On May 2, 2018 United Therapeutics Corporation (NASDAQ: UTHR) reported its financial results for the first quarter ended March 31, 2018 (Press release, United Therapeutics, MAY 2, 2018, View Source [SID1234526125]).
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"Our first quarter net revenues totaled $389 million," said Martine Rothblatt, Ph.D., Chairman and Chief Executive Officer of United Therapeutics. "Orenitram posted a strong performance, representing the fourth consecutive quarter of greater than 20% net revenue growth on a year-over-year basis. In addition, we continue to treat an increasing number of pulmonary arterial hypertension (PAH) patients with our prostacyclin product franchise, which consists of Orenitram, Remodulin, and Tyvaso, confirming our belief in the organic growth opportunity for these proven therapies. During the first quarter of 2018, we also continued to advance our expanding product pipeline, which currently includes seven Phase III programs and multiple second-generation Remodulin drug delivery systems, as well as regenerative medicine and organ manufacturing programs. We believe that this pipeline positions United Therapeutics as an innovative market leader with the resources in place to ultimately find a cure for PAH and other end-stage organ diseases."
Key financial highlights include (dollars in millions, except per share data):
Three Months Ended
March 31,
Dollar
Change
Percentage
Change
2018
2017
Revenues
$
389.2
$
370.5
$
18.7
5
%
Net income
$
244.5
$
178.6
$
65.9
37
%
Non-GAAP earnings(1)
$
164.9
$
165.7
$
(0.8)
—
%
Net income, per basic share
$
5.65
$
4.01
$
1.64
41
%
Net income, per diluted share
$
5.57
$
3.89
$
1.68
43
%
Non-GAAP earnings, per diluted share(1)
$
3.76
$
3.61
$
0.15
4
%
__________________
(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 March 31, 2018 compared to the Three Months Ended March 31, 2017
Revenues
The following table presents the components of total revenues (dollars in millions):
Three Months Ended
March 31,
Dollar
Percentage
2018
2017
Change
Change
Net product sales:
Remodulin
$
126.8
$
145.8
$
(19.0)
(13)
%
Tyvaso
94.6
87.4
7.2
8
%
Adcirca
97.6
80.0
17.6
22
%
Orenitram
52.2
39.3
12.9
33
%
Unituxin
18.0
18.0
—
—
%
Total revenues
$
389.2
$
370.5
$
18.7
5
%
Revenues for the three months ended March 31, 2018 increased by $18.7 million as compared to the same period in 2017. Adcirca net product sales increased by $17.6 million primarily due to price increases, which were determined by Eli Lilly and Company (Lilly). Orenitram net product sales increased by $12.9 million primarily due to an increase in the number of patients being treated with Orenitram and the one-time impact of a change in contractual minimum inventory levels with a U.S. distributor, as discussed below. Tyvaso net product sales increased by $7.2 million primarily due to price increases, partially offset by the one-time impact of a change in contractual minimum inventory levels with a U.S. distributor, as discussed below. These net increases in Adcirca, Orenitram and Tyvaso revenues were partially offset by a $19.0 million decrease in Remodulin net product sales due to: (1) a reduction in quantities ordered, based on variations in the timing and magnitude of orders from our U.S. and international distributors, which do not precisely reflect underlying patient demand; (2) a $7.3 million reduction in sales due to a decrease in the international sales price of Remodulin to an international distributor, which we agreed to in connection with a transfer of additional regulatory and commercial responsibilities to that distributor; and (3) the one-time impact of a change in contractual minimum inventory levels with a U.S. distributor, as discussed below.
During the fourth quarter of 2017, we amended our agreements with one of our U.S. specialty pharmacy distributors, in part to make the monthly minimum inventory days-on-hand requirement consistent across Remodulin, Tyvaso, and Orenitram. This change resulted in a one-time decrease in total net product sales of $4.3 million as the distributor adjusted to the new contractual inventory requirement levels in the first quarter of 2018. On an individual product basis, net product sales of Orenitram increased by $3.7 million, net product sales of Tyvaso decreased by $3.5 million, and net product sales of Remodulin decreased by $4.5 million.
Expenses
Cost of product sales. The following table summarizes cost of product sales by major category (dollars in millions):
Three Months Ended
March 31,
Dollar
Percentage
2018
2017
Change
Change
Category:
Cost of product sales
$
59.1
$
15.8
$
43.3
274
%
Share-based compensation benefit(1)
(5.9)
(1.5)
(4.4)
(293)
%
Total cost of product sales
$
53.2
$
14.3
$
38.9
272
%
_________________
(1)
Refer to Share-based compensation (benefit) expense below for discussion.
Cost of product sales, excluding share-based compensation. The increase in cost of product sales of $43.3 million for the three months ended March 31, 2018, as compared to the same period in 2017, was primarily attributable to a $37.3 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
March 31,
Dollar
Change
Percentage
Change
2018
2017
Project and non-project:
Research and development projects
$
58.2
$
41.3
$
16.9
41
%
Share-based compensation benefit(1)
(22.5)
(5.1)
(17.4)
(341)
%
Total research and development expense
$
35.7
$
36.2
$
(0.5)
(1)
%
_________________
(1)
Refer to Share-based compensation (benefit) expense below for discussion.
Research and development expense, excluding share-based compensation. The increase in research and development expense of $16.9 million for the three months ended March 31, 2018, as compared to the same period in 2017, was driven by the expansion of our pipeline programs 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
March 31,
Dollar
Change
Percentage
Change
2018
2017
Category:
General and administrative
$
52.8
$
53.5
$
(0.7)
(1)
%
Sales and marketing
13.3
15.4
(2.1)
(14)
%
Share-based compensation benefit(1)
(72.7)
(12.5)
(60.2)
(482)
%
Total selling, general and administrative expense
$
(6.6)
$
56.4
$
(63.0)
(112)
%
__________________
(1)
Refer to Share-based compensation (benefit) expense below for discussion.
Share-based compensation (benefit) expense. The following table summarizes share-based compensation (benefit) expense by major category (dollars in millions):
Three Months Ended
March 31,
Dollar
Change
Percentage
Change
2018
2017
Category:
Stock options
$
12.7
$
4.6
$
8.1
176
%
Restricted stock units
0.9
0.5
0.4
80
%
Share tracking awards plan
(115.0)
(24.6)
(90.4)
(367)
%
Employee stock purchase plan
0.3
0.4
(0.1)
(25)
%
Total share-based compensation benefit
$
(101.1)
$
(19.1)
$
(82.0)
(429)
%
Share-based compensation. The increase in share-based compensation benefit of $82.0 million for the three months ended March 31, 2018, as compared to the same period in 2017, was primarily due to a $90.4 million decrease in our STAP liability, driven by a greater decrease in our stock price during the three months ended March 31, 2018, as compared to the same period in 2017, partially offset by an $8.1 million increase in stock option expense due to additional awards granted and outstanding in 2018.
Income Tax Expense
The provision for income taxes was $64.5 million for the three months ended March 31, 2018, as compared to $85.0 million for the same period in 2017. Our effective tax rate as of March 31, 2018 and March 31, 2017, was approximately 21 percent and 32 percent, respectively. Our 2018 effective tax rate decreased compared to 2017 primarily due to a reduced federal corporate tax rate, partially offset by the reduction of the Orphan Drug Credit and the repeal of the Section 199 deduction.