U.S. Markets closed

Edited Transcript of UTHR earnings conference call or presentation 27-Jul-17 1:00pm GMT

Thomson Reuters StreetEvents

Q2 2017 United Therapeutics Corp Earnings Call

Silver Spring Aug 12, 2017 (Thomson StreetEvents) -- Edited Transcript of United Therapeutics Corp earnings conference call or presentation Thursday, July 27, 2017 at 1:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* James C. Edgemond

United Therapeutics Corporation - CFO and Treasurer

* Martine A. Rothblatt

United Therapeutics Corporation - Founder, Chairman of the Board and CEO

================================================================================

Conference Call Participants

================================================================================

* Eliana Rachel Merle

Crédit Suisse AG, Research Division - Research Analyst

* Hartaj Singh

Oppenheimer & Co. Inc., Research Division - Research Analyst

* Hiroshi Shibutani

Cowen and Company, LLC, Research Division - MD and Senior Research Analyst

* Jessica Macomber Fye

JP Morgan Chase & Co, Research Division - Analyst

* Vasiliana Vireen Moussatos

Wedbush Securities Inc., Research Division - MD of Equity Research

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning. My name is James, and I will be your conference operator today. At this time, I would like to welcome everyone to the United Therapeutics Corporation 2017 Second Quarter Financial Results. (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 releases 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're 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, their 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 A. Rothblatt, United Therapeutics Corporation - Founder, Chairman of the Board and CEO [2]

--------------------------------------------------------------------------------

Thank you, operator. Good morning, everyone, and welcome to our second quarter earnings call. My name is Martine Rothblatt, I'm the Chairman and CEO. Joining me on the call is our Chief Financial Officer, James Edgemond; and our Deputy General Counsel and Chief Strategy Officer, Andy Fischer. I'll provide a couple of introductory remarks and then we'll open the lines to questions.

Our second quarter total revenues reached $445 million, our highest quarterly net revenue level ever. We continue to believe that Orenitram is well-positioned given the large and growing number of pulmonary arterial hypertension patients in need of a true prostacyclin analog therapy and we believe we are beginning to see the early signs of this transition reflected in Orenitram's 21% growth in second quarter net revenues as compared to the second quarter of 2016.

We are also advancing a growing number of pipeline priorities, such as our new chemical entity, esuberaprost, which has fully enrolled its Phase III BEAT study and our Phase III study of new indications related to pulmonary fibrosis and heart failure. And finally, our new organ manufacturing technologies since lung transplantation is currently the only curative treatment for pulmonary arterial hypertension. Also noteworthy are our new developments in the cancer field with the inception of patient enrollment in our small cell lung cancer study.

With these introductory remarks behind us, I'd now like to ask the operator to open the lines to any questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question comes from Liana Moussatos with Wedbush.

--------------------------------------------------------------------------------

Vasiliana Vireen Moussatos, Wedbush Securities Inc., Research Division - MD of Equity Research [2]

--------------------------------------------------------------------------------

My question has to do -- you mentioned the new cancer trial with small cell lung cancer, with the antibody Unituxin. And are there other GD2-positive cancers that you're planning to study in the clinic? Or investigator-initiated efforts?

--------------------------------------------------------------------------------

Martine A. Rothblatt, United Therapeutics Corporation - Founder, Chairman of the Board and CEO [3]

--------------------------------------------------------------------------------

Yes, Deanna (sic) [Liana], thank you for the question. There are additional cancers that we're planning to study that are GD2-positive. And it's appearing to more and more experts that we have a broad GD2 platform with our dinutuximab or Unituxin antibody. Among some of the GD2-positive cancers that are of most interest, there are the soft tissue cancers such as sarcomas of various sorts, which today are very poorly treated and highly express GD2. And in fact, some investigator-initiated activities are already underway with those cancers. Some patients have already been treated. So beyond that, there is significant interest in the small cell lung cancer area, breast cancer. And there are certain orphan cancers that have been largely neglected but are absolutely devastating to the patients who suffer from them, albeit, they are rare cancers. And some of these are also highly GD2-responsive. There is a, for example -- just as an example of a class of these sorts of cancers, there is a uveal cancer that affects the eye, a rare cancer, absolutely devastating. But we're very hopeful that dinutuximab will prove to be effective against this. And we continue to devote substantial resources to our cancer platform. Just in round numbers, we are committed to spending several tens of millions of dollars per year on developing dinutuximab in these different cancers.

--------------------------------------------------------------------------------

Operator [4]

--------------------------------------------------------------------------------

Our next question comes from Alethia Young with Crédit Suisse.

--------------------------------------------------------------------------------

Eliana Rachel Merle, Crédit Suisse AG, Research Division - Research Analyst [5]

--------------------------------------------------------------------------------

This is Ellie on for Alethia. So I guess in the quarter we saw Tyvaso return to growth. Can you help us understand some of the dynamics here? Were there patients coming off of the AMBITION regimen back onto Tyvaso? Or were there any inventory factors at play? And then I have a follow-up.

--------------------------------------------------------------------------------

Martine A. Rothblatt, United Therapeutics Corporation - Founder, Chairman of the Board and CEO [6]

--------------------------------------------------------------------------------

I won't be able to, right now, address your follow up because there are so many people up in the queue. But if I could, maybe first ask our Chief Financial Officer, James Edgemond, to comment on the inventory question. And then he could bounce it back to me for sort of the patient-related dynamics in the field. James?

--------------------------------------------------------------------------------

James C. Edgemond, United Therapeutics Corporation - CFO and Treasurer [7]

--------------------------------------------------------------------------------

Yes, thank you, Martine, and thank you for the question. At the end of the second quarter, we review all inventory levels at specialty pharma. And all inventory levels were in line with their contractual requirements. So we don't feel there was any unusual inventory levels occurring at the end of the quarter. And just as a little background, we do require our specialty pharmaceutical distributors to maintain reasonable levels of inventory reserves as the interruption of Remodulin, Tyvaso and Orenitram can be life-threatening to these patients. And our specialty pharmaceutical distributors typically place monthly orders based upon their current utilization trends and also their contractual inventory requirements so that patients have continued and uninterrupted access to all of our products. So Martine, can I turn the question back over to you?

--------------------------------------------------------------------------------

Martine A. Rothblatt, United Therapeutics Corporation - Founder, Chairman of the Board and CEO [8]

--------------------------------------------------------------------------------

Yes. Thanks, Jim -- James, for that clarification. With regard to the patient dynamics questions. I think what you're seeing is a reflection of the fact that unfortunately, pulmonary arterial hypertension is a progressive indication. And there's no therapy that has been shown to be curative for this condition. So as a result, what happens is that, depending on the functional class of the patients when they first present to a pulmonary hypertension specialist for treatment, they may be placed on more invasive therapies, such as Remodulin or less invasive therapies such as the AMBITION protocol. But over time, there is an inexorable movement of patients onto the true prostacyclin analogue therapies such as Tyvaso and Remodulin. And I think it's just this progression of a bulk of the mass of patients that you're seeing reflected in the numbers.

--------------------------------------------------------------------------------

Operator [9]

--------------------------------------------------------------------------------

Our next question comes from Hartaj Singh with Oppenheimer.

--------------------------------------------------------------------------------

Hartaj Singh, Oppenheimer & Co. Inc., Research Division - Research Analyst [10]

--------------------------------------------------------------------------------

Just a quick question on just margins. You had a little bit of increase on R&D, SG&A is keeping -- really moving along well. Just for the rest of the year as we go through the Adcirca loss of IP, just how are you thinking about margins and sort of for the rest of the year? And then maybe even on a longer-term trend as you're increasing your pipeline spend?

--------------------------------------------------------------------------------

Martine A. Rothblatt, United Therapeutics Corporation - Founder, Chairman of the Board and CEO [11]

--------------------------------------------------------------------------------

Thanks, Hartaj for the question. I will talk a little bit about the second part of your question. And James, after I do so, if you don't mind, to be able to speak a little more specifically about the margin question that Hartaj asked in the first part of his question. So generally, Hartaj, what we found is that we've been able to execute a robust research and development program of aggressive pipeline development while overall spending about half of our net revenues each year. And this metric has been pretty predictable in the past and I believe it's pretty predictable going forward. Even with any fall off of Adcirca branded revenues from its genericization. So for example, there are, in the life cycle of a clinical trial, there are times when very, very heavy spending is necessary and then timed when the spending lets up a little bit. So right now, for example, we've been in a peak spending mode because we are -- we have just completed enrollment, which is the most aggressive spend period of the esuberaprost trial, the new chemical entity which is actually even more potent than treprostinil in its binding efficacy. So that was a peak of spending. At the same time, we have completed our enrollment in FREEDOM which is the largest trial that we've ever conducted with several hundred patients all over the world. So again, that's a very peak spending type of activity. And now, as we move forward over the next 12 months or so, while we do have new Phase III trials ramping up, they're not really in their peak spending mode and the size of those trials are much easier for us to manage than say, the very large FREEDOM EV trial. Specifically, I'm talking about the SOUTHPAW study in left heart failure and the INCREASE study in different types of pulmonary hypertension associated with different types of interstitial lung disease. So we look at these overlapping waves of Phase III enrollment, which is the peak R&D activity. And at that -- on the other side of the coin, we look at what's going on in the revenue side and we see continued growth in revenues from the Remodulin franchise, the Tyvaso franchise, the Orenitram franchise. With regard to Remodulin, we expect continued revenue growth as we move into our RemUnity and RemoPro products.

The RemoPro product, just as a refresher for those who may be new to United Therapeutics, is a pain-free form of treprostinil which is highly convenient to the patient and pretty much obviates for the vast majority of patients the need for any intravenous treprostinil therapy at all because the reason to take treprostinil intravenously is due to the inability to tolerate subcutaneous treprostinil's side effect of site pain. About half of the patients can't tolerate that side effect so they segue over to the intravenous. But with RemoPro, which is itself a new chemical entity, we will obviate the site pain from the subcutaneous. So there's really no need for people to go to intravenous. So I think you're going to see a large growth, going forward, in Remodulin revenues from RemoPro. On the Tyvaso side, we have some really exciting developments with the full enrollment of the BEAT trial. We're very hopeful than when BEAT unblinds in 2018, we'll see that the combination of esuberaprost plus Tyvaso was able to effect a significant increase in longevity and in morbidity-free survival for these patients that will certainly augur further growth of Tyvaso. On top of that, as there is growing experiences with physicians in the INCREASE trial and seeing the positive results of that trial as well as another Phase III trial where we are rolling out called the [PERFECT] trial, in COPD-affiliated pulmonary hypertension, you're going to get greater and greater payer and physician awareness and comfort with the prescription of Tyvaso for these different types of pulmonary hypertension. We also have recently embarked on some very exciting MDI in advanced nebulizer technology activities. But all of this broad array of R&D that we're doing at UT, I believe, can be readily managed within 50% of our revenues in part because the R&D is pretty sequence-able and predictable year-to-year and in part because the overall revenues are set to continue to grow with Orenitram, Tyvaso and Remodulin. With regard to some metrics around the margins, I wonder, James, if you could provide some color on that?

--------------------------------------------------------------------------------

James C. Edgemond, United Therapeutics Corporation - CFO and Treasurer [12]

--------------------------------------------------------------------------------

Sure. Thank you, Martine. Thanks for the question, Hartaj. And just for kind of following on to Martine's, we do manage the annual operating expense budgets and they're developed not to exceed the 50% of prior year net revenues. And that's something that we've managed and we'll continue to manage going forward. But to give specificity or clarity on an individual quarter is something that we have stayed away from and probably will continue to do and manage it more just at the annual level for many of the reasons that Martine talked about in terms of all the dynamics of the numerous new clinical trials and research and development activity.

--------------------------------------------------------------------------------

Operator [13]

--------------------------------------------------------------------------------

Our next question comes from Jessica Fye with JPMorgan.

--------------------------------------------------------------------------------

Jessica Macomber Fye, JP Morgan Chase & Co, Research Division - Analyst [14]

--------------------------------------------------------------------------------

I was hoping you could refine the timing for when we might expect to hear on the FREEDOM EV interim and the final results of the study assuming it progresses? I think previously you had indicated sometime this quarter for the interim and early '18 for the full study. But not sure if you've got any updated information there.

--------------------------------------------------------------------------------

Martine A. Rothblatt, United Therapeutics Corporation - Founder, Chairman of the Board and CEO [15]

--------------------------------------------------------------------------------

Yes. Thanks, Jessica. So we did in fact, this quarter, cross the 154 event threshold necessary for doing the interim look. So that occurred right on schedule as predicted. The process of actually achieving the interim look is a little bit more complicated than one might think because each event has to be, at the top of my head I can't remember the word, but basically, it has to be analyzed by an independent panel of doctors to assure that it is in fact like a true event within the meaning of the clinical trial protocol. And when they do this, there's always some events which are determined that they weren't events within the meaning of the trial or something like that. So we're actually over 154 events right now. And we're at a -- we're sufficiently over, I don't remember the exact number but I think it's around 160 -- the number -- the word I'm thinking of is adjudicated. So the -- we are confident that we'll have 154 adjudicated events at this point in time. But by the time that adjudication process actually occurs and we get the entire data monitoring and safety board together, who will be the individuals to look at the unblinded results and make an exact call, it's going to be September. So we have in fact scheduled that meeting for September. And therefore, I expect in September, we'll make an announcement that we have crossed the statistical threshold specified in the interim look or that we will continue the study until its full completion in 2018.

--------------------------------------------------------------------------------

Operator [16]

--------------------------------------------------------------------------------

Our next question comes from Chris Shibutani with Cowen.

--------------------------------------------------------------------------------

Hiroshi Shibutani, Cowen and Company, LLC, Research Division - MD and Senior Research Analyst [17]

--------------------------------------------------------------------------------

For the implantable Remodulin pump, can you provide us with any updates relative to your prior announcement in terms of whether or not you have any information on timing or the factors that may be able to influence that? And also, for the DEKA pumps. So on both of the pump products for Remodulin, if we could get an update on where we're at.

--------------------------------------------------------------------------------

Martine A. Rothblatt, United Therapeutics Corporation - Founder, Chairman of the Board and CEO [18]

--------------------------------------------------------------------------------

Sure. Thanks for the question. So first, I'll talk about the implantable pump and then we'll move over to the DEKA pump. So the implantable pump, again, for everybody who may not be that familiar, is a joint venture of ourselves and Medtronic. And this is a pump which has been a difficult product for us to finally launch into the market despite the fact that it's had a superb clinical trial outcome, beating its endpoint by more than an order of magnitude. Despite this fact, because it is a kind of trailblazing technology, when you are implanting a pump inside a person's abdomen and that pump has a catheter that literally winds through many inches of their blood vessels and is automatically delivering a drug 24x7x365 which if the delivery of the drug is stopped, the results can be immediately life-threatening, and if the delivery of the drug is not precise, it's also very, very dangerous. So I don't fault the FDA at all for being very cautious in the process of approving the use of this pump called the SynchroMed pump for the delivery of treprostinil. Also complicating the factor is that there was a consent decree involving Medtronic and involving this same particular pump, which is yet another complicating factor. So because of the kind of like the three-way situation here between the FDA, Medtronic and United Therapeutics and the multiple issues that the FDA wanted to be satisfied on and then kind of the entire separate arena of issues to be resolved relating to the consent decree, I no longer felt comfortable at the last conference call to give a really precise month or even quarter in terms of when we could launch the product. Frankly, I was wrong like twice and I was embarrassed about being wrong. So as a result of that, I just said, our new schedule is to launch in 2018.

Now Chris, further to your question, nothing has changed to make me alter that expectation of 2018 as being a reasonable launch year. But I remain sorry that I can't pin that down to a month or a quarter in 2018, and you can probably understand why, with all of these different moving pieces involved with the SynchroMed pump. I will -- before moving on to the DEKA pump though, I will add that it's remarkable, the life-changing effect that that SynchroMed pump has had for the patients. I've received YouTubes, e-mails, you name it, from patients who have said that it has given them their life back. That they don't even think about their pulmonary hypertension day-to-day. To have once had a catheter coming out of your body that is -- it's like, if this is disconnected I'm dead, to not having to think about that at all, it's transformative. So we believe so much in this Medtronic pump that I've actually asked our R&D department to work with Medtronic on a further research and development project to advance the implantable pump technology baseline to bring it forward into the latest type of software which is even more fail-safe than this type of software was before, to further miniaturize the device. It is a little bit to me on the bulky side and for patients who are particularly thin, it would be, I think, a non-starter for those patients to have that pump. So notwithstanding all of the positive things I'm going to talk about in a moment on the DEKA pump, I do believe that the implantable Medtronic pump has a future and I would like everybody to know that our company is absolutely committed to supporting the dozens of implantable pump patients who have been currently using that pump. Some of them more than 5 years by the way. So it is a remarkable product.

And in closing on that note, I'll point out that the average survival of our patients on the implantable pump is, I believe, about double or close to that, the survival of patients taking Remodulin in other ways. And that very well may be because of the transformative effect it has on those patients quality of life. Now turning to the DEKA pump. So again, for people who may just be learning about United Therapeutics, DEKA is a company formed by Dean Kamen who was the inventor of Autoject and the MiniMed type of continuous subcutaneous pump delivery technology and has also now, several years ago, moved forward into redefining the technology of what are called patch pumps. And these are very, very small pumps that fit just kind of in a small portion of the palm of your hand. And the amazing invention that Kamen and DEKA have come up with is they've used the latest technology from the integrated circuit industry and Nitinol wires to create a pump using a new [fiscal] principle called acoustic wave sensing technology that allows the pump to have no moving pieces at all and this is huge. This is truly huge because a moving piece in a pump can break. And once that moving piece breaks, then the pump can no longer deliver its life-threatening -- it's life-saving medicine and immediately put the patient's life in dire jeopardy, certainly in the case of pulmonary hypertension, and oftentimes in the case of insulin or diabetes as well. So Kamen has patented this broad platform of acoustic wave sensing technology which actually measures the dissipation of treprostinil 10x times more precisely than was possible with our previous pump technology. So this is really a fundamental breakthrough. Another beautiful thing about it is that the pump is designed so that it can be ultimately just shipped to the patient with this RemoPro product which is the pain-free form of treprostinil already embedded in it so that the patient doesn't have to feel anything, doesn't have to do anything and can use this patch pump subcutaneously. And when they're completed with it, just toss it in the trashcan and take the new one out of the box from the distributor.

So I think this is going to truly revolutionize Remodulin therapy and the field of pulmonary hypertension treatment. In terms of the schedule for this, we are currently expecting to do the first patient doses or, I'd say, I take that back, human volunteer doses of the RemoPro product during this calendar year 2017 and we remain on schedule that in the 2018 to 2021 4-year plan -- planning cycle for our company, that we plan to launch the RemoPro product in the DEKA pump. And prior to having the RemoPro product launch in the DEKA pump, we plan to launch the treprostinil molecule in the DEKA pump. That in and of itself will be a huge advance over the previous need to have a much bulkier pump and one which is not as precise in its drug delivery. That product is going through its kind of final back-and-forth with the FDA right now and we would expect to launch that product in the very early portion of that next four-year cycle I referred to. So Chris, hopefully that gave you everything that you were looking for on the SynchroMed and the DEKA implantable pump -- the SynchroMed implantable pump and the DEKA subcutaneous pump.

Operator, we've reached the 10:30 point. So you can wrap up the call. And I'd simply like to say to everybody, thank you for taking your time this morning to be in the call. Thank you for your congratulations. And please look for us at the upcoming Wedbush Securities Health Care Conference in August. Operator, back to you.

--------------------------------------------------------------------------------

Operator [19]

--------------------------------------------------------------------------------

Thank you for participating in today's United Therapeutics Corporation conference call. A rebroadcast will be available for replay for 1 week by dialing 1 (855) 859-2056, with international callers dialing 1 (404) 537-3406, and using the access code 51149275. Everyone, have a wonderful day.