United Therapeutics Corporation (UTHR) Earnings Call Transcript & Summary

Yes. And with me today, our next company, United Therapeutics, from where we have Pat Poisson, who is the Executive Vice President of Tech Ops. How are you doing today?

Good, good.

Thanks for joining us. It's a real pleasure. So I wanted to understand the therapeutic story, a little bit in more detail today in the fireside chat. We have 25 minutes and ask more questions about the manufacturing with which you are the closest to in the organization. So I would love to get your perspective maybe perhaps we can start off by just getting like a high-level background about United Therapeutics for investors that might not be familiar with it.

Sure, sure. So. like to thank UBS for having us down here. Before I go into any details, I just want to mention that some of my answers today may have some forward-looking statements. And I would refer the audience and the listeners to our SEC filings, 10-K and 10-Q for any risks or precautions related to our business. So United Therapeutics, it's now 27 years old. And it was founded by parents seeking the care for a disease that their daughter had, which was pulmonary arterial hypertension. And of course, this is back in the mid-'90s. And there weren't a lot of products available to treat this disease, and they took it upon themselves to seek a cure. And today, 27 years later, we have 6 products, 5 of which treat pulmonary arterial hypertension, 1 which treats a pediatric oncology disease, neuroblastoma. And we've reached approximately a $2 billion revenue rate annually. However, with all of that, we still don't have a cure. And the only cure today for PAH is a lung transplant. And hence, the reason we have embarked upon a program to provide transplantable lungs to treat PAH and cure it. And we've expanded that now to not only include lungs, but hearts, kidneys and even livers. So, in our earnings call last week, we talked about 3 waves of growth that we expect to see in the next 10 years: the first wave will be driven by our current commercial products with their continued growth in the marketplace. The second will be driven by our TETON clinical studies, which are covering various forms of pulmonary fibrosis. And the outcome study with Ralinepag, which will be used to treat PAH. Now we expect the initial TETON study in IPF to fully enroll by the end of 2024, and we expect to see data from that study by the end of 2025. And it's about the same for the outcome study with Ralinepag. And assuming positive outcomes with those studies, and we remain very optimistic that those will yield positive results. We expect our revenue to grow to $8 billion upon approval and a launch of those products. And then the final third wave of growth will be with our organ programs, which is currently really being led in the xenotransplantation area with the kidney and the heart. And that will provide additional growth at around the 10-year period we expect. So, you can see we are a pretty unique story and we remain really excited about the future.

Great. Great. Thanks for that background. So maybe I can start off like earlier in the year, I mean, 1 of the big surprises that we saw was your announcement that you want to get to more than $4 billion run rate by the end of 2025. That's something that has surprised a lot of investors. And I feel like the sense, at least like based on if you look at consensus, that is even a reliable metric. It's not there yet. I think we are at around like $3 billion. So like where is that growth going to come from? It's a pretty short time frame to get that type of a ramp-up? And how much does Tyvaso play a part in this growth profile?

Yes. Sure. It's a great question. And I'll provide some additional detail on how we expect to get there. So first to clarify for everyone, we're looking at a $4 billion run rate. So what we expect to achieve by mid-decade is our first quarter with $1 billion of revenue. So that's what we're working towards. Now if you look at our current commercial products and what we expect to see over the next few years, so we have Remodulin, which we believe will remain flat. Orenitram and Unituxin, we believe it will continue with single-digit growth. And then Tyvaso, we expect to see strong double-digit growth. Now if you take all those and extrapolate them out to mid-decade, you get to, say, approximately the $900 million mark per quarter. Now how are we going to get to that next level with the $1 billion. So over the last year, we've significantly increased the amount of people we have in the field and that includes salespeople, medical liaisons, scientific liaisons and nurses. And the result of that is we've more than doubled the amount of Tyvaso prescribers in the last year. Many of these prescribers are ILD doctors. And as we look at the health of these prescribers, currently over 40% of them have 3 or more patients that they're prescribing for. What we've also seen with the ILD docs is they are now themselves prescribing Tyvaso to treat ILD instead of referring those patients to a PAH doctor. And of those ILD docs, 20% of them now have 3-plus patients. So a lot of great movement in that area, and we expect that to continue. So that's how we believe we're going to get to the $4 billion run rate.

Great. One of the things like about this Tyvaso franchise, the transition towards the DPI is something that has surprised a lot of people. I think like when it was launching, you had given sort of like a soft outlook that you expect to get like a 50-50 split in the long run on both indications and by our math, like we think that you are already there and you have surpassed that level in terms of how much is coming from BPI versus nebulizer. So like first, I wanted to just get your thoughts on that piece. Do you think that there will be more room to grow on the DPI conversion? Or are you capturing new patient adds that is driving the good growth of the nebulizer? And where can this eventually settle in terms of the split of the franchise?

Yes. So I think for those that looked at our third quarter earnings, they saw for the first time that we broke out DPI numbers versus nebulized. So you were able to see in detail how those are split in total together. So right now, we're at about a 60-40 split with favoring DPI over the nebulized. Now it's important to note that we believe nebulization is always going to have a role in treating both PAH, PH-ILD and hopefully, in the future, pulmonary fibrosis. And the reason why is the nebulizer, even though -- even though it's maybe more bulky and inconvenient for the patient, actually offers a lot of flexibility in the treatment paradigm. So HCPs can dose in 1 breath increments. And when you're treating these patients, there's a lot of subjectivity. So it allows them to really tailor the treatment to the patient. So we think it's a really important tool that they have available to them. And of course, we have DPI, which has the convenience of being able to carry it in your pocket. But the dosing for DPI is in 3 breath increments. So we have multiple ways in order to attack these diseases, and we think that's a great spot to be in.

I mean as you head into like 2024 and '25 and the co-pay is normalized on the DPI versus the nebulizer, do you think that can drive more of an inflection in the conversion?

Yes, certainly, it could. And while we're talking about that, we expect and I'll remind everyone, Orenitram and Tyvaso DPI are both Part D reimbursed, whereas Tyvaso nebulizer is Part B as a device. So they will be impacted by some of the changes that are happening with Medicare. And of course, we view anything that's going to reduce the burden -- pay burden on the patient to be a benefit. That's a positive. So as we move into '24, we'll start to see some of these changes take place and some rebates will start happening as they move to eliminate the catastrophic limit.

Yes. Yes. That's great. And so I think this, look, I mean it's definitely helpful to see the split of revenue coming in from DPI versus nebulizer. I mean the other way to split this, obviously, is like look at how much of it is coming from PAH versus PH-ILD. I know you haven't quantified that specifically, but I've got this message from the recent calls that you are trying to transition more of like a growth profile in PH-ILD and that's -- that's a big untapped market. Anything that you can provide like qualitatively, quantitatively in terms of like where is the split right now across these 2 products and eventually where can we see that go?

Yes. I think on a granular level, we're just not ready to go there yet. But what we can comment on is much of the growth with Tyvaso is going to be driven by PH-ILD really in the near to midterm. And of course, with the potential positive outcomes with the TETON studies that will continue to drive growth as well. So it's going to lean heavy probably on ILD as you see those numbers increase. But as far as patient splits, I don't think we're prepared to really go into great detail there.

Got it. Okay. I mean one of the things that we have been trying to assess is the impact of the supply here. And it's a nice problem to have when you have demand out-shipping supply, but I think you have several measures in place to try to resolve that. So like can you explain to us just to -- on a high level. So you've got the MannKind first expansion of the facility come online already in June, I think. And then like you have another one coming in next year, and then you have some other in-house measures that you are taking to expand of capacity?

Yes. So . We -- Due to the time constraints of the earnings calls, we haven't been able to provide a lot of detail related to this, but I can certainly go into greater depth now. So there's been multiple efforts that have taken place, really culminating in 2021 with the ILD approval. And this was pre-approval of Tyvaso DPI. But once we gained approval for -- to treat ILD with Tyvaso, we immediately moved to make some pretty significant capital investments in the MannKind facility to increase their capacity for future production. Now those investments involved purchase of high speed and high capacity equipment to produce the dry powder product. Now that equipment is very specialized and have a very long lead time, and we knew it was going to take some time to get it built and get it in place. Now in the meantime, while we were waiting for that, we did get approval of Tyvaso DPI and we launched it very quickly after approval. And again, we recognized immediately that the interest in the product and the uptake, which was very strong, we were very pleased with, was going to require us to make some interim changes at MannKind to make sure we could supply the specialty pharmacies with their minimum inventory levels. And so we did that, and we were able to double really on the bulk side -- the bulk powder side, we were able to double their capacity and implement that in Q2 of this year. And the result of that is we've strengthened inventory levels and really addressed that concern. And now we're moving into trying to smooth out shipments and in order frequencies with the SPs. But in parallel with that, of course, the equipment that we -- we purchased 2 years ago is now in place and is being qualified at their facility. And we expect that to come online in, say, the next 4 to 6 months. And at that time, once that's done, we'll be able to support 25,000 patients out of the Danbury facility. So all that's happening in the next, say, 4 to 6 months, we'll have that capability. Now beyond that, of course, we have to prepare for TETON outcomes with pulmonary fibrosis. Now these -- these studies could bring upwards of 160,000 patients into use of Tyvaso DPI or Tyvaso nebulized, which is a significant increase over what we have today. So in preparation for that, we have begun construction of our own facility in on -- our North Carolina campus to support those additional patients. So design has been completed and we expect to break ground on that early in '24. Now that's going to be a 2-year build. And at which time we'll be able to do the work to qualify that site with FDA. And beyond that, really, it gets -- the schedule gets to stay a little squishy beyond that, but preparations are already taking place to be ready to support pulmonary fibrosis in both forms.

So when you get the expansion from MannKind early next year in this 4 to 6 months time frame, like would that start to reflect in Tyvaso numbers right away? Or is there any kind of like a lag effect from that?

I think it will be fairly immediate. They're going to be able to produce a lot of product very quickly and -- and that's helpful as we continue to grow the business in ILD and educate ILD prescribers on the benefits of Tyvaso.

Great. So there are a few competitors emerging in PAH and PH-ILD depending on how you look at it. I just wanted to get thoughts from low vantage point, like sotatercept or something that comes up in investor debate a lot, have -- Insmed and Liquidia potentially also becoming competitors in the near term. Like how do you kind of plan your business to overcome those competitive headwinds? And what is right now you're thinking on where and when you might see the impact to what side of the business on Tyvaso?

Yes. So I think in general, and I'll go into each of those individually. But in general, we're used to competition. And today, there's over a dozen products to treat PAH and Remodulin is a good example, approved in 2002 and still going strong today. And a lot of that has to do with how effective the product is and the support we provide patients. So we know how to deal with these markets. Now Liquidia, we know has a version of an inhaled version of treprostinil that they intend to market at some point. Now we believe in our own product. And I think some of the feedback we received during the BREEZE study, 98% of favorable reviews of that product by the patients in the BREEZE study. Today, we've treated over 4,000 patients already with Tyvaso DPI. So we've had great success, great feedback from the marketplace. The patients really like the product, and we feel pretty good about it. The benefits of it is it's a single cartridge dose, so the patient will load the device with a cartridge and they inhale it and they're done. And they do that 4 times a day. The device does not need to be cleaned. You can carry it in your pocket. In fact, I have 1 in my pocket. And you can see pretty easy to use, open it up, here's the cartridge, pop it in and done, you're ready to inhale. So we've heard people saying that this is difficult to use. I challenge them to say, please show me how this is difficult. So we feel very good about the product. We believe it's a great product. and we believe that's why it's already reached 4,000 patients and prescribing over the last, say, 1.5 years. Now . moving on to Insmed. They've made some claims out there. There's been very little clinical data shared. So it's very -- it's hard for us to calibrate what their claims are versus what the data says. So we're going to have to wait and see what they publish at some point and then determine what impact it might have. And then sotatercept, now we know the PDUFA date for sotatercept in the spring of 2024. And -- so that's coming. And -- but one of the things we'll point out and we talked about this in our earnings calls is that sotatercept was commonly prescribed with treprostinil as a background therapy. And it was actually more effective with treprostinil as a background therapy. So we believe it's going to be positive for treprostinil sales when sotatercept gets approved. Now going back to the inhaled product that Liquidia has. Now those have been claims made about they're able to dose to a higher level than Tyvaso. And that's -- that's really not true. We can dose to the same high level. In fact, in the Tyvaso prescribing information, there's no limit to what a patient can go up to. That's really up to the HCP to decide. So an example I'll give also is that their product is really less efficient in delivering the dose. Their strength of 75 micrograms of treprostinil is what they needed to achieve an equivalent PK value to nebulize Tyvaso at 54 micrograms. Tyvaso DPI is at 48 micrograms. So they're achieving an equivalent PK with much more product and that's partially why they -- they have to deliver a higher dose is that their device isn't as efficient. So all these are factors that play into how this will affect Tyvaso DPI as we look at it.

Yes. I mean I guess like 1 question just as a follow-up. From the case that I've talked to, just on -- I'm more interested in learning about sotatercept and one of the things that has come up in conversations with that there is impact from how more priced is their product is how payers are looking at it? So is the -- if they are trying to go like early line therapy and come with like a really low price as opposed to like late line therapy with the premium price that might have implications for Tyvaso, one way or the other. Do you buy that argument? Or do you think that it doesn't necessarily change the impact depending on...

Yes, I think there could be a [indiscernible]. We'll have to wait and see. But it's a crowded market now. And everybody is at different levels of pricing. And really, we've been able to maintain our presence in PAH despite all the competition and treprostinil is a great molecule. It's really the gold standard to treat PAH still today, which is why companies are continuing to develop alternate versions of it. So we'll have to see how it all plays out.

Good. just in the 2 minutes that we have, anything that you can share on the heart and kidney transplant facilities, like any time lines or goalposts that you can establish for and you might start to see a bit of a progress and tangible...

Yes. So a quick update on the xeno program. So made a lot of progress with both heart and kidney, and we've been able to demonstrate functionality of both the heart and kidney in nonhuman primate, [ deceased ] human models and of course, the 2 human transplants that were done at the University of Maryland, both last year and this year. Now as far as preparing for clinical trial, our regulatory team has been working with the FDA to outline the requirements needed to file an IND, and that work is in progress. And right now, we expect to be able to file an IND for kidney probably towards the end of '24, maybe early '25. And the heart will be not so far behind and these are both with the 10-gene modification that we've talked about publicly. Now as we prepare to begin a clinical trial, we've constructed a clinical designated pathogen-free facility, which will house the genetically modified pigs and construction of that facility is nearly complete. It will be done by the end of the year. And we'll -- we plan to populate that facility in the first quarter of 2024 in preparation for having organs available in '25. Now that facility alone was a $75 million capital investment to build that facility and it will be capable of producing approximately 125 organs a year to support the clinical studies of both xenoheart and xenokidney. Now as we look further into the future, -- and we've discussed this again in our earnings calls, we've already made preliminary plans to build commercial scale DPFs. And these are going to involve massive capital investment. The first one we will build will be on our North Carolina campus. And we expect that building to cost us between $1.5 billion and $2 billion to build. Now the output goal of that facility will be approximately 2,000 organs annually. In addition to that, we plan to build 2 more facilities, really regionally located to support different transplant centers. And these will be a little smaller, possibly 1,000 organ a year facilities. And these are going to cost again in the neighborhood of $1 billion to $1.5 billion. So we're expecting a lot of capital investment in xeno. We've talked about it being part of the third wave along with 3D-printing and our regenerative medicine programs. So we really do have an eye to the future on this. and it's really going to drive the growth of the company in the future.

Great. Excellent. With that, we can wrap up the session. Thank you so much for your time, Pat, and it was pleasure having you at our conference.

Thank you.

Yes.