United Therapeutics Corporation (UTHR) Earnings Call Transcript & Summary

Great. Thanks everyone, and thanks always to the operators for making our lives so easy here. Very privileged and lucky to have the United Therapeutics team with us. Dr. Martine Rothblatt; James; and Dewey are all on. Have gone to know them over many, many years, and it's always a pleasure to chat with them. So please welcome all of you.

Thank you, Hartaj. Great to talk with you as well.

Great. Thank you -- thank you, Martine. So Martine -- sorry, Dewey, I think you have something to say, I apologize.

Yes. So today's presentation will contain forward-looking statements. So we encourage you to review our latest SEC filings, including Form 10-K and 10-Q for latest risks and uncertainties associated with those statements. Thanks, Hartaj.

Thanks, Dewey. Really appreciate that.

Martine, maybe we can just kind of get going. We've seen a real change in the trajectory for the United Therapeutics business, the stock over the last 3, 4, 5 years. I remember once in 2018, I said our in-person conference you and I sitting there, we're talking about how it's always darkest before dawn. At that time, I think the stock was plummeting some levels that were eye-popping to speak. What's the single biggest change you've seen among investors' views on your stock, just from a very high level over the last couple of years?

Well, thanks a lot, Dewey. I think the single biggest -- I mean, I'm sorry, Hartaj, thanks a lot of Hartaj. And thank you, Dewey, for your introduction as well. I think the single biggest change I've seen has been the realization that United Therapeutics has a clear runway into the WHO Group 3 population that there is this whole new world of pulmonary hypertension patients, some 30,000 in number that, a, have no approved therapies for them until ours was approved. And b, and I think more poignantly for the other investors was that none of the other approved therapies could practically be used in that population due to their worsening of V/Q mismatch due to their creation of a V/Q mismatch. So suddenly, I think the investment community saw wow. United Therapeutics has these 30,000 patients all for themselves. And that caused a real sea change in their appreciation of the company. And that was, of course, due to the very successful increase clinical trial -- clinical trial that we did called the INCREASE.

Yes. No. Martine, and that just again, just a high-level question here, which is that your ability to execute on clinical trials, while James maintains a very, I think, respective budget algorithm for spend, how have you been able to balance that going forward with all that you've got going on at United Therapeutics.

Yes. It's a really great question, Hartaj. And because in general, when you're in a scientific field like biotechnology, you can spend any amount of money. I mean, there's endless things that could be researched. We're in a golden age of biotechnology, with all kind of new genetic technologies, CRISPR and what have you. So in general, there's like no limit to what you could spend. But what's important is to make selections and that's always the essence of, I think, of beauty and art and music and in science and technology is to make a selection. Don't do everything, try to select the wisest. And there, our budget algorithm is a forcing function. We say we may have a lot of things we want to spend on, but which are the ones that have the highest probability of payoff for the patients, the physicians and the company. And it's that budget algorithm that limits us to spending not more than 50% of the prior year's revenues that creates that selection pressure on R&D projects. Now Hartaj, it does something else, which is less appreciated and that is it has a tremendous motivational force on every single person in United Therapeutics because when people come to James or to myself or to Michael Benkowitz and say, we would like to have more budget to pursue A, B or C. We say fine, grow the revenues and automatically, you will have more budget. So we have manufacturing doing everything they can to grow revenues. Scientists and R&D folks are doing everything they can contribute. So that budget algorithm truly keeps United Therapeutics as a place where everybody is working for everyone else.

Yes. Martine, that's very, very helpful. And I think a lot of folks looked at the story, appreciate that, especially some of the newer folks to the story. Now we can just maybe just jump into your programs that you've got ongoing. I've got to get the obligatory questions on PH-ILD and PH out of the way. And then maybe we can tackle sotatercept off that before going to the pipeline. .

My pleasure. So would you like me to address those...

Yes, just PH-ILD, where you are with PH, the DPI uptake, just your most recent updates and then we can go from there, Martine.

Sure. So the PH-ILD market is growing very, very nicely, Hartaj. And I believe that it will be the #1 growth driver for United Therapeutics over the next 3 years. We have forecast that our revenues will double over the next 3 years. We'll be growing year-over-year, the average growth rate north of 20%. So most of that growth is coming from the penetration of the PH-ILD market, both by the nebulizer, the old Tyvaso as well as the new Tyvaso DPI product, Some patients like one, some like the other. So that is our #1 growth driver. I think the second question you're asking relates to the PH market overall's, PH Group 1.

Yes. Yes, PH, and with the sotatercept data at ACC recently, Martine, there's been a lot of debate on where sotatercept could go, could not go. If you can you just kind of walk us through the market dynamics. And then also just any thoughts you might have on sotatercept and the data presented there.

Sure. So I think we all welcome any new agent for pulmonary hypertension, sotatercept included. So that's great data to see and hopefully will result in FDA approval and can add yet another drug to the physician's armamentarium. I think we have now, a lose track that would be the 12th or maybe the 13th drug added to the armamentarium. It seems to be most useful in conjunction with a, prostacyclin therapy. Most logically, a parenteral prostacyclin. As you've written about many times, Hartaj, the parenteral prostacyclin is sort of the last stage for the pulmonary hypertension patient. And there aren't any other therapies available after that one. So the ability to take a parenteral prostacyclin patient and have us sotatercept added to their treatment and to be able to see the kind of improvements that were reported in the data last week. That's very hopeful. And so I think it will lead to more patients, first of all, being maintained longer on Remodulin, which is certainly good news for everybody. I think also it will feed into the trend that we're seeing with our EXPEDITE study and now our ARTISAN study that if you treat a patient with pulmonary hypertension, on the parenteral therapy, aggressively enough that you can bring their pulmonary artery pressures down to say maybe between 30 to 40 millimeters of mercury instead of over 40 or worse still, over 50 millimeters of mercury. Then the patient gets into a stable equilibrium and their pulmonary hemodynamics and they can remain down there in the 30s, being a relatively low risk. And so they could transition to something like an oral Remod oral Orenitram to maintain themselves in that lower level. That's exactly what we showed with EXPEDITE that it could be done very quickly. And we hope to prove it with this implantable hemodynamic pulmonary [indiscernible] sensor that we're doing in conjunction with Abbott in the ARTISAN study. So I think sotatercept is going to lead to a [ lengthening ] of people's ability to remain stable on pulmonary hypertension therapies. Tremendous news for everybody.

Yes. And Martine, it's really fascinating. I mean, I think to me, having covered you there for a while and talking with you and James and having really that privilege and to Mike and others, I have learned a lot. But maybe you could just kind of walk us through the steps because I think it's important about how Orenitram, Tyvaso, Remodulin work in patients. And then your EXPEDITE study, how that's helping even more patients get on Orenitram. Maybe if you can just kind of walk us through how these patients transition through the treatment algorithm because, again, we have to remember, right, sotatercept, the average age of patient on drug stable ratio is 9 years, right? And that's probably the patient that you see on Remodulin, right? So if you could just kind of walk us through that and then help us understand also how EXPEDITE is giving Orenitram [ a filler ].

Sure. So I'm going to do that, Hartaj, with some rounded numbers because in a conference call like this, we don't need to go out to like right at the decimal point and whatnot. But generally speaking, a patient, a typical patient will ordinarily present as something like a Functional Class II, maybe a Functional Class III patient. And that means that they used to be athletic, they used to be able to go about their daily chores. Suddenly, they're having difficulty just climbing up the steps, going upstairs to their bedroom. What's going on? And it's a diagnosis of exclusion. So after everything else is excluded, finally end up with pulmonary hypertension. Ordinarily, the patients will be started on a PD5 inhibitor because it's a very, very safe class of drugs with a vast number of people have been dosed with those. And they'll take either generics [ Sildenafil ] or in our case, tadalafil once daily or twice daily or 3 times daily for [Sildenafil] once daily for our tadalafil. And hopefully get some relief of their symptoms. Generally speaking, within less than 3 years, their symptoms, the majority of the patients will progress in their pulmonary hypertension. At that point, they will ordinarily be out of a second drug, a second oral drug. Most of the time, it will be an endothelin receptor antagonist such as [ ETRAs ] or generic ambrisentan. At that time, that combination of those 2 is known as the AMBITION protocol, a PD5 plus ETRA specifically tadalafil plus ambrisentan. And clinical studies have shown that, that combination can reduce mortality and certainly morbidity in some patients. But when you take a look at the Kaplan-Meier curve, within 5 years on AMBITION, the majority of the patients have progressed in their pulmonary hypertension. So then we move into like a third class of drugs, what we call the prostacyclin class. And there you have different -- not only different drugs, but also different delivery methods to use. You have either a prostacyclin agonist receptor agonist such as Uptravi or you have an actual provider of prostacyclin in the form of treprostinil as you mentioned, called Orenitram. But unfortunately, patients usually hang out quite a bit on the oral drugs, hoping that their conditions won't get too bad. And some of them -- by that time, the slope of their decline increases. And suddenly, the doctor is going to say to them, you've gotten so bad, we have to put you on a parenteral therapy, which, as you know very well, and if you're a listener do as well, requires a continuous infusion of medicine 24 hours a day, 365 days a year for the rest of their life. And at that point, again, the Kaplan-Meier curve is after about 3 years. Those patients are unfortunately going to need a transplant as their last hope. So when you get up to 9 years, you've had your 2 to 3 years on the orals. You've had 2 to 3 years on the -- on one oral 2 or 3 years on multiple orals and then you're 2 to 3 years on the infused drugs, and you're pretty much at the end of your line. So the beauty of sotatercept is instead of a transplant being those patient's only hope, which, as you know, with the transplant, you're trading 1 disease for another kind of projection. They could hopefully remain stable without the transplant for a longer period of time. And that's kind of the art that we see. Now so one last thing that we mentioned, a novel occurrence in this treatment situation has arisen with Tyvaso, DPI. So Tyvaso DPI -- it's such an easy and simple way for patients to take their prostacyclin, it fits in a palm of your hand, 1 puff couple of times 4 times a day. Maybe 2 puffs for some patients, and it fits in the jeans pocket. It's just so simple that some physicians are saying, you know, maybe if I give you the power of prostacyclin earlier in your disease state, we can hold off before you get to the point of needing sotatercept or what they will say today is parenteral prostacyclin. So there is a dynamic right now that after that AMBITION therapy and before they get to any of these heavier parenteral drugs or injection drugs that there's a space for the Tyvaso DPI in the middle of that. Now one other thing just to be super clear because I know a lot of people may be new to the story, is there are 2 kinds of pulmonary hypertension in the macro sense of things. Group 1 and Group 3. For the patients with Group 3, the only type of drug they could take is Tyvaso DPI. They cannot take any of these other pills because they -- all those other pills work systemically and actually worsen their heart lung function. So they can only do the inhale. With regard to Group 1, there are all of these different drugs available. So that's just something I want to make super clear.

Yes. No, that's fantastic. And it's taken me a little while also. We've got a couple of questions on the web page. Just before I go to that, Martine, one thing I wanted to say was that European Respiratory Society in late August when I was there, I was lucky enough to get some time to spend with members of UTHR, United Therapeutics team. One of the things that really surprised me was the increased discussion around intensive therapy upfront. Both the PD5s and the ERAs have mostly gone generic and now physicians are feeling comfortable adding a prostacyclin, what's the so-called triplet earlier on. Is that a trend that you also observe in the United States? Or is it only a U.S. trend and maybe Europe? Or just how to think about that?

Yes, it is becoming more of a trend. And in response to that trend, Hartaj, we just recently manufactured, got FDA approval for a new dosing card and dosing presentation that actually makes it very simple for patients to start with a very small doses, fraction of a milligram, go to 1 milligram, go to 2 milligram. So before it was a little bit of a complicated situation, because the market and the physicians were asking for easier dose titration, more different varieties, easier presentation we've responded to that physician demand. And that has a tremendous impact because now there's a possibility that let's say that -- remember, we referred to the cliff are getting steeper and the decline, let's suppose that there's a physician that you're seeing physician regularly. And you're not really just falling down so badly that you need a run. You just need like a little tweak to your regimen. The new Orenitram dosing cards make it very easy to give that little tweak. And I think it's something you'll see with sotatercept as well that it may be quite possible to have patients earlier in their disease state, start off with Orenitram orally, and then adds sotatercept, and it could very well be that Orenitram, orally plus with sotatercept is kind of equivalent in a rough sense of the word to a parenteral drug and but much easier on the patient.

On the patient, that makes sense. Orenitram's ability, you can dose up and down that [ titratability ], that flexibility probably really helps doctors and patients also.

Yes. It is the only continuously titratable oral drug in the prostacyclin class. So I think the synergy of sotatercept with prostacyclin, perhaps one of the biggest consequences of that will be an increase in Orenitram use.

Yes. And then, Martine, just going to a couple of questions here. Going from Orenitram, there's a question here. What is the path to approve for ralinepag, now that it looks like you canceled the CAPACITY study?

Yes. CAPACITY was never on the path to approval for ralinepag. CAPACITY was a study for marketing benefit that we would be able to have the data of the impact of a prostacyclin receptor agonist, which is what ralinepag is that if you just take once a day, though, on the patient's ventilatory capacity or what we call VO2 or FVC. And as it turns out, the success of UPTRAVI has really rendered that study mood. People get it completely that prostacyclin receptor agonists are good additions to the medical armamentarium. Even though ralinepag, actually had -- I'm sorry, even the selexipag actually had, I believe, more deaths in the active group than the treated group. It has overall a reduction in morbidity and mortality. And the physician's impression of ralinepag is that it's sort of like one step up from selexipag, a better version of selexipag. And so all we need is the 0.01p value from our OUTCOME study, which is measuring the ability of ralinepag to reduce mortality as well as morbidity. And that study is enrolling very aggressively, very quickly, more than double digits of patients every month. About 20 or so patients every month are enrolling. It's well over 50% enrolled. So that study along with the point of 0.01 p-value, it's all we need for approval.

And Martine, just on that sense, as you brought about Griffin, brought back some memories for me. I lived through that selexipag. Is the Griffin trial kind of a good analog as we think about the relinepag PIVOTAL trial, is that a good comp? Or have things really changed since then?

I think it's a very good comp. It's a very similar protocol, virtually the same protocol. I would like to see in ralinepag that we reduce not only morbidity and mortality, but also outrightly reduce mortality by itself without the combined end point. But believe me, it's a home run win by reducing morbidity, mortality. And we're well on track to do that.

Great, Martine. I got a question for James, here because James is looking very intensely at the camera, and I was getting a little worried. I was like, is there something on my face or did I...

He's waiting for a finance question. He's waiting for...

It's like -- did I smack myself that hard and before I go on this call. No, I'm just teasing James. And so the question is, is that budget algorithm going to change to reflect the lower gross margins as a result of increased DPI sales industrial royalties.

So thank you, Hartaj, for the question. We do not anticipate changing the budget algorithm that Martine described earlier. So in 2023, we've actually applied that budget algorithm in terms of not spending any more than 50% of prior year revenues and our cash budgets for 2023. So no, we expect to apply going forward. And as Martine said, it's actually great discipline not only just from an overall fiduciary responsibility perspective, but also with all the Unitarians around UT in terms of how we actually can grow our budgets, if we focus on growing top line revenue. So Short answer, it will continue, but there's a lot of other benefits that Martine described as well. And that's one of the reasons why we'll continue it, and we expect to continue it going forward.

Yes. And James, I mean, just I want to pick on that a little bit because we had to change our model. We were running DPI royalties to MannKind as sort of like a net sales, right? So we come -- computer gross sales and then send a percentage of that going to MannKind, what you basically are doing now is running it through the COGS line, right? So really, there should be no difference, right? I mean, even though you have a lower gross margin, you're getting it through the increase in sales. There should be an offset, right?

Correct. Well, the royalties that we would pay to MannKind are going to run through COGS. So we would pick it up overall in our cash budget algorithm.

Yes, yes. Understood. And then just -- I'll just ask you on that before going to some questions on dual therapy here, one question. Just on your OpEx going forward, I know the algorithm helps us a lot. But how to think about the combination of R&D versus SG&A, James, going forward? I mean, could that see changes going forward as especially one, as we start seeing the transform programs come online?

So overall, when you think about R&D and SG&A, we will -- one part of the answer is we'll combine and then we think about our overall budget algorithms. So it has to, as an organization, balance both R&D and SG&A. And all the other costs Hartaj. So we'll look at it at the overall level. That certainly can ebb and flow over time, but you also hope to get increased efficiencies, increased leverage out of certain investments potentially on the SG&A side regarding what we need to do, where you won't actually continue to increase certain expenses at a continual pace. But it is important for us to think about it as an organization overall. And the other thing to think about is we make decisions, whether it's on the R&D side or whether it's on the sales and marketing side, if there's a step function, for example, if Michael Benkowitz decides to do additional sales teams, we have to incorporate that into our overall budget algorithm where we make decisions on best and highest use of financial resources, whether it's on headcount or other investments. So we'll look at it holistically, but then balance within that, how we make investments and decisions on highest and best use going forward.

Yes. Seems like we've got about 5 minutes left. So we'll go to a sort of a final jeopardy. I can't believe I thought I actually I had 15 minutes left. So I was feeling kind of relaxed. Martine, we'll start with you first. But James, I've got a follow-up question for you and actually both for you and Martine. But Martine, for you first, when selexipag was approved, the question is there's dual therapy or I guess, triplet therapy also. Do you think that [ sotatercept ] or selexipag became sort of like a preferred first-line prostacyclin as an oral versus Orenitram. So could that seem dynamic not play out with sotatercept is the question?

What is the diversity of the patient population in pulmonary hypertension? That's my final jeopardy answer. So I'm going to repeat there, Hartaj, that the patient population of pulmonary hypertension is tremendously diverse. As you know, the sotatercept is the most active in a particular pathway. And that pathway is generally not the case for the patients with secondary pulmonary hypertension. As you probably know, the majority of the patients we treat in our WHO Group 1 patients, the majority of secondary pulmonary hypertension, not the familial form of it. So in addition, there are numerous other pathways that play in pulmonary hypertension. The fact that sotatercept is not any kind of the silver bullet shows that it's just one of many pathways of disease progression. I point out to people that the reason pulmonary hypertension is so rare is under 100,000 patients is because it takes a number of things to go wrong in the body for it to manifest as a case [ data ] pulmonary hypertension. If it took only one thing, there'd probably would be a lot more people, but you've got to have this misfire, that misfire, this misfire. And if you have the multiple causes, then you end up with pulmonary hypotension. So we have PD5 inhibitors to treat the nitric oxide pathway. We have the ETRAs, to treat the endothelin pathway. We have prostacyclins to work on the cyclic GMP pathway, which is a critical -- absolutely critical pathway and now the TGF-beta pathway with sotatercept. So I think you're going to go ahead and you're going to have multiple drugs being used to treat the patients with pulmonary hypertension. Not dissimilar from what ended up being the situation with essential hypertension is patients end up needing more than 1 drug to treat it.

Yes. Combination therapy is the way to go. And sotatercept, I believe, will have a very specific label at least in the beginning, right, for the studies it was run on. And then lastly, Martine, I mean, I guess, we always like to point out to people that you've had ever since treprostinil and other prostacyclins were out there in the market the last 2 decades. There are studies that show that survival is increased by 3x and PAH. You have many more patients living every year. And a lot of that goes to a lot of the work. I mean, Cardiology Magazine has stated this to work that companies like United Therapeutics have done. James, just a quick question on why no buyback or small dividend with the robust balance sheet.

Yes. Thanks, Hartaj. As you know in the conversations we've had, our capital allocation priority is really going to focus on first, internal research and development. And included in that is the vision going forward around the need for what would be a commercial designated pathogen-free facility. And we want to make sure when we get to the point where Martine would be willing to go forward on an organ manufacturing, for example, xeno, we want to have capital available to make the investment, to build, if not one, more commercial size designated pathogen-free facilities to meet demand. And those average, give or take, run about $1 billion a piece. So we need to have the capital for continued internal research and development, continue those programs, but also have the capital available for large-scale commercial designated pathogen-free facilities, and that's really the focus at this point going forward.

Yes. I'll let you go there, James. Just last question on there. With the SEC rule, where the IPRD line stuff. Will your manufacturing facilities, if you invest in that, that's sort of capital expenditure, right? It won't run through an IPRD sort of line.

No. That would be -- it would be a capital asset, a fixed asset for us and [ in deed ] in process research and development.

Understood. Our Martine, James, always a pleasure. I know Dewey is off. I will touch base with him, and we will be in touch. Thank you so much. Really appreciate it.

Excellent...

Thanks Hartaj.

Take care, Martine. Always a pleasure.