United Therapeutics Corp (UTHR) 2013 Q2 法說會逐字稿

Good morning, my name is Charlotte, and I will be your conference operator today. At this time, I would like to welcome everyone to the United Therapeutics Corporation's second quarter 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 forward-looking statements. Consequently, all such forward-looking statements are qualified by the reports filed with the SEC. There can be no assurance that the actual results, events, or developments referenced in such forward-looking statements will occur or be realized. United Therapeutics assumes no obligation to update these forward-looking statements to reflect actual results, changes in assumptions, or changes in factors affecting such forward-looking statements.

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

Thank you operator, and good morning to everybody joining our call. I am pleased to share with everybody our second quarter 2013 financial results. I am joined on the call this morning with three of my colleagues, Dr. Roger Jeffs, the Company's President and Chief Operating Officer, Mr. John Ferrari, the Company's Chief Financial Officer, and Mr. Andy Fisher, the Company's Chief Strategy Officer.

The top line information for me to report this morning is that total revenues hit $280 million for the second quarter of 2013. These revenues are very consistent with the $1 billion guidance that we have given for this year. So when you add these results to our previous quarter results, we are strongly on that $1 billion revenue run rate, which is of course, quite an exciting high water mark for our Company. Earnings per share $1.60 per basic share, and the best operating measure of our Company earning before noncash charges $3.29 per basic share, $3.11 per diluted share. Certainly, these results give me great pleasure to report, and clearly indicate the strong growth of our core business.

We continue to assist more patients than ever in managing their pulmonary hypertension, and in fact, United Therapeutics helps more patients with PAH, or Pulmonary Arterial Hypertension, in the USA than any other company. We also are not resting on these nice laurels, but we are looking forward. The lead pole position in our pipeline is in the implantable Remodulin pump, and I am pleased to report that during the past period, the implantable Remodulin pump clinical trial, which we conduct together with Medtronics, has reached its complete patient and number of patient days accrual point. So the data will be read out from that study within the next 30 to 45 days. The study was conducted really quite elegantly without any hitch and certainly with no red flags. So we are looking forward quite optimistically to the reporting out of that data this summer.

I think that gives everybody a good flavor for what a positive and exciting second quarter it has been. So let me now open up the phone lines to any questions for myself, Roger, John, or Andy. Operator? Operator, you can open up the phone lines to any questions.

Certainly. Our first question comes from the line of Phil Nadeau of Cowen and Company. Your line is open, and you may proceed.

Good morning thanks for taking my question. Martine, a question on the dynamics in the quarter, it looks like if I project just flat revenue for the back half of the year at Q2 levels, you come in a bit above your current guidance. So was there anything in this quarter that was lumpy, any inventory changes or patient dynamics that were lumpy, where we should model sequentially down quarters in the back half of the year?

Let me ask John to provide some insight on the inventory question, Phil, and then after John answers, I can give a little bit more global insight in terms of just the nature of revenues when you are dealing with a couple of major customers, which is our case in terms of the specialty pharmaceutical, specialty pharmacy companies. John?

Thank you Martine. For the quarter there wasn't really anything unusual with the inventory. We saw a slight increase in the Remodulin inventory in both dollar value and patient days. But for Tyvaso, there was a very small increase in dollar value. But the patient days of inventory remained the same. There was no change in that.

Thanks John. Phil, as you can see, we had really nice year-over-year growth, as well as sequential quarter growth. For example, Remodulin up for the quarter year-over-year 12.6%. Tyvaso up year-over-year up 34.8%, and Adcirca up year-over-year 44.7%. This is overwhelmingly due to the fact that as physicians acquire more and more experience with our drugs and treating our patients, they tend to move into the top and preferred position. For example, with regard to let's say Adcirca, during the past quarter or two, we have reached the position where probably more than half of all pulmonary hypertension patients are on Adcirca.

And to give you a feel for the historic nature of that, I don't believe at any time during the past decade there has been any drug that ever was being taken by more than half of all of the pulmonary hypertension patients. The market was always fragmented in some different way. It is still very fragmented, but one drug is now taken by more than half of the patients, and that is our Adcirca. That trend, Phil, is not likely to dissipate. Adcirca is on a strong roll. We have seen no effect of generic sildenafil on us, nor would we because they are two completely different drugs. One you have to take three times a day, generic sildenafil, missing doses is problematic, because the disease can claim more pulmonary vascular space, due to poor compliance, whereas ours is just once daily. It doesn't get much better than that.

With regard to Tyvaso, we have during the past quarter increased the size of our cardiopulmonary specialist force that details Remodulin and Tyvaso, reaching out to more and more physicians. As the field matures, and as our Tyvaso delivery system continues to mature, physicians who may not be at some of the top university centers with a large support network, find that they too can actually manage patients on Tyvaso. And this is very important because it allows Tyvaso to move down into, say, like the seventh, sixth, fifth decile of PAH prescribers, and they are too auguring for continued growth, if you take a look at the trend lines on Tyvaso and the sequentials, you can see that it is closing the gap with Remodulin, and in the foreseeable future leaving aside the advent of implantable Remodulin, Tyvaso would probably begin to lap Remodulin.

But that actually brings us to Remodulin, which is, again, the preferred drug for the patients at the late stage of their disease, far more patients are placed on Remodulin than on epoprostenol, Veletri, or the generic forms of Flolan. And the reasons for this are the numerous convenience and safety advantages of having a long half-life drug when you are talking about a parenteral, 24 hour a day life long delivery system interruption, of which is associated with rebound and potentially fatal rebound hypertension. So there is really nothing in the offing that indicates any quarter-to-quarter declines coming up in the future. In fact, as I mentioned in my quote at the beginning, the core business is growing very strongly.

$1 billion is the very definition of a round number. And that was the intention in coming up with that figure for guidance. It was a round number. And a round number is necessary in this kind of a market, because our revenues come overwhelmingly from a couple of major specialty pharmacies. Those are our customers. We also have the FUS revenues, but most of them come from the US specialty pharmacies.

So it is very possible, as we have mentioned several times over the past few years, for revenues to be lumpy from one quarter to the next. And it is not that we see that coming. We don't. But we have given the bracket of plus or minus 5% on the $1 billion figure, to provide an envelope which would include continued growth at the current rate

Great. Thanks for taking my question.

Sure. Next question.

Certainly. The next question comes from the line of Salveen Richter from Canaccord, your line is open you may proceed.

Good morning, this is Andrew Goldsmith on the line for Salveen. I was wondering can you give us an update on the lawsuit with Sandoz on the Markman hearing and your plans forward there? Thanks.

Sure. Thanks for the question. Sounds like somebody has read the Markman ruling, and fortunately we have Andy Fisher who is our Chief Strategy Officer, and is also the second highest lawyer in the Company, the individual responsible for managing all of the IP litigation. So Andy, could you shed some light on that question?

Thanks Martine. Happy to do that. So yes, Andrew, as you correctly noted, the Markman took place back in May, and we received a decision on the Markman, I think it was late June/early July. And the Judge's order and the Markman largely followed the claim constructions that we had proposed in the briefing documents for the court in that Markman. So that is good.

The path of the case from here on out will be the conclusion of discovery over the next few months, including whatever depositions and expert witness discovery that needs to take place. I think there is a deadline for summary judgment motions in January, and then while a trial date hasn't been set yet, we are expecting it to take place sometime in the middle of next year. So that is pretty much the breakdown of where the case is headed from here. Is that responsive to your question?

Yes. That is great. Is there a second trial ongoing? Am I correct there?

There are two separate cases going right now, but they are calendared fairly similarly. They are almost identical. There are some technical disagreements between the parties that have basically prevented the two cases from actually being officially combined. But they are on a very similar calendar at the moment.

Great. Thank you very much.

Thanks for the questions, and I would just like to give a shout out to Andy to everybody on the call, that litigation is a really big undertaking with multiple law firms that we are funding and working for us, and Sandoz's own law firm, we have numerous patents, both covered by that litigation and uncovered new patents pending approval and issuance, as well. And it is just really impressive to me that Andy is able to manage all of that intellectual property litigation on top of all of the other strategic affairs that he is doing. And as he noted,The results from Markman could not have been better. We were very pleased with that. So way to go Andy. Next question, Operator?

Certainly. Next question comes from the line of Michael Yee from RBC Capital. Your line is open and you may proceed.

Hi. This is John on behalf of Michael Yee. First, for Remodulin, could you give more color on how much the EU IV formulation may have contributed to the growth this Q? And second, how do you consider the new potential competitive drugs from Bayer and Actelion, and what is your expectation for their impact on the franchise, especially given I think that Bayer this weekend is expected to have an advisory panel? Thank you.

Sure. Thanks for the question, so with regard to the first part of the question, I don't think that IV EU Remodulin had any material affect on the revenues from this quarter at all. Once you get regulatory approval, there has been another pretty much six to 12 month process of working out the pricing in the EU system. And we have to do that country by country. So it is a really good thing. It is great for the patient. We do expect ultimately that IV Remodulin in Europe can get up to about twice the revenues from Europe that subQ is delivering in Europe, but that will have to happen over a period of at least two to three years, not anything to discern out of this quarter.

With regard to, you asked about Riociguat the Bayer drug, that drug is, for those on the call who may be a little bit newer to the PAH space, there are three pathways that are used to address pulmonary hypertension, and it is probably because people with pulmonary hypertension have had sort of three strikes, one in each pathway that ultimately results in their disease having a mean survival of only five years. One pathway is called the PDE-5 pathway, which basically relates to how the pulmonary vascular bed handles nitric oxide.

And the second pathway is the prostacyclin pathway, that is known as the most potent and wide ranging because it deals with both vasodilation, as well as with the stickiness of the tiny pulmonary arteries, and it also controls growth factors which lead to overgrowth of the artery wall into the luminal space. And then the third pathway is the Endothelin receptor antagonist pathway. That is the pathway that has been addressed so beautifully by Letairis. So those are the three pathways.

So when a new drug comes into the market, be it Riociguat from Bayer, or the second generation Endothelin receptor antagonist from Actelion, you have to ask which pathway does that address. So the Bayer drug addresses the nitric oxide pathway. It address it is in a slightly different way than the PVE5's address it, such as our own Adcirca or generic sildenafil. The data that came out from the Bayer study showed particular promise in a very small subset of pulmonary hypertension, called Chronic Thrombo Embolic Pulmonary Hypertension, which goes by the acronym of CTEPH for short. This subset represents less than 5% of all the pulmonary hypertension patients. So it is a very small subset, but it has been a subset that unfortunately has been very resistant to any other kind of treatment. And generally has a worse prognosis than most of the other subsets of pulmonary hypertension. So there is considerable hope that Riociguat could provide some assistance to this small subset with CTEPH on disease.

Now the Bayer drug has to be taken three times a day, whereas our Adcirca is just taken once daily. The Riociguat is a brand-new chemical entity, it is one that has never been seen in humans before outside of the clinical trial work that Bayer has done, whereas our Adcirca is a branded form of tadalafil, just as Cialis is a branded form of tadalafil, and this drug is, of course, one of the most widely consumed drugs in the world, with countless millions of human exposures. So I think it is quite improbable that you are going to see any kind of lack of growth in Adcirca as a consequence of Riociguat's approval, should that come to pass. It really just makes no logical sense to give somebody Riociguat instead of Adcirca. At least if they don't have Chronic Thromo Embolic Pulmonary hypertension.

With regard to the Actelion drug, that works in the endothelin receptor pathway, just as their current drug Tracleer does. And the likely course of events is that the expected label for Actelion would be that this would be the first endothelin receptor antagonist that had clinical trial data demonstrating a positive effect on indicators of morbidity and mortality. Now that is probably very much a consequence of the clinical trial design, because it was a clinical trial design not for the standard six-minute walk improvement in three to four months, but it was a clinical trial design that stretched out over two-plus years designed to look at placebo versus active patients, was there a difference in morbidity and mortality.

And of course, all of us in the field ordinarily thought that if your active patient does better in 12 weeks or 16 weeks, they are probably going to do better over one or two years. But nobody had ever proved that before Actelion undertook this study. And so that will certainly be a strong argument for people to take a good look at Actelion's new drug, should it be improved, in lieu of continuing on their old drug Tracleer. But there is really no data, no indication that the results of that clinical study would make that drug preferred for addressing the other pathways, the prostacyclin pathway, or PDE-5 pathway which in fact it doesn't address those pathways at all, it is clearly in the endothelin receptor antagonist category.

So it is more of a competitive swap-out for Tracleer, or something that doctors will have to choose Letairis versus it. Again, it is a brand-new chemical entity. It is going to have the issues, the safety questions in doctors' minds that new chemical entities always do, compared to the long positive history with Letairis. But in any event, we do not see it as a competitive factor vis-a-vis our portfolio of Remodulin, Tyvaso, and Adcirca.

Great, thank you.

Sure. Next question.

Our next question comes from the line of Mark Schoenebaum from ISI Group. Your line is open, and you may proceed.

Hey, Martine, John, Andy, this is Salim on behalf of Mark. I just had a few questions. Just to get a little bit more clarity Martine on the guidance, so you said there was nothing lumpy going on in the quarter. But to Phil's point, if you hold it flat, you do exceed the guidance, I just want to get some clarity. Are you being conservative then with your guidance, since you said that you do not foresee a decline in the second half?

And then just on oral Remodulin, did you end up having a second end of review meeting after the second CRL, and then last and final question on the implantable pump, can you just go through a little bit on the barriers that I guess you plan on putting in place, so that it would make it difficult for generic Remodulin to be used with that implantable pump? Thank you.

Okay. So first, Roger, why don't you talk about the oral question first?

I would be delighted to. Thanks for the question Salim. Yes, we did have an end of review meeting responsive to the complete response letter that we received the 22nd of March, and that end of review meeting was the 3rd of May. Following that meeting, there was some request for additional analyses, which we presented at the end of review meeting, as well as some other contextual information about combination studies in the field, not just the ones that we conducted. The FDA is still reviewing that submission, and it wasn't a formal submission that was responsive to the second complete response letter. It was more of a request for information, a supplement to the filed NDA.

Nonetheless, it is obviously an important piece of information that they are looking and they are reviewing, and we are waiting to hear back about the results of that review. So those are the material meeting events that happened during the period. So we are still in sort of the same place that we were in the first quarter in the sense that we are working towards approval based on the NDA submission with the successful monotherapy results and the trending combination study results.

If that fails at the divisional level, then we would appeal to the office level, and I will point out that the office directors did attend the end of review meeting, which I think is a positive and favorable thing in the sense that they are already pretty much in the know about the NDA submission. But then if both the submission or the appeal failed, then we are working 100% at full steam ahead to roll the FREEDOM-EV study, which would then allow to us resubmit with additional information, and again as we have said previously, we are working to have a data readout on FREEDOM-EV in 2016, and FREEDOM-EV study is very analogous to the study that Martine described for [Macetenton] that Actelion conducted and that it is a long term follow-up morbidity mortality study, and certainly would be supportive of approval if successful. So those are the material advances in the second quarter.

Thanks Roger. Appreciate that update a lot. Salim, since your third question related to an intellectual property issue, maybe I can have our IP guru Andy address that one on the implantable pump?

Sure. I will take that one, Martine. Thanks. Salim, your question was, I think your question was basically how we would prevent generic Treprostinil if it were on the market from being used in the implantable pump. We are not really in the business of preventing anyone from doing anything. Instead, I would prefer to characterize it as we have an exclusive relationship with Medtronic, and the exclusive right to use any form of Treprostinil in their pump, and those pumps will only be sold, served to our patients with the drug. We, obviously, have funded clinical trials using the pump and have a vested interest in maintaining that exclusivity. So we intend to enforce that exclusivity that we are entitled to.

Thanks Andy. And let's see. Your third question, Salim, related to the guidance, as I mentioned to Phil I think, $1 billion is a round figure. And we pegged that guidance actually like three years ago. So that is, the benefit of using round numbers is it is easier to pretty much hit things when you take them even like three years ago. That is frankly speaking to me is one of the happiest things I have done as CEO is I have been able to correctly guess where our revenues would be from three years out.

But it is a round number, and we realize that people may have invested three years ago based on that guidance. And we are very cautious about going ahead and changing guidance, without being very, very comfortable in the new number because we realize that people are making financial decisions about that. So we will continue internally to review the appropriate course to take with regard to guidance. But for the moment, as mentioned in the earlier remarks, we are standing by that number, plus or minus 5%.

Great. Thank you

Okay. So Operator, I think we have time for one last question.

Alright. The last question comes from the line of Terence Flynn from Goldman Sachs. Your line is open, and you may proceed

Hi. This is Lisa in for Terence Flynn. Thanks for taking the question. My question is how much of your buy back did you work through in the second quarter, and how much is remaining? Thanks.

Thank you. Fortunately, we have our chief money counter on the phone, our Chief Financial Officer, John Ferrari. So John, can you give an accounting on the buy back?

I would be happy to, Martine. We purchased back around 600,000 shares during the second quarter. And so far, we have spent about $42 million in the program about 10% of the program. So where our stock price is currently, we are not actively buying back the stock. We are effectively we are at an all-time high now for our stock. So we believe that currently we have, the shareholders are getting value from the appreciation of our stock since the beginning of the year.

Thanks John. So I think John really gave me the right tee-up for wrapping up a conference call. The Company stock price is at its all-time high, our revenues are at their all-time high, our profitability is at its all-time high. Our pipeline is at its all-time best perspective with the implantable pump queued up for data release this summer. And if successful, in the words of many pulmonary hypertension providers, implantable pump can double the number of patients using Remodulin. So that is if you take a look at the Remodulin revenue run rate, and you double that, that is a beautiful thing to be coming out of a pipeline right there, upwards of $0.5 billion a year in revenue potential.

Tyvaso continuing to grow. We have a new Phase 3 trial involving Tyvaso, together with add-on therapy that is also going to be a long term morbidity and mortality type of design. Also if successful, augers for a doubling of Tyvaso usage. Tyvaso is closing in on a $500 million revenue run rate, and probably be there in a couple years, if not sooner. And so another doubling of that is another $0.5 billion coming out of our pipeline.

Then we have the very exciting news that Roger shared with us earlier in the call, about the continued progress of oral Treprostinil at the FDA. This is the drug that is for so many people in the pulmonary hypertension field has been the holy grail of pulmonary hypertension, the power of prostacyclin in the convenience of a pill, and the market forecast for that particular modality are actually double the ones that I just gave a few moments ago.

So all told, never before has our pipeline been so mature, with about $2 billion in revenue potential on top of the $1 billion that revenue run rate that we are reporting out to date. Best of all times at United Therapeutics, we are continuing to work very hard. We realize that we have got twice as good a future in the next few years as even the very good position that we are at today, and we are all working as hard as we can to make that twice as good future come true as soon as possible.

So thanks for all of your participation in the conference call this morning, and we look forward to seeing you at upcoming healthcare conferences. Operator, you can conclude the call.

Thank you for participating in today's United Therapeutics Corporation second quarter earnings conference call. This call will be available for replay beginning at 8.30 AM Eastern today through 11.59 PM Eastern on Thursday, August 1st. The conference ID number for the replay is 99784344. The number to dial the replay is (855)859-2056 or (404)537-3406. Have a wonderful day.