United Therapeutics' Robust Portfolio Fuels Double-Digit Growth
United Therapeutics Corp. (NASDAQ:UTHR) is a pharmaceutical company headquartered in Silver Spring, Maryland focused on the development and commercialization of medicines to combat pulmonary arterial hypertension, pulmonary hypertension associated with interstitial lung disease, neuroblastoma and idiopathic pulmonary fibrosis.
Investment thesis
United Therapeutics has a robust portfolio of Food and Drug Administration-approved medicines, holding leading positions in the fast-growing global PAH and PH-ILD markets, which is ultimately reflected in its double-digit year-over-year revenue and operating profit growth.
Furthermore, having multiple commercial products allows the company to diversify its sources of free cash flow, thereby allowing it to more effectively adapt to rapidly changing market conditions, as well as reduce the risks associated with the Biden-Harris administration's health care reforms.
Source: Author's elaboration, based on 10-K filing.
On Feb. 21, the company released financial results for the fourth quarter of 2023, which pleasantly surprised us, including continued extremely strong demand for its treprostinil franchise, growth in total cash and short-term investments year over year.
Source: Author's elaboration, based on GuruFocus data.
Additionally, thanks to management's effective business strategies, United Therapeutics' operating income margin continues to increase yearly, but more importantly, it is higher than that of its key competitors, such as Gilead Sciences (NASDAQ:GILD), Pfizer (NYSE:PFE) and Johnson & Johnson (JNJ).
Source: Author's elaboration, based on GuruFocus data.
In addition to Tyvaso, which will be discussed in more detail later, we also highlight Unituxin as one of the key factors in improving the company's financial position. Unituxin (dinutuximab) is an anti-GD2 monoclonal antibody that has been approved by the FDA for the treatment of patients with high-risk neuroblastoma.
According to the American Cancer Society, neuroblastoma is one of the most common types of cancer in children under one year of age, affecting 700 to 800 people each year.
Unituxin sales were $54.20 million, up 47.70% year over year, primarily due to higher prices as well as continued strong demand in the European Union and the United States.
Source: Author's elaboration, based on quarterly securities reports.
Another investment thesis is its extensive portfolio of experimental medicines and manufactured organs for transplantation.
Source: United Therapeutics presentation.
One of the company's most exciting product candidates is Tyvaso, which is being studied for the treatment of patients with idiopathic pulmonary fibrosis as well as progressive pulmonary fibrosis. According to United Therapeutics, there are about 100,000 patients with IPF in the United States, while the number of people suffering from PPF is slightly smaller and amounts to 60,000.
Source: Author's elaboration, based on United Therapeutics presentation.
Based on the results of the INCREASE study, as well as the recommendations of the data monitoring committee, which were published in September, we believe three pivotal clinical trials will meet primary endpoints, which will ultimately lead to label expansion for Tyvaso as early as 2026.
As such, we initiate our coverage of United Therapeutics with an outperform rating for the next 12 months.
Fourth-quarter financial results and outlook for 2024
United Therapeutics' revenue for the fourth quarter of 2023 was approximately $614.70 million, marking a substantial increase of 25.07% compared to the previous year and, just as importantly, it beat our expectations by $24.70 million.
What's more, its actual revenue beat analysts' consensus estimates in eight of the last 10 quarters, one factor suggesting analysts are underestimating the commercial prospects of United Therapeutics' FDA-approved drugs, most of which continue to have impressive sales growth rates.
Source: Author's elaboration, based on analyst data.
Tyvaso (treprostinil), a prostacyclin mimetic, has been a key contributor to improving the company's financial position.
The FDA first approved this medication in 2009 for treating patients with pulmonary arterial hypertension. It acts as an antithrombotic agent, and due to its binding to prostacyclin receptors and subsequent increase in intracellular cyclic adenosine monophosphate levels, it also exhibits a powerful vasodilatory effect.
Source: Author's elaboration, based on United Therapeutics press releases.
Almost 12 years later, Tyvaso was approved to treat patients suffering from pulmonary hypertension associated with interstitial lung disease, which the company estimates affects more than 30,000 people.
Source: United Therapeutics
Total sales of Tyvaso were $350.60 million in the fourth quarter of 2023, a growth of 44.70% from the prior year.
The key reasons contributing to the increase in its sales are the expansion of the geography of use of United Therapeutics' flagship product, as well as the growing demand for Tyvaso DPI. Tyvaso DPI is a dry powder formulation of treprostinil and, as a result, has a more convenient method of administering the active substance than the Tyvaso nebulizer.
Source: Author's elaboration, based on quarterly securities reports.
On May 3, the company will publish financial results for the first quarter of 2024. According to analysts, United Therapeutics' revenue for the period is expected to range from $589.70 million to $687.51 million, up 22.90% from the previous year.
Source: Author's elaboration, based on GuruFocus data.
On the other hand, according to our model, its total revenue will reach $640 million, which is about $27 million above the median of the above range, mainly due to a more positive outlook for Tyvaso sales and stabilizing demand for Remodulin.
Source: Created by author.
United Therapeutics' operating income margin was approximately 42.50% for the fourth quarter of 2023, up 4.87% yearly, indicating the business strategies implemented under Martine Rothblatt's leadership continue to bear fruit.
According to our estimates, this financial metric will reach 52.50% in 2024 and increase to 54.10% by 2025, mainly due to increased prices for its medicines, lower inflation, optimization of administrative and marketing expenses as well as maintaining increased demand for Tyvaso DPI and Unituxin.
Meanwhile, analysts forecast United Therapeutics' earnings per share in the first quarter to range from $4.75 to $6.54, up 15.60% year over year. Nevertheless, according to our model, the company's earnings will be 17 cents above the median of this range and reach $5.80.
Source: Author's elaboration, based on GuruFocus data.
United Therapeutics' trailing 12-month non-GAAP price-earnings ratio is 11.80, 36.4% less than the sector median, indicating that Mr. Market remains conservative about its business outlook.
More globally, its net income is expected to continue growing over the next eight years, causing its price-earnings ratio to fall to 7.13 by 2030. We estimate this value of one of the key multipliers is desirable to long-term investors looking for pharmaceutical companies with best-in-class medicines and management that can achieve their goals despite the geopolitical and macroeconomic turmoil of the last three years.
Source: Author's elaboration, based on analyst data.
Conclusion
Key risks that could negatively impact United Therapeutics' financial position include the emergence of more effective drugs to combat pulmonary arterial hypertension, slower sales of Unituxin and Biden's Inflation Reduction Act.
However, despite the risks described above, the company has extremely high margins and relatively low multiples. It also remains a leader in the global pulmonary hypertension associated with interstitial lung disease market, allowing it to pursue an aggressive research and development policy.
In addition, thanks to its growing Ebitda, its total debt/Ebitda ratio continues to decline year over year, which is especially important in the current period of central bank interest rates remaining at multiyear highs.
Source: Author's elaboration, based on GuruFocus data.
We initiate our coverage of United Therapeutics with an outperform rating for the next 12 months.
This article first appeared on GuruFocus.
