United Therapeutics Corporation (UTHR) Earnings Call Transcript & Summary

Welcome, everyone. I'm Tiago Fauth, I'm a biotech analyst here at Wells Fargo. We're joined today by United Therapeutics. We have James Edgemond and Dewey. Thank you so much for making the time, especially this early. So we can kick things off.

Like it's been quite the run, quite the year for United Therapeutics. I generally like to give you guys sometimes just broad strokes, how is the business? What are the main drivers, where you get a lot of -- most of the inbounds and then we have an extensive list of [indiscernible]detailed-- so let's kick it off.

Yes. Thank you, Tiago, for hosting us, and thank you to everyone in the audience for getting up so early to see us. Before James starts, I just wanted to remind folks that James and I may make forward-looking statements today, and we encourage you to read our latest SEC filings, including Forms 10-K and 10-Q for the latest risks and uncertainties associated with any of those forward-looking statements.

Great. Tiago, thanks for hosting us, and we have Harry with us here today. So another unitarian. So to your question about how the business is performing? The business is performing very well, both commercially, the research and development aspects, the clinical trials. And the way we framed it broadly is that there's a real good foundational aspect to the business, so the commercial business that is performing very well, 20% growth year-over-year last quarter. The next phase of the business we look at is the innovation phase, and that's where we talk about our clinical trials, both in TETON 1 and 2 as well as ralinepag advance outcomes. And so there's this innovation aspect of it. And then there's a revolutionary aspect to it that Martine calls once-in-a-lifetime opportunity where we're looking at finding a real kind of cure or an opportunity to fill in this significant shortage of transplantable organs. And there's been increasing media attention increasing activity in that space that we're continuing to push forward as well. So top line, the business is performing very well, and we're very excited.

Perfect. And again, a lot of focus on the commercial business. So let's start to pierce that apart. So PH-ILD has been the bigger growth driver recently for United Therapeutics. You've been close to 4 years now into that indication, a little less than that. But -- where do you think you stand in terms of market outreach in terms of total market penetration? There was a lot of uncertainty on the size of the market early on, right? I guess prevalence numbers are kind of all over the place. You spoke to some academic centers. There are patients who already on Tyvaso off label, spoke to community physicians, there was like a lot of unmet need. How should investors think about where you are and where you can still grow that business?

Yes. Thank you for the question. It's a great question because we continue to be encouraged around the excitement and engagement by physicians that treat interstitial lung disease, so ILD. And really, they now have an opportunity to treat the pulmonary hypertension associated with ILD. So again, it's encouraging to us to see the engagement in these prescribers. And when you think about or talk about the opportunity, when you scale it down from a penetration perspective for us, we think we're about 15% penetrated and growing in this market. But what's interesting is may be it is helpful as you think about it because you said there's kind of big numbers out there from a prevalence perspective. And epidemiological data would suggest that the penetration rate for us -- I'm sorry, there's a wide band in terms of patients that have interstitial lung disease. And as many as 86% of this 230,000 ILD patient population may develop pulmonary hypertension over the course of their disease. However, our research indicates that around 30,000 patients in the U.S. may present with pulmonary hypertension at some time during their ILD and upfront at their ILD diagnosis. So we look at the core kind of population of PH in ILD patients is about 30,000 patients. And so with that opportunity, when we look at the penetration rate, that's what we're focused on now. But what another interesting kind of analogy is if you go back to the time when Martine started the organization years ago in pulmonary arterial hypertension, again, with a small patient population that was underdiagnosed, but through education and through awareness, that population in PAH has grown to be over 50,000 treated patients. So when you think about this pulmonary hypertension in patients with interstitial lung disease, we again think there's a growing opportunity here through education, awareness, proper diagnosis. And that's what we're really focused on at this point.

Got it. And again, I think the PH parallel is an interesting one. And over time, management of those patients gravitated towards large academic centers. When you think about PH ILD, where are those patients right now? Again, there were no treatment options. So are they all clearly identified and diagnosed, how much is in the academic community, how much is in a community setting. And I'm working towards a question about pace of new patient adds, right? Like at some point, there is like how do you target a broader audience? Or is that something that over time is going to eventually gravitate towards academic centers where you already have a strong footprint in?

Yes. So it's kind of a twofold question around simile like breadth and depth and continue to grow. So -- when we started to get into the ILD market and the PH ILD market, what we knew is that this prescribing base is pretty well spread out, right, within the community. But the energy and the effort at the start was really focusing on what Michael Benkowitz talks about is depth. And so we need to go to practices and centers that had what Michael called more than 3 -- prescribers that have more than three patients. So we wanted to get depth and focus and educate those physicians on the opportunity to properly diagnose these patients. So that was the initial focus to a little bit of a transition because we knew these prescribers were spread out within the community is now we're going to focus on brands. And at the beginning of the year, you've heard us talk about the expanding sales team. And now we're focused on this breadth aspect because we want to be in a situation where we can educate these physicians to diagnose and properly diagnose and then treat these patients instead of referring them to these bigger centers because these bigger centers in terms of capacity and things of that nature. And so what's important is education in terms of diagnosis and treatment is important to us. So we look at initially depth in terms of getting an educated base and awareness. And then we are transitioning to also then focus on breadth so that these physicians can treat these patients themselves.

Got it. And that's fair. And again, I guess most of these questions comes precisely because of the strong early execution, right? You started out with a pretty bold goal in terms of new patient adds for the first 18 months. I was skeptical back then. I was proven wrong. Michael was proven wrong. And you kept beating consensus pretty consistently over the last few quarters. I'm assuming at some point, we can catch up or have a better sense of what the new -- the pace of growth going forward is going to be. So how should we think about pace of new patient adds relative to your existing base? Like what are some of the main metrics in terms of thinking about that curve and how it's going to look going forward?

Yes. Well, the opportunity, as you said, is there and we believe it's there. One of the things that we have recently done, and maybe I'll change the question a little bit is we -- beginning on January 1, Michael and his team put in place kind of an expanded commercial team. And that commercial team includes sales representatives, medical science liaisons, regional nurse specialists as well as reimbursement specialists. And the reason why is we saw this opportunity that you referred to when we continue to see this opportunity. And so it was an opportunity for us to invest in the commercial teams to be able to go out and educate these physicians. Beginning January 1, they were fully in share and going out into the marketplace. That build started last fall that we had talked about. And so the objective here is to support these practices, all aspects of the practice from the physicians to the nurses, to the patients and to the caregivers to make sure that they understood Tyvaso, they understood the diagnosis process, et cetera. If you were to take that in terms of us investing those dollars and go back to our revenue growth rates, we think we can continue on these revenue growth rates. In last quarter, top line revenue grew 20% and Tyvaso specifically grew 25%. And so we're making the investments because we also believe in the opportunity to continue to grow this patient population and really to treat these patients, which is incredibly important to us.

Got it. So -- and again, we've published on this, like is it fair to assume if you take PH as a comp, PH-ILD, have fewer competitors, fewer available therapies? Why couldn't this be a $3 million to $5 billion opportunity. Like is it more about the time that, that might take to be recognized by the market? Is it more about execution? Again, so far, everything has gone pretty smooth but we still get some pushback on the long-term value of that.

Yes. For us, we do believe there's a great opportunity. We continue to always talk about execution is incredibly important to us. And I think we've learned a lot since launching into this space. And then we decided to make additional investments as we got better educated, right, to help these physicians treat those patients. It is interesting in your kind of comparison to PAH when Martine first started the company is there was very few therapies and now it's a very crowded space in PAH. So the opportunity for us in PH associated with ILD, again, is the only approved therapy in this marketplace, so we do think there's continued growth as to size or kind of guidance around that. I think it's important for us just to focus on the execution and let it happen. But so far, we've been successful, and we think this can continue. Got it.

Fair enough. And again, a lot of questions that we get around potential competition, right? So let's just talk about the legacy PAH part of the business for Tyvaso because that has been relatively steady. But I'm curious with the DPI introduction, what you have seen in terms of either just patient switching for a nebulized Tyvaso, do you have someone that would have gone to either Remodulin or Orenitram but is now starting on Tyvaso. I know it's a smaller piece of the pie, but how stable is the PAH side of the business for Tyvaso specifically?

Yes. So it is, I would say, stable and growing when you add in this aspect of Tyvaso DPI on a combination. I mean it has been a proven effective therapy for patients in PAH. So broadly speaking, when you think about the PAH business, which I think was part of your question, that is continuing to be very stable and to grow. Again, the therapies that we've had in the marketplace have been very effective and continue to be effective. And I think there's going to be continued opportunity in PAH, just related to the continued education and awareness.

Got it. And we go back to PAH and competition and some discussions around that, but let's think about DPI and the since PH-ILD is the longer -- the bigger driver right now, a lot of focus on Liquidia, some focus also Insmed, [ DPI-P ] . So -- how should we think about potential competitors in the dry powder inhaler space that are kind of going after what has been a very successful market here. So yes, let's perhaps start with Liquidia, leaving the legal discussion aside for now, just from a product profile perspective, how do you think the product stacks up? And how do you think you can compete or how do you think they can take share? Like how are you thinking about that?

Yes. Well, we have a lot of conviction in our DPI product in terms of one, our relationship with MannKind. But two, from a device perspective, we think it's a better device. And there's been our discussion in some papers written on the type of device being a low-flow device. And why that's important is a patient who has interstitial lung disease, has compromised lung function, right? Fibrosis in the lungs that makes it very difficult to breathe and is really not reversible. And so one, that the type of device and the design of the device being low flow will allow these patients to actually inhale Tyvaso and not have to have a big breath to do it, and it will deposit the Tyvaso deep into the lungs. So from a device design perspective, we feel very confident. And we hear that from patients, and you saw that in some of the transition studies. And so we just think that is going to be the differentiator in the marketplace. It has other things like easy load, you don't need to clean. It's one breath per session. And so these other attributes that we think will continue to do very well if competition never does make it to the market.

And I think another important aspect of our device versus potential competition is the efficiency at which it delivers treprostinil. So our Tyvaso DPI required 65% less treprostinil than that competitor to deliver the equivalent dose, the equivalent kind of dose on breaths of nebulizer. We also have no maximum labeled dose either for the nebulizer or Tyvaso DPI. And we do have patients that have gone to very high doses in the BREEZE OLE, the Open Label Extension study. And so we think that the dosing claims made by the competition aren't necessarily truthful or accurate. In addition, because of the concentration of treprostinil that's used in our device coupled with the lower treprostinil needed, we actually use 1/3 of the powder, the dry powder to deliver the equivalent dose. And so if you have a patient with compromised lung function like fibrosis, IPF, dry powder is not a natural substance to go into the lungs. And so you have a natural reaction to that. And if you're putting three times the amount of dry powder into your lungs four times a day, that could be a potentially -- a potential hindrance to use of that kind of product in IPF and other ILDs. Diseases for PH.

Got it. Okay. So in terms of data generated so far, label claims, I think it's going to be hard to assume that there's going to be a ton of differentiation potential as of now, so I think both of you are arguing some pros and cons in terms of device and all those things. But one of the things you mentioned like if they ever come to market, I think that's an interesting point and questions we've got a few weeks ago. So again, you just got more 3 years of exclusivity just on Tyvaso DPI formulation, and that prevents Liquidia potentially launching here. So I guess what's your base case in terms of when you can see a potential competitor. Right now, it will be May of '25 but there's still some ongoing litigation and there's a lot of multiple layers here. So can you try to disentangle that for us?

Yes, I'll put my lawyer hat for that. It's difficult to accurately predict when the competition will arrive. No matter what, we're ready for competition. We believe we have a great product. We believe we have great relationships with physicians and practices and patients. And we're just ready to go. And so whether it comes in May, whether May of '25, whether it comes in May of '26, whether it comes in 2027, at the expiration of the patent that we think is valid, we're ready for the competition. And if anything, especially in PH-ILD, you alluded to this earlier, the more voices that there are in PH-ILD, the better it is for everyone. And so there's actually a potential synergy there. If there -- the competition is in practices that we're not hitting and there's more conversations about using DPI device for -- in treating PH-ILD. So it's not necessarily a one-for-one reduction of our opportunity. And an investor yesterday in meetings made a really good point that it's difficult to bet against a company that has competition coming because the incumbent always has an advantage. And this is -- I believe the example he brought up was Lucentis and Eylea in AMD. So it's actually a really good point. Like we're here, we're established, and we have a great product, and we have some great relationships, and we're ready to compete.

Got it. Okay. And what about CPAP? And again, we haven't seen a lot of detailed data from that product yet. But to be honest, some investors think that, that could be the categoric killer over time because it would be like a once-daily inhaled product. Based on what we've seen so far, what do you think about that product profile? Is that a legitimate threat? And if so, what would be the impact in terms of potential tail value of the franchise because we are still early Phase II data, but yes.

So you made the key point here that there's not a lot of data available yet. So we've seen sort of bits and pieces of data. So we saw, I believe, in PAH, PVR data that was interesting, but it was blinded data. So you can't really draw any conclusions, concrete conclusions for blinded data. No one's going to cut $1 billion check on blinded data. And with their PH-ILD data, I believe they gave a 6-minute walk distance improvement that was interesting and clinically relevant, but they did not give a baseline. So we don't know the severity of these patients going into the study. And we haven't seen PK data. So we're not sure if it's a true once-a-day product. And we also don't know the dosing of this product. They say they get to very high doses of treprostinil but as we discussed earlier, with the potential competitor coming to market on four times a day, the efficiency of the device is important to understand. And so we can't make comparisons until we have sort of a nebulized reference. And docs will be like that -- we'll want that too. So we just don't have a lot of data to really understand that. But obviously, patients would prefer once a day over four times a day. But again, if it's not exactly 24 hours in the lung, then you start building up treprostinil over time or the treprostinil prodrug over time? And what kind of safety signals is that going to generate? And so long-term data, it's important too. And one of the good things about our company is we're very patient when evaluating products and we want to see safety and understand kind of the long-term effects of using these products. And we've seen safety issues with other mechanisms in the space in the TKIs most recently, the inhaled ones. And so we just don't know what the safety is yet with this product.

Got it. And again, final question we usually get on Tyvaso is really just generic Tyvaso theoretically, you have is it March of 2026? I'm laying out in...

January 2026.

Okay. So again, theoretically, someone could launch generic Tyvaso and given that, that has become potentially a multibillion-dollar drug by itself, that becomes a lot more appealing versus, let's say, or modeling some of the smaller products. So how should we think about that in terms of the conversion to DPI, in terms of the actual nebulizer, the device like we saw some dynamics with Remodulin, could that kind of play out similarly with just nebulized Tyvaso?

Yes. Thank you. So there's a couple of points to make. And we did see actually an analyst note we can't kind of validate this, but there were some discussion that the generic was not expecting to come into the market relative to the nebulizer. Again, just something we read and saw in one of the analyst notes. But even if it did, wanted to come to market. One of the unique things about Tyvaso and a nebulizer specifically, it is a drug-device combination. So anybody coming to market would not -- would need to also have a device associated with it, and they would not have access to ours. And so at this point, we've not heard of anything, but there would be additional things that they would need to do to get the drug and the device approved to be able to come to market on the device side. However, thinking historically about some of the things that we've all talked about in terms of like Remodulin in this space, it is a very unique patient population. And I think over time, we've demonstrated our commitment to the market, our relationships with physicians. And so we feel similar to what we saw with Remodulin is that we feel to do this earlier point, very, very comfortable with where we are in the marketplace, our relationship, our products. But there would be some challenges if somebody tried to come with respect to a device, getting a drug device approval.

Got it. I think that's fair. And to your point, Remodulin has been remarkably stable despite availability of generics. There is the device component to it, which insulates the subcu part of the business, which historically was about 50%, if I recall correctly. But even on the IV side, where theoretically, you would have off-the-shelf pumps, you could use. It doesn't seem like there is a lot of impact there as well, and that's puzzling in all honesty, like what are some of the driver, why that has that side of the business has been so resilient overall. Because, again, I think it's -- that's a fairly good comp for what could happen with Tyvaso if generic comes into place.

Yes. Thank you. It's -- yes, going back in time, there was a lot of concern and angst around the Remodulin side of the business when a generic, former Remodulin was going to come to market. But as I mentioned, Tiago a few minutes ago, it's a very unique patient population. And we have had relationships in terms of investing in this business relationships with physicians, supply chain reliability. And if you think about the totality of that, it set us up well in a lot of commentary we received about a lot of the business in Remodulin will go away, but it didn't happen. And we feel very proud of that because a lot of investments that we've made into the business. Specifically on things like subcutaneous pumps, just another aspect to it recently that Michael talked about, is that years ago, Smiths Medical stopped making the subcutaneous pump. And now there's been what we understand at the specialty pharmaceutical distributors, their initiative to transition patients that are currently on subcutaneous pump, dismiss pumps that they're not doing the refurbishment aspect, and so they're going to transition them to our own Remunity pump. And so another aspect of the business that we think Remodulin will continue to be stable going forward and grow. And there are some interesting data points around the growth since the generic came to market, and it continues to perform very well, both domestically and internationally. But I think it goes back to the premise of just as do we talked about being an incumbent into the market, having established relationships and really commitment and conviction to support these patients, which is extremely important for really life-threatening progressive disease.

No, that's fair. Let's talk about sotatercept, the bogeyman PAH. Again, argument here from investors is basically sotatercept is going to come to the market. That's going to lead to prostacyclin discontinuation or delay. And if you treat early enough, you may even prevent patients from progressing at a rapid pace. Pretty early in the launch to say if any of that has played out, but how would you handle that argument?

Yes. So it is early. But what we've talked about on the last earnings call and kind of what we've seen is the use -- is that Merck's product has been basically consistent with what it was studied in the clinical trial. And you have 70% of the patients on some background prostacyclin. So nothing different at this point that we've seen. And again, I think it's continuing as I understand, it continuing to be used as expected. So -- we haven't seen any impact to the business at this point [indiscernible] anything.

And what we've heard from the field, at least because I spent the day with Michael Benkowitz, our President, yesterday, it's that it's definitely not having an impact that doctors are -- in the U.S. are prescribing consistent with how the stellar study was run, where 70% of patients were on a concomitant prostacyclin therapy. The long-term SOTERIA data that was presented in January of this year, seem to correlate with that as well, where you're seeing kind of patients move around on therapy. So you're seeing some up titration, you're seeing some downtitration of prostacyclin. You're seeing some escalation of therapy where patients are going from like Tyvaso to Remodulin and you're able to see downscaling a therapy where you're seeing your patients go from Remodulin to like Tyvaso or something like that. So patients are kind of moving around. But I think net-net, it's neutral to even modestly positive for us over time because if anything that helps patients live longer, we'll keep patients on our therapy for longer. So because you don't remove therapies, generally in PAH there.

Got it. That's fair. Do you think that frontline data is positive for sotatercept could change that dynamic? Because again, if you have -- it's a patient on [indiscernible] oral maybe instead of going to a prostacyclin as a third line of option, they will go to sotatercept, that could delay patients starting non prostacyclin? Like, is that a fair scenario? And could that actually push out revenues? Like how should we think about that data and the potential impact of the PAH business?

Certainly, it's years away from the data. So it's kind of hard to predict when that would happen. And I think there's still some data to be learned around some of the adverse events and some of the bleeding aspects if they were to move it up, if that potentially could scare some patients away of trying a new therapy. If it did happen in the long term, could it be kind of a blip? It could be, because they would just maybe push a prostacyclin a little bit later. But ultimately, what happens in this progressive deadly disease is what we see is patients do end up on a prostacyclin but again, I think Tiago, that's years away and the last time I kind of looked at the trial. So I think that's kind of a wait and see, but I think at the moment, I think we feel pretty good about -- as Dewey said about how we're handling any competition that comes to market at this point. Just because of the conviction in the products and things that we offer to patients.

It's important to remember, too, that, that when the data comes out couple -- several years from now, what's our business going to look like at that point? And if we hit with TETON study and I hope you're going to ask TETON questions, the profile of our business will be dramatically changed and all the questions and all the focus is going to be on IPF and how many patients have we added on therapy and things like that for IPF. And so the sotatercept blip that may happen it's going to be sort of just a rounding error at that point.

I think that's fair. Like the legacy PH business just became a little less important as a growth driver over time. That's clear.

I think PAH is incredibly important for us is what our company was founded on, with the revenue dynamics there, yes. But we will always be focused on PAH.

Got it. And I do want to talk about IPF, right? So again, pretty compelling proof of cost. But the questions that we generally get on that is basically how similar is that patient -- subset patient population and increase actually resembles a typical IPF trial patient, right? And so how much overlap is there? Basically, the question here is how can we actually translate or feel comfortable that what we've seen so far with Tyvaso and IPF can be replicated in any way, shape or form in IPF. Super low probability indication overall, right?

Yes. So it's important to note that the INCREASE study was looking at pulmonary hypertension in patients that have ILD, including IPF. And so there were patients that had IPF as well as pulmonary hypertension that presented at the INCREASE study. If we took a subset of those patients that just had IPF, we actually saw lung function improvement in those patients with a secondary safety endpoint. But PAH, PAH patients generally have close to normal lung function. The issue that they have and why they present as short of breath and blue lips and deoxygenated is because the pulmonary hypertension prevents the or hinders the ability of the lungs to diffuse oxygen into the bloodstream. And so they're not getting oxygen. So on the surface, like without doing any testing, a PAH patient and an IPF patient may appear similar just because they're short of breath, but the shortness of breath for an IPF patient is due to the fibrosis in the lungs hindering the elasticity of the lungs and the ability to actually take in air. But they generally -- so to see lung function improvement using "vasodilator" is very interesting because it's -- that means that treprostinil is doing something besides vasodilate to improve lung function in those patients. And we have some preclinical research, some in-vitro research publications that show treprostinil is anti-fibrotic in nature. And so I think that the combination of what we saw with lung function improvement with the preclinical work showing that treprostinil is anti-fibrotic gave us enough justification to go ahead and pursue the TETON study.

Got it. And in terms of, again, background therapy powering assumptions because you had a relatively pretty compelling data from a relatively small sample size. So the [indiscernible] what's actual like product profile they expect to get in TETON, have you disclosed any powering assumptions? How many patients are going to be on background therapy. And based on the increased data, is that concerning? Just trying to think of risks around those trials?

Yes. I -- so good question overall. I think many questions in there. I think one of the ones for us to think about is like background therapy, for example, within the study design, we certainly -- patients that are going into the trial can be on background therapy for two products in our market or not and we're kind of agnostic really to whether they're on background therapy or not. Because we think at the end of the day, as Dewey described and laid out, we ultimately think there's an opportunity to improve the forced vital capacity in these patients, which would be a significant improvement as a disease-modifying therapy than currently for the two products on the market. So the opportunity that we see in terms of the addressable market, which is probably over 100,000 patients just in the U.S. with the same potential internationally, for us is why we pursued this initially in terms of looking at the opportunity and going back to what do we outlined some of that data that we saw in the INCREASE trial.

And I know we're running out of time. So I just want to squeeze in like a quick xeno question there, but it's mostly around timelines, right? I know that there aren't a whole lot of comps for preclinical, what FDA necessarily wants to see. So at the latest for xenoheart, xeno-kidney, do you still expect to go into humans in 2025. How should we think about all those time lines?

So in the interest of timing, we have all the data that we need right now to meet with the FDA for our 10-gene xeno-kidney program. And we're scheduled to meet with the FDA in the fourth quarter. And so we'll learn a lot from that meeting because we did do and we'll have the data that they requested and if that meeting goes well, I think we're still expecting to be in human clinical trials in 2025, but this meeting is very important.

Got it. And how should we think about value for this or I think there's no one that will contest unmet need or just the numbers from a temp perspective. I think where investors get tripped up is what's the product profile, how much can you actually charge for that because it kind of depends on what that could look like. So can you give us some quick pointers on what are some of the frameworks that we can use to try to assess the value of the opportunity?

Yes. The opportunity is the same that we actually laid out earlier this year. And to frame it, there's 400,000 to 500,000 people on dialysis currently. Our opportunity will be really limited by our capacity to produce manufactured organs overall because it is 400,000 to 500,000 patients on kidney dialysis today. And from a kind of a pricing standpoint, it's a curative therapy. So it could be some of the -- like some of the gene therapies that are currently in the market, although maybe less price, less aggressive pricing around it at this point, but significant opportunity and no different approach than we talked about earlier.

Got it. Okay. And we run out the clock. But we had a couple more but we will get that at a later point. I appreciate it.

Thank you for having us. Thank you.