Martine Rothblatt - Chief Executive Officer Michael Benkowitz - President, Chief Operating Officer James Edgemond - Chief Financial Officer.

Hartaj Singh - Oppenheimer & Co. Jessica Fye - JP Morgan Martin Auster - Credit Suisse Liana Moussatos - Wedbush Securities Chris Shibutani - Cowen Geoff Meacham - Barclays Terence Flynn - Goldman Sachs.

Good morning and welcome to the United Therapeutics Corporation Second Quarter 2018 Earnings call. My name is Brian and I will be your conference operator today. All participants will be in listen-only mode until the question and answer portion of this earnings call.

If you would like to ask a question during that time, simply press star then the number one key on your telephone keypad. If you would like to withdraw your question, press pound on your telephone keypad. I would now like to turn the conference call over to James Edgemond, Chief Financial Officer of United Therapeutics..

Good morning. It is my pleasure to welcome you to the United Therapeutics Corporation second quarter 2018 earnings call. Accompanying me on today’s call are Dr. Martine Rothblatt, our Chairman and Chief Executive Officer; Mr. Michael Benkowitz, our President and Chief Operating Officer, and Mr. Andy Fisher, Deputy General Counsel.

Remarks today will include forward-looking statements representing our expectations or beliefs regarding future events. These statements involve risks and uncertainties that may cause actual results to differ materially. Our latest SEC filings, including Form 10-K and 10-Q contain additional information on these risks and uncertainties.

We assume no obligation to update forward-looking statements. Today’s remarks may also include financial measures that were not prepared in accordance with U.S. generally accepted accounting principles.

Reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in our earnings release available on our website at www.unither.com. Today’s remarks may discuss the progress and results of clinical trials or other developments with respect to our products.

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 of products are safe and effective for any unapproved or investigational usage. Full prescribing information for the products is available on our website. Now I will turn the call over to Dr.

Rothblatt for an overview of our second quarter 2018 financial results and the business activities of United Therapeutics..

Good morning and thank you for joining us today for our second quarter 2018 earnings call. I will discuss the following topics.

First, I will provide an overview of our quarterly financial results; second, I will outline why we believe that long term Remodulin revenues will continue to grow even as generic formulations are expected to become commercially available later this year; and last, I’ll provide an update on several of our pipeline products supporting United Therapeutics’ long term revenue growth strategy and conclude my prepared remarks with an update on our merger agreement with SteadyMed.

Starting with our top line financial results for the second quarter of 2018, our revenues totaled $444 million as revenues earned from our prostacyclin product franchise, which consists of Orenitram, Remodulin and Tyvaso, grew slightly as compared with the previous year; however, we are treating a larger number of pulmonary arterial hypertension patients with our prostacyclin product franchise, confirming our belief in the organic growth opportunities within the treated PAH population, which we believe underutilizes prostacyclin therapy.

Our revenues increased $55 million or 14% over the first quarter of 2018 and the sequential growth reflects consistent historical distributed purchasing patterns as our second quarter revenues tend to be higher when compared to the first quarter.

In addition, during the second quarter of 2018, Adcirca revenues posted a sequential increase of $12 million or 13% when compared to the first quarter of this year. Adcirca did experience loss of exclusivity in May of this year, at which time we expected generic competition to enter the market and significantly reduce our branded Adcirca revenues.

Although we still expect a generic formulation of Adcirca to be launched this year, we are uncertain as to exactly when that generic competition will enter the market. Next I will outline why we believe that long term branded Remodulin revenues will continue to grow in the face of generics.

As background and for those of you who are new to the UT story, we still anticipate the launch of the generic formulation of Remodulin this year based on our settlements with four generic companies. Under the terms of these settlements, the first generic formulation was permitted to enter the market over a month ago.

To our knowledge, that generic formulation has not yet launched. Even though a generic formulation of Remodulin will eventually enter the market, we continue to believe that Remodulin revenues will increase along with the size of the treated PAH population.

Future growth will be supported by the recognized proven qualities and defining characteristics of branded Remodulin, which include, number one, an established safety profile and supply chain reliability.

Subcutaneous Remodulin was first approved by the FDA in 2002 and we have over 15 years of experience safely treating thousands of fragile PAH patients.

We believe that prescribing physicians will continue to recognize and appreciate our established track record and consistent supply chain availability and will therefore continue writing prescriptions for branded Remodulin to be dispensed as written, DAW for both existing and newly diagnosed PAH patients.

Number two, our Remodulin patient support services. UT will continue to provide for branded Remodulin patients which includes our premix program specifically for IV patients, which allows these patients and their caregivers to save up to approximately two hours per week in mixing and therapy preparation time.

These services further support those PAH patients with dexterity issues, such as scleroderma patients, and also our training to hospitals, specialty pharmacy nurses and technicians on how to administer Remodulin. We are not expecting generic manufacturers of Remodulin to offer this same level of patient support.

Number three, physicians and payors have not historically encouraged substitution of existing lower cost PAH parenteral alternatives. Remodulin has competed for over seven years with three other forms of parenteral therapy to treat PAH, all of which are significantly cheaper than branded Remodulin.

Despite the availability of the other lower priced therapies, we have seen little evidence that physicians and payors will mandate or even encourage switching from branded Remodulin to a cheaper PAH parenteral therapy. Number four, Remodulin will remain a highly differentiated product.

We believe that branded Remodulin use will continue to grow, but it will look very different from today’s Remodulin It will be delivered through multiple next-generation drug delivery systems intended to enhance safety, tolerability, and convenience for our patience, including the implantable system for Remodulin or ISR, and RemUnity.

Our settlement agreements with generic manufacturers do not grant them the right to market their generic formulations of Remodulin in these next-generation drug delivery systems, and per our agreement with DEKA Research and Development Corporation, only branded Remodulin may be used in the RemUnity pump which DEKA is developing for us.

These key reasons allow us to remain confident that even as generic formulations of Remodulin eventually enter the market, our long term branded Remodulin revenues will continue to increase.

Let’s now transition to our product pipeline, which currently consists of numerous investigational programs including therapies for PAH and other forms of pulmonary hypertension, innovative drug delivery devices, gene therapy and oncology.

We will also continue to work on technologies to ultimately create an unlimited supply of tolerable, transplantable manufactured organs for those who suffer from end-stage organ disease.

I want to provide you with an update on several of our near-term pipeline products and business development opportunities that all support our long term revenue growth strategy.

First, just yesterday we announced the approval by the FDA of the implantable system for Remodulin - ISR, and together with our partner, Medtronic, we look forward to bringing the patients a new option for delivery of intravenous Remodulin. To my knowledge, this is the first implantable pump approved by the FDA to treat cardiovascular disease.

The ISR is expected to be a game changing technology for PAH patients and we continue to believe that thousands of patients will eventually use the ISR given its potential to provide systemic treprostinil without prior passage through the gastrointestinal tract and without the complications currently associated with the use of external microinfusion pumps.

We are approaching the ISR launch, along with our partner Medtronic, with precision and care to ensure that implant surgeons, refill centers, reimbursement pathways, and other healthcare service organizations are all properly trained and ready for commercial launch by early 2019, which is consistent with our prior expectations.

As I’ve previously mentioned, our belief that the ISR will ultimately be used by thousands of patients is a medium term goal, as launching a surgically implanted, periodically refilled device needs to be done with greater than customary care, with good caution, and in strict coordination with multiple participating organizations.

Two, another next generation drug delivery system we are advancing is RemUnity, a small, lightweight, external subcutaneous pump that we are developing under an exclusive agreement with DEKA. In February 2018, DEKA filed RemUnity with the FDA under a 510(k) submission that was accepted for review by the FDA.

DEKA has been engaged in productive discussions directly with the FDA and we will provide you future updates as we learn more. In addition to these drug delivery devices, let me update you on our seven ongoing Phase III clinical trials.

We have two Phase III clinical trials in PAH, Freedom-EV and Beat, and are still expected to unblind in the near term time frame. Freedom-EV is the study of Orenitram in combination with other therapies in treating PAH. Beat is the study of two drugs in combination, Tyvaso, an inhaled prostacyclin analog, and Esuberaprost, an oral prostacyclin analog.

This study represents a novel approach to treating PAH with the delivery of prostacyclin therapy from both the airway side using Tyvaso and systemically using Esuberaprost. If both of these clinical trials are successful, we will have two therapies to address morbidity and mortality in PAH and potentially extend survival for PAH patients.

We expect this to result in a greater number of patients living longer and receiving our therapies, further supporting our long term revenue growth.

We have three clinical trials in just pulmonary hypertension, which includes Increase, Perfect, and Southpaw, and all three of these are currently enrolling patients; in fact, the Increase clinical trial is now over 50% enrolled.

These three clinical trials are for pulmonary hypertension indications that do not have any FDA approved therapies with patient populations significantly larger than the current estimated treated PAH population of only 40,000 patients in the U.S.

Lastly, our Sapphire gene therapy clinical trial for pulmonary arterial hypertension and our Distinct clinical trial with dinutuximab for small cell lung cancer continues to progress and enroll patients; in fact, the Distinct clinical trial in lung cancer is now over 50% enrolled.

These seven ongoing Phase III clinical trials as well as our other R&D programs are expected to sustain our revenue growth in the near and medium term. Longer term, we are working very diligently to drive further revenue growth through R&D programs that are currently underway to develop technologies in the nascent field of organ manufacturing.

Now let me provide a brief update on our merger agreement with SteadyMed. We announced in April our agreement to acquire SteadyMed Limited. I am pleased to see that the HSR waiting period has expired and the SteadyMed shareholders have approved the deal.

We are now in the middle of a waiting period under Israeli law and expect the merger will close at the end of August, at which point SteadyMed’s pipeline product Trevyent will fit very nicely within our near term strategy of developing and advancing technologies to make parenteral prostacyclin therapy easier, thus benefiting more of our patients.

In closing, we are pleased with our quarterly financial results and the progress of our business activities, and we have a future growth strategy that fully contemplates our expectation for the generic entry of Adcirca as well as generic versions of Remodulin later this year.

We remain focused each and every day with the development and commercialization of our innovative product pipeline to address the unmet medical needs of patients and to deliver sustained, long term revenue growth to our stakeholders. Let me also add that we will be participating in the Wedbush PacGrow Healthcare Conference later this month.

Also, on September 24 we will again by hosting a United Therapeutics Science Day Meeting for investors in New York, and I look forward to seeing many of you there Thank you for joining us on the call today. Operator Brian, I would now like us to open the call to questions..

[Operator instructions] Our first question comes from the line of Hartaj Singh from Oppenheimer & Company. Sir, your line is now open..

Great, thank you. Just had one quick question on Freedom-EV. It’s on the top of a lot of folks’ minds.

With the interim last year, you’d been able to provide a month within which the readout would have happened, but do you have any thoughts on that could come? I know you just mentioned near term, but if you could just give us a little bit more color on the timing, we’d really appreciate it. Thank you..

Thanks Hartaj, nice to hear your voice this morning. We are--it’s imminent. It is in the near term. The reason why I don’t want to give a specific month is because I can’t be absolutely certain whether something is going to cross over from August to September.

The trial, as we’ve announced previously, [indiscernible] is over in the sense that it’s completely enrolled and the data is all being collected, but then if you’ll recall, this is the largest trial that we’ve ever done.

It’s in upwards of a dozen different countries and it’s necessary to collect all of this data in accordance with good clinical practices and with the company’s quality assurance techniques that apply to clinical trial development. Everything is just being done in the classic UT way that is cautious, careful.

There’s no reason to rush something to do it by the end of July or exactly the end of August. It’s imminent is the best that I can share with you, Hartaj..

Great, thank you..

Our next question comes from the line of Jessica Fye from JP Morgan. Your line is now open..

Great. Thanks so much for taking my questions. I was wondering if you could comment on your conviction level in the 510(k) approval of the first iteration of the RemUnity pump..

Yes, thanks Jessica. We like to look at the FDA as a black box, pretty much because it largely is. They have a very challenging job of approving products that become used in the general public, and of course everybody wants things to use safely and properly.

It’s not really productive to speculate too much on the inner workings within the FDA, but as we have said on previous calls, we are highly confident. I would say I’m as confident as I could be about anything that the RemUnity pump will be approved by the FDA.

Again, which month, similar to the response to Hartaj’s question, I don’t want to veer into guessing whether it’s one month versus another, but it’s an amazing device.

Just to be kind of be a little bit catty here for a moment, I was on the assembly line with the review of these pumps just yesterday up in Manchester, New Hampshire - extremely impressive assembly line, very impressive quality assurance, quality control set of procedures that are in place there.

This is really a beautiful piece of technology, and I actually have one in my hand right here but I can’t Facetime you in to see it, so it’s right around the corner, Jessica. That’s the best I can share with you..

Thank you..

Our next question comes from the line of Martin Auster from Credit Suisse..

Hey all. Thanks for taking my question, and Martine, congratulations on the quarter. It’s good to see the business resilient thus far in 2018. I had a question from something the 10-Q. I noticed that there were generics launched in some of the countries in the EU for treprostinil.

I was curious who the manufacturer of those generics was, was it one or multiple products, and what do you anticipate in terms of competitive risk from those generics going forward? Thanks..

Hey Martin, this is Michael, I’ll take that question. I forget the name of the company but it’s a division of Dr. Reddy’s is the company that filed for generic in the EU. We are anticipating that they’re going to launch at some point later this year - we don’t know exactly when, and I think the European market is a lot different than the U.S.

market in terms of payor landscape and the reimbursement landscape, so we’re working with our partner, Ferrer to negotiate with the various government entities so that we can maintain as much of Remodulin revenues as we can.

We would expect that we’re going to see some decline, either due to a reduction in our price or just the generics taking some market share over the medium term..

Okay, super. Thanks, and see you guys at the analyst day..

Next question, Operator?.

Our next question comes from the line of Liana Moussatos from Wedbush Securities. Your line is now open..

Thank you for taking my question. Congratulations on ISR approval.

What are the rate limiting steps between now and when you can launch in early 2019, and can you talk about the retail centers, how they will work?.

Thanks Liana for your question. We’re dividing up the questions with all the commercialization-related questions going to Mike, I’m doing the clinical development ones. By the way, Andy Fisher is also on the call, who would handle any intellectual property questions, and of course James you heard at the beginning will handle all financial questions.

But the Medtronic implantable system for Remodulin [indiscernible] is now a commercialized program, so Mike will take that question..

sleep, shower, swim and sex, will not only be attractive to Remodulin patients but we also think that’s going to entice epo patients to transition to Remodulin so they can take advantage of the implanted device.

We also think the ISR--you may or may not know there’s a number of patients that really are candidates for parenteral therapy but refuse to go on therapy because of the limitations of current pump options, so we think the ISR is going to provide a therapeutic option for these patients, so we’ll be able to draw more patients onto parenteral prostacyclin.

Eventually over the long term, we think that once this pump is up and running and it’s used by a number of patients and physicians get comfortable with it, we actually think there’s an opportunity [indiscernible] the use of parenteral prostacyclin in the PAH treatment paradigm.

So in short, we think that the ISR, really as Martine said, it is a game changing technology. It positions us over time to significantly grow the number of Remodulin patients. To your question about the launch plans, there’s a number of things that have to happen.

First, we’re very near agreement with Medtronic on a commercialization agreement to ensure that device supplies and support track to our commercialization plans.

From the very beginning, we intended to limit the initial launch of the ISR to the 10 sites that participated in the delivery study and then we’d follow that up with a full launch to PAH centers over the subsequent couple years.

Why is this? As Martine said, when we’re talking about launching a surgically implanted device, it’s complex, it requires precision and care. We have to get the refill centers up and running - I’ll come back and talk about that in a second.

There’s reimbursement pathways to address, and then make sure the other healthcare organizations are in place and properly working.

If we misstep early, it could jeopardize the entire program and therefore limit the number of patients that can benefit from the technology, so we’re starting with the folks that have the most experience, the centers that we’re in, in the study to make sure we get this right.

We expect we’re going to have these up and running by early 2019 because it will take some time to work through these issues.

As you said in your question, we’re working with CES or a division of CES to have these refill centers strategically placed around the country to again enhance convenience for the patients, so they don’t necessarily have to come into their physician’s office every time they need a refill.

They can go to one of these infusion centers that’s located closer to them.

We also think this is going to enhance the safety of the program because what you will have at these infusion centers is you will have nurses and healthcare providers that do this on a routine basis, so will have the experience of doing refills continuously, and so the risk of pocket build or other safety problems diminished considerably versus if you go to a physician that maybe only has a couple patients on the implanted device..

Excellent Mike, fantastic. Liana, thank you again for the question. Operator, we’re ready for our next question..

Our next question comes from the line of Chris Shibutani from Cowen. Sir, your line is now open..

Thank you for the questions. Could you talk a little bit about the oral agent market in particular for Orenitram? Performance levels for that product have been relatively flat, obviously you’ve had some shifting competitive dynamics over the last year or so, and you talked in the past about how oral agents are being used in combination.

Can you comment what happened in the second quarter, what you’re seeing and what your expectations outlook is for the balance of the year, both for Orenitram and oral agents broadly? Thank you..

Yes, thanks for the question. Let me provide a little bit of context about how we’re seeing Orenitram used in the market today. I think you’re aware Orenitram was approved in 2013 as a monotherapy based on six-minute walk distance improvements.

Subsequent to that, we conducted a study to show that patients on a stable dose of Remodulin could successfully transition to Orenitram safely.

Generally speaking, the two camps of Orenitram patients are, first, the earlier stage, stable but symptomatic patients where you have time to titrate up to an effective dose while managing the side effects, so that’s probably 75 to 80% of our patients; and then on the other end of the spectrum you have the Remodulin patients that have improved on functional class and that are on stable does and desire to move off an external pump.

In the first case, we’re of course competing with Selexipag, and I would say given our clinical data as compared to their perceived clinical data, we’re actually doing quite well.

If you think about the market, we’re probably getting about 35 to 40% of the oral prostacyclin market with, as I said, at least in the minds of some physicians less attractive or less beneficial clinical data. So we’re happy and I think we’re doing quite well with that.

We’re continuing to see growth in patients month over month, so that’s all going really well.

I think the EV readout, if that’s positive, certainly provides a catalyst for us to continue to grow Orenitram revenue, so we’ll now have--if successful, we’d have the morbidity, mortality endpoint that matches Selexipag, so that really kind of puts us on par from that standpoint.

We would expect or are optimistic that the six-minute walk distance would remain strong. That potentially puts us at an advantage relative to Selexipag.

I think there’s been a renewed emphasis over the last year or so in PAH, and we see this at conferences and we see this in our one-on-ones with physician interaction to assess a patient risk and push them into this low-risk status.

There’s a lot of different algorithms that physicians use to determine risk, but most of these suggest that six-minute walk distance improvement is one of the best prognostic factors of lower risk.

The combination of having a morbidity-mortality endpoint and strong six-minute walk distance, I think will strengthen our position in the market, not to mention the fact that when you look at the cost of Orenitram relative to Selexipag on average, we’re about 50% of the cost of Selexipag in year one and about 25% less in year two..

Excellent Mike..

A quick follow-up if I could, please?.

Operator, next question please?.

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

Hey guys, thanks for the question. I wanted to ask about the eventual rollout of the pump.

What do you guys think is the ultimate conversion rate from IV or subcu Remodulin, and could you use price or formulary to help accelerate that? Then Martine, I know you’ve talked about the history of generics in PAH, but beyond the pump, what strategies do you guys have in place to help mitigate the erosion looking to the back half of this year? Thank you..

In terms of conversion rate on IV subcu, I’m not going to really give guidance on percentages.

I think as both Martine and I have both said, I think that there are thousands of patients that we think can benefit from use of the implantable pump, both existing patients, you’re got [indiscernible] patients as well as patients that currently were refusing parenteral therapy.

I think the opportunity there long term is in the thousands of patients..

Thanks Mike. With regards to the back end part of your question, I think the RemUnity pump is very large part of the answer. As mentioned in the call earlier in February, DEKA submitted a 510(k) application to the FDA to clear the RemUnity system.

If approved, the 510(k) application is intended to enable disposable components to be prefilled with Remodulin by our specialty pharmacy distributors.

We are also engaged in further development efforts intended to enable us to ultimately submit a new drug application for a version of the system that includes disposable components that are prefilled as part of the actual manufacturing process.

DEKA has been engaged in productive discussions directly with the FDA and we’ll provide you with further updates s we learn more, but that summary of the RemUnity product is very much the answer to your question about how in the longer term toward the future would we be dealing with generic entry. Operator, we’ve got time for one more question..

Our next question comes from the line of Terence Flynn from Goldman Sachs. Sir, your line is now open..

Great, thanks for fitting me in. Just wondering on the implantable pump, can you tell us what the price of a refill cartridge would be? Is it fair to assume parity pricing here with IV subcu, recognizing there is some variability in dosing across patients? Just want to think about the revenue per patient impact. Thank you..

Yes, it will be the same price of Remodulin, so there’ll be no difference in the current IV or subcu price of Remodulin..

Very good. Thank you for joining us on the call today, and Operator, you may proceed to the closing script..

Thank you for participating in today’s United Therapeutics Corporation conference call. A rebroadcast will be available for replay for one week by dialing 1-855-859-2056. Once again, that’s 1-855-859-2056, with international callers dialing 1-404-537-3406. Once again, that’s 404-537-3406 and using access code 4434188.

Once again, the access code is 4434188. This concludes today’s program and you may all disconnect. Everyone have a great day..