125 WEEKS
`
`Rel. S&P 500
`
`23JAN09 - 10JUN11
`
`2009
`J F M A M J J A S O N
`
`2010
`D J F M A M J J A S O N
`
`2011
`D J F M A M J
`
`HI-12FEB10 143.38
`LO/HI DIFF 67.19%
`
`CLOSE
`
`117.26
`
`LO-24APR09 85.76
`
`70.74
`HI-29APR11
`LO/HI DIFF 158.69%
`
`CLOSE
`
`57.96
`
`LO-24APR09 27.34
`
`PEAK VOL. 16047.8
`VOLUME
`9618.2
`
`135.00
`
`120.00
`
`105.00
`
`90.00
`
`66.00
`60.00
`
`54.00
`
`48.00
`
`42.00
`
`36.00
`
`30.00
`
`12000
`
`8000
`
`4000
`
`RBC Capital Markets, LLC
`
`Michael J. Yee (Analyst)
`(415) 633-8522; michael.yee@rbccm.com
`
`Jason Kantor (Analyst)
`(415) 633-8565; jason.kantor@rbccm.com
`
`Charmaine Chan (Associate)
`(415) 633-8621; charmaine.chan@rbccm.com
`
`Adnan Butt (Associate Analyst)
`(415) 633-8588; adnan.butt@rbccm.com
`
`FY Dec
`Revenue (MM)
`
`EPS (Op) - FD
`
`P/E
`
`Revenue (MM)
`2010
`2011
`EPS (Op) - FD
`2010
`2011
`
`2010A
`603.8
`
`2011E
`722.5
`
`2012E
`830.4
`
`2013E
`958.8
`
`1.78
`
`1.69
`
`3.21
`
`4.21
`
`32.6x
`
`34.3x
`
`18.1x
`
`13.8x
`
`Q1
`128.9A
`165.6A
`
`Q2
`137.5A
`181.3E
`
`Q3
`171.0A
`185.3E
`
`Q4
`166.5A
`190.3E
`
`0.32A
`0.26A
`
`0.62A
`0.47E
`
`0.66A
`0.46E
`
`0.15A
`0.46E
`
`All values in USD unless otherwise noted.
`
`RATINGS REVISION | COMMENT
`JUNE 13, 2011
`United Therapeutics Corp. (NASDAQ: UTHR)
`Downgrading to SP: It’s Not Adding Up; Clinical +
`Regulatory + Commercial = Risk?
`
`Sector Perform (prev: Outperform)
`Above Average Risk
`Price:
`
`57.96
`
`Shares O/S (MM):
`Dividend:
`
`62.6
`0.00
`
`Price Target:
`Implied All-In Return:
`Market Cap (MM):
`Yield:
`
`60.00 fl 75.00
`4%
`3,628
`0.0%
`
`Event
`We see unfavorable risk/reward over long term, leading to downgrade.
`Conference call at 11 a.m. ET today: 800-602-4090.
`
`Investment Opinion
`We see clinical, regulatory, and – most of all – commercial/reimbursement risk.
`We believe Street is assuming too much optimism for C-2 to be positive, FDA
`approval will be fine (stock down only 5-6% since release of data), and a big $1B
`blockbuster drug. We lower our price target to $60 from $75. We can’t
`recommend owning for the regulatory or, longer-term commercial risks and
`believe risk/reward is not favorable. We don’t think UTHR is likely to be
`acquired anytime soon until there is better visibility on FDA approval and
`commercial concerns can be resolved.
`• We think C-2 has reasonable clinical risk to not be statistically significant,
`and in our view, importantly it needs to be clinically meaningful of at least
`15-20m or more (not a low hurdle and Street assumes should be achievable
`already). If C-2 is negative, there is meaningful regulatory risk for approval on
`just Freedom-M as one study alone (new NDA with one study and p-value not
`below p<0.01). Importantly, even if C-2 is positive with a strong result, there is
`still commercial risk – it is unclear how much use a drug with low-end efficacy
`(see exhibits on pp. 3-4), titration/tolerability issues (can stay on but still GI
`tolerability) vs. other orals, and an expected high price can achieve against the
`headwinds of standard of care going generic in a few years and increasing
`payor pressures.
`• Issues to consider that don’t add up: 1) Freedom-M average dose of 3.3mg
`was just not as high as expected (slower than expected titration) and drop-out
`of 12% (17% including deaths) was higher than expected, in our view (prior
`suggestions to Street was single digit). Taken together, this means patients just
`can't dose high enough or fast enough. We also think a 15-20m 6MWD isn’t
`very compelling when compared to ETRAs and PDE5s (23-49m benefits), and
`if used will be later on top of ETRAs and PDE5s; so, duration on oral won't be
`that long or it could cannibalize into Tyvaso.
`• Our new price target of $60 is based on $45 for the base business on a DCF and
`$15 for oral remodulin.
`
`Priced as of prior trading day's market close, EST (unless otherwise noted).
`For Required Conflicts Disclosures, see Page 10.
`
`WATSON LABORATORIES, INC. , IPR2017-01622, Ex. 1135, p. 1 of 2
`
`

`

`June 13, 2011
`
`United Therapeutics Corp.
`
`Comparative Profiles of Approved and Investigational PAH Therapies
`
`Compound
`
`Indicated
`
`6MWD (median pbo adjusted *)
`
`Market Share
`
`Annual Cost ($)
`
`Prostacyclins
`
`Tyvaso
`
`Class III
`
`20m (p =0.0004), w/ Tracleer or Revatio
`
`IV/SubQ Remodulin Class II/III/IV
`
`Oral Remodulin
`
`Class II/III
`
`16m (p = 0.00064), monotherapy
`
`PDE5
`
`Letairis
`
`Tracleer
`
`ERAs
`
`Adcirca
`
`Revatio
`
`Class II/III
`
`27 - 39m (p = 0.008), monotherapy
`
`Class II/III/IV
`
`35m mean (p=0.01), monotherapy, stat sig time
`
`to clinical worsening
`
`Class II/III
`
`44m mean, monotherapy, 23m mean w/ Tracleer
`
`Class II/III
`
`26m mean. w/ IV epoprostenol
`
`7%
`
`13%
`
`$160,000
`
`$100,000
`
`12%
`
`50%
`
`2%
`
`16%
`
`$65,160
`
`$53,000
`
`$12,000
`
`$20,000
`
`Source: Company Reports, Bloomberg and RBC Capital Markets estimates
`
`* Outcomes are placebo adjusted median differences unless otherwise stated
`
`Common Adverse Events of Approved and Investigational PAH Therapies
`
`Drug
`
`Headache
`
`Flushing
`
`Nausea
`
`Vomiting
`
`Pain*
`
`Oral Remodulin 86% vs 38%
`
`49% vs 15% 63% vs 35% 43% vs 9% 42% vs 13%
`
`Letairis
`
`Tracleer
`
`Revatio
`
`Adcirca
`
`Ventavis
`
`Tyvaso
`
`15% vs 14%
`
`4% vs 1%
`
`15% vs 14%
`
`4% vs 3%
`
`46% vs 39%
`
`10% vs 4%
`
`N/A
`
`N/A
`
`N/A
`
`42% vs 15%
`
`13% vs 2%
`
`10 vs 6%
`
`N/A
`
`N/A
`
`N/A
`
`N/A
`
`3% vs 1%
`
`5% vs 5%
`
`N/A
`
`12% vs 6%
`
`30% vs 20%
`
`27% vs 9%
`
`13% vs 8%
`
`7% vs 2%
`
`11% vs 3%
`
`41% vs 23%
`
`15% vs 1%
`
`19% vs 11% N/A
`
`N/A
`
`Source: Company reports. Adverse events for oral Remodulin are those reported in the FREEDOM C-1
`
`trial, and as described in prescribing information for all other therapies. *Pain is cumulative across jaw,
`
`tongue, back, chest and other categories.
`
`• Reimbursement concerns in face of pending generics and a higher priority for generics are likely. Because of multiple
`generics likely in 2015-2016+ (and oral Remodulin's approval likely only in 2013), the low-cost drugs may get pushed ahead of oral
`Remodulin on the formulary. This may put much more pressure on doctors and providers to use generics before branded
`prostacyclin, pushing oral Remodulin farther down the treatment sequence before patients start to get the drug (i.e., later in Class
`III). In fact, we note that BCBS of North Carolina is already trying to block combo use without data, which suggests that it is at least
`aware of the high price and lack of data, and a new expensive oral without strong clinical benefit is unlikely to better or reverse this
`trend.
`• Europe is a whole separate risky story. UTHR has had less success in EU to date even with good regulatory packages in the past,
`and the potential oral remodulin package may cause issues for EMA approval. Europe may find the efficacy on the lower end of
`expectations particularly against other therapies, which may lead to lower pricing than expected. Also, based on color from
`Actelion, EMA may ask for survival endpoints and not view 6MWD alone as a sufficiently compelling endpoint, which may make
`the oral Remodulin package risky in Europe.
`
`7
`
`WATSON LABORATORIES, INC. , IPR2017-01622, Ex. 1135, p. 2 of 2
`
`