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United Therapeutics Corp. (UTHR - Analyst Report) reported second-quarter earnings of $1.43 per share, well above the year-ago earnings of $1.19 and the Zacks Consensus Estimate of $1.12. Higher revenues led to the year-over-year improvement in earnings.

Including one-time items, earnings came in at $1.34 per share, up 13.6% from the year-ago period.

Second quarter revenues increased 22.8% to $225.6 million and exceeded the Zacks Consensus Estimate of $213 million.

The Quarter in Detail

Net product revenues, consisting of Remodulin, Tyvaso, Adcirca and other sales, increased 20.9% to $221.8 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 $110.4 million, up 5.2%. Remodulin sales should benefit from the approval of the IV formulation in Europe.

The company is working on developing Remodulin for the Japanese and Chinese markets which would bring in incremental sales. Remodulin could be launched in Japan in 2014.

Meanwhile, Tyvaso and Adcirca contributed $81.2 million and $30.2 million, respectively, to second quarter revenues.

United Therapeutics is currently seeking US approval for oral Remodulin for the treatment of pulmonary arterial hypertension (PAH). A response on the approvability of oral Remodulin should be out by October 27, 2012.

We note that the company is facing a patent challenge for Remodulin (treprostinil) injection. Sandoz, Novartis’ (NVS - Analyst Report) generic unit, is seeking approval for its generic version of Remodulin (10 mg/mL). United Therapeutics has filed a patent infringement lawsuit against Sandoz.

R&D expenses for the second quarter increased 53% to $37.1 million mainly due to higher share-based compensation expense.

SG&A spend increased 123.2% from the year-ago quarter to $53.3 million due to higher share-based compensation costs.

Guidance Maintained

United Therapeutics maintained its revenue guidance for 2012. The company expects 2012 revenues to be about $875 million with a plus/minus margin of 5%.

Outperform on United Therapeutics

We currently have an Outperform recommendation on United Therapeutics, which carries a Zacks #2 Rank (short-term ‘Buy’ rating). We believe the company is well-positioned to gain share in the PAH market. Lead product, Remodulin, continues to look very strong in both the intravenous (IV) and subcutaneous (SC) forms. With the approval of Adcirca and Tyvaso, the company 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.

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