UKidney Trials And Tyvaso Efforts Will Yield Mixed Outcomes

Key Takeaways

• Strategic investments in organ alternatives and manufacturing suggest potential for improved operational capabilities, earnings, and margins.
  
• Continued double-digit revenue growth across key products indicates strong potential for sustained future revenue growth despite recent setbacks.
  
• Challenges in executing clinical trials, potential competition, and technology rollouts, alongside increased expenditures, may hinder United Therapeutics' growth and net earnings.

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.

• United Therapeutics has initiated the UKidney clinical trial, the first FDA-cleared trial of a xeno organ, which could end the need for dialysis for many end-stage renal disease patients. Success in this area could offer substantial future revenue opportunities.
  
• The development of inhaled treprostinil for idiopathic pulmonary fibrosis (IPF) is progressing, with expected top-line data from the TETON studies in the coming years. If successful, this could significantly enhance revenue by capturing the difficult-to-treat IPF market.
  
• Ralinepag, noted for its once-a-day oral dosing, has the potential to change the standard treatment for pulmonary arterial hypertension. Its success could lead to significant revenue growth, similar to other prostacyclin analogues in the market.
  
• The strategic investments in Tyvaso DPI manufacturing and enhancements to their organ alternative expertise suggest a strong emphasis on strengthening operational capabilities, which could ultimately support improved earnings and net margins.
  
• Despite recent revenue setbacks due to contracting efforts, United Therapeutics continues to report double-digit revenue growth across its key products. This robust performance and strategic positioning suggest a strong potential for sustained revenue growth in the near future.

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 decrease by 1.1% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 41.5% today to 33.0% in 3 years time.
• The bearish analysts expect earnings to reach $918.8 million (and earnings per share of $17.62) by about April 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 19.3x on those 2028 earnings, up from 10.7x today. This future PE is lower than the current PE for the US Biotechs industry at 19.4x.
• Analysts expect the number of shares outstanding to grow by 1.25% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.4%, as per the Simply Wall St company report.

United Therapeutics Future Earnings Per Share Growth

Risks

• The anticipated larger gross to net deduction associated with recent contracting efforts for Tyvaso could impede revenue growth and net earnings as the company aims to maintain parity with competitors.
  
• There is execution risk associated with the UKidney clinical trial as a failure to demonstrate successful outcomes for xenotransplantation could impact investor perception and future revenue streams.
  
• Potential competition from the HYPERION study promising earlier treatment lines may challenge the growth trajectory for Tyvaso, posing a risk to maintaining double-digit revenue growth in the pulmonary arterial hypertension treatment space.
  
• The ongoing challenges in launching and rolling out new technologies like the RemunityPRO pump may affect the sales and revenue growth of United Therapeutics’ Remodulin product.
  
• The plans to evaluate capital allocation philosophy and potential expansion in the clinical-scale domain may lead to increased expenditure and potential cash flow issues affecting the net margins.
  

Valuation

• The assumed bearish price target for United Therapeutics is $320.04, which represents one standard deviation below the consensus price target of $394.76. 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 $600.0, and the most bearish reporting a price target of just $314.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $2.8 billion, earnings will come to $918.8 million, and it would be trading on a PE ratio of 19.3x, assuming you use a discount rate of 6.4%.
  
• Given the current share price of $284.25, the bearish analyst price target of $320.04 is 11.2% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• 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.