Securities and Exchange
Commission
Washington, DC 20549
Form 10-K
x | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2002
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 0-26301
UNITED THERAPEUTICS
CORPORATION
(Exact name of Registrant as specified in its
charter)
Delaware
52-1984749
(State or Other Jurisdiction
(IRS Employer Identification No.)
of Incorporation or Organization)
1110 Spring Street
Silver Spring, MD
20910
(Address of principal executive offices)
(zip code)
Registrants telephone number, including area code: (301) 608-9292
Securities registered under Section 12(b) of the Exchange Act:
None.
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.01 per share
and associated preferred stock purchase rights
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in PART III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes X No
The number of shares outstanding of the registrants Common Stock, par value $0.01 per share, as of March 12, 2003 was 20,924,120 shares. The aggregate market value of the Common Stock held by non-affiliates of the registrant, based on the closing price on June 28, 2002 as reported by the Nasdaq National Market was approximately $258.3 million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrants definitive proxy statement for the registrants 2003 annual shareholders meeting are incorporated by reference in Part III of this Form 10-K.
PART I
ITEM 1. BUSINESS
United Therapeutics is a biotechnology company focused on the development
and commercialization of unique therapeutics to treat chronic and
life-threatening diseases. United Therapeutics is active in three therapeutic
areas cardiovascular medicine, infectious disease and oncology with five
therapeutic platforms:
Most of United Therapeutics resources are focused on its prostacyclin
analogs for the treatment of pulmonary hypertension and peripheral vascular
disease. United Therapeutics other principal focus areas are the development
of immunotherapeutic monoclonal antibodies for the treatment of cancers and
glycobiology anti-viral agents for the treatment of hepatitis and other
diseases. United Therapeutics also devotes resources to the commercialization
and further development of arginine supplementation therapy, especially in
cardiovascular health, and of telecardiology, principally for cardiac
arrhythmia.
United Therapeutics was incorporated in June 1996 in Delaware under the
name Lung Rx, Inc. The company changed its name to United Therapeutics
Corporation in December 1997. United Therapeutics wholly owned subsidiaries
include Unither Pharmaceuticals, Inc., Unither Telemedicine Services Corp.,
Lung Rx, Inc., United Therapeutics Europe, Ltd., Unither Pharma, Inc.,
Medicomp, Inc. and Unither Nutriceuticals, Inc.
United Therapeutics Products
United Therapeutics product portfolio includes the following:
2
Remodulin®
In December 1996 and January 1997, United Therapeutics obtained worldwide
rights for all indications to Remodulin® (also known as UT-15 and formerly
known as Uniprost), a prostacyclin analog, from Glaxo Wellcome, Inc. and
Pharmacia & Upjohn Company (see
Patent and Proprietary Rights
below). In
October 1999, United Therapeutics acquired all the outstanding stock of
SynQuest, Inc., the manufacturer of treprostinil, the bulk active ingredient in
Remodulin. Remodulin, United Therapeutics main product, was approved in May
2002 in the United States and in October 2002 in Canada and Israel.
Pulmonary
Arterial Hypertension
United Therapeutics has focused primarily on developing Remodulin as its
lead product for treating pulmonary arterial hypertension. Pulmonary arterial
hypertension is a vascular disease that affects the blood vessels between the
heart and lungs known as the pulmonary blood vessels. Pulmonary arterial
hypertension is characterized by the degradation of the blood-vessel wall
lining, the aggregation of platelets and the disruption of smooth muscle cell
function. These conditions cause blockages and affect the ability of the blood
vessels to dilate and then constrict as blood flows to the lungs. The
resulting elevated pulmonary blood pressure causes increasing strain on the
right side of the heart as it tries to pump blood to the lungs.
Pulmonary arterial hypertension is associated with reduced production of
the natural hormone prostacyclin in the pulmonary blood vessels. Prostacyclin
appears to dilate blood vessels where necessary, prevent platelet aggregation,
and prevent proliferation of smooth muscle cells surrounding the vessels. The
first FDA-approved prostacyclin for pulmonary arterial hypertension was
Flolan®, a synthetic form of prostacyclin delivered continuously by an external
pump through a surgically implanted intravenous catheter. Flolan was approved
for use in certain subsets of late-stage pulmonary arterial hypertension.
United Therapeutics believes Remodulin provides patients with a convenient
and non-intravenous alternative to Flolan. In contrast to Flolan, Remodulin is
stable at room temperature and is significantly longer lived in the human body.
These attributes allow for safer and more convenient delivery of Remodulin to
patients. Specifically, Remodulin is delivered by subcutaneous infusion with a
pager-sized microinfusion device made by Medtronic MiniMed. Subcutaneous
delivery of Remodulin also eliminates the risk of sepsis infection and related
hospitalization associated with the Flolan catheter. Remodulins extended life
in the body also greatly reduces the risk of pulmonary hypertension rebound and
death from an abrupt recurrence of hypertension known as rebound hypertension
when treatment is interrupted. The stability of Remodulin also allows it to be
prepackaged, thus eliminating the need to reconstitute the drug one or more
times daily under completely sterile conditions, as is required with Flolan.
Lastly, Remodulin does not require the use of cooling packs or refrigeration as
is required with Flolan to keep it stable.
In late 2001, the FDA approved Tracleer®, an oral treatment for patients
with certain subsets of late-stage pulmonary arterial hypertension. Tracleer
is the first drug in a class of drugs known as endothelin antagonists.
Endothelin constricts blood vessels and is elevated in patients with pulmonary
arterial hypertension. Many pulmonary arterial hypertension leading experts
believe that Tracleer or other endothelin antagonists may in the future be used
in combination with Remodulin or Flolan since these drugs provide symptomatic
relief in different ways and might complement each other to treat these
seriously ill patients.
In March 2000, United Therapeutics completed an international, randomized,
placebo-controlled, double-blind study of Remodulin involving a total of 470
patients with pulmonary arterial hypertension. Half of the patients received
Remodulin subcutaneously for 12 weeks, while the other half received a placebo.
The study data show that patients who received Remodulin had significant
improvement in exercise capacity, pulmonary blood pressure and in the signs and
symptoms of the disease. Based on the favorable results of this study, United
Therapeutics filed a New Drug Application (NDA) with the U. S. Food and Drug
Administration (FDA) in late 2000.
On May 21, 2002, the FDA approved Remodulin (treprostinil sodium)
Injection for the treatment of pulmonary arterial hypertension in patients with
NYHA class II-IV symptoms to diminish symptoms associated with exercise.
Remodulin may be prescribed for all disease subsets of symptomatic pulmonary
arterial hypertension and is the only pulmonary arterial hypertension treatment
approved for patients with NYHA class II (early-stage) symptoms.
United Therapeutics agreed with the FDA that it would perform a
post-marketing phase IV clinical study to further assess the clinical benefits
of Remodulin. The phase IV study commenced in late 2002 and must be completed
within 24 months from the May 2002 approval. As of March 2003, four patients
had been enrolled in the 100 patient Phase IV study.
3
United Therapeutics
intends to meet with the FDA in April or May 2003 to report on the progress of
the study. Continued FDA approval is conditioned on the completion and outcome
of the phase IV study. On October 7, 2002, the Canadian Therapeutics Products
Directorate approved Remodulin for long term subcutaneous treatment of
pulmonary arterial hypertension in NYHA class III and IV patients who do not
respond adequately to conventional therapy. On October 31, 2002, the Israeli
Ministry of Health, Drug Registration Department, approved Remodulin for the
treatment of primary pulmonary arterial hypertension, pulmonary arterial
hypertension associated with connective tissue disorders and pulmonary arterial
hypertension associated with congenital systemic to pulmonary shunts.
Remodulin marketing applications are under review in France, Australia and
Switzerland, with additional European filings to follow approval in France.
Peripheral
Vascular Disease/Critical Limb Ischemia
United Therapeutics is also developing Remodulin for late-stage peripheral
vascular disease known as critical limb ischemia. Peripheral vascular disease
is a vascular disease that affects the blood vessels in the legs. While the
precise cause of peripheral vascular disease is unknown, diabetes, obesity,
smoking and lack of exercise are associated with the disease. Peripheral
vascular disease appears to be similar to pulmonary hypertension in that there
is a reduction in natural prostacyclin in the affected blood vessels.
In the United States, it is estimated that 750,000 people suffer from
critical limb ischemia. The disease is characterized by extreme pain,
non-healing ulcers in the legs, reduced exercise capacity and severely reduced
blood flow in the limbs. There are currently no approved drugs to treat
critical limb ischemia. Physicians, therefore, perform surgical interventions
(such as balloon angioplasty, stents and by-passes) to restore or improve blood
flow in the limbs. These procedures can provide relief to patients, but do not
address the underlying causes of peripheral vascular disease. Due to the lack
of adequate treatments, approximately 200,000 amputations of major limbs are
performed each year on patients with critical limb ischemia.
In September 1998, United Therapeutics completed a Phase II study which
assessed the safety and blood flow effects of Remodulin administered
intravenously to patients with critical limb ischemia. The study demonstrated
that Remodulin can be administered safely to patients with critical limb
ischemia and that Remodulin substantially increased blood flow in the affected
areas of the legs. United Therapeutics has commenced pre-pivotal clinical
studies of Remodulin for critical limb ischemia. These studies are expected
to be completed by late 2003. The results of the pre-pivotal studies will be
used to design a pivotal study that is anticipated to commence in 2004.
Metastatic
Cancer
United Therapeutics has tested the anti-cancer capabilities of Remodulin
in laboratory experiments. These in vitro studies showed that Remodulin has an
anti-metastatic effect at the same dose given to pulmonary hypertension
patients. In addition, there are many published reports of the anti-cancer
effects of various analogs of the prostacyclin molecule. Much of the
excitement regarding prostacyclin as an anti-cancer molecule has to do with
prostacyclins ability to block an endothelial cell receptor (called the PPAR
receptor) which is believed to be needed for tumor growth. Given the potency
of Remodulin, and its relative ease of use, United Therapeutics believes there
may be anti-cancer potential in this lead product and further development may
be initiated in the future.
UT-15
Sustained Release
United Therapeutics is currently in the early stage of development of a
longer-acting prostacyclin analog, known as UT-15 Sustained Release. UT-15
Sustained Release will be developed as an oral therapy for vascular diseases,
including pulmonary arterial hypertension and peripheral vascular disease. A
longer-acting prostacyclin analog could enable patients to take fewer doses per
day. United Therapeutics is currently screening potential candidates for
further evaluation.
Sales
and Marketing
United Therapeutics marketing strategy for Remodulin relies upon United
Therapeutics staff to educate the prescribing community. During 2002, United
Therapeutics formed an internal marketing team to handle these educational
efforts. The team consisted of five persons as of March 2003 and is expected
to continue growing during 2003. Additionally, United Therapeutics relies on
chronic care specialty pharmacy distributors to handle doctor and patient
requests for Remodulin on a non-exclusive basis in the United States. To
further this strategy, United Therapeutics has entered into two non-exclusive
distributor agreements with Accredo Therapeutics, Inc. (formerly known as
Gentiva Health Services, Inc.) and Priority Healthcare Corporation for the
United States. See
Priority Healthcare and Accredo Therapeutics, Inc.
Strategic Alliances
below. These specialty distributors are experienced in the
sale, distribution and reimbursement of chronic therapies.
4
In addition, United
Therapeutics has an internal sales and marketing department focused on
educational efforts directed at pulmonary hypertension clinicians. Outside of
the United States, United Therapeutics has entered into six exclusive
distributor agreements covering Canada, most of Europe, Australia, South
America and Israel. United Therapeutics sells Remodulin to its distributors in
the United States at a discount from an average wholesale price suggested by
United Therapeutics and to its international distributors at a transfer price
set by United Therapeutics. The distributors are responsible for assisting
patients with obtaining reimbursement. During 2002, approximately $21.2
million of revenues were earned from the sales of Remodulin.
Arginine
and ADMA
In December 2000, United Therapeutics expanded
its cardiovascular focus when it acquired the assets and certain liabilities
of Cooke Pharma, Inc., the exclusive manufacturer of the HeartBar® line of
arginine products that is now operating as Unither Pharma, Inc. Unither Pharma
owns the exclusive patent rights to use HeartBars key ingredient, arginine,
for the promotion of vascular function. Although arginine is broadly sold as a
nutritional supplement in pill form, there are no existing arginine products,
other than HeartBar, that can deliver 6 grams of arginine in a single dose.
Pills generally contain only 500 milligrams of arginine or one-twelfth the
amount in one HeartBar. Arginine is required by the body to produce nitric
oxide, which is critical for maintaining vascular function. HeartBar products
are sold in several flavors and in bar or drink formulation.
Recent studies show that people with high levels of another molecule
called asymmetric dimethylarginine (ADMA) may be at especially high risk of
heart disease. ADMA reduces the amount of arginine that can be converted to
nitric oxide. In December 2001, United Therapeutics acquired the exclusive
worldwide rights to develop a blood test to measure a persons ADMA levels,
much like a cholesterol test. As most people age, their blood pressure rises
as endothelial dysfunction gradually sets in. While it is not a cure for the
problems of advancing age, arginine supplementation is one way to help with
dietary management of cardiovascular risk. This is particularly true for those
persons with genetically determined high levels of ADMA.
Presently, the HeartBar line of products is marketed directly to consumers
via independent distributors and the Internet. During 2002, approximately $1.4
million of revenues were earned from the sales of HeartBar products.
Telemedicine
Services
United Therapeutics provides telemedicine services for a fee to patients
and physicians, through its subsidiary, Medicomp, Inc. Medicomp, Inc. provides
cardiac Holter and event monitoring analysis services remotely via telephone
lines and the Internet for hospitals, clinicians and other providers. These
services are designed to address the needs of patients suspected of suffering
from cardiac arrhythmias and other abnormalities such as ischemic events and
are delivered via Medicomps proprietary PM350 Holter Monitor and CardioPAL®
event recorder. The Epicardia Auto-Trigger, a next-generation event recorder,
is currently in the pre-clinical stage of development. Medicomp also provides
pacemaker monitoring services.
Cardiac arrhythmias and ischemic heart disease afflict an estimated 20
million Americans, and possibly ten times that number worldwide. If left
undetected and untreated, these conditions can result in heart attacks and
death. Treatment of cardiac arrhythmias and ischemia with pharmaceuticals
requires careful dosing based upon life-long, repeat cardiac monitoring.
Holter and event monitoring services and systems are marketed to
physicians, hospitals, and managed care providers directly by Medicomps
internal sales force. During 2002, revenues of approximately $3.4 million from the sales
of telemedicine services and $444,000 from the sales of telemedicine systems
were earned.
Immunotherapeutic
Monoclonal Antibodies
In April 2002, United Therapeutics entered into an agreement with AltaRex
Corp. to exclusively license certain rights to a platform of five
immunotherapeutic monoclonal antibodies. These products were being developed
by AltaRex for use in ovarian, prostate, lung, breast, multiple myeloma and
other forms of cancer. The lead product, OvaRex, had completed Phase II
studies in metastatic ovarian cancer.
In January 2003, United Therapeutics initiated two identical Phase III
pivotal clinical trials of OvaRex in patients with stage III/IV advanced
ovarian cancer. The study will be conducted at approximately 60 centers
throughout the United States and is expected to be fully enrolled in
approximately 15 months from the studys initiation. Patients enrolled in these
5
studies have successfully completed front-line therapy, consisting of surgery
and chemotherapy. The primary endpoint for the trials is to assess the time to
disease relapse. Patients will also be followed for survival. Approximately
200,000 women in the United States have ovarian cancer.
Glycobiology
Antiviral Agents
In March 2000, Unither Pharmaceuticals, Inc., a wholly owned subsidiary of
United Therapeutics, entered into a license agreement with Synergy
Pharmaceuticals, Inc. to obtain from Synergy the exclusive worldwide rights to
certain patents relating to anti-viral compounds. These glycobiology antiviral
agents are small molecules which may be effective as an oral therapy for
hepatitis C and B infections, as well as dengue and Japanese encephalitis
virus. Currently, many of these agents are undergoing laboratory testing while
new agents are being synthesized.
The most advanced agent identified to date is UT-231B. An Investigational
New Drug Application (IND) was submitted for UT-231B in 2002 and accepted by
the FDA. UT-231B completed acute and chronic Phase I dosing studies in early
2003. A phase II proof-of-concept study in patients infected with hepatitis C
that have failed conventional therapies is expected to begin during 2003.
Beraprost
In June 2000, United Therapeutics obtained from Toray Industries, Inc. the
exclusive right to develop and market the oral prostacyclin, beraprost, in the
sustained release formulation in the United States and Canada for the treatment
of all vascular and cardiovascular indications.
Beraprost is an oral form of prostacyclin that is chemically stable. Like
natural prostacyclin and Remodulin, beraprost dilates blood vessels, prevents
platelet aggregation and prevents proliferation of smooth muscle cells
surrounding blood vessels. Intermittent oral doses of immediate release
beraprost did not prove effective in phase III studies conducted by United
Therapeutics during 2000 and 2001. However, United Therapeutics believes that
sustained release oral doses of beraprost may be an important treatment for
early-stage peripheral vascular disease and for early-stage pulmonary
hypertension. Beraprost is presently in Phase I clinical testing being
conducted by Toray Industries in Japan.
Toray is required to complete testing of sustained release beraprost
through Phase I. If Toray succeeds, United Therapeutics would be obligated to
grant Toray an option to purchase 500,000 shares of United Therapeutics common
stock at the current fair value of that stock. However, the development of
sustained release beraprost has been significantly delayed by Toray and United
Therapeutics may cancel this agreement prior to granting any options.
Northern
Therapeutics, Inc.
In December 2000, Lung Rx, Inc. formed a new company in Canada, Northern
Therapeutics, Inc. (Northern Therapeutics), with the inventor of a new
form of autologous (non-viral vector) gene therapy for pulmonary arterial
hypertension and other conditions. The purpose of Northern Therapeutics is to
develop the gene therapy and also to distribute certain United Therapeutics
products in Canada. United Therapeutics received approximately 59 percent of
the initial outstanding common stock of Northern Therapeutics in exchange for
$5.0 million in cash of which $1.5 million was paid as of December 31, 2002.
The remainder is generally being paid in $1.0 million annual increments.
The
Medtronic MiniMed Strategic Alliance
Medtronic MiniMed has agreed to the use of its pager-sized microinfusion
pump for delivery of Remodulin continuously and subcutaneously. United
Therapeutics entered into an agreement with MiniMed, Inc. (now Medtronic
MiniMed) in September 1997, which was implemented in a detailed set of
guidelines to collaborate in the design, development and implementation of
therapies to treat pulmonary hypertension utilizing MiniMed products and
Remodulin. The guidelines require United Therapeutics to purchase its
Remodulin infusion pumps exclusively from Medtronic MiniMed at a discount to
Minimed list prices unless MiniMeds infusion pumps fail to receive certain
government approvals or cannot be appropriately used, as for intravenous
Remodulin. The term of the agreement commenced on September 3, 1997
and continues for seven years after the May 2002 FDA approval of Remodulin.
The agreement will be automatically extended for additional 12-month periods
unless otherwise terminated. The agreement is subject to early termination in
the event of a material breach or bankruptcy of either party. In the event
that there are any discoveries or improvements arising out of work performed
under the agreement, the parties will have joint ownership of those discoveries
or improvements. United Therapeutics and MiniMed have established a Management
Committee comprised of two representatives from each company to oversee
implementation of the agreement. United Therapeutics
6
acquires Medtronic
MiniMed products and resells these products to its distributors at their
acquisition cost. During 2002, approximately $3.7 million of revenues were
earned from the resales of MiniMed pumps and supplies.
Priority Healthcare and Accredo Therapeutics Strategic Alliances
To provide for marketing, promotion and distribution of Remodulin in the
United States, United Therapeutics entered into non-exclusive distribution
agreements with Priority Healthcare Corporation and Accredo Therapeutics, Inc.
(formerly known as Gentiva Health Services, Inc.) on February 9, 2000 and March
21, 2000, respectively. Under the distribution agreements, United Therapeutics
will sell Remodulin to Priority and Accredo at a discount from an average
wholesale price recommended by United Therapeutics as well as Medtronic Minimed
infusion pumps. Priority and Accredo will be responsible for assisting
patients with obtaining reimbursement for the cost of the therapy and providing
other support services. The terms of the agreements commenced on signing and
continue for two years following the May 2002 FDA approval of Remodulin in the
case of Priority and three years following the May 2002 launch of Remodulin in
the case of Accredo. The agreements will be automatically renewed thereafter
for additional two-year periods in the case of Priority and one-year periods in
the case of Accredo unless either party provides notice of termination. The
agreements are subject to early termination in the event of a material breach
or bankruptcy of either party or upon 180-day advance notice of termination.
Patents And Proprietary Rights
United Therapeutics success will depend in part on its ability to obtain
and maintain patent protection for its products, preserve trade secrets,
prevent third parties from infringing upon its proprietary rights and operate
without infringing upon the proprietary rights of others, both in the United
States and internationally. See
Notes to Consolidated Financial Statements
and
Managements Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources
for information regarding
royalties and milestone payments under these agreements.
Glaxo
Wellcome Assignment
In January 1997, Glaxo Wellcome, Inc. (now GlaxoSmithKline PLC) assigned
to United Therapeutics all rights to the use of the stable prostacyclin analog
known as UT-15, now known as Remodulin. For pulmonary hypertension, the patent
does not expire in the United States until October 2009 and until various dates
from September 2009 to August 2013 in nine other countries. For congestive
heart failure, the patent does not expire until May 2011 in the United States
and from May 2011 to March 2012 in five other countries.
Pharmacia
License
In December 1996, Pharmacia & Upjohn Company (now Pharmacia Corporation)
exclusively licensed to United Therapeutics certain patents, a patent
application and know-how for the composition and production of the stable
prostacyclin analog known as UT-15 (now known as Remodulin). United
Therapeutics filed its own U.S. patent application for a new synthesis and
production method for Remodulin in October 1997, which was granted in August
2002. United Therapeutics believes that its method is a substantial
improvement over the Pharmacia method. United Therapeutics is using its unique
synthesis method rather than the licensed Pharmacia method for the production
of Remodulin. United Therapeutics also has three pending patent applications
with respect to additional Remodulin synthesis improvements.
AltaRex Corp. Agreement
In April 2002, Unither Pharmaceuticals, Inc. (UPI) entered into a license
agreement with AltaRex Corp. for the exclusive worldwide rights (other than
certain European and Middle Eastern countries) to certain patents relating to a
platform of immunotherapeutic monoclonal antibody compounds. The compounds are
currently in various stages of clinical and preclinical testing, the lead
compound of which, OvaRex, is in Phase III clinical trials. The compounds and
the method of using the compounds are the subject of a combination of issued
patents and pending applications in the United States and around the world.
The issued patents have expiration dates ranging from 2017 to 2018. Additional
inventions relating to the compounds may be owned jointly by AltaRex and UPI
or individually by AltaRex, depending on the source of the invention.
Synergy
Pharmaceuticals, Inc.
In March 2000, UPI entered into a license agreement with Synergy
Pharmaceuticals, Inc. (Synergy) to obtain from Synergy the exclusive worldwide
rights to certain patents relating to anti-viral compounds known as
iminosugars. The compounds are currently in late stages of preclinical testing
or early clinical testing, and are the subject of a combination of issued
patents and pending applications in the United States and around the world.
The issued patents have expiration dates
7
ranging from 2008 to 2017. Additional
inventions relating to the compounds may be owned jointly by Synergy and UPI or
individually, depending on the source of the invention.
In November 2000, UPI and Synergy amended the exclusive license agreement
to include the development of new analogs of the licensed compounds. As part
of this amendment, UPI agreed to directly assume Synergys role in funding
ongoing research being conducted by the University of Oxford into analogs of
the anti-viral compounds being developed by UPI and Synergy. UPI will receive
an exclusive license from the University of Oxford to all inventions arising
from such research and entered into the first such license in November 2002 for
the lead compound, UT-231B.
Stanford
University and New York Medical College Licenses
In 2000, Unither Pharma, Inc. (formerly Cooke Pharma, Inc.), acquired the
exclusive license to patents related to amino acid based dietary supplements to
enhance the level of naturally occurring nitric oxide in the vascular system
from Stanford University and New York Medical College. The licenses cover
worldwide territories and are valid for the life of the patents (ranging from
2010 to 2018). Unither Pharma will own all rights to all new products that may
be or are derived from these licenses, including Unither Pharmas HeartBar
product line.
Patent
Term Extensions
United Therapeutics believes that some of the patents to which it has
rights may be eligible for extensions of up to five years based upon patent
term restoration procedures in Europe and in the United States under the
Waxman-Hatch Act. For instance, under Waxman-Hatch, the U.S. patents relating
to Remodulin could be extended by up to five years, giving the product patent
protection until as late as October 2014. In addition, patent extensions are
available under similar laws in Europe. United Therapeutics filed with the
United States Patent and Trademark Office a patent term extension application
for its patent covering the method of treating pulmonary arterial hypertension
using Remodulin following its FDA approval. The application is pending.
Research & Development Expenditures
United Therapeutics is engaged in research and development and has
incurred substantial expenses for these activities. These activities generally
include the cost of acquiring or inventing new technologies and products as
well as their development. Research and development expenses during 2002, 2001
and 2000 totaled approximately $26.8 million, $32.6 million and $70.2 million,
respectively. See
Managements Discussion
and
Analysis of Financial Condition
and Results of Operations Major Research and Development Projects
for
additional information.
Manufacturing and Supply
United Therapeutics manufactures treprostinil, the bulk active ingredient
in Remodulin. Baxter Healthcare Corporation (formerly Cook Imaging
Corporation) continues to formulate Remodulin for United Therapeutics. The
agreement with Baxter expires in October 2004 and is renewable for successive
eighteen month terms. An analytical testing laboratory, Cardinal Health
(formerly Magellan Laboratories Inc.), tests the purity of each batch of
manufactured Remodulin. Medtronic MiniMed provides the delivery
device used to administer Remodulin to patients.
UT-231B and OvaRex are currently manufactured by contract manufacturers.
A contract nutritional food manufacturer in California, Nellson Nutriceuticals,
manufactures HeartBar. Holter and event monitors are manufactured by Medicomp
at its facility in Florida.
Although management believes that other manufacturers and suppliers could
provide similar products, services and materials, there are a limited number of companies
which could replace these manufacturers and suppliers. A change in supplier or
manufacturer could cause a delay in the manufacture, distribution and research
efforts associated with the respective product or result in increased costs.
Competition
Many drug companies engage in research and development to commercialize
products to treat cardiovascular, infectious and oncological diseases. United
Therapeutics is aware of two existing treatments already approved in the United
States for certain subsets of late-stage pulmonary arterial hypertension with
which Remodulin competes. One is Flolan, an intravenously delivered
prostacyclin marketed by GlaxoSmithKline, PLC. The other is Tracleer, an oral
endothelin antagonist, marketed by Actelion, Ltd., and additional endothelin
antagonists are being developed. United Therapeutics is also aware of other
investigational products being developed for pulmonary hypertension, including:
sitaxentan in the United States, an oral
8
edothelin antagonist being developed
by Texas Biotechnology Corporation; iloprost in Europe, an inhaled prostacylin
analog being developed by Schering AG; sildenafil, an oral vasodialator being
developed by Pfizer, Inc. internationally; and ambrisentan, an oral endothelin
antagonist being developed by Myogen, Inc. In addition, competitors may
develop and commercialize other products that compete with United Therapeutics
products and may do so more rapidly than United Therapeutics. As of January
31, 2003, United Therapeutics estimated that there were approximately 2,800
patients on prostacyclin therapy (either Flolan or Remodulin) in the United
States of which approximately 10% were using Remodulin.
Many companies market or are developing products that will compete with
the HeartBar product line in the nutritional supplement market. However,
United Therapeutics is the only company that owns the patent rights to use
HeartBars key ingredient, arginine, for cardiovascular conditions. In
addition, one of the largest competitors agreed to cease competing in the
cardiovascular benefits market and to pay a royalty to United Therapeutics on
its erectile dysfunction arginine products.
Holter and event monitoring analysis services and systems are provided by
many local and regional competitors and a few national competitors.
United Therapeutics competes with all of these competitors for customers,
funding, access to licenses, personnel, third-party collaborators, product
development and commercialization. Almost all of these companies have
substantially greater financial, marketing, sales, distribution and technical
resources, and more experience in research and development, product development
and marketing, clinical trials and regulatory matters, than United
Therapeutics.
Governmental Regulation
The research, development, testing, manufacture, promotion, marketing and
distribution of drug products are extensively regulated by government
authorities in the United States and in other countries. Drugs are subject to
rigorous regulation by the FDA in the United States and similar regulatory
bodies in other countries. The steps ordinarily required before a new drug may
be marketed in the United States, which are similar to steps required in most
other countries, include:
Preclinical tests include laboratory evaluation of product chemistry,
toxicity and formulation, as well as animal studies. The results of
preclinical testing are submitted to the FDA as part of an investigational new
drug application. A 30-day waiting period after the filing of each
investigational new drug application is required prior to the commencement of
clinical testing in humans. At any time during this 30-day period or at any
time thereafter, the FDA may halt proposed or ongoing clinical trials until the
FDA authorizes trials under specified terms. The investigational new drug
application process may be extremely costly and substantially delay development
of United Therapeutics products. Moreover, positive results of preclinical
tests will not necessarily indicate positive results in clinical trials.
Clinical trials to support new drug applications are typically conducted
in three sequential phases, but the phases may overlap. During Phase I, the
initial introduction of the drug into healthy human subjects or patients, the
drug is tested to assess its effects on bodily functions and safety, including
side effects associated with increasing doses. Phase II usually involves
studies in a limited patient population to:
If a compound is found to be potentially effective and to have an
acceptable safety profile in Phase II evaluations, Phase III trials also called
pivotal studies, major studies or advanced clinical trials are undertaken to
further demonstrate clinical efficacy and to further test for safety within an
expanded patient population at geographically dispersed clinical study sites.
After successful completion of the required clinical testing, generally a
new drug application is submitted. The FDA may request additional information
before accepting a new drug application for filing, in which case the
application must be resubmitted with the additional information. Once the
submission has been accepted for filing, the FDA has 180 days to review the
application and respond to the applicant. The review process is often
significantly extended by FDA requests for
9
additional information or
clarification. The FDA may refer the new drug application to an appropriate
advisory committee for review, evaluation and recommendation as to whether the
application should be approved, but the FDA is not bound by the recommendation
of an advisory committee.
If FDA evaluations of the new drug application and the manufacturing
facilities are favorable, the FDA may issue either an approval letter or an
approvable letter. An approvable letter will usually contain a number of
conditions that must be met in order to secure final approval of the new drug
application and authorization of commercial marketing of the drug for certain
indications. The FDA may refuse to approve the new drug application or issue a
not approvable letter, outlining the deficiencies in the submission and often
requiring additional testing or information.
The FDA may designate a product as an orphan drug if the drug is
intended to treat a rare disease or condition. A disease or condition is
considered rare if it affects fewer than 200,000 people in the United States.
If an applicant obtains the first FDA marketing approval for a certain orphan
drug, the applicant will have a seven-year exclusive right to market the drug
for the orphan indication. The FDA has approved the orphan designation for
Remodulin for the treatment of pulmonary arterial hypertension, a designation
that includes both primary pulmonary hypertension and secondary pulmonary
hypertension. OvaRex MAb (oregovomab) has received both orphan drug and fast
track designations by the FDA for the treatment of patients with Stage III or
IV epithelial adenocarcinoma of ovarian, tubal or peritoneal origin. Under the
Food and Drug Administration Modernization Act (FDAMA), fast track designations
are designed to help accelerate the regulatory approval process for key
investigational drugs that meet an unmet medical need. The designations
provide the potential for expedited FDA review and accelerated approval.
Remodulin was approved by the FDA for the treatment of pulmonary arterial
hypertension in patients with NYHA Class II-IV symptoms to diminish symptoms
associated with exercise. If regulatory approval of United Therapeutics
other products is granted, it will similarly be limited to certain disease
states or conditions. The manufacturers of approved products and their
manufacturing facilities will be subject to continual review and periodic
inspections. In addition, identification of certain side effects or the
occurrence of manufacturing problems after any of its drugs are on the market
could cause subsequent withdrawal of approval, reformulation of the drug,
additional preclinical testing or clinical trials, and changes in labeling of
the product.
The Waxman-Hatch Act provides that patent terms may be extended during the
FDA regulatory review period for the related product. This period is generally
one-half the time between the effective date of an investigational new drug
application and the submission date of a new drug application, plus the time
between the submission date of a new drug application and the approval of that
application, subject to a maximum extension of five years. Similar patent term
extensions are available under European laws. United Therapeutics filed with
the United States Patent and Trademark Office a patent term extension
application for its patent covering the method of treating pulmonary arterial
hypertension using Remodulin following its FDA approval. The application is
pending.
Outside the United States, United Therapeutics ability to market its
products will also be contingent upon receiving marketing authorizations from
the appropriate regulatory authorities. The foreign regulatory approval
process may include some or all of the risks associated with FDA approval set
forth above. The requirements governing the conduct of clinical trials and
marketing authorization vary widely from country to country. At present,
foreign marketing authorizations are applied for at a national level, although
within Europe, procedures are available to companies wishing to market a
product in more than one European Union (EU) member state.
Under a new regulatory system in the EU, marketing authorizations may be
submitted to a centralized, a decentralized or a national level process. The
centralized procedure is mandatory for the approval of biotechnology products
and high technology products and available at the applicants option for other
products. The centralized procedure provides for the grant of a single
marketing authorization that is valid in all EU member states. The
decentralized procedure is available for all medicinal products that are not
subject to the centralized procedure. The decentralized procedure provides for
mutual recognition of national approval decisions, changes existing procedures
for national approvals and establishes procedures for coordinated EU actions on
products, suspensions and withdrawals. Under this procedure, the holder of a
national marketing authorization for which mutual recognition is sought may
submit an application to one or more EU member states, certify that the dossier
is identical to that on which the first approval was based or explain any
differences and certify that identical dossiers are being submitted to all
member states for which recognition is sought. Within 90 days of receiving the
application and assessment report, each EU member state must decide whether to
recognize approval. The procedure encourages member states to work with
applicants and other regulatory authorities to resolve disputes concerning
mutual recognition. Lack of objection of a given country within 90 days
automatically results in approval of the EU country. Following receipt of
marketing authorization in a member state, United Therapeutics would then be
required to engage in pricing discussions and negotiations with a separate
prescription pricing authority in that country.
10
United Therapeutics intends to secure European regulatory approval for the
use of Remodulin for pulmonary arterial hypertension under the decentralized
procedure and filed its first Marketing Authorization Application in France in
February 2001. That review is currently pending. Regulatory applications for
the use of Remodulin for pulmonary arterial hypertension in Canada and Israel
were approved in October 2002. Regulatory applications in Switzerland and
Australia were filed in 2001 and 2002, respectively, and are currently pending.
HeartBar products are manufactured at a contract facility that is
regulated by the FDA and required to follow the FDAs current
Good
Manufacturing Practices
. Telemedicine products are subject to FDA regulation
as medical devices. The devices, manufactured and sold by Medicomp, have
received marketing approval from the FDA under Section 510(k) of the Food, Drug
and Cosmetic Act.
Employees
United Therapeutics had approximately 150 employees as of March 12, 2003.
The company also maintains active independent contractor relationships with
various individuals most of whom are on month-to-month or annual consulting
contracts. The company believes its employee relations are excellent.
Revenues and Industry Segments
The information required by Regulation S-K Items 101(b) and 101(d) related
to financial information about segments and financial information about sales
is contained in Note 14 of the audited consolidated financial statements, which
are included in this Annual Report on Form 10-K.
Corporate Website
United Therapeutics Internet website address is
www.unither.com
. Beginning March 4,
2003, United Therapeutics filings on Form 10-K, Form 10-Q, Form 3, Form 4,
Form 5, and Form 8-K, and amendments thereto, are available
free of charge through this
internet website as soon as reasonably practicable after they are filed or
furnished to the SEC.
Risk Factors
This Annual Report on Form 10-K contains forward-looking statements made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 which are based on United Therapeutics beliefs and
expectations as to future outcomes. These statements include, among others,
statements relating to the following: the timing and outcome of clinical
studies and regulatory filings; the achievement and maintenance of regulatory
approvals; the ability to find alternate sources of supply and manufacturing
for United Therapeutics products; the existence, capabilities and activities
of competitors; the adequacy of owned or leased facilities for operations; the
expectation not to pay dividends on common stock in the foreseeable future; the
extent of United Therapeutics exposure to market risk; the ability to hold
debt instrument investments to maturity; the statements identified as
forward-looking statements in Item 7 Managements Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere in this
Annual Report on Form 10-K; and statements preceded by, followed by or that
include the words believes, expects, anticipates, intends, estimates,
may or similar expressions. These statements are subject to risks and
uncertainties and United Therapeutics actual results may differ materially
from anticipated results. Factors that may cause such a difference include,
but are not limited to, those discussed below. United Therapeutics undertakes no obligation
to publicly update forward-looking statements, whether as a result of new
information, future events or otherwise.
Risks Related to Our
Business
Actual Revenues And Net Losses May
Differ From United Therapeutics Projections.
United Therapeutics has made public its projections of its estimated
Remodulin annual revenue run rates and estimated average monthly net losses in
its quarterly SEC filings. Those projections were based on numerous factors and
assumptions taken into consideration at the time the estimates were made. Those
factors and assumptions are inherently subject to a degree of uncertainty. As a
result, the actual revenues and net losses may be greater or less than
projected. Even small differences can lead to significant changes in United
Therapeutics stock price. United Therapeutics had net losses of approximately
$37.3 million in 2001 and $23.7 million in 2002.
11
Factors that could affect the accuracy of United Therapeutics estimated
Remodulin annual revenue run rates include the following:
Factors that could affect the accuracy of United Therapeutics estimated
net loss and capital requirements include the following:
United Therapeutics Has A History Of Losses And May Not Be Profitable.
United Therapeutics has lost money since its inception in 1996, and its
accumulated deficit was approximately $185.8 million at December 31, 2002.
United Therapeutics expects to incur substantial additional losses, whether or
not it continues to generate revenue, as it continues to develop its products.
United Therapeutics expects its quarterly and annual operating results to
fluctuate, depending primarily on the following factors:
Most of United Therapeutics pharmaceutical products are in clinical
studies. United Therapeutics might not maintain or obtain new regulatory
approvals for its pharmaceutical products and may not be able to sell its
pharmaceutical products commercially. Even if United Therapeutics sells its
products, United Therapeutics may never be profitable and may not be able to
sustain any profitability it achieves.
If United Therapeutics Cannot
Maintain Regulatory Approvals For Its Products, It Cannot Sell Those Products And Its Revenues Will Suffer.
The process of obtaining and maintaining regulatory approvals for new
drugs is lengthy, expensive and uncertain. The manufacturing, distribution,
advertising and marketing of these products are subject to extensive
regulation. Any new product approvals United Therapeutics receives in the
future could include significant restrictions on the use or marketing of the
product. Product approvals, if granted, can be withdrawn for failure to comply
with regulatory requirements or upon the occurrence of adverse events following
commercial introduction of the products. The FDA has approved Remodulin for the
treatment of pulmonary arterial hypertension in patients with NYHA Class II-IV
symptoms to diminish symptoms associated
12
with exercise. This approval is
subject to United Therapeutics agreement to perform a post-marketing Phase IV
clinical study to further assess the clinical benefits of Remodulin. Continued
FDA approval of Remodulin is subject to the results of that trial. If approvals
are withdrawn for a product, United Therapeutics cannot sell that product and
its revenues will suffer. In addition, governmental authorities could seize
United Therapeutics products or force United Therapeutics to recall its
products. Finally, United Therapeutics and its officers and directors could be
subject to civil and criminal penalties for failure to comply with these
regulatory requirements.
If United Therapeutics Products Fail In Clinical Studies, United Therapeutics
Will Not Be Able To Obtain FDA And Foreign Approvals And Will Not Be Able To
Sell Those Products.
In order to sell its pharmaceutical products, United Therapeutics must
receive regulatory approvals. To obtain those approvals, United Therapeutics
must conduct clinical studies demonstrating that the drug and the delivery
mechanism for the drug are safe and effective. If United Therapeutics cannot
obtain approval from the U.S. Food and Drug Administration for a product, that
product cannot be sold, and United Therapeutics revenues will suffer.
On May 21, 2002, the FDA approved Remodulin (treprostinil sodium)
Injection for the treatment of pulmonary arterial hypertension in patients with
NYHA Class II-IV symptoms to diminish symptoms associated with exercise. United
Therapeutics agreed to perform a post-marketing Phase IV clinical study to
further assess the clinical benefits of Remodulin. The Phase IV study must be
completed within 24 months from the May 2002 approval, and continued FDA
approval is conditioned on the completion and outcome of the Phase IV study.
As of March 2003, four patients had been enrolled in the 100 patient Phase IV
study. Additionally, United Therapeutics has initiated pre-pivotal clinical
studies of Remodulin in critical limb ischemia. The lead glycobiology
anti-viral agent, UT-231B, has completed acute and chronic Phase I clinical
dosing studies in normal volunteers. United Therapeutics is also currently
conducting two Phase III pivotal studies of OvaRex for the treatment of
metastatic ovarian cancer. United Therapeutics is still completing
pre-clinical studies for its other products. United Therapeutics ongoing and
planned clinical studies might be delayed or halted for various reasons,
including:
In addition, the FDA and foreign regulatory authorities have substantial
discretion in the approval process. The FDA and foreign regulatory authorities
may not agree that United Therapeutics has demonstrated that its products are
safe and effective.
United Therapeutics Products May Not Be Commercially Successful Because
Physicians And Patients May Not Accept Them.
Even if regulatory authorities approve United Therapeutics products,
these products may not be commercially successful. United Therapeutics expects
that most of its products, including Remodulin, which is already approved, will
be very expensive. Patient acceptance of and demand for United Therapeutics
products will depend largely on the following factors:
Discoveries Or Developments Of New Technologies By Others May Make United
Therapeutics Products Obsolete.
Other companies may conduct research, make discoveries or introduce new
products that render all or some of United Therapeutics technologies and
products obsolete or not commercially viable. Researchers are continually
making new
13
discoveries that may lead to new technologies to treat the diseases
for which United Therapeutics products are intended. In addition, alternative
approaches to treating chronic diseases, such as gene therapy, may make United
Therapeutics products obsolete or noncompetitive. One therapy approved in the
United States in 2001 is Tracleer, an oral endothelin antagonist developed by
Actelion, Ltd. which competes with Remodulin. United Therapeutics is aware
that other endothelin antagonists are being developed, such as sitaxentan by
Texas Biotechnology Corporation and ambrisentan by Myogen, Inc. United
Therapeutics is also aware that sildenafil, being developed by Pfizer, Inc. and
iloprost, being developed by Schering AG, are being studied for use in
pulmonary hypertension. Sildenafil and iloprost are currently approved for the
treatment of other diseases.
If Third-Party Payers Will Not Reimburse Patients For United Therapeutics Drug
Products, Sales Will Suffer.
United Therapeutics commercial success will depend in part on third-party
payers, such as Medicare, Medicaid and private insurance companies, agreeing to
reimburse patients for the costs of United Therapeutics pharmaceutical
products. Third-party payers frequently challenge the pricing of new drugs.
Remodulin and the associated infusion pump and supplies are very expensive.
United Therapeutics believes its investigational products, if approved, will
also be very expensive. Presently, most third-party payers, including Medicare
and Medicaid, reimburse patients for the cost of Remodulin therapy.
Third-party payers may not approve United Therapeutics new products for
reimbursement or continue to approve Remodulin for reimbursement. If
third-party payers do not approve a United Therapeutics product for
reimbursement, sales will suffer, as patients will opt for a competing product
that is approved for reimbursement.
United Therapeutics Relies On Third Parties To Develop, Market, Distribute And
Sell Most of Its Products And Those Third Parties May Not Perform.
United Therapeutics is currently marketing products in three of its five
therapeutic platforms: Remodulin in the prostacyclin analog platform, the
HeartBar product line in the arginine formulations platform, and CardioPal
cardiac event monitors and Holter monitors in the telemedicine platform. United
Therapeutics does not have the ability to independently conduct clinical
studies, obtain regulatory approvals, market, distribute or sell most of its
products and intends to rely substantially on experienced third parties to
perform all of those functions. United Therapeutics may not locate acceptable
contractors or enter into favorable agreements with them. If third parties do
not successfully carry out their contractual duties or meet expected deadlines,
United Therapeutics will be unable to obtain marketing approvals and will be
unable to sell its products. Medtronic MiniMed is United Therapeutics
exclusive partner for the subcutaneous delivery of Remodulin using the MiniMed
microinfusion device for pulmonary arterial hypertension. United Therapeutics
is relying on Medtronic MiniMeds experience, expertise and performance.
Similarly, United Therapeutics is relying on Accredo Therapeutics, Inc. and
Priority Healthcare Corporation to market, distribute, and sell Remodulin in
the United States. If United Therapeutics partners in the United States and
internationally are unsuccessful in their efforts, United Therapeutics
revenues will suffer.
United Therapeutics May Not Successfully Compete With Established Drug
Companies.
United Therapeutics competes with established drug companies during
product development for, among other things, funding, access to licenses,
expertise, personnel and third-party collaborators. United Therapeutics will
also compete with these companies following approval of its products. Almost
all of these competitors have substantially greater financial, marketing,
sales, distribution and technical resources, and more experience in research
and development, clinical trials and regulatory matters, than United
Therapeutics.
United Therapeutics is aware of existing treatments that compete with its
products. For the treatment of pulmonary arterial hypertension, approved
products that compete with Remodulin include the intravenous prostacyclin,
Flolan, marketed by GlaxoSmithKline PLC, and Tracleer, an oral endothelin
antagonist marketed by Actelion, Ltd. With respect to the prostacyclin segment
of the pulmonary arterial hypertension market, United Therapeutics estimates
that approximately 10% of the patients being treated with prostacyclin in the
United States are using Remodulin. Products that are being developed that may
also compete with Remodulin include endothelin antagonists, such as sitaxsentan
being developed by Texas Biotechnology Corporation and ambrisentan, being
developed by Myogen, Inc. Sildenafil, being developed by Pfizer, Inc. and
iloprost, being developed by Schering AG. are both currently approved for the
treatment of diseases other than pulmonary arterial hypertension. Many
companies market and are developing products containing arginine which will
compete with the HeartBar product line. Cardiac Holter and event monitoring
services and systems are provided by many local and regional competitors and a
few national competitors. A number of drug companies are pursuing treatments
for ovarian and other cancers and hepatitis, that will compete with products in
United Therapeutics immunotherapeutic monoclonal antibody platform and
glycobiology anti-viral agents platform.
14
If The Licenses And Assignments United Therapeutics Depends On Are Breached Or
Terminated, United Therapeutics Would Lose Its Right To Develop And Sell The
Products Covered By The Licenses And Assignments.
United Therapeutics business depends upon the acquisition, assignment and
license of drugs and other products which have been discovered and initially
developed by others, including Remodulin, all of its products in the
immunotherapeutic monoclonal antibody platform, all of its products in the
glycobiology anti-viral agents platform, and the HeartBar line of products.
Under our license agreements, we retain ownership of the intellectual property
subject to the terms of the license agreement, whereas our assignment agreement
transfers all right, title and ownership of the intellectual property to us,
subject to the terms of the assignment agreement. In addition, United
Therapeutics has obtained and will be required to obtain licenses to other
third-party technology to conduct its business, including licenses for its
products and a license for the MiniMed microinfusion device for the
administration of Remodulin. This dependence on licenses has the following
risks:
If United Therapeutics Patent And Other Intellectual Property Protection Is
Inadequate, United Therapeutics Sales And Profits Could Suffer Or Competitors
Could Force United Therapeutics Products Completely Out Of The Market.
The U.S. patent for the method of treating pulmonary hypertension with
Remodulin expires in 2009. OvaRex and its method of use are the subject of a
combination of issued patents and pending applications in the United States and
around the world. The issued patents have expiration dates ranging from 2017
to 2018. United Therapeutics may not be able to extend these or any other
patents. Competitors may develop products based on the same active ingredients
as United Therapeutics products, including Remodulin, and market those
products after the patents expire, or may design around United Therapeutics
existing patents. If this happens, United Therapeutics sales would suffer and
United Therapeutics profits could be severely impacted.
Patents may be issued to others which prevent the manufacture or sale of
United Therapeutics products. United Therapeutics may have to license those
patents and pay significant fees or royalties to the owners of the patents in
order to keep marketing its products. This would cause profits on sales to
suffer.
United Therapeutics has been granted a patent in the United States for the
synthesis of Remodulin, but pending patent applications which have been or may
be filed by United Therapeutics may not issue. The scope of any patent that
issues may not be sufficient to protect United Therapeutics technology. The
laws of foreign jurisdictions in which United Therapeutics intends to sell its
products may not protect United Therapeutics rights to the same extent as the
laws of the United States.
In addition to patent protection, United Therapeutics also relies on trade
secrets, proprietary know-how and technology advances. United Therapeutics
enters into confidentiality agreements with its employees and others, but these
agreements may not be effective in protecting United Therapeutics proprietary
information. Others may independently develop substantially equivalent
proprietary information or obtain access to United Therapeutics know-how.
Litigation, which is very expensive, may be necessary to enforce or defend
United Therapeutics patents or proprietary rights and may not end favorably
for United Therapeutics. Any of United Therapeutics licenses, patents or other
intellectual property may be challenged, invalidated, canceled, infringed or
circumvented and may not provide any
15
competitive advantage to United
Therapeutics. The only currently pending litigation to which United
Therapeutics is a party relates to suits initiated by United Therapeutics
against other parties believed to have violated United Therapeutics patents
related to its arginine products line.
United Therapeutics Has Limited Experience With Manufacturing And Depends On
Third Parties, Who May Not Perform, To Synthesize And Manufacture Many Of Its
Products.
United Therapeutics itself has limited experience with manufacturing. In
October 1999, United Therapeutics acquired SynQuest, Inc., a company that
manufactured treprostinil, the bulk active ingredient in Remodulin, for United
Therapeutics. In December 2000, SynQuest was dissolved and merged into United
Therapeutics as its synthesis and manufacturing division. Prior to the
acquisition of SynQuest, United Therapeutics had no experience with
manufacturing. Even though United Therapeutics retained the employees and
managers of SynQuest in connection with the acquisition, United Therapeutics
may be unsuccessful in maintaining drug manufacturing operations.
United Therapeutics relies on third parties for the manufacture of all its
products other than Remodulin and its telemedicine systems. United Therapeutics
is relying on Baxter Healthcare Corporation (formerly Cook Imaging Corporation)
for the formulation of Remodulin. United Therapeutics relies on Cardinal Health
(formerly Magellan Laboratories Incorporated) to test the purity of each batch
of Remodulin and other products that United Therapeutics is developing. United
Therapeutics relies on Nellson Nutraceuticals to manufacture HeartBar products.
United Therapeutics relies exclusively on Toray Industries, Inc. to manufacture
beraprost. Although there are a limited number of companies that could replace
each of these suppliers, management believes that other suppliers could provide
similar services and materials. A change in suppliers, however, could cause a
delay in distribution of Remodulin and other products, and in the conduct of
clinical trials and commercial launch, which would adversely affect United
Therapeutics research and development efforts, and future sales efforts.
United Therapeutics manufacturing strategy presents the following risks:
Any of these factors could delay clinical studies or commercialization of
United Therapeutics products, entail higher costs and result in United
Therapeutics being unable to effectively sell its products.
United Therapeutics May Not Have Adequate Insurance And May Have Substantial
Exposure To Payment Of Product Liability Claims.
The testing, manufacture, marketing, and sale of human drugs involves
product liability risks. Although United Therapeutics currently has product
liability insurance covering claims up to $15 million per occurrence, United
Therapeutics may not be able to maintain this product liability insurance at an
acceptable cost, if at all, and this insurance may not provide adequate
coverage against potential losses. If claims or losses exceed United
Therapeutics liability insurance coverage, United Therapeutics may go out of
business.
16
If United Therapeutics Highly Qualified Management And Technical Personnel
Leave United Therapeutics, Its Business May Suffer.
United Therapeutics is dependent on its current management, particularly
its founder and Chief Executive Officer, Martine Rothblatt, Ph.D., its
President and Chief Operating Officer, Dr. Roger Jeffs, Ph.D., its Chief
Financial Officer, Fred Hadeed, and its Senior Vice President, General Counsel
and Corporate Secretary, Paul Mahon, all of whom are employed pursuant to
multi-year employment agreements. United Therapeutics does not maintain key
person life insurance on these officers. United Therapeutics success will
depend in part on retaining the services of its existing management and key
personnel and attracting and retaining new highly qualified personnel.
Expertise in the field of cardiovascular medicine, infectious disease and
oncology is not generally available in the market, and competition for
qualified management and personnel is intense.
United Therapeutics May Not Have, Or May Have To Share Rights To, Future
Inventions Arising From Its Outsourcing Agreements And May Lose Potential
Profits Or Savings.
Pursuant to United Therapeutics agreements with certain of its business
partners, any new inventions or intellectual property that arise from United
Therapeutics activities will be owned jointly by United Therapeutics and these
partners. If United Therapeutics does not have rights to new developments or
inventions that arise during the terms of these agreements, or United
Therapeutics has to share the rights with others, United Therapeutics will lose
the benefit of the new rights which may mean a loss of future profits or
savings generated from improved technology.
If United Therapeutics Needs Additional Financing And Cannot Obtain It, Product
Development And Sales May Be Limited.
United Therapeutics may need to spend more money than currently expected
because it may need to change its product development plans or product
offerings to address difficulties with clinical studies, preparing for
commercial sales or continued sales of Remodulin. United Therapeutics may not
be able to obtain additional funds on commercially reasonable terms or at all.
If additional funds are not available, United Therapeutics may be compelled to
delay clinical studies, curtail operations or obtain funds through
collaborative arrangements that may require it to relinquish rights to certain
products or potential markets.
Risks Related to Owning United
Therapeutics Common Stock
United Therapeutics Stock Price Could Be Volatile And Could Decline.
The market prices for securities of drug and biotechnology companies are
highly volatile, and there are significant price and volume fluctuations in the
market that may be unrelated to particular companies operating performances.
The table below sets forth the high and low closing bid prices for United
Therapeutics common stock for the periods indicated:
United Therapeutics stock price could decline suddenly due to the
following factors:
17
Future Sales Of Shares May Depress The Stock Price.
If the stockholders sell a substantial number of shares of United
Therapeutics common stock in the public market, or investors become concerned
that substantial sales might occur, the market price of the common stock could
decrease. Such a decrease could make it difficult for United Therapeutics to
raise capital by selling stock or to pay for acquisitions using stock. To the
extent outstanding options are exercised or additional shares of capital stock
are issued, existing stockholders may incur additional dilution.
Provisions Of United Therapeutics Certificate Of Incorporation, By-Laws And
Rights Plan Could Prevent Or Delay A Change Of Control Or Change In Management
That Could Be Beneficial To United Therapeutics And The Public Stockholders.
Certain provisions of United Therapeutics amended and restated
certificate of incorporation, amended and restated by-laws and shareholder
rights plan may prevent, delay or discourage:
For example, United Therapeutics amended and restated certificate of
incorporation divides the board of directors into three classes, with members
of each class to be elected for staggered three-year terms. This provision may
make it more difficult for stockholders to change the majority of directors and
may frustrate accumulations of large blocks of common stock by limiting the
voting power of such blocks. This may further result in discouraging a change
of control or change in current management.
United Therapeutics has a shareholder rights plan designed to discourage
takeovers that involve abusive tactics or do not provide fair value to
shareholders. Generally, the shareholder rights plan requires a hostile
purchaser to pay a price per share that is substantially higher than the
current quoted price of United Therapeutics common stock.
These provisions of United Therapeutics amended and restated certificate
of incorporation and the shareholder rights plan could discourage or make more
difficult a merger or other change of control transaction, whether or not the
transaction is favored by current management or would be favorable to United
Therapeutics stockholders. In addition, these provisions may make removal of
current management by United Therapeutics stockholders more difficult, even if
such removal would be beneficial to the stockholders generally.
Existing Directors And Executive Officers Of United Therapeutics Own A
Substantial Block Of Stock And Might Be Able To Direct The Outcome Of Matters
Requiring Stockholder Approval.
United Therapeutics directors and named executive officers beneficially
own approximately 12 percent of its outstanding common stock as of March 12,
2003. Accordingly, these stockholders as a group might be able to direct the
outcome of matters requiring approval by United Therapeutics stockholders,
including the election of its directors. Such stockholder control could delay
or prevent a change of control of United Therapeutics.
If Stockholders Do Not Receive Dividends, Stockholders Must Rely On Stock
Appreciation For Any Return On Their Investment In United Therapeutics.
United Therapeutics has never declared or paid cash dividends on any of
its capital stock. United Therapeutics currently intends to retain its earnings
for future growth and therefore does not anticipate paying cash dividends in
the future.
18
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list, as of March 17, 2003, setting forth certain
information regarding the executive officers of United Therapeutics.
Each executive officer holds office until the first meeting of the
Board of Directors after the annual meeting of shareholders, and
until his or her successor is elected and qualified or until his or
her earlier resignation or removal. Each executive officers
employment will end pursuant to the terms of his or her
employment contract. Each of the employment contracts generally provide for a term
of service of five years.
Martine A. Rothblatt, Ph.D., J.D., M.B.A
., started United Therapeutics in
1996 and has served as Chairman and Chief Executive Officer since its
inception. Dr. Rothblatt is President of the William Harvey Medical Research
Foundation and past-Chairman of the Law and Medicine Committee of the
International Bar Association.
Roger Jeffs, Ph.D
., joined United Therapeutics in September of 1998 as
Director of Research, Development and Medical. Dr. Jeffs was promoted to Vice
President of Research, Development and Medical in July 2000 and to President
and Chief Operating Officer in January 2001. Prior to 1998, Dr. Jeffs worked
at Amgen, Inc. as Manager of Clinical Affairs and Associate Director of
Clinical Research from 1995 to 1998, where he served as the worldwide clinical
leader of the Infectious Disease Program.
Ricardo Balda, M.S.,
was appointed as the Chief Executive Officer of
Medicomp, Inc. upon its acquisition by Unither Telemedicine Services Corp., a
subsidiary of United Therapeutics, in December 2000. For the five years prior
to the Medicomp acquisition, Mr. Balda served as Chairman and President of
Medicomp. In 1998, Mr. Balda founded Telemedical Procedures, LLC, which was
acquired by Unither Pharmaceuticals in December 2000. Mr. Balda also serves on
the Board of Advisors of the Florida Institute of Technology.
Paul A. Mahon, J.D.,
has served as General Counsel and Assistant Corporate
Secretary of United Therapeutics since its inception in 1996. In June 2001, Mr.
Mahon joined United Therapeutics as a full-time employee as Senior Vice
President, General Counsel, and Corporate Secretary. Prior to that, he served
United Therapeutics in his capacity as principal and managing partner of the
law firm, Mahon Patusky Rothblatt & Fisher, Chartered since its formation in 1993.
Fred T. Hadeed,
has served as Chief Financial Officer of United
Therapeutics since January 2000. Prior to joining United Therapeutics, Mr.
Hadeed practiced as a certified public accountant from 1989 to 2000 at KPMG
LLP, where he served as a senior manager in KPMGs life sciences practice.
19
ITEM 2. PROPERTIES
United Therapeutics currently maintains several leased and owned
facilities. The company owns its corporate office in Silver Spring, Maryland.
The company leases its legal and governmental affairs office in Washington,
D.C. The company leases its clinical development office in Research Triangle
Park, North Carolina. The company leases laboratory and office space in
Chicago, Illinois where the bulk active ingredient in Remodulin is synthesized.
The Chicago facility contains approximately 19,000 square feet of total space.
The companys subsidiary, Unither Pharma, Inc., leases office space in
Satellite Beach, Florida and office and warehouse space in Belmont, California.
The companys subsidiary, Unither Pharmaceutical, Inc., leases office space in
Wellesley, Massachusetts. The companys subsidiary, Medicomp, Inc., leases
manufacturing and office space in Melbourne, Florida. The Melbourne facility
contains approximately 15,400 square feet of total space. United Therapeutics
subsidiary, Unither Nutriceuticals, Inc., leases office space in Burlington,
Vermont. United Therapeutics subsidiary, United Therapeutics Europe Ltd.,
leases office space near London, England. United Therapeutics also owns three
buildings adjacent to its corporate office in Silver Spring, Maryland. United
Therapeutics believes these facilities are adequate for its current and planned
operations.
The manufacturing and office space in Melbourne, Florida are used in
United Therapeutics telemedicine segment. All other properties and leased
facilities are used in United Therapeutics pharmaceutical segment.
ITEM 3. LEGAL PROCEEDINGS
The Federal Trade Commission (FTC), through the staff of the FTCs
Division of Advertising Practices, is reviewing certain advertising and
promotional claims made by Unither Pharma, Inc. about the HeartBar product
line, including claims made prior to United Therapeutics acquisition of
HeartBar and certain other assets and liabilities of Cooke PH, Inc. (formerly
Cooke Pharma, Inc.) in December 2000. The FTC Staff has asked that United
Therapeutics and Unither Pharma agree to enter into a consent order relating to
those claims. A settlement with the FTC may limit Unither Pharmas ability to
make certain claims concerning the beneficial effects of the HeartBar product
line, which may adversely affect those product sales. Additionally, the terms
of a settlement or litigation outcome may result in fines, penalties and other
restrictions that could adversely affect the assets and operations of Unither
Pharma. At December 31, 2002, intangible assets relating to HeartBar patents,
trade name and base technology totaled approximately $6.6 million. United
Therapeutics does not believe that these intangible assets have been or will be
impaired. Further, United Therapeutics does not believe that the outcome of
the FTCs investigation will have a material adverse effect on United
Therapeutics. However, there can be no assurances that a settlement with the
FTC or an FTC enforcement action, such as administrative litigation seeking the
issuance of a cease and desist order, will not result in impairment of
intangible assets or have a material adverse effect on Unither Pharma or United
Therapeutics. If the intangible assets and/or operations of Unither Pharma
became materially impaired, this would have a material adverse effect on
Unither Pharma and United Therapeutics.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
20
Prostacyclin Analogs
, which are stable synthetic forms of prostacyclin,
an important molecule produced by the body that has powerful effects on
blood-vessel health and function. United Therapeutics drug Remodulin®
has been approved in the United States for the treatment of pulmonary
arterial hypertension in patients with NYHA Class II-IV symptoms to
diminish symptoms associated with exercise, and in Canada and Israel for
similar uses;
Immunotherapeutic Monoclonal Antibodies
, which are antibodies that
activate patients immune systems to treat cancer, including OvaRex® that
is being developed for the treatment of metastatic ovarian cancer;
Glycobiology Anti-viral Agents
, which are a class of small molecules
that may be effective as an oral therapy for hepatitis C and other
infections;
Telemedicine
, which involves portable digital devices that enable
physicians to remotely monitor patients bodily measurements such as
heart function, including the CardioPal® cardiac event recorder; and
Arginine Formulations
, including the HeartBar® product line, which
deliver the amino acid arginine that is necessary for the promotion of
vascular function.
Product
Mode of Delivery
Indication/Market
Current Status
UT Territory
Remodulin®
Continuous subcutaneous
Pulmonary arterial hypertension
Commercial in
U.S.,
Canada and Israel
EU Reviews Ongoing
Worldwide
Arginine
Formulations
Oral dietary
supplement
Vascular function
Commercial
Worldwide
CardioPAL® and PM350
Telemedical
Arrhythmias and angina
Commercial
Worldwide
OvaRex®
Intravenous
Ovarian cancer
Phase III
Worldwide*
Remodulin®
Intermittent subcutaneous
Critical limb ischemia
Phase II/III
Worldwide
UT-231B
Oral
Hepatitis C
Phase I/II
Worldwide
BrevaRex®
Intravenous
Multiple myeloma
Phase I
Worldwide*
Beraprost SR
Oral
Peripheral vascular disease
Phase I
U.S./Canada
Epicardia
Auto-Trigger
Telemedical
Cardiac arrhythmias
Preclinical
Worldwide
UT-15 Sustained
Release
Oral
Pulmonary
arterial
hypertension and peripheral
vascular disease
Preclinical
Worldwide
ADMA Diagnostic
Diagnostic test
Cardiovascular disease
Preclinical
Worldwide
Glycobiology
Antiviral Agents
Oral
Hepatitis B, dengue
and
Japanese encephalitis
Preclinical
Worldwide
MultiRex
Intravenous
Breast cancer
Preclinical
Worldwide*
ProstaRex
Intravenous
Prostate cancer
Preclinical
Worldwide*
GivaRex
Intravenous
Pancreatic cancer
Preclinical
Worldwide*
*
except Europe and the Middle East.
Preclinical laboratory tests, preclinical studies in animals
and formulation studies and the submission to the FDA of an
investigational new drug application for a new drug;
Adequate and well-controlled clinical trials to establish the
safety and efficacy of the drug for each indication;
The submission of a new drug application to the FDA; and
FDA review and approval of the new drug application prior to any commercial sale or shipment of the drug.
Assess the efficacy of the drug in specific, targeted indications;
Assess dosage tolerance and optimal dosage; and
Identify possible adverse effects and safety risks.
Retention of current patients;
Addition of new patients to replace patients who discontinue Remodulin therapy;
Remodulin side effects, including impact of infusion site pain and reaction;
Changes in the current pricing and dosing of Remodulin;
Willingness of private insurance companies, Medicare and Medicaid to reimburse Remodulin at current pricing levels;
Continued regulatory approval of Remodulin;
Outcome of the phase IV post-marketing study of Remodulin;
Impact of other approved and investigational competitive products;
Continued performance by current Remodulin distributors;
Actual expenses incurred in future periods; and
Establishment of additional strategic acquisitions or licensing arrangements.
Continued regulatory approval of Remodulin;
Retention and growth of patients treated with Remodulin;
Collection of accounts receivable;
Size, scope and outcome of the Remodulin post-marketing Phase IV clinical study;
Size, scope and outcome of development efforts for existing and additional products;
Future milestone and royalty payments;
Cost, timing and outcomes of regulatory reviews;
Rate of technological advances;
Recovery of goodwill, intangible assets and investments in affiliates;
Status of competitive products;
Defending and enforcing intellectual property rights;
Development of manufacturing resources or the establishment, continuation or
termination of third-party manufacturing arrangements;
Establishment, continuation or termination of third-party clinical trial arrangements;
Development of sales and marketing resources or the establishment, continuation or
termination of third-party sales and marketing arrangements; and
Establishment of additional strategic acquisitions or licensing arrangements.
Extent and timing of sales of Remodulin to distributors;
Level of patient demand for Remodulin and other products;
Levels of research and development, general and administrative expenses and sales and marketing expenses; and
Establishment of additional strategic acquisitions or licensing arrangements.
Timing of payments to licensors and corporate partners.
The drug is not effective, or physicians think that the drug is not effective;
Other investigational or approved therapies are viewed as more effective by physicians;
Patients experience severe side effects during treatment;
Patients die during the clinical study because their disease is too advanced or
because they experience medical problems that are not related to the drug being
studied;
Patients do not enroll in the studies at the rate United Therapeutics expects;
Drug supplies are not available or suitable for use in the studies; and
The results of preclinical testing cause delays in clinical trials.
Acceptance by physicians and patients of United Therapeutics products as safe and effective therapies;
Reimbursement of drug and treatment costs by third-party payers such as Medicare, Medicaid and private
insurance companies;
Pricing of alternative products;
Convenience and ease of administration of United Therapeutics products; and
Prevalence and severity of side effects associated with United Therapeutics products, including the
infusion site pain and reaction associated with use of Remodulin.
United Therapeutics may not be able to obtain future licenses and assignments at a reasonable cost or at all;
If any of United Therapeutics licenses or assignments are terminated, United Therapeutics will lose its
rights to develop and market some or all of its products;
The licenses and assignments that United Therapeutics holds generally provide for termination by the
licensor or assignor in the event United Therapeutics breaches the license or assignment agreement,
including failing to pay royalties and other fees on a timely basis;
In the event that GlaxoSmithKline (formerly Glaxo Wellcome) terminates its assignment agreement, United
Therapeutics will have no further rights to utilize the assigned patents or trade secrets to develop and
commercialize Remodulin. In the twelve-month period ended December 31, 2002, sales of Remodulin accounted
for the majority of United Therapeutics revenues, or approximately $21.2 million. GlaxoSmithKline could
seek to terminate the assignment in the event that United Therapeutics failed to pay royalties based on
sales of Remodulin; and
If licensors fail to maintain the intellectual property licensed or assigned to United Therapeutics as
required by most of United Therapeutics license and assignment agreements, United Therapeutics may lose its
rights to develop and market some or all of its products and may be forced to incur substantial additional
costs to maintain the intellectual property itself or force the licensor or assignor to do so.
The manufacturing processes for some of United Therapeutics products have not been tested in
quantities needed for commercial sales;
Delays in scale-up to commercial quantities could delay clinical studies, regulatory
submissions and commercialization of United Therapeutics products;
A long lead time is needed to manufacture Remodulin, and the manufacturing process is complex;
United Therapeutics and manufacturers of United Therapeutics products are subject to the
FDAs good manufacturing practices regulations and similar foreign standards, and although
United Therapeutics controls compliance issues with respect to synthesis and manufacturing
conducted internally, United Therapeutics does not have control over compliance with these
regulations by its third-party manufacturers;
If United Therapeutics has to change to another manufacturing contractor or abandon its
captive manufacturing operations, FDA and comparable foreign regulators would require new
testing and compliance inspections and the new manufacturer would have to be educated in the
processes necessary for the production of the affected product;
Without satisfactory long-term agreements with its manufacturers, United Therapeutics will
not be able to develop or commercialize its products, other than Remodulin, as planned or at
all and will have to rely solely on internal manufacturing capacity;
Without substantial experience in operating a manufacturing facility, United Therapeutics may
not be able to successfully continue to manufacture Remodulin; and
United Therapeutics may not have intellectual property rights, or may have to share
intellectual property rights, to many improvements in the manufacturing processes or new
manufacturing processes for its products.
Closing Bids
High
Low
$
17.94
$
8.77
$
17.50
$
9.05
Quarterly and annual financial results;
Failure to meet estimates or expectations of securities analysts;
Rate of product acceptance;
Public concern as to the safety of products developed by United Therapeutics or by others;
Announcements by United Therapeutics or others of technological innovations or new products;
Developments in patent or other proprietary rights;
Establishment of additional
strategic acquisitions or licensing arrangements;
Future sales of substantial amounts of common stock by existing United Therapeutics stockholders;
Results of clinical trials;
Maintaining approvals to sell Remodulin;
Timing and outcome of additional regulatory approvals; and
General market conditions.
A merger, tender offer or proxy contest;
The assumption of control by a holder of a large block of United Therapeutics securities; and
The replacement or removal of current management by United Therapeutics stockholders.
Name
Age
Position
Martine A. Rothblatt, Ph.D., J.D., M.B.A
48
Chairman, Chief Executive Officer and Director
Roger Jeffs, Ph.D.
41
President, Chief Operating Officer and Director
Ricardo Balda, M.S
61
Chief Executive Officer, Medicomp, Inc. and Director
Paul A. Mahon, J.D
39
Senior Vice President, General Counsel and
Corporate Secretary
Fred T. Hadeed
38
Chief Financial Officer
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market for Common Equity
United Therapeutics common stock (and associated preferred stock purchase
rights) trades on the Nasdaq Stock Markets Nasdaq National Market under the
symbol UTHR. The table below sets forth the high and low closing bid prices
for the common stock for the periods indicated:
As of March 12, 2003, there were 99 holders of record of common stock.
United Therapeutics estimates that included within the holders of record are
approximately 2,700 beneficial owners of common stock. As of March 12, 2003,
the closing bid price for the common stock was $15.85.
Dividend Policy
United Therapeutics has never paid and does not intend to pay any
dividends on the common stock in the foreseeable future but intends to retain
any earnings for use in its business operations.
Recent Sales of Unregistered Securities
In December 2000, United Therapeutics acquired certain assets and
liabilities of Cooke PH, Inc. (formerly Cooke Pharma, Inc.). In accordance with
the acquisition agreement, United Therapeutics was obligated to issue
additional shares (subject to certain reductions) to Cooke PH, Inc. as a result
of United Therapeutics stock price falling below a certain level. During 2002,
United Therapeutics and Cooke PH, Inc. agreed on that number of additional
shares to be issued. Accordingly, in May 2002, United Therapeutics issued an
aggregate of 669,002 shares of its common stock to Cooke PH, Inc., pursuant to
Section 4(2) of the Securities Act of 1933.
At various times throughout 2002, United Therapeutics issued options to
consultants in exchange for services. The aggregate number of options issued
to consultants was 44,334. Upon exercise, each option may be converted into
one share of United Therapeutics common stock in exchange for cash equal to the
exercise price. All exercise prices were set at the closing price of United
Therapeutics common stock on the day preceding the grant of each of these
options.
21
ITEM
6. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with United Therapeutics consolidated financial statements and
related notes and Managements Discussion and Analysis of Financial Condition
and Results of Operations included elsewhere in this Annual Report on Form
10-K. The historical results are not necessarily indicative of results to be
expected for future periods.
22
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and related notes appearing elsewhere in this
annual report. The following discussion contains forward-looking statements
concerning, among other things, the expectation of continued losses, cash needed for clinical trials
and product research and development contract obligations during 2003, the
funding for such expenses, expectations concerning milestone and royalty
payments in 2003, the use of net operating loss carryforwards and business tax
credit carryforwards, the completion of in-process research and development
projects, the commencement of material net cash inflows from major research and
development projects, the filing of marketing applications, the outcome and
timing of regulatory approvals, the expected levels and timing of Remodulin
sales, expected levels of future net losses and the adequacy of United
Therapeutics resources to fund operations through 2006 which are based on
United Therapeutics beliefs and expectations as to future outcomes. These
forward-looking statements reflect the plans and estimated beliefs of
management as of the date of this report. Actual results could differ
materially from those anticipated in the forward-looking statements. Factors
that could cause or contribute to such differences include those discussed
below and elsewhere in this Annual Report, particularly in Risk
Factors. United Therapeutics undertakes no obligation to
publicly update forward-looking statements, whether as a result of
new information, future events or otherwise.
Overview
United Therapeutics is a biotechnology company focused on the development
and commercialization of unique therapeutic products to treat chronic and
life-threatening cardiovascular, infectious and oncological diseases. United
Therapeutics commenced operations in June 1996 and, since its inception, has
devoted substantially all of its resources to acquisitions and research and
development programs. United Therapeutics lead product is Remodulin. On May
21, 2002, the United States Food and Drug Administration (FDA) approved
Remodulin (treprostinil sodium) Injection for the treatment of pulmonary
arterial hypertension in patients with NYHA class II-IV symptoms to diminish
symptoms associated with exercise. United Therapeutics agreed with the FDA
that it would perform a post-marketing phase IV clinical study to further
assess the clinical benefits of Remodulin. The phase IV study commenced in
late 2002 and must be completed within 24 months from the May 2002 approval.
Continued FDA approval is conditioned on the completion and outcome of the
phase IV study. On October 7, 2002, the Canadian Therapeutics Products
Directorate approved Remodulin for long term subcutaneous treatment of
pulmonary arterial hypertension in NYHA class III and IV patients who did not
respond adequately to conventional therapy. On October 31, 2002, the Israeli
Ministry of Health, Drug Registration Department, approved Remodulin for the
treatment of primary pulmonary arterial hypertension and pulmonary arterial
hypertension associated with connective tissue disorders. Remodulin marketing
applications are under review in France, Australia and Switzerland with
additional European filings to follow approval in France. United Therapeutics
has generated pharmaceutical revenues from sales of Remodulin to United States
based distributors and on a government-reimbursed basis in certain European
countries, arginine product sales, chemical synthesis services, the resale of
certain medical supplies used for its pharmaceutical products and government
grants. In addition, United Therapeutics has generated non-pharmaceutical
revenues from telemedicine products and services. United Therapeutics has
funded its operations primarily from the proceeds of the sales of common stock.
23
As of January 31, 2003, approximately 550 patients receive Remodulin
therapy worldwide, of which approximately 410 are reimbursable patients.
Virtually all of the currently non-reimbursable patients reside in countries
where Remodulin is not yet approved. Non-reimbursable patients are those
patients who do not yet pay for Remodulin. Remodulin is sold and marketed to
reimbursable patients in the United States by Priority Healthcare Corporation
and Accredo Therapeutics, Inc. (formerly Gentiva Health Services, Inc.) and by
six international distributors outside of the United States. United
Therapeutics is the manufacturer of Remodulin and sells Remodulin in bulk
shipments to its distributors. The timing and extent of United Therapeutics
sales of Remodulin are impacted by the timing and extent of these bulk orders
from distributors. Therefore, sales of Remodulin to distributors in any given
quarter may not be indicative of patient demand in that quarter. Sales of
Remodulin and Remodulin delivery pumps and supplies are recognized as revenue
when delivered to the distributors.
United Therapeutics has incurred net losses each year since inception and
had an accumulated deficit of $185.8 million at December 31, 2002. United
Therapeutics expects to continue to incur net losses and cannot provide
assurances that, in the future, it will become profitable.
Major Research and Development Projects
The major research and development projects of United Therapeutics are
Remodulin for cardiovascular diseases, immunotherapeutic monoclonal antibodies
(antibodies that activate a patients immune response) for a variety of cancers
and glycobiology antiviral agents (a class of small molecules that may be
effective as oral therapies) for infectious diseases.
Remodulin was approved in May 2002 for the treatment of pulmonary arterial
hypertension in NYHA Class II-IV patients to diminish symptoms associated with
exercise. Remodulin was also approved in Canada and Israel in October 2002 for
similar uses. Regulatory applications and reviews of Remodulin for pulmonary
arterial hypertension are ongoing in Europe and other countries and are
expected to be completed in 2003 and 2004. A condition of FDA approval is
that a phase IV clinical study must be completed within two years of the
approval date. Material net cash inflows from the sales of Remodulin for
pulmonary arterial hypertension commenced in May 2002 after FDA approval was
received.
Remodulin is also being developed for the treatment of critical limb
ischemia (the advanced stage of vascular disease affecting blood vessels in the
legs). United Therapeutics has completed one phase II clinical study and
pre-pivotal clinical studies are currently underway. United Therapeutics
incurred expenses of approximately $8.8 million, $22.5 million, and $41.5
million during the years ended December 31, 2002, 2001 and 2000, respectively,
on Remodulin development. Approximately $111.1 million from inception to date
has been incurred for Remodulin.
United Therapeutics monoclonal antibody immunotherapies were in-licensed
in April 2002 from AltaRex Corp. OvaRex is the lead product and is currently
being studied in two identical phase III clinical trials in advanced ovarian
cancer patients. These studies commenced in January 2003 and are expected to
require two years to become fully enrolled. United Therapeutics incurred
expenses of approximately $6.4 million from inception to date, all of which was
incurred for these programs since April 2002.
United Therapeutics infectious disease program includes drug candidates
in the preclinical and clinical stages of testing. The drugs in this program
are being developed for hepatitis C, hepatitis B and other infectious diseases.
The first candidate for hepatitis C, UT-231B, completed acute and chronic
phase I clinical dosing studies to assess safety in healthy volunteers in early
2003. United Therapeutics incurred expenses of approximately $6.9 million,
$5.7 million, and $8.7 million during the years ended December 31, 2002, 2001
and 2000, respectively, for its infectious disease programs. Approximately
$21.3 million from inception to date has been incurred for these programs.
Due to the inherent uncertainties involved in the drug development,
regulatory review and approval processes, the anticipated completion dates, the
cost of completing the research and development and the period in which
material net cash inflows from these projects are expected to commence are not
known or estimable. There are many risks and uncertainties associated with
completing the development of Remodulin, OvaRex and UT-231B. These include:
24
If these projects are not completed timely, regulatory approvals would be
delayed and United Therapeutics operations, liquidity and financial position
could suffer. Without regulatory approvals, United Therapeutics may not
commercialize and sell these products and, therefore, potential revenues and
profits from these products would be delayed or impossible to achieve.
Financial Position
Cash, cash equivalents and marketable investments at December 31, 2002
were approximately $132.7 million as compared to approximately $172.3 million
at December 31, 2001. The decrease of approximately $39.6 million is due
primarily to cash used in operating activities totaling approximately $22.3
million, a loss on marketable investments of approximately $7.4 million, the
acquisition of an investment in AltaRex totaling approximately $4.9 million
including acquisition expenses and the purchase of properties next to the
Silver Spring, Maryland headquarters for approximately $1.7 million.
Accounts receivable at December 31, 2002 were approximately $9.6 million,
as compared to approximately $1.5 million at December 31, 2001. The increase of
approximately $8.1 million was due primarily to sales of Remodulin and related
infusion pumps and supplies.
Investments in affiliates at December 31, 2002 were approximately $6.4
million, as compared to approximately $4.3 million at December 31, 2001. The
increase of approximately $2.1 million was due primarily to the acquisition in
April and August 2002 of 19.9 percent of the outstanding stock of AltaRex Corp.
At December 31, 2002, total liabilities were approximately $12.9 million,
as compared to approximately $15.7 million at December 31, 2001, and consisted
primarily of trade payables, accrued expenses, amounts due to affiliates and
notes payable. At December 31, 2002, total stockholders equity was
approximately $171.7 million, as compared to $196.4 million at December 31,
2001. The decrease in stockholders equity of approximately $24.7 million was
due primarily to the net loss incurred during the year ended December 31, 2002.
Results Of Operations
Years
ended December 31, 2002 and 2001
Revenues for the year ended December 31, 2002 were approximately $30.1
million, as compared to approximately $5.7 million for the year ended December
31, 2001. The increase was due primarily to United Therapeutics 2002 sales of
approximately $21.2 million of Remodulin and approximately $3.7 million of
pumps and supplies to distributors in connection with Remodulin, compared to
2001 sales of approximately $493,000 of Remodulin and approximately $1.1
million of pumps and supplies. In addition, 2002 sales of other products and
services increased in the aggregate by approximately $1.1 million to
approximately $5.2 million.
Research and development expenses consist primarily of costs to acquire
pharmaceutical products and product rights for development, amounts paid to
contract research organizations, hospitals and laboratories for the provision
of services and materials for drug development and clinical trials, salaries
and related costs and research office expenses. Research and development
expenses were approximately $26.8 million for the year ended December 31, 2002,
as compared to approximately $32.6 million for the year ended December 31,
2001. The decrease of approximately $5.8 million was due primarily to a
decrease from 2001 to 2002 in expenses related to patient enrollment in
clinical trials of approximately $12.9 million offset by an increase in 2002 of
approximately $7.8 million related to expenses for United Therapeutics
infectious disease program and the OvaRex program, which was licensed to United
Therapeutics in April 2002. See
Major Research and Development Projects
above
for additional information.
General and administrative expenses consist primarily of salaries and
related costs, office expenses, insurance, professional fees, provisions for
doubtful accounts receivable and obsolete inventory, depreciation and
amortization. General and administrative expenses were approximately $11.4
million for the year ended December 31, 2002, as compared to approximately
$13.6 million for the year ended December 31, 2001. This decrease of
approximately $2.2 million was due
25
primarily to decreased expenses of
approximately $1.1 million related to the transfer of certain employees and
related expenses from third party contract manufacturing activities to internal
research and development functions, amortization of goodwill of approximately
$1.1 million for the year ended December 31, 2001 with no corresponding amount
in 2002 (due to the adoption of SFAS No. 142 on January 1, 2002 which
eliminated goodwill amortization), decreased option expenses to consultants of
approximately $911,000, decreased travel expenses of approximately $416,000 and
decreased expenses of approximately $553,000 related to the transfer of certain
administrative employees and related expenses to sales and marketing functions.
These decreases were offset by increases in expenses related primarily to
increased salaries and benefits of approximately $1.1 million, increased rent
and office operating costs of approximately $583,000 and increased insurance of
approximately $493,000.
Sales and marketing consists of the salaries, travel and other expenses
necessary to market United Therapeutics products. Sales and marketing
expenses for year ended December 31, 2002 were approximately $4.4 million, as
compared to approximately $3.4 million for the year ended December 31, 2001.
The increase was due primarily to increased selling and marketing efforts
related to United Therapeutics products.
Cost of sales consists of the cost to manufacture or acquire products that
are sold to customers. Cost of product sales was approximately 14% of product
sales for the year ended December 31, 2002 as compared to approximately 57% in
2001. The decrease in cost of product sales as a percentage of product sales
was due primarily to the commercial launch of Remodulin in May 2002. In 2001,
product sales consisted largely of Remodulin pumps and supplies which were sold
to Remodulin distributors at their acquisition cost. Cost of service sales was
approximately 49% of service sales for year ended December 31, 2002 as compared
to approximately 55% in 2001. The decrease in the cost of service sales as a
percentage of service sales was due primarily to the growth in telemedicine
service sales, which generated higher margins than other service sales.
Interest income for the year ended December 31, 2002 was approximately
$5.0 million, as compared to approximately $10.0 million for the year ended
December 31, 2001. This decrease of approximately $5.0 million was attributable
primarily to lower yields in 2002 and a decrease in the amount of cash
available for investing as compared to 2001.
The write-down of investment in 2002 represents a loss due to an
other-than-temporary decline in value of the investment in AltaRex. For the
six-month period ended September 30, 2002, the quoted market price of AltaRexs
common stock was consistently less than United Therapeutics cost. This was
determined to be an other-than-temporary decline in the value of AltaRexs
common stock held by United Therapeutics. As a result, the investment in
AltaRex was written down to its fair value as determined by quoted market
prices in September 2002. The write-down totaled approximately $2.9 million.
The fair value of this investment as determined by quoted market prices on
December 31, 2002 was equivalent to the amount reported in the consolidated
balance sheet.
The loss on marketable investments for the year ended December 31, 2002
was approximately $7.4 million, as compared to none for the year ended December
31, 2001. In March 2002, United Therapeutics reported a $538,000 write-down
due to an other-than-temporary decline in value of one of its marketable
investments. In June 2002, United Therapeutics began reassessing its
investment program in light of increasingly adverse conditions in the bond
markets. As a result, all marketable debt investments were sold in July 2002.
A write-down of investments totaling approximately $3.6 million was necessary
to adjust the value of United Therapeutics marketable investments to their
fair value based on quoted market prices at June 30, 2002. In July 2002,
United Therapeutics recorded an additional realized loss of approximately $3.3
million as a result of the liquidation of the investment portfolio.
Years ended December 31,
2001 and 2000
Revenues for the year ended December 31, 2001 were approximately $5.7
million, as compared to approximately $2.0 million for the year ended December
31, 2000. The increase was due primarily to sales of Remodulin and telemedicine
services. Approximately $493,000 was earned from the sale of Remodulin to
foreign distributors for the use in government-reimbursed patients in certain
European countries. Approximately $1.1 million of these revenues was earned
from the resale of pumps and supplies to distributors. Sales of cardiac
monitoring devices and services totaled approximately $2.8 million of these
revenues, following United Therapeutics acquisition of the assets of Medicomp,
Inc. and Telemedical Procedures, LLC in December 2000. Sales of HeartBar
products totaled approximately $542,000, following United Therapeutics
acquisition of the assets and liabilities of Cooke PH, Inc. in December 2000.
Approximately $801,000 of United Therapeutics 2001 revenues were earned by its
synthesis and manufacturing division for the synthesis and manufacture of
complex molecules for third parties.
26
Research and development expenses were $32.6 million for the year ended
December 31, 2001, as compared to approximately $70.2 million for the year
ended December 31, 2000. The decrease of approximately $37.6 million was due
primarily to the expenditure in 2000 of approximately $19.8 million in
licensing fees (consisting of $1.0 million in cash and common stock valued at
$18.8 million) to obtain the exclusive rights to develop sustained release
formulations of beraprost in the United States and Canada and expenses of
approximately $16.9 million related to the acquisition of in-process research
and development (see
In-Process Research & Development
). Also, see
Major
Research and Development Projects
above for additional information.
General and administrative expenses were $13.6 million for the year ended
December 31, 2001, as compared to $11.7 million for the year ended December 31,
2000. This increase was primarily due to increased expenses in 2001 of
approximately $564,000 related to provisions for doubtful accounts receivable
and obsolete inventory, and approximately $1.9 million of increased
depreciation and amortization of goodwill and other intangible assets resulting
from the acquisitions of Medicomp, Inc., Telemedical Procedures, LLC and Cooke
Pharma, Inc. in December 2000. These increases were offset by a nonrecurring
grant in 2000 of stock totaling $1.5 million.
Sales and marketing expenses were approximately $3.4 million for the year
ended December 31, 2001, as compared to approximately $16,000 for the year
ended December 31, 2000. This increase was due primarily to expanded activities
related to subsidiaries acquired in late 2000.
Cost of product sales was approximately 57% of product sales for the year
ended December 31, 2001 as compared to approximately 99% in 2000. The decrease
was due to sales of Remodulin to government-reimbursed patients in Europe
during 2001. In 2000, product sales consisted of Remodulin pumps and supplies
sold to Remodulin distributors at their acquisition cost. Cost of services
were approximately 55% of service sales for the year ended December 31, 2001 as
compared to 77% in 2000. The decrease was due to the addition of telemedicine
service sales in 2001. Prior to 2001, services sales consisted of synthesis
and manufacturing services.
There was no write-down of investment for the year ended December 31, 2001
as compared to $4.8 million for the year ended December 31, 2000. The
write-down in 2000 related to United Therapeutics investment in Synergy
Pharmaceuticals, Inc.
Interest income for the year ended December 31, 2001 was $10.0 million, as
compared to approximately $10.7 million for the year ended December 31, 2000.
This decrease was attributable primarily to a decrease in the amount of cash
available for investing due to cash used for operations.
In-Process
Research & Development
During 2000, United Therapeutics acquired the assets and assumed certain
liabilities of Cooke Pharma, Inc. in a purchase transaction which resulted in a
write-off of in-process research and development (IPR&D) related to in-process
projects that had not yet reached technological feasibility and had no
alternative future uses. The projects under development at the valuation date
were expected to address the coronary and peripheral arterial disease markets
as well as the market of persons that are at risk of developing some form of
heart disease. It was anticipated that research and development related to
these projects would be completed by 2002. However, United Therapeutics has
decided to initiate studies of arginine in pulmonary hypertension prior to
coronary and peripheral arterial diseases. These studies in pulmonary
hypertension commenced in 2002 and are expected to be completed in 2003. The
delay in the coronary and peripheral arterial disease studies is not expected
to have a material impact on United Therapeutics.
Also during 2000, United Therapeutics acquired the assets of Medicomp,
Inc. in a purchase transaction which resulted in a write-off of IPR&D related
to in-process projects that had not yet reached technological feasibility and
had no alternative future uses. At the acquisition date, Medicomp was
conducting design, development, engineering and testing activities associated
with the completion of a number of new technological innovations for
next-generation products. It was anticipated that completion of these projects
would occur in 2001, but completion is now expected to occur in phases in 2003
and 2004. This delay is not expected to have a material impact on United
Therapeutics.
Liquidity And Capital Resources
Until June 1999, United Therapeutics financed its operations principally
through various private placements of common stock. On June 17, 1999, United
Therapeutics completed its initial public offering. Net proceeds to United
Therapeutics from the initial public offering and sale of the over-allotment
shares, after deducting underwriting commissions
27
and offering expenses, were
approximately $56.4 million. In 2000, United Therapeutics closed two private
placements and received aggregate net proceeds of approximately $209.0 million.
United Therapeutics working capital at December 31, 2002 was
approximately $132.6 million, as compared with approximately $58.2 million at
December 31, 2001. The increase of approximately $74.4 million is due
primarily to the sale of noncurrent marketable investments in July 2002 and
their reinvestment in commercial paper and money market funds which are
classified as current assets, and an increase in accounts receivable due to
sales of Remodulin and related infusion pumps after the May 2002 FDA approval.
Current liabilities at December 31, 2002 were approximately $9.3 million, as
compared with approximately $10.8 million at December 31, 2001. United
Therapeutics debt at December 31, 2002 and December 31, 2001 was approximately
$1.9 million and consisted of equipment leases, two mortgage notes, one secured
by a certificate of deposit and both secured by the buildings and property
owned by United Therapeutics located at 1106-1110 Spring Street in Silver
Spring, Maryland. Both mortgages are due in monthly installments over 30
years.
Net cash used in operating activities was approximately $22.3 million and
$38.9 million for the years ended December 31, 2002 and 2001, respectively.
For the years ended December 31, 2002 and 2001, United Therapeutics invested
approximately $3.6 million and $687,000, respectively, in cash for property,
plant and equipment. In September 2002, United Therapeutics purchased the
property next to its Silver Spring, Maryland headquarters for approximately
$1.7 million in cash. In April and August 2002, United Therapeutics invested
approximately $4.9 million in AltaRex Corp. For the year ended December 31,
2002, United Therapeutics generated approximately $129.3 million of cash from
sales and maturities of marketable investments, net of reinvestments. For the
year ended December 31, 2001, United Therapeutics used approximately $134.1
million of cash to purchase marketable investments, net of sales and
maturities. Net cash provided by financing activities for the year ended
December 31, 2002 was approximately $185,000. Net cash used by financing
activities was approximately $2.9 million for the year ended December 31, 2001.
Cash flows used in financing activities for the year ended December 31, 2001
were primarily used to repurchase United Therapeutics common stock pursuant to
a stock repurchase program that expired in December 2001.
United Therapeutics currently expects to spend approximately $15 million
over the next three years to construct a laboratory production facility for use
in the OvaRex program. United Therapeutics expects to make milestone payments
totaling $620,000 pursuant to existing license agreements during 2003. United
Therapeutics expects to make royalty payments on sales of Remodulin, if annual
net sales exceed $25.0 million, and on all HeartBar products during 2003. In
December 1996, Pharmacia Corporation (formerly Pharmacia & Upjohn Company)
exclusively licensed to United Therapeutics patents and a patent application
for the composition and production of a prostacyclin analog. The Pharmacia
agreement required milestone payments of up to $325,000 for orphan indications
of a prostacyclin analog manufactured utilizing technology licensed from
Pharmacia and royalties between 2.5% (in the U.S.) and 5% (in certain other
countries) of all net sales, subject to certain offsets, until the later of the
expiration of the applicable patent or 10 years after the date of the first
commercial sale of a product in a country defined as a milestone country under
the agreement. In October 2002, United Therapeutics and Pharmacia amended the
license agreement to change the royalties to Pharmacia to 4%, subject to a 50%
reduction, on annual net sales of Remodulin in excess of $25.0 million. United
Therapeutics also pays royalties on sales of substantially all of its other
products. Royalties on sales of all products in 2003 will range up to 10.0% of
sales of those products.
United Therapeutics believes that sales of Remodulin to distributors for
use by the current base of approximately 410 reimbursable patients in the US
and Europe could provide an average annual revenue to United Therapeutics of
approximately $36 million based on current pricing and dosing levels. Based on
this current estimate, United Therapeutics believes it will continue to incur
net losses. Factors that could affect the accuracy of these expectations
include the following:
28
United Therapeutics expects that net cash generated from Remodulin sales
(at the level discussed above) together with existing capital resources
(comprised primarily of cash and cash equivalents) will be adequate to fund its
operations through 2006. United Therapeutics future capital requirements and
the adequacy of its available funds will depend on many factors, including:
As of December 31, 2002, United Therapeutics had available approximately
$104.2 million in net operating loss carryforwards and
approximately $27.8
million in business tax credit carryforwards for federal income tax purposes
that expire at various dates through 2022. The portions of these carryforward
items that were generated prior to June 1999 are subject to certain
limitations. United Therapeutics does not believe that the limitations will
cause the net operating loss and general business credit carryforwards to
expire unused.
Summary of Critical Accounting Policies
Remodulin
Revenue Recognition
Product sales of Remodulin are recognized when delivered to distributors,
which are United Therapeutics customers for Remodulin. Product sales of
Remodulin delivery pumps and related supplies are recognized when delivered to
distributors on a gross basis in accordance with EITF Issue No.
99-19,
Reporting Revenue Gross as a Principal versus Net as an
Agent
. Title to these products passes upon delivery.
Prompt payment discounts are estimated and recognized as reductions of revenue
in the same period that revenues are recognized. Return policies provide that
product that has expired or become damaged in shipment may be exchanged, but
not returned. To date, United Therapeutics has not experienced any returns
from customers and does not expect future returns. Therefore, no accruals for
expired or damaged product have been recorded.
Intangible Assets
United Therapeutics adopted the provisions of Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS No.
142) during 2002, which eliminated the amortization of goodwill. Rather,
goodwill is subject to at least an annual assessment for impairment by applying
a fair-value based test. United Therapeutics continually evaluates whether
events and circumstances have occurred that indicate that the remaining value
of goodwill may not be recoverable. At December 31, 2002, management believes
that goodwill was not impaired. This conclusion is based on managements
judgment, taking into consideration expectations regarding future profitability
and the status of the reporting units which have reported goodwill. However,
changes in strategy or adverse changes in market conditions could impact this
judgment and require an impairment loss to be recognized for the amount that
the carrying value of goodwill exceeds its fair value.
Marketable
Investments
Currently, United Therapeutics invests portions of its cash in money
market funds, commercial paper and securities issued by federally sponsored
agencies. Prior to and during July 2002, United Therapeutics invested portions
of its cash in marketable debt securities. Due to United Therapeutics intent
and ability to hold these marketable debt investments until their maturities,
they had historically been reported at their amortized cost in the consolidated
balance sheets. In June 2002,
29
United Therapeutics began reassessing its
investment program. As a result, United Therapeutics liquidated all its
marketable investments in July 2002 in order to invest the proceeds in money
market funds, commercial paper and federal instruments. As a result, United
Therapeutics was required to reclassify these investments as available-for-sale
and report them in the June 30, 2002 balance sheet at their current fair market
values based on quoted market prices. This resulted in a write-down of
approximately $3.6 million in June 2002 and an additional loss of approximately
$3.3 million upon the sale of these investments in July 2002.
Inventory
Capitalization
Prior to FDA approval of Remodulin, United Therapeutics capitalized
inventory costs associated with the synthesis and manufacture of Remodulin,
based on managements judgment of probable future commercialization. Remodulin
received FDA approval on May 21, 2002.
Stock
Options
United Therapeutics applies the principles of APB No. 25 in accounting for
its stock options issued to its employees. Had United Therapeutics applied the
fair value principles of SFAS No. 123 for its employee options, its net loss
for the years ended December 31, 2002, 2001 and 2000 would have been
approximately $41.7 million, $50.3 million and $118.1 million, respectively, as
compared to approximately $23.7 million, $37.3 million and $75.6 million,
respectively.
Investments in Affiliates
The equity method of accounting is used to account for most of United
Therapeutics investments in affiliates. The equity method of accounting
generally requires United Therapeutics to report its share of the affiliates
net losses or profits in its financial statements, but does not require that
assets, liabilities, revenues and expenses of the affiliates be consolidated
with United Therapeutics financial statements. The equity method of
accounting is being applied generally due to the lack of control over these
affiliates and the levels of ownership held by United Therapeutics.
Other investments in affiliates are accounted for on the cost method
generally due to the lack of significant influence over these affiliates and a
less than 20% ownership by United Therapeutics. The cost method of accounting
does not require that United Therapeutics report its share of the affiliates
net losses or profits in its financial statements, nor are affiliates assets,
liabilities, revenues and expenses consolidated with United Therapeutics
financial statements.
Options
Issued in Exchange for License
In connection with the license from Toray Industries for the sustained
release formulation of beraprost, United Therapeutics agreed to grant 500,000
options to Toray upon Torays transfer of clinical trial material for use in
clinical trials in the U.S. These options will not be priced until the
clinical trial material milestone has been met by Toray. Before Toray can
produce the clinical trial material, it will need to complete formulation,
preclinical testing and early clinical studies. Due to the uncertainties in
drug development, it is not yet known if Toray will provide the appropriate
clinical trial material. Therefore, in accordance with EITF Issue No. 96-18,
Accounting for Equity Instruments that are Issued to Other than Employees,
these options are measured at their lowest aggregate fair value at each interim
reporting date, which amount has been zero. As a result, no expense related to
these options has been recorded in the consolidated financial statements.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board (the FASB) issued
SFAS No. 141,
Business Combinations
(SFAS 141), and SFAS No. 142,
Goodwill And
Other Intangible Assets
(SFAS 142). SFAS 141 addresses the accounting for
acquisitions of businesses and is effective for acquisitions occurring on or
after July 1, 2001. SFAS 142 addresses the method of identifying and measuring
goodwill and other intangible assets acquired in a business combination,
eliminates further amortization of goodwill, and requires periodic evaluations
of impairment of goodwill balances. United Therapeutics adopted SFAS 142 as of
January 1, 2002. The main impact of the adoption was to reduce amortization of
goodwill expense by approximately $1.1 million in 2002.
In October 2001, the FASB issued SFAS No. 144,
Accounting for Impairment
or Disposal of Long-Lived Assets
(SFAS 144). The provisions of SFAS 144
require the use of a consistent accounting model for long-lived assets to be
disposed of by sale, whether previously held and used or newly acquired and
extends the presentation of discontinued operations to include more disposal
transactions. United Therapeutics adopted SFAS 144 as of January 1, 2002. The
adoption had no impact on the consolidated financial statements.
30
In June 2002, the Financial Accounting Standards Board issued SFAS No.
146,
Accounting for Costs Associated with Exit or Disposal Activities
(SFAS
146). SFAS 146 addresses the financial accounting and reporting for costs
associated with exit or disposal activities and is effective for exit or
disposal activities initiated after December 31, 2002. SFAS No. 146 will be
adopted effective January 1, 2003, and is not expected to have a significant
impact on United Therapeutics financial statements.
In December 2002, the Financial Accounting Standards Board issued SFAS
148,
Accounting for Stock-Based CompensationTransition and Disclosure-an
amendment of FASB Statement No. 123
(SFAS 148). SFAS 148 provides financial
accounting guidance for changes in the accounting method for stock options
issued to employees and disclosure requirement for stock-based employee
compensation for financial statements issued after December 15, 2002. United
Therapeutics adopted SFAS 148 as of December 15, 2002, which resulted in
additional disclosures in the
Notes to Consolidated Financial Statements
.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At December 31, 2002, a substantial portion of United Therapeutics assets
were comprised of investment grade corporate commercial paper and debt
securities issued by federally sponsored agencies. The market value of these
investments fluctuates with changes in current market interest rates. In
general, as rates increase, the market value of a debt instrument would be
expected to decrease. The opposite is also true. To minimize such market
risk, United Therapeutics holds such instruments to maturity at which time
these instruments would be redeemed at their stated or face value. At December
31, 2002, United Therapeutics had approximately $5.0 million in commercial
paper with a weighted average stated interest rate of approximately 1.33%
maturing in January 2003. Additionally, United Therapeutics had one Federal
Home Loan Mortgage Corporation (Freddie Mac) note in the amount of $10.0
million at December 31, 2002. The Freddie Mac note is callable annually by
Freddie Mac, matures in 2009 and bears a stated interest rate of 3% which
automatically increases by 50 basis points each year.
31
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
UNITED THERAPEUTICS CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
Independent Auditors Report
The Board of Directors
We have audited the accompanying consolidated balance sheets of United
Therapeutics Corporation and subsidiaries (the Company) as of December 31, 2002
and 2001, and the related consolidated statements of operations, stockholders
equity, and cash flows for each of the years in the three-year period ended
December 31, 2002. These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of United
Therapeutics Corporation and subsidiaries as of December 31, 2002 and 2001, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America.
As discussed in note 15 to the consolidated financial statements,
effective January 1, 2002, the Company adopted the provisions of SFAS No. 142,
Goodwill and Other Intangible Assets"
.
KPMG LLP
McLean, Virginia
F-2
UNITED THERAPEUTICS CORPORATION
Consolidated Balance Sheets
See accompanying notes to consolidated financial statements.
F-3
UNITED THERAPEUTICS CORPORATION
Consolidated Statements of Operations
See accompanying notes to consolidated financial statements.
F-4
UNITED THERAPEUTICS CORPORATION
Consolidated Statements of Stockholders Equity
See accompanying notes to consolidated financial statements.
F-5
UNITED THERAPEUTICS CORPORATION
Consolidated Statements of Cash Flows
F-6
UNITED THERAPEUTICS CORPORATION
Consolidated Statements of Cash
Flows, continued
See accompanying notes to consolidated financial statements.
F-7
UNITED THERAPEUTICS CORPORATION
Notes to Consolidated Financial Statements
1. Organization and Business Description
United Therapeutics Corporation (United Therapeutics) is a biotechnology
company focused on commercialization of unique therapeutic products to treat
patients with chronic and life-threatening cardiovascular, infectious and
oncological diseases. United Therapeutics was incorporated on June 26, 1996
under the laws of the State of Delaware and has the following wholly owned
subsidiaries: Lung Rx, Inc., Unither Pharmaceuticals, Inc. (UPI), Unither
Telemedicine Services Corp. (UTSC), United Therapeutics Europe, Ltd., Unither
Pharma, Inc., Medicomp, Inc., and Unither Nutriceuticals, Inc.
United Therapeutics lead product is Remodulin. On May 21, 2002, the
United States Food and Drug Administration (FDA) approved Remodulin
(treprostinil sodium) Injection for the treatment of pulmonary arterial
hypertension in patients with NYHA class II-IV symptoms to diminish symptoms
associated with exercise. United Therapeutics agreed with the FDA that it
would perform a post-marketing phase IV clinical study to further assess the
clinical benefits of Remodulin. The phase IV study commenced in late 2002 and
must be completed within 24 months from the May 2002 approval. Continued FDA
approval is conditioned on the completion and outcome of the phase IV study.
On October 7, 2002, the Canadian Therapeutics Products Directorate approved
Remodulin for long term subcutaneous treatment of pulmonary arterial
hypertension in NYHA class III and IV patients who did not respond adequately
to conventional therapy. On October 31, 2002, the Israeli Ministry of Health,
Drug Registration Department, approved Remodulin for the treatment of primary
pulmonary arterial hypertension and pulmonary arterial hypertension associated
with connective tissue disorders. Remodulin marketing applications are under
review in France, Australia and Switzerland with additional European filings to
follow approval in France. United Therapeutics has generated pharmaceutical
revenues from sales of Remodulin to United States based distributors and on a
government-reimbursed basis in certain European countries, arginine product
sales, chemical synthesis services, the resale of certain medical supplies used
for its pharmaceutical products and government grants. In addition, United
Therapeutics has generated non-pharmaceutical revenues from telemedicine
products and services. United Therapeutics has funded its operations primarily
from the proceeds of the sales of common stock.
2. Summary of Significant Accounting Policies
Principles
of Consolidation
The consolidated financial statements include the financial statements of
United Therapeutics Corporation and its wholly owned subsidiaries. All
significant intercompany balances and transactions are eliminated in
consolidation.
Cash
Equivalents
Cash equivalents consist of highly liquid investments with original
maturities of three months or less. Cash equivalents consist of money market
funds, commercial paper, and certificates of deposit and amount to
approximately $122.7 million and $24.4 million at December 31, 2002 and 2001,
respectively.
Inventories
United Therapeutics manufactures certain compounds and purchases medical
supplies for use in its product sales and ongoing clinical trials. United
Therapeutics purchases components and assembles cardiac monitoring equipment.
United Therapeutics contracts with a third party manufacturer to make the
HeartBar products. These inventories are accounted for under the first-in,
first-out method. At December 31, 2002 and 2001, inventories consisted of the
following (in thousands):
F-8
UNITED THERAPEUTICS CORPORATION
Notes to Consolidated Financial Statements (Continued)
Property,
Plant, and Equipment
Property, plant, and equipment are stated at cost. Depreciation is
computed using the straight-line method over the estimated useful lives of the
assets. Estimated useful lives of the assets are as follows:
Property, plant and equipment at December 31, 2002 and 2001 consisted of
the following (in thousands):
Research
and Development
Research and product development costs are expensed as incurred. Acquired
in-process research and development is expensed if technological feasibility
has not been demonstrated and there is no alternative use for the in-process
technology.
Licensed
Technology
Costs incurred in obtaining the license rights to technology in the
research and development stage and that have no alternative future uses are
expensed as incurred and in accordance with the specific contractual terms of
the applicable license agreements.
Income
Taxes
Income taxes are accounted for in accordance with SFAS No. 109,
Accounting
for Income Taxes
. Under the asset and liability method of SFAS No. 109,
deferred tax assets and liabilities are determined based on the differences
between the financial reporting and the tax bases of assets and liabilities and
are measured using the tax rates and laws that are expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled.
Marketable
Investments
United Therapeutics marketable investments are considered
held-to-maturity securities. Held-to-maturity securities are those securities
which United Therapeutics has the ability and intent to hold until maturity and
are recorded at amortized cost, adjusted for the amortization or accretion of
premiums or discounts. Premiums and discounts are amortized or accreted over
the life of the related held-to-maturity security as an adjustment to yield
using the effective interest method. Declines in market values below amortized
cost that are considered other-than-temporary are reported in the statement of
operations as losses.
Goodwill
and Other Intangible Assets
Goodwill represents the excess of purchase price and related costs over
the value assigned to the net tangible and intangible assets of the business
acquired. Goodwill resulting from the purchase of SynQuest, Inc. was amortized
using the straight-line method over five years. Goodwill resulting from the
purchase of Medicomp was amortized using the straight-line method over a
twenty-year life. United Therapeutics ceased amortizing goodwill upon the
adoption of SFAS No. 142,
Goodwill and Other Intangible Assets
, on January 1,
2002. Other intangible assets resulting from these purchases relate to
F-9
UNITED THERAPEUTICS CORPORATION
Notes to Consolidated Financial Statements (Continued)
covenants not to compete, employment agreements, technology, patents, and trade
names and were determined on the basis of independent valuations. The other
intangibles are being amortized over three to eighteen years, consistent with
the terms of the underlying agreements. Total amortization expense was
approximately $899,000, $1,963,000, and $602,000 for the years ended December
31, 2002, 2001, and 2000, respectively.
Goodwill is tested annually for impairment. Intangible assets subject to
amortization are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The measurement of possible impairment is based primarily on the
ability to recover the balance of the goodwill and other intangible assets from
expected future operating cash flows on an undiscounted basis. Impairment
losses are recognized when expected future cash flows are estimated to be less
than the assets carrying value. In managements opinion, no impairment exists
at December 31, 2002.
Other intangibles assets at December 31, 2002 and December 31, 2001 were
comprised as follows (in thousands):
The estimated future annual expense related to the amortization of
intangible assets for each of the five succeeding years is estimated as follows
(in thousands):
Investments
in Affiliates
The investments in affiliates represent United Therapeutics investments
in Northern Therapeutics, Preventis, and WonderClick (note 11) which are being
accounted for on the equity method of accounting. Also represented in this
account is the investment in Synergy (note 4) which is being accounted for on
the cost method and the investment in AltaRex Corp. (note 4) which is being
accounted for as an available-for-sale security.
Available-for-sale securities are reported at their fair values in the
balance sheet. Changes in their fair values are reported as other
comprehensive income or expense.
Fair
Value of Financial Instruments
The carrying amounts of cash and cash equivalents, marketable investments,
accounts receivables, accounts payable, and accrued expenses, approximate fair
value due to their short maturities. The carrying amount of the United
Therapeutics notes payable approximate fair value, since they are adjustable
rate notes.
F-10
UNITED THERAPEUTICS CORPORATION
Notes to Consolidated Financial Statements (Continued)
Loss
per Common Share
Basic loss per common share is computed by dividing net loss by the
weighted average number of shares of common stock outstanding during the
respective periods. Options and warrants that could potentially dilute earnings
per share in the future were not included in the computation of diluted loss
per share because to do so would have been antidilutive for the periods
presented. As of December 31, 2002, these options and warrants totaled
approximately 201,000 shares. Accordingly, diluted loss per common share is the
same as basic loss per common share.
Use
of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
Stock
Option Plan
United Therapeutics applies the provisions of SFAS No. 123,
Accounting for
Stock-Based Compensation
, to account for its stock options. SFAS No. 123 allows
companies to continue to apply the provisions of APB Opinion No. 25,
Accounting
for Stock Issued to Employees
, and related interpretations and provide pro
forma net income and pro forma earnings per share disclosures for employee
stock options granted as if the fair-value-based method defined in SFAS No. 123
had been applied. The Company has elected to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosures of SFAS No. 123. The
Company accounts for non-employee stock option awards in accordance with SFAS
No. 123.
As a result of applying APB Opinion No. 25, and related interpretations,
no stock-based employee compensation cost is reflected in net loss, as all
options granted to employees had an exercise price equal to or greater than the
market value of the underlying common stock on the date of grant. The
following table illustrates the effect on net loss and loss per share if United
Therapeutics had applied the fair value recognition provisions of SFAS No. 123
to stock-based employee compensation (in thousands, except per share amounts).
Revenues
Revenues are recognized in the financial statements only when considered
realizable and earned.
Product sales of Remodulin are recognized when delivered to distributors,
which are United Therapeutics customers for Remodulin. Product sales of
Remodulin delivery pumps and related supplies are recognized when delivered to
distributors on a gross basis in accordance with EITF Issue No.
99-19,
Reporting Revenue Gross as a Principal versus Net as an
Agent
. Title to these products passes upon delivery.
Prompt payment discounts are estimated and recognized as reductions of revenue
in the same period that revenues are recognized. Return policies provide that
product that has expired or become damaged in shipment may be exchanged, but
not returned. To date, United Therapeutics has not experienced any returns
from customers and does not expect future returns. Therefore, no accruals for
expired or damaged product have been recorded.
Service sales from monitoring analysis services are recognized when the
services are performed.
F-11
UNITED THERAPEUTICS CORPORATION
Notes to Consolidated Financial Statements (Continued)
Product sales of Holter and event monitoring systems are recognized when
delivered to customers.
Product sales from the HeartBar product line are recognized when delivered
to customers. If the products are consigned, sales are recognized in the period
that the consignee has sold the product. Product sales are recorded net of
allowances for estimated returns and rebates.
Service sales from the synthesis and manufacture of complex compounds by
the United Therapeutics manufacturing division were generally made under fixed
price agreements. United Therapeutics recognizes revenue based on the
percentage-of-completion method. Billings in excess of amounts recognized as
revenues are reported as deferred revenues. Losses on these contracts, if any,
are recognized as soon as they are anticipated. No such revenues were earned
in 2002.
Grant revenues are recognized on the percentage-of-completion basis. No
such revenues were earned in 2002.
Deferred
Offering Costs
Costs incurred in connection with the planned sale of common stock in a
private placement were deferred and reported as assets in the accompanying
balance sheets. Upon successful completion of the sale, these deferred offering
costs were netted against the additional paid-in capital resulting from the
sale.
Treasury
Stock
Treasury stock is reported at cost, including commissions and fees.
Concentrations
of Suppliers, Products and Customers
United Therapeutics currently relies on a single supplier to test the
purity of each batch of Remodulin and other products, and on a single supplier
for the delivery device to administer Remodulin to patients. Additionally,
Remodulin is formulated, packaged and warehoused by a single formulator.
United Therapeutics also relies on a single supplier to produce clinical trial
supplies for OvaRex. Although there are a limited number of companies that
could replace each of these suppliers, management believes that other suppliers
could provide similar services and materials. A change in suppliers, however,
could cause a delay in distribution of Remodulin and in the conduct of clinical
trials and commercial launch for products in development, which would adversely
affect the Companys research and development efforts and future sales efforts.
During 2002, Remodulin drug sales accounted for approximately 70% of total
revenues. The majority of these Remodulin drug sales were made to United
States distributors. In the United States, United Therapeutics has contracted
with two distributors who purchase and market Remodulin. There are several
other qualified distributors that could market Remodulin, if an existing
distributor ceased to market Remodulin.
United Therapeutics relies solely on one manufacturer to manufacture its
HeartBar products. Although there are a limited number of companies that could
replace this supplier, management believes that other suppliers could provide
similar services and materials. A change in supplier, however, could cause a
delay in the manufacture and distribution of HeartBar which would adversely
affect the Companys sales efforts.
Reclassifications
Certain amounts in the 2001 and 2000 consolidated financial statements
were reclassified to conform to the 2002 presentation.
3. Related Party Transactions
Office
Leases
In December 2001, a subsidiary of United Therapeutics leased office space
from Beacon Projects, Inc., a company owned by the Chairman and CEO of United
Therapeutics. The property was sold in 2002 by Beacon and the United
Therapeutics subsidiary now leases from the successor (unrelated) landlord.
During the year ended December 31, 2002, the total amount paid to Beacon
Projects was approximately $57,000.
F-12
UNITED THERAPEUTICS CORPORATION
Notes
to Consolidated Financial Statements (Continued)
In March 1999 and December 2000, UTSC entered into lease agreements for
office space from Beacon Projects, Inc. United Therapeutics incurred expenses
of approximately none, $44,000, and $44,000 during the years ended December 31,
2002, 2001, and 2000, respectively. These leases were all terminated in June
2001.
Legal
Services
During and prior to 2001, United Therapeutics obtained professional
services from a law firm affiliated with the General Counsel and the Chairman
and CEO of United Therapeutics. In June 2001, the General Counsel joined United
Therapeutics as a full time employee and the arrangement with the law firm for
professional services was terminated. The Chairman and CEO does not receive
compensation from the law firm. United Therapeutics incurred expenses of
approximately none, $212,000 and $783,000 during the years ended December 31,
2002, 2001, and 2000, respectively, for services rendered by the law firm.
Research
Agreement
During 1998, United Therapeutics entered into a cooperative drug discovery
agreement with William Harvey Research Limited (WHR) (see note 5). The Chairman
and CEO of United Therapeutics is an unpaid volunteer President of William
Harvey Medical Research Foundation. Payments made to WHR were approximately
$102,000, $205,000 and $347,000 for the years ended December 31, 2002, 2001,
and 2000, respectively. This agreement was terminated in June 2002.
Receivable
from Employees
At December 31, 2002 and 2001, United Therapeutics had interest and
non-interest bearing advances totaling approximately $1,358,000 and $40,000,
respectively, due from employees. The advances are classified as note
receivable from employee and other assets in the accompanying consolidated
balance sheets.
In April 2002, United Therapeutics agreed to loan $1.3 million to Dr.
Roger Jeffs, its President and Chief Operating Officer, to purchase his primary
residence. The loan and accrued interest will be due at the end of five years
or earlier, in part or in full, if Dr. Jeffs obtains a mortgage on the
property, exercises and sells any United Therapeutics stock options, sells any
United Therapeutics stock, or sells the property. Interest of 6.5 percent per
year will accrue on the note. The loan is secured by the property and all
United Therapeutics stock that Dr. Jeffs now owns or hereafter acquires. The
note receivable and accrued interest are classified as noncurrent assets in the
balance sheet at December 31, 2002. The Audit and Compensation Committee of
the Board of Directors, as well as the full Board of Directors approved this
transaction. In June 2002, Dr. Jeffs was elected to the Board of Directors by
United Therapeutics shareholders.
Iminosugar
Program
United Therapeutics reported expenses of approximately $200,000 and $3.5
million to Synergy Pharmaceuticals, Inc. (see note 4) during the years ended
December 31, 2002 and 2001, respectively, of which approximately none and
$318,000 were payable at December 31, 2002 and 2001, respectively, for contract
research services. Additionally, United Therapeutics reported revenues of
approximately none and $366,000 during the years ended December 31, 2002 and
2001, respectively, for chemical synthesis and manufacturing services provided
to Synergy.
Marketing
and Consulting Agreements
In February 2003, United Therapeutics entered into an agreement for the
development, hosting and maintenance of its Remodulin.com website with a
company controlled by Raymond Kurzweil who is one of four non-independent
directors on United Therapeutics ten person Board of Directors. Pursuant to
this Agreement, United Therapeutics will pay the company $29,000 and a
continuing payment of $1,250 per month for posting new information and
maintenance of the website.
In September 2002, United Therapeutics entered into a technical services
agreement with Kurzweil Technologies, Inc. (KTI), a company controlled by
Raymond Kurzweil. Pursuant to this agreement, United Therapeutics will pay KTI
up to $40,000 monthly for consulting fees and up to $1,000 monthly for
reimbursement of expenses for certain telemedicine technology development
services relating to Medicomp, Inc. In addition, United Therapeutics will pay
KTI a five percent royalty on certain sales of products reasonably attributed
to and dependent upon technology developed by KTI under the technical services
agreement and which are covered by claims of an issued and unexpired United
States patent(s). The
F-13
UNITED THERAPEUTICS CORPORATION
Notes to Consolidated Financial Statements (Continued)
agreement may be terminated by United Therapeutics upon
30 days advance notice to KTI and by KTI upon 180 days advance notice to United
Therapeutics. In 2002, United Therapeutics incurred approximately $190,000 of
fees and expenses related to this agreement, all of which was payable to KTI
at December 31, 2002.
In 2001, United Therapeutics entered into a marketing agreement with a
company affiliated with Raymond Kurzweil. The value of the agreement is up to
$30,000 annually. United Therapeutics also entered into an agreement in 2001
with Raymond Kurzweil to provide strategic consulting services in the field of
telemedicine. The value of the agreement is up to $10,000 annually. In 2002,
United Therapeutics entered into another marketing agreement with a company
affiliated with Raymond Kurzweil with a total value of $15,000. United
Therapeutics paid a total of $25,000 and $25,000 under these agreements during
the years ended December 31, 2002 and 2001, respectively.
4. License Agreements
Glaxo
Wellcome Assignment
In January 1997, Glaxo Wellcome Inc. (now GlaxoSmithKline PLC) assigned to
United Therapeutics patents and patent applications for the use of the stable
prostacyclin analog UT-15 (now known as Remodulin) for the treatment of
pulmonary hypertension and congestive heart failure. Glaxo Wellcome has a right
to negotiate a license from United Therapeutics if United Therapeutics decides
to license any part of the marketing rights to a third party. Glaxo Wellcome
waived this right with respect to the agreement with MiniMed described below.
Under the agreement, Glaxo Wellcome is entitled to certain royalties from
United Therapeutics for a period of ten years from the date of the first
commercial sale of any product containing Remodulin (see note 5). If United
Therapeutics grants to a third party any license to Remodulin, Glaxo Wellcome
is also entitled to a percentage of all consideration payable to United
Therapeutics by such licensee. United Therapeutics is responsible for all
patent prosecution and maintenance for Remodulin.
Pharmacia
License
In December 1996, Pharmacia Corporation (formerly Pharmacia & Upjohn
Company) exclusively licensed to United Therapeutics patents and a patent
application for the composition and production of a prostacyclin analog. The
Pharmacia agreement required milestone payments of up to $325,000 for orphan
indications of a prostacyclin analog manufactured utilizing technology licensed
from Pharmacia and royalties between 2.5% (in the U.S.) and 5% (in certain
other countries) of all net sales, subject to certain offsets, until the later
of the expiration of the applicable patent or 10 years after the date of the
first commercial sale of a product in a country defined as a milestone country
under the agreement. In October 2002, United Therapeutics and Pharmacia
amended the license agreement to change the royalties to Pharmacia to 4% on
annual net sales of Remodulin in excess of $25.0 million. This 4% royalty is
subject to a 50% reduction for royalties due to other parties.
Medtronic
MiniMed
United Therapeutics entered into an agreement with Medtronic MiniMed
(formerly MiniMed Inc.) in September 1997 to collaborate in the design,
development, and implementation of therapies to treat pulmonary hypertension
and peripheral vascular disease utilizing MiniMed products with Remodulin. The
term of the agreement is for seven years following the May 2002 FDA approval
for Remodulin and will be automatically extended for additional 12-month
periods unless otherwise terminated. The agreement is subject to early
termination in the event of a material breach or bankruptcy of either party.
United Therapeutics and Medtronic MiniMed have established a Management
Committee comprised of two representatives from each company to implement the
agreement. The guidelines implementing the agreement provide that United
Therapeutics will purchase pumps and supplies from Medtronic MiniMed at a
discount off of Medtronic MiniMeds list prices from time to time. In the
event that there are any discoveries or improvements arising out of work
performed under the agreement, the parties will have joint ownership of those
discoveries or improvements. The guidelines require United Therapeutics to
purchase its Remodulin infusion pumps exclusively from Medtronic MiniMed unless
Medtronic MiniMeds infusion pumps fail to receive certain government approvals
or cannot be appropriately used, as for intravenous Remodulin.
Toray
Industries Licenses
In June 2000, United Therapeutics entered into an agreement with Toray
Industries, Inc. obtaining the exclusive right to develop and market sustained
release formulations of beraprost in the United States and Canada for the
treatment of all vascular indications (including cardiovascular indications).
In exchange, United Therapeutics paid Toray $1.0 million in cash and 200,000
shares of common stock valued at approximately $18.8 million. In addition,
United Therapeutics agreed to grant
F-14
UNITED THERAPEUTICS CORPORATION
Notes to Consolidated Financial Statements (Continued)
Toray an option to purchase 500,000 shares
of common stock upon Torays delivery of clinical trial material with an
exercise price based on the average of closing market prices during the month
preceding delivery of clinical trial material. Such delivery has not yet
occurred. The sustained release formulation of beraprost is currently in Phase
I testing in Japan by Toray. However, the development has been significantly
delayed by Toray and United Therapeutics may cancel this agreement prior to
granting any options. United Therapeutics also agreed to pay Toray milestone
payments of up to $750,000. License fees under these agreements were expensed
as research and development and totaled $19.8 million for the year ended
December 31, 2000 and none for the years ended December 31, 2002 and 2001.
Shearwater
Polymers Agreement
In September 1999, United Therapeutics entered into an agreement with
Shearwater Polymers, Inc. The agreement grants to United Therapeutics the
exclusive right to Shearwaters know-how for the design, development,
production, and use of a technology known as pegylation to develop and produce
sustained release prostacyclin molecules for the possible treatment of
pulmonary hypertension, peripheral vascular disease, stroke, heart disease,
cancer, and related diseases worldwide. In exchange, United Therapeutics paid
Shearwater $100,000 in cash and agreed to pay Shearwater milestone payments of
up to $2,900,000. Milestone payments will come due upon the achievement of
certain product development goals set forth in the agreement and are expected
to be paid over a period of approximately six years. United Therapeutics also
agreed to pay royalties ranging from 2 to 4 percent of net sales from developed
products. Minimum annual royalties of $1,000,000 are required commencing with
the thirteenth month following government approval of a developed product.
Under United Therapeutics agreement with Shearwater, any inventions that
relate to the combination of prostacyclin and the pegylation technology,
including production methods and therapeutic methods for the treatment of any
indication, will be owned solely by United Therapeutics, and any inventions
relating to non-prostacyclin pegylation methods such as drug formulation or
delivery will be owned solely by Shearwater. Both United Therapeutics and
Shearwater have filed for U.S. patent applications relating to their respective
inventions and each is responsible for prosecuting and maintaining its patent
portfolio.
Synergy
Pharmaceuticals, Inc.
In March 2000, UPI entered into a license agreement with Synergy
Pharmaceuticals, Inc. (Synergy) to obtain from Synergy the exclusive worldwide
rights to certain patents relating to anti-viral iminosugar compounds. UPI paid
Synergy a $100,000 license fee which was expensed as research and development.
The iminosugar agreement conditionally requires that UPI pay Synergy milestone
payments of up to $22.2 million for each FDA-approved product plus royalties
ranging from 6 percent to 12.25 percent, subject to reductions, based on net
sales. Additionally, UPI acquired 15 percent of the outstanding stock of
Synergy for a total of $5.0 million. The purchase price was paid with $3.0
million in cash and 21,978 shares of common stock of United Therapeutics valued
at approximately $2.0 million. As part of these transactions, UPI received an
exclusive option to purchase the remaining stock of Synergy at its fair value
to be determined in the future in accordance with the terms of the contract.
This investment is accounted for under the cost method.
In late 2000, after preclinical evaluations were performed for a majority
of the licensed compounds, it was determined that many of these licensed
compounds lacked sufficient safety and efficacy profiles for further
development. Therefore, in November 2000, UPI and Synergy amended the
exclusive license agreement to include the development of new analogs of the
licensed compounds. It was determined that new analogs could potentially be
developed that had improved safety and efficacy profiles over the originally
licensed compounds. As part of the amendment, UPI and Synergy agreed to
reduce the milestone and royalty payments by one-half for any approved products
which may result from the new analogs. Additionally, Synergy granted to UPI a
warrant to purchase up to approximately 10 percent of the outstanding stock of
Synergy exercisable for six years at $0.001 per share. Finally, a review of
Synergys financial status in late 2000 raised substantial doubt about
Synergys ability to continue as a going concern largely due to its lack of
liquidity and sources of funding. As a result of these developments and the
amendments, the investment in Synergy was written down to zero at December 31,
2000.
In August 2002, UPI made a $200,000 milestone payment to Synergy which was
expensed as research and development.
F-15
UNITED THERAPEUTICS CORPORATION
Notes to Consolidated Financial Statements (Continued)
Stanford
University and New York Medical College
Unither Pharma, Inc. (formerly Cooke Pharma, Inc.) has exclusively
licensed patents related to amino acid based dietary supplements to enhance the
level of naturally occurring nitric oxide in the vascular system from Stanford
University and New York Medical College. The licenses cover worldwide
territories and are valid for the life of the patents. In return, Unither
Pharma, Inc. has agreed to pay royalties equal to one percent of net sales of
amino acid based medical foods to each licensor respectively, subject to
reductions. Minimum annual royalties of $10,000 are due to each licensor.
AltaRex Corp.
In April 2002, UPI acquired an option to develop and commercialize a
platform of five immunotherapeutic monoclonal antibodies from AltaRex Corp.
through an agreement to exclusively license certain intellectual property from
AltaRex. These products were being developed by AltaRex for use in ovarian,
prostate, lung, breast, multiple myeloma and other forms of cancer.
UPI will bear the cost of the necessary research and development and has
full commercialization rights in all countries other than those in Europe and
most of the Middle East. UPI has agreed to pay AltaRex certain amounts based
upon the achievement of specified milestones together with royalties based upon
sales of products utilizing or incorporating the licensed technology. As part
of these transactions, UPI acquired approximately 9.95 percent of the
outstanding stock of AltaRex for $2.5 million in April 2002 and approximately
9.95 percent of the outstanding stock of AltaRex in August 2002 for
approximately $2.1 million. UPIs cumulative ownership in AltaRex is
approximately 19.9 percent. This investment is being accounted for as an
available-for-sale security and is classified with investments in affiliates in
the accompanying balance sheets. Also in August 2002, UPI loaned to AltaRex
approximately $433,000 as a secured convertible debenture due at the end of
three years with interest of six percent due quarterly. The note is
convertible into AltaRex common stock at a price of $0.50 per share at any time
by UPI. At December 31, 2002, the closing price of AltaRex common stock was
$0.22 per share. The note is secured by all intellectual property owned by
AltaRex, including intellectual property licensed to UPI by AltaRex.
For the six-month period ended September 30, 2002, the quoted market price
of AltaRexs common stock was consistently less than UPIs cost. This was
determined to be an other-than-temporary decline in value. As a result, the
investment in AltaRex was written down to its fair value as determined by
quoted market prices on September 30, 2002. The write-down totaled
approximately $2.9 million. At December 31, 2002, the investment in AltaRex
common stock was reported at approximately $2.0 million and is classified with
investments in affiliates.
5. Commitments
Oxford
University
UPI agreed to fund research conducted by the University of Oxford to
develop analogs of the anti-viral compounds licensed from Synergy
Pharmaceuticals. The research agreement provided for payments of up to
approximately $900,000 over two years and had an initial term expiring in
September 2002 which was renewed until September 2004. Under the agreement,
UPI is required to fund the research and pay to the University of Oxford
milestone payments for successfully completed clinical trials, and a royalty
equal to a percentage of net sales that UPI earns from discoveries and products
developed by the University of Oxford. The milestone payments and royalties
are subject to reduction depending upon third-party contributions to inventions
and/or third party licenses necessary to develop products.
William
Harvey Research Limited
In 1998, United Therapeutics entered into a cooperative drug discovery
agreement with William Harvey Research Limited (WHR) to identify and develop an
antisense therapy as a potential treatment for pulmonary hypertension. The
agreement may be terminated by United Therapeutics after 30 months. Under the
agreement, United Therapeutics is required to pay WHR a royalty equal to a
percentage of net sales and license fees that United Therapeutics earns from
discoveries developed by WHR. This royalty obligation extends for 15 years or,
if later, until any issued patents expire. This agreement was terminated in
June 2002.
F-16
UNITED THERAPEUTICS CORPORATION
Notes to Consolidated Financial Statements (Continued)
Imperial College
In 2000, Lung Rx entered into a research and development agreement with
Imperial College of Science, Technology & Medicine and Imperial College
Innovations Limited (collectively Imperial College) to develop lung lobes that
can be transplanted into patients at risk of dying due to lung disease. The
agreement was terminable by Lung Rx after the 12th or 36th months. It was
terminable with 90 days notice by Lung Rx if Imperial College did not meet a
major milestone defined in the agreement. Under the agreement, Lung Rx was
required to pay Imperial College a royalty equal to a percentage of net sales
that Lung Rx earns from discoveries and products developed by Imperial College.
This royalty obligation extended until any issued patents expired. The
agreement was terminated in 2003 by Lung Rx.
Milestone and Royalty Payments
United Therapeutics has in-licensed certain products under license
agreements described in note 4. These agreements generally include milestone
payments to be paid in cash by United Therapeutics upon the achievement of
certain product development and commercialization goals set forth in each
license agreement.
Total milestone payments under these license agreements are expected to
come due approximately as follows (in thousands):
Additionally, certain agreements described in note 4 require United
Therapeutics to pay royalties. The royalties are generally based on a
percentage of net sales or other product fees earned by United Therapeutics.
Royalties will become due when sales are generated and will range from 1.0 to
10.0 percent of net product revenues as defined in the respective agreements.
Employment Agreement
In April 1999, United Therapeutics executed an employment agreement with
its CEO. As amended in December 2000, the agreement establishes minimum
compensation and benefits for a renewing five year period, and requires the
Company to issue options to the CEO at the end of each of the next five years
to purchase a number of shares of common stock equal to one-eighteenth of one
percent of the increase in United Therapeutics market capitalization from its
average in December of each year (commencing December 2000) to its average the
following year. The exercise price of the options will be 110 percent of the
fair market value of a share of common stock on the date of grant, or 100
percent of fair market value if the CEO owns less than 10 percent of United
Therapeutics outstanding common stock on the date of grant. If the CEO is
terminated without cause or leaves with good reason, she will receive severance
equal to three years of base salary plus the value of any vested options.
6. Stockholders Equity
Common Stock
United Therapeutics was originally capitalized through the issuance of
1,666,663 shares of common stock for $.06 per share, with a par value of $.01.
In 1997, the number of authorized shares of common stock was increased from
20,000,000 shares to 50,000,000 shares. On December 7, 1997, United
Therapeutics Board of Directors approved a one-for-two reverse stock split of
United Therapeutics common stock.
In April 1999, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission for the sale
of up to 6,000,000 shares of common stock. On June 17, 1999, United
Therapeutics initial public offering, which involved the sale of 4,500,000
shares of common stock at $12.00 per share, was declared effective by the SEC.
United Therapeutics closed the initial public offering on June 22, 1999 and
received net proceeds, after deducting underwriting commissions and offering
expenses, of approximately $48,874,000.
F-17
UNITED THERAPEUTICS CORPORATION
Notes to Consolidated Financial Statements (Continued)
In April 1999, United Therapeutics Board of Directors and stockholders
approved an amendment to United Therapeutics Certificate of Incorporation
increasing the number of authorized shares of common stock to 100,000,000
shares. Also in April 1999, United Therapeutics Board of Directors approved a
one-for-three reverse stock split of its outstanding common stock which was
affected on June 11, 1999. Authorized shares and the par values of common and
preferred stock were not affected by the reverse split. In June 1999, United
Therapeutics increased the total number of authorized shares of common stock to
100,000,000.
In July 1999, United Therapeutics closed on the sale of 675,000
over-allotment shares of common stock to its underwriters. The underwriters
over-allotment option was exercised at the initial public offering price of
$12.00 per share. The net proceeds, after deducting underwriting commissions
and offering expenses, were approximately $7,515,000.
In December 1999, United Therapeutics agreed to the sale of 2,500,000
shares of common stock at $32.00 per share in a private placement. The private
placement closed and settled in January 2000. Net proceeds, after deducting
commissions and offering expenses were approximately $74.8 million. The
common stock was registered for resale with the SEC in a filing that was
declared effective on January 18, 2000.
In July 2000, United Therapeutics agreed to and closed on the sale of
1,300,000 shares of common stock at $110.00 per share in a private placement.
Net proceeds, after deducting commissions and certain offering expenses, were
approximately $134.3 million. The common stock was subsequently registered for
resale with the SEC in a filing that was declared effective on August 4, 2000.
In February 2000, United Therapeutics agreed to fund, over two years, a
United Therapeutics Chair in Pulmonary Hypertension at Columbia University with
a grant of United Therapeutics common stock. The grant was funded with the
issuance of 9,868 shares of United Therapeutics common stock in February 2000
and 9,868 shares of United Therapeutics common stock in April 2001, all of
which was valued at $1.5 million based on the closing Nasdaq price on February
10, 2000. In February 2002, United Therapeutics and Columbia University agreed
that the shares issued to Columbia University would be transferred instead to
the Universitys pulmonary hypertension research gift account to further
research the causes and cures for pulmonary hypertension.
Preferred Stock
A total of 10,000,000 shares of preferred stock with a par value of $.01
were authorized in 1997. No preferred stock has been issued. A total of
100,000 shares of Series A Junior Participating Preferred Stock with a par
value of $.01 were authorized in 2000. No Series A Junior Participating
Preferred Stock has been issued.
Shareholder Rights Plan
In December 2000, United Therapeutics Board of Directors approved the
adoption of a Shareholder Rights Plan designed to discourage takeovers that
involve abusive tactics or do not provide fair value to its shareholders. The
Shareholder Rights Plan provides for a dividend distribution of one Preferred
Share Purchase Right (Rights) for each outstanding share of United
Therapeutics common stock. The dividend distribution was made to shareholders
of record on December 29, 2000. The Rights will be exercisable only if a
person or group (except for certain exempted persons or groups) acquires 15
percent or more of United Therapeutics common stock or announces a tender
offer which would result in ownership of 15 percent or more of United
Therapeutics common stock. The Rights entitle each holder of one share to
purchase one one-thousandth of a share of Series A Junior Participating
Preferred Stock (par value $.01) and will expire on December 29, 2010.
Treasury Stock
In December 2000, United Therapeutics Board of Directors approved a stock
repurchase program for up to three million shares of its outstanding stock.
The purpose of the stock repurchase program was to help United Therapeutics
achieve its long term goal of enhancing shareholder value. During the years
ended December 31, 2001 and 2000, United Therapeutics repurchased 220,600 and
306,000 shares, respectively, at a total cost of approximately $6.9 million.
The repurchase program expired in December 2001.
F-18
UNITED THERAPEUTICS CORPORATION
Notes to Consolidated Financial Statements (Continued)
Options Issued in Exchange for Services
United Therapeutics issued options to consultants for services during
2002, 2001 and 2000. The grant activity is summarized as follows:
Employee Options
United Therapeutics Board of Directors adopted an equity incentive plan
(the Plan) effective in November 1997. In April 1999, the Board of Directors
and stockholders approved an amendment and restatement of the Plan to increase
the total number of shares of common stock that may be issued pursuant to the
Plan to 14,939,517 shares, including 7,939,517 shares reserved for issuance to
the CEO under her employment agreement (see note 5). The Plan provides for the
grant of awards, including options, stock appreciation rights, restricted stock
awards and other rights as defined in the Plan, to eligible participants.
Options granted under the Plan are not transferable and must generally be
exercised within 10 years. The price of all options granted under the Plan
must be at least equal to the fair market value of the common stock on the date
of grant. With respect to any participant who owns 10 percent or more of
United Therapeutics outstanding common stock on the date of grant, the
exercise price of any incentive stock option granted to that participant must
equal or exceed 110 percent of the fair market value of the common stock on the
date of grant and the option must not be exercisable for longer than five
years.
Options granted under this Plan were as follows:
In addition, options are also granted outside of the Plan described above
(non-plan awards). Such grants are made to employees and consultants in order
to incentivize performance or procure services. All non-plan grants are
awarded pursuant to specific approvals of the Compensation Committee of the
Board of Directors. These grants are made at the fair market value of United
Therapeutics common stock on the date of grant. Board members and executive
officers may not participate in these non-plan option awards. A total of
593,605 options were granted to employees during the year ended December 31,
2002 outside of the Plan with exercise prices ranging from $9.95 to $17.44 and
a term of ten years.
The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions generally used for grants in 2002, 2001 and 2000:
F-19
UNITED THERAPEUTICS CORPORATION
Notes to Consolidated Financial Statements (Continued)
A summary of the status of United Therapeutics employee stock options as
of December 31, 2002, 2001 and 2000, and changes during the years then ended is
presented below:
In November 2001, the Compensation Committee of the Board of Directors
approved a plan to allow employees to voluntarily permit a limited portion of
their outstanding options to be canceled. In exchange for each canceled
option, United Therapeutics granted a new option in May 2002. The new options
were granted at the fair market value of United Therapeutics common stock on
the date that the replacement awards were issued. There were approximately
453,000 options that were cancelled with exercise prices ranging from $27.50 to
$116.38. The cancelled options were replaced with options priced at $12.69,
the Nasdaq closing price on the award date of May 10, 2002. The program ended
in May 2002. Each of the employees who participated did not have any options
granted to them in the six months prior to the cancellation. Furthermore, each
of the employees who participated agreed to forgo receiving any new options for
a period of six months following the cancellation. No guarantees or other
promises of remuneration were made to the employees who agreed to participate.
In accordance with FASB Interpretation No. 44,
Accounting for Certain
Transactions involving Stock Compensation
, no compensation expense was required
to be recognized upon the grant of the replacement awards.
The following table summarizes information about employee stock options
outstanding at December 31, 2002:
F-20
UNITED THERAPEUTICS CORPORATION
Notes to Consolidated Financial Statements (Continued)
7. Income Taxes
A reconciliation of tax benefit computed at the statutory federal tax rate
on losses from operations before income taxes to the actual income tax expense
is approximately as follows (in thousands):
Deferred income taxes reflect the net effect of net operating loss
carryforwards and the temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes. Significant components of United Therapeutics net
deferred tax asset as of December 31, 2002 and 2001, respectively, are
approximately as follows (in thousands):
Based on the weight of available evidence, management has determined that
the deferred tax asset amount may not be realized at this time. This is due
primarily to the uncertainty of the timing of product approvals and the levels
of future product sales and profitability.
The valuation allowance for deferred tax assets increased by approximately
$9.9 and $23.7 million for the years ended December 31, 2002 and 2001,
respectively.
F-21
UNITED THERAPEUTICS CORPORATION
Notes to Consolidated Financial Statements (Continued)
At December 31, 2002, United Therapeutics had net operating loss
carryforwards of approximately $104.2 million and business tax credit
carryforwards of approximately $27.8 million for federal income tax purposes
which expire at various dates from 2012 through 2022. Business tax credits can
offset future tax liabilities and arise from qualified research expenditures.
The portions of these carryforward items that were generated prior to June 1999
are subject to certain limitations. United Therapeutics does not believe that
the limitations will cause the net operating loss and general business credit
carryforwards to expire unused.
8. Notes and Leases Payable
In April 1998, United Therapeutics purchased an office building at 1110
Spring Street in Silver Spring, Maryland for approximately $581,000 in exchange
for a note payable and cash. In June 1999, United Therapeutics refinanced the
note payable for the building with a new mortgage note totaling $720,000 due in
monthly installments. This 30-year adjustable rate note had an interest rate
of 6.0 percent in effect at December 31, 2002 and is secured by the building
and property owned by United Therapeutics located at 1110 Spring Street in
Silver Spring, Maryland.
In September 1999, United Therapeutics purchased a building adjacent to
1110 Spring Street in Silver Spring, Maryland for approximately $1,544,000.
United Therapeutics issued a mortgage note payable to finance this purchase.
The mortgage note payable was issued for $1,078,000 and is payable in monthly
installments. This 30-year adjustable rate note had an interest rate of 5.38
percent in effect at December 31, 2002 and is secured by a certificate of
deposit in the amount of $641,000 and the building and property owned by United
Therapeutics located at 1106 Spring Street in Silver Spring, Maryland.
United Therapeutics also leased certain equipment under capital leases
with interest rates of approximately 10.6 percent and terms up to 5 years.
Future minimum payments under notes and leases payable are as follows (in
thousands):
At December 31, 2002, equipment under capital leases totaled approximately
$227,000 and accumulated depreciation totaled approximately $98,000.
In January 2003, United Therapeutics acquired a building and land adjacent
to its Silver Spring, Maryland headquarters. United Therapeutics paid
approximately $171,000 in cash and issued a non-interest bearing note payable
for $1.0 million due to the seller in January 2004.
9. Marketable Investments
Investments at December 31, 2001 consisted of federally sponsored and
corporate debt securities and certificates of deposit. At December 31, 2002,
United Therapeutics investments consisted of a federally sponsored debt
security that is classified as a non-current marketable investment. The
amortized cost and fair value of this investment approximate each other at
December 31, 2002.
In March 2002, United Therapeutics reported a $538,000 write-down due to
an other-than-temporary decline in value of one of its marketable investments.
In June 2002, United Therapeutics began reassessing its investment program in
light of increasingly adverse conditions in the bond markets. As a result, all
marketable debt investments were sold in July
F-22
UNITED THERAPEUTICS CORPORATION
Notes to Consolidated Financial Statements (Continued)
2002. A write-down of
investments totaling approximately $3.6 million was necessary to adjust the
value of United Therapeutics marketable investments to their fair value based
on quoted market prices at June 30, 2002. In July 2002, United Therapeutics
recorded an additional realized loss of approximately $3.3 million as a result
of the liquidation of the investment portfolio.
The following table summarizes United Therapeutics marketable investments
at December 31, 2001 (in thousands):
10. Operating Leases
United Therapeutics leases various office and production space generally
under noncancelable agreements with terms expiring through 2007. United
Therapeutics also leases automobiles for certain employees.
Approximate minimum annual rent payments to be paid under these
noncancelable operating leases are as follows (in thousands):
Total rent expense for the years ended December 31, 2002, 2001, and 2000
was approximately $1.0 million, $521,000 and $366,000, respectively.
11. Acquisitions and Investments in Affiliates
Unither Pharma, Inc.
In December 2000, UPI purchased all of the assets and assumed certain
liabilities of Cooke PH, Inc. (formerly Cooke Pharma Inc.). The acquired
company now operates as Unither Pharma, Inc. Unither Pharma is the exclusive
owner and developer of the intellectual property rights to use arginine to
promote cardiovascular health. The total cost of this acquisition was
approximately $15.9 million, including transaction costs. United Therapeutics
issued 294,635 shares of common stock, subject to adjustment within a year,
valued at $15.7 million to the sellers and assumed approximately $1.7 million
of liabilities as consideration. The consideration given was valued at the
fair value of the 294,635 shares of United Therapeutics stock
issued using an
average NASDAQ closing price of $14.84 which totaled approximately $4.4
million, plus the value of the potential additional shares that may be issued
which totaled approximately $11.3 million (equivalent to the minimum guaranteed
share price of $90.00 per share less the floor established in the agreement of
$51.65 multiplied by 294,635 shares). In addition, UPI agreed to pay a
single-digit cash royalty to Cooke PH on sales of arginine products up to an
additional $49 million (a lifetime cap), subject to possible reduction.
F-23
UNITED THERAPEUTICS CORPORATION
Notes to Consolidated Financial Statements (Continued)
The purchase price of approximately $15.9 million was allocated as follows
(in thousands):
The acquisition was structured as a taxable stock-for-assets purchase with
a residual royalty stream. United Therapeutics agreed to register all of these
shares for resale by Cooke PH. Approximately 147,000 of the shares issued to
Cooke PH were placed in escrow for up to two years for unknown liabilities,
indemnifications, warranties and a stock adjustment (described below) pursuant
to the terms of an Escrow Agreement. In May 2002, the shares in escrow were
reduced to approximately 15,000 shares which will be held until December 2003.
In accordance with the acquisition agreement, United Therapeutics was
obligated to issue additional shares to Cooke PH, Inc. as a result of United
Therapeutics stock price falling below a certain level. The asset purchase
agreement generally required United Therapeutics to issue additional
shares to
Cooke PH if the value of the United Therapeutics common stock fell below $90
per share in December 2001 within certain limits defined in the asset purchase
agreement. In addition, the parties agreed that United Therapeutics would
reduce the number of shares to be issued to Cooke PH, Inc. if the assets it
acquired were less or if the liabilities were greater than was represented by
the sellers upon the acquisition date (escrow items). These escrow items
totaled approximately $1.7 million. In May 2002, United Therapeutics and
Cooke PH, Inc. agreed to resolve these aspects of their agreement through the
issuance by United Therapeutics of an additional 669,002 shares of its common
stock to Cooke PH, Inc. The effect of this issuance was to decrease current
assets and additional paid in capital by approximately $1.7 million and to
increase common stock outstanding by 669,002 shares.
Intangible assets resulting from the acquisition were approximately $7.8
million and are being amortized in a straight-line manner over periods ranging
from three to eighteen years. These intangible assets include the HeartBar
trade name, patents and base technology. The amount attributed to in-process
research and development totaling approximately $7.1 million was charged to
research and development expense at the date of acquisition. The fair values
of the intangible assets were based on independent valuations. The acquisition
was accounted for as a purchase. Cooke Pharmas operations since December 11,
2000 have been included in the Companys consolidated financial statements.
The write-off of in-process research and development related to the
acquisition of Cooke PH was expensed as a one-time non-recurring charge in
2000. The projects under development at the valuation date were expected to
address the coronary and peripheral arterial disease markets as well as the
market of persons that are at risk of developing some form of heart disease.
It was anticipated that research and development related to these projects
would be completed by 2002. However, United Therapeutics has decided to
initiate studies of arginine in pulmonary hypertension prior to coronary and
peripheral arterial diseases. These studies in pulmonary hypertension
commenced in 2002 and are expected to be completed in 2003. The delay in the
coronary and peripheral arterial disease studies is not expected to have a
material impact on United Therapeutics.
Medicomp, Inc. and Telemedical Procedures, LLC
In December 2000, UTSC acquired all of the assets of Medicomp, Inc. and
Telemedical Procedures, LLC (Medicomp), related cardiac monitoring companies
based in Florida. The total cost of this acquisition was approximately $20.0
million, including transaction costs. Cash of $8.0 million and 257,142 shares
of United Therapeutics common stock valued at $11.9 million, subject to
adjustment, was paid to the sellers as consideration.
The purchase price of approximately $20.0 million was allocated as follows
(in thousands):
F-24
UNITED THERAPEUTICS CORPORATION
Notes to Consolidated Financial Statements (Continued)
The
acquisition was structured as a taxable purchase. United Therapeutics
agreed to register all of these shares for resale by Medicomp. Approximately
129,000 of the shares issued to Medicomp were placed in escrow for up to three
years for unknown liabilities, indemnifications, warranties and a stock
adjustment (described below) pursuant to the terms of an Escrow Agreement. In
December 2002, the shares in escrow were reduced to approximately 26,000 shares
and will be held until December 2003.
Medicomp may receive additional shares from United Therapeutics on the
third anniversary of the closing if the average closing price of United
Therapeutics common stock over the 30 calendar days prior to the anniversary
is less than $70.00 per share, in order that the value of all shares issued to
Medicomp equals the value of the shares issued to Medicomp at the closing at
$70.00 per share (subject to a maximum of 600,000 shares). The stock
consideration given was valued at the fair value of the 257,142 shares of
United Therapeutics stock issued using an average NASDAQ closing price of
$13.84 which totaled approximately $3.6 million, plus the value of the
potential additional shares that may be issued which totaled approximately $8.3
million (equivalent to the average NASDAQ closing price of $13.84 per share
multiplied by the maximum of 600,000 additional shares that may be issued in
the future).
Goodwill and other intangible assets resulting from the acquisition were
approximately $6.2 million and $1.6 million, respectively, and were being
amortized in a straight-line manner over periods ranging from three to twenty
years. The other intangible assets include base technology. The amount
attributed to in-process research and development totaling approximately $9.8
million was charged to expense at the date of the acquisition. The fair values
of the intangible assets were based on independent valuations. The acquisition
was accounted for as a purchase. Medicomps operations since December 29, 2000
have been included in United Therapeutics consolidated financial statements.
The write-off of in-process research and development related to the
acquisition of Medicomp was expensed as a one-time non-recurring charge in
2000. At the acquisition date, Medicomp was conducting design, development,
engineering and testing activities associated with the completion of a number
of new technological innovations for next-generation products. It was
anticipated that completion of these projects would occur in 2001, but
completion is now expected to occur in phases in 2003 and 2004. This delay is
not expected to have a material impact on United Therapeutics.
Pro Forma Information Related to the Unither Pharma and Medicomp
Acquisitions (Unaudited)
Had the acquisitions of Unither Pharma and Medicomp occurred as of the
beginning of 2000, United Therapeutics total revenues, net loss and loss per
share (basic and diluted) would have been $6.3 million, $85.3 million and $4.31
respectively, after giving effect to certain adjustments, including
amortization of goodwill and the write-off of acquired in-process research and
development expenses. The pro forma financial information does not necessarily
reflect the results of operations that would have occurred had United
Therapeutics acquired Unither Pharma and Medicomp at the beginning of 2000.
Northern
Therapeutics, Inc.
In December 2000, Lung Rx formed a new company in Canada, Northern
Therapeutics, Inc. (Northern Therapeutics), with the inventor of a new form of
autologous (non-viral vector) gene therapy for pulmonary hypertension and other
conditions. The purpose of Northern Therapeutics is to develop the gene
therapy and also to distribute Remodulin in Canada. Lung Rx received approximately 59
percent of the initial outstanding common stock of Northern Therapeutics in
exchange for $5.0 million in cash of which $1.5 million was paid as of December
2002. The remaining $3.5 million is generally being paid in annual $1.0
million increments. United Therapeutics has agreed to provide the services of
its Chief Executive Officer as Chairman of the Northern Therapeutics
Board. During 2001, Northern Therapeutics CEO resigned.
Therefore, since December 2001, the United Therapeutics CEO has been serving
as the acting CEO of Northern Therapeutics.
Northern Therapeutics is incorporated as a Canadian Controlled Private
Corporation. Lung Rx may appoint only two of the companys seven board seats.
Substantially all important decisions require unanimous board votes in favor of
the proposal. The decisions requiring unanimous board votes include decisions
related to personnel selection and compensation and establishment of operating
and capital budgets. Therefore, the minority owners of Northern Therapeutics
have substantive participating rights as discussed in Emerging Issues Task
Force Issue No. 96-16,
Investors Accounting for an Investee when the Investor
has a Majority of the Voting Interest but the Minority Shareholder or
Shareholders Have Certain Approval or Veto Rights
. As a result of these
substantive participating rights, Lung Rx does not control Northern
Therapeutics and consolidation, therefore, is prohibited. The equity method of
accounting is used to account for Lung Rxs
F-25
UNITED THERAPEUTICS CORPORATION
Notes to Consolidated Financial Statements (Continued)
investment in Northern
Therapeutics. At December 31, 2002, Lung Rx investment in the new company was
reported at approximately $4.3 million, which is comprised of $1.5 million
paid in cash and the present value of the remaining $3.5 million due over three
years, net of Lung Rxs share of Northern Therapeutics losses since its
formation. The amounts due to Northern Therapeutics at December 31, 2002
totaled approximately $3.3 million and are reported as due to affiliate in the
accompanying consolidated balance sheets. Lung Rxs equity in the underlying
net assets was approximately $2.9 million at December 31, 2002.
In January 2002, Northern Therapeutics purchased and retired shares of one
of the initial founders. This increased Lung Rxs ownership of Northern
Therapeutics to approximately 68%.
Preventis,
Inc.
In 2000, United Therapeutics entered into an agreement to form Preventis,
Inc., a Delaware corporation, to create new vaccine technology and to develop
and commercialize novel therapeutics for infectious disease. United
Therapeutics received 30 percent of the initial outstanding common stock of
Preventis. The agreement does not require United Therapeutics to contribute
cash or other capital. A then current director of United Therapeutics purchased
a 57 percent common stock shareholding in the new company when it was formed in
2000 upon consent by United Therapeutics Board of Directors. At December 31,
2002, United Therapeutics investment in Preventis had an original cost of zero
and was reported at zero. United Therapeutics equity in the underlying net
assets was a deficit of approximately $1.1 million.
SynQuest,
Inc.
On October 7, 1999, United Therapeutics acquired all the outstanding stock
of SynQuest, Inc. (SynQuest), an Illinois corporation engaged in the synthesis
and manufacture of complex molecules. SynQuest manufactures treprostinil, the
bulk active ingredient in Remodulin, United Therapeutics lead compound. The
total cost of this acquisition was approximately $3.2 million, including
transaction costs. Cash of $200,000 and 101,251 shares of United Therapeutics
common stock valued at $2.9 million were paid to the sellers as consideration.
A holdback equivalent to $500,000 of United Therapeutics common stock, which
was reduced to $200,000 in December 2000, is being held in escrow for unknown
liabilities and will be paid to the sellers in 2004, subject to certain
conditions.
Goodwill and other intangible assets resulting from the acquisition were
approximately $2.8 million and were being amortized in a straight-line manner
over periods ranging up to five years. The acquisition was accounted for as a
purchase. SynQuests operations since October 7, 1999 have been included in
United Therapeutics consolidated financial statements. In December 2000,
United Therapeutics dissolved SynQuest, Inc. and merged it into United
Therapeutics Corporation. SynQuest now operates as the synthesis and
manufacturing division of United Therapeutics. Its activities were unaffected
by the dissolution and merger.
WonderClick.com, Inc.
In July 1999, a subsidiary of Unither Telemedicine Services Corporation
(UTSC) entered into an agreement to form WonderClick.com, Inc. (formerly
AboveCable.com, Inc.), a Delaware corporation, to provide Internet access via
cable television portals worldwide. This subsidiary received 20 percent of the
initial outstanding common stock of WonderClick.com, Inc. and the exclusive
rights to offer telemedicine and electronic health services at the portal
level. The agreement does not require the UTSC subsidiary to contribute cash
or other capital. WorldSpace Corporation purchased a 50 percent common stock
shareholding in the new company. The Chairman and CEO of WorldSpace was a
major stockholder and a director of United Therapeutics during 1999. At
December 31, 2002, the subsidiarys 20 percent investment in WonderClick.com,
Inc. had an original cost of zero and was reported at zero. The subsidiarys
equity in the underlying net assets was approximately $1.2 million.
12. Employees Retirement Plan
Effective January 1, 1999, United Therapeutics adopted the United
Therapeutics Corporation Employees Retirement Plan (the Plan), a salary
reduction profit sharing plan. Employees employed on or after July 15, 1999 are
eligible to participate in the Plan. The Plan provides for annual
discretionary employer contributions. Employees may also contribute to the
Plan at their discretion. No employer contributions have been made to the
Plan.
F-26
UNITED THERAPEUTICS CORPORATION
Notes to Consolidated Financial Statements (Continued)
13. Accrued Expenses
Accrued expenses consisted of the following at December 31, 2002 and 2001
(in thousands):
14. Segment Information
United Therapeutics has two reportable business segments. The
pharmaceutical segment includes all activities associated with the research,
development, manufacture, and commercialization of therapeutic products. The
telemedicine segment includes all activities associated with the research,
manufacture, and delivery of patient monitoring services. The telemedicine
segment is managed separately because diagnostic services require different
technology and marketing strategies.
Segment information as of and for the year ended December 31, 2002 was as
follows (in thousands):
Segment information as of and for the year ended December 31, 2001 was as
follows (in thousands):
F-27
UNITED THERAPEUTICS CORPORATION
Notes to Consolidated Financial Statements (Continued)
Segment information as of and for the year ended December 31, 2000 was as
follows (in thousands):
The segment information shown above equals the consolidated totals when
combined. These consolidated totals equal the amounts reported in the
consolidated financial statements without further reconciliation for those
categories which are reported in the consolidated financial statements.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies in note 2. There are no
inter-segment transactions.
In 2002, 2001 and 2000, approximately 93 percent, 87 percent and 100
percent of United Therapeutics revenues were earned from customers located in
the United States. In 2002, approximately $6.8 million and $12.5 million in
pharmaceutical segment revenues were derived from each of two distributors in the United States, respectively.
15. Recent Accounting Pronouncements
Business Combinations and Goodwill and Other Intangibles
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141,
Business Combinations
, (SFAS No. 141)
and SFAS No. 142,
Goodwill and Other Intangible Assets
, (SFAS No. 142). SFAS
No. 141 specifies criteria that intangible assets acquired in a purchase
business combination must meet to be recognized and reported apart from
goodwill, noting that any purchase price allocable to an assembled workforce
may not be accounted for separately. SFAS No. 142 requires, among other things,
that the assembled workforce be reclassified to goodwill and that goodwill
(including assembled workforce) and intangible assets with indefinite useful
lives no longer be amortized, but instead be tested for impairment at least
annually. United Therapeutics has no intangible assets with indefinite useful
lives. SFAS No. 142 also requires that intangible assets with definite useful
lives be amortized over their respective useful lives to their estimated
residual values, and reviewed for impairment in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets
. United
Therapeutics adopted the provisions of SFAS No. 141 effective July 1, 2001 and
SFAS No. 142 effective January 1, 2002.
SFAS No. 141 required, upon adoption of SFAS No. 142, United Therapeutics
to evaluate existing intangible assets and goodwill that were acquired in a
purchase business combination prior to June 30, 2001, and make any necessary
reclassifications to conform to the new criteria in SFAS No. 141. As a result,
United Therapeutics reclassified assembled workforce with a net carrying value
of $421,000 to goodwill on January 1, 2002.
Upon adoption of SFAS No. 142, United Therapeutics reassessed the useful
lives and residual values of all intangible assets (excluding goodwill and
assembled workforce) acquired in purchase business combinations. No adjustments
to amortization periods were necessary.
In connection with the transitional goodwill impairment evaluation, the
adoption of SFAS No. 142 requires United Therapeutics to assess whether there
is an indication that goodwill is impaired as of January 1, 2002. To accomplish
this, United Therapeutics identified its reporting units as of January 1, 2002.
The reporting units identified were the
F-28
UNITED THERAPEUTICS CORPORATION
Notes to Consolidated Financial Statements (Continued)
pharmaceutical and telemedicine
segments. United Therapeutics has determined the carrying value of each
reporting unit by assigning the assets and liabilities, including the existing
goodwill and intangible assets, to those reporting units as of January 1, 2002.
Goodwill assigned to the pharmaceutical and telemedicine segments was $1.3
million and $6.2 million, respectively. United Therapeutics subsequently
determined the fair value of each reporting unit using the present value of
expected future cash flows and compared it to the reporting units carrying
amount. Each reporting units fair value exceeded its carrying amount. Based on
this analysis, United Therapeutics had no indication of a transitional
impairment loss.
In addition, United Therapeutics must perform an impairment test at least
annually. Any impairment loss from the annual test will be recognized as part
of operations.
The following table compares the financial results for the years ended
December 31, 2001 and 2000, on a basis consistent with SFAS No. 142 (in
thousands, except per share data):
Long-Lived
Assets
In October 2001, the FASB issued SFAS No. 144,
Accounting for Impairment
or Disposal of Long-Lived Assets
(SFAS 144). The provisions of SFAS 144
require the use of a consistent accounting model for long-lived assets to be
disposed of by sale, whether previously held and used or newly acquired and
extend the presentation of discontinued operations to include more disposal
transactions. United Therapeutics adopted SFAS 144 as of January 1, 2002. The
adoption had no impact on the consolidated financial statements.
Disposal
Activities
In June 2002, the Financial Accounting Standards Board issued SFAS No.
146,
Accounting for Costs Associated with Exit or Disposal Activities
(SFAS
146). SFAS 146 addresses the financial accounting and reporting for costs
associated with exit or disposal activities and is effective for exit or
disposal activities initiated after December 31, 2002. SFAS No. 146 will be
adopted effective January 1, 2003, and is not expected to have a significant
impact on United Therapeutics financial statements.
Stock
Based Compensation
In December 2002, the Financial Accounting Standards Board issued SFAS
148,
Accounting for Stock-Based CompensationTransition and Disclosurean
amendment of FASB Statement No. 123
(SFAS 148). SFAS 148 provides financial
accounting guidance for changes in the accounting method for stock options
issued to employees and disclosure requirement for stock-based employee
compensation for financial statements issued after December 15, 2002. United
Therapeutics adopted SFAS 148 as of December 15, 2002, which resulted in
additional disclosures contained in Note 6.
F-29
UNITED THERAPEUTICS CORPORATION
Notes to Consolidated Financial Statements (Continued)
16. Quarterly Financial Information (Unaudited)
The following presents certain quarterly financial information for each of
the years ended December 31, 2002 and 2001 (in thousands except per share
amounts):
F-30
2002
2001
High
Low
High
Low
$
13.46
$
9.05
$
17.94
$
11.25
$
15.31
$
11.49
$
15.88
$
10.74
$
17.00
$
10.35
$
13.93
$
8.85
$
17.50
$
13.95
$
16.35
$
8.77
Years Ended December 31,
2002
2001
2000
1999
1998
Consolidated Statements of Operations
Data:
(In thousands, except per share data)
$
30,120
$
5,731
$
2,049
$
436
$
54
26,778
32,590
70,188
30,715
11,015
11,442
13,559
11,720
4,978
2,366
4,447
3,384
16
5,456
3,137
1,626
164
48,123
52,670
83,550
35,857
13,381
(18,003
)
(46,939
)
(81,501
)
(35,421
)
(13,327
)
4,954
10,021
10,693
1,925
510
(117
)
(173
)
(120
)
(58
)
(15
)
(209
)
(257
)
(2,893
)
(4,790
)
(7,428
)
45
60
109
50
(5,648
)
9,651
5,892
1,917
495
(23,651
)
(37,288
)
(75,609
)
(33,504
)
(12,832
)
(3
)
(3
)
$
(23,651
)
$
(37,288
)
$
(75,609
)
$
(33,507
)
$
(12,835
)
basic and diluted (1)
$
(1.15
)
$
(1.84
)
$
(3.93
)
$
(2.51
)
$
(1.54
)
20,644
20,286
19,237
13,374
8,322
As of December 31,
2002
2001
2000
1999
1998
Consolidated Balance Sheet Data:
(In thousands)
$
132,655
$
172,299
$
215,419
$
51,596
$
16,802
184,566
212,121
250,645
59,943
18,747
1,878
1,938
1,907
1,841
314
(185,821
)
(162,170
)
(124,882
)
(49,273
)
(15,767
)
171,658
196,399
234,738
53,566
16,676
(1)
See Note 2 of Notes to Consolidated Financial Statements for a description
of the computation of basic and diluted net loss per share.
(2)
Includes current portion of notes and leases payable.
Products may fail in clinical studies;
Hospitals, physicians and patients may not be willing to participate in clinical studies;
The drugs may not be effective or may not be perceived as effective;
Other investigational therapies may be viewed as more effective;
Patients may experience severe side effects during treatment;
Patients may die during the clinical study because their disease is too advanced or because they
experience medical problems that are not related to the drug being studied;
Patients may not enroll in the studies at the rate United Therapeutics expects;
The FDA and foreign regulatory authorities may delay or withhold approvals to commence clinical trials;
The FDA and foreign regulatory authorities may request that additional studies be performed;
Higher than anticipated costs may be incurred due to the high cost of contractors for its research
and clinical trials;
Drug supplies may not be sufficient to treat the patients in the studies; and
The results of preclinical testing may cause delays in clinical trials.
Retention of current Remodulin patients;
Addition of new Remodulin patients to replace lost patients;
Impact of infusion site pain and reaction and other Remodulin side effects;
Changes in the current pricing and Remodulin dosing;
Continued regulatory approval of Remodulin;
Additional regulatory approvals in other countries for Remodulin;
Outcome of the FDA required phase IV post-marketing study of Remodulin;
Impact of other approved and investigational competitive products;
Reimbursement of Remodulin by public and private payers;
Impact of medical and scientific opinion on all United Therapeutics products;
Continued performance by current Remodulin distributors;
Actual expenses incurred in future periods;
Establishment of additional
strategic acquisitions or licensing arrangements; and
Ability of United Therapeutics to maintain and grow its telemedicine service and arginine product sales.
Continued regulatory approval of Remodulin;
Retention and growth of reimbursable patients treated with Remodulin;
Collection of accounts receivable;
Size, scope and outcome of Remodulin post-marketing Phase IV clinical studies;
Size, scope and outcome of its development efforts for existing and additional products;
Future milestone and royalty payments;
Cost, timing and outcomes of regulatory reviews;
Rate of technological advances;
Status of competitive products;
Defending and enforcing intellectual property rights;
Development of manufacturing resources or the establishment, continuation or termination
of third-party manufacturing arrangements;
Establishment, continuation or termination of third-party clinical trial arrangements;
Development of sales and marketing resources or the establishment, continuation or
termination of third-party sales and marketing arrangements;
Establishment of additional
strategic acquisitions or licensing arrangements; and
Risks associated with acquisitions, including the ability to integrate acquired businesses.
F-2
F-3
F-4
F-5
F-6
F-8
United Therapeutics Corporation:
February 28, 2003
(In thousands, except share and per share data)
December 31,
2002
2001
$
122,655
$
24,373
31,677
9,649
1,452
10
2,772
1,234
917
7,164
6,025
1,145
1,787
141,857
69,003
10,000
116,249
641
605
7,465
7,465
7,001
7,900
9,120
6,403
6,388
4,342
433
1,661
154
$
184,566
$
212,121
$
2,988
$
6,349
318
4,451
3,454
1,706
500
111
102
51
75
9,307
10,798
1,767
1,836
1,813
3,079
21
9
12,908
15,722
215
208
364,130
365,235
8
(185,821
)
(162,170
)
(6,874
)
(6,874
)
171,658
196,399
$
184,566
$
212,121
(In thousands, except share and per share data)
For Years Ended December 31,
2002
2001
2000
$
26,677
$
2,565
$
780
3,443
2,529
703
541
416
96
150
30,120
5,731
2,049
26,778
32,590
70,188
11,442
13,559
11,720
4,447
3,384
16
3,757
1,458
769
1,699
1,679
857
48,123
52,670
83,550
(18,003
)
(46,939
)
(81,501
)
4,954
10,021
10,693
(117
)
(173
)
(120
)
(209
)
(257
)
45
60
109
(2,893
)
(4,790
)
(7,428
)
(5,648
)
9,651
5,892
(23,651
)
(37,288
)
(75,609
)
$
(23,651
)
$
(37,288
)
$
(75,609
)
$
(1.15
)
$
(1.84
)
$
(3.93
)
20,644,308
20,285,732
19,237,473
(In thousands, except share data)
Common Stock
Additional
Paid-in
Translation
Treasury
Accumulated
Shares
Amount
Capital
Adjustment
Stock
Deficit
Total
16,003,218
$
160
$
102,679
$
$
$
(49,273
)
$
53,566
3,800,000
38
209,007
209,045
294,635
3
15,669
15,672
257,142
2
11,860
11,862
21,978
1,730
1,730
(5,198
)
(148
)
(148
)
1,310
1,310
200,000
2
18,768
18,770
16,249
1,072
1,072
152,062
2
1,538
1,540
(4,072
)
(4,072
)
(75,609
)
(75,609
)
20,740,086
207
363,485
(4,072
)
(124,882
)
234,738
9,868
1
750
751
995
995
1,866
5
5
(2,802
)
(2,802
)
(37,288
)
(37,288
)
20,751,820
208
365,235
(6,874
)
(162,170
)
196,399
323
323
28,648
244
244
669,002
7
(1,672
)
(1,665
)
8
8
(23,651
)
(23,651
)
21,449,470
$
215
$
364,130
$
8
$
(6,874
)
$
(185,821
)
$
171,658
(In thousands)
Years Ended December 31,
2002
2001
2000
$
(23,651
)
$
(37,288
)
$
(75,609
)
2,022
2,821
914
27
25
68
280
18,770
323
996
2,382
16,864
2,893
4,790
477
284
221
1,113
694
(993
)
7,428
209
257
(8,267
)
(197
)
(398
)
2,763
(2,772
)
(1,867
)
(4,036
)
(2,115
)
(318
)
161
(509
)
(1,023
)
(595
)
242
(1,506
)
(38
)
(11
)
(433
)
(3,361
)
1,826
2,530
997
(1,069
)
1,908
(112
)
(361
)
(65
)
(13
)
(110
)
160
(22,258
)
(38,899
)
(31,115
)
(3,581
)
(687
)
(640
)
1
40
(500
)
(1,000
)
(3,060
)
(4,914
)
194
(8,131
)
(11,218
)
(152,520
)
(56,659
)
140,567
18,386
76,453
120,355
(134,781
)
7,157
209,045
(2,802
)
(4,072
)
159
245
6
1,540
(22
)
(17
)
(17
)
(38
)
(69
)
(42
)
185
(2,882
)
206,613
98,282
(176,562
)
182,655
24,373
200,935
18,280
$
122,655
$
24,373
$
200,935
(In thousands)
Years Ended December 31,
2002
2001
2000
$
$
$
1,730
$
$
$
15,672
$
$
$
11,863
$
$
117
$
$
129
$
155
$
119
December 31,
2002
2001
$
216
$
211
2,924
1,389
1,161
1,805
2,208
1,283
369
544
286
793
$
7,164
$
6,025
Building and improvements
39 years
Furniture, equipment and vehicle
3-15 years
Holter and event cardiac monitoring systems
5 years
Leasehold improvements
Life of the lease or asset, whichever is shorter
December 31,
2002
2001
$
647
$
421
4,544
2,722
2,356
2,096
4,065
2,531
11,612
7,770
(2,492
)
(1,367
)
$
9,120
$
6,403
December 31,
December 31,
2002
2001
$
273
$
273
2,802
2,802
5,864
5,864
8,939
8,939
(1,938
)
(1,039
)
$
7,001
$
7,900
Year ending
December 31,
$
833
449
449
449
402
Years ended December 31,
2002
2001
2000
$
(23,651
)
$
(37,288
)
$
(75,609
)
(18,082
)
(13,022
)
(42,476
)
$
(41,733
)
$
(50,310
)
$
(118,085
)
$
(1.15
)
$
(1.84
)
$
(3.93
)
$
(2.02
)
$
(2.48
)
$
(6.14
)
Year ending December 31,
$
620
$
2,420
$
7,970
$
9,820
$
9,400
Number of
Range of
Options Granted
Exercise Prices
44,334
$9.95 to $15.00
78,253
$8.97 to $16.94
50,299
$14.48 to $95.37
Number of
Range of
Options Granted
Exercise Prices
595,950
$9.20 to $16.70
495,454
$9.20 to $15.69
1,043,594
$14.48 to $116.38
Years ended December 31,
2002
2001
2000
Dividend yield
0 percent
0 percent
0 percent
Expected volatility
40.21-106.58 percent
71.25-112.47 percent
69.75-84.26 percent
Risk free interest rate
2.67-4.66 percent
3.53-4.95 percent
4.98-6.68 percent
Expected lives
1-5 years
5 years
5-7.5 years
2002
2001
2000
Weighted-
Weighted-
Weighted-
Average
Average
Average
Exercise
Exercise
Exercise
Shares
Price
Shares
Price
Shares
Price
3,083,246
$
29.98
3,156,356
$
36.58
1,412,724
$
16.87
1,189,555
14.46
624,930
12.73
2,049,594
48.15
(28,648
)
8.54
(1,866
)
3.00
(147,196
)
9.76
(211,282
)
18.35
(236,241
)
21.32
(158,766
)
35.64
18.35
(459,933
)
56.72
4,032,871
$
26.13
3,083,246
$
29.93
3,156,356
$
36.58
2,598,873
$
31.19
1,680,263
$
40.37
1,213,582
$
49.66
$
9.17
$
9.39
$
31.84
Options Outstanding
Options Exercisable
Weighted-
Weighted-
Weighted-
Average
Average
Average
Exercise
Remaining
Exercise
Exercise
Prices
Number
Contractual Life
Price
Number
Price
$
267,594
2.4
$
7.44
231,593
$
7.37
2,861,260
7.9
14.83
1,584,564
14.93
187,239
6.7
27.61
154,264
27.71
5,000
6.9
35.75
3,400
35.75
149,755
7.2
43.40
93,511
43.61
32,629
7.2
57.03
15,099
56.92
7,525
7.3
63.93
3,775
62.80
9,502
7.1
71.74
300
77.13
509,167
7.5
89.91
509,167
89.91
3,200
7.2
99.68
3,200
99.68
$
4,032,871
7.4
$
26.13
2,598,873
$
31.19
Years Ended December 31,
2002
2001
2000
$
(8,041
)
$
(12,678
)
$
(25,707
)
(1,249
)
(1,969
)
(3,992
)
9,865
23,722
32,598
(4,590
)
(7,124
)
(6,734
)
4,015
(1,951
)
3,835
$
$
$
December 31,
2002
2001
$
40,934
$
37,678
27,793
24,685
3,018
1,881
2,918
152
9,388
9,833
5,890
6,185
1,619
1,213
91,560
81,627
(123
)
(55
)
(123
)
(55
)
91,437
81,572
(91,437
)
(81,572
)
$
$
Notes
Capital
Payable
Leases
$
29
$
90
30
39
32
16
34
10
36
1,572
1,733
155
(10
)
(29
)
(82
)
$
1,704
$
63
Amortized
Gross
Gross
Fair
Cost
Unrealized Gains
Unrealized Losses
Values
$
3,610
$
44
$
$
3,654
7,431
104
7,535
135,355
(936
)
134,419
1,530
(5
)
1,525
$
147,926
$
148
$
(941
)
$
147,133
$
31,677
116,249
$
147,926
Year ending
December 31,
$
762
$
761
$
604
$
229
$
105
$
1,559
7,833
1,109
7,104
(1,705
)
$
15,900
$
883
7,776
1,577
9,760
$
19,996
December 31,
2002
2001
$
112
$
66
1,701
2,544
980
615
690
968
229
$
4,451
$
3,454
Consolidated
Pharmaceutical
Telemedicine
Totals
$
26,234
$
3,886
$
30,120
(20,690
)
(2,961
)
(23,651
)
4,943
11
4,954
111
6
117
529
1,493
2,022
7,428
7,428
209
209
4,367
4,367
3,384
197
3,581
$
173,462
$
11,104
$
184,566
Consolidated
Pharmaceutical
Telemedicine
Totals
$
2,981
$
2,750
$
5,731
(33,860
)
(3,428
)
(37,288
)
9,983
38
10,021
166
7
173
1,558
1,263
2,821
257
257
4,342
4,342
317
370
687
$
200,630
$
11,491
$
212,121
Consolidated
Pharmaceutical
Telemedicine
Totals
$
2,049
$
$
2,049
(65,761
)
(9,848
)
(75,609
)
10,692
1
10,693
120
120
913
1
914
4,790
4,790
25,874
9,760
35,634
4,349
4,349
8,732
9,353
18,085
$
239,451
$
11,194
$
250,645
Years Ended December 31,
2001
2000
$
(37,288
)
$
(75,609
)
1,078
496
$
(36,210
)
$
(75,113
)
$
(1.84
)
$
(3.93
)
0.05
0.03
$
(1.79
)
$
(3.90
)
Quarters Ending During 2002
December 31,
September 30,
June 30,
March 31,
2002
2002
2002
2002
Net sales
$
12,021
$
5,128
$
11,564
$
1,406
Gross profit
10,524
3,853
9,651
636
Net loss
(2,605
)
(12,188
)
(3,180
)
(5,678
)
Loss per share
basic and diluted
$
(0.12
)
$
(0.58
)
$
(0.16
)
$
(0.28
)
Quarters Ending During 2001
December 31,
September 30,
June 30,
March 31,
2001
2001
2001
2001
Net sales
$
1,619
$
1,263
$
1,271
$
1,482
Gross profit
872
403
546
677
Net loss
(7,427
)
(9,811
)
(10,647
)
(9,403
)
Loss per share
basic and diluted
$
(0.37
)
$
(0.48
)
$
(0.53
)
$
(0.46
)
United Therapeutics Corporation
Schedule II Valuation and Qualifying Accounts
Years Ended December 31, 2001, 2000, and 1999
(in thousands)
Allowance for Doubtful Accounts Receivable
Balance at
Additions
Beginning of
charged to
Balance at
Year
expenses
Deductions
End of Year
$
198
$
110
$
(40
)
$
268
$
98
$
136
$
(36
)
$
198
$
$
98
$
$
98
Reserve for Inventory Obsolescence
Balance at
Additions
Beginning of
charged to
Balance at
Year
expenses
Deductions
End of Year
$
$
421
$
$
421
$
$
$
$
$
$
$
$
32
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by Item 10 regarding nominees and directors appearing
under Election of Directors in United Therapeutics definitive proxy
statement for its 2003 annual shareholders meeting (the 2003 Proxy Statement)
is hereby incorporated herein by this reference. Information regarding
executive officers of United Therapeutics appears in Part I of this Form 10-K
under the heading Executive Officers.
Information appearing under Section 16(a) Beneficial Ownership Reporting
Compliance in the 2003 Proxy Statement is hereby incorporated herein by this
reference.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation required by Item 11 appears
under Management in the 2003 Proxy Statement and is hereby incorporated
herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information regarding beneficial ownership of United Therapeutics
capital stock required by Item 12 appears under Security Ownership of Certain
Beneficial Owners and Management in the 2003 Proxy Statement and is hereby
incorporated herein by this reference.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table presents information as of December 31, 2002 regarding
United Therapeutics securities authorized for issuance under equity
compensation plans:
United Therapeutics has one equity compensation plan approved by security
holders. In addition, United Therapeutics grants options to employees and
consultants outside of the plan approved by security holders (non-plan
options). Information regarding the security holder approved plan and the
non-plan options is contained in note 6 in the
Notes to the Consolidated
Financial Statements
in this Annual Report. United Therapeutics does not have
any warrants or rights that are outstanding or available for issuance as
defined in Regulation S-K 229.201(d). Securities issued pursuant to the
non-plan awards were made under standard agreements generally consistent with
the form of Exhibit 10.30 to this Form 10-K.
33
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning related party transactions required by Item 13
appears under Certain Relationships and Related Transactions in the 2003
Proxy Statement and is hereby incorporated herein by this reference.
ITEM 14. CONTROLS AND PROCEDURES
Based on their evaluation, as of a date within 90 days of the filing date
of this Form 10-K, United Therapeutics Chief Executive Officer and Chief
Financial Officer have concluded that United Therapeutics disclosure controls
and procedures (as defined in Rule 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934, as amended) are effective. There have been no
significant changes in internal controls or in other factors that could
significantly affect these internal controls subsequent to the date of this
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
34
Number of securities remaining
available for future issuance
Number of securities to
Weighted average
under equity compensation plans
be issued upon exercise
exercise price of
(excluding securities reflected in
of outstanding options
outstanding options
column (a))
Plan category
(a)
(b)
(c)
2,805,628
$
30.40
10,843,048
1,437,212
$
17.30
none
4,242,840
$
25.96
10,843,048
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
35
36
(b) Reports on Form 8-K
On September 4, 2002, the Registrant filed a Form 8-K dated September 4,
2002 reporting an Item 5 event and attaching a press release related thereto.
On September 24, 2002, the Registrant filed a Form 8-K dated September 20,
2002 reporting Item 5 events and attaching a press release related thereto.
On October 24, 2002, the Registrant filed a Form 8-K dated October 24,
2002 reporting an Item 5 event and attaching a press release related thereto.
37
(i)
Consolidated Balance Sheets as of December 31, 2002 and 2001.
(ii)
Consolidated Statements of Operations for the three years ended
December 31, 2002.
(iii)
Consolidated Statements of Stockholders Equity for the three years
ended December 31, 2002.
(iv)
Consolidated Statements of Cash Flows for the three years ended
December 31, 2002.
(v)
Notes to Consolidated Financial Statements.
Exhibits filed as a part of this Form 10-K:
Exhibit No.
Description
3.1
Amended and Restated Certificate of Incorporation of the
Registrant, incorporated by reference to Exhibit 3.1 of the
Registrants Registration Statement on Form S-1 (Registration No.
333-76409).
3.2
Amended and Restated Bylaws of the Registrant, incorporated by
reference to Exhibit 3.2 of the Registrants Registration
Statement on Form S-1 (Registration No. 333-76409).
4.1
Reference is made to Exhibits 3.1 and 3.2.
4.2
Registration Rights Agreement, dated as of October 30, 1998, by
and among the Registrant, Merrill Lynch KECALP L.P. 1997, and
Merrill Lynch KECALP International L.P. 1997, incorporated by
reference to Exhibit 4.2 of the Registrants Registration
Statement on Form S-1 (Registration No. 333-76409).
4.3
Form of Common Stock Purchase Agreement, executed as of March
1998, by and between the Registrant and each of Community
Investment Partners III L.P., LLLP, Mary Ellen and Raul Evelio
Perez, Trustees of the Mary Ellen Perez revocable trust dated
October 28, 1993, Edward D. Jones & Co., Oakwood Investors I,
L.L.C. and James L. Nouss, Jr., incorporated by reference to
Exhibit 4.3 of the Registrants Registration Statement on form S-1
(Registration No. 333-76409).
4.4
Warrant to purchase shares of United Therapeutics common stock,
issued on November 2, 1998 to Cortech, Inc., incorporated by
reference to Exhibit 4.4 of the Registrants Registration
Statement on form S-1 (Registration No. 333-76409).
4.5
Stock Option Grant to purchase shares of United Therapeutics
common stock, issued on September 16, 1998, to Toray Industries,
Inc., incorporated by reference to Exhibit 4.5 of the Registrants
Registration Statement on form S-1 (Registration No. 333-76409).
4.6
Registration Rights Agreement, dated as of October 7, 1999, by and
among the Registrant and Robert M. Moriarty, Ph.D., Raju Penmasta,
Ph.D., Liang Guo, Ph.D., George W. Davis, Esq. and David Moriarty,
incorporated by reference to Exhibit 10.2 of the Registrants Form
10-Q for the period ended September 30, 1999.
4.7
Form of Purchase Agreement dated as of December 22, 1999,
incorporated by reference to Exhibit 4.6 of the Registrants
Registration Statement on form S-1 (Registration No. 333-93853).
4.8
Registration Rights Agreement, dated as of June 27, 2000 by and
between the Registrant and Toray Industries, Inc., incorporated by
reference to Exhibit 4.7 of the Registrants Registration
Statement on Form S-3 (Registration No. 333-40598).
4.9
Stock Option Grant issued on June 27, 2000 to Toray Industries,
Inc., incorporated by reference to Exhibit 4.8 of the Registrants
Registration Statement on Form S-3 (Registration No. 333-40598).
4.10
Form of Stock Purchase Agreement dated July 13, 2000 incorporated
by reference to Exhibit 99.2 of the Registrants Current Report on
Form 8-K filed July 14, 2000.
4.11
Registration Rights Agreement, dated as of December 15, 2000 by
and between the Registrant and Cooke Pharma, Inc., incorporated by
reference to Exhibit 2.2 of the Registrants Form 8-K/A dated
December 15, 2000.
4.12
Escrow Agreement, dated as of December 15, 2000 among Registrant,
UP Subsidiary Corporation, Cooke Pharma, Inc., and Mahon, Patusky,
Rothblatt & Fisher, Chartered, as escrow agent, incorporated by
reference to Exhibit 2.3 of the Registrants Form 8-K/A dated
December 15, 2000.
Exhibit No.
Description
4.13
Registration Rights Agreement, dated as of December 28, 2000 by
and between the Registrant and Medicomp, Inc., incorporated by
reference to Exhibit 2.2 of the Registrants Form 8-K/A dated
December 28, 2000.
4.14
Escrow Agreement, dated as of December 28, 2000 among Registrant,
UTSC Sub Acquisition, Inc., Medicomp, Inc., Mahon, Patusky,
Rothblatt & Fisher, Chartered, as escrow agent, and Chicago Title,
as successor escrow agent, incorporated by reference to Exhibit
2.3 of the Registrants Form 8-K/A dated December 28, 2000.
4.15
Rights Agreement, dated as of December 17, 2000 between Registrant
and The Bank of New York, as Rights Agent, incorporated by
reference to Exhibit 4 of Registrants Form 8-K dated December 17,
2000.
10.1**
Amended and Restated Equity Incentive Plan, incorporated by
reference to Exhibit 10.1 of the Registrants Registration
Statement on Form S-1 (Registration No. 333-76409).
10.2
Form of Scientific Advisor Compensation Agreement, incorporated by
reference to Exhibit 10.2 of the Registrants Registration
Statement on Form S-1 (Registration No. 333-76409).
10.3**
Executive Employment Agreement (as amended) dated as of April 2,
1999, between the Registrant and Martine A. Rothblatt,
incorporated by reference to Exhibit 10.3 of the Registrants
Registration Statement on Form S-1 (Registration No. 333-76409).
10.4**
Amendment dated December 21, 2000 to the Employment Agreement
between the Registrant and Martine A. Rothblatt, which appears as
Exhibit 10.5 to Registrants Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 2002, which exhibit is incorporated
herein by reference.
10.5**
Employment Agreement dated June 16, 2001 between the Registrant
and Paul A. Mahon, which appears as Exhibit 10.4 to Registrants
Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 2002, which exhibit is incorporated herein by reference.
10.6**
Employment Agreement dated December 29, 2000 between the
Registrant and Ricardo A. Balda, which appears as Exhibit 10.2 to
Registrants Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 2002, which exhibit is incorporated herein by
reference.
10.7
First Flight Venture Lease Agreement dated July 1, 1997, between
North Carolina Technological Development Authority, Inc. and the
Registrant, incorporated by reference to Exhibit 10.2 of the
Registrants Registration Statement on Form S-1 (Registration No.
333-76409).
10.8*
Exclusive License Agreement dated as of December 3, 1996, between
the Registrant and an affiliate of Pharmacia & Upjohn Company,
incorporated by reference to Exhibit 10.8 of the Registrants
Registration Statement on Form S-1 (Registration No. 333-76409).
10.9*
Assignment Agreement dated as of January 31, 1997, between the
Registrant and affiliates of Glaxo Wellcome Inc., incorporated by
reference to Exhibit 10.9 of the Registrants Registration
Statement on Form S-1 (Registration No. 333-76409).
10.10*
Cooperation and Strategic Alliance Agreement dated as of September
3, 1997, between Registrant and MiniMed Inc., incorporated by
reference to Exhibit 10.10 of the Registrants Registration
Statement on Form S-1 (Registration No. 333-76409).
10.11*
Exclusive License Agreement dated as of September 24, 1998,
between the Registrant and Toray Industries, Inc., incorporated by
reference to Exhibit 10.11 of the Registrants Registration
Statement on Form S-1 (Registration No. 333-76409).
10.12**
Employment Agreement dated January 3, 2000 between the Registrant
and Fred T. Hadeed, which appears as Exhibit 10.6 to Registrants
Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 2002, which exhibit is incorporated herein by reference.
10.13**
Amendment dated August 16, 2001 to the Employment Agreement
between the Registrant and Fred T. Hadeed, which appears as
Exhibit 10.7 to Registrants Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 2002, which exhibit is incorporated
herein by reference.
10.14*
Exclusive License Agreement dated as of March 15, 1999, between
the Registrant and Toray Industries, Inc., incorporated by
reference to Exhibit 10.14 of the Registrants Registration
Statement on Form S-1 (Registration No. 333-76409).
10.15**
Employment Agreement dated November 29, 2000 between the
Registrant and Roger Jeffs, which appears as Exhibit 10.9 to
Registrants Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 2002, which exhibit is incorporated herein by
reference.
10.16
Agreement and Plan of Merger dated as of October 7, 1999, among
the Registrant, SQ Acquisition, Inc., Robert M. Moriarty, Ph.D.,
Raju Penmasta, Ph.D., Liang Guo, Ph.D., George W. Davis, Esq.,
David Moriarty and SynQuest, Inc., incorporated by reference to
Exhibit 10.1 of the Registrants Quarterly Report on Form 10-Q for
the period ended September 30, 1999.
10.17
Lease dated as of March 1, 1999, between the Unither Telemedicine
Services Corp. and Beacon Projects, Inc., incorporated by
reference to Exhibit 10.17 of the Registrants Registration
Statement on Form S-1 (Registration No. 333-76409).
Exhibit No.
Description
10.18
UAI Technology, Inc. Office Lease dated as of July 1, 1998,
between the Registrant and UAI Technology, Inc., incorporated by
reference to Exhibit 10.18 of the Registrants Registration
Statement on Form S-1 (Registration No. 333-76409).
10.19
Form of Indemnification Agreement between the Registrant and each
of its Directors, incorporated by reference to Exhibit 10.19 of
the Registrants Registration Statement on Form S-1 (Registration
No. 333-76409).
10.20
Guidelines to Govern the Strategic Activities, Co-Development and
Related Activities of the Parties dated as of November 1, 1999,
between the Registrant and MiniMed, Inc., incorporated by
reference to Exhibit 10.20 of the Registrants Amended
Registration Statement on Form S-1/A (Registration No.
333-93853).*
10.21
Short Form Commercial and Apartment House Real Estate Purchase
Agreement, accepted as of August 4, 1999 between the Registrant
and 1106 Spring Street Associates, incorporated by reference to
Exhibit 10.21 of the Registrants Form 10-K for the year ended
December 31, 2000.
10.22
Exclusive License Agreement dated as of June 23, 2000 between the
Registrant and Toray Industries, Inc., incorporated by reference
to Exhibit 10.1 of the Registrants Registration Statement on Form
S-3 (Registration No. 333-40598).
10.23
Asset Purchase Agreement dated as of December 28, 2000 among the
Registrant, UTSC Sub Acquisition, Inc., Medicomp, Inc., and
Telemedical Procedures, LLC, incorporated by reference to Exhibit
2.1 of the Registrants Form 8-K/A dated December 28, 2000.
10.24
Asset Purchase Agreement dated as of December 15, 2000 among the
Registrant, UP Subsidiary Corporation, and Cooke Pharma, Inc.,
incorporated by reference to Exhibit 2.1 of the Registrants Form
8-K/A dated December 15, 2000.
10.25
Amendment No. 1 to Exclusive License Agreement, effective as of
December 3, 1996, made as of October 1, 2002 by and between
Pharmacia & Upjohn Company and the Registrant, which appears as
Exhibit 10.25 to Registrants Quarterly Report on Form 10-Q for
the fiscal quarter ended September 30, 2002, which exhibit is
incorporated herein by reference.
10.26
Technical Services Agreement dated August 27, 2002 between the
Registrant and Kurzweil Technologies, Inc., which appears as
Exhibit 10.26 to Registrants Quarterly Report on Form 10-Q for
the fiscal quarter ended September 30, 2002, which exhibit is
incorporated herein by reference.
10.27**
Promissory note dated May 8, 2002 between the Registrant and Roger
Jeffs, which appears as Exhibit 10.10 to Registrants Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31, 2002,
which exhibit is incorporated herein by reference.
10.28**
Security Agreement dated May 8, 2002 between the Registrant and
Roger Jeffs, which appears as Exhibit 10.11 to Registrants
Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 2002, which exhibit is incorporated herein by reference.
10.29***
Exclusive License Agreement dated April 17, 2002 between AltaRex
Corp. and Unither Pharmaceuticals, a subsidiary of the Registrant,
which appears as Exhibit 10.12 to Registrants Quarterly Report on
Form 10-Q for the fiscal quarter ended June 30, 2002, which
exhibit is incorporated herein by reference.
10.30
Standard Non-plan Option Award Agreement used by Registrant.
10.31
Amendment to Employment Agreement dated December 11, 2002 between
the Registrant and Roger Jeffs
10.32
Amendment to Employment Agreement dated December 11, 2002 between
the Registrant and Fred Hadeed
10.33
Amendment to Employment Agreement dated December 11, 2002 between
the Registrant and Paul Mahon
21
Subsidiaries of the Registrant.
23.1
Consent of KPMG LLP.
*
Confidential treatment has been granted with respect to certain portions of
this exhibit
pursuant to Rule 406 of the Securities Act of 1933, as amended.
**
Designates management contracts and compensation plans.
***
Confidential treatment has been
granted with respect to certain portions of this exhibit pursuant to
Rule 24b-2 of the Securities Exchange Act of 1934.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereto duly authorized.
March 19, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
38
UNITED THERAPEUTICS CORPORATION
By:
/s/ MARTINE A. ROTHBLATT
Martine A. Rothblatt, Ph.D.
Chairman of the Board and Chief Executive
Officer
Signatures
Title
Date
/s/ MARTINE A. ROTHBLATT
Martine A. Rothblatt
Chairman of the Board and
Chief Executive Officer
March 19, 2003
/s/ ROGER A. JEFFS
Roger A. Jeffs
President and Chief
Operating Officer
March 19, 2003
/s/ FRED T. HADEED
Fred T. Hadeed
Chief Financial Officer
March 19, 2003
/s/ RICARDO BALDA
Ricardo Balda
Chief Executive Officer,
Medicomp, Inc. and
Director
March 19, 2003
/s/ RAYMOND DWEK
Raymond Dwek
Director
March 19, 2003
/s/ R. PAUL GRAY
R. Paul Gray
Director
March 19, 2003
/s/ H. BEECHER HICKS, III
H. Beecher Hicks, III
Director
March 19, 2003
/s/ RAYMOND KURZWEIL
Raymond Kurzweil
Director
March 19, 2003
/s/ MICHAEL C. MILES
Michael Miles
Director
March 19, 2003
/s/ CHRISTOPHER PATUSKY
Christopher Patusky
Director
March 19, 2003
/s/ LOUIS W. SULLIVAN
Louis W. Sullivan
Director
March 19, 2003
CERTIFICATION
I, Martine A. Rothblatt, certify that:
Date: March 19, 2003
39
1.
I have reviewed this annual report on Form 10-K of United Therapeutics
Corporation;
2.
Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3.
Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;
4.
The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a)
designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b)
evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the Evaluation Date); and
c)
presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5.
The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):
a)
all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have identified
for the registrants auditors any material weaknesses in internal
controls; and
b)
any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and
6.
The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ Martine A. Rothblatt
By: Martine A. Rothblatt, Ph.D.
Title: Chief Executive Officer
CERTIFICATION
I, Fred T. Hadeed, certify that:
Date: March 19, 2003
1.
I have reviewed this annual report on Form 10-K of United Therapeutics
Corporation;
2.
Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3.
Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;
4.
The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a)
designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b)
evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the Evaluation Date); and
c)
presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5.
The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):
a)
all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have identified
for the registrants auditors any material weaknesses in internal
controls; and
b)
any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and
6.
The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ Fred T. Hadeed
By: Fred T. Hadeed
Title: Chief Financial Officer
40
Exhibit 10.39
Standard Non-plan Option Award Agreement
THIS OPTION, AND ANY SECURITIES WHICH MAY BE ACQUIRED UPON THE EXERCISE OF THIS OPTION, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, HYPOTHECATED OR OTHERWISE TRANSFERRED OR DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION, UNLESS AN EXEMPTION FROM THE REQUIREMENT OF SUCH REGISTRATION IS THEN AVAILABLE (AND, IF REASONABLY REQUESTED BY THE COMPANY, DEMONSTRATED BY AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY).
OPTION TO PURCHASE
(NUMBER) SHARES OF COMMON STOCK
PAR VALUE $0.01 PER SHARE
OF UNITED THERAPEUTICS CORPORATION
For value received, «Title» «First Name» «Last Name», an individual residing in «State» (the Optionee), is entitled to subscribe for and purchase from United Therapeutics Corporation, a Delaware corporation (the Company), from (DATE) (the Option Award Date), «Stock_Options» shares (the Shares) of the Companys common stock, par value $0.01 per share (Common Stock), at a price equal to the closing price of the Common Stock on the NASDAQ market of «Dollar_Value» per share (the Exercise Price). The Shares issuable pursuant to this Option are subject to the vesting schedule set forth below. The Optionees right to purchase Shares pursuant to this Option shall terminate ten years from the Option Award Date.
This Option is subject to the following additional provisions, terms and conditions:
1. Vesting . This Option shall be fully vested in the Optionee on the «Vesting Dates» so long as Optionee remains fully employed with United Therapeutics or its subsidiaries.
The Option shall be an inducement option granted outside any equity incentive plan adopted by the Company. The Option shall be fully exercisable once vested, but in any event must be exercised not later than ten years from the Option Award Date.
Notwithstanding the foregoing, the Option shall become fully vested and immediately exercisable in full upon the earlier to occur of (i) the closing date of the sale of all or substantially all of the Companys assets, or (ii) the execution of a definitive agreement of any merger in which the Company is a party but not the surviving corporation and the stockholders of the Company own, immediately after such merger, less than 50% of the equity securities of the surviving corporation.
2. Exercise of Option .
a. Manner of Exercise . This Option may be exercised by the Optionee, in whole or in part, with written notice of exercise to the Company in the form provided at Attachment A hereto at the principal office of the Company (which, for the purposes of this Option, shall be deemed to be the Companys address for notice purposes as provided in Section 8 below) accompanied by payment (in cash, certified check or bank draft payable to the order of the Company) of the Exercise Price multiplied by the number of Shares for which this Option is being exercised.
b. When Exercise Effective . Each exercise of this Option shall be deemed to have been effected on the date on which the Optionee provides the Company with the deliveries contemplated by Section 2(a) above.
c. Delivery of Stock Certificates . Unless the Company has registered the Shares underlying Optionees Option on a Form S-8 or otherwise, the certificates representing the Shares upon any exercise of this Option shall bear the restrictive legend set forth in Section 9 below and shall be delivered to the Optionee promptly following such exercise. A new Option exercisable for the number of Shares, if any, with respect to which this Option shall not have been exercised shall also be delivered to the Optionee.
3. Shares Issuable Upon Exercise .
a. Reserved . The Company covenants and agrees that, upon issuance pursuant to an exercise of this Option in accordance with its terms, the Shares shall be duly authorized and validly issued, fully paid and nonassessable. The Company will at all times reserve and keep available, solely for issuance and delivery upon the exercise of this Option, such number Shares as shall be issuable from time to time upon the exercise of this Option.
b. Restricted Securities . Optionee acknowledges that the Company is issuing this Option in reliance on the exemption from registration provided in Section 4(2) of the Securities Act. Optionee acknowledges that the Shares to be issued upon the exercise of this Option may be unregistered at the time of exercise and, in such event, Optionee agrees that the Shares be issued upon the exercise of this Option may only be offered, sold or transferred if registered under the Securities Act or pursuant to an exemption from the registration requirements thereunder. Optionee understands that absent registration of the Shares to be issued upon the exercise of this Option under the Securities Act, compliance with an applicable exemption under the Securities Act is required for a sale or other disposition of such shares. Optionee understands that, so long as the legend provided in Section 9 below may remain on the certificates representing the Shares to be issued upon the exercise of this Option, the Company may maintain appropriate stop transfer orders with respect to such shares on its books and records and with its registrar and transfer agent.
4. Adjustment . The Exercise Price and/or the number and type of securities issuable upon any exercise of this Option shall be subject to adjustment from time to time as provided in this Section 4.
a. If the Company at any time divides the outstanding shares of its Common Stock into a greater number of shares (whether pursuant to a stock split, stock dividend or otherwise) and conversely, if the outstanding shares of its Common Stock are combined into a smaller number of shares, the number of Shares available upon any exercise of this Option and the Exercise Price in effect immediately prior to such division or combination shall be proportionately adjusted to reflect the reduction or increase in outstanding shares.
b. If any capital reorganization or reclassification of the capital stock of the Company, or consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected in such a way that holders of shares of Common Stock shall be entitled to receive stock, other securities or assets with respect to or in exchange for such shares of Common Stock, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, the holder of this Option shall have the right to purchase and receive upon the basis and upon the terms and conditions specified in this Option and in lieu of the Shares immediately theretofore purchasable upon the exercise of this Option, such shares of stock, other securities or assets as would have been issued or delivered to the Optionee if the Optionee had exercised this Option and had received such Shares prior to such reorganization, reclassification, consolidation, merger or sale. The Company shall not effect any such consolidation or merger unless, prior to the consummation thereof, the successor corporation (if other than the Company) resulting from such consolidation or merger shall assume by written instrument executed and mailed to the Optionee (i) the obligation to deliver to the Optionee such shares of stock, other securities or assets as, in accordance with the foregoing provisions, the Optionee may be entitled and (ii) the other obligations of the Company set forth in this Option.
c. Promptly following any adjustment under this Section 4, the Company shall give written notice thereof (by first class mail, postage prepaid) to the Optionee (at the Optionees address as shown on the books of the Company), which notice shall state the Exercise Price and number of Shares (or other securities or assets) resulting from such adjustment, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based.
5. No Rights as Stockholder; Notice . The Optionee shall not by virtue of this Option be entitled to any rights of a stockholder of the Company. However, the Company shall give notice to the Optionee if at any time prior to the expiration or exercise in full of this Option any of the following events shall occur:
(a) the Company shall declare any dividend or distribution with respect to its capital stock;
(b) a dissolution, liquidation or winding up of the Company shall be proposed; or
(c) a capital reorganization or reclassification of the capital stock of the Company, any consolidation or merger of the Company with or into another corporation, any transaction or series of transactions in which more than fifty percent (50%) of the voting securities of the Company are transferred to another person, or any sale or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety.
Such giving of notice shall be effected at least five (5) business days prior to the date fixed as a record date or the date of closing of the Companys stock transfer books for the determination of the stockholders entitled to such dividend or distribution, or for the determination of the stockholders entitled to vote on such proposed merger, consolidation, sale, conveyance, dissolution, liquidation or winding up. Such notice shall specify such record date or the closing date or the date of closing the stock transfer books, as the case may be.
6. Registered Owner . This Option is not transferable and the Company shall treat the Optionee as the owner for all purposes.
7. Loss, Theft, Destruction, or Mutilation . Upon receipt by the Company of satisfactory evidence of the loss, theft, destruction or mutilation of this Option and either (in the case of loss, theft or destruction) indemnification satisfactory to the Company or (in the case of mutilation) the surrender of this Option for cancellation, the Company will execute and deliver to the Optionee, without charge, an Option of like denomination.
8. Notices . Except as otherwise provided herein, any notice or demand desired or required to be given hereunder shall be in writing and given by personal delivery, certified or registered mail or air courier addressed as follows:
If to the Company: |
Martine Rothblatt
United Therapeutics Corporation 1110 Spring Street Silver Spring, Maryland 20910 |
If to Optionee: | «Title»«FIrstName»«LastName» | |
|
||
|
or to such other address as the party to receive the notice or request shall designate by notice to the other. Any notice or request shall be deemed given when received.
9. Legend . Unless the Company has registered the Shares on a Form S-8 or otherwise, the Company will cause each certificate representing Shares issued upon exercise of this Option to bear legend in substantially the following form:
The securities represented by this certificate have not been registered under the Securities Act of 1933 (the 1933 Act) or state securities laws and may not be sold or transferred without such registration or in compliance with an applicable exemption from such registration. |
10. Taxes . The Optionee shall be solely responsible for the payment all taxes that Optionee may incur in connection with the issuance, delivery or exercise of this Option (as well as the issuance or delivery of Shares upon any exercise of this Option).
11. Miscellaneous . Neither this Option nor any term hereof may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. The terms of this Option shall be binding upon the successors of the Company. The Section headings in this Option are for purposes of references only and shall not limit or otherwise affect the meaning hereof.
IN WITNESS WHEREOF, the Company has caused this Option to be signed and delivered by its duly authorized officer as of (DATE).
United Therapeutics Corporation
a Delaware corporation |
By:
Fred Hadeed, Chief Financial Officer |
AWARDEE
(Signature) (Printed Name/Address) |
Attachment A
UNITED THERAPEUTICS CORPORATION
OPTION EXERCISE
NON-PLAN
(To be signed only upon an exercise of the Option)
United Therapeutics Corporation
1110 Spring Street, Silver Spring, MD 20910
Attn: Compensation Committee c/o Therese Fergo, M.B.A., Staff Vice
President of Employee and Shareholder Relations
The undersigned hereby irrevocably elects to exercise the right of purchase represented by the Option Award Agreement dated for shares of Common Stock* (Option Shares) at $ /share, and to purchase thereunder by (CHECK ONE OF THE FOLLOWING AS APPLICABLE), (subject to approval by the General Counsel):
[ ] exercise and hold with payment by cash or check (enclosed herewith), or
[ ]
cashless exercise
[ ]
by the surrender of previously owned shares
[ ]
by broker sale cashless exercise
and, requests that a certificate for the Option Shares be issued to me at the below listed address:
Name Address |
Social Security No. |
Dated: , |
Signature: |
Name (please print) |
APPROVED BY GENERAL COUNSEL Dated:
* If the number of Option Shares shall not be all the Option Shares purchasable upon exercise of the Option represented by the Option Award Agreement, the balance of the Option Shares purchasable upon exercise of the Option shall be evidenced by a new Option Award Agreement between the Company and the undersigned indicated and delivered to the address stated above.
Exhibit 10.40
Amendment to Employment Agreement between Registrant and Roger Jeffs
AMENDMENT
THIS AMENDMENT is made as of the 11th day of December, 2002 to the Employment Agreement between Roger Jeffs, Ph.D. (Executive) and United Therapeutics Corporation dated November 29, 2000 (the Agreement).
WHEREAS, the parties desire to amend the Agreement as provided below.
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby amend the Agreement as follows:
1. Waiver of Guaranteed Annual Salary Increase . The first sentence of Section 4(a) of the Agreement is amended to delete the following language: , such annual base salary to be increased by a minimum of 10% on each anniversary of the term of Executives employment hereunder.
2. Effect . No other provisions of the Agreement shall be affected by this Amendment, and all other provisions of the Agreement shall remain in full force and effect.
In witness whereof, the parties have executed this Amendment effective as of the date first written above.
UNITED THERAPEUTICS CORPORATION |
|
|
Roger Jeffs, Ph.D. | Martine Rothblatt, CEO |
Exhibit 10.42
Amendment to Employment Agreement between Registrant and Fred Hadeed
AMENDMENT
THIS AMENDMENT is made as of the 11th day of December, 2002 to the Employment Agreement between Fred T. Hadeed (Executive) and United Therapeutics Corporation dated January 3, 2000 as amended (the Agreement).
WHEREAS, the parties desire to amend the Agreement as provided below.
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby amend the Agreement as follows:
1. Waiver of Guaranteed Annual Salary Increase . The first sentence of Section 5(a) of the Agreement is amended to delete the following language: , in an amount not less than ten percent of the then-current Base Salary.
2. Effect . No other provisions of the Agreement shall be affected by this Amendment, and all other provisions of the Agreement shall remain in full force and effect.
In witness whereof, the parties have executed this Amendment effective as of the date first written above.
UNITED THERAPEUTICS CORPORATION |
|
|
Fred T. Hadeed | Martine Rothblatt, CEO |
Exhibit 10.43
Amendment to Employment Agreement between Registrant and Paul Mahon
AMENDMENT
THIS AMENDMENT is made as of the 11th day of December, 2002 to the Employment Agreement between Paul A. Mahon (Executive) and United Therapeutics Corporation dated June 16, 2001 (the Agreement).
WHEREAS, the parties desire to amend the Agreement as provided below.
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby amend the Agreement as follows:
1. Anti-Moonlighting Provision . Notwithstanding any other provision of the Agreement to the contrary, the Executive agrees not to moonlight in any manner other than to perform such nominal work with the law firm of Mahon Patusky Rothblatt & Fisher, Chartered as is consistent with maintaining professional obligations with respect to the practice of law in the jurisdictions in which the Executive is licensed or may become licensed.
2. Effect . No other provisions of the Agreement shall be affected by this Amendment, and all other provisions of the Agreement shall remain in full force and effect.
In witness whereof, the parties have executed this Amendment effective as of the date first written above.
UNITED THERAPEUTICS CORPORATION |
|
|
Paul A. Mahon | Martine Rothblatt, CEO |
Exhibit-21
Subsidiaries of the Registrant
SUBSIDIARIES OF THE REGISTRANT
Lung Rx, Inc., a Delaware Corporation
Unither Telemedicine Services Corp., a Delaware Corporation
Unither Pharmaceuticals, Inc., a Delaware Corporation
United Therapeutics Europe, Ltd., a United Kingdom Company
Unither Pharma, Inc., a Delaware Corporation
Medicomp, Inc., a Delaware Corporation
Unither Nutriceuticals, Inc., a Delaware Corporation
Exhibit 23.1
Independent Auditors Report and Consent
The Board of Directors
The audits referred to in our report dated February 28, 2003, included the
related financial statement schedule for each of the years in the three-year
period ended December 31, 2002, included in this annual report on Form 10-K of
United Therapeutics Corporation. This financial statement schedule is the
responsibility of the Companys management. Our responsibility is to express an
opinion on this financial statement schedule based on our audits. In our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
We consent to the incorporation by reference in the registration statements
(No. 333-41866, No. 333-93853, No. 333-62616 and No. 333-99079) on Form S-3 and in the
registration statements (No. 333-95419 and No. 333-56922) on Form S-8 of United
Therapeutics Corporation of our reports dated February 28, 2003, with respect
to the consolidated balance sheets of United Therapeutics Corporation and
subsidiaries as of December 31, 2002 and 2001, and the related consolidated
statements of operations, stockholders equity, and cash flows for each of the
years in the three-year period ended December 31, 2002, and the related
financial statement schedule, which reports appear in the December 31, 2002
annual report on Form 10-K of United Therapeutics Corporation.
Our report on the consolidated financial statements refers to the Companys
adoption of Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets, effective January 1, 2002.
KPMG LLP
McLean, Virginia
United Therapeutics Corporation:
March 14, 2003