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Back to Neutral on UTHR

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We recently downgraded United Therapeutics (UTHR - Free Report) to a Neutral recommendation with a $48.00 target price.

United Therapeutics suffered a major blow with the US Food and Drug Administration (FDA) issuing a complete response letter (CRL) for the company’s new drug application for oral Remodulin (treprostinil). The company was looking to get oral Remodulin approved for the treatment of pulmonary arterial hypertension (PAH).

While United Therapeutics said that it intends to gain approval for the candidate within four years, we have low visibility on the company’s development plans for the candidate.

The company's lead product is Remodulin, an injectable formulation of treprostinil, indicated for the treatment of PAH in patients with New York Heart Association (NYHA) Class II-IV symptoms. Remodulin is approved for both subcutaneous (SC) and intravenous (IV) use. The other two PAH products in the company’s portfolio are Adcirca (tadalafil) and Tyvaso.

United Therapeutics holds a strong position in the PAH market with three approved products targeting this indication. Lead product Remodulin continues to look very strong in both the IV and SC forms. EU approval for the IV formulation, received in late December 2011, should drive sales further. The company is looking to launch Remodulin in new territories including Japan and China. The Japanese market could bring in incremental sales of about $100 million.

Although we believe United Therapeutics' existing PAH product portfolio will drive strong top-and bottom-line growth, we prefer to remain on the sidelines until we gain more information on the company’s plans for oral Remodulin.

We are also concerned about the company’s dependence on Remodulin for revenues. Remodulin, which accounted for 57.9% of total sales in 2011, is currently facing a generic challenge from Sandoz, Novartis’ (NVS - Free Report) generic division. The company needs to develop products that could help make up for the loss of revenues in the event of genericization of Remodulin.

Although United Therapeutics has several candidates in its pipeline, these products are still in too early stages of development to get excited about. The approval of oral Remodulin would have helped long-term growth. However, given the FDA’s CRL, there could be a significant delay in the approval process for the candidate. Given the early stage nature of the rest of the pipeline, we do not see any near-term pipeline catalysts that could drive the stock. United Therapeutics holds a Zacks #3 (short-term ‘Hold’ rating) Rank.

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