United Therapeutics (UTHR)

United Therapeutics Corporation, a biotechnology company, engages in the development and commercialization of therapeutic products for patients with chronic and life-threatening diseases. Its research focus is primarily in three therapeutic areas, including cardiovascular, cancer, and infectious diseases. The company's products include Remodulin, inhaled and oral Treprostinil, Beraprost MR, and inhaled Treprostinil with AERx essence for the treatment of pulmonary arterial hypertension. It also offers CardioPAL SAVI wireless cardiac event monitors, which are in phase II trials and CardioPAL SAVI and Decipher cardiac monitors for cardiac arrhythmias and ischemic heart disease. In addition, the company is developing 3F8 MAb that is in phase II trial for Neuroblastoma oral Treprostinil, which is in phase III trial for peripheral vascular disease Miglustat for Hepatitis C that is in phase I trial inhaled Treprostinil, which is in phase I trial for Idiopathic pulmonary fibrosis 8H9 MAb for Metastatic brain cancer that is in phase I trial Glycobiology antiviral agents for Hepatitis C and other infectious diseases, which are in preclinical stage. Further, United Therapeutics provides telemedicine services to detect cardiac arrhythmias and ischemic heart diseases. It has operations primarily in the United States, Europe, and Asia. The company has strategic alliance with Medtronic MiniMed for the use of pager-sized continuous microinfusion pump for delivery of Remodulin subcutaneously and a license, development, and commercialization agreement with Aradigm Corporation to manufacture, develop, and commercialize its AERx Essence device, a pulmonary drug delivery system. United Therapeutics was founded in 1996 and is headquartered in Silver Spring, Maryland.

Remodulin Growing Share

United Therapeutics leading product is Remodulin (treprostinil), a prostacyclin analog indicated for the treatment of pulmonary arterial hypertension (PAH) in patients with NYHA Class II-IV symptoms. Remodulin is currently available from United Therapeutics in both a continuous subcutaneous or intravenous injection. Typically patients will start on a subcutaneous dose (SC) and move to an intravenous (IV) dose of the drug once subcutaneous administration is either no longer tolerated or sufficient to control the symptoms. Management estimates the business is split evenly between the two currently available forms. Remodulin sales totaled $201.3 million in 2007 and $72.1 million in the third quarter of 2008.

PAH is a continuous high blood pressure in the pulmonary artery. Patients with PAH may have an at rest pulmonary arterial pressure twice that of a normal healthy individual's level. The resulting continuous high pressure causes the muscles within the arterial walls to tighten up and constrict blood flow. It also causes the walls of the pulmonary arteries to thicken and, in the most severe cases, form scar tissue. This narrowing of artery further limits blood flow and oxygen supply, and creates an opportunity for blood clots and blockage of the artery altogether. In also creates a significant shortage of breath and an inability to perform simple physical task without the feeling of complete exhaustion. The narrowing of the pulmonary arteries causes the right side of the heart to work harder to pump blood through the lungs. Over time, the heart begins to weaken and lose its ability to pump enough blood to support normal daily function. Heart failure is the most common cause of death in people with PAH.

The World Health Organization (WHO) and New York Heart Association (NYHA) classify five levels of PAH. Manifestation can be idiopathic, familial, or associated, with the disease often progressing in severity over time. The incidence of PAH is growing rapidly, especially in patients with associated diseases such as HIV, sickle cell anemia, systemic sclerosis, and COPD. However, many of the associated PAH cases develop from idiopathic origins. There are an estimated 60,000 PAH patients in the U.S., with a similar level in Europe. However, the disease is often miss-diagnosed as asthma or COPD in its early stages, and often not correctly identified as PAH until symptoms advance to the class III/IV stage. As such, diagnosis rates are around 35% in the U.S. (25-30% in the E.U.), with the majority of patients not progressing to SC or IV therapies such as Remodulin until they have reached class III/IV disease progression.

The majority of PAH patients start out on oral endothelin receptor antagonist (ETRA) treatments that include Actelion's Tracleer (bosentan) or Gilead's Letairis (ambrisentan). Another product, Thelin, which Pfizer owns the rights to in the U.S., is available in Europe. Letairis, a relatively new agent launched by Gilead in 2007 has gained significant market share given its improved efficacy and tolerability profile over Tracleer, a product with nearly $1 billion in sales worldwide.

Recently, phosphodiesterase type-IV (PDE-5) agents, including Pfizer's Revatio (sildenafil, Viagra) and Eli Lilly's Cialis (tadalafil), thanks to their vasodilating properties, have also gained significant first-line oral therapy use. United Therapeutics licensed the U.S. rights to tadalafil for PAH in November 2008 for $150 million. However, PAH progression often moves fast and patients typically begin to fail oral first-line monotherapy within two years. The next progression is usually to SC/IV prostacyclin agents such as Glaxo's Flolan (epoprostenol) or United Therapeutics Remodulin (treprostinil). Prostacyclin, a naturally occurring hormone produced in the endothelial cells prevents platelet activation and relaxes blood vessels in the lungs. This not only prevents dangerous blood clots, but also eases the stress and workload of the heart. Actelion also offers an inhaled prostacyclin analog, Ventavis, launched in 2005. Ventavis (iloprost) is administrated 5-6 times a day through a handheld, battery-operated nebulizer. Although administration can take as long as 10 minutes per administration, many patients find the inhalation a significant convenience over the continuously infused SC / IV agents.

Continuous IV

.

Inhaled Treprostinil (Viveta) The Next Big Thing?

In May 2008, United Therapeutics presented full results from the 235 patient TRIUMPH phase III program at the American Thoracic Society (ATS) meeting. The TRIUMPH trial was designed to assess the effects of chronically administered inhaled treprostinil on exercise capacity, as well as assess safety, quality of life chances, disease progression, and symptoms of PAH. Patients were randomized 115:120 inhaled treprostinil to placebo. All patients were also on existing oral medications, with roughly 2/3rds on Tracleer and 1/3rd on Revatio. The clear majority of patients (>95%) were NYHA Class III PAH, with over half (56%) of idiopathic nature. The primary endpoint was the mean change in a timed 6 minute walk (6MWD).

After 12 weeks on therapy, the inhaled treprostinil group showed an average 20 meter improvement in distance walked (over the 346 meter baseline) vs. placebo (p<0.0002). Additionally, the lowest quartile of baseline PAH patients (204-302 meters) showed a significant improvement of 49 meters at peak vs. placebo (p<0.0004). Of interesting note, Tracleer patients showed a significant improvement in baseline (+25 meters) vs. Revatio patients (only +9 meters) after 12 weeks on combination therapy.

Unfortunately, the results look only consistent, if not a little worse than, Actelion's Ventavis (inhaled iloprost) using the similar 6MWD test. Besides this, our concerns with the results were that secondary endpoints, including change in Borg Dyspnea score (shortness of breath), NYHA function class, or PAH signs and symptoms did not show improvements. We were also surprised with the lack of improvement in the Revatio population. Other concerns were that the adverse event rate (AE) was significantly higher for the inhaled treprostinil group, with significant increases in cough and headache, as well as nausea, dizziness, flushing, throat irritation, and pharyngolaryngeal pain also reported. Plus, we think it is interesting that inhaled Viveta failed to show a benefit with Revatio, a PDE-5, and management will now be out with the same sales force co-promoting Viveta and Cialis, another PDE-5. How do you effectively promote two drugs together when you have no data showing the drugs work symbiotically?

Management reported additional one year follow-up data from the open-label program at the CHEST meeting in October 2008. The open-label program enrolled about 90% of the blinded trial patients, and some 90% of those stayed on the drug for one year. The data was impressive, but still fails to convince us that Viveta is a significantly better treatment option efficacy wise than Ventavis. That being said, the dosing benefit for Viveta is superior to Ventavis. Ventavis requires 6 to 8 daily inhalations, each taking up to 10 minutes. Viveta requires only 4 daily inhalations, each lasting only as long as 3 - 4 minutes. Viveta has the advantage here. But when we look at the Viveta Nebu-Tec OPTINEB device, it's a monster compared to Ventavis (below).

Viveta

Ventavis

AERx Essence

United Therapeutics filed the U.S. new drug application (NDA) on inhaled treprostinil on June 30, 2008. The proposed marketing name will be Viveta. FDA acceptance of the NDA came in August 2008. Management does not expect there to be an advisory panel review prior to the decision. A 10-month PDUFA would put potential approval on April 30, 2009 however, given seemingly perpetual delays at the FDA, we do not model a launch until July 1, 2009 the first day of the third quarter.

Potential hiccups could revolve around the FDA's interest in why the Revatio population failed to show a meaningful improvement, or why 3 patients in the inhaled treprostinil arm had to discontinue due to disease progression vs. none in the control. Thus, approval in the second quarter 2009 is far from a slam-dunk. United Therapeutics plans to file for European approval of inhaled treprostinil before the end of the year. There is clearly a lot going on, but that this point the market may be expecting too much from management with Viveta. Questions remain on what the potential label may look like or how Viveta will compete with Ventavis. At this point we think visibility is low.

United Therapeutics is working on a "next-generation" inhaled treprostinil that utilizes Aradigm's AERx technology. The AERx Essence platform is a small, palm-sized device that provides more efficient and reliable inhalation. This device is smaller than the Ventavis device. United Therapeutics will most likely conduct a second TRIUMPH program to start in 2009. The "next-gen" Viveta-AERx candidate completed a positive bridging study in October 2008. Data from the study showed that the AERx Essence inhaler efficiently delivered aerosolized treprostinil deeper into the lung than delivery by the OPTINEB nebulizer in as little as 2 to 4 breaths. Once this device is on the market, perhaps in 2011, we expect that Viveta will be able to gain significant market share from Ventavis.

Oral Remodulin Challenges Remain

From an administration standpoint, oral Remodulin would be fantastic advantage over SC/IV or even inhaled Remodulin. Popping a pill, even twice per day, is significantly more desirable for patients than wearing a continuously infusing pump or finding 5 minutes 5-6 times per day to inhale from a nebulizer. However, we believe that significant hurdles remain before an oral Remodulin product can get on the market in the U.S., let alone garner significant use ahead of the SC/IV or inhaled forms. The biggest challenges are finding an adequate dose that is both tolerable and effective.

In May 2006, management initiated the FREEDOM-C trial testing twice oral Remodulin at various doses in 300 PAH patients already on oral Tracleer or Revatio therapy. On November 17, 2008, United Therapeutics released top-line results from the trial. The primary outcome of the study was similar to the TRIUMPH program, mean change in baseline in a 6MWD. The results failed to show statistical significance at the primary endpoint, although there were important noticeable trends toward beneficial use. Specifically, patients taking oral treprostinil demonstrated an average of 11 meter (14.5m - 4.8m) improvement from baseline (346m) after sixteen weeks of treatment. This was not statistically significant at p=0.072. Time to Clinical Worsening, WHO Functional Class, and Borg Dyspnea Score also failed to achieve statistically significance. The data:

Improvement in 6-min Walk Distance

Week 4

Week 8

Week 12

Week - 16

Oral treprostinil

(n=174, 346m baseline)

+5.5m

+15.0m

+16.5m

+14.5m

Placebo

(n=176, 345m baseline)

+2.1m

+7.0m

+5.8m

+4.8m

p-value

n/s @ p=0.238

n/s @ p=0.051

p=0.015

n/s @ p=0.072

Within the data we see that the oral treprostinil group did demonstrate statistical significance after week twelve. Management theorized that dosing and tolerability were the key reasons why the program failed. We believe that as drop-outs picked-up and dosing intolerability increased during the trials length, management ran into a situation whereby at week sixteen the numbers did not work out. We note that United Therapeutics did not conduct a phase II dosing program for oral treprostinil, and a large number of patients were either inadequately dosed, or improperly titrated to an effective dose given the lack of smaller dosing increments. In our previous Sell report, the reason why we stated the FREEDOM-C program would fail was because we did not believe management could get patients to a high enough effective dose while maintaining adequate levels of tolerability.

As it turns out, it looks like adequate levels of tolerability for oral treprostinil can be achieved. Patients able to titrate up to doses greater than 3.5mg BID demonstrated a net +34m improvement in baseline 6MWD. Patients able to titrate to between 1.25mg and 3.25mg demonstrated a net +18m improvement. Patients only able to tolerate less than 1mg BID showed no statistical improvement. However, dosing titration is paramount to successfully maintaining patients on therapy. The FREEDOM-C program offered three incremental dosing regimens, 1mg, 0.5mg, and 0.25mg. Given the high intolerability of treprostinil, patients must be brought up to therapeutic dose levels of above 3mg BID slowly. Patients with access to only the 1mg incremental regimen had a significantly higher discontinuation rate at 26% vs. the 0.5mg incremental group at 12% and the 0.25mg incremental group at 0% because they were not able to slowly build tolerability over the study period. FREEDOM-C failed but for patients with access to the 0.25mg dose that were slowly titrated up to average daily doses greater than 3mg BID, it was a huge success.

Therefore, FREEDOM-C amounts to a rather large and expensive phase II program. Armed with this new information, we do believe that an oral treprostinil is viable. However, United Therapeutics will need to conduct another phase III program. At this point we are unsure on whether or not it is too late for management to apply what it has learned with dosing and titration to the ongoing 170+ patient FREEDOM-M program expected to offer data in March 2009. Full data from FREEDOM-C will be available at the American Thoracic Society (ATS) in May 2009. Our financial model never assumed contribution from oral treprostinil. We believe the earliest that management could file for approval of an oral formulation, assuming FREEDOM-M is positive, and another combination therapy (FREEDOM-C Redux) is also positive, would be 2011.

Cialis to the Rescue!

Despite the failure of the FREEDOM-C program, United Therapeutics remains committed to entering the oral PAH market nevertheless. On November 17, 2008, United Therapeutics licensed U.S. rights to tadalafil (Cialis) from Eli Lilly for $150 million in cash, which Lilly turned right around and used to purchase $150 million in previously unissued common stock. So, for effectively 3 million shares (12% dilution), United Therapeutics replaced the expected launch of oral treprostinil in 2010 with the launch of oral tadalafil in mid-2009.

Lilly filed the NDA for tadalafil in the third quarter 2008. We are positive on the deal, and applaud the move. Approval is likely next summer, and once-daily tadalafil should be an effective first-line oral therapy for PAH. We expect usage to be similar to Pfizer's sildenafil (Revatio / Viagra), with both PDE-5 products sharing the market equally. Revatio's efficacy looks superior to Cialis, with Revatio demonstrating at +45m improvement in baseline 6MWD at 20mg TID vs. Cialis at +28m for 20mg QD. However, Cialis' once daily dosing (QD) should be enough to capture 50% of the market from Revatio, which is dosed three-times daily (TID). It is important to note, however, that both agents look inferior to Gilead's Letairis 10mg BID, which offered a +51m improvement. We expect that the majority of patients will start out on Tracleer or Letairis, and then move to supplement with adding a PDE-5 such as Revatio or Cialis probably within two years. Still, the deal is very positive for United Therapeutics, as Cialis will be promoted by the existing Viveta sales force and offers at $250 million opportunity.

Rest of Pipeline Small and Early-Stage

Medicomp, Inc., the company's wholly-owned subsidiary, manufactures and markets a variety of telecardiology services approved for health care reimbursement for patients with an array of possible cardiac arrhythmias. Products include heart monitor, CardioPAL SAVI, to detect the p-wave atrial activity, as well as EpiCardia, a product that provides cardiologists with a printed ECG report on their patients anywhere in the U.S. as quickly as one hour after the patient connects the device to a telephone receiver. Medicomp also provides pacemaker monitoring services. These products and services totaled sales of $2.9 million in the third quarter 2008.

United Therapeutics also has earlier stage biotechnology development platforms in both monoclonal antibodies (MAb) and glycobiology. There are two investigation stage antibodies, 3F8 and 8H9, under development. The first, 3F8, is an IgG3 MAb for neuroblastoma. The second candidate, 8H9 is an IgG1 MAb for human solid tumors, including metastatic brain cancer. The company also has preclinical glycobiology research in antiviral targeting applications, including hepatitis C.

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