United Therapeutics (UTHR) Q4 Earnings Decline On High Costs

United Therapeutics Corporation (NASDAQ:UTHR) reported adjusted earnings of $3.89 per share in the fourth quarter of 2017, which declined 4.2% from the year-ago quarter due to higher operating costs. The Zacks Consensus Estimate was pegged at $1.94 per share.

Adjusted earnings excluded the impact of share-based compensation expenses and the impact of tax reforms.

Revenues for the reported quarter were $465 million, beating the Zacks Consensus Estimate of $416 million. Revenues also grew 13.6% year over year. Stronger sales across the PAH franchise pulled up the top line in the quarter.

The Quarter in Detail

United Therapeutics markets four products for the treatment of PAH – Remodulin, Tyvaso, Adcirca and Orenitram. Please note that United Therapeutics bought exclusive rights to commercialize Adcirca for the treatment of PAH in the United States from Eli Lilly (NYSE:LLY) in November 2008.

Adcirca sales were $119.3 million, up 5.9% year over year. Orenitram sales amounted to $48 million in the quarter, up 25.3% year over year due to patient growth. Remodulin sales were $180.1 million, up 19.1% year over year. Tyvaso sales totaled 92.4 million, down 1.3% year over year. Sales of Tyvaso, however, improved sequentially in the quarter. Unituxin’s (for the treatment of pediatric patients with high-risk neuroblastoma) sales of $24.9 million surged 88.6% year over year.

Research and development (R&D) expenses escalated 96.4% to $91.5 million due to higher costs to support the company’s pipeline of cardiopulmonary and cancer drugs and to develop its organ manufacturing projects. On the conference call, the company said that R&D costs will continue to rise in 2018 to advance the company’s expanding pipeline.

Shares of United Therapeutics were down almost 10% on Wednesday, probably as management hinted at potentially higher costs for 2018. In fact, the stock has underperformed the industry in the past year, having declined 16.8% while the industry has increased 0.5% during the period.

Selling, general and administrative (SG&A) expenses rose 8.8% to $69 million.

Pipeline Update

United Therapeutics is working on expanded indications for some of its marketed products like Orenitram and Tyvaso. The company, at present, has seven phase III programs in the fields of cardiopulmonary diseases and oncology. A phase IV FREEDOM-EV study is evaluating an oral combination therapy of Orenitram –OreniPlus. Full data from this study is expected this year. Meanwhile a phase III BEAT study is evaluating Tysuberprost - esuberaprost in combination with Tyvaso. United Therapeutics has also begun clinical development of dinutuximab, the active ingredient in Unituxin, for small cell lung cancer (phase II/III DISTINCT study) and other high-risk forms of cancer with GD2 expressing cell tumors such as ovarian cancer and several sarcomas.

United Therapeutics is also working on new delivery mechanisms for Remodulin. The company is working with Medtronic plc (NYSE:MDT) to get RemoSynch, an implantable pump for delivering Remodulin intravenously, approved by the FDA. United Therapeutics expects to launch the RemoSynch system this year. United Therapeutics is also working with DEKA for the development of a pre-filled, semi-disposable pump system for subcutaneous delivery of Remodulin (RemUnity). Clinical studies on RemoPro, a pain-free new chemical entity version of treprostinil, are expected to begin this year.

Several data read-outs and regulatory updates are expected in 2018.

Patent Settlements

Last week, United Therapeutics announced settlement of its ongoing patent litigation with Actavis (NYSE:AGN) Laboratories, a subsidiary of Teva Pharmaceutical Industries (NYSE:TEVA) , related to Orenitram. Actavis is looking to bring a generic version of Orenitram. Per the settlement deal, Actavis can launch a generic version of Orenitram after Jun 15, 2027.

However, investors should remember that Remodulin and Adcirca could start facing generic competition by middle of the year.

United Therapeutics carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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