Although the current business fundamentals at United Therapeutics Corp. (UTHR) are solid, we are seeing several potential hiccups coming in the next year. With the stock up 65% over the past twelve months and currently trading at 50x our 2008 EPS estimate, we believe investors are pricing the stock for near-flawless execution.
Expectations are high, and any slip-up, even minor, may cause a sell-off in the shares. As a result, we are initiating with a Sell rating and an $82 price target.
Our financial model is yields well below consensus forecasts starting in 2010 based on a number of circumstances. Firstly, we model a slowdown in the overall growth rate of SC/IV Remodulin down from the expected 30% growth in 2008 to only 10% growth in 2010 based on the expected availability of a room-temperature stable Flolan (epoprostenol).
However, beside pricing erosion and migration to generic Flolan, we believe that more physicians will begin to treat patients with oral ETRA and PDE-5 medications such as Tracleer, Letairis, Revatio, and Cialis, before they move to prostacyclins. The approval of Letairis in 2007 creates a formidable first-line competitor.
With the SC/IV patents on Remodulin set to expire in 2014, along with increasing competition from new oral medications, the future of United Therapeutics relies heavily now on reformulations of treprostinil to the inhaled and oral applications. With a market capitalization of $2.6 billion, and nearly at nearly 50x 2008 EPS, we believe investors are looking past significant risks that still remain before commercializing either an inhaled or oral form of treprostinil becomes a reality.
We would avoid the name heading into the FREEDOM-C data expected in November 2008 on the oral formulation, and we believe there is a very good chance the FDA delays the approval of the inhaled formulation (Viveta) beyond the April 2009 PDUFA.
Read the full analyst report on UTHR
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