United Therapeutics Corporation (UTHR) Earnings Call Transcript & Summary

Good day, everybody. My name is Ash Verma. I'm a smid-cap biotech and spec pharma analyst at UBS, and welcome to UBS Global Healthcare Conference. Really excited to have United Therapeutics as the next company for a fireside chat session. And with -- from United Therapeutics, I have Patrick Poisson, who is the EVP for Technical Operations; and Dewey Steadman, who's Head of IR. Guys, thanks for joining our conference.

Yes, thanks for having us, Ash.

Excellent. So I would like -- over the next 35 minutes, I think there's just like some questions that I had that I wanted to bring in our conversation for the audience that is listening in. If you have any questions, feel free to send them through our app, and I have this ipad, which is supposed to provide me any questions that I will get from the audience. I will try to read that in. I mean, look, I think just the -- maybe to start off, I think the business is doing very well. You recently started provided like your third quarter earnings update and reaching like $3 billion in annualized run rate on revenue. Tyvaso doing very well. Just walk us through like where are we in terms of the growth dynamic. And I think there was a point in the call that Martine mentioned that we really convinced that we can demonstrate like double-digit revenue growth. So just wanted to understand, like from your perspective, what is the bottom-up build of that growth outline.

Yes, absolutely. So before we dive into that, I need to get my gold star from our legal team and state that I may have some forward-looking statements during our discussion today. So I would tell anyone to refer to our SEC filings for any risks and uncertainties with our business. So diving into that, certainly hitting a $3 billion run rate. It was a great achievement and it's really an indication that our hard work is paying off. We believe that, that growth will continue and that we'll hit a $4 billion run rate by mid-decade. That will be driven really by Tyvaso and our current product portfolio. As we've discussed in the past, our expanded sales force now is fully deployed and is making great progress in bringing in ILD prescribers. So we're going to rely on our current products, which we call the foundation of our business. And of course, that's Tyvaso, Orenitram, Remodulin and Unituxin and that's going to continue to have, we believe, double-digit growth. And then we have the next phase, which will be Tyvaso in IPF and ralinepag in PAH. And we think that will also continue double-digit growth through the balance of the decade. So we're very pleased with where we stand, and we think the future is very bright.

Yes. It definitely seems like I think in the past, the focus has been very like sort of commercial and numbers driven. I think you're starting to see a bunch of different pipeline catalysts on the horizon, which can really transform the story. So we -- I want to talk about that just like through the fireside chat session today. Maybe just on like Tyvaso. So yes, like the sales force expansion complete. Like what are you seeing in terms of PH-ILD. I know your commentary like to begin the year was very, very solid that you were very positive on PH-ILD I think some of the physicians that we've been talking to are more seeing that, that growth is happening, but in certain pockets. Just where are you in the process? I think like previously, you talked about like a mid-teens type penetration in this market thus eventually when can it grow? What's the cadence of the growth that we can expect from that?

Yes. So since the beginning of this year, we've grown the prescriber base 15% and of course, that's been driven a lot by ILD. Today, that 15% growth, approximately 40% of that 15% is ILD prescribers. So ILD Itself understanding where we sit with penetration. I think we feel comfortable with, say, the mid-teens but it's a pretty nebulous market, right? So the diagnosis of PH-ILD is likely underdiagnosed. So exactly what the market size is, I'd say, it's a range right now. But we feel pretty confident that we've kind of reached that low -- mid- to low teens in terms of penetration. Now what's really encouraging for us is that with the growth in the 15% that we're still seeing growth in PAH as well. So originally, when we started in this business, there was really only several thousand people diagnosed with PAH, say, 20 years ago. And maybe even 5 years ago, we said that's grown to 40,000. Today, we think it sits at 50,000. And really, the diagnosis techniques have gotten much better, and doctors are much more educated for what to look for, we're kind of believing that's the case with PH-ILD. So we think there's a lot left out there. And the sales force has got a lot of great momentum right now, and we anticipate that trend is going to continue for some time.

Great. That's interesting, as you say that. And just like in terms of the penetration in different physician audience, like have academic physicians being sort of like the early adopter, what you're seeing in the community setting, just in those 2 buckets like where -- what's the growth dynamic of PH-ILD in those 2 settings.

Yes. I think initially out of the gate, we had really good success with the academic centers and mainly because they're co-located with cardiopulmonary physicians who are familiar with treating PAH. So there was a lot of good dynamics there. We're now hitting outreach into the communities and communicating with those physicians. The challenges, many of them are unfamiliar with prostacyclin therapies. So there's an education that goes along with that. And the diagnostic tool, the gold standard for that is the right heart cath. And as pulmonologists, they're not really familiar with that. So there's a lot of education that goes into getting these doctors comfortable to prescribe prostacyclin and diagnose PH-ILD. So there's a lot of effort happening there. We have multiple touch points with these ILD physicians to get them up to speed. So I think we feel that there will be another wave here coming soon of ILD prescribers coming on board. And as they get comfortable, it will really just create a lot of momentum.

So in terms of the -- like the DPI was in nebulizer split, I know you've talked about that like as the Tyvaso growth has been realized. What's the latest on that? How should we think about which format works best in which indication, anything that you would like try to elaborate on like where to anchor the expectations around how much of the use in these 2 different PH and PH-ILD indication comes from the DPI or the nebulizer?

Yes. I mean the current split of patients if you take the totality of the patients that are on Tyvaso and Tyvaso, DPI, about 60% of them today are PAH patients and about 40% are PH-ILD patients. And then if you look at the total patients and what delivery device they're on, it's about 60% on DPI and 40% on the nebulized product. What's really unique, I think, for us and is the ability to have 2 options for a physician to use the nebulizer itself has a lot of flexibility with how it works. And you can really tune the drug delivery to the needs of the patient with that. DPI is an extremely convenient way to deliver treprostinil. So they each bring something to the table, and we're pleased to be able to have those options available really to meet the patient's needs. And oftentimes, we see ILD patients start on the nebulizer and then transition to DPI once they've stabilized on the dose.

And eventually, like where do you think this like stabilizes? Like, is it more like a 50-50 mark on PH-ILD and PAH that rough split up like the formulations? Or can it be a little bit more skewed higher towards the DPI in either one of them?

Well, I think DPI will be prevalent, but the nebulized product is always going to have a place and ultimately, the ILD patient population will continue to grow and we'll exceed that of PAH that's on Tyvaso. So again, we think there's a lot of growth potential in ILD, especially sitting at, say, mid-teens in penetration. And again, as we get out into the community physicians, and start to get momentum there, we think that will build. So -- and this is really going back to the double-digit growth that we talked about and how sustainable that is.

And that platform approach where we have the nebulizer plus the DPI and giving patients and physicians the choice to use what's best for them at various points in the therapeutic cycle is an incredible and competitive advantage that we'll have. should other entrants come into the marketplace that don't have that platform available to them. .

That's a fair point. Yes, I mean, that's interesting that you say that. So I guess like is it some of these, like I know liquid AI has been talked about as 1 of the competitor, I think like they only have the option to come on it like a DPI but not having a nebulizer would be a certain disadvantage. Is it more of a disadvantage in like PAH versus PH-ILD or sort of roughly the same space.

I mean, I think it's roughly the same for both. I think I believe physicians like to have that both options are available certain patients prefer certain products, and we've seen that, that some would rather have the nebulizer than DPI. And again, it's -- we're fortunate that we can offer both of these and for patient convenience and need.

I've seen this in other therapy areas that once you have sort of like an expanded sales force and they are out in the field and start to drum up the interest more like a couple of quarters after that is when you start to see like a real inflection. Do you think that like you're -- if you can just like to provide me some specifics on like when was the sales force deployed, are they fully trained like everything smooth operations wise? And like in the past, when you've done like sales force expansion like this, when does it start to really hit the revenue line?

I mean as far as when they were fully deployed, I believe it was sometime in second quarter.

It was really kind of the first quarter of '24. So we had -- they were all hired by the end of '23 and then we had our national sales meeting in January 24, at which point they went out to the field.

Yes. All right. So let's talk about like just pricing on what you're seeing. I mean there are a few different elements to this. Just if you can comment on like for Tyvaso, the Medicare Part D design, which I know that you have like a phase-in for that next year. And for the path utilization, like what are your assumptions for like 2025? How does that shake out? Is there any difference that you should see compared to what has been seen for 2024?

Yes. So in 2024, we saw a decrease in PAP patients and that was really driven by the reduction in out-of-pocket cost for Part D, which affects Tyvaso DPI and Orenitram. And as we move into 2025, there's going to be further provisions that kick in, that should reduce out-of-pocket cost even further. So we're expecting to see another step down in 2025 of patients that need assistance. So that's very, very helpful. Counter to that, of course, there's the manufacturer cost sharing of that program with the pharmacy benefit managers. And as part of that, we've been classified as a small manufacturer by CMS, which means our contribution to that starts at 1% and not the 20% for a large manufacturer. So as part of that though, however, that has to be made up by the benefit managers and what we've done is negotiated some contracts with them to get ahead of that pain because we do expect that they'll want their pound of flesh as a result of the additional contribution that they'll have to make on our behalf as a small manufacturer.

Yes. I know I like the one -- another dynamic that you guys talked about on the third quarter conference call, it's just like this payer contracting, right? Overall, can you remind us like what percentage of your book of business is Medicare Part D? Like that's where I think some of the -- like the contracting has taken place. And then the contracts that you are getting into, like, do you believe that provide sufficient rebating to grow through the competitive impact in 2025?

Yes. So as far as Medicare is concerned, we have previously stated and still state this today that about half of our business is Medicare. With PH-ILD, it's maybe skewed a little bit higher on the Medicare side. And what we've done to get ahead of that is done some contracting really to -- for twofold reason. One is to bring clarity to the pricing and the potential impact of the higher provisions kicking in, in 2025. And then as well as to put us so that we're not disadvantaged to some of our branded competitors that are present today and potentially in the future. So we'll be on par with them, and we won't be disadvantaged as far as prescribing those. So that was proactive on our behalf and again, it was really to avoid any lack of clarity around what the business was going to look like going forward.

Great. Maybe -- and then like in terms of the manufacturing capacity, I haven't heard that a lot like more recently, I would say, like it looks like a big topic in 2023 when you talked about like some specific numbers around through your partner, just like trying to get to like this 25,000 patients per year in DPI supply. Can you remind us like where we are? I know this is a topic that must be very close to your heart, Patrick?

Yes. So certainly, in 2023, we began efforts to expand capacity at our partners facility, MannKind up in Danbury and Connecticut. And of course, capacity expansion doesn't happen quickly. It's a long-term project. A lot of the things that we've done have largely been completed, so that involved some process changes to boost yield and higher capacity equipment. So what we've done in 2024 as a result of that and really I would emphasize this is a true partnership with MannKind and it was great that we were able to work together to do this very quickly. Throughout 2024, we were able to build inventory to a place where we're much more comfortable and in 2025, we'll continue to do that. So I would say that we're pretty much there at the 25,000 patient output capacity. Now in addition to that, we're building our own facility on our North Carolina campus, which will -- is designed to add an additional 50,000 patients of capacity for DPI and that will come online sometime in late 2027. So we think we're really well positioned for the current business as well as the future business potentially with IPF and PPF.

Excellent. So let's talk about this expansion. I mean like clearly, like IPF is a big part of the focus for the story for next year. Lots of excitement around it amongst investors. Like can you help us understand like how do you see the data backing it up from like a clinical standpoint or mechanistically, why do you think like IPF or like Tyvaso would work in IPF setting.

Yes. So when we ran the INCREASE study for PH-ILD, there was a subset of patients with IPF. And with that subset, we saw an increase in FEC. So really, that was very encouraging to see that data. And that really gave us the confidence to move forward with a full-blown study examining IPF. What's interesting about treprostinil is it activates a number of receptors. And certainly, some of those are impact vasodilation. And however, they also have some antifibrotic impact as well. And so really what we're -- we say today is treprostinil is much more than a vasodilator. And again, the outcome of the study will hopefully show that I'll -- do you want to throw some more input in there?

Yes. So there's 3 pathways that are commonly known that treprostinil does that vasodilate does EP2 IP and DP1. But there's really EP2 and DP1 also play a role in antifibrotic properties as well as PPAR beta. So EP2 inhibits -- when it's activated it inhibits fibroblast to myofibroblast differentiation. And then when you activate DP1, it reduces inflammatory cell recruitment and it reduces the extracellular matrix synthesis involved in fibrosis. And then really interesting is PPAR beta, when it's activated, it suppresses fibroblast proliferation. So we've known that it's anti -- treprostinil is antiproliferative in nature, but this is evidence that it's actually working on one of the specific pathways that's been of concern.

So as you look at like TETON I and II studies, like do you think that we would get the data for both of these studies by the end of '25 or just like you can put a fine point on that.

Well, TETON II is fully enrolled. And so we expect to see top line data from that sometime say, around end of Q3, start of Q4 of 2025.

On saying in the second half of 2015 somewhere in that second half.

Yes. I'll take the late Q3.

Yes. So TETON I is not fully enrolled. And again, we expect to see that enroll sometime by the end of the year, beginning of next year and that readout will take, say, a year or a little over a year. So right now, sometime in 2026, first half of 2026. We need TETON I to file in the U.S. We need both studies to file outside of the U.S. and Europe. So if all goes well, filings hopefully in 2026.

Big part of the focus for the story for '25. So look -- really looking forward to that. I guess the other thing also just starting to get from investors is the Merck's WINREVAIR this used to be a big focus on the story, but now it's sort of like one in the back burner a little bit. And now there is some sort of investors that have been getting questions on that. Are we going to see some like tail impact of WINREVAIR on Tyvaso or some of your other products in second half of '25. So the theory there -- and I've read this from some physicians as well that, let's say, these patients who were started on WINREVAIR, they were on background to treprostinil therapy. And then these patients, like do well for a period of time, do physicians start to think about like simplifying the treatment algorithm. So just curious to know your thoughts on what do you think can happen this is another like trial situation, and we don't necessarily see any meaningful impact on numbers.

So we haven't seen any evidence thus far of WINREVAIR reducing use of prostacyclins. I think with the treatment paradigm of PAH, it involves multiple products because there's multiple mechanisms at play and what we see is that physicians are additive and not subtractive. So we call it the Four Corners approach we're taking maybe a page out of Dean Smith's playbook here. But where they use multiple products to treat the multiple mechanisms of PAH. Prostacyclin has got a role there. And certainly, WINREVAIR is good for the PAH community and any product that allows people to live longer and better lives. Certainly, it allows them to also be on prostacyclin longer. So we view it as a positive for our business. Now there might be what we call de-escalation, where a patient might move from a parental product like Remodulin down to Tyvaso or Orenitram. However, that's still just fine for us. And -- but again, I think WINREVAIR is going to have a positive impact on our business simply because prostacyclin is always going to have a role in the treatment paradigm.

So I think I wanted to switch gears and talk about like xenotransplantation. So I know -- so you had the IND plan earlier, it was that you were guiding to like first half '25. But like on the third quarter call, you said that it can happen shortly anything on like what's happening behind the scenes on what helped you accelerate that time line. And when we do get to that like IND acceptance, like what information would you communicate to the Street either like trial design, what was the conversation with the FDA, anything of that nature?

Yes. So of course, we've been working with FDA very closely for quite some time. And what's happened recently is we've had some exchange of information with FDA around the IND. So we have full clarity from them on what they expect to see in the IND and that's going to allow us now to go forward and file an IND in what we'll call a short -- shortly. And then once the IND is filed, it will be a 30-day clearance. And really, at that time, we'll be able to share some of the details around study design and things of that nature. So we're very excited. It's real. And it's progressing rapidly. So all of that should happen, again, in a short amount of time, and we expect to then move quickly into the first transplant from there. And this would be for the Tianjin kidney.

Yes, yes. And then I think for this, anything that you would like willing to share on like what was the interaction with the FDA to the extent that you can comment on like, does that give you really comfort that, okay, you're heading in the right direction for the IND.

Yes. Certainly, the information that FDA gave us was encouraging and very positive and really, it was around understanding what their expectations were around study design and some of the preclinical data that they needed to see. So again, that's been worked out, and we feel very comfortable now that we can file an IND, and it will be cleared within 30 days.

Yes. I think the -- I've asked this before, like there is another company, it's a private company that is pursuing like a similar path, but their approach in technology is very different versus you and sort of like coming to the FDA around the same time line coming with an IND. Is there any like collective thinking from the FDA when they look across the 2 programs or any sort of contingency from 1 program to the other? Or is it just like a totality of like 1 program that really drives the thinking in terms of giving an acceptance on the go ahead?

Well, I think with -- I think FDA ourselves and other companies in this business realize that 1 company can solve it on its own. And when you look at the market opportunity, it's pretty vast, especially in -- with kidney disease. There's 500,000 people on dialysis today that are not eligible for kidney transplant. One company cannot solve that. We need other companies to participate. FDA recognizes also this is a dire need. And the impact on lives and the -- really the impact on Medicare is gigantic. So I think there's a very collaborative approach happening, and we'll need everyone to be successful in order to solve these issues.

Yes. And in terms of how you think about this opportunity, right, like on the kidney side, is it more of like 1 organ transplanted that can last with the patient for foreseeable future? Or is there more of like a finite time period during the organ is used and then you might need another organ to surpass that.

Well, it's our wish that it lasts a long time. And the availability of human organs for transplant is limited and really dependent on donors and in some cases, for other people to pass away in order to access those organs. So if it ends up being finite, again, having the organs available is going to help, obviously. So -- but our goal is for it to last a long time. And hopefully, the clinical trial proves that out.

And these are patients that are generally going on dialysis. And dialysis is a lifeline for patients for 8 to 10 years, and it's a rapidly declining quality of life for those patients. And so if we're able to give a patient a xenotransplant and see them from the shackles of dialysis with a better quality of life and get them longer than 8 to 10 years, then that's a win. And the allo transplant, if you think about the age of the organ, it's probably the same age as you. So if you're 35 or 45, you're probably getting it from someone who is 35 or 45 years old, you're not getting a brand new kidney. With xeno transplantation, one of the key benefits of xenotransplantation, you're getting the organ that's a year old maybe. And you can -- and the pigs have life spans of 20 to 30 years. And so theoretically, and obviously, will take us 20 or 30 years to prove this out, you can get an organ that could last just as long as an allo transplant.

So when you think about like the -- I don't want to jump the gun and start to ask question about clinical trial design. But just in terms of like when you're thinking about the market opportunity, right, like is it more that it's like on the top of dialysis that these patients might be provided like a xeno kidney or is it in place of?

It's in place of dialysis. The idea is to free them from dialysis. There'd be no advantage to xenotransplantation, the immunosuppression associated with that and being on dialysis that would not be beneficial for the patient.

Got it. Okay. And then I know that you talked about the commercial DPF build out as well. So once you start to get clarity from the IND, anything that you would want to share on like what's sort of the controls of how much of an investment that would be, how much time it would take like just how you're thinking about that?

Yes. I mean it's going to be a big capital outlay for us. And really, as Martine has mentioned on the call, it will be a multibillion dollar outlay. I think what's good about it is certainly when we make the decision to proceed with that construction, that's not all going to be spent in 1 day. It's going to be spent over multiple years, and there'll be opportunities to control the time line based on the data we're seeing. So if the clinical trial is taking longer than we anticipated, we can slow that work or stop it and restart at another time. So the other -- I think the other piece to make sure people understand is we do have our clinical scale DPF and that's in operation right now in Western Virginia. That facility, although we call it the clinical scale DPF, that facility is perfectly capable of producing commercial organs as well. We've committed to building another facility and have started construction in Minnesota in the Rochester, Minnesota area. That will be of similar size to the facility in Virginia. We will bring us some redundancy and some added capacity as we progress through the trial. And then at some point, post IND clearance will begin construction of a commercial scale facility at some point. And again, that will take some time to do and some time to populate. But as we move forward, it should -- it will be designed to align with anticipated commercial approval.

Yes. I would say that like from a capital allocation perspective, yes, like xeno is definitely more important, but like the amount of cash that the business is generating even with, let's say, like a commitment to a commercial DPF, you still have surplus cash. Whereas in the past, like several years, I haven't seen any significant business development from United Therapeutics. I think the last time when we saw was this ralinepag, which has been several years. Just what makes you take that approach towards business development, like why not be more aggressive and go out and buy assets, like try to get more growth? Any thoughts on that?

Yes. So I mean, just last year, we did buy Miromatrix and IVIVA, and we made a pretty significant investment in our small molecule business in a licensing deal. So we are doing things, maybe not at the scale of ralinepag. However, activity is happening. We get calls every day. And I think we're in really a strong position to be very selective about who we choose to do business with and how we make decisions around acquisitions. Our business is performing at a very high level, as you know. We're focused on xeno but as we look at things, we're going to look for good fits with what we do well. So orphan drugs, cardiopulmonary oncology products that would potentially complement Unituxin and then leverage our skill sets where we have significant manufacturing capabilities, clinical trial management and design. So all these things are considerations when we look at opportunities. But as we sit today, again, we're very confident in our business, and that really allows us to be very disciplined and selective when we look at opportunities.

Great. All right. Thank you so much for this, we can wrap the session. Yes, thanks for participating in our conference and looking forward to hearing more and more from the story.

Thank you.

Thanks, Ash. Appreciate it.

Thanks, Patrick. Dewey, take care.