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United Therapeutics Corporation (UTHR) 2019 Q2 Earnings Call Transcript

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United Therapeutics Corporation (NASDAQ: UTHR)
Q2 2019 Earnings Call
July 31, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the United Therapeutics Corporate second quarter 2019 earnings call. My name is Michelle, and I will be your conference operator today. All participants will be in a listen-only mode until the question-and-answer portion of this earnings call. If you would like to ask a question during that time, simply press * then the number 1 on your telephone keypad. If you would like to withdraw your question, press the # key on your telephone keypad. I will now turn the conference over to Mr. James Edgemond, Chief Financial Officer of United Therapeutics.

James Edgemond -- Chief Financial Officer

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.

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Today's remarks may also include financial measures that were not prepared in accordance with US generally accepted accounting principles. Reconciliations 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 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 of the second quarter 2019 financial results and business activities of United Therapeutics.

Martine Rothblatt -- Founder, Chief Executive Officer

Thank you, James. Good morning, everybody. I'd like to start off with a few words about the current quarter, and then spend a longer time talking about their growth prospects for the future, and then we'll open up the lines for questions directed to our president, Mike 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 technology's many problems.

Our new Remodulin products include the implantable system for Remodulin -- or ISR -- and RemUnity and Trevyent, all three of which are pending FDA approval, as well as RemoPro and Remo Life, both of which are in clinical development. All five 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 two 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 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 Atrophy, 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 pharmacogenomics 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 -- or NCEs -- include Ralinepag and our Sapphire gene therapy, both now in Phase 3 trials for Group 1 pulmonary hypertension. They also include SM-4646 for pulmonary fibrosis, and Exosomes for bronchopulmonary dysplasia, now cleared 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 3 trial, due to unblind later this year.

We also have four different kinds of organ manufacturing products in clinical and pre-clinical 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?

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, if you have a question at this time, please press * then the number 1 on your touchtone telephone. If your question has been answered, or you wish to remove yourself from the queue, please press the # key. To prevent any background noise, may I ask that you please place your line on mute once your question has been stated? Our first question comes from the line of Hartaj Singh, with Oppenheimer & Company. Your line is open; please go ahead.

Hartaj Singh -- Oppenheimer & Co. -- Managing Director, Senior Analyst

Great, thank you for the questions, Martine. A question, I apologize. 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 changing [inaudible]. Could you just give some more color on the domestic versus the international patterns, now that there 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? Thank you very much.

Martine Rothblatt -- Founder, Chief Executive Officer

Hartaj, thank you so much for the question, and good to hear your voice this morning. I'd like to -- Mike Benkowitz, our President, 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?

Michael I Benkowitz -- President, Chief Operating Officer

Sure, thanks, Martine. Thanks, Hartaj. Yeah, so we're pleased to see that -- despite competing with generic in the US -- 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 US, for instance, US Remodulin starts in Q2 were higher than in any quarter in almost ten 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 -- yeah, on a more qualitative basis, what we're seeing through our conversations with PAH doctors is they continue to express a preference for branded 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 under way 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, we're -- it's still limited at this point. Really, the only country to launch is Austria, to a lesser extent than Germany. That may or may not pick up as we move into the second half of the year, but as it stands right now, there's limited competition in, 1.) The generic competition, and 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.

Martine Rothblatt -- Founder, Chief Executive Officer

Thanks so much, Mike. Thank you, Hartaj. Operator, could you offer up the next question?

Operator

Our next question comes from the line of Jessica Fry with JP Morgan. Your line is open.

Jessica Fry -- JP Morgan -- Analyst

Great, good morning. Thanks for taking my question. 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?

Martine Rothblatt -- Founder, Chief Executive Officer

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 -- Jessica's question?

James Edgemond -- Chief Financial Officer

Sure, thanks. And Jess, good morning; thank you for the question. In thinking about our capital allocation and 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 adding UT -- or 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.

Martine Rothblatt -- Founder, Chief Executive Officer

James, thanks for an excellent answer. Operator, next question, please.

Operator

Our next question comes from the line of Liana Moussatos with Wedbush Securities. Your line is open; please go ahead.

Liana Moussatos -- Wedbush Securities -- Analyst, Emerging Pharmaceuticals

Thank you for taking my question. Could you give us a little more detail on the status of the transplant organs program that you mentioned -- the XENO, but also 3-D, and other approaches?

Martine Rothblatt -- Founder, Chief Executive Officer

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 that 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 news story of a young lady -- cystic fibrosis sufferer -- who was the sickest person on the nationwide transplant list, meaning that she was like, 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 lung restoration center in partnership with the Mayo Clinic, so that will be an exciting event toward the end of August.

In addition to that, we have an 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 are 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 two what are called "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 output is deemed safe by the FDA to put into a person. So we'll have two 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 one of two ways. We can allogenically 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 an organ such as a heart or a lung or a kidney needs somewhere between five and ten billion cells, so you can see by being able to expand our cells, and have them healthy at the numbers of over 1 trillion, we really have demonstrated scale-up capability for commercialization.

We're also working on applying that scale-up competency that we have at United Therapeutics to an individual's own iPSC cells, which have been redifferentiated back into endothelial, epithelial, mesenchymal, etc. -- different types of cell lines. The beauty about cellularizing the 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 kind of a flyover of the exciting different types of organ manufacturing activities going on at UT. Thanks for the question, Liana. Operator, can you queue up the next question, please?

Operator

Our next question comes from the line of Chris Shibutani with Cowen. Your line is open, please go ahead.

Chris Shibutani, MD -- Cowen -- Managing Director, Health Care-Biotechnology

Thank you. Good morning, Martine and team. I want to ask a question about Ralinepag and that program. Can you confirm for us whether the plans and the timelines, as communicated by Arena prior to your acquisition of this program, are the same, and if those programs are on track? And in particular, from 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 worth switching patients over to, or to be competitive? Thank you.

Martine Rothblatt -- Founder, Chief Executive Officer

Yeah, I'd say it's a very good and detailed question; thanks for asking it. So generally speaking, I can't really remember, or even know everything that Arena said, but the program is on schedule. It's doing well; it's enrolling patients. When we took over the program from Arena, there actually were no Phase 3 patients yet enrolled, so now we're actively enrolling. It's the top Phase 3 trial on which we are spending money, and -- so the program's 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 the results are out. Certainly, from the Phase 2 data, there were compelling indications that Ralinepag was the best-in-class drug compared to Uptravi, but those were Phase 2 compelling indications, and all of that has to be confirmed in a Phase 3 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 years of Phase 3 enrollment to have those answers. Thanks for the question. Operator, next question, please?

Operator

And again, ladies and gentlemen, if you do have a question at this time, please press *, then 1 on your touchtone telephone. Our next question does come from the line of Martin Auster with Credit Suisse. Your line is open; please go ahead.

Martin Auster -- Credit Suisse -- Managing Director, Biotechnology Equity Analyst

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

Martine Rothblatt -- Founder, Chief Executive Officer

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. Litigation, generally speaking -- once you're 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. Next question, operator.

Martin Auster -- Credit Suisse -- Managing Director, Biotechnology Equity Analyst

You, too.

Operator

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

Martine Rothblatt -- Founder, Chief Executive Officer

Excellent. Well, let me go ahead and give a couple 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 now have our first commercialized, FDA-approved organ treatment technology -- what I called our manufacturing technology -- known as the XPS system, due to our partnership with ExVivo, so it's really nice having these five independent commercialized lines of business, and -- as I mentioned in my opening remarks -- certainly the top three of them, Remodulin, Tyvaso, and Orenitram, I feel very confident each can triple our current level of revenues and business, so we've got like, three independent shots on a goal of tripling our business from its current level.

Pending the outcome of the Unituxin lung cancer study -- which we called Distinct -- and we expect to accrue the necessary number of events sometime later this year, that could portend for major expansion of the way we view ourselves at United Therapeutics, into much more of an oncology company, and finally, on the organ manufacturing and regenerative medicine front, it's very exciting to have the 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 we look forward to seeing as many of you as possible at Wedbush. Operator, you can now wrap up the call.

Operator

Thank you for participating 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 3066089. Thank you and have a great day.

Duration: 28 minutes

Call participants:

James Edgemond -- Chief Financial Officer

Martine Rothblatt -- Founder, Chief Executive Officer

Michael I Benkowitz -- President, Chief Operating Officer

Hartaj Singh -- Oppenheimer & Co. -- Managing Director, Senior Analyst

Jessica Fry -- JP Morgan -- Analyst

Liana Moussatos -- Wedbush Securities -- Analyst, Emerging Pharmaceuticals

Chris Shibutani, MD -- Cowen -- Managing Director, Health Care-Biotechnology

Martin Auster -- Credit Suisse -- Managing Director, Biotechnology Equity Analyst

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