United Therapeutics Corp. Q2 2009 Earnings Call Transcript

| About: United Therapeutics (UTHR)

United Therapeutics Corp. (NASDAQ:UTHR)

Q2 2009 Earnings Call

July 31, 2009 9:00 am ET


Martine Rothblatt – Chairman and Chief Executive Officer

Roger Jeffs – President and Chief Operating Officer

John Ferrari – Chief Financial Officer


Salveen Kochnover – Collins Stewart

Matthew Kaplan – Ladenburg Thalmann & Co.

Lucy Lu – Citigroup

Terence Flynn – Lazard Capital Markets

Geoffrey Meacham – JP Morgan


Welcome to the United Therapeutics Corporation second quarter earnings conference call. (Operator Instructions) Remarks today concerning United Therapeutics will include forward-looking statements which represent United Therapeutics expectations or beliefs regarding future events based on current assumptions. United Therapeutics cautions that such statements involve risk and uncertainties that may cause actual results to differ materially from those in the forward-looking statements.

Consequently, all such forward-looking statements are qualified by the cautionary language and risk factors set forth in the United Therapeutics periodic and other reports filed with the SEC. There can be no assurance that the actual results, events, or developments referenced of such forward-looking statements will occur or be realized. United Therapeutics assumes no obligation to update these forward-looking statements to reflect actual results, changes in assumptions, or changes in factors affecting such forward-looking statements.

Dr. Rothblatt, you may begin your conference.

Martine Rothblatt

I'd like to open the call with a few comments on the headlines of our press releases and then ask Dr. Jeffs, our President and Chief Operating Officer, to expand on our Tyvaso approval and then we'll take questions. Our Chief Financial Officer, John Ferrari, is also with us on the call to assist with the questions.

Yesterday, in the middle of a beautifully executed launch meeting for one of our medicines, Adcirca, we received the news from the FDA that another of our medicines, Tyvaso, was approved. These kind of back-to-back home runs are so rare in pharmaceutical and biotechnology, I wouldn't be surprised if it never happened before. It was truly an astounding day.

Regarding yesterday's press release, we are thrilled to have a fourth approval from the FDA for treating pulmonary arterial hypertension. The FDA deserves enormous credit for addressing this orphan disease. In the span of just a few years, they have converted this disease from an untreatable condition to one with nine approved therapies. I would say that this is undeniable proof that our drug development and regulatory approval system in the U.S. works extremely well.

Second, regarding our second quarter '09 financial results, we are pleased to have record sales of $84 million a 22% increase over second quarter '08, while we reported a GAAP loss of $2.3 million earnings before non-cash charges surged to $32 million, an 11% quarter-to-quarter gain.

As to our revenues, while 22% growth in the eighth year of marketing a drug is quite remarkable, I would like to comment on why we fell short of our internal 30% growth goal. I think this is very largely due to the fact that several dozen patients have held off going on Remodulin since Tyvaso's approval seemed imminent at the beginning of this year.

Indeed, it is just a few million, less than about $5 million difference, for us to hit 22% growth quarter-to-quarter versus 30%. But with Tyvaso now approved and Adcirca now launched, I'm confident that the three drugs, Remodulin, Tyvaso, and Adcirca will propel us at a 30% growth rate in 2010 and beyond.

As to our net loss this quarter, this is an accounting artifact of charging the Black-Scholes value of our share-based compensation plans to earnings. Under these formulas when our stock price rises smartly, as it did in 2Q '09, compensation expense automatically rises. For this reason, I would direct your attention to earnings before non-cash charges for a clearer picture of UT's business fundamentals. Earnings before non-cash charges grew 11% to $32 million reflecting a very impressive quarter of total revenues.

Usually, we grow this metric even more rapidly, but the 2Q '09 involved some unusually high spending associated with first of all, getting Tyvaso approved, and secondly, getting Adcirca launched. As many of you are aware, it required extraordinary effort working around the clock, all vacations cancelled, and the expert assistance of numerous consulting organizations in order for us to comply with the FDA's requirements regarding human factor studies to get Tyvaso approved on schedule, which we announced today.

In addition, launching Adcirca is a great responsibility but also a costly endeavor. I'd like to mention in this regard that Cialis, the same chemical entity as is included in Adcirca, is now the leading ED drug outside of the U.S. and the leading most prescribed ED drug among urologists. So we have very high expectations for Adcirca and we're going to spare no reasonable expense to have a tremendous launch.

So that explains the situation in 2Q '09 and as these programs get underway in 2009, both Tyvaso and Adcirca, we surely expect earnings before non-cash charges to return to the 30% growth levels that we've had historically. We expect those growth levels to return in 2010 and beyond.

Before turning to Roger for an expansion on the Tyvaso approval, let me mention just a couple of other interesting quarterly highlights. First, we made the Russell 1000 List of largest public companies just 13 years after we formed United Therapeutics. And second, we hit our internal goal of growing employee productivity to $750,000 of revenue per employee. This shows how making employee shareholders results in the best and smartest level of work output, a level of work output we're very proud of and will continue to propel ourselves toward our next goal of $1 million of revenue per employee.

With that introduction on the headlines of our press releases, let me now turn the call over to Dr. Jeffs to expand on the Tyvaso approval.

Roger Jeffs

To echo Martine's comments, it's an absolute thrill that we are able to announce the approval of Tyvaso today. It's a day we certainly eagerly anticipated. As you've seen in the press release, Tyvaso is indicated to increase walk distance in WHO Group I, PH patients with NYHA Class III symptoms which reflect the patient population from the TRIUMPH-1 pivotal trial.

The approval was accompanied by both the post-marketing requirement related to collection of additional safety data specific to the inhaled route of delivery and post-marketing commitments related to introduction of the device enhancement. So I'd like to spend just a few minutes discussing the post-marketing requirement and post-marketing commitment so that you have a complete understanding of these requirements.

As a background, post-marketing requirements include studies in clinical trials that sponsors are required to conduct whereas post-marketing commitments are studies or clinical trials that a sponsor has agreed to conduct but are not necessarily required by statute or regulation. Regardless, we will work diligently to timely meet both the post-marketing requirement and post-marketing commitment and our previous completion of our Subpart H requirement for subcutaneous Remodulin certainly puts us in good stead with regard to this commitment.

As to the post-marketing requirement, the specific requirement is that we conduct a long-term observational study in the U.S. that will include another 1,000 patient years of follow-up in Tyvaso treated patients and 1,000 patient years of follow-up in matched controls receiving other PH treatment to evaluate the potential association between Tyvaso and oral pharyngeal and pulmonary toxicity.

I want it to be clear that the post-marketing requirements to conduct an observational registry should not be confused with a REMS or a Risk Evaluation and Mitigation Strategy. This is an important point. REMS are only required by the FDA if they deem mitigation and risk evaluation necessary for a drug to be on the market and to insure its safe use. A typical example of this would be drugs that carry black-box warnings.

In our case, the FDA did not feel a REMS was necessary for the safe use of Tyvaso. The FDA is simply seeking data from more patient exposure related to the inhaled route of delivery to more precisely tailor the package labeling.

Now, to give you a little bit of context on both the requirement and the commitment. Tyvaso approval was based on approximately 300 years of patient exposure. In comparison, the Remodulin safety database included nearly 1,500 patient years of exposure at the time of approval. As is noted in the Tyvaso labeling adverse events such as cough and throat pain and irritation, were some of the most adverse events associated with the use of Tyvaso.

These events were usually mild and Tyvaso inhalation was typically continued. Or rarely there were some instances of pulmonary bleeding events, including nosebleeds or espistaxis and bloody sputum or hemoptysis, which were considered serious.

One question that will be addressed by the observational registry is whether the frequency of bleeding events is influenced by the route of delivery. Our preliminary assessment is that this is not a route specific issue as the rate of pulmonary bleeding events with parenteral use of Treprostinil is 0.043 events per patient year, whereas the rate of pulmonary bleeding events for inhaled Treprostinil is in fact lower at 0.22 events per patient year.

But as mentioned, the day for Remodulin was based on a much larger patient exposure sample approaching 1,500 patient years. Thus the observational registry will provide an additional 1,000 patient years of inhaled exposure so that there is a more analogous comparison between the routes.

One other question that you might have is what is the point of having a match control? The use of a match control will help determine if adverse events rate are similar between therapies. For context here it should be noted that the Ventavis label also describes serious pulmonary bleeding events with a similar reporting frequency as observed with Tyvaso.

However, we accept that it is difficult to make cross study comparisons, particularly when it is common for patients to be concomitantly treated with anticoagulant therapy, thus the use of match controls for this observational registry will provide further information to address this question and more preciously define the risk in labeling.

I do want to emphasize that these pulmonary bleeding events are infrequent and, therefore, more information was required to assess and define the risk. We have committed to submitting the results of this observational registry to the FDA by December 15, 2013, so just over four years from now. I hope that provides some clarity on the post-marketing requirements.

We've also agreed to post-marketing commitments that require us to make modifications to the Tyvaso inhalation system to one, create a titratable breath counter to two, align or key the dome with the device for ease of assembly. Three, to add a battery backup power pack in case of an inadvertent power outage. And four, to permanently affix the baffle plate to the dome. We've already started making these fairly straightforward modifications.

After making these modifications we will perform a useability analysis to incorporating the evaluation and prioritization of user related risk followed by a human factor study. And we will conduct a study to collect pharmacokinetic data to verify that the device is delivering Tyvaso as expected. We have committed to submit a supplement to our Tyvaso [inaudible] describing these results no later than October 31, 2010.

With those comments, I'll turn the call back to Martine.

Martine Rothblatt

Great clarity, great approval, operator could you please open the lines for questions directed either to Roger, our CFO John Ferrari, or myself.

Question-and-Answer Session

Operator Instructions

(Operator Instructions) Our first question comes from Salveen Kochnover – Collins Stewart Llc.

Salveen Kochnover – Collins Stewart Llc

Could you provide us with any color on Tyvaso pricing and just comment on the sales force positioning of Adcirca and Tyvaso to physicians.

Martine Rothblatt

With regard to Tyvaso pricing, we feel it's a little bit premature to discuss the pricing in great detail on a public conference call like this, however, let me give you some guidance in that regard.

First of all the Tyvaso launch is scheduled for the last week of August first week of September, basically just before the Labor Day period. And that gives you another indication of you guys are like working during that period, yes we are. And so during that week we have just intense sub-sessions with all of the reps brought in from all over the country, all of the payer managers, reimbursement managers, we just go through everything. So at that time we'll be able to provide precise quantitative clarity on the pricing.

However, the bottom line is that we expect the pricing of Tyvaso to be more or less equivalent to the average pricing, or at least I'll say the average revenue per patient, that we receive on Remodulin. And, as you know, there are two roots of a Remodulin approved, the subcutaneous root and the intravenous root. So we expect pretty much the pricing on Tyvaso to result for us to get an equivalent amount of revenue per patient on Tyvaso as we would get in average over the thousands of patients that we have on Remodulin.

And, therefore, the net-net of all of this that there is that there is no revenue cannibalization to this company between Tyvaso and Remodulin, whether a patient goes on Remodulin or a patient goes on Tyvaso, on average we're going to get the same amount of revenue. So that's the first part of your question.

The second part of your question in terms of the positioning, Adcirca is an amazing, amazing molecule and frankly, I'm saying as the parent of a pulmonary hypertension patient, I believe every single pulmonary hypertension patient should be on Adcirca. This is the foundational therapy for all patients, so of course if your newly diagnosed of a Class II patient, it's hands down obvious the place to start your therapy regime.

It is that the only once a day inhibitor of phosphodiesterase-5, which we know that patients with pulmonary hypertension have heightened levels of PD5 which seriously affect their nitric oxide a management process like with GMP. So, definitely you want you start your patients with the best foot forward and blocking the deleterious effect of PD5, and that means that I think that it's going to quickly become a frontline therapy for all patients.

However, if you're a patient who is already on PD5 the roughly 10,000 to 15,000 patients on Ravadio, you got a choice here between taking a three times a day a pill or a once a day pill, and every time you miss your dose that's a time for the disease to claw some more grounds in our millions of pulmonary arterials that we have in the distal portions of our lung. Very few of us can always remember to take a pill three times a day I mean that's a tall order.

So once a day Adcirca gives you all the benefits of three times a day Ravadio, and by the way since you broached price I can tell you that the price of Adcirca is 30% less than Ravadio. So to me it is the truest non-brainer that I can think of why one would rather be on Adcirca than Ravadio saves the whole healthcare system 30% of the expense right upfront.

Then you come to the patients that are in the Class III and Class IV categories, they may already be on Triclear or on Letaris or on Remodulin or on Ventavis. And the large preponderance of these patients are also on background PD5 therapy as well, because the practice with pulmonary hypertension is while new therapies are layered on. Previous therapies that direct unique pathways of a disease there being the prostacyclin pathway, the endothelin pathway, the phosphodiesterase pathway, those are not removed, so just new therapies are layered on.

So surely for the Class III and Class IV patients they would be happy to save money, take fewer pills, have equivalent safety and efficacy with Adcirca. So I think Adcirca is going to be positioned as the one pill that every single pulmonary hypertension patient should be on.

With regard to Tyvaso, that will be positioned in accordance with its label to the New York Heart Association Class III patients. And it's been able to show an improvement exerciseability, which is going to improve life for the patients who are beginning to decline in the Class III category.

The unfortunate fact of the matter is that for the big majority of the patients you're looking at 5 to 10 year [means] survival with pulmonary hypertension. So patients are regularly progressing through the oral drugs and it is a breath of fresh air, pun intended, to be able to offer Tyvaso to these patients as they progress to Class III.


Our next question comes from Matthew Kaplan – Ladenburg Thalmann & Co.

Matthew Kaplan – Ladenburg Thalmann & Co.

Talking about the newly modified device with the slight modifications, how will that be introduced to the market? And do you think physicians or patients will wait for that device at all to start prescribing this drug? And I guess kind of correlated to that, how do you think Tyvaso will be used by clinicians? Which patient will be first prescribed the drug?

Martine Rothblatt

Matt, great questions, I love how it gets right down to the nitty-gritty. And Roger has been in charge of the development of that device, knows how to actually assemble it blindfolded, so I'm going to turn that question to Roger.

Roger Jeffs

I think the device modifications, the way to characterize them is they're slight. We have already progressed for example, the breath counter software change and it is simply that. So all we're going to change there is allow the patient to pre-program. If they are going to be on six breaths, for example, programming that number versus what is currently there. They go in cycles of three breaths. So, it's sort of a user change.

The other thing is to provide ease in terms of assembly. And then also the dome, permanently fixing the baffle plate is just another thing that will take one step away from the patient. So these are what I characterized as user-friendly modifications that will make the device more usable, will minimize risk error. Obviously, these are commitments that we're going to do. It's something we can do rapidly.

I do not think patients will in any way wait for these small changes before they begin Tyvaso therapy. So, the choice now, as Martine said, as patients progress from Class II, either failing oral therapies or not optimized on oral therapies and progress to Class III, they're going to have a choice of Prostacyclin addition. And their choice is going to be inhalation therapy with a four times a day therapy that takes minutes to administer, or an inhalation therapy that takes much longer to administer, six to nine times a day, or parenteral therapy.

So, I think for us, we're going to be a what we would call Best in Class Inhalation Therapy based on its ease of use and administration and its clinical product profile. And I think we will consume, it's our opinion, that we will consume most of the inhaled market in rapid speed.

Matthew Kaplan – Ladenburg Thalmann & Co.

What's the average pricing for the parenteral Remodulin now? Can you remind us?

Martine Rothblatt

It's North of $100,000 per year.


Our next question comes from Lucy Lu – Citigroup.

Lucy Lu – Citigroup

Wanting just to understand a little bit better how Tyvaso will be reimbursed. Is it going to be considered pharmacy benefits or medical benefits? In other words, what kind of co-pay the typical patient has to pay?

Martine Rothblatt

Lucy, in our management structure the entire reimbursement and pay relations functions falls under what we call business operations managed by John Ferrari. So, John, you have a chance to answer a question.

John Ferrari

What we're working on is going to be probably under the same reimbursement scheme that Remodulin is. We're trying to do it a little bit different than the reimbursement method that Tavist currently has.

Lucy Lu – Citigroup

If that's the case, John, can you just tell us for Remodulin, what is the breakdown between like a pharmacy benefit versus medical like and what percentage of patients actually have to pay a co-pay?

John Ferrari

That actually is a good question. I may have to get back to you on that because I don't really have that information available because our distributors are responsible for our reimbursement issues and getting reimbursements. So we get some anecdotal evidence, but I have not seen anything specific for probably several years on that. So I could get that information for you.

Martine Rothblatt

Lucy, let me add one little bit of color because your questions are really, really good. The experience has been that when the reimbursement goes through separate channels for the device and the drug, it's a problematic situation in terms of reimbursement. It's not that it cannot be done, but it's slower, it's more burdensome, and reimbursement can be delayed.

As John mentioned, we do not have that problem with Remodulin. However, Ventavis does have that problem. And because of the way that they developed reimbursement for Ventavis, it's sort of like a person trying to walk across a chasm in a cliff. You know, you've got one leg on the device side and the other leg on the drug side and you hope that the chasm doesn't open too wide and just swallow you up.

Our group decided early on to try to avoid that path and develop a bundled reimbursement strategy that would include both the Optineb device, as well as Treprostinil in its ampules. And we have been very largely successful. I don't want to kind of jinx anything by predicting the total end, but I'm quite confident that we will be successful in that and that Tyvaso will be reimbursed as a single bundled product. So that's the bottom line of where your question is getting. And at the time of Tyvaso launch, the last week of August, we'll be able to be totally definitive with you on that.


Our next question comes from Terence Flynn – Lazard Capital Markets

Terence Flynn – Lazard Capital Markets

I want to offer my congratulations, definitely an exciting time period for you guys. And just quickly, I was wondering if you could let us know where you stand with respect to the European approval process for Tyvaso?

Martine Rothblatt

Sure. Thanks for the congratulations and maybe you saw that YouTube of us running all through the floors and corridors high-fiving everybody yesterday. I'm just joking, it's not on YouTube we wouldn't allow that. But, Roger, can you provide some color on the European group approval process?

Roger Jeffs

Tyvaso is under active review with the EMEA. It's under a central review process. We have received our Day 120 questions, so we're responding to those. When you receive the question there is a clock stop. So it's a bit difficult to predict when the action date will be. But we think based on our ability to respond to the questions that more than likely in the first half of 2010 we will have action from the EMEA on the inhaled application.

Terence Flynn – Lazard Capital Markets

In terms of your agreement with Lilly on Adcirca, is there anything with respect to change of control?

Martine Rothblatt

Yes. A change of control went really well. There are a couple of provisions with regard to change of control. One provision is that if there was a change in control of United, I believe that Adcirca could be yanked back, would be yanked back or, I would say, really has the power to yank it back to Lilly especially if it's a hospital change of control.

And that's only sensible because, as I mentioned in my opening remarks, Tadalafil is basically now the world leader in this market. And it's clearly the world leader in number of scripts, urologists and outside the U.S., by all prescribers, and its gaining ground. So it's a great molecule and we were enormously fortunate to have Lilly entrust, what you might say is like their most beautiful daughter, to us.

So, they only did that because they were impressed with the specifics of the United Therapeutics team, especially the specifics of our passion for developing better and better therapies for pulmonary hypertension, and with our single-minded goal being to convert pulmonary hypertension into a chronically lifelong manageable condition.

So, if suddenly we were not United Therapeutics, but we were some other company from some other side of the pond or something like that, I think that they would feel that their daughter might not be in the best hands and would probably yank it back.

Now, also I should mention that the agreement does also somewhat puts in the penumbra of your question have a standstill between Lilly and United ever becoming consolidated. So there's a five-year standstill on any discussion relating to that.

So we really believe that basically as an independent company we can continue to rack up the top of the peer group level on growth rate that we have demonstrated for shareholders in our stock price. We can best do that by being single-mindedly focused on the pulmonary hypertension market. There are just in the U.S. over 25,000 diagnosed patients, treated patients.

No such thing as a diagnosed and not treated pulmonary hypertension patient, I mean they're all treated. There's an equivalent number in Europe so that's 50,000. There's about 20% of that figure in Japan that's 60,000. So there's 60,000 patients to treat. Right now we treat maybe about 5% of that number of patients, and now we have a full panoply of drugs, the orals, the inhaled, the subcu, the IV, no other company in the world has every single delivery means of treating this condition.

And as I mentioned one of them in particular, Adcirca, is just foundational. If you've got pulmonary hypertension, you need to be on Adcirca. I would say like the path is extremely clear, stay independent, keep running until you get 60,000 patients treated with your medicine and think about what to do after that.


Our next question comes from Geoffrey Meacham – JP Morgan

Geoffrey Meacham – JP Morgan

Do the post-marketing commitment or requirements, do they place any promotion restriction on you guys?

Martine Rothblatt


Geoffrey Meacham – JP Morgan

When I think about the extension study data for Tyvaso you guys showed an increasing dose over the course of two years. Any thoughts as to where you guys think the duration of therapy of the dosing trends could be in the commercial setting?

Martine Rothblatt

I'm going to ask Roger to address that since he ran the TRIUMPH study.

Roger Jeffs

The data that we have today is that patients do titrate up towards the label dose of nine breaths per day. In the open label extension study, some patients did escalate to 12 breaths per day – per session, sorry. And although that's not within the context of our current label, but it does seem that it was a requirement for escalation beyond nine breaths was fairly rare and not that common. So we think given the nine breaths per day labeling that that should suffice for the majority in patients per session.

Geoffrey Meacham – JP Morgan

And then the duration of therapy?

Roger Jeffs

The duration we've published that data both at CHEST and ATS, so at one year we see around a 90% durability. And then through year two we're approaching 70% of patients that started remain on inhaled therapy beyond two years. The thing to point out there is that seems to be a much different durability curve than what's observed with competitive agent Ventavis, where from our market research at least, the duration of that therapy seems to be, at best, around eight months.

So we're talking about a therapy here that has an average duration of therapy that's going to be in a number of years, and I think what's important about that is when you try to predict the revenue streams that would come from a patient started on Tyvaso is going to have a much more enduring revenue stream than a patient that started on Ventavis.

Martine Rothblatt

Roger's last point was really telling. Not only can, I think, one reasonably expect longer duration of revenue per patient compared to Ventavis with Tyvaso, but frankly at least the initial data is even longer duration on therapy compared to Remodulin. And that may simply be because most of the Remodulin patients are Class IV patients and most of the Tyvaso patients would be or all of them would be Class III patients. But the long-term open label extension data shows basically best in class statistics in terms of duration therapy.

Well, in wrapping up I'm really reminded for this quarterly call of the phrase from the sages that to those who much is giving, much is expected. And in our case, nothing has really been given. We've worked very hard for every medicine that we have from subcu Remodulin up through Adcirca and now Tyvaso. But now that we have this broad range of therapies, much is expected of us.

And the best way, I believe, for us to fulfill that expectation is on the one hand doing the best job we can in terms of educating the physicians throughout the country about the benefits of Adcirca and Tyvaso. And getting upwards of 80% of the patients on each of those classes of therapy, be they inhalation or PD5 inhibitors, onto the Tyvaso and Adcirca brands respectively, while at the same time continuing to grow the Remodulin franchise for those that have progressed through those stages.

And then the second hand, to continue with the relentless passion to develop our next stage better and better therapies for pulmonary hypertension to push out the mean survival curve out past the 10 years that it is at the most experienced centers, such as UAB down in Birmingham and other very experienced centers, to push that out to 15 years to 20 years to 25 years.

And we're very excited with the pipeline that we have, the rapid progress which is being done in rolling our oral Treprostinil program, and the rapid development work which is being done on our implantable

Remodulin pump project, joint project with Medtronic that we will have more and more good news and higher peaks to mount and to share the visions from those peaks with you in the quarters and years to come.

Thanks so much for your congratulations and support. We'll be at almost all of the healthcare conferences during September so we look forward to seeing you then. Have a great day.


Thank you for participating in today's United Therapeutics Corporation second quarter earnings conference call. This call will be available for replay beginning at 12 noon Eastern Standard time today through 11:59 pm Eastern Standard time on Friday, July 2009. The conference ID number for the replay is 4416949. The number to dial for the replay is 1-888-203-1112 or 719-457-0820.

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