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United Therapeutics Corp. (UTHR - Analyst Report) reported second-quarter 2013 earnings of $1.52 per share, well above the year-ago earnings of $1.34 and the Zacks Consensus Estimate of $1.47. Second quarter revenues increased 24.4% to $280.6 million, beating the Zacks Consensus Estimate of $249 million.

The Quarter in Detail

Second quarter revenues increased primarily due to the continued increase in the number of patients being prescribed Remodulin, Tyvaso and Adcirca.

United Therapeutics derives the majority of its product revenues from Remodulin, which posted sales of $124.3 million, up 12.6%. Remodulin sales should benefit from the approval of the intravenous (IV) formulation in Europe.

United Therapeutics is working on introducing Remodulin in the Japanese and Chinese markets which would bring in incremental sales. While the company gained approval for Remodulin in China, it expects to gain approval in Japan in a year or two. Moreover, the company has an agreement with Medtronic, Inc. (MDT - Analyst Report) for the development of an implantable pump to deliver Remodulin. Data from an ongoing study should be available by mid-September.

Meanwhile, Tyvaso and Adcirca contributed $109.5 million and $43.7 million, respectively, to second quarter revenues. Tyvaso revenues have been picking up consistently and are now approaching Remodulin revenues. United Therapeutics said that it has increased the size of its cardiopulmonary specialist force that promotes Remodulin and Tyvaso.

We note that United Therapeutics is facing a patent challenge for Remodulin injection from Sandoz, Novartis’ (NVS - Analyst Report) generic unit. United Therapeutics has filed a patent infringement lawsuit against Sandoz. While a trial date is yet to be set, United Therapeutics currently expects the trial to take place in mid-14.

R&D expenses for the second quarter increased 47.2% to $54.6 million mainly due to higher share-based compensation expense.

SG&A spending increased 34.0% from the year-ago quarter to $71.4 million due to higher share-based compensation costs.

Guidance Maintained

United Therapeutics maintained its revenue guidance for 2013. The company expects 2013 revenues to be about $1 billion with a plus/minus margin of 5%. Going by the current run rate, United Therapeutics should be able to achieve its guidance easily.

As far as oral Remodulin is concerned, for which the company received two complete response letters (CRLs) from the FDA, United Therapeutics had an end of review meeting with the FDA in early May. At that meeting, additional analyses and contextual information about combination studies in the field were presented. The FDA is reviewing the additional information provided by the company.

United Therapeutics currently carries a Zacks Rank #3 (Hold). Although we believe United Therapeutics’ existing PAH product portfolio will drive strong top- and bottom-line growth, we remain concerned about the generic challenge being faced by Remodulin. We expect investor focus to remain on the patent infringement case as well as updates on the regulatory path for oral Remodulin.

At present, companies like Jazz Pharmaceuticals (JAZZ - Analyst Report) look well-positioned – Jazz is a Zacks Rank #1 (Strong Buy) stock.

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