United Therapeutics Growing Drug Franchise

| About: United Therapeutics (UTHR)

One of the most successful recent trends in biotech has centered on targeting specific conditions and leveraging existing drug franchises for label expansion. This approach has been rewarded by shareholders, who have driven stocks like Alexion (NASDAQ:ALXN) with its Soliris drug and Questcor (QCOR), with its Acthar drug, to new highs.

United Therapeutics (NASDAQ:UTHR) is another biotech firm with a similar approach. Their drugs target pulmonary arterial hypertension ("PAH"), which primarily affects young women. The disease, which results in high blood pressure between the heart and lungs, has a significant unmet need.

There are 30,000 patients in the U.S. under treatment for PAH and despite current treatments, 3,000 die annually. Only 3 of 10 are likely to survive 10 years.

United's top selling drug is financing innovation.

The company's top selling drug, Remodulin - which treats PAH subcutaneously - saw sales increase 7.1% to $110 million in Q1 from last year.

The drug offers a robust profile, with an observed 5 years survival rate of 72% versus the NIH predicted rate of 38%.

United expects to gain approval for Remodulin in Japan and China in 2013 or 2014. Based on sales of Glaxo's (NYSE:GSK) competing drug Flolan, the Japanese market could be $100 million or more. The opportunity in China could be even larger.

The company has used Remodulin's success to finance expansion of its PAH franchise, developing both Tyvaso and Adcirca.

Inhaled Remodulin continues to grow.

Tyvaso, which is an inhaled version of Remodulin, saw sales increase 47% year-over-year to $70 million in Q1.

The drug has orphan drug exclusivity through July '16 and orange book patents expiring from 2014 through '18. Additionally, the drug/device relationship provides additional protection from future generics.

But, the real story is oral treatments.

Oral Adcirca (tadalafil) sales were up 97% to $22 million. United acquired the rights for tadalafil from Eli Lilly (NYSE:LLY) for the treatment of PAH in 2008 for $150 million.

Adcirca has patent protection through 2026 and continues to gain share of high prescribing doctors. Those doctors in the top third in terms of patients with PAH are prescribing Adcirca 3:1 versus Pfizer's (NYSE:PFE) Sildenafil.

The company also has significant market opportunity with oral Treprostinil, which has a October 2012 PDUFA date. And it has ongoing Phase III trials for oral Treprostinil combination therapies, both for inhaled and oral plus inhaled treatments.

The company believes the U.S. market for oral treatment is 20,000 patients, with a market opportunity of $100 million annually.

Across the pipeline, United estimates its drugs in development have the potential to double the company's current revenue.

In the meantime, growth continues to reward investors.

United reported patient growth across all three drugs last quarter as total Q1 sales rose 25.7% to $204 million. The company did $743 million in 2011 revenue and is guiding for $875 million (+/- 5%) in 2012 and $1 billion in 2013.

Expense control remains solid, with G&A falling 1.4% YoY in the quarter.

There are 4.7 days short, the company has over $7.60 per share in cash and CEO Martine Rothblatt has purchased 123k shares at the market since December. The street is looking for $5.01 in 2013, which puts current share prices near the 5 year PE low. Given share prices and the likely positive catalysts in October and again next year in Asia, shareholders may want to look to build positions this summer.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in UTHR, QCOR, ALXN over the next 72 hours.

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