On April 26, 2017 United Therapeutics Corporation (NASDAQ: UTHR) reported its financial results for the first quarter ended March 31, 2017 (Press release, United Therapeutics, APR 26, 2017, View Source [SID1234518691]).

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"Our quarterly financial growth trends are slower than we would like as we are seeing more patients stay longer on front-line pulmonary arterial hypertension (PAH) therapies," said Martine Rothblatt, Ph.D., United Therapeutics Chairman and Chief Executive Officer. "Due to the progressive nature of this disease, we believe that this building backlog of PAH patients ultimately will transition to more advanced therapies, such as Orenitram, Tyvaso and Remodulin. As the PAH patient backlog dynamics unfold, we are continuing to invest in our growing product pipeline of late stage programs in cardiopulmonary diseases and oncology and also in regenerative medicine and organ manufacturing to ultimately find a cure for PAH."

Key financial highlights include (dollars in millions, except per share data):



Three Months Ended
March 31,

Percentage



2017

2016

Changes

Revenues

$
370.5

$
369.0

—
%
Net income

$
178.6

$
235.5

(24)
%
Non-GAAP earnings(1)

$
165.7

$
141.9

17
%
Net income, per diluted share

$
3.89

$
4.84

(20)
%
Non-GAAP earnings, per diluted share(1)

$
3.61

$
2.91

24
%










(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, 2017 compared to the Three Months Ended March 31, 2016

Revenues

The following table presents the components of total revenues (dollars in millions):



Three Months Ended
March 31,

Percentage



2017

2016

Change

Net product sales:







Remodulin


$
145.8

$
139.8

4
%
Tyvaso


87.4

102.2

(14)
%
Adcirca


80.0

72.6

10
%
Orenitram


39.3

40.2

(2)
%
Unituxin


18.0

14.2

27
%
Total revenues


$
370.5

$
369.0

—
%
Revenues for the three months ended March 31, 2017 increased by $1.5 million compared to the same period in 2016. The growth in revenues resulted from the following: (1) a $7.4 million increase in Adcirca net product sales; (2) a $6.0 million increase in Remodulin net product sales; and (3) a $3.8 million increase in Unituxin net product sales. These increases were partially offset by a $0.9 million decrease in Orenitram net product sales and a $14.8 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
March 31,

Percentage



2017

2016

Change

Category:







Cost of product sales excluding share-based compensation


$
15.8

$
12.6

25
%
Share-based compensation benefit(1)


(1.5)

(11.9)

87
%
Total cost of product sales


$
14.3

$
0.7

1,943
%











(1) Refer to Share-based compensation (benefit) expense below for discussion.
Research and development expense. The table below summarizes research and development expense by major category (dollars in millions):



Three Months Ended
March 31,

Percentage



2017

2016

Change

Category:







Research and development expense excluding share-based compensation


$
41.3

$
36.8

12
%
Share-based compensation benefit(1)


(5.1)

(37.2)

86
%
Total research and development expense


$
36.2

$
(0.4)

9,150
%











(1) Refer to Share-based compensation (benefit) 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
March 31,

Percentage



2017

2016

Change

Category:







General and administrative excluding share-based compensation


$
53.5

$
78.2

(32)
%
Sales and marketing excluding share-based compensation


15.4

22.3

(31)
%
Share-based compensation benefit(1)


(12.5)

(95.5)

87
%
Total selling, general and administrative expense


$
56.4

$
5.0

1,028
%











(1) Refer to Share-based compensation (benefit) expense below for discussion.
General and administrative. The decrease in general and administrative expense of $24.7 million for the three months ended March 31, 2017, as compared to the same period in 2016, was primarily attributable to a $32.0 million decrease in charitable donations to non-affiliated, non-profit organizations that provide financial assistance to patients with PAH.

Share-based compensation (benefit) expense. The table below summarizes share-based compensation (benefit) expense by major category (dollars in millions):



Three Months Ended
March 31,

Percentage



2017

2016

Change

Category:







Share tracking awards plan


$
(24.6)
$
(147.9)

83
%
Stock options


4.6

3.1

48
%
Other(1)


0.9

0.2

350
%
Total share-based compensation benefit


$
(19.1)
$
(144.6)

87
%










(1) Includes expense related to restricted stock units for the three months ended March 31, 2017, and employee stock purchase plan for the three months ended March 31, 2017 and 2016.
Share tracking awards plan. We re-measure the fair value of share tracking awards at the end of each financial reporting period. Changes in the liability associated with share tracking awards resulting from such re-measurements are recorded as adjustments to share-based compensation (benefit) expense. Decreases in our stock price will generally result in a reduction in the share tracking award liability. The decrease in share tracking awards plan benefit of $123.3 million for the three months ended March 31, 2017, as compared to the same period in 2016, was primarily due to the smaller decrease in our stock price during the three months ended March 31, 2017, as compared to the same period in 2016.

Income Tax Expense

The provision for income taxes was $85.0 million for the three months ended March 31, 2017 as compared to $128.4 million for the same period in 2016. The provision for income taxes is based on an estimated effective tax rate for the entire year. The estimated annual effective tax rate is subject to adjustment in subsequent quarterly periods if components used to estimate the effective tax rate are updated or revised. The estimated effective tax rate as of March 31, 2017 and March 31, 2016, was approximately 32 percent and approximately 35 percent, respectively. Our 2017 estimated effective tax rate decreased compared to 2016 primarily due to a decrease in non-deductible share-based compensation expense, and the impact of ASU 2016-09 adoption requiring windfall excess tax benefits to be recognized in income tax expense.

Non-GAAP Earnings

Non-GAAP earnings is defined as net income, adjusted for: (1) share-based compensation expense (benefit), net (including expenses relating to stock options, share tracking awards, restricted stock units and our employee stock purchase plan); (2) extraordinary, non-recurring and unusual items; and (3) tax impact on non-GAAP earnings adjustments. Starting in the first quarter of 2017, we will no longer adjust our non-GAAP results for interest expense, depreciation and amortization. We believe these changes will provide a better view of the company’s regular and on-going operations. Prior year amounts will reflect this change for comparability purposes.

A reconciliation of net income to non-GAAP earnings is presented below (in millions, except per share data):



Three Months Ended
March 31,



2017

2016

Net income, as reported

$
178.6

$
235.5

Adjusted for:





Share-based compensation benefit, net


(19.1)

(144.6)

Tax expense(1)


6.2

51.0

Non-GAAP earnings

$
165.7

$
141.9

Non-GAAP earnings per share:





Basic


$
3.72

$
3.13

Diluted


$
3.61

$
2.91

Weighted average number of common shares outstanding:





Basic


44.5

45.4

Diluted


45.9

48.7








(1) Represents the total tax impact of the quarterly non-GAAP earnings adjustments based on our actual quarterly effective income tax rates of approximately 32 percent and approximately 35 percent as of March 31, 2017 and 2016, respectively.

On April 26, 2017 Amgen (NASDAQ:AMGN) reported financial results for the first quarter of 2017 (Press release, Amgen, APR 26, 2017, View Source [SID1234518694]).

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Key results include:

Total revenues decreased 1 percent versus the first quarter of 2016 to $5.5 billion.
GAAP earnings per share (EPS) increased 12 percent to $2.79 driven by higher operating margins.
GAAP operating income increased 8 percent to $2.6 billion and GAAP operating margin increased 4 percentage points to 49.8 percent.
Non-GAAP EPS increased 9 percent to $3.15 driven by higher operating margins.
Non-GAAP operating income increased 5 percent to $3.0 billion and non-GAAP operating margin increased 3 percentage points to 57.6 percent.
2017 EPS guidance increased to $10.64-$11.32 on a GAAP basis and $12.00-$12.60 on a non-GAAP basis; total revenues guidance unchanged at $22.3-$23.1 billion.
The Company generated $2.2 billion of free cash flow in the first quarter versus $1.8 billion in the first quarter of 2016.
"We are well positioned for the long term with our newer products demonstrating volume growth around the world and our tight operational expense management of the Company," said Robert A. Bradway, chairman and chief executive officer. "With robust Repatha (evolocumab) outcomes data, we are working with payers to improve access to this important therapy for patients at risk for heart attacks and strokes."

$Millions, except EPS and percentages

Q1’17

Q1’16

YOY Δ

Total Revenues

$ 5,464

$ 5,527

(1%)
GAAP Operating Income

$ 2,591

$ 2,402

8%
GAAP Net Income

$ 2,071

$ 1,900

9%
GAAP EPS

$ 2.79

$ 2.50

12%
Non-GAAP Operating Income

$ 2,995

$ 2,859

5%
Non-GAAP Net Income

$ 2,333

$ 2,203

6%
Non-GAAP EPS

$ 3.15

$ 2.90

9%

References in this release to "non-GAAP" measures, measures presented "on a non-GAAP basis" and to "free cash flow" (computed by subtracting capital expenditures from operating cash flow) refer to non-GAAP financial measures. Adjustments to the most directly comparable GAAP financial measures and other items are presented on the attached reconciliations.
Product Sales Performance

Total product sales decreased 1 percent for the first quarter of 2017 versus the first quarter of 2016.
Neulasta (pegfilgrastim) sales increased 2 percent as favorable changes in accounting estimates and net selling price were offset partially by lower unit demand.
Enbrel (etanercept) sales decreased 15 percent due to the impact of competition as well as lower rheumatology and dermatology segment growth compared to prior quarters.
Aranesp (darbepoetin alfa) sales decreased 4 percent as higher unit demand was more than offset by unfavorable changes in foreign exchange rates, inventory and net selling price.
Prolia (denosumab) sales increased 21 percent driven by higher unit demand.
Sensipar/Mimpara (cinacalcet) sales increased 15 percent driven primarily by net selling price.
XGEVA (denosumab) sales increased 6 percent driven by higher unit demand.
EPOGEN (epoetin alfa) sales decreased 10 percent driven by net selling price.
KYPROLIS (carfilzomib) sales increased 23 percent driven by higher unit demand.
Nplate (romiplostim) sales increased 9 percent driven by higher unit demand.
NEUPOGEN (filgrastim) sales decreased 31 percent driven primarily by the impact of competition.
Vectibix (panitumumab) sales increased 2 percent driven by higher unit demand, offset partially by unfavorable changes in foreign exchange rates.
Repatha sales increased driven by higher unit demand.
BLINCYTO (blinatumomab) sales increased 26 percent driven by higher unit demand.


Product Sales Detail by Product and Geographic Region
$Millions, except percentages

Q1’17

Q1’16

YOY Δ


US
ROW
TOTAL

TOTAL

TOTAL









Neulasta

$1,048
$162
$1,210

$1,183

2%
Enbrel

1,118
63
1,181

1,385

(15%)
Aranesp

278
233
511

532

(4%)
Prolia

279
146
425

352

21%
Sensipar / Mimpara

337
84
421

367

15%
XGEVA

298
104
402

378

6%
EPOGEN

270
0
270

300

(10%)
KYPROLIS

137
53
190

154

23%
Nplate

97
57
154

141

9%
NEUPOGEN

101
47
148

213

(31%)
Vectibix

61
86
147

144

2%
Repatha

33
16
49

16

*
BLINCYTO

23
11
34

27

26%
Other**

15
42
57

47

21%









Total product sales

$4,095
$1,104
$5,199

$5,239

(1%)









* Change in excess of 100%




** Other includes Bergamo, MN Pharma, IMLYGICand Corlanor






Operating Expense, Operating Margin and Tax Rate Analysis

On a GAAP basis:

Total Operating Expenses decreased 8 percent, with all expense categories reflecting savings from our transformation and process improvement efforts. Cost of Sales margin improved by 0.2 percentage points driven primarily by manufacturing efficiencies, offset partially by product mix. Research & Development (R&D) expenses decreased 12 percent driven by a payment in the first quarter of 2016 related to a third-party collaboration agreement, as well as lower spending required to support certain later-stage clinical programs. Selling, General & Administrative (SG&A) expenses decreased 12 percent due to the expiration of ENBREL residual royalty payments and an acquisition charge in the first quarter of 2016, offset partially by investments in product launches.
Operating Margin improved by 4 percentage points to 49.8 percent.
Tax Rate decreased 0.1 percentage points as changes in the geographic mix of earnings were offset partially by lower tax benefits from share-based compensation payments.
On a non-GAAP basis:

Total Operating Expenses decreased 7 percent, with all expense categories reflecting savings from our transformation and process improvement efforts. Cost of Sales margin improved by 0.4 percentage points driven primarily by manufacturing efficiencies, offset partially by product mix. R&D expenses decreased 13 percent driven by a payment in the first quarter of 2016 related to a third-party collaboration agreement, as well as lower spending required to support certain later-stage clinical programs. SG&A expenses decreased 6 percent due to the expiration of ENBREL residual royalty payments, offset partially by investments in product launches.
Operating Margin improved by 3 percentage points to 57.6 percent.
Tax Rate decreased 0.4 percentage points as changes in the geographic mix of earnings were offset partially by lower tax benefits from share-based compensation payments.


$Millions, except percentages






GAAP

Non-GAAP



Q1’17

Q1’16

YOY Δ

Q1’17

Q1’16

YOY Δ














Cost of Sales
$996

$1,018

(2%)

$682

$707

(4%)

% of product sales
19.2%

19.4%

(0.2)pts

13.1%

13.5%

(0.4) pts
Research & Development
$769

$872

(12%)

$748

$858

(13%)

% of product sales
14.8%

16.6%

(1.8) pts

14.4%

16.4%

(2) pts
Selling, General & Administrative
$1,064

$1,203

(12%)

$1,039

$1,103

(6%)

% of product sales
20.5%

23.0%

(2.5) pts

20.0%

21.1%

(1.1) pts
Other
$44

$32

38%

$0

$0

NM
TOTAL Operating Expenses
$2,873

$3,125

(8%)

$2,469

$2,668

(7%)














Operating Margin












operating income as a % of product sales
49.8%

45.8%

4 pts

57.6%

54.6%

3 pts














Tax Rate
15.8%

15.9%

(0.1) pts

18.5%

18.9%

(0.4) pts














NM: Not Meaningful
pts: percentage points
Cash Flow and Balance Sheet

The Company generated $2.2 billion of free cash flow in the first quarter of 2017 versus $1.8 billion in the first quarter of 2016 driven by the timing of tax payments and higher net income.
The Company’s second quarter 2017 dividend of $1.15 per share declared on March 7, 2017, will be paid on June 8, 2017, to all stockholders of record as of May 17, 2017.
During the first quarter, the Company repurchased 3.4 million shares of common stock at a total cost of $555 million. At the end of the first quarter, the Company had $3.5 billion remaining under its stock repurchase authorization.


$Billions, except shares

Q1’17

Q1’16

YOY Δ









Operating Cash Flow
$2.4

$1.9

$0.5
Capital Expenditures
0.2

0.2

0.0
Free Cash Flow
2.2

1.8

0.5
Dividends Paid
0.8

0.8

0.1
Share Repurchase
0.6

0.7

(0.1)
Avg. Diluted Shares (millions)
741

760

(19)









Cash and Investments
38.4

34.7

3.7
Debt Outstanding
34.1

34.3

(0.2)
Stockholders’ Equity
30.6

28.7

2.0











Note: Numbers may not add due to rounding






2017 Guidance

For the full year 2017, the Company now expects:

Total revenues in the range of $22.3 billion to $23.1 billion, unchanged from previous guidance.
On a GAAP basis, EPS in the range of $10.64 to $11.32 and a tax rate in the range of 16 percent to 18 percent.
Previously, the Company expected GAAP EPS in the range of $10.45 to $11.31. Tax rate guidance is unchanged.
On a non-GAAP basis, EPS in the range of $12.00 to $12.60 and a tax rate in the range of 18.5 percent to 19.5 percent.
Previously, the Company expected non-GAAP EPS in the range of $11.80 to $12.60. Tax rate guidance is unchanged.
Capital expenditures to be approximately $700 million.


First Quarter Product and Pipeline Update
Key development milestones:

Clinical Program
Indication
Projected Milestone
Repatha
Hyperlipidemia
Regulatory submissions (CV outcomes data)
KYPROLIS
Relapsed or refractory multiple myeloma
Phase 3 study initiation with DARZALEX Q2 ’17
XGEVA
Prevention of SREs in multiple myeloma
Regulatory reviews
EVENITY (romosozumab)†
Postmenopausal osteoporosis
July 19, 2017, PDUFA target action date in U.S.
Active controlled Phase 3 fracture data Q2 2017*
Erenumab (AMG 334)
Migraine prevention
Regulatory submissions
ABP 215
(biosimilar bevacizumab)
Oncology
Regulatory reviews
Sept. 14, 2017, BsUFA target action date in U.S.
ABP 980
(biosimilar trastuzumab)
Breast cancer
U.S. regulatory submission

†Trade name provisionally approved by FDA; CV = cardiovascular; SRE = skeletal-related event; PDUFA = Prescription Drug User Fee Act; BsUFA = Biosimilar User Fee Act; *Event driven study
The Company provided the following updates on selected product and pipeline programs:

Repatha

In February, the European Commission (EC) approved a new 420 mg single-dose delivery option for Repatha.
In March, positive Phase 3 data from a cardiovascular outcomes study and a cognitive function study were presented at the American College of Cardiology 66th Annual Scientific Session.
KYPROLIS

In February, the Phase 3 ENDEAVOR study showed KYPROLIS and dexamethasone reduced the risk of death by 21 percent and extended overall survival by an additional 7.6 months compared to Velcade (bortezomib) and dexamethasone in relapsed or refractory multiple myeloma patients.
XGEVA

In April, a supplemental Biologics License Application (sBLA) was submitted to the U.S. Food and Drug Administration (FDA) and an application for a variation to the marketing authorization was submitted to the European Medicines Agency (EMA) for the prevention of SREs in patients with multiple myeloma.
BLINCYTO

In March, FDA accepted the sBLA for priority review for BLINCYTO to include overall survival data from the Phase 3 TOWER study. The application also included new data supporting the treatment of patients with Philadelphia chromosome-positive relapsed or refractory B-cell precursor acute lymphoblastic leukemia.
EVENITY

Primary analysis of an event driven active controlled Phase 3 fracture study (ARCH) in postmenopausal women with osteoporosis is expected in Q2 2017.
Erenumab

Regulatory submissions for migraine prevention are expected in Q2 2017.
CNP520

In February, Phase 3 enrollment commenced for CNP520, a small molecule beta-site amyloid precursor protein-cleaving enzyme-1 (BACE) inhibitor for the potential treatment of Alzheimer’s disease.
Parsabiv (etelcalcetide)

In February, FDA approved Parsabiv for the treatment of secondary hyperparathyroidism (sHPT) in adult patients with chronic kidney disease (CKD) on hemodialysis.
AMG 157/MEDI9929 (tezepelumab)

In February, tezepelumab demonstrated a significant reduction in the rate of asthma exacerbations compared to placebo over the 52-week treatment period in patients with severe asthma in a Phase 2b study.
AMGEVITA (biosimilar adalimumab)

In March, EC granted marketing authorization for AMGEVITA (biosimilar adalimumab) in all available indications. AMGEVITA is authorized for the treatment of certain inflammatory diseases in adults, including moderate-to-severe rheumatoid arthritis; psoriatic arthritis; severe active ankylosing spondylitis (AS); severe axial spondyloarthritis without radiographic evidence of AS; moderate-to-severe chronic plaque psoriasis; moderate-to-severe hidradenitis suppurativa; non-infectious intermediate, posterior and panuveitis; moderate-to-severe Crohn’s disease and moderate-to-severe ulcerative colitis. The EC also approved AMGEVITA for the treatment of certain pediatric inflammatory diseases, including moderate-to-severe Crohn’s disease (ages six and older), severe chronic plaque psoriasis (ages four and older), enthesitis-related arthritis (ages six and older) and polyarticular juvenile idiopathic arthritis (ages two and older).
ABP 980 (biosimilar trastuzumab)

In March, a Marketing Authorization Application was submitted to the EMA.
Erenumab and CNP520 are developed in collaboration with Novartis AG
EVENITY trade name is provisionally approved by FDA
EVENITY is developed in collaboration with UCB globally, as well as our joint venture partner Astellas in Japan
Tezepelumab is developed in collaboration with AstraZeneca
AMGEVITA is registered in the U.S. as AMJEVITA
Velcade is a registered trademark of Millennium Pharmaceuticals, Inc.