Patent Expirations And Biosimilar Pressures Will Diminish Value

Key Takeaways

• Heavy dependence on a few core drugs heightens risk from patent expirations, increasing vulnerability to revenue declines and competition from generics.
  
• Significant investments in novel therapies face technical and regulatory uncertainties, with potential delays and high costs threatening profitability and future earnings.
  
• Strong core product performance, promising late-stage pipeline, and investment in organ technologies position United Therapeutics for diversified long-term growth and resilience against competition.

Catalysts

A biotechnology company, engages in the development and commercialization of products to address the unmet medical needs of patients with chronic and life-threatening diseases in the United States and internationally.

• While United Therapeutics has experienced sustained revenue growth fueled by Tyvaso DPI and a concentrated portfolio, this heavy reliance on a small number of key drugs, particularly Tyvaso and Remodulin, exposes the company to severe patent expiration and generic/biosimilar risk over the long term, which could trigger sharp revenue declines once exclusivity erodes.
  
• Despite the company's aggressive investment in advanced organ manufacturing and xenotransplantation, these pipeline projects face enormous technical, regulatory, and operational uncertainty, with the potential for multi-year clinical setbacks and high R&D costs to severely pressure net margins and delay any meaningful contribution to earnings.
  
• The anticipated growth in rare and chronic disease therapies may be constrained as demographic trends shift, including slowing addressable patient pool growth due to plateauing chronic disease rates and aging in some developed markets, ultimately limiting future revenue expansion opportunities.
  
• As healthcare payor consolidation intensifies and governments worldwide escalate scrutiny on high specialty drug pricing, United Therapeutics is likely to encounter downward pressure on prices and reimbursement, compressing both gross and net margins across its product suite and making profitability increasingly volatile and uncertain.
  
• The expected acceleration in biosimilar and generic competition, amplified by regulatory changes favoring faster market entry for alternatives, threatens to shorten the revenue lifecycle and diminish peak sales for United Therapeutics' existing and future therapies, heightening earnings risk and challenging the company's long-term financial resilience.

United Therapeutics Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on United Therapeutics compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming United Therapeutics's revenue will grow by 1.1% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 40.4% today to 30.1% in 3 years time.
• The bearish analysts expect earnings to reach $957.3 million (and earnings per share of $19.71) by about August 2028, down from $1.2 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 17.6x on those 2028 earnings, up from 11.4x today. This future PE is greater than the current PE for the US Biotechs industry at 15.6x.
• Analysts expect the number of shares outstanding to grow by 1.65% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.78%, as per the Simply Wall St company report.

United Therapeutics Future Earnings Per Share Growth

Risks

• United Therapeutics has demonstrated twelve consecutive quarters of double-digit year-over-year revenue growth, supported by continued strong uptake across its core commercial products, which suggests robust demand and could drive long-term revenue and earnings expansion.
  
• The company's foundation is anchored by the Tyvaso franchise, including Tyvaso DPI, which continues to achieve record shipments, maintain strong market fundamentals, and shows resilience even in the face of new competing products, indicating ongoing pricing power and stable gross margins.
  
• The late-stage pipeline, including pivotal TETON studies in idiopathic pulmonary fibrosis (IPF) and the ADVANCE OUTCOMES study in PAH, presents multiple large potential catalysts; success in these trials could significantly expand addressable markets and increase future revenue streams.
  
• United Therapeutics is actively investing in innovative growth platforms such as organ manufacturing and xenotransplantation, offering the possibility for entirely new multi-billion dollar revenue streams that diversify the business beyond current core therapies, which could meaningfully increase future earnings.
  
• The company maintains a robust balance sheet with annual operating cash flow near $1.5 billion and a newly authorized $1 billion share repurchase program, which signals confidence from the board in both near
• and long-term business prospects and could drive higher earnings per share.

Valuation

• The assumed bearish price target for United Therapeutics is $295.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of United Therapeutics's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $510.0, and the most bearish reporting a price target of just $295.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $3.2 billion, earnings will come to $957.3 million, and it would be trading on a PE ratio of 17.6x, assuming you use a discount rate of 6.8%.
• Given the current share price of $313.13, the bearish analyst price target of $295.0 is 6.1% lower.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.