United Therapeutics Corporation — FY 2010 Form 10-K
Reporting period: Fiscal year ended December 31, 2010. The filing also presents unaudited fourth-quarter results. All amounts are in U.S. dollars.
Business context
United Therapeutics is a biotechnology company whose principal business is developing and commercializing therapies for pulmonary arterial hypertension (PAH). Its commercial portfolio comprised Remodulin, Tyvaso, and Adcirca; Remodulin remained the largest product. Research programs included oral treprostinil, beraprost-MR, cancer antibodies, and antiviral candidates. The company also operated a telemedicine business through Medicomp, which it agreed to sell in February 2011.
Financial performance and position
| Metric | FY 2010 | FY 2009 |
|---|---|---|
| Revenue | $603.8 million | $369.8 million |
| Operating income | $164.0 million | $26.0 million |
| Net income | $105.9 million | $19.5 million |
| Diluted earnings per share | $1.78 | $0.35 |
| Operating cash flow | $211.5 million | $99.7 million |
- Revenue increased 63.3%. Remodulin sales rose 21.7% to $403.6 million; Tyvaso generated $151.8 million and Adcirca $36.3 million, both launched commercially in 2009.
- Operating margin was approximately 27.2% and net margin approximately 17.5%, compared with approximately 7.0% and 5.3%, respectively, in 2009.
- Research and development expense rose 36.5% to $166.8 million; selling, general and administrative expense rose 13.2% to $199.6 million.
- FY 2010 investing cash flow was negative $209.2 million and financing cash flow was positive $146.8 million.
- At year-end, cash, cash equivalents, and marketable investments totaled $759.9 million, excluding restricted amounts; working capital was $335.8 million, versus a $5.7 million deficit in 2009.
- Reported debt was $304.9 million: $236.0 million carrying value for convertible notes and $68.9 million mortgage payable. The notes have $250.0 million principal due October 2011; the $70.0 million mortgage matures in December 2014. The company said it believed liquidity was sufficient to repay the notes.
Fourth-quarter 2010 net sales were $166.5 million and net income was $9.5 million, versus third-quarter sales of $171.0 million and net income of $39.7 million. Fourth-quarter diluted EPS was $0.15.
Material changes versus prior period
- Revenue growth reflected increased patient use, the first full year of Tyvaso and Adcirca sales, and product price increases. Management attributed $25.9 million of 2010 revenue to price increases, primarily Remodulin.
- Operating income and net income increased substantially from 2009. 2009 included lower sales from the recent launches; 2008 had a $49.3 million net loss, including $150 million in upfront Adcirca-related payments expensed as R&D.
- Cash and investments roughly doubled, supported by operating cash generation, a $70 million mortgage financing, and proceeds from option exercises. Inventory increased $9.2 million as the company built toward a stated three-year supply of key products.
- Debt increased with the new mortgage. The synthetic lease on the Silver Spring laboratory was terminated and the company acquired the facility using the mortgage proceeds.
- Share-based compensation remained significant: cash-settled Share Tracking Awards Plan liability increased to $125.6 million at year-end, from $64.2 million.
Outlook, risks, and unusual items
- No specific revenue or earnings guidance was provided. Management expected continued demand growth for PAH products and identified pipeline success, reimbursement, pricing, competition, and regulatory outcomes as key determinants of future growth.
- Management expected preliminary results from the oral treprostinil FREEDOM-M trial in June 2011 and FREEDOM-C2 in September 2011, subject to trial timing. The company did not anticipate filing an NDA for oral treprostinil before 2012. FREEDOM-C had previously missed its primary endpoint.
- Tyvaso remained subject to an FDA post-marketing safety study and device-related commitments; requested extensions were under FDA review. The company withdrew its EU marketing application after GCP compliance findings at two clinical sites and was working with the EMA on a further study.
- Major business risks include dependence on Remodulin and Tyvaso, concentration among a small number of distributors and customers, manufacturing and supplier dependence, competition and reimbursement pressure, and clinical and regulatory uncertainty. Remodulin represented 67% of net revenue; one customer accounted for 65% of net pharmaceutical revenue.
- Unusual items include a $6.2 million Medicomp goodwill impairment in 2010 associated with the planned sale, and $9.0 million of beraprost-MR milestone expense. The proposed Medicomp sale consideration was $14.9 million, substantially an 11.9 million, ten-year promissory note; closing was expected in March or April 2011, subject to conditions.
- The company reported effective disclosure controls and internal control over financial reporting; its auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether the $250 million convertible notes were repaid, converted, or refinanced at their October 2011 maturity, and the resulting cash and dilution effects.
- Subsequent FREEDOM-M and FREEDOM-C2 results and any effect on the oral treprostinil filing timeline.
- FDA decisions and completion status for Tyvaso post-marketing obligations and device modifications, and progress toward a new EU application.
- Whether the Medicomp transaction closed on the disclosed terms and whether the promissory note is collectible.
- Continuing product and customer concentration, product pricing and reimbursement trends, and the scale and cash-settlement impact of STAP awards.