Argus Downgrades United Therapeutics To Hold, Cites 'Challenging Outlook'

United Therapeutics Corporation (NASDAQ: UTHR) reported its 1Q16 revenue and EPS short of consensus expectations. Argus’ Jacob Kilstein downgraded the rating for the company from Buy to Hold citing the challenging outlook.

United Therapeutics reported its 1Q16 revenue at $369 million, up 13 percent y/y, but missing the consensus estimate of $397 million owing to disappointing sales of the company’s largest products. The company’s non-GAAP EPS came in at $3.02, up 18 percent y/y, but below the consensus forecast of $3.16.

Reasons To Be Worried

Analyst Jacob Kilstein enumerated the following reasons for the downgrade:

1. Declining revenue for Remodulin and Tyvaso - Sales of Remodulin declined 4 percent y/y in 1Q to $140 million, while Tyvaso sales fell 10 percent to $102 million.
2. Delayed FDA approval of a new implantable pump for Remodulin
3. Unexpected resignation of two senior executives on the day of the earnings release
4. Stiff competition for Orenitram, a new oral version of Remodulin - Orenitram generated sales of $40 million in 1Q16, up 92 percent y/y. Management expects annual sales to eventually reach $1 billion. The analyst expressed concern, however, regarding competition from Actelion’s Uptravi. Launched in January 2016, Uptravi has seen “stronger and steadier prescription growth than Orenitram in its first months on the market.”

Shares Fairly Valued

Given the challenges being faced by United Therapeutics, shares seem to be fairly valued near $114, Kilstein said. He added, “Before returning the stock to our BUY list, we would need to see a clear strategy for overcoming the declining sales of Remodulin and Tyvaso and countering the competitive pressure on Orenitram.”