What To Do With United Therapeutics As Stock Continues Falling

About: United Therapeutics Corporation (UTHR)
by: Chris Lau

As it hovers near 52-week lows, United Therapeutics is on the Do-It-Yourself Value investor's radar.

Investors fret over the threat of generic competition.

UTHR stock trades at a deep discount to fair value.

United Therapeutics Corporation (UTHR) is in an unstoppable downtrend that started in March. Since reporting fourth-quarter results on Feb. 28, selling accelerated in May when the company posted its first-quarter results for 2019. After revenues fell and losses mounted, should investors give up on this stock?

United Therapeutics (NASDAQ:<a href='https://seekingalpha.com/symbol/UTHR' title='United Therapeutics Corporation'>UTHR</a>)

United Therapeutics reported revenue falling 6.8% to $362.6 million. Even though sales rose for all of its major products except for Adcirca, net losses mounted. The company lost $494.6 million or $11.32 a share, while non-GAAP EPS fell 4.8% to $3.58. Still, the company forecasts a tripling in the number of patients, to 20,000, over the next few years. Management is confident that Remodulin, Tyvaso, and Orenitram have each been infused with new technology breakthroughs that will boost sales. It said:

There are five technology breakthroughs for Remodulin, four technology breakthroughs for Tyvaso and three technology breakthroughs for Orenitram.

Source: SA Transcript

It also cited a deep pipeline of product candidates in oncology, pulmonary fibrosis, and pulmonary hypertension will contribute to the tripling in the business. But investors are no longer willing to patiently wait for the pipeline to bear fruit. UNH stock peaked at around $130 and traded recently at $79:

Chart Data by YCharts

Promised Growth in Question

The company has an implantable system for Remodulin that it expects to launch in the second half of the year. Instead of monthly opioid treatment and risks of sepsis, thousands of patients may opt for the new treatment UTHR offers. Shareholders are understandably cautious with the revenue prospects of Remodulin. The treatment is expensive ($144,000) and even worse is the impending copies that are rolling out. This threatens UTHR's Remodulin revenues, which are over $500 million annually.

Investors are skittish with companies facing competition. Teva Pharmaceutical (TEVA) fell to multi-year lows as its product pricing is under government scrutiny. Plus, its massive portfolio of generic drugs could also face plenty of competition. Regeneron (REGN) cut prices of Praluent by 60% as it faced pressure from other companies offering cheaper alternatives.

UTHR's RemUnity is a semi-disposable pump to solve the problem of failing pumps in the marketplace. Once introduced to the market, the company expects strong demand will help raise its revenues.

RemoPro is the third product UTHR is counting on for long-term growth. Fourth is its partnership with Smiths Medical on a new ultra-smart Bluetooth. This offers a better regulation of dosing for the Remodulin pump.

Trevyent offers the simplest way for delivering medicine for patients treated for pulmonary hypertension. Management believes that having an ease of use will propel a tripling in its pulmonary hypertension business in the next few years. If the company can save 20,000 lives, then pursuing the development of this product will pay off.

United Therapeutics' Growth Opportunity

Last year, UTHR raised prices of Remodulin for the first time in eight years. It comes at a time when competitors could put pressure on demand. But if investments in Remodulin delivery technology appeal to patients, profit margins could improve. Understandably, investors are nervous with the timing of the price hike, so much so that the stock trades at below 10 times forward earnings. Patients will need continued support from the company and the healthcare system to keep prices affordable. United's copay cards will help offset the high prices for its commercial patients. Its generous patient assistance program in some cases results in the company giving away the treatment for free.

UTHR will earn goodwill from the medical community by giving Remodulin to those who cannot afford it.

Dealing With Generic Competition for Remodulin

United Therapeutic will continue to invest in R&D opportunities. Clinical trials for Ralinepag and a few other products. With the stock just 3% above 52-week lows, expect the company accelerating its share buyback plans.

Valuation and Your Takeaway

Analysts did not change their bullish price targets on UTHR stock. Six analysts providing coverage have an average price target of $136.83 (per tipranks). In a 10-year DCF Revenue Exit Model (per finbox.io), investors could assign a downside scenario of a discount rate of 13-15% and revenue declines of 3-5% annually. If revenue stabilizes, then the stock has a fair value that is 24% above its $78 recent trading price.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.