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Strong 3Q for United Therapeutics

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United Therapeutics Corp. (UTHR - Free Report) reported third-quarter earnings of $1.46 per share, well above the year-ago earnings of $1.32 and the Zacks Consensus Estimate of $1.25. Higher revenues led to the year-over-year improvement in earnings.

Third quarter revenues increased 20.2% to $242.5 million, well above the Zacks Consensus Estimate of $228 million.

The Quarter in Detail

Net product revenues, consisting of Remodulin, Tyvaso and Adcirca, increased 19.8% to $240.9 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 $120.8 million, up 5.1%. 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. Moreover, the company has an agreement with Medtronic, Inc. (MDT - Free Report) for the development of an implantable pump to deliver Remodulin. Patient enrolment for the implantable pump study has been completed with the study scheduled to complete in the third quarter of 2013.

Meanwhile, Tyvaso and Adcirca contributed $88.3 million and $31.8 million, respectively, to third quarter revenues.

We note that the company is facing a patent challenge for Remodulin (treprostinil) injection. Sandoz, Novartis’ (NVS - Free 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 third quarter increased 9.6% to $65.2 million mainly due to higher share-based compensation expense.

SG&A spend increased 312.0% from the year-ago quarter to $68.6 million due to higher share-based compensation costs as well as general and administrative 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%.

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 suffered a major setback in October 2012 with the FDA issuing a complete response letter for the company’s lead pipeline candidate, oral Remodulin. 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. Although we believe United Therapeutics’ existing 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.

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