United Therapeutics Corporation (UTHR) Earnings Call Transcript & Summary

Thank you for joining us on our second day of the 43rd Annual Healthcare Conference. I'm Joe Thome, one of the senior biotech analysts here on the team at TD Cowen. And it is my pleasure to have with us today the team from United Therapeutics. We have President and CEO, Mike Benkowitz; and CFO and Treasurer, James Edgemond. And then I'm going to pass it quickly to Dewey for some statements.

Yes. Thanks, Joe. Today, Michael and James will likely make forward-looking statements, so we encourage you to read our SEC filings, specially Forms 10-K and 10-Q for the latest risks and uncertainties related to those forward-looking statements. Thanks.

Great. Excellent. Well, congratulations on all the progress over the past year. Maybe just at a high level, what should investors be looking for throughout the duration of 2023? And if you can hit on some of the high points of your recent commercial success, that would be great.

Sure. Thanks for having us. You and I were catching up earlier, it's just kind of amazing to think back. The last time we did this was literally on the eve of the world shutting down. So it's good to be back in person and to be with you and with everybody in the audience. Yes, so 2022 is just for us, I think one of the best years in the company. So you think about it, we started the year by transplanting the first genetically modified organ or UHeart into a human patient. We ended the year by achieving our 2-year goal of doubling the number of patients on Tyvaso to 6,000 patients. And then in between, we launched Tyvaso DPI and made excellent progress on our 5 Phase III-Phase IV clinical studies. So just really kind of ACs, I think, across the board in terms of our 2022 performance. So as we turn towards 2023, for us, this is really just a big execution year for us. On the commercial front, it's really, I think, continuing and building on the momentum that we established last year, particularly in PH-ILD and with Tyvaso DPI. I think we're really focused on in the ILD side of things, particularly growing the breadth and depth of our prescriber base there. We just -- we feel like we still have a really big opportunity to help patients with pulmonary hypertension associated with ILD. And then on the development side, it's just continuing to enroll our clinical studies, our 2 TETON studies, our advanced outcome studies. The other Phase III and Phase IV studies that we have going on. On the organ side, we're going to commence what we think are going to be our IND-enabling [advance] studies for the xeno-heart and the xeno-kidney. So we're really excited to get that moving this year. And then in parallel, we're going to -- we should be able to nearly complete, if not complete, our clinical designated pathogen-free facility for xenotransplantation. So that will be the facility that we use to produce the organs that will go into our clinical trial.

Great. And the company recently changed how the 25 goals are phrased indicating that they're expecting to reach a $4 billion run rate by the end of 2025. Maybe what are kind of the key levers to get you there? And how much of that run rate is going to be PAH versus PHLD and other indications?

Yes. So we -- and I think it really is just sort of a recharacterization. It's not really changing the goal. We flip from a patient-focused metric to a revenue-focused metric, and that's really based on feedback that we got from a number of investors, which is easier for them to track that. So if you think about where we ended the year from a patient standpoint, we're about halfway towards our 25x25 goals, to 12,500 patients, roughly $2 billion in revenues, so $4 billion gets you to that same place in terms of number of patients by the end of '25. In terms of where we see the opportunities to achieve that. It's really in both the PAH Group 1 indication where we have 3 products -- or 4 products, and then in the PH-ILD indication. If you think about PAH, that's a patient population in the U.S. of about 50,000 patients. A majority of those patients are still not on prostacyclin therapy. And there's got other reasons for that having to do with the burden and the cumbersomeness of some of the delivery mechanisms. But we really think with Tyvaso DPI, we have an opportunity to grow the prostacyclin market in that group. Not only for those patients that have historically refused prostacyclin, but also to move it up so that it's needed earlier on in the treatment paradigm. So we think we have a lot of runway, and that indication to contribute to that $4 billion run rate by the end of 2025. And then, of course, in PH-ILD, I feel like we've just scratched the surface. So that's a market that's conservatively 30,000 patients. We've roughly penetrated about 10% of that. So -- and we're the only improved therapy. So we think we have a lot of opportunity there through continued education. Like I said, by increasing, I think, the breadth and the depth of the prescriber base and that indication to meaningfully and significantly contribute to that $4 billion run rate goal.

Perfect. And as you mentioned, a lot of the progress over the past year has been on Tyvaso and the PH-ILD indication. Maybe can you just characterize a little bit the initial reception from KOLs? And in terms of that diagnosing patients, historically, the company indicated a lot more patients have physicians that treat ILD than PAH. So how are patient identification efforts going there?

They're going. It's -- to be honest, I think that piece of the equation has been a little bit slower than we expected. And part of that was -- I mean, one is I think everybody was excited that we finally had a treatment option for these patients and then hearing the feedback from the KOLs about how [not of use] they were. I think we thought maybe that the screening and the diagnosis would accelerate. And it's happened, and it is happening. It's going to -- like I said, just a little bit slower. So just continued, I think, educational efforts with those doctors, educating them on the disease and the severity of the disease, particularly for those ILD patients that have pulmonary hypertension and then just continuing to bring them along. I think I mentioned on the last earnings call, we are making headway there. We've increased our Tyvaso prescriber base by about 70% since the PH-ILD approval. So a lot of that is in prescriber base. And then the other metric that we really tend to focus on is, again, getting back to the depth. So 60% of our prescribers now have written Tyvaso 3 or more times. And what we have seen historically is that's really the tipping point for prescribers. If they've used it 3 times and they've had good experience, they're going to continue to write a lot more going forward.

And we saw around midyear last year, the CMS coverage decision for Tyvaso in PH-ILD. I guess did that make the process of patients getting on therapy a little bit easier? And right now, if a patient wants types for PH-ILD are they mostly able to get it?

They are. It does certainly simplify the process. So we did have some doctors that just weren't on a ride and for every reason, didn't want to deal with trying to have the patient applied for the patient assistance program. So the fact that now we've got coverage both from the private payers and the government payers certainly takes that potential barrier off the table. And so as we sit here today, there's really no payer issues for PH-ILD.

Great. And towards the end of last year, you mentioned the PAP program. There were some patients on free drug that we're going to transition over to commercial. And last quarterly call it seems like some transition and then some flipped over to the DPI. Can you just characterize what happened there? How many transitions? And what were your expectations...

Yes. So rough numbers, I think at the end of Q3, we said we had somewhere between 700 and 800 patients in the patient assistance program. So these are your PH-ILD patients that had Medicare. They went into the program at the beginning of the year, had to stay in until the end of the year. And so a few things happened. So roughly, I would say, again, rough numbers here, half of this is converted to commercial patients. It's a little bit lower than what we were expecting. We didn't think we were going to get all of those 700, but that's a little bit lower, but roughly half. And then of the remaining half, you had some discontinuations, which normally happens. You had patients stay on the TD-300 or the nebulizer, but they still qualified for patient assistance, even with the CMS coverage. They still met the income requirements and were able to stay. And then we had another group that switched to DPI and there, the out-of-pockets are significantly higher than the Part B drugs. And so they also qualified for patient assistance. And I would say that 50%, it's pretty even across those 3 buckets.

And then you mentioned, obviously, there's some income requirements. But can you touch a little bit on the requirements to enter the PAP for the nebulized version and the DPI? And is this for newly prescribed DPI patients in PAH and PH-ILD? Or how should we think about that?

So yes, so without getting the specifics of our patient assistance program, I think the big one is there's an income eligibility requirement. There's also some residency requirements and insurance or lack thereof requirement. So there's 3 or 4 criteria you have to meet to be able to come into the patient assistance program. And that's true for PAH. It's true for PH-ILD. Like I said, with the Tyvaso DPI because that's a Part D is a dog drug, you're subject -- the patient subject to hire co-pays. And so many of those patients in CMS are going to be eligible to enter into the PAP program. I do think that this is going to be a short-term phenomenon. I think with the new inflation reduction at changes to the Medicare program and capping the out-of-pocket co-pays. Once we get into '24 and '25, I think we'll see a lot of those patients move back into paying patients.

Great. And then can you touch a little bit on the proportion of patients that you expect will flip from a nebulized Tyvaso over to the Tyvaso DPI? And maybe in terms of the patients that are using the DPI for PAH right now, what's sort of that breakdown between new prescribers and patients that have coveted over?

Yes. I would say -- I think what we have been saying all along, this is prior to the inflation Reduction Act because we thought that the mix was going to be roughly 50-50 between the nebulizer and the DPI. Like I said, I think with capping the out-of-pockets on Part B drugs coming in '24-'25, I think that's certainly going to tilt things more in favor of DPI. That's going to be a much more attractive option for patients because the financial considerations really aren't going [coherent] to the equation. So I think long term, we'll see a majority of the patients in total on DPI. And then I think with PH-ILD, we could have a higher percentage on the nebulizer. I think it's still going to be probably a majority BPI, but I think the mix will maybe be a little bit tighter just because you're dealing with more severe loan disease. And for a lot of those patients, the nebulizer is just an easier way to take Tyvaso.

Perfect. And then so far, where has the Tyvaso DPI seen the most uptake in PAH along the treatment paradigm? Is it before an oral process cyclin agent, is it after? Our KOLs have been a little bit split on this. I think maybe we've been a little bit more surprised that they want to use it early, given that there's no titration difficulties. But what are you -- what are you seeing and what are your expectations?

I think it's still early to draw some definitive conclusions there. We've heard the same thing, and that's certainly how we're promoting and positioning Tyvaso DPI as sort of your gateway into prostacyclin. It is -- I think it is a year to dose. And then I think from a tolerability standpoint, particularly compared to the orals, it's got a much or side effect profile on a relative basis. So we have seen some increased use early on from those physicians. One of the stats I mentioned, I think, on our last earnings call is we were tracking the top 100 selexipag writers. And how many of those doctors have used Tyvaso DPI and so we found that 70% of those have written for Tyvaso DPI since it launched, half of those have written 5 or more. And then if you actually look at the writing for Tyvaso compared to selexipag over that period of time, we're at, if not better, than what they've been doing for selexipag. So I think that, that's -- we set the leading indicator that suggests that doctors are looking at using that as sort of a fronting prostacyclin therapy.

Perfect. And then maybe we saw some data from Merck's sotatercept yesterday at ACC. What sort of impact, I guess, do you think sotatercept is going to have on the PAH market broadly? And I guess, how is your thinking about either combination approaches or how it's going to impact your PAH business?

Yes. So to be honest, I was in an internal meeting yesterday. So we haven't actually had a chance to dive in and digest the data and really assess its impact. And so we've got a team that's doing that. So it's a little early there. I would say generally speaking, I think anything that comes in and helps patients is good for the PAH community. I haven't seen anything to suggest that that's going to replace prostacyclin. In fact, the one tidbit I heard is that actually some of the strongest results were on top of prostacyclin therapy. So it sounds like maybe it's a very complementary treatment to the other drugs that are out there in the market, which is great. And so like I said, I think anything that kind of helps improve the outcomes for the patients is something we're certainly supportive of.

Perfect. And then maybe switching over to Tyvaso and IPF. You have the TETON program ongoing right now. Maybe how should we think about potential time lines on readout from that? And can you touch a little bit on the data that's supported going into IPF?

Sure. So let me take the last one first. So the data that supported this, so we did our INCREASE trial, which is our PH-ILD pivotal trial. One of the exploratory endpoints we had there was forced vital capacity. And so that data came back and actually showed an improvement in forced vital capacity at a 16-week trial at 16 weeks. Which really just kind of blew us away, like we were shocked. And I think even if you look at the antifibrotics on the market, I don't think they showed an improvement in FVC, they just showed less of a decline compared to placebo. So the fact that we're actually showing an improvement just blew us away. And then you couple that with the fact that if you just look through the scientific literature, there's a lot that's been written about the potential antifibrotic effects of treprostinil. So those 2 things together, I think gave us confidence that we should at least do the experiment, right? Do the trial. Let's see if we have something there to help the underlying IPF. And so that was really the basis upon which we launched the 2 TETON studies. So TETON I is a U.S.-Canada study, TETON II is rest of world study. And that enrollment is going really, really well. We hope to have that, I think, completed in the next couple of years. It's a 52 week -- so they're following patients for 52 weeks. Like I said, the FVC data we saw in the INCREASE trial was at week 16, the typical endpoints for IPF trials is 52 weeks. So it's a 52-week trial, looking at forced vital capacity as the primary endpoint. The other thing that gives us, I think, a lot of confidence and optimism about this study is the patients that were in the INCREASE study went into our open-label extension data. So we continue to follow these patients and looking at those patients at the 52-week time period, that FPC data was durable. So we're feeling, like I said, really I think optimistic that this is going to be a positive study and we'll be able to bring, I think, a really useful drug to these very sick patients.

And in terms of the 2 trials, was it U.S. regulators or European regulators that wanted both studies? Do you need both studies to file in each region? Or how do you think about that?

We don't think we necessarily need both... We don't think we need both to file in the U.S. It's going to depend on the results and the P-value. If we want to -- we're fairly certain that to file outside the U.S. 2 studies. And so that's really the reason for the second study.

And then in terms of the addressable patient population for IPF, how does that sit versus kind of what we're seeing for PAH and PH-ILD? And I think Martine historically has indicated some revenues in maybe like 2030 time frame, how are you thinking about this could expand the commercial?

So the IPF market, we estimate at around 100,000 patients. So that's roughly the same size as the PAH and PH-ILD market combined. So that's a pretty big market with unmet need. So we're really excited about the opportunity there. I think in terms of -- can we think about -- we talked about the $4 billion run rate by the end of 2025. I think that if we're successful with the TETON studies and are able to get into IPF, that gives us an opportunity, I think, to double again probably by the end of the decade. And then behind that, we have obviously our organ programs.

And then maybe just to round out a little bit on Tyvaso and Tyvaso DPI. We obviously have been monitoring the progress with the Liquidia litigation and obviously, the nebulizer from Watsons in 2026. So I guess how is the company thinking about a potential generic nebulizer and a competitor in the DPI space? And can you maybe touch on why your device could be different than Liquidia's as well?

Yes. I think from a device standpoint, so we have what's called a low-flow high-resistance device. And I think the other devices on the market tend to be high flow or resistance. And at the end of the day, I think what it really comes down to is just sort of the throughput. So how much drug is actually getting deep into the lung on a consistent basis. And so the nice thing about the low flow high-resistance device, it maybe sounds a little bit counterintuitive, but you have -- the flow is the patient's insulatory flow of the breadth, like how hard are they having to breathe the resistance is the work that device is doing. So with our low-flow high-resistance device, the patients having to do very little work. The device is doing the work. And as a result, you're getting a more consistent delivery of drug deep into the line. And so we think that's going to lead to better outcomes, better drug delivery to the lung. With the high-flow low-resistance, you're really relying more on the patient to generate the air flow to get the drug in. And so that could lead to inconsistent delivery or because of the -- you're relying so much on that flow, you actually have to overfill the device to a significant degree, which means a lot of that drug is probably getting stuck in the back of the throat and not getting down into the lungs.

And then maybe switching over to Remodulin. Can you discuss a little bit on the recent trends that you're seeing or module and especially after the launch of the Remunity device how has adoption been there? And what are your expectations going forward?

Yes. So we're really happy with how immunity is doing. We had a couple of hiccups at the beginning. We had a positive just to deal with some software issues and some of the alarms that we're going off. I think we're past that now. I mentioned on our last earnings call, we have about 1/3 of our subcu patients are now on the Remunity device, which is really exciting, and that's continuing to grow. And that's in part is just, I think, how attractive the immunity device is. The other thing that's going on in the market is the Legacy pump, the Smiths MS3 pump. That supply is dwindling down. So as it sits today, the Remunity device is really the only compote market for subcu delivery but for any other Legacy MS3 devices that are in circulation. So I think that augurs really well for us in the next period of time to continue to maintain, if not grow our subcu business. And I would say in total, I think we've been really, really pleased with how resilient the Remodulin business has been sent generic entry. I mean at sort of a high level, we've had almost no really erosion of our patients. It's -- I mean kind of flops around up and down, but on average, it's about where it was pre-generic. And I think some of the studies that we have in our pipeline, we still think that there's opportunity for Remodulin to grow into the future.

And in terms of the generic, maybe you could just better characterize what you've seen so far in terms of IV and subcu generics on the franchise. And you mentioned the pump issues. How is that going to play out with generics? Are they going to be able to make their own pumps? Or how should investors think?

They certainly could. I think Liquidia who is, I think, our main competitor for generic IV and subcu announced that they are working with a company to develop their own subcu pump. So I'm not sure what the time line is on that, but that's something that could be coming down the road. But in the meantime, I think we have an opportunity to really establish Remunity as the go-to pump for subcu, Remodulin.

Perfect. And then maybe touching on the oral franchise. What are you seeing with Orenitram. I know we've touched previously that the FREEDOM-EV study maybe was lost a little bit during the COVID pandemic. And how is the company educating positions on that? And what do you expect to come out of the rent there, I guess, going forward?

Yes. It's -- our running term is doing really well at the end of the year with an all-time high number of patients at all-time high revenues for that product, and that's going to continue to grow. I do think we've done a really good job of educating physicians on the value proposition of Orenitram certainly, the EV data has helped that. The sub-analysis that we've been able to bring to the table has helped that, some of the health economics and outcomes research data we've been able to provide has helped that story and just looking at the kind of the cost-effectiveness of the Orenitram versus selexipag and then coupled with the efficacy. So I don't think that there is a question about the efficacy of Orenitram in the mind of physicians. I mean every time I talk with this, yes, I get it, it works. The challenges, I think, that they're finding sometimes with Orenitram is getting -- catching the patient early enough to where they have time to titrate them up in a way that a patient can tolerate your typical prostacyclin side effects. So sometimes, these doctors are getting them a little bit too late, and they're just not able to get the engages fast enough. And that's a challenge. One of the things that we've -- not to mention just I think the nice thing about Orenitram is: it is titratable, but that can be confusing for patients as well as having to figure out, okay, how many pills of this and how many pills of the strength do need to be taking. So we've got 2 things that we've done to try and address those issues. So on the titration, we just launched a 90-day titration kit this month for patients. So any new patients starting de novo, they're going to get a blister pack that's going to tell them each day, here's what I need to take as you're titrating up. So that's going to simplify the titration process for patients and then they can make that seem less overwhelming. So we're really excited to roll that out. And then I think in terms of getting that to an efficacious goes fast enough, we press released the result of what we call our expedite study back in, I think it was October. And so this is a study that we've been doing for the last couple of years and the hypothesis was that if we actually take a patient -- so these aren't your typical like stage or Phase IV -- sorry, Class IV PAH patients. So these are your earlier-stage PAH patients that you would probably want to get on to Orenitram, ideal candidates for Orenitram. But rather than have to take 4, 5, 6 months to get them up to an efficacious dose, we can start them on Remodulin from anywhere from 8 to 12 weeks, transition them over to almost double the dose of Orenitram in that period of time. So you're getting them up and the reason that works is the patients getting synthesized having procacyclin in their system. So they're getting up to a higher dose, we're able to transition over to Orenitram at a higher dose. So they're getting up to a higher dose and a quicker amount of time, and we're seeing much better longer-term results as a consequence.

All right. In terms of Ralinepag, how are those trials progressing and maybe if successful where would Ralinepag fit in the oral PAH paradigm here?

Yes. So we had 2 trials for Ralinepag, the ADVANCE outcome study and then the ADVANCE CAPACITY study. So the CAPACITY study was the CPET study that we actually just decided to wind down the last couple of weeks just due to enrollment issues. So from an investor standpoint, I'd really focus on the outcome study, which is a study that we've been enrolling, I think, pretty well over the last couple of years. We believe that, that is powered for a highly specifically significant endpoint. And assuming that's successful, we will have enough to file on that. And so I think Martine said on the last call, we're hoping to complete enrollment by the end of next year. And then that's a clinical worsening. So then we just have to wait for the events to accrue. And then we'll be able to file. In terms of the market opportunity, we think it's -- I mean, obviously, it will depend to a large degree on what the data come back with. But I think one of the things that's really attractive about Ralinepag is it's once a day versus twice a day. And so that -- we're just talking about some of the burden with the Orenitram and the pills. And so I think having a once-a-day drug will be quite compelling for physicians and patients because the thing that's true about PAH patients is they have PAH, but most of the time, that's not all they have. So just for their PAH, they're taking multiple therapies, but they usually also have other things going on that they're having to take medicine for us. So I think if we can get down to a once a day IP receptor agonist, that's going to be a huge one.

And then on the xenotransplantation pipeline, you mentioned little it at the beginning, some nonhuman primate work ongoing. What should we expect in terms of disclosures? And maybe when do you expect maybe moving those into initial clinical company-sponsored studies?

Yes. So it's really going to depend on these metering studies. So we worked with the FDA to craft these bed studies. They told us what they'd like to see for both the xeno-heart and the xeno-kidney. And so we're going to do these number of transplants hopefully will get those all done this year. They want us to follow those baboon transplant for up to a year and collect data, and it's really going to depend on the outcome of those transplants. And then we'll go back to the FDA and determine whether we have enough there to move into the clinic.

And then maybe in the last minute or so we have here -- the company obviously has a very strong cash position and balance sheet. How are you thinking about BD? And is there an area of focus for the company? And maybe how are you going to balance that with additional investment in xeno?

I'll let my friend James answer that.

We'll give Michael a break. Yes, corporate development is still something that we do spend time on -- the senior leadership does spend time focusing on opportunities that we think could be accretive across the board. A couple of things to keep in mind. You mentioned the strength of the balance sheet. It has grown. We do expect it to grow. But we also want to be good financial stewards of our investments. So we will look for things where we can add value. So if you think about -- Michael talked about the commercial team, the manufacturing team, the clinical team, regulatory team. So we want to make sure we bring things in where we can add value, and we don't disrupt what Michael talked about recently, these clinical trials across the board. Because that's what we think success and future opportunity in terms of patients and in terms of revenue growth will come from. From a frame is a capital allocation strategy. What we have done and what we'll continue to do is focus on that internal research and development. That is our first and foremost, our primary goal. We want to execute successfully these clinical trials Michael has talked about. Corporate development is our second opportunity in terms of capital allocation. And again, we will do things where we think we can add value and bring things to market without distraction. So that's how we frame this balance sheet. It is something that we do get questions on. We do take the time, but ultimately, we want to make sure we're doing the right things for the organization as well as the investors. So there there're 2 frames that we do apply and think about.

All right. And with that, I think we're right on time. So thank you, everyone, for joining us.