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Morningstar | United Therapeutics Avoids Tyvaso Generics but Expecting Remodulin Declines; Increasing FVE to $121. See Updated Analyst Note from 01 Nov 2018

Narrow-moat United reported a year-over-year top-line decline in the third quarter, with net product sales of $413 million representing a 7% decrease from last year and 7% decrease from last quarter. In August, the company acquired SteadyMed for $216 million, neutralizing a competitive threat and adding Trevyent, a post-phase-3 treprostinil pump for subcutaneous treatment of PAH, to United's pipeline. SteadyMed had received a refuse-to-file letter from the FDA in August 2017 and had indicated intent to re-file this year after supposedly resolving the initial issues. United now plans to file for FDA approval of Trevyent in the first half of 2019, and after adding this opportunity to our model, we are increasing our fair value estimate to $121 from $114 per share. Further, the company's quarterly filing revealed a settlement regarding litigation over the generic launch of Tyvaso, which is now not expected until 2026. We were previously expecting generic entry as soon as 2019 prior to this settlement, and adjusting our projections for Tyvaso, an inhaled treprostinil solution for pulmonary arterial hypertension also contributes to the mid-single-digit increase to our fair value estimate. The company reported that over 7,000 patients use United's portfolio of treprostinil solutions, which is in line with our expectations for the year.

The revenue decline this quarter was primarily driven by declines Remodulin and Adcirca. An Adcirca generic launched in the third quarter, evidenced by the 25% year-over-year decrease in Adcirca sales. This generic launched slightly later than we expected, so we modestly boosted 2018 Adcirca sales. However, we are still modeling a 20% decline for the full year and sharp declines following 2018.

With Remodulin, the decline is exaggerated by the fact that United had two large purchases in the second half of last year. Excluding the impact of the $24 million purchase from an international distributor in the third quarter of last year, Remodulin sales declined about 7% year over year. We are modeling an overall decline in Remodulin sales of 15% in 2018, largely due to generic launch (or launches) expected by year-end and the impact of the two one-time purchases last year from a distributor. We expect Remodulin declines to be partially offset by sales from ISR, or implanted system for Remodulin. However, the company's filing indicated that the ISR would launch later due to the limited availability of pumps from partner Medtronic, so we've moved back our projections for a late-2019 launch.

In August 2018, United announced positive results from a preliminary analysis of the FREEDOM-EV study of Orenitram (treprostinil extended-release tablets) in combination with background therapy. While already shown to improve exercise capacity, the firm hopes to attain an amended label for demonstrating delayed disease progression, and this trial indicated that the combination decreased the risk of a morbidity/mortality event by 26% when compared with placebo. We expect a detailed readout and regulatory filing in 2019.

United is working on several next-generation devices for better, more convenient delivery of treprostinil, with the most recent even being an agreement with MannKind Corporation announced in September 2018. The collaboration agreement allows United to utilize MannKind's design for single-use and multi-use pumps in combination with a dry powder formulation of treprostinil for inhaled therapy. If approved, it is likely that this development would cannibalize some current Tyvaso users in addition to drawing additional patients to the convenient delivery method. We plan to wait for more information on the efficacy and safety of the MannKind device-drug combination before adding the opportunity to United's pipeline in our model.