01—Abstract
Summary
Summary of the 10-K filed February 27, 2019. Cited figures are marked; the original filing is the authoritative source.
United Therapeutics Corporation (UTHR) reported total revenues of $1,627.8 milliona for 2018, down from $1,725.3 million in 2017, with net income of $589.2 million versus $417.9 million the prior year.
Net product sales were led by Remodulin ($599.0 millionb), Tyvaso ($415.2 million), Adcirca ($323.7 million), Orenitram ($205.1 million) and Unituxin ($84.8 million). The company attributes the 2019 outlook to lower revenues, largely because generic Adcirca launched in August 2018 and will be available for the full year, with potential additional pressure from generic Remodulin in Austria (launched January 2019) and expected U.S. and European generic launches in 2019. Management says it expects a return to revenue growth potentially as early as 2020, based on its pipeline and label expansions.
The company's cash, cash equivalents and marketable investments rose to $1,858.5 millionc at year-end 2018 from $1,430.1 million, supported by $778.4 million of operating cash flow. Subsequent to year-end, United Therapeutics borrowed $800.0 million under its 2018 Credit Agreement to fund an upfront payment of $800.0 million to Arena Pharmaceuticals for ralinepag rights, and it had $1,050.0 million outstanding under that facility as of February 27, 2019.
The filing also reports a February 2019 commercialization agreement with Medtronic for the Implantable System for Remodulin, an FDA-approved system with launch timing dependent on Medtronic satisfying remaining PMA conditions. Key risks highlighted include generic competition across Adcirca, Remodulin, Tyvaso and Orenitram, reliance on a small number of distributors (two specialty distributors accounted for 51 percent and 18 percent of 2018 revenues), a Corporate Integrity Agreement with the OIG following a $210.0 milliond DOJ settlement, and dependence on third parties such as Medtronic, MannKind and Lilly for manufacturing and supply.
02—Key points
Key Highlights
- Total revenues were $1,627.8 million in 2018 versus $1,725.3 million in 2017, while net income increased to $589.2 million from $417.9 million.
- Adcirca net product sales fell to $323.7 million from $419.7 million after generic tadalafil launched in August 2018; management expects 2019 revenues to decrease further as a full year of generic Adcirca competition applies.
- Remodulin net product sales were $599.0 million in 2018 versus $670.9 million in 2017, with generic Remodulin launched in Austria in January 2019 and generic competition expected in the U.S. and other European countries during 2019.
- Tyvaso net product sales rose to $415.2 million and Orenitram to $205.1 million, while Unituxin reached $84.8 million, supported by price increases and higher patient volumes.
- Cash, cash equivalents and marketable investments increased to $1,858.5 million at year-end 2018, driven by $778.4 million of operating cash flow.
- In January 2019 the company paid an $800.0 million upfront fee to Arena Pharmaceuticals for ralinepag, funded by borrowings under its 2018 Credit Agreement, which had $1,050.0 million outstanding as of February 27, 2019.
- The company entered into a February 2019 commercialization agreement with Medtronic for the Implantable System for Remodulin, which received FDA approval in July 2018 but cannot launch until Medtronic satisfies remaining PMA conditions.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, United Therapeutics kept $0.36.
- Revenue$1.63B100.0%
- Cost of revenue−$198.7M12.2%
- Gross profit$1.43B87.8%
- Operating costs−$623.7M38.3%
- Operating income$805.4M49.5%
- Interest, other & tax−$216.2M13.3%
- Net income$589.2M36.2%
Where FY2018 revenue went
$1.63B- Net income: $589.2M, 36% of revenue
- R&D: $357.9M, 22% of revenue
- SG&A: $265.8M, 16% of revenue
- Interest, other & tax: $216.2M, 13% of revenue
- Cost of revenue: $198.7M, 12% of revenue
Kept 36% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 27, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $1.63B$1.73B | −5.7% |
| Cost of Revenue | $198.70M$105.70M | +88.0% |
| Gross Profit | $1.43B$1.62B | −11.8% |
| R&D Expenses | $357.90M$264.60M | +35.3% |
| SG&A Expenses | $265.80M$330.10M | −19.5% |
| Operating Expenses | $822.40M$910.40M | −9.7% |
| Operating Income | $805.40M$814.90M | −1.2% |
| Interest Expense | $13.90M$9.00M | +54.4% |
| Net Income | $589.20M$417.90M | +41.0% |
| EPS (Basic) | $13.54$9.50 | +42.5% |
| EPS (Diluted) | $13.39$9.31 | +43.8% |
| Shares Outstanding (Basic) | 43.50M44.00M | −1.1% |
| Shares Outstanding (Diluted) | 44.00M44.90M | −2.0% |
05—Questions
Frequently Asked Questions
Why did United Therapeutics' revenues decline in 2018 compared with 2017?
Total revenues fell by $97.5 million to $1,627.8 million. Remodulin net product sales decreased by $71.9 million, mainly due to a 2017 one-time $47.4 million inventory purchase by an international distributor and reduced shipments to that distributor. Adcirca net product sales decreased by $96.0 million following the launch of a generic version in August 2018. These declines were partly offset by increases in Tyvaso, Orenitram and Unituxin.
What does management expect for revenues in 2019 and beyond?
Management expects 2019 revenues to decrease compared with 2018, largely because generic Adcirca will be available for the full year, with additional, lesser pressure from generic Remodulin in 2019 in the U.S. and Europe. The company believes a return to revenue growth could occur as early as 2020, based on its pipeline and potential label expansions, though timing depends on factors it cannot fully control.
How is the company financing its recent acquisitions and license agreements?
In June 2018 the company entered into a 2018 Credit Agreement providing an unsecured revolving credit facility of up to $1.5 billion, with a maturity in June 2023. The company borrowed $800.0 million in January 2019 to fund the upfront payment to Arena for ralinepag, bringing the outstanding balance to $1,050.0 million as of February 27, 2019. The filing states that current liquidity is sufficient to fund ongoing operations and future business plans.
What are the main risks to the company's revenue from its treprostinil products?
The filing identifies generic competition as the primary risk. Settlements allow Sandoz, Teva, Par and Dr. Reddy's to launch generic Remodulin in the U.S. (Sandoz since June 2018; the others since December 2018), while Watson and Actavis may launch generic Tyvaso and Orenitram as early as January 2026 and June 2027, respectively. The company also notes that its patents could be challenged or found unenforceable, and that reliance on a limited number of distributors and sole-source manufacturers adds operational risk.
Did the company pay any notable legal settlements or face regulatory obligations?
In December 2017 the company entered into a civil Settlement Agreement with the DOJ and OIG related to its support of 501(c)(3) organizations that provide financial assistance to patients. It paid approximately $210.0 million, recorded as a 2017 accrual, and entered into a Corporate Integrity Agreement with the OIG effective December 18, 2017, which runs for five years, ending in December 2022.
06—Continue