United Therapeutics(UTHR) - 2020 Q3 - Quarterly Report

Part I. FINANCIAL INFORMATION Consolidated Financial Statements This section presents the unaudited consolidated financial statements for the periods ended September 30, 2020, providing a comprehensive overview of the company's financial position, performance, and cash flows Consolidated Balance Sheets The Consolidated Balance Sheets present the company's financial position as of September 30, 2020, highlighting changes in assets, liabilities, and equity compared to December 31, 2019 Consolidated Balance Sheet Highlights (in millions) | Metric | Sep 30, 2020 (Unaudited) | Dec 31, 2019 | | :--- | :--- | :--- | | Total Current Assets | $1,868.2 | $1,864.5 | | Total Assets | $4,411.2 | $3,913.4 | | Total Current Liabilities | $258.9 | $463.0 | | Total Liabilities | $1,128.1 | $1,133.0 | | Total Stockholders' Equity | $3,283.1 | $2,780.4 | Consolidated Statements of Operations The Consolidated Statements of Operations detail revenues, expenses, and profitability, showing a significant turnaround in net income for the nine months ended September 30, 2020 Statement of Operations Summary (in millions, except per share data) | Metric | Q3 2020 | Q3 2019 | Nine Months 2020 | Nine Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $380.1 | $401.5 | $1,098.4 | $1,137.7 | | Operating Income (Loss) | $221.1 | $183.4 | $528.3 | $(251.1) | | Net Income (Loss) | $171.2 | $132.4 | $416.0 | $(157.1) | | Diluted EPS | $3.84 | $3.01 | $9.37 | $(3.59) | Consolidated Statements of Comprehensive Income This statement reports changes in equity from non-owner sources, indicating a substantial improvement in comprehensive income for the nine-month period ended September 30, 2020 Comprehensive Income (Loss) (in millions) | Period | 2020 | 2019 | | :--- | :--- | :--- | | Three Months Ended Sep 30 | $168.8 | $133.3 | | Nine Months Ended Sep 30 | $425.7 | $(153.3) | Consolidated Statements of Stockholders' Equity These statements detail changes in the company's equity accounts, primarily driven by net income and share-based compensation for the nine months ended September 30, 2020 - Total stockholders' equity increased by $502.7 million during the first nine months of 2020, from $2,780.4 million to $3,283.1 million[15] - The increase was primarily driven by a net income of $416.0 million for the nine-month period[15] Consolidated Statements of Cash Flows This statement shows the sources and uses of cash, with net cash provided by operating activities significantly improving due to the absence of a large prior-year payment Cash Flow Summary (Nine Months Ended Sep 30, in millions) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $629.5 | $(309.1) | | Net Cash used in Investing Activities | $(674.7) | $(401.6) | | Net Cash (used in) from Financing Activities | $(23.0) | $761.2 | | Net (Decrease) Increase in Cash | $(68.2) | $50.5 | | Cash and Cash Equivalents, End of Period | $670.2 | $719.7 | Notes to Consolidated Financial Statements The notes provide detailed explanations of the company's accounting policies and specific financial statement items, covering business operations, investments, debt, and legal proceedings - The company's main commercial products are Remodulin, Tyvaso, Orenitram, Unituxin, and Adcirca[22] - As of September 30, 2020, the company had an outstanding principal balance of $800.0 million under its unsecured revolving credit facility, all classified as non-current[47] - The company is involved in significant litigation, including an antitrust lawsuit with Sandoz regarding Remodulin and patent infringement litigation with Liquidia Technologies over its NDA for LIQ861, a potential competitor to Tyvaso[76][80][83] - In the first quarter of 2019, the company expensed an $800.0 million upfront payment to Arena Pharmaceuticals for an exclusive license to ralinepag[88] Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and operational results, covering the impact of COVID-19, product performance, R&D pipeline, and liquidity Impact of COVID-19 and Competition Management discusses the ongoing business impact of the COVID-19 pandemic and significant competitive pressures from generic products, including those affecting Adcirca and Remodulin - The company is closely monitoring the impact of the COVID-19 pandemic, which creates considerable uncertainty for near-term revenue and product development[94] - Generic competition for Adcirca has had a material adverse impact on its net product sales, and the company expects increased returns of expired product beginning in 2021[101] - Generic versions of Remodulin have been launched in the U.S. and Europe, with European revenues coming under increasing pressure[98][99] - The company is in patent litigation with Liquidia over its LIQ861 product, which has triggered a 30-month stay on FDA approval for LIQ861[101] Research and Development The R&D section details a robust pipeline with near-term and medium-term programs, alongside a long-term focus on organ manufacturing technologies - The Phase 3 INCREASE study of Tyvaso for PH-ILD met its primary endpoint, and an sNDA was submitted to the FDA in June 2020, with a potential decision in April 2021[126][127] - The launch of the Remunity Pump has been delayed due to COVID-19 related supply chain issues impacting partner DEKA[119] - The FDA issued a Complete Response Letter (CRL) for the Trevyent NDA in April 2020; the company plans to resubmit the NDA in 2021[124] - Long-term R&D is focused on organ manufacturing, with a goal to commence human clinical trials of xenotransplanted kidneys in the near term[139] Results of Operations Analysis This sub-section provides a detailed analysis of financial performance, highlighting revenue declines due to generic competition and significant impacts on operating expenses from share-based compensation and a one-time R&D expense Revenues by Product (in millions) | Product | Q3 2020 | Q3 2019 | % Change | | :--- | :--- | :--- | :--- | | Remodulin | $124.5 | $168.3 | (26)% | | Tyvaso | $129.5 | $110.8 | 17% | | Orenitram | $74.7 | $62.0 | 20% | | Unituxin | $37.6 | $30.1 | 25% | | Adcirca | $13.8 | $30.3 | (54)% | | Total Revenues | $380.1 | $401.5 | (5)% | - The decrease in nine-month R&D expense from $1,069.0 million in 2019 to $231.6 million in 2020 was primarily due to a one-time $800.0 million upfront payment to Arena in 2019[153][155] - Share-based compensation (benefit) expense showed significant volatility, recording a $(12.5) million benefit in Q3 2020 versus a $23.9 million expense in Q3 2019, mainly due to stock price changes affecting the STAP liability[158][160] Financial Condition, Liquidity, and Capital Resources The company believes its liquidity, supported by substantial cash and marketable investments, is sufficient to fund operations and future plans, with strong net cash from operations Liquidity Position (in millions) | Metric | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $670.2 | $738.4 | | Marketable investments | $2,137.8 | $1,515.0 | | Total | $2,808.0 | $2,253.4 | - Net cash provided by operating activities for the nine months ended Sep 30, 2020, was $629.5 million, compared to net cash used of $(309.1) million in the same period of 2019[168][170] - The company has an outstanding balance of $800.0 million under its credit facility, which matures in 2024[165] Quantitative and Qualitative Disclosures About Market Risk This section states that the company's exposure to market risk, including investment portfolio and interest rate fluctuations, has not materially changed since December 31, 2019 - The company's exposure to market risk has not materially changed since December 31, 2019[175] Controls and Procedures The company's disclosure controls and procedures were effective as of September 30, 2020, with no material changes to internal control over financial reporting during the quarter - The Principal Executive Officer and Principal Financial Officer concluded that disclosure controls and procedures were effective as of September 30, 2020[176] - No material changes to internal control over financial reporting occurred during the quarter[176] Part II. OTHER INFORMATION Legal Proceedings This section refers to Note 12 for information on significant legal proceedings, including antitrust litigation and patent infringement lawsuits related to key products - The company is engaged in antitrust litigation with Sandoz Inc. regarding alleged anticompetitive conduct related to the launch of a generic version of Remodulin[76][77] - The company has filed a lawsuit against Liquidia Technologies for infringement of three patents related to Tyvaso, following Liquidia's submission of an NDA for its dry powder treprostinil product, LIQ861[83][84] Risk Factors This section provides a comprehensive overview of significant risks that could adversely affect the company's business, categorized by product, legal compliance, intellectual property, and financial capacity Risks Related to Our Products This subsection details risks inherent to the company's product portfolio, including reliance on key products, intense competition, clinical trial failures, manufacturing complexities, and COVID-19 disruptions - The company relies heavily on sales of Remodulin, Tyvaso, and Orenitram, and any substantial decrease in sales could materially impact operations[179] - The COVID-19 pandemic poses significant risks, including potential disruption of operations, delays in the development pipeline, and a decrease in revenues from existing products[189][190][191] - The company's manufacturing strategy, which involves both in-house production and reliance on third-party sole manufacturers, exposes it to significant risks of supply interruption[186] Risks Related to Legal Compliance This subsection outlines risks associated with the complex legal and regulatory landscape, including compliance with drug approval and marketing laws, anti-kickback statutes, and healthcare reform pricing pressures - The business is subject to extensive laws and regulations in the U.S. and other countries, and failure to comply could prevent or delay product commercialization[209] - Marketing practices are restricted by laws such as the Federal Anti-Kickback Statute and the Federal False Claims Act, with violations carrying severe penalties[211][212] - Government healthcare reform, particularly efforts to control drug pricing, could adversely affect revenue and results of operations[215][217] Risks Related to Our Intellectual Property and Data Privacy This subsection discusses intellectual property and data security risks, including potential loss of license rights, patent challenges, infringement risks, and information technology breaches - The company's patents may not effectively deter competitors, and upon expiration, could lead to generic competition and revenue loss. Patents are currently being challenged by third parties like Liquidia[230][232] - The company is dependent on information technology systems and is vulnerable to security breaches that could compromise confidential information and lead to legal liability[237] - The business depends on intellectual property licensed from third parties, and termination of these agreements could result in the loss of rights to key products[227] Risks Related to Our Financing Capacity, Indebtedness, and Investments This subsection covers financial risks, including the potential need for additional financing, ability to service debt, and market risks associated with its investment portfolio - The company may not be able to generate sufficient cash to service or repay its $800.0 million in debt, which could adversely affect its financial position[240] - The company's investment portfolio of corporate debt and equity securities is subject to market, interest, and credit risks that may reduce its value and impact earnings[243] Unregistered Sales of Equity Securities and Use of Proceeds The company reports no sales of unregistered equity securities or repurchases of outstanding equity securities during the nine months ended September 30, 2020 - During the nine months ended September 30, 2020, the company did not repurchase any of its equity securities or sell any unregistered equity securities[251] Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including corporate documents, officer certifications, and financial statements in iXBRL format - The exhibits filed with the report include CEO and CFO certifications pursuant to Sarbanes-Oxley Act rules[253] - Financial statements and notes are provided in iXBRL format as part of the exhibits[253]