United Therapeutics Corporation (UTHR) Earnings Call Transcript & Summary

Great. Thank you, Kevin, so very much for dialing us in. And we have United Therapeutics, Dr. Martine Rothblatt; and then James Edgemond, also joining us. Whatever I say these names, I have to tell you all that I just get a little scared, I'm really bad with names. So when I say them, I'm just praying internally, I'm getting them right, even though I've known Martine and James for so long. But thank you so much, Martine and James for joining us. We've got Dewey, I believe, who's got a quick -- something to read. And then Martine will give us a an update on United Therapeutics, and we'll go into the fireside chat.

Yes. Good afternoon. Our remarks today may include forward-looking information about our business, and please see our SEC filings for risks and uncertainties that could cause actual results to differ. And thanks, Hartaj.

Yes. Thank you, Dewey. So with that, we can get going. Martine, if you want to give us an update on the company, the salient features, then we can jump into the chat.

Sure. Thanks very much, Hartaj, and thank you for welcoming us to the Oppenheimer conference. We're glad to be here, again. Unfortunately, still virtual, 1 year after we launch virtual. But hopefully, next year will be all face-to-face. So United Therapeutics has had a good year, notwithstanding the terrible toll that the pandemic has taken on so many people. We have grown the number of patients on our main medicine, treprostinil to over 8,000 patients. And this is all within a patient population called Group 1 PAH. PAH is an acronym for pulmonary arterial hypertension. We're in the process right now of kind of doubling the business from being just a pulmonary hypertension business to also being a pulmonary fibrosis business. And that doubling is made possible. First of all, by an anticipated approval, in the month of April, for our Tyvaso product in a new disease called Group 3 pulmonary arterial hypertension. These are patients who have pulmonary fibrosis, but as a consequence of their pulmonary fibrosis, they also have pulmonary hypertension. There are over 30,000 patients in this Group 3 pulmonary hypertension group who have no medicines, currently, approved for them. So if we are, as expected, able to launch our product in April of this year, next month, and that would begin our doubling of our business from just a Group 1 pulmonary hypertension business into also a pulmonary fibrosis business. In addition, based on our increase of Phase III trial, which read out last year and showed a striking ability to improve the disease state, in other words, to have a disease-modifying effect on people with pulmonary fibrosis, we launched a Phase III trial called TETON in patients who have just pulmonary fibrosis with no pulmonary hypertension at all. And that trial, if successful, would enable us to take our Tyvaso medicine into this population of people who have no pulmonary hypertension just have pulmonary fibrosis. That population is upwards of 100,000 patients who currently have no disease-modifying therapy. So when you wrap all of these different pieces together, we have an internal plan at United Therapeutics, Hartaj, called the 25/25 plan. And this plan is to have a 25,000 patients on our treprostinil medicines by the year '25, so 25/25. And it would be about a tripling of our current patient population. We plan to achieve that, firstly, by continued organic growth of our treprostinil products in Group 1 pulmonary hypertension. And then secondly, with the approval, we expect to receive next month, in the group of patients who have pulmonary fibrosis as well as pulmonary hypertension, to garner another 10,000 to 15,000 patients in that Group 3 pulmonary hypertension group. And then finally, as we get closer to 2025, we hope to have a positive read out on this TETON study and then be able to begin penetrating the 100,000 patient population with just, frank, pulmonary fibrosis with no pulmonary hypertension. In addition to all of that, Hartaj, we have additional Phase III studies going on with a new chemical entity called ralinepag, and we have 2 Phase III studies, which we both expect to read out and to launch into the market during this 2021 to 2025 time period. And that would be additional patients and additional revenues on top of this 25,000 from treprostinil. So we've got a really great set of growth prospects. We also have an exciting early-stage pipeline, where we are developing next-generation versions of our oral product, next-generation versions of our inhaled product and next-generation versions of our parenteral product, all of which will contribute to this 25/25 goal.

Yes, Martine, it's really fascinating to me that when you lay out, and I think James has done this also about the near term, midterm and long-term plan, how many projects United Therapeutics has got going on, which I think are very important to the multiple expansion of the story, of the stock, which hasn't really happened yet, it's mostly from this expectation on pulmonary hypertension interstitial lung disease, the sales and earnings growth from that. My question to you on that is, on PH-ILD, is in terms of just as much as color as you can give, Martine, if you've had your sort of during the NDA meeting with the FDA, potential labeling discussions. How confident do you feel to be able to meet your April sort of target to get approval from the FDA for that indication?

Sure, Hartaj. We feel very confident, although, it's never over until the -- we received the official letter from the FDA. But there has been nothing in our back and forth with the FDA, which is now down to the level of the label discussions, which would give us any reason for concern.

Yes. Is there -- there being a device involved this with Tyvaso, of course, Tyvaso has been approved in pulmonary hypertension, PAH, for a long time, does that add any complexity, Martine or not really?

I don't think it does, Hartaj, because the increased study in the Group 3 pulmonary hypertension was done with the exact same device as is already approved by the FDA in Group 1 pulmonary hypertension. So were we to do it with a different device? I think you're correct that, that would be an additional risk factor. But we were very careful to just not compound risk factors together. And just -- instead, we went into a new indication with the same drug and the same device. And as I'm sure you and your listeners are aware, we did hit all of our primary and all of our secondary endpoints in that increased trail. Now I'm glad you brought up the idea about an additional device. I mentioned our next-generation installation device is what's called a dry powder inhaler. So we take that product by the name Tyvaso DPI for dry powder inhaler. And we did complete all of the clinical studies necessary for registration of that new device by the end of last year in December. And also next month, we will file for approval of that new device. We'll seek approval of that new device, both in Group 1 and Group 3 pulmonary hypertension. And because we're using our Priority Review Voucher to expedite the approval of that new device, we expect it to have a PDUFA date for approval of December of 2021. And thereafter, we would have the same drug, but in 2 different devices, both a nebulizer and a dry powder inhaler and hopefully, 2 different indications, for sure, in Group 1 pulmonary hypertension, and I think, very probably, in Group 3 pulmonary hypertension as well.

It's interesting you answered about the DPI question Martine, because I was actually going to follow-up. I was leading towards that. And I usually like to think that the turbine gives me the ability to look at other people's thoughts, but it apparently works the other way around. You actually already knew what I was thinking by answering my question. But what I want to ask you, on just the Tyvaso DPI is -- and we've done a survey on this, and there definitely seems to be some preference for the nebulizer and the DPI. As you look over time, what's the sort of breakdown could you see, Martine, in terms of how many patients would stay on nebulizer versus a DPI, let's say, 2, 3, 4 years from now?

Yes, it's very difficult to predict something like that, Hartaj, because we have not yet widely distributed the DPI device. We just conducted the studies, necessary to demonstrate bio comparability. It has a lot of advantages compared to the nebulizer. It's much, much smaller. It's much more convenient for the patients. The time that they spend doing installations is much shorter. So all of those are advantages. On the other hand, there are many patients who are already very comfortable with the nebulizer, and it's something that they've used for quite a while. One thing I've learned, Hartaj, about patients with pulmonary hypertension and our therapies is once they get on one of our therapies, they tend to really get attached to it. And the therapies make a big difference in the patient's lives and how they feel and I think it's very natural for any patient. And of course, their physician to be reticent about switching to a different therapy when one is doing so well for them. From a revenue standpoint, Hartaj, I think we're going to be very agnostic in terms of whether a patient is on the Tyvaso DPI or the Tyvaso nebulizer, in very much the same way as we're completely device agnostic for our parenteral therapies, whether a patient is on subcutaneous Remodulin or intravenous Remodulin. Our goal is to be as useful to the patient population as possible, currently in pulmonary hypertension and going forward in pulmonary fibrosis.

Yes. No, that's great, Martine. I actually was smiling. About a month ago, I was really an article in a cardiology magazine about how PAH has seen a phenomenal increase or decrease in mortality, one of the few, actually, areas in the cardiology area of therapeutic area to actually see pretty significant decreases in PAH, and that's because a lot of the work, for example, companies like United Therapeutics and Actelion have done there. So kudos to you. And in terms of just thinking about -- United Therapeutics has talked a little bit about, I believe, Mike, about the rollout for the patients, once, assuming you get approval next week, over -- I'm sorry, next month and into next year. How Tyvaso needs to be titrated up, right? You go from some pumps to, I think, 4x a day, 7 pumps, how to think about -- how should investors think about Martine, that sort of titration up from putting a patient right on Tyvaso PH-ILD patient? And then how do they get titrated up to what would be an optimal dose, for example?

Sure. Well, first, thank you very much for the comment, Hartaj, about the improvement in longevity of the patients. As you probably know, I started the business because my daughter was diagnosed with pulmonary hypertension. At the time she was diagnosed, the mean survival was worse than breast cancer. It was only 3 years. So it was quite a frightening sort of diagnosis. Now there are more and more articles coming out that show if you can reduce the patient's pulmonary artery pressures to low 40 millimeters of mercury, then the patient can expect to have a 10, 20, almost an indefinite ability to continue living with pulmonary hypertension. And I'm, of course, I'm so thankful that my daughter is now over 30 years old and continuing to do well. So the field has really been, I think, a stellar success story for what biotechnology can do for society. And of course, all these great COVID vaccines are another stellar success story of what biotechnology can do for society. With regard to the titration of the medicines, this is something that we saw in our clinical trials that the patients were all able to titrate up to the full nominal dose within a very short period of time within 1 to 2 months at the outset. The cost of the therapy is on the same no matter what their dose is because it's based on using the drug in the ampoule, which is sent to them along with their nebulizer. So the titration situation is kind of a non issue with regard to...

Got it. Okay. And we just had one question from the audience watching. And I think this is because of concerns around COVID-19 and the FDA's inability to inspect some facilities. And they're asking if the FDA has already inspected your facilities as well as that for the device?

Yes. Great question. So our facilities are periodically inspected by the FDA, and they are surprise inspections. You never know when they show up until they immediately show up. So because this drug, Tyvaso is being produced from the very same facility that it was produced from before Tyvaso -- before the pandemic, and the FDA had multiple times inspected that facility. It's in Silver Spring, Maryland, where we make it. In fact, it's probably the closest drug production facility to the FDA's headquarters itself in Rockville, Maryland. And what we are seeking approval for is now, that, at the beginning of our fireside chat is the exact same drug, but just for a slightly different indication to shrink pulmonary hypertension instead of Group 1 pulmonary hypertension. I don't expect the inspection issue to be an issue for the April approval. On the other hand, with regard to the that DPI, that DPI is a joint project with a company Mankind, and that's a different -- it's a different formulation because it's a dry powder that's made. And it is a different device, although, the FDA has multiple times inspected the Mankind facility because it's the exact same device as is used for Afrezza. So again, the risk is much lower. It's not a brand-new device. It's a device the FDA has already approved, a facility that the FDA has already inspected. The only thing that's new is the dry powder formulation versus the nebulized form. So I would say we present a kind of a best case situation in terms of pandemic interruptions on FDA inspections.

Yes. Got it. And then if we can spend a little bit of time, Martine, on just Remodulin. Your Tyvaso -- consensus expectations of Tyvaso sales have gone up, as up for us in our model. And I think quite a few of your investors are bullish in that area. So maybe we can talk a little bit about Remodulin if we have time for Orenitram. But Remodulin, the pumps there. You are launching Remunity, I believe, in June of this year. And then the ISR pump, we should be getting an update sooner rather than later there. Our KOL calls indicate to us that at least 50% of the patients that could get a Remodulin, don't, because one reason or another, they kind of be in dwelling captor, et cetera, et cetera. 20%, 30% that do get on Remodulin have to get off because of issues, it's infection. Can you just walk us through a little bit that once Remunity is launched and you get ISR launching out there, what is the potential for additional Remodulin sales in the near to midterm?

I think the potential is very strong, Hartaj. And for exactly the reasons that you pointed out, Remodulin it's a great drug. As mentioned, it's been a major contributor toward the expansion of patients living with pulmonary hypertension. But on the other hand, there are some significant warts and hair associated with it. As to the subcutaneous delivery method, it's complicated for the patients. The pump device is frankly older than some of the patients who are on it. And so it's a technology that is prone to technical failures and mishaps. The intravenous delivery is subject to septic infections and patients get hospitalized for that. That one also is older than most of the patients who are on it. So we embarked on this next-gen pump delivery and pump technology of the Remunity pump, which, as you pointed out, will be launched this year. We've already done our trial launch this month, and we'll be aggressively spread out by June, as you indicated. And then we also expect to receive approval from the FDA on the Implantable System for Remodulin this year. United therapeutics, we already received approval from the FDA on that, that's just Medtronic, our partner needs to have approval for their device to be used. So I think both of those technologies are going to be an important part of this achieving our 25/25 goal. Roughly speaking, about half of that 25,000 patients is going to come from Group 1 patients. Group 1 patients themselves are split sort of 1/3, 1/3, 1/3 between Remodulin, Tyvaso and Orenitram. So we expect to have growth in Remodulin, growth in Tyvaso, growth in Orenitram, that will take us about halfway to that 25,000. And then the rest of the way, another 10,000 or so patients will come from this virgin market, where there are no drugs currently approved, but the patients desperately need them. And that is the Group 3 pulmonary hypertension.

Yes. No, that's great, Martine. And I really like kind of how -- and we've seen this with some of the therapies that have tried to compete with the United Therapeutics, you have a very structured and forward-thinking approach. Even to competition with some companies recently trying to compete against Tyvaso, for example. How to think about Orenitram and ralinepag. Orenitram, I don't know when the IP goes, but I believe it's later in 2020s. By that time, I believe you should have ralinepag, assuming the pace here is successful, approved. And so how to think about that dynamic?

I think that once ralinepag is approved. A lot of patients are going to transition to ralinepag. Lets says, a simpler therapy with once-a-day treatment. So far in the pre-pivotal data, it's shown superior biochemical attributes and that would translate into superior pharmacodynamics with regard to selexipag. So there's a lot of really good things going for ralinepag, and I think that, that will carry forward a lot of our momentum on our oral route. I'd also like to mention, though, that we've made sure that we've got 2 shots in that oracle with our advanced development of what we call OreniPro and this is a once-daily formulation of Orenitram, which is already in a human Phase I safety trials, and we hope to continue developing that, all the way to registration, via our bioequivalence route with the TID -- BID or TID treatment that we have currently. So the -- and that will give rise to an entirely new 20-year IP life. So the current one expires in 2027. So we get another 20 years or so with the once-daily formulation, OreniPro, plus a very long-patent life well into the 2030s on ralinepag. So we'll have 2 very solid shots on goal for the oral route of administration.

Yes. And Martine, I think one of the things that investors that are newer to the United Therapeutics story sometimes get surprised at, is that the vast majority of your sales still come from the United States, now you've got Tyvaso and PH-ILD. There are patients who need that are ex-U.S., well, assuming you get approval there in April. And then assuming you get the pumps approved for Remodulin, of course, and there's ralinepag, which could be the best-in-class receptor. How do think about your ex-U.S. strategy? I know we've talked about it from time to time, but how to think about that going forward?

Sure. Well, we have some terrific ex-U.S. partners. Grupo Ferrer is one that comes foremost to mind, with regard to the European market. The fact of the matter is, Hartaj, that our reimbursement is less outside of the U.S. then in the U.S. So we tend to really focus our resources on the U.S. market. And then rely more on our international partners for ex-U.S. penetration.

Right. Great. And then we've done calls on organ transplantation, recently, Martine. So hopefully, we'll see you next year live, not just at our conference in March, but at our February Research Triangle Park Day, which would be in real time. We did a fantastic job of helping us set that up this year, virtually. But we've done some calls on organ transplantation. And I believe you're going to have potentially a kidney clinical trial running by the end of this year, assuming you get the sign-off from the regulators, if you can just talk to that a little bit.

Sure. So we have some really exciting activities going on in the organ manufacturing area with regard to the kidney, the heart, the lung, for example, if you guys come to our RTP campus next year. What people see there is kind of mind blowing because it's sci-fi, you see like an actual 1 lung breathing in and out, and this is something that we have actually made from scratch, Hartaj. It's so beautiful that we've been able to do biomimicry with nature in terms of making lung from scratch and then having it breathe, they breathe for over 2 hours in an ex-vivo lung perfusion machine right now. So really tremendous progress there. With regard to the kidney, that's something that we have a, what we call our 10-gene pig, where we have bit by bit chiseled, if you will, the immune system of the porcine genome until it prevents no greater obstacles to the human immune system than with a transplant from an unrelated other human donor. And there are over 100,000 people waiting for a kidney transplant that can't get in. There are more than that number of people who need a kidney transplant, but because of body mass index and other issues are not even permitted on the kidney transplant list. So we feel really blessed and gifted to be working with some of the leading transplant -- kidney transplant surgeons in the world, people like Dr. Jamie Loch, Dr. Robert Montgomery and many others. So it would really be, I think, a capstone of UT's career trajectory in biotechnology to be able to help supply the gating demand for organs with these manufactured organs. We're also working on making manufactured organs that are autologous, so that the organ recipient would not need to take immunosuppression. So this is the sizzle of United Therapeutics. There's no doubt about it. But one should also never mistake the stake, that makes that sizzle possible. And that stake is this tremendous footprint that we have in Group 1 pulmonary hypertension, now moving into pulmonary fibrosis. And we have another pivotal trial in COPD-related pulmonary hypertension. So the company, as you noted earlier, Hartaj, is chock-full of Phase III trials. That provide the stake that allows us to really can pursue this R&D in an unlimited supply of transplantable organs.

Yes. No, no, that's great, Martine. We've got a few minutes left. The first time I had a aha moment in organ transplantation was actually reviewing a cystic fibrosis call for a company that we call Vertex, the KOL. And we asked him about a cure for cystic fibrosis, and we thought it would be gene editing or something. He said, "Well, it's a lung transplant. That's the only real cure. And I was like, "Oh, my God, this is actually cool." Martine, what is the -- a couple of questions in just your P&L. I'd like to tell people that between 2010 and 2015, United Therapeutics increased sales by, I think, over 2.5x, earnings by 3.5x. You bought back about 22% of your shares outstanding. As the company goes through this losing Adcirca and your sales and earnings accelerate, how does your CFO, Mr. James Edgemond, think about and you think about, that's our trajectory. The capital deployment, it seems to be coming up more and more from investors that talk to us.

Great question, Hartaj. James, we have, like, in my opinion, the best CFO in the industry. And so James, if you could comment on that question, please?

Yes. You bet. Thank you, Martine. Hartaj, thanks. Yes, capital allocation is a question that does come up more, even today, with some of the calls that we've had this morning at your conference. So for us, it's still the same kind of plan that we have put in place. As Martine outlined, we have a lot of clinical trials that we're focused on and committed to. And so our first capital allocation priority is going to be on these clinical trials that are ongoing. It's important for us to realize the benefits. And we think an example is PH-ILD, the increased clinical trial, which we think is going to be a success, knock-on-wood approval in April, but provide a return long term, not only to investors, but actually to the patients who need a therapy. The second item is business development. We still, every day, look for opportunities to take advantage of our internal assets. So things that we do in manufacturing, clinical development, regulatory, commercial marketing to be able to bring these out to the market as well. And just on third is really share repurchase. But the other thing I do want to highlight, and this is what Martine talked about in terms of some of the organ programs, is if there is success as we continue to move these programs forward, the capital investment that we're going to need to develop some of these designated pathogen-free facilities or other facilities to create these manufactured organs will be significant. And so we want to make sure, as we think about our internal R&D programs, we keep in mind this capital requirement to get to these organs that we want to make and deliver an unlimited supply. So that's the framework that we operate under. And I think for us, it suits us well, and that's what our plan is going forward for now as well.

Yes. And James, I'd ask you this question on the previous earnings call. But maybe you could give us a little bit more color, which is the algorithm that you use in 50% of previous sales going to OpEx. Now you're in a strange place this year, right, because Adcirca went off last year. So we could argue that 2020 was your trough year for sales, right? But this year, you're launching PH-ILD, hopefully launching some of the pumps more accelerating them. So you could argue that actually, this year, you might need to actually increase that cadence of investment. But last year was your trough year in revenues. So you're kind of in this little bit of a bind. How do think about that?

Yes. It's actually the algorithm that all the Unitherians know. And I think as Martine helped me out on the last earnings call, it actually gets all of us rowing in one direction, right? We all are committed to this formula and this algorithm, right? If you play forward your revenue growth, it provides leverage and return in the model itself. So going into 2021, we have prepared and locked in our budgets based upon 2020 revenues. And all of us know that. And so what that helps us do is actually evaluate R&D programs and investments across United Therapeutics to make sure we're putting the highest and best use forward. And trimming those things that we can trim and get efficient. So it's actually a good monitoring process to make sure we stay disciplined at this and deploy financial capital and resources appropriately. So for us, it works out to be a great discipline, and that's what we're doing this year as well, Hartaj.

Yes. No, no, I have to say that even losing almost $400 million in Adcirca sales, and yet maintaining margins that are at your peer group or better at 50% operating -- adjusted operating margins. I mean, that's a thing of beauty. There's not many companies that have actually done that. So that's -- I would say that's very, very impressive.

Yes. Thank you. It's really a testament to all the Unitherians internally. Everybody knows this, and we all are rowing to use Martine's analogy in the right direction. And it just helps us do that.

Right. Great. Well, we're at the end of the hour, I just want to thank you, Martine, James, Dewey for joining us. Always a pleasure, and we look forward to keeping this conversation going.

Thank you, Hartaj, for inviting us, and we look forward to having a fireside chat with you literally face-to-face next year.

Yes.

Looking forward to it, Martine. You too. Stay safe. Take care, James.

Thank you, Hartaj.

Bye-bye.