United Therapeutics Corporation — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Unaudited consolidated results; dollar figures below are in millions except per-share data. United Therapeutics is a biotechnology company with one operating segment, focused on therapies for chronic and life-threatening conditions and technologies to expand transplantable-organ availability.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $609.4 | $516.0 | $1,712.8 | $1,444.8 |
| Gross profit | $539.3 | $478.8 | $1,526.3 | $1,352.0 |
| Operating income | $327.0 | $314.3 | $924.8 | $804.1 |
| Net income | $267.6 | $239.3 | $767.7 | $595.2 |
| Diluted EPS | $5.38 | $4.91 | $15.48 | $12.35 |
| Operating cash flow | — | — | $827.3 | $674.3 |
- Q3 revenue rose 18%; nine-month revenue rose 19%. Approximate gross margins were 88.5% for Q3 and 89.1% year to date. Operating margins were approximately 53.7% and 54.0%, respectively.
- Q3 operating expenses increased to $282.4 from $201.7, mainly reflecting higher cost of sales, R&D, and SG&A. Nine-month expenses were $788.0 versus $640.7.
- Nine-month investing cash outflow was $761.7, including $151.7 of property and equipment purchases; financing cash inflow was $80.9. Cash and equivalents increased $146.5 to $1,107.7.
- At September 30, cash and marketable investments totaled $4,936.3. Total assets were $7,023.6; current assets $3,458.9 and current liabilities $744.1.
- Debt under the revolving credit agreement was $800.0, of which $300.0 was classified as current because the company intends to repay it within one year. Facility maturity is March 2028; the company reported covenant compliance.
Material changes and business drivers
- Tyvaso DPI revenue was $205.1 in Q3, up from $63.1, while nebulized Tyvaso revenue fell to $120.7 from $194.6. Combined Tyvaso revenue increased 26% to $325.8, reflecting DPI uptake and continued PH-ILD utilization, partly offset by substitution from nebulized Tyvaso to DPI.
- Q3 Remodulin revenue rose 15% to $131.1; Orenitram rose 5% to $92.0; Unituxin rose 11% to $51.3; Adcirca declined 32% to $7.3. For the first nine months, Tyvaso revenue increased 40%, while Remodulin was nearly flat and Adcirca fell 28%.
- Two U.S. distributors accounted for 50% and 36% of Q3 revenue, respectively, creating material distributor concentration and order-timing exposure.
- Higher Tyvaso DPI costs and royalties contributed to cost-of-sales growth. R&D spending increased, principally for the TETON studies and organ-manufacturing programs.
Outlook, risks, and notable items
- Management expects near-term growth primarily from Tyvaso DPI, nebulized Tyvaso use in PH-ILD, Orenitram, and modest price increases. Longer-term growth depends on pipeline products and new indications. No quantified revenue or earnings guidance is provided.
- The company budgeted approximately $650 million of capital expenditures for 2023–2025, with most directed to a new Tyvaso DPI manufacturing facility; it expects to use cash on hand. It reported approaching the current Tyvaso DPI manufacturing-capacity limit and is working to expand contract-manufacturer capacity.
- Pipeline: Phase 3 TETON 1 and TETON 2 evaluate nebulized Tyvaso for IPF; TETON PPF began enrolling in October 2023. Ralinepag’s Phase 3 ADVANCE OUTCOMES continues; a separate Phase 3 study was discontinued due to slow enrollment and resource reallocation. Routine safety reviews recommended continuation of TETON 1/2 and ADVANCE OUTCOMES without modification.
- Organ-manufacturing developments include an October 2023 acquisition of IVIVA for approximately $50 million upfront plus a potential 2% royalty on net sales, and a proposed Miromatrix acquisition for $3.25 per share plus contingent consideration of $1.75 per share upon a specified clinical milestone. Miromatrix closing was expected in December 2023, subject to conditions.
- Key legal uncertainties include Sandoz litigation proceeding to a damages trial on a contract claim, with potential losses not reasonably estimable; Liquidia patent appeals and a pending motion concerning Yutrepia approval timing; and pending appeals or motions in payer and 340B-related litigation. The appellate court affirmed the district-court Tyvaso patent decision barring final Yutrepia approval until May 2027, but further proceedings and appeals remain possible.
- Principal risks include dependence on treprostinil products, generic and branded competition, pricing and reimbursement pressure including the Inflation Reduction Act, patent challenges, clinical and regulatory uncertainty, concentrated distributors, and reliance on third-party manufacturing. Management also disclosed $24.8 million of unrecognized tax benefits including interest, which could change significantly over the next 12 months.
- Share-based compensation was unusually affected by cash-settled STAP awards: a $29.8 benefit for the nine months, versus $0.2 expense in the prior-year period. Q3 total share-based compensation was $21.1 expense versus a $2.4 benefit a year earlier, adding period-to-period earnings volatility.
Important facts for investors to verify
- Tyvaso DPI growth, capacity expansion progress, and whether distributor orders reflect underlying patient demand.
- Revenue mix and trends in nebulized Tyvaso, Remodulin, Orenitram, and Adcirca, including competitive and reimbursement effects.
- Cash deployment, planned debt repayment, capital spending, and funding and integration of IVIVA and any Miromatrix transaction.
- Developments in Liquidia patent proceedings, Sandoz damages litigation, payer lawsuits, and the 340B appeal.
- Clinical enrollment, results, and regulatory progress for TETON studies, ralinepag, and organ-manufacturing programs.