On February 22, 2017 United Therapeutics Corporation (NASDAQ: UTHR) reported its financial results for the fourth quarter and year ended December 31, 2016 (Press release, United Therapeutics, FEB 22, 2017, View Source [SID1234517829]).
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“Our annual 2016 financial results reflect continued growth as net revenues reached $1.6 billion and earnings exceeded $700 million,” said Martine Rothblatt, Ph.D., United Therapeutics’ Chairman and Chief Executive Officer. “These financial results strengthen our ability to develop and advance our growing product pipeline, which includes seven phase III programs and multiple second generation Remodulin drug delivery systems.”
Key financial highlights include (in millions, except per share data):
Three Months Ended
December 31,
Year Ended
December 31,
2016
2015
2016
2015
Revenues
$
409.0
$
404.9
$
1,598.8
$
1,465.8
Net income
$
110.3
$
104.6
$
713.7
$
651.6
Non-GAAP earnings(1)
$
187.2
$
189.1
$
748.6
$
631.7
Net income, per diluted share
$
2.43
$
2.10
$
15.25
$
12.72
Non-GAAP earnings, per diluted share(1)
$
4.12
$
3.80
$
16.00
$
12.33
(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 table below summarizes the components of total revenues (dollars in millions):
Three Months Ended
December 31,
Percentage
Year Ended
December 31,
Percentage
2016
2015
Change
2016
2015
Change
Net product sales:
Remodulin
$
151.2
$
140.5
7.6%
$
602.3
$
572.8
5.2%
Tyvaso
93.6
119.2
(21.5)%
404.6
470.1
(13.9)%
Adcirca
112.7
91.5
23.2%
372.2
278.8
33.5%
Orenitram
38.3
37.2
3.0%
157.2
118.4
32.8%
Unituxin
13.2
15.8
(16.5)%
62.5
20.5
204.9%
Other
—
0.7
(100.0)%
—
5.2
(100.0)%
Total revenues
$
409.0
$
404.9
1.0%
$
1,598.8
$
1,465.8
9.1%
Revenues for the quarter ended December 31, 2016 increased by $4.1 million as compared to the same period in 2015. The growth in revenues primarily resulted from: (1) a $21.2 million increase in Adcirca net product sales; (2) a $10.7 million increase in Remodulin net product sales; and (3) a $1.1 million increase in Orenitram net product sales, partially offset by: (1) a $25.6 million decrease in Tyvaso net product sales; and (2) a $2.6 million decrease in Unituxin net product sales.
Revenues for the year ended December 31, 2016 increased by $133.0 million as compared to the same period in 2015. The growth in revenues primarily resulted from the following: (1) a $93.4 million increase in Adcirca net product sales; (2) a $42.0 million increase in Unituxin net product sales; (3) a $38.8 million increase in Orenitram net product sales; and (4) a $29.5 million increase in Remodulin net product sales, partially offset by a $65.5 million decrease in Tyvaso net product sales.
Expenses
Cost of product sales. The table below summarizes cost of product sales by major category (dollars in millions):
Three Months Ended
December 31,
Percentage
Year Ended
December 31,
Percentage
2016
2015
Change
2016
2015
Change
Category:
Cost of product sales
$
19.5
$
19.3
1.0%
$
72.1
$
60.2
19.8%
Share-based compensation expense(1)
8.9
6.0
48.3%
0.6
8.8
(93.2)%
Total cost of product sales
$
28.4
$
25.3
12.3%
$
72.7
$
69.0
5.4%
(1)
Refer to Share-based compensation expense below for discussion.
Cost of product sales. The increase in cost of product sales of $11.9 million for the year ended December 31, 2016, as compared to the same period in 2015, was primarily attributable to increased sales.
Research and development expense. The table below summarizes research and development expense by major category (dollars in millions):
Three Months Ended
December 31,
Percentage
Year Ended
December 31,
Percentage
2016
2015
Change
2016
2015
Change
Project and non-project:
Research and development expense
$
46.6
$
45.6
2.2%
$
157.6
$
157.4
0.1%
Share-based compensation expense (benefit)(1)
20.3
30.3
(33.0)%
(10.0)
87.7
(111.4)%
Total research and development expense
$
66.9
$
75.9
(11.9)%
$
147.6
$
245.1
(39.8)%
(1)
Refer to Share-based compensation expense below for discussion.
Selling, general and administrative expense. The table below summarizes selling, general and administrative expense by major category (dollars in millions):
Three Months Ended
December 31,
Percentage
Year Ended
December 31,
Percentage
2016
2015
Change
2016
2015
Change
Category:
General and administrative
$
45.9
$
42.9
7.0%
$
210.7
$
174.6
20.7%
Sales and marketing
17.5
24.7
(29.1)%
84.6
94.3
(10.3)%
Share-based compensation expense(1)
76.1
81.1
(6.2)%
21.5
183.8
(88.3)%
Total selling, general and administrative expense
$
139.5
$
148.7
(6.2)%
$
316.8
$
452.7
(30.0)%
(1)
Refer to Share-based compensation expense below for discussion.
General and administrative. The increase in general and administrative expenses of $36.1 million for the year ended December 31, 2016, as compared to the same period in 2015, primarily resulted from: (1) a $20.0 million increase in grants to a non-affiliated, non-profit organization that provides financial assistance to patients with PAH; and (2) $9.3 million in expenses in connection with the disposition and write-down of various properties.
Share-based compensation expense. The table below summarizes share-based compensation expense (benefit) by major category (dollars in millions):
Three Months Ended
December 31,
Percentage
Year Ended
December 31,
Percentage
2016
2015
Change
2016
2015
Change
Category:
Share tracking awards plan
$
101.3
$
114.6
(11.6)%
$
(15.2)
$
274.2
(105.5)%
Stock options
3.1
2.4
29.2%
24.8
4.9
406.1%
Other(1)
0.9
0.4
125.0%
2.5
1.2
108.3%
Total share-based compensation expense
$
105.3
$
117.4
(10.3)%
$
12.1
$
280.3
(95.7)%
(1)
Includes expense related to restricted stock units for the year ended December 31, 2016 and employee stock purchase plan for the years ended December 31, 2016 and 2015.
Share-based compensation. The decrease of $12.1 million and $268.2 million, respectively, during the quarter and year ended December 31, 2016, as compared to the same periods in 2015, was primarily due to changes in our stock price and number of share tracking awards and stock options outstanding during the periods.
Gain on Sale of Intangible Asset
In September 2015, we sold for $350.0 million in cash the Rare Pediatric Priority Review Voucher (PPRV) that we received from the U.S. Food and Drug Administration in connection with the approval of Unituxin. 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 Taxes
The provision for income taxes was $346.5 million for the year ended December 31, 2016 compared to $392.8 million for the same period in 2015. The decrease in the provision for income taxes corresponded primarily to a decrease in non-deductible compensation related to our share tracking awards plan, which in turn resulted from the decrease in our stock price. For the years ended December 31, 2016 and 2015, the effective tax rates were approximately 33 percent and 38 percent, respectively.
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
December 31,
Year Ended December 31,
2016
2015
2016
2015
Net income, as reported
$
110.3
$
104.6
$
713.7
$
651.6
Adjust for the following charges:
Interest expense
2.2
0.5
3.9
4.7
Depreciation and amortization
7.8
8.0
31.6
32.9
Impairment charges
4.3
—
4.3
—
Share-based compensation expense
105.3
117.4
12.1
280.3
Gain on sale of intangible asset
—
—
—
(350.0)
Tax (benefit) expense(1)
(42.7)
(41.4)
(17.0)
12.2
Non-GAAP earnings
$
187.2
$
189.1
$
748.6
$
631.7
Non-GAAP earnings per share:
Basic
$
4.44
$
4.14
$
17.09
$
13.73
Diluted
$
4.12
$
3.80
$
16.00
$
12.33
Weighted average number of common shares outstanding:
Basic
42.2
45.7
43.8
46.0
Diluted
45.4
49.7
46.8
51.2
(1)
Non-GAAP earnings adjustments are presented net of the impact of our actual effective income tax rates of approximately 36
percent and 33 percent for the quarters ended December 31, 2016 and 2015, respectively and 33 percent and 38 percent for the
years ended December 31, 2016 and 2015, respectively. We changed the presentation of our non-GAAP earnings in the first
quarter of 2015 for all periods presented to reflect the impact of our estimated effective income tax rates on each component.
The sum of non-GAAP earnings in each of the quarters in 2016 and 2015, respectively, will not equal non-GAAP earnings for
the full year if there are differences between the estimated effective income tax rate applied to each quarter and the actual
effective tax rate for the full year.