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United Therapeutics Could Lose The Battle For PAH Therapies

Stocks in this article: UTHR GSK NVS

The generic risk for Tyvaso is slightly different. The drug received FDA approval in 2009 and is still protected by Orphan Drug Exclusivity, which grants seven years of marketing exclusivity to new drugs that treat diseases affecting fewer than 200,000 patients in the U.S. Once Orphan Drug Exclusivity expires in mid-2016, United Therapeutics must rely on a "method of use" patent (expiring in 2018) to protect the franchise. That's a skimpy defense.

Remodulin and Tyvaso account for more than 85% of United Therapeutics' revenue base. Unless management can convince investors that the company's R&D efforts will yield new growth drivers, worries about the earnings "cliff" seem likely to keep the multiple under pressure near-term.

Enter oral treprostinil, also known as oral Remodulin.

United Therapeutics has completed three pivotal trials of oral treprostinil. One of these tested the drug as monotherapy (FREEDOM-M) and two examined use in the combination with other drugs (FREEDOM-C and FREEDOM-C2). The company has initiated another combination study of oral treprostinil, dubbed FREEDOM-C3. Results from this trial, which uses a different primary endpoint than the earlier combination studies, will be available in 2015.

The combination studies are easy to evaluate because both failed badly.

FREEDOM-C failed in late 2008, with drug-treated patients showing only an 11-meter improvement in six-minute walk test (6MWT) scores versus placebo after 16 weeks of treatment. 11 meters -- does that number sound familiar? Management argued that the study failed due to an excess of adverse event-related dropouts in the drug arm and patients' inability to slowly titrate to effective doses. To solve this issue, the company developed a lower dose pill and initiated the FREEDOM-C2 trial.

In mid-2011, FREEDOM-C2 also failed. Patients treated with oral treprostinil experienced only a slight improvement of 10 meters (again) -- in 6MWT scores compared to placebo after 16 weeks. Despite cautious titration, dropouts due to adverse events in the oral treprostinil arm were once again much higher than in the placebo group (11% versus 3%.)

Now let's look at the monotherapy data from the FREEDOM-M trial.

In mid-2011, United Therapeutics announced that oral treprostinil demonstrated a statistically significant 23-meter improvement in 6MWT scores compared to placebo (p = 0.0125.) Importantly, the company used an earlier time point -- 12 weeks -- in FREEDOM-M than in the combination studies, presumably in an effort to minimize toxicity-related dropouts.

The oral treprostinil data from the monotherapy trial look weak to me. The 23-meter benefit in the 6MWT is just a 7% relative improvement from baseline -- not clinically meaningful. Drug-related toxicities are clearly difficult to manage.

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