United Therapeutics Corporation (NASDAQ: UTHR) — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Financial statements are unaudited and consolidated; amounts are in millions except per-share data. United Therapeutics develops and markets therapies for chronic and life-threatening conditions, with its business primarily focused on pulmonary arterial hypertension.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Net product sales | $356.3 | $362.6; down 2% |
| Gross profit / margin | $332.9 / approximately 93% | $333.5 / approximately 92% |
| Operating income (loss) | $166.7 | $(655.9) |
| Net income (loss) | $137.7; diluted EPS $3.12 | $(494.6); diluted EPS $(11.32) |
| Operating cash flow | $214.6 | $(627.4) |
Q1 2020 operating expenses were $189.6, compared with $1,018.5 a year earlier. The prior-year quarter included an $800.0 Arena ralinepag license upfront payment and a $12.5 MannKind payment in research and development; the earnings turnaround is therefore not a like-for-like indicator of underlying operating growth. Other income included a $22.5 unrealized gain on a private-company investment, offset in part by investment losses and impairment charges.
At March 31, cash and cash equivalents were $875.2 and marketable investments totaled $1,537.3, for combined cash and investments of $2,412.5, up 7% from year-end. Current assets were $1,846.3 and current liabilities $207.3. Outstanding revolving credit borrowings were $800.0, all classified as non-current, versus $850.0 at December 31; the company repaid $50.0 during the quarter. The credit facility provides up to $1.5 billion and matures in 2024. Interest expense was $8.2. The company reported compliance with credit covenants.
Revenue mix and changes from prior year
- Remodulin sales were $145.3, down 7%, reflecting lower volume and price reductions, including continued generic competition.
- Tyvaso sales were $102.9, down 1%; a price increase was offset by lower volume and higher gross-to-net deductions.
- Orenitram sales were $69.0, up 18%, driven by volume and price increases.
- Unituxin sales were $26.6, up 7%, primarily due to price increases, partly offset by fewer vials sold.
- Adcirca sales were $12.5, down 38%, as generic competition continued. U.S. sales were $326.7 and rest-of-world sales were $29.6. Two U.S. distributors represented 55% and 25% of total revenue, respectively.
Outlook, developments, and risks
- COVID-19 outlook: Management said it could no longer predict whether 2020 full-year net revenues would grow versus 2019. It cited limited near-term visibility, April declines in new treprostinil prescriptions and, later in the month, patient starts, and uncertainty about duration or recovery. Q1 demand had not shown a material pandemic impact as of March 31.
- Operations and liquidity: Management said cash, cash equivalents, and marketable securities could fund operations at then-current levels for at least two years regardless of future revenues. It reported approximately two years of finished treprostinil inventory, three years of treprostinil API, and about 14 months of Unituxin supply. No product-supply interruption had been reported at the filing date.
- Pipeline and regulatory milestones: The Phase III INCREASE study of Tyvaso in pulmonary hypertension associated with interstitial lung disease met its primary endpoint; the company planned an FDA supplement around mid-2020. Remunity’s pharmacy-filled system was cleared and launch was expected by July 2020, though COVID-19 could delay it. Most ongoing clinical studies had paused new enrollment, potentially delaying readouts. The Remodulin implantable-system launch was delayed to 2021, with timing dependent on Medtronic satisfying FDA conditions.
- Subsequent event—Trevyent: In April 2020, the FDA issued a complete response letter for Trevyent. Its $107.3 in-process research and development carrying value was under impairment review; the company said some or all could be impaired.
- Competition and litigation: Liquidia sought inter partes review of two treprostinil-related patents and submitted an NDA for LIQ861; the company received a Paragraph IV notice in April and said it intended to enforce its Tyvaso intellectual property. Sandoz/RareGen antitrust litigation continued; the court denied plaintiffs’ preliminary-injunction request, but the case remained pending and potential losses could not be reasonably estimated.
- Other risks and unusual items: Adcirca’s license was scheduled to expire December 31, 2020, and the company did not expect revenue from it thereafter absent an extension; 2019 Adcirca revenue was $107.2. Anticipated generic pressure on European Remodulin and substantial reliance on a small number of distributors, suppliers, and third parties are additional risks. Q1 included $5.6 of impairment charges on private-company investments and a $1.5 impairment charge on a note receivable associated with pandemic-related economic uncertainty.
Most important facts for investors to verify
- Whether COVID-19-related declines in new prescriptions and starts persist, and how distributor ordering affects reported sales versus patient demand.
- FDA and launch outcomes for the Tyvaso PH-ILD supplement, Remunity, Trevyent, and the implantable Remodulin system; quantify any Trevyent impairment when finalized.
- Progress and potential outcomes of Liquidia’s patent challenges and LIQ861 application, and the Sandoz/RareGen litigation.
- Adcirca revenue and return exposure as the license approaches expiration, and the pace of generic erosion in Remodulin markets.
- Cash generation, investment valuation and credit exposure, and the company’s ability to service its $800.0 revolving debt while maintaining its stated liquidity position.