United Therapeutics' (UTHR) CEO Martine Rothblatt on Q2 2016 Results - Earnings Call Transcript

| About: United Therapeutics (UTHR)

United Therapeutics Corporation (NASDAQ:UTHR)

Q2 2016 Earnings Conference Call

July 28, 2016 9:00 AM ET

Executives

Martine Rothblatt - Chairman and Chief Executive Officer

James Edgemond - Chief Financial Officer and Treasurer

Analysts

Amir Sendanti - Goldman Sachs

Jessica Fye - JPMorgan.

Edman - RBC Capital Market

Liana Moussatos - Wedbush Securities

Regina Grebla - Evercore ISI

Evan Seigerman - Barclays Capital

Chris Shibutani - Cowen and Company

Operator

Good morning. My name is Andra, and I will be your conference operator today. At this time, I would like to welcome everyone to the United Therapeutics Corporation 2016 Second Quarter Financial Results. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]

Remarks today concerning United Therapeutics will include forward-looking statements representing the company's expectations or beliefs regarding future events. The company cautions that these statements involve risks and uncertainties that may cause actual results to differ materially. Please see the company's latest SEC filings, including Form 10-K and 10-Q for additional information on these risks and uncertainties. The company assumes no obligation to update forward-looking statements.

Today's remarks may also include financial measures that were not prepared in accordance with the U.S. generally accepted accounting principles. Reconciliations of non-GAAP financial measures to the most directly comparable U.S. GAAP financial measures can be found in our earnings release, available on our website at www.unither.com.

Finally, please note that today's remarks may include reporting on the progress and results of clinical trials or other developments with respect to the company's products. These remarks are intended fully to educate investors about the company', the company's products to 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, the risks, or related clinical trial results. Anyone seeking information regarding the use of one of the company's products should consult the full prescribing information for the product available on the company's website at www.unither.com.

Thank you. Dr. Rothblatt, you may begin your conference.

Martine Rothblatt

Thank you, operator. I'd like to welcome everybody to our second quarter 2016 financial results conference call. I am joined this morning by James Edgemond; our Chief Financial officer and I'll give a few introductory remarks, and then open up the lines for questions directed either to James or myself.

For the introductory remarks, I'm going to hit on three main topics, products, profits and pipeline. But let me start with profit. So with regard to profits, the company once again is reporting greater than 90% gross margin on revenue. Revenues have hit $412 million for the quarter. That puts us at a revenue run rate greater than $1.6 billion per year, and nicely on track for our goal of $2 billion per year by 2020. Profit has doubled this quarter from last year. Our matching quarter now up over $200 million and are up 60% on a non-GAAP basis.

When you take a look at earning per share things actually look even better. Since the result of our ongoing stock buyback, our share count is now reduced to only 44 million shares which is actually about the lowest number I can remember for a quite a while.

So now let me turn to the products that are producing these very nice operating results. Our three treprostinil products Remodulin, Tyvaso and Orenitram, all increased significantly from either last quarter or the matching quarter of last year. The warehousing effect of Uptravi which I discussed last quarter now mostly affects Orenitram because it is in the same oral class and more easily delayed for the duration of an Uptravi challenge. Last quarter, the warehousing effect affected Tyvaso because it is a more intensive therapy requiring patients to endure 4x a day two minutes of nebulization process. And it is of course quite reasonable that patients and their physicians hope that a new pill Uptravi could forestall their need for this intensive installation therapy. But that warehousing effect is already dissipating. As we are now actually getting double digit Uptravi patients moving on to our treprostinil product.

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

Meanwhile our non prostacyclin products Adcirca continues to grow smartly based on the ever greater awareness of the ambition morbidity mortality study that showed Gilead Letairis when uniquely combined with our Adcirca produce the same kind of morbidity reduction as Uptravi. Indeed ambitions 6 minute walk results for even better than Uptravi. So what we are seeing we would expect more and more payers to in fact require Adcirca plus Letairis before permitting reimbursement on more expensive therapies such Uptravi.

With that overview of our major revenue generating products now let me turn to a discussion of products in our pipeline. We currently have 13 products in our pipeline. So I am not going to be able to have time this morning to review all of them. I'll review a selection and invite you to attend our presentation at Wedbush Securities Healthcare Conference next month in New York for fuller explanation of the whole pipeline. The framework for understanding our pipeline is the five different kinds of pulmonary hypertension called group one, two, three, four and 5 PAH.

Now each of these different groups of PAH is different diseases requiring a different product profile. Group 1 PAH is the most well know because it was the lowest hanging fruit with pressure in the pulmonary artery up over 10x the normal level. So you can well imagine that if you had systolic or diastolic blood pressure 10x the normal level, well, you wouldn't be listening to this conference call. But with such very, very high pressures that was the low hanging fruit because it was most easily responsive to drugs. However, Groups 2, 3, 4 and 5 represents many, many more patients than Group 1 PAH. And those patients also have significantly elevated pulmonary pressures generally 2x to 3x normal level. So still representing a major risk for death and disability among these patient groups.

With UT drugs in particular and specifically Tyvaso and Orenitram, the Group 2 through 5 PAH are readily amenable to clinical trial success just as Group 1 PAH was readily amenable to the first generation drugs such as Flolan, Remodulin and [bocantin] So while there are over a dozen drugs approved for Group 1 PAH including four of our drugs and several generic drugs, there are absolutely no drugs approved today for Group 2, 3 and 5 pulmonary hypertension. This is what we at United Therapeutics call a classic, corridor of indifference. And we are running like hell down it. We are running like hell with three new clinical trials in Group 2, 3 and 5 PAH. The clinical trial in Group 3 already enrolling patients in Phase 3. And Group 2 getting ready to enroll patients in Phase 3 and Phase 2 trial is about to start up in Group 5 PAH.

But we are also not leaving Group 1 PAH behind. Our implantable pump which we call [remosync] just has a great FDA review meeting and feels we are on track for a launch in 2017 as we reported previously. Our second generation subcutaneous Remodulin product which is based on a clinically superior drug delivery technology called acoustic wave sensing has also passed just this month in excellent gating meeting at the FDA. And is now firmly scheduled for FDA submission in early 2017. That is in fact about a year earlier than we originally planned when we scoped out this product. We will also launch in 2017 a gene therapy trial for pulmonary hypertension called Sapphire based on our successful Phase 1 results. The Sapphire study is a Phase 2/3 combined study design that will enroll 60 patients and could result in a new clinical therapy to actually halt the progression of pulmonary hypertension.

Well, I probably had spoken enough about our pipeline without chewing up all your guys' time. But I'll just mention that we have a new -- we have additional new clinical development efforts starting up in various GD2 antibody responsive cancers based on our [tuxamate] platform and in Brochopulmonary dysphasia based on an NCE discovery from our regenerative med lab that has already shown a very positive animal model results in this orphan indication Bronchopulmonary dysphasia that also has no approved medicine from the FDA.

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

Question-and-Answer Session

Operator

[Operator Instructions]

Our first question comes from the line of Karen Splan with Goldman Sachs. Your line is open.

Amir Sendanti

Hi, this is [Amir Sendanti] on for Karen. Thanks so much for taking the question. And just a couple for us. And first were new starts are discontinuation a bigger driver of the sequential down quarter for Orenitram?

Martine Rothblatt

I have just going to have time for one question for you my friend because there is a long queue of other people with questions. So the trends are actually looking very, very good for all three of the treprostinil products. The Tyvaso is actually up from the previous quarter and so the trends are looking very positive there. Orenitram as mentioned the main effect there is that there is constantly a flow of patients who fail what is now recommended as standard upfront therapy already in Europe. And that's going to pour over to the US which is the ambition protocol I mentioned in my introductory remarks. Of course, it is not a cure; it just slows the progression of morbidity and mortality results. So when patients begin to fail the upfront Letairis plus Adcirca therapy, the next go on and are with ordinarily move onto Orenitram then Tyvaso and then ultimately Remodulin. However, with the launch of Uptravi, it is natural for these patients to try an Uptravi challenge before moving on to the more intensive therapy. As you may know, Uptravi does not have to be dosed as frequently as Orenitram is dosed in the majority of cases. So it's -- and it also has the label reporting a reduction in morbidity and mortality whereas the Orenitram's label pending the outcome of the Freedom EV study still talks about exercise improvement. So the delay that you see is this sort of what I call warehousing effect, the patients waiting for that Uptravi challenge and for some of the patients it would work for them and that's great. Lot of the patients it won't work for them, it will take a few months for that to be sorted out between successive doctor visit and then they roll on to the Orenitram therapy. Next question operator.

Operator

Thank you. Our next question comes from the line of Jessica Fye with JPMorgan. Your line is open.

Jessica Fye

Hey, there. Thanks for taking my question. I guess let's talk about Tyvaso just with that statement about 2 Q sales rebounding after the first quarter. Is it April sales were $43 million, it would seem that May and June on average would have been in the low 30s million or see the sequential decline after April. Is there any other information that you can give us to adjust sales in the second half of the year will continue to recover for Tyvaso?

Martine Rothblatt

Yes. Thanks for your question. I think that sales will definitely continue to recover on Tyvaso. The fact of the matter is that disease that we are talking about here is relentlessly progressive. There is -- between our efforts and those of Actelion and Gilead, Glaxo, we've done a really good job of moving the mean survival with our Group 1 pulmonary hypertension from 1 to 3 years which it was a few years ago to 5 to 10 years. So I mean that's a really great thing. And I think within all kind of part of sales in the back on that. However 5 to 10 years is looked at another way is frightening especially when the average patient is a young woman, and so it's frightening and what it means is that every year there are very large number of patients who are progressing through one medicine after another as their doctors try to find that will allow them to climb few steps without running out of breath and go back to work and go back to school and all the normal life activities. So once you get to the stage of needing Tyvaso, the disease is definitely showing signs of advancement to you. And the only stage after Tyvaso is [prentrol] therapy which means that you are walking around with a pump that is pumping medicine into your body 24 hours a day, 365 days a year. So that's -- you are clearly getting toward like latter stage of the disease with something like that. So there is just this continuous of pouring of patients from the upfront oral med through Tyvaso and then on to the [prentrol] and because this is relentless and never see things we definitely do expect the Tyvaso patient count to increase through balance of the year. What is the novel in the first part of the year is that there has been a brand new therapy and the first one in the prostacyclin class other than Flolan and its generic competitors that has a label that provides doctors some hope that you could actually forestall morbidity and mortality. And as a result patients who would otherwise be going onto Tyvaso are trying to give themselves a challenge with selexipag or brand its brand name Uptravi. Now for some patients the answer will be determined very quickly because they won't tolerate the side effects of Uptravi. For other patients maybe able to be stable on Uptravi for years. But on average in about 36 months and at a pretty steady rate of roughly speaking 10% to 15% a year and therefore roughly 1% of those patients a month, they are going to progress right through Uptravi. And if they progress very, very rapidly and they have just gone really downhill on Uptravi, the doctors going to have to skip over Tyvaso and put them directly on Remodulin. If they have been progressing maybe not improving but not really getting worse then the doctor will go ahead and say, well, let me maybe swap out Uptravi fore Orenitram and see if we get an improvement. And if it something in between that's the optimal place for Tyvaso. So all of the demographic data, all of the population data of patients taking this pulmonary hypertension drug would tell you that Tyvaso definitely will continue to grow during the second half of this year. Next question please.

Operator

Thank you. Our next question comes from the line of Michael Yee with RBC Capital Market. Your line is now open.

Edman

Hi. This is Edman on for Mike. So you just mentioned EV study. When this Phase 3 Freedom EV study taking off? Do you have more confidence in the study than prior Freedom study? Thank you.

Martine Rothblatt

Yes. So very good question. We definitely positively do have more confidence in the EV study than the Freedom study. And that's because every study is designed with pre specified statistical analysis plan. And that tells you how you are going to power the study, what assumptions going to make with regard to hazard ratios and all those sorts of things that ends up with the end of the study. Every time you do a previous study you learn things. And it makes your statistics that much sharper and smarter for the subsequent study. So the very first Freedom study was actually a monotherapy study and then the second one the combination study, EV is a combination study. So we've learned a lot of stuff from C2, Freedom C2. And that is allowed us to much more smartly set the bio statistical parameters for the EV study. So, yes, we are much more confident. In terms of when it will read out. It's a time to clinical worsening type of study design. So there is no way to up priority say like 12 weeks after the last patient. It won't be 12 weeks after last patient. But and obviously blind as we don't know the details. But what we have been aiming for was to be able to how launch this new product which internal to UT we call this an oreni plus because the current Orenitram product is label for as monotherapy, whereas the market is overwhelmingly a combination therapy market. So we need to provide prescribers with data that shows that when you give Orenitram plus combination therapy you get superior results. And our goal has been to able to launch this oreni plus therapy as early in this decade in the 20 team as possible. Enrollment has been going very, very well. And once the enrollment is completed which well certainly announced to the street, then it's going to be a period of time to accrue the data for the time to clinical worsening. I'd say based on other similar studies that's likely to be 12 months plus or minus three to six months, if I get back to another window, and then we are already by the way as a further to your question on confidence, we are already in parallel putting together things for the regulatory filing for that. So ordinarily a company would spend about a half year on the regulatory filings. And we've already been able to crunch that time down to four months and we are going to try hard to even to crunch it down to little bit better. But so if you add up those numbers you will see that with a positive result and positive FDA action, we should be able to launch this oreni plus product definitely in the 2018-19 timeframe. Next question please.

Operator

Thank you. Our next question comes from the line of Liana Moussatos with Wedbush Securities. Your line is now open.

Liana Moussatos

Thank you for taking my question. What's the status of the DEKA pump program and transplant organ?

Martine Rothblatt

Yes. Thank you, Liana. So the DEKA pump program has moved better than anticipated. Just to give everybody -- everybody the same background, this is the product that I mentioned in my remarks takes advantage of a clinically superior drug delivery technology called acoustic wave sensing. That the entire knowledge is the most precise and most accurate way yet developed to dissipate a drug into the blood stream. And of course that's highly important when you are dealing with a drug like prostacyclin which is so potent that it actually dosed in nanograms per kilogram. So I mean that gives you an idea how potent is drug is. So that technology allows us to ship to the patient disposable cartridges of the drug already in the acoustic wave sensing device. And then with third generation pump delivery system we are able to make a major advance in convenience for the patients. And we actually just had a gating meeting as I mentioned in my introductory remarks with the FDA this month. It was very successful and everybody is queued up to make that submission to the agency for approval in the first half of 2017 which is actually about a year earlier than we thought might be the case based on some of our kind of worse case assumption in terms of drug development stability and so on. We are right now already moving the final products on to stability. So it's all going very well there. On the organ transplantation we've made some really nice breakthroughs. The genetically modified pig that we used has established the world survival record in animal models for human transplantation with regard to the kidney, the heart and the lung. So we are very confident that we've got the best genetic modification platform. With the support of our partner, Synthetic Genomics, we are now able insert all of the genes that have worked so well super cleanly using crispher technology. And I think really during the balance of this decade, we will have completed everything necessary to commence the first human trials where the recipients can expect that they would have a durability of their xenograft that was on par and equivalent to the durability of an allograft and we wouldn't even try to do those trials unless we could show that comparability of survival. Next question please.

Operator

Thank you. Our next question comes from the line of Mark Schoenebaum with Evercore ISI. Your line is now open.

Regina Grebla

Hi, this Regina Grebla on for Mark. We thought it was great uncertainty see the other day and we are excited to hear more about your organ program. And just following upon the last caller's question, can you discuss some of the intellectual property challenges you may face going into the organ space and bringing it to market?

Martine Rothblatt

Yes. Generally speaking we really don't get into on these conference calls and have not in the past. Discussion of intellectual copy strategy, this area that's very strategic involves a lot of legal ins and outs it's actually managed by our chief strategy officer. So I am not going to the ins and outs on IP but suffice to say that when you make a new product there a lot of things to think about in terms of protecting its economic value to the stakeholders. IP is very, very important, know how is very, very important. Show how is very, very important. Manufacturing facilities, GMP is very, very important. Having facilities that have FDA inspection, very, very important. Your question brings to mind that like a couple of months ago somebody asked me question. He said like paypal is coming out of North Carolina and somebody else was coming out of North Carolina. Is United Therapeutics coming out of North Carolina? And I thought they were actually crazy because we have a beautiful $100 million pharmaceutical production plant in North Carolina that make our pills that are taken by all of our patients. And this pharmaceutical plant has been inspected by the FDA and other regulatory agencies pass all its inspections with flying colors. It took years to build and if you are in the pharmaceutical business you can't just like have a pop up factory in some other state and it would be years to get like another place approved by the FDA. So that just gives you an idea of all the different things that you have to think about to protect economic value in any product. Next question please.

Operator

Thank you. Our next question comes from the line of Geoff Meacham with Barclays. Your line is now open.

Evan Seigerman

Hi, all. This is Evan Seigerman on for Geoff. Thanks for taking my question. Just on the gene therapy program PAH. What did you see in the Phase 1 program that gave you confidence to and potentially initiative the Sapphire 2, 3 programs and what's the timing with the Sapphire phase 2, 3 programs? Thank you.

Martine Rothblatt

Great. Good question. And operator this is queue up, we will have one more question after this one. So what we saw was safety that every there were no untoward safety event despite ramping the gene therapy infusion some starting at I think it was 1.25 or 0.25 million cells and ramping it up to the many million of cells. This is an autologous gene therapy treatment so there are no viral vectors involved. It's using the patient's own cell which are transfected ex vivo and all of that is done and infused back into the patients are their own cells with the corrected gene. In this case it's the enos gene. And we saw beautiful safety and then the animal trials we've seen striking evidence of efficacy. So based on that we and the entire team in medical advisors all feel confident going into this Phase 2 kind of adoptive trial design based on those results. In fact that these will be patients who are -- have already failed all of the previous approved drugs that are out there. Next question please, last question please. I am sorry I forgot to mention one thing to the previous question. The study is queued up to start in the first half of 2017, will need to accrue 60 patients since these are layer stage patients, it won't be necessarily the fastest accrual. But I think generally speaking for something like this you would give yourself at the outset a couple of years for accrual. It will be an exercise six minute walk end point. So there will be a very quick and once the last patient is enrolled and then with some positive results we file for approval from then. I am sorry, operator, last question.

Operator

Our last question comes from the line of Chris Shibutani with Cowen and Company. Your line is now open.

Chris Shibutani

Thank you for taking my question. We appreciate the pipeline update. But I wanted to pose my question to focus on Orenitram which I think is still very much an investor focused. In the past you've talked about the Orenitram daily dose and the importance and the challenge of getting patients up as they try trading. Could you provide us with an update as I believe you have previously about Orenitram daily dose that you are seeing amongst, one, current users and number two, would you believe you are achieving in the Freedom EV trial? Thank you.

Martine Rothblatt

Yes. Thanks for the question. Now that the product is launched and it is being used by literally hundreds of prescribers, we are not going to continue providing the type of detail granularity of which particular dose each patient are at. You could back calculate to an estimate of that based the reported Orenitram revenues and the reported AWP pricing for Orenitram would all probably get you into a rough average and of middle of the range dosing that is pretty much in the 10 mg range. And it's not going to really be meaningful and I can't really be precise enough to give you any more granularity than that. Over time, there is no doubt that the any individual patient will go ahead and increase the amount that they are taking. However, you can't by just jump and make a quick trend line from that because there is constantly new patients are coming into the drug at the lower level. And I can't provide you any insight at all with regard to what's going on in the blind date Freedom EV trial. But I think the bottom line here is that if you were to make an estimate that the average of Orenitram patient generates something like today on the order of maybe $125,000 a year in revenue and I think the average over the next five years is going to continue to creep up. I'd not be at all be surprised if by the end of the decade the average was north of $175,000 per year because over time there will be more and more legacy patients on Orenitram and the number of newbie who is coming on it will represent an ever smaller fraction of the total amount. Well, thank you everybody for really good questions. And it was fun for me to have a chance to talk about that. From our strong profitability to the persistent demand of patients and physicians for our five approved products, as well as the exciting potential to 13 products in our pipeline, we at United Therapeutics are in a really good place right now in the middle of 2016. And we are looking forward to continued future of growth not only in pulmonary hypertension group 1 where we're already share leadership with Actelion, but in pulmonary hypertension group 2 and 3 where there are no developments going on. And Tyvaso is really the only uniquely situated product for Group 3. And then onward to pulmonary hypertension Group 5 which represents a very large unmet medical need that Orenitram is ideally situated to address. Thank you so much, operator.

Operator

Thank you for participating in today's United Therapeutics Corporation conference call. A rebroadcast will be available for replay for one week by dialing 1-855-859-2056 with international callers dialing 1404-537-3406. And using access code 40900672.

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