United Therapeutics Corporation (NASDAQ: UTHR) today announced its financial results for the second quarter ended June 30, 2017.
"Our second quarter total net revenues reached $445 million, our highest quarterly net revenue level ever," said Martine Rothblatt, Ph.D., United Therapeutics Chairman and Chief Executive Officer. "We continue to believe that Orenitram is well-positioned given the large and growing number of pulmonary arterial hypertension (PAH) patients in need of a true prostacyclin analogue therapy following their use of other oral therapies, and we think we are beginning to see the early signs of this transition reflected in Orenitram's 21% growth in second quarter net revenues as compared to the second quarter of 2016. We are also advancing a growing number of pipeline priorities such as our new chemical entity esuberaprost, which has fully enrolled its phase III BEAT study, our phase III studies of new indications related to pulmonary fibrosis and heart failure, and our new organ manufacturing technologies, since lung transplantation is currently the only curative treatment for PAH."
Revenues for the three months ended June 30, 2017 increased by $32.0 million compared to the same period in 2016. The growth in revenues resulted from the following: (1) a $29.7 million increase in Adcirca net product sales; and (2) an $8.0 million increase in Orenitram net product sales. These increases were partially offset by a $2.8 million decrease in Tyvaso net product sales, a $1.7 milliondecrease in Unituxin net product sales, and a $1.2 million decrease in Remodulin net product sales.
Cost of product sales. The table below summarizes cost of product sales by major category (dollars in millions):
Research and development, excluding share-based compensation. The increase in research and development expense of $24.6 million for the three months ended June 30, 2017, as compared to the same period in 2016, was driven by the expansion of our pipeline programs to treat cardiopulmonary diseases and cancer and to develop technologies in organ manufacturing. Research and development expense for the treatment of cardiopulmonary diseases increased by $8.5 million for the three months ended June 30, 2017, as compared to the same period in 2016, due to increased spending on several clinical and non-clinical studies, including FREEDOM-EV, INCREASE and SOUTHPAW, and the development of new drug delivery devices. Research and development expenses for cancer-related projects increased by $6.9 million for the three months ended June 30, 2017, as compared to the same period in 2016, driven by an increase in spending on clinical studies of dinutuximab in adult patients with small cell lung cancer. Research and development expenses for our organ manufacturing projects increased by $9.3 million for the three months ended June 30, 2017, as compared to the same period in 2016, due to increases in preclinical work on technologies designed to increase the supply and distribution of transplantable organs and tissues.
Selling, general and administrative expense. The table below summarizes selling, general and administrative expense by major category (dollars in millions):
General and administrative, excluding share-based compensation. The increase in general and administrative expense of $7.4 million for the three months ended June 30, 2017, as compared to the same period in 2016, was driven by a $6.7 million increase in legal fees incurred to defend our intellectual property rights and to cooperate with the request from the U.S. Department of Justice for documents regarding our support of 501(c)(3) organizations that provide financial assistance to patients.
Sales and marketing, excluding share-based compensation. The decrease in sales and marketing expense of $9.2 million for the three months ended June 30, 2017, as compared to the same period in 2016, was driven by a $5.2 million decrease in external consulting and marketing related expenses and a $3.2 million decrease in compensation and related costs associated with the 2016 consolidation of the sales and marketing staff.
Share-based compensation (benefit) expense. The table below summarizes share-based compensation (benefit) expense by major category (dollars in millions):
Share tracking awards plan. We re-measure the fair value of share tracking awards at the end of each financial reporting period. Changes in the share tracking award liability resulting from such re-measurements are recorded as adjustments to share-based compensation (benefit) expense. Decreases in our stock price will generally result in a reduction in the share tracking award liability.
Estimated Loss Contingency
We are engaged in settlement negotiations with the U.S. Department of Justice (DOJ) to resolve an investigation related to our support of 501(c)(3) organizations that provide financial assistance to patients. During the second quarter of 2017, we recorded a $210 million accrual relating to this matter. The accrual was recorded in other current liabilities on the consolidated balance sheets and as an operating expense on the consolidated statements of operations. This matter is described in more detail in Note 12—Litigation—Department of Justice Subpoena, to our consolidated financial statements included within our Quarterly Report on Form 10-Q for the period ended June 30, 2017.
Impairment of Cost Method Investment
During the quarter ended June 30, 2017, one of our cost method investments in a privately-held company experienced an event triggering an impairment analysis to evaluate the recoverability of our investment. We determined that the current fair value of our investment was lower than its carrying value, resulting in an impairment charge of $46.5 million. As of June 30, 2017, the adjusted carrying value of our investment in this company is $53.5 million.
Income Tax Expense
The provision for income taxes was $100.2 million for the three months ended June 30, 2017 as compared to $79.6 million for the same period in 2016. The provision for income taxes is based on an estimated effective tax rate for the entire year. The estimated annual effective tax rate is subject to adjustment in subsequent quarterly periods if components used to estimate the effective tax rate are updated or revised. Our effective tax rate as of June 30, 2017 and June 30, 2016, was approximately 60 percent and approximately 32 percent, respectively. Our 2017 effective tax rate increased compared to 2016 primarily due to the $210.0 million accrual relating to our DOJ negotiations and our $46.5 millionimpairment charge on a cost method investment, neither of which currently meets the criteria for tax deductibility.
In May 2017, we paid $250.0 million to enter into an accelerated share repurchase agreement (ASR) with Citibank, N.A. (Citibank). Under the ASR, we will repurchase a variable number of our shares subject to upper and lower stock price limits that establish the minimum and maximum number of shares that can be repurchased. The final number of shares to be repurchased under the ASR will be determined based on the average of the daily volume weighted average price of our common stock over a specified period ending on the contract termination date. The ASR is scheduled to terminate during the fourth quarter of 2017; however, Citibank can accelerate termination of the agreement at its option. Pursuant to the terms of the ASR, in June 2017, Citibank delivered to us approximately 1.7 million shares of our common stock, representing the minimum number of shares we are entitled to receive under the ASR. Upon settlement of the ASR, we may receive additional shares of our common stock.
Non-GAAP earnings is defined as net income, adjusted for: (1) share-based compensation expense (benefit), net (including expenses relating to stock options, share tracking awards, restricted stock units and our employee stock purchase plan); (2) extraordinary, non-recurring and unusual items; and (3) tax impact on non-GAAP earnings adjustments. Beginning in the first quarter of 2017, we no longer adjust our non-GAAP results for interest expense, depreciation and amortization. We believe these changes provide a better view of the company's regular and on-going operations. Prior year amounts reflect this change for comparability purposes.
About United Therapeutics
United Therapeutics Corporation is a biotechnology company focused on the development and commercialization of innovative products to address the unmet medical needs of patients with chronic and life-threatening conditions.