United Therapeutics Misses

United Therapeutics Corporation (UTHR - Analyst Report) reported a net income of 21 cents per share in the third quarter, well below the Zacks Consensus Estimate of 31 cents. The company reported earnings of 22 cents in the year-ago period. Even though revenues increased 29.6% to $97.2 million in the reported quarter, higher operating expenses led to the lower than expected net income. 

The increase in revenues was primarily due to the continued increase in the number of patients being prescribed Remodulin and the recent launches of new products, Tyvaso and Adcirca. Net product sales, consisting of Remodulin, Tyvaso and Adcirca sales, increased 30.4% to $94.1 million. The company derives the majority of its product revenues from Remodulin, which posted sales of $87.4 million, up 21.3%. 

Meanwhile, newly launched products, Tyvaso and Adcirca, contributed $5.1 million and $1.5 million, respectively, to total revenues. Both products should start contributing significantly to revenues from 2010 once they gain wider acceptance in the market. Other revenues, consisting of service sales and license fees, increased 8% $3.1 million. 

R&D expenses increased 64.2% to $31.6 million mainly due to an increase in non-cash, share-based compensation expenses and increased expenses associated with the two studies being conducted by the company for the oral formulation of Remodulin. We expect R&D spend to remain robust as the company continues to work on building its pipeline. 

United Therapeutics also recorded a huge increase in selling, general and administrative expenses, which came in at $41.2 million. The increase in SG&A spend was mainly due to an increase in share-based compensation expense, expenses incurred in connection with the operation of the company’s newly constructed facility in Research Triangle Park, North Carolina, and expenses incurred in connection with launch activities related to Adcirca and Tyvaso. 

We believe the company is well-positioned to gain share in the pulmonary hypertension (PAH) market, which has players such as Gilead (GILD - Analyst Report), Pfizer (PFE - Analyst Report) and GlaxoSmithKline (GSK - Analyst Report) among others. While its leading product Remodulin continues to look very strong, United Therapeutics now has a varied range of therapies available for the treatment of PAH with the recent approval of Adcirca and Tyvaso. Going forward, strong contributions from Remodulin and the recently approved Adcirca and Tyvaso should help the company achieve strong top-line growth in 2010 and beyond. We have a Neutral recommendation on the stock.