On October 27, 2016 United Therapeutics Corporation (NASDAQ: UTHR) reported its financial results for the third quarter ended September 30, 2016 (Press release, United Therapeutics, OCT 27, 2016, View Source [SID1234516036]). Schedule your 30 min Free 1stOncology Demo! "Our financial performance continues its strength this quarter," said Martine Rothblatt, Ph.D., United Therapeutics’ Chairman and Chief Executive Officer. "Our growth potential is higher than ever, with new programs in our pipeline for pulmonary hypertension associated with emphysema, fibrosis, heart failure and sickle cell disease. In addition we are launching the clinical development of our dinutuximab monoclonal antibody for small cell lung cancer and other high-risk forms of cancer with GD2 expressing cell tumors. Finally, our second generation parenteral drug delivery systems for treprostinil are continuing their march toward anticipated approvals in 2017 for implantable and 2018 for subcutaneous."
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Key financial highlights include (dollars in millions, except per share data):
Three Months Ended
September 30,
Percentage
2016
2015
Changes
Revenues
$
408.2
$
386.2
5.7%
Net income
$
161.8
$
464.4
(65.2)%
Non-GAAP earnings(1)
$
201.5
$
174.7
15.3%
Net income, per diluted share
$
3.50
$
9.24
(62.1)%
Non-GAAP earnings, per diluted share(1)
$
4.36
$
3.48
25.3%
____________________
(1)
See definition of non-GAAP earnings, a non-GAAP financial measure, and a reconciliation of net income to non-GAAP earnings below.
Financial Results for the Three Months Ended September 30, 2016
Revenues
The table below summarizes the components of total revenues (dollars in millions):
Three Months Ended
September 30,
Percentage
2016
2015
Change
Net product sales:
Remodulin
$
152.4
$
150.1
1.5%
Tyvaso
101.8
121.7
(16.4)%
Adcirca
96.0
73.8
30.1%
Orenitram
40.7
34.4
18.3%
Unituxin
17.3
4.7
268.1%
Other
—
1.5
(100.0)%
Total revenues
$
408.2
$
386.2
5.7%
Revenues for the three months ended September 30, 2016 increased by $22.0 million, compared to the same period in 2015. The growth in revenues primarily resulted from the following: (1) a $22.2 million increase in Adcirca net product sales; (2) a $12.6 million increase in Unituxin net product sales; (3) a $6.3 million increase in Orenitram net product sales; and (4) a $2.3 million increase in Remodulin net product sales. These increases were partially offset by a $19.9 million decrease in Tyvaso net product sales.
Expenses
Cost of product sales. The table below summarizes cost of product sales by major categories (dollars in millions):
Three Months Ended
September 30,
Percentage
2016
2015
Change
Category:
Cost of product sales
$
20.0
$
15.0
33.3%
Share-based compensation expense (benefit)
3.6
(8.1)
144.4%
Total cost of product sales
$
23.6
$
6.9
242.0%
Cost of product sales. The increase in cost of product sales of $5.0 million for the three months ended September 30, 2016, as compared to the same period in 2015, was attributable to increased sales.
Share-based compensation. The increase in share-based compensation of $11.7 million for the three months ended September 30, 2016, as compared to the same period in 2015, corresponded to an 11 percent increase in the price of our common stock during the three months ended September 30, 2016, compared to a 25 percent decrease in the price of our common stock during the same period in 2015.
Research and development expense. The table below summarizes research and development expense by major category (dollars in millions):
Three Months Ended
September 30,
Percentage
2016
2015
Change
Category:
Research and development expense
$
37.2
$
40.6
(8.4)%
Share-based compensation expense (benefit)
8.7
(31.0)
128.1%
Total research and development expense
$
45.9
$
9.6
378.1%
Share-based compensation. The increase in share-based compensation of $39.7 million for the three months ended September 30, 2016, as compared to the same period in 2015, corresponded to an 11 percent increase in the price of our common stock during the three months ended September 30, 2016, compared to a 25 percent decrease in the price of our common stock during the same period in 2015.
Selling, general and administrative expense. The table below summarizes selling, general and administrative expense by major categories (dollars in millions):
Three Months Ended
September 30,
Percentage
2016
2015
Change
Category:
General and administrative
$
42.4
$
41.0
3.4%
Sales and marketing
20.1
21.5
(6.5)%
Share-based compensation expense (benefit)
37.6
(79.8)
147.1%
Total selling, general and administrative expense
$
100.1
$
(17.3)
678.6%
Share-based compensation. The increase in share-based compensation of $117.4 million for the three months ended September 30, 2016, as compared to the same period in 2015, was primarily attributable to an 11 percent increase in the price of our common stock during the three months ended September 30, 2016, compared to a 25 percent decrease in the price of our common stock during the same period in 2015.
Gain on Sale of Intangible Asset
In September 2015, we sold the Rare Pediatric Priority Review Voucher (PPRV) we received from the FDA in connection with the approval of our Biologics License Application for Unituxin. In exchange for the voucher we received $350.0 million from AbbVie Ireland Unlimited Company. The proceeds from the sale of the PPRV were recognized as a gain on the sale of an intangible asset, as the PPRV did not have a carrying value on our consolidated balance sheet at the time of sale.
Income Tax Expense
Our 2016 effective income tax rate decreased as compared to 2015 primarily due to a decrease in non-deductible share-based compensation, which was driven largely by a decrease in our stock price during 2016 compared to 2015.
Share Repurchases
In the third quarter of 2016, we repurchased approximately 1.1 million shares of our common stock at an aggregate cost of $135.8 million. These purchases were made pursuant to our $500 million stock repurchase program, which is effective during calendar year 2016, with $104.5 million of that amount remaining available for additional share repurchases at September 30, 2016.
Non-GAAP Earnings
Non-GAAP earnings is defined as net income, adjusted for: (1) interest expense; (2) license fees; (3) depreciation and amortization; (4) impairment charges; (5) share-based compensation expense (benefit), net (including expenses relating to stock options, share tracking awards, restricted stock units and our employee stock purchase plan); and (6) tax impact on non-GAAP earnings adjustments. For 2015, we also adjusted non-GAAP earnings to eliminate the gain resulting from the sale of the PPRV in September 2015.
A reconciliation of net income to non-GAAP earnings is presented below (in millions, except per share data):
Three Months Ended
September 30,
2016
2015
Net income, as reported
$
161.8
$
464.4
Adjusted for:
Interest expense
0.5
0.8
Depreciation and amortization
8.2
8.2
Share-based compensation expense, net
49.9
(118.9)
Gain on sale of intangible asset
—
(350.0)
Tax (benefit) expense(1)
(18.9)
170.2
Non-GAAP earnings
$
201.5
$
174.7
Non-GAAP earnings per share:
Basic
$
4.66
$
3.84
Diluted
$
4.36
$
3.48
Weighted average number of common shares outstanding:
Basic
43.2
45.5
Diluted
46.2
50.2
______________________
(1)
Represents the total tax impact of the quarterly non-GAAP earnings adjustments based on our actual quarterly effective income tax rates of approximately 32 percent and approximately 37 percent as of September 30, 2016 and 2015, respectively.