On April 28, 2016 United Therapeutics Corporation (NASDAQ: UTHR) reported its financial results for the first quarter ended March 31, 2016 (Press release, United Therapeutics, APR 28, 2016, View Source [SID:1234511548]). Schedule your 30 min Free 1stOncology Demo! "Our total revenues increased as compared to the same period in the prior year, which shows that our medicines are continuing to reach an increasing number of patients suffering from pulmonary arterial hypertension (PAH) and other life threatening diseases," said Martine Rothblatt, Ph.D., United Therapeutics’ Chairman and Co-Chief Executive Officer. "Within our PAH product franchise, Orenitram continues to be prescribed to a growing number of patients and this momentum underscores our belief in the increasing clinical support for the use of our orally-administered prostacyclin analogues."
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Key financial highlights include (in millions, except per share data):
Three Months Ended
March 31,
Selected
Percentage
2016
2015
Changes
Revenues
$
369.0
$
327.5
12.7
%
Net income (loss)
$
235.5
$
(16.6)
NM
(2)
Non-GAAP earnings(1)
$
147.3
$
135.0
9.1
%
Net income (loss), per diluted share
$
4.84
$
(0.36)
NM
(2)
Non-GAAP earnings, per diluted share(1)
$
3.02
$
2.55
18.4
%
(1) See definition of non-GAAP earnings, a non-GAAP financial measure, and a reconciliation of net income to non-GAAP earnings
below.
(2) Calculation is not meaningful.
Financial Results for the Three Months Ended March 31, 2016
Revenues
The table below summarizes the components of total revenues (dollars in millions):
Three Months Ended
March 31,
Percentage
2016
2015
Change
Net product sales:
Remodulin
$
139.8
$
146.3
(4.4)
%
Tyvaso
102.2
113.4
(9.9)
%
Adcirca
72.6
45.3
60.3
%
Orenitram
40.2
20.9
92.3
%
Unituxin
14.2
—
N/A
Other
—
1.6
(100.0)
%
Total revenues
$
369.0
$
327.5
12.7
%
Revenues for the three months ended March 31, 2016 increased by $41.5 million compared to the same period in 2015. The growth in revenues primarily resulted from: (1) a $27.3 million increase in Adcirca net product sales; (2) a $19.3 million increase in Orenitram net product sales; and (3) a $14.2 million increase in Unituxin net product sales. These revenue increases were partially offset by: (1) an $11.2 million decrease in Tyvaso net product sales; and (2) a $6.5 million decrease in Remodulin 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
March 31,
Percentage
2016
2015
Change
Category:
Cost of product sales
$
12.6
$
11.2
12.5
%
Share-based compensation (benefit) expense
(11.9)
9.6
(224.0)
%
Total cost of product sales
$
0.7
$
20.8
(96.6)
%
Share-based compensation. The decrease in share-based compensation of $21.5 million for the three months ended March 31, 2016, as compared to the same period in 2015, corresponded to a 29 percent decrease in the price of our common stock during the three months ended March 31, 2016, compared to a 33 percent increase 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
March 31,
Percentage
2016
2015
Change
Category:
Research and development expense
$
36.8
$
35.2
4.5
%
Share-based compensation (benefit) expense
(37.2)
75.0
(149.6)
%
Total research and development expense
$
(0.4)
$
110.2
(100.4)
%
Share-based compensation. The decrease in share-based compensation of $112.2 million for the three months ended March 31, 2016, as compared to the same period in 2015, corresponded to a 29 percent decrease in the price of our common stock during the three months ended March 31, 2016, compared to a 33 percent increase 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
March 31,
Percentage
2016
2015
Change
Category:
General and administrative
$
78.2
$
37.7
107.4
%
Sales and marketing
22.3
23.7
(5.9)
%
Share-based compensation (benefit) expense
(95.5)
149.9
(163.7)
%
Total selling, general and administrative expense
$
5.0
$
211.3
(97.6)
%
General and administrative. The increase in general and administrative expense of $40.5 million for the three months ended March 31, 2016, as compared to the same period in 2015, was primarily attributable to $37.0 million of charitable donations to a non-affiliated, non-profit organization that provides financial assistance to patients with PAH. These donations were made during the first quarter of 2016 and represent the full extent of our funding to this non-affiliated, non-profit organization for 2016. Our donations to the same non-affiliated, non-profit organization in 2015 totaled $17.0 million, all of which were paid during the second quarter of that year. We expense these types of grant payments in the period they are made.
Share-based compensation. The decrease in share-based compensation of $245.4 million for the three months ended March 31, 2016, as compared to the same period in 2015, corresponded to a 29 percent decrease in the price of our common stock during the three months ended March 31, 2016, compared to a 33 percent increase in the price of our common stock during the same period in 2015.
Income Tax Expense
The provision for income tax expense is based on an estimated annual effective tax rate that is subject to adjustment in subsequent quarterly periods if components used to estimate the annual effective tax rate are updated or revised. The estimated annual effective tax rates as of March 31, 2016 and March 31, 2015 were approximately 35 percent and approximately 38 percent, respectively. Our 2016 estimated annual effective tax rate decreased compared to the 2015 estimated annual effective tax rate primarily due to a decrease in non-deductible share-based compensation expense as compared to the prior year, which was driven largely by a decrease in our stock price.
Share Repurchases
In the first quarter of 2016, we repurchased approximately 1.0 million shares of our common stock at a total cost of $123.2 million. These purchases were made pursuant to our $500 million stock repurchase program, which is effective during calendar year 2016.
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).
A reconciliation of net income (loss) to non-GAAP earnings is presented below (in millions, except per share data):
Three Months Ended
March 31,
2016
2015
Net income (loss), as reported
$
235.5
$
(16.6)
Adjust for the following charges(1):
Interest expense
0.4
1.3
Depreciation and amortization
5.0
5.1
Share-based compensation (benefit) expense
(93.6)
145.2
Non-GAAP earnings
$
147.3
$
135.0
Non-GAAP earnings per share:
Basic
$
3.24
$
2.89
Diluted
$
3.02
$
2.55
Weighted average number of common shares outstanding:
Basic
45.4
46.7
Diluted
48.7
53.0
(1) Non-GAAP earnings adjustments are presented net of the impact of our estimated effective income tax rates of approximately 35
percent and approximately 38 percent for the three months ended March 31, 2016 and 2015, respectively.