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Executives

Martine A. Rothblatt Ph.D. - Chairman of the Board, CEO

Roger Jeffs Ph.D. - President, COO, Director

John M. Ferrari Ph.D. - CFO, Treasurer

Analysts

Brent Holly - Oppenheimer & Co

Phil Nadeau - Cowen and Company

Eun Yang - Jefferies & Company

Lucy Lu - Citigroup

Jeff Meacham - JPMorgan

Liana Moussatos - Pacific Growth Equities

United Therapeutics Corp. (UTHR) Q1 FY08 Earnings Call May 1, 2008 9:00 AM ET

Operator

Good morning. My name is Janice, and I will be your conference operator today. At this time, I would like to welcome everyone to the United Therapeutics Corporation first quarter earnings conference call. (Operator Instructions).

Remarks today concerning the 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 risks 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 United Therapeutics’ periodic and other reports filed with the SEC. There can be no assurance that the actual results, events or developments referenced in 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. Thank you.

Dr. Rothblatt, you may begin your conference.

Martine A. Rothblatt Ph.D. - Chairman of the Board, Chief Executive Officer

Thank you, Operator. Good morning, everyone, and thank you for joining us for United Therapeutics first quarter 2008 financial results conference call. I am joined today as well by our Chief Financial Officer, John Ferrari, and our Chief Operating Officer and President, Roger Jeffs. I’ll start off with a brief introduction and then we’ll open up the call for any questions which can be directed to either me, John or Roger.

This is going to be a great conference call. I can give you a heads up to that right at the beginning, because we have three main thrusters at United Therapeutics; revenues, profits and pipelines, and this quarter all three thrusters are firing beautifully.

First with revenues; up 55% from the first quarter of ‘07 hitting a record $62 million for the quarter. This clearly demonstrates continued patient and physician confidence in our Remodulin intravenous and subcutaneous therapies. It also firmly establishes us at a $0.25 revenue run rate.

Second thruster; profit. Net income hit $11 million this quarter while earnings before non-cash charges was more than double that at $25 million which by the way was itself double the figure hit for earnings before non-cash charges in first quarter ‘07. But clearly, both of those thrusters are firing beautifully.

And, finally, but I think gives most of us the clue of what’s to come, is the pipeline. Our pipeline activity during the first quarter has been just wonderfully robust. The inhaled treprostinil NDA based on the TRIUMPH study of inhaled treprostinil for pulmonary hypertension is solidly on track for a late June ‘08 firing. And our late Phase III FREEDOM-C trial of oral prostacyclin, or oral treprostinil, is fully enrolled at this point and is now beginning to go into over that full amount of enrollment due to the patients who are already queued up to enter the study before the termination date.

So, very, very strong interest by physicians and patients in the oral treprostinil program, and it’s always a great pleasure to announce when one of our Phase III trials reaches full enrollment. With that by way of an overview and the introduction, let me ask the operator to please now open the phones to invite any questions from the callers and participants in the conference call.

Questions and Answers

Operator

Thank you. (Operator Instructions). Your first question comes from the line of Brent Holly.

Brent Holly - Oppenheimer & Co

Yeah hi. Thanks for taking my question. I was wondering, I guess to Roger what kind of patient reported endpoints might we see from TRIUMPH at ATS just the nature of those endpoints and we gotten any information on those endpoints before?

Roger Jeffs Ph.D. - President, Chief Operating Officer, Director

Yeah hi, Brent. Thanks for the question. I’ll try to answer your question as best I can. I’m not sure what you mean by patient reported endpoints.

Brent Holly - Oppenheimer & Co

Well, quality of life, etcetera.

Roger Jeffs Ph.D. - President, Chief Operating Officer, Director

Okay. So, there is a couple of things were assessed specifically by the patient. One is at the end of the six minute walk test is the shortness of breath scale. That’s the board score and that was the secondary endpoint. We’ve already reported that there were non-significant findings on board. You will also see quality of life measures, and Dr. McLaughlin will talk in-depth about that, because there were some significant findings on quality of life. So, in addition, there will be some other endpoint measures related to biomarkers, which have not been publicly disclosed that Vallerie will talk about, which I think those physicians in the street will find very encouraging and supportive of the primary endpoint findings on the six minute walk which to remind people were highly significant, as well as trough walk.

So, that’s going to be a very full oral presentation on May 21 in the afternoon session at PH in the New Therapies session, and I think it will be certainly be the presentation of most interest both to physicians and Wall Street. I hope and I fully expect that people will leave that presentation fully bolstered by the completeness of the results, the robustness of the primary endpoint findings and the thoroughness at which the trial was conducted, and the enthusiasm which physicians have adopted around this therapy.

Brent Holly - Oppenheimer & Co

So, just a quick follow-up. You said significant results, statistically significant results, just to be clear?

Roger Jeffs Ph.D. - President, Chief Operating Officer, Director

Yes.

Brent Holly - Oppenheimer & Co

Okay. Thank you.

Martine A. Rothblatt Ph.D. - Chairman of the Board, Chief Executive Officer

Next question, please?

Operator

Your next question comes from the line of Phil Nadeau.

Martine A. Rothblatt Ph.D. - Chairman of the Board, Chief Executive Officer

Good morning, Phil.

Phil Nadeau - Cowen and Company

Good morning Martine, how are you?

Martine A. Rothblatt Ph.D. - Chairman of the Board, Chief Executive Officer

Great.

Phil Nadeau - Cowen and Company

My question is on the FREEDOM-C trial. Could you give us some idea of what the dropout rate has been to date, and is the primary analysis here in ITT analysis and, if so, how would dropouts affect that analysis?

Martine A. Rothblatt Ph.D. - Chairman of the Board, Chief Executive Officer

Sure, we’ll let Dr. Jeffs to address that.

Roger Jeffs Ph.D. - President, Chief Operating Officer, Director

Thanks for the question, Phil. I’ll make three comments about dropouts to hopefully give full clarity on the situation. So, as everybody knows, we started the trial initially with the 1 milligram tablet strength, and that was the only strength in the tablet. And there were some dropouts due to intolerance related to prostacyclin-like side effects. About last June we introduced a 0.5 milligram tablet, and since that time there has been very, very few dropouts due to prostacyclin-like side effects. And in most respects we’ve abated dropouts due to prostacyclin-like AEs altogether.

The dropout rate as it currently stands is hovering between 10% and 15% of the population in the FREEDOM-C trial. So, that’s the trial that Martine mentioned that we have completed our target enrollment of 300 patients. We’ve announced two sites that we will close enrollment on May 16. So I don’t think the dropout rate over the next couple of weeks is going to change materially. So I think it’s pretty fair to say that the final dropout rate will be between 10% and 15%. And to give you some perspective on that, the dropout rate in the TRIUMPH trial was around 10% on a very well tolerated therapy by everyone’s agreement.

So this is really I think, very, very good news that the dropout rate, while there is some dropouts due to prostacyclin-like side effects, it’s not over abundant and it’s probably less than people have been assuming. So, that’s two points. One is the dropout rate itself and two the actually the 0.5 milligram tablet has abated additional dropouts.

I think the other thing to remember is that because we’ve met our 300 patient target, that any additional patients that we enroll above and beyond that add additional power to the study. And we think that we will probably over enroll in the 10% range, if everything goes according to what sites tell us in terms of who is in the queue, who they want to enroll through May 16. So when you do that that additional power should also provide further mitigation of those early dropouts that occurred due to AEs. So at the end of the day we’re hoping that the dropouts due to prostacyclin-like side effects, which probably did occur preferentially in the treatment group, will be mostly mitigated.

So, then the other part of your question is, how are we handling the dropouts? We’re handling the dropouts in an intent to treat manner. So, all Phase III trials handle patients as randomized in an ITT basis. For patients that don’t complete the full observation period of the study there are well defined and pre-specified imputation strategies on how to impute a value for 12 week walk. For patients that drop out due to AE-like side effects, if they had a headache for example, they have lost observation carried forward. The only patients that have worse rank are patients that died or had clinical worsening and we would hope and perhaps expect but that would happen more commonly in the placebo group. And that is a bit more draconian way to handle that small subset of patients that have those types of effects.

So I think the fact that it’s last observation carried forward for prostacyclin-like side effects is yet a further mitigating statistical circumstance that’s been employed in this trial, and is employed in every trial that happens in pulmonary hypertension.

Phil Nadeau - Cowen and Company

That’s very helpful. Thank you.

Roger Jeffs Ph.D. - President, Chief Operating Officer, Director

Okay.

Martine A. Rothblatt Ph.D. - Chairman of the Board, Chief Executive Officer

Thank you, Roger. Next question, please?

Operator

Your next question comes from the line of Eun Yang.

Eun Yang - Jefferies & Company

Thanks very much. Regarding the FREEDOM-C trial what percentage of patients in the trial actually are on both Rivatio and Tracleer as the background regimen?

Martine A. Rothblatt Ph.D. - Chairman of the Board, Chief Executive Officer

Well, we don’t go into that level of detail with regard to a trial, but all of the patients are on either Tracleer or Rivatio or both. And at this point in the middle of a trial, we wouldn’t start breaking it out into how many are in one or the other or both.

Eun Yang - Jefferies & Company

Okay. And I read it somewhere in your SEC document that you plan to start some sort of a dose ranging study with oral formulation so maybe you have covered this in the past. The question is how did you determine the optimal dose in the FREEDOM trial?

Martine A. Rothblatt Ph.D. - Chairman of the Board, Chief Executive Officer

Thanks. Well, that’s a question I think Dr. Jeffs will gladly be able to address. And Roger, can you give some color on the dose ranging study? Hello? Well, let me answer the question, okay?

Eun Yang - Jefferies & Company

Sure.

Martine A. Rothblatt Ph.D. - Chairman of the Board, Chief Executive Officer

So the dosing for the oral prostacyclin study, the FREEDOM study, was based on trying to achieve a comparable amount of treprostinil in the patient serum as we had learned to be therapeutically effective with intravenous and subcutaneous. And, in fact our pharmacokinetic studies have demonstrated that we match very, very closely with the oral prostacyclin was achieved with taking prostacyclin continuously the subcutaneous or intravenous delivery. Now, as with all forms of prostacyclin, there is a tendency for the patient to get used to the level of prostacyclin and to require more over time.

And for example with parenteral Remodulin over time patients may increase their dose of Remodulin by two orders of magnitude even though the typical dose is about 50 nanagrams per kilogram per minute. And similarly, with the oral prostacyclin, patients may start as little 0.5 milligram twice a day, as Roger indicated earlier. And during the course of the study and in the extension study after they exited, we’ll continue to increase their doses.

We haven’t got anywhere near to a two order of magnitude increase, but in part that’s because the extension study is only about a year old whereas we’ve had Remodulin in the market for six years. So, the bottom line answer to your question is we’ve done pharmacokinetic work to assure us that the oral dose is comparable to the intravenous dose.

Eun Yang - Jefferies & Company

Okay. And then this dosing study when you start is expected to be a variable, to data, toward the end of next year. So do you think that’s a kind of required by the FDA for approval for the oral formulation?

Martine A. Rothblatt Ph.D. - Chairman of the Board, Chief Executive Officer

We’re confident that we will have all of the data that we require including from the and dosing studies in time for our target NDA filing which we’ve previously said is targeted for the second half of 2009.

Eun Yang - Jefferies & Company

Okay, and then last question…

Martine A. Rothblatt Ph.D. - Chairman of the Board, Chief Executive Officer

Wait, I’m sorry. I’m sorry, because this is your third question and I just want to be respectful because there are a whole bunch of people waiting on the call. But feel free to call us and we could help you offline.

Eun Yang - Jefferies & Company

Okay.

Martine A. Rothblatt Ph.D. - Chairman of the Board, Chief Executive Officer

Thank you so much for understanding. Next question, please?

Operator

Your next question comes from the line of Lucy Lu.

Lucy Lu - Citigroup

Hi, thank you. Just a quick question on the study design of open label study that you [inaudible] Remodulin. I guess in the queue today you said you expect this to start in late 2008. I was wondering if you could talk about where the study will be conducted, how many patients, length of treatment, algorithm of switching [ph]? Thanks.

A. Rothblatt Ph.D. - Chairman of the Board, Chief Executive Officer

Thanks, Lucy. Nice to hear your voice on the call. Unfortunately we can’t really share all of those data right now publicly. We’re still fine tuning the details of it. And, as you know when we develop these protocols we develop them together with the key opinion leaders in the pulmonary hypertension field. So it doesn’t really go over very well with these important decision makers to prejudge any of the important parameters in a public call. But I am not confident but later on in the year we will be able to publicly shed more light on that, once all of the parameters are pinned down with the KOL, and we’ll definitely share them at that time.

Lucy Lu - Citigroup

All right, thank you.

Martine A. Rothblatt Ph.D. - Chairman of the Board, Chief Executive Officer

Thanks for your question, Lucy. Next question, please?

Operator

Your next question comes from the line of Matt Kaplan.

Matt Kaplan - Punk Ziegel & Co.

This is of the next generation program for the inhaled Remodulin, in terms of the next generation inhaler?

Martine A. Rothblatt Ph.D. - Chairman of the Board, Chief Executive Officer

The device that we’re working on with Aradigm would be the next generation inhaler, and we’re right now in the process of basically doing some confirmatory studies in terms of deep lung penetration which by the way results are looking very, very well. Preparing for a meeting with the FDA and then with the EMEA [ph] to reach agreement on what’s the most sensible sort of protocol for something which is a follow-on to the nebulized from of delivery via the Nebu-Tec device, as well as the follow-on to our subcutaneous and intravenous drugs.

And then based on that guidance we’ll know real clearly how to proceed. So I think we still need to wait just a few months to provide some more insight on that. But in the meantime the Nebu-Tec base delivery system is being received extremely warmly and positively by the patients and the physicians and I’m sure will fill a real crucial medical need right now.

Operator

Your next question comes from the line of Jeff Meacham.

Jeff Meacham - JPMorgan

I have a question for you on the inhaled data that we’ll see at ATS. Do you guys know if we’ll see any data from TRIUMPH in an extension study? And the second part to that is in the extension studies, do you think that we could see improvements over time, in Borg, in worsening and functional class? And obviously maybe not enough to see that in a 12 week time frame, but over time do you think that makes it a little bit more commercially buyable?

Martine A. Rothblatt Ph.D. - Chairman of the Board, Chief Executive Officer

I think that you’re definitely going to see all of those parameters improve. And we’ve certainly seen that with subcutaneous and intravenous Remodulin. We’ve seen, for example, long term results that demonstrate heightened survival compared to the NIH baseline with parenteral Remodulin whereas, that’s something you obviously can’t see teased out in a 12 or 16 week study. So the answer to your question is absolutely.

In terms of the attractiveness of the drug with the label that the FDA will agree to, it’s a little bit premature to speculate on what that label would be. That’s, of course, in the purview of the FDA. But based on the results that you’ll hear at the ATS meeting for TRIUMPH including some really great science and significantly greater levels of detail than we’ve been able to give previously on conference calls, because this data will be presented by the physician investigators themselves. I think it will be extremely clear to anybody attending Dr. McLaughlin’s session that there is a lot of data to provide physicians with great confidence that inhaled treprostinil would have an important therapeutic benefit for their patients.

Jeff Meacham - JPMorgan

Thanks for that Martine. Just a real quick follow-up on the oral program. Can you give us a sense you mentioned earlier I think Roger mentioned the change in the dosing. Can you give us a sense for where you think the average dose in oral is today, and then as a secondary to that generally speaking, what percent of patients so far in that FREEDOM-C have gone on to an extension study?

Roger Jeffs Ph.D. - President, Chief Operating Officer, Director

This is Roger. I am back on.

Martine A. Rothblatt Ph.D. - Chairman of the Board, Chief Executive Officer

Okay. Great Roger thanks.

Roger Jeffs Ph.D. - President, Chief Operating Officer, Director

Hi, Jeff. We’re not going to provide that level of detail at this time. Remember, it is a blinded trial, so we don’t know who’s on what at this point. So it’s hard to give you any clarity on doses. I think in general we know that 1 milligram is equivalent to about 10 nanogram per kilogram per minute. So, we’re hoping that a minimum target dose between 2 and 3 milligram twice a day which would produce an equivalent fusion dose of about 20 to 30 nanograms per kilogram per minute. And if you remember way back when, the subcutaneous dose was around 10 nanograms per kilogram per minute. So, this even at 2 to 3 milligram twice a day, you’re at two to three times the subcutaneous trial dose. So, I do think that’s a more than healthy and therapeutic level of dose.

Jeff Meacham - JPMorgan

Excellent. Thanks a lot.

Martine A. Rothblatt Ph.D. - Chairman of the Board, Chief Executive Officer

Thank you. Next question, please?

Operator

(Operator Instructions). Your next question comes from the line of Liana Moussatos.

Liana Moussatos - Pacific Growth Equities

Thank you. When do you expect FREEDOM-C data release, is it Q3 or Q4? Can you tell us what percent of the Remodulin Q1 sales were IV and subcu? And can you talk about the change in inventory during Q1?

Martine A. Rothblatt Ph.D. - Chairman of the Board, Chief Executive Officer

Let me address the first two questions and John Ferrari our CFO, keeps a sharp eye on inventory so we’ll have him address the third question. Things have not changed at all from the previous guidance that we’ve provided that we expect to announce the FREEDOM-C results in the fourth quarter of this year. So I think that will be frankly one of the biggest news events for us of the year. Although another very big news event would be filing of the inhaled NDA in late June of this year. So we’ve got two, I think, especially big news events coming for this year.

In terms of the breakouts between subcu and IV it’s really interesting that over time it’s remained remarkably steady at about 50-50 between the two of them. And we get this question about every other conference call or so, and we’ve steadily noted that it’s pretty much a 50-50 split between the two of them. And that’s really remained unchanged for the past two years.

John M. Ferrari Ph.D., - Chief Financial Officer, Treasurer

On the inventory questions, inventories for the quarter was flat, so there wasn’t any kind of significant increase or decline in inventories.

Liana Moussatos - Pacific Growth Equities

Okay. And do you see the IV going back to the IV growth, do you see it surpassing subcu in the next year or two?

Martine A. Rothblatt Ph.D. - Chairman of the Board, Chief Executive Officer

Okay, let me just mention this, let that be your last question to give everybody else in the queue a role. I think that they’re going to remain very, very much competitive with each other and equally attractive for different reasons. The IV of course, eliminates the issue about site pain. It makes for a very fast transitions from Flolan. On the other hand, subcu is the safest possible way to parenterally provide any form of a prostacyclin analog. It’s also the most convenient for the patient. And for patients that tend to get through the initial site pain area, they report site pain experience, a large percentage of them basically have no continuing site pain and are able to manage it very well with -- we have over 25 different techniques to manage it.

So, also we are starting more and more patients in community centers as the word about pulmonary hypertension gets out. More and more doctors who are not as experienced in diagnosing and treating pulmonary hypertension are beginning to diagnose and treat it, thanks to the greater awareness specifications of perhaps by Rivatio in particular.

And for these community centers dealing with subcu is definitely a much more rational ramp into treating those patients than jumping to on the heavier therapy in terms of patient compliance and issues like that, such as IV. So, that’s a totally independent reason why we think that subcu and IV will remain approximately equal as they are right now well into the foreseeable future.

Your question also engendered another very good point. I am glad you did ask the question, which is that we are really pleased to see continued growth in the severe segments of the pulmonary hypertension market. As you know, this market is divided pretty clearly into two halves, a moderate pulmonary hypertension segment and a severe pulmonary hypertension segment.

In the moderate segment, the patients are able to be managed and oftentimes improved in their exercise performance and in their pulmonary hemodynamics simply with oral meds. And that’s by patient count it’s a much larger segment by revenue count as well, a little bit less. And then there is the severe pulmonary hypertension segment where patients are not able to be optimized on oral meds and continue to decline in their exercise performance, have increase in dyspnea and some syncopic episodes. And in the severe pulmonary hypertension segment one needs to have a parenterally provided form of prostacyclin.

While it’s in this severe segment that we’ve continued to see a robust growth year-after-year and with something like maybe 3,000 to 4,000 patients in the severe segment maybe 20,000 to 30,000 patients in the moderate segment and patients continuing to progress through their oral treatment, in other words to progress from moderate to severe, I think is entirely reasonable and sensible to expect the severe market segment to continue to grow robustly year after year.

Next question, please?

Operator

(Operator Instructions).

Martine A. Rothblatt Ph.D. - Chairman of the Board, Chief Executive Officer

Okay, well great. We’ve reached the half-hour completion point for the conference call. And I would like to once again however thank everybody for being part of the call.

To summarize the main points, it’s been a fantastic quarter for us with record revenues, strong profits, and as much pipeline growth as any biotech would like to have from patient enrollments on pivotal trials, and another drug keeping right on track to an NDA filing that will occur before in the next conference call.

So, thanks, everybody, for participating and your continued support and interest in United Therapeutics. Have a great day.

Operator

Ladies and gentlemen this concludes today’s conference call. You may now disconnect.

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Source: United Therapeutics Corp. Q1 2008 Earnings Call Transcript
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