United Therapeutics Corp (UTHR) 2010 Q3 法說會逐字稿

Good morning. My name is Jonathan, and I will be your conference operator today. At this time I would like to welcome everyone to the United Therapeutics Corporation's third-quarter 2010 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 United Therapeutics's periodic and other reports filed by the SEC.

There can be no assurance that the actual results, events or developments referred 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, Jonathan, for that excellent introduction. And I would like to welcome everybody to our third-quarter 2010 financial results conference call.

Total revenues for the third quarter of 2010 were $171 million, up $97 million compared to the same quarter in 2009. Net income for the third quarter was $39.7 million compared to net income of $11.9 million for the same quarter in 2009.

Finally, the metric which we feel best reflects our operating performance, earnings before non-cash charges, a non-GAAP financial measure, was $99 million for the third quarter of 2010 compared to $40 million for the third quarter of 2009.

Clearly these numbers demonstrate that we had a good quarter as the demand for our core products has continued to grow. I think having approvals for multiple products is making a positive difference in our growth rate and in the number of patients that we can help compared to last year.

I am happy to be joined today on the conference call by our Chief Operating Officer and President, Roger Jeffs, and by our Chief Financial Officer, John Ferrari. Between Roger, John and I, we will do our best to answer any questions you may have.

Jonathan, feel free to open the conference call to any questions.

(Operator Instructions). Matt Kaplan, Ladenburg.

Thanks for taking my question. Congratulations on a great quarter.

Well, thank you, Matt, and I'm really happy you were first in line. That's great.

Thank you. I wanted to zero in a little bit on your Tyvaso results. They looked very strong. Can you give us a little color in terms of what you're seeing there in terms of inventory, and also the patient mix where they are coming from, and what you're seeing there in the growth of that product?

Tyvaso results definitely were strong. And it is really, I think, validating the consensus that has existed in the pulmonary hypertension community for a couple of years now since we announced the Tyvaso results that this is the therapy that everybody has been waiting for.

Just a quick way to visualize it for some people on the call, who may be a little bit newer, it is in essence in just eight minutes a day you are getting the benefit of prostacyclin therapy that would otherwise take over two hours a day via Ventavis, the other inhaled therapy, or with would take 24 hours a day via infused parenteral means of delivery. So eight minutes compared to two hours compared to 24 hours a day, it is kind of a no-brainer that prescriptions for Tyvaso are ramping sharply.

I think that this is the quarter where we have clearly turned the corner in establishing Tyvaso as clearly the preferred therapy. As of last quarter we had already exceeded the number of patients being treated compared to Ventavis and this quarter, while our numbers continue to ramp upwards, the revenues associated with Ventavis are clearly going downwards. So it really is a nexus turning point.

In terms of where the patients are coming from, I think it is easiest to think of it in three buckets. About 70% of the patients are coming from oral therapies, patients who find their disease either progressing or not improving, despite the fact that they're both on a PDE5 inhibitor and on an ETRA. So that is clearly where the lion's share is.

Another 20%, the second bucket, is coming from patients who have asked their doctor, or the doctor has suggested that they transition from Ventavis to Tyvaso. There is more and more buzz in the patient chat rooms and the patient meetings. And, of course, if you were somebody that had to change out your vials constantly, as you have to do with Ventavis, for example, 6 to 9 times a day -- a Ventavis patient has to break open a glass vial, pour it in their nebulizer -- and you meet another Tyvaso patient that just one time a day, she just has to pop off the cap on a plastic ampoule and put it in, you would be jealous. And of course that is what is happening in the marketplace.

Then, finally, 10% of the patients are patients who have been stabilized and substantially improved on parenteral therapies, and either again at the doctor's instance or the patient's instance or some combination of the two, have moved upstream from the parenteral on to Tyvaso. So those three buckets pretty much do it.

In terms of inventory, we are well within our normal range of variation in terms of the distributors are obligated to maintain 30 days inventory of our therapies. We don't measure it to the minute on the 24 hours, but plus or minus a few days, it is the same old thing with regard to inventory.

So all told, I think that we have every reason to be confident that Tyvaso is on the trajectory most of the observers have expected for it, which is to match Remodulin sales and then go on to even exceed Remodulin sales, because of its ability to tap the Class III New York Heart Association market, which as you know, is perhaps five times larger than the Class II -- Class IV, where the parenterals are.

(multiple speakers) with respect to Tyvaso in terms of -- are you expecting to increase the price at all (multiple speakers) a price increase?

We are going to move on to the next question, just so everybody gets a chance.

Okay, thank you.

Bret Holley, Oppenheimer.

Thanks for taking the question. Roger, I am wondering if you could give us an enrollment update on FREEDOM-M with the addition of the Chinese sites, and whether you still anticipate data from FREEDOM-M prior to data from FREEDOM-C2?

Good morning, Bret, thanks for the call. So just in terms of enrollment, let me just say we are progressing full steam ahead with cleared IRBs worldwide. And notably, as you have mentioned, we have our Chinese centers are actively enrolling patients. And actually they are already contributing what I would say meaningful numbers, both to FREEDOM-M and now towards FREEDOM-C2.

As you have alluded to, we continue to expect to complete enrollment in FREEDOM-M in first half of 2011. And it is our current belief that it will likely complete modestly before FREEDOM-C2. But both studies are enrolling robustly, but our current thesis is that FREEDOM-M will complete first. We expect C2 to complete shortly thereafter. And our expectation is that we will have our first announcement of completion of enrollment within first half of 2011.

Thanks.

Thank you, very much. Jonathan, if you could please queue up the next call.

Eun Yang, Jefferies & Co.

A question on oral Remodulin. Once it gets on the market I would like to know your comments on how do you see this product will fit into your [core] franchise, particularly in the combination setting. Do you expect oral Remodulin to cannibalize Tyvaso?

Thanks for the question, and glad to hear Jefferies on the call. The question of cannibalization really has to be looked at in two different ways. There is what I would call revenue cannibalization, and what one might call patient cannibalization.

So keep that in mind that because all of the prostacyclin therapies are priced comparably, whatever is the end outcome we don't expect there to be revenue cannibalization. As you have seen compared to Tyvaso and Remodulin, it will be the same kind of situation compared to oral treprostinil and Tyvaso.

Now with regard to your question as to the market take-up, under Dr. Jeffs' guidance, I think we have very wisely conducted both a monotherapy trial as well as a combination therapy trial. So hopefully we will have the label support for this oral treprostinil to be used as front line therapy for the newly diagnosed patient, as well as in patients that are already on either a PDE5 or an ETRA.

Let's take a moment to just take a look at the number of patients, roughly speaking, that we are talking about. There are -- and I will use ranges to provide both a conservative and a liberal estimate. There is something like around 10,000 to 15,000 patients on PDE5 inhibitors and another 10,000 to 15,000 patients on ETRAs.

So that is so many more patients than there are on any form of prostacyclin therapy that the oral treprostinil can grow year after year after year at any reasonable market rate that one could imagine in the pharmaceutical sector, and still not even make a dent in our revenues for Remodulin and Tyvaso.

So the bottom line answer to your question is the number of people with pulmonary hypertension who are not on Tyvaso and Remodulin, but who would benefit from oral treprostinil Class II patients who are like monotherapy candidates, and Class III patients who are more likely combination therapy patients, are a huge number more than the ones we currently treat. And even in those instances where a patient might gravitate from Tyvaso to Remodulin, we would end up being revenue neutral with regard to those patients.

Thank you.

Jonathan, next question please.

Michael Yee, RBC Capital Markets.

Great, thanks, congratulations, Martine. A couple of questions on the inventory. I know you sort of said it's one back normalized in the quarter. Can you just help us quantify that for both Remodulin and Tyvaso? And then there is a few million dollars each way, is that in the range? Can you help us where?

Then on Tyvaso can you help us understand how many patients were ending the quarter on drug last quarter versus this quarter? That would be helpful. Thanks.

Thank you, Mike, and great to hear your voice on the call. With regard to your inventory question, because we are fortunate to have John Ferrari, our Chief Financial Officer, here, I will ask them to provide some color around that question.

We don't give actual patient count numbers for each of our various drugs. But you can reach a pretty good estimate by simply dividing total revenues by the number of patients. I'm sorry, dividing total revenues by the amount of revenue we get per patient per year by the time period. John?

Regarding the inventory question, the inventory swing for Remodulin is basically nondescript. It just went up a little bit, nothing we have not seen from quarter to quarter in the past.

For Tyvaso, if you recall my comments on the last earnings call, we mentioned that the quantity of Tyvaso held by our distributors was below threshold levels. And I offered the opinion that if we maintained the contractual levels we would probably have met or exceeded consensus for Tyvaso revenues for the second quarter.

So during the third quarter we saw the correction of the inventory deficiency from Q2. And the current levels are well within what we expect. It is very similar to Remodulin and historically. So there is nothing -- outside of the correction, there is really not any excess inventory held at the end of September.

Thanks, John. Thanks Mike. Jonathan, next call please.

Geoff Meacham, JPMorgan.

This is [Chris Helm] on behalf of Geoff. I just had a couple of questions. One, can you give us some color on the OUS Remodulin sales this quarter, what kind of trends have you seen? And I will follow up with another one.

Okay, I'm going to answer your first one. Unfortunately, A., because you're not Geoff, and B., because we only allow each person one question, I can't let you follow up with your second question. We have to move onto the next caller. We've got a bunch in queue.

But traditionally our ex-US sales have held really study between 10% and 15% of total revenues. We've got a really great team of both medical, safety and sales professionals working out of our Chertsey office in the United Kingdom. And we have some fantastic EU distributors like [Fair Air] in the Spain, France, Italian area, Dompe Pharmaceuticals in Italy, (inaudible) in the Scandinavian region, and AOP in Austria, Switzerland, and OMP and AOP in Germany.

So all these guys combined have, I think, actually almost defied gravity in terms of continuing to grow EU revenues, notwithstanding the fact that the only drug that we have approved in the EU is subcu Remodulin.

But I actually -- I am going to go out on a little bit of a ledge here and I'm going to say I don't think -- because this is really a positive prediction, but it is my own personal gut feel -- that I don't think that it is going to be the only United Therapeutics drug approved in the EU for long. We are very hopeful that we have successfully circumvented this labyrinth of requirements to ultimately have IV Remodulin also approved in the EU market area.

That would be tremendous, because as you might recall from UT's history, the advent of IV Remodulin doubled our revenues that we were able to get from subcu Remodulin. And to this day we are roughly speaking 50-50 IV and subcu, some works for one, some works for the other.

So we are cautiously optimistic that in the first half of 2011 we are going to get a favorable indication from the authorities in the EU on IV Remodulin. And as it works its way through the national authorities that will provide substantial additional fuel for our team over in the EU to continue growing Remodulin at a rate that can keep up with the growth in revenues in the US.

Thank you.

Jonathan, next question, please.

Liana Moussatos, Wedbush Securities.

Do you see any impact from Actelion's room temperature epoprostenol that they recently launched?

Yes, I think that is the one called Velestri or something -- Veletri. You know, certainly not anywhere even kissing distance, or even shouting distance for that matter, from the range of materiality.

I do believe that they have garnered a handful of patients, but it is very little, very small. The drug still, unfortunately, suffers from the Achilles' heel of epoprostenol, which is it's very short half-life. The distribution of pulmonary hypertension patients is such that they are scattered all across the US. But the distribution of pulmonary hypertension doctors and Centers of Excellence are so few and far between that with a salesforce of only 40 people, we can cover every pulmonary hypertension prescriber down to the level of our doctors who only have a couple of patients.

This is one of the great leverageable abilities of the UT business. So, as a result, patients often find themselves hundreds of miles away from their doctor. And to be that far away with a therapy, which if the line is interrupted can send the patient into rebound hypertension literally in a matter of 15 minutes, a half hour or an hour is a scary situation for patients, a disfavored situation among prescribers. And, in fact the principle reason why Remodulin became the dominantly prescribed epoprostenol.

In fact, the advance of Flolan over time has been such that the need for room temperature stabilization has actually been quite modest. Patients usually just change their ice packs once a day. And if you are a Class III or Class IV patient, which would be the patient likely to be on a parenteral prostanoid, you are likely to be not be too far from your home and where you can readily change your ice pack. So it is really a very modest improvement over Flolan, and therefore, we have seen no significant uptake of it whatsoever.

Thank you.

Next question.

Salveen Richter, Collins Stewart.

It is Laura on behalf of Salveen. Last quarter you had provided some statistics that Tyvaso had captured more than 60% of the inhaled prostanoid market with about 100 patients added each month. I was wondering if you could give us some updated numbers there?

I think we are still on that curve. I can't give you an updated number, but I could say that we are no worse than that, and continuing right on that curve.

Great, thank you.

Sure thing. Next question, Jonathan.

Phil Nadeau, Cowen and Company.

Thanks for taking my question. My question is on actually the FREEDOM-M and FREEDOM-C2 trials. I think one of the keys to the success of the TRIUMPH trial was that close monitoring that you did of the trial sites and the enrollment criteria to make sure that all the patients who entered the trial were exactly appropriate for it.

Can you give us some update what you're doing in terms of that monitoring for FREEDOM-M and FREEDOM-C2, and in particular how are you monitoring those Chinese sites?

Thanks for your question and thanks for being on the call. I also want to acknowledge it is nice hearing your voice, because you have followed United Therapeutics longer than I think anybody else on the call. And it is really great to maintain this liaison with you.

We are really, really fortunate to have Dr. Jeffs' team responsible for the monitoring of the FREEDOM studies, and he is, in fact, over the course of the reinception of those studies at the 0.25 milligram dosage increment implemented a global clinical development team, which is state-of-the-art, uses state-of-the-art tools, has professionals with long track records in this area.

And let me pass the mic over to Roger to provide you some additional color on the -- on how right on top of the job we are with regard to monitoring from China to Europe and everywhere in between.

Thanks, Martine and good morning, Phil. So I guess I will lead with saying, obviously, this isn't our first rodeo, and we certainly done this many times now within this indication. I think your question specifically is how are we managing sites in new territories in particular. And let's take China, for example.

So the Chinese centers are experienced centers. And I think it is a misconception that they are new to pulmonary hypertension research. In fact, they participated in trials for Actelion, Bayer Schering, Pfizer and others.

And the main doctor there is a gentleman called [Dr. Zhing]. He has done residencies with [Gerald Simena] and Lew Rubin. Lew and Gerald rate him as highly as any doctor in the world. And I have just myself recently been to Shanghai to initiate his center, and I can tell you it is as state-of-the-art as it gets. And the thing that they actually bring to the table more forcefully than any center that we have in the world is resource.

There were four MDs in the room at the site initiation, all of whom will be engaged in the study, including to the level of completing CRS. And this was augmented by 4 to 6 additional nurses. So they are bringing a tremendous resource to this and tremendous experience. And I think the quality of those patients that we will see from China will meet or exceed the quality of any patient that we have enrolled in any trial, be it from the early days of subcu Remodulin or through our Tyvaso inhalation trial.

The one other thing that we have done worldwide -- so that is China and other centers -- we have done what we call the Freedom tour of late. So the Freedom tour was based around two things. One was to encourage the final leg of enrollment to get centers' attention that we think we are going to complete these trials in the first half of 2011, as they would like patients to benefit from participation in these trials, they should do so and do so quickly.

The second part of that was Lew Rubin came on the visits to many of these centers with us. And as you know, Lew was engaged in the quality management of patients that were enrolled into the TRIUMPH centers. And obviously that worked out very, very successfully. So one of the things that Lew stressed in the visits was the quality aspect, and the fact that it really didn't help anybody to rush to complete enrollment if the quality of those patients was poor.

So I think we have addressed growth of your concerns, which is we've got centers globally enrolling trial so that we can complete a monotherapy trial, for example, because obviously that is harder to do in territories where there are approved therapies.

We have also addressed the quality concern, both by looking carefully at the characteristics and qualities of those centers themselves, and then being very very remindful to them of what we want, and how to do what we want, so that we can file this study without any quality risk to it.

So I think we have done everything we can. And those efforts will position us well to have a quality result that won't be questioned by regulators around the world.

That's very helpful, thank you.

Thanks, Roger. And thank you and your team for the fantastic job you're doing on monitoring and advancing this trial. Jonathan, we've got, I think, time for two more questions.

Jon Stephenson, Summer Street Research.

Thanks for taking my question, and congratulations on the quarter. I was hoping you might be able to comment on the prescriber trends in terms of the number of people prescribing Tyvaso and trends on the number of Tyvaso patients those prescribers have? I just wanted to get a sense for what the growth trends are on those.

It is an insightful question. Tyvaso is still not prescribed by nearly as many doctors as prescribe oral medications, PDE5s and ETRAs in particular. If you were to basically stagger things, I would say the largest number of prescribers are associated with PDE5, a little bit fewer with ETRAs. And then it drops down to the inhaled and parenteral means of delivery.

However, I think that we are going to expand that situation significantly in 2011, because coupled with the establishment of a dedicated Adcirca salesforce starting January 1, which we will be rolling out, we are also doubling the size of our Tyvaso Remodulin salesforce. And the consequence of this is this will allow us pretty much in a linear fashion to double the frequency and double the reach that we are able to achieve with prescribers, and get down to individuals that may have say five or fewer oral patients and no inhaled patients.

And now we would be able to have a sales rep spend the time with the doctor to be able to explain that Tyvaso, unlike some other therapy, is not going to put an undue burden on his or her staff, which would ordinarily be less deeply resourced than at a big medical center.

So I think you're going to see, frankly, upwards of a doubling, if not more, in terms of the number of prescribers prescribing Tyvaso by the end of 2011 as a result of the doubling of the size of our Tyvaso Remodulin salesforce.

Great, thanks.

Sure. And last question please.

Joseph Schwartz, Leerink Swann.

Hey, thanks for fitting the end. I was wondering if you could give us a sense of how many of the 310 patients I believe you are targeting for FREEDOM-M do you expect to come from rest of world sites?

Okay, a very, very pointed question that I will defer to Dr. Jeffs.

So, again, since we have to continue to enroll patients it is hard to predict the future and where they would come from, but I would say just in general numbers we should have probably half the patients from US and European centers and then the other half of the patients from rest of world.

So it is not as if we are not enrolling any patients in North America. In fact, we have exceeded our own expectation in that regard already. So it will be about a 50-50 US/EU versus rest of world, and rest of world being the entire globe.

Okay, great. Thanks for fitting in my question.

Thank you very much, Joe. It is good hearing your question. Thanks. Thank you, Roger, for that response.

Let me just wrap up with sort of a view going forward here. We have had, frankly, the best quarter in our Company's history. And we are really excited with the growth from the previous quarter until now, previous year to now and the growth across every one of our products. The Remodulin, Tyvaso and Adcirca have all grown very smartly.

I think what we are seeing here is a validation of our pretty simple strategy, which is to meet our target of growing our Company's earnings in the top quintile of our peer group, which we define as the top 25 biotech companies in terms of market cap. We are somewhere in the middle to lower section of that top 25 biotech companies -- US biotech companies by market cap.

If you take a look at the growth of those companies' earnings before non-cash charges, which is the metric that we judge ourselves against, in order to stay comfortably within the top quintile of that group, we need to grow on the order of about 30% a year. And basically because our expenses are very linearly tracked to growth in revenues, that means growing topline about 30% a year.

There are many who questioned whether this could be done. That is a steep growth rate. I am really pleased that we have been able to achieve this now for going on eight, nine consecutive years.

There are -- there is probably what many of you have heard of as the law of large numbers, that basically means in the business world that it is harder and harder to grow at a fixed percentage rate as the denominator, the large number, gets larger and larger. And that is very certainly the case. that law of large numbers is called a law for a good reason.

But I think the law of large numbers can be trumped, at least for a period of time, by what I would call the law of great products. And here at United Therapeutics we are really blessed to have three fantastic products for the pulmonary hypertension community. Remodulin, which became the most prescribed parenteral drug. Tyvaso, which within just one year of its launch became the most prescribed inhaled prostanoid. And Adcirca, which within one year of its launch went from 0% to 33% new prescription share against the biggest pharmaceutical company.

Then as the questions of this call have rightly focused, we have a pipeline, which is rich with prospects to be able to continue this growth trajectory. Oral treprostinil will allow us to expand our products into the New York Heart Association Class II domain, which is many thousands of patients, and equal in size to the Class III domain, which is just beginning to be moved into by Tyvaso.

So I think with the great products in our pipeline, and the products which have just been launched, as well as the continued very strong running legs on Remodulin, we have every prospect of affirming that the law of great products trumps the law of large numbers. And we can continue to hit our goal of growing earnings before and non-cash charges in the top quintile of our peer group for several years to come.

Thank you very much for your attention this morning. I wish everybody a super balance of the week. And look forward to seeing you at the various healthcare conferences, where Andy Fisher will be leading our team. That would include the conferences up in New York by Oppenheimer, who Bret was on the call, and Lazard and also Piper later on in the month.

Thanks so much and have a great day.

Thank you for participating in today's United Therapeutics Corporation third-quarter earnings 2010 conference call. This call will be available for replay beginning at 11.35 AM Eastern time today through 11.59 PM Eastern time on November 7, 2010. The conference ID for the replay is 14787030. The number to dial for the replay is 1-800-642-1687 and/or 706-645-9291. Thank you.