United Therapx - 1 Down, 1 to Go

One Down, One To Go For United Therapeutics

On May 25, 2009, the U.S. FDA approved United Therapeutics (UTHR - Analyst Report) Adcirca (tadalafil, sold by Eli Lilly [LLY - Analyst Report] as Cialis for erectile dysfunction) for the treatment of pulmonary arterial hypertension (PAH), with a recommended dose of 40 mg. Adcirca is indicated to improve exercise ability in WHO Group I PAH patients, which encompasses patients with multiple forms of PAH including etiologies such as idiopathic and familial PAH as well as PAH associated with scleroderma and congenital heart disease.

Our financial model assumes that United Therapeutics can start recording sales of tadalafil for PAH in August 2009. We assume only modest contribution in 2009, so a stronger-than-expected launch would lead to upside to our financial model.

On April 26, 2009, United Therapeutics was notified by the U.S. FDA that its pending review of the inhaled version of treprostinil (proposed name Tyvaso) will extend beyond the PDUFA date of April 30, 2009. The new 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.

Phase III data from the TRIUMPH program was highly statistically significant (p<0.0002), especially at the lowest quartile of patients, but we still think the FDA could raise questions around why the Revatio population failed to show a meaningful improvement, or why 3 patients in the inhaled treprostinil arm had to discontinue due to disease progression vs. none in the control.  Approval is a 50/50 proposition, in our view.

Despite the potential risk that the FDA may delay approval of Tyvaso, fundamentals at United Therapeutics are solid. The company should be able to post pro-forma earnings growth at the top of the industry over the next few years, even without Tyvaso. Throw in Tyvaso, and eventually positive development on the oral treprostinil molecule, and the earnings power is un-rivaled. Our current rating is Hold, but we would be buyers of the stock on a meaningful pullback.