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United Therapeutics Corporation (UTHR) Q1 2019 Earnings Call Transcript

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United Therapeutics Corporation (NASDAQ: UTHR)
Q1 2019 Earnings Call
May 1, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the United Therapeutics Corporation First Quarter 2019 Earnings Call. My name is Michelle and I'll be your conference operator today. All participants will be on a listen-only mode until the question and answer session. If you would like to ask a question during that time, simply press * then 1 on your telephone keypad. If you would like to withdraw your question, press the # key on your telephone keypad.

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

James Edgemond -- Chief Financial Officer 

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 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 the 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.

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Today's remarks may discuss the progress and results of clinical trials and 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 usage. 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 first quarter 2019 financial results and business activities of United Therapeutics.

Martine Rothblatt -- Chairman and Chief Executive Officer

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 lines for questions directed to myself, James or Preside 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 three 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 five technology breakthroughs for Remodulin, four technology breakthroughs for Tyvaso, and three 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 five 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 two biggest problems with Remodulin; subcutaneous pain bad enough to require monthly opioid treatment and a 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 extraordinary for subcutaneous Remodulin because it eliminates two of the biggest problems with existing subcutaneous pumps; inadequate pump malfunction alarming and accidentally bolus dosing. We expect to receive 510 k approval for this breakthrough acoustic volume sensing RemUnity pump within the next week or two. Current subcutaneous pumps fail in our patient population at the rate of once every one to two days causing hospitalization emergencies every one to two 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 one studies. 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 three issues, opening up many thousands of new patients to Remodulin therapy. Fourth, our partnership with Smith Medical on a new ultra-smart Bluetooth connected subcutaneous and intravenous Remodulin pump. This device will be seamlessly integrated with the patient's smartphone so that their dosing compliant, dosing status, available drug, all 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 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 pump of its kind which is seamlessly integrated with their smartphone. Fifth, treviant, the simplest of all of the available ways to deliver pulmonary hypertension medicine parenterally. 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 40,000 patients with pulmonary hypertension die without ever trying Flolan or Remodulin. Treviant will definitely change that by making it extremely easy to use and hence make a major contribution to the expected tripling of our pulmonary hypertension business over the next few years.

There's not the time for me to go into all of the 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 forward to James, our CFO, or Mike, our President

Questions and Answers:

Operator

Once again, ladies and gentlemen, if you would like to ask a question, please press * then 1.

Our first question comes from Chris Shibutani of Cowen. Your line is open.

Chris Shibutani -- Cowen -- Analyst

Thanks very much. Good morning, Martine and United team. 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 to us since we're trying to figure out how to quantify that and where that's coming from. With Remodulin 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. Also, you've had some price increases that I think you haven't had precedent for there. Can you talk to us about how you're thinking about that going forward? Thanks.

Martine Rothblatt -- Chairman and Chief Executive Officer

Sure, Chris. Good morning. 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. The reasons for that are the reasons I gave in my introductory remarks. So, there is what one would say is a capturable new patient population north of 20,000 patients in addition to the patients currently being treated.

The third number, 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 5-10 years. At the best clinical trial centers, the major university hospitals, the mean survival is about 10 years. More generally across the entire patient population, the published data shows that a mean survival of 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 Remodulin basket or the Tyvaso basket. The number of those patients would be you could go ahead and if you took kind of the middle point of seven or eight years mean survival, it means basically about 1/14th or roughly speaking about 7% or 8% of that population of 45,000 patients is progressing each year onto needing Remodulin therapy.

So, one of the reasons that we've been working hard for so many years to develop better and better ways of delivering Remodulin is we realize that, unfortunately, there are no cures out there for pulmonary hypertension. Unfortunately, the vast majority of all of the patients, 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 of Remodulin takes care of that. On the other hand, it does not provide the need to get them to the severe pain medication basket, which we all know is a very problematic place to go. Nobody wants pain. 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 Uptravi 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 of subcutaneous forms of delivery of our drug. So, hopefully, that gives you a lot of metrics to parameterize that market with, Chris. Now, let me turn the mic over to Michael Benkowitz to talk about the pricing aspect.

Michael Benkowitz -- President and Chief Operating Officer

Thanks, Martine. I think the question was around some unusual price increases that we have taken, 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 eight years at that point since we had taken an increase. That really just reflected the investment in Remodulin delivery technology that Martine talked about in his opening. So, we understand that our drugs are very expensive. We take that very seriously and we think we have a responsibility to be good stewards of the healthcare system and moderate our price increases. So, we don't take aggressive price increases.

On the patient side, we do a lot of things to help support that and make our drugs affordable. We have copay cards for all of our products for our commercial patients. And then, we have, we think, a very generous patient assistance program for all of our patients so that if they cannot afford our medicines for whatever reason we're able to give that to them for free.

Martine Rothblatt -- Chairman and Chief Executive Officer

Thanks, Mike. Next question, Operator?

Operator

Our next question comes from Liana Moussatos of Wedbush Securities. Your line is open.

Liana Moussatos -- Wedbush Securities -- Analyst

Thank you for taking my question. Can you give us some metrics for modeling XPS and Steen Solution?

Martine Rothblatt -- Chairman and Chief Executive Officer

Yeah. 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 XVIVO Lung Perfusion system that we use to increase the supply to the lungs. I guess I probably misspoke a little bit at the beginning when I said that there was 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 XVIVO Lung Perfusion effort, there were about 1,600 lung transplants done each year in the US. 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 a 12% increase in lung transplants after the number of lung transplants was completely flatlined for many years going back to the 20 marks. 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 Springs -- by the way, this August, a 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 by giving them access to a high-resolution visualization network to their phones and pads and whatnot. 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.

In fact, once a 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. Just to give you an example, we've had a donor, it was just last week, in San Francisco. It was a marginal lung. Nobody wanted to use it for transplantation. Flew it from San Francisco all the way here to Sulphur 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. Then we flew it on a couple of additional hours and had a successful lung transplant with that patient. So, it's definitely a technology that is 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 lungs and give it an in vital like condition while we're working on it, I believe, that exact pricing is still pending final approval with Medicare because we just got the commercialization approval on Friday. To give you just an order of magnitude, it is in the 10s of thousands of dollars, Liana. We also have a clinical trial and, 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 in the order of something like $30,000 to $40,000 per set of lungs that we processed. That was just in the clinical trial and I think things will get better in the fully commercialized scenario. Thanks, Liana.

Operator, next question?

Operator

Our next question comes from Jessica Fye of JP Morgan. Your line is open.

Jessica Fye -- JP Morgan -- Analyst

Hey there. Good morning. Thanks for taking my question. 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? If so, what was the finding? Is there a plan to refile if they need to do more work there?

Martine Rothblatt -- Chairman and Chief Executive Officer

Thanks, Jessica. The answer is yes. They've heard back from the FDA. It has already been refiled. It was refiled some months ago and we expect the approval of that pump within the next one to two weeks.

Jessica Fye -- JP Morgan -- Analyst

All right. Thank you.

Martine Rothblatt -- Chairman and Chief Executive Officer

Next question, please.

Operator

Our next question comes from Martin Ulster of Credit Suisse. Your line is open.

EK -- Credit Suisse -- Analyst

Hi. Good morning, all. This is EK on for Marty Auster. I just had a quick question. If you can just give us a quick update or a slight refresher on the Medtronic ISR pump and give us some expectations on supply. Is there any potential you're going to manufacturing any additional pumps in the near future or anything to that degree? Additional color on that would be very helpful for us. Thanks.

Martine Rothblatt -- Chairman and Chief Executive Officer

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

Michael Benkowitz -- President and Chief Operating Officer

Thanks, Martine. As Martine said, our expectation is that we'll launch the implantable system in the second half of 2019. 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, and they expect that we'll receive clearance from the FDA on that very 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. Launch preparation has already started with those sites so most are ready to go. As soon as we have clearance from the FDA, we'll be able to start implanting almost immediately.

We're also looking 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 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 such that any current IV patient that wants the implantable system can have it. And so, we'll launch with that supply. Meanwhile, they are working on the next generation version of the pump which we expect to be available sometime next year and there will be plenty of supply there for any future patients that wish to have the implantable system.

Martine Rothblatt -- Chairman and Chief Executive Officer

Great. Thanks, Mike. Operator, next question, please.

Operator

Our next question comes from Terence Flynn of Goldman Sachs. Your line is open.

Terence Flynn -- Goldman Sachs -- Analyst

Hi. Good morning. Thanks for taking the question. Maybe two from me on ralinepag. I was just wondering; I know Arena had previously talked about potentially doing a head to head trial versus Uptravi. I would just be curious to get your thoughts on that if that is 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. Thank you.

Martine Rothblatt -- Chairman and Chief Executive Officer

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 three pivotal trials that the FDA had agreed with Arena to be an adequate basis for approval. In fact, out of those three pivotal trials, there are seven 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 two trials with statistical significance or one trial with high statistical significance. So, there are many different ways to gain approval there.

The data that enticed us to acquire ralinepag in the first place was pretty compelling in our view in terms of its advantages over Uptravi. That's actually the same kind of feedback that we've 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 are always open-minded at United Therapeutics and we're always interested in providing clinically significant information. So, I would definitely not exclude that for 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 our ralinepag expenses are beginning to ramp up because the pivotal trials have become. For example, the largest of the trials, the outcome trial has already enrolled its first patients now. So, 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 trials, those expenses are all wound down right now. To a rough approximation, I would say the savings on the BEAT is almost equal to the cost of ralinepag.

Another trial which is just about to start winding down is our Increase trial of Tyvaso in patients with interstitial lung disease. That's almost fully enrolled. So, those expenses are beginning to wind down. So, this kind of coming in, coming out process is always going on and as I believe, James, our CFO has guided at healthcare conferences several times, we keep a philosophy of a kind of steading stake on our R&D spending. You should not expect any spikes due to ralinepag at all.

Next question, Operator? I think we have time for one more question.

Operator

Our next question comes from Carter Gould of UBS. Your line is open.

Lyn Jay -- UBS -- Managing Director

Hi. This is Lyn Jay on for Carter. Thanks for taking our question. Now that Remodulin generic has launched, how does that impact how you're thinking about allocating capital costs, business development, additional R&D investment, and share buyback?

Martine Rothblatt -- Chairman and Chief Executive Officer

Okay. When you talk about capital, you talk about our Chief Financial Officer. So, James, your turn to answer a question.

James Edgemond -- Chief Financial Officer 

Great. Thanks, Martine. Thank you for the question. Our capital allocation priorities will remain unchanged even as you described in the entry of a generic Remodulin. Our capital priorities continue to be first investing in R&D opportunities. As Martine just described, in terms of the clinical trials around ralinepag and our other clinal trials, we're 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 have discussed before and will be so going forward. Thank you very much.

Martine Rothblatt -- Chairman and Chief Executive Officer

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 can be delved into in greater detail. There are a number of them coming up in June and July. I, myself, will next be at the Wedbush conference in New York in August. Thank you, everyone, for joining 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 at 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.

Duration: 32 minutes

Call participants:

James Edgemond -- Chief Financial Officer 

Martine Rothblatt -- Chairman and Chief Executive Officer

Michael Benkowitz -- President and Chief Operating Officer

Chris Shibutani -- Cowen -- Analyst

Liana Moussatos -- Wedbush Securities -- Analyst

Jessica Fye -- JP Morgan -- Analyst

EK -- Credit Suisse -- Analyst

Terence Flynn -- Goldman Sachs -- Analyst

Lyn Jay -- UBS -- Managing Director

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