EUR 850.00 For Business Accounts Only

Morningstar | United Therapeutics Purchases Rights to Arena's Ralinepag; Increasing FVE to $127. See Updated Analyst Note from 16 Nov 2018

We are increasing our fair value estimate for narrow-moat United Therapeutics to $127 from $121 per share following the announced agreement with Arena Pharmaceuticals in which United gains exclusive worldwide rights to ralinepag, a Phase 3 oral prostacyclin for pulmonary arterial hypertension, or PAH. We believe the addition of ralinepag is a good strategic fit for United as the company's prostacyclin portfolio weakened with the recent patent expiration of Remodulin. Ralinepag in the form of a once-daily oral pill, if approved, would have competed with United's Orenitram (oral treprostinil). United's share in the oral prostacyclin market will now depend on the detailed results of the FREEDOM-EV study, which readout positive in October, in addition to Phase 3 ralinepag results. We expect interim data from a differentiation study of ralinepag compared to Uptravi (Johnson & Johnson's oral selexipag) near the end of 2019. Phase 3 studies won't complete until 2021, with a potential launch at the end of 2022.

In addition to the upfront payment of $800 million from United, Arena will receive low double-digit tiered royalties and is eligible for $400 million in milestone payments. The milestones include $150 million for approval in a major non-U.S. market (Japan, France, Italy, U.K., Spain, or Germany) and $250 million for FDA approval of the inhaled formulation. Because of the second milestone, we believe this purchase could serve as a defense against generic Tyvaso entry, expected in 2026. If an effective inhaled therapy is approved, United should be able to retain some of this PAH patient share despite Tyvaso patent expiry.

In Phase 2 trials, ralinepag showed a statistically significant change from baseline in pulmonary vascular resistance (PVR), as well as improvement in 6-minute walk distance compared to placebo (but not statistically significant). In October, Arena reported positive results from an interim analysis of the open-label extension of the Phase 2 study in PAH, in which most patients were on the drug for at least one year. Arena reported sustained long-term efficacy and lower adverse effects than the Phase 2 results, indicating improved tolerability over time.