United Therapeutics Corporation
Q3 2015 Earnings Call Transcript

Published: 27 Oct 2015

[Operator:]

Good morning. My name is Jonathan, and I will be your conference operator today. At this time, I would like to welcome everyone to the United Therapeutics Corporation Third Quarter 2015 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. 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 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 solely to educate investors about the company and are not intended to promote the company's products to suggest that they are safe and effective for any use other than what it is consistent with the FDA-approved labeling, or to provide any available information regarding the products, their risks or related clinical trial results. Anyone seeking information regarding the use of one of the company's products should consult their 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 A. Rothblatt:]

Thank you very much, operator. Good morning, everybody. My name is Martine Rothblatt. I'm the Chairman and Co-CEO of United Therapeutics. Welcome to our quarterly earnings call. I'm joined here in our Silver Spring campus by James Edgemond, our Chief Financial Officer; and Andy Fisher, our Chief Strategy Officer. Also joining me from our North Carolina campus is Dr. Roger Jeffs, the President and Co-CEO of the company, as well as Dr. David Zaccardelli, the Chief Operating Officer of the company. Between the five of us, we'll be pleased to answer your questions today. The call will begin with an overview of the company by Dr. Roger Jeffs, and he will then open up the lines for any questions. Dr. Jeffs?

[Roger A. Jeffs:]

Thanks, Martine. So as Martine said, I'll take the opening time period to provide a quick summary of our strong quarterly operating results as well as highlight some exciting material achievements from the quarter. So as we noted in the press release, we achieved a record high revenue for all five of our marketed products in the third quarter of 2015, as total revenues increased to $386 million for the quarter ended September 30, a $56 million or 17% increase over the same quarterly period in the prior year. The year-over-year increase in total revenue was primarily attributed to the following

[Martine A. Rothblatt:]

Thank you, Roger. Fantastic overview. Now like to open up the lines for any questions to Andy Fisher, our Chief Strategy Officer, he particularly is expert on IP issues; to James Edgemond, our Chief Financial Officer, very good on all questions relating to cash flow, P&L, tax rates; Roger Jeffs on every aspect of the company; and Dr. Zaccardelli, who really keeps all the lights on and things working and manufacturing going here at United Therapeutics, and is also the individual specifically in charge of our implantable pump program. Operator, you can open up the lines to any questions.

[Operator:]

Certainly. Our first question comes from the line of Geoff Meacham from Barclays. Your question, please.

[Geoffrey Meacham:]

Morning, guys. Good quarter, and thanks for taking the question.

[Martine A. Rothblatt:]

No problem.

[Geoffrey Meacham:]

Yeah. Thanks for all the color on Orenitram. I want to get a sense – I don't think you spoke to persistence of therapy. I want to get a better sense for what the dynamics are over the past say two quarters to three quarters. And if someone is switching away from Orenitram, where are they going? You mentioned the switches to Orenitram from Tyvaso and Remodulin. And then the second question and I know you probably can't talk too much about it, but if Andy any feedback on the recent IPR from SteadyMed, that would be great. Thanks.

[Roger A. Jeffs:]

Yeah, Geoff. This is Roger. I'll answer the first question and then have Andy answer the IPR question. So with regarding persistence, we've yet to meet sort of an average persistent curve or median curve. So if you look at Remodulin for example, it's 26 months. If you look at Tyvaso, the average duration of therapy is 20 months. What we're seeing with Orenitram is it continues to track out over time and it's basically in concert with the time since launch. So we're approaching about a 12-month time since launch or more, so we've yet to see sort of what the true understanding of duration is. We do know, however, that from a open-label clinical trial experience, the duration of therapy was around 28 months or more. So whether or not that bears out to also be true in the commercial setting, we'll see. But our expectation is because the therapy's starting earlier in the treatment algorithm that patients will actually persist longer on Orenitram which therefore will port an increasing durability of revenues. So I think our expectation is it should be in the ballpark if not better than what we currently see with Tyvaso and Remodulin, if that helps answer your question, Geoff.

[Geoffrey Meacham:]

Yep.

[Roger A. Jeffs:]

And Andy, on the IPR?

[Andrew Fisher:]

Sure. Thanks for the question, Geoff. This is Andy. So SteadyMed, which has a, I think, patch pump technology in development for treprostinil, filed an IPR or inter partes review petition with the USPTO Patent Trial and Appeal Board on October 1 against what we call the 393 patent. 393 patent is one of our Orange Book listed patents for really all of our treprostinil-based products and is also at issue in the other ongoing cases including Teva and Watson. The 393 patent covers a process of making treprostinil. We have several months before our first substantive response is due. And we'll be vigorously defending that patent.

[Martine A. Rothblatt:]

Thank you very much, Andy. Thank you very much, Roger. Operator, next call.

[Operator:]

Certainly. Our next question comes from the line of Michael Yee from RBC Capital Markets. Your question please?

[Michael J. Yee:]

Hey, thanks, for the question. Can you give a little more specifics on not only the implantable pump timing and how that relates to, I guess, Medtronic's manufacturing issues that were announced earlier, and does that need to be solved before that whole application can get approved? And then secondly, on the DEKA, which is a second alternative we have, can you just give an update there in terms of the timing and how that's expected to play out as well? Thanks.

[Martine A. Rothblatt:]

Sure, Michael. Good morning. And fortunately, we have Dr. Zaccardelli on the phone, and Dr. Zaccardelli, can you please address both of those questions.

[David Zaccardelli:]

Thank you, Martine. Happy to, and thank you, Michael, for the question. First, for the implantable pump program, we of course continue to collaborate with Medtronic on the pump. And as Roger mentioned, we do plan to submit first the responses to the PMA. Medtronic plans to submit that in December. We will then follow with a submission of our NDA as well in December. We expect a 10-month review on the NDA. And as we understand it today, approximately a six-month review on the PMA. And of course, through 2016, we'll continue to work with the agency to satisfy any questions or queries they have on those submissions ultimately leading to an approval in the back end of 2016 for the implantable pump. With regard to their manufacturing of the SynchroMed II pump and the launch of it for the implantable pump use with Remodulin, we today don't see that that is a significant issue as we understand it from Medtronic. Of course, they are under a consent decree, they do have to cooperate with regards to that consent decree, they are currently doing that and meeting their objectives as we understand it. And again as they continue to do that through 2016, we expect that not to be an issue, but of course we'll be monitoring that very closely with Medtronic and update you through 2016 on that point. With regard to DEKA, we of course continue that collaboration. The project's progressing nicely. It's in the early to moving to middle stages of development of the proprietary-based platform of putting Remodulin in a cassette for a semi-disposable subcutaneous pump platform. We're excited about that and utilizing some very novel technology with DEKA. We currently plan to work towards getting an approval of that pump platform in 2018 and of course we'll be updating that over time.

[Martine A. Rothblatt:]

Excellent Dave. Operator, next question.

[Operator:]

Certainly. Our next question comes from the line of Hartaj Singh from BTIG. Your question please.

[Hartaj Singh:]

Hi. Thanks for the question. Just a couple of quick questions actually on the P&L. One is, for this quarter if I just take the adjusted operating expenditures, you're sort of in the high 20%s, 27% as a percentage of revenue. You averaged about 31% for the first half of 2015 and you averaged about 34% for 2014, so there just seems to be a really substantial shift going in leverage coming from your operating expenditure line. Just a couple of questions, how sustainable is that? And then also how far can you go with that with this leverage? And just a quick follow-up question on a product. Thank you.

[Martine A. Rothblatt:]

Well, we only have time for – we have dozens of people in queue so we only have time for one question per questioner. Sorry about that. So Mr. James Edgemond will address the P&L question and then we'll go back to the operator. James?

[James Edgemond:]

Yeah. Thank you, Martine. Hartaj, good morning and thank you for the question. So when you look at the P&L across the year, two things come to mind. As we maintain a very disciplined budget approach when we start the year so that when we end the year we know that we will maintain and stick within our budgets very carefully. The other thing to keep in mind is there could be some costs that shift quarter-to-quarter relative to years in the prior year or you might have some fluctuations in volatility. But I don't think when you look at the SG&A line net of any share-based compensation, you'll see wild swings kind of going forward although we want to maintain and stick within our budgets on an annual basis.

[Martine A. Rothblatt:]

Thanks, James. Great answer and thank you CFO for doing such a great job of cracking the whip across the line on that budget discipline. Fantastic. Operator, next question please.

[Operator:]

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

[Jessica M. Fye:]

Hey, guys. Thanks for taking the question. My question is for Martine. I think it was just about six months ago when you laid out a bunch of numbers around potential Orenitram patient adds over time including adding, I think, about 1,000 patients in 2016. As you've watched the product continue to launch, is that still your view? Do you now think there could be more patients added or fewer? Love to hear your thoughts there. Thanks.

[Martine A. Rothblatt:]

Yeah. Thanks for the question. I really don't see anything changing from the trends that we've been looking at. As Roger said, there's just been outstanding growth in Orenitram and we stand by all of our bullishness on that product. Thanks for the question. Operator, next question.

[Operator:]

Our next question comes from the line of Mark Schoenebaum from Evercore ISI.

[Salim Qader Syed:]

Hey, guys. Congrats on the quarter. This is Salim in for Mark. Just one question. I had two, Martine, I'll follow your rule on the one question.

[Martine A. Rothblatt:]

Thank you. We really appreciate it. It's kind to the other questioners too.

[Salim Qader Syed:]

Sure. No worries. So with selexipag coming in 2016, can you just give us your updated views on how are you guys seeing the impact to Orenitram and Tyvaso? I mean is this something where you're saying that's only 3,500 patients or 4,000 patients on Tyvaso and there's enough room in this market for two or even three players? Or what are you thinking basically? Thank you.

[Martine A. Rothblatt:]

Salim, thanks for your question and your ongoing careful monitoring of our company. The person best qualified to answer that question would be Dr. Jeffs. He's got a great overview of the entire page market so, Roger, if I can refer that question to you.

[Roger A. Jeffs:]

Sure. Thanks, Martine. Thanks for the question, Salim. So sort of to follow on your point, Salim, I think the market is certainly big enough for both of us. As we've pointed out in the remarks, we have about 500 prescribers of Orenitram which is not even a third of what – of the prescribers currently for Remodulin and Tyvaso. And the actual prescription base for an oral prostacyclin should be more similar to what we see with Adcirca which should be in the 3,000 to 5,000-prescriber base. So there's plenty of prescribing breadth and depth to share with selexipag. I won't talk about their product and their launch. I mean that's for them to talk about them. But I will talk about some of the attributes and the product profile that I think distinguish Orenitram and will continue its positive momentum that Martine just articulated. So we have a very strong label of efficacy in terms of the six-minute walk distance. Importantly the drug is titratable to affect intolerability so it can be progressively titrated for a progressive disease which is a key class attribute for prostacyclin that has what has distinguished this product class from all other therapies, not just oral but all therapies. The tolerability that we observed in our pivotal trial was 4% DC rate, and that was with twice-a-day dosing, not even the three-times-a-day dosing profile that 75% of our patients enjoy in the commercial market. The history and legacy of treprostinil has been in thousands of patients for this first launch as Remodulin in 2002, so there's a lot of experience and confidence in the active pharmaceutical ingredient, treprostinil. And the body doesn't know, if you take Orenitram, how it got there. Once it's in the plasma, treprostinil is treprostinil. And then finally I would add that treprostinil behaves more like native prostacyclin in that it has a very diverse receptor binding profile. It binds not only to IP1 but also to EP2, which has been shown to be important in anti-proliferation where this is not just a vasodilatory disease or vasoconstrictive disease

[Martine A. Rothblatt:]

Brilliant. Brilliant, Roger. Operator, we have time for two more questions, so next question please.

[Operator:]

Certainly. Our next question comes from the line of Phil Nadeau from Cowen & Company. Your question please.

[Phil M. Nadeau:]

Good morning. Thanks for taking my question. Another question on Orenitram. In the past, you've been good enough to give us patient numbers on therapy. Was wondering if you could update us on how many patients are on Orenitram now and also a bit more about how it's being used. Is it being used as monotherapy or is it being used in combination with the ERAs and PDE5s? Thanks.

[Martine A. Rothblatt:]

Thanks, Phil. Of course, Dr. Jeffs will address that.

[Roger A. Jeffs:]

Yeah. Thank you. So I'll shy away from giving numbers today. I think the momentum that you see with the revenues and the fact that we're adding prescribers and that the starts are 20% plus higher than the previous quarters clearly suggest that the patient numbers are ramping very much in line with the numbers that Martine has articulated previously in terms of 1,000 patient adds per year trying to achieve a target of 5,000 patients in five years, getting to a certain dose threshold, which would then port to a $1 billion product revenue opportunity. So I won't really talk too much about numbers other than to say that we're very happy with the momentum and starts that we're seeing. In the marketplace, as I said just recently, most of the patients are using the drug as a three-times-a-day therapy, 75%. I think some of the BID – 25% use is legacy use from the clinical trials, those patients that have carried over to commercial product. In terms of use on or not on background therapy, we see both. Although the majority of patients that start Orenitram are on background therapy, importantly we don't promote it to that, the label is specific for naïve patients for monotherapy use, but prescribers seem to employ it as a follow-on sequential therapy to either one or two background therapies, and payers are not reluctant to pay for that in that setting. So it hasn't been a hindrance in any respect in terms of either use or payment for that use.

[Martine A. Rothblatt:]

Thank you, Roger. Excellent. Operator, could you provide us with another question, please?

[Operator:]

Certainly. Our next question comes from the line of Arshad Haider (27

[Martine A. Rothblatt:]

RBC?

[Operator:]

You might have your phone on mute.

[Martine A. Rothblatt:]

Operator? Yep. I think next question.

[Operator:]

All right. Our next question comes from the line of James Wayne from Ark Investment (28

[Unknown Speaker:]

Hi. Thanks for the question, Martine. A question on the long term, you've talked about the organ transplantation business. We've talked to some people in the field and they are saying that the economics of that business isn't very good. I mean transplantation centers are closing supposedly and the economics of doing transplants isn't very good. I guess, could you talk a little bit about your vision of how that business would form with an infrastructure around the clinic and what kind of business model you expected? Thank you.

[Martine A. Rothblatt:]

Sure. The organ transplantation business is addressing just a really tiny, tiny fraction of the need for treatment of end-stage organ disease and I'll speak about end-stage lung disease in particular because that's our focus as a pulmonary company. So for example, roughly 250,000 Americans die each year of end-stage lung disease, not counting those with lung cancer. And the number of lung transplants that can be done each year is about 2,000 and that's been pretty static over the past decade or two. So as you can see, only 1% of the market demand is being satisfied. The reason for this is because the only way that that market can be satisfied today is with human organ transplants, and as most of us know, that supply is very, very limited and very constrained in terms of ethical issues and things such as that. So it's not surprising to me that centers would be closing because the supply of transplantable organs is just tiny. What United Therapeutics is working on is something quite different. We're working on manufactured organs. So being able to create a manufactured supply of organs so that we could address a big chunk of that 0.25 million people a year who are dying from end-stage lung disease, foremost among them the pulmonary hypertension patients and I should point out that the vast majority of pulmonary hypertension patients succumb to their disease. Unfortunately, our treatments are not a cure. None of Actelion's treatments are a cure. Things that are not yet approved but are around the corner like selexipag is not a cure, so the patients progress through all of these treatments and only a small fraction of them get a lung transplant. So with manufactured organs, it will be possible to grow the market significantly and you'll definitely see a U-turn on the number of transplantation centers providing lung transplants once there's an ample supply of manufactured organs. Of course, it will take a few years to get there and we're hoping to have our first clinical trial by the end of the decade, but once that's accomplished, each lunch transplant would be able to save the healthcare system something on the order of $100,000 a year in ongoing healthcare costs. That is, for example, around the typical cost of end-stage lung disease patient incurs. So as a value of around $100,000 per organ and at the level of the tens of thousands of organs that are needed, I think it's going to be a very robust business opportunity for sure.

[Unknown Speaker:]

Thanks so much.

[Martine A. Rothblatt:]

Operator, we have time for one last question.

[Operator:]

Certainly. Our final question comes from the line of Joseph Schwartz from Leerink. Your question please?

[Brett Larson:]

Good morning, everyone. This is Brad Larson in for Joe. Congrats on the great quarter. I recall on the last conference call you spoke a bit about where your strategic acquisition investigations are going possibly in orphan conditions, particularly looking in pulmonary and oncology. Just hoping you can give a brief update on any activities going on there. Thank you.

[Martine A. Rothblatt:]

Okay. Good. So we'll have Roger wrap up the conference call with his response to that question. Thanks a lot.

[Roger A. Jeffs:]

Yeah. Thanks for the question, Brett. So consistent with what we've said previously, that's our scale, the focus area in terms of where we're looking for product acquisition. Certainly looking in the cardiopulmonary space, we're looking in the orphan, we're on the unmet need space, we're not trying to change who we are for sure. Those opportunities obviously, we are doing diligence on with right care and precision. We want to make sure that whatever we do that it would be the right-size deal, the right synergy of deal that we did want and have that complement to what we currently do and enjoy and not distract us from going forward with a very robust platform that we've talked about today. So again, actively engaged in and looking at BD opportunities but doing that very carefully and thoughtfully.

[Martine A. Rothblatt:]

Thank you very much, Roger. Thank you, everybody, for listening to our third quarter conference call. And, operator, you may wrap up the call.

[Operator:]

Certainly. Thank you for your participation 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 1-404-537-3406 and using access code 61710758.