UTHR Misses Expectations

United Therapeutics Corp. (UTHR - Analyst Report) reported fourth-quarter earnings of 77 cents per share, well above the year-ago earnings of 23 cents but below the Zacks Consensus Estimate of 87 cents. Higher revenues and lower costs led to the year-over-year improvement in earnings.

Fourth quarter revenues, which increased 19.2% to $195.2 million, missed the Zacks Consensus Estimate of $204 million. Lighter-than-expected revenues were attributed to fluctuations in ordering patterns.

Full year earnings came in at $3.66 per share, a penny above the Zacks Consensus Estimate, and well above the year-ago earnings of $1.87 per share. Revenues came in at $743.2 million, missing the Zacks Consensus Estimate of $756 million. Revenues, however, increased 25.3% from the year-ago period.

The Quarter in Detail

Net product revenues, consisting of Remodulin, Tyvaso, Adcirca and other sales, increased 18.9% to $194.3 million in the reported 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 $107.1 million, up 5.1%.

The company is working on developing Remodulin for the Japanese and Chinese markets which could bring in incremental sales. United Therapeutics expects to file for Japanese approval of Remodulin later this year/early next year.

Meanwhile, newly launched products, Tyvaso and Adcirca, contributed $64.5 million and $22.6 million, respectively, to fourth quarter revenues.

Both Remodulin and Tyvaso revenues declined on a sequential basis. The decline was attributed to fluctuations in ordering patterns.

United Therapeutics is currently seeking US approval for oral Remodulin for the treatment of pulmonary arterial hypertension (PAH). We note that the company is facing a patent challenge for Remodulin (treprostinil) injection. Sandoz, Novartis’ (NVS - Snapshot Report) generic unit, is seeking approval for its generic version of Remodulin (10 mg/mL). We believe United Therapeutics will file a patent infringement lawsuit against Sandoz so that Sandoz’s product cannot receive FDA approval until a court rules in Sandoz’ favor or for up to 30 months, whichever comes earlier.

R&D expenses for the fourth quarter declined 21.4% to $48.6 million mainly due to lower share-based compensation expense and lower expenses associated with the development of beraprost-MR.

SG&A spend fell 15% from the year-ago quarter mainly due to lower share-based compensation costs.

Guidance

United Therapeutics maintained its revenue guidance for 2012 and 2013. The company expects 2012 and 2013 revenues to be about $875 million and $1 billion, respectively, with a plus/minus margin of 5%. The company still has $88 million left in its ongoing share buyback program which should drive the bottom line.

Neutral on United Therapeutics

We currently have a Neutral recommendation on United Therapeutics, which carries a Zacks #3 Rank (short term “Hold” rating). The company is well-positioned to gain share in the PAH market. Remodulin continues to look very strong in both the intravenous (IV) and subcutaneous (SC) forms.

With the approval of Adcirca and Tyvaso, United Therapeutics now has a varied range of therapies available for the treatment of PAH. We believe the company’s PAH product portfolio will drive strong top-and bottom-line growth.

However, we remain concerned about United Therapeutics' weak pipeline and increasing competition in the PAH market. Moreover, our expectations for oral Remodulin gaining approval in 2012 are low given the mixed data on the candidate.

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