United Therapeutics Corp (UTHR) 2018 Q2 法說會逐字稿

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

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

Good morning. It is my pleasure to welcome you to the United Therapeutics Corporation Second Quarter 2018 Earnings Call.

Accompanying me on today's call are Dr. Martine Rothblatt, our Chairman and Chief Executive Officer; Mr. Michael Benkowitz, our President and Chief Operating Officer; and Mr. Andy Fisher, Deputy General Counsel.

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 were 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 in 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 solely to educate investors and are not intended to serve as the basis for medical decision-making or to suggest that any products are safe and effective for any unapproved or investigational uses. Full prescribing information for the products is available on our website.

Now, I will turn the call over to Dr. Rothblatt for an overview of our second quarter 2018 financial results and the business activities of United Therapeutics.

Good morning, and thank you for joining us today for our second quarter 2018 earnings call.

I will discuss the following topics: first, I will provide an overview of our quarterly financial results. Second, I will outline why we believe that long-term Remodulin revenues will continue to grow even as generic formulations are expected to become commercially available later this year. And last, I'll provide an update on several of our pipeline of products supporting United Therapeutics' long-term revenue growth strategy, and conclude my prepared remarks with an update on our merger agreement with SteadyMed.

Starting with our top line financial results. For the second quarter of 2018, our revenues totaled $444 million. And revenues earned from our prostacyclin product franchise, which consists of Orenitram, Remodulin and Tyvaso, grew slightly as compared with the previous year.

However, we are treating a larger number of pulmonary arterial hypertension patients with our prostacyclin product franchise, confirming our belief in the organic growth opportunity within the treated PAH population, which we believe under -- underutilize this prostacyclin therapy.

Our revenues increased $55 million or 14% over the first quarter of 2018, and the sequential growth reflects consistent historical distributive purchasing patterns as our second quarter revenues tend to be higher when compared to the first quarter.

In addition, during the second quarter of 2018, Adcirca revenues posted a sequential increase of $12 million or 13% when compared to the first quarter of this year.

Adcirca did experience loss of exclusivity in May of this year, at which time we expected generic competition to enter the market and significantly reduce our granted Adcirca revenue.

Although we still expect the generic formulation of Adcirca to be launched this year, we are uncertain as to exactly when that generic competition will enter the market.

Next, I will outline why we believe that long-term branded Remodulin revenues will continue to grow in the face of generics. As background, and for those of you who are new to the UT story, we still anticipate the launch of a generic formulation of Remodulin this year based on our settlements with 4 generic companies. Under the terms of these settlements, the first generic formulation was permitted to enter the market over a month ago. To our knowledge, that generic formulation has not yet launched.

Even though a generic formulation of Remodulin will eventually enter the market, we continue to believe that Remodulin revenues will increase along with the size of the recent -- of the treated PAH population.

Future growth will be supported by the recognized proven qualities and defining characteristics of branded Remodulin, which include, number one, an established safety profile and supply chain reliability. Subcutaneous Remodulin was first approved by the FDA in 2002, and we have over 15 years of experience safely treating thousands of fragile PAH patients.

We believe that prescribing physicians will continue to recognize and appreciate our established track record in consistent supply chain availability, and will, therefore, continue writing prescriptions for branded Remodulin to be dispensed as written, DAW, for both existing and newly diagnosed PAH patients.

Number two, our Remodulin patient support services. UT will continue to provide support for branded Remodulin patients, which includes our premix program, specifically for IV patients, which allows these patients and their caregivers to save up to approximately 2 hours per week in mixing and therapy preparation time. These services further support those PH patients with dexterity issues, such as scleredema patients. And also, our training to hospitals, specialty pharmacy nurses and technicians on how to administer Remodulin.

We are not expecting generic manufacturers of Remodulin to offer these -- this same level of patient support.

Number three, physicians and payers have not historically encouraged substitution of existing lower-cost PH parenteral alternative. Remodulin has competed for over 7 years with 3 other forms of parenteral therapy to treat PH, all of which are significantly cheaper than branded Remodulin.

Despite the availability of the other lower-priced therapies, we have seen little evidence that physicians and payers will mandate or even encourage switching from branded Remodulin to a cheaper PH parenteral therapy.

Number four, Remodulin will remain a highly differentiated product. We believe that branded Remodulin use will continue to grow. But it'll look very different from today's Remodulin. It will be delivered through multiple next-generation drug delivery systems intended to enhance safety, tolerability and convenience for our patients, including the Implantable System for Remodulin, or ISR, and RemUnity.

Our settlement agreements with generic manufacturers do not grant them the right to market their generic formulations of Remodulin in these next-generation drug delivery systems. And per our agreement with DEKA Research & Development Corporation, only branded Remodulin may be used in the RemUnity pump, which DEKA is developing for us.

These key reasons allow us to remain confident that even as generic formulations of Remodulin eventually enter the market, our long-term branded Remodulin revenues will continue to increase.

Let's now transition to our product pipeline, which currently consists of numerous investigational programs, including therapies for PAH and other forms of pulmonary hypertension, innovative drug delivery devices, gene therapy and oncology.

We are also continuing to work on technology to ultimately create an unlimited supply of tolerable, transplantable manufactured organs for those who suffer from end-stage organ disease.

I want to provide you with an update on several of our near-term pipeline products and business development opportunities that all support our long-term revenue growth strategy.

First, just yesterday, we announced the approval by the FDA of the Implantable System for Remodulin, ISR. And together with our partner, Medtronic, we look forward to bringing to patients a new option for delivery of intravenous Remodulin.

To my knowledge, this is the first implantable pump approved by the FDA to meet -- to treat cardiovascular disease. The ISR is expected to be a game-changing technology for PH patients. And we continue to believe that thousands of patients will eventually use the ISR, given its potential to provide systemic [propriospinal] without prior passage through the gastrointestinal tract and without the complications currently associated with the use of external micro-infusion pumps.

We are approaching the ISR launch along with our partner Medtronic with precision and care to ensure that implant surgeons, refill centers, reimbursement pathways and other healthcare service organizations are all properly trained and ready for commercial launch by early 2019, which is consistent with our prior expectations.

As I previously mentioned, our belief that the ISR will ultimately be used by thousands of patients as a medium-term goal as launching a surgically implanted periodically refill, the pipe needs to be done with greater-than-customary care with good caution and strict coordination with multiple participating organizations.

Two, another next-generation drug delivery system we are advancing is RemUnity, a small lightweight external subcutaneous pump that we are developing under an exclusive agreement with DEKA.

In February 2018, DEKA filed RemUnity with the FDA under a 510(k) submission that was accepted for review by the FDA. DEKA has been engaged in productive discussions directly with the FDA, and we will provide you future updates as we learn more.

In addition to these drug delivery devices, let me update you on our 7 ongoing Phase III clinical trials.

We have 2 Phase III clinical trials in PAH, FREEDOM-EV and BEAT, and are still expected to unblind in the near-term time frame.

FREEDOM-EV is the study of Orenitram in combination with other therapies in treating PAH. BEAT is the study of 2 drugs in combination, Tyvaso, an inhaled prostacyclin analogue and esuberaprost, an all prostacyclin analogue. This study represents a novel approach to treating PAH with the delivery of prostacyclin therapy for both the airway side, using Tyvaso, and systemically using esuberaprost.

If both of these clinical trials are successful, we will have 2 therapies to address morbidity and mortality in PAH and potentially extend survival for PH patients.

We expect this to result in a greater number of patients living longer and receiving our therapies, further supporting our long-term revenue growth.

And then we have 3 clinical trials in just pulmonary hypertension, which includes INCREASE, PERFECT and SOUTHPAW, and all 3 of these are currently enrolling patients.

In fact, the INCREASE clinical trial is now over 50% enrolled. These 3 clinical trials are for pulmonary hypertension indications that do not have any FDA-approved therapies, with patient population significantly larger than the current estimated treated PAH population of only 40,000 patients in the U.S.

Lastly, our SAPPHIRE gene therapy clinical trial for pulmonary arterial hypertension and our distinct clinical trial of dinutuximab for small cell lung cancer continue to progress and enroll patients.

In fact, the DISTINCT clinical trial in lung cancer is now over 50% enrolled.

These 7 ongoing Phase III clinical trials as well as our other R&D programs are expected to sustain our revenue growth in the near and medium term. Longer term, we are working very diligently to drive further revenue growth through R&D programs that are currently underway to develop technologies in the nascent field of organ manufacturing.

Now let me provide a brief update on our merger agreement with SteadyMed. We announced in April our agreement to acquire SteadyMed Limited. I am pleased to see that the HSR waiting period has expired, and the SteadyMed shareholders have approved the deal.

We are now in the middle of a waiting period under Israeli law and expect the merger will close at the end of August, at which point, SteadyMed's pipeline product, Trevyent, will fit very nicely within our near-term strategy of developing and advancing technologies to make parenteral prostacyclin therapy easier, thus benefiting more of our patients.

In closing, we are pleased with our quarterly financial results and the progress of our business activities, and we have a future growth strategy that fully contemplates our expectations for the generic entry of Adcirca as well as generic versions of Remodulin later this year.

We remain focused each and every day on the development and commercialization of our innovative product pipeline to address the unmet medical needs of patients and to deliver sustained, long-term revenue growth to our stakeholders.

Let me also add that we will be participating in the Wedbush PacGrow Healthcare Conference later this month.

Also, on September 24, we will again be hosting a United Therapeutics' Science Day meeting for investors in New York. And I look toward to seeing many of you there.

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

(Operator Instructions) And our first question comes from the line of Hartaj Singh from Oppenheimer & Co.

Just had one quick question on FREEDOM-EV. I mean, it's on the top of a lot of folks' mind. With the interim last year, you've been able to provide a month within which the readout would have happened. Martine, any thoughts on when you could -- that could come? I know you just mentioned near term. But if you could just give us a little bit more color and -- on the timing would really appreciate it.

Thanks, Hartaj, and nice to hear your voice this morning. We are -- it's imminent. It is in the near term. It's a -- the reason why I don't want to give a specific month is because I can't be like absolutely certain, whether something has been a crossover from like August to September. The trial, as we've announced previously, Hartaj, is over, I mean, in the sense that it's completely enrolled. And the data is all being collected. But as you recall, this is our largest trial that we've ever done. It's in upwards of a dozen different countries. And it's necessary to collect all of this data in accordance with good clinical practices and with the company's quality assurance techniques that apply to clinical trial development. So everything is just being done in the classic UT way that is cautious, careful. We're not in a -- there's no reason to like rush something to do it by the end of July or exactly the end of August. It's imminent, is the best that I could share with you, Hartaj.

Our next question comes from the line of Jessica Fye from JPMorgan.

I was wondering if you could comment on your conviction level in the 510(k) approval of the first iteration of the RemUnity pump?

Yes, thanks, Jessica. We like to look at the FDA as a black box pretty much because it largely is. It's -- they have a very challenging job of approving products that become used in the general public. And of course, everybody wants them to be used safely and properly. And so it's not really productive to speculate too much on the inner workings within the FDA. But as we have said on previous calls, we are highly confident. I would say I'm as confident as I could be about anything that the RemUnity pump will be approved by the FDA. Exactly like, again, which month, similar to the response to Hartaj's question, I don't want to veer into guessing like whether one month versus another. But it's a -- it's an amazing device. Just to kind of be a little bit chatty here for a moment. I was on the assembly line with the RemUnity pump just yesterday out there in Manchester, New Hampshire. Extremely impressive assembly line. A very impressive quality assurance, quality control, set of procedures that are in place there. This is really a beautiful piece of technology. And I actually have one in my hand right here, but I can't FaceTime you in to see it. So it's right around the corner, Jessica, that's the best I can share with you.

Our next question comes from the line of Martin Auster from Crédit Suisse.

I had a question from something in the 10-Q. I noticed that there were generics launched in some of the countries in the EU for treprostinil. Was curious of that -- who the manufacturer of those generics was? And was it one or multiple products? And kind of what you anticipate in terms of competitive risk from those generics going forward?

Martin, this is Michael. I'll take that question. So it's the -- I forget the name of the company, but it's a division of Dr. Reddy's is the company that filed for generic in the EU. We are anticipating that they're going to launch at some point later this year. We don't know exactly when. And I think the European market's a lot different than the U.S. market in terms of payer landscape and reimbursement landscape. So we're working with our partner, Ferrer, to negotiate with the various government entities so that we can maintain as much of Remodulin revenues as we can. But we would expect that we're going to see some decline either due to reduction in our price or just the generics taking some of the market share over the medium term.

Our next question comes from the line of Liana Moussatos from Wedbush Securities.

Congratulations on ISR approval. What are the rate limiting steps between now and when you can launch in early 2019? And can you talk about the refill centers, how they will work?

Thanks, Liana, for your question. We're dividing up the questions, with all the commercialization-related questions going to Mike. I'm doing the clinical development ones. By the way, Andy Fisher is also on the call, who will handle any intellectual property questions. And of course, James, you've heard at the beginning will handle all financial questions. But the Medtronic implantable system for Remodulin at UT is now a commercialized program. So Mike will take that question.

Yes. Thanks, Martine. So as Martine said at the top, we're very excited the FDA has approved our NDA for the use of Remodulin implantable system. We believe this is a significant advancement in the treatment of PAH. That will not only allow us to maintain our Remodulin revenues in the face of generic competition, but continue to grow the franchise. And there are several reasons for that. So I think the benefits of the implanted pump, first safety because it eliminates the risk of catheter-related central venous line infections. Second convenience, because we will have the refillinables of up to 15 weeks. And then, the lifestyle benefit. We commonly refer to as the 4 Ss, sleep, shower, swim and sex. Will not only be attractive to Remodulin patients but we also think it's going to entice EPO patients to transition from Remodulin so they can take advantage of the implanted device. We also think the ISR -- you may or may know there's a number of patients that really are candidates for parenteral therapy but refuse to go on therapy because of the limitations of current pump options. So we think the ISR is going to provide a therapeutic option for these patients. So we'll be able to draw more patients onto parenteral prostacyclin. And then eventually, over the long term, we think that once this pump is really, it's up and running and it's used by a number of patients, physicians get comfortable with it. We actually think there's an opportunity to less ship the use of parenteral prostacyclin in the PAH-treatment paradigm.

So in short, we think that the ISR really, as Martine said, it is the game-changing technology. It positions us over time to significantly grow the number of Remodulin patients. So to your question about the launch plans, there's a number of things that have to happen. So first, we're very near agreement with Medtronic on a commercialization agreement to ensure that device supplies and support attract to our commercialization plans. From the very beginning, we intended the launch -- we intended to limit the initial launch of the ISR to the 10 stipes that participated in the delivery study. And then we'd follow that up with a full launch to PH centers over the subsequent couple of years. So why is this? As Martine said, when we're talking about launching a surgically implanted device, it's complex, it requires precision and care. We have to get the refill centers up and running. I'll come back and talk about that in a second. There's reimbursement pathways to address. And then the other -- make sure the other healthcare organizations are in place and properly working. If we misstep early, it could jeopardize the entire program. Therefore, limit the number of patients that can benefit from the technology. So we're starting with the folks that have the most experience with the centers that we're in, and the study to make sure we get this right. So we expect we're going to have these up and running by early 2019 because it'll take some time to kind of work through these issues. We also, as you said in your question, we're working with CVS or division of CVS to have these refill centers strategically placed around the country to again improve -- enhance convenience for the patients so they don't necessarily have to come into their physician's office every time they need a refill. They can go to one of these infusion centers that are located closer to them. We also think this is going to enhance the safety of the program because what you will have at these infusion centers is you'll have nurses and healthcare providers that do this on a routine basis. So we'll have the experience of doing refills continuously. And so the risk of pocket fills or other safety problems diminishes considerably versus if you go to a physician that maybe only has a couple of patients on the implanted device.

And our next question comes from the line of Chris Shibutani from Cowen.

Could you talk a little bit about the oral agent market, in particular for Orenitram performance? Doubles for that product have been relatively flat. Obviously, we've had some shifting competitive dynamics over the last year or so. And you've talked in the past about how oral agents are being used in combination. Can you comment what happened in the second quarter? What you're seeing? And what your expectations are outlook for the balance for the year, both for Orenitram and oral agents broadly?

Yes, thanks for the question. So let me provide a little bit of context about how we're seeing Orenitram used in the market today. So I think you're aware, Orenitram was approved in '13 -- in 2013 as a monotherapy based on 6-minute walk distance improvements. Subsequent to that, we conducted a study to show that patients on a stable dose of Remodulin could successfully transition to Orenitram safely. So generally speaking, sort of the 2 camps of Orenitram patients are, first, kind of the earlier-stage stable but symptomatic patients, where you have time to (inaudible) up to an effective dose, while managing the side effects. So that's probably 75% to 80% of our patients. And then, on the other end of the spectrum, you have the Remodulin patients that have proved -- improved on functional class and that are on a stable dose and desire to move off an external pump.

So in the first case, we're, of course, competing with selexipag. And I would say given sort of our clinical data as compared to the perceived -- their perceived better clinical data, we're actually doing quite well. And if you kind of think about the market, we're probably getting about 35% to 40% of the world prostacyclin market with, as I said, I think at least in the minds of some physicians, sort of a less attractive or less beneficial clinical data. So we're happy. And I think we're doing quite well with that. We're continuing to see growth in patients month over month. And so that's all going really well. I think, you know, EV -- the EV readout, if that's positive, it certainly provides a catalyst for us to continue to grow Orenitram revenues. So we'll now have more -- if successful, we've have the morbidity/mortality end point that matches selexipag that really kind of puts us on par. From that standpoint, we would expect or are optimistic that the 6-minute walk distance would remain strong. That potentially puts us at an advantage as relative to selexipag. I think there's been a renewed emphasis over the last year or so in PAH -- and we see this at conferences, we see this in our one-on-ones with physician interaction -- to assess a patient risk and push them into this low-risk status. And there's a lot of different algorithms that physicians use to determine risk, but most of these suggest that 6-minute walk distance improvement is one of the best prognostic factors of lower risk. So the combination of having a morbidity/mortality end point and a strong 6-minute walk distance, I think, really strengthens our -- will strengthen our position in the market. Not to mention the fact that when you look at the cost of Orenitram relative to selexipag on average, we're about 50% of the cost of selexipag in year 1 and about 25% less in year 2.

Our next question comes from the line of Geoff Meacham from Barclays.

I wanted to ask about the eventual roll over the pump. What do you guys think as the ultimate conversion rate from IV or subcu Remodulin? And could you use price or formulary to help accelerate that? And then, Martine, I know you've talked about the history of generics in PH, but beyond the pump, what strategy do you guys have in place to help mitigate the erosion looking to the back half of this year?

Yes, in terms of conversion rate on IV and subcu, I mean, I'm not going to really give guidance on percentages. I think as we spoke, Martine and I have both said, I think that there are thousands of patients that we think can benefit from the use of the implantable pump, both existing patients, you've got epoprostenol patients as well as patients that currently were refusing parenteral therapy. So I think that the opportunity there long term is in the thousands of patients.

Thanks, Mike. And with regards to the back-end part of your question, I think the RemUnity pump is a very large part of the answer. And in -- as mentioned in the call earlier in February, DEKA submitted a 510(k) application to the FDA to clear the RemUnity system. If approved, the 510(k) application is intended to enable disposable components to be prefilled with Remodulin by our speciality pharmacy distributors. We're also engaged in further development efforts intended to enable us to ultimately submit a new drug application for a version of the system that includes disposable components that are prefilled as part of the actual manufacturing process. DEKA has been engaged in productive discussions directly with the FDA and will provide you with further updates as we learn more. But that summary of the RemUnity product is very much the answer to your question about how in the longer term or the future would we be dealing with generic entry.

Operator, we've got time for one more question.

And our next question comes from the line of Terence Flynn from Goldman Sachs.

Just wondering on the implantable pump. Can you tell us what the price of a refill cartridge would be? Is it fair to assume a parity pricing here with IV subcu, recognizing there's some variability in dosing across patients, but just want to think about the revenue per patient impact.

Yes, the -- it'll be the same price of Remodulin. So there'll be no difference in the current IV or subcu price of Remodulin.

Very good. Thank you for joining us on the call today, and operator, you may proceed to the closing script.

Thank you for participating in today's United Therapeutics Corporation conference call. A broadcast 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 4434188.

This concludes today's program, and you may all disconnect. Everyone, have a great day.