GILD Gilead Sciences Inc

United Therapeutics Corp. (UTHR) reported first-quarter earnings of 26 cents per share, several cents below the year-ago earnings of 32 cents. The Zacks Consensus Estimate was 64 cents. Despite an increase in revenues, higher costs led to the decline in earnings.

First quarter revenues, which missed the Zacks Consensus Estimate of $177 million, increased 28.5% to $165.6 million.

The Quarter in Detail

Net product revenues, consisting of Remodulin, Tyvaso and Adcirca sales, increased 28.5% to $165.6 million in the reported quarter. Revenues increased primarily due to the continued increase in the number of patients being prescribed Remodulin, Tyvaso and Adcirca and price increases for Remodulin and Tyvaso. United Therapeutics derives the majority of its product revenues from Remodulin, which posted sales of $103.2 million, up 7.8%.

The company is working on developing Remodulin for the Japanese market which could bring in incremental sales of $100 million. However, United Therapeutics said that it expects a 12-month delay in Japanese approval for Remodulin and currently expects the same in late 2013. EU approval of Remodulin IV is expected in mid 2011.

Meanwhile, newly launched products, Tyvaso and Adcirca, contributed $47.7 million and $11.3 million, respectively, to first quarter revenues. Tyvaso and Adcirca should both keep contributing significantly to revenues with wider acceptance in the market.

United Therapeutics is yet to fix a study design for Tyvaso in Europe. The company currently expects to commence a study with Tyvaso for EU approval in 2012. In the meantime, Tyvaso will be available to patients in the EU on a named patient basis.

R&D expenses for the first quarter increased 37.7% to $48 million mainly due to an increase in expenses associated with the company’s FREEDOM phase III program, and higher share-based compensation expenses.

United Therapeutics expects to unblind the FREEDOM-M study in June 2011 and the FREEDOM-C2 in September 2011. While the FREEDOM-M study is evaluating oral Remodulin as a monotherapy treatment for pulmonary arterial hypertension (PAH), the FREEDOM-C2 study is evaluating oral Remodulin  as a combination therapy for PAH.

SG&A spend increased 26.4% from the year-ago quarter mainly due to higher share-based compensation costs and sales and marketing and general administrative expenses.

Guidance

For the first time, United Therapeutics provided top line guidance. The company said that it expects revenues of $750 million, $875 million and $1 billion in 2011, 2012 and 2013, respectively. United Therapeutics also provided for a plus/minus margin of 5% in each case.

Guidance does not include any contributions from oral Remodulin, which is currently in late-stage studies. The Zacks Consensus Revenue Estimate for 2011 and 2012 is $767 million and $887 million, respectively.

Neutral on United Therapeutics

We currently have a Neutral recommendation on United Therapeutics. The company is well-positioned to gain share in the PAH market. Leading product, Remodulin, continues to look very strong in both the intravenous (IV) and subcutaneous (SC) forms.

With the approval of Adcirca and Tyvaso, United Therapeutics now 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. Going forward, we expect investor focus to remain on the commercialization of Adcirca and Tyvaso. The next major catalyst for United Therapeutics would be positive results from ongoing studies for the development of oral Remodulin.

United Therapeutics’ competitors in the PAH market include companies like Gilead (GILD) and Pfizer (PFE) among others. We believe competition will continue to increase with several companies working on bringing additional therapies to the market.

 
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