United Therapeutics - Q1 2024

Transcript

Operator (participant)

Good morning and welcome to the United Therapeutics Corporation Q1 2024 Earnings Webcast. My name is Danielle, and I will be your conference operator today. All participants on the call. Portion of this webcast will be in listen-only mode until the question-and-answer portion of the earnings call. If you would like to ask a question during that time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, simply press star, then the number two on your telephone keypad. Please note this call is being recorded. If you require operator assistance, please press star, then zero. I will now turn the webcast over to Dewey Steadman, Head of Investor Relations at United Therapeutics.

Dewey Steadman (Head of Investor Relations)

Thank you, Danielle, and good morning. It's my pleasure to welcome you to the United Therapeutics Corporation Q1 2024 Earnings Webcast. Remarks today will include forward-looking statements representing our expectations or beliefs regarding future events. These statements will involve risks and uncertainties that may cause actual results to differ materially. Our latest SEC filings, including Forms 10-K and 10-Q, contain additional information on these risks and uncertainties, and we assume no obligation to update forward-looking statements. Today's remarks may discuss the progress and results of clinical trials or other developments with respect to our products, and these remarks are intended solely to educate investors and are not intended to serve as the basis for medical decision-making or to suggest that any products are safe and effective for any unapproved or investigational uses. Full prescribing information for the products are available on our websites.

Accompanying me on today's call are Dr. Martine Rothblatt, our Chairperson and Chief Executive Officer, Michael Benkowitz, our President and Chief Operating Officer, James Edgemond, our Chief Financial Officer and Treasurer, Dr. Leigh Peterson, our Executive Vice President of Product Development and Xenotransplantation, and Pat Poisson, our Executive Vice President of Technical Operations. Note that Pat Poisson and I will present in a fireside chat session in one-on-one meetings at the Goldman Sachs Global Healthcare Conference on June 12th in Miami. Also, our scientific, medical, and commercial teams will present at the American Thoracic Society International Conference May 17th through the 22nd in San Diego, the 7th World Symposium on Pulmonary Hypertension, June 29th to July 1st in Barcelona, and the Pulmonary Hypertension Association's 2024 International PH Conference and Scientific Sessions, August 15th to 18th in Indianapolis.

Now I will turn the webcast over to James Edgemond, our CFO and Treasurer, for some brief comments on our recent accelerated share repurchase plan, followed by Martine and Michael for an overview of our Q1 2024 financial results and the business activities of United Therapeutics.

James?

James Edgemond (CFO and Treasurer)

Thank you, Dewey, and good morning, everyone. In our meetings with shareholders over the last several years, we've noticed a common theme: shareholders are excited about our potential, both the continued growth in our foundational core business and our innovative organ manufacturing opportunities, and they are also impressed by our P&L philosophy that results in outstanding cash flow generation to support our waves of growth. But we recognize that there has been a disconnect between our desire to preserve capital to support our ambitious long-term organ manufacturing goals and some shareholder perspectives around capital allocation.

We continue to follow our three capital allocation priorities, which in order are: first, to invest in our commercial and R&D opportunities through P&L spend, as well as capital outlays like our new North Carolina manufacturing facility. Our second priority, to pursue intelligent business and corporate development opportunities that enhance our rare disease focus and complement our organ manufacturing initiatives like bolt-on M&A and in-license opportunities. And our third priority, to return capital to shareholders like share repurchases. We consider all three priorities when deploying our financial capital. Over the last year, we've learned a great deal about the size, the staging, and the timing for capital expenditures associated with the construction and commissioning of our designated pathogen-free facilities, or DPFs, to support our xenotransplantation efforts.

With the commissioning of our Christiansburg, Virginia clinical-scale DPF last quarter, we now better understand the phasing of capital spending associated with a commercial-scale DPF construction project for the commercial launch of our xenoorgans. With this improved awareness of our future cash outlays and taking into consideration our near-term cash flow generation potential, we saw an opportunity to return capital to you, our shareholders, to deploy it as you see fit and announced on March 25th a $1 billion accelerated share repurchase program, or ASR. Through the ASR, we expect Citibank to repurchase $1 billion in UTHR shares through the end of the Q3 of this year.

Under the ASR, on March 27th, Citibank delivered to us approximately 3.3 million UTHR shares, representing approximately 80% of the total shares that will be repurchased under the ASR, and we have placed these shares into Treasury stock as reflected on our balance sheet. The final number of shares that we will ultimately repurchase pursuant to our ASR agreement with Citibank will be based upon the average of the daily volume weighted average price per share of our common stock during the ASR agreement. Following the ASR, we believe that we will have ample financial capital to deploy for the commercial-scale DPF facilities in the coming years that I previously mentioned.

We also continue to believe in our core business and our cash flow generation potential driven by our foundational products led by Tyvaso DPI and Nebulized Tyvaso, and potentially accelerated by our innovative studies of Tyvaso in pulmonary fibrosis and ralinepag in pulmonary hypertension. We're excited about our current business and our growth potential, and we appreciate the feedback and support of our shareholders. I'll now turn the call over to Dr. Martine Rothblatt, our Chairperson and Chief Executive Officer, for insight into our development portfolio. Martine?

Martine Rothblatt (Chairperson and CEO)

Thank you, James. Good morning, everyone. I'm going to let the next few slides speak for themselves and forgo a script in favor of speaking directly from the perspective of being our CEO. We have had a fantastic quarter, coming on the heels of previous great quarters, and we are confident continued good news will flow in the quarters ahead. The main basis for our confidence is that we have multiple best-in-category products for growing indications: Remodulin for parenteral PAH; Orenitram for oral prostacyclin in PAH; Tyvaso for inhaled treatment of both PAH Group 1 and PH Group 3 in interstitial lung disease; and Unituxin for neuroblastoma. Other categories of good news in the years ahead are clinical trial outcomes. We have three phase III trials in varieties of pulmonary fibrosis, known as the TETON trial, and another phase III trial of a best-in-class oral prostacyclin agonist called OUTCOME.

Upon approval and market launch, the products from these phase III trials could help more than twice the number of people that we are helping today. There's even more good news in the area of organ manufacturing. We have now successfully enabled hundreds of additional lungs to be transplanted. We have now built a xenotransplantation facility with the potential for over 100 xenohearts and 200 xenokidneys a year to be transplanted. We have now commenced a clinical trial of a xenoliver assistance product, and we have now helped to save the life of a woman in New York with our manufactured thymokidney. Now let me comment on a few topics that I've heard some questions about. First, the big buyback. James did a superb overview of every aspect of that. We did the recent billion-dollar stock buyback because the stock is too cheap. Full stop.

Because our future is so bright, we believe this could be one of the best ROI investments for our shareholder partners. As James has long said, other great ROI opportunities are first and foremost in our own pipeline and secondly in our strategic business development decisions. Next, I'd like to say a word about insider selling. I personally hold options for 10 full years, and I only sell just before expiry. This is a passive, longstanding program. There is nothing more than that to read into these sales. They are use-it-or-lose-it sales. Third, our Group 1 business. Our expectation remains that the Group 1 PAH business will continue to grow and will do so even more rapidly if we can gain FDA approval of ralinepag after the completion of our clinical trial.

As a reminder, this is a best-in-class once-a-day oral treatment for PAH, and its phase III trial endeavors to show long-term morbidity and mortality benefit on top of multiple conventional therapies. It is a worldwide study, and we intend to commercialize that product globally. Let's talk about Tyvaso trends next. Tyvaso has been a dramatic grower since Interstitial Lung Disease approval, and it is a roughly $1 billion indication today. We have only gotten started serving the large unmet need for this product with its unique delivery methods. In addition to our continued growth in PAH Group 3, supercharged by our two proprietary modes of inhaled drug delivery, we are also very excited about the enrollment of our phase III trials in IPF and PPF, known as TETON 1, TETON 2, and TETON PPF.

Once the results of these studies are approved, we will be able to help multiples of the number of patients we are helping today in PAH. Finally, let me talk about our transformational strategy. As Mike said a year or so ago, the ramp for DPI toward our Tyvaso goals would not be linear, but it would bend upwards after a period of provider familiarity with both treating Group 3 PAH patients and our unique product. We are now seeing the bend upward that Mike had predicted. I doubt any organization interacts with as many PAH providers as do we, given our multiple PAH products and multiple pipeline activities, including in addition our exciting ARTISAN trial showing that you can transition patients from a parenteral form of prostacyclin onto oral Orenitram.

It is born of the great confidence in our products that these many, many providers share with us that we undertook the billion-dollar buyback and continue to invest heavily in our Tyvaso pipeline. We have organically developed drugs that solve difficult unmet needs. We have built a magnificent business. We have created a fortress balance sheet, and we have pipeline programs that could be worth more than the entire current market cap of our company. The transformation of UT is well underway, and we welcome shareholder partners to join us in not only a great investment opportunity but in supporting a company that is a true biotech innovator. On that note, Mike, can you please take it from here?

Michael Benkowitz (President and COO)

Thanks, Martine. I will. Good morning, everybody. As Martine noted, today we report yet another quarter of record revenue at $678 million and 34% growth from the Q1 of 2023. We saw meaningful growth for all of our key products, Tyvaso, Orenitram, Remodulin, and Unituxin. Before I get into the details on each of the products, I just want to take a moment to thank all of our fellow Unitharians for an amazing quarter. First, I want to talk about Tyvaso, which, when viewing the nebulizer and dry powder inhaler delivery systems together, represents our largest product and remains the number one prescribed prostacyclin treatment in the U.S.

Total Tyvaso revenue for the Q1 was $373 million, up 56% over last year, with growth led by continued uptake of Tyvaso DPI, our regular annual price increase, and the increased commercial utilization following the implementation of the Part D redesign provisions under the Inflation Reduction Act, or IRA. Again, this quarter, there were no material changes in inventories of Tyvaso DPI at our specialty pharmacy distributors during the Q1, and both distributors remain within their contracted inventory levels. After a relatively consistent monthly referral rate over the course of 2023, referrals are what we call prescriptions, we saw a nice positive trend break in referral levels for both DPI and nebulizer in the Q1, with about a 10%-15% total increase in monthly referrals. This is continuing, at least so far, into the Q2.

Patient starts also increase but at a lesser rate during the Q1, but this is not surprising as there is often a many-week lag between referrals and starts. It does appear that starts per month are increasing in line with the Q1 referral level into the Q2. During the Q1, we were pleasantly surprised to see an increase in commercial utilization of Tyvaso due to the implementation of the IRA. We were expecting to see this increase begin in the Q2 as patients reach their out-of-pocket maximums. We expect commercial utilization will continue to increase over the balance of the year. Lastly, on Tyvaso, we're well positioned for competition should it come to market this year. The sales force expansion that we began last year is now complete and fully deployed as of January 1.

We expect that we'll start to see the impact of this enhanced sales team beginning in the second half of the year. We are also now engaging regularly with HCPs, or healthcare providers, on the key characteristics of our DPI device, namely that Tyvaso DPI requires only one breath per cartridge. Our low-flow design requires less patient breath than high-flow devices, which we believe will be beneficial to patients with compromised lungs. The low-flow design also allows for a more efficient delivery of treprostinil relative to the nebulizer and other treprostinil DPI devices. And finally, the BREEZE study demonstrated 98% patient satisfaction with Tyvaso DPI.

As I said on our last call, these factors, coupled with the experience physicians have gained through the rapid uptake of Tyvaso DPI since launch, lead us to believe that Tyvaso DPI will compete effectively with similar product offerings in the inhaled market, given our presence in the PAH and PH-ILD community, our commitment to patients, and platform of both nebulized and dry powder delivery options. Moving to Orenitram, we are very excited to report that not only did we achieve record revenue for the quarter, but we eclipsed $100 million in a quarter for the very first time, reaching $106 million during the Q1, up 20% from the prior year.

This was driven by a combination of increased commercial utilization, pricing, and what we consider to be an extremely modest inventory buy-in during the quarter, counter to the normal seasonality we experienced with Orenitram ordering patterns in the Q1 of the year. Because Orenitram is a Medicare Part D drug, like Tyvaso DPI, we saw a meaningful increase in commercial utilization for Orenitram due to the implementation of the IRA. Our medical teams continue to have scientific discussions with healthcare providers on the EXPEDITE induction protocol, where PAH patients initiate therapy on Remodulin and then transition to Orenitram based on recent scientific publications as an option for appropriate patients who may not want or need to go on long-term parenteral therapy.

Transitioning to Remodulin, worldwide Remodulin revenue of $128 million was up 5% from last year, with very strong performance across all of our underlying demand metrics. This is almost five years since the first launch of the generic for Remodulin, reflecting our continued commitment to our patients and the product. Remodulin, both intravenous and subcutaneous, remains the most prescribed parenteral prostacyclin in the U.S. We expect this momentum to continue, given the high level of referrals and starts in the Q1. Remunity Pump remains the only option for new subcutaneous patient starts, and we have heard through the channel that specialty pharmacy distributors are beginning to proactively convert remaining sub-Q treprostinil patients to our Remunity Pump, given the discontinuation of support for the CADD-MS 3 system by its manufacturer.

Regarding the recent approval of the first active inhibitor, based on conversations with physicians both before and after approval, we expect many practices will take a measured stance toward its wide use, and most use initially could be consistent with the product's clinical evidence, largely in combination use with a prostacyclin therapy. Finally, moving to Unituxin, worldwide revenue of $58 million, a record, was up 19% from the prior year quarter, and U.S. Unituxin revenue of $53 million was up 21%. U.S. growth was driven by both price and volume. To wrap up, following this record quarter, we remain confident that we have the product portfolio, marketing muscle, support structures, clinical data, and commercial expertise to continue to grow in both PAH and PHI-LD. With that, I'll turn the call back over to Martine to run the Q&A.

Martine Rothblatt (Chairperson and CEO)

Thank you, Mike, for that superb overview and deep dive into so many key and important details of all of our different products. It's literally a historic quarter. It's the best we've ever had. Operator, we're ready for the first question.

Operator (participant)

We will now begin the question-and-answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. The first question comes from Terence Flynn from Morgan Stanley. Please go ahead.

Terence Flynn (Equity Research Analysr)

Great. Good morning. Thanks for taking the question. Maybe a two-part for me. I was just wondering what you're seeing now with respect to breadth of prescribing for Tyvaso and ILD. I know you went to a broader prescriber audience sometime last year, and you have the new sales force, but just wondering if you can comment it all there. And then can you provide the percentage of Remodulin patients that are now on the Remunity Pump? Thank you.

Martine Rothblatt (Chairperson and CEO)

Thank you, Terrence, and congratulations on being over at Morgan Stanley now. Mike, given the cue, feel free to answer as much of that question as you feel time permits.

Michael Benkowitz (President and COO)

Yeah, sure. So on the breadth of prescribing, I mean, overall, we're continuing to see growth in both breadth and depth. And I think a lot of that is attributable to, again, just the work and pounding the pavement that we've been doing over the last couple of years and gaining traction with new prescribers. As I said in my opening remarks, we now have the expanded sales force fully deployed. It's going to take time for them to build relationships, and so I think we'll really start to see the impact of that effort as we move into the Q3, really. So, we're expecting continued breadth as we move on.

One interesting statistic I was looking at is if you look at ILD, historically ILD physicians that didn't have experience writing for PAH products, over the last 15 months, we've seen a 50%, so 50%, increase in breadth. And then the depth, which we measure by that three-plus metric that I've mentioned on prior calls, has increased by about 30%. So we are really starting to get traction in the ILD community, not only on a referral basis, which we've had, but also on an actual writing basis. So really happy to see that. Just quickly on Remunity, right now, we've got the vast majority of patients who are on Remunity. I think there's maybe a few hundred left that need to be transitioned.

As I said, I think specialty pharmacies are looking to probably get those transitioned over to Remunity by the end of the year.

Martine Rothblatt (Chairperson and CEO)

Thanks so much, Mike, for the fully comprehensive answer. Terrence, hopefully that it addressed all your concerns. Next question.

Operator (participant)

The next question comes from Roanna Ruiz from Leerink. Please go ahead.

Roanna Ruiz (Senior Managing Director)

Good morning, everyone. So I was curious, what are your field reps hearing on the ground from physicians around the sotatercept approval and launch, if you're able to say, and bigger picture, what's your outlook on the future in terms of combined use of Tyvaso with sotatercept and prescribers' consideration of both these products?

Martine Rothblatt (Chairperson and CEO)

Great. That would also be within President Benkowitz's purview. So, Mike, take it away.

Michael Benkowitz (President and COO)

Sure. Thanks for the question. So with sotatercept, it's been in terms of the launch, it's actually been relatively quiet. I mean, I think what we've heard through the rumor mill is they're supposed to launch this week, but it's been a little bit quiet. So I mean, it's probably a question best directed to Merck on what their launch plans are. The second point on what's our outlook for the use of our products with sotatercept, I think, as we've said in prior quarters and as I mentioned in my opening remarks, we really look at this as being a complementary product to the existing products that are on the market. It's not a cure. It's not a replacement for prostacyclin. We don't expect the existing patients are going to be transitioned off of a prostacyclin as a result of sotatercept.

I think it was almost 70% of the patients in their clinical trial were on background prostacyclin therapy. So certainly, we think, and based on the conversations, we think largely sotatercept's going to be used in combination with prostacyclin therapy. And if it works well and patients are able to live longer, then that means they're staying on our products longer, which helps us from a financial standpoint. So that's kind of what we've been hearing for the last, I would say, six to nine months and what we heard during the Q1.

Martine Rothblatt (Chairperson and CEO)

Excellent, Michael. Thank you so much. Operator, we have time for about two more questions. Next question.

Operator (participant)

The next question comes from Ash Verma from UBS. Please go ahead.

Ash Verma (Equity Research Analysr)

Hi. Good morning. Thanks for taking my question. Congrats on all the progress. So I have to for xenotransplantation, can you comment on how do you decide which and how many genes are modified? There's another player in this field which is using a slightly different approach. How confident are you that your level and selection of gene modification is the most appropriate approach here? And then secondly, I wanted to understand some of the pricing pushes and pulls for 2025 across your portfolio. I mean, clearly, there is a benefit that you get from the copay normalization with IRA out-of-pocket going to 2,000, but then also the donut-hole impact. Net-net, does that shake out as a headwind or tailwind on 2025 pricing? Thanks.

Martine Rothblatt (Chairperson and CEO)

So Ash, thank you for your questions and great analyst coverage. But there's only going to be time to answer the first question. Each of those questions would take an hour to fully delve into. Fortunately, we have on the call our Executive Vice President for Product Development and Xenotransplantation, Dr. Peterson. And Leigh, can you answer the xeno question?

Leigh Peterson (EVP of Product Development and Xenotransplantation)

Yes, of course. Thanks for this question. And so as you know, at United Therapeutics, we believe on multiple shots on goal. So in fact, we have our 10-gene pig that we're developing two different organs, our 10-gene xenokidney as well as our 10-gene xenoheart. And then we also are developing our thymokidney, which is from a pig with a single genetic modification. And this was the organ that was transplanted into the recent NYU patient. And we actually have good scientific rationale as well as preclinical evidence that both of these products, again, with a single genetic modification as well as the 10-gene pig, are effective. And again, there's advantages to both, at least from the scientific rationale.

But really, to establish the scientific safety and efficacy of each, we need to conduct clinical studies, and we're planning on doing those for both of these products. And ideally, we will receive approval for multiple products, which will allow different options for patients and enhance the available supply. So again, your question is the obvious question, which is better. Well, again, advantages to both, and we'll be testing those in our clinical studies in the near future.

Martine Rothblatt (Chairperson and CEO)

Thanks so much, Leigh. Fantastic answer. Operator, last question, please.

Operator (participant)

The next question comes from Joseph Thome from TD Cowen. Please go ahead.

Joseph Thome (Managing Director)

Hi there. Good morning. Thank you for taking my question, and congrats on the progress. Maybe one more on the xenotransplantation side. Maybe where do you see the importance of using a CD40/CD154 product in a xenotransplantation? I know preclinically, I think you looked at both with and without. Maybe what will impact your decision to take a CD40/154 into the human clinical study or not? Thank you.

Martine Rothblatt (Chairperson and CEO)

Okay. Very good. Dr. Peterson, would you like to also address that question?

Leigh Peterson (EVP of Product Development and Xenotransplantation)

Yeah. Well, the main difference is that the CD40, there's no agents with the CD40 blockade mechanism of action approved by FDA for use in any indication, actually. And so what we chose to do is if you look at the background and the history, most xenotransplantation, at least with the preclinical models, those studies were done with the CD40 blockade. But our study that we're doing, we actually have two arms, CD40 blockade as well as with conventional immunosuppression in our baboon IND enabling studies. And we're getting good results with both. And in fact, there was a publication that recently came out by Ivenson et al., 2024, that discusses a case, a really significant case where a baboon was transplanted with standard of care regimen and survived for 9.5 months, which has absolutely never been seen. And we have some reasons why that happens.

We prefer to go into a clinical study with approved medicines to not introduce another variable into the study. Again, we're backing it up with our preclinical studies, and we're seeing good results in the model. That's where we're going first.

Martine Rothblatt (Chairperson and CEO)

Thank you so much, Dr. Peterson. Very comprehensive answer. Operator, you can now conclude the call.

Operator (participant)

Thank you for participating in today's United Therapeutics Corporation Earnings Webcast. Every broadcast of this webcast will be available for replay for one week by visiting the events and presentation section of the United Therapeutics Investor Relations website at ir.unithr.com. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.