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Edited Transcript of UTHR earnings conference call or presentation 31-Jul-19 1:00pm GMT

Q2 2019 United Therapeutics Corp Earnings Call

Silver Spring Aug 10, 2019 (Thomson StreetEvents) -- Edited Transcript of United Therapeutics Corp earnings conference call or presentation Wednesday, July 31, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* James C. Edgemond

United Therapeutics Corporation - CFO & Treasurer

* Martine A. Rothblatt

United Therapeutics Corporation - Founder, Chairman & CEO

* Michael I. Benkowitz

United Therapeutics Corporation - President & COO

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Conference Call Participants

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* Chris Shibutani

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

* Hartaj Singh

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

* Jessica Macomber Fye

JP Morgan Chase & Co, Research Division - Analyst

* Martin Douglas Auster

Crédit Suisse AG, Research Division - Research Analyst

* Vasiliana Vireen Moussatos

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

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Presentation

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Operator [1]

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Good morning, and welcome to the United Therapeutics Corporation Second Quarter 2019 Earnings Call. My name is Michelle, and I will be your conference operator today. (Operator Instructions)

I will now turn the conference over to Mr. James Edgemond, Chief Financial Officer of United Therapeutics.

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James C. Edgemond, United Therapeutics Corporation - CFO & Treasurer [2]

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Thank you, Michelle, and good morning, everyone. It is my pleasure to welcome you to the United Therapeutics Corporation's Second Quarter 2019 Earnings Call. Accompanying me on today's call are Dr. Martine Rothblatt, our Chairman and Chief Executive Officer; and Mr. Michael Benkowitz, our President and Chief Operating Officer. Remarks today will include forward-looking statements representing our expectations or beliefs regarding future events. These statements involve risks and uncertainties that may cause actual results to differ materially. Our latest SEC filings, including Form 10-K and 10-Q, contain additional information on these risks and uncertainties. We assume 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 most directly comparable GAAP financial measures can be found in our earnings release available on our website at www.unither.com.

Today's remarks may discuss the progress and results of clinical trials or other developments with respect to our products. These remarks are intended solely to educate investors and are not intended to serve as the basis for medical decision-making or to suggest that any products are safe and effective for any unapproved or investigational uses. Full prescribing information for the products is available on our website.

Now I will turn the call over to Dr. Rothblatt for an overview on the second quarter 2019 financial results and business activities of United Therapeutics.

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Martine A. Rothblatt, United Therapeutics Corporation - Founder, Chairman & CEO [3]

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Thank you, James. Good morning, everybody. I'd like to start off with a few words about the current quarter and then spend longer time talking about our growth prospects for the future, and then we'll open up the lines for questions directed to our President, Michael Benkowitz; CFO, James Edgemond; or myself.

Our prostacyclin product franchise consisting of Remodulin, Tyvaso and Orenitram is being used by a larger number of pulmonary arterial -- pulmonary hypertension patients than ever before. The momentum that this demonstrates underscores our belief that the product franchise is well positioned to treat a large and growing number of pulmonary hypertension patients in need of a true prostacyclin therapy. It also reinforces our commitment to advancing our innovative pipeline of next-generation drug delivery systems and late-stage clinical programs in cardiopulmonary diseases and in oncology as well as our exciting work in regenerative medicine and organ manufacturing to ultimately achieve our mission of finding a cure for both pulmonary hypertension patients and those suffering from other end-stage organ diseases.

Let me now talk a little bit about the exciting work that we have for the future and why we believe that our pipeline is very, very strong. Our feeling is quite confident that we are going to triple our business over the next few years thanks to over a dozen products in our pipeline and several FDA-approved product platforms. We can triple our business by gaining more Remodulin patients with our novel infusion product than we lose to older technologies. Indeed, half of all pulmonary arterial hypertension patients actually die before trying any Remodulin product due to the older technologies' many problems. Our new Remodulin products include the Implantable System for Remodulin, or ISR, and RemUnity and Trevyent, all 3 of which are pending FDA approval as well as RemoPro and RemoLiv, both of which are in clinical development. All 5 of these products are differentiable from the older Remodulin and have long patent lives.

In addition, we can also triple our business by gaining approval for Tyvaso in 2 new markets, interstitial lung disease and COPD as well as expanding it in all of its existing markets with novel inhalation technologies. The market for our new Tyvaso technology in clinical development currently is even larger than the World Health Organization Group 1 pulmonary hypertension market that it currently leads. The new markets in clinical development are interstitial lung disease, pulmonary fibrosis and COPD, all of these are known as World Health Organization Group 3 pulmonary hypertension.

Third, we also expect to triple our business by growing Orenitram into comparability with Uptravi thanks to a much stronger new label, new indications in World Health Organization Group 2 pulmonary hypertension and new once-daily formulations. I'm also excited about our pharmacogenomic labeling initiative, which could target our drugs to those patients most likely to benefit from them.

Finally, in addition to these multiple shots at business tripling, we have a longer-term pipeline of multiple new chemical entities, oncology initiatives and organ manufacturing products. These new chemical entities are NCEs, include ralinepag and our SAPPHIRE gene therapy, both now in Phase III trials for group-1 pulmonary hypertension. They also include FM-4646 for pulmonary fibrosis and exosomes for bronchopulmonary dysplasia now clear to commence human testing. The oncology initiatives include a humanized form of our Unituxin drug that is saving many children's lives from neuroblastoma today and our lung cancer Phase III trial due to unblind later this year.

We also have 4 different kinds of organ manufacturing products in clinical and preclinical development. Hopefully, our Xeno kidney product will be able to transform the lives of over 100,000 people suffering on dialysis today.

Based on this review of our current quarter and the exciting growth prospects that we have for tripling the business over the next few years, I'd like to now open the lines for any questions that could be directed to myself, Mr. Edgemond or Mr. Benkowitz. Operator, could you please open the lines.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Hartaj Singh from Oppenheimer & Company.

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Hartaj Singh, Oppenheimer & Co. Inc., Research Division - Research Analyst [2]

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The main question is on Remodulin. I know that you've indicated today on the call and recently that you're not really seeing any change in patient patterns in The United States. I think you mentioned in the press release that there are some changes ex U.S. Could you just give some more color on the domestic versus the international patterns now that they are generics? And then how do you sort of foresee progression for Remodulin through the rest of the year? Is it still sort of historical kind of getting stronger through the rest of the year?

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Martine A. Rothblatt, United Therapeutics Corporation - Founder, Chairman & CEO [3]

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Hartaj, thank you, so much for the question and good to hear your voice this morning. I'd like to -- Michael Benkowitz, our President is in charge of all commercialization activities at United Therapeutics. So I'd like to ask Mike if he could please respond to your question. Mike?

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Michael I. Benkowitz, United Therapeutics Corporation - President & COO [4]

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Sure. Thanks, Martine, and thanks Hartaj. Yes, so we're pleased to see that despite competing with generic in the U.S. and to a lesser extent in the EU for a full quarter now, the patient demand metrics for Remodulin remain consistently strong. This is certainly evidenced by looking at quarter-over-quarter revenues, in the U.S., for instance, U.S. Remodulin starts in Q2 were higher than in any quarter in almost 10 years. Our active patients in this quarter compared to Q2 of last year are up. Our dispenses of branded Remodulin across both the high and low concentrations are higher in Q2 this year versus Q2 of last year. And on a more qualitative basis what we're seeing through our conversations with PAH stockers is they can send you to express a preference for brand Remodulin because of many of the things that we've talked about on prior calls including the established safety profile, the patient support programs and the development projects we have underway that Martine touched on to continue to have Remodulin be a differentiated product and a more convenient product for patients.

So we're pleased to see how this is playing out. Similar story with a couple differences in the EU. Demand remains quite strong for Remodulin. I think in terms of generic competition, it's still limited at this point. Really, the only country to launch is Austria, to a lesser extent in Germany. That may or may not pick up as we move later into the -- move into the second half of the year. But as it stands right now, there is limited competition in -- limited generic competition in the EU.

So we continue to remain very bullish and very confident in the benefits of branded Remodulin as we move into the second half of the year and beyond for the reasons I just outlined.

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Operator [5]

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

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Jessica Macomber Fye, JP Morgan Chase & Co, Research Division - Analyst [6]

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Martine, I'm curious how you think about capital deployment these days? Is there any current priority around share repurchase with your stock at these levels? Or is your focus more on business development to expand and diversify the long-term portfolio?

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Martine A. Rothblatt, United Therapeutics Corporation - Founder, Chairman & CEO [7]

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Thanks, Jessica, for the question. We've got on the line with us James Edgemond, our Chief Financial Officer, who oversees all those capital deployment types of questions. So James, could you respond to Jessica's call?

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James C. Edgemond, United Therapeutics Corporation - CFO & Treasurer [8]

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Sure. Thanks. Jessica, good morning. Thanks for the question. Thinking about our capital allocation priorities, they remain fairly consistent and unchanged as to what we've outlined historically. They do include share repurchase, but it is still the third kind of leg for us. Our first priority is still investing in research and development opportunities that we want to support our business mission with. Second is investing in value-creating business development activities. And third is share repurchase.

So those capital allocation priorities remain consistent. And with respect to investing in our R&D budget, our first capital allocation priority, one thing to keep in mind, which is consistent with our prior discussions is around our annual expense budget algorithm, which we've consistently applied, which will not allow us to exceed really 50% of our prior year revenue. And this methodology forces us to continuously evaluate each of our research and development opportunities on really an ongoing basis.

When you get into the second capital allocation priorities with respect to M&A, we continue to place an emphasis on the strategic impact of targets in terms of the attractiveness of the therapeutic area, opportunity for near-term revenues and really the incremental value that could be added by UT among other filters. And these include therapeutic areas like cardiology, pulmonology and oncology although we're not just limited to these areas. So again, I just wanted to give you in addition to share repurchase how we continue to think about capital allocation. So thanks for the question.

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Martine A. Rothblatt, United Therapeutics Corporation - Founder, Chairman & CEO [9]

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James, thanks for your excellent answer.

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Operator [10]

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Our next question comes from the line of Liana Moussatos with Wedbush Securities.

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Vasiliana Vireen Moussatos, Wedbush Securities Inc., Research Division - MD of Equity Research [11]

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Could you give us a little more detail on the status of the transplant organs program, you mentioned the Xeno, but also 3D and other approaches?

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Martine A. Rothblatt, United Therapeutics Corporation - Founder, Chairman & CEO [12]

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Yes, Liana. Thank you for your question. So we have several different approaches that we are doing in our organ manufacturing project. And they run the range from taking organs that are donated after a person suffering brain death but are deemed to be unusable for transplantation and would always be thrown away. And we have a technology that is able to restore these organs back to transplantability and then send them on to the transplant center anywhere in the country to be transplanted. So that technology generically is known as EVLP, and it's routinely resulting in saving the lives of people. In fact, just last week, there was a widely reported new story of a young lady cystic fibrosis sufferer who was the sickest person on the nationwide transplant list, meaning that she was basically in as bad shape as could be, had the individual had to wait for like some ideal lungs, who knows what would have happened, but she had a very successful transplant with lungs that were otherwise would have been discarded, but were sent to our Silver Spring Maryland facility, were restored to transplantability and then were flown on to her hospital in Virginia with a successful outcome. In fact, just next month, we'll be opening up our second such lung restoration center in partnership with the Mayo Clinic. So that will be an exciting event towards the end of August.

In addition to that, we have a active Xeno transplantation program. That's the transplantation of genetically modified pig organs into people. Once the genetic modifications have been shown to reduce risks of rejection to such a level that they really are no different than an allograft transplant. In the Xeno program, we're focusing, as I mentioned in my introductory remarks, on the Xeno kidney, which has a very large standby demand of over 100,000 people and has also a more graceful, I think, commercialization pathway because should there be a problem with the xenograft, there's a ready step back to dialysis. So the Xeno program is focused on the kidney. The most exciting news flow, I think, associated with that is that, in the coming year, Liana, we'll be opening up 2, what I call, designated pathogen-free facilities for the Xeno kidneys. It's the equivalent in the drug business of what you would call a GMP or a GPP facility. In other words, a facility from which the outcome is deemed -- the output is deemed safe by the FDA to put into a person. So we'll have 2 independent facilities operating in 2020, from which we can transplant the output into people, subject, of course, to FDA satisfaction with the results in earlier NHP studies, nonhuman primate studies. Third, we have an active program in which we create scaffolds of organs, especially the lung, which can then be cellularized for transplantation. And the cellularization can be done in 1 of 2 ways. We can allogeneically cellularize the scaffolds using purchased cell lines from companies such as Lonza, which we then greatly expand. We've created -- we've established cell expansion, as I think, a real nice core competency at United Therapeutics. This year, we will expand our cell populations to over 1 trillion cells will be manufactured at UT. That's really remarkable given organ, such as a heart or a lung or a kidney, needs somewhere between 5 billion and 10 billion cells. So you can see by being able to expand ourselves and have them healthy at the numbers of over 1 trillion, we really have demonstrated scaleup capability for commercialization. We're also working on applying that scale of competency that we have at United Therapeutics to an individual's own own iPSC cells, which have been redifferentiated back into endothelial, epithelial, mesenchymal et cetera, different types of cell lines. The beauty about cellularizing these scaffolds with an individual's own cells is that they'll require no immunosuppression after the organ is transplanted back to them. They will have literally grown their own replacement organ. So that gives you a kind a flyover of the exciting different types of organ manufacturing activities going on at UT. Thanks for the question, Liana.

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Operator [13]

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Our next question comes from the line of Chris Shibutani with Cowen.

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Chris Shibutani, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [14]

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I wanted to ask a question about ralinepag and that program. Can you confirm for us whether the plans and the time lines as communicated by Arena prior to your acquisition of this program are the same? And if those programs are on track? And in particular, for one of the studies, which involves transitioning patients over, can you talk about what you guys feel is the most important endpoint in order to compel clinicians to think that ralinepag is a drug for switching patients over to or to be competitive?

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Martine A. Rothblatt, United Therapeutics Corporation - Founder, Chairman & CEO [15]

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I would say, it is a very good and a detailed question. Thanks for asking it. So generally speaking, I can't really remember, even though everything that Arena said, but the program is on schedule, it's doing well, it's enrolling patients. When we took over the patient from -- the program from Arena, there actually were no Phase III patients yet enrolled. So now we're actively enrolling. It's the top Phase III trial on which we are spending money. And so the program is being enrolled as quickly as we can consistent with, of course, good clinical practices and all that sort of stuff. In terms of whether or not the results will persuade physicians to prescribe ralinepag in lieu of say Uptravi, I think we have to wait until their results are out. Certainly, from the Phase II data, there were compelling indications that ralinepag was the best-in-class drug compared to Uptravi. But those were Phase II compelling indications and all of that has to be confirmed in a Phase III trial. So I believe that the trials are sized appropriately to produce some compelling results, and we're certainly hopeful to have those results, but we'll just have to wait through the normal couple of years of Phase III enrollment to have those answers. Thanks for the question.

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Operator [16]

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(Operator Instructions) Our next question does come from the line of Martin Auster with Crédit Suisse.

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Martin Douglas Auster, Crédit Suisse AG, Research Division - Research Analyst [17]

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I had a question for you, Martine, about the litigation between you and Smiths against Sandoz and RareGen. Just curious if could you provide us an update on when you expected initial ruling or potential, I believe, you filed for dismissal of that case? And maybe also if you could kind of outline what next steps would be after the initial rulings are made.

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Martine A. Rothblatt, United Therapeutics Corporation - Founder, Chairman & CEO [18]

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Thanks, Marty. Good to hear your voice this morning. I'm really glad that I shifted into biotechnology rather than law, like, some 20-plus years ago because legal proceedings are by their nature long. So even though we feel that the RareGen Sandoz litigation is literally meritless, I cannot really predict the outcome in terms of judges rulings on particular motions as they'll come up during the course of the proceeding. Our litigation, generally speaking, once you are in litigation, one thing that I have seen is that it just drags on and on, and I can't really predict how long this one is going to drag on. But in terms of the merits of the case, we really feel that the complaint was meritless and we will continue to defend vigorously and carry on with our business. But thanks for the question, Marty, and good hearing your voice this morning.

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Operator [19]

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I'm not showing any further questions at this time.

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Martine A. Rothblatt, United Therapeutics Corporation - Founder, Chairman & CEO [20]

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Excellent. Let me go ahead and give a couple of words of wrap up here. James and I will be at the Wedbush Securities Conference in New York, in August, to give a full review of everything that we're doing, and answer further questions. But in summary, the company's core business, Remodulin, Tyvaso, Orenitram, Unituxin which we didn't have too much chance to talk about during this call, is very strong. We have our first commercialized FDA-approved organ treatment technology, what I call the manufacturing technology, known as the XPS system due to our partnership with XVIVO. So it's really nice having these 5 independent commercialized lines of business. And as I mentioned in my opening remarks, certainly the top 3 of them, Remodulin, Tyvaso and Orenitram, I feel very confident each can triple our current level of revenues and business. So we've got by 3 independent shots on a tripling -- on a goal of tripling our business from its current level. Pending the outcome of the Unituxin lung cancer study, which we call DISTINCT, and we expect to accrue the necessary number of events sometime later this year. That could portend for a major expansion of the way we view ourselves at United Therapeutics into much more of an oncology. And finally on the organ manufacturing and regenerative medicine front, it's very exciting to have a first technology that's already approved for commercialization by the FDA as well as having industry-leading activities going on in all the different types of organ manufacturing that I described in response to Liana's question. Thank you very much everybody for joining our conference call and look forward to seeing as many of you as possible at Wedbush. Operator, you can now wrap up the call.

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Operator [21]

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Thank you for participating in today's United Therapeutics Corporation's 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 access code 3066089. Thank you, and have a great day.