United Therapeutics Corporation (UTHR) Earnings Call Transcript & Summary

44th Annual TD Cowen Healthcare Conference. I'm Joe Thome, I'm one of the senior biotech analyst here on the team at TD Cowen. And it's my pleasure to have with me today the team from United Therapeutics. We have President and COO, Mike Benkowitz and CFO and Treasurer, James Edgemond. Thank you both for joining us.

So maybe just to start things off, congrats on the record revenues in 2023. Maybe just give us a brief overview of the company's recent progress and your outline goals for the rest of this year?

Sure. Thanks, Joe, and thanks for hosting us today. Before I get started, my lawyers would want me to say something about forward-looking statements. So there you go. You guys can check out our public filings with the SEC to look at the risks and uncertainties associated with that. So yes, 2023 was really a fantastic year for us, and I think it sets us up well for the future. What we're really focusing on, really last year, this year and in the future is executing on what we've called the 3 ways of growth that we've been talking about the last few investor conferences and at our last earnings call. So the first wave is what we call the foundational wave, which is really about commercial execution with respect to our already approved products, continuing on the recent growth trajectory from a revenue standpoint with those products. The second wave is the innovation wave and really there, what we're focused on is development and then eventually commercialization of ralinepag in pulmonary arterial hypertension, PAH and then Tyvaso in IPF and PPF or progressive pulmonary fibrosis. And then the third wave is what we call a revolutionary wave and that's our organ manufacturing business. And so we now have a really well-rounded multiple shots on goal approach to developing an unlimited supply of commercial organs in the kidney, heart, lung and liver space. So that's really, I think, at a high level, what we're focused on, specifically with respect to 2024, it's really 4 things. One is to continue, like I said, continued revenue growth in the -- along the same trends that we saw in the last couple of years, 20% plus. We're looking on the innovation side, we're looking to complete enrollment in the ralinepag study and the 2 IPF studies with Tyvaso. On the revolutionary side, where we expect to complete the preclinical work for the xenokidney and this quarter actually and then hopefully get a meeting with the FDA later this year that will lead to commencing a clinical trial as early as 2025. And then we're also excited with one of our recent acquisitions, Miromatrix, to begin the first human clinical trial with a bioengineered organ, which is the miroliverELAP.

And the company has previously indicated, hoping to achieve a $4 billion run rate by the end of 2025. I guess what are sort of the key aspects of the commercial franchise that get you there? And maybe what proportion of that is going to come from? Tyvaso versus the rest of the franchise?

Yes. So we said $4 billion run rate by mid-decade. So 2025, 2026 in that time frame. And really, if you just kind of draw a line or extend the growth over the last couple of years, we're well positioned to do that. The lion's share of that growth will come from Tyvaso, particularly [indiscernible] associated [indiscernible] where we are currently the only approved therapy for that disease. Continue to make good traction in identifying those patients that are good candidates for that therapy. But we also expect to, at a minimum, maintain Remodulin revenues. Though even with that said, last year, we actually had modest growth in Remodulin on our U.S. business, which is, we think, pretty phenomenal given that we've had a generic competitor for 5 years now. And then we expect to run [indiscernible] to continue to grow on the heels of the expedite data, which we published a couple of years ago. And then we have a new study with Remodulin to Orenitram transitions, which is our ARTISAN study.

Okay. And obviously, the Tyvaso expansion into PH-ILD has been a huge investor focus and good for the top line. Can you tell us a little bit how many patients have you treated with PH-ILD or rather how penetrated into this market are you? Just kind of overall, where is the franchise there in terms of patient finding and how penetrated drug is?

Yes. So for PH-ILD, if you look at the epi data, it's a pretty broad range. I think the epi data suggests anywhere from 15% tied to 85% of the 230,000 ILD patients have or will get pulmonary hypertension. We've tended to really kind of focused on the low end of that range, 15%. So we look at the market as being around 30,000. I think you talked to various KOLs. I'd say it's significantly higher, but 30,000 is a good number for us to start with. It's almost as large as the PAH market. And as I said earlier, we're the only approved product in that space. So that's really kind of how we think about the size of the market right now. And then in terms of penetration, we're in kind of the low double-digit range there, kind of in that 10% to 15% range and then continue to make progress every month, every quarter, every year and growing that patient base. And so we've undertaken, I think, several steps, which I'm sure I'm going to talk about, to continue to increase that penetration, educate those ILD physicians about pulmonary hypertension, steps they need to go through to screen those patients. And then at that point, they have a decision about whether they want to treat or refer to a PAH clinic.

And maybe along that point, the company did expand the Tyvaso sales effort and sales force in 2023. Maybe if you can just remind us how large an expansion this was maybe what was driving this decision, if anything different than what you just highlighted? And maybe when will we start to see the impact from that expansion in revenues?

Yes. So I mean the expansion actually, I would say, the expansion of our field-based teams actually started about 12 to 15 months ago. So it was broader than just the sales representatives. We increased our medical science liaisons. We increased a team that we call our regional nurse specialists. So these are nurses that we employ to go in and work with nurses in the office and teach them how to use our products, how to titrate, how to manage side effects. And then we also deployed last year a team of what we call field reimbursement managers and the goal of that team or the objective of that team is, again, to go work with offices, particularly new prescribers and help them navigate the reimbursement process. We're filling out the referral form with how to write an appeals letter. So educating them on that whole process, because it's a pretty complex process for those practices that are used to dealing with our therapies. And then the second half of last year, we augmented the sales team. So on a numbers basis, the sales team, we increased like say by maybe 25%. But really, I think the impact is going to be greater than that, because in addition to increasing the size of the teams, we also realign promotional priorities. So we now have a group of sales representatives that are only calling on ILD doctors and talking about PH-ILD. So the magnitude impact of that is greater than 25%, because they're now spending 100% of their time talking about PH-ILD. And so really, what I think was just a recognition -- the reason we did it was just a recognition by us that we needed to provide more support, there was more opportunity out there that we maybe weren't optimizing. I think we felt like the -- maybe the sales representatives were spread a little [indiscernible] of why they were reaching all the prescribers, the frequency by which they were able to talk to them and educate them wasn't where we thought it needed to be. So that expansion on the sales force started middle of last year. You have to go through the hiring process, the training. So really, they deployed in earnest 1st of this year. And so it'll probably take a couple of quarters, really, I think, to start to see traction on the benefit of that. So as we get to the second half of the year, we would expect to see the payoff from that investment.

Perfect. And the company does typically highlight seasonality in the fourth quarter and first quarter, at least relative to Q2, Q3. But obviously, in the last quarter, we did see quarter-over-quarter growth in Tyvaso specifically. Did this kind of buck the trend? Or is there underlying seasonality still in Tyvaso? Or what was sort of behind that growth?

Yes. So there's a natural seasonality to our business. We talked about this on prior calls. It's really a function of when we look -- at least when you look at the revenue line, because we have 2 specialty pharmacies, right? So it's a closed channel really 2 customers. They have an algorithm for which they can determine how much they're going to order, that's tied predominantly to shipping data in the quarter. So when you get into the fourth quarter, you really lose 2 to 3 weeks with the holidays in terms of shipping days. On the physician patient side, there's also fewer clinic days. So fewer days for physicians to see the patients. And then we see this phenomenon often typically between Thanksgiving and Christmas where, just because of the complex nature of our therapies, patients will often wait until after the first of the year. So we may have referrals and prescriptions coming in. The starts may not occur until after the 1st of the year. And so that happens really across what we see that to varying degrees across all of our products. And so that -- we saw that in Q4 on a relative basis. But particularly with Tyvaso, we were able to grow through it, right, just because of the volume that was coming through. Now the interesting thing is we didn't see it the prior year when you're looking at the revenue line, if you look at the underlying drug product going out to patients, we actually grew through it last year, too. The challenge we had last year, as you recall, is we had this inventory adjustment, because we were -- we had the nebulizer. We launched DPI. And so the specialty pharmacies were having to adjust their inventory levels to draw down their nebulizer inventory while they were stocking up on the DPI side. And so when you look at the revenues last year, it looks a little wacky. It looks like we actually had a down quarter, but the underlying metrics were still really strong. And so we saw that again this year as well.

Perfect. And then maybe on the capacity with the DPI is all of that now behind us, nothing related to that? And then maybe if you can give a high-level update on the capacity expansion, just in preparation for IPF and PPF successful?

Sure. Yes. So the capacity issues that we were running into last year are behind us. MannKind, who's our partner and is manufacturing DPI for us, made some enhancements to their production lines, so they're able to increase production in the middle part of last year. And then as we move to the second half of the year, where we're seeing the benefit of that. We're bringing online actually this month, a kitting line down in North Carolina, so to keep this at a high-speed kitting line, because that has been sort of our last bottleneck to the extent there was one is that we were using a third party and they weren't moving as they were limited on how fast it could move. So now we've got a high-speed kitting line. So those issues are behind us and the specialty pharmacies are able to order, rely on fleet within their contractual limits. We're starting to build up a little bit of inventory ourselves and that will just continue as we move into the balance of the year. Not to mention MannKind is adding 2 high-speed filling lines. And so that will increase our capacity when that comes online later this year, that will increase our capacity to support up to 25,000 patients a year. And then as we think about IPF, just to kind of round that out, we have a new production facility that we broke ground on last year in North Carolina to further manufacture DPI and that will have a capacity for an additional 50,000 patients. And that should come online right around the time that we launch into IPF.

Perfect. Maybe on the Tyvaso DPI uptake in the field yesterday on our physician panel, the doctor indicated, there's actually still quite a bit of use of the nebulized product, especially during maybe dose titration and getting patients up to speed. Maybe overall, can you tell us where are people using the DPI? Are they converting their new patients? And are you seeing the same level of use of nebulizer to DPI? Or how is it fitting in?

Yes. So if you look at our revenues the last few quarters and the last couple of quarters, I guess, where we've broken out DPI and nebulizer, I think it's roughly a 60-40 split in terms of DPI. And that's tracking well when we look at the patient level data in terms of the mix of patients. I would say that new prescriptions coming in, new referrals coming in are more along the lines of 70-30. So over time, you would expect -- we would expect that the revenue is going to reflect that, and I think it will. So in terms of where the DPI is coming from, initially, it was a lot of transitions of patients on nebulizer that wanted the benefit or the convenience of the DPI. That's largely played out at this point. So patients that were on the maintenance dose of neb and wondering to transition to DPI have transitioned over. And so DPI now is really -- I think it's really kind of starting to solidify itself as sort of frontline prostacyclin therapy in PAH and then obviously in PH-ILD which we've talked about. So those are -- on the PHI there's going to be prostacyclin-naive patients. Could also -- we are also seeing some transitions from the orals. So selexipag, for instance, if patients aren't doing well. That might be the next stop, depending on where the patient is in their disease progression.

Okay. And then we do have an FDA decision coming up for Merck sotatercept later this month. Maybe if you could talk just a little bit about how you expect sotatercept to impact the PAH business, I guess just the landscape overall and then -- and as it relates to your top line as well or any of the product usage?

Yes. I think over the, I mean, the medium to long term, we don't really see it impacting our business in a material way. And it's another therapy, they have very good clinical data. It's great for patients. I think as you look at -- you peel back the onion or the covers and look at their data and where it was used, how it was used. I think the things that we're really encouraged about is that 70% of the patients were on a background prostacyclin, like a Remodulin or Orenitram. So it does seem to suggest that those 2 products work well together. So it's -- the other thing I would say is it's not a cure, it's not a replacement for prostacyclin. I think patients are still going to need prostacyclin. Increasingly, polytherapy is becoming the norm in PAH. And so you have the various pathways you cover with a PDE5 and the [ RRA ] prostacyclin, and this is the fourth pathway. So I think it's additive to the products that are out there. I don't really see it as being a replacement for any one product, including ours. And I think the nice thing for the patients and us from a financial standpoint is if the drug is working really well, then sensibly the patients are going to live longer, they're going to stand our therapies longer. So that's kind of how we see it's another the tool of the toolkit for the physicians to use. But long term, we don't really see it impacting our business.

Perfect. And obviously, there's some ongoing litigation with Liquidia. So we're not going to ask specifically about those decisions. But I guess how do you see Liquidia as a potential competitor? Is that factored into your business model at all? Or maybe why is the DPI, even if liquidity were to come to market saying PAH could be the preferred agent?

Did you say why would Liquidia become the -- I think I believe -- we believe Tyvaso will continue to be the preferred agent for very -- I mean the big one is that we've got 2 years of patient data, thousands of patients on the product. The patients are -- satisfaction level is incredibly high both by the physicians and by the patients. And so they have that experience with our product, which is incredibly helpful. I think -- we think the convenience of our device as a differentiator. Ours is one [indiscernible] per session. Their's 2. Ours doesn't require cleaning. Their's does. We don't have a max label dose. And so we just think, all in all, the patients and the physicians are going to prefer our product. We think the other thing that's attractive about our devices are just what's called a low-flow device and so that means that it requires less patient effort to actually breed the drug. And then as a result of that, that property or that characteristic. The drug is actually getting deeper into the lungs. So what you see with a high flow device, which is what their device is. So we think all in all, the totality of the characteristics of our device are going to be preferred by physicians and patients. And then on the payer side, you were in these discussions right now with payers and kind of working that out. But I think we're feeling increasingly confident that there's not going to be preference, so it's going to be a level playing field. So it's really going to be up to the patient and the physician, and we feel confident about how we're going to do there.

Perfect. And then you mentioned earlier the Tyvaso in IPF and PPF yesterday on the panel, again, the physicians are really impressed with the increased data and sort of even in the placebo patients when you give Tyvaso, you do see that recovery in FVC. I guess what in the data package has resonated best with physicians? And maybe what -- can you update us on the status of the IPF and PPF program?

Sure. Well, I think the main thing is the FVC improvement that we saw in the increased data, the physicians have been really excited about it. This trial has been enrolling incredibly fast. We were able to actually increase the sample size last year without sacrificing any of our time lines. So I think both trials now are -- there's 2 trials. There's a U.S. trial. There's a rest of world trial, both our sides are around 575 patients. And we expect to complete enrollment this year in both trials. It's a 52-week study. So we'll get the last patient in end of -- towards the end of 2025 and then expect to have a readout soon thereafter.

Perfect. And can you talk a little bit about the addressable patient population in IPF, PPF? I guess, where would the drug fit in into this treatment paradigm?

Sure. So for IPF in the U.S. We see that as a patient population of about 100,000 patients. And in the TETON trials, patients can be on background therapy. So it will be additive to the existing therapies that are out there. In PPF, it's we think it's roughly 60,000 patients in the U.S. So again, another unmet need that where patients can benefit from Tyvaso. And then in the case of IPF, I think we'll actually do this in PPF, but IPF for sure, we designed that to support our European filing. So we would expect to file in Europe and launch there soon after getting FDA approval.

Perfect. Maybe jumping over to the oral prostacyclin side of the business. I know we've discussed previously how some of the Orenitram data maybe hasn't or kind of was impacted by COVID in terms of relaying that to physicians, which maybe didn't get the full impact of that data set out to the market. I guess how is Orenitram launching now? How big do you think this could get? And then we'll dive into ralinepag after that.

Yes. So I mean, it's interesting with Orenitram, because if you look at the clinical data for all of our products, it's far and away our best data. I mean you've got clinical works team, you've got improvement in some of the risk factors that physicians look at for patients in PAH. You've got an indication of survival at a cost that's actually less expensive than [indiscernible]. So the whole package there is -- the value prop for Orenitram, we think is really high. I think the challenges that we see sometimes with Orenitram is its titration is good and bad, right? I mean it's good that you can titrate up. It's also a little bit more complicated to communicate to the patient. And then you have just the normal side effect things that happen with the prostacyclin. And so I think the words getting out on the data. I think what we have seen or what we found is that the -- I think the ideal place to use Orenitram is after Remodulin. So that was the whole point behind the expedite study. So these aren't Remodulin patients that are sitting on Remodulin for years and transitioning over. Although we do have patients like that. But the idea with the expedite study was to take a patient that you would otherwise start on Orenitram, start them with Remodulin, get them up to a good dose over a period of weeks. Some doctors have done it in days, but really the study was to do it over a number of weeks, then be able to transition the patient over to a higher level dose of Orenitram with fewer side effects. And so I think we're finding increasingly that the doctors are using that protocol to start patients on Orenitram. So that's really starting to get traction. And I think that's why we're seeing continued growth on Orenitram and that should continue.

And then you have ralinepag in clinical development. I guess, how would this fit into the treatment paradigm as it is right now? Would this be sort of a direct swap for Orenitram? Obviously, we talked about dose titration just now and sort of some of the data you have in relation to Remodulin. But could all of that be essentially seen as also captured in ralinepag? Or do you see it in a different setting?

I think it remains to be seen. I think we'll see what the trial bears out in terms of the efficacy titration, how high [indiscernible] and patient outcomes. And I think we certainly see it as a direct competitor to selexipag is the same class of drug, IP receptor agonist. And so -- and with the once-daily dosing, we think that that's going to be an attractive option or alternative to selexipag. And then like I said, depending on the data, we'll see how that competes with Orenitram and there are properties of prostacyclin that patients benefit from over an IP receptor agonist. I think regardless of how this plays out, there's always going to be a role for Orenitram.

Perfect. Maybe on the xenotransplantation side, the company has indicated that they're now in pivotal preclinical studies for the xenotransplantation therapy. Maybe just at a high-level progress on that side of things? And what are sort of the pivotal preclinical studies that you need ahead of moving into the clinic?

Going to let my friend, James, answer a question.

Yes. Thank you. So overall, we are continuing to make very good progress. And as lead Dr. Leigh Peterson said on the last earnings call, we are in discussions with the FDA in terms of satisfying their request for data in baboon studies. And so we're progressing those final studies this year, continuing conversations with the FDA with the goal next year, Joe, early of 2025 to get an IND approved for human clinical trials in xenotransplantation. So that's kind of the goal. And I think the progress has continued. And as an organization, we're very excited, and we're doing what the FDA has asked at this point.

Perfect. And as it relates to the xenotransplantation side of the business. Can you remind us the current footprint that you do have in terms of facilities and maybe what spend was associated with the current [indiscernible]?

Sure. So what we announced a few weeks ago was we did a ribbon-cutting grand opening for a facility in Christiansberg, Virginia that we will use for growing the pigs that will be used for human clinical trials. And what we've said publicly is that facility was about $75 million that we established, we finished construction, and that will -- we're starting to get ready again to play into the time lines of working with the FDA to start human clinical trials in early or 2025. And that should be a good footprint for us to get to where we need. And then from there, we would expand into the commercial designated pathogen-free facilities.

And that is one of the questions that we do get is how large of an expansion you would need to do for commercial opportunities. So what is the company thinking in regards to that? How many facilities would you need? And maybe what are the major derisking steps? Obviously, you mentioned the derisking steps to get to where you're at right now. But in order to turn on that additional investment, what would you want to see, I guess, in the clinic?

Yes. Thank you. So we've talked publicly about in terms of these areas, we do want to initially start, and I'll talk about when. But with the commercial DPF facility and we've targeted a range for a cost to be between $1 billion and $2 billion. I think it will settle out somewhere in between and you can average use an average of $1.5 billion. What we are anticipating and planning to do is once we get an IND approved with the FDA, we will evaluate kind of the protocol there and start to understand how the clinical trial can roll out. What we will do at that point because it's going to take about 3 years to build a commercial-scale designated pathogen-free facility, but we want to make sure we're doing it in a very thoughtful and methodical way. So that the human clinical trial moves forward, we're understanding that process and then starting to construct the facility. But we're going to do it in a way where we can watch the clinical trial and we can start to spend money because we won't downstroke a check in day 1 for $1.5 billion on average, but that will happen in time, and we want to be very thoughtful, methodical about how we spend the money and making sure that we understand the clinical trial and where it's going so that we can make sure at the end of that clinical trial, we're in a situation and a position to be able to supply transplantable organs to those in the.

Perfect. And on the last quarterly update, the company did announce that the FDA has cleared the IND for the miroliver ELAP program. Maybe just overall. Can you discuss the rationale for the Miromatrix acquisition? And what would an initial trial look like post this IND?

Sure. Yes. So the Miro we did -- we actually did 2 acquisitions last year, Miromatrix, and IVIVA. And really, the goal there, the objective there was really to kind of round out our organ programs. That gives us some more shots on goal. So we had been -- we had the xeno programs that we've talked about. We have a regenerated lung program, and then we have an autologous lung program on a 3D-printed scaffold that we've been working on. So this gives us another shot -- more shots on goal in the kidney and the liver. So that was really the rationale behind doing those. In terms of the miroliver ELAP trial, I think the important thing there is that it serves the first bioengineer organ that's going into clinical trial. I think as a product, it's probably a niche product, but it kind of starts or continues our discussion with the FDA around what this clinical trial design look like and for all of our programs. So that's really, I think, the more important thing to think about with the ELAP.

Perfect. Obviously, touch on those 2 acquisitions, discussed about investment in the facilities for the xeno pipeline. Potentially, we'll have a lot of cash if you mean your goals over the next several years. I guess how does BD factor into that is BD a priority for the pipeline? And what would you be interested in?

Yes. So thank you. So just to remind maybe the audience, we do have a capital allocation kind of waterfall. And in order the priorities for us continue to be research and development, which means we're investing in ourselves, both in clinical trials as well as facilities. And the second capital allocation priority is business development. And there, we do dedicate time, dedicate resources to look at opportunities that we can bring into the organization to provide the highest and best use of capital. We try and be very thoughtful. And we look at organizations that are synergistic to the strengths of UT and the unitarians for manufacturing to sales, the clinical trials and even as Michael just discussed, show in manufactured organs. So it is something that we continue to look at. We just want to be very thoughtful about bringing something in and making sure we have the right resources to advance that forward and the areas could be cardiovascular, again, things where we have strength and knowledge of rare lung disease. Again, as Michael talked about, getting into the organ manufacturing space to supplement and bring in new ideas and technologies that advance that overall program forward.

Perfect. Excellent. And with that, we are out of time. So thank you all for joining us.

Thank you.

Thank you.