On July 28, 2016 United Therapeutics Corporation (NASDAQ: UTHR) reported its financial results for the second quarter ended June 30, 2016 (Press release, United Therapeutics, JUL 28, 2016, View Source [SID:1234514091]). Schedule your 30 min Free 1stOncology Demo! "We are pleased with our second quarter 2016 financial results as total revenues exceeded $400 million and earnings beat $200 million," said Martine Rothblatt, Ph.D., United Therapeutics’ Chairman and Chief Executive Officer. "These financial results strengthen our ability to advance our late-stage pipeline programs in cardiopulmonary disease and oncology, as well as early-stage programs in multiple indications."
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Key financial highlights include (dollars in millions, except per share data):
Three Months Ended June 30,
Percentage
2016
2015
Change
Revenues
$412.6
$347.2
18.8 %
Net income
$206.1
$99.2
107.8%
Non-GAAP earnings(1)
$213.3
$132.8
60.6%
Net income, per diluted share
$4.39
$1.91
129.8%
Non-GAAP earnings, per diluted share(1)
$4.55
$2.56
77.7%
______________________________
(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 June 30, 2016
Revenues
The table below summarizes the components of total revenues (dollars in millions):
Three Months Ended June 30,
Percentage
2016
2015
Change
Net product sales:
Remodulin
$158.9
$135.9
16.9 %
Tyvaso
107.0
115.8
(7.6) %
Adcirca
90.9
68.2
33.3 %
Orenitram
38.0
25.9
46.7 %
Unituxin
17.8
—
NM(1)
Other
—
1.4
(100.0) %
Total revenues
$412.6
$347.2
18.8 %
______________________________
(1)Calculation is not meaningful.
Revenues for the three months ended June 30, 2016 increased by $65.4 million, compared to the same period in 2015. The growth in revenues primarily resulted from the following: (1) a $23.0 million increase in Remodulin net product sales; (2) a $22.7 million increase in Adcirca net product sales; (3) a $17.8 million increase in Unituxin net product sales; and (4) a $12.1 million increase in Orenitram net product sales. These increases were partially offset by an $8.8 million decrease in Tyvaso 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 June 30,
Percentage
2016
2015
Change
Category:
Cost of product sales
$20.0
$14.7
36.1 %
Share-based compensation expense
—
1.3
(100.0) %
Total cost of product sales
$20.0
$16.0
25.0 %
Cost of product sales. The increase in cost of product sales of $5.3 million for the three months ended June 30, 2016, as compared to the same period in 2015, was attributable to increased sales volume.
Research and development expense. The table below summarizes research and development expense by major category (dollars in millions):
Three Months Ended June 30,
Percentage
2016
2015
Change
Category:
Research and development expense
$37.0
$36.0
2.8%
Share-based compensation (benefit) expense
(1.8)
13.4
(113.4) %
Total research and development expense
$35.2
$49.4
(28.7)%
Share-based compensation. The decrease in share-based compensation of $15.2 million for the three months ended June 30, 2016, as compared to the same period in 2015, corresponded to a 5 percent decrease in the price of our common stock during the three months ended June 30, 2016, compared to a 1 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 June 30,
Percentage
2016
2015
Change
Category:
General and administrative
$44.2
$53.0
(16.6)%
Sales and marketing
24.7
24.4
1.2%
Share-based compensation expense
3.3
32.6
(89.9) %
Total selling, general and administrative expense
$72.2
$110.0
(34.4)%
General and administrative. The decrease in general and administrative expense of $8.8 million for the three months ended June 30, 2016, as compared to the same period in 2015, was primarily attributable to the timing of charitable donations to a non-affiliated, non-profit organization that provides financial assistance to patients with PAH. Donations to the same organization in 2016 totaled $37.0 million, all of which were paid during the first quarter of this year. Donations to the same organization in 2015 were $17.0 million, all of which were paid in the second quarter of 2015. The donations made during the first quarter of 2016 and the second quarter of 2015 represent the full extent of our funding to this organization for these two years. We expense these types of grant payments in the period they are paid.
Share-based compensation. The decrease in share-based compensation of $29.3 million for the three months ended June 30, 2016, as compared to the same period in 2015, was primarily attributable to a 5 percent decrease in the price of our common stock during the three months ended June 30, 2016, compared to a 1 percent increase in the price of our common stock during the same period in 2015. The decrease was partially offset by approximately $9.8 million of costs related to the accelerated vesting of stock options associated with the departure of a company officer during the second quarter of 2016.
Income Tax Expense
Our 2016 effective income tax rate decreased as compared to 2015 primarily due to a decrease in non-deductible share-based compensation, which was driven largely by a decrease in our stock price during 2016.
Share Repurchases
In the second quarter of 2016, we repurchased approximately 1.2 million shares of our common stock at an aggregate cost of $136.5 million. These purchases were made pursuant to our $500 million stock repurchase program, which is effective during calendar year 2016, and $240.3 million of that amount remained available for additional share repurchases at June 30, 2016.
Non-GAAP Earnings
Non-GAAP earnings is defined as net income, adjusted for: (1) interest expense; (2) license fees; (3) depreciation and amortization; (4) impairment charges; (5) share-based compensation expense (benefit), net (including expenses relating to stock options, share tracking awards, restricted stock units and our employee stock purchase plan); and (6) tax impact on non-GAAP earnings adjustments.
A reconciliation of net income to non-GAAP earnings is presented below (in millions, except per share data):
Three Months Ended June 30,
2016
2015
Net income, as reported
$206.1
$99.2
Adjusted for:
Interest expense
0.6
1.3
Depreciation and amortization
7.9
8.4
Share-based compensation expense, net
1.5
47.3
Tax benefit(1)
(2.8)
(23.4)
Non-GAAP earnings
$213.3
$132.8
Non-GAAP earnings per share:
Basic
$4.82
$2.88
Diluted
$4.55
$2.56
Weighted average number of common shares outstanding:
Basic
44.3
46.1
Diluted
46.9
51.9
______________________________
(1) Represents the total tax impact of the quarterly Non-GAAP earnings adjustments based on our actual quarterly effective income tax rates of approximately 28 percent and approximately 41 percent as of June 30, 2016 and 2015, respectively.