On august 1, 2018 United Therapeutics Corporation (NASDAQ: UTHR) reported its financial results for the quarter ended June 30, 2018 (Press release, United Therapeutics, AUG 1, 2018, View Source [SID1234528401]).
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"Our second quarter net revenues totaled $444 million and we are treating a larger number of patients, compared to the prior year, suffering from pulmonary arterial hypertension with our prostacyclin product franchise, which consists of Orenitram, Remodulin, and Tyvaso," said Martine Rothblatt, Ph.D., Chairman and Chief Executive Officer of United Therapeutics. "We also continued to invest in our innovative product pipeline, which includes seven Phase III clinical trials in cardiopulmonary diseases and oncology as well as programs in regenerative medicine and organ manufacturing to ultimately provide a cure for PAH and other end-stage organ diseases. We believe this product pipeline uniquely positions United Therapeutics to deliver long-term revenue growth to our stakeholders."
Update on SteadyMed Acquisition
Our previously-announced acquisition of SteadyMed Ltd. (SteadyMed) has satisfied two key closing conditions. On July 20, 2018, the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 expired, and on July 30, 2018, SteadyMed’s shareholders approved the transaction. Under Israeli law, closing may not occur until at least thirty days have passed since the SteadyMed shareholders approved the transaction. Assuming all remaining conditions to closing of this transaction are satisfied or waived, we expect the transaction to be completed in the third quarter of this year. SteadyMed’s lead drug product candidate is Trevyent, a development-stage drug-device combination product that combines SteadyMed’s PatchPump technology with treprostinil to treat pulmonary arterial hypertension.
Financial Results for the Three Months Ended June 30, 2018 compared to the Three Months Ended June 30, 2017
Key financial highlights include (dollars in millions, except per share data):
Three Months Ended
June 30,
Dollar
Percentage
2018
2017
Change
Change
Revenues
$
444.5
$
444.6
$
(0.1)
—
%
Net income (loss)
$
172.9
$
(56.0)
$
228.9
409
%
Non-GAAP earnings(1)
$
189.1
$
199.2
$
(10.1)
(5)
%
Net income (loss), per basic share
$
4.01
$
(1.25)
$
5.26
421
%
Net income (loss), per diluted share
$
3.98
$
(1.25)
$
5.23
418
%
Non-GAAP earnings, per diluted share(1)
$
4.36
$
4.37
$
(0.01)
—
%
(1)
See definition of non-GAAP earnings, a non-GAAP financial measure, and a reconciliation of net income to non-GAAP earnings below.
Revenues
The following table presents the components of total revenues (dollars in millions):
Three Months Ended
June 30,
Dollar
Percentage
2018
2017
Change
Change
Net product sales:
Remodulin
$
159.5
$
157.7
$
1.8
1
%
Tyvaso
105.9
104.2
1.7
2
%
Adcirca
109.8
120.6
(10.8)
(9)
%
Orenitram
49.5
46.0
3.5
8
%
Unituxin
19.8
16.1
3.7
23
%
Total revenues
$
444.5
$
444.6
$
(0.1)
—
%
Revenues for the three months ended June 30, 2018 decreased by $0.1 million as compared to the same period in 2017. Remodulin net product sales increased by $1.8 million due to a $16.7 million increase in U.S. net product sales partially offset by a $14.9 million decrease in international net product sales. U.S. net product sales increased due to an increase in quantities ordered from our U.S. distributors, which do not precisely reflect underlying patient demand, and a price increase implemented in April 2018, which was the first price increase for Remodulin since 2010. International net product sales decreased primarily due to a reduction in the price at which we sell Remodulin to an international distributor in connection with a transfer of additional regulatory and commercial responsibilities to that distributor in 2017. Tyvaso net product sales increased by $1.7 million primarily due to a price increase. Adcirca net product sales decreased by $10.8 million primarily due to a decrease in the number of bottles sold, partially offset by price increases that were determined by Lilly. Orenitram net product sales increased by $3.5 million primarily due to an increase in the number of patients being treated with Orenitram. Unituxin net product sales increased by $3.7 million primarily due to an increase in the number of vials sold and a price increase implemented in 2017.
Expenses
Cost of product sales. The following table summarizes cost of product sales by major category (dollars in millions):
Three Months Ended
June 30,
Dollar
Percentage
2018
2017
Change
Change
Category:
Cost of product sales
$
61.1
$
19.3
$
41.8
217
%
Share-based compensation expense (benefit)(1)
0.6
(0.4)
1.0
250
%
Total cost of product sales
$
61.7
$
18.9
$
42.8
226
%
(1)
Refer to Share-based compensation expense (benefit) below for discussion.
Cost of product sales, excluding share-based compensation. The increase in cost of product sales of $41.8 million for the three months ended June 30, 2018, as compared to the same period in 2017, was primarily due to a $40.7 million increase in the royalty expense for Adcirca. As a result of an amendment to our license agreement with Lilly, effective December 1, 2017 our royalty rate on net product sales of Adcirca increased from five percent to an effective rate of approximately 42.5 percent.
Research and development expense. The following table summarizes research and development expense by major category (dollars in millions):
Three Months Ended
June 30,
Dollar
Percentage
2018
2017
Change
Change
Category:
Research and development projects
$
79.1
$
61.6
$
17.5
28
%
Share-based compensation expense (benefit)(1)
3.2
(1.8)
5.0
278
%
Total research and development expense
$
82.3
$
59.8
$
22.5
38
%
(1)
Refer to Share-based compensation expense (benefit) below for discussion.
Research and development expense, excluding share-based compensation. The increase in research and development expense of $17.5 million for the three months ended June 30, 2018, as compared to the same period in 2017, was driven by the continued investment in our innovative product pipeline to treat cardiopulmonary diseases and cancer.
Selling, general and administrative expense. The following table summarizes selling, general and administrative expense by major category (dollars in millions):
Three Months Ended
June 30,
Dollar
Percentage
2018
2017
Change
Change
Category:
General and administrative
$
50.8
$
51.6
$
(0.8)
(2)
%
Sales and marketing
15.6
15.5
0.1
1
%
Share-based compensation expense(1)
16.7
0.3
16.4
NM
(2)
Total selling, general and administrative expense
$
83.1
$
67.4
$
15.7
23
%
(1)
Refer to Share-based compensation expense (benefit) below for discussion.
(2)
Calculation is not meaningful.
Share-based compensation expense (benefit). The following table summarizes share-based compensation (benefit) expense by major category (dollars in millions):
Three Months Ended
June 30,
Dollar
Percentage
2018
2017
Change
Change
Category:
Stock options
$
15.5
$
12.2
$
3.3
27
%
Restricted stock units
2.0
0.5
1.5
300
%
Share tracking awards plan (STAP)
2.7
(14.9)
17.6
118
%
Employee stock purchase plan
0.3
0.3
—
—
%
Total share-based compensation expense (benefit)
$
20.5
$
(1.9)
$
22.4
NM
(1)
(1)
Calculation is not meaningful.
The increase in share-based compensation expense of $22.4 million for the three months ended June 30, 2018, as compared to the same period in 2017, was primarily due to: (1) a $17.6 million increase in STAP expense related to an increase in our stock price during the three months ended June 30, 2018, as compared to a decrease in our stock price during the same period in 2017; and (2) a $3.3 million increase in stock option expense due to additional awards granted and outstanding in 2018.
Loss Contingency
In December 2017, we entered into a civil Settlement Agreement with the U.S. Government to resolve a DOJ investigation related to our support of 501(c)(3) organizations that provide financial assistance to patients. During the second quarter of 2017, we recorded a $210.0 million accrual relating to this matter, and ultimately paid this amount, plus interest, to the U.S. Government upon settlement.
Impairment of Investment in a Privately-Held Company
During the quarter ended June 30, 2017, one of our investments in a privately-held company experienced an event triggering an impairment analysis to evaluate the recoverability of our investment. We determined that the fair value of our investment as of June 30, 2017 was lower than its carrying value, resulting in an impairment charge of $46.5 million. As of June 30, 2017, the adjusted carrying value of our investment in this company was $53.5 million. The carrying value of this asset has not been further adjusted since June 30, 2017.
Income Tax Expense
The provision for income taxes was $45.0 million for the three months ended June 30, 2018, as compared to $100.2 million for the same period in 2017. The provision for income taxes is based on an estimated effective tax rate for the entire year. The estimated annual effective tax rate is subject to adjustment in subsequent quarterly periods if components used to estimate the annual effective tax rate are updated or revised. Our effective tax rate (ETR) as of June 30, 2018 and June 30, 2017 was approximately 21 percent and approximately 60 percent, respectively. Our ETR for the six months ended June 30, 2018 decreased as compared to the same period in 2017 due to the impacts of The Tax Cuts and Jobs Act as well as the $210.0 million accrual in connection with the civil settlement described above and the $46.5 million impairment charge described above that did not meet the criteria for tax deductibility at that time.