Research Paper on "United Therapeutics Is an American Biotechnology Company"

Research Paper 20 pages (5394 words) Sources: 10 Style: APA

[EXCERPT] . . . .

United Therapeutics is an American biotechnology company specializing in solutions for "chronic life-threatening cardiovascular and infectious diseases and cancer" (2008 United Therapeutics Annual Report). The company currently has four main products -- Remodulin (to treat pulmonary arterial hypertension), Tadalafil and Tyvaso (also for pulmonary arterial hypertension) and Telemedicine (for heart monitoring). The company has an array of other drugs in the pipeline. Of the three closest to commercialization, two are for pulmonary arterial hypertension (PAH) and the other is for the treatment of neuroblastoma. Products in the earlier stages of development evidence some degree of diversification on the part of United Therapeutics away from its core product line.

United is on a strong growth track. Over the past five years, revenues have increased fourfold. This growth has come with a substantial increase in research and development expense in 2008, which in part resulted in the firm's first loss in several years. The rapid growth of the company and its desire are congruent with the firm's stated five strategic objectives. These are:

Develop the best medicines possible from out intellectual property

Conduct the most insightful clinical trials of our medicines

Achieve superior communication and awareness of our products among physicians

Grow our business to be in the top quintile of our peers

Achieve our goals by doing the right thing and using the highest ethical standards source: United Therapeutics website

This paper will examine the performance of United Therapeutics within the context of both this strategic mission and within the context of a variety of different variables. These variables will include not only financial performance but scientific challenges, marketing considerations, ethical concerns, regulatory issues and issues of managerial leadership. At the conclusion of the paper, recommendations will be offered with respect to the ways in which United Therapeutics can deals with the challenges presented by its internal and external environments, and how it can capitalize on the opportunities these environments present.

Key Science Challenges

There are a couple of key science challenges for United Therapeutics. The most significant is the development of the research and development capacity to address the need to diversity the firm's technological competencies. At present, United has developed a strong technological competency in pulmonary arterial hypertension. This competency has been leveraged for several key products already, with two more in the pipeline near the point of commercialization. This fits with the firm's stated strategy to maximize returns on its intellectual property. However, in order to meet its long-term strategic objective of joining the top quintile of biotechnology firms, United Therapeutics must development competencies and valuable intellectual property in the treatment of other ailments as well.

A second science challenge for United Therapeutics is to find new uses for its core technologies. The company expects to expand beyond treprostinil for treatment of PAH, and appears to have achieved this goal in the short-term with the licensing from Eli Lilly of tadalafil. Their ability to leverage this license with a variety of different products is going to be more telling as to whether or not they have achieved their objectives in this regard.

Industry Concerns

The biotechnology industry generally provides a favorable operating environment, in particular for a firm in the life cycle stage that United Therapeutics now occupies. The biotechnology industry is characterized by high intensity of competition, an intense regulatory environment, high development costs and high profits.

Firms within the industry compete largely on the basis of technological superiority. They development solutions, largely to health problems. One of the key success drivers, therefore, is the efficacy of those solutions. Technological superiority is protected with strong intellectual property rights. Solutions are given long-term protection, which helps to control market access and allow the developer of the new technologies to recoup their development expenses. Once intellectual property rights subside, firms must compete with generic products. United is a relatively young company, founded in 1996 (Unither.com, 2009) so at present its key intellectual property remains protected.

There is a high risk of substitution in the industry, however. At any one time, for any given ailment or health problem, there are multiple viable solutions on the market. This risk of substitution necessitates heavy investment in marketing. Marketing in the industry is typically direct to physicians, necessitating a large sales staff. Moreover, the marketing side of the industry is fraught with legal and ethical concerns.

The biotechnology industry is also characterized by high development costs. The lead time for new products is measured in years. The pipeline for a typical biotechnology solution has five stages -- the preclinical stage, Phase I, Phase II, Phase III and Commercialization. It can be expensive and time-consuming to progress through any one of these stages. There can also be unforeseen delays in the regulatory process. For example, United saw a delay this past spring for Tyvaso in response to FDA demand for improved human factors testing of the new product. These delays can be expensive, can cost a firm first-mover advantage in the marketplace, and can complicate the rollout and marketing process. Some products may not pass the regulatory phases, leaving the firm with millions of dollars in sunk costs that will never be recouped.

Despite these difficulties, there is significant attraction to the industry, primarily because of the high profitability potential of commercialized products. With long-term intellectual property protection and an industry-wide emphasis on technological superiority as a source of competitive advantage allow firms in the industry to drive high margins. These margins not only offset the development costs of the commercialized product, but they also help to cover development costs of products that failed to survive to the commercialization stage. As a result, one of the key drivers of success in the industry is to bring a high percentage of products through the pipeline to commercialization.

Thus far in its existing, United Therapeutics has demonstrated the ability to bring products to market and as a result has been able to enjoy significant success in building its business. The firm has evidenced competency in each of the core areas of success in the industry, but it has also been successful at avoiding some of the industry's key risk factors as well.

The telemedicine business is an unrelated line that amounts to a relatively small portion of total revenues for United. The company competes based on a differentiated strategy, with a technological competitive advantage in its CardioPal product. Although United is focused on heart products, they feel that telemedicine could emerge as an everyday part of people's lives in future (United Therapeutics website, 2009).

Financial Considerations

United Therapeutics has exhibited good financial performance in recent years. The firm has grown revenues steadily over the past five years, from $73 million in 2004 to $281 million in 2008. The firm has been profitable in four of the past five years, with especially strong figures recorded in 2005 and 2006. United recorded a loss in fiscal 2008 of $42.79 million (MSN Moneycentral, 2009). This was attributed by management in the 2008 Annual Report to a one-time payment of $150 to Eli Lilly for the licensing of tadalafil, the active drug in Cialis, for its pulmonary arterial hypertension inhalation treatment Tyvaso. This was recorded as a research and development expense on the income statement. Thus, the company is expected to return to profitability next year and in subsequent years, especially as Tyvaso rolls out into the marketplace.

United has a strong balance sheet. The firm has a low degree of leverage. Debt financing is used sparingly. The firm is cash rich, as evidenced by high current and other solvency ratios. Equity has grown at an uneven pace over the past five years, but has increased from $191 million five years ago to $518 million today. The firm has only recently taken on any debt at all. Debt acquired in 2006 was paid in 2007. More debt was acquired in 2008 to make the Eli Lilly payment, but debt financing still remains a minor part of United's financial plans.

The firm extracts higher than average margins. Its gross margin is 88.9%, compared with an industry average of 70%. Its profit margin matches that of the industry, but this is skewed by the one-time Lilly writeoff. Without that, the firm's profit margin would be substantially better than that of the industry. Five-year margins show that this trend has legs -- United Therapeutics consistently outperforms its industry peers.

Financial strength in the short-term is a long-term competitive advantage for United Therapeutics. The company has consistently maintained a strong cash position. As a result of this, United is well-positioned to increase its research and development capabilities. The low degree of leverage allows the firm to cheaply and easily acquire such financing on demand. This allows it to move with speed and flexibility to take advantage of opportunities in the market. The current trends in United's finances are encouraging, and the company's financial position can be seen as a source of strength. While not a form of competitive advantage in and of itself, this… READ MORE

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