United Therapeutics Corporation — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Unaudited financial statements; amounts are in millions except per-share data. The company develops and sells therapies principally for pulmonary arterial hypertension (PAH).
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $380.1 | $401.5 | $1,098.4 | $1,137.7 |
| Gross profit / margin | $356.1 / 93.7% | $368.5 / 91.8% | $1,025.1 / 93.3% | $1,048.9 / 92.2% |
| Operating income (loss) | $221.1 | $183.4 | $528.3 | ($251.1) |
| Net income (loss) | $171.2 | $132.4 | $416.0 | ($157.1) |
| Diluted EPS | $3.84 | $3.01 | $9.37 | ($3.59) |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $629.5 | ($309.1) |
Q3 revenue decreased 5% year over year, while net income increased 29%. Nine-month revenue declined 3%; the company returned to nine-month profitability after a prior-year loss. Operating margin was 58.2% in Q3 2020 versus 45.7% a year earlier, and 48.1% for the first nine months of 2020.
The prior-year nine-month comparison includes an $800.0 million upfront payment to Arena for ralinepag, expensed as R&D in 2019. This largely explains the swing in year-to-date operating results and cash flow; the comparison is not a like-for-like measure of underlying operating trends.
Revenue and business developments
- Q3 product sales: Remodulin $124.5 million, down 26%; Tyvaso $129.5 million, up 17%; Orenitram $74.7 million, up 20%; Unituxin $37.6 million, up 25%; and Adcirca $13.8 million, down 54% year over year.
- Remodulin declines reflected lower international sales amid generic competition and COVID-19 impacts, as well as a prior-year U.S. distributor excess order. Management said U.S. new patient starts for treprostinil products had returned to pre-pandemic levels by the end of Q3. Excluding the 2019 excess order, management estimated Q3 growth of 28% for Tyvaso and 30% for Orenitram.
- Adcirca continued to face generic erosion. The company extended its related license through December 31, 2023; it expects increased returns as older inventory expires, with returns expected to rise beginning in 2021.
- U.S. revenue was $369.0 million in Q3, while rest-of-world revenue was $11.1 million. Two U.S. distributors represented 56% and 28% of Q3 revenue, respectively, creating material distributor concentration.
Cash, debt, and liquidity
- At September 30, cash and cash equivalents were $670.2 million and marketable investments totaled $2,137.8 million, for combined cash and investments of $2,808.0 million, up 25% from year-end 2019.
- Debt under the unsecured revolving credit facility was $800.0 million, classified as non-current and due under an agreement maturing in June 2024. The facility provides up to $1.5 billion. The company repaid $50.0 million during the first nine months and retained the balance as a precaution amid COVID-19 uncertainty; it reported compliance with covenants.
- Net cash from operations was $629.5 million for the first nine months. Capital expenditures were $47.0 million, implying operating cash flow less property and equipment purchases of approximately $582.5 million. Investing activities used $674.7 million, mainly reflecting net purchases of marketable investments. Cash declined by $68.2 million over the period.
- Management stated that liquidity was sufficient for operations and business plans, while noting that future cash-flow projections remain uncertain and additional financing could be sought.
Outlook, risks, and unusual items
- Management provided no specific numerical revenue or earnings guidance. It said COVID-19 made near-term revenue growth and development timing difficult to project, while expressing confidence in longer-term prospects and expecting the pipeline and label expansions to support a return to growth.
- Tyvaso’s Phase 3 INCREASE study met its primary endpoint in pulmonary hypertension associated with interstitial lung disease. The supplemental application was accepted for FDA review, with a decision expected in April 2021. The Remunity pump launch was delayed by supplier and component constraints related to the pandemic; Trevyent resubmission was expected in 2021 following an FDA complete response letter.
- Product and development risks include generic competition, pricing and reimbursement pressure, dependence on a small number of distributors and third-party suppliers, and possible COVID-related disruption to clinical trials, manufacturing, patient access, and launches. Management reported that new patient starts had recovered by quarter-end, but said renewed disruption remained possible.
- Liquidia’s LIQ861 could compete with Tyvaso. The FDA had set a November 24, 2020 target action date for Liquidia’s application, but United Therapeutics’ patent lawsuit triggered a potential approval stay of up to 30 months. The PTAB instituted review of one of two challenged patents and declined review of the other. A separate Sandoz/RareGen antitrust case remained in discovery; the company said it could not reasonably estimate potential losses. A new MSP Recovery lawsuit alleges unlawful conduct involving patient-assistance donations; the company intends to defend it.
- Q3 included $3.5 million of impairment charges on privately held investments. Nine-month impairment charges were $9.1 million. In 2020, private-company valuation gains and losses and publicly traded equity-security marks affected other income or expense. STAP awards are cash-settled and remeasured each period: a Q3 share-based compensation benefit of $27.5 million before tax, influenced by a 17% decline in the stock price during the quarter, contributed to expense volatility.
- The Trevyent in-process R&D asset, carried at $107.3 million at June 30, was not impaired after a third-party valuation; future value remains subject to FDA and development outcomes. The company discontinued Unituxin adult-tumor and humanized-product development efforts in Q3, and discontinued LNG01 development.
Key facts for investors to verify
- Whether growth in Tyvaso, Orenitram, and Unituxin can offset continued Remodulin and Adcirca declines, including the effects of generic competition and distributor ordering patterns.
- The FDA outcome and commercial opportunity for the Tyvaso PH-ILD label expansion, and the timing and supply readiness of Remunity and Trevyent.
- Progress and potential financial impact of the Liquidia patent and NDA proceedings, the Sandoz/RareGen litigation, and the MSP Recovery lawsuit.
- Whether COVID-19, supplier concentration, and clinical-trial or regulatory delays materially change patient access, product supply, or management’s growth outlook.
- The sustainability of operating cash flow and liquidity, and the sensitivity of reported expenses and earnings to STAP remeasurement and investment valuations.