Martine A. Rothblatt - Founder, Chairman and Chief Executive Officer Roger A. Jeffs - President, Chief Operating Officer and Director Andrew Fisher John M. Ferrari - Chief Financial Officer, Principal Accounting Officer and Treasurer.

Salim Syed - ISI Group Inc., Research Division Liana Moussatos - Wedbush Securities Inc., Research Division John Chung - RBC Capital Markets, LLC, Research Division Geoffrey C. Meacham - JP Morgan Chase & Co, Research Division Philip Nadeau - Cowen and Company, LLC, Research Division John Ryan - Jefferies LLC, Research Division.

Good morning, my name is Nicole, I'll be your conference operator today. At this time, I would like to welcome everyone to the United Therapeutics Corporation First Quarter 2014 Financial Results Conference Call [Operator Instructions].

Remarks today concerning United Therapeutics Corporation will include forward-looking statements representing the company's expectations or beliefs regarding the future events.

The company cautions that such statements involve risks and uncertainties that may cause actual results to differ materially from those projected in the forward-looking statements. Please see the company's latest Forms 10-K and 10-Q and the subsequent filings with the SEC for additional information on these risks and uncertainties.

There can be no assurance that the actual results, events or developments referenced in these statements will occur or be realized. The company assumes no obligation to update forward-looking statements to reflect the actual results, new information or changes in underlying assumptions.

Today's remarks are intended to educate investors about the company. This may include reporting on the progress and results of clinical trials or other developments with respect to the company's products.

Today's remarks are not intended to promote the company's products to suggest that they are safe and effective for any use other than what is consistent with their FDA-approved labeling or to provide all available information regarding the products, their risks or related clinical trial results.

Anyone seeking information regarding the use of one of the company's products should consult before prescribing information for the products available on the company's website at www.unither.com. Thank you. Dr. Rothblatt, you may begin your conference..

Thank you, operator. Good morning, everybody. I'm joined here on the call by our President and Chief Operating Officer, Dr. Roger Jeffs; by our Chief Financial Officer, Mr. John Ferrari; and by our Chief Strategy Officer, Mr. Andrew Fisher.

I'm happy to report that our revenues and profits have risen nicely in line with ever greater number of patients being prescribed our medicine for pulmonary arterial hypertension. These financial results enable us to continue to develop our pipeline of more advanced therapeutic options for PAH.

Specifically, revenues crested $289 million for the quarter. Net income almost touched $138 million dollars. Earnings per basic share $2.73 and over $1.75, actually $1.77 for non-GAAP earnings per basic share. Each of these financial metrics represent nice increases from matching periods previously.

As noted, it's because of the growth in prescriptions of our medicines that this has been able to be accomplished. All of our products, Remodulin, Tyvaso and Adcirca continue to be prescribed to greater numbers of patients this quarter than previously.

For example, with regard to Adcirca, we are now achieving prescriptions to almost 2/3 of all pulmonary hypertension patients treated in the United States.

This is far and away the highest number of patients with pulmonary hypertension that have ever been prescribed 1 single drug and is in fact the trailblazer of what we hoped to accomplish with the most recently approved drug, Orenitram, the first oral form of prostacyclin ever approved by the FDA.

I'd now like to open the lines to any questions with regard to our projects, our prospects, financials or any other aspect of our business.

Operator?.

[Operator Instructions] Our first question comes from Mark Schoenebaum of ISI Group..

Martine, this is Salim in on for Mark. I just have 2 questions. So a lot of investors obviously focused on selexipag, I mean selexipag GRIPHON.

They'll be coming in a few weeks and I don't know if you heard, one thing they mentioned in the call, their call was that the main focus is on the primary endpoint, in their press release, if we only get morbidity and mortality data, I guess, how should we interpret that given there's no -- we don't have any comparable data for Tyvaso? And then the second question is just on China Remodulin sales, if you have that broken out..

Sure. I'm going to answer the first part of the question about selexipag and then turn the mic over to Roger, who will break out the Remodulin sales for you. So of course, I can't really comment on what Actelion is going to decide to do internally with regard to their selexipag results.

But what I can say, sort of, to put everybody on the call on a level playing field is, as you know, selexipag is neither prostacyclin nor prostacyclin analogue. It's instead a de novo type of molecule intended as an agonist to increase endogenous production of prostacyclin. That's something that's never been tried successfully before.

And we'll have to wait to see the top line results and the bottom line results and know the rest of the results before we know really what to make of selexipag. Of course, the regulatory authorities are also similarly going to want to see all of the results that there are on efficacy and safety.

If the trial is successful, per the press release from the sponsor, then the ball will pass to the regulatory authorities for their independent determination if the trial demonstrated the safety and efficacy of the results based on a comprehensive analysis of all of the data.

And then finally, the ball passes to the prescribers, who never having prescribed this type of molecule outside of the clinical trial itself, will do the natural thing and put their toes in the water and see what happens with patients over a period of years. And if it helps patients, it will gain traction.

If it hurts patients or if it doesn't help them as much as alternative therapy, it will gain less traction. So hopefully, that was -- gave you some good color on our take on selexipag. And let me now turn the mic over to Dr. Jeffs to talk about Remodulin..

So just for an update to the other callers who may not be aware, Remodulin was approved in China in late 2013. The current process in China is our partner, Lee's Pharma is seeking pricing approval, and setting up some of the promotional and compliance regiments that need to put in place prior to product launch.

We have shipped commercial validation shipment, which is product that hasn't been paid for or invoiced yet. So I think in 2014, until pricing is approved, it's very hard to predict what sort of revenues China and likewise Japan, which was also approved in April -- of March of this year will report to us in terms of annualized revenue.

So we need to go through the logistics of getting pricing and reimbursement sorted and then I think in 2015, in particular, we can start looking at contributions from those territories in terms of what they may bring to us and be a little bit more predictive about that. But right now, we can't really state what the forecast would be..

Our next question comes from the line of Liana Moussatos of Wedbush Securities..

Can you give us an update on the pipeline products like Ch14.18 beraprost and the implantable pump in TransCon Tre?.

Sure. Thanks, Liana, for the question. And good morning to you. The company's prospects depend as much upon the continued growth of our existing products as they do bringing our pipeline of products pending registration in Phase III and in earlier phases of development into commercialization.

And we continue to believe that the thrust of both our approved products and our pipeline products will lead us to take $1 billion that we crested last year to over $2 billion before the end of the decade.

Now, the one which is closest to approval from that pipeline, I believe, is our mAb for neuroblastoma, because we have filed for registration of that both in Europe and in the United States. That was, I believe, a very strong filing.

We did -- we're able to make that filing based upon an excellent registration study conducted, sponsored by the National Cancer Institute through the cancer oncology group and published in the New England General of Medicine. We did a bridging study, have produced our stable batches of a GMP drug product.

And so we are feeling optimistic that these kids with neuroblastoma will in fact, very soon, be able to be helped both here and in Europe. But those filings are already at the regulatory agencies. They, of course, given the high unmet medical need condition will be processed at the highest levels of dispatch for those type of products.

The next queued up in the pipeline is our implantable pump project with Medtronic. This one has completed its registration study and is now pending at Medtronic for their submission to modify the regulatory status of the Synchromed II pump as well as associated a novel in vivo catheter and a novel drug delivery syringe.

Plus we, ourselves, will be filing our label amendment to extend the use of Remodulin into the Medtronic pump. So all of that work is going on right now. And the timing of it is pretty much mostly in Medtronic's court, because they've got the lion's share of work to do.

We did report very positive top line results from the study a couple of quarters ago. So that's next queued up after mAb. People are awaiting it because as you may know, Liana, the golden thread here for treatment of pulmonary hypertension is to achieve a constant level of prostacyclin in 1 system 24/7.

The problem to date has been that the only way to do that is with the onerous and, for great many patients, just flat out impractical possibility of an ex vivo pump running 24/7, 365, delivering prostacyclin or prostacyclin analogues such as Remodulin to those patients.

Because of the complications of this and for patients with dexterity issues such as those with scleroderma, the result of that is a registry sponsored by, I believe, Actelion demonstrated that approximately 1/2 of all the patients with pulmonary hypertension who pass on never had a chance to access prostacyclin therapy.

And that's the clearest evidence you can ask for of the both addressable and catchable market for this implantable pump. So that will -- that will get processed as quickly as Medtronic can move on it and then the FDA can move on it thereafter.

Next queued up in our pipeline after that are our twin efforts to address the major trend in pulmonary hypertension therapy, which is the pivot from the sequential monotherapy, which you will see as the -- what's depicted in the differential treatment algorithms in consensus statements in the field to what is the ascended paradigm of sequential combination therapy.

And in that regard, we start our 2 pivotal studies, the FREEDOM EV study, testing Orenitram in combination with PDE-5 and/or ETRA, and our EAK [ph] study trying to achieve a continuous level of prostacyclin in the patient's bloodstream by combining the fast-acting but rapid fall-off Tyvaso with the slower onset and slower fall-off of beraprost.

So the combination of those 2 will help push us closer to a 24-hour level of kind of something near to or the release for prostacyclins and have the additional benefits of attacking the disease from both the airway side and the blood side and attacking multiple prostacyclin receptors, those [indiscernible] both treprostinil and beraprost.

The thing about the FREEDOM EV study is when the FDA signaled and then stated that this drug could be delivered TID that was very, very good news for the patients, physicians, payers, everybody because it again allows us to take a big step toward continuous bioavailability at an adequately high level but not too high of a level of a very, very potent prostacyclin analogue treprostinil.

So the timing turned out to be fortuitous for us because we were just restarting the FREEDOM EV study and that allowed us to do so as a TID dosing regimen, which again is totally in sync with actually 2 trends. A, the trend towards more continuous bioavailability of our treprostinil or other prostacyclin analogues and 2, combination therapy.

So we've really got a great twofer on FREEDOM EV. Then backing up earlier in the pipeline, we've got the TransCon treprostinil product.

This one is really a huge advance in technology because this allows the patient to have a zero order release, in other words in plain language, a continuous level of prostacyclin in the bloodstream over 24 hours from just a single diabetic-like subcu injection once a day.

And so there's no more infusion, there's no more multiple dosing per day, just 1 dose a day can give the patient an enzymatic independent, enzyme independent release of treprostinil in the bloodstream over the course of a day, very much in sync with what physicians want is 24/7 bioavailability of prostacyclin, without the difficulties of an ex vivo pump.

Well, that's kind of a -- sorry, I went kind of quick -- show you that we've got a really, really sweet pipeline with the products about to be registered in Phase III and the TransCon treprostinil will go into -- on the clinic in [indiscernible] Phase I this year..

Our next question comes from Michael Yee of RBC Capital Markets..

This is John on behalf of Michael Yee.

Could you just give us an update on the patent litigation with Sandoz, given, I think, Sandoz, is not summary judgment, so what are the next step upcoming and at which point in your view would reaching a settlement be more reasonable versus going to full trial?.

Well, thanks for the question. As you recall, we have our Chief Strategy Officer, who is also our IP expert, Andrew Fisher on the phone and he'll address your question..

You're correct. The court denied summary judgment earlier this month. Next step in the case is trial, which commences on Thursday of this week. And we'll continue on pretty much through the first half of May. As for your question concerning settlement, we don't have any comment on settlement for you..

Thank you, Andy.

Operator, the next question?.

Our next question comes from Geoff Meacham of JPMorgan..

So I know looking at sequential growth trends can be a little tricky but I want to get a sense from you as to what the driver was for Adcirca this quarter.

Has there been any formulary changes or things of that nature? And then kind of the same thing on Tyvaso, when you look at 4Q and 1Q sales, they're both down albeit marginally, is there anything on the inventory side for that or just your typical lumpiness?.

Good question, it comes up frequently. UT is a story that you hold for a couple of years or longer, because there is an inevitable lumpiness from quarter-to-quarter when there's a period of time with a lot of the doctor conferences relevant to pulmonary hypertension, scrips go down, holidays, stuff like that.

So the lumpiness that we've seen in the quarters here is completely consistent with the lumpiness that we've seen over the past many years in our business. And for example, as I've noted in previous calls, when you see a quarter which is kind of flat, what you see by the time we get around to doing the conference call, is a surge in referrals.

And in fact, for March, which -- that's the most recent data that I have, Tyvaso referrals hit their second highest levels ever. So that just gives you an idea of the lumpiness to expect from time to time. The Adcirca, there has been no change in formulary status.

Definitely, we have a real key asset in our company with our strategic operations group, which have spent a decade and half interfacing with the payor and reimbursement structures.

And whereas, with regard to Part B, while everything is complicated, things are, from a payor sense, a little bit less complicated mostly because I think there are less in aggregate costly with regard to Part B. Adcirca falls under Part D, as in delta.

And therefore, there is ever present issues of discounts and rebates and these sorts of things that occur when you're prescribing pills. So it is a real herculean task in a country like the U.S. with hundreds of payors and 50 different state Medicaid organizations. Now you've got the Obamacare overlay.

What I'm extremely impressed with, and I actually believe that any objective observer would have to be very, very impressed with this, we've got a patient, there's 2 PDE-5 that you can prescribe to this patient. One is generic, also happens to be probably like the most prescribed drug in the world Viagra.

It's not called that for PAH, but that's what it is, exactly the same thing. And the other is our branded product, Adcirca. And as I mentioned in the beginning of the call, we've got about 66% market share. So I think that one of the most impressive track records of a branded drug against a very similar generic.

Of course, the reason for that is there's no black magic there.

Adcirca is a once daily treatment for pulmonary hypertension, has excellent clinical trial record, people are quite excited about the outcome of the ambition trial with SmithKlineGlaxo -- GlaxoSmithKline and Lilly on that AMBITION trial, which is a combination of Adcirca together with Ambrisentan, but that will be really interesting to see how that AA combination turns out.

If positive, that will be, of course, sort of further impetus for Adcirca growth..

Our next question comes from Philip Nadeau of Cowen and Company..

Just a couple of follow-ups for things already asked. First on the court case this week, Andy could you give an update on which patents are actually going to be litigated this week and how are the patents that have been issued in -- listed in the Orange Book since the litigation began, how those are going to be handled.

And then second, just to follow-up Geoff's question, could you tell us whether there are any inventory changes in the quarter either at wholesalers or retailers for Tyvaso and Adcirca?.

Sure, Phil. I'll take the litigation question and kick the other one over to John Ferrari. So the patents at issue in this case are the 3 original Orange Book listed patents. There's 1 expiring in October of 2014, 1 expiring in October of 2017 and 1 expiring in 2029. So those remain the 3 at issue in this case.

There are several additional Orange Book listed patents, that are not part of this case.

John?.

Thank you, Andy. Inventory for the margin [ph] the for quarter went up slightly in both dollar value and patient count. And then inventory for Tyvaso actually went down in value and patient count during the quarter. We don't -- because it's, sort of, sold on the retail outlets, we do not get any inventory reports on the field.

But we do take a look at -- TRXs versus bottles sold, and based on the trends of what we saw during the fourth quarter, doesn't look like there's any kind of stocking going on in the retail level..

Our next question comes from the line of John Ryan of Jefferies..

This is John in for Eun. Just a quick question and a follow-up with both TransCon treprostinil and Medtronic SynchroMed II implantable pump.

What's the strategic planning positioning these products for the market? And then do you foresee that TransCon treprostinil will require a DLA pathway for a potential filing?.

So I will talk about the pathway to the market and Dr. Jeffs will talk about the clinical development pathway, clinical and regulatory development pathway for TransCon. The goal for both of those products is to transition patients from an ex vivo pump form of delivering Remodulin to these other formats. And that is actually part of a long-term process.

And it's -- as mentioned in my introductory remarks, it's in sync with 1 of the 2 main trends in the field to get patients on to a 24/7 level of bioavailability of prostacyclin or an analogue to prostacyclin without the onerous and often times, in fact, about at least half the time completely impractical delivery system for those particular patients.

So you see patients transitioning from Remodulin to Tyvaso. We are already seeing patients transitioning from Remodulin to Orenitram, that those would be logical patients for Orenitram, ones who would be transitioned from IV, subcu, et cetera.

That process will continue with the implantable pump both capturing the substantial numbers of new patients, who just would not go on an external pump at all, but would find very attractive an insert and forget delivery system, such as the implantable pump, as well as for existing patients who are just having difficulties or fed up with the IV in parenteral delivery.

There is -- I think and I know I speak here for all of my colleagues at United Therapeutics, an obligation on the part of a branded pharmaceutical company, such as our own, to always use our retained earnings to develop better and better therapies for pulmonary hypertension. And we're relentless in this.

And that's what you'll see us doing continually pushing out the boundary of therapeutic options for pulmonary hypertension patients, for better and better, more and more convenient, more and more practical options available to them at all times.

Roger?.

Thanks, Martine. So John, with regard to TransCon and whether or not we'd have to file a DLA, let me just back up a little bit and sort of say where we are. So we've progressed a lot of the "IND" enabling studies. So this include toxicology, safety pharmacology and some formulation development work.

And in particular, the kinetic studies in animals, in species. So what we're seeing is very favorable kinetics, in the sense that you can give what appears to be a single pain-free injection of the therapy, treprostinil is released in a very slow manner and can persist for a period of time that would support once daily injection.

We are now putting together the IND.

And we're expecting that in the very early part of the second half of the year, in the third quarter actually, that we will file the IND, and once that's approved, we will initiate human volunteer studies, again single daily doses or single injections just to see what that is and will do, those cohorts where we escalate the does of treprostinil that's administered.

The importance of that is that, that kinetics will define the development pathway. And there's really 2 paths here.

If we think we can show that it's kinetically equivalent to parenteral therapy, then we will try to do a bioequivalent study, which will have a truncated timeline versus if we have to do a more formal placebo-controlled clinical trial design. So the Phase I study is an important study.

It's a single-dose study and then based on the success there, we will go into multi-dose studies.

But some of the things that we will also have to do even if the kinetics would support a bioequivalence approach, is follow the metabolic fate of the peg linker that is complexed with treprostinil to make it inert and pain free for injection, as well as treprostinil kinetic.

So it's not a simple bioequivalence approach because we'll have to follow the metabolic fate of the inert molecules with which it complex. But we are hopeful, based on what we've seen in animals. And if that's replicated in humans, the bioequivalence is a viable strategy but we need the data to support that.

If that's not the case and we will either reformulate so that it is the case, or we'll do a placebo-controlled trial because, as Martine said, I think a once daily injectable or maybe even once weekly, if everything went even better, would be very well received by patients because it would give them this constant exposure to treprostinil, which everybody covets and it would be pain-free, which would be a game changer for subcutaneous delivery..

Our next question comes from the line of Robyn Karnauskas of Deutsche Bank..

This is Mohit for Robyn. I have 1 question regarding your taxes.

So looking at your first quarter 2014 versus first quarter 2013, actually, the biggest difference I see is in terms of taxes, so, I mean, just wanted to clarify whether all these taxes are cash or some of it is non-cash, and how should we think about non-cash tax rate for remainder of the year?.

Thanks for your question. I'll refer that question to John Ferrari, our CFO..

Thanks, Martine. The tax rate that we published in our Q and that you see in our earnings release, that's an estimated tax rate for the year. So effectively, we take a look at -- we do a projection for the year, do a mini-tax return to figure out what taxes if we hit the projection, business credits and all that stuff.

We'll come up with the rate and then we apply that rate to our book income before taxes throughout the quarter. So there could be fluctuation from quarter-to-quarter based on that because we're just using the annual rate.

That annual rate -- in one sense the tax expense is really non-cash, but we do pay estimated tax payments during the course -- each quarter during the course of the year. And if you look at our statement of cash flows, for example, we disclosed the cash that's paid on that by quarter and then also at year-to-date..

Thanks, John, great answer. So let me now wrap up. We took the 0.5 hour mark. The company is very pleased with the quarterly results and the continued growth in patients. As noted, across all of the products, ours are being prescribed more and more frequently to more and more patients.

With regard to Tyvaso, for example, there weren't any specific questions on that during the call. 90% of the revenues spent on inhaled prostacyclin analogues are spent on Tyvaso. That's about as high of a market share as one could ask for.

With regard to Adcirca, if you start with the doctors who have true pulmonary hypertension practices, we are similarly at 90% and above market share to get down to deciles 1 to 10. And we're at about 2/3 in overall about 60%. So it's a really dominant therapy.

Remodulin, because of the ability to deliver both subcutaneously, intravenously, the long, over a decade track record of safety and efficacy has also led Remodulin to be far and away the most prescribed parenteral therapy.

However, the company is more focused on developing its pipeline to provide patients with better therapeutic options in each of these areas, and as we responded to the question from Wedbush Securities, we've got a very nice pipeline of things waiting for approval in the case of oncology, preparing in preparation for filing in case of the implantable pump, 2 are Phase III studies and then a new TransCon treprostinil therapy going in to [indiscernible] this year.

Thank you very much for your attention during the call. And we look forward to seeing you at upcoming healthcare conferences. Operator, you can wrap up the call..

Thank you for participating in today's United Therapeutics Corporation conference call. This call will be available for replay beginning at 8:30 a.m. Eastern time today through 11:59 p.m. Eastern time on Tuesday, May 6. The conference ID number for the replay is 25950152. The number to dial for the replay is 855-859-2056 or 404-357-3406..