United Therapeutics Corp (UTHR) 2015 Q1 法說會逐字稿

Good morning. My name is Andrew, and I will be your conference operator today. At this time, I would like to welcome everyone to the United Therapeutics Corporation's first quarter 2015 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 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 subsequent filings with the SEC for additional information on these risks and uncertainties. There can be no assurance that the actual results, events, or developments referenced in these statements will occur or be realized.

The Company assumes no obligation to update forward-looking statements to reflect 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, and welcome to our United Therapeutics quarterly conference call. I will start off by providing some overview top line information, and then open up the call in a couple of moments for questions. I'm joined on the call today by our Co-Chief Executive Officer and President of the Company, Dr. Roger Jeffs; our Chief Financial Officer, Mr. James Edgemond; and our Chief Strategy Officer, who also oversees all of our intellectual property portfolio, Mr. Andrew Fisher.

With regard to the top line information, we reported revenues of just over $327 million for the quarter. Our GAAP net loss was $16.6 million. To understand that, you really have to realize that that reflects the accounting treatment required for what we call our share tracking awards program. These are sort of shadow stock options effectively that are settled in cash by the Company in lieu of having a stock option plan. These combined with the stock options that are also issued pursuant to the stock option plan have an accounting treatment which has to be marked to market each quarter.

In periods of time when the Company's stock price rises relatively rapidly, such as during the first quarter of this year, then those share tracking awards program, or STAPs, as we call them for short, get marked up in a way that makes them look much more expensive. Conversely, in a quarter when the Company stock price declines, sometimes the GAAP profit looks much better because there's actually a negative value or a lower value that can be assigned to the STAPs. Because of this confusing accounting treatment, or let me just say somewhat obscuring accounting treatment with regards to underlying operations of the STAPs, we also report non-GAAP earnings. These non-GAAP earnings were $135 million for the past quarter or about $2.55 per diluted share. Those are strikingly positive numbers.

A little bit of color on how we're trying to bridge this bit of disconnect between the net loss and the strong non-GAAP profit, we intend, subject to the Board of Directors approval to ask shareholders to authorize a new stock option plan within ISS boundary perimeters that we're hopeful would get a positive recommendation from them. Then we could start gravitating away from the STAPs, hopefully ending them completely over a period of a few years, and only offering stock options which are accounted for in a more conventionally understood way with regard to our peers. That's one thing that I think is going to bridge that difference.

We also have an ongoing stock buyback program which has helped our diluted share count continue to decrease. We are still well in the midst of that buyback, continuing to buyback shares every day pursuant to our Board's resolution or pricing committee's resolution to buyback shares up to a price of $200 per share. We are continuing that buyback which also helps on the diluted shares.

Now to provide a bit of color on the operations, as I said, the STAP accounting can somewhat obscure the effects of operations. We're reporting revenues for four different products, Orenitram, Tyvaso, Remodulin, and Adcirca. Starting with Orenitram, we've hit our approximate $100 million revenue run rate target, not only with the $20 million in GAAP revenues reported for the first three months, but also about $8.5 million in GAAP revenues for April; but probably much more meaningfully and much more significantly with the nearly 800 patients that we now have on Orenitram.

Now these patients produce modest revenues when they first start on the drug at doses of something like a quarter or a half milligram, two or three times a day, but they produce $200,000 to $250,000 a year in revenue when they get up to a stable dose, which depending on the patient, can take it up to a year plus or minus. Stable dose is about 6 milligrams twice per day or three times a day, so let's say 18 milligrams daily, which would correlate to roughly a quarter million dollars per year. Hence, with 800 patients that we have now on Orenitram, we are really effectively at $160 million to $200 million a year revenue run rate, once these 800 patients get to their stable dose.

What you can see from this additional color I provided is that many more of our patients are what we call de novo patients. In other words, most of the patients on the drug now are not transitioned from Remodulin or Tyvaso, but our naive to prostacyclin. When somebody transitions from Remodulin, they will transition to Orenitram at a relatively high dose because they've been systemically getting a lot of our medicine [parenterally] with Remodulin. When they transition to Orenitram from either Tyvaso or de novo, naive to prostacyclin, they transition at a very low dose because they had not previously had treprostinil in their systemic circulation. These are the patients that are representing $160 million to $200 million revenue run rate once they get up to their stable dose.

Better still, as alluded to in the press release we continue adding Orenitram patients at a net rate of about 100 per month, meaning that as we continue doing this, I expect that we'll have about 1,500 patients by the end of 2015, roughly speaking around 2,500 by the end of 2016, and continuing to add about 1,000 patients a year which would get us to over 5,000 patients by the end of 2019. Those 5,000 patients, as I've just walked you through, would represent over $1 billion in revenue at either the $200,000 or $250,000 price point depending on how close they are to the stable dose of 6 milligrams TID. That confirms our track record this quarter, very much confirms our previous estimation that Orenitram represents $1 billion a year revenue opportunity for us by the end of the current decade.

Now turning to Tyvaso, Tyvaso is right now in its phase III combination study, together with esuberaprost, another oral prostacyclin analog. This phase III study is now 40% enrolled and is the preeminent phase III PH study being conducted in the United States. When physicians are putting patients into a phase III study in the US for PH, it's going into overwhelmingly this Tyvaso esuberaprost study, which goes by the acronym of the BEAT study.

We expect to unblind the study in 2016, and launch by the end of 2017, as the first prostacyclin therapy to not only reduce morbidity and mortality, which is one of the endpoints of this study, but also to address the lack of clinical improvement in patients. That's a unique study endpoint previously demonstrated only in the AMBITION study that tested Adcirca combined with Letairis, and demonstrated both the reduction of morbidity and mortality, as well as demonstrated an impact on clinical improvement.

The combination of Tyvaso and esuberaprost, I think is also likely to reach a market size similar to Orenitram, in other words approximately 5,000 patients after approximately five or six years of launch, and hence also over $1 billion in revenue potential. We've just had a patent granted to us, just in the past few weeks for the combination of Tyvaso and esuberaprost as a combination treatment therapy for pulmonary hypertension, and that patent would be valid out to 2030. Just in the pipeline here, we're looking at two products, Orenitram and the BEAT combination product, that represent $2 billion in revenue just in the pipeline.

Now turning more to the products that are producing the meat and potatoes of revenues today, there is Remodulin. Remodulin is continuing to grow, but I think what is most exciting about Remodulin is the prospect of two additional drug device combination approvals that would involve Remodulin that are in the pipeline. One is with our partner MedTronic for the Remodulin implanted pump system, and the other is with our partner DEKA Research & Development, Dean Kamen's company, for what we call the [Unity] semi-disposable pump with a pre-filled drug bladder. These exciting products definitely foretell a continued healthy revenue lifeline for Remodulin and our additional things our pipeline.

Finally turning to Adcirca, I think what's most interesting about Adcirca is that it's part of that study that was accomplished by Gilead. I believe Glaxo worked with them on that in Europe, called the AMBITION study that tested whether or not Adcirca plus Letairis could delay morbidity and mortality. While we, at our Company, cannot promote that combination and would not promote that combination unless and until it was on the Adcirca label, we are exploring and in discussions with the possibility for possibly working with Gilead, so that once it gets on the Letairis label that important information could be communicated more widely.

Since Adcirca is the most widely prescribed medicine for pulmonary hypertension, Letairis is the most widely prescribed PDE5 inhibitor for pulmonary hypertension, there are certainly a great demonstration of synergy from the data that was reported from the AMBITION study when the two of them are used together.

With those introductory remarks, I would now like to open the phones, operator. I can direct questions to either Dr. Jeffs, Mr. Edgemond, or Mr. Fisher as is most appropriate. Operator?

(Operator Instructions)

Joseph Schwartz, Leerink.

Great. Thanks so much for taking the question. I was wondering if you could give us an update on the implantable pump program with MedTronic, and in particular, where does it stand with the FDA relative to the RTF letter and consent decree that they received from the FDA?

Let me refer that question to Dr. Jeffs.

Thanks for the question, Joe. We just learned of the consent decree when the market did which was yesterday afternoon. We're not really fully informed on the aspects from the decree which was specific to their neuromodulation unit, and whether or not that will then have tangential impact on the Remodulin implantable system and the PMA filing that MedTronic did late last year.

The good news is we'd already had a scheduled meeting. MedTronic and UT are going to conduct together with both CDER, the drug division, and CDRH, the device division, for early May. We're going to seek further clarity on the true impact of the consent decree, if any, on the filing, and if there is a material impact on that, we'll update next quarter. The refusal to file was more of an administrative refusal on our NDA.

Remember, we were going to submit is a label supplement. The FDA asked us to submit that as an NDA. That beefs up the application and required that we submit the study report for the trials that MedTronic had conducted. Those were in what's called CDRH acceptable format, so the device division has a format that they like to see. They are in ICH format, so we submitted those with understanding, we thought, from CDER that that was the format that they wanted to see them in. It turns out that was not. They wanted to see them in CDER-specific format. We're reformatting those documents as we speak, so the refusal to file was around that.

We don't think that will have a material impact, and certainly whether or not the consent decree impacted some of that, and they're waiting to have this face-to-face meeting with us or not is going to be part of the conversation. That's the impact. We really don't know what the impact is. We will seek some clarity, and as Martine said, it's an important platform that both physicians and patients are eager to see progress. That's something we're fully supporting.

Okay. Great. Thanks for all the color

Thank you, Joseph. Thanks, Roger. Operator, next question please.

Hartaj Singh from BTIG.

Thanks for the question. I actually wanted to ask about a program you had not mentioned, Martine, the Unituxin program. I know that got approval in the US, and then it's going through the process in the EU. Can you just walk me through the launch? Then how quickly would you expect to add those patients in the US and the EU in the second half of this year and in 2016?

Thank you very much for the question, sir. I'd like to direct that question to Dr. Jeffs.

Thanks, Martine. Thanks for the question, Hartaj. Hopefully, everybody knows Unituxin was approved in this quarter in the US. It's a GD2-binding monoclonal antibody, indicated in combination with GM-CSF and interleukin-2 and cis-retinoic acid for the treatment of pediatric patients with high-risk neuroblastoma, who have achieved at least a partial response prior to first line, multi-agent, multi-modal therapy. It does have also some black box warnings, so it's going to used by specialists, pediatric oncologists, because of life-threatening potential for infusion site reactions and some neuropathy. I want to make sure people understand that there's a black box to that as well.

We are progressing the launch in the States. It really won't take much of a sales force. It's a fairly discrete population of patients, between 350 and 500 in the US. Most of those patients who do present with the indication that I described are receiving Unituxin as part of an open label trial now, so the addressable market is mostly captured. We don't think it will change necessarily because we're not going to promote. We're just going to serve that market and assist them with getting commercial supply of our manufactured antibody.

We will launch in the second half of the year in the US, and we expect revenues to come forward during in the second half of the year. We're still working on pricing, so we won't really give you a number we're going to attempt to receive this year, but we think the addressable market globally is around $75 million to $100 million, equally distributed between the US and the EU.

As to the EU, we're pleased to report that we have responded to their comments. The clock has restarted, so the 180-day clock is progressing. That means very quickly, within 30 days basically, we're going to have a final opinion from the CHMP. That will then lead to a final commission decision in late July. We should have some action in the coming months, and we can provide clarity through press release, if we are approved or not, accordingly.

That launch will be not delayed but will occur in 2016, once we get the logistics sorted for pricing and the country by country specific labeling that needs to occur, translations, et cetera. It's a bit more of an effort because of the different cultures that will receive that therapy. All is progressing very nicely with Unituxin. We're very pleased to have launched our pediatric oncology franchise with Unituxin as our lead and look to build out that franchise in the coming years.

Thank you, Roger. Thank you for the question regarding Unituxin. Operator, next question please.

Phil Nadeau from Cowen and Company.

Good morning. Thanks for taking my question. Also one on the implantable pump, can you give us some idea of the FDA's thinking in reclassifying the filing from a label supplement to an NDA? What was it about the filing the made them want to do that?

Then second, just generally on the consent decree process, I understand that you don't have complete clarity on what's happening with MedTronic, but generally in the consent decree process, I seem to remember from the Genzyme situation that there's a point in the consent decree where new approvals can start happening again. I think it's after the company submits a remediation plan to the FDA. Is that your understanding too? Do you know where MedTronic is in that process? Thanks.

Okay. Thanks for the questions from Cowen. I'd like to ask Roger to please address those.

Phil, I will answer the first of your questions which is, why an NDA versus the labeling supplement. It's really administrative, and something we accepted. It's good for the Remodulin infusion system franchise that it's an NDA from our point of view. I think it gives CDER a little bit more of a foot in the game, so to speak. It's not simply a device approval when it's an NDA, it's also now a drug approval, so it puts the drug and the device on equal footing. Truly, it's simply administrative.

As to the ramifications of the consent decree, as I said, we just learned of this yesterday. I'm sure MedTronic is quite capably handling the response to that and has clearly taken the decree very seriously, based on what we've seen to date. We will work with them closely to get a better understanding and understand the impact, if any, on the Remodulin infusion system. They're keen to work with us as well. We've been very good partners with them, and we expect that to continue, but we can't comment on anything other than that at this point.

Thanks, Roger, for the answer, and Cowen for the question. Operator, next question

Liana Moussatos, Wedbush Securities.

Thank you for taking the question. Can you update us on the status of Remodulin sales in China and Japan?

Thanks, Liana. I'd like to ask Roger to address that question please.

If I could [pawn] that to James, Martine, who's there with me, if you don't mind.

Sure. No problem. James.

We've got to give him something to talk about

Absolutely. He is the CFO. He's counting the Chinese and Japanese incomes.

Thanks, Roger. Thank you for the question. A couple of things, one, just to be clear we expect our revenues will continue to be primarily generated from US sales. I just want to make sure that is clear. Also from a China and even a Japan standpoint, we typically refrain from offering guidance on new product launches and product launches in countries. I think were going to stick to that approach. The observation is that the uptake of new drugs in any [PH] market tends to be a gradual process, so we just want to keep that in mind going forward about revenue contributions.

Thank you very much, James, and Liana, sorry not to be able to provide you with a real specific quantitative guidance on that. Operator, next question.

Mark Schoenebaum, Evercore ISI.

Hi, guys. Thanks so much for the question. This is Salim in for Mark. Just one question on Orenitram, Martine, I know you mentioned all the details. Thank you for that. That was very helpful. I'm still confused though. Why was there little quarter-over-quarter growth? Even if patients are being titrated up, there should be still some growth quarter-over-quarter, right? Maybe if you give us some color into that? Then, on just your subcutaneous semi-disposable pump, how should we think about that pump in light of the Steadymed competition? Thanks.

Yes. The quarter-to-quarter, the numbers are so small that you're not going to be able to really get any insight from something that is going $6 million to $7 million to $8 million. Those are just fluctuations in ordering patterns from the distributor. As mentioned, April is at $8.5 million, and that is just the normal growth that you're going to see. You're going to have some people moving back and forth. They go to Orenitram. Perhaps their condition worsens, and they need to go back to Remodulin. When you're down here at the single-digit millions per month, there is nothing to read into the flat quarter-to-quarter there.

What's significant is that there are now basically 300 additional patients now, actually a little bit more than that, on Orenitram now than there were at the beginning of the quarter. Those 300 patients are overwhelmingly patients who are coming in at their low dose and ramping up to a higher and higher dose, and hence, they'll move up through 100K, 150K, 200K a year. Furthermore, an additional 100 patients are coming onto Orenitram each month, so the total momentum, the total vector is in the direction of right now something like between $160 million to $200 million revenue run rate once those patients get the full dose. From just like when we're the very beginning of the curve, there is no significance in the differences month-to-month.

As to the second question about the Steadymed, it's not polite to talk about people when they're not here, so I really can't say anything Steadymed. What I can say is that with the DEKA system which we call the [Unity] pump, it's analogically, which is another way to say continuously, variable in its dosage across the entire spectrum of doses that people with pulmonary hypertension require from treprostinil. This is very important from a manufacturing standpoint, ultimately from an approval standpoint, and from a patient and physician utilization standpoint. There is just as much continuous adjustability in the dosage that is available from the Unity pump which we're doing with DEKA as there was with the legacy CADD pumps and even old MiniMed pumps that we were using previously for subcutaneous Remodulin.

From a user standpoint, from a regulatory standpoint, from a patient treatment standpoint, there is like no difference. It's the subcutaneous pump that has always worked brilliantly for everybody, but now it's just like way more advanced and way more convenient. The patients don't have to worry about changing out their medicine with these 20 mil vials and whatnot. I would say, and I'm not really doing any hyperbole, in terms of a subcutaneous pump, it would be very hard to imagine something that would be, A, easier to use, and B, more continuously dosable than this device which we would hope to launch in the 2017 timeframe.

Great. Thank you

We have time for one last question, operator.

Robyn Karnauskas, Deutsche Bank.

This is Evan on for Robyn. Thank you for taking my question. On Tyvaso, with the combination study, is this phase III enrollment hitting commercial revenues at all?

I don't believe it is. The reason for that is that the total size of the study is only about 240 or 250 patients. I don't remember the exact number, but something like that. That is juxtaposed by there being something like 3,500 patients on Tyvaso. You could see that it's a very small percentage of the total number of patients. Then those 3,500 patients are themselves represent not even a third of the target market for Tyvaso, which has been pegged at 10,000 patients for quite a number of years. We're making good and steady progress in penetrating those 10,000 patients.

I think what is needed is to amplify the efficacy of that therapy by providing the triple advantages that the BEAT protocol offers. Those triple advantages are first of all better pharmacokinetics because you've got the systemic pharmacokinetics that balance the inhaled pharmacokinetics. Secondly, better pharmacodynamics because you are now impacting the disease state, the [intimal] proliferation in the tiny capillaries just off the alveoli. You're impacting them systemically from esuberaprost, and then you're impacting them coming from the airway side with Tyvaso. You're really able to be attacking those occluded tiny millions of [arterials] from both directions which is an important pharmacodynamic enhancement.

Then finally, you're able to add this really unique and interesting ability to address and refresh different sets of prostacyclin receptors because both the treprostinil molecule in Tyvaso and the esuberaprost molecule address overlapping but different sets of receptors. Things such as ultimately saturation of receptors can get more of a refresh. It can get what is our hypothesis to test a more potent overall response. That in turn we believe will allow us to build the Tyvaso market up from where it is right now in the 3,000s of patients, as I mentioned during my introductory remarks, up to a target of at least 50% of its target market, 5,000 patients. With the stacked revenues of Tyvaso and esuberaprost, that's a second $1 billion revenue pipeline in addition to the $1 billion revenue pipeline associated with Orenitram.

Great. Thank you for taking my question.

Sure thing. My pleasure. I'll ask the operator to wrap up the call. I know that you can meet face-to-face with Roger and I at various healthcare conferences as well as with James Edgemond. Dr. Jeffs will be, I believe, at the Deutsche Bank conference. I believe I'll be in New York at the Wedbush conference. We look forward to seeing you over the next few months in person. Operator, feel free to wrap up the call.

Thank you again, ladies and gentlemen, for participating in today's United Therapeutics Corporation conference call. This call will be available for replay beginning at 8:30AM Eastern standard time today through 11:59PM Eastern standard time in Tuesday, May 5. The conference ID number that you'll need to use to connect to the replay is 2825 6741. That is 2825 6741. The number to dial for the replay is 855-859-2056. That's 855-859-2056. Alternatively, you can dial 404-537-3406. That's 404-537-3406. Thank you again for your participation, and have a great day.