United Therapeutics Reports Third Quarter 2007 Financial Results
SILVER SPRING, Md., Nov 01, 2007 /PRNewswire-FirstCall via COMTEX News Network/ -- United Therapeutics Corporation (Nasdaq: UTHR) today announced its results of operations for the quarter ended September 30, 2007.
Total revenues for the third quarter of 2007 were $59.0 million, up 46% from $40.4 million for the third quarter of 2006. Pro forma earnings corresponding to our Company-wide Milestone measuring GAAP earnings before income taxes, depreciation, amortization and stock option expenses (EBITDASO), were $26.6 million for the third quarter of 2007, up 35% from $19.7 million for the third quarter of 2006. Net income for the third quarter of 2007 was $14.8 million, or $0.70 per basic share, up 74% from $8.5 million, or $0.37 per basic share, in the third quarter of 2006. Gross margins from sales were $52.2 million in the third quarter of 2007, as compared to $36.2 million in the third quarter of 2006. The increases in revenues and gross margins resulted primarily from growth in sales of our lead product, Remodulin.
"It is pretty gratifying for us to be on the line of approximately 40% annual growth in revenues for almost five years now," said Martine Rothblatt, Ph.D., United Therapeutics' Chairman and Chief Executive Officer. "Our trailing twelve month revenues of $196.9 million are 37% above that of the preceding period. Plus, this is our 13th profitable quarter overall, and our 14th straight profitable quarter disregarding the one-time expense for new intellectual property taken in the first quarter of this year."
Research and Development
Research and development expenses consist primarily of salaries and related expenses, costs to acquire pharmaceutical products and product rights for development, and amounts paid to contract research organizations, hospitals and laboratories for the provision of services and materials for drug development and clinical trials. The table below summarizes research and development by major project and non-project components (dollars in thousands): Three Months Ended September 30, Percentage 2007 2006 Change Project and non-project: Cardiovascular $11,761 $6,202 89.6% Cancer 3,408 2,715 25.5% Infectious disease 202 181 11.6% Stock option 3,148 2,145 46.8% Other 1,040 676 53.8% Total research and development expense $19,559 $11,919 64.1%
The increase in expenses for the cardiovascular program is primarily attributable to our investigational oral and inhaled development programs, each of which incurred approximately $1.7 million and $3.2 million more expenses, respectively, this quarter than during the same period in 2006. The increase in expenses for the cancer program is primarily related to the development of the manufacturing process for OvaRex MAb, our investigational ovarian cancer therapy, in our laboratory facility in Silver Spring, Maryland.
Selling, General and Administrative
Selling, general and administrative expenses consist primarily of salaries, travel, office expenses, insurance, professional fees, provision for doubtful accounts receivable, depreciation and amortization. The table below summarizes selling, general and administrative expenses by major categories (dollars in thousands): Three Months Ended September 30, Percentage 2007 2006 Change Category: General and administrative $8,380 $6,605 26.9% Sales and marketing 5,923 3,619 63.7% Stock option 4,860 2,667 82.7% Total selling, general and administrative expense $19,163 $12,891 48.7%
The increase in general and administrative expenses was due primarily to increased expenses of approximately $637,000 for salaries and related expenses from headcount growth to support our expanding operations, and approximately $1.5 million related to an impairment charge against the book value of our arginine patents. The impairment charge, using a discounted cashflow methodology, is the result of a recent court decision concerning the enforceability of patents and a publication discounting the benefits of arginine supplementation, which caused us to reevaluate our assumptions used in determining the recoverability of our arginine patents. The increase in sales and marketing related expenses is primarily due to an increase in headcount that led to a corresponding increase in salaries and related expenses of approximately $1.2 million.
An income tax expense of approximately $2.2 million was recognized for the three months ended September 30, 2007, as compared to approximately $5.6 million for the three months ended September 30, 2006. The income tax provision was based on the estimated annual effective tax rate for the entire year. The estimated annual effective tax rate is subject to adjustment in subsequent quarterly periods as the estimates of pre-tax income and permanent book to tax return differences for the year are adjusted. The estimated annual effective tax rates for the three months ended September 30, 2007 and 2006, were approximately 18 percent and 43 percent, respectively. In September 2007, we completed a detailed review of our 2006 research and development expenses in preparation for the filing of our 2006 tax returns. As a result of this review, we were able to claim greater amounts of business credits, a permanent book to tax difference, on our tax return than we had estimated at December 31, 2006. In addition, based on information learned in the review, we revised our estimate of the business credits expected to be generated from our 2007 research and development activities. The effect of both of these items resulted in a reduction of our estimated annual effective tax rate for 2007. We do not anticipate paying significant federal income taxes for 2007 due to the availability of approximately $19.8 million of net operating loss carryforwards and approximately $59.7 million of business tax credits.
Pro Forma Net Income
During the nine months ended September 30, 2006, we recognized a non-cash and non-recurring charge of $2.0 million for the impairment of the HeartBar tradename. During the nine months ended September 30, 2007, we issued 200,000 shares of our common stock to Toray Industries, Inc., in connection with our amended license agreement for modified release beraprost (beraprost-MR). The issuance of shares resulted in an $11.0 million non-recurring expense because the licensed product has not yet obtained regulatory approval for commercial sales. If these non-cash, non-recurring items were not recognized during the nine-month periods ending September 30, 2007 and 2006, respectively, pro forma net income would have been as follows (in thousands, except per share data):
Nine Months Ended September 30, 2007 2006 Net income, as reported $ 17,873 $ 18,458 Add back: Impairment of HeartBar tradename - 2,024 License fee from issuance of stock 11,013 - Less tax effect of non-recurring item (1,982) (870) Pro forma net income $ 26,904 $ 19,612 Earnings per share, as reported: Basic $ 0.85 $ 0.79 Diluted $ 0.80 $ 0.72 Pro forma earnings per share(1): Basic $ 1.28 $ 0.84 Diluted $ 1.20 $ 0.77
(1) Calculated by dividing pro forma net income from above by weighted average shares outstanding, as reported below.
The following table provides a reconciliation of net income and EBITDASO for the three-month periods ending September 30, 2007 and 2006, respectively (in thousands, except per share data):
Three Months Ended September 30, 2007 2006 Net income, as reported $ 14,848 $ 8,478 Add back: Interest expense 717 - Income tax expense 2,167 5,622 Depreciation and amortization 865 724 Stock option expense 8,040 4,837 EBITDASO $ 26,637 $ 19,661 EBITDASO earnings per share (1): Basic $ 1.26 $ 0.85 Diluted $ 1.19 $ 0.79
(1) Calculated by dividing pro forma net income from above by weighted average shares outstanding, as reported below.
United Therapeutics will host a one hour teleconference on Thursday, November 1, 2007, at 9:00 a.m. Eastern Time. The teleconference is accessible by dialing 1-800-603-1777, with international callers dialing 1-706-679-8129. A rebroadcast of the teleconference will be available for one week following the teleconference by dialing 1-800-642-1687, with international callers dialing 1-706-645-9291, and using access code 20811764.
This teleconference is also being web cast and can be accessed via United Therapeutics' website at http://ir.unither.com/eventdetail.cfm?eventid=45704.
About United Therapeutics
United Therapeutics is a biotechnology company focused on the development and commercialization of unique products for patients with chronic and life-threatening cardiovascular, cancer and infectious diseases.
Non-GAAP Financial Information
This press release contains certain financial measures that do not comply with GAAP, which measures supplement our financial results prepared in accordance with GAAP.
We believe that the presentation of pro forma net income, a non-GAAP measure, is meaningful to investors, when used in conjunction with United Therapeutics' financial statements, because it aids them in comparing our financial results for such periods taking into account the effect of each of the following non-recurring events: (i) the impact of the HeartBar trade name impairment on our financial results for the nine-month period ended September 30, 2006, and (ii) the impact of the issuance of 200,000 shares to Toray Industries, Inc., in connection with our amended license agreement for beraprost-MR on our financial results for the nine-month period ended September 30, 2007.
We use EBITDASO, a non-GAAP measure, internally for our operating, budgeting and financial planning purposes and as a metric for our Company-wide Milestone Incentive Bonus Program, and believe our investors' understanding of our performance is enhanced by disclosing this measure.
The presentation of these non-GAAP financial measures is not to be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP.
Statements included in this press release that are not historical in nature are "forward-looking statements" within the meaning of the Private Securities Reform Act of 1995. These forward-looking statements include our expectations and intentions regarding the payment of federal and state income taxes for 2007, the generation of taxable income, the availability and utilization of net operating loss carryforwards to reduce taxable income, and the availability, creation and utilization of research tax credits to pay income taxes that are based on our current beliefs and expectations as to future outcomes. These forward-looking statements are subject to certain risks and uncertainties, such as those described in our periodic reports filed with the Securities and Exchange Commission, which could cause actual results to differ materially from anticipated results. Consequently, such forward- looking statements are qualified by the cautionary statements, cautionary language and risk factors set forth in our periodic reports and documents filed with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and current reports on Form 8-K. We claim the protection of the safe harbor contained in the Private Securities Reform Act of 1995 for forward-looking statements. We are providing this information as of November 1, 2007, and assume no obligation to update or revise the information contained in this press release whether as a result of new information, future events or any other reason. [uthr-g]
Remodulin and HeartBar are registered trademarks of United Therapeutics Corporation.
Beraprost is a trademark of Toray Industries, Inc. OvaRex is a registered trademark of AltaRex Medical Corp. UNITED THERAPEUTICS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Three Months Ended Nine Months Ended September 30, September 30, 2007 2006 2007 2006 (Unaudited) (Unaudited) Revenues: Net product sales $56,661 $38,931 $144,449 $109,301 Service sales 1,718 1,466 5,263 4,505 Distributor fees 666 - 1,333 - Total revenues $59,045 40,937 151,045 113,806 Operating expenses: Research and development 19,559 11,919 54,629 39,233 Research and development expense related to issuance of stock - - 11,013 - Selling, general and administrative 19,163 12,891 54,801 34,841 Impairment of HeartBar tradename - - - 2,024 Cost of product sales 5,568 3,631 14,174 10,722 Cost of service sales 598 523 1,730 1,553 Total operating expenses 44,888 28,964 136,347 88,373 Income from operations 14,157 11,433 14,698 25,433 Other income (expense): Interest income 3,681 2,664 9,663 7,047 Interest expense (717) - (2,141) (1) Equity loss in affiliate (72) (20) (265) (398) Other, net (34) 23 (254) 37 Total other income, net 2,858 2,667 7,003 6,685 Income before income tax 17,015 14,100 21,701 32,118 Income tax expense (2,167) (5,622) (3,828) (13,660) Net income $14,848 $8,478 $17,873 $18,458 Net income per common share: Basic $0.70 $0.37 $0.85 $0.79 Diluted $0.66 $0.34 $0.80 $0.72 Weighted average number of common shares outstanding: Basic 21,087 23,196 21,075 23,386 Diluted 22,443 24,917 22,380 25,464 CONSOLIDATED BALANCE SHEET DATA As of September 30, 2007 (Unaudited, In thousands) Cash, cash equivalents and marketable investments $271,034 (excluding restricted amounts of $38,961) Total assets $512,718 Total liabilities $291,294 Total stockholders' equity $210,542
SOURCE United Therapeutics Corporation
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