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United Therapeutics (UTHR) Incurs Loss in Q2, Sales Top

United Therapeutics Corporation UTHR reported adjusted earnings of $4.41 per share (including stock-based compensation benefit but excluding charges) for the second quarter of 2017, which were better than $4.39 per share in the year-ago quarter.

United Therapeutics said it has set aside $210 million for a potential settlement with the U.S. Department of Justice (DOJ) to resolve an investigation related to its contribution to non-profit organizations that provide financial assistance to patients, thereby violating federal securities laws. In the quarter, the company recorded a $210 million charge as an estimated loss contingency in relation to this matter. It also recorded an impairment charge related to cost method investments in a privately-held company, which experienced an event triggering an impairment analysis.

Including these charges and stock-based compensation benefit, the company incurred a loss of $1.25 per share, which missed the Zacks Consensus Estimate of $3.61 by 134.63%.

Revenues for the reported quarter rose 8% year over year to $445.0 million and beat the Zacks Consensus Estimate of $402 million. Stronger sales across the pulmonary arterial hypertension (PAH) franchise pulled up the top line in the quarter.

Despite the better-than-expected sales performance, shares declined almost 5% on Thursday in response to the potential settlement expense. A look at United Therapeutics’ share price movement shows that the stock has underperformed the industry this year so far. United Therapeutics stock has declined 12.8% during this period, while the industry rose 7.1%.

The Quarter in Detail

United Therapeutics markets four products for the treatment of PAH – Remodulin, Tyvaso, Adcirca and Orenitram.

Orenitram reported sales of $46.0 million in the quarter, up 21% year over year. Adcirca sales were $120.6 million, up 33% year over year. Tyvaso sales totaled 104.2 million, down 3% year over year. Remodulin sales were $157.7 million, down 1% year over year. However, sales of both Tyvaso and Remodulin improved sequentially in the quarter. Unituxin (for the treatment of pediatric patients with high-risk neuroblastoma) sales of $16.1 million were down 10% year over year.

Lately, the growth of United Therapeutics’ PAH drugs Orenitram, Tyvaso and Remodulin have slowed down due to competition. Last quarter, the company had said that patients were staying longer on front-line oral AMBITION therapy (Adcirca + Gilead Sciences, Inc.’s GILD Letairis) and delaying the transition to inhaled/injectable therapies like Tyvaso/Remodulin, thereby hurting their demand.

Meanwhile, the drugs are also facing strong competition from Actelion’s, now a part of Johnson & Johnson JNJ, new drug Uptravi (selexipag).

Initial treatment in PAH is typically with orally delivered drugs followed by prostacyclins therapies. At the first quarter earnings call, management had said that the longer use of oral therapies resulted in a large backlog of patients eligible for prostacyclin therapy like its PAH medicines – suggesting that sales trends could improve. With sales of Tyvaso, Remodulin and Orenitram improving in the second quarter from first quarter levels, management believes that it is seeing early signs of this transition from ambition regimen back to its PAH drugs.

Research and development (R&D) expenses (including stock-based compensation benefit) increased 70% to $59.8 million due to higher costs to support its pipeline of cardiopulmonary and cancer drugs and to develop organ manufacturing projects.

Selling, general and administrative (SG&A) expenses (including stock-based compensation benefit) declined 7% to $67.4 million as lower consulting and marketing costs offset higher legal costs.

Pipeline Update

United Therapeutics is working with medical device maker Medtronic, Inc. MDT to get an implantable pump for delivering Remodulin (RemoSynch) approved by the FDA. In order to launch RemoSynch in the U.S., United Therapeutics and Medtronic are pursuing parallel regulatory filings related to the device and the drug

We remind investors that in April, United Therapeutics announced that regulatory issues will delay the planned U.S. launch of RemoSynch. The company now expects to launch RemoSynch sometime in 2018 against the first half of this year, as expected previously.  United Therapeutics is also working with DEKA for the development of a pre-filled, semi-disposable pump system for the subcutaneous delivery of Remodulin (RemUnity- launch expected in 2019). Clinical studies on RemoPro, a pain-free new chemical entity version of treprostinil, are expected to begin this year.

Other phase III pipeline programs include an oral combination therapy of Orenitram - OreniPlus (FREEDOM-EV study), Tysuberprost (esuberaprost in combination with Tyvaso), Tyvaso-ILD (Tyvaso being evaluated in patients with PAH associated with idiopathic pulmonary fibrosis) and OreniLeft (PAH with left ventricular diastolic dysfunction).

United Therapeutics is also developing dinutuximab, the active ingredient in Unituxin, for small cell lung cancer (phase III) and other high-risk forms of cancer with GD2 expressing cell tumors such as ovarian cancer and several sarcomas.

United Therapeutics carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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