United Therapeutics Awaits FDA

United Therapeutics Corp. (UTHR - Analyst Report) posted financial results for the first quarter 2009 on May 1, 2009. Total revenues for the quarter were $79.7 million, up 29% from the first quarter in 2008. Revenues consisted of $76.9 million in sales of IV/SC Remodulin and $2.9 million in service, distributor and licensing fees.

Net income on a GAAP basis totaled $13.2 million, up 16% from last year. This equated to EPS of $0.49. Net income adjusted for non-cash expenses, including stock-based compensation, amortization or debt expense, depreciation and amortization, and non-cash taxes, totaled $37.0 million, an increase of 43% from the adjusted first quarter in 2008, and equated to $1.36 in adjusted EPS. This was roughly 28% growth over the first quarter in 2008. United Therapeutics exited the first quarter 2009 with $319.4 million in cash and equivalents.

United Therapeutics currently has two pending applications with the U.S. FDA, with action dates expected at the end of May and July 2009.

On May 25, 2009, the FDA is set to rule on the pending application to expand the use of Adcirca (tadalafil; sold by Eli Lilly [LLY - Analyst Report] as Cialis for erectile dysfunction) into PAH. Management remains confident in the expected approval. In fact, we saw significant (~$5-7 million) expenses in the first quarter as management is "quite intensively" preparing for the launch.

Our financial model assumes that United Therapeutics can start recording sales of tadalafil for PAH in the third quarter 2009. We think the odds favor approval on or around the PDUFA date, although it is possible that the FDA decision is pushed back into June on delays in reviewing the application. Notwithstanding a delay, we think United Therapeutics will be able to start booking revenues from Adcirca at some point during the second half of the year. We assume only modest contribution in 2009, so a stronger-than-expected launch would lead to upside to our financial model.

In mid-March 2009, United Therapeutics was notified by the U.S. FDA that its pending review of the inhaled version of treprostinil (proposed trade name: Tyvaso) will likely extend beyond the PDUFA date of April 30, 2009. This was confirmed on April 26, 2009, and the new PDUFA date is now July 30, 2009.

The delay relates to questions received from the FDA concerning human factor testing and the instructions for use (IFU) of the handheld OptiNeb portable Nebulizer that delivers Tyvaso into the lungs. The OptiNeb is not an overly complex device, but apparently the FDA wants to make sure the IFU is clear and easily understandable as to not allow any potential use-related hazards.

Management has conducted a small clinical trial involving 20 to 30 subjects testing the ability of each patient to properly use the device given the current IFU. This data has been submitted to the FDA. A decision is expected on or before the new July 30, 2009 action date.

We are more confident in the approval of Adcirca than we are in Tyvaso, but we think the odds favor approval of both candidates. Adcirca and Tyvaso each have $150 to $250 million in peak sales potential for United Therapeutics. Our current rating is Hold, but we would be buyers of the stock below $60. Our target is $72.