United Therapeutics Corp (UTHR) 2014 Q1 法說會逐字稿

Good morning. My name is Nicole, and I will be your conference operator today. At this time, I would like to welcome everyone to the United Therapeutics Corporation first-quarter 2014 financial results conference call.

(Operator Instructions)

Remarks today concerning United Therapeutics Corporation will include forward-looking statements representing the Company's expectations or beliefs regarding the future events. The Company cautions that such statements involve risks and uncertainties that may cause actual results to differ materially from those projected in the forward-looking statements. Please see the Company's latest Forms 10-K and 10-Q and any subsequent filings with the SEC for additional information on these risks and uncertainties.

There can be no assurance that the actual results, events, or development referenced in these statements will occur or be realized. The Company assumes no obligation to update forward-looking statements to reflect the actual results, new information, or changes in underlying assumptions.

Today's remarks are intended to educate investors about the Company. This may include reporting on the progress and results of clinical trials or other developments with respect to the Company's products. Today's remarks are not intended to promote the Company's products, to suggest that they are safe and effective for any use other than what is consistent with their FDA-approved labeling, or to provide all available information regarding the products, their risks or related clinical trial results.

Anyone seeking information regarding the use of one of the Company's products should consult the full prescribing information for the product available on the Company's website at www.unither.com.

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

Thank you, operator. Good morning, everybody. I am joined here on the call by our President and Chief Operating Officer, Dr. Roger Jeffs; by our Chief Financial Officer, Mr. John Ferrari; and by our Chief Strategy Officer, Mr. Andrew Fisher.

I am happy to report that our revenues and profits have risen nicely, in line with ever greater numbers of patients being prescribed our medicine for pulmonary arterial hypertension. These financial results enable us to continue to develop our pipeline of more advanced therapeutic options for PAH.

Specifically, revenues crested $289 million for the quarter; net income almost touched $138 million; earnings per basic share, $2.73; and over $1.75 -- actually $1.77 -- for non-GAAP earnings per basic share. Each of these financial metrics represent nice increases from matching periods previously.

As noted, it is because of the growth in prescriptions of our medicines that this has been able to be accomplished. All of our products, Remodulin, Tyvaso, and Adcirca, continue to be prescribed to greater numbers of patients this quarter than previously.

For example, with regard to Adcirca, we are now achieving prescriptions to almost two-thirds of all pulmonary hypertension patients treated in the United States. This is far and away the highest number of patients with pulmonary hypertension that have ever been prescribed one single drug. And is, in fact, the trailblazer for what we hope to accomplish with the most recently approved drug, Orenitram, the first oral form of prostacyclin ever approved by the FDA.

I would now like to open the lines to any questions with regard to our projects, our prospects, financials, or any other aspect of our business. Operator?

(Operator Instructions)

Mark Schoenebaum, ISI Group.

This is Salim in for Mark. Hope you're doing well.

Nice to hear your voice.

Thank you. I just had two questions. A lot of investors are obviously focused on selexipag -- Actelion's selexipag GRIPHON data coming in a few weeks -- and I don't know if you've heard, but one thing they mentioned on their call was that they may focus just on the primary endpoint in their press release. If we only get morbidity/mortality data, how should we interpret that given there's no -- we don't have any comparable data for Tyvaso?

Then the second question is just on China Remodulin sales, if you have that broken out?

Sure. I am going to answer the first part of the question about selexipag and then turn the mic over to Roger who will break out the Remodulin sales for you.

Of course, I can't really comment on what Actelion is going to decide to do internally with regard to their selexipag results. But what I can say is, to put everyone on the call and on a level playing field is, as you know, selexipag is neither prostacyclin nor a prostacyclin analogue, it is instead a de novo type of molecule intended as an agonist to increase endogenous production of prostacyclin.

That is something that has never been tried successfully before and we will have to wait to see the top-line results and the bottom-line results and all the rest of the results before we know really what to make of the selexipag. Of course, the regulatory authorities are also similarly going to want to see all of the results that [they're] -- on efficacy and safety. If the trial is successful, per the press release from the sponsor, then the ball will pass to the regulatory authorities for their independent determination if the trial demonstrated the safety and efficacy of the results based on a comprehensive analysis of all of the data.

And then finally, the ball passes to the prescribers who, never having prescribed this type of molecule outside of the clinical trial itself, will do the natural thing and put their toes in the water, see what happens with patients over a period of years. If it helps patients, it will gain traction; if it hurts patients, or if it doesn't help them as much as alternative therapies, it will gain less traction.

So hopefully that was -- gave you some good color on our take on selexipag and let me now turn the mic over to Dr. Jeffs to talk about Remodulin.

Good morning, Salim. Just for an update to the other callers who may not be aware, Remodulin was approved in China in late 2013. The current process in China is our partner, Lee's Pharma, is seeking pricing approval and setting up some of the promotional and compliance regiments that need to be put into place prior to product launch. We have shipped a commercial validation shipment, which is product, but that hasn't been paid for or invoiced yet.

In 2014, until pricing is approved, it is very hard to predict what sort of revenues China, and likewise, Japan, which was also approved in March of this year, will report to us in terms of annualized revenues. We need to go through the logistics of getting pricing and reimbursements sorted and then, in 2015, in particular, we can start looking contributions from those territories in terms of what they may bring to us and be a little bit more predictive about that. But right now, we cannot really state what forecast would be.

Okay. Great. Thanks so much.

Liana Moussatos, Wedbush Securities.

Can you give us an update on the pipeline products like Ch14.18, Beraprost, the implantable pump and TransCon [trep]?

Sure. Thanks, Liana for the question and good morning to you. The Company's prospects depend as much upon the continued growth of our existing products, as they do bringing our pipeline of products pending registration, in Phase III, and in earlier phases of the development into commercialization. We continue to believe that the thrust of both our approved products and our pipeline products will lead us to take the $1 billion that we crested last year to over $2 billion before the end of the decade.

The one which is closest to approval from that pipeline, I believe, is our MAb for neuroblastoma, because we have filed for a registration of that both in Europe and in United States. That was, I believe, a very strong filing. We did -- we were able to make that filing based upon an excellent registration study conducted sponsored by the National Cancer Institute through the Cancer Oncology Group and published in the New England Journal of Medicine.

We did a bridging study, have produced stable batches of [TNP] drug products, and so we are feeling optimistic that these kids with neuroblastoma will in fact very soon be able to be helped, both here and in Europe. Those filings are already at the regulatory agencies. They are, of course, given the high unmet medical need [med] condition, they will be processed of the highest level of dispatch for those type of products.

The next queued up in the pipeline is our implantable pump project with Medtronic. This one has completed its registration study and is now pending at Medtronic for their submission to modify the regulatory status of the SynchroMed II pump, as well as a associated novel in vivo catheter and novel drug delivery syringe; plus, we ourselves, will be filing a label amendment to extend the use of Remodulin into the Medtronic pump. So all of that work is going on right now and the timing of it is pretty much mostly in Medtronic's court because they have got the lion's share of work to do.

We did report very positive top-line results from the study a couple of quarters ago, so that is next queued up after MAb. People are awaiting it, because as you may know, Liana, the golden thread here for treatment of pulmonary hypertension is to achieve a constant level of prostacyclin in one system 24/7. The problem to date has been that the only way to do that is with the onerous, and for a great many patients, just flat-out impractical possibility of an ex vivo pump running 24/7, 365, delivering prostacyclin or a prostacyclin analogue, such as Remodulin, to those patients, because of the complications of this and for patients with dexterity issues, such as those with scleroderma.

The result of that is a registry sponsored by, I believe, Actelion, demonstrated that approximately half of all the patients with pulmonary hypertension who pass on never have a chance to access prostacyclin therapy. That is the clearest evidence you can ask for of the both addressable and capturable markets for this implantable pump. So that will get process as quickly as Medtronic can get moved on it and then the FDA can move on it thereafter.

Next queued up in our pipeline after that, are our twin efforts to address the major trend in pulmonary hypertension therapy, which is the pivot from the sequential monotherapy, which you will see as what is depicted in the differential treatment algorithms and consensus statement in the field, to what is the ascended paradigm of sequential combination therapy. In that regard, we have got our two pivotal studies, the FREEDOM-EV study testing Orenitram in combination with PDE-5 and/or ETRAs, and our BEAT study, trying to achieve a continuous level of prostacyclin in the patient's bloodstream by combining the fast-acting but rapid fall-off, Tyvaso, with the slower onset and slower fall-off of beraprost.

The combination of those two will help push us closer to a 24-hour level of something near zero order release for prostacyclin and have the additional benefits of attacking the disease from both the airway side and the blood side, and attacking multiple prostacyclin receptors, those activated by both treprostinil and by beraprost. Another exciting thing about the FREEDOM-ED study is when the FDA signaled and then [fated] that this drug could be delivered [TID]. That was very, very good news for the patients, physicians, payers, everybody, because it, again, allows us to take a big step toward continuous bioavailability at an adequately high level but not too of a high level of a very, very potent prostacyclin analogue, treprostinil.

So the timing turned out to be fortuitous for us because we were just restarting the FREEDOM-EV study and that allowed us to do so as a TID dosing regimen, which again, is totally in sync with actually two trends: A, the trend toward more continuous bioavailability of treprostinil or other prostacyclin analogues; and two, combination therapy. So we have really got a great two-for on FREEDOM-EV.

Then backing up earlier in the pipeline we have the TransCon treprostinil product. This one is really a huge advance in technology because this allows a patient to have a [fill] order release, or in other words, in plain language, a continuous level of prostacyclin in their bloodstream over 24 hours from just a single diabetic-like sub-Q injection once a day.

So there is no more [confusion], there is no more multiple dosing per day; just one dose per day can give the patient an enzyme independent release of treprostinil in their bloodstream over a course of a day. Very much in sync with what's physicians want is -- 24/7 bioavailability of prostacyclin without the difficulties of an ex-vivo pump.

That is -- I am sorry I went through it kind of quick, but it shows you that we've got a really, really sweet pipeline with projects about to be registered, in Phase III, and the TransCon treprostinil will go into the clinic in [man] Phase I this year.

Thank you.

Michael Yee, RBC Capital Markets.

This is John on behalf of Michael Yee. Could you just give us an update on the patent litigation. Sandoz given -- Sandoz [has] denied summary judgment. What are the next steps coming up and at which point, in your view, would reaching a settlement be more reasonable versus going to full trial? Thanks.

Thanks to the question. As noted at the beginning of the call, we have our Chief Strategy Officer who is also our IP expert, Andy Fisher on the phone, and he'll address your question.

Thanks for the question. You are correct. The court denied summary judgment earlier this month. The next step in the case is trial, which commences on Thursday of this week, and will continue on pretty much through the first half of May. As for your question concerning settlement, we don't have any comment on settlement for you.

Thank you, Andy. Operator, next question.

Geoff Meacham, JPMorgan.

I know looking at sequential growth trends can be a little tricky, but I want to get a sense from you as to what the driver was for Adcirca this first quarter. Has there been any formulary changes or things of that nature? And then the same thing on Tyvaso, when you look at 4Q and 1Q sales, they were both down, albeit marginally. Is there anything on the inventory side for that or just your typical lumpiness?

Good question. Comes up frequently. [UT] is the story that you hold for a couple years or longer because there is this inevitable lumpiness from quarter to quarter, as when there is the period of time with a lot of the doctor conferences relevant to pulmonary hypertension, scripts go down, holidays, stuff like that. So the lumpiness that we have seen in the quarters here is completely consistent with the lumpiness that we have seen over the past many years in our Business.

For example, as I have noted in previous calls, when you see a quarter which is flat, what you see by the time we get around to doing the conference call is a surge in referrals. In fact, for March, which, that is the most recent data that I have, Tyvaso referrals hit their second highest levels ever. So that just gives you an idea of the lumpiness to expect from time to time.

The Adcirca, there has been no change in formulary status. Definitely, we have a real key asset in our Company with our strategic operations group, which has spent 1.5 decades, interfacing with the payer and reimbursement structure. And whereas, with regard to Part B, while everything is complicated, things are, from a payer sense, a little bit less complicated, mostly because they are less, in aggregate, costly with regards to Part B.

Adcirca falls under Part D, as in delta, and therefore there is ever-present issues of discounts and rebates and this sorts of things that occur when you are prescribing pills. It is a really Herculean task in a country like the US with hundreds of payers and 50 different state Medicaid organizations. Now you have got the Obamacare overlay.

But what I am extremely impressed with, and I actually believe that any objective observer would have to be very, very impressed with this -- you got a patient, there is two PDE5s that you can prescribe to this patient -- one is generic, also happens to be probably the most prescribed drug in the world, Viagra, it is not call that for PH, but that is what it is, exactly the same thing, and the other is our branded product Adcirca. As I mentioned in the beginning of the call, we have got 66% market share. That is one of the most impressive track records of a branded drug against a very similar generic.

Of course, the reason for that is -- there is no black magic there -- Adcirca is a once daily treatment for pulmonary hypertension, has excellent clinical trial records, people are quite excited about the outcome of the AMBITION trial with GlaxoSmithKline and really on that AMBITION trial, which is a combination of Adcirca together with ambrisentan. That would be interesting to see how that AA combination turns out. If positive, that will be, of course, yet a further impetus for Adcirca growth. Thanks for your question.

Thank you.

Philip Nadeau, Cowen and Company.

Just a couple of follow-ups to things that were already asked. First, on the court case this week, Andy, could you give us an update on which patents are actually going to be litigated this week and how are the patents that had been issued in -- listed in the Orange Book since the litigation began, how are those going to be handled?

And then, second, just a follow-up to Geoff's question, could you tell us whether there were any inventory changes during the quarter, either at wholesalers or retailers for Tyvaso and Adcirca?

I will take the litigation question and then kick the other one over to John Ferrari. The patents at are issue in this case are the three original Orange Book-listed patents. There is one expiring in October of 2014, one expiring in October of 2017, and one expiring in 2029, so those remain the three at issue in this case. There are several additional Orange Book-listed patents that are not part of this case. John?

Inventory for Remodulin for the quarter went up slightly in both dollar value and patient count and then inventory for Tyvaso actually went down in value and patient count during the quarter. We don't -- because Adcirca is sold on to retail outlets, we do not get any inventory reports -- what's out in the field, but we do take a look at TRxs versus bottles sold and based on the trends of what we saw during the fourth quarter, it doesn't look like there is any stocking going on, on the retail level.

Thank you, John.

John Ryan, Jefferies.

This is John in for Eun. Just a quick question and then a follow up. With both with TransCon treprostinil and Medtronic SynchroMed II implantable pump, what is the strategic plan in positioning these products for the market? And then do you foresee that TransCon treprostinil will require a BLA pathway for potential filing?

I will talk about the pathway to the market and Dr. Jeffs will talk about the clinical regulatory development pathway for TransCon. The goal for both of those products is to transition patients from an ex-vivo pump form of delivering Remodulin to these other formats. That is actually part of a long-term process and it's, as mentioned in my introductory remarks, it's in sync with one of the two main trends in the field -- to get patients on to a 24/7 level of vial availability of prostacyclin or an analogue for prostacyclin, without the onerous and oftentimes, in fact about at least half the times, completely impractical delivery system for those particular patients.

So you see patients transitioning from Remodulin to Tyvaso. We are already seeing patients transition from Remodulin to Orenitram.

In fact, the FDA specifically called out in the label that those would be logical patients for Orenitram, ones who would be transitioned from IV, sub-Q, et cetera. That process will continue with the implantable pump, both capturing the substantial numbers of new patients who just would not go on an external pump at all, but would find very attractive an insert-and-forget delivery system, such as the implantable pump.

As well as for existing patients who are just having difficulties or set up with the IV and parenteral delivery. There is -- I know I speak here for all of my colleagues at United Therapeutics -- an obligation on the part of a branded pharmaceutical Company, such as our own, to always use our retained earnings to develop better and better therapies for pulmonary hypertension and we are relentless in this. So that is what you see us doing, continually pushing out the boundaries of therapeutic options so pulmonary hypertension patients have better and better, more and more convenient, more and more practical options available to them at all times. Roger?

John, with regard to TransCon and whether or not we'd have to file a BLA, let me just maybe back up a little bit and say where we are. We have progressed a lot of, quote-unquote IND-enabling studies; this includes toxicology, safety pharmacology, and some formulation development work, and in particular, the kinetic studies in animals, [two] species. What we have seen is very favorable kinetics in the sense that you can give what appears to be a single pain-free injection of the therapy, treprostinil, is released in very slow manner and can persist for a period of time that would support once-daily injections.

We are now putting together the IND and we expect in the very early part of the second half of the year, in the third quarter actually, that we will file the IND and once that is approved, we will initiate human volunteer studies. Again, single daily doses or single injections just to see what that is and we will do -- [dose] cohorts where we escalate the dose of treprostinil that is administered.

The importance of that is that, that kinetics will define the development pathway and there is really two paths here. If we think we can show that it is kinetically equivalent to parenteral therapy, then we will try to do a bioequivalent study, which will have a truncated timeline versus if we have to do a more a formal placebo-controlled clinical trial design. So the Phase 1 study is an important study; it is a single-dose study and then based on the success there, we will go into multi-dose studies.

But some of the things that we will also have to do, even if the kinetics would support a bioequivalence approach, is follow the metabolic fate of the PEG linker that is complex with treprostinil to make it inert and pain-free for injection, as well as treprostinil kinetic. So it is not a simple bioequivalence approach because we will have to follow the metabolic fate of the inert molecule with which it is complex. But we are hopeful, based on what we have seen in animals, and if that is replicated in humans, that bioequivalence is a viable strategy, but I need the data to support that.

If that is not the case and we will either reformulate so that it is the case or we will do a placebo-controlled trial, because as Martine said, a once daily injectable, or maybe even once weekly, if everything went even better, would be very well received by patients, because it would give them this constant exposure to [prostin], which everybody covets, and it would be pain-free, which would be a game changer for subcutaneous delivery.

Thanks, Roger. Next questions.

Robyn Karnauskas, Deutsche Bank.

This is Mohan for Robyn. I have one question regarding your taxes. Looking at your first quarter 2014 versus first quarter of 2013, actually, the biggest difference I see is in terms of taxes. Just wanted to clarify whether all these taxes are cash or some of it is non-cash and how should be think about non-cash tax rate for remainder of the year?

I will refer that question to John Ferrari, our CFO.

The tax rate that we published in our Q and that you see in our earnings release, that's an estimated tax rate for the year. So effectively, we take a look -- we do a production for the year, do a mini-tax return, figure out what taxes if we hit the projection, business credits and all that stuff, come up a rate, and then we apply that rate to our book income before taxes throughout the quarter.

So there's going to be fluctuation from quarter to quarter, based on that, because we are just using annual rates. That annual rate, in one sense, the taxes expense is really non-cash, but we do pay estimated tax payments during the course -- each quarter during the course of the year. And if you look at our Statement of Cash Flows, for example, we disclose the cash that's paid on that by quarter and also at year-to-date.

Thanks, John. Great answer. Let me wrap now up. We have hit the half-hour mark.

The Company is very pleased with the quarterly results and the continued growth in patients. As noted, across all of the products, ours are being prescribed more and more frequently to more and more patients. With regard to Tyvaso, for example, there weren't any specific questions on that during the call, 90% of the revenues spent on inhaled prostacyclin analogues are spent on Tyvaso. That's about as high of a market share as one could ask for.

With regard to Adcirca, if you start with the doctors who have true pulmonary hypertension practices, we are similarly at 90% and above market share. You get down to deciles 1 to 10, and we are at about two-thirds, and overall, 60%, so it is a really dominant therapy. Remodulin, because of the ability to deliver it both subcutaneously, intravenously, the long over-a-decade track record of safety and efficacy, has also lead Remodulin to be far and away the most prescribed parenteral therapy.

However, the Company is more focused on developing its pipeline to provide patients with better therapeutic options in each of these areas. As responded to the question from Wedbush Securities, we have got a very nice pipeline of things waiting for approval, in the case of orphan oncology; preparing -- in preparation for filing, in the case of the implantable pump; two Phase III studies; and the new TransCon treprostinil therapy of going into man this year.

Thank you very much for your attention during the call and we look forward to seeing you at upcoming healthcare conferences. Operator, you can wrap up the call.

Thank you for participating in today's United Therapeutics Corporation conference call. This call will be available for replay beginning at 8:30 AM Eastern Time today through 11:59 PM Eastern Time on Tuesday, May 6. The conference ID number for the replay is 25950152. The number to dial for the replay is 855-859-2056 or 404-357-3406. Have a great day, everyone.