United Therapeutics Corp (UTHR) 2011 Q4 法說會逐字稿

Good morning. My name is Ben, 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 2011 financial results 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 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, and assumptions or changes in the factors affecting such forward-looking statements. Thank you.

Dr. Rothblatt, you may begin your conference.

Thank you, operator. Good morning to everyone here in North America, and good afternoon or evening to our friends overseas. I am pleased that we have met our annual revenue target for 2011, which highlights the favorable operating results that we've enjoyed this past year. In addition, we are reaffirming today our revenue guidance for 2012 and 2013, as revenues from our commercial product lines continue to grow.

I'm pleased to be joined on this morning's conference call by three of our top-level executives. Dr. Roger Jeffs, who is our President and Chief Operating Officer and is responsible for clinical development, as well as sales and marketing, will be joining me this morning and can help field the questions. John Ferrari, who is our Chief Financial Officer and is also responsible for all matters relating to distribution of our product, is also on the call and will be happy to field any questions. And finally, Mr. Andy Fisher, who is our Executive Vice President in charge of Intellectual Property, as well as our Chief Strategy Officer, will also be joining us, and he can help out with any questions relating to IP or strategic matters.

Operator, if you could please open the lines, we can now take the callers' questions. Operator, if you could please now open the lines to any questions.

(Operator Instructions). Our first question today comes from the line of Salveen Richter from Collins Stewart. Your line is now open. Please go ahead.

Good morning. Thanks for taking my question. Just wanted to get a sense of what accounted for the negative quarter over quarter growth with Remodulin and Tyvaso in 4Q. And then also looking at 2012 guidance, where do you see the majority of the 17% year over year revenue growth coming from?

Thanks for those questions. I would say both of those fall more in the sales and marketing category, so I'm going to ask Dr. Jeffs, our President, to kindly address those.

Thank you, Martine. As we've said before, there is some quarter-to-quarter fluctuation in ordering patterns from our main customers, which are the specialty pharmacies. And I think this quarter is reflective of normal variation within quarters. When we look going forward into 2012, we see the majority of the growth coming from Tyvaso and Adcirca in terms of incremental revenue addition. However, the core basis of Remodulin revenues we expect to remain stable and grow slightly as well. So we think there should be growth within the full suite of products that we sell, and we remain confident on guidance for 2012 at the 875 range, as previously stated.

Thanks, Roger. Thank you, questioner from Collins Stewart. Operator, can you please open the line to the next question?

Absolutely. Our next question comes from the line of Liana Moussatos from Wedbush Securities. Your line is now open. Please go ahead.

Thank you for taking my question. Can you give us the geographic breakdown of Remodulin sales, Europe and US?

Thanks, Liana, nice to hear your voice this morning. I think it probably would be more in John Ferrari's category to give the breakdown of revenues, ex-US and US. So John, could you please help with that question?

I would be happy to. We haven't seen any significant fluctuation between US and non-US sales for Remodulin that we kind of reported over the years. So we are -- between 13% and 15% of our Remodulin revenues come from rest of the world or outside the US.

Thanks, John. Thanks Liana. Operator, can you please take the next question?

Absolutely. Our next question comes from the line of Geoff Meacham from JPMorgan. Your line is open.

Good morning, guys. Thanks for taking the question.

Sure thing, Geoff.

So if I read Roger's comments correctly, with growth for the Remodulin franchise, I know this year you will be launching in Europe. So should we infer for that, A, that you think the European uptake in year one is going to be somewhat modest? And B, maybe give us a broader sense for what that opportunity looks like in several years. Do you think that could ever match the US in terms of utilization of IV sub-cu process? Thanks.

Thanks, Geoff. I think that question is also squarely in the sales and marketing area and gives Roger a nice chance to speak about not only Europe but some of the other markets that I think are looking forward to Remodulin. So Roger, could you take that question, please?

Sure, Martine. Thanks for the question, Geoff. So I think if you just look historically at the US market, intravenous approval resulted in a doubling of the commercial opportunity once that product was maximized in the market. So we would also expect an opportunity that would be similar in Europe, albeit it will be a gradual period of upswing over a period of several years. Now I think we all must realize there are certain factors that could mitigate this trajectory that are unique to the European market, such as government austerity programs, which could mandate price reductions for pharmaceuticals in general, and importantly to us, our need to maintain our pricing structure for subcutaneous Remodulin. So, whether we seek pricing approval for intravenous is going to be dictated based on what we feel the pricing negotiation would be and how the outcome of that would impact subcutaneous pricing structure, which we want to maintain.

I think the other thing which Martine alluded to is we are pressing very hard both in China and in Japan to start bringing in Asian revenues. So we think this year, it is possible that we could get SFDA or the Chinese government authorities to approve Remodulin, if all goes well. If all goes not as well, then we will need to do a bit of a bridging study. And in Japan, our very good partner, Mochida Pharmaceuticals, is completing the last part of their patient enrollment in their bridging, work and we think they will complete that by the end of this year and application will be submitted either late this year or early 2013. And then we would expect to launch in Japan in 2014.

The opportunities, we think, in Japan and China in total have another doubling opportunity. So if you look at -- compared to Europe, so if you look at sub-cu revenues in Europe, we think there's a chance over a period of time to potentially double revenues with IV approval. And then with the Asian markets opening up, we think there's another opportunity to significantly gain global revenue. Then when we look at our contribution that John talked about of global revenues for Remodulin, we think that will increase over the coming years.

Thanks, Roger. That was great color on a question by Geoff. And Geoff, hopefully you found that very responsive. Operator, can you please open up the lines for the next question?

Our next question comes from the line of Mark Schoenebaum from ISI. Your line is open.

Hey, guys, this is Omar filling in for Mark. A question on the ongoing discussions on the oral Remodulin filing in US and if could you help us give context on the C2 trial and if that was something that stemmed out of these discussions. Thanks.

Thanks, Omar. That question, of course, is clearly in the realm of clinical development, which Roger leads up that effort. Roger?

Thanks, Omar. We filed the NDA on December 27, 2011, so it was a very strong way, in addition to IV approval in Europe, to end 2011. The requirement for acceptance of that filing is a 60-day review period, which we are now approaching the end of, and then the FDA has up to day 74 to notify us that on technical and format aspects of the filing that it's accepted for review, and we're very confident that the NDA will be accepted for review.

Your second question was whether or not the FREEDOM-C2 would be required for approval. At no point in time has FREEDOM-C2 has been a part of that discussion. We remain confident that the NDA has filed is approvable, and that's our intent, and we remain optimistic on that. FREEDOM-C2 -- let me just give you a little bit of background and information on what that is -- that's a trial to evaluate the long-term benefit of Oral Treprostinil on time to clinical worsening when added very early in the course of therapy to background oral therapy.

So a couple of different things here in terms of trial design, a combination therapy that we haven't done in the past. The one is early addition, along with other background either ETRA or PDE-5 inhibitors. And we are looking at a much longer follow-up period, but we're going to look at the long-term benefits of Oral Treprostinil when added early to the clinical outcome of patients on time to clinical worsening. We think this trial gives us several advantages. It gives us an ability to achieve a higher dose every time, and we think it will allow us to show that in early combination, which is where the true market opportunity is for Oral Treprostinil, that Oral Treprostinil provides a favorable outcome to patients.

The numbers for this trial, it is not a small effort, it is going to be in excess of 800 patients enrolled globally. We think we can enroll those patients in about two years, so we are going to start enrollment the first half of 2012, which would dictate that we would finish enrollment in the first half of 2014. We estimate that we will need about 400 events captured to have the power to find a positive outcome, and we think that is going to take another one to two years. So we believe we will unblind and file in the 2015 to 2016 time frame.

Thanks, Roger. Superb coverage of that entire landscape. Operator, can you please open the line to the next question?

Our next question comes from the line of Robin Karnauskas from Deutsche Bank. Your line is open. Please go ahead.

Hi, guys. Thanks for taking my question. Actelion this morning was talking about their expectations for Veletri peak market share being 40% in the US. I was wondering, do you expect to see any impact in 2012, and what is your thoughts on the impact on Remodulin sales?

Thanks, Robin, for your question. Once again, it is in the sales and marketing area. So Roger, could you please address that?

Yes, thanks for the question, Robin. I won't comment on Actelion's expectation for their product, other than I note that their share basis right now is very low. They seem to be taking share principally from a Flolan base, which is an uncompeted market, since that product is really not detailed. We've seen no impact, as you can see in our revenues, on our Remodulin share or the revenue base that accounts with that. So while I understand that that's their goal, we seem very well protected in terms of our market for several reasons.

One is, not only do we have the intravenous route approved, but we are also approved for subcutaneous use, and our share between our own product is about 50/50 IV and sub-cu. There's no way they could actually infringe on the subcutaneous use of our product. Their goal would be to go after intravenous, and I think the shortfall there for what they call their room temperature stable product, which is stable up to 77 degrees but not beyond, I believe, is the limitation there is the half-life of that product remains minutes. So a discontinuation in therapy could be catastrophic for a patient, whereas the half-life for Remodulin is 8 hours. There's a very different safety profile for the two products, even given intravenously.

Further, we are in development of an implantable home platform, and this unique platform is going to be exclusive to Treprostinil in the sense that it takes a drug that is highly stable and can be maintained inside the body inside this pump for months, and we've shown stability for many, many months within the pump. And I think that will be a shortfall for the room temperature stable epoprostenol product that Actelion is promoting. So, on several fronts, both route of access, half-life, and further invention, I think Actelion would fall short in terms of maintaining the market share that they have articulated, if that's what they in fact have done. Regardless, I think for our own expectations, with launching IV Asian markets opening up to us soon, we think Remodulin will provide continued benefit, and then the further inventions around implantable pump technology I think also give us a unique and attractive market going forward.

Thanks, Roger. Thank you very much. Great response, interesting question. Next question, please, operator.

Our next question comes from the line of Phil Nadeau from Cowen and Company. Your line is now open.

Good morning. Thanks for taking my question. A question for Andy on IP. There's obviously recently been a Paragraph IV filing against Remodulin. Can you talk a little bit about your strategy in defending the franchise, and in particular, do you have other patents that are in the Orange Book today that you could exert against the filer?

Thanks for the question, Phil. So yes, as we disclosed on February 3, we were notified by Sandoz that they are seeking to enter the market with a generic form of Treprostinil. And they are challenging each of our three Orange Book-listed patents, which include a patent expiring in 2014 related to the method of treating pH, a patent expiring in 2017 related to the synthesis of a product by process, and a patent expiring in 2029 relating to the use of a specific diluent with Treprostinil.

We do own additional patents covering different aspects of the use, manufacture, and synthesis of Remodulin. We're very confident in our patent estate, and our plan is to obviously vigorously defend those patents. We are reviewing the claims of invalidity and non-infringement included in Sandoz's notification. We have 45 days from the date of that notification to commence a lawsuit, if we so choose. And we will continue that review during the 45-day period.

Thanks, Andy. Fantastic. Operator, can you please open the line to the next question?

Our next question comes from the line of Terence Flynn of Goldman Sachs. Your line is open.

Hi, thanks for taking the question. Just a follow-up on Phil's question. I was wondering the synthesis of the product-by-process patent for 2017, can you guys comment on why that patent is important and maybe implications for yield? And are there other methods by which other companies might be able to get around that patent through other manufacturing pathways?

Okay, Terence, thanks for your question. Once again, Andy, being in charge of all IP, I think can answer that question best. Andy?

Sure. Thanks, Martine. Thanks for the question, Terence. The 2017 product-by-process patent does relate to the way we make Treprostinil, the active ingredient in Remodulin. With respect to other potential processes, it is difficult for us to speculate at this point until we learn more information. This is all part of the normal process by which generic companies challenge branded companies. And we think it is best that we refrain from further comment about the specifics of their strategy until we understand exactly what that strategy is.

Okay, thank you very much. Operator, if you can please open the line to the next question.

Our next question comes from the line of Ravi Mehrotra from Credit Suisse. Your line is now open.

Operator, you got a B-plus for effort on that one. Ravi, how are you?

Hello?

Credit Suisse?

Can you hear me?

Yes, now we hear you. Good.

Okay. I'm going to push you on the patent question. I'm not sure you are going to answer this, but let's go for it anyway. Very specifically, I guess you guys are aware of the synthesis claims by [Alfora]. Is it your understanding that's part of the Sandoz Paragraph IV, and do your two patents which aren't in the Orange Book which you filed for synthesis do you think protects you around that?

Secondly, can I ask you on a cost estimate for the C-2 trial? And finally, can you just outline your category distribution policy for 2012, specifically your share buyback policy? Thank you.

Okay, that's a lot of concatenated questions socked into one. Why don't we -- let me just be a little traffic conductor here. Let's start with Andy, if you could address his question with regard to various Orange Book patent listings. And while Andy is doing that, Roger, if you could queue up to give a macro cost estimate on C-2? And while Roger is doing that, John, if you could queue up to give the buyback answer. Andy?

Sure thing. Thanks for the question, Ravi. Good questions. We don't have sufficient information at this time to answer your question about a relationship between Sandoz and Alfora. Obviously, we are available -- we are mindful of the simultaneous DMF filing by Alfora on the same date that Sandoz filed their ANDA, but beyond that, we don't really have any additional information about whether the two filings are related. We are also aware of other information relating to Alfora and their synthesis of Treprostinil that I'm sure you are aware of as well, which is behind your question.

As far as alternate synthesis pathways and non-Orange Book-listed patents held by United Therapeutics, again, those are publicly disclosed. And beyond that, we are really not at liberty to comment about their relevance to Sandoz's ANDA filing at this time, until we receive additional information about that filing.

Fair enough.

Thanks, Andy, very much. And now let's pivot over to Roger. Ravi was asking about what kind of expense you are looking at for the C-2 study?

Sure, so that trial over its lifetime should be in the $20 million plus range. The reason that that number is what it is, is it is calculated by the number of patients that's being studied, which is 800-plus, and then the length of follow-up for each patient, which could be several years. So we pay for a patient over not the course of the 12-week study but over the period of several years, so that impacts the pricing of that study. We feel that spending, however, is within our bandwidth and while in future years may increase, you won't see a major impact on our historical budget spending trends and are indeed as result of this study.

Thanks, Roger. And last but not least, John, the question was how are we doing with the buyback?

As you would recall, we entered into an accelerated share repurchase program in October, during which initially we received 4.4 million shares of our stock back. The program is still active. It will settle sometime during the second quarter, and depending on our average stock price between October and the settlement date, we may get some additional shares back. However, the Board also authorized a $300 million repurchase program, of which we used $212 million on the ASR. So we do have $88 million that we can buy additional shares back. And it is an active thought process that we're -- ongoing with management on timing for buying back additional shares.

Great, John. Thank you very much. Operator, could you please open the line to the next question?

Our next question comes from the line of Bret Holley from Oppenheimer. Your line is open.

Yes, thanks for taking the question. I had a follow-up to Geoff's question on European -- on the European launch, and I'm wondering, Roger, you said you wanted to maintain your cost structure. And I'm wondering, where is your level of sensitivity, where's the threshold in which you might walk away from the individual European country is far as discounts they might ask for?

So we have a cost structure that we would like to maintain, frankly. So what we are trying to do is only enter in pricing negotiations where we feel we are confident that we can maintain the Remodulin vial price, because it is the same vialed product. So what we would not like to do, for example, is get into a country and have to go through a renegotiation of price, and then if it was a major country which other countries then referenced off of, it could then domino into that country. So just as every major pharma and biotech company does, we're trying to triage and strategize around which countries we are going to selectively negotiate pricing approval for, particularly in the first stages, and then things can change. And going forward, that we will continue to try to preserve the current pricing structure that we have in each of our major markets.

Thanks. Perfect, Roger. All right, operator, it looks like we have time for one, possibly two more short questions. Next question?

Our next question comes from the line of Matt Kaplan from Ladenburg Thalmann. Your line is now open.

Hi, this is Susan calling in for Matt.

Hi, Susan.

Can you please provide us with an update on your plans for the Tyvaso mono-therapy trials in Europe?

Okay, thanks Susan. That also would be in the clinical development area, so I will ask Roger to please answer that.

Yes, Susan, good morning. We are progressing forward with a -- also a time to clinical worsening study with Tyvaso that we will be conducting mainly in Europe. It is not a mono-therapy trial. Patients will be allowed to be on background therapy. So a sequential addition of Tyvaso to patients on background orals and in need of other therapy, and then we will look at the long-term impact of Tyvaso therapy on time to clinical worsening. As everybody is probably aware, Europe -- European regulators are keen to see time to clinical worsening as a primary endpoint, so we are trying to satisfy that need. However, we are also doing it as our primary endpoint changes (inaudible), but we are going to have power on time to clinical worsening, so it is a large trial with large follow-up that looks principally at the primary endpoint at (inaudible) at 6 months and then also has the ability to look at time to clinical worsening beyond that.

Thanks, Roger. All righty, operator, we have time for one last question.

Our final question is a follow-up from the line of Liana Moussatos. Your line is now open.

Great, it got all the way around. Hi, Liana.

How should we think about taxes and tax credits going forward with increased ex-US sales?

Yes, very insightful question, and fortunately we've got a real guru on that subject with John Ferrari on the call. John?

Thank you, Martine. The tax credits are generated by our research and development operations in the US, which by far is where we spend the most money. So the revenues from ex-US, while are billed and collected in US dollars to actually United Therapeutic, we don't -- the interaction between getting revenues from outside the US and our ability to generate tax credits are really two different animals. Our expectation is that we will continue to develop business and R&D credits, especially as we continue to do research in the orphan drug area, which pulmonary hypertension is. So while we are using them, we are still generating a fairly healthy amount of tax credits, and I would expect that we will continue to generate tax credits on an ongoing basis for a while.

Thanks, John. Thanks, Liana. Well, let me wrap up now, as we have reached the half-hour point. It is been a good array of questions. And I thank my colleagues, Roger, Andy, and John, for helping answer them. I will summarize sort of from the 30,000-foot view here what we've talked about.

I think there are four probably take-home messages. First, revenues will continue to increase, and hence we have restated our guidance going forward. Secondly, is that expenses will stay relatively flat, and hence operating margins and cash profits will also continue to increase. The third take-home message is that we're going to continue to reduce outstanding shares, and this should enable cash profits per share to also continue to increase. And fourth but perhaps most exciting going forward is that the blockbuster potential enhance -- inherent in our pipeline, the use of oral prostacyclin analogs in combination with other therapy will continue to get closer to realization, especially as our reinitiated oral prostacyclin combination studies, as Roger described, move through their enrollment process and within the next few years reach unblinding.

Everything at United Therapeutics is looking real good today. Going forward, our core franchises are going to continue to provide both growth and increased operating leverage. And then after the very near-term period, we look forward to bringing our pipeline into fruition and moving revenues to the full potential that oral prostacyclin as a combination therapy has in the pulmonary hypertension market. Thanks so much for everybody's attention this morning, and we look forward to talking with you at upcoming healthcare conferences. Operator, you may now disconnect.

Ladies and gentlemen, thank you for participating in today's United Therapeutics Corporation fourth-quarter and annual 2011 financial results earnings conference call. This call will be available for replay beginning at 12.00 PM Eastern Standard time today through 11.59 PM Eastern Standard time on Tuesday, February 21. The conference ID number for the replay is 46781201. The number to dial in for the replay is (855) 859-2056 or (404) 537-3406. Again, thank you for your participation, and you may all disconnect.