United Therapeutics Corp (UTHR) 2009 Q4 法說會逐字稿

Good morning. I'll be your conference operator today.

At this time, I would like to welcome everyone to the United Therapeutics Corporation fourth quarter earnings 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 that 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.

Thank you operator, and welcome everybody to our fourth quarter 2009 and 2009 annual financial results conference call, being held here both in Washington with our Chief Financial Officer, John Ferrari, and myself, and across the pond in London with Dr. Roger Jeffs, our President and Chief Operating Officer.

I hope everybody had a nice three-day weekend, and I know for many of us in the Mid-Atlantic area, it's been more like a two-week weekend with all of the blizzards and days without,work. But we at United Therapeutics have worked hard all through the weekend to do our regular business and also to be prepared for this call, so we look forward to your questions after a few opening remarks.

I'd like to start off by saying that I'm really pleased that our revenues for 2009 grew in excess of 30% for the eighth consecutive year, now totaling just about $370 million. So it's really like a skin-pinching number for us. We could have scarcely believed eight years ago when we were back at $20 million that we would be able to continue a 30% growth rate year after year.

We were warned that there's a Law of Large Numbers that prevent companies from being able to grow at sort of our targeted PE figure too many years, but in the case of United Therapeutics, I think we have trumped, at least for the foreseeable future, the law of large numbers with the Law of Great Drugs.

And along with the continuing positive trend relative to Remodulin, we are excited about the potential to reach even more pulmonary hypertension patients in 2010 with Tyvaso and Adcirca. So this is going to be our first calendar year with three fantastic medicines and those are three great drugs that we can can trump the Law of Large Numbers with, and hopefully notch our targeted growth rate for a ninth year at the end of 2010.

Going back to 2009, though, we are also really excited that we turned around our GAAP loss from 2008 into a $19 million GAAP profit in 2009. So that was really exciting. But perhaps much more meaningful is the fact that our earnings before non-cash charges climbed up to $149 million in 2009. That is 25% more than the $120 million we did in 2008, and I think if I had to boil down this entire financial report to the two most salient numbers, they would be $370 million total revenues, just about $150 million cash profits. We're psyched, we're are really excited. Those are impressive numbers, and going forward into 2010 as mentioned, we hope to continue this growth rate by the additional strength of Tyvaso and Adcirca and for those of you who are more interested and well, what is really around the corner, 2010 is really exciting because it's the last year before our anticipated unblinding of the most transformative drug in our entire history, Oral Trepostinil, which we hope to have that unblinding in 2011.

So, both from a number standpoint, from a patients treated standpoint, from a new drugs standpoint, and from a pipeline standpoint, it's a great time here at United Therapeutics and I'd like to now ask the operator to please open up the phone lines and we'll take the calls in the order received.

Thank you.

(Operator Instructions).

At this time we'll take our first question from Geoff Meacham of JPMorgan.

Geat, thanks for taking the question, Martine.

Well good morning, Jeff. And it looks like the God of Numbers is really on your side because I actually understand that you turn 40 today. Happy Birthday.

Thanks.

So somehow the Law of Numbers made you first in the queue. So happy birthday and fire away.

I appreciate it.

Just wanted to talk about the Tyvaso launch metrics. I wonder if you can give us a sense for the patients exiting the quarter, and maybe help us characterize them in terms of the Novo starts versus switches from Ventavis versus maybe parenteral patients from your module.

Great question, Jeff.

Yes, we are doing really, really well. The team here thinks it's best for me not to give out a precise number, but I can tell you that we are basically, virtually kissing, to use the Valentine's Day analogy, the thousand patient figure that we had mentioned is our goal for the beginning of the quarter.

So we are as close to being, in terms of number of patients scripted, number of unique patients scripted, and it's off to exactly the kind of start that we had anticipated. Based on that, we are even more confident than we were back in the fourth quarter that we will be able to achieve our goal of having 80% market share of the inhaled pulmonary hypertension space by the time that Ventavis goes off patent, two or three years from now, because even in terms of patients, we are right now, I don't really know their exact number of patients, but I would say there are about as many patients being scripted for Treprostinil, or Tyvaso, as there are for Ventavis. So it's off to a fantastic start.

With regard to the make-up of those patients, you basically can read into my just-completed sentence that we are not seeing a whole lot of patients being transitioned from Ventavis to Tyvaso. The majority of the patients are de novo patients who are not well optimized on the oral drugs and the next place that they are stopping is Tyvaso. In the past, they probably would have stopped at Ventavis, but now they are predominantly stopping at Tyvaso. And it's not really all that unsurprising if you consider the fact that there are probably upwards of 20,000 patients being treated with either PD5s or Endocet receptor antagonists, and that on average, patients will stay on those drugs before progressing to a new medicine something like two or three years. So if you divide that number out into that large 20,000, maybe even 25,000, patients treated, and I'm just talking about the US here, you can see the largest pool of patients is going to come from that pool.

Having said that, we are getting Ventavis transitions. They are the minority of the patients. We even have a handful of patients transition from parenteral on to Type A, so -- although that is such a small handful, it's really anecdotal category.

But the main engine of growth of Tyvaso is two-fold. First of all, it's the fact that patients seem to stay on Tyvaso a lot longer. We are seeing very, very few drops from Tyvaso. On the other hand, the generally reported information is that the mean duration of a patient of Ventavis is probably in the nine-month category. And as you may recall, even after two years, we had not reached the 50% level of patients in the open label extension study on Tyvaso. So this drug has a lot of sticking power, a lot of staying power. And the second main driver is the ever-increasing number of patients who have been placed on oral drugs, Lotaris, sildenafil, and it's just unfortunately the relentlessly progressive nature of pulmonary hypertension is that the vast majority of patients do progress and Tyvaso is now an extremely nice parking spot. Only four times a day, couple minutes per inhalation, and the unique mechanism of action of Treprostinil, which seems to be pulmonary selective and, of course, has a very long half life, is going to exponentially increase the Tyvaso patient count. That's why we are able to report that we've virtually achieved our goal that we quoted at the fourth quarter.

Okay. Thanks a lot. Thanks for the color.

Sure.

We'll go next to Bret Holley of Oppenheimer & Company.

Yes, hi, thanks for taking the question.

Bret, I don't think it's your birthday today, right?

No. It's not my birthday.

You are just lucky.

I'm curious about your comment that the number of patients on Tyvaso at this point is approximately the same as the number of patients on Ventavis. Does that imply that essentially within a couple of months here, the inhaled market has close to doubled as far as number of patients?

I think that is an excellent conclusion. I think it's a spot-on conclusion.

Okay, and second question is, how do you feel that your market share for Adcirca is lining up, versus Revatio?

Market share for Adcirca is doing really well, and we have got a three-engine rocket system here with Remodulin, Tyvaso and Adcirca, and as we promised everybody back in 2009, we would break out the quarterly contributions of each drug separately.

So going ahead and taking a look at how Adcirca has done for the fourth quarter compared to the full year, you can see that it's growing at an increasing rate. That's what we expect.

Our goal for Adcirca is calibrated similarly to the goal on Tyvaso, which in both cases, we feel are kind of under-promised and over-achieved goals . And we that is to, with Adcirca we want to have 80% of the PD5 space by the time that sildenafil, or Revatio, goes off patent, and that's a little bit sooner, toward the end of 2012. But that's okay because Adcirca is a much easier drug to prescribe. It's just a pill, it's a once-a-day pill, it's the only PD5 that has been able to show an ability to delay time to clinical worsening, and doctors are really, really pleased to script it.

So, if you kind of draw a linear path that would take us to 80% market share, we will be there by the end of 2012 when sildenafil goes off

Thanks very much for the color.

Thank you.

We'll go next to Liana Moussatos of Wedbush Morgan Securities.

Thank you.

You talked about Tyvaso being a nice parking spot for the Class III patients. How does that impact parenteral Remodulin over time? They have this really nice, convenient prostacyclin that is available now, and do you see resistance going on to parenteral, and therefore, as more patients are on Tyvaso, fewer patients over time would be on parenteral, and then you also mentioned oral Treprostinil coming on board in a couple of years, what kind of impact will that have on Tyvaso and parenteral Remodulin?

Those are the $69,000 questions that all of us at UT really scratch our heads about, because we are not soosayers, and these are fascinating questions and we don't really know what the future holds.

So we've been monitoring things really closely quarter by quarter, and so far we are really excited and cheering for Remodulin. You can see comparing Remodulin fourth quarter 2009 over fourth quarter 2008 substantial growth, almost 20% range, growth. So it's continuing to grow and be a contributor to the Company's overall growth, even if you compare, say third quarter 2009 to fourth quarter 2009, Remodulin held its own, which is traditionally what it's done third quarter to fourth quarter if you go back to third quarter 2008, fourth quarter 2008, third quarter 2007, fourth quarter 2007, it's pretty much flat quarter to quarter as distributors rationalize their end-of-year inventory.

So things continue to look very good for Remodulin. Now, the reason why I think that there is good reason to think that things will continue to look good for Remodulin going forward is that, even though Tyvaso is a great parking spot, it's not a cure. And I wish it was a cure, but it's not a cure. And, therefore, the expectation is that patients will progress, and in the words of one of the great KOLs in he field, Dr. Lewis Rubin, there comes a point in time when many patients need to be virtually "bathed" in (inaudible). And of course those are pretty much the Class IV patients, Class III, IV patients. So when you need that "bathing" in (inaudible), I think parenteral is the only one that is going to give you that delivery.

Now I will caveat that statement by saying that we do know with oral Treprostinil , that we are achieving pharma kinetics level that are comparable to what is achieved with parenteral Treprostinil .

Just to give you a little anecdote, the current trials, the FREEDOM-M, FREEDOM-C trials, FREEDOM-C2 trials, that we are doing for oral Treprostinil, patients exiting those studies are by and large at a dosage level that correlates to 30 nanograms per kilo per minute, which is the dosage level which is a common place for patients on subQ or IV Remodulin to be on.

So it may be possible that we could achieve this bathing of the patients in prostacyclin by gradual upward titration of the doses from oral Treprostinil, but realistically, we hope to unblind FREEDOM-M in 2011, FREEDOM-C2 in 2012, and then it will take half a year to get the NDA filed and then a year for the FDA to decide, and then it will take another two to three years of experience before people really know whether or not oral is a substitute for parenteral . So at least the 2013, 2014 timeframe, I think that parenteral Remodulin will continue to be a strong reliable engine in the

Thank you.

We'll go next to Terence Flynn of Lazard Capital Markets.

Hi, thanks for taking the questions.

Hi, Terence.

I had a few quick questions.

First on the SG&A front, I was wondering if I look at SG&A as a percentage of revenue, excluding stock option expense, I think you are at about 36% for the fourth quarter versus 28% for the third quarter. Just wondering how we should think about those two percentages here as we head into 2010, and then just a follow-up question on the tax rate.

Sure.

With regard to the SG&A, sales and marketing guys are great at spending money. They spend it very wisely. They spend it smartly, but materials are expensive, and we are launching two drugs in one year while continuing to add additional promotional materials on Remodulin.

One interesting thing that we have done with Remodulin, we have cloned all of our materials into Spanish, which is something we really should have done earlier, but better late than never, and with each one of these materials, you have to have New York advertising agencies involved and an extensive regulatory submission process and approval process. It's insanely expensive, and then you have to double that again for Adcirca and then again for Tyvaso.

So I'm not the least bit surprised that SG&A crept up in 2009 compared to previously. I do think, however, that we are going to rest back down toward the traditional rates that we were at, and that's really because of the fantastic leverage that is built into the three-drug United Therapeutics model. While there are certain expenses that are incremental with each additional drug, as the drug matures on its launch path, more and more expenses -- the preponderance of expenses become common. As you know, we have a common sales force detailing all three drugs. So I do think that you will see those numbers climb back down in 2010.

Great.

And then on the tax rate, can you give us any idea when you expect to be paying taxes on a cash basis?

I'm going to refer that question to our tax guru, Chief Financial Officer John Ferrari.

We are actually paying some cash taxes now, on the state level and to a certain extent, we do pay a little bit on the federal, because we are limited on the amount of business credits that we can take in any given year. But we still have about --we still have a fair amount of business. So it will be several years before we be a full paying taxpayer on the corporate end.

Okay.

Maybe just one last question.

Actually, there's more -- we get complaints from people who can't get their calls in so two questions --

Okay, thanks a lot.

Sorry.

We'll go to Mark Schoenebaum of Deutsche Bank.

Hey, Martine, my birthday was in December. Oh, well happy birthday. Thank you very much.

Hopefully it wasn't the 40.

No, I appreciate it. I was wondering if maybe Roger is on the line, I could get an update on the oral Remodulin trials. Can you remind us why the probability -- why we should believe that the probability of success in FREEDOM-M and FREEDOM-C2 is higher than in the trial than went out in late 2008 please?

Sure, Mark. Thanks for the question. Glad to have one to answer here.

I think the rational that Martine was alluding to in terms of the dosing and the dose profile of the current patients an important consideration, and probably a fundamental consideration when trying to assess the probability of the success here. As you know, previously, when we only had the one-milligram tablets, we had difficulty getting patients over a one-milligram threshold over a 12- to 16-week period. That's not the case now that we've we've introduced the .25-milligram tablet, and, in fact, most patients that are exiting the double-blind study, while we remain blinded to their drug treatment, are achieving a dose of 3 milligrams or greater, which would equate to the 30 nanograms per kilogram per minute parenteral infusion rate that Martine alluded to. That is a very robust amount of Treprostinil given in a fairly short period of time, and if all goes well, if patients get the drug, they will respond to the drug and the trial would be richly successful.

I think the other thing to consider from the previous experience that governed the effect size that was observed was the number of dropouts. Again we are seeing a completely different story with regard to dropouts. So we've put in, between the earlier experience with .25 and the two studies, over 100 patients or more on the current .25 dose regimen, where we start at .25 and then titrate patients up by .25 milligram increments, and we've only had one or two dropouts in total. We have changed not only the ability to initiate and titrate the drug, but also the ability to tolerate the drug over the period of the study.

So given those dosing facts, from our belief, that is very positive results and something that speaks very positively about the potential outcome of the study.

That is super helpful. Thanks a lot.

Next question please?

Eun Yang, Jefferies & Company.

Thanks very much.

On 1000 patients on Tyvaso, can you give us a little more breakdown on what percent of the patients are continuing from clinical trials and what percent of the patients are actually warehoused in anticipation of a Tyvaso approval?

Yes. Prescriptions has been written for 1000 patients. Of those -- just about 1000 patients, of those, around 150 went on the drug as the continuation from the previous studies, and maybe another 100 or so, to the best of our knowledge, were kind of maybe holding back, and we are part like the Bolis that we announced in our last conference call. So another way to say all of this is that two times more patients, or three times more patients, have been scripted Tyvaso after launch than upon launch.

That's very helpful. Thank you.

When you say one script, is that one month --

No, that's a year. Every time I say a script, it's a patient, a script is a patient, it's the same thing.

Okay. Thank you.

We'll go to Salveen Kochnover of Collins Stewart.

Thanks for taking the question. This is Brent Kelly in for Salveen.

I know historically you guys have given comments around operating expenses as a function of previous year's revenue. Is that something you can guys can give us for this year?

Yes. We give that kind of guidance, and we are looking at our cash budget for 2010 as being approximately 80% of our spending of our -- of our pharmaceutical revenues from 2009.

Okay.

Not a number that I would use as a scalpel, because there is certain adjustments that we make to that number. For example, cost of goods sold, because we are selling more and more drug each year, we have to pay like an increasing royalty, an increasing amount of drug product. It's not an exact scalpel but it gives you a good guidance that you are very unlikely to see R&D and SG&A spending increased in excess of 80% of previous year revenues.

Thank you.

Sure. Next question?

Matt Kaplan, Ladenburg.

Hi, thanks for taking the question.

Hey Matt, glad you got in.

Couple things. First, can you give us any guidance in terms of what you expect the number of scripts for the end of the second quarter? And then a question for Roger. In terms of the rest of the pipeline, you've had some recent announcements with (inaudible) and then the Oral Bovine Collagen and what we should expect for the pipeline?

With regard to the second quarter, we are going to stay away from continuing to provide that kind of guidance. We wanted to make sure that people were roughly on track back in the fourth quarter because we saw revenue targets for Tyvaso in 2010 of $20 million and $30 million, which was just -- which didn't really make any sense, and instead I think if you want to definitely be on the safe side and not have a downside surprise, take 1000 patients and multiply it by three quarters by something $120,000 or so per patient, and add to that some kind of linear ramp for the first quarter and you'll end up with a revenue figure north of $60 million, and you won't end up with a downside surprise on the second quarter after that.

So that's the answer to your first question and Roger, do you want to answer the second question?

Sure. Good morning Matt.

So the recent announcements around a prostanoid and the Collagen Type V product was sort of an early look at products that we think are high potential in pulmonary indications that would be synergistic with our (inaudible). So both of those are early. With the IP, we think there's a possibility of doing a quick Phase II-type study exploring higher doses to rapidly reach a go-no-to-go decision on that without incurring too much spend. And the immune work's deal is an earlier stage opportunity, which again, won't cost a lot going forward to get to some go-no-go decisions, but the beautiful thing about each of these opportunities is the cost of obtaining the license was very low and the opportunity is very high. So it's a very nice profile.

I think the other things to highlight in terms of our research portfolio within United Therapeutics, is we have ongoing studies with in patients with critical ischemia with intermittent claudication with the oral Remodulin construct , and the Phase II dosing studies looking at (inaudible) for example, and then we had a Phase II program in neuroblastoma, which is going to be the building block of our oncology platform as we look to take both our 3F8 antibody and our 8H9 antibody, which would look at metastatic brain cancers, for example, into an oncology field.

So most of our effort, as we've said, is focused on the Oral Remodulin trials, supporting the markets of both Remodulin Tyvaso and Adcirca with Phase IV-type studies and granting of studies that support the market for those agents. The Phase III FREEDOM-C and FREEDOM-M studies, which are global trials, we are taking a very aggressive position in terms of resourcing for these trials, we've recently expanded the number of centers that we're using in China and India, we'll have more than 80 sites whan all is said and done because we want to make sure that we unblind these trials on the timelines that Martine nicely articulated.

So, I think in a nutshell that is the initiatives that we have. We remain focused on the Oral Remodulin and we are beginning to take peeks at other indications so that we can expand beyond pulmonary hypertension perse, without distracting

Great. Great exchange there.

We have time for one last question, operator.

We'll go to Matt Duffy, BDR Research.

Good morning, and congratulations. Thanks for taking my call.

Thank you, Matt. Glad you got in.

Thanks.

Just two things on the promotional side. Number one, can you give us a little more color on how your field forces is directed? What the waiting is between Remodulin, Adcirca and Tyvaso.

And also, are you sampling Adcirca?

Let me ask Roger who oversees all the Company's sales and marketing efforts. So Roger, can you provide the answer to the last two questions?

Sure, certainly.

So, I'll start with the last one first. We are not sampling with Adcirca. I know that Pfizer is sampling Revatio quite heavily now as perhaps a combative measure to our the launch of Adcirca, but we don't feel that is something we need to do, and for patients that aren't able to pay for the drug, we have patient assistance programs that we'll provide for them, we're not trying to deny patients drugs, we don't think of sampling program is necessary, or perhaps appropriate, in this market.

In terms of the waiting of our sales force, I think you would say our number one waiting now is on Tyvaso, with Remodulin and Adcirca quickly behind that. They are not that different in terms of their waiting, but I think what we are trying to really do is retain the Remodulin revenues and continue to grow it, and then take these new product launches and, as Martine said, try to consume 80% of the market share before their competitive molecules go off patent, which is what we are tracking towards.

So, all three will patient to our growth, but certainly what you can see from this quarter's numbers, the revenue that Tyvaso brings to the Company is significant and it is weighted appropriately with our incentive compensation plan.

Okay, great. Thank you.

Well, thanks all of you so much for joining our 2009 annual results and fourth quarter conference call. It was really great to hear a lot of familiar names on the call.

There is a busy calendar of healthcare conferences during the balance of 2010, and our Corporate and Investor Relations team look forward to seeing you guys at those conferences and asking -- hearing your questions then and providing you additional updates during the year.

Thanks so much, and operator you can wrap up the call now.

Thank you for participating in today's United Therapeutics Corporation fourth quarter earnings conference call.

This call will be available for replay beginning at 12 PM Eastern Time today through 11:59 PM Eastern Time on Tuesday, February 23. The conference ID number for the replay is 526-0604. The number to dial for the replay is 1-888-203-1112 or 719-457-0820.

This will conclude today's conference call.