United Therapeutics Corporation (UTHR) Q4 2014 Earnings Report, Transcript and Summary

Good morning. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the United Therapeutics Corporation Fourth Quarter and Annual 2014 Financial Results Conference Call. 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 Corporation will include forward-looking statements, representing the company's expectations or beliefs regarding future events. The company cautions that such statements involve risks and uncertainties that may cause actual results to differ materially from those projected in the forward-looking statements. Please see the company's latest forms 10-K and 10-Q and subsequent filings with the SEC for additional information on these risks and uncertainties. There can be no assurance that the actual results, events, or developments referenced in these statements will occur or be realized. The company assumes no obligation to update forward-looking statements to reflect actual results, new information or changes in underlying assumptions. Today's remarks are intended to educate investors about the company. This may include reporting on the progress and the results of clinical trials or other developments with respect to the company's products. Today's remarks are not intended to promote the company's products, to suggest that they are safe and effective for any other use than what is consistent with their FDA-approved labeling or to provide all available information regarding the products, their risks or related clinical trial result. Anyone seeking information regarding the use of one of the company's products should consult the full prescribing information for the products available on the company's website at www.unither.com. Thank you, Dr. Rothblatt. You may begin your conference.

Thank you, Eric, for that nice introduction. Good morning everybody. I'm joined on the call this morning by my Co-CEO Dr. Roger Jeffs; and also by our Chief Financial Officer, John Ferrari; and our Chief Strategy Officer, Andy Fisher. I'd like to start off by noting that John Ferrari who has been our longest standing CFO more than six years is at long last retiring having hit the big 6-0, and this will be John's last conference call with us. So John, thank you so much for the past six years of service as Chief Financial Officer, and subsequent to John's retirement, our new Chief Financial Officer will be James Edgemond, whom many if not most of you on this call have had an opportunity to meet at various healthcare conferences, and has been overseeing the Investor Relations area as well for the past year or so. So starting with the next call James Edgemond will be the Chief Financial Officer and answering questions in that area. Already, so overall revenues and profits grew significantly from 2013 to 2014, and we are pleased to see continued growth in the number of patients held by each of our products. The fourth quarter was especially distinguished by Orenitram, which exceeded 25% of Adcirca sales, and 17% of Tyvaso sales, despite the fact that December was only the seventh month of Orenitram's launch, whereas those other two products were launched way back in 2009. This affirms our belief that Orenitram is on track to become our best selling product. Let me just break a couple of those stats down for everybody, so we can all appreciate the significance. It took about 10 years for Remodulin to reach approximately $0.5 billion a year in sales. And as Dr. Jeffs has pointed out previously, it took only about half that amount of time approximately five years for Tyvaso to reach approximately $0.5 billion a year in sales. And that's no doubt largely because of the much easier delivery mechanism of Tyvaso compared to Remodulin. Now it's taken just about half a year for Orenitram to reach somewhere between a sixth and a fifth of the level of sales of those other projects. So if you go ahead and you multiply that say a six by six, you come out with, it should take about three years for Orenitram to reach that same approximate revenue run rate. And that's why we feel confident that Orenitram is on track to become our best selling product. It's obviously much easier to take a pill than even to do a four times a day nebulizer session, which in turn is much easier than putting up at the subcutaneous or intravenous deliver rout. Once the Orenitram matches the Tyvaso, Remodulin realm of revenues at $0.5 billion a year, we remain very confident that Orenitram will continue its growth to over $1 billion a year that would be just required, just about 5,000 patients, which by the way is itself only a sixth of the currently prescribed and treated pulmonary hypertension patients in the U.S. And at the rate of growth in the pulmonary hypertension market, it will, 5,000 patients will represent only a seventh, may be only an eighth of all of the patients by the time Orenitram gets up to their. So things are looking very bright for Orenitram. Another interesting statistic that you can glean out of today's annual numbers is that this is the first time in 10 years that we've significant quarter-to-quarter growth in revenues for all four quarters of the year. And I think it's a reflection of the growing diversity of our revenue base, as well as a recent expansion of our sales forces deeper into the community prescriber level. So revenues first quarter, second quarter, third quarter, fourth quarter, there were our growth in our revenues every sequential quarter, at -- the level of that they were this year we haven't seen that in our entire 10-year history. There's been a couple of times when there were some incremental growth but not as strong as this. And again, I think that it's probably a testament to something Dr. Jeffs has said frequently, which is that it's time to look at total treprostinil revenues. When you take a look at the total treprostinil revenues, and add Adcirca into that as well, you were able to sort of transcend through some of the quarterly fluctuations that had been seen in the past. But how we rambled on long enough here with some insight into the statistics. So let me ask the operator to kindly open up the phones and I will try to sort the questions amongst myself, Dr. Jeffs, John Ferrari, and Mr. Fisher. Operator?

Thank you. [Operator Instructions]. And our first question comes from Liana Moussatos from Wedbush Securities. Please go ahead.

Thank you for taking my question and congratulations on the quarter. Could you update us on pipeline products like implantable pump and the antibody for neuroblastoma?

Yes, thanks very much, Liana, for your question. Those two particular projects have been ones that have been marshaled by our co-CEO, Roger Jeffs. So Roger, could you provide Liana, and the other listeners with some insight into the implantable pump and neuroblastoma projects?

Yes. Thank you, Martine, and thank you for the question, Liana. I'm very pleased to answer that one. As it's been a particularly rich year for pipeline development at United Therapeutics. So I think when you look at the pipeline, the two biggest components of that are the fact that we are in Phase III with both Orenitram and Esuberaprost analogue, as one to enhance the FREEDOM-EV trial, to enhance the Orenitram label, and Esuberaprost is a novel chemical entity looking to augment inhalation therapy with an oral adjunct. So those are both in Phase III and progressing well. And I think particularly with regards to FREEDOM-EV, it has a number of attributes that are attracted, one that it will augment the U.S. label as I mentioned, it could support European approval of Orenitram given its morbidity and mortality as the primary endpoint. It will provide more clinical data with respect to combination use, we certainly have some now, but this will further add to that customers' data, particularly with regard to delay in clinical worsening, and we will get additional data with the TID regiment used from the startup therapy. So those are all important attributes to the FREEDOM-EV trial. And again, enrollment is progressing both in the esuberaprost BEAT study, and the FREEDOM-EV study for both of those products. I think the other important developments in 2014 related to Remodulin; one was the implantable pump development with Medtronic was filed in December as a PMA, and that is on track with rehab also has done a labeling supplement in January, so that we expect sometime in late 2015 to have approval of the implantable platform, which will really benefit patients from a safety standpoint. It will eradicate in essence the risk of septicemia, and it will also allow once a month or even more prolonged filling, which is a tremendous convenience advantage to patients and something that patients have already clamored for. In addition, late in 2014, we announced a new semi-disposable subcutaneous pump platform in collaboration with DEKA. And what that is, is a novel pre-filled pump administration of subcutaneous Remodulin. The only way to use that pump technology will be through United Therapeutics because it's pre-filled. The bladder that contains or the cartridge that contained Remodulin will be disposable and the brains of the pumps can be controlled by iPhone type technology, smartphone technology to control the flow rate, will be retained by the patient. But even that would be disposable on a pretty much a monthly basis. But those are again important I'd say portfolio management programs in the sense that it takes a product that's been in the market for over 10 years, and gives it a renaissance and a reinvigoration in terms of what we're able to do for patients both from a safety and convenience aspect. Further to that, and you mentioned it is we -- and a huge part of 2014 for us was branching out into the oncology space. And we filed in late 2013, what we're calling UNITUXIN, which is our Chimeric 14.18 anti-GD2 Monoclonal Antibody, which is an immunotherapeutic treatment for children with high risk neuroblastoma we found that in -- at the EMA in late 2013. And then in second quarter of 2014, we found that application with the FDA. The action date for the FDA, NDA, or BLA, is in March. So we are very close to having a definitive answer on that application. And then in Europe, we expect an answer in the second quarter, at least an opinion. And then post the opinion, there will be a, basically a 90-day clock to workout labeling and other aspects to that application. So we are hopeful that in 2015, we will launch our first oncology product into a market with high, high unmet need, and with a molecule that has shown very significant and robust performance in clinical trial, not only improving event-free survival, but improving survival as well, in these children that have had a very burdensome and rigorous course of therapy and it's a horrible disease. And then, on terms of other platforms we continue to progress, an antiviral program we're in Phase I with one of our products there UV-4, and then doing a number of other things in terms of advancing our lung programs to both with regard to xenotransplantation and tissue engineering, but those are certainly farther reach program, but regardless we continue to progress those entities as well. So I think unless you have other questions, Liana, that's all I'll give on that today.

Thank you very much.

He marshaled it out. That's a terrific review. Thank you very much. Operator, next question.

Our next question comes from Terence Flynn of Goldman Sachs. Please go ahead.

Hi, this is Irene in for Terence, thanks for taking the question. For Orenitram, can you provide us with a number of patients on DRIP and the breakdown between new starts versus Tyvaso and Remodulin switches and may be how that changed from last quarter if any, if not can you offer insight on the average dose of Orenitram? Also how does the breadth of prescriber base compared to Tyvaso? Thanks.

Okay. Thank you for the question. We cannot provide the breakdown that you identified in the first part of your question. With regard to the second part of your question, there's been a increasingly rapid evolution of the dosing of the patients from the BID to the TID mortality. Basically if you want a long-term, sort of perception, the maximum dose that's sort of targeted in our FREEDOM-EV registration trial for Orenitram seeking a morbidly and mortality endpoint is six milligrams TID. And so that's I think a reasonable target to look toward like a long-term steady state dosing level for Orenitram. Thanks for your question. Next question, please.

Our next question comes from Mark Schoenebaum from Evercore ISI. Please go ahead.

Roger, I was wondering the SELECTATEC is coming up, I was wondering what you'll be looking for in the data to understand how that molecule is going to play into the market? And the second question was on FREEDOM-EV, the outcomes rather you were just speaking about. I understand it's on top of one oral, and there's been some physicians who have expressed concern it's on top of two orals, and that might therefore impact enrolment. So I was worrying if you could comment on that and give us an update on enrollment? Thanks a lot.

Yes, sure Mark thanks for the questions. So maybe I sound a bit like a broken record here on SELECTATEC. So I believe it's been more than eight months since they announced their initial data and I think we all still await the publication of a broader set of data, there's been -- they've been very quite on the data release, but I do understand that it's going to at March at ACC they're going to have a more complete review of that data. In terms of the questions that I would like to see answered and I think, again it's not just me, I think this comes the clinical community in general that treat patients with PAH, is that they have shown a relative risk reduction in morbidity and mortality, I think people want to see the Kaplan-Meier plot that undermines that or supports that risk reduction, and certainly look at the absolute risk reduction. Further it would be nice to see breakdown by background therapy because they had a component of those patients I believe upwards of 25% that were naive to treatments. So basically a mono-therapy treatment and whether or not that subset segment of the population drove results similar to what happened if you looked at their macitentan data, a lot of that effect was driven by the treatment naive patient population. And then to look at how did it perform both on single and/or double background therapy, which I do understand they had a very small portion of patients on dual background therapy. The second thing, I would like to see is a lot more clarity on the six minute walk distance effect, not just placebo corrected, but look at it in the active group on, because what -- in the commercial setting you don't get the benefit of giving nothing, you have to just perform as an active moiety, so it would be interesting to see what was the active group improvement in six minute walk distance. And then, secondarily to that, it would then be important over their full dose range to see if there was a dose response. What I've heard through the grapevine is that the active group improvement was small in the single-digit range, if that's true, then it's obviously going to be very hard to show a dose response, if not impossible. And then second question -- third question would be what's the overall tolerability profile. So I think to intimate a lot of claims that having an IP one agonist or prodrug would improve the tolerability profile. But we've also heard and I think they've announced actually that there has been over 14% of the patients that dropped out that's nearly one in six that dropped out to prostacyclin related side effects that's a very high number just for that. And then obviously there's drop out for other reason. So their dropout rate must be pretty high. By comparison, if you look at the FREEDOM-M study we, in our label we had 4% dropout due to prostacyclin related side effects in the placebo compared group was 3%, so much lower level of dropout again and that was on a BID regimen as Martine said, our market is moved to TID, which appears to be much better tolerated given that the retention of patients and the commercial setting is very, very good. So those are the types of things that I would want to see and I think further on those it would be interesting to see because they have dose ceiling, did patients track to the highest dose and are those the patients that are then dropping out because of intolerance and how does dropouts correlate with the dose applied? That's an important -- that's a very important metric to look at because I think one of the things they are asserting as they are going to give this sort of low and none dose at a maintenance dose to support patients on Opsumit. What that actually gets an advantage in patients is in my opinion because the hallmark of prostacyclin therapy is that it's infinitely titratable to effect and what you want to do is dose the drugstore effect so to have a limitation in that regard. To me it limits clinical utility of the therapy and actually undermines the clinical value of that moiety. So again those are the types of things that I would like to see whether or not they show them who knows, but I think hopefully the audience will ask all those questions because those are the answers that are going to define their outcome both in terms of a regulatory review, as well as, if they are successful there in the commercial setting.

Thank you, Roger. Thanks for that great comprehensive answer. Operator, Eric, next question.

Our next question comes from Jessica Fye of JP Morgan. Please go ahead.

Hi, this is Ryan for Jess. Thanks for taking my question and congratulations on the quarter. May be you should give us a little bit of color on the expense outlook for 2015? Thanks.

Sure. Thanks for that question and for the congratulations on the quarter. As we have John Ferrari here for his last conference call after six times 24X24 excellent conference calls. John, if you could give some insight on R&D expense looking into 2015.

Well we're not getting specific numbers. I mean, in general, I would expect that R&D expenses may increase slightly in 2015 over 2014 because we have two kind of big clinical trials going on EV and BEAT, as well as developmental work that we're doing on still with the MiniMed pumps margin. I guess infusion system, disposable pump and other things like that, so we're investing in the pipeline which is investing in our future. Sales and marketing could be flat to may be just a slight increase since we do have core products that we are now marketing and trying to sell. And in SG&A, I mean, it tends to go up year-over-year just because our -- the support services and things that we need to do to, for a growing company, but I don't see any significant increases in the SG&A line item that would be noteworthy. And in our cost of goods product sales some actually will decrease year-over-year now because we're not paying a 10% royalty to Glaxo for treprostinil-based products.

John, that's that is really important that last point that you mentioned significantly with the big drop in COGS, I guess would be somewhat close to 10% drop in COGS that's really, really significant. And I apologize for misspeaking it's been eight years that you've been as CFO, 32 quarters not six years. So yes, the -- our profit picture continues to look good and in addition to that we are continuing to execute our share buyback, so not only our earnings on their own likely to grow because of growth in sales and flat to downward trends in expenses, including COGS, but significantly earnings per share should increase yet further because of our reduction in outstanding shares. And indeed that's why we think that's a good use of money, demonstrating our confidence going forward in financials. Next question, Eric.

Our next question comes from Michael Yee of RBC Capital Markets. Please go ahead.

Hi good morning thank you very much for taking my questions. This is actually Judy Liu on for Michael Yee. I had a question about Orenitram if you don't mind. So I was wondering if you could give us a little bit more on your thought of what timeframe would you expect Orenitram to be your biggest product? And what you expect most of the patients converting to becoming from others products to your offering or from non-user products? Also if you could perhaps explain or stress [indiscernible] -- what impact, if any, this would have on sales from Orenitram the impact of the comps would have that would be great. Thank you.

Yes, as was indicated earlier, we think that we're looking at less than a handful of years until we match with Orenitram the level of revenues that we see with Tyvaso and you could see that as I mentioned in my introductory remarks at the rate that we've launched out of the starting block here is quite brisk and significant. So basically you're looking on something like a handful of years until it becomes the company's best-selling product, were there no growth in the other products, and may be a year or so after that, if there were growth. Now we don't really believe that the growth in Orenitram is mostly coming from user products. It's actually patients who are not ready on our user products that could be the source of most of the growth. As I have mentioned there are 30,000 and growing numbers of pulmonary hypertension patients. The number of those patients in the U.S. who are on our products currently are something in might be 7,000 patient range. So the vast majority of pulmonary hypertension patients don't yet have access to prostacyclin therapy. And in fact our past statistic is that about half the patients who died from pulmonary hypertension never have access to prostacyclin therapy. Again it's mostly related to the fact that it's a big challenge and a big difficulty for many patients to take the parenteral therapy or even the nebulization therapy. Many patients are seen at community centers, in fact more than half patients are seen at community centers, and those community centers may simply not be able to support the complexities associated with Remodulin or Tyvaso. However, on prescribing a pill or something that can be handled very widely, including at the community centers, and hence we have new specialist focusing on those centers. So I think most of the growth in Orenitram is going to come from patients who are naive to prostacyclin therapy. In other words, they have been newly diagnosed or they have been on our PD5 background therapy, or ETRA background therapy, and now the doctor believes that it's important to get them on what has been considered a gold standard the prostacyclin branch of therapy. It's also important to remember that the patients with pulmonary hypertension have been shown in clinical studies to have diminished levels of prostacyclin metabolite and that's the whole logic behind prostacyclin therapy is because of the some added genetic mutations of these patients they don't make the same amount of prostacyclin as healthy people make. And the whole logic behind Orenitram, Tyvaso, and Remodulin, is to provide the patients with that additional prostacyclin that their bodies cannot make on their own. In summary, I'd like to mention that the way to think about pulmonary hypertension and the introduction of Orenitram is that, pulmonary hypertension is a disease of low incidence, but due to better and better therapies and care growing prevalence. And it's really a fascinating case study that the incidence is simply on the level of a few per million people per year. But the prevalence has grown from 3,000 patients at the time we launched our company to over 30,000 patients today and continuing to grow. And this is because patients are living longer and longer with the therapies approved for pulmonary hypertension. At our a recent National Sales Meeting in February, I had the honor to meet a pulmonary hypertension patient who is now going on four decades of life diagnosed with pulmonary hypertension. She was tremendously inspiring and courageous. And her doctor said she's sort of like a history book of pulmonary hypertension therapies. And I believe patients like her are going to be the type of patients that will live longer and longer and contribute to the growing prevalence of pulmonary hypertension. Next question.

Our next question comes from Geoff Meacham of Barclays. Please go ahead.

I wanted to ask on Adcirca. Hoping you guys can talk a little bit about the sequential trend seen in the fourth quarter. Was there an impact from the Gilead data with Letairis? And then on the pattern side, you guys have obviously had extension strategies for Tyvaso and Remodulin. Just wondering, if there is any opportunity for Adcirca extension beyond 2017? Thanks.

Thanks so much for that question. Adcirca had a terrific quarter. And it's really very helpful for us because Adcirca is pretty much the sales force responsible for it is the trailblazer for all of our prostacyclin-based oral therapies. The way we think about it is that, if we can successfully represent a product until there are even an orphan disease 15,000, 16,000, 17,000, 18,000 patients taking the drug. If we could do that with Adcirca then we could do that with our oral prostacyclin therapies, esuberaprost and Orenitram, once esuberaprost would be approved and Orenitram's label would be expanded with the FREEDOM-EV study. So of course the patient -- the physicians and the patients appreciate the numerous benefits of Adcirca. It's a therapy which is taken once a day and so most of the people on the call probably know it is a rebranded form of Cialis, one of the most widely prescribed drugs in the marketplace that people feel very comfortable about in terms of its safety profile. There has been the recent outcome of the study of Adcirca combined with Letairis, the Gilead product, and that data will be presented, I believe at the upcoming ATS and Chest Meetings and certainly in Peer Review publications. But it was interesting that it was publicly announced that the combination of those two drugs had a significant effect in terms of achieving the endpoint. The endpoint being a delay of morbidity and mortality combined endpoint. So that information is out there for the experts to Peru's. It's also quite interesting that similar results were not achievable with Sildenafil combined with Tracleer. So again these are just -- nobody compared the two, exactly one to the other, but I don't think that you're really seeing a mapping over of the Ambition study data that's the Adcirca plus Ambrisentan, you've not seen that mapped over to Opsumit, Tracleer, or Sildenafil. Now, another very fascinating point about the Adcirca growth is that payers are realizing that this is well worth paying for and significant, because it largely competes against Sildenafil, which is largely generic at this point. But Sildenafil has to be taken three times a day compared to the one time a day for Adcirca, and of course as noted just previously Sildenafil was not included in the Ambition study that produced such positive results. So all of this harkens very well for Adcirca and we're certainly aiming to try to get that up to 20,000 patients therapy that would be about two out of every three pulmonary hypertension patients, and to the best of my knowledge that would be the highest penetration that any single product ever achieved in the pulmonary hypertension space, very, very significant. In terms of the patent situation, the therapy is one that we license from Eli Lilly and Company, and the ball is really completely an Eli Lilly's court with regard to every aspect of IP strategy and even the economics relating to Adcirca. So we would just have to differ questions in that whole area to Eli Lilly. We have time for two last questions here.

Our next question comes from Robyn Karnauskas from Deutsche Bank. Please go ahead.

Hi, this is Evan on for Robyn. Congratulations on a great year. So I want to turn the focus to the antibody for the neuroblastoma and tumors. So with the approval coming up, how should we start thinking about the market, I know there is about 650 patients in the United States who are diagnosed with the specific tumor condition every year, and how many of those should we estimate would be eligible for treatment? Thank you.

Thanks, Evan, well thank you for your congratulations and congratulations to your overall bank on the recent Valeant transaction that was quite significant as well. I'd like to ask my co-CEO Dr. Jeffs to address the questions on neuroblastoma, he is much more confident than I am.

Right.

Sure, thanks for the question, Evan. So I think the way we've estimated the market is there is approximately 500 patients that would match the indication claim of high risk refractory neuroblastoma. We then sort of based on what we think we will price it, which we haven't disclosed, so that would predict about $75 million or so market in the United States with an analogous market in Europe. I think one of the good things about Evan you come here at monoclonal antibody is the price tolerance in Europe is going to be almost equal or at parody to what the price targets here will be in the States as the markets are very comparable both in terms of size and expectation with revenues. And that's probably as much color as we can give you at this time. Again we're waiting for approval its near-term we certainly are optimistic that we will get approval, there might be some commitments to that approval in terms of going further studying and "validation of" some of the science preclinical events, but we just have to wait and see that should state the ramp to that revenue is another important aspect of it and it should be actually quite quick. And the reason I say that is we're already probably treating upwards of 65% to 75% of that market through our open-label studies. It's going to be the first and only approved therapy specifically for customers with neuroblastoma, so its uptake will be rapid because of such a known entity. There is a few centers of excellence they've all participated -- most of them if not all of them participated in the trial through their Children's Oncology Group and the NCI that developed this therapy with the manufacturing and commercial partner for this, and then we're going to other supported trials in some branch point type opportunities like osteosarcoma and may be in other types of neuroblastoma regimens to augment further the benefit that was previously observed. So I think the uptick will be quick to those revenue streams that I talked out.

Excellent. And is there a potential for more dosing beyond the five cycles I saw in the trails?

Yes that's a great question. So we've had some advisory boards with the physicians that treat these kids that are suffering and it won't be indicated for subsequent courses initially. I think what appears to happen if they take the five courses then some patients can further relapse they are then retreated, that's not universally true, but it does happen and will happen and I don't think payers will check that "off label" use of the therapy that's used in that manner but it's something clear that we will not promote, but given the dire situation for these kids it's something we will want to study though whether or not additional courses of therapy would benefit the patients.

Excellent. Thank you so much.

Thank you. Next question.

Our next question comes from Phil Nadeau from Cowen and Company. Please go ahead.

Good morning thanks for fitting in my question. I had a question on the concentration of the Remodulin formulation. We heard that you recently I believe doubled the concentration versus the marketed formulation. So I guess my question is one is that true to what you are your plans for that formulation, was that filed with the implantable pump and three if it was with the implantable pump what proportion of the market can you now address in the past people had worried that the volume in the pump would be too small for some of the more severe patients. And then lastly what is the idea of that new formulation?

Well thanks Phil, for the question and since the question is pretty much all in the IP domain you can ask our Chief Strategy Officer, Andy Fisher, to address that question.

Hey, Phil thanks for the question. The very short answer to the question is we're not making any comment about formulations or anything else relevant to the Remodulin implantable pump system. Typically when we have a pending regulatory filing we refrain from comment on it, until it's actually acted on or approved by the FDA. So we do not have a response on this right now.

All right. Well that was the last of three questions and I want to thank everybody for attending the conference call. We do plan to be present at a number of different healthcare conferences coming up in the next few months. So James, Roger, or myself look forward to seeing you at those healthcare conferences. Eric thanks for your services as operator, and you can wrap up the call.