United Therapeutics Corp (UTHR) 2018 Q1 法說會逐字稿

Good morning and welcome to the United Therapeutics Corporation First Quarter 2018 Earnings Call. My name is Ashley, and I will be your conference operator today. (Operator Instructions)

I would now like to turn the conference over to James Edgemond, Chief Financial Officer of United Therapeutics.

Good morning. It is my pleasure to welcome you to the United Therapeutics Corporation First Quarter 2018 Earnings Call. Accompanying me today on the call are Dr. Martine Rothblatt, our Chairman and Chief Executive Officer; and Mr. Michael Benkowitz, our President and Chief Operating Officer.

Remarks today will include forward-looking statements representing our expectations or beliefs regarding future events. These statements involve risks and uncertainties that may cause actual results to differ materially. Our latest SEC filings, including Form 10-K and 10-Q, contain additional information on these risks and uncertainties. We assume no obligation to update forward-looking statements.

Today's remarks may also include financial measures that are not prepared in accordance with U.S. Generally Accepted Accounting Principles. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures can be found on our earnings release available on our website at www.unither.com.

Today's remarks may discuss the progress and results of clinical trials or other developments with respect to our products. These remarks are intended to solely educate investors and are not intended to serve as the basis for medical decision making or to suggest that the products are safe and effective for any unapproved or investigational uses. Full prescribing information for the products is available on our website.

Now I want to turn the call over to Dr. Rothblatt for an overview of the first quarter 2018 business activity of United Therapeutics.

Thank you, James. Good morning, everyone. As James mentioned, I'm glad to also be joined on this earnings call for the first time, Mike Benkowitz, our President and Chief Operating Officer.

After my introductory remarks, we'll open up the call to any questions. And if there are questions of a financial nature, I will ask that they be answered by James, our CFO. If there are questions of a commercial nature, I'll ask that they be answered by Mike Benkowitz as our President. And if there are questions of a clinical development type of nature, then I will handle those myself.

Starting with our top line financial results. For the first quarter of 2018, our quarterly revenues totaled $389 million, an increase of 5% year-over-year. Orenitram posted a fourth consecutive quarter of greater than 20% revenue growth on a year-over-year basis. In addition, we continue to treat an increasing number of pulmonary arterial hypertension patients with our prostacyclin product franchise, which consists of Orenitram, Remodulin and Tyvaso, confirming our belief in the organic growth opportunity for these proven therapies.

The sequential drop in our total revenues from the fourth quarter of 2017 reflects consistent historical patterns as our first quarter revenues tend to be either down or virtually flat when compared to the prior year fourth quarter. This pattern reflects distributor purchases that are typically placed once a month based on current utilization trends and contractual minimum inventory requirements. As a result, quarterly sales of Remodulin, Tyvaso and Orenitram can vary depending on the timing and magnitude of these orders and do not precisely reflect changes in underlying patient demand.

So let's now transition to our pipeline, which currently has over 20 investigational programs, including therapies for PH and other forms of pulmonary hypertension, drug delivery devices, gene therapy, oncology and technologies to ultimately create an unlimited supply of tolerable, transplantable manufactured organs for those who suffer from end-stage organ disease.

The first of our near-term and medium-term pipeline products is the Implantable System for Remodulin, or ISR. Excitement and anticipation from both physicians and patients continues to build around potential FDA approval of the ISR. This should be a game-changing technology for PH patients, and we continue to believe that thousands of patients will eventually use the ISR.

I am reminded through videos and e-mails directly from ISR clinical trial patients of the numerous ways that the ISR has impacted their lives, even for some of the most basic activities that many of us just take for granted. Activities like sleeping, showering and swimming become more straightforward for patients using the ISR. The ISR also has the potential to address complications currently associated with the use of external microinfusion pumps, including the serious risk of external catheter-related infections, like sepsis, while returning to patients the lost several hours of pump management and therapy preparation time each day to productive use.

From a regulatory perspective, the FDA approved Medtronic's PMA for the ISR in December 2017, which is 1/2 of the regulatory process. We then resubmitted our NDA for use of Remodulin in the ISR, which has been accepted as a Class II resubmission for a 6-month review. We anticipate FDA action on our NDA by July 30, 2018.

Although no FDA process is free from doubt, we remain confident that the FDA will approve the ISR in 2018. We are approaching the ISR launch with our partner, Medtronic, with precision and care to ensure that implant surgeons, refill centers, reimbursement pathways and other healthcare service organizations are all in place and properly trained and ready for commercial launch by early 2019. Our expectation that it will be ultimately used by thousands of patients is a longer-term goal as launching a surgically impacted device needs to be done carefully, thoughtfully and systematically.

Yet another next-generation drug delivery system we are advancing is RemUnity, a small, lightweight external subcutaneous pump we are developing under an exclusive agreement with DEKA Research & Development Corp. The RemUnity system uses acoustic volume-sensing technology to deliver Remodulin with a high degree of precision, representing a significant advance in microinfusion technology. In February 2018, DEKA filed RemUnity with the FDA under a 510(k) submission that was accepted for review by the FDA.

Let me now provide you an update on 4 of our 7 ongoing Phase III clinical trials.

FREEDOM-EV. FREEDOM-EV is a Phase III clinical trial using Orenitram in combination with a single ETRA or PDE-5 background therapy for PAH WHO Group I patients. This trial has a primary endpoint of time to clinical worsening. FREEDOM-EV enrolled nearly 700 patients. And we have now accumulated enough events needed to meet the required 205 adjudicated clinical worsening events that's required to unblind the study, which are expecting to do later this year.

It is also worth noting that Orenitram is the only true oral prostacyclin analog which could be dosed to therapeutic benefit. Based on patient and physician feedback, I believe that we will see continued Orenitram growth, further accelerated in the event that a possible FREEDOM-EV readout, providing the Orenitram label with a morbidity, mortality endpoint supported by good clinical trial data in use of combination therapy.

Another major and exciting event we anticipate by year end 2018 is the unblinding of our BEAT combination therapy clinical trial for PAH WHO Group I patients. This is a unique clinical trial that has never been tried in PAH before combining Tyvaso, our inhaled treprostinil therapy to treat PAH where the alveoli meet the pulmonary arterials, with Tysuberprost, and orally administered therapy to treat PAH systemically, where the blood flows from the right side of the heart into the pulmonary arteries all the way down to the pulmonary arterials. Our data demonstrates that attacking the disease in these 2 different ways may yield better results. And similar to FREEDOM-EV, the BEAT clinical trial has a primary endpoint of time to clinical worsening.

To illustrate how we are endeavoring to create new Blue Ocean market opportunities in pulmonary hypertension WHO Group III, where we think we can have a significant and positive impact on patients with unmet medical needs, I would like to now discuss 2 additional Phase III clinical trials.

Our INCREASE trial is examining the effect of Tyvaso for WHO Group III PH associated with interstitial lung disease. Currently, this Phase III study is about 50% enrolled. There are no approved therapies for this indication. And in fact, systemic drugs like our own tablets and parenteral therapies, as well as those of our competitors, are contraindicated for this condition.

Next, I would like to move to another subset of WHO Group III PH associated with chronic obstructive pulmonary disease, or COPD, in our PERFECT Phase III clinical trial. No therapy has ever been approved by the FDA for pulmonary hypertension incident to so many of these COPD patients. And I really want to salute Dr. Waxman and his great team up at Boston who have brought this unmet medical need to our attention.

Finally, I would like to talk about UT's revenue growth strategy, particularly as we are facing increasing generic competition. As previously discussed, we expect our 2018 revenues to decrease compared to 2017 primarily due to the impact of anticipated generic competition for Adcirca beginning in mid-2018 as well as generic Remodulin, which could be launched as early as June '18. Our strategy to take advantage of the existing organic growth opportunity we have within the treated PAH patient with our existing prostacyclin product franchise including Remodulin, Tyvaso and Orenitram and to combine this with our new and improved formulations and delivery devices that I described earlier to enable us to resume revenue growth by the end of 2019.

Now I'd like to walk you through how we expect to drive this growth. First, we believe that Remodulin will continue to be a steady performer, but it will look very different from the Remodulin you see today. It will be delivered through multiple next-generation drug delivery systems intended to enhance safety, tolerability and convenience, including the ISR and RemUnity which I previously mentioned. In addition, we are developing RemoPro, a prodrug version of treprostinil expected to reduce or eliminate site pain associated with the subcutaneous Remodulin. We expect to file an IND for RemoPro later this year as we begin Phase I clinical studies.

On Monday, we also announced an agreement to acquire SteadyMed Limited. Assuming that deal closes later this year, their pipeline product, Trevyent, will sit well within UT's next generation of innovative drug-delivery systems for PAH patients.

Second, we will continue to believe in the organic growth opportunity of the treated PAH population, which we believe currently underutilizes prostacyclin therapy. Unlike other therapies on the market, UT's prostacyclin analogs can be titrated to therapeutic benefit as PAH progresses, therefore offering patients the opportunity to transition between Remodulin, Tyvaso and Orenitram as each contains the same proven active ingredient, treprostinil. This is our continuum of care advantage.

Third, we expect to grow through the introduction of new products and new indications. We currently have 6 Phase III studies in PH and 1 Phase III study in oncology. Let me itemize what these are. Two clinical trials, FREEDOM-EV and BEAT in PAH, are expected to unblinded in 2018. Three clinical trials, INCREASE, PERFECT and SOUTHPAW in PH, are currently enrolling patients and remain on track to launch commercially within the timelines currently provided in our website. These 3 clinical trials for PH are in indications which we do not have any approved therapies in place today. Three, our SAPPHIRE gene therapy study for PAH. And lastly, our DISTINCT study of dinutuximab in small cell lung cancer. These and other R&D programs are designed to provide revenue growth in the near and medium term while additional R&D programs are underway to develop technologies in organ manufacturing over the longer term.

In closing, at United Therapeutics, we are focused on the development and commercialization of innovative products to address the unmet medical needs of patients to deliver long-term revenue growth to our stakeholders. We continue to advance numerous pipeline priorities to help keep patients alive, and in effect, building bridges for them as we pursue new technologies to create an unlimited supply of tolerable, transplantable manufactured organs.

Thank you for joining us on the call today. Operator, I would like now to open the call to questions.

(Operator Instructions) Our first question comes from Terence Flynn of Goldman Sachs.

Martine, I think there was some new commentary in the Q about potential launch dynamics of the implantable pump. I think you're -- it sounds like Medtronics Limited do about 100 pumps out of the gates and then maybe making some improvements upon that. Can you give us a little bit more details about kind of the process, next steps and how to think about that ramp as we look into 2019 and beyond?

Yes, Terence. Good to actually hear you on the phone, so that's amazing. As far as the implantable pump program, I don't -- I wouldn't get hung up on any limits or I can't give credence to the numbers that you mentioned at all. What is the situation with the Medtronic pump is that we are awaiting approval of the second half of the NDA from the FDA. And we expect that we should have -- we should hear from the FDA by the end of July. Once that happens, Medtronic and us intend to roll out these pumps to every pulmonary hypertension patient that can benefit from it. And I do believe that, that number is in the thousands, and in the high thousands. The reason for that, Terence, is that the pump allows the treatment of the disease to be all but forgettable for the patients. There's nothing they have to do to prepare their infusions. They have no open wounds or painful marks on their skin. And the drug can automatically be delivered systemically, providing them an ideal sort of PK/PD situation on treprostinil. The physicians are very, very happy with the drug. The patients are very, very happy with the drug. Now there is a fair amount of intriguing research, although nothing that has ever been approved on a label, to show that the earlier you start treating a patient with a true prostacyclin, the longer the patient is going to live. And this data has been presented at medical conferences like the American Heart, American Thoracic Society, going back to the early 2000s. The problem, Terence, is that it's been so difficult to provide a patient continuously bioavailables, in other words, 0-order delivery, true prostacyclin that patients, instead of starting on it at the very beginning of their disease, they take it at the very end. And as we all know, when 1 or 2 leaves are maybe turning brown on a plant, you could do some nutrients and get it going again. But once the plant is on its last leg, it's very hard to do things to bring it back to being a fresh, green plant again. So the remarkable thing about the Implantable System for Remodulin is that physicians could prescribe this as a front line therapy for person that has pulmonary hypertension. And instead of a patient saying, "Oh, why do I have to be burdened with an indwelling Hickman catheter?" Or "Why do I have to be burdened with transcutaneous, transdermal site pain?" They won't have to ask those questions. It will be actually easier than the Adcirca pill that they would swallow. So it will become the easiest way to treat pulmonary hypertension. And at least from the study that was used for Flolan to be approved, a very, very potent and powerful study, drug when used earlier. As you know, in the Flolan study, it was actually shown to provide a (inaudible) benefit by starting the patients on Flolan. So we're really excited about that. I think the numbers of patients, I think I mentioned a couple of times, are going to be in the thousands. To give -- and actually, as I mentioned, I think we're probably looking at much closer to 10,000 than the number of patients that you see on parenteral drugs today which are in the low single digit thousands. And in fact, there are some physicians that we've been talking to that, if they went ahead and were to use this as front line therapy, as I've just sketched out, you would actually have something like 20,000, 30,000 patients on the Implantable System for Remodulin. As these patients live longer, that number would grow to 40,000 to 50,000 because the total prevalence of pulmonary hypertension would increase, given that the incidence is fairly constant. So this is a -- I think the word I used in my introductory remarks, this is a game-changer, Terence. And we at UT are really not hung up, we're not counting, we're not projecting what the number of patients are going to be quarter to quarter to quarter. We're committed to this program for the long haul, for the balance of the 2020s. And I personally am quite convinced that once approved by the FDA and opened up to the market, you will see high numbers of thousands of patients on this therapy. Thanks, Terence, for the question.

Our next question comes from Geoff Meacham of Barclays.

So let me ask you a question on Orenitram. When you look at the FREEDOM-EV study, it sounds like you have -- may have data by year end. What would you characterize as an incremental PH patient that could go on, assuming you have positive data? And is there a hurdle you think you have to hit in terms of time to worsening? Is it comparative to Actellion, or is it just a stat sig benefit?

Yes, thanks, Geoff. Great question. Because that's really a kind of a commercial operations question in terms of who would be the patients that would most likely form the growing number of Orenitram patients. As you heard, we're doing quarter after quarter after quarter of strong revenue growth on that, over 20% up every time year-over-year. But all that is great tribute to the med affairs and the reimbursement. There's global supply chain management. And last but not least, the sales and marketing force that is under Mike Benkowitz. So Mike, could you answer Geoff's question?

Sure. Thanks, Martine. Thanks for the question. Yes, I think the -- what we're seeing in the marketplace right now is the typical Orenitram patient tend to be your earlier-diagnosed patients or patients that are earlier on in their disease state because they need the time to start on therapy, titrate up. And what we have found is starting those patients earlier, when they have time to titrate up on therapy, they're able to manage the side effects better, and they just have, just generally, a better experience with the drug. And I think even without the clinical worsening label, we feel like we're getting a good share of those patients in relation to what J&J is seeing with Uptravi. I think the label -- the benefit of the clinical worsening label will put us on par with Uptravi, and I think, will allow us to capture even a greater portion of those patients because we'll now have the same clinical worsening benefit on our label in addition to being, really, a true prostacyclin. And then having the ability to put patients on that prostacyclin earlier, titrate them up, and then as Martine talked about in her comments, as the disease progresses, easily transition them over to Tyvaso or Remodulin as they continue in their disease.

Excellent, Mike. Excellent, excellent.

Our next question comes from Hartaj Singh of Oppenheimer.

Just -- I just want to see, Martine, if you could dig a little bit deeper into the scientific rationale going in Tyvaso in ILD and then also in COPD; and then Orenitram and the heart failure, the Phase III studies. I mean, what's the thought, the scientific sort of rationale behind, and the mechanism of action using treprostinil to go after these disorders?

Thank you, Hartaj. Great, great question. So let's talk about the science between -- behind the INCREASE and the PERFECT studies which are the ILD and COPD studies, respectively; and the science behind the SOUTHPAW study, which is the left heart failure study. So given the limitations on the time on the call, let me, in a sense, drop to one kind of bottom line, starting with the COPD and ILD. Treprostinil, Tyvaso is not on label for patients with these indications. And as you would expect, it's not an inexpensive therapy, and payers don't just, like, blindly push the pay button on Tyvaso. Every patient is carefully assessed by payers in ensuring that it's an appropriate patient that they're obligated to pay for and not an experimental patient. Having said that, both through the effort of our medical affairs group over the years in supporting investigator-sponsored studies and through the kindness and generosity of certain payers around the country who have gone ahead and upon the initiative of their physicians, were able to enable some WHO Group III patients to benefit, there were unmistakable signals the some of the leading physicians in this field. I called out one of them on the call, Dr. Waxman, but there are many others, who said to UT, "This drug works." In fact, they believe that this drug works even better in that indication than in the Group I indication in terms of, at least, the exercise ability that they saw in their patients, discounting any placebo effects that might be involved. So with that kind of data, some of which has been presented in posters and maybe even publications -- I don't know, but I've definitely seen posters, we went ahead and then had the statistics to power of the study for statistical significance, the one in the ILD population and the other in the COPD population, which are 2 distinct populations. I believe that when you take a look at animal models of pulmonary hypertension and even when you take a look at autopsy of pulmonary hypertensive lungs after they've -- autopsy is not the right word, sorry. Biopsied. Pulmonary hypertension lungs, after they've been ex-planted for a lung transplant, you could see that the disease has a unique, and I would say, worst-case phenotype in the pulmonary arterial immediately adjacent to the alveoli. And this is the part of the arterial that is being reached most densely by Tyvaso before it dissipates through the venous drainage and circulation. So we think that the triple properties that treprostinil and Tyvaso in particular are known for, namely the vasodilating, the de-platelet-ing, but most important of all, the cytoprotective property of prostacyclin is they will lead to stop a damaged phenotype from getting more damaged, and in fact, to mitigate against damage setting in, in an inflammation setting in the first place. This cytoprotective property for this kind of -- it's hard to imagine, but if you dive deep, deep, deep in the lungs, when you get, like, past 16, 17 branches and you're have at these 10-micron wide arterials that then wrap around the air sac or alveoli, those are the ones that spell doom for the patients with pulmonary hypertension secondary to ILD or COPD. And that's what Tyvaso directs itself to immediately. At the same time, because these patients have a great difficulty with ventilation due to these deteriorated arterials around their alveoli, if you go ahead and you just give -- you just take advantage of the anatropic properties of prostacyclin, mainly kind of making the heart pump stronger, then you get into this thing called perfusion ventilation mismatch or V/Q mismatch. And that, unfortunately, can lead to fatal events for the patient. So the strongest science here is really on the ability to help pulmonary hypertension patients who have COPD and ILD, so-called WHO Group III pulmonary hypertensions. They have some other distinctive characteristics. They're in the tens of thousands. They are not being treated for their pulmonary hypertension today. There's nothing on label for it. To be able to treat them with the only type of agent, an inhaled agent that can successfully treat them where they need the help the most and where it will not cause the devastating side effects of V/Q mismatch. Now turning over to the last part of your question, on SOUTHPAW, there are 2. Hartaj, it's gone back for -- actually for decades, that people thought treprostinil would be useful for left heart failure. And indeed, it was -- its very first trial was in congestive heart failure back when this was a molecule owned by Burroughs Wellcome. So what the problem is though is, to do a proper CHF trial, you're usually talking about thousands of patients, and it was tried just in a couple dozen patients. And it was a -- what we would call, I mean, if you wanted to map the word from cancer over to left heart failure, it was like a basket study. It was just everybody was thrown in there with no understanding of the distinctions among the patients. There has been opinions over the years, strengthened again with the same kind of evidence that I described for the PERFECT and INCREASE studies, that if you targeted just the subset of heart failure patients that had preserved ejection fraction, that the suite of properties associated with prostacyclin, I had mentioned the unique anatropic profile of this agent, would in fact be very, very helpful for these patients. And we were really blessed to be led in the area by a superb cardiologist with great experience, Dr. Mardi Gomberg. And she is the lead investigator for our SOUTHPAW study. And I think it has always been a strong property of prostacyclin to impact the heart. The problem is to do so in the way without making things worse and to do so in a way that it addresses a particular type of heart failures that the individual has. SOUTHPAW is -- I'm sorry, Orenitram, of course, is not any kind of a cure for heart failure per se. But if part of your heart failure is accompanied by HFpEF heart failure with preserved injection fraction, then we believe the data that led us to our hypothesis with HF, is that there is a significant likelihood that we can moderate the overall heart failure rate of decline by addressing the subset that has HFpEF. And so that's the group that we'll be targeting with this agent.

I'm being told that we have time for one more question.

Our last question comes from Liana Moussatos of Wedbush.

You mentioned that the DEKA pump has been accepted by the FDA, a 510(K). And when do you think you can get it approved? Last call, you said early 2019. Is it on track for that?

Thanks, Hartaj -- I mean, thanks, Liana. Sorry about that. Yes. So let me, like, back up. Whatever I said in the last call, I still think is good. So I'm not changing anything from the last call. The pump is a really fascinating piece of machinery, Liana. And the more I see it in operation, the more just kind of completely blown away I am by it. It's got virtually no moving parts. In fact, actually the pump itself has no moving parts. And I think it's a kind of like a Tesla of pumps. Like a regular car has something like thousands of moving parts, and a Tesla, I think they advertised it as 20 or 25 moving parts. So of course, regular infusion pumps don't have thousands of parts, but they got a lot of parts. And just ask the poor patients who have to put all the pieces together every day or 2 on their table, takes up like half a dining room table. But with the DEKA unity pump, there are no moving parts due to the inventive geniuses of those folks. So this is going to be a super cool device. Of course, we will ship it to the patient with the drug already supplied to eliminate the need for the patients to have any errors in the process of drug fill. And also to buy back for the patient a very, very valuable hours of their time, which is otherwise spent on refilling these pumps. We also have the rights, Liana, to use this pump technology for additional drugs for other [orphan] diseases. And we have now begun a program in Parkinson's disease based on using the same pump technology, the same pumps, actually. So it's really a super exciting program. Of course, and as I mentioned in my introductory remarks, nobody can predict the FDA exactly. And the FDA is going to make the decision. And I've been right sometimes, been wrong sometimes, I'm not going to -- like, I don't make any more bets on the these things. But I will say this, that you were looking at a sponsor, DEKA, that has successfully obtained FDA approvals for every product that they have taken through the FDA, including some truly revolutionary products, such as bioelectronic prosthetic arms, Class III medical devices. I mean, very, very challenging approval. Dialysis machines for Baxter, multiple generations of those. So this is an organization that definitely has, to my knowledge, 100% success record at the FDA. And I'm confident that they will take this through. And wow, these are not -- United Therapeutics also has 100% success record at the FDA, because Remodulin, Tyvaso, Orenitram, Unituxin. So I believe, between the 2 of us, I could not be more confident, Liana, that we will be able to successfully launch this RemUnity pump. Exactly which month, who knows? It's up to the FDA. But I stand by everything I've said before.

Thanks, Liana. And operator, if you could please do your wrap up comments.

Thank you for participating in today's United Therapeutics Corporation Conference Call. A rebroadcast will be available for replay for 1 week by dialing 1 (855) 859-2056, with international callers dialing 1 (404) 537-3406 and using access code 5778455.