United Therapeutics Corp (UTHR) 2016 Q3 法說會逐字稿

Good morning. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the United Therapeutics Corporation 2016 third-quarter financial results. (Operator Instructions)

Remarks today concerning United Therapeutics 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 Company website at www.unither.com.

Finally, please note that today's remarks may include reporting on the progress and results, 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 trials results. Anyone seeking information regarding the use 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, and good morning, everybody. I joined today by James Edgemond, our Chief Financial Officer. I will offer some brief introductory remarks and then turn over the call to questions that can be directed to James or myself.

This morning I would like to hit on four main topics: profits, products, pipeline and payers.

First, with regard to profits, we are once again in the 90%-plus range gross margin on our revenues, and in the past quarter, those revenues hit $408 million. That keeps us well above the $1.5 billion per year revenue run rate that was our goal for 2016, and it keeps us right on track for our goal of $2 billion per year by the end of the decade.

Profit comparisons with last year are a bit complicated by last year's extraordinary gain on the sale of our FDA voucher, but non-GAAP per diluted share profits are up 25% this year from the matching quarter last year.

I do expect substantial increases in R&D spending going forward as we have now grown our pipeline from one to six Phase III or registration design studies and have accelerated our drug device combination work in many ways.

Nevertheless, even with this heightened R&D spending, I am confident we will remain strong profitability -- we will maintain strong profitability.

Let me now turn to the second topic, products. Our treprostinil products -- Remodulin, Tyvaso and Orenitram -- fair differentially from the matching quarter last year with Orenitram growing 18%, Tyvaso dropping 16%, and Remodulin inching up a percent. These results reflect the ability of patients to remain on one or another of the ever-increasing number of oral therapies longer than in the past, hence the normal 25% annual patient attrition that we have long experienced with Tyvaso, due to disease progression, is no longer fully compensated for in real time with new starts from patients failing oral therapies.

Instead, patient failures on Opsumit, for example, of about 15% a year for their label, they first go to Uptravi and then to Orenitram or vice versa before ending up on Tyvaso or Remodulin. However, the more patients who are on oral drugs for a longer period of time ultimately just means that there will be even more patients on Tyvaso and Remodulin.

The dip in Tyvaso revenues is also transient because we have two Phase III trials underway that will result in a substantial growth well beyond its current level of sales and beyond what will arise from the backlog of patients now cycling through oral therapies. The first Phase III trial involving Tyvaso is BEAT, which is now over 80% enrolled and is designed to double the average time patients are on Tyvaso by combining it with a supoprost, which is the most diverse prostacyclin receptor-activating agent based on the in vitro studies.

The second Phase III trial is INCREASE, which is designed for the blue water market of WHO Group III pulmonary hypertension, which has some 35,000 patients with pulmonary hypertension associated with emphysema and pulmonary fibrosis. So by keeping patients on Tyvaso much longer, even after they fail oral therapies and by bringing tens of thousands of new patients to Tyvaso, we expect its peak revenues to rebound to well above current levels.

On top of these resources of Tyvaso growth, the grown backlog of Tyvaso patients who are now being managed on the oral drugs will almost all eventually end up on Tyvaso and/or Remodulin. So there is a big increase in Tyvaso patients coming.

Let me also mention that the IP situation on Tyvaso is very strong. We have patent protection out to the late 2020s -- in fact, 2028, in particular. While companies may try to attack these patents, I think they will have little chance of defeating multiple patterns, as well as a drug approval that is tied to a particular and quite unique device of which we are the only manufacturer.

Now let me turn to Orenitram. We also expect continued growth in Orenitram as patients fail ETRA and PD5 therapies, either before trying [Abtrabe] or after failing Abrabe.

In addition, we expect this growth to be further accelerated with each of the four upcoming events: one, results of the Freedom-Ev trial demonstrated morbidity, mortality benefits of Orenitram; two, results of the new [TAHL] study demonstrating the benefit of Orenitram above and beyond Tadalafil and Ambrisentan; three, results of the SOUTHPAW study demonstrating the benefits of Orenitram for Group 2 pulmonary hypertension patients; and, four, results of the IRON study demonstrating the benefits for Orenitram for Group 5 pulmonary hypertension patients. These four Orenitram acceleration events will incur at a rate of one about every 12 to 24 months for the next five years of growth.

And as a further bonus, Orenitram is protected by nine Orange Book patents going out to 2031. Here is an interesting little factoid. The average number of patents that protect an approved drug is about three with the median being even lower, about two. So Orenitram is about 3 times to 4 times the number of Orange Book patents protecting it as the average in our industry.

But it only takes one patent to protect you. And I think of these nine Orange Book patents on Orenitram as the nine lives of Orenitram, and we are still on just our first life.

Meanwhile, our non-prostacyclin product, Adcirca, continues to grow smartly, based on the results of the AMBITION morbidity/mortality study that showed Ambrisentan when combined with our drug Adcirca produces the same kind of reduction in morbidity as does [Aprave] but at a much lower price. We would expect more and more payers to retry our Ambrisentan and Adcirca therapy before permitting patients to be reimbursed on more expensive therapies.

This also has a temporary effect, by the way, of diminishing the flow of patients on to Tyvaso or Remodulin, as mentioned earlier. But, as we have seen this quarter, the total volume of PAH patients ultimately needing Tyvaso and Remodulin remains the same. They are just right-shifted in time as a swelling backflow of patients ultimately progress through their oral medications -- and the vast majority of these patients do -- we expect to see them treated with Tyvaso and Remodulin as there are no alternatives with anything near the market share of Tyvaso and Remodulin.

Indeed, with our planned Tysuberprost study (inaudible) product in Phase III and our RepoSynch product queued for funding 2017 approval, the Tyvaso and Remodulin alternatives and follow-ons to oral therapies will be better than ever.

We've spoken quite a bit about our products. Now let me turn to our pipeline. We now have six products in our Phase III or registration study pipeline, plus several more in Phase II or earlier stages. The Phase III products not discussed earlier in my intro include Arinoleft] for WHO Group 2 pulmonary hypertension, specifically [hep/pev]; [Arinocel] for WHO Group 5 pulmonary hypertension, specifically pulmonary hypertension associated with sickle cell disease. If our SOUTHPAW and IRONS studies for Group 2 and Group 5 pulmonary hypertension, respectfully, are successful, these would be the first two drugs ever approved for those indications.

Next quarter, we will also commence enrollment of our SAPPHIRE study of eNOS gene therapy for Group 1 pulmonary hypertension, and we will commence enrollment of our accelerated approval study of dinutuximab for small cell lung cancer.

Following on the small cell lung cancer development in our pipeline will be registration studies of dinutuximab for several other poorly treated GD2-expressing cancers such as ovarian cancer and several sarcomas.

Our pipeline also includes several novel drug device combination products such as the RemoSynch implantable pump systems, which now has a PDUFA countdown to April 10 of next year, and the RemUnity disposable pump system, which is on schedule for 2018 approval.

We have also continued to rapidly progress our pain-free transdermal Remodulin prodrug system called RemoPro and remain on schedule to launch that product by the end of 2019.

Let me wrap up the introduction with a word or two about payers. While we have long given our drugs for free to anyone who could not pay for them, the number of patients receiving our drugs for free does not exceed 5% of the total patient count. We believe the reason for this is that we have excellent relations with payers, and we expect this to carry over to the launch of generics in the coming years.

For example, payers appreciate the fact that we have imposed no Remodulin price increases upon them at all for over five years, as compared to the generic companies that we have recently read about in the news who jack up their prices after offering initial discounts. Payers have been well educated by physicians that there are numerous medically important reasons to reimburse Remodulin as prescribed for the fragile Class III and Class IV New York Heart Association patients for whom it is their last resort before lung transplant. Hence, we remain confident that Remodulin and Tyvaso sales will continue to grow even if generic products are launched.

Operator, you may please open the phone for questions.

(Operator Instructions) Geoff Meacham, Barclays.

This is Evan Siegerman on for Geoff. Thanks for taking my question. My question focuses on the RemoSynch with the PDUFA in April. Is this PDUFA date specifically for your drug component of the device, or is it the drug device component, and what have you been doing to prepare for the launch of this to make sure that the patients are able to get it as soon as it launches? Thank you.

Yes. Great question. So, first of all, that April 10th PDUFA date would be for that Medtronic catheter, which is necessary for the RemoSynch system to work, and there are two possibilities in terms of what would be the approval date for the drug device combination, which would be our NDA would be a drug device combination and the FDA did specifically want it to be an NDA.

So the first possibility is, during the six-month review period of the Medtronic catheter, the FDA will ask us to allow us to complete the information that they requested in the Complete Response Letter so that at the same day that they approve the Medtronic catheter, that at the same time we could get the approval of the NDA for the RemoSynch drug device combination. And that would be the result of discussions between the FDA staff and our Company. I have no insight into whether that pathway would be successful or not. It clearly has the advantage of simplicity reducing some drag on the FDA's time and simplicity for people and the patients being able to get the implantable pump sooner than otherwise.

However, if that pathway does not occur, then what ends up happening is after the Medtronic PMA is approved on their catheter, then we have a 60 days period for the FDA to review our resubmitted NDA with the benefit based on the approved PMA for Medtronic, and that doesn't require a whole six months PDUFA date. That is a type of response. I'm sorry. I always get them mixed up whether it is type 1 or type 2, but it is one of those two type 1/type 2 things that suggests a 60-day turnaround. And so like the outset of planning dates for our launch of the RemoSynch system is June 10. And it is -- I would say -- maybe I will push that until the end of June because, if the Medtronic PMA is approved on April 10, then we would be like a week or two to just wrap all that information into our resubmission of the NDA of the Complete Response information. So maybe it would be 60 days from the end of April.

But, in any event, it is looking stronger than ever and better than ever now for being able to launch the RemoSynch system in the first half of 2017.

Now, what we have done is we have done a lot of interesting restructuring of our sales and marketing forces. You may recall previously we had two differently branded sales teams, one biotechnology sales team and a United Therapeutics branded sales team. Now we just have one single United Therapeutics branded sales team that provides physicians with a complete continuum of care package starting with Adcirca, Orenitram and then Tyvaso and Remodulin. So I am creating this much more streamlined comprehensive sales force.

We were also able to develop a kind of an early entry sales team to prepare the market for our next products, which are right around the corner. As you heard in my opening remarks, we have got quite a number of products in our pipeline, and we expect every 12 to 24 months there to be additional launches, either of new labels or new products that will affect us. So this new team is specifically focused on preparing for rapid launches of all new products, and they consist of some of the best and most experienced people we have.

So there will be a very rapid launch on RemoSynch.

Now, I myself was, frankly, a little bit pleasantly surprised in speaking with physicians. I thought like if a patient -- I thought it would be mostly like new patients going on RemoSynch, and the ones that were already on the ex-vivo pump system that we have today would kind of stay with what they are because the patients are very fragile. And I always hear so much that nobody wants to change the therapy. And any way, you don't want to touch and mess around with what is not broken.

However, the way the physicians that I have all spoken with look at it is different for RemoSynch. They feel that, first of all, it is the exact same drug, Remodulin, and the safety record on RemoSynch is extraordinary. We beat our P value on safety by more than the order of magnitude.

So the benefits to the patients are huge in terms of their quality of life and stuff like that. As I mentioned in my introductory remarks, unfortunately pulmonary hypertension right now is an insidiously progressive disease. We're doing everything we can to come up with new cures like our gene therapy and whatnot. But right now, it is progressive. And so when you are on your last line of therapy, you want that experience to be as good as possible, and the implantable experience is far and above superior to having a pump and a catheter dangling outside of your body.

So their attitude is actually to call patients in and offer to transition them from the ex-vivo system to the implantable system. And, in addition, the newly -- the patients who are newly failing the oral therapies would -- I thought that they would actually -- first, that they would just go right to the RemoSynch, but actually they will start on Remodulin ex-vivo for a short period of time just to make sure that that patient has no intolerance to Remodulin as a drug. And then after a period of maybe anywhere from a week to two months, they would be moved on to the implantable system. So the ex-in vivo Remodulin system has a very important role to play as a bridge to the RemoSynch system, I think for many years into the future.

Next question?

Liana Moussatos, Wedbush.

Thank you for taking my question. Will we start seeing data from the new pipeline for dinutuximab? And for the Groups 2, 3 and 5 pulmonary hypertension, will data releases started in 2018 or 2019?

Yes, I'll pause my pipeline chart here to give you the answer to that, Liana.

So, I believe that the data on dinutuximab would start being visible in 2018, and we would likely be getting to having some sub-study and adaptive subgroup data available on SOUTHPAW in 2019. So, I think you're correct.

Jessica Fye, JPMorgan.

Thanks for taking my question. I guess, with more patients on oral prostacyclins for a longer period of time, as you've sort of indicated in your prepared remarks, is it possible that once they progress, those patients could end up skipping Tyvaso and go straight on to Remodulin? I.e., is it possible that that group you're describing as a Tyvaso backlog could be more of a Remodulin or a RemoSynch kind of backlog? And how should we think about the timeframe within which this backlog will start kind of flowing back through the numbers? Thank you.

Yes, very great questions. So, in the first population -- and every patient's got a diverse history with the disease -- I think there will be patients that will skip over Tyvaso. And I think there will be other patients that will do everything they can to basically resist going on, quote-unquote, the puck, whether it's implantable or otherwise. The backlog is large enough that it's going to portend significant growth for both Tyvaso and for Remodulin.

Historically, about half of the patients have gone from orals directly to Remodulin, and about half the patients have gone from oral to Tyvaso. So now that you've got this ballooning number of patients who are cycling through the orals, I think you're going to see the same experience of half of them going to one and half of them going to the other.

Next question?

John Scotti, Evercore ISI.

This is Regina Grebla on for John. So, I had a question here. Your 10-Q now lists a Phase III for treprostinil in liver transplant patients. Can you give us a little bit more color on this program? And we know you're working on organ manufacturing, so should we assume that your Phase III now ties into your organ program? Thank you.

Yes, very good question. We do have an additional Phase III development of treprostinil in liver transplants, and that's followed from a Phase II study that we completed, oh, about a year and a half ago or so. That was a single-center study up at University of Pittsburgh Medical Center, and the results were very encouraging, with the role of prostacyclin being one that seems to mitigate against the reperfusion injury, which is frequently a cause of a worse outcome in liver transplant.

So, our decision to move forward on R&D spending on that into the Phase III is, indeed, as you said, justified by our growing footprint in transplant. I didn't mention it as one of the fixed Phase III trials upfront because we kind of break our work down to material and nonmaterial programs and because the patients who would use Remodulin in a transplant setting will use it transiently, maybe like a week of drugs, something like that.

It is not going to end up being a material contributor to revenues as an indication per se, but what it does do is it further expands the United Therapeutics footprint in the transplant groups at each of the major medical centers who are also very much the same groups that we work with for our ex-vivo lung perfusion products where we are able to take lungs and through our strategic investment in TransMedics kidneys and hearts as well and provide marginal organs that are not immediately transplantable with a period of ex-vivo perfusion. And then the data has shown and been peer-reviewed published that with just four hours of ex-vivo perfusion, about half the time organs that are not good enough for transplant are good enough for transplant. And the one year of survival date data on those patients has been indistinguishable from organs that do not go through ex-vivo perfusion.

So, yes, it is all part of this strategic placement of resources of United Therapeutics into the transplantation stage, which we would hope to be a material revenue contributor in the 2020s.

Next question?

Chris Shibutani, Cowen and Company.

Three quick questions, if I could. You mentioned in your prepared remarks about R&D expenses. Obviously, we have kind of pushes and pulls with the Freedom-Ev study continuing but expected to wrap up within many of the pipeline efforts. Can you give us some sense for the scale in the step-up that you are describing?

Second question would be on the pump itself, recognizing that Medtronic's pump business is currently under consent decree. Can you confirm that this consent decree would need to be released in order for the implantable pump to become commercially available or not? Thank you.

Okay. So let's see if I got it all. Let me go over in reverse order. So, first of all, the consent decree does not need to be released in order for the implantable pump to be approved and for our RemoSynch product. So unambiguous does not. Pretty much one thing has nothing to do with the other. And it simply relates to procedures within Medtronic for releasing of pumps to patients, but does not affect the regulatory approval process at all.

I think the next question was, if I could give you some kind of gauge of the increase in R&D spending based on --

Magnitude and trajectory, yes, of the R&D based upon everything you described at Science Day and pushes and pulls with Freedom-Ev ramping up.

Yes. I appreciate the question, but I'm going to kind of stick with my introductory remarks that R&D spending is going to increase. We have gone from one Phase III study to six Phase III studies. And we have gone kind of from one drug device development to multiple drug device combination developments are being accelerated in different ways. So I am absolutely positive that the increase in R&D spending will not impact upon United Therapeutics being a very, very profitable company.

Next question?

Terence Flynn, Goldman Sachs.

This is Samir on for Terence. Thanks very much for taking the question. Just one question from the 10-Q. Can you offer any additional details on why you think the launch of Steadymed's Trevyent could prevent you from launching RemUnity or RemoSynch, or did we incorrectly interpret that language? Thanks so much.

Well, I think you probably read it in the risk factors where pretty much every possibility in the world is listed. But there is a point of view -- and I will just call it a point of view; it is not one that I subscribe to -- that the Steadymed product, if approved by the FDA, because of its orphan drug designation status, would impede our ability to offer the RemUnity product. But so that is a point of view, so we have got to disclose it in the risk factors.

I personally think it makes no sense that the two technologies are extremely different, and I mean different like day and night. At the Science Day, you heard -- I think you and I met each other there. You heard some of the scientific presentations on why we are very skeptical that the Steadymed product will offer any relief from pain associated with the transdermal pain associated with the treprostinil molecule.

There is one technology that Steadymed uses for their device. The RemUnity product uses an entirely different technology. The acoustic wave sensing technology is a fundamental breakthrough in continuous drug delivery technology by the genius Dean Kamen, who has been investing in this field since auto-eject in the 1980s and the MiniMed and then the Medtronic and now this next quantum leap with the acoustic wave sensing technology.

So I think that the therapeutic and clinical advantages of the two technologies and their side effects profile are so different -- as different as night and day -- that this is not at all what the Orphan Drug Act was intended to block. What the Orphan Drug Act was intended to block is basically a generic company coming in with a copy of something that an innovator worked very hard to get approved for an orphan population. And that if it did not stop somebody else coming in with a different drug, even a slightly different drug, even a slightly different delivered version of the same drug for that same orphan indication. So the Orphan Drug Act is a ramp-up. It is not a blockade, and I think it would be very odd and highly unlikely for it to be used as a blockade in this case.

We have time, operator, for one last question.

Michael Yee, RBC Capital Markets.

This is [Edwin] on for Mike. Thanks for taking my questions. Could you please spare some details of the FDA [CIO]? You received response on (inaudible) and anything else do you need to address other than the pump approval? Can you respond the NDA after April 2017, is that right? Similarly, how about the development and timeline of (inaudible)? What is the differentiation from the PMA pump from Medtronic? Thank you.

Thank you for your questions. So the answer to the first question is that there is nothing else that will be needed for full approval and commercial launch of the RemoSynch product following on the April PDUFA of the PMA from Medtronic, the catheter and then the drug device combination NDA approval for United Therapeutics, which simply involves responding to the Complete Response Letter, the main point of which was that first they had to approve the Medtronic catheter before they could approve our drug in combination with the catheter. That would be a type 2 response, which is just 60 days after April. So pretty much the outside date we are looking at is the end of June, and there is kind of a best case that we could get everything approved at the same time in middle of April. But that is it. No other approval is needed for RemoSynch.

With regard to the DEKA technology, I mentioned in my last call that we have accelerated the number of different elements of that. And without delving into proprietary details, I will say that we are doing everything necessary to secure a launch of that product in 2018. And I think we have multiple parallel avenues to ensure that has the highest probability of occurring launching after 2018.

And then, just so people don't get confused, there has been a next generation version of that DEKA pump with a next generation version of the treprostinil molecule, which we call RemoPro. And this is a version of the treprostinil molecule that impedes the portions of the molecule that causes pain in the transdermal tissue. And then, those additional atoms that we wrap around parts of the molecule that blocks the pain activation, they are then rapidly metabolized in this serum. So once that molecule gets into the bloodstream, it looks just like plain old matched treprostinil. And we feel confident that we will be able to work that approval on the basis of a pharmacokinetic bioequivalent just as we got approval for intravenous Remodulin and the bioequivalence through compared to the subcutaneous Remodulin. And that program is on track for 2019 approval.

So there is drug device approvals that we are looking at every year -- 2017, 2018, 2019 -- each one welcoming more and more patients than from this large backlog of patients we expect to be failing the oral therapies.

All right, everybody. Well, thank you very much for participating in our conference call this morning. James and I will be -- next healthcare conference will be at JPMorgan, and we look forward to seeing many of you there.

Operator, you can wrap up the call.

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 94365649.

Thank you. You may now disconnect.