United Therapeutics Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. United Therapeutics is a biotechnology company developing and commercializing therapies for chronic and life-threatening conditions, with a portfolio centered on treprostinil products.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $506.9 million | $461.9 million | Up 10% |
| Gross profit | $454.6 million | $436.0 million | Up $18.6 million |
| Gross margin | 89.7% | 94.4% | Down 4.7 percentage points |
| Operating income | $284.4 million | $288.0 million | Down 1% |
| Operating margin | 56.1% | 62.4% | Down 6.3 percentage points |
| Net income | $240.9 million | $239.9 million | Up $1.0 million |
| Diluted EPS | $4.86 | $5.03 | Down 3% |
| Operating cash flow | $374.8 million | $288.7 million | Up 30% |
Tyvaso revenue rose 39% to $238.4 million, primarily on higher volume following the Tyvaso DPI launch and continued PH-ILD growth. Orenitram increased 7% to $88.2 million. Remodulin fell 8% to $121.4 million, Unituxin fell 12% to $49.1 million, and Adcirca fell 26% to $7.3 million. U.S. revenue was $469.7 million, up from $409.8 million; international revenue was $37.2 million, down from $52.1 million.
Cost of sales more than doubled to $52.3 million, largely due to Tyvaso DPI product costs and royalties. Research and development rose 20% to $82.9 million, principally from Tyvaso IPF clinical studies; selling, general and administrative expense increased 11% to $87.3 million. The effective tax rate declined to 17% from 22%, primarily due to increased excess tax benefits from share-based compensation. Other expense/income also shifted, in part reflecting fair-value changes in equity securities.
Liquidity, debt, and cash flows
Cash and cash equivalents were $1.164 billion at March 31, 2023, and marketable investments totaled $3.466 billion, for combined cash and investments of $4.629 billion. The company reported $800 million of outstanding borrowings under its unsecured revolving credit agreement, classified as non-current. The agreement provides up to $2.0 billion in revolving facilities, was extended to March 2028, and the company reported compliance with its covenants.
Operating cash flow was $374.8 million. Investing activities used $221.1 million, including $41.3 million of property and equipment purchases; financing activities provided $48.6 million, mainly reflecting $61.4 million from stock-option exercises. Cash increased $202.3 million during the quarter. Available-for-sale debt securities had $53.4 million of gross unrealized losses; management attributed these to interest rates, reported no credit-loss impairment, and said it did not expect to sell the securities before recovery or maturity.
Outlook, developments, and risks
- Management expects near-term revenue growth mainly from Tyvaso, including Tyvaso DPI and the PH-ILD indication, Orenitram, and modest price increases, partly offset by further generic erosion of Adcirca. No specific quarterly or full-year revenue or earnings guidance is provided.
- The company budgeted approximately $750 million of capital expenditures for 2023–2025, primarily for a Tyvaso DPI manufacturing facility in North Carolina, and expects to fund the spending with cash on hand. Management noted that existing Tyvaso DPI manufacturing capacity is approaching its limit and that near-term capacity expansion is underway.
- Pipeline work includes Phase 3 Tyvaso TETON studies for IPF, a planned TETON PPF study, and the Phase 3 ralinepag ADVANCE OUTCOMES study. The separate ralinepag ADVANCE CAPACITY study was discontinued because of slow enrollment and resource redirection. The international licensee for ralinepag gave notice of termination effective in Q3 2023. Orenitram’s primary international distributor decided not to pursue approvals in Europe and other territories.
- Material competition and intellectual-property uncertainty remain. Liquidia’s Yutrepia has tentative FDA approval; court and patent-board appeals and a motion to stay the restriction on final FDA approval were pending. An adverse outcome could allow earlier competition with Tyvaso products.
- Other significant legal matters include the Sandoz/RareGen contract-damages dispute, for which the company could not reasonably estimate potential losses; insurer and MSP Recovery suits alleging improper patient-assistance arrangements; and the company’s appeal in its 340B contract-pharmacy litigation. Outcomes and potential financial effects are uncertain.
- Key business risks include generic competition, pricing and reimbursement pressure (including the Inflation Reduction Act), reliance on distributors and third-party manufacturers, and the ability to expand Tyvaso DPI supply. Three U.S. distributors represented 50%, 33%, and 9% of revenue, respectively. Management also cited clinical, regulatory, patent, and manufacturing risks.
Important facts for investors to verify
- Whether Tyvaso DPI demand and manufacturing expansion support continued growth without supply constraints.
- How product-level trends develop, particularly Tyvaso growth versus Remodulin and Adcirca erosion, and the effect of higher product costs on margins.
- Developments in Liquidia patent appeals and any stay or approval that could accelerate Yutrepia competition.
- Potential outcomes and financial exposure in the Sandoz, patient-assistance-related, and 340B matters; several exposures are not quantifiable from the filing.
- Whether planned $750 million capital spending, pipeline investment, and the $800 million debt balance remain consistent with management’s liquidity expectations.