United Therapeutics Corporation — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023; unaudited. Amounts are in millions of dollars except per-share data. United Therapeutics is a biotechnology company focused on therapies for chronic and life-threatening conditions and technologies to expand transplantable-organ availability.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $596.5 | $466.9 | $1,103.4 | $928.8 |
| Operating income | $313.4 | $201.8 | $597.8 | $489.8 |
| Net income | $259.2 | $116.0 | $500.1 | $355.9 |
| Diluted EPS | $5.24 | $2.41 | $10.08 | $7.43 |
| Operating cash flow | Not separately presented | Not separately presented | $481.1 | $415.7 |
- Q2 revenue rose 28%; six-month revenue rose 19%. Q2 operating margin was approximately 52.5%, versus 43.2% a year earlier; net margin was approximately 43.5%, versus 24.8%.
- Q2 operating expenses were $283.1, including cost of sales of $64.1, R&D of $89.0, and SG&A of $130.0. Cost of sales more than doubled year over year, primarily due to Tyvaso DPI product costs and royalties.
- Cash, cash equivalents, and marketable investments totaled $4,702.6 at June 30, 2023, up from $4,154.9 at year-end 2022. The company reported $1,067.3 in cash and $3,635.3 in marketable investments.
- Outstanding debt was $800.0 under an unsecured revolving credit agreement, classified as non-current and extended to mature in March 2028. The company reported compliance with its covenants.
- Current assets were $3,213.4 and current liabilities $370.3. Six-month investing cash use was $448.3, including $86.0 of cash purchases of property and equipment; financing provided $73.3. Cash increased $106.1 during the six months.
Material changes and business drivers
- Tyvaso revenue rose 59% in Q2 to $318.9, driven mainly by patient growth after the Tyvaso DPI launch and the PH-ILD label expansion; distributor inventory also increased. Tyvaso accounted for about 53% of Q2 revenue.
- Orenitram revenue grew 20% to $95.1. Remodulin fell 4% to $127.2; Unituxin was broadly flat at $44.3; Adcirca declined 28% to $7.5.
- Higher interest income and lower other investment-related expense supported the year-over-year increase in pretax income. Interest expense also increased, to $14.8 in Q2, from $6.2.
- Reported share-based compensation was unusually volatile: a $31.9 benefit for the six months of 2023, versus $18.7 expense in 2022, primarily reflecting remeasurement of cash-settled STAP awards as the share price declined. This affects comparability of expenses and earnings.
- U.S. customers generated $562.0, or approximately 94% of Q2 revenue. Two distributors represented 52% and 34% of Q2 revenue, respectively.
Outlook, risks, and contingencies
- Management expects near-term growth primarily from Tyvaso and Tyvaso DPI, continued Orenitram growth, and modest price increases. No specific revenue or earnings guidance is provided.
- The company budgeted approximately $700 million of capital expenditures for 2023–2025, primarily for a new Tyvaso DPI manufacturing facility, and expects to fund this with cash on hand. It reported that existing Tyvaso DPI capacity was nearing its limit and that capacity expansion efforts were underway.
- Pipeline priorities include Phase 3 TETON studies of Tyvaso for idiopathic pulmonary fibrosis, planning for a progressive pulmonary fibrosis study, and the Phase 3 ralinepag ADVANCE OUTCOMES study. ADVANCE CAPACITY was discontinued due to slow enrollment and resource reallocation; the RemoPro program was terminated. SAPPHIRE enrollment had ended, with data expected to be unblinded in early 2024.
- In Liquidia patent litigation, an appellate court affirmed the district court decision on July 24, 2023, which bars final FDA approval of Yutrepia until May 2027. A stay request and a separate patent-review appeal remained pending; Liquidia also notified the company of a proposed PH-ILD indication for Yutrepia. Outcomes could affect competition and Tyvaso-related sales.
- Other material legal matters include a Sandoz contract-damages claim proceeding toward trial, payer-related lawsuits with motions to dismiss pending, and the company’s 340B contract-pharmacy litigation, on appeal. The company cannot reasonably estimate potential losses in the Sandoz damages matter.
- Key risks include dependence on treprostinil products, generic and branded competition, reimbursement and drug-pricing pressure including the Inflation Reduction Act, manufacturing capacity and third-party supplier dependence, clinical and regulatory uncertainty, and intellectual-property challenges. The company also noted variable-rate debt and market exposure in its investment portfolio.
- Management stated that liquidity is sufficient for operations and planned business needs. It reported no material change in market-risk exposure, effective disclosure controls, and no material change in internal control over financial reporting.
Investor verification priorities
- Track Tyvaso DPI patient demand, distributor inventory levels, manufacturing capacity expansion, and the timing and cost of the planned facility.
- Reconcile reported earnings with STAP remeasurement benefits and assess the sustainability of underlying operating expense trends.
- Review updates in Liquidia patent and FDA proceedings, including the stay request, patent-review appeal, and proposed PH-ILD indication.
- Monitor the $700 million capital plan against operating cash generation, investment maturities, and the $800 million variable-rate credit balance.
- Follow distributor concentration, pricing and reimbursement developments, generic competition, and the status of pending litigation and tax uncertainties.