United Therapeutics Corporation (UTHR) Earnings Call Transcript & Summary

All right. Great. Thanks. I think we're going to get started here, but I'm Terence Flynn, the U.S. biopharma analyst at Morgan Stanley. Very pleased to be hosting United Therapeutics this afternoon. Today from the company, we have James Edgemond, the company's CFO and Treasurer; and Harry Silvers, Investor Relations team. Thank you both so much for being here. Just before we get started, for important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. With that, I'm going to turn it over to James, who's going to make some opening remarks, and then we'll get into questions. But thank you both so much for being here.

Yes. Great. Terence, thanks for having us. Thanks for having United Therapeutics and also Harry and I here at your health care conference. I just want to take a minute to remind everybody that Harry and I could be making some forward-looking statements, and so we would encourage you to look at our most recent public filings regarding the risks and uncertainties regarding any statements we make. And Terence, thanks for letting me take a moment. So before we begin the fireside chat, I want to take a moment to reiterate just how excited we were and excited we are when we announced the TETON 2 clinical trial results last week. And in short, TETON 2 represents United Therapeutic's best pivotal clinical trial outcome to date and the most successful IPF pivotal clinical trial ever reported. This is a landmark win for UT redefining our reach within the respiratory disease state and most importantly, and potentially for patients with IPF. The results were truly remarkable. Nebulized Tyvaso demonstrated superiority over placebo for the change in absolute FVC by 95.6 milliliters from baseline to week 52 in patients with IPF and had a p-value of less than 0.0001, so 0.0001. And another exciting point is that the FVC improvement was greater when Tyvaso was used alongside standard of care therapies. And as for secondary endpoints, statistically significant improvements relative to placebo were also observed in most secondary endpoints. And for 2, there weren't, they still trended in favor of Tyvaso. So really great results. And as a reminder, another point that's important, we have both FDA and EMA approval for orphan designation for nebulized Tyvaso for treatment and IPF, which should ensure we have a long runway in IPF before competitive branded treprostinil therapies could be secured for approval in this indication. Additional TETON 2 study results will be presented later this month at the European Respiratory Society Congress in Amsterdam on September 28. And we plan to follow that with an encore presentation for investors soon thereafter. So Terence, thanks for letting me take a minute. They're just significant clinical trial results, and I just wanted to again repeat what we had put forth in a detailed press release last week.

Great. Well, maybe we'll just segue into some of my TETON questions just for consistency. But I think big picture, the other areas, just remind us of like the scope of that program in terms of TETON because you mentioned TETON 2 in hand, but TETON 1 is coming up here. So maybe just remind us of the kind of the design and scope of the whole TETON program and then we'll come back to the capital allocation...

I think Harry, do you want to take over some of the questions?

Yes. Absolutely. So TETON is consistent of two programs. Of course, last week, we announced the TETON 2 results, which is looking ex U.S. and Canada. And then we have TETON 1, which is expected to read in the first half of next year, which focuses on the U.S. and Canada.

And any other differences in terms of -- aside from geography that you guys would highlight to folks? I know you previously presented some of the baseline characteristics across these studies. But anything else that we should be mindful of as we think about? Because I think IPF is one area where there's always this question of like extrapolation from one trial to another trial. And so how you think about setting the stage for TETON 1?

Yes, absolutely. But the baseline characteristics, as you said, they're mostly the same across the two. TETON 2 was mostly Western developed markets. So there are a lot of similarities across the population. And in terms of extrapolating, we're really encouraged by what we saw in TETON 2 and optimistic that we could show an effect in TETON 1 as well.

And the other question, I think we've been getting recently is just and you guys, I think, mentioned this in the press release, so just expediting the filing review time lines. So just can you elaborate at all on how to think about that? I noticed some other companies have done filed for approval on a single study, but it's about double the size of your study. And so maybe just talk about opportunities to expedite anything on the filing or review side?

Yes. So to set the stage for the expectations, our original agreement with the FDA was that we would need TETON 2 and TETON 1 to file an sNDA to expand the label for nebulized Tyvaso to add IPF to that. We do plan to meet with the FDA later this year and explore ways to expedite the filing after we have the TETON 1 data in hand. There are a lot of avenues to explore. We've talked about the STAR pilot program as one potential thing that we can look at to sort of speed up the process. But we can assure you we're looking at all potential avenues to really expedite this and get this patient -- get this therapy to patients as soon as possible.

Okay. And so you guys will meet with FDA later this year. Would you give us an update after that in terms of if there were any kind of material change to plan? I mean how do you think about that?

Yes. Historically, we haven't really gotten into the weeds on every conversation with the FDA. So I can't really commit to anything like that right now.

Okay.

But I think if it is significant to Harry's point, we have ongoing dialogue with the FDA. We have a great relationship. But to get into the weeds of day-to-day, we'd be exhausting. And I think if there are things, Terence, that are material, we certainly would share those. But I think the regulatory team -- we'll do everything they can to expedite this. But it's also a long game. So we want to do the right thing and respect what discussions we've had with the FDA as well.

Okay. Understood. The other area where, again, I know you guys have provided some insights here, but maybe these have changed now that you have some data in hand is just the commercial opportunity. So maybe you could just remind us of how to think about IPF here in the context of your current franchises, PAH and ILD, and also speak to kind of the commercial strategy.

Yes. So what we said, we're still saying the same, 100,000 patients in the U.S. with IPF. When you think about the two currently approved therapies, it's a multibillion-dollar market opportunity for us from a TAM perspective. And when you start to think about the commercial strategy, sales force, we are in the -- data just came out last week. We are formulating our plans. The expectation is that we would have a dedicated IPF, ILD sales force. But we are seeing a lot of the similarities in call points between ILD and IPF. So we think we can kind of hit the ground running.

So the goal, you'd basically expand your current ILD sales force beyond what you currently have to encompass IPF?

We -- more than likely we would have a separate sales force.

Separate. Okay.

Yes. And it's a question we've gotten. And when you think about a step function, this would be a case where we would invest in a new sales team the expectation because of the size of the call points, et cetera.

Okay. Understood. Can you tell us anything in terms of like footprint, theoretical footprint? Would that be about the same size as your current ILD sales force?

Yes. I think it will be determined. But if you kind of look at PAH is what, 150,000 and then we're saying this is 100,000 patients, could it be something like double? Could be. But I think we need to really kind of look at the opportunity, scale the sales force. And the other thing that's interesting and just in today, Terence, with some of the meetings, there are some ideas that 100,000 patients that we're talking about is low relative to the opportunity. So I just think we need a little bit of time to really rightsize it and make the right investment strategy. And Michael Benkowitz would certainly will be doing that with the sales leadership ahead of that.

And the 100,000, you mean just in terms of some of the latest maybe prevalence estimates that are coming out? Or what would drive an upgrade to the 100,000?

I think that's a prevalence now, but I think it's just further analysis of the market when you think about this respiratory disease state. But again, I think it's -- the important thing for us now is to focus on TETON 1 and then when we get around that time, I think we can give you better visibility on what the opportunity, true opportunity through sales force size would look like.

Okay. And anything you can comment yet in terms of treatment duration in IPF relative to PAH or ILD? I know that was always a question early in the ILD launch was your treatment duration you're seeing with Tyvaso. I think now they're tracking pretty similarly if you look at PAH and ILD. So would your expectation be that the treatment duration in IPF would be markedly different than what you're currently seeing out there in the commercial setting for any reason?

Do you want to take that?

I wouldn't expect it to be, no. I think it's too early to say.

Okay. Great. All right. Well, maybe just pivoting over to capital allocation. Maybe you could speak to the ASR, where I know there have been questions about the scope of that. But then what are the plans now post the TETON data? And how does that influence how you're thinking about capital allocation?

Yes. Thank you. So to go where you started, Terence, on August 1, we announced and initiated $1 billion share repurchase program. And that was based upon a couple of things. One, at that time being shareholder feedback, which supported it and as well as a regular evaluation of our capital allocation strategies. And as you talked about and we've talked about on several calls, the capital allocation strategy for us is still the same. So it's still internal R&D, still our facilities is number one. Number two is corporate development; and number three is returning cash to shareholders. But at that time, and given the strength of our commercial business, a robust balance sheet, the confidence in our upcoming catalysts. So remember, this was August 1, so more than a month ago. And really a belief in our share price potential. We felt this was a good opportunity to not only implement the share repurchase program, but also an excellent opportunity to invest in ourselves. And so at this third kind of item in our capital allocation strategy, we also wanted to send a signal that we felt we were a good investment in ourselves. And again, we've gotten very positive feedback over that time and the accelerated share repurchase that we put in place is still ongoing.

Okay. Great. And how do you think about -- I mean, business development broadly -- how is the opportunity set out there? How are you thinking about now again, in light of your share price? Does that change anything at all in terms of how you think about opportunity set?

No. We -- so we continue to look at what we call corporate development opportunities, and we look at them often. We look at them amongst the senior most leadership of the firm, including Dr. Rothblatt. The areas that we tend to focus on are things that we know and do well. So kind of rare lung disease, cardiopulmonary and even oncology. And what we try and do is look for opportunities that have good scientific validity. And where we feel we can bring our strengths of UT to bear, so things like clinical trial expertise, things like regulatory, things like manufacturing, our commercial team. So across the board, we want to look for opportunities that are good synergies to us. But I also want to reiterate that we're really comfortable with our research and development platform as an example, that TETON 2 readout. So we're not in a place where we feel we have the need or we need to rush out find a new asset to bring into the organization. We feel very comfortable that we can produce really good shareholder value with our opportunity set. And if we were to bring in a new opportunity, of course, we need to evaluate what we're doing and what would displace what we currently have. And we haven't found anything that really does. And so I think the TETON 2 read in our clinical trials in idiopathic pulmonary fibrosis, are a good example of why that's important. But again, we continue to look for opportunities. It's the third item in our capital allocation strategy, and we'll continue to do so.

Okay. One last one just on strategy is the -- I feel like I ask you this once a year, James, is just the -- how to think about guidance. I know you're one of the companies that does not provide revenue guidance. I know you gave some metrics on expenses. But where is the latest in terms of thoughts on revenue guidance.

Thank you for the question, which I was expecting. So at this current moment, we're not anticipating giving any revenue guidance for the balance of '25 or '26. But the one thing that we have reiterated that we do expect double-digit revenue growth from our current commercial business. And so that on, a going forward basis, is where we do feel very comfortable, but no update to our current strategy and planning around forward guidance at this point.

Okay. Great. Maybe we'll pivot over to commercial now. Obviously, Tyvaso in ILD has been a great growth driver for that franchise. Maybe just remind us, as we look into second half of '25, how are you thinking about the key inputs into that continued growth from here?

Sure. Thank you. Yes, the growth drivers are still the same for us. So we expect growth to come from uptake in PH-ILD as well as Tyvaso DPI and we expect that over the long term. And if you think about Tyvaso DPI for example, there's a couple of elements why we have conviction in this Tyvaso DPI growth, and it's really convenient. So it's ease of use and design of our device, really unlimited dosing potential in Tyvaso DPI. So there's no maximum dose. Prescriber and positive patient experience since launch, there's been very good receptivity and experience among patients. And what we believe are no payer incentives at this point, Terence, to prefer an alternative products, so from a contracting perspective. So again, for the balance of this year, PH-ILD as well as Tyvaso DPI continued growth.

And then obviously, there's the entry of a competitor in Yutrepia here. What are you guys hearing from the field in terms of your sales reps in terms of where that product is being used or trialed? And then how do you think about that as you -- again, as you head into '26?

Yes. Thank you. So what we've heard and continue to hear is that liquidity is differentiating their product in areas of dosing, tolerability, particle deposition and ease of use. But as you and many maybe many recall, on our most recent earnings call, we outlined and addressed all these points as to why and how we believe Tyvaso DPI is best positioned to be the best inhaled prostacyclin. And just a couple of points to reiterate that we reiterated on our Q2 call for Tyvaso DPI, there is no maximum label dose for Tyvaso DPI, there's no tolerability -- I'm sorry, Tyvaso tolerability increases over time. When you think about the particle size it's the optimum particle size allowing for deep deposition into the lungs for the device, ease of use, convenience of one breath four times daily and there's no cleaning required for Tyvaso DPI. So we believe that over the long term, Terence, Tyvaso DPI's product profile is well positioned for continued growth.

Okay. The other one where I know we get questions on, we just hosted Merck in the session before this is the impact of WINREVAIR. They're obviously moving forward in terms of some of these earlier line settings now going to potentially maybe patients that are on two background therapies instead of three background therapies. And so as you think about that cadence may be continuing into 2026, how do you think about any potential impact on the Tyvaso franchise?

Yes. I think that's largely anecdotal and not necessarily showing up in the data. We still continue to see sotatercept largely being used with background prostacyclin therapies. But look, even if it does move earlier into the treatment paradigm it's a progressive deadly disease. At some point, patients are going to end up on one of our therapies. And if sotatercept is helping them stay alive longer, that means they're going to be on our therapies for longer.

Can I add one thing though Terence? And the other thing, polytherapy tends to be the norm. And in addition to what Harry outlined, you see patients on multiple therapies which is good. If it makes the patients feel better and they continue to progress on the disease, and they can get more therapies. So to further Harry's point, it's polytherapy tends to be the treatment in this disease stage.

Is there -- again, I missed my -- might be a better question for Michael, but is there a big difference between patients that are on double background versus triple background in terms of if you look at line of therapy and you're looking at duration of therapy, meaning like is duration a lot longer if you're treated earlier versus if you're treated later. Is there a big difference when you look at patients that are on two background versus three background, for example?

Yes, I don't know the duration. I think generally speaking, though, when you look at the research patients that are treated earlier and often tend to have better outcomes because specifically in PAH, it's a progressive daily disease, and you can reverse the damage that's been done by the disease state. So what you find is early upfront treatment is the benefit to the patients long term. Unless do you know Harry? I'm not sure on the duration aspect though.

No. That's absolutely right.

And then one last one on the commercial side is just the -- there's been a focus on formulary discussions as you go into 2026. You guys are probably in the midst of those now. Just any -- I think you had, again, traded some price late last year to gain access ahead of Yutrepia to put yourself in a very good competitive position. So maybe just elaborate anything else as you think about '26 and how those formulary conversations are going or positioning? Anything else you guys need to do on that front?

Yes. So just as a reminder to your question, we proactively engaged going into 2025 in terms of some contracting and the real idea or an idea around it was really the physician nebulized Tyvaso and Tyvaso DPI at parity with current and kind of future competitors potentially coming to market. And so for the most part, all of that contracting in 2026 has been pulled through. And so it really presents a new base really to grow Tyvaso going forward on -- at this point, we're not expecting any more contracting in 2025, and we'll have to see about it next year. But again, I think it was an investment at Michael Benkowitz, which, as you mentioned, who is the President and COO that oversees and works with the sales and marketing teams, I think, made a good investment at that point. So we'll have to see going forward.

Okay. So no comments on '26 though at this point from where things stand?

No.

Okay. Got it. Okay. And then maybe just broadly, the last section is just to go through the pipeline. And there, I know the xeno transplant program has been the area that now has gained some momentum because you guys are moving into the clinic. And so as you think about this, maybe just walk us through kind of the key milestones that we should be focused here on the forward? And then we'll dig in a little bit deeper on this.

Yes. So the next milestone for our UKidney, the study is called EXPAND. It's really the first in-human first transplant first patient, which we do expect to occur shortly. Right now, we're going through site selection, site prep, but we do expect that to occur shortly other milestones for the xeno program. We also recently received IND clearance for the thymo-kidney product. So that's our second registration-enabling study for xeno-organ and really supplements our multiple shots on [ goal ] approach.

And when can we start to see some clinical data from you guys? I mean, is this the thing where every patient, there will be some disclosure? Or do you want a certain number of patients before you disclose clinical data? I mean, how do you think about disclosure from these programs?

Yes. You want that?

Yes. We can't really commit to a disclosure strategy at this time. It's certainly not going to be like the previous emergency use INDs before, which were controlled by the hospitals. And they sort of manage the disclosures and the PR around those. This is a clinical study. So we have to be more disciplined in our approach there.

And then another one we get is just analogs for the commercial opportunity. I mean, how do you think about framing this? Is it -- should we look at the number of transplants each year across these organs as an opportunity? Or is it a subset of that? I mean just how do you frame out that commercial opportunity in these different segments?

Yes. So as Martine said before, our opportunity is only limited by our capacity to produce organs. There's 500,000 patients on dialysis that don't qualify for a kidney transplant. So either all of that or some portion of that is our opportunity. And this is a potential curative therapy. So you start getting into the conversations about gene therapies but again, we really are just limited by our supply.

And can you give us any insight in terms of when you guys have been making a lot of investments there in terms of where that capacity stands for these programs at this point?

Yes. So we have the Christiansburg facility, we're doing in Christiansburg, Virginia facility up and running. And then we are building two more, one in Minnesota and one in Houston, Texas. Each one of those has about 125 organ capacity per year. So once all of those are complete, we would expect roughly around 400 organs a year at that time. Historically, we've talked about this larger $1 billion, $2 billion large commercial scale facility. We've come to realize there are much economies of scale with building a large facility like that. And we do like the geographic dispersion of these multiple smaller scale facilities, but we can certainly scale that up at any time to be able to meet the supply once approved.

So these existing facilities can go beyond 125 organs per year is what you're saying?

Yes -- go ahead.

It would be more -- adding more of these similar sized facilities in different geographies.

Yes. What we've learned and Harry said this is one large facility, if you were in the $1 billion to $2 billion range. And those are some of the numbers, Terence, we've talked about earlier. But what we found -- and as we continue to learn, like this is a first of its kind, is that we feel at this point, it makes more sense to invest in these three facilities. And in fact, I was just in Texas and Minnesota that two weeks ago, walking these construction sites and the teams and the trade are doing wonderful jobs on these. And what we found is this could be an opportunity where we could maybe scale back our investment, right, to a couple of hundred million versus $1 billion understand the operational aspects of this, look at geographic diversity of where these are. And then think about how we can make sure we're ready when approved, if approved to be able to satisfy the market because there's a ramp of adoption as well. But what we are learning is that we can build these facilities fairly quickly, and we're going to have the skills and expertise, not only in UT but also in general contractors and the trade to scale should we need to. And then you can look at geographic dispersion around the country even. So it's kind of a process where we're learning, and I think we're getting better educated all the time under the leadership of running these programs that we can be good stewards of financial capital, make the investments we need to get to the point to be able to satisfy the market and then if needed, really expand from there. So we're just ultimately trying to be good stewards and be ready for the market opportunity.

And that the Virginia facility, is that nearing completion? And then whether it steps in terms of FDA -- the inspection and that kind of stuff?

Yes. So the facility in Christiansburg is operational right now. I don't know the type of inspection, but we've had the FDA at that site and it's going very well. And so this is part of the learning. And if you think about the scalability, it's an opportunity to do things where you continue to learn and invest in new facilities, learnings from these other facilities. But Christiansburg is up and running. Yes.

And so you -- if you do get an approval, you could start shipping product like pretty quickly out of that facility and the other facilities will take some time?

Yes, the plan would be is that you want to get the facilities up to scale, get them operationally induce the animals into the facility on a going forward basis. And that's really the plan. And internally, the logistics and planning around that are extensive right now. But it's new. We're learning to.

Okay. Well, I think that was all the topics I wanted to cover, but I really appreciate the time today, guys, and looking forward to ERS.

Likewise.

Right. Thank you Terence. Appreciate it.