United Therapeutics Corporation (UTHR) Earnings Call Transcript & Summary

Good morning, everyone. This is Eun Yang, a biotech analyst with Jefferies. I'm happy to host a fireside chat with the United Therapeutics. From United Therapeutics is James Edgemond, CFO; and Dewey Steadman, Head of IR. So before we go into Q&A, Dewey is going to read us a safe harbor statement?

Yes. So today's remarks by James and me will likely contain forward-looking statements, and we caution you to review the risks associated -- risks and uncertainties associated with those statements in our Forms 10-K and 10-Q.

Okay. So instead of going -- asking you to an overview of the company, I'm just going to ask questions directly, go into it, given that we have only 25 minutes, okay?

So with the recent DPI approval with a clean label, surprisingly a clean label and response from the FDA, can you talk about market share trajectory of DPI in PAH and PH-ILD.

Yes, Eun. But first, thank you. I want to thank you and Jefferies for the invitation, one is United Therapeutics, but also to Dewey and I. This is the first in-person conference in a few years. So it's really fun. So thank you for the introduction and seeing everybody here in the room. So with respect to DPI approval, Eun, and you wanted kind of a breakdown between PAH and PH-ILD. I want to start from the ground up maybe, and what we've said in the public commentary already and going back to Q1 is Michael Benkowitz, who's the President and CEO, gave some color around DPI with respect to PAH and PH-ILD. And for PAH, DPI utilization, we gave some metrics as our anticipation is around 60% utilization in PAH for Tyvaso DPI and the balance 40% would be continuing to use the nebulized version. In PH-ILD, it was more of a balanced perspective of expecting DPI utilization to be around 50-50 between -- I'm sorry, in PH-ILD, DPI utilization 50%; and nebulized version 50%. And we'll certainly learn going forward kind of what that breakdown would be, but that's kind of what we put in the public domain already. And keep in mind that currently, the nebulized version of Tyvaso, we expect patients in both PAH and PH-ILD to use a nebulized version. And there is a familiarity with the nebulized version as well as the cost consideration. So we do anticipate and we will continue to support the nebulized version going forward. But looking now at PAH and DPI utilization, which was your question, if you think broadly around PAH, there's about 45,000 to 50,000 patients currently being treated for PAH. And if you take out those patients that are using a nebulized version of therapy, that gets you down to about 40,000 to 45,000 patients. And we plan to use potentially DPI as more of a frontline therapy for that group. So there could be an opportunity to move Tyvaso DPI up in the treatment paradigm for patients with PAH and again, more potentially as a front-line therapy. With respect to PH-ILD utilization, we do have exclusivity in PH-ILD for the DPI and the nebulizer through early 2024. So from a market share perspective, with the exclusivity, again, we expect uptake in that category as well.

With the recent SMA coverage approval in the new indication in PH-ILD, how should we expect kind of an uptick in sales in the patient population. So as I remember, private and Medicare coverage is -- fully is about 50-50 in PH-ILD. But from our channel checks, some physicians have already been using Tyvaso in PH-ILD patients who are all Medicare. So can you talk about with the CMS approval starting already sometime soon, how is the -- how should we be thinking about uptick in sales with the CMS approval in third quarter and fourth quarter?

Yes. Thank you, Eun. So from a DPI perspective, one of the things that we have confidence and continue to have confidence in is achieving -- having 6,000 patients on Tyvaso by the end of this calendar year. From the perspective of approval and launch, again, approval recently happened, and we expect to have DPI in the hands of patients this summer, so soon in terms of the launch and sales trajectory. From kind of a tailwind, so if you think about the back half of the year, and you've talked about this, we've had CMS approval for reimbursement for patients. So we think that will actually be a big catalyst for us in terms of Tyvaso sales. But again, as you alluded to, Tyvaso DPI. So from a sales perspective, we expect growth. We expect the tailwinds to really help us. But when you think about it from what we feel confident and what we've committed to is having 6,000 patients on Tyvaso by the end of this calendar year.

So do you know what percent of Medicare patients with PH-ILD are currently on Tyvaso before the CMS coverage approval?

No, we don't have that granularity. In terms of the data we get, we don't necessarily yet have visibility into that, but we will. Part of the reason is a patient could be diagnosed and maybe with PH-ILD, from what we understand, could be written through a PAH prescriber. So some of the data may not be clean to get to that level of granularity. And one other point, just to go back maybe to your other question is, we do have the patient assistance program. So your question prior was on Tyvaso sales. And one of the things that we've talked about is prior to CMS approval for Tyvaso and PH-ILD, we did have a patient assistance program. And those patients that are in the program will remain on the program during this calendar year, and they will transition over to coverage patients in the beginning of early 2023 when that really program year ends. Since CMS approval, patients going forward would be reimbursed in terms of CMS approval. So they would be revenue -- generating revenue coverage. So there's 2 groups when you think about your Tyvaso revenue question and sales question going forward, where you'll have new patients will get on therapy reimbursable. And then these patients on the free drug program will get therapy but continue in the free drug program until early next year when they would transition.

Okay. So United has mentioned, they previously alluded there are about 30,000 diagnosed PH-ILD patients in the United States. So what percent of those are currently on assistant program from UTHR?

So we haven't given the granularity. What we've talked about in terms of free drug program is that is in the low double digits. But we haven't given the granularity in terms of the breakout. What we hope will happen and expect to happen with CMS approval is those patients that are on free therapy, those percentages would revert back down going forward to kind of the mid-high single digits in terms of patient assistance. Again, just because you're having the natural migration of new patients coming on and being eligible for CMS reimbursement and then the patients at the beginning of the year revert back to being covered under CMS.

So for PAH, most of the physicians who are treating PAH patients are cardiopulmonologist largely, but PH-ILD, you have a cardiopulmonologist as well as ILD specialist. So I think in the past, you talked about like a physicians flip. But when you talk about patients, PH-ILD patients, what percent of patients are actually seen by cardiopulmonologist that you have been targeting for decades versus what's the percentage being seen by ILD specialists that you have to cultivate the market?

Yes. Thank you. And so -- from the granular perspective, we don't, as we talked about, necessarily have some of the granular detail around that breakout. But let me kind of break it out between PAH and PH-ILD. And what I would say is from a PAH perspective and kind of this diagnostic journey that a PAH patient goes through, most of those PAH patients are seen at the centers, right, just overall in terms of where they are treated and diagnosed. When you think about a PH-ILD patient, the initial interactions could be at the community level. So that's where the initial interactions and discussions with the physicians would be. As their ILD gets worse, their interstitial lung disease gets worse, they would transition to maybe a bigger center, similar to what I mentioned on the PAH perspective. So while they are getting treated at the center, they will also treat the underlying PH, which is what the indication that we were approved for. So not necessarily the ILD, but actually the PH. And so what you'll find in terms of PH-ILD patients is we will do those early diagnosis, talk about intervention at the community level. But then when they get to the centers, that's where we can continue to talk about therapeutic options. And so the sales teams and the communication efforts are going to span in the PH-ILD perspective, both at the community and the centers in terms of those discussions of early intervention as well as therapeutic or early discussions about treatment and then therapeutic interventions in the center. So -- but we don't have the granular data necessarily at this point to break it down.

So the currently treated PH-ILD patients with Tyvaso, are they mostly coming from major medical centers?

I'll ask Dewey, if you have the background. I'm not sure I have the kind of the origination for them.

Yes. So most PH-ILD patients get diagnosed at the community level. And this is in contrast to PAH, where it's a diagnostic journey and patients generally end up at a PAH center to get diagnosed with PAH. The ILD patients can be cared for in the community setting. And so it's kind of the reverse process. They end up at ILD centers because their ILD is getting worse to the point that the community physician can't treat it. And so those patients generally reside in centers, and they sometimes present with pulmonary hypertension. And so the call point at the ILD center level is great for us because we can consolidate a number of patients into 1 facility, just like we do on the PAH side. But there is some benefit to reaching out to the community setting as well. And that's what we're working on, but we're working on it on a tiered basis. And the majority of physicians at ILD centers see the majority of potential ILD patients, it's 80-20 role essentially.

I see. So with the new indication PH-ILD approval about a year ago, how much ILD community centers have you penetrated -- or at least like targeted, the patients there?

Eun, I'm not trying to know the exact percentage we've targeted per se. In terms of the -- sales teams are going at the higher decile positions. So from that perspective, when we did get approval and the sales teams were in chair in terms of their initiative to go out and do the communication and engagement with the prescribing physicians. But I don't have the granular detail to share in terms of [indiscernible].

So community ILD centers since those are the target areas that UTHR has to build out, how long do you think it would take to penetrate fully and target those physicians?

So I don't have an exact answer for you, Eun. I think it's a new call point for the sales teams. This is a new opportunity to engage with physicians who didn't have a therapy previously and educating them on the benefits of Tyvaso for the indication. But then also some of the things that happen when a patient is diagnosed and then done, for example, like a right heart cath. So there's different protocols that these physicians did not do previously from what I understand. Now they have a new therapy. They have to do another screening or initial screening of these patients. So it is a continuous communication and dialogue, but I don't have the percentages in terms of giving you granularity in terms of that level.

Do you think the requirement of a right heart cath procedure is a hurdle to get Tyvaso getting to the patients?

I don't necessarily say it's a hurdle. It's a requirement, and it is a new procedure that they'll need to do, which may, as I said, be new for some of them. I wouldn't say it's necessarily a hurdle unless you have a different characterization. But I think it's just part of the program and the education that new prescriber in terms of PH-ILD.

Yes. And some of the concern, too, from pulmonologists is that they'll lose their patient if they refer them out to a cardiology-focused practice for a right heart cath. And so we've been working to introduce pulmonologists to their counterparts and cardiology and convincing them they can still take care of their patients. They're not going to lose their patients to this PAH practice or cardiology practice when the right heart cath gets done. And so just increasing physicians' comfort with the right heart cath is something that we're working hard to do.

So you took quarter for the last couple of quarters, and I think a few quarters. Since the PH-ILD indication launch, you have been saying that physician referrals have been highest in each -- over time, over the quarters. But it doesn't seem translated fully in terms of sales. So can you talk about, when you say physician referrals, what that means? And how long -- like what's the kind of conversion rate from physician referrals to actually patients getting on the drug? And what is the kind of a time lag between the two?

Yes. So it's a lot to unpack, Eun, your question. So I don't know if I would agree that it hasn't translated necessarily into increased sales. Since we launched Tyvaso for PH-ILD, there's been double-digit revenue growth for Tyvaso since last year. So I think there's been good revenue growth. A couple of things I would say is historically, we've had conversion rates between a referral to a patient getting therapy, those have remained very consistent. So I wouldn't say there's been any deviation or change relative to historical percentages. The other aspect I would bring up is we do have 2 tailwinds when I think about sales going forward or maybe even 3 with the CMS approval in terms of per patients, the DPI approval, but also our expanding physician prescriber base. You touched a little bit of this on the last question. But for us, that's really another tailwind going forward. With respect to kind of the referrals increasing in the patients on therapy, and I talked about this earlier, we do have this patient assistance program, which is very important for us to continue to support the patients who were not able to get the therapy through a covered program, whether it's CMS, but it was important for us to get them access to the therapy and get them on the therapy. They will stay in the program, as I mentioned, until roughly the end of the year. These are the patients in the PAP program. But now that we have CMS approval for reimbursement, you're going to see new patients coming on that will be covered and be revenue-generating for us. But I do think we've had good revenue growth, and we should see more with these tailwinds in terms of CMS approval, DPI and this expanding prescriber base going forward.

So in terms of the conversion rate from the referrals to patients getting on the drug, you said it's even kind of consistent. It's been consistent with what you've seen. What's the rate?

So we haven't necessarily disclosed the rate, Eun. But from a historical perspective and the longevity of PAH, that transitioning into PH-ILD has been very consistent in terms of conversion.

Would like a 70% to 80% conversion reasonable? Would it be reasonable?

We haven't disclosed it, Eun. So...

Okay. All right. And then moving on to PH-COPD. The PERFECT trial is underway, and it was impacted by the COVID pandemic for a while. So can you give us an update? I think a couple of quarters ago, you had anticipated a patient enrollment compilation by end of this year, I think. So can you give us an update on the trial and then when we might expect the data?

Sure. So the trial -- so the PERFECT trial that Eun is referring to is the trial for pulmonary hypertension associated with COPD. That is a trial that is ongoing and is enrolling. We haven't yet provided any further updates on enrollment for the trial at this point. It was, as Eun's mentioned, impacted by COVID. But again, just for clarity, it is actually enrolling. What's really unique about the opportunity here, again, it's dealing with the pulmonary hypertension associated with COPD. What we have disclosed and talked about the patient opportunity here could be up to 100,000 patients. So we think this is a sizable opportunity, Eun, to go back to your prior question around Tyvaso revenue growth, that this patient population that if this trial is successful, would create a meaningful opportunity for us going forward in terms of the trial is the nebulized version of Tyvaso, but again, thinking about the opportunity for DPI going forward. Do you want to touch a little bit, Dewey, on kind of the similarities between PH-ILD and PH-COPD?

Yes. So PH-ILD -- so for COPD, we're actually not treating the COPD. We're not trying to treat the obstruction or the airway disease. We're treating the pulmonary hypertension that results from that in a fraction of patients. In the PH-ILD in group 1 pulmonary hypertension, the etiologies are very similar in that the restrictive vascular diseases and COPD and asthma tend to be obstructive pulmonary diseases. So they are very different diseases, but this very morbid subset of COPD patients end up developing pulmonary hypertension. And so we're seeking to treat that condition within this patient population.

Okay. So PH-COPD, COPD is an airway disease as well as ILD is not. And given the Street is concerned about recipient in the DPI with the Afrezza ILD disease as among all those things. For PH-COPD, for DPI use -- potential use, do you think you would run at least a bridging study or some kind of a long-term safety study?

So we -- ultimately, if the FDA asks for it, we will certainly do it, right, at the end of the day. And if we need to do it, similar to the BREEZE study, it is not a significant trial. It's one that we would execute and do to be able to use DPI for that patient population. So again, if we're required to do it, of course, we would do it if the trial leads out successfully.

Okay. And we have only a few minutes left. So UTHR has about $4 billion in cash, and then you have been consistently saying that priorities R&D investment, PD activities; and lastly, potentially returning capital to shareholders. With that, how much of R&D spending is currently devoted to xenotransplantation programs?

Yes. So just as a quick reminder is we do have a financial algorithm where we do not spend on our annual cash operating budgets more than 50% of prior year revenue that we've consistently applied. Within the R&D element, so within that totality for a small molecule and manufactured organ, all our -- or Morgan programs, all our spends are captured within that algorithm. We don't necessarily, Eun, break out between different programs overall, but it's the responsibility of the budget owners to make sure they're making smart decisions and utilization of their budgets to achieve their objectives. Again, which aligns with this 7 Phase III clinical trials with some of the research and communications you've heard around organ manufacturing, but we don't necessarily break out between the different programs overall. We try and maintain that consistent level of application of the financial algorithm relative to total spend across the year.

Okay. For xenotransplantation, there is not much of focus from the -- at least the Street currently. But you had the animal organ transplantation. And recently, you had this organ printing program. So can you talk about your xenotransplantation program and kind of a timeline for moving into clinical development?

Do you want to handle this one, Dewey?

Sure. so the xenotransplantation program, as you may know, we've had 2 institutions: UAB, University of Alabama at Birmingham; and NYU Langone Health, conduct decision donor trials of kidneys in brain dead patients. We also had -- you may have heard the heart transplant at University of Maryland, Baltimore, with the gentleman who survived 60 days post-transplant with the heart. And so there's a lot of talk with these academic institutions as well as the FDA about what a clinical program will look like. And we're still working through that -- those discussions through what's called an INTERACT process with FDA. I believe there's also an FDA advisory committee meeting at the end of this month to discuss some of these issues, and we're looking forward to that discussion with the committee as well.

Okay. Last question. Can you talk about, literally visit 25 by '25 goal and then give us your confidence in achieving that objective?

Yes. So in addition to what we talked about earlier in terms of 6,000 patients on Tyvaso by the end of 2022, we've also communicated our goal to have 25,000 patients on our therapies by 2025. And when you think about the product set that's commercial and you think about the clinical programs going forward, we can achieve that goal in many different ways going forward. So for us, that's the goal in terms of number of patients on therapies and how we pull together the commercial and R&D programs to achieve that going forward. That's where we feel comfortable and confident going forward, and that will play out over the next 3 to 4 years.

So based on the current run rate of 60,000 patients on Tyvaso by end of this year, is it fair to say about 15,000 patients on your PAH and PH-ILD program by end of this year?

So if you're extrapolating for the 6,000 patients in terms of the 25 by '25, is that...

Yes. 15,000 by end of this year?

Well, certainly, when you look at the current commercial products and you look at the clinical programs, that will be a growing portion of our revenue going forward in terms of driving to this 25 by '25 goal that we have. So yes, in terms of broad strokes of how we're going to get there and Tyvaso is definitely a big part of that story going forward and especially including the recently approved DPI in the 2 indications and the other clinical trials potentially for the use of DPI.

Okay. Time is up. So thank you very much, James and Dewey.

Thanks for having us, Eun. Great to see everybody.

Thank you.