United Therapeutics Corporation — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; comparisons are with the corresponding 2020 periods. Financial statements are unaudited. United Therapeutics converted to a Delaware public benefit corporation on September 30, 2021, with a stated purpose encompassing novel therapies and technologies to expand transplantable organs.
Financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $444.7 million | $380.1 million | $1,270.3 million | $1,098.4 million |
| Operating income | $228.7 million | $221.1 million | $386.1 million | $528.3 million |
| Net income | $162.7 million | $171.2 million | $363.6 million | $416.0 million |
| Diluted EPS | $3.42 | $3.84 | $7.72 | $9.37 |
| Operating cash flow | Not provided for quarter | $423.6 million | $629.5 million |
Q3 revenue grew 17%; nine-month revenue grew 16%. Approximate operating margin was 51.4% in Q3 versus 58.2% a year earlier, and 30.4% for nine months versus 48.1%. Product gross margin, calculated from reported product sales and cost of product sales, was approximately 93.8% in Q3 versus 93.7%, and 93.1% for nine months versus 93.3%.
At September 30, cash and cash equivalents were $908.5 million and marketable investments were $2,600.6 million, totaling $3,509.1 million. Total assets were $5,048.9 million; total liabilities were $1,219.2 million; stockholders’ equity was $3,829.7 million. The company had $800.0 million outstanding under its unsecured revolving credit agreement, classified as non-current and maturing in December 2025. It reported compliance with debt covenants. Nine-month capital spending on property, plant and equipment was $50.2 million.
Revenue mix and changes
- Tyvaso: Q3 sales of $164.2 million, up 27%; nine-month sales of $441.0 million, up 25%. Management attributed growth principally to more patients following the March 2021 PH-ILD label expansion.
- Remodulin: Q3 sales of $125.4 million, up 1%; nine-month sales of $395.4 million, up 2%. Nine-month international growth was partly offset by lower U.S. sales; international sales remained under generic pricing pressure.
- Orenitram: Q3 sales of $85.2 million, up 14%; nine-month sales of $233.8 million, up 7%, mainly reflecting higher patient volumes and, to a lesser extent, price increases.
- Unituxin: Q3 sales of $55.3 million, up 47%; nine-month sales of $152.3 million, up 63%. Growth included Japan launch sales of $9.0 million in Q3 and $12.1 million year to date.
- Adcirca: Q3 sales of $14.6 million, up 6%; nine-month sales of $47.8 million, up 5%. Generic competition has materially affected this product historically.
Operating expenses rose to $216.0 million in Q3 from $159.0 million, and to $884.2 million for nine months from $570.1 million. Nine-month R&D included a $107.3 million Trevyent in-process R&D impairment, a $105.0 million pediatric priority review voucher purchase, and $11.6 million of facility impairment. The voucher was redeemed with the Tyvaso DPI NDA submission. Nine-month SG&A rose 28%, including higher legal and consulting costs. Net income also reflects investment-related volatility: nine-month other income included a $91.9 million realized gain on sale of an equity investment, while Q3 included $18.3 million of net unrealized losses on equity securities.
Operating cash flow fell 33% year over year to $423.6 million for nine months. Management cited the voucher purchase, $67.8 million higher income tax payments, and $55.4 million higher cash paid to settle share tracking awards (STAP), partly offset by other working-capital changes. Cash and cash equivalents increased $169.8 million from year-end 2020.
Outlook, developments and risks
- Management expected continued revenue growth in the second half of 2021 versus 2020, driven chiefly by Tyvaso’s PH-ILD indication, Orenitram patient growth and modest price increases. It described further medium- and long-term growth as dependent on pipeline execution; no numerical earnings or revenue guidance was provided.
- On October 15, 2021, after quarter-end, the FDA issued a complete response letter for Tyvaso DPI citing one deficiency related to an open inspection issue at a third-party analytical testing facility. The company said it was addressing the issue and believed approval could occur by summer 2022 or earlier. The FDA had not completed review of a citizen petition concerning an excipient; it was not cited as a deficiency.
- Development setbacks included discontinuation of U.S. Trevyent development following FDA feedback and termination of the implantable Remodulin system program with Medtronic. Tyvaso PH-COPD and IPF studies and Phase 3 ralinepag studies were underway. Management noted that COVID-19 continued to create uncertainty for near-term growth, trials and operations.
- Key legal and regulatory exposures include the Sandoz/RareGen Remodulin device antitrust case, Liquidia patent disputes over LIQ861 and Tyvaso-related patents, ANI’s Orenitram generic challenge, the MSP Recovery case, and litigation over the company’s 340B contract-pharmacy policy. In the 340B matter, HRSA referred the issue to HHS OIG for potential enforcement; the company reported no OIG communication. The filing does not provide a reasonably estimable loss range for the Sandoz litigation.
- Additional risks include reliance on a small number of U.S. distributors, generic and branded competition, reimbursement and drug-pricing pressure, third-party manufacturing and supply dependencies, clinical and regulatory uncertainty, investment-value fluctuations, and the uncertain effects of COVID-19. Three U.S. distributors each accounted for at least 10% of Q3 revenue; the largest represented 49%.
Investor verification priorities
- Track Tyvaso DPI’s response to the FDA’s testing-facility inspection issue, NDA resubmission timing, and citizen-petition review.
- Assess whether Tyvaso’s PH-ILD-driven growth continues and monitor patient uptake and revenue trends across the five products.
- Review the effect of R&D charges, equity investment gains and losses, and stock-price-sensitive STAP compensation on reported earnings and cash flow.
- Monitor outcomes and potential financial or commercial impacts of the patent, antitrust, MSP Recovery and 340B matters, including possible generic entry timelines.
- Evaluate distributor concentration, manufacturing continuity, liquidity and the $800 million debt balance, alongside cash and marketable investments.