United Therapeutics Corporation — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unaudited consolidated results. United Therapeutics is a biotechnology company focused on therapies for chronic and life-threatening conditions and technologies to expand the supply of transplantable organs.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $516.0 million | $444.7 million | $1,444.8 million | $1,270.3 million |
| Operating income | $314.3 million | $228.7 million | $804.1 million | $386.1 million |
| Net income | $239.3 million | $162.7 million | $595.2 million | $363.6 million |
| Diluted EPS | $4.91 | $3.42 | $12.35 | $7.72 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $674.3 million | $423.6 million |
- Q3 revenue rose 16%; nine-month revenue rose 14%. Tyvaso sales increased 57% in Q3 and 43% year to date, with management citing higher volumes, Tyvaso DPI’s June launch, continued PH-ILD patient growth, price increases, and lower gross-to-net deductions.
- Q3 Tyvaso sales were $257.7 million; Remodulin $114.0 million; Orenitram $87.5 million; Unituxin $46.1 million; and Adcirca $10.7 million. Nine-month sales were respectively $630.7 million, $377.7 million, $249.3 million, $146.2 million, and $30.9 million. The nine-month total also included $10.0 million of other revenue, an international distributor upfront payment.
- Q3 gross profit was $478.8 million, a 92.8% gross margin, versus $417.0 million and 93.8% a year earlier. Operating margin rose to 60.9% from 51.4%; net margin rose to 46.4% from 36.6%.
- Nine-month gross profit was $1,342.0 million, a 93.5% gross margin, versus $1,182.4 million and 93.1% in 2021. Cost of product sales increased 6% year to date, less than sales growth.
- Q3 operating expenses fell 7% to $201.7 million. Nine-month R&D expense fell 50% to $229.0 million, mainly because 2021 included a $107.3 million Trevyent impairment, a $105.0 million priority review voucher purchase, and an $11.6 million facility impairment. These comparisons therefore include significant prior-year items.
- Other expense/income was affected by equity investment valuation changes. The prior-year nine-month period included a $91.9 million realized gain on sale of an equity investment; 2022 included net losses on equity securities. Nine-month income tax expense was $176.6 million and the effective tax rate was 23%, versus 20% in 2021.
Cash, debt, and liquidity
- At September 30, cash and cash equivalents were $966.8 million and marketable investments totaled $3,092.6 million, for combined cash and investments of $4,059.4 million, up $478.8 million from year-end 2021.
- Nine-month operating cash flow was $674.3 million, compared with $423.6 million. Investing activities used $622.2 million, including $99.3 million of property and equipment purchases; financing provided $19.9 million. Cash increased $72.0 million to $966.8 million.
- Debt was $800.0 million, classified as non-current. The March 2022 unsecured revolving credit agreement provides up to $2.0 billion, matures in 2027, and had $800.0 million drawn at quarter-end. The company reported compliance with covenants. Interest is based on adjusted Term SOFR or a base rate plus a margin.
- Available-for-sale debt securities had $88.0 million of gross unrealized losses at quarter-end, versus $9.3 million at December 2021. Management attributed the losses to the interest-rate environment, stated they were not credit losses, and said it did not expect to sell the securities before recovery of amortized cost.
Material changes and outlook
- Remodulin sales decreased 9% in Q3 and 4% year to date, reflecting lower U.S. and international sales and competitive pressure. Orenitram grew 3% in Q3 and 7% year to date. Unituxin and Adcirca sales declined; generic competition has materially affected Adcirca.
- Tyvaso DPI received FDA approval in May 2022 for PAH and PH-ILD and launched commercially in June. Management expects near-term revenue growth primarily from Tyvaso/ Tyvaso DPI, continued Orenitram growth, and modest price increases, partly offset by further generic erosion of Adcirca. The filing provides no specific numerical revenue or earnings guidance.
- Management described liquidity as sufficient for ongoing operations and business plans, while noting projections are uncertain and additional financing may be sought. Longer-term growth depends on pipeline programs including ralinepag, Tyvaso studies in idiopathic pulmonary fibrosis, RemoPro, and organ-manufacturing initiatives.
- The PERFECT Tyvaso study for pulmonary hypertension associated with chronic obstructive pulmonary disease was terminated in September following a recommendation from the independent safety and efficacy monitoring committee. Northern Therapeutics planned to stop new enrollment in the Aurora-GT SAPPHIRE study at year-end because of slow enrollment.
- Important litigation remains. In the Liquidia dispute, a federal court judgment bars FDA final approval of Yutrepia until the relevant patent expires in May 2027, but appeals are pending; the PTAB’s patent decision is also under rehearing. The Sandoz case has proceeded to a damages trial on a contract claim, with no loss range estimable. The 340B contract-pharmacy dispute is on appeal. The MSP Recovery complaint was amended after the court granted leave to amend.
- Other risks include dependence on treprostinil products and two U.S. specialty distributors, third-party manufacturing and device suppliers, generic and branded competition, reimbursement and drug-pricing pressures, patent challenges, and clinical or regulatory setbacks. The company highlighted potential pharmaceutical-industry effects of the Inflation Reduction Act but did not expect its tax provisions to materially affect its financial statements.
Investor facts to verify
- Whether Tyvaso DPI launch momentum and PH-ILD growth continue, and how product-level demand compares with distributor ordering patterns.
- Progress and outcomes in Liquidia patent proceedings, including the Yutrepia approval bar, appeals, and PTAB rehearing.
- Remodulin sales trends, generic erosion, and availability of replacement infusion pumps and device components.
- Impact of interest rates and market movements on the investment portfolio and accumulated other comprehensive loss.
- Developments in Sandoz damages litigation, the 340B appeal, and the amended MSP Recovery case.
- Whether pipeline studies, including TETON and ralinepag Phase 3 trials, meet enrollment, safety, efficacy, and regulatory milestones.