On February 25, 2016 United Therapeutics Corporation (NASDAQ: UTHR) reported its financial results for the fourth quarter and year ended December 31, 2015 (Press release, United Therapeutics, FEB 25, 2016, View Source [SID:1234509185]). Schedule your 30 min Free 1stOncology Demo! "We are pleased with our 2015 top-line financial results as fourth-quarter revenues were $405 million, a 17% increase, and total annual revenues approached $1.5 billion, a 14% increase, as compared to the same periods in the prior year," said Roger Jeffs, Ph.D., United Therapeutics’ President and Co-Chief Executive Officer. "These strong 2015 top-line financial results generated annual net income of $652 million, a 92% increase, and annual non-GAAP earnings(1) of $632 million, a 26% increase, as compared to the prior year, and further strengthens our ability to advance a strategic product pipeline of more innovative therapeutic options and drug delivery technologies for patients with PAH."
Discover why more than 1,500 members use 1stOncology™ to excel in:
Early/Late Stage Pipeline Development - Target Scouting - Clinical Biomarkers - Indication Selection & Expansion - BD&L Contacts - Conference Reports - Combinatorial Drug Settings - Companion Diagnostics - Drug Repositioning - First-in-class Analysis - Competitive Analysis - Deals & Licensing
Schedule Your 30 min Free Demo!
Key financial highlights include (in thousands, except per share data):
Three Months Ended
December 31,
Year Ended
December 31,
2015
2014
2015
2014
Revenues
$
404,875
$
346,363
$
1,465,761
$
1,288,519
Net income
$
104,644
$
115,935
$
651,639
$
340,074
Non-GAAP earnings(1)
$
183,034
$
151,797
$
631,655
$
501,392
Net income, per diluted share
$
2.10
$
2.17
$
12.72
$
6.28
Non-GAAP earnings, per diluted share(1)
$
3.68
$
2.83
$
12.33
$
9.26
(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 thousands):
Three Months Ended
December 31,
Percentage
Year Ended
December 31,
Percentage
2015
2014
Change
2015
2014
Change
Net product sales:
Remodulin
$
140,482
$
136,591
3
%
$
572,795
$
553,728
3
%
Tyvaso
119,130
115,070
4
%
470,069
463,067
2
%
Adcirca
91,581
73,545
25
%
278,829
221,471
26
%
Orenitram
37,289
20,175
85
%
118,434
41,267
187
%
Unituxin
15,714
—
NM
(1)
20,443
—
NM
(1)
Other
679
982
(31)
%
5,191
8,986
(42)
%
Total revenues
$
404,875
$
346,363
17
%
$
1,465,761
$
1,288,519
14
%
(1) Calculation is not meaningful.
Revenues for the quarter ended December 31, 2015 increased by $58.5 million compared to the same period in 2014. The growth in revenues primarily resulted from: (1) an $18.0 million increase in Adcirca net product sales; (2) a $17.1 million increase in Orenitram net product sales; and (3) a $15.7 million increase in Unituxin net product sales.
Revenues for the year ended December 31, 2015 increased by $177.2 million compared to the same period in 2014. The growth in revenues primarily resulted from: (1) a $77.2 million increase in Orenitram net product sales; (2) a $57.4 million increase in Adcirca net product sales; and (3) a $20.4 million increase in Unituxin net product sales.
Expenses
Research and development expense. The table below summarizes research and development expense by major project and non-project components (dollars in thousands):
Three Months Ended
December 31,
Percentage
Year Ended
December 31,
Percentage
2015
2014
Change
2015
2014
Change
Project and non-project:
Cardiopulmonary
$
38,297
$
46,857
(18)
%
$
130,097
$
131,843
(1)
%
Share-based compensation expense
30,336
15,729
93
%
87,713
72,714
21
%
Other
7,315
8,896
(18)
%
27,288
37,992
(28)
%
Total research and development expense
$
75,948
$
71,482
6
%
$
245,098
$
242,549
1
%
Cardiopulmonary. The decrease in cardiopulmonary project expenses of $8.6 million for the quarter ended December 31, 2015, as compared to the same period in 2014, resulted from a decrease of $12.9 million in expenses related to our esuberaprost development partially offset by: (1) a $1.4 million increase in expenses related to our development of a cell-based product for the treatment of PAH under a license agreement with Pluristem Ltd., which we terminated in the fourth quarter of 2015; and (2) a $1.3 million increase in expenses related to the development of our semi-disposable pump with DEKA Research & Development Corp.
Share-based compensation. The increases of $14.6 million and $15.0 million, respectively, during the quarter and year ended December 31, 2015, as compared to the same periods in 2014, corresponded to the appreciation of our stock price during those periods. During the quarter ended December 31, 2015, the price of our common stock appreciated 19 percent, compared to the one percent appreciation in our stock price during the same period in 2014. During the year ended December 31, 2015, the price of our common stock appreciated 21 percent, compared to the 15 percent appreciation in our stock price during the same period in 2014.
Other. The decrease in other research and development expenses of $10.7 million for the year ended December 31, 2015, as compared to the same period in 2014, was primarily attributable to a $6.4 million decrease in expenditures for our development of Unituxin, which was approved by the United States Food and Drug Administration (FDA) in March of 2015, and a $3.9 million decrease in research and development expenditures not allocated to specific projects.
Selling, general and administrative expense. The table below summarizes selling, general and administrative expense by major categories (dollars in thousands):
Three Months Ended
December 31,
Percentage
Year Ended
December 31,
Percentage
2015
2014
Change
2015
2014
Change
Category:
General and administrative
$
42,801
$
41,493
3
%
$
174,570
$
186,312
(6)
%
Sales and marketing
24,698
21,312
16
%
94,297
82,000
15
%
Share-based compensation expense
81,062
17,729
357
%
183,745
112,975
63
%
Total selling, general and administrative expense
$
148,561
$
80,534
84
%
$
452,612
$
381,287
19
%
General and administrative. The decrease in general and administrative expenses of $11.7 million for the year ended December 31, 2015, as compared to the same period in 2014, was attributable to: (1) a $12.7 million decrease due to timing of the payment of grants to non-affiliated, non-profit organizations that provide financial assistance to patients with PAH; and (2) a $9.4 million decrease in legal expenses resulting from the April 2015 closure of the investigation by the Office of Inspector General of the Department of Health and Human Services related to our marketing practices; partially offset by (3) a $10.0 million increase in salaries and other compensation-related expenses driven by the general expansion of our business.
Sales and marketing. The increase in sales and marketing expenses of $12.3 million for the year ended December 31, 2015, as compared to the same period in 2014, was driven by: (1) an $8.6 million increase in marketing activities for all of our commercial products, primarily for our most recently approved PAH product, Orenitram, and our first oncology product, Unituxin; and (2) a $3.7 million increase in salaries and other compensation-related expenses driven by the expansion of our personnel in connection with the growth of our commercial product portfolio.
Share-based compensation. The increases of $63.3 million and $70.8 million, respectively, during the quarter and year ended December 31, 2015, as compared to the same periods in 2014, corresponded to the appreciation of our stock price during those periods. During the quarter ended December 31, 2015, the price of our common stock appreciated 19 percent, compared to the one percent appreciation in our stock price during the same period in 2014. During the year ended December 31, 2015, the price of our common stock appreciated 21 percent, compared to the 15 percent appreciation in our stock price during the same period in 2014.
Cost of product sales. The table below summarizes cost of product sales by major categories (dollars in thousands):
Three Months Ended
December 31,
Percentage
Year Ended
December 31,
Percentage
2015
2014
Change
2015
2014
Change
Category:
Cost of product sales
$
19,339
$
16,904
14
%
$
60,240
$
121,518
(50)
%
Share-based compensation expense (benefit)
5,970
(1,134)
626
%
8,796
4,365
102
%
Total cost of product sales
$
25,309
$
15,770
60
%
$
69,036
$
125,883
(45)
%
Cost of product sales. The decrease in cost of product sales of $61.3 million for the year ended December 31, 2015, as compared to the same period in 2014, resulted primarily from the expiration of our royalty obligation to GlaxoSmithKline plc in October 2014. During the twelve months ended December 31, 2014, we incurred $72.5 million in royalty expense related to this obligation. This decrease was partially offset by an increase in the cost of product sales of $5.6 million and $3.0 million of Orenitram and Adcirca, respectively, due to increased sales of these products in 2015, and $3.2 million from Unituxin which was commercially launched during the third quarter of 2015.
Share-based compensation. The increases of $7.1 million and $4.4 million, respectively, during the quarter and year ended December 31, 2015, as compared to the same periods in 2014, corresponded to the appreciation of our stock price during those periods. During the quarter ended December 31, 2015, the price of our common stock appreciated 19 percent compared to the one percent appreciation in our stock price during the same period in 2014. During the year ended December 31, 2015, the price of our common stock appreciated 21 percent compared to the 15 percent appreciation in our stock price during the same period in 2014.
Gain on Sale of Intangible Asset
In September 2015, we sold the Rare Pediatric Priority Review Voucher (PPRV) that we received from the FDA in connection with the approval of Unituxin for $350.0 million in cash. 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 $51.4 million for the quarter ended December 31, 2015, as compared to $58.8 million for the quarter ended December 31, 2014. The decrease in the provision for income taxes corresponded to the decrease in income before income taxes.
The provision for income taxes was $392.8 million for the year ended December 31, 2015, as compared to $185.1 million for the same period in 2014. The increase in the provision for income taxes corresponded to the increase in income before income taxes. For the years ended December 31, 2015 and December 31, 2014, the effective tax rates were approximately 38 percent and 35 percent, respectively. The increase in the effective rate is primarily due to the decrease of general business tax credits in the current year.
Non-GAAP Earnings
Non-GAAP earnings is defined as net income, adjusted for the following charges, which are presented net of our annual effective income tax rate, as applicable: (1) interest expense; (2) license fees; (3) depreciation and amortization; (4) impairment charges; and (5) share-based compensation expense (stock option, share tracking award and employee stock purchase plan). For 2015, we also adjusted non-GAAP earnings to eliminate the gain (net of our annual effective income tax rate) resulting from the sale of the PPRV in September 2015.
A reconciliation of net income to non-GAAP earnings is presented below (in thousands, except per share data):
Three Months Ended
December 31,
Year Ended
December 31,
2015
2014
2015
2014
Net income, as reported
$
104,644
$
115,935
$
651,639
$
340,074
Adjust for the following charges(1):
Interest expense
340
2,268
2,949
11,312
License fees
—
7,067
—
7,067
Depreciation and amortization
4,958
5,743
20,502
20,734
Share-based compensation expense
73,092
20,784
174,531
122,205
Gain on sale of intangible asset
—
—
(217,966)
—
Non-GAAP earnings
$
183,034
$
151,797
$
631,655
$
501,392
Non-GAAP earnings per share:
Basic
$
4.01
$
3.20
$
13.73
$
10.41
Diluted
$
3.68
$
2.83
$
12.33
$
9.26
Weighted average number of common shares outstanding:
Basic
45,687
47,431
46,000
48,176
Diluted
49,746
53,548
51,221
54,155
(1) Non-GAAP earnings adjustments are presented net of the impact of our actual effective income tax rates of approximately 38 percent and 35 percent for the quarters and years ended December 31, 2015 and 2014, 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 each of the quarters in 2015 and 2014, respectively, will not add to the full year non-GAAP earnings amount as we apply the estimated effective income tax rate to each quarter.