United Therapeutics Corp (UTHR) 2015 Q3 法說會逐字稿

Good morning. My name is Jonathan, and I will be your conference operator today. At this time, I would like to welcome everyone to the United Therapeutics Corporation third quarter 2015 financial results conference call.

(Operator Instructions)

Remarks today concerning United Therapeutics will include forward-looking statements, representing the Company's expectations or beliefs regarding future events. The Company cautions that these statements involve risks and uncertainties that may cause actual results to differ materially. Please see the Company's latest SEC filings, including Form 10-K and 10-Q, for additional information on these risks and uncertainties.

The Company assumes obligation to update forward-looking statements. Today's remarks may also include financial measures that were not prepared in accordance with US generally accepted accounting principles. Reconciliations of non-GAAP financial measures to the most directly comparable US GAAP financial measures can be found in our earnings release available on our website at www.unither.com.

Finally, please note that today's remarks may include reporting on the progress and results of clinical trials or other developments with respect to the Company's products. These remarks are intended solely to educate investors about the Company, and 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 the FDA approved labeling, or to provide any available information regarding their 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 very much, operator. Good morning, everybody. My name is Martine Rothblatt, I'm the Chairman and Co-CEO of United Therapeutics. Welcome to our quarterly earnings call.

I'm joined here in our Silver Spring campus by James Edgemond, our Chief Financial Officer, and Andy Fisher, our Chief Strategy Officer. Also joining me from our North Carolina campus is Dr. Roger Jeffs, the President and Co-CEO of the Company, as well as Dr. David Zaccardelli, the Chief Operating Officer of the Company. Between the five of us, we will be pleased to help answer your questions today.

The call will begin with an overview of the Company by Dr. Roger Jeffs, and he will then open up the lines for any questions. Dr. Jeffs?

Thanks, Martine. So as Martine said, I'll take the opening time period to provide a quick summary of our strong quarterly operating results, as well as highlight some exciting material achievements from the quarter.

So as we noted in the press release, we achieved a record high revenue for all five of our marketed products in the third quarter of 2015. As total revenues increased to $386 million for the quarter ended September 30. A $56 million or 17% increase over the same quarterly a period in the prior year.

The year-over-year increase in total revenue was primarily attributed to the following. A $23 million increase in Adcirca revenues, driven by both price increases, which were determined by Eli Lilly, and by an increase in the number of bottles shipped. A $20 million increase in Orenitram revenues, primarily due to the increase in the number of patients being treated. And given the keen interest in Orenitram, I will give additional granularity on Orenitram's performance shortly.

Remodulin and Tyvaso also experienced revenue growth year-over-year, reflecting the demand durability of these product lines. In addition, we are very happy to report our first commercial domestic sales of Unituxin of $4.7 million for the treatment of pediatric patients with high-risk neuroblastoma.

Reported GAAP net income was $464 million, or $9.24 per diluted share for the quarter ended September 30. As compared to a net loss of $25 million or $0.53 loss per diluted share in the third quarter of 2014.

The significant increase in reported GAAP net income and earnings per diluted share was primarily due to the following: quarter-over-quarter revenue growth, and a one-time $350 million gain on the sale of our rare pediatric priority review voucher we received from the FDA in connection with the approval of Unituxin. The reversal of $119 million of previously recognized share-based compensation expense associated with our Shared Tracking Awards program due to changes in share price during the quarter, and the expiration of our royalty obligation to GlaxoSmithKline in October of 2014.

We continued to report non-GAAP earnings to facilitate evaluation and comparison of the performance of our core operations. The significant non-GAAP earnings for the quarter ended September 30, 2015 exclude the sale on the voucher, as well as the impact of the reversal of our share-based comp expense.

Non-GAAP earnings for the quarter ended September 30, 2014 grew 44% to $178 million or $3.55 per diluted share. As compared to $124 million or $2.33 per diluted share in the third quarter of 2014. A reconciliation of reported GAAP net income to non-GAAP earnings are further outlined in our financial results press release.

Turning to the balance sheet and statement of cash flow. As of September 30, cash, cash equivalents and marketable securities totaled $1 billion, with a net increase of $195 million since December 31, 2014. Primarily driven by, one, the positive cash flow generated from operations totaling $357 million, and the sale of the voucher during the third quarter for $350 million.

These increases were partially offset by, one, the repurchase of $394 million of our common stock under our share repurchase plan authorized in 2014. And, two, the settlement of early convergence of our convertible notes in the amount of $107 million.

Overall, the very strong financial results of the third quarter will enable us to continue advancing our innovative product pipeline. And return value to shareholders through our recently announced $500 million share repurchase program.

So as promised, let me switch gears a little bit and spend a little time unpacking the Orenitram numbers in more detail. I think the granularity will provide further insight and enthusiasm that the brand is achieving our stated goals.

As already mentioned, Orenitram continues to grow, with Q3 be our highest revenue quarter yet. Having achieved 33% greater revenue than in Q2. Orenitram revenues were driven principally by new patient starts, which were 22% higher than inQ2.

Approximately 70% of starts in Q3 were from patients new to Prostacyclin therapy, with approximately 20% being transitions from Tyvasa and approximately 10% transitioning from Remodulin. An increasing breadth of prescribers is driving the growth new the patient starts. Over 500% prescribers have started a patient on Orenitram, an increase of 20% over Q2.

And the growth opportunity remains significant, as over 1,700 healthcare providers who have previously prescribed Remodulin and/or Tyvasa have not yet prescribed Orenitram. These experienced prescribers are ideal targets for Orenitram, and can certainly drive further uptick.

We continue to see very nice uptick in the community centers, where we there is the largest opportunity for growth given the lower utilization of Prostacyclin therapy in a community setting. In fact, recent trends show a higher percent utilization in the community centers. For example, the splits of starts in September was 52% percent community based, and 48% center based, which demonstrates the positive inroads we're making with Orenitram with the community physicians.

For comparison, 34% of Tyvasa starts and 31% of Remodulin starts are from community centers. Like parenteral therapies, Orenitram is unique in the that it is progressively titratible to achieve a balance of maximum benefit and tolerability. A hallmark of Prostacyclin therapy, and a key class [tray].

The average total daily dose for all patients remains very similar to Q2, and is approximately 10.1 milligrams. The average dose is obviously held down by new patient starts that begin at the lower end of the dose spectrum. This is counterbalanced, however, by the dose titration of patients who have been on therapy longer, and we're seeing concordantly higher shipments of our higher strength tablet bottles.

As dose is progressively titrated to combat progressive disease, there will obviously be a greater and greater impact of dose on revenues. As patients increase their duration on therapy, further leveraging the revenue increase associated with the increasing numbers of patients we are seeing on therapy.

Finally, I would like to provide a few brief highlights on some other important achievements in the quarter. One, on Unituxin. As noted in the financial summary, we launched Unituxin in January of our fist domestic commercial revenues.

We're excited about being able to serve the community of children who need treatment for high-risk neuroblastoma. Not just in the US, but also in Europe, as we received European commission approval in August.

We plan to commence commercial sales in individual European countries following pricing and reimbursement approvals on a country-by-country basis. And as previously noted, we recognized a $350 million gain on the sale of the rare Pediatric Priority Review voucher to AbbVie.

Secondly, I'll update on the phase III studies. We continued to favorably progress enrollment in our large pivotal phase III morbidity mortality end point trials. With the [freedom EV] approaching 400 patients randomized or 65% of the planned 610 patient enrollment target, and a beat study approaching 145 patients randomized, or 60% of the planned 240 patient enrollment target. Our expectation remains to complete enrollment in both of these trials in 2016.

And finally, I'll say a little bit about the implantable pump platform. UT and Medtronic, together, met with the FDA in the quarter. Based on the positive outcome of this meeting, the current plan is for Medtronic to file an amendment to their PMA in December that is responsive to all queries to date, and subsequently UT will refile our NDA, also in the December timeframe.

With these opening remarks, I'd now like to turn the call back to Martine for callers to ask questions

Thank you, Roger. Fantastic overview.

Now I would like to open up the lines for any questions to Andy Fisher, our Street Chief Strategy officer. He particularly is an expert on IP issues.

To James Edgemond, or Chief Financial Officer. Very good on all questions relating to cash flow, P&L, tax rates.

Roger Jeffs, on every aspect of the Company. And Dr. Zaccardelli, who really keeps all the lights on and things working in manufacturing going here at United Therapeutics. And is also the individual specifically in charge of our implantable pump program.

Operator, you can open up the lines to any questions.

(Operator Instructions)

Geoff Meacham, Barclays.

Good quarter, and thanks for take the question. Thanks, Roger, for all the color on Orenitram. I want to get a sense -- I don't think you spoke to persistence of therapy.

And I wanted to get a better sense for what the dynamics are over the past, say, 2 to 3 quarters. And if someone is switching away from Orenitram, where are they going? You mentioned the switches to Orenitram from Tyvasa and Remodulin.

And then the second question, and I know you probably can't talk too much about it. But if Andy could give any feedback on the recent IPR are from a steady med, that would be great. Thanks

Geoff, this is Roger. I'll answer the first question, and have Andy answer the IPR question.

So with regarding persistence, we've yet to meet an average persistent curve or medium curve. So if you look at Remodulin, for example, it's 26 months. If you look at Tyvaso, the average duration of therapy is 20 months.

What we're seeing with Orenitram is it continues to track out over time, and it's basically in concert with the time since launch. So we are approaching about a 12 month time since launch or more, so we've yet to see what the true understanding of duration is. We do know, however, that from an open label clinical trial experience, that the duration of therapy was around 28 months or more.

So whether or not that bears out to also be true in the commercial setting, we will see. But our expectation is because the therapy is starting earlier in the treatment algorithm, that patients will actually persist longer on Orenitram. Which therefore will report an increasing durability of revenues.

So I think for expectations, is it should be in the ballpark, if not better, than what we currently see with Tyvaso and Remodulin. If that helps answer your question, Geoff.

Yes.

And, Andy, on the IPR?

Thanks for the question, Geoff, this is Andy. So steady med, which has a patch pump technology in development for treprostinil, filed an IPR, or inter parties review petition, with the US PTO Patent Trial and Appeal Board on October 1, against what we call the 393 patent.

The 393 patent is one of our Orange book listed patents for really all of our treprostinil-based products, and is also at issue in the other ongoing cases, including Teva and [Watson]. The 393 patent covers a process of making treprostinil. We have several months before our first substantive response is due, and we'll be vigorously defending that patent.

Michael Yee, RBC Capital Markets.

Hey, thanks for the question. Can you give a little more specifics on not only the implantable pump timing and how that relates to I guess Medtronic's manufacturing issues that was announced earlier. And does that need to be solved before that whole application can get approved?

And then secondly on the [DIKA], which is the second alternative path. Can you give an update there in terms of that timing, and how that is expected to play out as well? thanks.

Sure, Michael. Good morning, and fortunately, we have Dr. Zaccardelli on the phone. And, Dr. Zaccardelli, can you please address both of those questions?

Thank you, Martine, happy to, and thank you Michael for the question. First, for the implantable pump program, we of course continue to collaborate with Medtronic on the pump, and as, Roger, mentioned, we do plan to submit first responses to the PMA. Medtronic plans to submit that in December.

We will then follow with a submission of our NDA as well in December. We expect a 10-month review on the NDA, and as we understand it today, approximately a six-month review on the PMA. And of course in 2016, we will continue to work with the agency to satisfy any questions or queries they have on those submissions, ultimately leading to an approval in the back end of 2016 for the implantable pump.

With regard to their manufacturing of the SynchroMed II pump and the launch of it for the implantable pump use with Remodulin. We today don't the that is a significant issue as we understand it from Medtronic. They are under a consent decree. They do have to cooperate with regards to that consent decree. They are currently doing that, and meeting their objectives as we understand it. And again, as they continue to do that through 2016, we expect that not to be an issue. But of course, we will be monitoring that very closely with Medtronic, and update you through 2016 on that point.

With regard to Decca, we of course, continue that collaboration. The project is progressing nicely. It's in the early to moving to middle stages of development of the proprietary-based platform of putting Remodulin in a cassette for a semi-disposal subcutaneous pump platform.

We're excited about that, and utilizing some very novel technology with Decca. We currently plan to work towards getting an approval of that pump platform in 2018, and we will be updating that over time.

Hartaj Singh, BTIG.

Thanks for the question. Just a couple of quick questions actually on the P&L. One is, for this quarter, if I just take the adjusted operating expenditures, you're in the high 20%s, 27% as a percentage of revenue. You averaged about 31% for the first half of 2015, and you averaged about 34% for 2014.

So there just seems to be a really substantial shift going -- in leverage coming from your operating expenditure line. Just a couple questions, how sustainable is that and then also how far can you go with that with this leverage? And then just a quick follow-up question on a product. Thank you.

Well we only have time for -- we have dozens of people in queue, so we only have time for one question per questioner. Sorry about that. So, Mr. James Edgemond will address that P&L question and then we will go back to the operator. James?

Thank you, Martine. Hartaj, good morning and thank you for the question. So when you look at the P&L across the year, two things come to mind. Is we maintain a very disciplined budget approach when we start the year, so that when we end the year we know that we will maintain and stick within our budgets very carefully.

The other thing to keep in mind is there could be some costs that shift quarter to quarter that shift relative to years in the prior year, where you might have some fluctuations in volatility. But I don't think you look at the SG&A line, net of any share-based compensation, you will see wild swings going forward. Although we want to maintain and stick within our budgets on an annual basis.

Thanks, James, great answer. And thank you as CFO for doing such a great job of cracking a whip across the line on that budget discipline. Fantastic.

Jessica Fine, JPMorgan.

Hey, guys, thanks for taking the question. My question is for Martine. I think it was just about six months ago when you laid out a bunch of numbers around potential Orenitram patient ads over time, including adding I think about 1,000 patients in 2016.

As you've watched the product continue to launch, is that still your view? Do you now think there could be more patients added or fewer? I'd love to hear your thoughts there. Thanks.

Thanks for the question. I really don't see anything changing from the trends that we've been looking at. As Roger said, there's just been outstanding growth and Orenitram, and we stand by all of our bullishness on that product. Thanks for the question.

Mark Schoenebaum, Evercore ISI.

Hey, guys. Congrats on the quarter. This is Salim in for Mark. Just one question, I had two, but Martine I will follow your rule on the one question.

Thank you. We appreciate it so there's time for the other questioners too.

No worries. So with Selex type select coming in 2016, can you give us your updated views on how are you guys seeing the impact to Orenitram and Tyvasa? Is this something where, at the end it's only 3,500 or 4,000 patients on Tyvasa and there's enough room in this market for two or even three players? What are you thinking basically? Thank you.

Salim, thanks for your question and your ongoing careful monitoring of our Company. The person best qualified to answer that question would be Dr. Jeffs, He's got a great overview of the entire page market, so, Roger, if I can refer that question to you?

Sure, thanks, Martine. Thanks for the question, Salim.

So to follow on your point, Salim, I think the market is certainly big enough for both of us. As we pointed out in the remarks, we have about 500 prescribers of Orenitram, which is not even a third of what the prescribed is for currently for Remodulin and Tyvasa. When the actual perception base for an oral Prostacyclin should be more similar to what we see with Adcirca, which should be in the 3,000 to 5,000 prescriber base.

So there's plenty of prescribing breadth and depth to share with Selex [atan]. And I won't talk about their product and their launch, I think that's for them to talk about.

But I will talk about some of the attributes and the product profile that I think distinguish Orenitram and will continue its positive momentum that Martine just articulated. So we have a very strong of efficacy, in terms of the six minute walk distance. Importantly, the drug is titratable to affect intolerability, so it can be progressively titrated to -- for a progressive disease. Which is a key class attribute for Prostacyclins that has what has distinguished this product class from all other therapies, not just oral, but all therapies.

The tolerability that we observed in pivotal trial our was 4% DC rate. And that was with twice a day dosing, not even the three times a day doing profile that 75% of our patients enjoy in the commercial market.

The history and legacy of treprostinil, it's been in thousands of patients for -- it was first launched as Remodulin in 2002. So there's a lot of experience and confidence in the active pharmaceutical ingredient treprostinil, and the body doesn't know if you take Orenitram how it got there. Once it's in the plasma, treprostinil is treprostinil.

Finally I would add that treprostinil behaves more like native Prostacyclin in that it has a very diverse of receptor binding profile. It binds not only to IP1 but also to EP2, which has been shown to be important in anti-proliferation where this is not a vasodilatory disease or vasa constrictive disease, it's a disease of proliferation.

So we think that's important. So against all of those different characteristics and traits, we think Orenitram will continue to show itself as a positive product for physicians and the patients that they treat. Thanks for the question.

Phil Nadeau, Cowen and Company.

Good morning, thanks for taking my question. I had another question Orenitram. In the past, you've been good enough to give us patient numbers on therapy.

I was wondering if you could update us on how many patients are on Orenitram now? And also, a bit more about how it is being used. Is it being used as a monotherapy, or is it being used in combination with the ERAs and PDE5s? Thanks.

Thanks, Phil. Of course that Dr. Jeffs will address that.

I'll shy away from giving the numbers today. I think the momentum that you see with the revenues and the fact that we're adding prescribers and that the starts are 20% plus higher than the previous quarters. Clearly suggests that the patient numbers are ramping very much in line with the numbers that Martine has articulated previously.

In terms of 1,000 patient adds per year, trying to achieve a target of 5,000 patients in five years. And getting to a certain dose threshold, which would then port to $1 billion product revenue opportunity. So I won't really talk too much about numbers, other than to say that we are very happy with the momentum and starts that we are seeing.

In the marketplace, as I said just recently, most of the patients are using the drug as three-times-a-day therapy, 75%. I think some of the bid, 25% uses legacy use from the clinical trials in, those patients that have carried over to commercial product.

In terms of use on or not on background therapy, we see both. Although the majority of patients that start Orenitram are on background therapy. Importantly, we don't promote it to that.

The label is specific for naive patients for monotherapy use. But prescribers seem to employ it as a follow-on sequential therapy to either one or two background therapies, and payers are not reluctant to pay for that in that setting. So it has not been a hindrance in any respect him in terms of either use or payment for that use.

Arshad Haider, RBC.

RBC? I think next question.

James Wang, ARK Investment.

Hello, thanks for the question, Martine. Question on the long-term. You've talked about the organ transplantation business. We've talked to some people in the field and they are saying that the economics of that business isn't very good. Transplantation centers are closing supposedly, and the economics of just doing transplants isn't very good. I guess could you talk a little bit about the revision of how that business was born? What's the infrastructure around the clinics, and what kind of business model you expect? Thank you.

The organ transplantation business is addressing just a really tiny, tiny fraction of the need for treatment of end-stage organ disease. And I'll speak about end-stage lung disease, in particular, because that's our focus as a pulmonary company.

For example, roughly 250,000 Americans die each year of end-stage lung disease, not counting those with lung cancer. And the number of lung transplants that can be done each year is about 2,000, and that's been pretty static over the past decade or two. So as you could see, the only 1% of the market demand is being satisfied.

The reason for this is because the only way that that market can be satisfied today is with a human organ transplants. And as much as most of us know, that supply is very, very limited and very constrained in terms of ethical issues and things such as that. So it's not surprising to me vast centers would be closing, because the supply of transplantable organs is just tiny.

What United Therapeutics is working on is something quite different. We're working on manufactured organs. So being able to create a manufactured supply of organs, so that we could address a big chunk of that 0.25 million people a year who are dying from end-stage lung disease.

Foremost among them, the pulmonary hypertension patients. And I should point out that the vast majority of pulmonary hypertension patients succumb to their disease. Unfortunately, our treatments are not a cure, none of [actwohey's] treatments are a cure. Things that are not yet approved but around the corner like Selexipag is not a cure. So the patient has progressed through all of these treatments, and only a small fraction of them get a lung transplant.

So with manufactured organs, it will be possible to grow the market significantly. And you will definitely see a U-turn on the number of transplantation centers providing lung transplants once there is an ample supply of manufactured organs. Of course, it will take a few years to get there, and we're hoping to have our first clinical trial by the end of the decade. But once that's accomplished, each lung transplant would be able to save the health care system something on the order of $100,000 a year in ongoing healthcare costs.

That is, for example, around the typical cost of end-stage lung disease patient incurs. So at a value of around $100,000 per organ and at the level of the tens of thousands of organs that are needed, I think it is going to be a very robust business opportunity for sure. We have time for one last question.

Joseph Schwartz, Leerink.

Morning, everyone, this is Brett Larson in for Joe. Congrats on the great quarter. I recall on the last conference call, you spoke a bit about where your strategic acquisition investigations are going possibly in orphan conditions, particularly looking in pulmonary oncology. Just hoping you can give a brief update on any activities going on there. Thank you.

We'll have Roger wrap up the conference call with his response to that question. Thanks a lot.

Thanks for the question, Brett. So, consistent with what we said previously, the [search deal], the focus area in terms of what we're looking for, product acquisition. Certainly looking in the cardiopulmonary space, we're looking in the orphan run the unmet needs base, we're not trying to change who we are for sure.

Those opportunities, obviously, we are doing diligence on with great care and precision. We want to make sure that whatever we do that it would be the right size deal, the right synergy of deal if we did one, and have it compliment to what we currently do, and enjoy and not distract us from going forward with a very robust platform that we've talked about today. So again, actively engaged in looking at DD opportunities, but we're doing a carefully and thoughtfully.

Thank you very much, Roger. Thank you, everybody, for listening to our third quarter conference call. And, operator, you may wrap up the call.

Certainly. Thank you for your participation in today's United Therapeutics Corporation conference call. A rebroadcast will be available for replay for one week by dialing 1-855-859-2056, with international callers dialing 1-404-537-3406, and using access code 61710758.