On October 31, 2018 United Therapeutics Corporation (NASDAQ: UTHR) reported its financial results for the quarter ended September 30, 2018 (Press release, United Therapeutics, OCT 31, 2018, View Source [SID1234530448]).
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"We are pleased to see continued growth in the number of U.S. patients treated with our prostacyclin product franchise during the quarter," said Martine Rothblatt, Ph.D., Chairman and Chief Executive Officer of United Therapeutics. "We’ve been busy bringing in exceptional new pipeline opportunities and advancing our six Phase III clinical trials."
Third Quarter Highlights
Announced that our FREEDOM-EV study of Orenitram met its primary endpoint.
Settled patent litigation with Watson Laboratories, Inc. (Watson), relating to Tyvaso. Under the terms of the settlement, Watson is permitted to launch a generic version of Tyvaso in the U.S. beginning on January 1, 2026 (or earlier under certain circumstances).
Completed the acquisition of SteadyMed Ltd. and its drug product candidate Trevyent, which is a development-stage drug-device combination product that combines SteadyMed’s PatchPump technology with treprostinil to treat pulmonary arterial hypertension (PAH). We anticipate resubmitting the Trevyent NDA to the FDA during the first half of 2019.
In-licensed MannKind Corp.’s Treprostinil Technosphere, a phase III-ready development-stage drug-device combination product that combines MannKind’s dry inhalation technology with treprostinil for the treatment of PAH.
In-licensed the U.S. and Canadian rights to Samumed LLC’s SM04646, a phase I development-stage oral Wnt pathway inhibitor, to treat idiopathic pulmonary fibrosis.
Completed enrollment of the DISTINCT study of dinutuximab in patients with small cell lung cancer (n=472).
Financial Results for the Three Months Ended September 30, 2018 compared to the Three Months Ended September 30, 2017
Revenues for the three months ended September 30, 2018 decreased by $32.8 million as compared to the same period in 2017. Remodulin net product sales decreased by $33.7 million due to a $36.5 million decrease in international net product sales, partially offset by a $2.8 million increase in U.S. net product sales. International Remodulin net product sales are lower relative to 2017 due to $23.7 million of net product sales recognized in the third quarter of 2017 related to a one-time purchase of Remodulin by an international distributor, in connection with the transfer of additional regulatory and commercial responsibilities to that distributor. In addition, our international net product sales decreased due to lower quantities shipped to the aforementioned distributor, after taking the one-time purchase into account. Tyvaso net product sales increased by $18.9 million due to the comparative impact of an additional one-time $12.2 million liability for estimated Medicaid rebates recorded in the third quarter of 2017 and a price increase implemented in January 2018. Adcirca net product sales decreased by $25.2 million due to a decrease in bottles sold, due in large part to the launch of a generic version of Adcirca in August 2018, and an approximate $16.4 million increase in our estimated allowance for product returns, partially offset by a price increase implemented by Lilly. Unituxin net product sales increased by $5.9 million due to an increase in the number of vials sold and a price increase implemented in December 2017.
Cost of product sales, excluding share-based compensation. The increase in cost of product sales of $28.2 million for the three months ended September 30, 2018, as compared to the same period in 2017, was primarily due to a $26.8 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, excluding share-based compensation. The increase in research and development expense of $30.8 million for the three months ended September 30, 2018, as compared to the same period in 2017, was driven by the continued investment in our product pipeline to treat cardiopulmonary diseases and cancer as well as our programs in regenerative medicine and organ manufacturing.
The increase in share-based compensation expense of $75.4 million for the three months ended September 30, 2018, as compared to the same period in 2017, was primarily due to: (1) a $70.2 million increase in STAP expense related to an increase in our stock price during the three months ended September 30, 2018, as compared to a decrease in our stock price during the same period in 2017; and (2) a $3.5 million increase in stock option expense due to additional awards granted and outstanding in 2018.
Impairment of Investment in a Privately-Held Company
During the quarter ended September 30, 2018, one of the privately-held companies in which we have invested experienced an event triggering an impairment analysis to evaluate the recoverability of our investment. We determined that the current fair value of our investment was lower than its carrying value, resulting in an impairment charge of $12.4 million. As of September 30, 2018, the adjusted carrying value of our investment in this company is $41.1 million. During the three-and nine-month periods ended September 30, 2018, we recorded $12.4 million of impairment charges related to our investments in privately-held companies. During the three-and nine-month periods ended September 30, 2017, we recorded $3.1 million and $49.6 million, respectively, of impairment charges related to our investments in privately-held companies.
Income Tax Expense
The provision for income taxes was $33.6 million for the three months ended September 30, 2018, as compared to $44.4 million for the same period in 2017. The provision for income taxes is based on an estimated annual effective tax rate (ETR) for the entire year. The estimated annual ETR is subject to adjustment in subsequent quarterly periods if components used to calculate the estimated annual ETR are updated or revised. Our actual ETR as of September 30, 2018 and September 30, 2017 was approximately 21 percent and approximately 37 percent, respectively. Our actual ETR for the nine months ended September 30, 2018 decreased as compared to the same period in 2017 due to the impacts of The Tax Cuts and Jobs Act (Tax Reform), the nondeductible portion of an accrual in the second quarter of 2017 in connection with a civil settlement with the Department of Justice, and a decrease in impairment charges not currently meeting the criteria for tax deductibility.
Non-GAAP Earnings
Non-GAAP earnings is defined as net income, adjusted for: (1) share-based compensation expense (including expenses relating to stock options, restricted stock units, share tracking awards, and our employee stock purchase plan); (2) loss contingency; (3) impairment of investment in privately-held company; (4) license fees; and (5) tax impact on non-GAAP earnings adjustments.
We calculated the total tax impact of non-discrete quarterly non-GAAP earnings adjustments based on our estimated annual effective tax rates, before considering discrete items, of approximately 22 percent and approximately 33 percent for the quarters ended September 30, 2018 and September 30, 2017, respectively.
As of September 30, 2018, these non-GAAP earnings adjustments did not meet the criteria for tax deductibility.
The tax benefit for the three months ended September 30, 2017 includes $57.0 million of benefit for the estimated loss contingency recognized during the second quarter of 2017 relating to the DOJ investigation of our support of 501(c)(3) organizations that provide financial assistance to patients.
Conference Call
We will host a half-hour teleconference on Wednesday, October 31, 2018, at 9:00 a.m. Eastern Time. The teleconference is accessible by dialing 1-877-351-5881, with international callers dialing 1-970-315-0533. A rebroadcast of the teleconference will be available for one week by dialing 1-855-859-2056, with international callers dialing 1-404-537-3406, and using access code: 4179147.
This teleconference will also be webcast and can be accessed via our website at View Source