United Therapeutics Corporation — 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. The filing also reports quarterly results; Q4 2014 ended December 31. Unless noted, amounts below are U.S. dollars.
Business context
United Therapeutics is a biotechnology company focused primarily on pulmonary arterial hypertension (PAH). Its marketed products are Remodulin, Tyvaso, Adcirca, and newly launched Orenitram. Revenue remains highly concentrated in these products, with Remodulin, Tyvaso, and Adcirca providing most sales. The company also has development programs in PAH, cancer, antivirals, and lung transplantation.
Financial performance and liquidity
| Metric | 2014 | 2013 |
|---|---|---|
| Total revenue | $1,288.5 million | $1,117.0 million |
| Operating income | $538.8 million | $292.5 million |
| Net income | $340.1 million | $174.6 million |
| Diluted earnings per share | $6.28 | $3.28 |
| Operating cash flow | $355.3 million | $425.3 million |
| Cash, cash equivalents, and marketable investments | $812.9 million, excluding restricted amounts | $1,136.7 million |
| Working capital | $469.9 million | $226.7 million |
| Total assets | $1,884.4 million | $2,087.6 million |
| Debt | $130.2 million carrying amount | $286.2 million |
- Revenue increased 15.4%; operating income rose 84.2% and net income rose 94.8%. Operating margin was approximately 41.8%, versus 26.2% in 2013; net margin was approximately 26.4%, versus 15.6%.
- Product sales were $1,279.5 million. Cost of product sales was $125.9 million, or 9.8% of product revenue, compared with 11.8% in 2013. The Glaxo royalty obligation on treprostinil products ended in October 2014.
- Operating cash flow declined despite higher net income, reflecting cash uses including taxes, STAP award settlements, and working-capital changes. Investing activities provided $338.5 million, largely due to investment maturities; financing activities used $576.5 million, including $483.1 million of share repurchases and debt payments.
- At year-end, current assets were $974.2 million and current liabilities were $504.3 million. The company reported no balance on its revolving credit facility. It repaid the $66.5 million Wells Fargo mortgage loan at maturity.
- The remaining Convertible Notes had $138.8 million principal outstanding and a $126.4 million balance-sheet carrying amount. They were classified as current because holders could elect conversion; $111.3 million principal had been converted during Q4.
Revenue trends and Q4 results
- Remodulin revenue was $553.7 million, up 12.7%; Tyvaso was $463.1 million, up 5.5%; Adcirca was $221.5 million, up 25.1%. Orenitram, launched in Q2, contributed $41.3 million.
- Q4 net sales were $346.4 million, versus $289.0 million in Q4 2013. Q4 2014 net income was $115.9 million, compared with a $30.3 million net loss in Q4 2013. The 2013 quarter included a $111.2 million after-tax share-based compensation charge.
- Remodulin represented 43% of 2014 revenue and Tyvaso 36%. Accredo accounted for 58% of total revenue, underscoring product and distributor concentration.
Outlook, material developments, and risks
- Management expects existing commercial products to remain the principal revenue sources for the next several years and identifies continued product sales growth, Orenitram uptake, and successful development and approval of pipeline programs as key to future growth. The filing provides no specific revenue or earnings guidance.
- Orenitram’s pivotal evidence was from a monotherapy study. Two earlier Phase III combination studies were unsuccessful; the company is conducting FREEDOM-EV, a Phase IV trial of up to 610 patients, to assess use alongside approved oral PAH therapy and support possible label expansion.
- Ch14.18 applications were under review by the FDA and EMA. Esuberaprost was in a Phase III combination study with Tyvaso; UV-4B began Phase I testing. The Remodulin implantable system had a Medtronic PMA submission, and United Therapeutics submitted a new drug application in January 2015. A DEKA agreement targets FDA approval of a subcutaneous pump system by the end of 2018.
- The FDA-required long-term Tyvaso safety study was completed; results were expected to be submitted by June 30, 2015. Failure or delay could lead to penalties, including potential withdrawal of Tyvaso.
- Remodulin generic competition remains a major uncertainty. A court ruled in 2014 that one patent was valid and enforceable against Sandoz and enjoined its generic launch until October 2017; Sandoz appealed, and Teva and Sandoz proceedings remained ongoing. Generic sildenafil also presents a pricing and share risk to Adcirca.
- The company was cooperating with a Department of Justice civil investigation following a 2013 HHS OIG subpoena seeking records concerning Remodulin, Tyvaso, Adcirca, and marketing practices. The filing says no claim, litigation, or assessment had been asserted in connection with the subpoena and that the outcome could not be predicted.
- Share-based compensation is sensitive to the share price and materially affects reported expenses. Cash-settled STAP awards also create cash obligations; the filing reported a $322.7 million STAP liability and estimated $485.4 million of total STAP obligations in its contractual-obligations table.
- Other material risks include reliance on a small number of PAH products, a major specialty distributor, third-party manufacturers and suppliers, reimbursement and pricing pressure, clinical and regulatory uncertainty, and potential product safety or manufacturing issues.
- Ernst and Young issued unqualified audit opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective at year-end.
Important facts for investors to verify
- Track sales growth, pricing, patient demand, and product mix, especially Remodulin and Tyvaso concentration, Orenitram adoption, and the dependence on Accredo.
- Review cash generation against net income and the cash demands of share repurchases, STAP settlements, taxes, and Convertible Note conversions.
- Follow appeals and decisions in the Sandoz and Teva patent cases, as well as the timing and potential impact of generic entry.
- Monitor the DOJ investigation, including any claims, settlements, penalties, or reimbursement consequences that may subsequently be disclosed.
- Check FREEDOM-EV results, Ch14.18 regulatory decisions, esuberaprost trial progress, the Remodulin pump applications, and Tyvaso post-marketing study submission.
- Assess whether the filing’s stated cash-and-investment total and other liquidity figures reconcile to the balance sheet; the filing excludes restricted amounts in its headline liquidity figure.