United Therapeutics Corp (UTHR) 2010 Q1 法說會逐字稿

Good morning. My name is Sean and I will be your conference operator today. At this time, I would like to welcome everyone to United Therapeutic Corporation's first 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 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. I'd like to welcome everybody to our first quarter 2010 financial results conference call. With me this morning are John Ferrari, our Chief Financial Officer, and Dr. Roger Jeffs, our President and Chief Operating Officer. I'd like to start with a couple of brief remarks and then we'll open the lines to any questions that you have.

Total revenues for the first quarter of 2010 were $128.9 million up from $79.7 million for the first quarter of 2009. Net income for the first quarter of 2010 was $18 million or $0.35 per basic share compared to $13.2 million or $0.25 per basic share for the first quarter of 2009.

As you can see, these numbers are up approximately 50% year-over-year; some really exciting results. Earnings before non-cash charges, which is a non-GAAP measure that we believe most clearly reflects our operations was $68.1 million for the first quarter of 2010 compared to $38.5 million in the first quarter of 2009. This almost doubling of earnings before non-cash charges in a single year is, in our opinion, pretty darn cool. I'd like to also share with you a bit of clinical reporting, which is hot off the press.

This morning, the Journal of the American College of Cardiology, also known as JACC, which is really the premiere cardiology publication; it is what we call a first-tier publication; The Lancet, New England Journal and JACC being the three first-tier publications, published the results of our TRIUMPH study under the title Addition of Inhaled Treprostinil to Oral Therapy for Pulmonary Arterial Hypertension, a randomized, controlled clinical trial.

This journal is available online and on the stands and by subscription, what not. But let me just read you the conclusions. This trial demonstrates that among PAH patients who remain symptomatic on bosentan or sildenafil, inhaled treprostinil improves exercise capacity and quality of life and is safe and well tolerated.

So I think this is just a tremendous conclusion which certainly reflects the label for the drug and the fact that it comes out of a peer-reviewed journal of the highest caliber, I think augers very well for greater patient usage of Tyvaso.

In fact I'd like to point out that the excellent financial results I summarized briefly and are explained in more detail in the press release that we issued today were all achieved without the benefit of any peer-reviewed data on Tyvaso. So this is just really exciting and my hat's off to the lead author, Dr. McLaughlin of University of Michigan, Dr. Rubin and Dr. Seeger and all of the other physicians who are listed on the masthead and were principally involved in the TRIUMPH trial.

So with those introductory remarks, operator, if you could please open the phones to any questions.

(Operator Instructions) Our first question comes from Bret Holley with Oppenheimer.

Hi. Thanks for taking my question. I was just wondering if you could give us some idea of the impact of health care reform on your business in 2010 and how that might look going forward? I mean what -- I guess what percentage of your business is Medicaid and how might you be able to kind of quantify that for us?

Sure, Bret. As mentioned, I have John Ferrari, our Chief Financial Officer, on the lines with us. John, if you could please address that question?

Hi, Bret. As we all know, healthcare reform is a pretty broad bill with a lot of parts of it phasing in over the next three to four, five years. The two pieces that really come into play this year, the biggest one is probably the increase in the Medicaid rebate from 15.1% to 23.1%; then also the industry fee for pharmaceuticals.

On the rebate, we took a historical look at our past three years, Medicaid rebate invoices, and we think that the impact on our net revenues will be less than 1% from the rate increase. We also believe there's an exclusion for orphan drugs sales in the industry fee, so we don't think there will be any impact on that fee to our business in 2010 or going forward.

Thanks very much.

Next question, please.

Our next question comes from Michael Yee with RBC Capital.

Good morning, Martine. Congratulations on a good start. Two questions, one on Remodulin. That was a really strong up-tick this quarter. Can you let us know if there was anything abnormal in the quarter, any buying ahead of the price increase or anything there or is that just purely demand driven?

And then on Tyvaso, I guess I have to ask can you characterize what type of patients you're seeing this quarter and maybe sort of compare that to last quarter? And if I think about this year, what do you think are sort of the one or two best drivers this year for Tyvaso? What do you see as sort of the best way to grow the business?

Thanks, Michael, for those questions and congratulations on the recent research report that you issued on United Therapeutics.

With regard to Remodulin, we don't see anything unusual. This is the normal growth track for Remodulin. One thing which we have noticed in the pulmonary hypertension space is that the addition of new therapies has almost in every single case, going back several years, tended to grow the market, to grow the pie.

As you're aware, there's a population of un-diagnosed patients. There's a population of under-treated patients, of not optimally treated patients. And the addition of more therapies has had the effect of basically growing the pie. So that has been what we've seen by launching Tyvaso.

There is yet greater awareness of the full spectrum of therapies for pulmonary hypertension. The larger spectrum of prostacyclin-based therapies and the pie has continued to grow.

One thing that's been a tremendous asset to our very professional and high performing sales force is that they are able to mention to physicians in a single meeting, an entire spectrum of therapies from Adcirca, which no patient should be without, on to Tyvaso, which is labeled for Class III, and then on to Remodulin, which is labeled for both Class III and Class IV. So I think there is a greater recognition of the superiority of the treprostinil molecule and that's what's really behind Remodulin.

With regard to Tyvaso, we don't see a particular difference in the complexion of patients from last quarter to this quarter. The tendency is generally to start new patients on Tyvaso over Ventavis as opposed to pro-actively switching patients from Ventavis to Tyvaso.

And by the way that is exactly the pattern that we saw with Remodulin and Flolan even though it's kind of obvious that having a subcutaneous therapy is less invasive than having something like intravenous Flolan. These patients have a life threatening condition. Many of them, especially Class IIIs, Class IVs are in somewhat fragile medical shape.

Doctors are going to sensibly be very cautious about making any changes. And therefore, the predominant patients that we are seeing on Tyvaso are patients who are really just as described in this JACC article that I just mentioned, who are remaining symptomatic on oral medication and those are the main patients we see adding on to Tyvaso.

One thing which is, many of us who may not live and breathe PAH every day, don't completely recognize is that there are somewhere between 10,000, 12,000 Class III patients on oral medication. But if you take a look at the definition of a New York Heart Association Class III, it's not a good place to be. It's not a place you would want to be.

So almost by definition, you are, in fact, I would say by definition, you are symptomatic if you are a New York Heart Association Class III patient on an oral med. We crested 1,000 patients in the first quarter of this year. And as mentioned, there are many, many thousands of additional patients in that category. That's going to be the most logical source of patients for Tyvaso.

Great. Thank you.

Next question, please.

Our next question comes from Lucy Lu with Citi.

Great. Thank you. Actually just a follow-up on Michael's question. Obviously you did $95.8 million for IV/subcu Remodulin versus $86.4 million in the fourth quarter. I guess I'm trying to get something more specific. Maybe John could comment on the inventory level of Remodulin?

Okay, Lucy. Nice to hear your voice this morning and I'll turn the mic over to John.

We took a price increase that was effective at the end of March in the US for Remodulin. So we took a hard look at all the POs from our distributors during the first quarter, just to make sure that there wasn't anything unusual and that they were not stocking the drug prior to the price increase. So we're pretty confident that there was not any pre-stocking of inventory going into the price increase. And our inventory levels are -- given the number of patients on therapy -- are well within the contractual limits. So we're not seeing anything unusual with inventory.

All right. Thank you

Thanks, John. Next question.

Our next question comes from Matt Kaplan with Ladenburg.

Good morning. Thanks for taking my question. Congratulations on the quarter.

Thanks.

Could you give us an update on the oral Remodulin program and where that is and when to expect some data from that program?

Yes, Matt. We're lucky here to have Dr. Jeffs with us. He is the -- he's the Godfather of the oral program. Roger, can you give us a lowdown on it?

Sure. Good morning, Matt. We're progressing enrollment. We continue to add additional sites around the world and bring sites on who will bring patients to both the mono-therapy and the combination trial. We're being very conservative I would say in our approach in terms of patient adds.

We're making sure that each patient meets criteria. We're making sure that the sites are conducting the protocol perfectly. And the current -- our current belief, which we have expressed publicly, is that we will un-blind the trials in 2011. Nothing has changed from that opinion based on the enrollment rate that we have seen today.

I think in future calls, particularly later in the year, we'll give you a little bit more clarity where we are in terms of percent of patients enrolled, towards completion. But at this point let's just say that we're in the early phase of enrollment, continuing on a nice trajectory that would predict the 2011 un-blinding.

Just a follow-up on Tyvaso. You had guided -- or given us a sense that you trusted 1,000 patients in the first quarter. Can you give us more sense in terms of the trajectory for the remainder of the year or the coming quarters?

We pretty much are on the trajectory that's -- that mirrors the goals that we have for Adcirca, which we realize that the alternative therapies to each of these drugs will be going generic in a few years. And our business strategy is to get the preponderance of the patients onto our branded therapies before the alternatives go generic, so that when they go generic it is essentially a non-event to us. The patients would just continue on the branded therapy.

So that's the trajectory that we're on for Tyvaso. It's also the trajectory that we're on for Adcirca. I think we're basically right on that line, if you draw kind of a linear line to 80% market share of the inhaled market and 80% market share of the PDE-5 market and you put the endpoint of that line at the date of generic -- of a loss of patent protection for iloprost and for sildenafil respectively, you'll have a curve. That's the curve that we're tracking to right now very well. I expect we'll continue to track to.

Thank you very much.

Next question, please.

Our next question comes from Matt Roden of Bank of America.

Thank for taking the questions. First of all, can you give us the actual patient number for Tyvaso exiting the quarter? Secondly, maybe a more general question for Roger. What qualitative feedback are you getting from the field in terms of Adcirca and Revatio? What are the reasons for people switching? Fairly obvious I guess given the dosing regimen, but also, can you give us a sense for the barriers of switching and what the outlook would be there in terms of overcoming those barriers for Adcirca. Thanks a lot.

Thank you, Matt. Nice to hear your question. First time questioner on the call. So, welcome and look forward to hearing Bank of America back on the calls again in the future.

I'll answer your first question and then turn it over to Roger on the second question. We don't make a practice of giving out what we call body counts with regard to the various drugs. It's just a little bit unseemly. But it's a pretty easy thing for you to estimate on your own by just taking a look at the revenue levels and dividing them by the published prices for the drugs. So let me leave it at that and turn it over to Roger for the qualitative feedback.

Yes. Good morning, Matt. So, in terms of Adcirca, I think as we've gotten into the oral market, we certainly have two important audiences that we need to pay attention to. One is the physician/patient audience. The other is the payer audience.

So in terms of physician/patients, certainly we're promoting the package insert and the advantages of the therapy as a once-a-day PDE-5 inhibitor and I think it's self-evident that that's an advantage product in terms of the therapeutic for patients to take both in terms of compliance and with very good efficacy and safety as has been published.

I think the other audience that we're paying particular attention to now are the payers. Some of the issues that we've encountered have been, for example, co-pay amounts for patients. And that has been a little bit of a barrier initially. We are implementing some new programs both from private-pay patients and government-pay patients to address some of the co-pay challenges that patients have.

I think as we progress these initiatives, you'll see that the ramp of Adcirca continues on its upward climb and meets the objective that Martine elucidated in terms of achieving 80% of the market by the time sildenafil goes generic.

So I think those are really the two things that we're focusing on. In terms of patient demographic, we haven't really focused too much on switches initially. So coming out of our launch phase -- which I think we all need to remember we're still within the six month window of launch -- is really to take on the de novo patient or the patient on Tracleer and add. So it depends on where the prescriber is, either as a PDE-5 advocate as first-line therapy or an ERA advocate as first-line therapy, we then take on a specific sales approach based on that physician account and their bias.

So that's been our initial, I'd say, promotional push from launch is to progress towards the first line treatment option, but if they're an ERA advocate then we'll go ahead and suggest addition for the appropriate patient.

The switch market, as Martine said, is always a bit more late in terms of adoption. And, you know, the patients on a therapy, they've become accustomed to that therapy, they've become compliant, hopefully with that regimen. If it is working for them they tend to stay on that; so we haven't really challenged that.

I think going forward, particularly as we address some of the co-pay challenges versus Revatio, we will more aggressively promote the drug as a switch agent. So that hopefully gives you some clarity from a qualitative standpoint of how we're taking this from a sales approach.

It does. Thanks a lot for the color.

Thank you so much, Roger, for that great answer. It's kind of a coda and I apologize if I sound a little bit boasting here. But I am kind of really, really proud of what our clinical team, our medical science team, our strategic business operations group have done here in a clinical group is that in our field of PAH, we look at ourselves as sort of the David and Actelion and Gilead as the Goliath.

And Actelion has very well-deserved reputation for having a very strong and aggressive sales force. And, of course, Gilead is more than ten times our size. And yet, despite this, as Roger explained, in a period of only about six months, with regard to Tyvaso, for example, we've accrued more drugs on therapy than Actelion has accrued on the competing therapy in four years.

And so our tremendously professionalized and knowledgeable cardio specialists, cardiopulmonary specialists have achieved more patients on Tyvaso than a rightly somewhat feared competitor has been able to achieve in four years. That's, I think, a tremendous testament to basically the sort of data which came out in the Journal of American College of Cardiology today.

It's a very similar story with regard to PDE-5. I mean, Pfizer is the largest drug company in the world. We are one of the smaller. And so competing against Pfizer is really a David and Goliath story with us. As Roger alluded to there is some -- Pfizer has the wherewithal to do a lot of sampling and things like that.

Despite that fact in a period of really just over six months, we've achieved something close to 20% of the TRxes or total prescriptions of PDE-5 for pulmonary hypertension patients against the greatest and most successful largest of pharmaceutical company.

So, for little David United Therapeutics to achieve that in a half year against a drug that's been marketed for several years I think is just a tremendous accomplishment. You'll all spare me the Chairman's privilege of boasting about what a terrific job our sales, marketing, clinical development, med affairs and payer relations groups have done. Next question.

Our next question comes from Eun Yang with Jefferies.

Thank you very much. Question on FREEDOM-M study. This is a 12-week study so a question is a 12-week time period sufficient enough to see clinical worsening?

Yes. This is Roger. Thanks for the question. Historically in a monotherapy study, where the placebo patients are on no background therapy, that has been a sufficient amount of time to see progressive decline in the placebo group with a concomitant improvement or abatement of decline in the active group.

So we think that the 12-week study, while it's powered for six-minute walk and I think we should all remember that; that it's primary endpoint. All studies are only powered for one endpoint; the primary endpoint is six minute walk.

Our key secondary endpoint is time to clinical worsening. It's a time two analysis, which provides additional power versus just a yes/no binary type analysis. We think we have sufficient sample and we think we have a molecule of sufficient efficacy to show not only improvement in six-minute walk but prevention of time to clinical worsening. Now certainly the study will have to bear that out.

The other issue is certainly you would have additional chance of success if you continued to study for a longer period of time, but you have to remember that patients are absent any approved background therapy and three months is sort of the outer limit of what physicians and patients would be willing to go on placebo for without the addition of therapy.

So that's really what drives the 12-week window. Certainly we could do the study for a longer period of time, but I think it would be harder to enroll if we did that. Hopefully, that will answer your question.

Yeah. Thanks very much.

Thank you. Next question, please.

Our next question comes from Terence Flynn with Lazard Capital Markets.

Thanks for taking the question; congrats on the quarter. Just two questions. The first on Tyvaso. I was wondering if you can give us any insights in terms of the durability of response you're seeing among patients that started therapy maybe last year when you launched the drug back in September. And I have a follow-up question.

Okay. Dr. Jeffs will handle the clinical question.

Yes. Thanks for the question, Terence. So, you know, when you look at durability of therapy, we can go back to our long-term open label studies and we can see that the long-term retention of patients on Tyvaso is extremely good, particularly at one year and then subsequently at two years.

We're early enough I'd say in the launch that it's hard to give you an accurate -- a more accurate gauge of durability than what we've already published and expressed from the open label trials. So if you look at the data from the open label trials at year one, for example, we're upwards of 80% patients retained on therapy.

So since we're still within the first year of launch, I would say that number seems to be holding very firmly. So that's a very important, I think, and different therapeutic differentiator from our competitive product, Ventavis, where the turnover rate for that patient seems to be every six to eight months. So we have a therapy that will retain patients for many, many years. I think that's good for the patients.

It's obviously very good from a revenue standpoint in that that revenue stream endures and then as we accumulate more patients we then accrue additional revenues on top of existing patient basis. I think that's why you're going to see a very different revenue picture for Tyvaso than one sees for Ventavis and one we're very excited about and I think we've already started to see in the current earnings summary that you've seen this morning.

Great. Thanks. Then just one question on the expense side. So I notice that your SG&A, if you take SG&A excluding stock option expense, was 21% of revs this quarter. I think that's the lowest ever looking back. Just wondering if that's, you know, if you can make any comments about that? If that's a sustainable level or you think that's a one-time artifact this quarter?

I would ask John Ferrari, our Chief Financial Officer, to address that question.

Okay. A lot of that expense when you look at year over year is really related to the growth of the company over that period of time, and just the normal expenses supporting that growth.

Last year or a year ago, we only had -- we just opened up our new building down in RTP in December of 2009. We opened up our new headquarters building up in Silver Spring. So there were some additional expenses related to operating those buildings. We added staff to support the sales; all that operations type stuff that it takes to run a company that grows.

So I think because of our rapid growth, there will be some recognizable increases year over year, but I think over time, I mean, as we probably get our infrastructure a little bit more in place and set up some more efficiencies, that growth should diminish.

Okay. Thanks a lot.

Thanks, John. Next question and I think that this would have to be the last question.

Our final question comes from Geoff Meacham with JPMorgan.

Geoff, glad you got in.

Great. Thanks a lot, Martine, and congrats on the quarter.

Thanks so much. We appreciate that.

I wanted to go over earlier question or earlier comment that you had about the addressable population for Tyvaso. You know, when you think about the -- you probably would rule out the earlier Class II patients and maybe the latter Class IV patients, but just in numbers, what do you think the addressable population would be for Tyvaso in Class III? Is it 3,000? Is it 5,000? Is it 8,000? And a follow-up question is, is there any update to Tyvaso in Europe?

So let me do the last question -- well, actually, I'm going to ask Roger to address the last question after -- I'll address the first question and turn it over to Roger to address what our plans are with regard to Tyvaso in Europe.

But, you know, it's a really interesting question, Geoff. And I'm not surprised that it's you that had the insight to look into that. Let's peel away the different layers of your question.

I don't think that the Class II patients are any part of the market because first of all it's not in the label for Tyvaso. So we are not going to go there in any way, shape or form.

And secondly, with regard to the Class IV patients, parenteral therapies have established a really great track record over a period of basically a decade of helping Class IV patients in many, many, many instances move back into Class III and sometimes even Class II.

So I think for the Class IV patient, parenteral therapy is the logical choice. And, of course, with Remodulin available with two different routes of delivery, subcu and IV, the pumps for Remodulin have become the smallest pumps deployed for any parenteral therapy.

The peace of mind which is associated with the long half life of Remodulin, that most patients don't live around the corner from their pulmonary hypertension specialist, and knowing if there is an interruption in your line delivering prostacyclin with Remodulin, you've got this multi-hour period before you're going to be down to basically no prostacyclin left in your body. You've got a half life of around an hour.

And so it's all very much more comforting to be on Remodulin than any alternative parenteral therapy. So that really leaves you the sweet spot being the Class III patients for Tyvaso and indeed that's pretty much where we're directing it.

Now, in the real world, people don't just like cross some magical line from being a Class II to a Class III or Class III to a Class IV. These are fuzzy boundaries. And in the real world, physicians talk about Class II/III patients and about Class III/IV patients. There's even concepts like IIIA, IIIB. It all gets very fuzzy in the real world.

So, I think, you know, using marketing kind of MBA speak terminology, I would say that the potential market for Tyvaso are all Class III patients, which as mentioned before, is upwards of 10,000, 12,000 patients in the U.S. But no product ever captures its entire potential market. You then have to go down to the addressable market.

And the addressable market, it's always going to be some fraction of the potential market. And if it's a patient, for example, who's a Class III that because they were brought back to being a Class III on Remodulin, they're doing well on Remodulin, they may be on kind of a course to get up to being a Class II.

I think it would be pretty aggressive to just kind of take the person abruptly off of Remodulin and put them on Tyvaso. Similarly, if the patient is sort of a II/III patient, if they're in the border region, perhaps they're a II/III patient on one oral drug, the next thing that the doctor might want to do is add a second oral drug or maybe change bosentan to Letairis and hope to have better results with Letairis. Or change Revatio to Adcirca and hope to have better results with Adcirca.

So these border ranges are going to be people that, even though they are addressable by Tyvaso, they won't be in what the third MBA speak category is; which is the capturable market. The capturable market are the actual patients we can end up expecting to have on Tyvaso. And I think your figure of, you know, 3,000 patient category is a reasonable, good bet ultimately for capturable market at peak revenues for Tyvaso.

Again, every product category is different; health care, non health care. But it's not at all surprising if your potential market is 100%, your addressable market to be around two-thirds of that and your capturable market to be about one-third of that. In very rough numbers that's oftentimes how things work out.

So, Roger, could you address the question about how we're going to be going forward in terms of a clinical trial for Tyvaso in Europe?

Certainly, Martine. Good morning, Jeff. We're working with Dr. Lew Rubin on a protocol which we are actually in the final stages of completing the first draft on; the monotherapy protocol of Tyvaso versus placebo. It will be a global trial, very much like the FREEDOM-M study.

The nice thing about the trial is, as we progress this to sites and get IRB approvals it should sequence out, so that once we complete the FREEDOM-M enrollment sites, we will then begin enrolling into Tyvaso M or TRIUMPH-M study.

The very nice thing about the European market, I think we all need to remind ourselves of is the fact that we have orphan designation, which provides us ten years of market exclusivity from the point of approval. So we have some time to get it right here, so to speak.

And I think if we can begin the study sometime in 2011, these trials, and the monotherapy trial of roughly 150 patients or so, should take us the typical one and a half to two years or so of enrollment, plus then the period of trial conduct; a couple of years to complete the trial. We're looking at a 2013-2014 un-blinding of that trial and then submission to the EMA.

That's the reality of where that program is. I think the good news is with the orphan designation, we still have market preservation for ten years from the point of approval, which follows all of the regulatory time that we'll have to go through as well.

So, it's a market that we're very keen to approach. It's one that we want to -- we need to bring Tyvaso to European patients, and one that will, from our perspective, sequence out nicely with FREEDOM-M.

Great, thank you so much, Roger. I'd like to thank all of you for being on the call with us this morning. We begin this year impressively with continued growth in revenues and operating results. As discussed during the course of this call, these results are primarily due to increased use of Remodulin and Tyvaso.

As we look ahead, I'm truly encouraged about our prospects to achieve a ninth straight year of greater than 30% top line growth. And as I exit the call, we're all going to get about our job of achieving just that. Thank you so much for joining us this morning and have a great week.

Thank you for participating in today's United Therapeutic Corporation's first quarter earnings conference call. This call will be available for replay beginning 1 PM Eastern today through 11.59 PM Eastern on Friday, May 7th. The conference ID number for the replay is 64956109. The number to dial for the replay is 1-800-642-1687 or 706-645-9291. Everyone have a wonderful day. Thank you.