United Therapeutics Corp (UTHR) 2016 Q2 法說會逐字稿

Good morning. My name is Andrea and I will be your conference operator today. At this time I would like to welcome everyone to United Therapeutics Corporation 2016 second-quarter financial results.

(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 no 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 releases, available on our website at www.unither.com.

Finally, please note that today's words 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, 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. I would like to welcome everybody to our second-quarter 2016 financial results conference call. I'm joined this morning by James Edgemond, or Chief Financial Officer. I will give a few introductory remarks and then open up the lines for questions directed either to James or myself.

For the introductory remarks, I'm going to hit on three main topics: products, profits, and pipeline. Let me start with profits. With regard to profits, the Company once again is reporting greater than 90% gross margin on revenues. Revenues have hit $412 million for the quarter. That puts us at a revenue run rate of greater than $1.6 billion per year and nicely on track for our goal of $2 billion per year by 2020. Profits have doubled this quarter from last year, or matching quarter. Now up over $200 million and are up 60% on a non-GAAP basis. When you take a look at earnings per share, things actually look even better, since as a result of our ongoing stock buyback our share count is now reduced to only 44 million shares, which is actually about the lowest number I can remember for quite a while.

Now let me turn to the products that are producing these very nice operating results. Our three treprostinil products: Remodulin, Tyvaso and Orenitram, all increased significantly from either last quarter or the matching quarter of last year. The warehousing effect of Uptravi, which I discussed last quarter, now mostly affects Orenitram because it is in the same oral class and more easily delayed for the duration of an Uptravi challenge.

Last quarter the warehousing effect affected Tyvaso because it is a more intensive therapy requiring patients to endure four times a day, two minutes of nebulization process. And it is, of course, quite reasonable that patients and their physicians hope that a new pill, Uptravi, could forestall their need for this intensive inhalation therapy. But that warehousing effect is already dissipating, as we are now actually getting double-digit Uptravi patients moving on to our treprostinil products.

This double-digit migration from Uptravi to our products is easily understood from Uptravi's FDA label. Their label shows that morbidity in Uptravi varies directly with time. In fact, by 36 months, nearly half of Uptravi patients have already experienced morbidity or mortality. The only logical choices for them are Tyvaso or Orenitram, and indeed Tyvaso has already rebounded from its warehousing effect low, and we expect Orenitram to rebound very shortly, as well.

Meanwhile our non-prostacyclin product, Adcirca, continues to grow smartly based on the ever greater awareness of the AMBITION morbidity/mortality study that showed Gilead's Letairis, when uniquely combined with our Adcirca, produced the same kind of morbidity reduction as Uptravi. Indeed, AMBITION six-minute walk results were even better than Uptravi. So what we are seeing, and we would expect more and more payers to in fact require Adcirca plus Letairis before permitting reimbursement on more expensive therapies, such as Uptravi.

With that overview of our major revenue-generating products, now let me turn to a discussion of products in our pipeline. We currently have 13 products in our pipeline, so I'm not going to be able to have time this morning to review all them. I will review a selection and invite you to attend our presentation at Wedbush Securities Healthcare Conference next month in New York for a fuller explanation of the whole pipeline.

The framework for understanding our pipeline is the five different kinds of pulmonary hypertension called Group 1, 2, 3, 4, and 5 PAH. Now each of these groups of PAH are different diseases requiring a different product profile. Group 1 PAH is the most well-known because it was the lowest hanging fruit with pressures in the pulmonary artery up over 10 times the normal level. So you could well imagine that if you had systolic or diastolic blood pressure 10 times the normal level, well, you wouldn't be listening to this conference call. But with such very, very high pressures, that was the low hanging fruit because it was most easily responsive to drugs.

However, Groups 2, 3, 4 and 5 represent many, many more patients than Group 1 PAH and those patients also have significantly elevated pulmonary pressures, generally two to three times normal levels, so still representing a major risk for death and disability among these patient groups. With UT's drugs in particular, and specifically Tyvaso and Orenitram, the Groups 2 through 5 PAH are readily amenable to clinical trial success just as Group 1 PAH was readily amenable to the first-generation drugs, such as Flolan, Remodulin and Bosentan.

So while there are over a dozen drugs approved work Group 1 PAH, including four of our drugs and several generic drugs, there are absolutely no drugs approved today for Group 2, 3, and 5 pulmonary hypertension. This is what we at United Therapeutics call a classic corridor of indifference, and we are running like hell down it. We are running like hell with three new clinical trials in Groups 2, 3 and 5 PAH. The clinical trial in Group 3 already enrolling patients in Phase 3, and Group 2 getting ready to enroll patients in Phase 3, and a Phase 2 trial about to start up in Group 5 PAH.

But we are also not leaving Group 1 PAH behind. Our implantable pump, which we call [Remo-think] just had a great FDA review meeting, and we feel we are on track for a launch in 2017, as reported previously. Our second-generation subcutaneous Remodulin product, which is based on a clinically superior drug delivery technology called acoustic wave sensing, has also passed, just this month, an excellent gating meeting at the FDA and is now firmly scheduled for FDA submission in early 2017. That is, in fact, about a year earlier than we originally planned when we scoped out this product.

We will also launch in 2017 a gene therapy trial for pulmonary hypertension called Sapphire based on our successful Phase 1 results. The Sapphire study is a Phase 2/3 combined study design that will enroll 60 patients and could result in a new clinical therapy to actually halt the progression of pulmonary hypertension.

I've probably have spoken enough about our pipeline without chewing up all you guys time, but I'll just mention that we have a new -- we have additional new clinical development efforts starting up in various GD2 antibody responsive cancers based on our dinutuximab platform. And in bronchopulmonary dysplasia, based on an [MCE] discovery from our regenerative med lab that has already shown very positive animal model results in this orphan indication, bronchopulmonary dysplasia, that also has no approved medicines from the FDA.

With those introductory remarks on profits, products and pipeline, I would like to ask the operator to please open the phone lines for any questions.

(Operator Instructions)

Terence Flynn, Goldman Sachs.

This is Amir [Sedontion] on for Terence. Thanks so much for taking the question. Just a couple for us. First, were no starts or discontinuations a bigger driver of the sequential down quarter for Orenitram?

I'm just going to have time for one question for you, my friend, because there is a long queue with other people with questions.

The trends are actually looking very good for all three of the treprostinil products. The Tyvaso is actually up from the previous quarter, and so the trends are looking very positive there. Orenitram, as mentioned, the main effect there is that there is constantly a flow of patients who fail what is now recommended as standard upfront therapy already Europe, and that is going to over into the US, which is the AMBITION protocol I mentioned in my introductory remarks. Of course, it is not a cure. It just slows the progression of morbidity and mortality results, so when patients begin to fail the upfront Letairis plus Adcirca therapy, they next go on and are -- would ordinarily move on to Orenitram and then Tyvaso and then ultimately Remodulin.

However, with the launch of Uptravi, it is natural for these patients to try an Uptravi challenge before moving on to the more intensive therapies. As you may know, Uptravi does not have to be dosed as frequently as a Orenitram is dosed in the majority of cases. And it also has the label of reporting a reduction mobility and mortality, whereas Orenitram's label, pending the outcome of the FREEDOM-EV study, still talks about exercise improvement.

So the delay that you see is this, sort of what I call, warehousing effect of patients waiting for that Uptravi challenge. For some other patients it will work for them, and that is great. For other of the patients it won't work for them. It will take a few months for that to be sorted out between successive doctor visit, and then they roll onto the Orenitram therapy.

Jessica Fye, JPMorgan.

I'll ask you about Tyvaso, just with that statement about Q2 sales rebounding after the first quarter. If April sales for $43 million, it would seem that May and June, on average, would have been in the low $30 million -- or a sequential decline off of April. Is there any other information you can give us to suggest that sales in the second half of the year will continue to recover for Tyvaso?

Thanks for you question. I think that sales will definitely continue to recover on Tyvaso. The fact of the matter is that the disease that we are talking about here is relentlessly progressive. There's -- between our efforts and those of Actelion and Gilead, Glaxo, we have done a really good job of moving the mean survival with Group 1 pulmonary hypertension from one to three years, which it was a few years ago, to five to 10 years. That is a really great thing, and I think we can all kind of pat ourselves on the back for that.

However, five to 10 years is -- looked at another way is frightening, especially when the average patient is a young woman. It's frightening, and what it means is that every year there are very large numbers of patients who are progressing through one medicine after another as their doctor tries to find one that will allow them to climb a few steps without running out of breath and go back to work and go back to school and all the normal life activities.

So once you get to the stage of needing Tyvaso, the disease is definitely showing signs of advancement to you. The only stage after Tyvaso is parenteral therapy, which means that you are walking around with a pump that is pumping medicine into your body 24-hours a day, 365 days a year. That's -- you are clearly getting toward a latter stage of the disease with something like that.

So there's just this continuous pouring of patients from the upfront oral med through Tyvaso and then on to the parenteral. And because this is relentless and never ceasing, we definitely do expect the Tyvaso patient count to increase through the balance of the year.

What has been novel in the first part of that year is that there has been a brand-new therapy and the first one in the prostacyclin class, other than Flolan and its generic competitors, that has a label that provides doctors some hope that you could actually forestall morbidity and mortality. As a result, patients who would otherwise be going on to Tyvaso are trying to give themselves a challenge with selexipag, or its brand-name Uptravi.

Now, for some patients the answer will be determined very quickly because they will -- won't tolerate the side effects of Uptravi. For other patients, may be able to be stable on Uptravi for years. But on average, in about 36 months and at a pretty steady rate of, roughly speaking, 10% to 15% per year and therefore roughly 1% of those patients a month, they are going to progress right through Uptravi.

And if they progress very, very rapidly and they have just gone really downhill on Uptravi, the doctor is going to have to skip over Tyvaso and put them directly onto Remodulin. If they have been progressing, maybe if not improving but not really getting worse, then the doctor will go ahead and say, let me maybe swap out Uptravi for Orenitram and see if we can get improvement. And if it is something in between, that is the optimal place for Tyvaso.

All of the demographic data, all of the population data of patients taking this pulmonary hypertension drugs, would tell you that Tyvaso definitely will continue to grow during the second half of this year.

Michael Yee, RBC Capital Markets.

This is (inaudible) on for Mike. You just mentioned the EV study. When is the Phase 3 FREEDOM-EV study reading out? Do you have more confidence in this study then THRIVE FREEDOM studies? Thank you.

Yes, very good question. We definitely, positively do have more confidence in the EV study them the FREEDOM study. That is because every study is designed with a pre-specified statistical analysis plan, and that tells you how you are going to power the study, what assumptions you are going to make with regard to hazard ratios and all those sorts of things that ends up with the end of the study.

Every time you do a previous study, you learn things and it makes your statistics that much more sharper and smarter for the subsequent study. So, the very first FREEDOM study was actually a monotherapy study, and then the second one, a combination study. EV is a combination study. We learned a lot of stuff from C2 -- FREEDOM C2, and that has allowed us to much more smartly set the bio statistical parameters for the EV study. Yes, we are much more confident.

In terms of when it will read out, it is a timed to clinical worsening type of study design, so there is no way to up priority, say like 12 weeks after the last patient. It won't be 12 weeks after last patient. But there are -- it's obviously blinded, so we don't know the details. What we have been aiming for was to be able to launch this new product -- which internal to UT, we call this Orenti-plus because the current Orenitram product is labeled for -- as monotherapy, whereas, the market is overwhelmingly a combination therapy market.

So we need to provide prescribers with data that shows that when you give Orenitram plus combination therapy, you get a superior result. Our goal has been to be able to launch this Orenti-plus therapy as early in this decade in the 20 teens as possible. Enrollment has been going very, very well. Once the enrollment is completed, which we will certainly announce to the Street, then it is going to be appeared of time to accrue the data for the time to clinical worsening.

I would say, based on other similar studies, that's likely to be 12 months, plus or minus, three to six months. If I can give that kind of a window. Then we are already -- by the way, as a further to your questionable confidence -- we are already, in parallel, putting together things for the regulatory filing for that. Ordinarily, a company will spend about a half year on the regulatory filing. And we have already been able to scrunch that time down to four months, and we're going to try hard to even scrunch it down a little bit better. So if you add up those numbers, you will see that with a positive result and positive FDA action, we should be able to launch this Orenti-plus product definitely in the 2018, 2019 time frame.

Liana Moussatos, Wedbush Securities.

What is the status of the DEKA pump program and the transplant organs?

Thank you, Liana. The DEKA pump program has moved better than anticipated. Just to get everybody on the same background, this is the product that I mentioned in my remarks, takes advantage of a clinically superior drug delivery technology called acoustic wave sensing. That entire knowledge is the most precise and most accurate way yet developed to dissipate a drug into the bloodstream. Of course, that is highly important when you are dealing with a drug like prostacyclin, which is so potent that it is actually dosed in nanograms per kilogram. That gives you an idea of how potent this drug is.

That technology allows us to ship to the patient disposable cartridges of the drug already in this acoustic wave sensing device. Then with a third-generation pump delivery system, we are able to make a major advance in convenience for the patients.

We actually just had a gating meeting, as I mentioned in my introductory remarks with the FDA this month. It was very successful, and everybody is queued up to make that submission to the agency for approval in the first half of 2017, which is actually about a year earlier than we thought might be the case based on some of our kind of worse case assumptions in terms of our drug development, stability, and so on. We are right now already moving the final products on to stability, so it is all going very well there.

On the organ transplantation, we have made some really nice breakthroughs. The genetically modified pigs that we use have established the world survival records in animal models for human transplantation with regard to the kidney, the heart, and the lungs, so we are very confident that we have got the best genetic modification platform.

With the support of our partner, Synthetic Genomics, we are now able to insert all of the genes that have worked so well super-cleanly using CRISPR technology. I think, really, during the balance of this decade, we will have completed everything necessary to commence the first human trials where the recipients can expect that they would have a durability of their xenograft that was on par and equivalent to the durability of an allograft. And we would not even try to do those trials unless we could show that comparability of survival.

Mark Schoenebaum, Evercore ISI.

This is Regina Grebla on for Mark. We though you looked great [RBC] the other day, and we are excited to hear more about your organ program. Just following up on the last caller's question, can you discuss some of the intellectual property challenges you may face going into the organ space and bringing it to market?

Yes. Generally speaking we really don't get into, on these conference calls and have not in the past, discussions of intellectual property strategy. It's a area that is very strategic, involves a lot of legal ins and outs. It is actually managed by a Chief Strategy Officer, so I'm not going to go into the ins and outs of IP. But suffice to say that when you make a new product, there are a lot of things to think about in terms of protecting its economic value to the stakeholders. IP is very important. Know how is very important. Show how is very important. Manufacturing facilities, GMP is very important, having facilities that pass FDA inspection very important.

Your question brings to mind that -- oh like a couple months ago, somebody asked me a question. They said, PayPal is coming out of North Carolina and somebody else was coming out of North Carolina. Is United Therapeutics coming our of North Carolina? I thought they were actually crazy because we have a beautiful $100 million pharmaceutical production plant in North Carolina that makes our pills that are taken by all of our patients.

This pharmaceutical plant has been inspected by the FDA and other regulatory agencies, passed all of its inspections with flying colors. It took years to build, and if you are in the pharmaceutical business, you can't just have a pop-up factory in some other state. It would be years to get another place approved by the FDA.

That just gives you an idea of all the different things that you have to think about to protect economic value in any product.

Geoff Meacham, Barclays.

This is Evan Siegerman on for Geoff. Thanks for taking my question. Just one on the gene therapy program, PAH. What did you see in the Phase 1 program that gave you confidence to potentially initiate the Sapphire 2/3 program, and what is the timing with the Sapphire Phase 2/3 program? Thank you.

Great. Good question. Operator, just as a queue up, we'll have one more question after this one.

What we saw was safety that every -- there were no untoward safety event, despite ramping up the gene therapy infusions starting at, I think, it was a quarter-million or a half-million cells and ramping it up to the many millions of cells. This is a autologous gene therapy treatment, so there is no viral vectors involved. It is using the patient's own cells, which are transected ex-vivo. And all that is then infused back into the patients, are their own cells with the corrected gene. In this case it is the eNOS gene. We saw beautiful safety, and in the animal trials, we have seen striking evidence of efficacy.

Based on that, we and the entire team and medical advisors, all feel confident going into this Phase 2 kind of adaptive trial design based on those results and the fact that these will be patients who are -- have already failed all of the previous approved drugs that are out there.

I forgot to mention one thing to the previous question. The study is queued up to start in the first half of 2017. We will need to accrue 60 patients. Since these are later-stage patients, it won't be necessarily the fastest accrual. Generally speaking for something like this you would give yourself at the outset a couple years for a accrual. It will be an exercise [sixatant] block end point, so there will be a very quick -- and once the last patient is enrolled and then with a positive results, we would file for approval from then.

Chris Shibutani, Cowen and Company.

We appreciate the pipeline updates. I wanted to pose my question to focus on Orenitram, which I think is still very much an investor focus. In the past you have talked about the Orenitram daily dose and the importance and challenge of getting patients up as they are titrating. Can you provide us with an update, as I believe you have previously, about Orenitram daily dose that you are seeing amongst one, current users, and number two, what you believe you are achieving in the FREEDOM-EV trial? Thank you.

Thanks for the question. Now that the product is launched and it is being used by literally hundreds of prescribers, we are not going to continue providing the type of detailed granularity of which particular dose each patients are at. You could back calculate to an estimate of that based on the reported Orenitram revenues and the reported AWP pricing for Orenitram, would all probably get you into a rough average of a middle of the range dosing that is pretty much in the 10 milligram range. It is not going to be really be meaningful, and I can't really be precise enough to give you any more granularity than that.

Overtime, there is no doubt that the -- any individual patient will go ahead and increase the amount that they are taking. However, you can't just jump and make a quick trendline from that because there is constantly new patients coming into the drug at the lower level. I can't provide you any insight at all with regard to what's going on in the blinded FREEDOM-EV trial.

I think the bottom line here is that if you were to make an estimate that the average Orenitram patient generates something like, today, on the order of maybe $125,000 a year in revenue. I think the average over the next five years is going to continue to creep up. I would not be at all be surprised if by the end of the decade the average was north of $175,000 per year because over time there will be more and more legacy patients on Orenitram and the number of newbies who is coming on it will represent an ever smaller fraction of the total amount.

Thank you, everybody, for really good questions. It was fun for me to have a chance to talk about that. From our strong profitability to the persistent demand of patients and physicians for our five approved products, and as well as the exciting potential of the 13 products in our pipeline, we at United Therapeutics are in a really good place, right now, in the middle of 2016.

We're looking forward to a continued future of growth not only in pulmonary hypertension Group 1, where we are already share leadership with Actelion, but in pulmonary hypertension Group 2 and 3, where there are no developments going on and Tyvaso is really the only uniquely situated product for Group 3. Then onward to pulmonary hypertension Group 5, which represents a very large unmet medical need that Orenitram is ideally situated to address.

Thank you so much, operator.

Thank you for participating 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 40900672.