United Therapeutics Corp (UTHR) 2009 Q3 法說會逐字稿

Good morning. My name is Kristin, and I will be your conference operator today. At this time, I would like to welcome everyone to the United Therapeutics Third Quarter 2009 Financial Results Conference Call. (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 the United Therapeutics periodic and other reports filed with the SEC. There can be no assurance that the actual results, events or developments referenced in such forward-looking statements will occur or be realized. United Therapeutics assumes no obligation to update these forward-looking statements to reflect actual results, changes in assumptions, or changes in factors affecting such forward-looking statements.

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

Thank you, Operator. Good morning, everybody, and thank you for joining United Therapeutics Third Quarter Financial Results Conference Call. I'm joined this morning on the call by our President and Chief Operating Officer, Roger Jeffs, and by our Chief Financial Officer, John Ferrari. I'll make just a couple of introductory remarks and then we'll open up the phone lines to questions that can be directed to any of the three of us.

As I hope everybody has seen in our press release, this has been, actually, the best quarter in our Company's entire history. I'm just so excited. We are virtually at $100 million in terms of quarterly revenues. That's a huge milestone for us. It is, of course, a $400 million a year revenue run rate, up from just $300 million a year one year ago. So, 400, 300, 33% increase in revenue run rate in a year, this is basically the ninth straight year that we have grown our revenues by 30% or more, and nothing could make us happier.

We also ended the quarter with a nice uptick in terms of net income. And the other highlight for the quarter is that for the first time our cardiovascular product revenue for Remodulin has been complemented by the first contribution from the two new products that were approved during the quarter -- Tyvaso and Adcirca. And, of course, the revenue numbers for those products are very small compared to Remodulin, but that's totally to be expected, as both products were approved, were launched during the third quarter. And what is significant here is that the Company has done such a great job on executing, that just a couple of months after the drugs are approved we are able to actually show revenue, meaning that the drugs were shipped to distributors and the distributors were able to get reimbursement, comfort, and hence some placed their orders.

So, things are going absolutely brilliantly with regard to both Tyvaso and Adcirca. There is a growing consensus among the pulmonary hypertension practitioners that these two drugs are best-in-class candidates for both the inhaled and oral PD-5 categories, respectively.

And, again, as I mentioned at the beginning, our flagship product, Remodulin, is continuing to grow very, very strong as well, reaching its highest quarterly sales level ever. So, taken together, Remodulin, Tyvaso and Adcirca, these three therapies demonstrate United Therapeutics' keen focus on helping people with pulmonary hypertension. We are very proud to be the pulmonary hypertension company, and our number one goal is to continue developing better and better products until we can convert pulmonary hypertension into a chronic, lifelong manageable condition.

With that introduction, I'd now like to open up the lines for any questions to me, Roger or John. Operator?

Thank you. (Operator Instructions) We'll take our first question from Jim Birchenough with Barclays Capital.

Hi, guys. Congratulations on the quarter. Just trying to get a sense of the Tyvaso trajectory since the launch. The $5 million you reported for the quarter, I assume it's just from September. Was that demand based or is there some advanced stocking? And what do the trends look like in October? And I've got a follow-up.

Thanks, Jim. We, too, are very excited. In our organization, John Ferrari manages the distributor order flow, so I'm going to ask John to answer your question.

Thanks. The orders in September were probably initial stocking just based on referral demand. So, we're pretty pleased with the referrals that we're seeing since early September to today. So, we're actually seeing demand start picking up.

And just a follow-up in terms of breadth of Tyvaso, can you talk about the number of physicians that use IV Remodulin and what number of physicians ordered Tyvaso, to get a sense of how broadly it's being adopted?

Hey, Jim, this is back to Martine. It's being adopted very, very broadly, and perhaps the most significant data point is that it's being prescribed from all the different segments of the pulmonary hypertension space. In other words, this is not reflecting just Ventavis prescribers, going ahead and prescribing Tyvaso to swap out Ventavis, although that is certainly in there. It's also being prescribed by doctors who ordinarily would not prescribe Ventavis but would maybe take a patient straight to Flolan, and doctors who had not been involved with inhaled therapies at all.

So, there is very, very broad-based acceptance of Tyvaso. We were impressed with our market research showing that at the time of launch, three-fourths of all surveyed pulmonary hypertension prescribers were already aware of the Tyvaso pivotal trial data.

So, it's a -- this is going to be a rocket. I mean, there is no doubt that I would say that the fundamental half for pulmonary hypertension going forward is going to center around Tyvaso, because it makes for the first time ever the power of prostacyclin practical.

Thanks for taking the questions.

We'll take our next question from Terrence Flynn of Lazard Capital Markets.

Hi. Thanks a lot for taking the question. Just wondering on Adcirca if you could give any sense there with respect to stocking versus demand? And then, also on both drugs, can you give us a sense of new patient starts versus switches, and how those break down? Thanks.

Thanks, Terrence. I'm going to have John address the order flow question, and then I'll talk about the prescribing patterns

I think with Adcirca, it launched a little bit -- it launched in July, so July orders were stocking, but I think since then everything has been demand driven. So, again, very similar to Tyvaso, so we're seeing demand pick up, and I would expect orders going forward will be on demand driven.

Yes, I agree. Hey, the breadth of the prescription practices for Adcirca are very, very similar to what we've seen for Tyvaso, in that you have prescriptions being written not only for replacing Revatio, although there is a lot of that going on. But also prescriptions coming in for newly prescribing patients, newly prescribed -- newly diagnosed patients, excuse me -- going straight to Adcirca, as well as Adcirca being added as combination therapy for patients who are on Tracleer or Letairis.

So, there is a very widespread awareness of Adcirca, a clear recognition of its several advantages to the patient with regard to alternatives. And it will, I have absolutely no doubt that it will very rapidly become United Therapeutics most prescribed drug.

Great. And just a follow-up. Can you give us an update on where reimbursement stands for both drugs?

Yes, I'll give you just like a 30,000-foot view, and then I'll ask John to provide a little bit of quantitative color in terms of the major payers. We have done, I would say, and I know I'm patting myself on the back, but I'll slap myself in the face when I screw up, but this time we've not screwed up. We've done an absolutely brilliant launch of these two drugs/ And the way I know that is we have data from expert sources that take a look at all different companies that launch drugs and how many weeks or months it takes them until they have reimbursement being processed, because the thing never happens like in an instant. And in our case, we are in the top decile in terms of the short amount of time it has taken, weeks in the case of Adcirca and Tyvaso, from the time of launch until the drugs are being reimbursement, what you see the proof of concept of in these numbers. So, to be in the best 10% of performance in terms of elapsed time to reimbursement is absolutely awesome. And maybe, John, if you can give a little more color.

I'd be happy to, Martine. So, through today, of probably the top 25 payers in the nation, we have reimbursement approval for well over 80% of those. We're on track or ahead of schedule for formulary review with those payers, and one of the nice things that we've come cross is, because Adcirca was launched first, followed by Tyvaso, a lot of the payers are now, when they consider Adcirca in their formulary review meetings, they're also putting Tyvaso in that meeting at the same time. So, we actually should be ahead of schedule on formulary approval with Tyvaso.

Thanks, John. That's great color, and something else that I'll mention. Although it's not often mentioned in the pharmaceutical business, I think that these are not ordinary times in terms of health economics with major legislation. We have received many plaudits and kudos from the payer community that both of our new products, Adcirca and Tyvaso, despite having many superiorities compared to their alternatives, are being launched at prices that are less expensive than their alternatives.

Thanks a lot.

We'll take our next question from Geoff Meacham from JPMorgan.

Hey, guys. I also want to offer my congrats on the quarter.

Thank you, Geoff. Yes, we appreciate it.

Question for you on Tyvaso demand. Can you tell us what kind of patients you're seeing this early in the launch? Is it Class III patients on a PD-5, or do you see patients on IV Remodulin switching back to Tyvaso?

That's a great question, Geoff, and you know it's a complicated situation, because the physicians in this field are overwhelmingly quite expert in terms of managing the therapies. And the FDA approved a suite of therapies, but then it's up to the physicians to manage when to give which patient which therapy. They do meet every couple of years or so and adopt these consensus guidelines that provide a kind of differential treatment algorithm for various patients. But, frankly, things have been moving so fast in the field that by the time these differential treatment algorithms are printed in a peer review journal, they're already out of date, because new therapies have been approved since they've been printed. And that leaves each physician with a challenge, frankly, of trying to figure out the right therapy for the right patient.

Now, that would be difficult enough. I would say that in and of itself is what makes the PAH prescribers really the cream of the crop in terms of cardiologists and pulmonologists and rheumatologists, because they've got very challenging decisions to make. But to make things even more difficult, the only real guidance provided is basically whether a patient is a New York Heart Association Class II, Class III or Class IV patient, as mentioned in your question.

But in the real world, people don't really have a brand on them, II, III, IV, and there are many gray cases of patients who are III-IV, II-III, and so on. So, it's a real challenge.

Having said that, though, we are fortunate that the Tyvaso project has been led by one of the absolute top key opinion leaders in the country, Dr. Lewis Rubin. And he has been very clear in his presentation that it is very much a no-no to consider taking a patient from a parenteral prostacyclin over to Tyvaso. And that Tyvaso is a great drug for the New York Heart Association Class III population, but not to think of really extending it into Class IV. Nor do we have data from our pivotal trial that is appropriate for Class II.

Also, I'll say that we're a very conservative company in terms of compliance with promotional materials, and we very strictly guide our sales force toward positioning this product for New York Heart Association Class III patients.

So, the bottom line to your -- answer to your question is New York Heart Association Class III is where the prescriptions are coming from. That, from a business standpoint, though, that's actually very good news. Because if you take a look at the curve of patients, Class I, II, III and IV, and again I'm just going to give you some rough figures here, pretty much you're looking at about 10% of the pulmonary hypertension patients are Class IVs. And let's say out of 30,000 patients, it's upward of 3,000 patients. Another 10%, roughly speaking, are Class Is. That basically means that their treatment is working so well, be the oral drug or inhaled drug, that they're basically normalized in terms of their exercise capability.

And then the remaining 80% is pretty much 40/40 between Class II and Class III, depending on the particular center. It might be split 50/30, or something like that, but on average across the whole country it's about 40/40.

So, New York Heart Association Class III is the sweet spot. It's the portion of the population that has the most patients with the fewest treatment options, because the oral drugs are best situated for the Class II patients. If you're a Class III, it basically means the oral drugs are not working for you as well as they should; you face the prospect of progressing to Class IV, which is a very bad place to be; and that, finally, with Tyvaso, there is a practical, effective drug available for the Class III patients. And so that's where the prescription activity is going on, and that's good news for United.

Okay, great. Thanks for the color, Martine, I appreciate it. Just a follow-up, a real quick question. Adcirca, I just wondered if you guys have any updates on the status of your discussions with Lilly on potentially getting European rights to it?

Right. Well, I certainly respect you asking the question, but I bet you would agree with me that there is probably some people from Lilly answering -- listening in on the call, too, it's a free country. And I don't think they would appreciate us discussing our negotiations with 300 people on the phone.

Okay. Thanks a lot.

We'll go next to Liana Moussatos with Wedbush.

Thanks for taking my question. What's the status of the portable inhaler for Tyvaso?

Yes, excellent question and thank you for asking us. We, as I mentioned in my introductory remarks, we are basically absolutely passionate about developing better and better therapies for pulmonary hypertension and to make this a chronically manageable condition. A big part of that is to make the lifestyle as easy as possible for the patient.

So, with our partners, Nebu-Tec in Germany, we have developed a second generation inhaler called the Fimneb, F-i-m-n-e-b. And it's called Fimneb, in part, because this is a smart inhaler, sort of like a smart phone but a smart inhaler now, that runs off of a SIM card, similar to what a phone runs off of, and therefore has a great deal of flexibility in terms of being able to program breath, record breathing patterns, record compliance. And we will end up making all this available to the doctor with a software program that will, for the first time ever, let a doctor on a visit of the patient be able to actually see graphically exactly what the patient has been doing.

At the same time, the Fimneb has benefited from some excellent product engineering in that it is so small it slips right into the size of any coat pocket that either a man or a woman's coat pocket. So, no longer do you even need something to be put in a purse, it actually fits right in your coat pocket, and you could turn it upside down, sideways, flip it around, and everything is fine.

It shares the characteristic of our Optineb, which is that you fill the reservoir in the inhaler with your drug in the beginning of the day, and that's it. You're gone for the whole day. There is no need to stop and break open a glass vial every few hours as is the case with Ventavis. Here we just have a plastic ampule, put it in the morning and you're off and gone for the whole day. So, that convenience will be carried over into the Fimneb.

It's also, I'll tell you this, and you may think, well, why worry about this? But let me tell you, when you're talking about 40% of 30,000 patients, that's 12,000 people. That's a lot of people. Design is also important, and the Fimneb is something that anybody would kind of not be embarrassed to be brought out. It's attractively designed, ergonomically designed. It's something that makes a patient feel that they are living with PAH in a positive sense.

Though we're on a real fast track with that, Linda, and our plans would be to begin the clinical trials of that starting at the beginning of the year. I actually believe the first doctor in Germany, in Europe, one of the leading PAH experts, is beginning to do some testing with it next month. And we'll roll it out into some larger tests next year.

Our plan is to basically show that it has exactly the same disbursal pattern and pharmacokinetic as the Optineb, so that it would be just a completely fungible device with the Optineb, and therefore there would be no need to have controlled trials.

So that the bottom line to your question is, I would certainly expect that by 2011, patients could have this nice, palm size device, no bigger, really, than a palm size camera.

Thank you very much.

Sure thing.

We'll go next to Mark Schoenebaum with Deutsche Bank.

Hey, guys. How are you?

We're doing great today.

Excellent. Excellent. Hey, can you just tell me what percent of patients are Medicare, and do you have the final Medicare code yet? And I had a follow-up, please.

Another reimbursement question, so I'm going to ask John to talk about that.

Yes. We're working with CMS right now, so we're hoping to get approval sometime in, I guess November, for the code for Tyvaso. I think with Ventavis, it looks like about 60% of the Ventavis patients are Medicaid, so I would assume we'll have the percentage with Tyvaso.

Okay. Has that been a hindrance so far? I mean, I'm trying to understand once you get that code, should we expect a material uptick?

Well, that is part of the referral. They are waiting to get processed, so I don't have the exact number, but I would assume that it is a reasonably large number. But it also takes time to get those processed. So, again, I think as Martine mentioned, we'll get them on therapy sometime during Q4 and the rest early in 2010.

Okay, fair enough. I'll only just maybe ask the question, not sure how much detail you'll be willing to give, but it's my job to ask. On Ventavis, can you give us either, like some sort of market share or number of patients on Tyvaso, or perhaps the number of patients that have been referred for therapy? Because when I kind of stare at this $5 million number, I realize a lot of it is just buying by Credo, et al., but I would assume that those distributors wouldn't buy beyond what they thought they could sell. And if I kind of dissect that $5 million number, I'm getting something like double-digit potential patient share in the inhaled market already. And I just want to know if I'm totally crazy, which I generally am, but --

Yes, but fortunately you're crazy about UT, and that's good. Mark, we are breaking out product revenue by drug, and we promised that we would do that in the months leading up to the launch, and we'll continue to do that going forward. On the other hand, we've learned in dealing with the doctors in this field for the past few years that they really don't appreciate getting into what's called "body counts." So, we're not going to break out specific numbers of patients on the various drugs.

There is no doubt that there has been a brisk and swift uptake in the prescriptions for Tyvaso, but also as mentioned, they have the -- we have the pleasant benefit that they're not all coming at Ventavis's expense. They are coming from all the different segments of the market.

So, Ventavis is a good drug for the patients that the drug is working for, and we are not dependent on just taking Tyvaso share for us to grow. On the other hand, there are numerous undeniable benefits of Tyvaso over Ventavis, and we do believe that over time the large majority of inhaled patients will be Tyvaso patients.

The $5 million figure that you see here, this is just a proof of concept that UT knows how to get a drug launched, booked and reimbursed within the same quarter. That's a proof of concept that we know how to execute. In terms of reading in patient counts and whatnot, you're going to have to wait until 2010 to do that, when there is going to be material revenue contribution.

Fair enough. Thanks.

We'll take our next question from Joseph Schwartz with Leerink Swann.

Hi. Thanks for fitting me in and congratulations again on the best quarter ever. I was wondering if you could give us a sense of how many patients from the Tyvaso clinical trials are on commercial therapy at this point?

Yes. Well, let's see. I would say virtually all of them.

Okay. And how about patients that as a proportion of your sales this quarter, I know it's just the first quarter, but what proportion would you say are patients that were not from your clinical studies?

All I can say -- I don't want -- you guys are like so good, it's like box us in the corner, but I will say this, that the majority are not the clinical trial patient.

Great. And the progress in Europe --

You are so smart, Joe. He just kind of vectored me to a quasi body count.

I don't know about that, but as far as Europe goes, there seems to be a lot of excitement for Tyvaso, especially since it was developed there , in large part. Where do we stand in terms of getting it approved in

I'm going to ask Dr. Jeffs to talk about that. Dr. Jeffs is the man who got it approved here in the US and is leading the charts there as well. Roger?

Sure. Good morning, Joe. We've responded to the day 120 question, and during the 120 response, the clock stopped. When we resubmitted our responses, then the clock restarted, so we've passed day 150. So, we're in the process now of awaiting the (inaudible) consideration of our responses. And based on that, that will predict the outcome and the timeline of the approval. So, still under active review. We won't get into specifics of what the questions are, but we have responded in total to all of the day 120 questions and the review clock has restarted. So, if all went well, it certainly would matriculate to an early Q1 approval, but we'll see, based on the receptiveness to the responses that we filed.

Great. And just one follow-up, if I could.

Okay, Joe, this will have to be the last question, but go ahead.

Absolutely, I promise. The expenses stepped up a little bit this quarter. Obviously, you've been launching two drugs, so that's understandable, and FREEDOM-C and M are in there as well, I think in R&D. So, are there special launch and R&D costs that will not be recurring and we'll get to see some more operating leverage going forward? How would you help us envision what's going on in the expense line?

Yes, great question. There are definitely, so I'm going to give a little bit of a longer answer to it. There definitely will be increased operating leverage going forward because we now have three separate sources of revenue that will substantially, the other two sources will substantially grow to become material during 2010. However, we have not had any need to increase our sales force from 2008 to 2009, because the sales force that we have is adequately sized to cover the entire prescribing market for Adcirca, Tyvaso and Remodulin.

Having said that, we are also in a very competitive environment in that Adcirca is a tough -- I mean, not Adcirca -- [Activian] is a tough competitor, and we have to make sure that we have adequate capability to address their counter-details and adequate educational material distributed throughout the country.

So, we will definitely be continuing to spend aggressively on sales and marketing, and during 2010 there will be growth, as well, in our sales and marketing team, just to make sure that we are leaving no bases uncovered.

So, the bottom line to your question, on that part of your question, is, yes, we will have greater operating leverage. However, we will also be increasing sales and marketing spend from 2009 to 2010.

With regard to the first part of your question, I have to admit, I forgot what was the first part of your question.

No, I think that was helpful. I was curious to know if R&D and SG&A, so if you wanted to comment --

Oh, yeah, I remember R&D. The R&D part, sorry. So, we are continuing to spend on R&D as well. And while we had a big splurge of R&D spending associated with the Tyvaso approval and needing to satisfy the agency with regard to the device, in particular. So, there was a certain splurge of spending during the past couple of quarters in that avenue.

To be frank, our spending in R&D is going to continue to be robust going into 2010. We've got two of the largest clinical trials in pulmonary hypertension ever going on in parallel, the FREEDOM-M and the FREEDOM-C trial. These are international trials with dozens and dozens of clinical trial sites requiring exhaustive amounts of clinical trial monitoring, monitors flying to all of these places, going through all of the records and whatnot. And we also are getting all of our systems ready so that we can have the minimum time lag between unblinding and filing NDAs for oral treprostinil. Plus, we have many regulatory follow-up requirements with regard to Tyvaso that I'm sure you're also aware of.

We, in addition that, we've got earlier stage R&D activities in terms of oral beraprost, which is now entering its second Phase II study. Had a successful first Phase II study, results will be reported at the next year's CHEST conference. And so now doing a second Phase II study, so there is more spending associated with that.

And we are now spending, also, on our monoclonal antibody program for neuroblastoma, which, if that turns out to be successful in -- expand into a more prevalent form of brain cancer.

So, under Dr. Jeffs we've got really a lot of R&D activity going on, but the answer is pretty much the same as the first part of the answer. Overall, I believe you will see our margins improve 2009 going to 2010. However, in terms of absolute numbers, you will see spending increase in R&D and sales and marketing 2009 to 2010.

Thank you.

Any last question, Operator?

At this time, I'd like to turn the conference back over to Dr. Rothblatt for any additional or closing remarks.

Operator, I'm getting a message here that there is one more question waiting online.

All right. It looks like we'll take our final question from Matt Kaplan with Ladenburg.

Hi. Thanks for fitting me in, guys.

No problem, Matt. Thanks a lot.

Yes, most of my questions have been answered, but just a quick follow-up on the EMEA, just to make sure that we're still on track for first half 2010.

Yes, Matt, this is Roger. The current timeline, again, if successful, the first half of 2010 approval.

Right. Thanks, guys, and congrats on the quarter.

Well, thank you, Matt, and thank you, Operator. I'd like to wrap up by saying that we've really reached a milestone here, knocking right at $100 per quarter. It's been a great journey. We're kind of like the little train that could here, and this time we can and we are.. so, it's fantastic. It seems like just yesterday that we were celebrating a $300 million revenue run rate, so it's great to get up to $400 million.

But in concluding I'd like to really present the larger picture, which is that with Remodulin, Tyvaso and Adcirca, there is a peak revenue potential which is definitely double what we're doing right now. And then you add on top of that the revenue potential for oral prostacyclin, generally viewed by most of the key physicians as the holy grail of the field. And looking forward a couple, three, four years, you can see that we're getting to a treatment algorithm in this field of triple therapy, with a PD-5 inhibitor and an ETRA, and a prostacyclin. And with regard to that triple therapy, the oral prostacyclin analog will have huge attractiveness and will be something that would be able to reasonably be given to the Class II patients with the inhaled being more appropriate for the Class III.

And so ultimately we believe that we have a potential to help every single patient with pulmonary hypertension, not only with the PD-5 inhibitor, which we can do with Adcirca, but also with a prostacyclin analog, which we'll be able to do with our oral prostacyclin program. And hence the real peak revenue potential of this Company's pipeline is not just double what we're doing now, but even another doubling on top of that.

So, we've got a real blessing in terms of our pipeline of great medicinal compounds, and it's up to us to now execute in the clinical and in the sales and marketing arena, and that's what we're laser focused on, helping the patients with pulmonary hypertension.

Thanks so much for joining us this morning on the call, and for those of you attending the Oppenheimer conference next week, several of us will be there. We look forward to seeing you there. Thank you, Operator.

Thank you for participating in today's United Therapeutics Corporation Third Quarter Earnings Conference Call. This call will be available for replay beginning at 12 p.m. Eastern time today, through 11:59 p.m. Eastern time on Thursday, November 5, 2009. The conference ID number for the replay is 7459513. The number to dial for the replay is 1-888-203-1112, or 719-457-0820. This will conclude today's conference.