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

Q1 2019 United Therapeutics Corp Earnings Call

Silver Spring May 7, 2019 (Thomson StreetEvents) -- Edited Transcript of United Therapeutics Corp earnings conference call or presentation Wednesday, May 1, 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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* Andrea Cristina Brettler

UBS Investment Bank, Research Division - Associate Analyst

* Chris Shibutani

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

* Ikechukwu Oj

* Jessica Macomber Fye

JP Morgan Chase & Co, Research Division - Analyst

* Terence C. Flynn

Goldman Sachs Group Inc., Research Division - MD

* 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 First Quarter 2019 Earnings Conference Call. My name is Michelle, and I'll be your conference operator today. (Operator Instructions)

I'll now turn the conference call over to 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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Good morning. It is my pleasure to welcome you to the United Therapeutics Corporation First 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 Forms 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. Reconciliation of non-GAAP financial measures to the 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 other products are safe and effective for any unapproved or investigational uses. Full prescribing information for these products is available on our website.

Now I will turn the call over to Dr. Rothblatt for an overview of the first 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, and good morning, everybody. Welcome to our first quarter earnings call. I'd like to give an overview of our prospects for the next few years and then open up the phone line for questions directed to myself, James or President Mike Benkowitz.

United Therapeutics expects to triple the number of patients that we help from over 7,000 currently to over 20,000 during the next few years. We're confident of achieving this because each of our 3 main therapeutic platforms, Remodulin, Tyvaso and Orenitram, have each been infused with new technology breakthroughs that will enable their use by thousands of new patients. There are 5 technology breakthroughs for Remodulin, 4 technology breakthroughs for Tyvaso and 3 technology breakthroughs for Orenitram.

In addition to this expected tripling of our business over the next few years, we also have a deep pipeline of new product candidates in oncology, new chemical entities for unmet medical needs in pulmonary fibrosis and pulmonary hypertension and a transformative organ manufacturing solution for the dire national shortage of transplantable kidneys, hearts and lungs.

Let me now expand on our 5 technology breakthroughs for Remodulin which we expect to triple this part of our business over the next few years.

First, the implantable system for Remodulin is a revolutionary technology that completely eliminates the 2 biggest problems with Remodulin: subcutaneous pain bad enough to require monthly opioid treatment and the life-threatening sepsis risk, with such a significant rate of hospitalization that it is registered in the product label. We expect to commercially launch the implantable system for Remodulin in the second half of this year. We believe many thousands of pulmonary hypertension patients will end up using this breakthrough product.

Second, the RemUnity semi-disposable pump is an extraordinary product for subcutaneous Remodulin because it eliminates 2 of the biggest problems with existing subcutaneous pumps: inadequate pump malfunction alarming and accidental bolus dosing. We expect to receive 510(k) approval for this breakthrough acoustic volume sensing RemUnity pump within the next week or 2. Current subcutaneous pumps fail in our patient population at the rate of once every 1 to 2 days, causing hospitalization emergencies every 1 to 2 months. I feel confident that the new RemUnity pump will eliminate this awful toll of fear and worry among our subcutaneous patients.

Third, our RemoPro prodrug new chemical entities of Remodulin have shown a much reduced pain profile in Phase I study. It should be recalled that half of all pulmonary hypertension patients die without ever trying Remodulin because they are unable to handle the pain, sepsis and complexity of current Remodulin patients. Our new RemoPro product will eliminate all 3 issues, opening up many thousands of new patients to Remodulin therapy.

Fourth, our partnership with Smiths Medical on a new ultra smart Bluetooth-connected subcutaneous and intravenous Remodulin pump. This device will be seamlessly integrated with the patient's phone -- smartphone so that they are dosing a compliant dosing status, available drug. All of this information will seamlessly flow through to their doctor, nursing staff and, if the payer requires it, the payer as well. For the new generation of patients who are rising -- and by the way, the mean age of all pulmonary hypertension patients is about 30 years old, they expect their life to be seamlessly integrated with their smartphone. And this will be the first Remodulin pump, or actually any parenteral pump of its kind, which is seamlessly integrated with their smartphone.

Fifth, Trevyent, the simplest of all of the available ways to deliver pulmonary hypertension medicines parenterally. I'd like many -- I'd like to point out that many of our patients have connective tissue disease. It's perhaps one of the most common causes of pulmonary hypertension. And this connective tissue disease makes all of the existing systems either very difficult or completely impractical for these patients to handle. Hence, as mentioned earlier, half of the thousand patients with pulmonary hypertension die without ever trying Flolan or Remodulin. Trevyent will definitely change that by making it extremely easy to use and hence make a major contribution to our expected tripling of our pulmonary hypertension business over the next few years.

There is not time for me to go into all of these product breakthroughs in Tyvaso and Orenitram, although we're certainly happy to answer any questions about that. But operator, at this point, let me open up the lines to any questions which I'll sort to James, our CFO; or Mike, our President, based on the topic.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Chris Shibutani of Cowen.

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Chris Shibutani, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [2]

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As we think about how you're commenting about the PAH business, you make reference quite a bit to patient numbers. And I think it's a little bit challenging for us since we're trying to figure out where that -- how to sort of quantify that, where that's coming from. And typically when we're modeling, I think we're talking about units and prices. What is the source of these additional patients that you're talking about? Is it a shifting of patients from different disease classes? Are these patients that you're taking from competitor regimens? A little bit more color around that.

And then also you've had some price increases that I think you haven't had precedent for there. Can you talk to us how you're thinking about that going forward?

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

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Sure, Chris. So the -- with regard to the numbers, the starting point is the number of patients who are currently being treated by physicians for pulmonary hypertension and that number is currently at 45,000 patients. So that's the first number to start with. The second number is the number I mentioned in my introductory remarks that approximately half of that very large patient population die without ever going ahead and being placed on parenteral therapy. And the reasons for that are the reasons that I gave in my introductory remarks. So there is what one would say, a capturable new patient population, north of 20,000 patients, in addition to the patients currently being treated.

The third number I think which is most important to keep in mind is the mean duration of patients on pulmonary hypertension therapy. The mean survival of a patient with pulmonary hypertension from the time of diagnosis varies from 5 to 10 years. At the best clinical trial centers, the major university hospitals, the mean survival was about 10 years. More generally, across the entire patient population, the published data shows the mean survival treated is around 5 years. So what that means is that there are constantly patients who are failing their oral medication and needing more and more aggressive therapy and ending up in the -- in the Remodulin basket or the Tyvaso basket. The numbers of those patients would be, you could go ahead and if you took kind of like the middle point of 7 or 8 years mean survival, it means basically about 1/14. Or roughly speaking about, 7%, 8% of that population of 45,000 patients is progressing each year on to needing Remodulin therapy. So one of the reasons that we have been working hard for so many years to develop better and better ways of delivering Remodulin is we realized that unfortunately, there are no cures out there for pulmonary hypertension; unfortunately, the vast majority of all of the patients on every single oral therapy out there approved is going to end up needing parenteral therapy, and we want to be able to offer them something which on the one hand does not provide a significant risk of sepsis. And the implantable system for Remodulin takes care of that. On the other hand, does not provide the need to dip into the severe pain medication basket, which we all know is a very problematic place to go and is just nobody wants pain. And again, the implantable system for Remodulin is a complete solution for that. So we're always going to have this flowing of new patients coming in, both from the patients who are failing, whether it's Uptravi, OPSUMIT, what have you, as well as this second half of the entire patient population who are holding out there right now and fearful of either having the intravenous or the subcutaneous forms of delivery of our drug. So hopefully, that gives you a lot of metrics to parametrize that market with, Chris.

And now let me the turn the mic over to Michael Benkowitz to talk about the pricing aspects.

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

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Thanks, Martine. Yes, and I -- because I think your question was around some unusual price increases that we take and which I would challenge a little bit. I think if you look back at our history, with respect to Tyvaso and Orenitram, we've been fairly consistent in taking annual price increases in the low single digits.

With respect to Remodulin, we took a price increase last year, but that was the first increase that we've taken in, I guess -- I think it's been 8 years at that point since we had taken an increase. And that really just reflected the investments in Remodulin delivery technology that Martine talked about in her opening.

And so we understand that our drugs are expensive. We take that very, very seriously. And we think we have a responsibility to be good stewards of the health care system and moderate our price increases. So we don’t take aggressive price increases. To -- on the patient side, we do a lot of things to help support them and make our drugs affordable. We have co-pay cards for all of our products for our commercial patients. And then we have a very -- we think a very generous patient assistance program for all of our patients so that if they can't afford our medicines for whatever reason, we are able to give that to them for free.

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Operator [5]

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Our next question comes from Liana Moussatos of Wedbush Securities.

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Vasiliana Vireen Moussatos, Wedbush Securities Inc., Research Division - MD of Equity Research [6]

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Can you give us some metrics for modeling XPS and STEEN Solution?

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

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Thank you, Liana. That's a reference for those on the call who may not be aware. We received on Friday FDA full commercial approval for the ex-vivo lung perfusion system that we use to increase the supply of implantable lungs. I guess I probably misspoke a little bit at the beginning when I said that there is no cure for pulmonary hypertension. In fact, a lung transplant is a cure for pulmonary hypertension. But there are very few lungs available. When we started our ex-vivo lung perfusion effort, there were about 1,600 lung transplants done each year in the U.S. And we're very proud and excited that we have now been able to push that total number of lung transplants each year up just under 2,000 lung transplants a year. Statistically, our head of that group has shown me the data that this technology has enabled the 12% increase in lung transplants after the number of lung transplants was completely flatlined for many years going back to the 20-noughts. So it's no doubt that being able to take marginal lungs that no transplant surgeon wants to use, fly them to our, what we call Lung Bioengineering center here in Silver Spring -- and by the way, this August, the second Lung Bioengineering center will open up at the Mayo Clinic, fly them to these centers, have our expert, super well-trained technicians operate on these lungs as one would operate on a patient, and then more than 50% of the time restore these lungs to transplantable condition and provide the transplant surgeons assurance of that by giving them access to a high-resolution visualization network to their phones and pads and whatnot. So they can actually look inside the lung here at our Lung Bioengineering center in Silver Spring, and come this August at our Lung Bioengineering center at the Mayo, and actually see for themselves the excellent shape that the lungs are in and then authorize the further transport of those lungs to transplant centers throughout the United States. We've -- in fact, once the transplant surgeon has accepted the lung that we've operated on here at our Lung Bioengineering center, 100% of those lungs have been successfully transplanted and the patients have walked out of the hospital just as well as if they had received an allograft from a donor in another part of the same hospital. This is really extraordinary.

I mean, just giving example, we've had a donor, it was just actually last week, in San Francisco, flew the -- there was a marginal lung, nobody wanted to use it for transplantation, flew it from San Francisco all the way here to Silver Spring, Maryland where we have our Lung Bioengineering center. Our team worked on that lung through the night. By the morning, the surgeon for the lung transplant patient who was on the highest position on the UNOS waiting list said, "It looks like a new lung for me, I'm going to take it." And then we flew it on several additional hours and had a successful lung transplant with that patient. So it's definitely a technology that's working and is beginning to ramp up.

The exact metrics around the commercialization of the STEEN Solution, which is the solution used to perfuse the lung and give it a in-vivo light condition while we're working on it is, I believe, that, that exact pricing is still pending final approval with Medicare because we just got the commercialization approval on Friday. But to give you just an order of magnitude, it is in the tens of thousands of dollars, Liana.

The current -- we also have a clinical trial. And unlike in -- it's been kind of interesting to me, unlike in the pharmaceuticals space where we never tried or even thought that we could get reimbursed for medicines in a clinical trial, that's actually kind of normal and customary in the transplant space. So even in our clinical trial, we were receiving reimbursement on the order of something like $30,000, $40,000 per patient that we -- per set of lungs that we processed. So that was just in the clinical trial. And I think things will be a bit better in the fully commercialized scenario.

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Operator [8]

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Our next question comes from Jessica Fye of JPMorgan.

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Jessica Macomber Fye, JP Morgan Chase & Co, Research Division - Analyst [9]

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I wanted to check in on the new pumps you're working on, in particular, the DEKA pump, which I think early in the year you had suggested was going to refile in January with a 90-day clock. Has DEKA heard back from the FDA on that? And if so, what was the finding? Is there a plan to refile, if they need to do more work there?

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Martine A. Rothblatt, United Therapeutics Corporation - Founder, Chairman & CEO [10]

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Yes, Jessica. So the answer is, yes, they've heard back from the FDA. It has already been refiled, was refiled some months ago. And we expect the approval of that pump within the next 1 to 2 weeks.

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Operator [11]

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Our next question comes from Martin Auster of Crédit Suisse.

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Ikechukwu Oj, [12]

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This is Ekog on for Marty Auster. I just had a quick question. If you can just give us a quick update and/or refresher on the Medtronic ISR pump and give us some expectations on supply. Is there any chance that you're going to be manufacturing additional pumps in the near time -- future? Or anything to that degree? The additional color on that would be very helpful for us.

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Martine A. Rothblatt, United Therapeutics Corporation - Founder, Chairman & CEO [13]

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Okay. Great. That is, as mentioned, since we received our approval from the FDA last year, that's become a commercialized program at UT. We expect commercial launch in the second half of this year. And I'm going to turn the question over to Mike Benkowitz to give you a little bit more color about that.

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Michael I. Benkowitz, United Therapeutics Corporation - President & COO [14]

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Yes. Thanks, Martine. Yes, as Martine said, our expectation is that we'll launch the implantable system in the second half of 2019. The -- I guess the last issue that remains is Medtronic had a series of conditions of approval associated with their pump filing. They're down to their last issue and we expect that -- they expect we'll receive clearance from the FDA on that very soon and then we'll be able to launch.

Our plans for launch, as we've talked about previously, are to start with the 10 clinical trial sites that have experience with the implantable system. And launch preparation has already started with those sites. And so they're -- most are ready to go. And as soon as we have clearance from the FDA, we'll be able to start implanting almost immediately. And then we're also looking to, and have started the process of getting another 100 sites up and running and expect to do that by the end of the year. So by the end of the year, we'll have roughly 100 sites that can do the implants for the implantable system.

Regarding supply, practically there's really no limit on the supply. Medtronic has increased the number of pumps that they've been able to manufacture, so that -- such that any current IV patient that wants the implantable system can have it. And so we'll launch with that supply. Meanwhile, they're working on their next-generation version of the pump which we expect to be available sometime next year. And there will be again plenty of supply there for any future patients that wish to have the implantable system.

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Operator [15]

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Our next question comes from Terence Flynn of Goldman Sachs.

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Terence C. Flynn, Goldman Sachs Group Inc., Research Division - MD [16]

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Maybe 2 from me on ralinepag. Was just wondering, I know Arena had previously talked about potentially doing a head-to-head trial versus Uptravi. So just be curious to get your thoughts on that, if that's still something you guys would consider? And then any color you can give in terms of the incremental R&D spend to support the Phase III program for ralinepag?

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Martine A. Rothblatt, United Therapeutics Corporation - Founder, Chairman & CEO [17]

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Thank you. So at present, we are not planning to do a head-to-head trial with Uptravi. We have our hands full with the 3 pivotal trials that the FDA had agreed with Arena to be an adequate basis for approval. In fact, out of those 3 clinical -- 3 pivotal trials, there are 7 different ways, in the FDA's view, for the drug to achieve approval based on whether results in any given trial were highly statistically significant or just statistically -- or just 2 trials with statistical significance or 1 trial with high statistical significance. So there are many different ways to gain approval there.

The data that we -- that enticed us to acquire ralinepag in the first place was pretty compelling in our view in terms of its advantages over Uptravi. And that's actually the same kind of feedback that we received during the due diligence process from the different MDs that we interviewed. So I'm not really sure what would be the cost effectiveness of doing such a head-to-head trial. But we're always open-minded at United Therapeutics and we're always interested in providing clinically significant information. So I would definitely not exclude that possibility by any means.

With regard to incremental R&D, we don't really believe that there is any net increase in our R&D spending at all due to the acquisition of ralinepag. We have products that are constantly coming in and out of our pipeline and in and out of Phase III trials. To just give you one example, right now obviously our ralinepag expenses are beginning to ramp up because the pivotal trials have begun. For example, the largest of the trials, the OUTCOMES trial has already enrolled its first patients now. So those trials -- those expenses are ramping up.

On the other hand, we have other trials going on within the company whose expenses are beginning to wind down. Obviously, the BEAT trial, those expenses are all wound down right now. And to a rough approximation, I would say the savings on the BEAT is almost equal to the cost of ralinepag.

Another trial which is in the -- which is just about to start winding down is our increased trial of Tyvaso in patients with interstitial lung disease, that's almost fully enrolled. So those expenses are beginning on the wind-down.

So this kind of coming in, coming out process is always going on. I believe, James, our CFO, has guided at healthcare conferences several times, we keep a philosophy of a kind of steady state on our R&D spending and you should not expect any spikes due to ralinepag at all.

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Operator [18]

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Our next question comes from Carter Gould of UBS.

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Andrea Cristina Brettler, UBS Investment Bank, Research Division - Associate Analyst [19]

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This is Andrea on for Carter. Now that our Remodulin generic has launched, how does that impact how you're thinking about allocating capital across business development, additional R&D investment and share buybacks?

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

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Okay. I'm going to ask, when you talk about capital, you talk about our Chief Financial Officer, so James, your turn to answer a question.

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James C. Edgemond, United Therapeutics Corporation - CFO & Treasurer [21]

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Thanks. Thanks, Martine. Thank you for the question. Our capital allocation priorities will remain unchanged, even as you described an entry of the generic Remodulin. And our capital priorities continue to be, first, investing in R&D opportunities, as Martine just described in terms of the clinical trials ralinepag and our other clinical trials, really looking at opportunities to support our business mission. Second, we're going to invest in value-creating business development activities. And third, share repurchases. So those capital allocation priorities are consistent with what we've discussed before and will be so going forward. Thank you very much.

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Martine A. Rothblatt, United Therapeutics Corporation - Founder, Chairman & CEO [22]

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Thank you, James. Thank you, everybody, for joining our first quarter earnings call, and we look forward to seeing you at some of the upcoming healthcare conferences where things could be delved into in greater detail. So there are a number of them coming up in June, July. I, myself, will next be at the Wedbush Conference in New York in August. Thank you, everyone, for joining the call.

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Operator [23]

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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 access code 5569533. You may now disconnect. Everyone, have a great day.