United Therapeutics Corporation (UTHR) Earnings Call Transcript & Summary

Good morning, everyone. My name is Jess Fye. I'm a Senior Biotech Analyst at JPMorgan, and we're delighted to be continuing the conference today with United Therapeutics. I'm joined by the company's CEO, Dr. Martine Rothblatt, He's going to give you a presentation on the company, and then we're going to move right into Q&A. [Operator Instructions] So with that, let me turn it over to Martine.

Thank you, Jess, and good morning, everyone. I'm here to give our company presentation on United Therapeutics, our tagline Enabling Inspiration. Here's our standard safe harbor statement, and please review it. United Therapeutics has a key focus on rare diseases, specifically pulmonary hypertension, pulmonary fibrosis and neuroblastoma. In addition, we have a second focus in the field of organ manufacturing. And there, we are working on 4 key types of technologies: ex-vivo lung perfusion; xenotransplantation; regenerative medicine; and 3D organ printing. As a result of our focus on rare diseases, in particular, and developing excellent top prescribed products in these fields. We've enjoyed greater than 20% annual CAGR growth over quite a period of time. We are now at a very important inflection point for the company where we have positioned ourselves for multiple waves of growth. These 3 sequential waves of growth we refer to as our foundational wave, which is based upon our current commercial profile. Our innovation wave which is based on the products that we have in late-stage clinical trials and our revolutionary stage, which is based on the new organ manufacturing technologies, I just referred to. Let's start by talking about the foundational wave, the wave that involves continued growth from products that are already approved by the FDA. Two of the earlier products that we had approved by the FDA were Remodulin and Unituxin. Remodulin is the most prescribed parenteral prostacyclin product in the United States. And Unituxin is the most prescribed antibody therapy for high-risk neuroblastoma in the United States. Two of the other key foundational products that we have are Orenitram, which is the only prostacyclin with the ability to transition from infused therapies and maintain infused therapy at the same dose exposure level. And Tyvaso, along with our more recently approved Tyvaso DPI, which have rapidly become the most prescribed prostacyclins in the United States. Tyvaso DPI, which is the most recent member to join our foundational growth group is, as shown in this slide, very easy to use. But I'll show you in the next couple of slides is that, that's also one that can be used early in the disease's onset and is highly effective. So now let's delve into the early easy effective nature of Tyvaso DPI. First, it's an option for patients who are diagnosed early in their disease. As many of you may know, pulmonary hypertension, unfortunately, is a disease with a mean survival of only around 10 years from time of onset and the most typical patients are diagnosed are women in the prime of life around the late 20s. So it's very important to be able to catch this disease early and give patients the best opportunity to beat the odds by treating the disease effectively. Because Tyvaso DPI can fit in your purse or in your jean pocket and can be dosed so easily without having to worry about something like a parenteral delivery system, it's one that can very logically be given to patients diagnosed very early, and it's one that patients are very willing to accept. I would say, as willing to accept as a pill. It's also, perhaps the easiest way to take your prostacyclin. There's only necessary to take 4 breaths, four times a day, 1 breath each time. It really can't get much easier than that, other than perhaps just taking a pill. And it has a proven efficacy and safety across multiple clinical trials. Early, easy, effective, these are the secret, if you will, to why Tyvaso DPI has become the most popularly prescribed prostacyclin in America. Now what's really, I would say, perhaps scientifically, the most important thing to focus on is that Tyvaso allows there to be deep lung deposition of the treprostinil drug. And it's able to achieve this through a new technology invented just within the past decade or so, called low-flow DPI. Now if I could back up for a moment and just talk a little bit about the nature of pulmonary hypertension. The nature of pulmonary hypertension is that it takes hold in the most distal portions of the lung. In other words, right near the Alveoli. So you have to get the drug deep into the lung to be effective and only a low-flow device has been shown to do this effectively. And indeed, since we've now been in the market for a while, there's a robust body of experience showing that patients are readily able and in fact, fully capable of the modest amount of breath necessary to bring the drug down into the deep portion of their lung. That is not so much the case with other types of technologies. Low inhalation pressures generated by the user are efficient and effective in inducing low-flow rates through the DPI. That's from a recent publication in Pulmonary Pharmacology and Therapeutics. Let's take a little bit of a -- turn up the magnification and see just how this works. So with the low-flow DPI, the particulate molecules are in a conformal parallel flow. This allows the molecules to go down straight through into the lungs and all the way deep into the lungs where the pulmonary hypertension takes hold. I'm not exactly sure if the layers are there, we'll go -- you see this as the distal portion of the lung, where the pulmonary arteries have branched -- believe it or not 18 times and just try on your phone multiplying 2 times, 2 times, 2 times 2, 18 times, you'll see you get to a vast number, high millions of numbers, and we have to get all the way down there for the drug to be effective. Why? Because with pulmonary hypertension, it doesn't occur here, it occurs way down here. And what happens is in this precapillary bed the pulmonary vasculature closes up and then the blood flow is not able to get to the Alveoli to be oxygenated. So with a low flow device, we're able to get all the way to this pre-vasculary bed, open up these tiny, tiny -- I mean tiny like 10-micron wide, our pulmonary arterials and let the blood get to the Alveoli, where they can exchange their carbon dioxide and take on fresh oxygen. Low flow, coupled with the FDKP carrier molecule allows more drug deposition in the smaller airways of the lung rather than the throat. You don't want to get this drug into the throat that gives rise to more coughing. Now other types of DPI devices are what are called the high-flow devices. With a high-flow device, there's a kind of chaotic airflow for the molecules. And what happens with that chaotic airflow is that most of the drug does not get down to these small ones. And you could see in that in the color of the blue shows where most of the drug is going. If you compare that with the low flow, you can see the drug is not going to the same place. High-flow devices caused more particles to deposit in the throat, decreasing the amount of drug distributed to the smallest airways. Low flow of Tyvaso DPI leads to also a very efficient treprostinil delivery. Efficient means more bang for your buck, more medicine for your milligram. So here, you see with a low flow of Tyvaso DPI, the efficiency is demonstrated with using only 6.4 milligrams of powder or about 64 micrograms of DPI. By comparison, with a high flow device such as Yutrepia, it requires 21 milligrams of powder or 106 micrograms of Yutrepia. Clearly much less bang for the buck. In fact, quantitatively, it has been shown in the publications, 3.3x more Yutrepia powder is required for a similar treprostinil exposure. Tyvaso DPI is the first and only DPI tailored specifically for drug delivery to the distal lungs, as you could see with the color coding there, when you have the high flow, the drug is stuck up there, with the low flow, the drug is going down there. High-flow devices have been around for a long time. But United Therapeutics waited for its DPI to be delivered by a low-flow device. In summary, with Tyvaso DPI, the first and only DPI tailored for drug delivery to the distal lungs for pulmonary hypertension, only one breath per cartridge, no cleaning required, no maximum label dose, deep lung delivery, room temperature storage and very high patient satisfaction. So I think you can see from this review why we feel very confident and positive about the continued double-digit growth in our foundational wave of growth. Now let me talk about the innovation wave of growth, the one that's coming next on the shoulders of the foundational wave of growth. As you can see from this chart, we have a lot of things in our pipeline. And all of these items in the pipeline make up this innovational wave of growth. I'd like to focus on these late Stage Is in green here, which are our Phase III trials as well as the -- I call that purple, Ralinepag. All 4 of these are in Phase III trials. So to summarize the programs that we have in Phase III trials, we give 3 of the programs, the clinical trial named TETON for the towering mountains of Wyoming. And these trials are studying the use of our medicine in an indication called idiopathic pulmonary fibrosis. This is an indication with over 100,000 patients. Many of them treated with 2 existing drugs that only slowed the decline in the patient's well-being, do not reverse or halt the disease in any way. And another 60,000 patients in a different type of disease called progressive pulmonary fibrosis. The other Phase III trial we have is called advanced outcomes. And this trial tests a once-a-day pill for pulmonary hypertension in an addressable patient market of some 50,000 patients. We expect this to become the leading treatment for pulmonary arterial hypertension because of its efficacy and its ease of use. One pill, once a day, for best-in-class potency in treating pulmonary hypertension. Now let me turn to the third and super exciting wave of our waves of growth, the revolutionary wave. This one is called Organ Manufacturing. We have 4 platforms with 4 organs providing us multiple shots on goal to create an unlimited supply of transplantable organs. The first platform is called Xeno. And there, we have a product called UKidney, UTHYMOKIDNEY and UHeart. How many of you in the room just show by raising your hand, heard about the first porcine, genetically-modified porcine part, transplanted into a person to save his life? It looks like just about everybody. It was on the front page of the New York Times. I was privileged to be able to be in the operating room and as well for the second such life-saving transplant that we did as well. Our second platform is called Regen Med. And there, our lead program is called ULobe. This program involves cellularizing, a decellularized porcine lung lobe with cells divided by master histocompatibility complex group, MHC group, so that the patients could be each have a lower level of immunosuppressants and yet still be able to receive a transplanted lung that does not come immediately from another person. And this program has already achieved one of its major milestones in 2023, which was to be transplanted into an animal model, in this case, a full-size pig and support that pig's life over the course of the first studies, that it was designed for, which was 4 to 6 hours. We have now done this multiple times and are moving in 2024, into demonstrating up to 1 week survival support of the pigs viability with the manufactured ULobes. After that, in '25, our goal will be 30 days and then in '26 into the clinic. Two other exciting Regen Med programs that we have are Miro Kidney and Miro eLab along with Miro Liver. So what these programs entail is, once again, we start with a decellularized porcine organ. In this case, either a decellularized kidney or decellularized liver. And then what we do, which is really amazing is we recelluarize it with cells that have been donated by organ procurement organizations, from livers and kidneys that have been donated by people trying to make the most out of an unfortunate demise of their life. But unfortunately, their organs could not be used for transplantation. So instead, we're able to dissemble the organs into the constituent cells, all under GMP conditions and then take those cells and use them to cellularize, the decellularized staff holds that we had previously created. This is like some -- I would say it's like sci-fi, but we'll do it day in, day out. The ULobe program is done in North Carolina, the Miro Kidney and Miro Liver, Miro eLab programs are done out of Eden Prairie, Minnesota. Then we have a third platform called 3D autologous printing or 3D AP for short. And here, 2 of our products are ULung and ULiver -- a 3D AP liver. In these cases, we do not use anything from the pig at all, even though these previous platforms are all based somehow or another on pigs, with the 3D AP program, there's nothing from pigs at all. We 3D print a complete simulacrum, or a copy, a digital twin, if you will, of the human lung and then cellularize that with the patient's cells, that are created by, first of all, taking a blood draw from the patient of Leukopak. Secondly, separating out the CD34 cells from that Leukopak. Third, turning some of those cells back into pluripotent stem cells. And fourth, differentiating those pluripotent stem cells into the different types of cells that we use to cellularize the lung, specifically airway cells like epithelial cells blood side cells, endothelial cells, stromal cells and mesenchymal cells. We're able to do all of that in a bioreactor. And over a course of a few months, end up creating a lung that can be transplanted into the patient. Say the patient had emphysema, we are starting with their own cells, they are born new cells, pluripotent cells, but they have the same DNA as the patient. So that patient would not require any immunosuppressant, whatsoever, when they were ultimately transplanted with this 3D AP lung or what we call ULung. Same story with the liver. And then finally, a fourth platform, which we call the IVIVA bioartificial kidney. And then this one instead of 3D printing a lung were 3D printing a kidney scaffold and cellularizing that kidney scaffold with the patient's own DNA, again, starting with apheresis patient's blood, find creating a pluripotent stem cell from their cells and then differentiating that stem cell in the case of the kidney into podocytes and other key cells for cellularizing a kidney. So quite a few shots on goal here. I believe each of these will prove to be successful. And while each of these will find their way in treating different segments of the vast population that is in need of an organ transplant, but cannot possibly get one from the supply of donor organs, that are available. To show you how confident I think we are, we just finished constructing our clinical Xenotransplantation facility. I believe this is the first audience to have a view of what it looks like. And you can see the United Therapeutics logo there on the roof. That facility will be producing the Xeno Hearts, the Xeno Kidneys and the Xenothymokidneys used in the clinical trials of those 3 products. Actually, should be doing that starting next year. Xeno transplantation is something novel in biotechnology. We all at UT feel enormously privileged to have an opportunity to usher an entire new genre of therapeutics, forward into the therapeutic marketplace. Let's take a look at some parameterization of just how important this might be. I mean there were small molecules and large molecules, biologics, I think these xenographs are kind of like the next step. The U.S. kidney transplant list has some 90,000 patients and additional almost 0.5 million are on dialysis, but not even on the kidney transplant list. There are about 25,000 kidney transplants done each year in the United States. And the number of patients starting dialysis, not even on that list each year, 100,000. The revenue opportunity, it's to really help everybody, it's going to be about a $30 billion to $90 billion business, to give you a sense for how realistic that is and how it's like happening today, but much worse Medicare spends for kidney care alone, $51 billion back in 2000, and that's just kidney care. These are kidney cures, that I'm talking about with our unlimited supply of organs. So comparable amount of health care spending, but trading care for cure. Each of -- the DPF, by the way, when this slide says annual revenue per DPF facility. DPF is acronym for Designated Pathogen-free Facility. Because the medicine is the organ coming from a pig, it's going to have some -- it's going to -- it's part of the pig, but we have to make very sure that nothing is transferred from the pig that would be dangerous to the person. So the FDA has a whole list of pathogens that shall not pass from pigs into people. So we make sure that our pigs have none of these pathogens, which is why it's called a Designated Pathogen-free Facility, or DPF. To go ahead and get -- build the DPF that could produce 1,000 organs a year, it will cost a few hundred millions of dollars. To make one that would maybe create 2,000 organs a year, could cost over $1 billion. And to make one that could create over 3,000 organs a year, could cost more than $2 billion. But as you remember from the previous few slides, 3,000 organs a year, I would say that's a very good step toward helping the country's dire need for kidney transplants compared to all those hundreds of thousands of people on dialysis, but still a long way to go. But let's say, we start with making this very good strong first step. It would produce a tremendous amount of revenue for our company and to encourage more research. Just to kind of give you give you kind of a sense for it. For a 1,000 organ throughput, the revenue per year would be around $300 million to $900 million. And for 2,000 organ throughput, the revenue would be $600 to $1.8 billion and 3,000 organs a year, the revenue would be around $900 million to $2.7 billion. To build these facilities, the one we just finished building that I showed you a moment ago, that one cost $75 million. And that one could cover maybe 125 organs a year. So the figure like maybe 10x more organs for 1,000 organ facility will probably cost around 10x more. One that would do 20x as many organs. There will be some economies of scale also, but maybe getting close to maybe 15x as much and one that would do 30x as many organs, a little bit more economy of scale. But any way you look at it, it's hard to imagine United Therapeutics could make a better investment than spending this $1 billion, $2 billion on building facilities that would then generate $1 billion, $2 billion, $3 billion a year, year after year in repaying that investment and making a strong first stride towards solving the country's dire need for an unlimited supply of transplantable organs. So in summary, 3 waves of growth here, the foundational wave with our current commercial portfolio, growing revenues from our current level of $2 billion. We've guided that, that will double to over $4 billion by the middle of the decade. The second wave our innovational wave, with Tyvaso pulmonary fibrosis and Ralinepag for pulmonary arterial hypertension and Tyvaso DPI for progressive pulmonary fibrosis. These growing our revenues another several billion from around over $4 billion at the middle of the decade, to over $8 billion by the end of the decade. And then the third revolutionary cycle of growth in this organ manufacturing, starting with clinical trials as soon as next year, and then leading if you rack up the revenue figures that I showed you on the previous slide, to something like $16 billion in revenue by the 2030s. Been very pleased to present all of this updated information on United Therapeutics. I'd like to ask our fantastic President and Chief Operating Officer; Michael Benkowitz and fantastic Chief Financial Officer; James Edgemond, to please join me up on the podium to answer any questions and answers that will be moderated by Jess Fye from JPMorgan. Thank you.

Great. So thanks so much for that presentation. I guess given all the emphasis on organs in the second part of the presentation, I thought maybe we could start with just, what do you see as the proof points that you'll be able to deliver to investors to allow them to kind of ascribe more credit in your stock to those types of opportunities?

Thank you, Jess. I think there are several first proof points. The first one was achieved in 2023 when the FDA permitted us to do a second life-saving Xeno heart transplant in a person. The FDA takes those decisions very, very conservatively. And so those were both very successful transplants. And it was the first time in history that was demonstrated at a genetically modified porcine organ, that could save a person's life. The second proof point was the completion -- successful completion of our Interact process with the FDA on our Xenotransplantation, where the FDA described to us what was necessary for an IND-enabling study in Xenotransplantation, and we are now just about wrapping that up. The third proof point will be when the FDA -- when we submit an IND to the FDA to begin the clinical trial based on successful completion of the IND-enabling study. That third proof point will come sometime during this year. The fourth proof point would be when the FDA clears the IND, so that we can commence the clinical study and the first patient is actually enrolled in a Xeno Kidney clinical trial. I think that, that proof point will come in 2025. And then in 2026, will be around the time that the clinical trial of the Xeno Kidney is either at or approaching complete enrollment. Results could hopefully then be announced in the '27, '28 time frame with a filing with the FDA and then an approval to commence commercial availability of our Xeno Kidneys before the end of this decade.

Question in the audience?

Question, a flavor of the immunotherapy medicines that one would need to take with these kidneys, I mean, as far as you can foretell at the moment?

Yes. So the -- we have done the Xeno Kidney procedures in a unique preclinical model, that we developed called a brain dead heart beating cadaveric model. And the -- all of the Xeno Kidneys transplant in those models, the patients were treated completely with conventional immunosuppressants to the same ones that any other kidney transplant patient would receive. And that's what we would expect to see commercially as well.

Maybe switching to Tyvaso. Can you just talk about where we stand with Tyvaso DPI supply heading into '24?

James, would you like to talk about that?

Yes. Thanks, Martine. Thanks, Jess. So going into 2024, we don't expect any inventory issues going forward. As we talked about back in the third quarter earnings call, we did make and MannKind did make some changes to their manufacturing processes. And we think going forward that there won't be any issues with respect to making sure that patients have the inventory that they need or -- and the specialty pharmaceutical distributors are able to build our inventories in accordance with their contractual requirements. And we can say, historically, no patient has not had the ability to get Tyvaso DPI or for that matter, any of our therapies, but specifically to your question on inventory build related to DPI, no issues going forward in that regard.