United Therapeutics Corp (UTHR) 2011 Q3 法說會逐字稿

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

At this time, I would like to welcome everyone to the United Therapeutics Corporation third quarter 2011 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 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 cautionary language and risk factors set forth in United Therapeutics' periodic and other reports filed with the SEC. There can be no assurance that these 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 and assumptions or changes in factors affecting such forward-looking statements.

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

Thank you. Good morning everybody. I am pleased to be joined on the call by our illustrious Chief Financial Officer, John Ferrari and our dynamic President and Chief Operating Officer, Roger Jeffs.

I'll make a few introductory remarks and then we would open up the phone lines and welcome all of your questions.

We achieved over $200 million in revenue this quarter, which reflects the continued strength of our core business. I'm also pleased to report that our board of directors recently authorized a $300 million share repurchase program which has already begun to return additional value to our shareholders.

The combination of these two main points from our quarterly release is that the United Therapeutics growth story remains very strong and we remain committed to sharing that value with our shareholders on a regular basis.

I'd like to point out a coupler of things that are perhaps not quite so clear from the black and white letters of the press release. The GAP profitability has almost doubled from the third quarter of 2010 to the third quarter of 2011 and also for the nine months of 2010 to the nine months of 2011. So that certainly is a very exciting dynamic indication of the strength of the core business.

Now I think when you take a look at the reasons behind the growth, one has to take a look primarily at the fact that United Therapeutics is a company that is committed to doing the absolute best that can be done for the pulmonary hypertension community.

In fact, with now over 6,000 patients on ADCIRCA, over 3,000 patients on Flolan -- I'm sorry, on Remodulin -- excuse that slip -- and over 2,000 patients on Tyvaso, United Therapeutics actually helps more American patients with pulmonary hypertension than any other company in the world. And that's something we're really excited about because we formed our Company 15 years ago specifically to help patients with pulmonary hypertension.

Certainly ADCIRCA has been a big part of our ability to reach out to more and more patients yet even with the 6,000 patients we're helping on ADCIRCA, that's only about 20% of the diagnosed US patients with pulmonary hypertension. And all of the data out there really supports the fact that there should be no patient with pulmonary hypertension who is not on a PD5 background therapy of which ADCIRCA is the most convenient, efficacious as any, as safe as any and the least expensive.

So you really get four of a kind with ADCIRCA and we certainly expect that growth to continue from its current 6,000 level up until we are achieving something close to the 30,000 patients in the US with PAH who could all benefit with it.

Let's take a look at Tyvaso. Over 2,000 patients benefitting from that now, a true revolution in prostacyclin therapy in that while patients used to have to endure 24 hours a day, 365 days a year, they now just have four brief, one to two minute inhalation sessions and achieve significant therapeutic benefit.

We're really excited with the growth in Tyvaso revenues, which we've been sharing with you for the past few quarters, but the fact of the matter is that in terms of class 3 patients, which is the label for Tyvaso, we are serving maybe about 25% of the patients. So we still have four-fifths of the way to go to achieve the peak revenue potential of Tyvaso along the pulmonary hypertension community, so again, a very, very exciting growth trajectory on Tyvaso.

And finally, let's talk about Remodulin. Notwithstanding the fact that it has been on the market for nine years, as the numbers for this quarter demonstrate, Remodulin continues to be a strong growth story. The reason for that is simply that physicians have achieved great comfort with Remodulin and we as a Company have gone to every possible length possible to make Remodulin as convenient and tolerable for the patient as possible.

For example, originally when we were delivering Remodulin subcutaneously, over 90% of the patients were reporting severe site pain subcutaneously. We delivered and obtained FDA approval for the intravenous route of delivery which just about doubled the number of patients on Remodulin.

Well, we don't want to count any chickens before they're hatched but all signs are looking very positive that we will be able to achieve European authorization - we're certainly optimistic about this, by the end of this year for intravenous Remodulin in Europe. And our hope and expectation is that we can also double our number of European patients on Remodulin by having the intravenous route of delivery available as well as the subcutaneous.

Let me mention another point, which is you're not often appreciated through years of careful work with the great physicians in this field, the physicians have learned that the patients leave their subcutaneous Remodulin system in place for about 30 days. They only experience the site pain for the first two to three days and most of the patients do not experience site pain for the rest of the month.

As a result, more and more patients are saying, 'Okay, I will step up to Remodulin and I understand that there will be some site pain for a couple of days but as long as I don't have to experience that for the rest of the month, I want this therapy,' and the physicians want to give it to them.

So a real hat's off there to the physicians throughout the US who have figured out a way to greatly extend the power, reach and convenience of subcutaneous Remodulin.

And when I said that we are leaving no stone unturned in making Remodulin available to more and more patients, we're now at over 50 patients between the US and Europe who are actually using Remodulin through an implanted micro pump that only has to be refilled once a month or in some cases once every two months by a visit to their doctor. All the rest of the days of the month the patients do nothing with regard to their therapy and the Remodulin pump works automatically.

In just one anecdote that I cannot resist sharing is of a patient who could not go swimming, could not even go to the beach for her years on Remodulin because she rightly feared getting aseptic infections from having exposure to the sea water or to the sand. And after she got Remodulin implanted inside her, after a week she went down to the gulf coast and enjoyed time there at the beach and said she got her life back. And it's just a wonderful therapy.

So here too, in the class 4 category of patients who are the natural users of Remodulin, I think there too we have a long way to go in terms of reaching peak revenue. Probably we're only about half the way to peak revenue in that patient population.

So ADCIRCA, Tyvaso, Remodulin, all tremendous growth stories and the results of this quarter I think evidence that we are right on that growth trajectory.

Well, thank you for giving me a few moments to share with you some color behind the numbers and let me now open up the phone lines to any questions.

(Operator Instructions) Geoff Meacham of JPMorgan.

This is Anupam Rama in for Geoff Meacham. I was just wondering if you could give us a quick update on the duration of therapy for Tyvaso. Thanks.

Yes. Great question. Because that is a clinical question, I'm just going to give you a brief one-liner then ask Dr. Jeffs to provide you a little more color. But the one-liner is that the duration of therapy on Tyvaso continues to increase quarter over quarter which certainly is something else that augers well for us growing up toward that 10,000 patient peak revenue potential for it.

Roger, would you like to maybe give some specific kind of month count through the last data you may have available?

Sure Martine. Thanks for the question Geoff. The last time we tracked, we were approximating just north of 16 months, so really Geoff our goal is to continue to increase that number over time and a couple of things will do that. One is proper selection of patients. You know, we certainly want to make sure physicians are use -- selecting patients for the drug that are appropriate.

The second is management of any adverse events that could be dose-limiting such as cough. So some of that relates to dosing administration, particularly the initiation along with a fewer number of breaths to start a therapy.

And then finally it's about helping the patient manage the therapy and increase the dose over time and the number of breaths within the label as appropriate.

So we spend a lot of time with continued education of -- on patient selection and then dose initiation and then dose escalation over time, even for Tyvaso just as we do for subcutaneous and intravenous Remodulin. And I think from those efforts we've seen a very handsome increase in the average duration of patients on therapy and we expect to see that continue over the next year.

Our goal would be obviously to get that in the multi-year time frame and the other thing that would help that would be the earlier we can start that isotherapy then the longer the duration of the therapy would be so that's a coincident effort that the sales and marketing team is making and I think they're making tremendously good strides based on the data that I've just given you.

Great. Thanks for taking my question.

Thanks Roger. Great answer. A little bit of further color just to add to that that John Ferrari just shared with me is that keep in mind that Tyvaso has only been on the market about two years and yet despite that fact, something in excess of 500 patients have already been managed on it for over two years. So it augers well with what Roger said that mean numbers are continuing to tick up.

Great. Thanks for taking my question.

Thank you for asking it and please give our best to Geoff.

Will do.

Next question, operator?

Liana Moussatos of Wedbush Securities.

Thank you and congratulations for a great quarter. Can you give us a split between the US and Europe for Remodulin sales?

Sure. I'm going to just, again, mention kind of a highlight, kind of a progress statement on that and then ask John to give a little bit more color on it in just a moment. But thank you for the congratulations, Liana.

And the European business reflects Remodulin alone. And unfortunately at that, as mentioned in my introductory remarks, reflects only subcutaneous Remodulin plus a little bit of the implantable Remodulin. And this is because our agreement with Lilly for ADCIRCA unfortunately did not include the European Union.

And with regard to Tyvaso, the European Medicine Agency requires us to do a second study. We were able to get approved on a single study in the US. We'll have to do a second study to get approved in Europe. Dr. Jeffs and his team, together with our German partner, NebuTech, are working together to move forward on that second study to obtain European approval.

I would like to, I know you're very well aware of this, Liana, but just so everybody else now knows, we do have 10-year orphan drug exclusivity for Tyvaso in Europe. It is a wonderful therapy. I mean, the differences between it and the only other alternative that one could even conceive of, which is inhaled iloprost, are like night and day, and that's just a black and white fact that inhaled iloprost has to be inhaled six to eight times per day for 15 minutes duration. Maybe that can be cut down to 10 minutes but unfortunately the mean duration of people on that therapy is less and less the less they breathe it.

So it's -- a first generation inhalation drug, Tyvaso being the second generation, so we're confident that Dr. Jeffs team will be able to execute that study to the satisfaction of the EMA and then we will be able to have all the Tyvaso revenues in Europe.

And then, as mentioned, we've been working for many years to satisfy the European concerns with regards to intravenous Remodulin in Europe. And again, just to refresh some people's deep history on this, we never did an actual full blown clinical study for intravenous Remodulin. We were able to obtain approval in the US by bioequivalence of intravenous Remodulin to subcutaneous Remodulin.

In Europe we never filed for approval for subcutaneous Remodulin with the European Medicine Agency. Instead it went through the older, country by country approach. Hence, the Europeans have some very reasonable bases for asking us to go this kind of slow and steady approach to get intravenous Remodulin approved there.

However, we do feel that we are around being the last lap and hopefully that will be approved by December and then our excellent teams over in Europe are excited about the prospect of being able to start marketing intravenous Remodulin there very soon.

So let me with that kind of high-level color, let me ask John to give you a quantitative answer to your question.

The core sales of Remodulin still remain pretty consistent of 13% to 15% of total Remodulin sales, so they're growing almost as nicely as the US base and have been for the last several years.

Thanks John. That's great. And if I could just add a little color to that, John, we also have been diligently working in the past several years, the Japanese and the Chinese markets. With regard to the Japanese market, the best market information we have is that [Flolan] is about a $100 million a year business over there. It's had a protected market. It hasn't seen the shadow of Remodulin.

But usually where Remodulin does come in, the other prostacyclin drugs tend to kind of shrink away and we're quite hopeful that within the next 18 to 24 months we should have approval in Japan through our superb partnering with Mochida Pharmaceuticals over there in Japan. Mochida is the leader in orphan drugs such as Remodulin and we could not ask for a better partner to introduce this.

So I think there is definitely a [small] $100 million a year potential for Remodulin over in Japan. In China we have an agreement with Lee Pharmaceuticals, which is a major force in drug distribution in China. Our application for approval in China has actually been accepted since our last conference call by the Chinese FDA or the SFDA.

And that -- the way things work in China, that actually is the more important step. So we may very well have approval in China even before we end up getting approval in Japan. And hence, Asia is a very important part of the Company's future growth story.

Thanks Liana. Next question, please.

Robyn Karnauskas of Deutsche Bank.

Bing Lin for Robyn. Congrats on a solid quarter. Just wondering, the Remodulin's quarter over quarter sales were pretty impressive and I was just wondering what drove that growth and if there were any inventory fluctuations.

Thanks for your question. Thanks for the congratulations. As Chief Financial Officer and also head of all distributor operations, John Ferrari keeps a close eye on inventory issues and I'll ask John to please address that.

The inventory just went up by patient days just slightly, nothing unusual from what we've seen in the up and down fluctuation every quarter, so nothing material, nothing significant, nothing that has given us any rights of concern.

Okay, thank you. I also had a quick followup. You mentioned the Chinese market and I was wondering if you could give some color on what's the real opportunity. You gave some color on Japan. If you could elaborate a little bit more on China, thank you.

I think the opportunity is certainly no less than the Japanese opportunity in quantitative terms. Pulmonary hypertension has no demographic preferences. It afflicts all demographic groups equally.

One of the most interesting case reports in the pulmonary hypertension literature is when members of the Chinese People's Liberation Army would be repositioned up to Tibet at its high altitudes back in the '70s or '80s or so. There would be a striking increase in incidents of pulmonary hypertension.

And that rings true to me because when my own daughter, what triggered her pulmonary hypertension was constant up at around 7,000 - 8,000 feet in Colorado. So for people who do have an underlying predisposition of pulmonary hypertension, high altitudes can trigger it, and that's certainly, the Chinese was one of the first case studies of that.

We know from our expert clinical investigators in China that there is a huge unmet need for therapy for pulmonary hypertension. As I believe Dr. Jeffs share with people during our FREEDOM conference call results, a significant number of patients in our FREEDOM trial were enrolled in China. And if you just take the basic demographics, if you've got say 30,000 diagnosed patients in the US, that's going to translate to a diagnosable 150,000 patients in China.

Nowhere near 150,000 patients would need to be treated to have a revenue potential comparable to Japan. In fact, at US prices, only 1% of that number of patients would have to be treated to have the revenue potential equal to that of Japan. So I think that that's a very solid revenue goal there.

Okay, thank you.

Sure. Next question.

Terence Flynn of Goldman Sachs.

Hi, thanks for taking the question. I just had two quick ones. The first was I was wondering if you could comment on your view of any potential impact that the introduction of Gleevec might have on Tyvaso. And then the second question was I was just wondering if you could give us an update on Beraprost and your plans there. Thanks a lot.

Sure. Let me -- I'll take the Beraprost question and ask Roger if you could take the Gleevec question because that's more of a clinical trial interpretation based on their recently announced clinical trial results. So while Roger is gathering (inaudible) let me share with you where we are on Beraprost.

We are just now finishing up the second phase two study for Beraprost and at the same time preparing to enroll the first patient in the phase three trial. One of our internal Company goals is to enroll the first phase three patient before the end of this calendar year so the entire team is working pretty diligently to do that. We have all of the clinical trial material set forth. We've met with our steering committee. We've met with the FDA. Everybody is on board with what's called the 'time to clinical worsening' endpoint.

This would make Beraprost the second generation prostacyclin analog, one that carries a label of time to clinical worsening and improvement in time to clinical worsening rather than just improvement in exercise ability.

So that does, on the other hand, mean it's going to be a little bit of a longer study, somewhat similar to the Actelion studies of (inaudible), I believe is also a time to clinical worsening study. These tend to be larger studies and take longer. I believe that we'll end up having to enroll upwards of 500 patients and so it's going to take upwards of five years to complete that study.

In the meanwhile, though, since you got me on the subject of oral prostacyclin analogs, we are also working very hard, a whole separate team of people in the Company led actually by Dr. Jeffs, is working very hard on our NDA for oral Treprostinil and that NDA is on schedule right now for first quarter 2012 submission and we would hope to have a 10-month PDUFA date on that with the prospect for an almost full year of 2013 revenues on that.

Dr. Rubin just presented the results of the FREEDOM study at the CHEST meeting being held with all the major pulmonary hypertension experts in Hawaii. I believe the presentation was very well received and I think the consensus of physician opinion is probably that the prostacyclin drugs tend to get used a whole lot more in practice than the clinical trial results might imply. And we certainly saw that with Remodulin, that was seen earlier with Flolan back in the earlier part of the last decade.

So because with oral Treprostinil you have an opportunity for a -- to get the prostacyclin plant into a patient at the very beginning of the disease process, we're pretty excited about that, long before Beraprost becomes available.

So with that, many reviews of the oral prostanoids, both Beraprost and Treprostinil, Roger can I turn that to you for giving us some insight and wisdom about the prospect of any impact that Gleevec might have on Tyvaso?

Yes, certainly Martine. So I think that what's the noise around the Gleevec presentation in Europe in early September where they showed use of Gleevec as second or even third or fourth line therapy I believe, was beneficial in terms of six-minute walk distance.

However, in that same study, the patients on that drug, those who received Gleevec, actually had a more prevalent chance of having time to clinical worsening. So you have a real paradox, a contradiction within the data set in that some patients may have walked further but other patients actually worsened.

And then I think subsequent to that, there's another tyrosine kinase inhibitor I think from Bristol Myers or some other company that actually has had the possibility of causing pulmonary arterial hypertension added as a risk factor.

So from what I've heard, I don't think Novartis is going to file Gleevec as an indication that they've done the study, so the rumor is they're not going to do a subsequent study and then if physicians choose to use it because it's already available on the market, then they can so choose. And whether or not it's reimbursed, I don't know.

My sense is given the contradiction in the data set that physicians will be very, very cautious about adding Gleevec to patients and it will be limited to patients who are in extreme condition and at absolute right-heart failure and refractory to all therapies including Remodulin.

So it's my sense or our sense that it will have very little, if any impact on the prostacyclin franchise.

Thanks Roger. Great answer. Operator, we have time for one more question.

Joseph Schwartz of Leerink Swann.

Great, thank you for fitting me in. Good morning. I was wondering --

Good morning, Joe.

Hi. I was wondering if you could give us your thoughts on how much your prior experience getting subcutaneous Remodulin approved on the basis of pooled data from two studies, which has not hit prespecified P values, how much is that a precedent for oral Remodulin as you head into that filing?

And as a followup, do you expect to have orphan drug status any time soon which could help make the case for approvability there?

John, thanks for those questions. I'm going to ask Roger to maybe provide you some thoughts about those points.

Sure, and it's a great question, Joe. So there's two arms to the response to that question, so in the US we don't think the subcutaneous precedent, which we're proud of, two studies with P values slightly greater than .05, which is certainly what we've seen at our FREEDOM-C and C2 studies.

We actually don't think a combined analysis in the US is needed to get oral Treprostinil approved. And the reason is, we feel that we very closely mirror, and in fact absolutely meet the guidance document, the 1998 guidance document on product approval for efficacy and that's principally these three things. That it's an alternative dosage form for Treprostinil.

So once it's in solution, Treprostinil diethanolamine, which is the oral salt form that's in the oral Remodulin, oral Treprostinil, becomes Treprostinil, so the body sees the active pharmaceutical ingredient.

The Treprostinil we have, as Martine talked in terms of patient numbers, over 10,000 patients have been exposed to Treprostinil so we have a tremendous experience with Treprostinil as an active pharmaceutical ingredient.

Further, the labeling is in related use. We're not seeking labeling for a cancer indication, for example. This is for the same indication that Tyvaso and Remodulin are approved, that is, in patients with pulmonary arterial hypertension, and then those other routes that certainly substantiate the use of oral Treprostinil.

And then finally, so within intravenous, as Martine said, we did a bioequivalent study and we actually didn't do a patient trial. Now, oral Treprostinil is not exactly bioequivalent so we have conducted a clinical trial, which is the FREEDOM-M, and we have highly significant and clinically meaningful results which we think warrant labeling for front line use, particularly as it meets all the three tenets of the guidance document.

So I think we're in very good stead without the need to combine FREEDOM-C and C2. Now having said that, those studies are supportive. They do provide sufficient evidence that we cause no harm and they have additional safety information.

So that's the first arm, which is the US. In Europe, we actually are contemplating doing a combined analysis on FREEDOM-C2 and presenting that to the Europeans because as we found with Tyvaso, single study approvals are a little bit more difficult because they don't have this guidance document that we can point to and lean on for precedence.

So it may require exactly what you're suggesting, Joe, which is insightful that you do a combined analysis of C and C2. We're obviously doing that and then we'll combine it with the favorable results we've seen in FREEDOM-M and ask for approval. And whether or not they approve it we'll have to see. They may suggest that we do additional studies or not, but that's the approach we're going to take. One in the US, which I think is cut and dry, and one in Europe, which is a little bit more ambiguous.

Thanks Roger. Thank you Joe.

I'm sorry. It seems like the orphan drug exclusivity, that designation might give the FDA some more license for flexible interpretation of the data. Is that in line with your thinking and do you think that you'll have orphan drug status any time soon for oral Remodulin?

Let me just answer that too. I don't think we need orphan designation because we meet these tenets of the guidance document so I don't think it's required. Having said that, we are going to file an orphan application as it needs to be filed before we submit the NDA, so it will be -- we will do that. That's being worked on concurrently.

And will it help? Certainly. I think it emphasizes that this is an orphan disease, there remains unmet need and any incremental (inaudible) it is a positive one and one that we we'd want approval, so it certainly won't hurt. And that's the approach we're taking and it gives us other protections as well from an IP standpoint.

Thanks so much. Keep up the great work.

Thank you very much. Roger thanks for that great response and operator, thank you for conducting the call. We will be attending several healthcare conferences over the coming months and we look forward to seeing as many of you as possible in breakout sessions, one-on-one and in the group session.

Thank you very much.

Thank you for participating in today's United Therapeutics Corporation third quarter earnings conference call. This call will be available for replay beginning at 11:35 today through 11:59 on November 10, 2011. This conference ID number for the replay is 16451381. The number to dial in for the replay is 1-855-859-2056 or 404-537-3406. Thank you.