United Therapeutics Corp (UTHR) 2010 Q4 法說會逐字稿

Good morning. My name is Javan, and I will be your conference operator today.

At this time, I would like to welcome everyone to the United Therapeutics Corporation fourth quarter and annual 2010 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

(Operator Instructions)

Remarks 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 statement.

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 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, operator.

I'd like to welcome everybody to United Therapeutics' conference call for 2010 fourth-quarter and annual financial results. I am joined this morning by our President and Chief Operating Officer, Roger Jeffs, and also by our Chief Financial Officer, John Ferrari.

We finished 2010 with solid operating results led by the growth in our revenues. For example, total annual revenues topped $600 million, at $603.8 million. Our annual earnings per share were $1.89 per basic share, $1.78 per diluted share. And annual earnings before non-cash charges were $5.44 per basic share, and $5.13 per diluted share.

For those of you keeping track of one of the most remarkable statistics associated with United Therapeutics, this is now the ninth year that our revenues have grown by over 30% the year from the preceding year. And, it's a statistic that even leads us to pinch ourselves, mostly out of encouragement to keep racking it up for another year and another year after that, which, I believe, our pipeline and our approved products definitely give us the fuel to do so.

Speaking of pipelines, we'd also like to take the opportunity during this conference call to let everybody know that we expect to unblind our FREEDOM-M pivotal study of oral treprostinil as monotherapy for pulmonary hypertension in June 2011. And, for this, the first time we've really pinned down a specific month for the unblinding of the FREEDOM-M study.

And, I'd also like to announce for the first time that we expect to fully enroll and then unblind our FREEDOM-C2 pivotal study of oral treprostinil as combination therapy for pulmonary hypertension in April for the enrollment, and September for the unblinding, 2011 respectively. So, this is actually about a half year earlier than we had thought, and tremendous kudos go out to our fantastic global critical development team, lead ultimately by Dr. Jeffs but also by the many fine members of his team under Hassan and the rest of our great group there.

Now, with regard to the quarterly numbers for this quarter, I don't believe the quarter-over-quarter fluctuations on Remodulin and Tyvaso are meaningful. The patients on Remodulin continue to grow, and the important thing to keep focus on is with over 25,000 patients in New York Heart Association Class II and Class III just on oral drugs, the prospects for Remodulin growth continue to be very good. Just to make sure, again, everybody is on the same page here, while none of those oral drugs in New York Heart Association Class II or Class III -- I'm talking about the PDE5's and the ETRA's -- while none of them have survival in their label, the meta-analyses that have been done indicate that, at best, our mean survival is five years with these oral drugs. So, now, Remodulin and all of the other parenterals -- drugs combined for pulmonary hypertension -- to the best of our knowledge, together represents fewer than 4,000 patients out of those 25,000.

So, you've got 25,000 patients constantly moving over into New York Heart Association Class IV, with nothing available to help them except for Remodulin and the other parenteral drugs, of which Remodulin is the only long half-life parenteral drug, and clear and away the market favorite. So, just in the US alone, we expect continued strong growth for Remodulin in the years to come. And, we also mentioned that in Europe, we expect to have IV Remodulin approval by the middle of this year. There's no guarantee, but we are hopeful that we have now satisfied all of the European authorities' questions.

And our experience has always been in the US and in each market within the US, that whenever we have introduced intravenous Remodulin after previously having subcutaneous Remodulin approved, the effect is always been a doubling of the market. Even today in the US, we've got like one IV patient for every one subcutaneous patient.

Basically, what happens in the real world is that there are a certain number of physicians and patients that are either afraid of or just don't want to put up with the site pain that can be associated with subcutaneous Remodulin, but if IV Remodulin is available, then they grab for it, because, again, it's a patient's only good lifeline in New York Heart Association Class IV. So, we would expect with IV Remodulin approval in Europe, a doubling of our sales there.

And then, the other thing to take note of is that we are now up to 20 patients on the implantable pump for Remodulin. All of those patients are in Europe. The Medtronic study to satisfy FDA requirements for a label expansion on the Medtronic SynchroMed II Pump to include Remodulin, that's scheduled to enroll its first patient in April. So, all of these factors lead to continued strong legs on Remodulin for 2011 and 2012.

With regard to Tyvaso, we also are looking forward to continued strong growth there. Again, as we've cautioned before, in a market like this, where patients move in and out of drugs sort of in cohorts as the detailing moves to one or another decile of the prescribing physician, you're going to always see lumpiness quarter to quarter. This has been a historical trend for us and is no exception with Tyvaso. But, taking a look at Tyvaso's numbers, which continue to grow nicely month to month in terms of net patients on drug, Tyvaso is now on a ramp rate that it will actually exceed the number of patients on Remodulin within the next 18 to 24 months.

So, given that the Remodulin patients are generating around $400 million, the Tyvaso patients generate on average about the same amount of revenue per patient then as Remodulin does. That means that within the next 18 to 24 months, combined Remodulin and Tyvaso revenues should be on a revenue run rate that is in excess of $800 million, and then you add another $100 million from Adcirca to that, and the Company is going to be coming extremely close to $1 billion in sales in that time frame. So, the future looks extremely good for all of our approved products and, of course, that good future is only going to get better with oral treprostinil.

So, with that introduction, let me now open up the lines to questions directed to either myself, Dr. Jeffs, or CFO John Ferrari. Operator?

(Operator Instructions)

Our first question comes from Terence Flynn with Goldman Sachs.

Good morning, guys. Thanks for taking the questions. I was just wondering if you could give us a few more details on Tyvaso, with respect to maybe the new patient starts, how those are trending versus some of the prior months. And, then, also duration of treatment -- what you're seeing there, if there's any delta on duration of treatment versus the prior quarter's. And, then, a quick question on oral Remodulin, if you let me sneak it in.

Sure, Terence. Well, congratulations on launching coverage on our cells and some other companies. And, I'll address the first couple questions and then shift over to Roger on the Remodulin question.

The trending on Tyvaso continues to be remarkably steady and, as mentioned, at the current patient accrual rate we really think that it's pretty much a foregone conclusion that Tyvaso patients will end up exceeding Remodulin patients. The total of Remodulin patient count is a little bit shy of 3,000, the total Tyvaso patient count is now shy of 2,000. And, again, that's a monthly net accrual rate. Both lines are likely to cross in the 18 to 24 month time frame.

With regard to duration on therapy, it continues to inch up. I would like it to inch up more rapidly. We are definitely north of 12 months on mean duration of therapy. Based on the TRIUMPH trial, especially the open label extensions, we were seeing mean durations of therapy north of 24 months. In fact, at 24 months we've not even reached the mean duration of therapy. Many people caution that patients who are in clinical trials are carefully and closely monitored by, generally, key opinion leader doctors who are extremely familiar with the dosing. And, all those caveats were well placed.

We've had numerous instances, Terence, where patients would be started on Tyvaso at too many breaths, too rapidly, and then were quickly taken off Tyvaso. And so, all you need is a certain number of those people who are one month in and out of Tyvaso, and it drags down your numbers.

But, we've developed a superior strategy to address that. We've really had some nice beefing up of our medical science liaison team. As well, we have what are called clinical specialist representatives, who have been helping ensure that everybody is familiar with the Tyvaso dosing as was accomplished in the TRIUMPH trial. And so, the net net is that the mean duration continues to inch up by 12 months, but I'm actually quite optimistic that we are going to be able to get that to 15 months within this 12 to 24 month time frame.

In fact, our MSL's largely join me in that confidence that we will be able to move up toward that 15-month duration. Ultimately, 18 months, maybe in terms of a mean duration, about the best we can do. Mostly because these are Class III patients, that's the label. But at 18 months, that would be a 50% improvement and I would be really thrilled.

Roger, can you address Terence's questions about oral?

Sure, thanks on that Martine. Just wanted to know if you can give us, maybe, an update on the blinded discontinuation rate you're seeing from the FREEDOM-M study?

Sure, Terence, and thanks for the question. So, the update would be that in the primary analysis population, we remain comfortably below the 10% level that was powered, within the power calculation. Obviously, the study is still ongoing, and that could shift very slightly, but given where we are, we think we will be more than below 10%.

Okay, thanks a lot, guys.

Operator, next question, please.

Our next question comes from when Eun Yang with Jeffries.

Thank you. Martine or Roger, could you give us an update on Tyvaso new trial that you are planned in Europe? Last time when you provide us guidance, you could actually potentially run a trial only (inaudible) patients, so if you could give us a timeline as well as a kind of a protocol of the trial, that would be very helpful. Thank you.

Roger, do you want to talk about that?

Certainly, Martine. Thank you for the question. So, we are in discussions with the EMA regarding trial design and it is our preference to do a smaller trial, possibly a TRIUMPH study in treatment-naive patients. And, there's a bit of debate back and forth between us and the EMA on how that would be done. The reason we want to do that study is it would also have benefit to the US label, as well as serving the placebo-controlled mandate for a well-controlled study approval in Europe.

So, it's just the specifics on how to do that that we have had discussions. We continue in that discussion. In fact, we've submitted a response to their questions just recently and await their return of questions. So, we will have more clarity on that, I think, at the next call.

Okay, thank you.

Thank you, next question please.

Our next question comes from Salveen Richter with Collins Stewart.

Good morning. Thanks for taking my question. Can you just comment more on the factors that played into lower Remodulin fourth-quarter sales versus third quarter? So, was it mostly fluctuations in inventory stocking, or was there choppiness in buying patterns or increase which is from Remodulin?

Yes, good questions. I think it's just the normal quarterly choppiness. We also historically see a downturn in the fourth quarter. The odd thing about Remodulin, compared to most other drugs, is that you can't come up with a really solid revenue per patient metric. The reason is that the cost of Remodulin therapy is literally related to the dose that the patient is on. So, for example, patients will ordinarily start Remodulin at a flow rate of around 10 nanograms per kilogram per minute. But, after one or two years, some patients are on over 100 nanograms per kilogram per minute. Overall, with IV Remodulin patients tend to be on a higher average flow rate, around maybe 60 or so nanograms per minute, compared to perhaps around 40 with sub-q Remodulin.

A couple of -- so what happens, for example, is if you have a particular cohort of patients that have been long-term Remodulin users and have, for example, transitioned to transplant or unfortunately passed away, and that cohort is replaced with patients who have failed oral therapies or are not doing well on oral therapies, you're going to have a shift in the overall Remodulin revenue picture, despite having a growth in the total number of Remodulin patients. These influences are pretty small, and you're not going to really see them on an annualized basis because the new patients will catch up in their dosing pretty quickly, but something like that could be responsible for the quarterly fluctuation that you (inaudible) up here.

As I mentioned in my introductory remark, overall Remodulin patients continue to grow. The market status of Remodulin continues to be far and away the favorite. The future prospects of Remodulin are fantastic because there are nine or 10 patients that are going to fail oral therapy for every one patient on Remodulin. So, the pipeline of Remodulin patients is beautiful. I mean, it's the most you could ask for. There is no better therapy, and on top of that the physicians in the field are extraordinarily excited.

In fact, I will say in my 15 years in the field, I have not seen the physicians more excited about any one development in the later-stage treatments for pulmonary hypertension than the implantable Remodulin pump. I've even heard patients who are on inhaled, and they are just elated to be on the inhaled. They used to be on Ventavis and they see, wow, I've gone from half my day being taken up to only eight minutes a day. But my doctor told me about this implantable pump. When will that be available, because then I won't have to do anything at all.

So, the implantable pump is going to be a huge supercharger on Remodulin revenues, and, as mentioned, I think it was about a year ago from this call, that I first mentioned that we have a first implantable patient on Remodulin in Europe. That's now grown to over 20 in the course of a year. And, as I mentioned, in April, after satisfying all of the FDA's questions and whatnot, we look forward to dosing the first patients in the 10-center trial of 50 patients to get 100 patient years worth of safety data on the implantable pump -- the Medtronic implantable pump. And, based on that, then the FDA can amend the label for the SynchroMed II to include Remodulin. And, I think you're going to see huge growth of Remodulin even into the Class III space with the implantable pump

Thank you.

My pleasure. Next question, please.

Our next question comes from Michael Yee with RBC Capital Markets.

Thanks, two quick questions. One, just specifically on inventory levels. Can you describe whether or not they are above or below the average, I think is around 30 days for Tyvaso and Remodulin. And then, second question, on FREEDOM-M, I know you guys over-enrolled. Can you give us some specifics around actually how many patients were being used for the 0.25 mg one? I know that there were older patients back from before the study previously enrolled and then those patients are analyzed together, right? So, just help me remember those numbers. Thanks.

Great, Mike. Good to hear you on the call. Let me switch the first question to John Ferrari, as he oversees all business operation, and then, John, if you could turn the mike over to Roger after that for the question on the clinical trial.

I'd be happy to.

On inventory, while the contractual limitation is 30 patient days, typically the distributors keep slightly more than that. And then for the quarter, we basically saw just a very small fluctuation of inventory. Tyvaso was up effectively one patient day, and Remodulin went down one patient day. So, inventory levels were relatively stable.

Roger?

Michael, could you read repeat the question on the FREEDOM-M, please?

Yes. On the FREEDOM-M, I know you guys over-enrolled the study, but remind me, this is only -- the primary analysis is only on the 0.25 mg tablets, right? So, there is some percent of patients of that previously before the study had stopped enrolling a couple years ago at 0.25, and then new patients all -- that were re-enrolled are all 0.25. So, how many patients prior were 0.25, and how many patients after were 0.25?

Maybe an easier way to look at this would be just to say, what is the sample of patients that have 0.25 mg from the start of the study? And, that would be up 349. It would be the 236. The requirement was for 195 subjects. So, in essence, we are about 41 patients over that sample that was required to show 90 percent power at "01." So, we have additional power given the over-enrollment that was achieved. So, that's the reality of the numbers. That's probably the easiest way to look at it, Michael.

Okay, perfect. Thanks, guys.

Thanks, Michael. Next question, please.

Our next question comes from Bret Holley with Oppenheimer.

Yes, thanks for taking the question. I was wondering, Roger, can you give us an update on the number of Chinese patients in FREEDOM-M? In the final enrollment it seemed like there was a big spike kind of at the end, was that mainly attributable to the Chinese sites?

Good morning, Bret, thanks for the question. That's not necessarily true. When you look at our enrollment, all of the major territories were well-represented, and that includes the US, Europe, India, China, Mexico, Israel and other centers. So, we feel we have a representative sample that's global in nature, which was the intent of the study design. We won't really break it down into specifics until we finish, but I would say that the enrollment at the end wasn't solely from China, it included patients from the US, from India, and other territories that I mentioned. So, when we get to the end, we will give you all of that data, but not today.

Can I quickly ask what's a reasonable timeline for approval of the implantable pump?

Yes, it's basically a safety study. So, there have to be 50 patients enrolled to achieve a certain number of years of exposure, patient years of exposure. In essence, 50 patient years or more. So, you're going to have to -- One of two ways -- 50 patients on it for a year in the study to show the safety of that device, or you could do more patients for a shorter duration of time. But, it's all exposure based in terms of showing that that pump is safe and reliable, and a good way to give intravenous Remodulin.

Thanks very much.

Roger, thanks for that clarification. Just for the transcript, I misspoke previously when I said 100 patient years, I meant 50 patient years. So, thanks, Roger. Next question?

Our next question comes from Geoff Meacham with JP Morgan.

Hi, guys, thanks for taking the question.

Of course, Geoff.

First, on Remodulin, just curious sequentially what the contribution was from Tyvaso patients going from Remodulin to Tyvaso? And also, if you're seeing any impact from Veletri. And then, second part is on oral, what are the inputs to pricing there, and how much is driven by treatment effect in the two FREEDOM studies?

Very insightful questions on both counts, Goeff. So, we see no significant -- and by that, I mean I don't even think you could count on the fingers of your hand -- movement of patients from Remodulin to Tyvaso. It's not something that, of course, we would in any way promote, and it's something that would be very unusual to occur in the clinical environment. And again, just to have everybody on the call on the same page here, the patients who are on Remodulin are by definition in a rather fragile state of health.

These are patients who are willing to put up with a 24-hour-a-day ex vivo pump infusing medicine into their body. And, the only total cure for these patients ultimately is a lung transplant. So, physicians would be most cautious about moving somebody off of something which has a tremendous track record. And, literally, to use the phraseology of Dr. Lewis Rubin, (inaudible) gave the body in treprostinil over to a more intermittent, very effective but nevertheless intermittent, prostacyclin exposure therapy such as Tyvaso. So, I don't think that you are ever really going to see a whole bunch of that.

We subscribed to a market survey company called Guide Post. It produced data that gives fairly accurate statistics in terms of the penetration of different therapies and different market shares. The data that we just got from them, I think it's like less than a month old, was that the Veletri and Teva epos, the two generic forms of epoprostenol combined represented less than 5% of the market share in the parenteral drugs.

So, that's an independent third-party analysis, and, actually, it's been pretty much flat since they started serving the data, I think maybe six or nine months ago. There was a little spike in Veletri about three months ago. Then it went something like 3% to 5%, something like that. Then it went right back down to under 5%.

The problem there is that what has driven Remodulin growth is part and parcel tied to the fact that it's got this very long half-life compared to the under two minutes half-life of epoprostenol. And that short half-life is a major safety concern, it would be for anybody, it would be for me. If I was out and about somewhere away from a hospital and my line was interrupted and then suddenly my body, which had become totally accustomed to 24/7, 365 vasodilation, suddenly had all the vasodilation ripped from under it, like pulling out a platform from under somebody. There is, in the literature, references to what's called rebound hypertension, and it's just the body's acute re-vasoconstrictive response in the lungs to suddenly having no more vasodilation.

So, it's a dodgy proposition to be walking around with a very short-life prostinil. Obviously, that's the reason why the vast majority, I think it's about four out of five patients on prostanoids used treprostinil. So, I hope that answers your question as quantitatively as I can.

And the question marking on oral?

With regard to oral -- boy, you are good, because we just loathe addressing pricing questions for therapies which are not yet approved. I probably got told too many times when I was young, don't count your chickens before they're hatched. And pricing count is like counting, and the Remodulin chicken, while it's getting really, really warm and the integration period is just about over, it's not yet hatched. As we announced today, we are going to have a hatching in June, so stay tuned for that. And it's kind of cool, instead of it being really a binary event, it's like a trinary event because then we'll have another hatching in September. So, I really try to stay away from even thinking about pricing of a drug before we know that we have something that has an excellent shot at FDA approval.

Okay, then. Thanks, Martine.

Sure thing.

Well, everyone, thank you very much for joining the conference call. We've hit the half-hour mark. We will be available for more questions at numerous healthcare conferences coming up. I believe there is a Citigroup conference in New York in just a few weeks. And the Cowen conference in Boston right after that, I will definitely be at that one. So, thanks for all of your interest, support, and joining us for the call. Have a fantastic balance of the week.

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

(Operator Instructions)

Ladies and gentlemen, thank you for your participation.