01—Abstract
Summary
Summary of the 10-K filed February 21, 2018. Cited figures are marked; the original filing is the authoritative source.
United Therapeutics Corporation's 2017 annual report describes a biotechnology company whose revenue depends on pulmonary arterial hypertension (PAH) products.
Total revenues were $1,725.3 milliona in 2017, up from $1,598.8 million in 2016, with Remodulin ($670.9 million), Adcirca ($419.7 million), Tyvaso ($372.9 million), Orenitram ($185.8 million) and Unituxin ($76.0 million) as the commercial products. Net income fell to $417.9 million from $713.7 million, reflecting a $210.0 million settlement of a Department of Justice loss contingency, $71.0 million of provisional Tax Reform expense, and higher share-based compensation of $73.5 million. Diluted EPS was $9.31 versus $15.25 in 2016.
The filing highlights significant revenue risk from generic competition. Sandoz may launch generic Remodulin in June 2018 and Teva, Par and Dr. Reddy's in December 2018. Adcirca faces generic entry after regulatory exclusivity expires in May 2018, which the company says will likely lead to a material adverse impact on Adcirca revenue.
The company expects revenues to decrease in 2018 and anticipates a return to revenue growth beginning in 2019. Watson's ANDA challenge to Tyvaso is in litigation, with IPR proceedings instituted in January 2018, and the company settled with Actavis for Orenitram generic entry in June 2027. Cash, cash equivalents and marketable investments rose to $1,430.1 millionb from $1,053.1 million, aided by $250.0 million drawn on the $1.0 billion revolving credit facility to fund a share repurchase.
Pipeline milestones include FREEDOM-EV results expected in the second half of 2018, resubmission of the NDA for the Implantable System for Remodulin in January 2018, and the Tyvaso-ILD INCREASE study. The company also entered a Corporate Integrity Agreement with the OIG for five years following the December 2017 DOJ settlement.
02—Key points
Key Highlights
- Total revenues of $1,725.3 million in 2017, up from $1,598.8 million in 2016; Adcirca net product sales rose to $419.7 million, while Tyvaso declined to $372.9 million from $404.6 million.
- Net income of $417.9 million in 2017, down from $713.7 million in 2016, after a $210.0 million settlement of a loss contingency and a $71.0 million provisional Tax Reform charge.
- Diluted EPS of $9.31 in 2017 versus $15.25 in 2016; effective tax rate of approximately 46 percent in 2017.
- Generic Remodulin entry permitted from June 2018 (Sandoz) and December 2018 (Teva, Par, Dr. Reddy's), and generic Adcirca expected after regulatory exclusivity expires in May 2018, with the company anticipating a material adverse impact on Adcirca revenue.
- The company expects 2018 revenues to decrease compared with 2017 and anticipates a return to revenue growth beginning in 2019.
- Cash, cash equivalents and marketable investments of $1,430.1 million at year-end 2017, up from $1,053.1 million, after $250.0 million drawn on the revolving credit facility for a share repurchase.
- Entered a civil Settlement Agreement with the DOJ and OIG in December 2017 paying approximately $210.0 million, along with a five-year Corporate Integrity Agreement.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, United Therapeutics kept $0.24.
- Revenue$1.73B100.0%
- Cost of revenue−$105.7M6.1%
- Gross profit$1.62B93.9%
- Operating costs−$804.7M46.6%
- Operating income$814.9M47.2%
- Interest, other & tax−$397.0M23.0%
- Net income$417.9M24.2%
Where FY2017 revenue went
$1.73B- Net income: $417.9M, 24% of revenue
- Interest, other & tax: $397.0M, 23% of revenue
- SG&A: $330.1M, 19% of revenue
- R&D: $264.6M, 15% of revenue
- Other operating costs: $210.0M, 12% of revenue
- Cost of revenue: $105.7M, 6.1% of revenue
Kept 24% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 21, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $1.73B$1.60B | +7.9% |
| Cost of Revenue | $105.70M$72.70M | +45.4% |
| Gross Profit | $1.62B$1.53B | +6.1% |
| R&D Expenses | $264.60M$147.60M | +79.3% |
| SG&A Expenses | $330.10M$316.80M | +4.2% |
| Operating Expenses | $910.40M$537.10M | +69.5% |
| Operating Income | $814.90M$1.06B | −23.2% |
| Interest Expense | $9.00M$3.90M | +130.8% |
| Net Income | $417.90M$713.70M | −41.4% |
| EPS (Basic) | $9.50$16.29 | −41.7% |
| EPS (Diluted) | $9.31$15.25 | −39.0% |
| Shares Outstanding (Basic) | 44.00M43.80M | +0.5% |
| Shares Outstanding (Diluted) | 44.90M46.80M | −4.1% |
05—Questions
Frequently Asked Questions
What drove the decline in net income in 2017?
Net income fell to $417.9 million from $713.7 million. The filing attributes this mainly to the $210.0 million DOJ settlement accrual recorded as a loss contingency, the $71.0 million provisional Tax Reform charge, a $49.6 million impairment of cost method investments, and higher share-based compensation of $73.5 million, partly offset by revenue growth.
Which products face near-term generic competition?
Adcirca's U.S. patent expired in November 2017 and FDA-granted pediatric exclusivity runs through May 2018, after which generics are expected. Remodulin generics are permitted from June 2018 (Sandoz) and December 2018 (Teva, Par and Dr. Reddy's). Watson is challenging Tyvaso through an ANDA, and Actavis's Orenitram generic is permitted from June 2027.
How is the company funding its operations and capital needs?
Cash, cash equivalents and marketable investments totaled $1,430.1 million at December 31, 2017. The company borrowed $250.0 million under its $1.0 billion unsecured revolving credit facility, maturing January 2023, to fund an accelerated share repurchase. It has budgeted approximately $250.0 million of capital expenditures over the next three years.
What are the key pipeline catalysts mentioned in the filing?
The FREEDOM-EV study of Orenitram, enrolled in December 2017, has full results expected in the second half of 2018. The company resubmitted its NDA for Remodulin use in the Implantable System for Remodulin on January 30, 2018, anticipating a two-month review. The BEAT study of esuberaprost in combination with Tyvaso completed enrollment in March 2017.
06—Continue