actually quite intensively now planning for the launch of what we consider to be a best in class and also most logical top line therapy for pulmonary arterial hypertension during this summer. Of course, we can't speak any further about the specific timing or the specific nature of any approval decision until we are notified by our colleagues at Lilly of its approval. However, the FDA has given us the green light to consider Adcirca an acceptable product name for that product. And of course, in the pharmaceutical industry, once you have the product name, you can go ahead and begin moving into more concrete promotional materials that have that product name. So we're doing everything we can to ensure the absolute minimum amount of time between approval on tadalafil and its actual commercial launch -- so that patients and physicians will have the benefit of this rather remarkable treatment for pulmonary hypertension -- which has, in the reports, been given at medical conferences, shown a best in class improvement in exercise capability, a very clean safety profile, a best in class convenience profile with once a day dosing. And ultimately, we expect that the product will end up being the most cost-effective product as well in the marketplace.

Now, speaking of the FDA, actually, the number one activity at United Therapeutics right now in terms of the FDA is meeting all of the requirements and addressing the FDA's questions for inhaled treprostinil's approval. As most of all of you I'm sure are aware, just a couple of days ago, we announced the PDUFA date for inhaled treprostinil had moved to July 30th, and thus we are now working most intensively to launch Tyvaso later this year. Again, as with tadalafil, it is just serious faux pas in the biotechnology and pharmaceutical area to talk about the details of regulatory approvals until the agency responsible for those regulatory approvals makes its own independent judgment. So, we can't say anything more about timing or content other than to assure you that our sales and marketing teams are working assiduously to have a great launch for Tyvaso. And beyond a doubt, the physicians and patients are very excited about the prospect of this therapy, given the struggles that are presented by the already-approved therapies for pulmonary hypertension.

So, what does tadalafil -- or Adcirca, I might say -- and Tyvaso, also known as inhaled treprostinil -- really mean to us at United Therapeutics? I believe that what it means is the 30% growth rate I mentioned at the beginning of this conference call, which has been propelled by parenteral Remodulin -- that is, subcutaneous and intravenous Remodulin -- will be able to continue several years into the future because Adcirca and Tyvaso will allow us to expand our market presence from the Class 4 and Class 3/4 patients, who are the natural users of Remodulin into the Class 2 and Class 3 patients, who would be the natural users of Adcirca and Tyvaso respectively.

So, with that introductory overview of the press release and activities here at United Therapeutics, I would like to now ask the operator to kindly open the phone lines, and we're pleased to take all of your calls in a first come, first serve fashion.

Our first question comes from Geoff Meacham with JPMorgan.

Hey, guys. Thanks for taking the question.

Our pleasure, Geoff. Nice to hear you on the line.

I know, Martine, you highlighted inhaled and tadalafil earlier but I wanted to ask a few questions on oral for Freedom-C Squared. Aside from dose, and it sounds like you guys are going to start that in the near term, aside from dose, what are you guys doing differently in that study versus the original Freedom-C and are you going to provide any more support to help investigators with those titrations?

Thanks, Geoff. I'm going to ask Roger if he could kindly address that question.

Sure, Martine. Good morning, Geoff. We're really not doing anything differently in Freedom-C Squared than we did in Freedom-C. The patient entry criteria are analogous in those respects. We have lowered the upper limit of walk from 450 to 400 to select a slightly sicker population of patients, which as we showed in studies and has been shown in all studies with PH therapies that the sicker the patients are, the more robust the treatment effect. Certainly in a trial of additive therapy, having the advantage of a sicker patient population, we think will be more amenable to success than not.

We aren't doing anything unique either in terms of the dosing strategy to help physicians, because with the 0.25 milligram, as we've previously reported, all patients tolerated that dosage strength very nicely. There were no discontinuations from the study in that subset of patients. All patients that will be subsequently entered will only receive 0.25 milligrams as the start dose, and dose increments will be by a further 0.25 milligrams incremented each -- each successive increment.

Having said that, we're also in the process of making a 0.125 milligram. So, while we're very confident that the 0.25 milligram is the correct dose strength to use, we are going to have a failsafe measure of having even a smaller dose strength tablet, just in case there is a rare patient who needs a lower strength tablet, either based on low weight or of a unique status.

So, I think everything is in place. We are anticipating beginning enrollment in Freedom-C Squared in June. It is a 300 patient trial. 90% powered to the 0.01 level. So -- I'm sorry, 90% powered to the 0.05 level.

I'll also comment now on the Freedom-M study. Freedom-M has reinitiated enrollment. As we know, that's a study of patients on monotherapy with absent background therapy, 90% powered at 0.01. Also in the 300 patient range. So collectively, we're doing what are the largest trials in pulmonary hypertension in this space. So, we're very pleased to be doing that.

We're going to do this very, very aggressively. We're adding centers around the world, both centers that participated in the previous study as well as new centers that we're going to add who are excited about joining the trials including centers as far away as China. So this is a full-on global effort. We'll endeavor to get it enrolled as quickly as we can.

A quick follow-up to that, Roger, for Freedom-M. What's your filing strategy if you hit that with 0.01 or less, will you wait for C Squared? And then the patients in the original Freedom-C that -- are you still following those, the ones you're able to tolerate and could that be obviously supportive to an oral filing?

Yes. That's a great question, Jeff. Both questions are great. So, the Freedom-M is powered 90% at 0.01 with -- which would provide the potential to file that result if it was robustly less than 0.01. It would be analogous to the Tyvaso application where the walk effect was not only less than 0.01, but it was robustly less than 0.01. If the result is similar to that, then we believe we could file based on that result. And the original Freedom-C study, I think we should all remember was a very close miss. P value was 0.07. It was 350 patients which provided ample safety data. As you have surmised, we're continuing to follow the patients in open label continuation. So to date we've entered more than 400 patients in the long-term continuation from both trials. So, we'll have an extensive database for safety and hopefully Freedom-M will bring us a very rigorous efficacy result which we could then file on. Freedom-C Squared would be used as further support just to expand labeling for combination therapy. Again, if the Freedom-M is less than 0.01. It is also -- Freedom-C Squared is also there in case Freedom M is between 0.01 and 0.05. It would serve as second study required for approval.

Great. Thank you.

Thanks. Next question, please.

our next question comes from Joseph Schwartz with Leerink Swann.

Thank you. I was wondering -- I've noticed that there is a large extension study underway for tadalafil in PAH in females, up to 400 patients looking at 20 and 40 milligrams. And I'm wondering how this information might be either provided to the FDA as well as presented to investors potentially at upcoming conferences to give some comfort that maybe the higher dose of -- the 40 milligram dose of Cialis could be approved as opposed to the 20 milligram dose?

Thanks for your question. Both me and Roger will give you some color on that question. For me, I wanted to say we really can't comment on anything in the clinical and regulatory development of tadalafil, because it is Lilly's drug and it is Lilly's responsibility for regulatory approval. Under our strategic partnership with them, we have comprehensive responsibility for commercialization. But they have complete responsibility for the clinical and regulatory development. So, I'm sorry not to be able to shed much more light on that, but I think Roger would like to make a comment or two.

Yes. Good morning, Joe. That data, the one-year blinded long-term data will be discussed at the American Thoracic Society meeting on Sunday, May 17th at the morning session for pulmonary hypertension therapy. By Dr. [Ron] OD.

Just again, background on that. Those were patients that rolled over from the first study, the people who trialed tadalafil -- and patients that were unsuccessful on other doses were escalated to 40. Patients on 20 who were successful through the trial -- which was 90% of them at 20 were then continued on blinded 20. What you'll see blinded long-term data evaluating patients on either 20 or 40 milligrams, given once a day, to patients over the long-term and I won't disclose the data but I think everybody will be very, very enthused by what they see at ATS.

I guess that's a week before the PDUFA, so that will be interesting. If I could ask the follow-up on the commercial side. Considering that sildenafil goes off patent I believe in 2012, is it? And yet your drug -- depending on whether the 20 or the 40 gets approved, it doesn't really matter, given it will be a discount. I would think you would have an opportunity to contract pretty favorably with payers for a couple of years at least. What is your strategy to gain share ahead of that event? What do you think the impact of the generic Revatio could be?

Joe, I actually think that the off patent situation for sildenafil is going to be pretty much of a nonevent in terms of tadalafil. The reason for that is the two molecules are quite different. And the two drug products certainly have quite different profiles. And it makes really no real sense to transition a patient, for example, from a drug which has better efficacy showing significantly better compliance profile to one that is worse in compliance, especially for a life-threatening illness with mean survival at five years, simply because there's an alternative that's generic. That sort of stuff just basically doesn't happen. Our strategy is that we expect that before sildenafil goes off patent, the preponderance of the sildenafil patients will have already transitioned to tadalafil.

Of course, with something like pulmonary hypertension, you visit your doctor at least twice a year. Sometimes four times a year. And a typical thing that doctors will surely say to patients is I've got good news for you. The Revatio pill you've been taking three times a day can be replaced with a once a day pill. That's the same thing that's happened in many other indications when new formulations become available.

So, I think that that is a very -- that's the easiest of all switches for a doctor to do. One tablet to the other. Both in the same class, neither with any significant safety consequences, other than the fact that it is a known issue that compliance with sildenafil is problematic in many pulmonary hypertension patients. In addition, unfortunately because the illness is progressive and there is a turnover in the patient population, there are also many newly prescribed patients. As I mentioned in my introductory remarks, I think it is very soon going to become almost a no-brainer that you should start a patient on tadalafil because of its safety and efficacy profile, and on top of that, because of its convenience and economics that it presents. So, for all of those reasons, we expect tadalafil growth to be robust right through the sildenafil patent cliff.

Thank you for the explanation.

Next question comes from Bret Holley from Oppenheimer.

I was wondering if there are any details in the human factor study for Tyvaso and whether or not there are any surprises or if this was a fairly pedestrian -- exactly what you expected in the outcome?

Thanks for the question. As mentioned, in the early remarks, it is just really bad form to talk about -- for us to talk about, not for you to ask. You can ask anything you want. But for us to talk about the internal discussions between the FDA and us is not in our interest. And therefore, it is not in the shareholder's interest. So, surely, you'll understand that. In general, I would say that there is nothing pedestrian about developing the medicines and the FDA's responsibilities for lifesaving drugs. They take their responsibilities very seriously. We have a world of respect for the weightiness of their decision. And every concern raised by the FDA is treated with great care and respect by us, and we cherish our great working relationship with the agency and are going to continue to work with them through to the July 30th PDUFA date.

Okay. And regarding the cash position, I was just wondering if at some point, you might actually consider a share buyback, given the current value of the stock. Could you comment on that, Martine?

It is something that we could constantly have on our beam balance scales. The past couple of days it began leaning more against doing it. We've had a couple of buybacks in the past. So, it definitely is something in our corporate DNA to do. But the specific timing and amounts of any such buybacks are decisions that have to be carefully pored over by the board of directors with our financial advisors, so there's nothing that we're announcing today in that regard.

Okay, thank you.

Next question comes from Jim Birchenough with Barclays Capital.

Good morning. A few questions. Just first, broadly, are you seeing any impact of the macroeconomic environment on either wholesaler buying of Remodulin or end user utilization? Just wondering when we look at the first quarter number, does it really reflect demand? Is it an underestimate or overestimate? Can you comment on that?

Here, Jim, I think it does reflect demand. And honestly, I see absolutely no impact from the macroeconomic environment on a business such as United Therapeutics or let me just be direct, on United Therapeutics's business, I see no impact of the macroeconomic environment at all. Just to give you a couple of measures of that, we have had for a number of years a program in which any patient diagnosed with pulmonary hypertension in the US who can not afford to pay for Remodulin receives it for free. And this is something that we just feel is our responsibility to do as a member of the community. And despite that situation, due in large part, I would say to the superb efforts of the specialized pharmacies that we work with in this orphan drug environment, our medicines are not available at Duane Reade's. Only three specialized pharmacies in the whole country that you can get them from.

But, for example, with the experts at Accredo are very expert at finding appropriate insurance and payment mechanisms for patients, especially if they have a breather of four to five to six months to work the issue, and during the interim we're able to give the patients the drugs for free. As a result of this, it has been very consistent that less than 2% of all of our patients are on free medicine, and that statistic has hardly moved over the past five or six years. So, that's why I can say confidently that we see no impact of the macroeconomic environment on Remodulin. And again, I'm sure that's because it is not a lifestyle drug. It is not an optional drug. It is something that is generally reserved for the sickest of sick patients. And for those people who are unfortunately without insurance, we provide it for free.

Thank you, Martine. Maybe one follow-up question just for Roger. Just looking at the distal one study which just posted in scleroderma patients with digital ulcers, just wondering if Roger can comment on what the end points are that you're looking there and if there is a broader regulatory strategy around scleroderma patients with digital ulcers.

Happy to, Jim. Thank you for the question. It is our next foray in terms of indication look for oral Remodulin that what we're doing in scleroderma patients is looking at the ability of oral Remodulin to relieve ulcer burden. So we're going to look at a composite score that looks at patients with ulcers and whether or not those ulcers heal, whether or not new ulcers form, et cetera. We expect distal one to begin enrolling imminently. We've done a PK study in scleroderma patients first. We're assessing the plasma PK levels to make sure there's no change in absorption in the patients with connective tissue disease, as there is some suggestion in the literature there might be. Current evidence suggests with treprostinil, its oral absorption is not altered based on the fact that patients have connective tissue disease.

The study is a Phase II study. So we'll very carefully explore doses. This is a new indication. We don't truthfully know what dose will help. We do have a lot of anecdotal evidence from parenteral therapy patients in patients with digital ulcers, for example, where there was very good healing. We had recalcitrant ulcers heal where physicians told us otherwise the digits would have been amputated.

So, anecdotally, we have good evidence that treprostinil will be an effective molecule. We're doing the studies very carefully and hopefully thoughtfully to find the dose. It may be that they need a titration regimen or they may need a fixed dose regimen. We'll sort those out in these careful Phase II studies. Once we've completed Distal 1, which we think will take us through the end of the year to enroll, it is about a six-month observation period. This is not data that we'll have in any near term window. Sometime probably mid to late next year. But based on positive results from Distal 1, we're then planning to do Distal 2, which will be the full-blown pivotal study. It is an exciting program for the company and expands us beyond the single indication of PAH. I think what's very attractive to Martine and the company and I is with tadalafil, we've gone from a -- to a second drug (inaudible) in terms of PAH. And I think with Distal, we go to a new indication. We go from one drug, one indication company to a multidrug, multiindication company with the use of our current portfolio compounds without the need to bring any other compound into play.

Beautifully expressed, Roger. Thank you very much. Operator, we have time for one last question.

Our next question comes from Eun Yang with Jefferies.

This is [Lynn Hondine] for EUN. So,(inaudible) got a complete response with the FDA asking for [runs] when they were going for the Class 2 indication. I was just wondering -- want to get you guys' expectations in terms of FDA asking for runs for tadalafil? Are you guys expecting that? And have you guys communicated with Lily in terms of what their expectations are on that front?

As mentioned, at the beginning of the call, we really just do not comment on our interactions, speculations, or expectations with regard to the FDA. Operator, since that was a short question, we'll take one more question.

Our next question comes from Lilian Li with Wedbush.

Thank you. The SG&A in Q1 was a little bit high and you mentioned prelaunch activities for both drugs this year. Do you anticipate SG&A will continue to ramp up?

We are going to continue to increase spending on SG&A. We have two drug launches that we're hopeful we'll be able to execute this year. And as mentioned, earlier, we have received green lighting for the brand names Tyvaso and Adcirca. So, that gives us some justification internally to allocate spending to promotional and educational materials with regard to those product names. We continue to flesh out our sales forces both in the US and in Europe and we are quite excited about the growth potential that we see in the EU. Currently, the EU provides between 10% to 15% of our revenues depending on the particular quarter. And we think that there is a large, untapped potential there. Ultimately, with intravenous approval in Europe, we would be able to perhaps double the number of parenteral patients we have there, since our experience in the US is that we have about one IV patient for every subcu patient. So the availability of a second method of delivery should allow us in general to have about two times as many patients.

Also, with regard to Tyvaso, we have applied to the EMEA through the centralized European process which, by all logical factors will be a much more efficient means of achieving approval for that drug than the country by country approach that we have selected back in 2001 or so for parenteral drug. So we've been stuck with the country by country approach for parenteral, which has impeded EU's development. But for the Tyvaso, we're going for all of Europe at one time. And we've hired employee sales reps for key markets such as Germany, which is something that we did not have for subcu and IV. So we are moving forward in Europe. We're moving forward in the US.

However, while the answer to your question is yes, spending will continue to grow, I would like to conclude by commenting on one -- for me, one of the most beautiful financial aspects of this company -- if you could just take a look at it as a financial work of art -- is that the company gets increased leverage with each new product that it introduces, because the normal people to whom we present these products see patients for whom each of the three products has their own utility. So it is not like we're launching a dermatology product and an ob/gyn product and a pulmonary hypertension product in which you obviously would need three sales forces for those three separate products. All three products are in the same pulmonary hypertension space. The vast majority of the patients are seen by the same experts, the people that have the most parenteral patients also end up with the most inhaled patients and the most oral patients. So, there is a truly elegant increasing leverage and thus improving margin with each additional product that we bring to market.

So, thank you very much for your questions and for all of you for attending our first quarter 2009 conference call. And operator, you may now provide the wrap-up information.

Thank you. Thank you for participating in today's conference, United Therapeutics Corporation first quarter earnings conference call. This call will be available for replay beginning at 8:30 AM Eastern time today through 11:59 PM Eastern time on Friday, May 8th, 2009. The conference ID number for the replay is 9448698. The number to dial for the replay is 1-888-203-1112 or 719-457-0820. That does conclude today's conference. You may now disconnect.