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Investors reacted positively to United Therapeutics’ (UTHR - Analyst Report) third quarter results – shares were up 3.8% over two trading sessions since the earnings release.

Although earnings were below expectations, the company beat revenue expectations easily and raised its revenue guidance for 2013.

Third-quarter 2013 earnings were $1.17 per share, well below the year-ago earnings of $1.46 and the Zacks Consensus Estimate of $1.67. Third quarter revenues, however, increased 24.6% to $302.2 million, beating the Zacks Consensus Estimate of $277 million. Despite an increase in revenues, earnings declined due to higher operating expenses.

The Quarter in Detail

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

Remodulin revenues increased 9.5% to $132.3 million.

United Therapeutics is working on introducing Remodulin in the Japanese and Chinese markets which would bring in incremental sales. While the company expects to launch Remodulin in China in the second quarter of 2014, it expects to gain approval in Japan next year as well. Moreover, the company has an agreement with Medtronic, Inc. (MDT - Analyst Report) for the development of an implantable pump to deliver Remodulin. The company said that the study met the primary endpoint – currently, secondary endpoints are being analyzed.

Meanwhile, Tyvaso and Adcirca contributed $120.3 million (up 36.2%) and $47.4 million (up 49%), respectively, to third quarter revenues. Tyvaso revenues have been picking up consistently and are now approaching Remodulin revenues. United Therapeutics has increased the size of its cardiopulmonary specialist force that promotes Remodulin and Tyvaso. More than 800 doctors are currently prescribing 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.

R&D expenses for the third quarter increased 11.7% to $.72.7 million mainly due to higher share-based compensation expense.

SG&A spending increased 37.1% from the year-ago quarter to $94.1 million due to higher share-based compensation costs.

Guidance Upped

United Therapeutics raised its revenue guidance for 2013. The company now expects 2013 revenues to exceed its previous guidance of $1.05 billion. Going by the current run rate, United Therapeutics should be able to achieve its guidance easily.

As far as oral Remodulin is concerned, a response from the FDA should be out by Feb 16, 2014.

Our Take

United Therapeutics’ third quarter results were encouraging with all three products performing well. The company remains on track to cross the $1 billion mark in revenues this year. We believe United Therapeutics’ existing product portfolio will drive strong top- and bottom-line growth. Other positive news this quarter included the update on the implantable pump.

Meanwhile, issues remain in the form of the generic challenge being faced by Remodulin. We expect investor focus to remain on the patent infringement case as well as the regulatory outcome for oral Remodulin.

United Therapeutics is a Zacks Rank #3 (Hold) stock. Currently, companies like Shire (SHPG - Analyst Report) look well-positioned with a Zacks Rank #1 (Strong Buy).

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