Martine A. Rothblatt - United Therapeutics Corp. James Christopher Edgemond - United Therapeutics Corp..

Liana Moussatos - Wedbush Securities, Inc. Evan Seigerman - Barclays Capital, Inc. Regina Grebla - Evercore ISI Chris Shibutani, M.D. - Cowen & Co. LLC Terence Flynn - Goldman Sachs & Co. Hartaj Singh - Oppenheimer & Co., Inc..

Good morning. My name is Gracie, and I'll be the conference operator today. At this time, I would like to welcome everyone to United Therapeutics Corporation 2016 Fourth Quarter and Annual Financial Results. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

Remarks today concerning United Therapeutics will include forward-looking statements representing the company's expectations or beliefs regarding future events. The company cautions that these statements involve risks and uncertainties that may cause actual results to differ materially.

Please see the company's latest SEC filings, including Form 10-K and 10-Q for additional information on these risks and uncertainties. The company assumes no obligation to update forward-looking statements. Today's remarks may also include financial measures that are not prepared in accordance with U.S. generally accepted accounting principles.

Reconciliations of the non-GAAP financial measures to the most directly comparable U.S. GAAP financial measures can be found in our earnings releases available on our website at www.unither.com.

Finally, please note that today's remarks may include reporting on the progress and results of clinical trials or other developments with respect to the company's products.

These remarks are intended solely to educate investors about the company and 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 product, their risks, or related clinical trial results.

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

Tracleer facing – has already gone off patent; and Opsumit is going to face generic challenge from ambrisentan next year, and we got two products facing generic challenge with Adcirca and Remodulin.

But actually, we've got, I think, a much stronger position, especially with regard to Remodulin as I talked at length during this call, the product has been effectively reinvented during the past couple of years with serious spending on R&D and it is a brand new second generation textbook example of make generic barbaric kind of example of what we should do is always reinventing products with the latest and best technology.

And also I'll say that ours – in terms of Remodulin, a Part D product – I mean, a Part B product, excuse me, Part B as in Bravo product, very different type of generic profile than you see with Part D as in Delta product. In terms of things that are in the pipeline, Actelion's got five Phase III trials owned (25:42).

We've got a comparable number of Phase III trials going. So, again it's pretty much apples-to-apples.

So to have this pulmonary hypertension space validated by J&J at the $30 billion level, I think is a tremendous positive sign to all of the ecosystem of individuals, biotechnologists, companies, non-profits, hospitals, payers, everybody who's working on the pulmonary hypertension space has their activities to help save the lives of people with pulmonary hypertension validated by their (26:25) J&J Actelion deal.

I think it's terrific. So with that overview, let me now open the phone lines to any questions for our Chief Financial Officer, James Edgemond or myself.

Operator?.

Thank you. And our first question comes from Liana Moussatos from Wedbush Securities. Your line is now open..

Thanks for taking my question and congratulations on all your progress. The only question I have left now is what are the next products to enter the clinic? You've mentioned in the past eNOS gene therapy for PAH, RemoLiv for liver transplant tolerance and a bunch of other stuff.

So what's coming in next?.

Yes. Thank you for your question, Liana. So one of the – one I didn't have time to talk about but I think exemplifies of our (27:26) company's credo to conduct the most innovative clinical trials is this SAPPHIRE gene therapy for the treatment of pulmonary hypertension.

This is being headed up by a brilliant physician, Mike Callahan, who is head of our Cell Therapy Division here at United Therapeutics.

And what this product does, it's a textbook example of what's talked about nowadays is like personalized therapy, where your own cells are taken from your body modifying with some way and getting back to with therapeutic effect.

And the general concept is somewhat old and people used to do what I would call minimal manipulation to the cells and I don't think that there were many interesting therapeutic results to come from that.

But nowadays what are done are, what I would call, highly sophisticated manipulations of the cells and in our case we actually insert a new gene into the patient cells. This is the gene for eNOS, a nitric oxide synthase, which is you can see in assays from pulmonary hypertension patients is markedly reduced compared to normal.

So we withdraw patients' serum through apheresis. We ship it to a centralized location where we have built a GMP cell engineering facility, all at the GMP standards, it's a gigantic machine, no people can get near it, and even the people who get in the same room have to be fully double gowned and all that kind of stuff.

And then we transect the patients' cells with eNOS, using a lot of proprietary techniques. Then we ship them back to the cells because these cannot be – these cells cannot be left and let go outside the body for very long.

So we've got a total for this entire therapy, we've got a 24-hour loop where we have to withdraw the patients' cells and get them back to the patients. And the patients are at hospitals across seven different major hospitals, across thousands of miles. So it's not a little bit of logistics involved in getting this all done.

And then the autologous gene therapy is infused back into the patients. So this is a 45-patient study with cross-over arms, very innovative design, lead investigator is Dr. Duncan Stewart, one of the most famous names in pulmonary hypertension.

And, Liana, our hope is to be able to – this is now in Phase III, so our hope is to actually get this therapy approved right at the very beginning of the 2020. Certainly, within five years from where we are right now.

Next question, please?.

Our next question comes from Geoff Meacham from Barclays. Your line is now open..

Hi, all. This is Evan on for Geoff. Thanks so much for taking the question. One on FREEDOM-EV, you had mentioned that you believe you'll be able to potentially accrue the number of events necessary for an interim look over the summer.

I guess, could you just give us some more detail on the powering, and I guess the likelihood of success that you'll hit over the summer? And if you do, would you be able to potentially file for a label expansion soon thereafter?.

Yeah. I think the answers to your questions are all pretty much in the affirmative. I do believe that we'll accrue to 154 by sometime during the summer. It's not a scientific arc here and it depends on ultimately Mother Nature really.

So I wouldn't like – I wouldn't break that as a break line definitely positively, but that's the center of the curve based on the number of events that verified now (31:52). I'm just going to give you a ballpark figure. I would say that we are – we're within a couple of dozen – maybe a little bit more than that – events from that number.

So at the current rate things are going, I think, that's a reasonable bet. Our confidence is – certainly, we did take a statistical penalty in order to take an interim look, so the confidence is not going to be as high as it will be when we reach the full – maximum number of events, which is in the 225 ballpark.

So the confidence is a little bit less than that. But nevertheless, the confidence is pretty good and far above 50-50 for sure. So that's looking pretty positive and if the results are successful, then we could move forward with submitting for a label expansion..

And then....

Actually, it's not the right way to a label change. I'm going to preempt your follow-on because there is like this long queue behind you..

Okay. Thanks for taking the question. Appreciate it..

Next question..

Our next question comes from Mark Schoenebaum from Evercore ICI (sic) [ISI] (33:16). Your line is now open..

Hi, thanks for taking the call. This is Regina Grebla on for Mark. Back in the summer you mentioned looking at different companies in terms of possible M&A.

Are you still open to M&A and can you provide some color on what you would be interested in? If not, do you think you can grow up your current revenue base without BD?.

Thanks, Regina. So we are and I can't really go into a lot of details on like a gigantic conference call like this.

But one of the main reasons why we did not re-up right away the stock buyback after we successfully completed purchasing the last tranche of – was it a $500 million – how many?.

$500 million..

Yeah. $0.5 billion share buyback which has – the shareholders on the phone, I think, will be very pleased to know that the average price of that shares bought back was....

$119..

$119 a share. So, I think we did good for the shareholders on that buyback. But one of the reasons we've paused is, as you can see, we've gone much more aggressively on R&D and biz dev in the second half of 2016.

And we are looking at opportunities that could use up substantially all of the borrowing authority or cash in the bank that we have right now. So we still would be very cautious about spending $1 billion plus on an acquisition.

But if something looks to us like it's going to be accretive for our shareholders and specifically more beneficial than using that cash to buy back the shares, then I think it would be more sense to use that cash for biz dev.

So, we are looking in – at biz dev opportunities that are even twice as large as the amounts that we've asked them for the buyback.

Next question?.

Our next question comes from Chris Shibutani from Cowen. Your line is now open..

Yes, thanks for taking the question. On the implantable pump and RemUnity as well, can you remind us what kind of commercial infrastructure you have in place and how we should be thinking about the pace of the ramp? I realize that in the past you've talked about being reluctant to give, kind of, quarterly metrics.

But particularly during the initial year there are issues about just getting a physician started, commercial sales force in place, reimbursement. Just give us a sense for what you think the shape could be in that initial period so that we can help think about what the modeling implications will be? Thanks..

Yeah. Thanks for your question. If you don't mind, James, if you'd be willing, I'd like if – because you are a little bit closer to the reimbursement situation than I am, if you wouldn't mind, and I know you're briefed from the commercialization team on the RemoSynch startup phase and launch.

Maybe if you could take this question?.

Sure, I'll be glad to. Hi, Chris, thanks for your note. I think the important thing is – within your question is to think about reimbursement, for example, RemoSynch.

And from a reimbursement perspective, there are many reimbursement channels, and it's really difficult to predict exactly which channel a hospital or a physician will ultimately seek reimbursement. But we currently expect the codes for pain management really to be used for the pump and the reimbursement of the pump at this point.

And so from a reimbursement perspective, we think what's existing and what is in place will be used by the physicians in the hospitals from that perspective..

Okay. Thanks, James.

Next question, please?.

Our next question comes from Terence Flynn from Goldman Sachs. Your line is now open..

Hi. Thanks for taking the question. Maybe just, Martine, you mentioned the backlog of patients that could come off of some of the oral products and go on to your franchises in 2017.

Can you be more specific about when exactly you expect that to happen? And then the second part of my question is just any thoughts on prospects of any changes to Medicare, I know there's a lot of commentary coming out of D.C.

these days, but you did you mention Part B versus Part D drugs and differences but any thoughts just on changes to Medicare? Thanks..

Sure. So with regard to the rate, basically everybody in the pulmonary hypertension space is doing a little bit of a natural experiment in terms of rate of progression of patients on either AMBITION or on selexipag.

The best data-driven result I would give you is to go to the well-controlled studies which for AMBITION, has been published in a leading journal and I believe Gilead is in the process of having it added to the Letairis label. So you can go there, and you could see specifically and quantifiably what percent of patients progress on the active drug.

And you can do the same thing with the Uptravi label which from my recollection was about something like one out of 14% or 15% of the patients per year progressed. So, that basically at three to four years, half of the patients who had started selexipag have already progressed onwards.

Generally speaking, clinical trials are best cases for drugs because patients are seeing doctors constantly, and they're being encouraged to stick with the protocol. So in real life, the results are almost always worse, that patients will progress on any given drug more rapidly than they will in the clinical trial.

So all you have to do is just take that – those rates for AMBITION and for Uptravi and multiply them by the number of patients on those drugs, and then you will have the size of the backlog.

Right now, I have been doing that kind of number crunching, and it looks to me that there is a backlog on the order of about 2,000 patients right now that will be progressing on to Tyvaso and Remodulin. Of course, not realistic that could I predict exactly which quarter in 2017 those progressions would occur.

And as to the Medicare question, from – I'm no guru about healthcare policy or anything like that, but I do believe that United Therapeutics would be looked at as a pretty good poster child for anything that was being done on the Medicare side.

For example, Remodulin, which is our principal Part B, as in Bravo, reimbursed drug, has not increased its price. We have not increased the price of Remodulin in five years. And that's well-known to all the DMERCs, which is the regional Medicare people who define these things, and much appreciated by them.

So I think that whatever is going to go on at Medicare, I think it's quite unlikely that it would have an adverse effect on UT. Looks like we have time for one last question..

Our next question comes from Hartaj Singh from Oppenheimer. Your line is now open..

Hi, thank you. Thanks for the question. Just want a quick question probably on your margin progression for the rest of the year with R&D, SG&A and then also Adcirca, potentially towards the end of this year. Any commentary there would be really helpful. Thank you..

Hi, Hartaj, it's James.

How are you?.

Good, James. Thank you..

Good. Just from a margin perspective, I will kind of back into your answer by looking at budgets overall, which I think is part of your question about the significant increase we've talked about in R&D spend. But we develop our internal annual operating budgets not to exceed 50% of our prior year revenues.

So regardless of the large number of clinical trials that we're starting, we're going to stay within that framework. And whether that framework kind of ebbs and flows between SG&A and R&D, we know from a budgetary perspective we're not going to exceed that metric.

And so from a budgeting and control standpoint on costs, you can expect us to continue to grow revenues while managing our expenses and growing the bottom line..

Thank you very much, James. I would like to thank everybody for their participation in our 2016 fourth quarter and annual financial results. James and I look forward to meeting many of you at our upcoming Healthcare Conferences where we will be presenting, Cowen in Boston on March 6 and Barclays in Florida on March 14.

Operator, you can conclude the call..

Thank you for participating in today's United Therapeutics Corporation Conference Call. A rebroadcast will be available for replay one week by dialing 1-855-859-2056, with international callers dialing 1-404-537-3406 and using access code 59599305..